Contrarian Investing & Sir John Templeton w/ Scott Phillips (TIP594)

(00:00) if you want to have better performance in  the crowd you have to do things differently from   the crowd at some point you've got to break  with consensus and go into an asset that is   not working that's discounted continue to be  broken or neglected or unloved for you know a   long period of time and so that takes enormous  self-control and discipline to be sitting in a   portfolio that's working extremely well and then  see these you know these huge Bargains that no   one else agrees with that's why they're huge (00:29) bargains think you're crazy if you   go into them but he did I wanted to start this  discussion by talking about Sir John Templeton   for those in the audience who aren't aware Scott's  wife who he manages money with is Lauren Templeton   which is Sir John's great niece and Scott has  actually co-authored three books about Sir John   including investing the Templeton way and the  Templeton touch and in preparation for this   chat I also Revisited William Green's chapter  in his book richer wiser happier that was on  (01:05) Sir John it was chapter two it was chapter  two which was titled the willingness to be lonely   and the subtitle states that I wanted to share  here to beat the market you must be brave enough   independent enough and strange enough to stray  from the crowd and William described Templeton   as probably the greatest International investor  of the 20th century so I'm super excited to dive   more into this and dive into some of Scott's  knowledge and knowing Sir John and in the book   uh William also talks about how humans they (01:38) have this natural tendency to stick   with the crowd you know selling stocks when  people are panicking and buying stocks when   there's that hype and Euphoria and I  just think of to my own experience how   much easier it feels to want to buy the  stock that's recently gone up and then   be a little bit more cautious with the stock  that's gone down so Scott let's start it off   by uh asking you what what do you think helped  Sir John Templeton overcome this temptation of   you know going with the crowd and you know his (02:08) willingness to stray away from it and   go and Blaze his own path sure uh clay great  question with um lots of potential facets to   explore here I think that you know a big piece  of it just goes back to his upbringing um his   parents were both extremely interesting people  great role model so his father was the town   lawyer uh but he was kind of a he was referred  to as a super entrepreneur so very sharp and   ambitious uh in addition to being a lawyer uh  he had cotton gens he had rental properties he   sold insurance he was just very ambitious (02:53) high energy and focused on making   money and then his mother by contrast was uh  extremely well educated for a woman you know   at the turnning the night uh 20th century  the early 1900s she was college educated   she studied greek latin and Mathematics uh she  didn't marry until she was older she too was   very enterprising but in different ways she was  very altruistic um she supported local charities   and uh so he kind of had these two people in his  life that I think instructed him at a behavioral   level but they did not provide any verbal (03:38) instruction to him to the extent   that you know most parents today tightly manage  their kids uh what they want their kids to think   what they want them to do what their goals  should be Sir John and his older brother uh   Harvey Jr which is Lawrence's grandfather had  really no Direction they were kind of turned   loose but they had these key role models in  their lives and so they're really just kind   of kind of left with their own devices anything  they learned they had to go learn themselves   so Sir John always remarked that if he asked (04:06) his mother a question about something   she wouldn't provide a direct answer but a week  or so later there would be a book left out on   the coffee table so he was he and his brother  were extremely uh independent autodidact they   taught themselves all kinds of different things  because they had to so they saw these kind of uh   superlative role models who were successful in  the things they were doing but they had to go   figure it out for themselves um and I think  that kind of Paradigm that uh way of going   about things was a huge influence on him as a (04:41) human being and the other thing was   you know they lived in the country it was a  rural setting so it wasn't like a city where   you would observe convention and compare  yourself and say well we don't do it that   way or make comparisons and learn through all  these kind of social proofing and so social   conventions they just thought for themselves  and did what they wanted to do for the most   part they made a lot of mistakes along the  way but just to give you an an example of   how extreme this was I mean Sir John asked (05:10) for a shotgun when he was eight I   think his mom resisted until he was 10 but he  still got one and she just thought that it was   in God's hands I mean that was her philosophy  that like he would cure it out you would be   saved it would work out and uh so he kind  of had this internal mechanism this drive   to learn and to think independently without  anyone ever really correcting it and uh it's   fascinating because it really manifested itself  in really just uh Excellence a number of different   levels as a child he was a star student he was (05:46) a great athlete uh he was well liked   um but then moving alongside that there were  cultural influences too so the the big thing   was you know at this time in America there was  a lot going on in terms of um self-reliance uh   living the American dream you are your  thoughts um the greatest importance in   Winchester Tennessee at that time was your  character who you were as a person my word   is my bond so that was your your worth and and so  that was also tied to you know your religion and   and church and so there was kind of this you know (06:29) High uh calling or higher presence that   was supporting all of that this kind of upward  pull so he was know just to review he was very   independent he thought for himself he didn't  really care much about what other people thought   about his actions he thought they were right and  that that's the other piece that I should mention   he had a lot of self-confidence not arrogance but  great self-confidence he believed that what he was   doing was correct and uh by the time he you know  got to Yale and went into business that was his  (07:04) mindset so that that's the those are  the pieces that really kind of informed him as   an investor later but also the the last piece that  I'll mention is alongside those you know cultural   underpinnings the positive thinking like I said  the Norman Vincent Peele the Ralph Waldo Emerson   the self-reliance all of that individualism  which is a huge part of American culture and   thinking at the time that gave him this huge  sense of purpose in living a deliberate life   and serving others that was his ethos and that's (07:39) what he wanted to do and he took that   extremely seriously and organized his life  around those facets that was the driving   force and so for him you know to be successful  and to help others with their wealth it was who   he was that's who he saw himself that's what  he thought his talents were oriented towards   that that's what he saw his purpose was on  Earth I mean it it was just like really heavy   stuff so he was just all in completely dedicated  being successful as a money manager and it was   the independent thinking and seeing how (08:14) that worked in the markets that   eventually culminated in a great track record  over time because he was always just thinking   for himself and going the other way when most  people were doing the popular thing yeah prior   to this chat I was just thinking about what was  it about Sir John that you know really you know   led to this amazing career that he had and one  of the themes I think that you mentioned there   was just his immense work ethic you know he  had this uh underlying purpose that he sort   of found through his upbringing and the direction (08:49) his family gave him as you mentioned and   you know to achieve extraordinary levels of  success in the investment industry you really   have to have that sort of work ethic he had  and I remember you telling the story of um he   was just always looking for the next bargain  you know always searching in various markets   and where things were beaten up most I wanted  to turn to when he uh started college he went   to Yale in 1930 and I think part of that  work ethic he developed it it kind of came   for good reasons this was the very start of the (09:25) Great Depression and I'm reminded the   of the book I read that cover uh talked about  the investment career of Benjamin Graham and he   just had a treacherous time investing through the  Great Depression and it's a reminder of just how   difficult of a period this was for everybody and  you've stated that Sir John he was really shaped   by these big events such as the Great Depression  so what do you think uh the Great Depression   taught him other than this you know probably  this work ethic that he developed early on in his  (09:57) life oh there were a number of L s that  came out of those events I think first of all um   kind of going back to 1930 1931 you we always  Shar this story about how you know just prior   to sophomore years father W him aside said I  can't even spend one more dollar toward your   education you know I can't support you and  so he was fortunate that he had an uncle uh   who was willing to fund him returning to  Yale but he got back to Yale sophore year   he was on his own um and so what he did um  was he decided that he was going to make it  (10:40) work and he worked harder in school he  got better grades he obtain scholarships until   he you know was able to get those scholarships  he was working part-time and that between the   part-time work and the um the scholarships that  covered about 3/4 of what he