The World According To Boyar: Podcast

John Rogers, Co-CEO of Ariel Investments on founding Ariel at the age of 24, the techniques he employs when investing on behalf of clients and more…


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The Interview Discusses: 

  • Founding Ariel (which now manages more than $16 billion) at the age of 24.
  • Surviving the stock market crash of 1987 and how he turned this setback into an opportunity to grow both his firm as well as his reputation.
  • Why sitting on corporate boards such as McDonalds and Nike have made him a better investor.
  • How his investment process has evolved overtime.
  • How he constructs portfolios in terms of both diversification of industries and individual stocks. He also discusses how he thinks about the liquidity of a stock when making an investment.
  • Why he believes studying behavior finance is important.
  • His thoughts on position sizing and when he decides to sell a stock.
  • His investment thesis on both Madison Square Garden Entertainment and Madison Square Garden Sports.

And much more….


About John W. Rogers, Jr. 

John’s passion for investing began at age 12 when his father began buying him stocks as Christmas and birthday gifts. His interest in equities grew at Princeton University, where he majored in economics, and over the two-plus years he worked as a stockbroker for William Blair & Company, LLC. In 1983, John founded Ariel to focus on patient, value investing within small- and medium-sized companies. While our research capabilities have expanded across the globe, patience is still the disciplined approach that drives the firm today. Early in his career, John’s investment acumen brought him to the forefront of media attention and culminated in him being selected as Co-Mutual Fund Manager of the Year by Sylvia Porter’s Personal Finance magazine as well as an All-Star Mutual Fund Manager by USA TODAY. Furthermore, John has been highlighted alongside legendary investors Warren Buffett, Sir John Templeton and Ben Graham in the distinguished book: The World’s 99 Greatest Investors by Magnus Angenfelt. His professional accomplishments extend to the boardroom where he is a member of the board of directors of McDonald’s, NIKE, The New York Times Company and Ryan Specialty Group Holdings.
John also serves as vice chair of the board of trustees of the University of Chicago. In 2008, John was awarded Princeton University’s highest honor, the Woodrow Wilson Award, presented each year to the alumnus or alumna whose career embodies a commitment to national service. Following the election of President Barack Obama, John served as co-chair for the Presidential Inaugural Committee 2009, and more recently, he joined the Barack Obama Foundation’s Board of Directors. John received an AB in economics from Princeton University, where he was also captain of the varsity basketball team.



Click Here to Read the Interview Transcript

Transcript of the Interview With John Rogers:

[00:00:00] [music

Jonathan Boyar: Welcome to the world. According to Boyar, where we bring top investors, bestselling authors and business leaders, to show you the smartest ways to uncover value in the stock market. I’m your host Jonathan Boyar. I’m really excited today as our special guest is legendary investor John Rogers, who is co CEO of Ariel investments, a value oriented investment firm that he founded at the age of 24 Ariel, which has roughly $16 billion in assets under management specializes in investing in small and mid-sized companies and is among the most respected institutions in the industry. John’s professional accomplishments extend to the boardroom where he sits on the board of McDonald’s Nike, the New York times company, John, welcome to the show.

John Rogers, Jr. Great to be here.

Jonathan Boyar We have a lot to discuss, and I, I realize your time is valuable. You know, in the introduction I just gave does not really begin to cover all your accomplishments, but, you know, as I was researching you for this interview, one of your achievements really stuck with me, you know, while in, in Silicon valley and maybe commonplace to have a 24 year old founder, it’s really unheard of in the investment management business. Can you take us through how you did it?

John Rogers, Jr. Oh, well thank you for bringing up those days. You know, it was amazing. Now Ariel is the 39 years old, almost 40 years old. And you know, I think the reason I was ready to start the company at a young age was a couple things. One was that my father had started buying stocks for me every birthday and every Christmas after I was 12 years old, instead of toys. And I fell in love with the markets. I had a broker in Chicago and then I had a broker across the street from campus at Princeton. And I spent as much time as I could with those role models and mentors learning about the markets. And I thought, if you loved the stock market, you became a stock broker. And I went to work for William Blair and company when I graduated,  from Princeton. And it was a great place to train a great place to learn.

John Rogers, Jr. Cause as you know, Blair is our, you know, largest regional brokerage firm and you had all aspects of the investment bank there, the money managers, the brokers, the institutional sales people, et cetera. And I pretty quickly realized I was in the wrong business. I shouldn’t have been in the brokerage business. I really was meant to be an investment manager where I could develop a long term approach to investing. As I learned about that, I said, you know, if I can’t do this here at Blair, I’ll go off and start Ariel. And that experience again, was very helpful and giving me the confidence to start my early stocks worked out well. And that gave me confidence. And I also have to say that, you know, there was several African American entrepreneurs in Chicago who had done really well and started their companies at young ages. John Johnson had created Ebony and Jet magazine at an early age.

John Rogers, Jr. And George Johnson had created Afro Sheen a hair care product company at a very early age. So I think those African American role models gave me confidence that I could start Ariel  investments at an early age. And then finally I have to say that, you know, I was lucky. I had friends and family who believed in me and they were willing to help me raise the first couple of hundred thousand dollars to open up the doors and be able to pay the salary of a high school buddy of mine and give us the time to develop a track record and get some interest going around our small company.

Jonathan Boyar Yeah, building that track record, obviously by definition it takes time. Was it hard to convince people, even if you had a good couple of years to give a 24 25, 26 year old, you know, some money to invest?

John Rogers, Jr. Well, I think we did a couple things that helped give people confidence in those, in those early years.  One was, we started this newsletter called the patient investor and every issue I would talk about my views of the market. Talk about my favorite stocks, why I like the stock. And then I kept track of how the stocks performed on the back page. So people could see my thinking about the markets and see whether I was, you know, thinking creatively and had some logical thoughts around the markets. And we made the good decision to have the logo of the patient investor be a tortoise to remind people that old Aesop’s Fable that slow and steady wins the race. So I think that gave prospective investors some kind of confidence that we were gonna be prudent patient investors and not risky investors. And then the final thing was we went to friends and family also and raised about $500,000 and we put it what we called aerial fund. It was run just like a partnership, but it had a, a normal fee structure to it. And so we had a real live track record along with the, uh, paper track record that we had in our newsletter, uh, the patient investor.

Jonathan Boyar And you’d mentioned that in Chicago, there was a lot of very successful, you know, African American entrepreneurs. Did you gain access to any of them? Were any of them particularly helpful?

John Rogers, Jr. Yes, that was another really, you know, helpful part of our story, you know, growing up in the south side of Chicago and my parents had met at the university of Chicago law school and they knew some of these outstanding entrepreneurs and I had a chance to grow up with their children, go to grade school and high school with John Johnson’s daughter and son and George Johnson’s son, et cetera. So I did have great exposure to them whenever I had key questions or concerns as I was starting the business, I would go and see, you know, John Johnson go and see George Johnson. I still go and see George Johnson. Now he’s,, 95, 96 years old and still is sharp as a tack and still full of wisdom. And so, so helpful. So having those legends to lean on was critically important in those early years and giving me confidence to, to keep going.

Jonathan Boyar You probably needed a lot of confidence in, you know, you started in 84, 3 years later, you have the crash of 87 you’re 27, 28 years old. However you were at that time, you know, did you think you were going to fail then? Like that was a day that I can’t even imagine losing 20% or whatever it was in one day.

John Rogers, Jr. Yes. You’re too young to remember that it was a brutal day to lose over 20% in one day. I can actually remember I was at the wedding planner and I was having to keep stepping out of the meeting to get on the phone and see what was latest on the markets. It was a scary time, but in some ways it was a really, uh, defining time for us that Ariel, cause  we kept telling people we’re value investors. We told people, we believed in Warren Buffett fit’s mantra that you want to be greedy when others are fearful or what the legendary John Templeton always talked about buying when there’s maximum pessimism. So this gave us a chance to prove to ourselves that we were true contrarian, that we were gonna be willing to buy when there was an extreme stress. And at the same time, I think it gave our customers confidence when they saw us buying more.

John Rogers, Jr. They heard me on the phone, I’d call up clients and say, send us more money. This is a once in a lifetime opportunity to buy bargains. And the fact that we bought bargains during that crisis of 87, set us up for really good performance coming out of that year and into 1988. And I think our fund was in the top five in the country in 1988 and we got to be co mutual fund manager of the year in a strange way. It really set us up and helped to create our brand that and show people that we really truly work in Tris and really were true value. Investors

Jonathan Boyar Just wanted to shift gears for a second and you sit on numerous corporate boards, Nike McDonald’s, New York times company, your co CEO, Melody Hobson, a former World, According to Boyar guests sits on the Starbucks and JP Morgan board. And, and I want to be very careful on how I phrase this question as I’m not implying in any way, you’re acting on any material non-public information as your reputation is pristine. And I’m sure you don’t own those stocks for clients anyway, but by sitting on these boards, you gain access to so many data points and are able to really have an unbelievable insight into the economy and the US consumer and somewhat in the same way Warren Buffett does by owning a railroad and, and other businesses. Does your board service make you a better investor?

John Rogers, Jr. I think for sure it does. You know, I tell people, you know, I used to be on the bank one board for a number of years and I think I’m a better banking analyst now because of that experience, I was on the Aon board for 18 years and work closely with pat Ryan and watched him build that great business. I think I’m a better professional services analyst, financial services analyst, because of that experience. I chaired the audit committee there. I learned an awful lot about how that works. I was on the McDonald’s board when, uh, stock was like $14 a share and Jim can Lupo came back as CEO and created the plan to win. They got the stock back on track and learning how, how important it is for a management team to have a plan to win during difficult times and executing that plan consistently lessons that are just so important.

John Rogers, Jr. And I’m looking for that plan to win and the research that I do on all the companies that we follow today. The other thing about being on boards is you build great relationships with the other board members who are in many different industries and it’s great to get their insights of what they’re seeing in the economy and what have you. But I would say there’s no particular advantage here at air. I’d love to say that we have some kind of a secret sauce and, and  you know, real competitive advantage in this way. But if you think about it, you touched on Warren Buffett. Of course, he served on many, many boards over the years where you had great insights being on the board of Coca-Cola, et cetera, et cetera. You think of all the private equity firms, the KKRs of the world and the Blackstones and the Carlyles, all those executives serve on all the different boards, the companies that they invest in and get to see all aspects of the economy.

John Rogers, Jr. That’s very, very helpful. And then finally, I would say it’s the same if you’re on the board of a nonprofit, if you’re on the board of a university, like I and vice chairman of the university of Chicago, I learn a lot about how a major hospital is run and what’s happening with healthcare in this country, healthcare reimbursements and all the challenges that major hospitals and major universities face. And then finally, you’re also on the board with other key leaders like currently David Rubenstein’s, the chairman of the board of the university of Chicago to sit and talk with him and get his insights. It’s amazing, but that’s what he does. You know, he serves on literally dozens of boards over the years and that’s what makes David Rubicon, such a brilliant leader and thought leader because he has great relationships and his antenna is everywhere and he can have a sense of what’s happening around the world, literally because of his willingness to serve and help others and volunteer to chair the board at Duke and be involved again at the university of Chicago and other places. It’s the special, unique insights that he gained from those experiences.

Jonathan Boyar One of the things I really like to ask successful people is how they spend and organize their work day. How do you divide your day up in money management? There’s no typical day and, and I get it, but can you take us through that typical non-existent day? <

John Rogers, Jr. Yeah, well, parts are the same pretty much every day. You know, I get up in the morning and, and read five newspapers and that’s an important part of just getting the day started. I try to have a workout, you know, for 45 minutes to an hour every morning. And I started taking piano lessons roughly five years ago. So I try to get a little piano practices in the morning. So those are my three early morning endeavors. And then as I transition, as the morning starts to go, my co-manager of aerial fund, John Miller sends me the early research reports, uh, that have come out that morning from the major brokerage firms and see what you guys are thinking, see what others are thinking. And that’s gonna be a morning activity that John and I share. And then if it’s earning season, then you’re typically gonna, when you get to the office, you’re gonna have a series of calls with management teams.

John Rogers, Jr. Every quarter, we talk to all the management teams of all the companies we invest in our small and midcap value product. And so a good bit of the morning often is one of those calls after another seeing what’s changing this quarter, seeing if they’re executing their plan to win consistently or not from the different management teams. And then, you know, you typically gonna go to lunch at the Chicago club and often, and, you know, network with people. And it could be just could be something you’re doing from a civic standpoint or something you’re doing from a, you know, investment point of view or marketing point of view to build the brand and get the word out. But we think it’s important to get out and have lunch and, and network, you know, throughout the Chicago and business community. And you know, and then throughout the day, whenever you get free moments, you’re gonna be reading the latest magazines and newsletters.

John Rogers, Jr. And this is a job for readers as suggested earlier, you know, we were talking about how important it is to be able to get paid for reading. A good bit of my time is finding that free time to read the latest things that are going on in the market today. We had a conversation that Melanie hobson and created with a thought leader in behavioral finance and making sure that we’re on top of all the latest things that are happening, make sure that we’re keeping our research process fresh. So you’re, you’re trying to find time to make sure you’re thinking through things that you can improve on twice a week, we have a regular meeting with all of our portfolio managers and senior analysts to talk about what’s happening. We have a regular scheduling meeting to make sure that we’re on all the zooms and all the calls. And then typically as you move into the evening, there’s gonna be a dinner to go to or cocktail reception fundraiser around town for a community organization or a civic organization. We do believe it’s important to give back to the city that we love so much as, been so welcome to our small company.

Jonathan Boyar Sounds like an exhausting day, but a good one. One of the things that I read about you, I, I don’t know if it’s still true, but your technologically adverse, obviously, you know how to use it if you wanted to, but you choose not to really use email very much. You choose not to really use a computer. How does that help you

John Rogers, Jr. I was reading something. I think it was an Inc. magazine yesterday that was sent to me by a friend where Warren Buffett talks about, you know, how he spends his time and how important and how valuable time is. One of the suggestions in the article was that you control when you look at email and not allow emails to dominate your life. So I don’t email it all. You know, my assistant gets emailed the people that work at Ariel get emailed. I don’t, I don’t wanna have my time just hijacked by anyone trying to, to reach me. You can read more that way and absorb information better if you don’t have that barrage of, uh, email coming at you. So I think that’s been an important thing that I do to try to use my time more effectively. I often talk about that. I often go to McDonald’s and get away from the office and find quiet time there to read. It’s always sort of been a home away from home where, you know, I can just concentrate on things that are important to get done and think about what I hopefully need to be thinking about. So I am a believer that time being so important, I don’t want to let technology transform my life the way it can.

Jonathan Boyar I completely agree. And I wish I was able to, to do that. You know, email can be an unbelievable time waster and I fully agree it’s during the day. You know, how often are you looking at the market? Are you checking stock prices constantly once a day? You try not to. How does that work?

John Rogers, Jr. Yeah. Yeah. I learned a long time ago. It wasn’t healthy for me to check too often. You know, we’re long term investors, as I said, our logos at turtle, we do believe in patients. So I’m typically checking the markets. Maybe it’s three times a day, get the opening, get a midday update and then see things as the market’s closing. Yeah. Otherwise it’s just becomes a big distraction and your emotions go up and down. And I just think it’s not a healthy thing, at least for me to do. And of course, when I’m home during the COVID time, I’ve got the CNBC on the television all the time you go and glance at you can’t help it. Most of the time, I’m not in the room where the TV is. So I really, uh, don’t wanna be distracted by the volatility of the markets.

Jonathan Boyar Just shifting gears a little to your process, you built a, a terrific long term track record dating back to the mid eighties. I’d love to hear about how you manage your client’s money. Someone came to you with 10 million and wanted to separately manage account or whatever your minimum is. How do you construct a, a portfolio for that client?

John Rogers, Jr. Right now? We have basically three different strategies at Ariel. We were sort of slow to diversify. So the answer is little different because we have our international global team in New York and that’s run by Rupa Bon. And she’s a expert in the, you know, international investing. We have our project black, which is a private equity business in New York city. That me started a year ago. And so it’s been nice to have our connection to the whole private equity world and working to build large minority companies through private equity. But the work that is, you know, near and dear to my heart has been the small and midcap value space that I’ve invested in these last 39 years. And when we started, we were one of the early people in the small and midcap value space. So we’re not many, you know, you had Ralph weer at the acorn funds and a few others that were doing that work, but it was really relatively rare.

John Rogers, Jr. So if you come to me with a million dollars or 10 million, what have you, and then find out whether that’s the money that you want in the stock market or not, or are you diversified outside of Ariel? Cause we are a specialist. We know we can’t handle someone’s entire portfolio. We’ll handle a, a portion that is focused on small and the midcap value if you’re talking with us. So the portion that you’re feel comfortable with, we will typically have that portfolio placed in roughly 35 names. You know, over the years we found that 30 to 40 stocks is kind of our sweet spot and we try to focus in relatively few industries. You know, we believe deeply in Charlie Munger’s point of view that, uh, this shouldn’t be like Noah’s arc where you own two of everything, you know, so we really do want to invest in what we understand and industries we like to read about and study and can get to know really, really well.

John Rogers, Jr. And so of course that means there’s gonna be more volatility relative to benchmark because we are benchmark agnostic. So it’s not only a concentrated portfolio, but it’s going to be concentrated in a relative fewer number of industries, which we think is the best way for us to manage money. Our turnover is gonna be typically 20% a year or on average. So it implies, we own the same stocks for five years, but we have stocks in the portfolio that have been there 10 years, 15 years or more sometimes we’ll trade around the names. Sometimes we’ll own it, that same name for, you know, just the long run without ever, you know, selling out of it completely. But we want people to know that when they invest with Ariel, what’s gonna be with that long term perspective and how we put together their portfolios. And, you know, and then just the final thing I would say is that we really do want to pound away to people that they really do have to look out over the horizon. There’s gonna be times with our approach being concentrated portfolios, you’re gonna underperform and you’re not gonna look smart versus the indexes. And you’ve gotta be comfortable with that and ask, letting customers know that maybe you want to add to your portfolios when we’ve gone through a rough spot in underperformed, our benchmarks,

Jonathan Boyar You’ve had some huge successes along the way. Do you have a percentage that you won’t put in an individual name or sector? Like if it gets too big, is there a cutoff point or will you, if you’re confident in the business kind of let things ride?