needed to pay his   tuition and room board through support himself in  the last quarter he made through playing poker um   with his classmates and so you know that was kind  of the this you know legendary you know view of of   what his mind was like and what he could do you (11:17) know in terms of um working with numbers   and probability and reading emotions across  the table um but what it really did you know   taking a step back did really two important  things came out of that first and he said   this he learned that I learned that it was it  seemed like this huge tragedy at the time when   my father couldn't support me anymore but it was  the best possible thing that could have happened   because if that did not happen it would not have  worked as hard I would have not have gotten to   the top of my class and I would not have (11:52) obtained a road scholarship to go   to Oxford and then the other piece was because  you know his father was very successful he was   also um more volatile like he had ups and downs in  his money-making you know adventures and he wasn't   necessarily a saver and so both Sir John and  um and his brother uh Lauren's grandfather they   were deeply affected by that they both became  intensely Frugal and Thrifty and so I think   between the experience of wanting finan stability  by watching their father's ups and downs but then  (12:32) also watching what was going on in the  depression both were big Savers and so when Sir   John you know went through the depression whether  it was you know Yale or when he was beginning his   clear on Wall Street he knew that he wanted to  be this you know uh figure that could generate   wealth for people but he also knew that he  needed the same you know exemplary habit   within himself and so it was a huge piece  of who he was and it was authentic all the   way through and you saw that in a lot of people  that you know were affected or lived through the  (13:10) depression they just have completely  different attitudes towards uh scarcity   wastefulness saving Sir John saved 50% of  everything he made uh and he didn't have   to do that I mean even like you know when  Lauren and I were working with he was still   just extremely Frugal and didn't waste anything  he uh you know Lauren and I both recall after   the uh Asian financial crisis uh he had bought  Kia Motors and he had invested in the Matthews   fund as well with the Matthews Korea fund  and just made a a large sum off of those  (13:49) Investments and still refused even at the  proding of assistant assistant to go buy a Kia   automobile he said they were too expensive finally  she kind of tricked into doing it but that was   always his attitude and that was baked into who  he was so those experiences from the depression   you know informed all of his behaviors going  forward so they were profound so both finding the   positive within the negative and then kind of the  financial practices of being a saver and preparing   for New Opportunities and not wasting anything (14:22) there was a great story of him even you   know prior to selling the Templeton funds uh  where I think it was Marty Flanigan told this   in timbl and touch maybe it was in another  conversation but he said he walked into the   office one Saturday and he just kept hearing  this bam bam this banging on the table and he   was looking around he couldn't figure out what  it was and he walked in Sir John's office where   it was coming from and Sir John had gathered  up unused scraps of paper and was stapling   them into a new legal pad he wouldn't waste (14:56) anything and so it was he was one of   those people who just LED it to the fullest  he was completely authentic what you saw is   what you got so it's impressive for sure you  made a really good point that really struck   me there it was you know talking about how Frugal  he was uh living through the Great Depression and   I recall in you know just reading more about  him even when he became like extraordinarily   wealthy he sort of still had that attitude of  you know you go out and spend all these on all   these frivolous things just because you can (15:33) and uh you know he ties that into   his faith and uh you know the underlying purpose  that you talked about too and you have children   of your own and you're s sort of seeing Sir  John and living in many ways the way he lived   I was curious if you find it to be a challenge  nowadays in today's world I think about how   post great financial crisis the Federal Reserve  really stepped in and you know provided sort of   a back stop to to financial markets that  they really didn't have during that time   period of the Great Depression they kind of let (16:04) you know free markets play their role   and then I also think about how you know or the  the Amazon economy we can always just hop on our   phones and just buy the easy 20 $30 item and it's  just so easy to just you know buy uh things we we   might not need but are just super convenient so  do you find that to be a challenge to live out   through your own life and then teaching your  kids those values as well yeah of course um   you know that I mean the things you just describe  are foreign even to my childhood I mean we didn't  (16:37) have these levels of instant gratification  and you know it it is challenging but I think you   know the most important thing is giving them the  independence to take risks and knowing the value   of character and understanding the value of  a dollar and where it comes from and what it   took to earn it you have to you just have to make  those connections uh forcible and uh it takes a   lot of work because a lot of you know the things  going on our conveniences uh ly in the face of   that um especially you know if they're on (17:17) social media and looking at the   messaging and just constantly being sold  things I mean these kids everything is an   advertising every thing is uh you know geared  to get their attention to distract them so   make them focus on something that you know it's  probably not the best use of their time they're   not learning anything and so the big thing  I think that we've done as parents uh you   know summer camp is a huge one uh both girls  have gone you know to summer camp since they   were probably eight years old for five weeks (17:57) and when you get there the phones go   away they have no access to that and so you  have to do it kind of takes them back to what   childhood was like for the rest of us pre-  internet which was if you needed something to   do well guess what you had to figure it out  like you had to think and take risk and and   make choices no one's going to sit there and  spoon feed you your entire day and helicopter   over you and make sure that all these outcomes  are are are being generated and it it really   has enhanced I think their willingness to try new (18:31) things their ability to interact socially   they value I think conversations more whereas  you know you encounter a lot of young people   today and everything is driven by the f I  remember um I think it was a few Halloweens   ago my oldest daughter had a bunch of friends  come over after they were trick-or-treating   and here were 10 girls all in a room together  you would think you would hear all this you   know cackling and talking well they're all  quiet in in our living room on their phones   none of them were talking together they're all on (19:05) their phones it's the strangest thing and   so I think you know from a parent standpoint you  have to find ways to offset that behavior because   it's it's not it's not productive it's not uh  it's not of the growth mindset which it's not   going to help you I think in a long time so yeah  it's it's hard that's what I'll say it's very hard   today no question about it so it was in 1938 it  was about a decade into the Great Depression Sir   John he first got into the investment industry (19:40) and that's when markets were at their   most Bleak period in US history the Great  Depression lasted around a decade and it   was the following year he made the Bold bet of  buying 104 of the most beaten down companies in   the US and then once markets ended up rebounding  in 1942 he ended up selling those positions making   5x's money and earning a positive return on 100  out of 104 companies and it's just so funny uh   rethinking uh that chapter in in Williams book  The he called the broker and told them to buy  (20:17) you know these 104 names and they're  you know kind of confused why the heck's this   guy buying like you know half these companies  are bankrupt we're not going to be buying those   for you but he said no no no no go ahead and and  just place that order and that story really stuck   with me and you know just the sheer independent  thinking and you know recognizing eventually   things are going to turn you know when it feels  like of course a decade into it feels like it's   never gonna recover so in knowing Sir (20:44) John and when you look back at   his investment career and studying it are  there any other stories that have really   stuck with you uh that maybe you could share  with the audience or just other lessons that   um that really shine through in his career  yeah I think even just kind of taking a look   at unpacking some of that that initial trade in  World War II is informative I mean first of all   he had the conviction to do something that  most people thought was crazy but he' also   it was a very well-designed and thoroughly (21:17) researched idea like there was a lot   of purpose behind every step in that transaction  um first of all he had the asymmet asymmetry he   wanted as a value investor he thought well  if I lose $100 on this it'll be offset by   another position that'll go up you know 10x  but then also he had gone back and studied   that the right thing to do from a bottomup  standpoint was to buy the most distressed   businesses because in previous wartime periods  the US government had taxed away excess profits   from healthy companies so we knew that (21:54) the loss making companies rising   up to kind of a normal operating level when not  have their excess profits taxed