John Rogers, Jr. No we’ve learned over the years, you know what our comfort level is on that and with our analysts and our fellow co-portfolio managers, we’ll say that we’ll alone 10% of a specific industry, you know, just make it up carpet manufacturers. We’re not gonna have more than 10% of the portfolio in companies like Mohawk. So for an industry itself, not more than 10% of the portfolio in one industry, individual security, wouldn’t be more than 6% in one individual security. 

Jonathan Boyar Is that at purchase or at accumulation

John Rogers, Jr. At accumulation, we’ll buy up until 5%, but we typically, we wouldn’t be buying at 6%. We’re gonna be again, lightning up at 6%

Jonathan Boyar For your own personal portfolio, where obviously you don’t have to answer anyone except for yourself. Would you feel comfortable making something 10, 15, 20%?

John Rogers, Jr. It only happens by accident. You know, as I mentioned earlier, you mentioned earlier, I’ve been on the McDonald’s board 18 years. And I got on the board at a time when the mark was really out of when stock was really out of favor, uh, maybe a year or so after the headlines and business week hamburger, hell. So as directors, do you get on a board, you buy stock and then you get granted stock every year. And those early years I was adding to my position. Cause I believed in the plan, the win that Jim canal Lupo had played out, I believed in the board and the management stock was really cheap. And so, because of all these years, it’s grown into a substantial asset. For me, it wasn’t intentional that it would become a significant part of my P my portfolio. But now that I’m on the board there for all these years, I’m not gonna sell the stock either.

John Rogers, Jr. That’s not, you know, I still believe in the long term story. I think it’s a great, great company and it’ll be hopefully, uh, I’ll loan it for another 20 years. That’s my idea. So, so individually I’ll end up sometimes with a large holding because it’s, uh, tied to a board that I’m involved in. Mm-hmm, <affirmative> the only two stocks that I own independently from my board service that I bought consciously. This Morningstar, when Joe Monto took the company public, I had so much confidence in Joe and Don Phillips and team that was there. Unfortunately I waited too long, but I did buy shares in Berkshire. And, uh, I wish I had bought it 30 years ago

Jonathan Boyar For a decent number of the names that you own. And looking through your 13 Fs, I could tell which ones are your names and which ones are your international names or global names. You know, a few companies you own more than 10% of the outstanding shares. How do you handle, or how do you think about the lack of liquidity there?

John Rogers, Jr. We’ve never worried much about that. You know, we’re buying companies that have strong cash flows that are real businesses that, you know, we’re confident we’ll be around for a long run where they have strong balance sheets. So we’ve not had trouble moving out of those types of businesses. You have trouble if you’re in a bad business that the, uh, balance sheets gone sideways and you’re in a trouble situation. And whether you’re a 5% or 10% owner, you’re gonna have trouble in that situation where everyone’s trying to get out at once. And there’s a steady amount of selling going on when you’ve made a mistake. That can be, I think, problematic, but we’ve worked really hard to make sure our companies have that kind of margin of safety with them that, uh, you know, you make mistakes. We’ve made our fair share over 39 years, but we rather own a lot of something we know and believe in and understand that’s less risky than having our dollars spread out over names that we don’t know well, or in industries, we don’t have high confidence in, and with management teams, we don’t have high confidence in just like in private equity.

John Rogers, Jr. You know, you wanna own a lot of companies you believe in, and Warren Buffett talks a lot about that. You know, he wants to own more of businesses. He loves and, um, believes in the long run, you know, companies themselves with a discounted present value of their future cash flows and not worry about their short term ups and downs

Jonathan Boyar In terms of how you position things, you know, looking at your, you know, fact sheets, you have a lot of three, 4% positions, and then you have some 1% positions. What makes something a 1% versus a four? Is it the upside? Is it the downside you’re looking at? How do you decide that

John Rogers, Jr. What we do is we have our buckets that all the portfolio managers and analysts work on and we talk about together and the buckets will put our companies together and our largest should be. And the companies we have the largest positions in should be the companies. We have the highest conviction in the story and are also the same time selling at bargain prices. So if it’s cheap and it’s a great business, it’s gonna be in the number one bucket, the lower bucket with those smaller percentages are gonna be companies that are either don’t have quite as much conviction in, and they’re no longer selling the same significant discount they’re getting close to their private market value. So the smaller positions can be typically are companies that, again, either you’re scaling out of, cause you’re losing conviction in the company or you’re scaling out because the stocks become very expensive. That’s where you’re gonna have in your lower tier bucket. In the way that we look at these names,

Jonathan Boyar Mentioning that, you know, things get very expensive. I found buying is really easy. The hardest part is selling. How do you decide when to sell? Is it a purely valuation call because there is, you know, momentum is a real thing. How do you figure that out?

John Rogers, Jr. There’s two reasons we sort of touched on a little bit. One is the question, socks get to be expensive. And typically when they’re getting expensive, they’re also sort of moving into the mid value, large value space. So we’re gonna be selling cuz of valuation. We’re gonna be selling because it no longer fits within our small and mid-cap position. That’s a good story. You know, you’re going well and you’ve gotta lighten up because of, and again, valuation or size when you make a mistake. And of course it inevitably happens in this business is when you have earnings, disappointments, the stocks get hit, they seem too cheap to sell. And then as you’re thinking about it and studying it again, it gets cheaper and cheaper and you think it’s cheaper. You know, it’s more and more of a bargain and it is hard to get away from a bad hand.

John Rogers, Jr. You know, it’s a difficult part of our business. We talk to a lot of behavioral finance experts and others, people from the poker world who tell you how hard that is. And that’s an important discipline to constantly push yourself, to be able to sell things that have not done well and not try to, you know, talk yourself into holding those losers or buying more of those losers. So if we lose confidence in the plan to win to management, if we think that the moat isn’t as strong as we originally thought, if we think that they’re making capital allocation decisions that are not intelligent, all those would be reasons for us to scale out of a position completely and realize that you can be wrong in there too. And the stock will come roaring back, but we do believe that we have to have that discipline to get away from those bad, that are the hardest things to sell.

Jonathan Boyar Since you world changed dramatically, technology has evolved. You famously from Ben Graham type stocks, you know, you know, to now buying kind of very high quality businesses. He’s also has the high, fast problem of only being able to buy really large companies at this point in time. How have you evolved and how has your strategy evolved since you started in, in the early eighties?

John Rogers, Jr. Well, it’s evolved in a number of ways. I mean, we have a, uh, one from the beginning. Now we have a strong, strong team. Primarily we do our recruiting at the university of Chicago and university of Chicago business school. And, uh, several of our analysts, you know, train there started out on summer interns, you know, having a great team of folks. Who’ve been with you through the ups and downs and inevitable crisis in this industry, you learn from each other. So the strength of the team is something that’s evolved over the years. And I would say, you know, Tim FLER and Ken curd and John Miller and Sabrina Carlo, you know, just in critical Charlie Bo Brisco has led all the improvements around our balance sheet work and creating our own proprietary debt ratings. That was something that we thought was really very, very important after the oh eight and oh nine crisis.

John Rogers, Jr. So the way that we analyze the balance sheet of our company has evolved significantly. We do a better job now of keeping track of the popularity of our stocks. And we have a numerical way of looking and seeing, which are the most popular names, which are the ones that are hated most on walls street. And making sure that we are understanding where the contrary bets are versus where the consensus bets are. We think that’s an important improvement in our process. We’ve worked really hard through our behavioral finance work, you know, and being fortunate to have Dick Thaler at the university of Chicago and reading gang of conman’s work and understanding a lot around behavioral finance to work on our behavioral weaknesses, you know, trying to understand do we have, you know, just human nature that you’re gonna have confirmation bias. You know, you’re gonna look for information that confirms who you already think, and you know, it’s just, there’s recency bias.

John Rogers, Jr. You know, you get caught up with what’s the, in the here and now and swept up in the emotions of that moment. You have a hard time, you know, you have the endowment effect where you fall in love with what you already own, you know, instead we could go through, but so working hard at understanding our behavioral biases as a group is a critical improvement in the study and research and have the professors help us understand where our weaknesses are, is something that we’ve worked hard at, improving in our process, and then creating an environment with our, our meetings, with our analysts and portfolio managers to make sure we’ve created a safe environment for people to challenge conventional wisdom challenge each other’s perspective. So we actually have, uh, you know, double’s advocate that we added about a dozen years or so ago to make sure that the contrary voice is always heard in our meetings.

John Rogers, Jr. And we think that is, uh, really, really, uh, really important. And then finally, you know, there’s many things, but the last one I’ll mention is that we started working with BIA associates. I know probably 15 years ago or so. And they’re a group that helps you ask better questions and read the body language of people you’re talking to to see whether they’re being truthful or dishonest or not is, you know, a big part of our jobs, you know, your job. And my job is to talk with analysts, talk with management teams and determine the veracity of what they’re telling us again, are they being truthful? Are they being Eva? So, so having, uh, not only B teach you how to do that, but also coaches along the way, help us prepare the right questions, help determine who’s the best at, you know, doing these interviews. That’s the big improvement for us. The BIA work has been really helpful.

Jonathan Boyar That’s fascinating. I guess that’s kind of probably former CIA spy type people who are doing, I mean, what are the backgrounds of those

John Rogers, Jr. Type? Exactly. A lot of them are former CIA, FBI, uh, government agents who, um, know how to ask the right questions and then determine whether people are being truthful, their body language and the follow up questions you ask. And, you know, it’s interesting. You’ll see, when you ask a tough questions, how people will like move around and they’ll do this anchor shift and start to fiddle with their, their face and hands on their face. Things like little things you’ll notice that you really, I never really noticed before, you know, but once you know what to look for, it’s just been fascinating.

Jonathan Boyar Probably helps with poker too.

John Rogers, Jr. Yeah. I do love to play poker and, uh, I have not used it there cause I’m not questioning anybody.

Jonathan Boyar So I’ve been wanting to ask you about this for a while. I think you probably know where I’m going on this you’re among the, the larger shareholders of Madison square garden sports and the largest shareholders in, in Madison square garden entertainment. I think you own 22% of the company or so, you know, it’s a name we own, we own both, you know, both companies suffer from the so-called stolen discount. Can you take us through your investment thesis for both companies and how you see value being unlocked? And maybe also you mentioned project better at McDonald’s how that might work with the Dollins because things could be better.

John Rogers, Jr. Yeah, well I think it was the simpler one is that man square garden sports is a simple, you know, story. You know, sports teams have become more and more valuable as, you know, the television contracts just go up and up and up, you know, live sports is still popular on all the different medium where you can watch content. And um, so we think if you look at what the KNS are worth and the Forbes valuation and what the ranges are worth and is the stocks are selling it a substantial, substantial dis stock is selling a substantial discount of what we think the private market value is for the Knicks and the Rangers combined. And we think the story’s just getting better and better. Of course the, which you guys have talked a lot about. And we agree with, we think the gaming is a big, big deal.

John Rogers, Jr. I was reading a big story this week in business week around what’s going on in the gaming world. And people love to bet. And these we know, and, and sports betting now and online sports betting and the rest of it, we think it’s gonna be a major initiative. That’ll help the Nixon and Rangers. So we just think that’s a pretty simple, straightforward story. It’s a selling less than what comparable transactions, when you think the company’s really worth magic square garden entertainment of course, is, is more of a conglomerate, I guess you could call it. They have many major businesses. And it’s when we look at the sum of the parts we think the stock is selling it well, you know, maybe, you know, as much as a 60 to 70% discount from its private market value, our one analyst has the value as high as $153.

John Rogers, Jr. One of our analysts. And even if you take a more conservative, you have 137, the stock selling in the high fifties, it is extremely, extremely, we think undervalued. And as you know, the core business, we think owning the garden itself, this iconic building that is, uh, full all the time with not only sports, but of course, entertainment and concerts and the like, and being right in Midtown Manhattan, that it’s just really valuable that the air rights are very, very valuable. There’s gonna be a real benefit from gaming there too. Also, you know, you don’t know exactly how it’s all gonna play out, but maybe it’ll be a sports book in the garden or in Penn station. And so we just, we love the garden. We just think it is a unique facility in the world. You talk about having a mode around the company. I think that’s one, that’s just is a people don’t understand the value.

John Rogers, Jr. Most of the analysts valued it based funds and tax valuation from years ago in New York that does not realistic. And the other key that, of course, they’ve spent 2 billion now on the sphere in Las Vegas, which is a, an arena that’s gonna hold 19 to 20,000 people with the best sound system, best technology, best visuals ever, ever. And we think it’s, uh, it’s, it’s a special, beautiful, new, you know, iconic feature in Las Vegas that will open up next fall. We think that if it works out there, they’ll be able to take it around the world to other major cities of London being the first one and do a capital light type of a model. And the growth there will be substantial from the sphere they’ve already, they haven’t announced publicly yet, but all the rumors are the Bono’s gonna be the opening act at the news sphere and we’ve gone there to visit and seen the construction.

John Rogers, Jr. And it just it’s like no other arena in the world. It’s just nothing close to it. And the advertising possibilities on the outside of the arena, the naming opportunities, you just go on and on about how powerful those spheres going to be. And then they own with wiring in Las Vegas, they own towel. And Hawkathon two of the fastest growing nightclub, restaurant entertainment, places generating an enormous amount of cash, enormous amount of profitability. We think that wall street doesn’t give it a proper multiple for the growth rate that’s there. And I think that’s kind of one of the hidden gems within the structure, which is, you know, they’re going to be spinning these companies into two. My part of my thesis is it’s a way to show off the beauty of what’s going on, uh, with Tao and Hawkathon and, and those types of assets, the area that’s been the most troubled of course, has been the regional sports net that was bought guess a little over, was it 18 months ago or so time flies.

John Rogers, Jr. And we all know that traditional cable is dwindling. And so the kind of fees that cash flow, they were able to count on steadily decreases seemingly six to 7% a quarter. But at the end of the day, we do think, believe that the direct to consumer initiative, they’re gonna come up with that they hope to roll out during this, this year’s basketball hockey season will be a powerful way of sort of turning the tie there, you know, having a more positive story for the regional sports net. And we think that the, again, the gaming will be really helpful there too. The advertising is gonna be on the regional sports net. It’s already there, lots of great ads that come on regularly. And then of course they own the Rockettes and they own the Chicago theater and they have all these other added ancillary businesses that we just think there’s gonna be more visibility after the spin spin. And we have two companies independently trading. I think the value gap will start to close for sure. And once the sphere opens up, it’ll be another catalyst for change. So it’s, uh, we’re quite excited about it. It’s already went on a long time about it, but it’s just, it’s a stock where we keep sitting, sitting here trying to figure out what are we missing? Can’t quite put it together.

Jonathan Boyar We’re in the same camp on that, for sure. And, you know, everyone loves to hate the Dolans, but I think they’re better than people give him credit for. I looked on Bloomberg, you know, cable vision from when it went public to when it was sold to alt you know, significantly outperform the S and P 500, but, you know, wall street has lost faith in the dos. And in some ways it’s, it’s been self inflicted. They’ve done some things, you know, the Madison square garden network transaction, et cetera, that probably were not in everyone’s best interest, but how do we actually make money on it? Because, you know, valuation is not its own catalyst. What’s gonna make people start to believe in the Dolans. Does this thesis on Madison square garden sports? Is that predicated on some sort of sale of the team? Like kind of, how do you think about that?

John Rogers, Jr. I do, you know, I, you never know for sure. And, you know, I’ve spent some time with Jim Dolan had some really good friends. Who’ve worked for Jim Dolan who have a lot of respect for him. Uh, I played basketball in college with Steve mills who was a longtime president of the NS. And, you know, he’s always has spoken very highly of Jim and his leadership. So I do think that the discount is way, way overdone. I think the way that you start to see some progress, you know, the team they put in and charge the Nicks, you know, Leon rose and worldwide west, the new gen, you know, the general manager who was, you know, held on and, uh, bringing in Tom Tito as the coach. I think there’s real hope that they will start to win again. And I do think that if you get them a winner in New York city, the value of that franchise will just go up.

John Rogers, Jr. You know, there’ll be more and more people who will wanna buy the team. And I kind of think that Jim Dolan’s heart of hearts, he’s more of an entertainment person than sports person. I mean, I haven’t, I’m just speculating. And I know you guys have speculated on this too, so it wouldn’t be a shock to me that if he sold the teams at some point and just focused on the entertainment vehicles, cuz he loves it. As you know, he has his own band that he plays in and you know, he has a passion for that. He has great relationships in the industry with all the artists who are out there. So if you had to push me on that, I think eventually they’ll sell the company, use the cash to help strengthen the entertainment side of the business and think it’ll be a win-win for everyone over the long run.

Jonathan Boyar He sold a team, New York sports fans would certainly be very happy. And you know, I, I do think he’s much better than people give him credit for, I haven’t had the chance to meet him, but he has done right by shareholders over the long run. I mean, one of the things I like point out is I I’ve been saying they should sell the team for years and the right thing has been to hold onto them. They’ve just only gone up and up and up in value. But I guess one of the questions I’d have for you is, is I struggle with this sometimes is how do you really value what the kn and the Rangers are worth? Obviously you have Forbes Ando, and, and they’re saying this and you have some precedent transactions, but you know, as a value guy and a fundamental investor, you’re paying a rich multiple, how do you kind of, you know, meld the two?