away which would   have been the case in healthy companies so it  was one of those instances where it made the   most sense to go into the worst of the worst  the junk not the high quality businesses um   so that's very contrarian in and of itself  especially when you talk to investors today   most investors almost all investors are focused  on quality but then also um you know he had this   long-term View and this willingness to hold on (22:26) throughout all the bad news that continue   to proliferate which you know the thing with um  you know that investment and many of the ones   afterwards uh you see similar patterns that  work now I think what's interesting about his   career most people have heard of you know that  trade around World War II um a lot of investors   have read or heard about him shorting the Doom  bubble and the IPO lockup strategy but really   that that six decades in between a lot happened  there too and um I think what's interesting to  (23:02) really think about is to really go back  historically and contextualize what it was like   to make those all those Investments but also to  realize that you know what we're really looking at   when we talk about a trade it's like watching uh  you know uh the winning pass thrown in the Super   Bowl all the chips are stacked against the team  they throw the hill Mary and when and everyone   celebrates and admires it but it overlooks  all the practices and losses and injuries   along the way on that career of that you know (23:39) quarterback and so you kind of have   to understand I think at a more epistemic level  where that behavior comes from and it goes back   to the purpose and the study and the unrelenting  um Drive the doctrine of the extra ounce um that   you referen he always called it the doctrine  of the extra ounce she read one more research   report you take one more company visit um you  put in one more hour of work and that makes   the difference in his mind between a great  investor and and a really you know fantastic   one of all time great you know performance in any (24:14) industry or business or you know Endeavor   Sports business and so you know when I think  about like Japan you know when he invested   in Japan in the late 1950s he invested first  in the late 19 50s think about Japan in the   late 1950s they had just been and through and  Lost World War II Americans did not like Japan   there was still a lot of bad feelings there  was a horrible War a lot of people died and   he was over there looking at Investments and  so I think about like you know what he walked   into this kind of decimated economy no one (24:49) thought no one would have thought   this was a good idea no one and I I was really  contextualized it when I was working on the   Tieton touch the Vis Edition I spoke to a lot  of people that knew him and worked with him or   had capitals from him along the way and  Jim Rogers was one of them Jim Rogers of   course you know co-founded Quantum fund with  George Suarez and he and Sir John developed a   relationship over the years they were friends  they both attended Yale they're both from the   south they met each other at a um event over at (25:17) Oxford and so they kept up a relationship   over the years and he just said you know Scott you  think about what it was like if you were on Wall   Street in the 1960s and you said I've got this  great investment idea in Japan he said people   would have laughed you out of the room there was  no room for any of that thinking that would have   been absurd like you were completely crazy and so  you know he did this and then it wasn't until the   really the 1970s that the Japanese Market  took off when the US you know was in steep  (25:50) decline because of inflation and you  know that's something that paid off 15 20 years   later but when you think about what it took from  a psychological standpoint to even go investigate   that and then the leg work once he got there as  an analyst was intense I mean it's hard enough   looking at Japanese stocks today but he went  over there and you know there was barely any   kind of Market infrastructure uh there were  Brokers but he didn't speak the language and   you had to learn the accounting and he did all (26:21) of that and saw that you know from a   bottomup basis all these companies have  not Consolidated their subsidiary onto   their reported financials and he understood  that they were deeply undervalued based on   their Market quotations and he was willing to  invest and hold on to them in Japan eventually   released the capital controls and that made a  big difference but what he was really seeing   was it goes back to that depression experience  at Yale he went to the most negative situation   he could he could discover and he saw something (26:54) positive in it he saw their High savings   rates he saw their industrious attitudes it  reminded him of what Americans had been like   you know early in the earlier in the 20th century  when we had this huge kind of industrial boom he   saw the same things and then he exploited  that same Paradigm over and over you know   throughout his career he saw this kind of uh  this huge you know kindling and explosion of   of human Innovation and the will to create and  produce so he exploited that on the heels of   the Asian financial crisis China you know all (27:29) these various markets that opened up   he saw that Paradigm and he was willing to go  in and do the work and make the Investments he   just exploited it over and over again um  but yeah I mean there were just there's   so many things and then the the big stories  I think that people don't really understand   are it's just um you know when you look  at his career most people just think of   the tumbleton growth fund or the tumbleton  funds but he actually uh had a registered   investment advisory firm he was an investment (28:00) counselor and he got into the mutual   fund business in the uh you know the 1950s but for  most of his career he was managing money through   mutual funds and individual separate accounts  and this was you know over in Wall Street had   an office in 30 Rockefeller Center and he was  it was not uh what people think of today when   they look at his career so it was far more um  you know individualized it wasn't scaled like   a mutual fund company was what people think of  and so that was kind of where he spent most of   his career and he was doing all of these (28:40) Innovative things in terms of   investing so he was investing overseas he was  a self-proclaimed Quant at a time before they   were computers so you had a lot of analysts doing  constant calculations on future earnings because   he thought that his value added as a manager to  his clients was through an unemotional systematic   kind of scientific process of investing and  that too was very rare on Wall Street he said   that you know Ben Graham was really the first  person that you know popularized that approach   and gave the investment industry credibility (29:17) and he had taken in Graham's class   you know post College you could audit it  as a professional he was very influenced   by that but um you know he sold that business  in 1968 and in his mind he was basically done   like he was moving to the Bahamas so he by  this point the business was I think the 10th   one of the 10th largest investment firms in the  country so it had been wildly successful um and   an insurance company a life insurance company  came in and bought basically his business and   all the various funds that he managed except (29:55) for one they did not buy the timilon   growth fund and so it was that one fund that he  just said okay well you know it's Canadian doas   out I understand the tax treatment of us investors  there's not a lot of money in it there's like   eight million in capital it's my money and some  close you know friends simping growth fund is   the fund that everyone thinks of when they think  of serjant that is through the long 38-year track   record that annualized right around 15% after feev  and that's just you know no one it's it's unlikely  (30:31) anyone will be able to replicate that over  a 40-year period in a cash-based mutual fund so   the thing is uh in his mind he was basically done  with his career that was just something he was   going to manage on the side and um he was moving  to the Bahamas to focus on his philanthropies he   had already decided to war the templon prize he  was just going to study spirituality and pursue   all of these other interests he was kind of done  with inv investing outside of just managing his   own money and it was John galberth who ended up (31:03) being you know the um marketer of all   the Timberon funds he was the president of that  life insurance company that he sold all of his   funds to and the life insurance company decided a  year later they're gonna move to Los Angeles from   New York John galbert said I don't really do that  so he resigned but saw Sir John went met with him   down in the Bahamas and he said you know that  one fine that you kept I'd like to buy it from   you I remember it had a good track record and Sir  John trly said I don't want to sell it but I'll  (31:32) partner with you if you want to Market  it and we can split the profits and John galbert   diligently took that so-called Mountain chart  which showed its tremendous performance around   all the brokerages in the US and that 8 million  fund you know in the span of let's see this so   this is you know the late 1960s so they rode  you know the the rise in the Japanese Market   through the 70s and that $8 million fund  became a 12 billion mutual fund Empire by   1992 so I think the big lesson here is just  this unrelenting persistence and patience and  (32:10) reinvestment he said that he every year  he wanted to be a better investor than the year   before and it just shows that no matter how much  skill you have you got to stay in the game because   there's circumstances too and it's just kind of  an amazing way to to look at his career to think   that you he was basically I he he said he'd  never retire he always wanted to work but he   was more or less done with