John Rogers, Jr. Well, I think if you look, if you look at the past history, many of the transactions that have occurred in professional sports have been around the valuations are above the valuations from Forbes. So that gives me confidence. There’s some margins of safety built into the valuation that we have for the mix and the Rangers. I think the other thing that’s changed though, since the earlier years, you know, cause Forbes have been, I dunno how many years they’ve been keeping track of sports teams, but transactions have happened steadily over the years. I think it’s transformative. What’s happening with sports betting and the way they’re gonna make watching sports games more and more interactive, you’re gonna have people just loving the content and interacting with the content in ways that people could never have imagined. And that can only help the ratings go up already. People are talking about the next television contract being way more than the last way, more than the next expectations. And I think it’s, you continue to see, you know, what’s happened with the NIS and the other ways that just the value of things that they control and own the teams. I think you can make a case that relative to the fors value it’s this is selling it even a bigger discount than you would’ve said two years ago before all of this took off.

Jonathan Boyar You’ve been unbelievably generous with your time today. I, um, and you know, I want to thank you, you know, for appearing on the show, I learning about your fascinating career, your views on names that we own, like Madison square, garden, sports and entertainment, and you know, kind of how you manage money is just really insightful. And I really thank you for your time.

John Rogers, Jr. Well, thank you. I enjoyed the conversation and I’ve always enjoyed working with you and, and your team and the quality of research you guys provide. It’s been, uh, really appreciate, uh, thoughtfulness.

Jonathan Boyar Well, thank you for that compliment. That is very much appreciated and we value you as a, as a subscriber. I hope you enjoyed the show to be sure you never miss another world. According to Boyar episode, please follow us on Twitter at @boyarvalue until next time.


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Neil Vogel, CEO of Dotdash Meredith on how they became the largest publisher in the United States and why they can now compete with both Google/Facebook plus much more…


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The Interview Discusses: 

  • How Dotdash in a relatively short period of time became the largest publisher in the United States.
  • IAC’s recent acquisition of Meredith and why he believes they now have the scale to effectively compete against Facebook and Google
  • Lessons learned from working with media mogul Barry Diller.
  • The future of print magazines and why Dotdash is intentionally shrinking their subscriber base.
  • The tremendous licensing opportunities they intend to take advantage of.
  • A potential spinout of Dotdash from parent company IAC.

About Neil Vogel:

Neil Vogel is the CEO of Dotdash Meredith, the largest digital and print publisher in America. Prior to its acquisition of Meredith in December 2021, Mr. Vogel was the CEO of Dotdash, where he led the company’s transformation from a general information website (then to a vibrant collection of branded properties and one of the largest and fastest-growing online publishers.

Before joining Dotdash, Mr. Vogel was the Founder and CEO of Recognition Media, a creator and producer of award shows and media properties for digital, creative, and advertising communities including the Webby Awards and the Telly Awards. Prior to starting Recognition Media, Mr. Vogel was Chief Corporate Development Officer at Alloy Media + Marketing, a digital content and marketing services company focused on the teen and youth market.

Mr. Vogel is a member of the Board of Directors of the Philadelphia Inquirer, the largest newspaper in America operated as a public-benefit corporation and serves as a venture partner at FirstMark Capital. He received a BS in Finance from the Wharton School of Business at the University of Pennsylvania.


Click Here to Read the Interview Transcript

Transcript of the Interview With Neil Vogel:

[00:00:00] [music]

Jonathan Boyar: [00:00:00] Welcome to The World According to Boyar, where we bring top investors, best selling authors and business leaders to show you the smartest ways to uncover value in the stock market. I’m your host, Jonathan Boyar. Today’s guest is Neil Vogel, CEO of Dotdash Meredith, one of the largest publishers in the United States that own some of the most widely recognized brands, including People, Better Homes and Gardens, Travel + Leisure and [00:00:30] Investopedia. Dotdash recently acquired the publishing assets of Meredith, and the combined company reaches over 175 million consumers monthly, and over 95% of American women. Neil, welcome to the show.

Neil Vogel: Thanks for having me. I’d like to point out, I am not a bestselling author, and I am not one of the world’s great investors either, but thank you for having me. It’s fun to be here.

Boyar: You are a business leader.

Neil: Thank you. I’ll take that. I’ll take what I can get.

Boyar: I, of course, want to discuss the recent Meredith deal, and what it means for the company, [00:01:00] but I first want to talk about the turnaround you did at what is now called Dotdash. Dotdash used to be, which your parent company, IAC, bought from The New York Times, full disclosure, Boyar Asset Management owned shares of IAC. For those of you old enough to remember it, was a very popular site in the early days of the internet that you would go in order to find out about pretty much anything, and you were tasked with running it after the acquisition, and after about two years or so, even though it was still making a fair amount of money, [00:01:30] you concluded that you essentially had to break up the site in order to grow it.

What you did was you took the giant site,, dismantled it, and turned it into a bunch of standalone websites that focused on narrow verticals like health or personal finance. To me, this seemed like a really difficult business decision. You had a business that was working okay, but yet you decided to make a really expensive bet to transform the site knowing full well that initially, you would lose lots of money. [00:02:00] What gave you the confidence to do this? Can you take us through the analysis and decision making behind it?

Neil: The short story and the long story are kind of the same story. The thing that gave us the confidence to do this was that, we were wrong for two years, and understanding and learning from being wrong and learning from trying things gave us the confidence to pivot the model. I’ll give you a little backstory here. I joined not that long after IAC bought it, probably six or eight months. I knew Joey Levin, who’s now the CEO of IAC. [00:02:30] He brought me in to run, and at the time, was definitely challenged. Joey had spoken broadly about why they bought it and what they did with it, but we got there and we saw this publisher. name that everybody knew. We’re like, “Oh, this is going to be for fun. This is like this fallen giant of the history of the internet. We’re just going to clean it up, and it’s going to be great, and we’re going to be able to fix it.” That is exactly what did not happen. We got there, and I’d never really been a publisher before. I brought in a bunch of people that hadn’t been publishers before. [00:03:00] We tried a bunch of things. We tried to make the content better. We tried to make the sites faster. We tried to do all these things, but the fundamental problem that we learned that didn’t work anymore is that,, if you remember, was very credible information on all kinds of topics, very, very broad.

The internet had changed. Where had information on symptoms diabetes, and had a beer battered  fried chicken, people that have diabetes did not want their diabetes information from the fried chicken guys, and the fried chicken people didn’t want to be on the diabetes site. [00:03:30] We would lose, and we would lose visitors to in health, like WebMD and Healthline, and in food, to, you name it, like Bon Appétit and Food & Wine, and some of the brands, all rest be, some of the brands we own now. After two years of trying and flailing, our story became a very icy story.

We basically, I think we missed like eight of nine quarters when we first got there. This is all internal, obviously. It was us going back to Joey, and Barry Diller, and saying, “That didn’t work, but we’re going to try this, and that didn’t work, but we’re going to try this.” Eventually, [00:04:00] we went back and said, “Listen, everything we’ve done seems like we’ve failed, but we haven’t. Actually, each one of these is a data point, and we’ve assembled these data points, frankly, like what not to do.

In many ways, that’s more valuable than what to do. When you get something that’s what to do, you just keep doing it, when it’s what not to do, you have to think and you have to pivot.” What we realized was, there is no place for a general interest site on the internet anymore. Secondarily, we realized that even the publishers in these verticals were doing crappy things. There was too many ads, sites were [00:04:30] too slow and junky, people forgot they we were in the business of delivering content and aid to people. The content was getting crappy.

We’re like, okay, we went back and said, “Okay, here’s what we’re going to do. We’re going to take We have two million pieces of content, we’re going to through a million and a half of them in the trash,” which was obviously a big deal. “We’re going to take the remaining half million in health, and in finance, and in food, and in home, and in travel, we’re going to arrange them into verticals, and we’re going to launch new brands out of, and when we’re done, there will be no more The reason why we think this is going to work [00:05:00] is because, all of our content is, we’re not news, we’re not sports.

It’s very intent-driven. We help people do something with their time. Cook something, make something, diagnose something. We can make fast sites that are really valuable and make brands that resonate, take them out. In all of our arrogance, we think we can actually compete with WebMD. We think we can actually compete with Bon Appétit. We can compete with all these guys.” Then we went back to IAC, and we went back to Joey and to Barry, and I’ll never forget this meeting.

We were like, “Listen, we’re still making money, but a lot less than we [00:05:30] used to.” We want to take this brand that we thought was all of the value of the company, we want to throw out the trash. We want to compete against the best players in publishing on the internet with this new model that we just came up with, and, oh by the way, you got to let us lose some money to do it.” The answer, which was a very IAC answer, and I know you’ve spoken with Joey before, and you know that it was, “What took you guys so long? It took you two years, you could have come with this a year ago.”

That was the exact spirit of answer that we were looking for. From that moment, [00:06:00] from that meeting, which was November or December of ’15, we started to execute our plan. From the first launch of Verywell, which was our health site. It was the first site we launched. We’d launch it. There was a dip for two or three months until people started to figure it out, and the algorithm started to figure it out, and then it just started to go. Then the minute that happened, we knew we had something, and it was just a race to launch The Spruce in home and food, and The Balance in personal finance, and TripSavvy in travel, and Lifewire in tech.

They just all started to work. We’re like five for [00:06:30] five. Then, in a very IAC move, and I’ll continue this story past the answer to the question, we went and said, “Look, we know what we’re doing here. We’ve got this pattern recognition. Let’s find some other things. We are doing this with brands we’ve made up, let’s buy some real brands.” We went out and we started to do some acquisitions. We bought Birdie, which is a very well known Indie fashion brand. We bought something called MyDomain in the home space. Then we bought Brides from Condé Nast, and then we bought Serious Eats and Simply Recipes and Treehugger.

All of a sudden, we’re like [00:07:00] 12 for 12. Like, every brand that we’ve launched or bought, we’ve grown. We’ve grown in revenue. We’ve grown in audience. We’ve really improved, and we’ve got this formula. It’s going. You can see in our financial results which are public how quickly we were growing. We did not look like a publisher. We looked a lot like an internet company, although we are a publisher, to be very clear.

Then, to finish the story with the acquisition you opened with, we got to the summer, and for those of you who followed Meredith in the past, Meredith was half TV stations and half publishing assets. They sold the TV [00:07:30] stations to another group called Gray Television, and the publishing assets were there. We had a very similar conversation with BD and Joey about Meredith that we had at the time we broke up, which is, “Guys, let’s take a look at this thing. It’s obviously heavy in print, but if you look very closely, this is a digital business masquerading as a print business.”

We brought in some of the smartest consultants in print. We think we know what to do with that going forward to make it a really nice complimentary asset, but what we want is Better Homes and [00:08:00] Gardens and Food & Wine, and Travel + Leisure, and People, and if we can run our playbook on these brands that have been historically played second fiddle to print properties, and it’s a really weird thing to say in 2022 that that’s what happened, but that’s really what happened.

Like, let’s get in there and let us do it. More importantly, this whole idea of pattern recognition that we can go back to is, if you map every one of the brands we acquired from Meredith, you can draw a straight line to one of our brands, and what it looks like, and what we had to do. Although it looks like we took a very big bite, we bought something [00:08:30] much bigger than us, we broke it into its component pieces, and we know what to do with it, know how to digest it. Now, we’re three months in. I think today’s just about 90 days. We’re deep in the integration mode, but we’re really excited.

We’re the biggest publisher in the world. We’re these guys that were these non-publishing guys that were very much outsiders trying to figure out what to do with, and now are the biggest publisher in the world. It’s been a crazy ride.

Boyar: No it has, and I applaud Joey and Barry Diller for [00:09:00] giving you the chance. I guess to take the devil’s advocate, success is the worst teacher. What are you doing to ensure that you are taking this situation individually? Obviously, you had a great playbook of what you do and how to improve properties, but this is a huge acquisition. Is there anything you’re doing differently?

Neil: Yes. The first thing is, we are totally paranoid as operators, and this playbook that we used to launch VeryWell four [00:09:30] years ago looks virtually nothing like we do today. What we do is we have some guiding principles that we know work, and what we know works specifically on the internet, but you can define this more broadly to other media assets is, best content for everything we do. Again, our content is called Evergreen Help People Content. Every single piece of content we make, we endeavor to make the very best thing on the internet for that. If you do that, that’s something people will like.

The second thing we want to do is, our sites will be the best performing [00:10:00] sites on the internet, and they are, in terms of speed, that really drives performance. Then the third thing is, the advertising and monetization we use will always be respectful. When we launched– It’s continuous today, it will be two-thirds the number of ads on a typical competitor, maybe less, because you don’t need more ads to make more money, that’s a false choice.

You just need better ads that you can charge more for, and better ways to monetize you can charge more for. If we focus in each of these brands with our number one job is making users [00:10:30] incredibly happy, and the money will follow, build audiences. Our audiences are generally down the funnel because, you’re trying to figure out what color to paint your kid’s bedroom, we know a lot about you. Your router is too slow, we know a lot about you, you’re trying to cook paya, we know a lot about you.

Once you’re down the funnel, we give people the very, very best experience, that’s how we build brand, that’s how we build loyalty, and it works. Now, the formula for People magazine looks very different than the formula for Better Homes and Gardens, and the formula for, but those three [00:11:00] principles are the overarching principles that underpin– Overarching and underpin. I might have mixed things up there. It’s a bad metaphor, but they’re the things that support everything we do.

Boyar: What’s really interesting, and you had mentioned print, and I used to go to any doctor’s office, et cetera, and you would see a Better Homes and Gardens or whatever, Meredith magazine, I’m assuming that’s no longer the case, but what you’re doing now is super interesting, is you’re making it more of a premium product, better paper, that sort of thing. Can you take us behind [00:11:30] that decision?

Neil: Yes, for sure. I think historically, we’ve pretty much telegraphed what we’re going to do, and we’ve pretty much stuck to that. Again, it’s the same thing if you look at what HAS and other people have done. Historically, magazines functioned a lot like the internet in how they made money. If you’re Better Homes and Gardens, you printed a lot of magazines, you had a very large subscriber base to try and sell ads against a very large subscriber base. I think what happened over time is the demand for advertising in print has gone down.

However, people who’s willing [00:12:00]  to subscribe to Better Homes and Gardens are still very robust, but there was a delta in the circulation between the people willing to pay and what they needed to serve advertisers. The trick is to unwind that delta. We don’t necessarily want to give deeply discounted magazines to people or places if there’s no ads to support them. We want the people who love these brands to pay for them. It turns out, the people who love these brands want a more premium product. In many cases, they’re even willing to pay more than they’ve [00:12:30] been paying.

Just like people like reading books in print, just like people love vinyl records, people love magazines, I have the media consumption habits of like a 17-year-old, which is probably in line with my chosen occupation, but we get magazines at home. Obviously, you’re not going to have Meredith magazines, but before that, we got Food & Wine, because we liked it. I’m a big sports fan, I watch a Sixers game and flip Food & Wine because I don’t want my phone around.

There is a real demand for this, and I think what [00:13:00] we’ve seen is that, magazine properties that have a premium element– Look, it’s not a mystery that people don’t want parenting advice from a magazine anymore. That’s hard but Food & Wine, Southern Living, People, the cadre that we kept and we’re actually investing in, they have real audiences that really love them, and it’s an experience. As long as you give them a great experience, it’s not going to be our biggest business at all.

It’s probably not even going to be a growing business, but it can be a very profitable, complementary [00:13:30] business. We’re in the brand business, if we’re building amazing brands, Southern Living‘s magazine is amazing, and it’s incredible for that brand, and people love it. Is its circulation going to double from here? Absolutely not, but can it be a really viable, profitable piece of the mix? 100%?

Boyar: One of the things that you’ve said before the acquisition of Meredith is, you didn’t have the scale to get a big chunk of advertising dollars. To me, it seems strange, you had almost 100 million visitors to your site. What can you do now that you couldn’t do before? [00:14:00] Now you have about 175, probably, it’s grown a little bit since you last gave that stat, but what can you do now that you couldn’t do before?

Neil: This is my favorite question. When we were Dotdash, not only did we say we didn’t have scale but, there was one thing we said we didn’t have, we didn’t have the brands, and we had great brands, we loved our brands, but our biggest brands were four and five years old. Like The Spruce is the single biggest home brand on the internet, it’s five years old. Everyone knows Better Homes and Gardens, no one knows The Spruce.

The Spruce is bigger than Better Homes and Gardens. So, we had a branding issue, and we had a scale issue [00:14:30] because, we do something unique that others can’t do, and we like our chances. One of the things that we do is, we don’t need cookies or personal identifiers to target because of the nature of our content. If you’re on our site because your router is too slow, we know exactly what kind of ads to serve you. We know exactly what kind of commerce opportunities to give you.

You need to either fix your router or get a new one, it’s very simple. Same thing with painting your kid’s bedroom example. If you’re trying to paint a bedroom for a newborn, we know that, obviously, you just had a kid, we know that you’re in the market for home improvement, we know that that very [00:15:00] highly [unintelligible 00:14:58] with a new car, a new house and a new credit card. We can target really, really well. What the Meredith scale allows us to do is for the first time, a premium publisher can target contextually as well if not better than someone can target audience, and you can’t outbuy us, because we have so much scale to do that.

The second thing was, it now gives us these incredible brands to talk to advertisers, like Better Homes and Gardens is 100 years old this summer, and People‘s 50 years old. These brands are [00:15:30] special and beloved as leaders to talk to advertisers with. This is what we like the most, so it’s like, “Okay, is your content safe and good?” “Yes,” the 175 million users you referenced, every single one of them experiences only content we’ve created, edited, completely ours.

There’s no feed. There’s no fake news. There’s no politics. There’s none of that stuff that you don’t want your ad next to. There’s no weird videos, like none of that, we control all that experience. [00:16:00] Check, that’s premium. Can we deliver scale to someone? Check. Can we deliver audience to someone? Check. Do we have some of the best brands in the world? Check. All of a sudden, we are a viable alternative, and again, this isn’t part of the model we need to succeed, but I think it’s going to happen. We’re a viable alternative to Facebook. We’re a viable alternative to some these other places that frankly, it’s an interesting position for us in that, we’re talking to all these big agencies and having lunch with the head of this agency and that agency, they’re all rooting for us. [00:16:30] Everybody wants this.