professional money  management and then all of those circumstances   played out and there he goes he sold the (32:39) timilon funds for $992 million in   1992 was all just kind of the these circumstances  I just love to think about that and how he just   persisted you know throughout his entire career  and there's so much there's so much to learn just   about patience and having that purpose and just  you know just unrelenting passion to keep doing   it did he ever meet Benjamin Graham he did yes  yeah he took his he took the course from him   postgrad so he had already finished you know Yale  in Oxford and was working on Wall Street and the  (33:19) security analysis class was offered  at night to working Professionals in Ser John   and most people they know Sir John just as  the master of finding the biggest Bargains   and finding where the maximum pessimism is at  and your firm Templeton and Phillips Capital   Management um I'm reminded of you guys how you  wrote to your shareholders how you took full   advantage of the drop in March 2020 that's  the most recent example of you know finding   these big Bargains overall in the market your fund  turned over 2third of its Holdings in just a few  (34:00) weeks and I read that and I was just  pretty Blown Away by uh that level of turnover   in such a short time frame so I'm super curious  to learn how that actually works in practice of   you know taking advantage of that point of Max  pessimism in the midst of managing a fund sure   so it's uh well it's where it's where we think  we can add value as managers I think that you   know one of the most important things you  can do as a manager is to recognize you're   in a highly competitive ecosystem you are (34:37) competing with hundreds of thousands   if not millions of other investors and so you have  to think about your role in that EOS ecosystem and   where you can add value and so we like to say that  they're basically three ways to generate excess   returns you can have better interest information  which is what most all of Wall Street is geared   towards doing and you could have a better  financial model those are the quants or you   could have better Behavior which comes through  in temperment in any any one of those three  (35:11) a combination of of those three can  provide an edge to you as an investor and so   what you have to do is make a decision a deeply  honest introspective self- discussion like what   is realistic where can I you know add value am I  going to go out and compete with a multi-billion   dollar hedge fund that has satellite image imagery  and unstructured data to get the next Edge on   customer counts at shopping malls in Walmart or  oil fields or cargo you get the idea like this is   these are intensely competitive forces that play (35:51) if you think that you're going to you know   trade in and out of stocks or gain the  next earnings that's that's a difficult   challenge similarly on the Quant side you know  it you've got your work cut out for you there   too and you really want to go compete with  you know a team of of phds from MIT who are   working with Cutting Edge machine learning and  AI technology to develop a better model and mind   these these little Alpha inefficiencies in the  market that too is very difficult but I think   that from a behavioral standpoint you know (36:25) what we've kind of learned from Sir   John is that you know you can still do this  human nature is still at play in the markets   and so you know as a money manager you have to  make a decision that that's where at least in   our case that's where we can add value we can  do these things that from a distance people   say oh yeah we can you I invest late warm  Buffet I can go and you know buy or I can   do this you know like Sir John but Tom it again  history shows people can't really do that it's   very hard and so when you tie up kind of your (37:01) identity and your investment strategies   and everything you want to do for your clients  becomes that you're going to execute on it   because then it becomes almost like a you  know an existential thing it's like well   this is what I am this is what I do this is  how I add value to people's lives and try to   create 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(38:32) com WSB that's spelled Ka a Cava and get   10% off your first order that's kachava.com WSB  and so that's kind of the purpose-- driven side   of it now from implementation standpoint it's  actually it it just requires a lot of study   and patience more than anything so going  into 2020 we had you know and and still to   some degree are still have still been kind  of alarmed about zero bound interest rates   and the way Capital was allocated over  that 10-year period going into Co course   we didn't know that um you know covid would (39:13) be what it what it was going to be I   don't think anyone did no one predicted that  that's an important lesson too but we were   prepared for whatever was going to come so we had  a list of companies that we thought would do well   on a five to 10 year basis during a period of  restricted Capital low credit expansion because   the environment of just you know debt being  issued nonstop with almost no repercussions   could not last indefinitely and so we had you  know a list of companies that we thought that   we would like to own in that environment (39:48) we we saw that as a likely outcome   from whatever happened whatever broke that  current Paradigm and ended up being covid uh   we were prepared and knew what we wanted to  buy we knew the valuations that we wanted to   buy the net so you know one example was um is  very uncharacteristic but you know again being   flexible and open-minded is a huge piece of of  Sir John's investment philosophy uh you know   one of the stocks that took us a long time  to understand and I think we just actively   ignored it for many years was Amazon because we (40:22) didn't that just seemed like a you know   growth stock its valuations didn't make any sense  you know over time you you saw that what they were   really trying to do is just raise their level  of reinvestment to as high level as possible   without having to report Gap earnings and not  worrying about tax liabilities just constantly   reinvesting and then you know once we understood  that said okay well that that actually makes sense   um but that was in 2016 or 2017 so we looked  at the valuation said that that's interesting  (40:56) but no Moving on but you know we always  kind of knew a price that we'd want to pay for   it and so when it hit nine times cash flow in  March of 2020 we acted and we knew that we have   to do that if we're going to generate excess  returns like it's it's a matter of just living   up to your your your word keeping your word doing  what you say you're going to do on behalf of your   clients and so we had just had a whole list of  stocks we knew we were going to take that action   and when it presents itself you do it and I (41:26) think the an lesson is whether it co   or 2008 2009 or whatever happens in the future  you don't have to predict it you just have to   know how you're going to handle it you have to  upgrade your portfolio you have to say I can't   time the market but I do know that I'm going  to come out of this better than I went in and   if you have that attitude and have a process  to drive that outcome you're taking control   of the situation you reframing it and you're  you're turning what could be a deep negative  (41:59) into a positive you're finding that  positive in what is an overwhelmingly negative   event and you know the other big thing is that and  a lot of people um say well you know how did you   know to have so much cash or you know isn't that  market timing we did have cash because but that's   an organic process that comes out of not being  able to find bargain so cash will build up if   we can't find the 50% discounts that we want but  you know for people that want to you know drisk   or raise cash in those environments it's I think (42:34) it's a big mistake I think that um you've   already demonstrated you're not a market  timer if you were you would have been out   of those stocks so don't don't memorialize  your mistakes and cement your position as   a bad Market timer you have to take advantage of  the new opportunities that have been created and   that was for John's mindset and that's what we  try to do as investors so for us it's it's they   long periods of inactivity and and studying and  looking for things that are out of favor but by  (43:02) far the best environment to invest is  when you get those wholesale sellouts when you   get the for selling the margin based selling  uh because then you know it's it's to us risk   is overpaying for an asset that's the value  perspective but when prices decline that much   risk has gone down that much too so it's it's  almost like you know a lot of your potential   mistakes are going be covered up by how low you're  getting you know the stocks so it's actually the   lowest risk environment you could dream of to (43:34) make an investment and that's how you   have to look at it most people you know in that  moment would say you're crazy what are you doing   but it it just makes total sense to us but it's  it's hard and I I really think that you have to   go through one of those cycles and force yourself  to do it and see the results to understand how to   do it again and 0809 was that for us for sure  um it made a big impact on us but as investors   and returns and everything I'm curious more too  on the implementation of it you mentioned that  (44:09) you had some cash on hand and the problem  with um these big market sell-offs and the big uh   Force selling is that uh most assets are  pretty well correlated so in March 2020   for example pretty much anything you owned  outside of cash was declining in value as   there's essentially a bid for dollars that's  why everything else is declining and uh you   know a lot of investors are fully invested  so if they're trying to take advantage of   these these uh Market gations I I would think the  rationale would be okay company a is beating