Everybody wants a premium publisher that has the internet bones that understands how to target, and in a world where there’s intent-based targeting is better than this like audience cookie-based targeting anyway. We tell everyone like, “Look, we’re better than Facebook because we’re trusted. We can compete with Google, and again, obviously not on total scale, and we can’t take all the money, but we think a little of it.” Then we go for the question, we’re the answer. We’re closer to the customer than Google is. We have a really interesting opportunity if we [00:17:00] get this right, and we put it all together correctly.

Boyar: Let me explore that. That’s really interesting, especially what you mentioned about Google and Facebook, large consumer product companies which are big advertisers of yours, spend tens, hundreds, and in some cases, billions of dollars a year on advertising in the case of like a Procter & Gamble or something. There are really few places outside of Google and Facebook where you can efficiently and effectively spend that money.

Neil: Well, there’s a new one now. [00:17:30]

Boyar: Yes, I’m saying, is Dotdash Meredith now a viable number three?

Neil: Listen, I hope so. That is our long-term goal. We would like to be in the same consideration set, and I think we can be with our performance, and our brands, and our scale, and our safety, and knowing that you’re going to be contextually around things that look and reflect favorably upon your brands. If we can do that, we got a puncher’s chance to [00:18:00] take a couple of nickels out of these guys, which I think that we can do. Now, the number one thing we have to do is– And to be clear, we’re not competing for the direct dollars. That’s not what we do, but all of the branded dollars that go to these places that are performance-based, they’re brand-driven-base, I think we got a puncher’s chance to fight for. We need a sit at the table, and I think we’re going to get at it.

Boyar: I think one of the things that maybe investors probably don’t get, and maybe you can explain, is like, what does a conversation look like when you’re going to a consumer product company and you’re saying, “I want you to advertise [00:18:30] on Dotdash Meredith. It’s not like a small business going on Google, whatever the Google services.

Neil: No, no, no, we’re generally talking to near agency heads and CMOs, and things like that.

Boyar: Yeas, so what are you offering them?

Neil: I’ll work backwards. One of the really interesting things about our business is, our ads and programs have historically performed incredibly well. Because we started from a place where we didn’t have brands, and all we had was scale and performance, we had to go into these [00:19:00] places and say, “Give us a chance, give us a shot. You’re going to learn our brands, but I promise you, our stuff’s going to perform better,” and because our sites are fast, and because we have fewer ads, they invariably performed better than other publishers.

That was really positive for us, and it’s manifested itself in a way where you’ll hear Joey on earnings call say things like, “Every quarter, 23 of the top 25, Dotdash advertisers will repeat.” That’s just not a thing that happens to publishers. Meredith, not even close to that. It’s because of how well [00:19:30] we perform. Now, it also depends on what the metric somebody wants is, is it an auto guy that wants test drives, or you’re selling charcoal that wants to sell charcoal around July 4th?

What we have historically been able to do is through contextual targeting and through scale, and through sites that are so performant and ads that are so well-placed, we’ve been able to show real ROI better than other advertisers, including platforms for the vast majority of the people who [00:20:00] advertise with us, whether it’s pharma clients, or finance clients, or food clients, and that initial performance got us in the door, got our brands more familiar.

Now that we’re adding these brands and these scales, what we’re going to do to Meredith is we’re taking all the Meredith brands, and we’re putting them on our ads back, like a technical term for making, putting them on our sites that are going to make them as fast and as perform as ours. All of a sudden, we have all this scale that’s going to be top of market or better than the market [00:20:30] performance, 175, 180 million people a month.

These brands, we can talk to virtually any CMO in their language, “What do you want? Do you want test drives? Do you want brand awareness? Do you want to sell more of your new soup? What is the KPI you are trying to hit? Tells us that KPI, we will make a program to hit it for you.” I think because we came from a point where we had to hustle for every client, and perform, and perform, and preform, when you add [00:21:00] that into what Meredith has with these incredible brands, and this incredible scale, if we can keep our hustle, and we can keep our brains, and we can keep our performance, we love the combination. Frankly, that’s what we’re hearing.

It’s early days, we’ve done a few deals with advertisers that are one plus one is more than two. Frankly, we’re hearing back from advertisers, the few that we’ve gone out with together, exactly what we’d hope in some flavor of this, like, “Wow, we’d love to give you more money, but we never could before because you couldn’t get more,” [00:21:30] or like, “Oh, this really performs, you’re top of plan. Here’s the mid-quarter re-up.” “Oh, we can now buy programmatically across this whole thing. This is great. I can find more of my audience here at a good price.” Again, we really like our chances that we can do this.

Boyar: One of the challenges Meredith, they have this quality content, and it’s obviously fantastic. These magazines wouldn’t have lasted a hundred years if they hadn’t, but a lot of them look like a PDF of the magazine, and what are you doing [00:22:00] to make that so they’re going to be a digital-first company?

Neil: This may be in more detail than you want, but it’s interesting to talk about. One of the things that we were very different from Meredith is how we run each of our brands. Each of our brands has its own general manager, which is basically a mini CEO, has dedicated technology, dedicated content, dedicated design, dedicated product, which is like how you build the website, like dedicated sales.

Meredith was very matrixed [00:22:30] where every one of our sites looks incredibly different. It’s built on the same platform, like the Lego base is the same, but they can use whatever Legos they want to build it. Meredith, which is a decision they made, every single website is exactly the same, and none of them had individual leadership, so health magazine, looks exactly like

That’s not a thing in 2022. It’s not a thing one can do anymore. If you look at our sites, like if you look at Verywell and The Spruce, [00:23:00] you have no idea that they were part of the same company because it doesn’t matter, because the teams are free to do what is right for their brands, and then share knowledge across teams. We are bringing that across all of the Meredith brands. We’re three months in, and we already have every leader for every brand in place. What we’re doing is the first thing we’re doing is we’re taking all the old sites, moving them onto our ad stack and tech stack.

Then we are taking all the technology people and moving them into brands, and all the design people and all the products people, and all the leadership and saying, “Have at it, figure it out.” [00:23:30] Better Homes and Gardens should absolutely be the best home site on the internet. We’ve got all the tools. We’ve got all the resources. Now we have the structure, go do it. Think Better Homes and Gardens, for instance, The Spruce is probably depending on the day, 50% to a 100% bigger than Better Homes and Gardens in terms of audience.

However, if you look at Google searches, eight times more people search for the phrase, Better Homes and Gardens than search for The Spruce. That’s our opportunity. If we can do the right job with that Better Homes and Gardens [00:24:00] given its brand history, given the print magazine, given anything, we think it will achieve what you’re calling it’s rightful place in the universe in hopefully a relatively short period of time. The thing that got us most excited about Meredith was when we really dug in and we saw this, and we saw this structure, because this like the opportunity.

The industrial logic there was always like, “Well, we’re so big over here that like each of our things has to look the same.” If you take people out, we were bigger than Meredith at Dotdash. [00:24:30] You don’t have to do it that way. As a matter of fact, it’s much more engaging and inspiring for a team to be like, “All right, I am a health expert. I’m going to make the best health site on the internet. I am competing with Healthline and Everyday Health and WebMD, and we are going to beat them, and we’re going to build amazing things that are just for us. If you can do that, you can really succeed.

I think we’ve proven we can be successful, frankly, with some brands we’ve made up, and then, some brands we’ve acquired, but now if we can do it with the best brands in the world, [00:25:00] we’re a little bit like, “All right, lookout.” We say this all the time, “We are going to happen to things, we do not want things to happen to us, and the first thing we’re going to happen to is the priority, cadence, and structure at which we run websites, like they’re going in the front of the bus, and they weren’t necessarily there, and they are now.”

Boyar: One of the things that we’re really excited about that doesn’t necessarily get as much investor intention, it gets some, is Meredith was super strong in [00:25:30] licensing, really have done a great job, and Meredith is a company we’ve followed since the ’90s, and Meredith had this, and still does, this great partnership with Better Homes and Gardens, and Walmart since, I think, 1998 or so. It’s grown. How big of an opportunity is licensing in your opinion?

Neil: Very, and it’s something that we have spent a lot of time on since we got here. One day, this incredible relationship with Walmart has been an incredible partner at Better Homes and Gardens. At Dotdash, we always [00:26:00] looked at Meredith. When we made Dotdash originally, when we had to take apart, we’d accomplish them at our office when we took Meredith and we dissected every single property, and every single thing that they were doing. It’s like this thing of folklore here and now because we actually do own Meredith now.

One of the things we looked at then was this licensing business, and we always said to ourselves like, “Licensing is the true testament if you have a brand that people care about,” and they have brands that people care about, and they have an incredible licensing business. I think it needs some sun, light and water, which we’re going to give [00:26:30] it. We’d at the beginnings have some really nice licensing around The Spruce, and around Verywell, and we had a seven-figure licensing business here before we did this, which is like a mini fraction of what they’re doing and what they can do.

One of the things we haven’t talked about is, we’re learning a ton from them, and one of them is like, how do you leverage brands in other ways? If we’re not going to be a print company, what are we doing? We have this Food & Wine, and Southern Living, and BHG, and the Spruce, and Verywell, and Investopedia. All of them [00:27:00] have a real chance to have other revenue streams that look a lot like licensing, right? I think we’re going to put our name on it, but we’re only going to deal with things that we really believe in. Like the Walmart collection’s incredible for Better Homes and Gardens.

Honestly, we got to get the Better Homes and Gardens, like we have to focus on that as much as possible, because it’s so on brand and it’s so good that that’s the blueprint for everything else we’re trying to do. It’s funny, most people don’t ask us about this. If we get it right, it’s going to be a nice part of the plan going forward.

Boyar: It’s just unbelievable high margin [00:27:30] revenue that you can get, and why not do it?

Neil: High margin revenue, and look, it’s funny like, high margin revenue doesn’t live on its own, doesn’t just fall out of the sky, you get high margin revenue because you’re doing amazing things, because you have a magazine that is the best shelter magazine in the world, and you have a website that is the best home and shelter website in the world. If we can get to there, things like licensing, if run appropriately, they’ll take care of themselves. Our number one objective is, get these [00:28:00] brands thriving again, get them absolutely thriving. If we can do that, things like this blueprint that we have for Walmart, Better Homes and Gardens, we’re going to be able to replicate in a lot of places.

Boyar: Just shifting gears a little bit. One of the things that you’ve historically been really strong on is performance marketing. That’s a big part of your business. A lot of people have no idea what that really is. Can you explain that?

Neil: Yes, performance marketing is, that’s the term we use in our financial reporting. It’s essentially [00:28:30] e-commerce. It’s essentially us helping customers connecting with goods and services. If you are on The Spruce and you need a new blender for your small kitchen, helping you find the best blender and buy it. If you just had kids and you want a new credit card to get you the best  we can help you find the best credit card. If you need an online therapist because of something going on in your life, we can help you pick the best online therapist.

If you need a new couch, if you need a refrigerator, if you need anything, you need to learn how to make smoky eyes for the date you’re going on tonight, like, we are [00:29:00] very, very deep in the, I call it the guides, ratings, reviews, commerce, business, where if you trust our brands, you’re a young woman on Birdie, and you love Birdie and you love Birdie’s content, and they all make fun of me for using this example all the time, so I’m going to use it again so they can listen and make fun of me.

People like the woman who wants to do smoky eyes for her big date or for her big night out, to the extent that we are the people that can tell her what products she needs to do that and tell her how to do that. That is totally in line with the mission of the brand, and it’s a great way for us [00:29:30] to monetize. Because our audience is so down the funnel when they come to us normally, like how to do smoky eyes, or, again, same example just like, “My router’s too slow, I don’t need a router.”

It presents a real opportunity to connect to people with services in mind, in mental health. We’ve been pretty good at that, but I think we were fairly early on that because I think we recognized the power of the intent-driven audience. During the pandemic, that business went absolutely bonkers. That is a very big part of our business going forward. I think [00:30:00] it’s more than a third of our revenue now, connecting people. For us, we love it, because it’s totally editorial independent, no one that ever writes anything or reviews anything for us has any idea of any economic arrangement we have or we send somebody, we don’t care.

We often recommend things that don’t pay us. It doesn’t matter. We’re not like other publishers. We don’t order things in the way people pay us, we order things in the way we recommend them. With this acquisition, I think we probably have 75,000 to 100,000 square feet now of dedicated product testing space where we have 40 test kitchens in [00:30:30] Birmingham, Alabama, and probably another 15 or 20 in Des Moines, Iowa, where we’re testing, not only all these products, but like, virtually, every recipe that goes on our websites, and all of this stuff, and like, we do the same thing for all the home sites, and all the tech sites.

We can really take this seriously. We even think we have a chance to be the very modern consumer reports. The business is very similar to what like Wirecutter does and The New York times. There’s a lot of competitors in this space yet, but like everything else we do, there’s like no shortcuts to winning in the [00:31:00] commerce business. You do the hard work. You do all the work, you write the most comprehensive reviews, and people will trust you.

One of the interesting things we learned from Meredith, there’s a type of commerce they’re excellent at that we never really participated in, which is more of the deals type commerce, which is on People magazine, “Buy this dress that Jennifer Anderson wore last night, or this reasonable facsimile at this other place.” They are very, very good and very, very seasoned at that type of commerce, which is our stuff [00:31:30] really aligns with the intent of our users.

What they’re really good at is manufacturing intent at places where maybe there isn’t shopping intent, but like, you love Jennifer Anderson, and she looked great, and I want to own that dress, and we sell them that dress. That’s a surprisingly big business for them, it’s something we’re going to roll out across our sites, and we’re learning a lot from them on this. Look, a big opportunity for our type of commerce is, they don’t really do it this way on most of their brands. Like, there’s not that much commerce at Food & Wine or at any of these other places.

[00:32:00] It’s a way we can monetize without ads, and it’s something that customers actually want from us. They want our recommendations, they want to know what our editor’s like. They want to know what colors we like the best, it’s really interesting.

Boyar: IAC, their famous board and their playbook has historically been to spin out businesses once they’re able to operate on their own, they’ve done it many, many times. Most recently, Vimeo, I realize is a board decision, I totally get it, but there are any like metric the companies have said or something to figure out like, [00:32:30] now would be a good time where it’s appropriate?

Neil: To be clear, it’s not up to me. I think they’ve said in the past, when you get so big, there’s a compelling other reason to send you out of the nest, you get sent out of the nest, but the reason you’d need to be public or independent is, do we need capital? I think we’ve clearly just proven that we don’t need capital to execute a model, right? $2.7 billion is a lot of money. If you need a way to compensate people, and we have equity and data, we can do that. IAC has really great programs that make it look really [00:33:00] compelling for people. Do we need like the leadership of a board or outsiders, and like, I get to hang out with Barry Diller and Joey whenever I want, or maybe not whenever I want, but whenever they’re not sick of hearing from me, and that’s really valuable.

The IAC culture, which we really try to embrace, it’s not for everybody. I love it, it’s a lot of debate, a lot of standing up for what you believe in, like in many cases, they just want to know that you know, and [00:33:30] a lot of planning, and a lot of time, like I think BD calls it in an article once as creative conflict. Like, that room is not the easiest room, but if you enjoy being in that room and you enjoy having ideas and defending them, and you don’t mind when people are taking shots at your ideas, it’s the best place to work. There’s no other place in the world that would’ve let us mess around for two years with something, do as poorly as we did in the beginning, and that was pretty poorly.

Then turn around and tell us like, “Come on, guys, do the next thing, and take not as much money as you want, but as much money as you reasonably need [00:34:00] to do this. Then, literally, three or four years later, give us almost $3 billion to take this incredible shot, like IAC is the best possible place to work if you are an entrepreneur or CEO.

Boyar: You had mentioned Joey and Barry, I recently interviewed Joey late last year, and I asked him about the things he learned from working with Barry Diller. What he said was, “Think bigger, why settle for a small idea or category? Why not go after a big one?” Which I thought was pretty insightful, [00:34:30] and that led him to take a stake in MGM that’s been extraordinarily successful. Any insights that you’ve learned from Barry Diller that you want to share?

Neil: I think it’s, what Joey said applies directly to this. Are we in this business? Are we good at it? Good at it enough that we’re like, I guess have the confidence that we’re good at it, but like the self-awareness to know we have a long way to go and get better, and if we are, what are we doing [00:35:00] if we’re not going to take a shot here, what are we doing if we’re not going to do this? It’s all of that.

The other thing, there’s some really specific things that I’ve learned here. There’s some really interesting things that I’ve learned about managing people and managing organizations from these guys, which is, a 100% of the time you are better off finding your next leader internally than eternally. Meaning, look around the room, if there’s a job you need done and there’s someone who is going to– You think can have a shot at that job, even if they’re going to be over their head, [00:35:30] even if they’re going to be in the deep water, chuck it in the pool.

It’s way better than hiring from the outside because that disempowers all those that work for you if you bring. People from the outside fail more than people from the inside anyway. The organ rejection, cultural rejection, so our entire leadership team here has been– It’s the same team that was here when we sucked. Most of the people running our businesses are people that we brought in doing something completely different than they’re doing now. Like Tori Braham, who runs our commerce business. Who’s an absolute star and [00:36:00] responsible for whatever, a third to 40% of our revenue, she started out running a home vertical at

It’s just so smart and so good, and we’ve done this so many times. That’s the one thing now, are we insular, is that weird because we don’t go outside? We only go outside when we have needs to go outside. The effect that has on an organization, when everyone sees those around them are the people that can really advance, and that your career is not capped, and you can do anything. [00:36:30] Going back to the conversation, everybody owns some equity, and it creates an environment that is conducive for success, and sets you up to do the thing.

We never planned to buy Meredith. Were we ready to buy Meredith? Probably not, but had we learned how to think about something like buying Meredith? 100%. Whatever we don’t learn, we can ask, or we can be told, and we can– The stories always tell great and very smooth in retrospect, but we’re convincing some of the [00:37:00] smartest people in the world of what we want to do, and they have their own opinions, and nobody has better pattern recognition than Barry Diller. He’s seen virtually everything in media, and it might not be the exact same thing, but he knows, nobody’s better at building brands.