down  (44:45) a whole lot more than Company B that  you already own so maybe you sell some of   Company B and allocated to the one that's  a bigger bargain so for you was it mainly   the cash being allocated or was there some um  reallocation in your portfolio as well I guess   I did mention the two-thirds of turnover so I'm  sure uh both played a role for you both yeah so   we you know again our process is very bottomup  in valuation driven so we actually did have   about a 20% cash balance going into March 2020  so the first move was to deploy that cash and  (45:20) then the second move was to start  replacing the pre-existing portfolio and   Sir John's Bic rule for that which we follow  is when you find a bargain that's 50% better   has 50% more upside than what you ow it makes  sense you know to switch and that's something   that you know he would have studied and kind  of calculated on his own over many years and   so we follow that it tends to work you know pretty  well the the Mantra is to upgrade you know go find   better growth better quality whatever the Market's (45:51) offering just you know try to upgrade your   portfolio but yeah it was both and if I was  fully invested I would be doing you know the   same thing I would be turning over or looking to  turn over you know what you what you already own   if they're better opportunities and I was amazed  that Sir John he said a good bargain to him was   something that was uh 80% below what he estimated  to be the intrinsic value and I remember the story   I think you told him one of your books of he  bought like a sofa for practically like a 95%  (46:26) discount or something and he he was always  looking for bargains it wasn't just the investment   world so when you say a an idea has to be 50%  better so the F the upside has to be 50% more   what sort of time frame are you looking uh at  that sort of upside is it a few years or is it   10 years or how long is it it's usually you  know it depends on the amount of upside but   you know we're willing to give that scenario  five years um you know if it's a much Deeper   Discount we'll give a 10 years years and (46:56) kind of you know measure out the   irr um so one good example you can when you get  discounts that are deep enough you kind of get   indifferent towards the asset itself so here's  a good example like going back to uh let's see   this would have been in the period of right after  the Euro debt crisis and into uh the taper tantrum   in the emerging market so kind of like 20 2011  12 up until 2015 so around 2012 2013 uh AR slur   Mall the European steel maker that emerged um with  the Indian steel maker is trading at less than a  (47:40) quarter of its Book value I think it got  down to 10% of his book value so when you model   that out there was three or 400% upside so I'm  pretty indifferent whether it's five years or   10 years at that rate that's a great return  we'll give it a Long Leash and then moving   alongside that you know during the taper  tantrum merging markets fell out of favor   and Alibaba had the great Misfortune of iping at  a ridiculously high price uh I think it was the   end of 14 early 15 and promptly went down 30 40 (48:10) maybe it was 50% over the course of the   next six to n months and that too had  a similar kind of return profile when   you modeled out the growth and saw the market  potential and then the valuation and where it   had collapsed it was also kind of a two to 300  % upside scenario and so in either case those   assets to us from our perspective were almost  interchangeable and interestingly they both   you know prox they eventually uh and we let's be  clear we make mistakes as investors too but both   of these worked out and uh I think actually um (48:46) ARS M told did a little bit better you   know from a tutal return standpoint the problem  you're going to run into if your if your idea   is to hold and and let things compound you go  going into a cycal kind of nav style investing   relationship Big Discount to nav like a steel  maker you know you're going to have to sell   it eventually with you know something more  consumer-driven with this kind of long growth   Runway you could potentially hold it for very  long time assuming you know all things being   equal the risk are appropriate the valuation (49:17) stays low and off so we actually ended   up holding Alibaba until uh May of 2020 you  replac with the US yeah and you know and just   thinking about the past markets in the past  15 years or so um I think about some of the   areas that investors have sort of strayed  away from or uh valuation uh disparities   continue to stick around I think about uh  two areas that you've highlighted in your   annual report is the small cap space and  international markets and I'm curious in   looking back at Ser John career if there were like (49:58) periods where you know investors sort of   doubted him where he's in a trade for maybe two  three four years it isn't really going anywhere   but eventually he's right about that trade where  you know the patience side of this is you you've   talked about this uh in this discussion but  I just think that's worth highlighting and uh   mentioning again because these bargain type ideas  you know it it takes some time for the market to   agree with you sometimes and you really have to  uh test your conviction test your thesis and uh  (50:30) continue to uh rethink whether you're  really about right about it because um with   the quality names that you said a lot of people  can you know are sort of attracted to these days   it's what a lot of people talk about including  myself admittedly um you know those you know   when investors are continuing to sort of pile  into those it continues to keep working and um   you get this reinforcing cycle where they ignore  or what uh they were initially pessimistic about   and then they're continuing to add to and (51:01) then the momentum sort of plays   into uh that as well so did you see that in Sir  John's career where um you know he sort of went   through these periods where maybe his returns  weren't as good but eventually um he saw this   probably drastic outperformance over um a  period later absolutely yeah I mean the the   basic reality is and and he said it if you want  to have better performance in the crowd you have   to do things differently from the crowd and  so that means at a very basic level at some   point you've got to break with consensus (51:37) and go into an asset that is not   working that's discounted it maybe continue  to be broken or neglected or unloved for you   know a long period of time so yeah going back  specifically to his career I would say that um   you know when you look at his investments in  Japan obviously those are out of favors for 15   years or so before they really started working  in the 1970s but then even more interestingly   when they did start working they worked for a very  long time uh 20 years culminated in a bubble that   you know technically the Japanese Market still (52:21) hasn't recovered from um but you know   when you kind of Trace that back and look at  his portfolio in the Timon growth fund he was   rotating out of Japan and into the US in the  early 1980s because he said that in his view   the U US Stocks were the cheapest they'd ever  been in his lifetime including the depression   and so that takes enormous self-control  and discipline to be sitting in a portfolio   that's working extremely well and then see  these you know these huge Bargains in your   view that no one else agrees with that's why (53:02) they're huge Bargains people think   you're crazy if you go into them but he did  and he rotated 62% I believe was over 60% of   the tlon growth fund into US stocks in the  early 1980s this is around the time when   you know vulker was Raising interest rates  to kill inflation Commodities were the big   investment deal in the US the death of equities  headline on Newsweek had come out it's just a   he thought I mean he saw an opportunity  there that was worth ditching all these   other things were working fantastically well and (53:39) going into and of course as we know in   hindsight it was the start of you know fantastic  maybe one of the largest bull market C us has ever   had going from 1982 to to the year 2000 and so  yeah he was willing to do that and sit there and   just grin andar and say it's the right thing and  it goes back to that confidence and independent   thinking we talked about earlier on the podcast  he just had the the will and conviction to do it   because it was rational and he thought it was  right and he thought it would work out and he  (54:10) didn't care what you what you thought if  you wanted to leave or sell shares in the spawn   that's okay so I think a good transition Point  here is to look at markets today um the US has   had a heck of a run over the past you know since  the great financial crisis So that obviously leads   investors that are looking for more pessimistic  situations to look at International markets   what you've written about in your annual report  and then I also mentioned the disparity in the   small cap space so what do you think are um (54:48) opportunities today that offer that   scenario we've been talking about where there's so  much pessimism priced in where even the slightest   whatever happens in terms of the underlying  Investments performance just the slightest   upside could lead to you know asymmetric returns  so what are you seeing in today's markets yeah I   mean you hit the nail on the head us small caps  and international stocks I think are both very   intriguing you know with us small caps if you  look back over the history of the market it's  (55:20) really unusual for large cap stocks to  lead the market and have the Superior returns over   time it's always been small caps all performed  by a hefty margin can really kind when I think   about you know like the last gosh 15 years or more  small caps have been very expensive they've been   at a big premium because that's where typically  a lot of the growth is but that's really changed   in the last few uh years especially through  covid and there kind of two things I think   they're at play there first of all there's the (55:54) conventional wisdom that small cap stocks   will lead you into the recession right then  they'll be the first ones that lead you out   too so it's kind of this double play and so I  think there's a lot of anxiety in the market   as we know about the prospects for a recession  everyone's been forecasting it for a long time   it hasn't happened you know we'll see I think  there are you know uh parts of of the economy   that are you could argue are in recession  but nevertheless that's certainly a big  (56:24) piece of why small caps are discounted  um because they're not likely to bottom you know   before the recession so people are just kind  of sitting on their hands in that regard but   also and I think this is more valid as an argument  it's it's it goes back to the the misallocation of   of credit and debt over the last 10 15 20 years  maybe not 20 years but you know since the great   financial crisis the zero bound interest rate  regime um you know with small caps uh they just   don't they don't Access Capital markets the (56:58) way large caps do they hold Bank deth   typically and a lot of it has floating interest  rates attached to it and a lot of these companies   or you know have been kind of sustaining  their Capital allocation programs through   more debt issuance or staying relevant in their  industry by issuing more debt at those low rates   and so the problem is you know when you get  into kind of a classic recession and credit   really contracts it's already in the process of  Contracting of course um those companies will   have financing problems and so that is a more (57:35) legitimate kind of PLL hanging over   the small count space because a lot of them do  legitimately have higher debt balances in floating   rate debt that could be challenging to sustain  or refinance over time but if you're willing   to go in and take a more granular look and look  at the individ idual names uh there's a lot of   interesting stuff there uh so you can find stocks  trading you know well below 10 times earnings   three five times cash flow five times IAH these  are pretty well-run companies um you know they're  (58:10) not necessarily big growth stories but  you know those valuations uh you know they could   do well um so that's where we're spending  you know the majority of our time really um   from a research standpoint is just uh getting  that that same wish list uh ready to go and um   yeah there are just tons of examples of just  you know companies pretty well-run companies   trading at Book value but people don't want to  pay attention to that because you know there's   you've got the AI momentum play on The Magnificent (58:47) s uh it's just human nature and then on   the international side oh gosh you know there's a  it's been a disaster investing in there a for the   last like 10 years it's vastly underperformed the  US market the valuation levels are very low and   I think you know in both cases whether it's us  small Caps or the International Space uh you're   looking at valuations relative to us large cap  stocks that are as low as discounted as they've   been in the last 25 years so we're talking  about some really low valuations and hurdles  (59:22) from an investment standpoint but you know  arguments to take a closer look at International   stocks are certainly compiling you just look  at what CO's done to trade and the way trade   is realigned you know China is no longer our our  largest trade partner Mexico is their issues kind   of all over you know from you know from a supply  chain standpoint it's raised the costs of of doing   business and you know and and so us consumers  are are paying more but at the same time uh   there are also important advantages which are the (1:00:03) central banks in the emerging markets in   particular out of step with the US and developed  markets meaning that they are they already through   their tightening phase they're looking at cutting  rates and we're still tightening and combating   inflation so what that really means more than  anything else is that the markets are separating   like if you're a stock picker you're kind of  reverting back to an environment that Sir John   thrived in where a country specific discount  can emerge and it's doing its own thing and  (1:00:36) it's not tied to the US Federal  Reserve you don't have to worry about all   the gaming of when you know the rate cuts are  going to appear and how that affects duration   plays and equities and so on you know you're  you're kind of playing your own game and you   don't have a lot of competition to look at those  stocks and so that's like the perfect environment   to take you know if you look at a market like the  UK it's been out of favor sure oh wow six or seven   years it started with uh brexit if anyone even (1:01:05) remembers that that was a disaster   you know for UK equities everyone got too  confused by what was going to happen in the   trade alliances in the Euro and then covid hit  you know another disaster basically for every   economy and then they inflation came so that  market has just been left behind for five or   six years or more so you know you could go look at  the UK and find some great companies uh reasonable   multiples we we haven't done any buying there  lately but you know last uh year during the uh   this is 2022 during the war in Ukraine when (1:01:38) that broke out European equities   generally just they really uh got overly  pessimistic so we did you know buy some   stocks at that point both in UK and and  manland Europe so there's a lot to look   at and think about and uh you know I'm not a  uh I wouldn't say you know we're doomsayers   on the dollar but they're real concerns about  the budget deficits and the impact that's had   on the stability of treasuries in the last year  or two you know a lot of investors don't really   see that foreign investors don't see that as (1:02:15) a safe space they once did for lack   of better words and you're seeing uh because of  the trade realignments a lot of com countries are   doing business in their local currencies which  means they're not going in buying dollars so if   we continue to run these large deficits  you can make the argument that you need   some diversification away from the dollar  I wouldn't you know I don't think you need   to go crazy but it probably makes sense to  have a little bit of diversification there   so that's just another argument on top of the (1:02:44) already cheap stocks and uh you know   there there's a lot to look at and think about  and you don't hear a lot of people advocating   that or or doing that right now he's picking  up some steam but it's it's still far off from   we it's funny you mention the UK uh we have  a investing Community uh here where we talk   about stocks quite often and we have one member  from the UK that um he he just loves this stuff   he just sifts through every single company he  can and finding the best bargains and he's like  (1:03:19) you know I'm open to finding the best  uh Bargains I can wherever at in the world but   I'm finding a lot of them in the UK and he  shared a similar sentiment to you to where   2022 especially um is when he was finding a lot of  great ideas and I wanted to uh also ask you about   China I just checked alibaba's stock price here  in mid December and it's hitting new lows on the   year around $70 a share is China something  else another country that you know you've   you know been interested in or or is there (1:03:55) geopolitical concerns that keep   you out of uh that country yeah so I mentioned  earlier Alibaba we earn that from let's should   say roughly mid 2015 to Mid 2020 we haven't own  anything in China since um and part of that was   just the changing geopolitical environment I  remember you know making that Lauren and I you   know discussing that decision in mid 2020 because  there were still you know cheap stocks in the US   during that time Market hadn't fully recovered  and uh but you know you had all the back and  (1:04:35) forth between uh Trump and she and  then you had the regulations coming in on the   tech companies and it was one of the situations  where quantitatively we didn't we didn't need to   sell Alibaba but just sheer unease with  the risk environment prompted it and I   remember thinking I've got to you know call our  clients and say you know we're going to do this   there'll be some capital gains I'm sorry for  that but we feel like we need to do it it's   one of the very few times we've ever ridden (1:05:07) kind of our quantitative discipline   from a cell standpoint and so that worked  out but I mean the stock went up you know   from several more months we we certainly  didn't time it well um but yeah I think   that you know looking at it today it it keeps  hitting my screen Alibaba trades at seven and   a half times earnings I mean this is it has  my full attention I'll say that where we go   from here I'm not sure but I do take notice of  investors saying China's uninvestable and it's   really and I I see where it's coming from I agree (1:05:44) that you know if you don't know where   you stand from a property right standpoint  that's a big deal so you know I haven't   forgotten what happened to the people invested  in the education stock uh a couple of years ago   wiped out overnight they've come back know since  I read that somewhere anyhow that that's those   are difficult matters I mean there and you know  there is no Plugin or DCF or a CEO disappearing   in the middle of the night so they risk there  they're real risk but at some point valuations  (1:06:13) get so low that yeah they they certainly  get on your on your radar and they're on our radar   I just honestly I don't know yet I think that you  know there there's a lot to look at right now but   yeah the valuations are really low China will  continue to be a powerful economy they they've   got some issues for sure with the property  and the regulations but it'd be I think it's   a dangerous a dangerous idea to just write them  write it off for good so you point to something   really interesting