I don’t know, he gets to this place where he assemble learnings and the things you do, and you put into practice, and the culture. Like the culture of this place, once you get it right, they’ll invest in you, and go do it. It’s exactly what Joey said. The Meredith exactly– I listened to the podcast with Joe’s it’s exactly what he said to you. “If you’re going to do it, think bigger, think bigger, bigger, bigger, bigger, like let’s go. “That’s why we’re here now. Hopefully, not to our detriment.

Boyar: No, I don’t think so. It’s a great answer. Neil, you’ve been really generous with your time today, and thanks for coming onto The World According to Boyar to discuss the evolution of Dotdash, which is absolutely fascinating, and your recent acquisition of Meredith. As an IAC shareholder, I look forward to following your progress. Thanks for being on the show.

Neil: Thanks. Look, if anybody wants to [00:38:00] talk to me for an hour, I’m happy to talk to them at any time. Thank you. It’s been really fun. I really appreciate you having me on.

Boyar: I hope you’ve enjoyed the show. To be sure you never miss another World According to Boyar episode, please follow us on Twitter @boyarvalue. Until next time.


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The Wall Street Journal’s Spencer Jakab on the real winners of GameStop mania, Robinhood’s role in encouraging stock speculation (and how it came very close to bankruptcy), and how Chamath Palihapitiya and Elon Musk fueled the flames of the whole debacle.


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The Interview Discusses: 

  • His fascinating new book, The Revolution That Wasn’t: GameStop, Reddit, and the Fleecing of Small Investors.
  • Robinhood’s unique business model and whether Robinhood has “democratized” finance as it claims.
  • How Robinhood came very close to the brink of insolvency.
  • The role of “influencers” like Chamath Palihapitiya, Elon Musk, and David Portnoy in driving the speculative excess of 2021.
  • His surprising take on Keith Gill, aka “Roaring Kitty.”

About Spencer Jakab:

Spencer Jakab is an award-winning financial journalist and a former top-rated stock analyst at Credit Suisse. He edits the Wall Street Journal’s “Heard on the Street” column and previously wrote the daily investing column “Ahead of the Tape.” Prior to joining the Journal he wrote for the “Lex” and “On Wall Street” columns at Britain’s Financial Times.


Click Here to Read the Interview Transcript

Transcript of the Interview With Spencer Jakab:

[00:00:00] [music]

Jonathan Boyar: Welcome to The World According to Boyar, where we bring top investors, best-selling authors, and business leaders to show you the smartest ways to uncover value in the stock market. I am your host, Jonathan Boyar.

Today’s very special guest, Spencer Jakab, is a well-known name to readers of The Wall Street Journal, as he is editor of the Heard on the Street column. Prior to that, he worked at Financial Times. He was formerly an equity research analyst at Credit Suisse. He’s just released a fascinating new book called The Revolution That Wasn’t: GameStop, Reddit, and the Fleecing of Small Investors.

Spencer, welcome to the show.

Spencer Jakab: Hey, thanks for having me.

Jonathan: No, thanks. I really enjoy your column, and I enjoyed the book. You have a really interesting career. You took an interesting route. You’re now editor of the Heard on the Street column, but you started your career on Wall Street as an equity research analyst. What made you make the switch?

Spencer: I fell into that by accident, to be honest. I didn’t know anybody, growing up, who worked on Wall Street at all, or in journalism, for that matter. My parents immigrated here in the ’20s. Everyone who they knew and who we knew were in the same boat. They’ve obviously wanted me to go to college and do something, earn a bit of money and be able to support myself, but Wall Street was just totally terra incognita, and even among my friends in college.

Then, I got an application by accident to a program at Columbia University that’s a quasi-professional program. Literally, I got it by accident. My undergraduate adviser, she was giving me recommendations for PhD programs in History and stuff like that, and she said, “No. I did that program, and maybe you should consider it. Maybe it’ll give you options and you can still be an academic, if that’s what you want.”

Literally, the first or second day, I met a kid who had been an investment banker, who is four years older than me, and we’re still friends, who had [00:02:00] been in that program. I’d heard the word investment banker. I think maybe I’d just read or that was the year that Liar’s Poker came out. I didn’t really understand what it was, and I asked him to explain it to me. It sounded fun. He hated it, but it sounded fun to me. I said, “Well, how do I get a job like that if I want?” He said, “Take all the finance courses.” We’re at Columbia University, and we could take all the classes that we wanted at Columbia Business School.

I took all the finance coursework that I was allowed to take, and I found it really interesting. I looked for jobs. My parents were immigrants from Eastern Europe. The Iron Curtain was falling, and things were being privatized. I wrote letters to investment banks and financial firms in New York, and did not really answer me or send me a polite decline.

Then, I got on. I don’t know if you remember there used to be these things called courier flights, where you could fly to places really cheaply. I had very little money, but I just got on a courier flight wearing my suit. I went to Helsinki, and then to Budapest, Hungary. I contacted people during a week there and said, “Hey, I’m in town. I’m bilingual. I know about finance. Would you like to hire me?” They all wanted to hire me, and so I just picked the one I liked best.

I spent almost a decade as, first, a country analyst, and then I became head of equity research actually for the entire region, from Russia to South Africa, eventually. I was good at being an equity analyst, and a team move, I guess 24 people at the peak, in those countries. I traveled all over. It was very interesting.

Then, I just got tired of it because I found the subject matter interesting, but I was just managing people and meeting clients all the time. I decided what I’d really like to do is just to talk to people about it and write about it. I’d become friendly that a kid, same background as me, except he’d become a journalist. We were very friendly. We still are friends. He said, “Listen, you can just get a job. You know things, you know useful things, if you want to be a financial journalist.” I literally I just applied [00:04:00] and met someone and got lucky and got my start. It was 19 years ago.

Jonathan: Let’s talk about your fascinating new book, The Revolution That Wasn’t: GameStop, Reddit, and the Fleecing of Small Investors. The title was certainly provocative, to say the least. Can you briefly tell us what the book is about?

Spencer: Sure. The book is not just about this, but it’s the event that inspired it, was GameStop mania, which took place in late January to early February 2021, when the shares of a struggling video game retailer in the US became the most traded security in the world for a few days, and became the center of a political and social firestorm.

Even before that happened, when I saw what was about to happen– I have three boys. One of my sons alerted me to what was going on because a friend of his was involved, and my son is on WallStreetBets on Reddit, which is the social network that was really at the center of inspiring this “revolution”. It took me 10 minutes to know that it was a crazy thing that we had not ever seen before that I had to write about. It only became, let’s say within the next three or four days, even more compelling and something to write about. Here was a story that touched retail investors, because you had this whole new group of investors who could never have been in the market. First of all, they’re young and typically not interested in the market. Second, they had so little money usually, that they would have chewed up their accounts, brokers wouldn’t have bothered with them a generation earlier. They couldn’t really have done what they were doing, and it also was a generation that had a very dim view of Wall Street, which plays into the story.

They took their little brokerage accounts, and they organize on social media, and they weaponize them into an attempted corner, and a very effective short squeeze to punish certain hedge funds that were short stocks like GameStop, but also AMC, BlackBerry, Nokia, Bed Bath & Beyond, the other meme stocks. [00:06:00] They blew multibillion-dollar holes in these hedge funds. This is something, as you know, being in the investment world, you can’t do. You can’t sneak up on somebody and get together in a smoke-filled room and say, “I’m going to buy just below the reporting limit, and you buy just below the reporting limit, and five of us are going to get together, and then we’re going to pounce on this guy who sold the stock short and force it through the roof.” The SEC would be paying you a visit very soon.

What about doing it out in the open? What about discussing it for several weeks on a message board that these guys just don’t happen to take very seriously or to read? I happen to know that some of the people who are victims did see their names. They did see what was being discussed, and they just didn’t take it seriously. It cost them billions of dollars because they didn’t take it seriously. That, in and of itself, was a crazy story. It’s the kind of thing that happened before there was an SEC, back in the days of Vanderbilt, and Jesse Livermore, and what have you, these crazy manipulations, stock watering, and corners and stuff that used to happen.

Then it became more incredible, because then Robinhood, which was the main broker for most of these people, was overwhelmed by the orders and had to stop purchases. A million conspiracy theories were spawned, and then Washington got involved. It became this populist uprising. Remember, this was just weeks after the Capitol riots, but it was something that left and right agreed on and completely misunderstood, or purposely misunderstood. The great crime that happened was that these young people, they’re mainly young people, were not able to keep on buying the meme stocks and pushing them to the roof and keep punishing the hedge funds, and it seemed very conveniently timed.

Now, there are a lot of things that Wall Street gets away with. It’s kind of heads, we win, tails, you lose. This didn’t happen to be one of them, but it seemed very convenient. It turned into congressional hearings, it turned into ongoing conspiracy theories. It’s like a real gift for a writer. I went all out to make sure that this could come out on the anniversary of the events. [00:08:00] Every night, every weekend, every vacation went to researching, and interviewing people and writing this book, so that it could get out at that date, but I never imagined, when I began, that it still would be a thing. That basically there would be groups of people who try to make the same thing happen and make lightning strike the second, third, fourth, fifth, sixth time, and that’s what’s happened. It’s still very much a story.

By the way, I’m reviled. If you look at Amazon reviews for my book, you’ll see kind of normal reviews and you’ll see one star, “This guy is a shill and whatever,” from people who didn’t read the book, because there’s this sense that there’s a conspiracy against them. Anybody who contradicts their version of events is a shill, and is in the pocket of hedge funds.

Every time I have to pay for kids’ braces or something, I wish that I was in the pocket of hedge funds because they probably pay a lot better than the Wall Street Journal, but I’m not. I can’t do that. I don’t even own stocks. Yes, it was a fascinating, crazy story with a lot of moving parts. I explained how it happened, which is a lot of things have to line up for this to happen the way it did.

Jonathan: Absolutely. You said you obviously did a ton of research and interviewed people. One of the ones that I know you interviewed was Jordan Belfort, The Wolf of Wall Street, and most people know about him, I guess, because of the movie, but there’s a lot more to it. What was that like?

Spencer: It was pretty cool. He was a little skeptical. He has minions of PR people. I think I dealt with three before I got to him, but they were skeptical and like, “Oh, you’re not going to ask him about that bit of unpleasantness that landed him in prison?” I said, “No, I think that he’s a person who understands consumer psychology.” He made some very astute comments. I’ll just tell you two of the things that he said. The book is definitely not a– He’s not a major player in the book, but I think his commentary is worthwhile because he understands better than most people, how the seamy underside of the market works, and how people think, and he said this [00:10:00] was a pump without the dump. The other thing that Jordan Belfort said is that, I knew this, but I think he just said it so well, was that you have to understand that Wall Street doesn’t care if it’s going up or down, bull market, bear market. What it cares about is activity, cares about turnover. When there’s no turnover, that’s when Wall Street is not happy.

That’s so true, and especially this latest conduit for retail investors for the stock market, where you charge zero commission, but then you get paid for selling trades to market makers. Your business model, you’re not selling them services, you’re not selling them, you’re not opening an IRA for them, you’re not doing all kinds of cash services and giving them a home mortgage and stuff like that like Schwab might. They have a median of $241 in their account, and you need at least some significant percentage of your customers to trade like crazy, and they did. There are people at Robinhood who traded 11,000 times in a six-month period.

Can you imagine? We don’t have to go back to the 1970s. Let’s go back to 2018, and the cheapest discount broker you could find out there. If you traded at an annualized basis, 22,000 times a year, you would chew through a very large brokerage account completely just in commissions, and now it went to zero. Well, it’s not free because we know that frequency of trading is inversely correlated with your returns, and you are paying, and there’s a bid offer and other things. It makes it possible for you to do that, but it’s giving you enough rope to hang yourself.

Jonathan: It was a fascinating stat in the book that you said on January 27th, Citadel Securities, which is the firm that pays Robinhood essentially for their orders, handled 7.4 billion shares, and that was more retail trading than the entire US stock market saw on a typical day in 2019, before every broker move to zero [00:12:00] commissions. The level of activity is staggering.

Spencer: It was crazy. Then you had, in that December, before the mean stock squeeze, a trillion shares of penny stocks, of pink sheet stocks traded, which also was– I think a lot of the new investors don’t know the distinction between them, and they get lured into trading penny stocks. Some of those went, I don’t know, from 20 cents to 50 cents or whatever. It’s a pretty nice gain on paper, but you’ve got to trade a lot of shares to make a difference.

One stat that just boggles my mind is that, per dollar in their accounts, Robinhood customers trade during this period examined in 2020 by these researchers, 40 times as much as a typical Schwab customer, or zero.

Jonathan: Robinhood says they democratize finance, and anyone who is against Robinhood is against a little guy, is basically the narrative that they’ve spin. Have they democratized finance?

Spencer: No, they haven’t. The technology that made it possible for Robinhood to exist has gone some way towards opening finance up to more people, but it’s also opened up a machine that exploits those people and picks their pockets. I think Wall Street generally picks retail investors’ pockets a bit too much.

Look, if you want to have a nest egg, unless you’re going to start a business or buy houses or do something like that, you’re not going to build a nice nest egg through addition, you have to do it through multiplication. Most people have to engage with the stock market, the stock and bond markets and REITs and stuff like that, over decades to build a nest egg. That’s a responsibility that’s been fostered upon us Americans and people in other countries, because we just don’t have the social safety net that we should.

People are very bad investors. People are just not wired to be good investors. This is a group that was very, very easy to get excited, and there are many things that Robinhood does explicitly that are [00:14:00] not at all in the interest of their investors, and I can’t get intent from them, but I can tell you what they do, which is that they– let’s say two kids are sitting in a dorm room in college and one kid has a Robinhood account and the other doesn’t, and he says, “Hey, you should buy X, Y, Z Electrical Vehicle stock.” He says, “Oh, I don’t have an account.” “Oh, here, you can open one up, and if you open up a Robinhood account, I’ll send you a referral code, and I get a mystery free share of stock for referring you, and you get a free share of stock. That stock could be a $50 stock. It could be a $2 stock, it’s like a lottery ticket. If it’s a $50 stock and you only put $25 in your account, you just paid 200% return on your $25 investments in Robinhood. Not only that, if you or I opened a Schwab or a Fidelity account or whatever, like when I opened my Fidelity account, and I think it’s still the case, they’re like, okay, fill out this paperwork, and here’s more paperwork, and just affirm that you’re not a member–[00:15:00] work for a brokerage firm. Now wire the money, and in a few days, you’ll be able to trade.” Like, “Okay, in a few days, I’ll check back in a few days.” With Robinhood, they would front you the money. They’d be like, “Okay, you transferred the money, you’re good. You’re good, you can trade right now.” It’s a default option to go to a cash account. There’s a Robinhood instant account, which is the default option, and there’s a cash account, which is the “I’ll wait for my money to settle.”

It’s not margin, mind you, margin is something else, which they also do offer to their customers, and maybe shouldn’t offer so freely, but this is just an instant, sort of that you got the idea in your head, your friend in the dorm room told you this thing, to stereotype their customers, but then you go buy that stock. There’s no cooling off period. Because there’s no commission, you cross the Rubicon in terms of what makes sense. Things don’t have to be very carefully thought through. You’re not spending a lot of money probably, you didn’t pay any commission, you don’t see the costs that are behind the transaction, [00:16:00] and they’re de minimis anyway these days.

Did they democratize finance? No, they did not. The technology that has allowed that to happen is democratized finance. The technology that allows you not to pay $100 a trade, that allows you to open a robo-advisor account with $1,000, that allows you to buy SPY at 0.03% expense ratio, that just constantly just owns the index and charges you very little, and you can reinvest the dividends and you can put things on autopilot. That technology is really democratized finance in the sense that it’s brought the costs down to allow people with small sums to invest, and allow them to do it prudently, but it’s a really strong PR defense.

I really find it distasteful how they wrap themselves in mom and apple pie and say, “We’re democratizing finance and anybody–” Including Warren Buffett and Charlie Munger, who have nothing to gain by slamming Robinhood, and both have done so by name specifically. They went against them, they’re just trying to maintain the old ways when it was closed off to people.

Can you explain to me, Jonathan, why would they do that? What benefit would there be to them not having this many minnows to chomp?

Jonathan: They’re both over 90 years old, they’re both worth multiple billions, hundreds of billions of dollars, they have absolutely no axe to grind. I remember being at the annual meeting a few years ago at Berkshire Hathaway, and he had Jack Bogle stand up and said that he made Americans more money than anyone else, so he certainly has no axe to grind.

Spencer: If anything, the contrary. The whole Mr. Market analogy, you actually benefit. If you are very patient, sitting there with permanent capital, you benefit from markets overshooting and undershooting in terms of what things are worth. The more excited amateurs you have, in theory, the more money there is to make as somebody who isn’t swayed [00:18:00] by emotion and by extremes evaluation. So, yes, like you said, there’s nothing. They have nothing to gain. Anybody who comes out and criticizes them, you’re trying to hold people back or democratizing finance. When you’re two funders of billionaires, you’re making a lot of money off these people, and they still refuse to give any performance statistics on how their customers have done. I’ve asked them repeatedly. They were asked during the congressional hearings when they gave an answer that wasn’t an answer.

Jonathan: Another fascinating stat in the book, and it’s curious, your thoughts why, Citadel pays Robinhood 38 cents on an average for a 100-share order of large cap stocks, and they paid Schwab 9 cents for the same order. I’m assuming it’s not because Citadel believes in the original Robinhood mission of stealing from the rich to give to the poor. Why do they do that?

Spencer: Again, these are business secrets, so I can’t get too intent. I have several theories. One is that Robinhood customers are more reckless in a sense. If you look at any give period, the number of orders that are immediately executable are a lot higher for a Robinhood customer than a Schwab customer, and those could be more profitable for a market maker that processes these trades in one of their black boxes, because they are more in a hurry, they put in more market orders, or they put in limit orders that could be executed immediately, whereas a Schwab customer is more disciplined, typically more experienced, and more disciplined on price.

Another thing is that they tend to go more for stocks that have wider spreads, so something like GameStop. GameStop is not in the S&P 500, it’s a little bit farther down, and so there might be a wider spread, and that gives more opportunity for a market maker to make money. Anything that’s more profitable for the market maker– I think Robinhood understands that those orders might be more profitable for the market maker, and they ask for more. The third thing is just, there’s a secret sauce. Every broker [00:20:00] has their own formula for how they dole these things out and how they pay people. It’s always subject to negotiation and renegotiation. I do think that the recklessness of their customers plays a role in it, but I can’t know that. The numbers are there. These are public forums, they have to put out there, and it certainly seems like a very big difference.

Then there’s also the matter of how much is kept, because Schwab not only gets paid less, but Schwab might rebate more of that to its customers, because Schwab has a lot of ways of making money from its customers. In 2020, about 80% of the money that Robinhood made was from selling its trades to– and Citadel securities isn’t the only one, they’re just the biggest one. There’s Susquehanna, there’s Virtu Financial, and these market makers, and that was about 80% of the money it made. That money was very important to it. I suspect, but I don’t know, that they also keep more of what they’re paid rather than rebating it, because it’s a very important revenue source for them.

There are other brokers that don’t sell their orders at all. They send them to a stock exchange and/or they internalize them. They have like a Citadel Securities top operation within their firm because they’re so big.

Jonathan: Does the Robinhood business model work? I realized they don’t do institutional stuff, but our turnover, Boyar Asset Management’s roughly 10% a year. Most days we do work, but we don’t trade. If someone doesn’t actively trade on their platform, can this platform exist?

Spencer: You can feel free to be a terrible customer for a broker and have very little turnover, but if everybody is like that, then there’s no way that the business works. There’s absolutely no way that the economics work at all for Robinhood. They need some subset of their customers to be wild and crazy and very active, just like with credit cards. I’m a pay-off-your-balance-at-the-end-of-every-month guy with credit cards, and then I get miles or [00:22:00] whatever cash rewards. I get the rental car, insurance, and all that other good stuff you get with a credit card, and the convenience, and I don’t pay any interest.

I’m sure they get merchant fees and stuff like that, but, really I don’t think that I’m a great customer for the credit card company, other than the fact that I’m really creditworthy and I’m not going to default. There are other people who, their behavior subsidizes my ability to use that card and get some much good stuff.

Jonathan: On January 28th, 2021, I guess, Robinhood was informed by its clearinghouse that it needed to put up an enormous, it was billions of dollars, of collateral to remain in business. They ended up working something out where they restricted trading in certain securities, as you’d mentioned earlier, and they didn’t have to post the $3 billion or so of collateral that they were asking. This created that huge uproar in Washington. It was probably the only time that the left and the right agreed on pretty much anything except that Robinhood was bad, and this was a disgrace. How close was Robinhood to going out of business?

Spencer: Oh, really close. This book would’ve been about something totally different if they had not been able to draw down their bank lines and make the DTCC agree to take less money if they restricted trading. It was really, really close. I don’t know if it wouldn’t have been like a Lehman-like accident, but it would’ve been a pretty big hiccup, because the clearinghouse is a systemically important financial institution, basically. Other brokers would’ve had to cover Robinhood’s shortfall, trading would’ve been frozen. It would’ve been pretty ugly. It would’ve been a totally different story. I’m glad that that didn’t happen, and I’m glad, just for the dramatic arc of the story, that that didn’t happen. It’s a crazy twist. They went from being hero to villain in a second.

Jonathan: Like any good book, your book has heroes and villains [00:24:00] and a supporting cast of characters in there. If you can, there’s a guy, Keith Gill aka Roaring Kitty, who became somewhat of a folk hero during it. He turned $50,000 into $50 million at one point. Can you tell a little bit about his story?

Spencer: Yes. He’s a fascinating character. I trace the story through him. What’s interesting to note here is that, for 85%, 90% of the book, he’s this marginal figure. He’s ridiculed or ignored. He’s on social media talking about why he likes GameStop shares starting in 2019. He’s very, very different, obviously, from the people on the message boards. He’s the same of the same generation, and has the same sense of humor, and has a great sense of humor actually, but he’s making cerebral rational arguments about why he made this all-or-nothing wild options bet on GameStop shares. Jonathan, I think that he’s somebody that you would get along with very well, and actually have a common mindset because he was incredibly disciplined, took a long-term view. He viewed things probabilistically. He wasn’t sure that GameStop would do well, but he had a pretty good hunch. He made a value argument. Michael Burry came in slightly after him and took a 5% stake in the company.

Joel Tillinghast, the value investor at Fidelity who’s retiring now, wound up owning 13% of it. He was there earlier than some other value icons who bought into this company, but when the prospect of a short squeeze began to rise and the people noticed it on the WallStreetBets Subreddit, then he was discovered, and then he became this folk hero because he had been in so early and he had made a lot of money. By the time he was discovered, he was already a millionaire on paper, and he wasn’t selling, and the fact that he didn’t sell and he held on and held on, and every time he posted a– [00:26:00] People didn’t know who he was. He was a CFA, by the way, and a financial advisor without clients, but every time he posted a screenshot of his E-Trade account, people would be energized by it, and so he became a real mascot of the group, and became extremely influential, and then everybody was just dying to know who he was.

The Wall Street Journal is the only organization that interviewed him. Two of my colleagues tracked him down, and one interviewed him, and we took his photo. That picture that you see of him in front of the screen, that was taken by a photographer who was a stringer for us. That was January 29th that that article appeared, the morning of January 29th, a day after the trading halt. He was there all along and was just this really interesting guy, and now he’s dropped off the radar completely.

Jonathan: Another one, he’s more of a bit player, somewhat controversial, and I apologize in advance for butchering his name, Chamath Paliha–

Spencer: Palihapitiya. He’s a SPAC promoter. He’s a financier, a SPAC promoter, a technology investor, was a Facebook executive at one point. He, Elon Musk, Dave Portnoy, to a lesser extent, were these very wealthy financial influencers who young people turned to for finance cues and advice. They came in and they roiled the waters during the squeeze. The squeeze happened, it looked like it might lose momentum, and then the two of them came in and basically egged the crowd on and drove it the mania to new heights.

They both took positions, Dave Portnoy and Chamath, in the stock. Dave Portnoy managed to lose money. He said he would never sell, that he would take it to the grave, and then he sold three sessions later and lost $700,000. He’s not a very good investor.

Interviewer: I thought he was better than Warren Buffet, he said.

Interviewee: [00:28:00] Yes, he said that. That’s funny. He said, “I’m the captain now. Warren Buffet’s history.” That’s all in there too. He’s spitting into the wind basically. He’s kind of a ridiculous character, and Chamath, to me, is kind of a ridiculous character. He’s obviously is a billionaire, and I’m not, so what do I know?

He personally profited from this mood that existed, because SPACs are mainly purchased or were mainly purchased by retail investors who wanted to buy the shiny new thing, and he was selling shiny new things that didn’t even get the usual amount of Wall Street vetting. When I was working as an analyst, even though it was an emerging market, there were things that I refused to do where the bankers would say, “Listen, we want you to be the lead analyst.” and I said, “Absolutely not. This is fishy. I’m not going to do it. I’m not attaching my name to it.”

You don’t even have that level of scrutiny for a SPAC because that company doesn’t have to be profitable, isn’t seasoned, hasn’t gone through the traditional IPO process. It’s basically bought by a blank check firm, and then the stock of the blank check firm– You guys know how SPACs work. Then they’re disproportionate rewards through warrants to the sponsors of the SPAC. That was his main business, was bringing SPACs to market.

This is very much in the same vein, and this meme stock craze. I think it’s this kind of dodgy cryptocurrencies, SPACs, meme stocks. If you drew a venn diagram of who participated in it, on the retail side, you’re going to have a lot of overlap.

Jonathan: One of the, I think really interesting things, and the title of the book lays it out there, are the winners, or I don’t know if you call them winners inside of it. The winners were the market makers, Citadel Securities, corporate executives who were able to cash out, fund managers who, [00:30:00] with exception of Gabe Plotkin and a few others, who did quite well. Bill Gross, who no one’s holding a charity benefit for him, made a reported $10 million. Who are the losers here, and losers meaning losing money?

Spencer: Well, Wall Street, to some, is not completely, but to some extent, is a zero-sum game. I think people are too simplistic in viewing it that way though because you watch billions or whatever, and then this guy wins and that guy loses, and it’s just this battle of wits and money and bravado, but Wall Street is a really big place. There are parts of Wall Street where you won and they lost or you lost and they won, or let’s say these 10,000 people lost and this guy won, or vice versa. What the crowd thought was a real victory over Wall Street giving a black eye, and the headlines at the time suggested that too. They turn the tables on Wall Street. Will it ever be the same, yada yada?

What you have to understand is Wall Street’s a really big place. When a lot of will get excited and want to play the game, it’s good for Wall Street, reap large. Wall Street is made up mainly of middlemen. It’s like a bunch of card counters going to Las Vegas and going to one casino of 20 on the strip, and taking them for a bunch of money and then crowing about it in the newspaper. You’re going to have, it’s a terrible day or month or whatever for that casino, and it was a great day for those card counters. Some of those card counters are going to go out and gamble the money away on other things where they don’t have an edge, and some will keep the money. The casino will be licking its wounds.

The other 19 casinos are going to love it because a lot more people show up and they have opportunities to make money off of those people who don’t really know how to count cards or aren’t as effective or whatever. All the people who own the hotels or drive the taxis or operate restaurants are going to be very, very happy because so many more people are showing up because they read about the story in the newspaper, Vegas is exciting, and maybe you can beat Vegas, and the suckers are [00:32:00] showing up. Wall Street is like that. I hate to call Wall Street a casino, because it isn’t, but that analogy basically holds.

All the people who are in the business, especially in the non-risk taking parts of the business, did really well. They liked this. They liked all these people showing up. I’m talking not just about the new stock squeeze but the year, year and a half leading up to it, and all the period following it where you just had an explosion in retail trading. The proportion of trading that retailers did went from, let’s say about 10% to, at the peak, probably 35%. It was a big, big, big increase in their activity level, and not just their activity level, but also what they bought. They bought tons and tons of options, and options are the ultimate suckers bet, options premium out the wazoo for the options dealers.

A very poorly thought out strategies, purchasing call options in stocks where the implied volatility was already elevated, so you were just paying a ton per contract. Of course, there are people who are going say, “Oh, I made money and my friend made money.” Yes, of course, you made money. Those card counters made money, but that’s an incomplete picture. Gabe Plotkin losing $6.8 billion for his investors, and a few other people losing a lot of money, is an incomplete picture. It’s a small slice of the picture that was written about a lot, and so that’s what you have in your mind.

It’s just like when they write about a plane crash and all the people who died and whatever and oh my God, plane travel is so scary. Well, plane travel is really safe, but then you don’t have a headline every day saying 3,000 flights take off inland without incident. You have the one flight crashes and 100 people die. People blew out of proportion the victories and the losses and missed the big picture.

Jonathan: The bottom line is, a great many individual investors lost a lot of money. Basically, I think that’s probably correct. You had a great quote in the book from Jim Chanos which was, part of the outrage about all the fraud in the .com era [00:34:00] is that retail investors got killed. You see corporate America as crooked, so I’m going to put my money in real estate. You can basically argue a contributing factor, maybe small to the housing bus, was people not trusting stocks after being burned in 2000, and they put their money in housing, and we know how that ended. What’s the long-term consequence for all the investors who lost money in the meme stock madness?

Spencer: To be clear, some made money, but they made less money than they would have just investing passively. There was a good few years for the stock market. Even if they made money, the tax efficiency of what they did and the gains that they made in comparison to like a buy and hold and strategy. I think that in my mind I would divide them in probably to three groups. It’s a good thing that young people are on the ladder and have a financial account. I think some of them will have a bad experience with this, but then say, “You know what, I’m going to actually read a book instead of going on social media to find out to do this. I’m going to buy an index fund or whatever.” That will stand them in good stead than maybe they wouldn’t have. That’s good for them. I think a small subset, but not that tiny, are embroiled in these conspiracy theories, “Look at that jerk, Spencer Jakab, writing that book saying that Wall Street won, with the squeeze hasn’t happened yet. Let’s go leave a one-star review for his book. Let’s keep holding AMC and GameStop and whatever else, because Wall Street–” it’s kind of like Qanon of finance, really. They believe in this kind of crazy conspiracy theories. I hate to be insulting, but that’s what it is. It’s the best way to describe it. That’s a group of maybe a couple of a hundred people, though.

I think the majority of people, unfortunately, who experienced this will keep trying and whatever, but then they’ll have a negative view, not just of Wall Street, but of investing. They’ll be like, “This just isn’t for me. This did not work out. This was not a smart thing to do. I’m bored of it. Now I’m going to move on to something else,” [00:36:00] and really not invest, which is what all too many people in this country do. It’s share ownership, whether it’s direct or through pension funds, or 401K is skewed very much towards the wealthy, very much towards the wealthy. That wealth inequality contributed to the mood that caused this. It’s corrosive for society. I would love to be wrong.

For some significant percentage of the people who got into investing in the period from 2019 to 2021, the kind of period I cover, to sort of getting on the financial ladder, and take a long term sober view, and compound their wealth over decades, I probably will have some severe bear markets during the next 30 or 40 years, of course, but just more or less stick to it. Slow and steady wins the race.

I hope that it’s not a smaller percentage, as I think, that will draw that conclusion from this. Then there are people who made a lot of money in the beginning of this, and they say success is the worst teacher. I think that there’ll be the card counter analogy where they made a lot of money, but then they’ll go and try to play poker and lose money, or try some game of chance where they don’t have an edge and they wind up losing some of their money. That’s kind of the, I think what will happen.


Jonathan: Spencer, thank you so much for joining us in The World According to Boyar. I really enjoy learning more about your career at the journal and before that, and hearing more about your fascinating book, The Revolution That Wasn’t: GameStop, Reddit, and the Fleecing of Small Investors. Thanks again for your time, and I look forward to reading more of your columns.

Spencer: Thanks so much for having me, Jonathan.

Jonathan: I hope you enjoyed the show. To be sure you never miss another World According to Boyar episode, please follow us on Twitter @boyarvalue. Until next time.


[00:37:54] [END OF AUDIO]


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James Hagedorn, Scotts Miracle-Gro Chief Executive Officer and Chairman of the Board, on the tremendous opportunity in the cannabis space, potentially spinning off the fast-growing Hawthorne division and more…

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The Interview Discusses: 

  • How their cannabis division Hawthorne has grown over 100% over the past two years.
  • Why he decided to enter the cannabis business.
  • His thoughts on the current regulatory environment for cannabis and what he believes needs to change.
  • Where the biggest money will be made in a post cannabis “prohibition” world and where they are investing.
  • The logic of potentially spinning out the Hawthorne business.
  • The demographic shift that is greatly helping their traditional consumer business.
  • A meeting he had with Henry Kravis in ~2007 and what he did in response to that meeting.
  • Why Scotts has been a “pandemic beneficiary.”
  • His thoughts on inflation.
  • How they have changed their marketing to target millennials.
  • Their innovative weather partnership with IBM that could greatly enhance their marketing.
  • Why he believes private label is not a threat to his consumer business.
  • How they incentivized employees during the pandemic.

About James Hagedorn:

Jim became chief executive officer of Scotts Miracle-Gro in 2001 and was named chairman of the Board of Directors in 2003. Prior to this, Jim helped to orchestrate Miracle-Gro’s merger with The Scotts Company in 1995, creating the leading consumer lawn and garden business in the world. He held the role of president from May 2001 to December 2005 and from November 2006 to October 2008. Jim also served in the United States Air Force for seven years, where he was a captain and an accomplished F-16 fighter pilot.

Jim is a graduate of The Harvard Business School Advanced Management Program and holds a degree in aeronautical science from Embry Riddle Aeronautical University, where he is a member of the Board of Trustees.

Please click here to download the Scotts Miracle-Gro report.

Click Here to Read the Interview Transcript

Transcript of the Interview With James Hagedorn:

[00:00:00] [music]

Jonathan: Welcome to The World According to Boyar, where we bring top investors, best-selling authors, and business leaders to show you the smartest ways to uncover value in the stock market. I’m your host, Jonathan Boyar. Today’s guest is Jim Hagedorn, chairman and CEO of the Scotts Miracle-Gro company. Jim became chief executive officer of Scotts in 2001 and was named chairman of the board of directors in 2003. Prior to this, Jim helped to orchestrate the Miracle-Gro’s merger with Scotts company in 1995, creating the leading consumer lawn and garden business in the world.

Jim also served in the United States Air Force for seven years where he was a captain and accomplished F16 fighter pilot. Jim, welcome to the show.

Jim: Hey, thanks for having me.

Jonathan: I’m super excited to have you on The World According to Boyar. Scotts is a company that Boyar research began following in 2011 when shares were trading around $50 per share. We’ve owned it in certain accounts for almost a decade and one of the characteristics we look for in companies are ones that have great consumer franchises and the Scotts Miracle-Gro with its Coca-Cola-like market share, certainly fits the bill. We also like investing in companies, operated by people with skin in the game, as they make decisions that are in the best interests of long-term shareholders and not simply to meet wall street short-term targets.

You and your family owned about 30% of the company and have in our opinion, done a great job for shareholders utilizing a mix of dividends, buybacks and special dividends. Most importantly, though, you’ve invested in the business. In less than a decade, you created a division called Hawthorne that today is the world’s largest vertically integrated hydroponics company serving primarily the cannabis industry and generates about a billion and a half dollars in sales in fiscal year 2021 and grew revenues almost by 40%.