there where you know we (1:06:50) mentioned the quality aspect and one   piece that sort of reminds me of the that approach  is you sleep pretty well at night owning a lot   of these types of businesses and I think that's  what can keep a lot of people out of these more   pessimistic areas of the market where there's  these unknown unknowns there's the geopolitical   concerns and you know there's just those risks  that maybe you can't uh fully communicate but   you can feel them and you can sense them  in the investing uh uh community so I think  (1:07:19) you're touching on something really  important there where there's really this   qualitative aspect ECT where you need to pull  in these sort of risks and Factor them into the   valuations to where you know you're still  getting a really good bargain but you know   you're you're you still feel that confidence  that you're pricing in a lot of that risk yeah   yeah and that I really now that I'm thinking  more about that Alibaba decision a lot of it   was tied around um a fear over that VI structure (1:07:51) you know at the end of the day what do   you really own you own a tracking stock if you  earn it through the ADR now you can go buy it   on the Hong Kong exchange I think that's  probably wise you I I doubt that I think   all that regulatory stuff is likely calmed down  for now I think China's going back the other way   like they've kind of realized that they've ever  corrected and they need outside Capital to come   in which is very helpful um but yeah it's uh  they're tricky tricky question I mean but when  (1:08:20) you've got you know when you've got  a whole you a range of stocks to look at that   appear discounted you can kind of pick and  choose how you want to engage what kind of   risk you want to take on sometimes those risks  are just too hard or too uncertain or maybe you   just buy a smaller position that's the other way  around it you know if decide you just can't stay   away just buy a 1% position or something that's  not it's not going to matter you know if it gets   hammered you'll be okay you'll survive and if it (1:08:49) goes up exponentially you'll benefit   so you know there are lots of ways to approach  that risk but yeah I think the the chase for   quality is probably it's it feels crowded to  me uh I mean we we've done it too but you know   really when you think about uh the last time  we bought in Mass it was kind of back in in   2020 because I tell you every time I I read  you know a manager's comments or see them   interviewed or see a podcast it just feels like  everybody's looking for the exact same thing they  (1:09:24) want the steady cash flows they want the  quality they want you know the durability and you   know when you get too many people chasing the same  thing it's hard to find those opportunities so I   mean a lot of what we do around quality has to  take place during big Market dislocations because   it's the only time you can really get a bargain  doing it and Sir John always kind of cautioned us   you know on these environments where you know  he said just generally that when he started   on Wall Street there are only 12 analysts (1:09:57) 12 now they are what over half a   million cfas so he you know he certainly thought  that you know the the job of professional mning   manager is far harder than than when he first  started out so you really have to be diligent   about looking at things that are out of favor  and neglected you know the great thing about   small caps is you can find companies that don't  even have analyst coverage I mean that's like a   veritable playground you know for real research  analyst it's interesting and fun to look at you  (1:10:32) know I also wanted to mention that Sir  John he not only you know bought during this max   pain biggest bargain type scenarios but he also  wasn't afraid to short things or bet against   things that you know just had Peak optimism you  know everyone was uh going crazy and in terms   of all the money they were making and he uh is  pretty well known for shorting the tech bubble in   the late 9s and I was uh quite surprised to read  in your 2022 annual letter how you uh you know   talked about the parallels you saw in 2021 and (1:11:14) 2022 the parallels to the tech bubble   in the late 90s and the way Sir John shorted  them and you mentioned the uh FTX ad in the   Super Bowl and and how that reminded you of uh  the things that people saw in the late 90s I I   think that FTX ad I went back and watched it it  was they just essentially saying don't miss out   don't miss out on this you know this uh new  future we're seeing um so talk to us about   how this approach of you know having this  seeing that optimism that people are pricing   in is just totally irrational how that plays (1:11:49) into your value investing framework   yeah it's another key input for sure um you  know it really just goes back to you know both   Lauren and I started our careers let's see I  got into the industry in November of 1998 uh   and I worked on the cell side um in a research  Department of an investment bank that was owned   by uh eventually owned by sunrust it's called  Robin srey now it's truist Securities and so   the first things I saw were the internet bubble  and how you know worked on I was a low man on the  (1:12:25) totem pole on a bank research team and  let me tell you whose phone didn't ring during the   Doom bubble it was the bank research team but you  know the internet analysts and all these people   were just you know having the time of their lives  and so I remember vividly just that environment   because this was one of my first lessons and what  a fantastic lesson in human psychology to start at   that time and uh Lauren started a year later she  was a year behind me in college and uh and so it   was probably about two years later that Sir (1:13:02) John Was preparing to seed her and   so she was in constant contact with him  and I remember vividly my father-in-law   uh was participating with s John in that that  short strategy so they were shorting stocks   that you know right before IPO lock up that  they thought would decline and he did it for   a few months and he said you know not worth  it I can't I can't handle the stress of this   it's too much but obviously you know Sir John  chucked with it and that trade went against him   um for a while too he was he was early but (1:13:45) he held on and I I've heard that   he shorted more it was kind of outside of our  preview on the same basis but everything about   that period just I can see it like it happened  last week you know these these images just all   of the experiences stick with you um and  it kind of becomes a frame of reference   and that I think that's the benefit of being  in the markets for a long time you start to   accumulate these experiences and I remember you  know I mentioned earlier Ken of the fervor and   excitement and being on sside during that period (1:14:25) trading was exploding all the deals were   up there were steak dinners you know you got  bonuses in your in your paycheck you didn't   even know were coming and then I remember  vividly 2001 and 2002 and that environment   turned into monthly layoffs you know across the  the whole firm see it was it was just kind of a   getting a master's class in Market psychology  and how these things go yeah I remember the   ads from the Super Bowl back in 2000 and the  sock puppet and all of that stuff that's always   just super familiar to me and then you know (1:15:05) in terms of you know what we were   shorting uh during that period and again  we shorting is not um kind of a constant   uh feature to what we do but occasionally when  we see things like Sir John it makes sense to   you know put in some downside protection and if  it goes well maybe you'll you'll even profit but   yeah I mean stocks back in 2000 the ones that you  know Lauren was Shor in when she started out like   five times sales was an exorbitant valuation  and at the end of 2021 I think there were   almost 800 stocks trading at 20time sales it was (1:15:47) just it was crazy and you know it just   didn't make sense and of course no one we couldn't  predict you know what would make it stop but when   it did it did and what's interesting now though  is just how you know with the AI um AI perver   it's all kind of come selectively come Waring  back it's the market it it just never ceases to   surprise you for sure but you know when you can  draw on your experiences and they date that far   back that's it just reinforces your conviction  because you've seen it before and it's hard to  (1:16:25) figure out the particulars but you  kind of see how things are going to end up so   like even I mean even I think the big lesson that  people need to realize you know if you're looking   at Nvidia we're a great company I mean we don't  own it uh but you know they've done everything   right you know they they got into you know the  gaming chips and now the AI chips they've been   a step ahead of the industry you know fast  sales growth High margins you know what more   could you ask for in a company but you know when (1:16:56) you're trading at 30 40 times sales   which I know they have been within the last  12 months it's very difficult to make money   as an investor so you just go back and you  look at like Microsoft another company that   has just they've done an extraordinary job as  a company great company over the last 20 years   they've done a lot of things right but if you had  bought them in 1999 trading at 23 time sales you   would have been lost in the woods for 16 years  you make money for 16 years even though it was  (1:17:28) still a well-run company throughout  that period you know they they got into gaming   they built out the cloud and and fought off Google  uh they've done a lot of things right but you know   if you don't if you don't get the valuation right  it can bad things can happen let's put it that   way I wanted to mention a quote from Sir John  here that was the in the forward to investing   the Templeton way which you and your wife Lauren  Templeton wrote he wrote at the very start of the   forward