I first would like to talk about Hawthorne and the traditional [00:02:00] business, but first, you were a fighter pilot until at least the pandemic hit you live primarily on Long Island and actually flew yourself to Ohio each day to go to work. What was that like? I imagine it gave you a lot of time to think.

Jim: I love being in a metal tube by myself. The answer is, if you want to think about stuff, I’m not sure the FAA would want to hear all this, but it’s a great place to read. Yes, prior to COVID, I traveled back and forth on a daily basis from Long Island, Farmingdale to Marysville, Ohio, which is a couple of miles from the office here. They were early days, be home in time for dinner. We had a tragedy, lost a 24-year-old daughter who was killed and our family became unstable enough that coming home at night was important to maintaining the survivor family. Once I did that for a year, I actually liked being able to come home at night. I fly a single engine citation jet single pilot is a really great place to reflect on the business and think and read.

I get to be able to read all the papers, send a lot of emails to my team on that hour and a half each direction, back and forth. Not really from a time-wise much different from commuting into Manhattan. I really liked it. Now since COVID, I get to take that commuting time, mostly spend it on a treadmill running. Lately, I’ve been coming out here once or twice a week, and we’ve been running the business via Google Meeting used to be a Hangout. It’s been a really interesting couple of years. By the way, in regard to Hawthorne, it’s up 100% in two years, not just 40%. It was 60% in 2020 and 40% last year.

Jonathan: The business is on fire. It’s a fantastic business, which I definitely want to talk about. I don’t know if it’s true. I read in my research, 1994, SC Johnson offered your family a [00:04:00] lot of money to buy the company. Instead, you decided to buy Scotts, which was six times the size of Miracle-Gro. It got about half the value, but you took it in equity and warrants. Obviously, things turned out more than fine. Looking back at it, was this a crazy decision?

Jim: I put myself in the slightly, from a personality point of view, unusual. This would’ve been 1994 I think it was. Sam Johnson wants to meet with my dad. I wasn’t invited. Miracle was making about 100 million. Sub S company, we didn’t pay federal tax. It was great because it was Reagan time, where it was 28% federal rate and they were on the pay $400 million for call it 100 million of pre-tax earnings. My father said, “It was great meeting you, we’re not for sale.” My father went on vacation to Europe and people brought me in Scotts the big dog in this space. We had spies, so we had a bunch of people who work for Miracle-Gro who are ex-Scotts people.

We always wanted to see the retail programs where if we could get intel on programs that Scotts was offering, it kind of gives us some insights on how they operate. This is back to early days. This is when CompuServe and AOL. I went on the AOL and checked Scotts stock price. Remember SEJ offered 400 million for Miracle-Gro. Scotts’ market cap at the time, $600 million of sales compared to our $100 million. We make $40 million just so be clear. Made $40 million, they offered us $400 million. Top Line was about $100 million. Scotts’ market cap was $265 million. My father was traveling, my father was the right-hand man with his dad in the Virgin Islands.

I said to myself, “We’re worth more than Scotts is?” We didn’t know anybody. We didn’t know any lawyers or anything in this kind of world. I called my father’s estate lawyer [00:06:00] at Skadden, a guy named Bob Vincent. He was the chairman or something at Barclays. I said, “Hey, Bob, if Miracle-Gro was worth more than Scotts, I wonder if we could just take over Scotts?” There was no real shareholder and that had been a LBO from Clayton Dubilier and when they went public on the Nasdaq, first Boston and Goldman took them back public again out of Clayton Dubilier, [00:06:25] it really had no shareholding.

There was like a bunch of inside ownership because of the LBO and Singapore, completely passive investor only 10%. That was it, there was no concentration of the shareholdings and the company had not performed. When the two or so years that they’ve been public since Clayton Dubilier took them public again, they never made the number, not once. You miss call 10 quarters in a row, people just get discouraged and say, “XXXX this,” and analysts stop covering the stock and that’s where Scotts was. He said, “I think maybe you could take them over.” He said, “What you need is an investment banker.” The guy running First Boston’s Investment Bank is a guy named Allen Wheat.

Bob introduced me to Allen Wheat and he says, “I think it’s definitely possible.” Remember they took Scotts public again out of Clayton Dubilier and he said, “The banker who did that work is a guy named Brian Finn. Now Brian Finn is on our board today. One of the really fabulous strategic bankers I think in the world ever is Brian Finn. We met with Brian and he and I came up with a script. Now, I met my father. He came back on the QE2 or whatever the hell it was back in the day. I picked them up in the hand and said, “Dude, if I told you we could take over Scotts but the currency would be Miracle-Gro.”

He just looked at me and said, “I am in.” That was it, “I’m In.” Our script was [00:08:00] pretty simple. This is to Scotts, “Miracle-Gro is not for sale, if it was for sale, you couldn’t afford it. Good news is we would be willing to merge the companies but it will have to be pooling as opposed to purchase accounting.” Now we didn’t end up doing that because my old man at the last minute, said he wanted to leave and that’s where he set up his charity. If you go back two years and go forward one year, Miracle-Gro people were there in about 42% of the combined equity and it’s pretty consistent over time.

We would make a suggestion, we pull, we get 42% of the equity and we don’t want any cash. We ended up with a little bit different deal because late in the transaction, my old man comes into my office and he says, “I’m out,” and this is how I think about age. My father was probably this most powerful like 75, which makes you wonder why people leave so early but seriously, I’m a student of my dad’s, I would say the most powerful intellectually as a business person at probably 75. At this point, he was probably 79 and he said, “I’m out,” and I said, “What do you mean?” My mother had died of cancer, he remarried this excellent woman who’s also gone now named Amy. He said, “Amy and I are starting a new business.”

Now, I’m thinking to myself, “What the XXXX does my old man know? Does he want to compete with me?” This is all going through my head in a second before he told me the answer. I said, “Oh, what do you mean?” and he said, “Amy and I are going to start a new business, we’re going to be co-CEO’s and it’s going to be giving away every single dollar I have, 100%, everything I’m going to give away. My father was not a usual charitable person. My father would love to give $20,000, $50,000, $100,000, be on the board, participate. It wasn’t a big giant check where he gives all his money away.

It’s lots of bets where [00:10:00] he participates, and Amy participated. At that point, he gave me a number and said, “This is what it’s going to cost.” Now probably I’ll argue with my own man. We didn’t actually pay for business we got. When my mother got cancer, my father wanted to step up the basis of Miracle-Gro so he gave 100% of it to my mother, with the idea you step up the basis to whatever the current value was, but she had to live a year for that to work. She didn’t. He basically renounced my mother’s estate, and it went to the kids. He maintained 20% of the business, 40% of the voting stock.

What you do when your old man says, “This is what it’s going to cost.” I called our lawyers at Skadden, really great guys and women. I told him. I said, first of all, he’s XXXX this whole deal up, we’re going to lose the pooling, and we’re going to go purchase accounting and they just said, “Dude, what are you going to do? It’s your own man, get a grip. He’s given it away.” I was like, “Fine.” We established a preferred equity to pay the dividend and that dividend was used to buy my father out. Prior to the deal, he gave his equity to the New York Community Trust, and then they had a capital stake that we closed out two or three years ago.

A couple of things. My wife during the whole thing, because the company is in Ohio, we live in New York. My wife’s like, “What the hell are you trying to build, Jim?” I said, “I want to create Procter & Gamble’s of Lawn & Garden. She said, “What the hell’s that mean?” I said, “Anything of value I want.” That effectively was the vision. My brother Peter, he was on board. This is my older brother, 12 years older than I am. He’s like, “What’s the plan here?” I said, “Peter, this is the truth. I’m not exaggerating. It’s not going to sound great, maybe to you,” but I said, “Peter, I can take Scotts,” and he said, “You sure it’s the right thing?”

I said, “No, but my urge to hunt here is so high that I feel like I have to take them [00:12:00] and I want to do this.” We made that presentation in Pittsburgh airport because my father was like, “No, we don’t want to do it in Columbus, we don’t want to do it in New York, we’ll go in between.” We agreed we’re going to meet a club in Pittsburgh. The first time we came here, I never been discussed before in Marysville. We drove in the parking lot and Tad Seitz, the chairman of the board is driving the car. My father is in the front seat. My father’s partner, John Kenlon, president of Miracle-Gro is in the backseat and me, the two of us in the back.

We’re driving the parking lot and this is like a 600-acre campus here, manufacturing R&D, office complex built when ITT was in conglomerate phase. I looked at John and said, “This is going to be ours?” The weird thing is, nobody ever said, “No.”

I had this view of noses in, fingers out. I think that’s a terrible idea. For one reason, I am the leader that the board could wake up and say, “Are you kidding me? What did he say and all this XXXX? What’s he up to?” Let’s just say you’re a merchant for Home Depot and you said, “I think you should make this product.” If I say yes, you know what? You’re going to carry the XXXX out of it because it’s your project.

If I let the board engage in management of the business, they’re much more comfortable with what I’m up to. I run the board way different than I used to. We meet more frequently now, six-plus times per year, we do all the nonsense, which is important and a lot of it the committee’s. We do that during the week, but before the board meeting by telephone, or video now. When we show up in person, we’re strictly talking about the business. Now the board, especially my chairman, I’m much more involved in business so there’s not this educational process that has to occur all the time and I have a board that is really functional.

The problem is I got pretty high tenure, Mike and I are getting pretty [00:14:00] old and so there’s change afoot, not because anybody’s threatening to leave or anything like that but both from the board, especially if we say this, another board going to have to happen for Apollo. I got a whole new leadership I got to groom, it’s taken up a lot of time. Our last board meeting– I’m not making this up. I’m usually pretty happy when my board speaks with this foul language as I do, but we had a subject item on this schedule at our meeting where it was like, “If you’re going to do all this XXXX, your five pillars, this was the subject, you would want XXXXing army.”

That’s taking up a lot of our time right now, especially complicated if you say maybe SMG today is two businesses with two boards, two management teams, and do you have the people to do this? We’re in a very expansion-centric mode right now too so it’s a really cool time.

Jonathan: Your traditional consumer business which produces fertilizer, grass seed, et cetera has unbelievable brand recognition, as I said earlier, Coca Cola-like market share, and anyone who gardens know your product. You were a huge pandemic beneficiary, and as your son, Chris, who also works in the business said on a conference call, we joked when all this started, not that it’s a joking matter, but you got to find levity where you can, that what were people going to do when quarantine hit the whole country is they’re going to go sit at home and smoke pot and garden.

I think in all seriousness, there’s a lot of truth in that statement. One of the reasons you were a pandemic beneficiary was millennials moving to the suburbs. How big of a deal has been the exodus from the city to the suburbs been for your business?

Jim: It’s been huge. We had these dark fears, the weirdness about the financial community, the investor community, particularly short-term investors, there was a lot of discussion about work, people are going to move inside the beltway, have condos, no lawns, and that’s what young people wanted. [00:16:00] We weirdly started to believe that, that maybe the growth is done in consumer lawn and garden. I had this conversation with Craig Menear, from Depot, who’s a good friend and a fabulous CEO. Craig said, “Do you think anybody knows homeowners better than we do, Jim? We spent a lot of money on research, and I think you’re completely wrong. If you look at the demographics, there’s a huge bubble of young people who are now having families.”

He said, Jim, “Our research shows that when they have kids, they want a home, a yard, a dog, or a pet. They want all the things that people traditionally wanted.” Even before COVID, we started to become very much believers that if you look at the huge number of our kids, this is my age kids. I’m 66. They’re all buying homes, and even before COVID, buying a home around here in central Ohio, you better do it quick because there’s going to be bidding wars on it, and there’s just a lack of supply here. Homes are just being built and sold. There’s a big article today in the Journal on homeownership and where it’s headed and what the numbers are looking like, but clearly benefited from low-interest rates.

I think generally, a lack of supply and a big group of people who want to be homeowners that are bigger even than people like us that are retiring and downsizing. Even before we were very positive that lawn and garden was a business particularly if we kept up, meaning, innovate market to people the way they want to be marketed to that we could grow that business, at least kind of a GDP. That was where we’re at. Unlike Peloton, who I think is struggling hard right now, that was a big issue for us coming out of COVID, what are people going to do? [00:18:00] We saw a double-digit increase in consumer sales last year, in ’21.

Our fiscal year ends at the end of September, on top of growth 23 or 24%, in ’20. A 33% increase in two years on a business that we viewed is pretty mature. It gets back to the demographics wanting to have a home, a yard, and garden. What happened during COVID was this issue, we didn’t know what was going to happen. This issue of essentiality– remember that whole argument, only essential businesses could be open, you only could go out to do something essential. People early on said gardening is essential, and not every state agreed. There were two states that didn’t. Michigan and Vermont, both said, “Really? Buying plants? That’s essential?”

Consumers argued the point, and both those states had to back up and say, “We agree, lawn and garden is essential.” For us, having a business– and the same was true with the cannabis business. People both from a medical point of view and most states recreationally, it was deemed to be an essential business. That, to me is some kind of confirmation that we’re not on the wrong track, that people say, “Your business is essential.” Last year was not– if you live in New York, it was not a fabulous weather year. Mother’s Day sucked, Father’s Day sucked, Memorial Day sucked, and Fourth of July sucked. Even with no brakes on this sort of Midwest, Northeast weather, we were still up 10%.

We didn’t lose anything coming out of that. I think it’s a real positive for the business. We also got an opportunity to do because when COVID hit, retailers didn’t want to advertise. I think everybody was pretty happy if their store was deemed to be essential. [00:20:00] They didn’t want to advertise and be criticized. You’re bringing people together and you’re going to get people sick. They didn’t promote at all. What happens then? First of all, retails went up by at least 10%. Meaning, everything that would have been promoted wasn’t, so the actual price that the consumers went up double digits and take away was up a quarter call it.

They weren’t afraid of a little bit higher prices, which I think is important right now, but also because they wouldn’t market because the retailers didn’t want to be criticized, we started taking over and doing a lot of work with this guy, Gary Vaynerchuk. I don’t know if you know Gary. Gary’s at VaynerMedia. We basically said, “Look, we’re on our own. We’re going to take the money that we would have given the retailers to market. We’re going to market ourselves.” That really gave us a lot of confidence that we could change how we market. Remember if you say, “To do this, we can’t be the old company we were, we’re going to have to innovate. We’re going to have to sell to that younger group that they do want a garden.”

That’s what the research tells us. They just don’t want to be a slave to it like their parents were. How many people actually watch TV commercials these days on commercial TV, unless it’s sports or news? I think not much. Therefore, we’ve got to figure out how to use social media and influencers. We’ve made a ton of progress on how do we communicate to younger people today. COVID, I think both on the Hawthorne side and then on the consumer side, in spite of the tragedy that I think it was for America, in the world, it was very gratifying to know that this is business that people actually, when this XXXX was happening people said, “I’m going to garden.”

Jonathan: You actually did something that was really interesting. You have something with the weather channel or Watson, you’re able to advertise more when the weather is predicted to be more favorable for gardening, is that something?

Jim: Yes, [00:22:00] this was a criticism. If you look at how marketing happen in lawn and garden pre-COVID, it was falling apart. I’m not sure the retailers agreed with me on this. I thought it was falling apart, that if you looked at, call it, the marketing hit rate, let’s just say you had three or four Black Friday events throughout the lawn and garden season. I’ll bet you, 70% of your marketing and promotional dollars get spent against that. They want to get out early. The retailers want to get out early to get the lawn and garden consumer in, because if they buy certain things on Black Friday events, they tend to buy a bigger basket of stuff. This may be a global environmental change that’s happening, which is we tend to have really good weather up through March.

Then it becomes unstable April, May and then summer hits and you have a decent normal season. We were seeing 80% miss rate on weather. If it’s cold and raining and you go into a Home Depot or Lowe’s when the weather sucks and it’s cold and wet, it’s like crickets in there. This is nobody there. We know the phasing of how people buy stuff. It tends to be because it’s a good promotional item, lawn fertilizer, and grass seed. Then you get into the bug season, pesticides and weed killers. We know the flow of it, but what’s the value of advertising when the weather sucks?

The business we’re in is a t-shirt business. If it’s not going to be t-shirts and people are in a down jacket, don’t expect them to be in a store. Can we pull the advertising either forward up to maybe two weeks or push it back based on weather forecasting? The weather channel data part of it is owned by IBM and it’s a big data deal. I don’t know that they can predict the weather a year in advance, but they can predict the weather two or three weeks in advance pretty well. If [00:24:00] you know you’re going into a weekend, just don’t advertise, push it off or pull it forward.

What we’re learning is if you promote into good weather where you have the promotions, the inventory, the weather, all in your favor, it’s just so much easier to have good business. Yes, we’re pretty careful on the data and learning how to be flexible to move promotions. Now, retailers, it’s harder because the retailers are doing Black Friday events a year out and getting the merchant teams to say, “But you got to be flexible just plus, or minus a week or two. If you’re flexible, then we’ll just promote in a good weather.” It turns out we think weekends are important and they are, but good weather, in season, even if the middle of the week is okay.

We’re trying to run our sales and our advertising, have the weather on our back, not blowing and freezing cold in our face.

Jonathan: One of things I think about in your consumer business– it’s obvious you have a fantastic product but I think about, let’s say the food industry as an example, were over let’s say, a past decade roughly, many of the supermarkets and other places where people purchased food, decided to compete against the established brands with decently high-quality private label brands and they took away market share. I know you do have some private label business, but what gives you the confidence that that’s not going to happen in lawn and garden?

Jim: Well, we start by saying experience. First of all, if you look at dollars spent and units sold, they’re different and you said 50% of the units and 68% of the dollars are the brands, but 50% of the units are private labels. Without private label, it’s going to be very challenging for retailers to make money in lawn and garden. Private label is key to it and we don’t resist that. We try to manage that alongside the retailers. I think that [00:26:00] makes it helpful. Chuck Berger, that was the CEO before me. He’d always tell me, “Don’t tell me what you think. Jim, tell me what you know.”