I'm approaching my 95th birthday and (1:18:03) believe that there has never been   a better time to be alive we should be deeply  grateful to be born in this age of unbelievable   Prosperity investors to this day ask me for  investing advice or to express my concerns about   the global economy throughout history people  have focused too little on the opportunities   that problems present and testing and in life in  general the 21st century offers great hope and   glorious promise perhaps a new golden age of  opportunity end quote and I found this aspect   of Sir John to be a bit of fresh air for me (1:18:37) personally you know in the financial   world it's the fear the Doom the Gloom  that's what dominates the headlines and   it drives all the clicks and um you know it's  so hard to get away from sometimes when you're   on social media and whatnot and I'd love  for for you to speak more to this innate   optimism that Ser John had um because it's  obviously a key part of investing well and   part of his success and you know it's just  so easy to get caught up in these types of   types of things that are happening you know a (1:19:09) few that come to mind you mentioned   the US dollar and you know the US deficits that  um are happening currently and you know you have   debt problems globally even and then in the  US you also have massive wealth inequality   in every increasing political divide I could  probably go on and on for the list of things   that sort of dominate the headlines so I'd  love for you to talk more about you know the   way Sir John would sort of see things uh today  in terms of being optimistic about the future   going forward yeah you know I think there are (1:19:42) a number of number of thoughts come   to mind you know one one thing I'll say and  uh I mean I can remember several times being   in meetings with with um Sir John and Lauren  and he would just look at us and just say I am   so jealous of you you are going to see so many  things happen and I wish I could see them and   I wish I could experience them you have no idea  and that was his his attitude and I think that   there are a couple of things that play first  of all his life you know span just about span   the 20th century so think of all the amazing (1:20:26) things he saw with his own two eyes   and he went through all these Cycles where you  know the sky was following and there were routes   in the market calamities here and calamities  there but every time if you invested you do   better over time and then you just look at  the standard of living so I mean there was   just been controvertible evidence all around  you uh the benefits of capitalism of scient   I ific discovery of empowering individuals  to go and pursue you know life and create   wealth um I just think it he saw it on all (1:21:06) those levels as an investor and   just as a human being and I think he St in  all that and I also think there's something   interesting I that I think about the human  mind which is its realy in just seeing the   real effects of compound interest over time  in compound interest what we can think of it   mathematically but we can also think of it  in terms of human talent and Discovery and   scientific research and how these things build on  each other over time and you think about Computing   and More's law and all the progress that (1:21:40) came out of that and I think just   fundamentally most people are too short-term in  in nature and focus and it's easy to get caught   up in the negative headlines they absolutely  get our attention but in reality when you look   at the standard of living it's only gone  higher and higher and higher and higher   so I mean now you know in Serj is the example  and I'm sure Warren Buffett has too because he   I think he has the same kind of mindset around  these things um yeah someone in the the lower   income or more modest means of today's society (1:22:19) lives far better than the Rockefellers   did back in their ha and so the standard of living  and things we have at our disposal they just keep   getting better and better and better and and as an  investor you can participate in that of course and   that's what you should be focused on doing over  the long term and so yeah he was an optimist and   I think you have to be an optimist to be a really  good investor now what's fascinating about him and   his you know psychological makeup was he did  have the rational thinking and temperament to  (1:22:52) Short the do com bubble uh and do things  you know that well we're pessimistic you know when   he saw the D umbr optimism or you for he could  get on the other side of that too but those are   always short-term kind of trade oriented things he  was without question you know long-term Optimist   it pays all you know if you're an investor that  it doesn't make sense to be pessimistic all the   time it's it's like trying to short the market  all the time that's yeah it's a dangerous idea   yeah there's this uh I think you're (1:23:28) pointing to something there   where there's you know the human Innovation the  technological advancements you have all these   sort of Tailwinds at your back but uh people  they oftentimes seem to focus on some of the   headwinds that are uh coming our way and you  mentioned uh the short-termism you know a lot   of these head headwinds are short term and um you  know historically humans have tended to continue   continue to progress and overcome whatever  challenges that come their way and I think   back to Sir John again um you know part of me is (1:24:02) like oh of course he was an optimist   when he saw like the US and its huge rise  post Great Depression but I think he still   had that you know even throughout the Great  Depression he always sort of believed that um   this Tailwind was behind us and eventually uh  things would turn back the other direction so   yeah it seems to be something that was you know  sort of ingrained from them from a very early   age absolutely I mean the generation that went  through the depression and then World War II   those were catastrophic circumstances I mean just (1:24:38) horrible they tested every every fiber   of of those you know people that went through  that and yet they emerged and and came back   and and built this industrial boom that's  never been rivaled since you know when you   start from like 1950s of his starting point  up to the current day I mean the American   economic Miracle is is almost unfathomable  how much you know has been accomplished since   then and so it's really just a matter of  empiricism but you know believing in humans   and and our ability to persevere and overcome (1:25:17) to Scott thanks so much for joining   me today what a fun discussion Chad a lot about a  person we can just learn so much from uh there's   plenty of books on Sir John he wrote one that's  on my shelf I'm blanking on the name of it but uh   it's such a good book just on not only investing  just like living a good life you know living in   this honorable way and having that higher level  purpose just so many things to think about and   take away from such an amazing person um  so really enjoyed having you on the show  (1:25:48) and it's really an honor to uh we had  we had your wife Lauren on previously and I'll   link that discussion in the show notes and it's  great to have you on as well before I close out   the episode here how about I just give you a final  handoff to the audience if they'd like to get in   touch with you learn more about your fund and  any other resources you'd like to mention yeah   absolutely no I I really appreciate the time  with you too clay it was a fun discussion and   I love talking about Sir John he's a very (1:26:15) large figure in my life and I'm   forever indebted to him anything I can do to  you know honor his legacy is I'm always more   than happy to have the opportunity to do that  so yeah but if you know if you want to follow us   or learn more about how we look at things or how  we're trying to you know further that investment   Legacy as investors and what we do uh you got our  website uh we have a commentary that we put out   periodically so our website is timton and philips. (1:26:48) com uh sign up for the commentary we   author books uh they're aailable aable on  Amazon they're listed on that website the   other thing I'll say is uh we recently printed  uh this which is just a little pamphlet of um   Sir John's quotes and I reference this all the  time and certainly weekly almost daily and uh   so uh Lauren and I discussed it and uh you know  if you are interested in a copy of this and you   are us resident We're not gonna make necessarily  send all these overseas just go to our our website  (1:27:23) uh find our email let's connect at  Tieton and Phillips pH you you know you'd like   a copy and we'll send you one in the mail send  your address too but yeah it's uh it's been a   lot of fun and I appreciate the opportunity to  speak with you today awesome well I'll be sure   to link your website and all the books related  to Sir John and the show notes there's there's   at least a handful of them so if the audience is  interested in checking those out so thanks again   Scott thank you clay we're really drawn to one-of (1:27:54) aind Unique companies because our view   is if you're going to do all that work and we  do do a lot of work over the years wouldn't it   be great to own companies that get more  mispriced in both directions I think you   know to a small extent that as one of the  sources of our outperformance over time

Channel: We Study Billionaires

Views: 10,327

Keywords: sir john templeton, sir john templeton investment strategy, value investing, stock market, contrarian investing, john templeton, investing the templeton way, lauren templeton, how to find bargain stocks, bargain stocks, templeton plan, the essential worldwide laws of life, how to make money in stocks rules for investment success, scott phillips, the templeton touch, buying at the point of maximum pessimism, warren buffett, value investing strategy, value investing stocks

Id: S8OXA2XIrNY

Length: 88min 12sec (5292 seconds)

Published: Thu Dec 21 2023