This is a little bit what I think, I think if you go to store managers and maybe you’ve done that, I know some of our analysts do. I think they’d say, Scotts and maybe Behr paint are the best vendors in the chain. They are some of the very few vendors that a store manager will give his personal cell phone number because they trust us. We’re all about helping them. I think that what you get with Scotts is not only access to very integrated private label programs. By the way, just so headline, we’re not losing share at private label and we haven’t over the last decade, but it’s a very integrated program where we’re delivering everything on the same trucks, which remember, a Depot doesn’t have a lot of bays.

A lot of times you’re just pulling stuff off in a parking lot. When you can reduce the number of trucks arriving by half by integrating private label with this national brand, that is a big benefit to them. We service the product, we counsel on the weekends. Meaning, we have thousands of people in these stores. We own the concrete. I think that the difference between food to some extent and lawn and garden is lawn and garden is a once or twice a season purchase. It’s not something you’re doing every day. Personally, I’m a brand freak. I don’t buy a lot of unbranded food.

I think we’re doing our job to innovate on the branded side especially, offer competitive programs on the private label side, but really try to reserve our big innovation for the branded product, at least initially. I think it’s working out pretty well. I’d start by saying, we are very much believers that a blended program of private label and national brand matters. To the extent we can and be competitive, we want to do both.

Jonathan: [00:28:00] The brand is clearly your biggest competitive advantage but you did spend a lot of money on your supply chain and you have one of the best ones out there. Clearly, for most businesses, they’re experiencing issues, but I can’t help, but wonder is it as bad of a problem as people say it is? Or is this an excuse for companies really just to kind of raise prices?

Jim: I’m going to talk to you the way I talk which is, it’s pretty up out there, seriously. Commodities, we don’t see much easing a little bit, I think right now. I think mostly in plastics and other things, it’s just a really tight supply and there’s no choice. Certain stuff we buy; bags and some containers. We’re a major customer, but they’ll say, “It’s a courtesy call, dude. This is what’s happening with pricing. If you don’t like it, I’m moving down the phone list and I’ll call the next person. Everything’s going to be sold. This is what’s happening with the price.” If you look at our Q3 call, our last third-quarter call, we ate XXXX on that call.

I think it was like for 500 basis points of margin decline in a quarter. I don’t think people were happy with my view on pricing. I think that everybody would’ve been happy if I’d taken 10 but I said 5. It was largely because I was believing this transitory nature of what the Fed was saying. I was hopeful. Now we told retailers, “If it ain’t transitory, we’re coming back,” but I don’t think the street heard that. I think they looked at margins. I think the view of the pot industry as being a little bit oversupplied at the moment and freaked out, but is it bad out there? Yes, I would say it’s pretty bad.

It was The Journal or The Times yesterday, the question is, is there easing happening right now? It’s this whole discussion of, you go from famine to feast. I don’t know if you saw that article yesterday. I think that’s probable, but if you look at right now, that was another thing. We’ve gone from half a billion of free cash flow to 165, I think, we ended last year at– [00:30:00] A couple of things. We had a great year in ’20, so we paid our incentive out at the beginning of ’21. That cost $100 million right there. Inventory is probably up $500 million. That’s us making sure we have the product.

Now, we thought we lost. I think the number we use publicly was $200 million, but I think reality is we think we lost in ’20, business we couldn’t fulfill, $300 million.

Jonathan: Just from not having enough supply?

Jim: Correct. Probably $100 million in Hawthorne, maybe $200 million in the consumer side. We didn’t want that to happen again because people accepted it because it was ’20 and everybody was screwed up then. Going forward, we can’t live like that. It’s not just that, we paid premium pay here during COVID and we didn’t get beaten into this.

We led with this. Meaning, from day one, we said people who have to work in hazardous areas, which we defined as infection rates of more than 45 per 100,000, we’re going to pay a 50% premium. What did we learn a year into it, was that people were tired.

They were working 12-hour shifts, because anybody gets sick, the whole shift goes bananas, and you end up where you have got three shifts, but you never could really feel three shifts. We’re working two shifts, 12 hours, and you do that for months and months, it doesn’t matter people getting paid a lot.

We just couldn’t operate basically on the margin like that. We’re going to burn out the people in our machinery and everything else. We had the investment inventory and then we had a $100 million in cost increases just based on cost of goods. You got $100 million there, $500 million, plus another– it’s about $700 million of investment, called $600 million if you pull out the incentive that was from ’20, that got paid in ’21.

[00:32:00] That’s the way of solving the issue right now is very much a dull instrument of a lot more bullXXXX so that you don’t run out of stock. It is not a super fine way of running a business, but it’s what we did. I think the answer is, I think it gets better over time. I think it starts with something as simple as the entire global supply chain shut down for a month at the beginning of COVID.

You lost 1/12 of the capacity of the world because everybody was shut down. Then when it came out of it, everybody had all this money and the government was stimulating and everybody wanted to buy XXXX. I fundamentally think that solves itself over time, but I am not a major fan of the policy of the United States at the moment, which is that I think stimulating the economy more with build back better, whatever the hell it’s called.

When people can’t get materials and labor right now, I don’t quite understand it other than politically, maybe it makes sense to Democrats. I think this probably continues for a year or two until it’s settles out.

Jonathan: I just want to shift gears just a bit to Hawthorne, which is your hydroponics business and it’s under the leadership, I believe, of your son, Chris. You built this into an almost $1.5 billion business in less than a decade. First, I just want to hear, how did you decided to get into this category in the first place and did he get a lot of pushback?

Jim: It’s a cool story, but the answer is, yes, on the pushback side. It started out where I was in a pizzeria  with two young women reporters for the Wall Street Journal. I think people can always trick me into saying stupid XXXX that gets me in trouble later. I didn’t have any babysitters with me. I got these two young women from the journal who were actually good reporters.

They said, “What do you think about marijuana?” I said, “What do you mean?” They said, “Do you think it’s a business you guys should be in?” I said, “Do I think it’s part of lawn and garden? Yes, it’s growing plants [00:34:00] and we sell XXX to help people grow plants. Why wouldn’t it be included?”

That was probably like a decade ago at this point. I showed up at the next board meeting and my chairman of the audit committee and my lead independent director pulled me aside and said, “Hell, Jim, have we ever said no to you before?” Actually, I have a very supportive board. I love working with them.

I said, “I don’t think so.” They said, “This is the time. The answer is, no. You’re not doing pot.” That lasted for a couple of years until I was making West Coast trips. I’m talking California, Colorado, Washington State, all the West states that are big and marijuana today, but it was all essentially illegal back then.

You’d start to see lawn and garden apartments that were being taken over by these niche brands. You talk to people and they’d say, “Dude, it’s giant. These people are coming in once a month. They’re paying cash. They don’t negotiate. They buy huge quantities and it’s getting to the point or for some of the independence, it was as big as lawn and garden to them. I kept coming back to Ohio and saying, “Yo, this business is happening.”

The crazy thing today, is it still a Schedule I narcotic, which is insane how anyone can defend that. You’d ask people, “What are people growing with this XXXX?” They’d look it right in the eyes and say, “Tomatoes.” That was not that long ago but it was clear that tomato business was getting to be real and Chris said, “Come out of an advertising agency in New York after college.”

We set him up running basically an indoor urban gardening business that was selling stuff where people live in New York city and urban young people, how they garden and it got to the point where we said,” You know what? You should include this hydroponic.” [00:36:00] That’s what people called it, hydroponic but it’s really cannabis supply for cultivators.

Eventually, that business got shed a couple of years ago. The urban, indoor organic gardening business went back into consumer and Hawthorne just kept the cannabis supply business. It’s been tremendous fun and it’s a real vision. It’s a lot of what I wanted to do in consumer lawn and garden, which is consolidate and be the vendor that I told you about like Depot person would say,” No, Scotts is like the best vendor I have.”

I’ve heard this from a lot of people when they’re being edgy with me on the consumer side, it’s like, “Why would they let you get this big, Jim?” They let us get this big because we’ve got the big brands, we advertising bring consumers in this store, we service the product, we do it pretty flawlessly.

We’re kind of the perfect vendor. The question is on the hydroponics side, what businesses would you have to be in? How would you show yourself to be this great partner to marijuana cultivators, where they say, “No, I love doing this with these guys. They bring technical support. They have all the brands I need. They combine it all in one delivery. They give me good pricing,” and we’re probably 70%, 80% of the way where I’ve wanted to do it.

The gratifying part is a compliment to Chris and Mike Lukemire, as a compliment to both of them, I have said to myself over the years, “I’m a crazy XXXXer at work.” I’ve surrounded myself with good technical operators but it gets tiring where you’re the only source of strategy thought in the business because everybody else is very much a technical implementer.

Where Mike has gotten to and Chris is they’re really good strategic partners to me today. That not only makes me [00:38:00] happy as a father to Christopher but very comfortable with Mike Lukemire. Our biggest issue, honestly, is that we’re both in our 60s. We are doing so much cool stuff right now that I just wish I was 20 years younger.

I mean, seriously, it’s one of those things where I don’t have a plan to leave but I also don’t want to be assassinated in my bed by the next generation who wants to take over. It’s not that important to me but I think I’m adding value right now but it’s just– I got a really good team to lead right now.

They’re really up in their game to include strategic game work that they’re definitely on the right track. I’ve always wanted that to be where my leadership team would come to me with ideas that would take my stuff as the beginning and then say, “Yo, not only do we think that’s a cool idea, here’s how we’re thinking we’re going to implement it.”

You say, “Well, that’s even better.” I think we’re getting to that point. I think we’re really seeing it in Hawthorne and this other project we’re calling Apollo, which is a super interesting part. I’m hoping that the investment community tries to understand what we’re up to there.

My end-of-year call, which I think has been good for the equity. I’ve been trying to be much more strategic about trying to help people understand what it is we’re up to because a Q3 call only people want to talk about margin and what’s going on in Q1 in Hawthorne. Seriously, I don’t think it was any questions other than, “What’s going on with your margin rate? Why didn’t you take more pricing? What’s happening in Hawthorne in Q1?”

We never really had a chance to say, “You have any idea how much cool stuff we’re up to?” Apollo was a part of that.

Jonathan: The one, I guess, big headwind I see and it’s obviously outside of your control is the regulatory environment. How is that impacting the growth strategy at Hawthorne?

Jim: [00:40:00] I have a point of view, I’ll tell it to you, but the answer is, I don’t know. If you could deal with safe banking 280E, which is taxation, according to the IRS code, if you’re engaging in a federally illegal business, you cannot deduct your business expenses, which means your taxable income is your revenue and which makes your federal rate nearly 80%. Effectively, anybody who’s gone legal can’t make money.

This issue of what do we consider legalization or major progress, and we’ve defined it because a bunch of deals we’re doing some of which are known, and some of which aren’t, basically said restructuring these as effectively loans that upon certain things happening, convert to equity.

Our lawyers were happy with this. JP Morgan is happy with this. Wells, Deloitte is happy with this, that we’re not stepping on a third rail issue, which has been really important for us as we pioneer a business that, five years ago, people weren’t that cool with it.

Today, I think people are cool with it, but the banks are super sensitive I think both on reputational and compliance issues on pot. We’re saying the right to make these conversions occurs when two things happen. One, you can bank with national banks and I don’t think that’s going to take that long.

Two, is the major stock exchanges in the United States, NASDAQ, and Nyse, except they’ll list companies that are directly touching pot. When those two things occur, we have the right to convert. I’m not really talking about legalization right now.

I have to say, other than a very few states like Oklahoma, most times when politicians touch this, they screw it up for years. I’m not [00:42:00] sure I need the feds to do anything other than don’t enforce, which they’re not enforcing anyway. Then you have banking and taxation, and those would be big steps forward. I don’t know what my expectations are.

Jonathan: If tomorrow you wake up and the taxation and the banking issue were gone, besides switching debt to equity, how does a strategy of Hawthorne change?

Jim: I’ve said from Mike and me, how do we want the business to be managed? We’ve decided there’s these five pillars, but call them business lines, that we want to play in. They’re really all cousins and nephews have two lines. One, is consumer. One, is marijuana, but all plant-based called.

You got our existing consumer legacy franchise. You have live goods, which we think is really important. You have direct to consumer, which we think needs to be a standalone, free-standing business, selling directly to consumers. Within that, managing the retail direct to consumer to where, whether it’s Amazon or does that. That’s three.

Then Hawthorne on the pot side plus Apollo. It’s two businesses, but five different business lines that we want to play in. We think in the world of, if you believe that prohibition on marijuana ends, I think our view is that is nearly certain. Now, this was the conversation. Why is it senators can easily change this when both Republicans, Independents, and Democrats all support this?

How hard is that from a risk point of view as a politician? It shouldn’t be that challenging, but they make it challenging. I think that’s all the dysfunction that occurs in there. Our view is if prohibition ends, where’s the big money going to be earned? [00:44:00] Well, what we know in consumer, consumer brands. Ready to consume consumer brands.

If we knew alcohol prohibition was going to end, houses that own a bunch of distilled liquor brands or beer brands would be where we’d invest. That’s what we see on the consumer side is that if you put a pie chart as the money up there, that ultimately, consumer brands are we think where the biggest money is going to be in a post-prohibition world and that’s where we want to put money.

The part that’s confusing about that is today, these are mostly, particularly in the East Coast, state-by-state limited monopolies permit holders. If you own the permits, especially the early legacy permits in a state like New Jersey or New York, these early medical permits were completely vertical, cultivation all the way to retail. You could argue implicit within that is brands. We’re right now trying to build a portfolio of brands and licenses that allow us particularly east of the Mississippi. My view is, there’s an old-world, a new world of marijuana, the old world is called west of the Mississippi. The new world is east of Mississippi, create a map that we can exploit with brands, cultivation, retail.

I think we’re very far down the road I’m just trying to understand. Now, we’re trying to implement it. It’s not for the faint heart, I’ll tell you that.

Jonathan: To use an analogy, cannabis legalization is like the gold rush. You’re the pick and shovel guy with Hawthorne. The real money, the gold rush was made with the pick and shovels. Mining for the most part for gold really wasn’t that profitable except for some people. Is growing cannabis where you want to be?

Jim: No, I think that the answer is what Hawthorne offers us virtually every [00:46:00] cultivator in the United States is our customer. We know the really great growers out there. I would say, I don’t think it’s an exaggeration to say that’s probably 10% or less of the population of cultivators are highly skillful at what they do. They’re all expendable. They want to participate.

We’ve talked to a lot of these people who own these great businesses but remember, the way at least the United States is organized today, it’s state by state. People who are powerful from California, aren’t powerful from Colorado, but they’re all state by state. When we talk to them and say, “We want to create long-term and equity,” the best equity in history in the space.

If you look at the MSOs, to some extent or the competition here, I got to say, it’s not that they don’t get it, but I think brands, they feel are less important. If you look at the quality of their product, I think we would argue some of these highly specialized people that already buy our stuff that we go in their growth facilities. We know who they are and they want to play with us.

I think cultivation is not crazy important except to say, the quality of the product is pretty important. I think in today’s world, if you’re not cultivating it, it’s pretty hard to get to the quality you want by outsourcing the production. I’m not sure long-term that owning retail and cultivation is important.

I think in the short-term if you look at the map, that’s what I call it, you’re forced into saying, if you want to play in New York, you need a permit. You need a license. You want to play in Jersey, you need a license.

I’ll tell you one of the big losses in election day, Steve Sweeney. Steve Sweeney is the senate leader in Jersey, was probably the most advanced politician I’ve ever talked to about marijuana strategy on a go-forward basis and its importance to the state of New Jersey. [00:48:00] It’s pretty screwed up that he lost to a truck driver who only spent less than $20,000 on his campaign.

Jonathan: That was an insane story, that loss. Going in terms of the regulation, you are the biggest player out there. You’re a publicly-traded company. You have a big target on your back. Does Hawthorne in some ways have a competitive disadvantage because you’re now under a regulatory microscope?

Jim: No, I think it’s an advantage. I’m a big fan of the industry. I’m not sure what I expected 10 years ago. You’d meet people, you’d go to these shows like MJBizCon, and early days like eight years ago, and the people in the industry, they were young, mostly male, mostly white, and still that’s pretty much the case.

I would say they reminded me, I’d come back to Marysville and people say, “What was it like?” I’d say, “It’s like somewhere between a motorcycle gang, and elite special operations. That’s what it feels like.” The people who are really good at it, remember, they suffered through the industry when it was highly outlawed, and suffered from arrests and all kinds of XXXX and harassment.

I’ve told a lot of CEOs, “If you ever want to have faith in young people,” and this is not true of all cultivators, but a lot of these cultivators, they run really good businesses. They didn’t go to business school. They’re self-taught, they’re young, and you know what they do with their money? They buy home next to mom and dad. They invest in your communities.

All of a sudden you say this is a great entrepreneurial business, who the government has been such a pain in the ass. Remember, just think about that. You want to invest in a state like Florida and build-out? It’s going to be at least $50 million to build out your cultivation facility. You can’t borrow from a bank.

You’ve got to borrow from weirdos and listen, it’s a business model. [00:50:00] You can borrow money in New York and Los Angeles. You know what they’re paying? Over 20% per year, with a covenant package that’s really scary when you read it, “You pay, or I get your entire business.”

It’s a real challenge where you don’t have access to normal capital. Then your tax rate basically means you can’t make money. I think that the young people who are running this business in spite of everything being stacked against them are some very, very cool business people. It’s been a lot of fun to partner up with them.

Jonathan: One of the things you mentioned on the last earnings call, someone asked, “Do you ever separate Hawthorne from Scotts?” You said, “You can go on for an hour on why that would make sense.” That was, and I just love to hear why you think that makes sense.

Jim: I’ll give you the reasons why it doesn’t make sense. If you look at the balance, you’ll figure it out. Why it does make sense to be part of SMG is R&D, supply chain, IT, general management, access to capital, and it’s a legal business.

Unlike a lot of the difficult we talked about on the plant-touching side, Hawthorne is completely legal. The banks are comfortable with it. The government’s not trying to enforce against us. We have all the synergies of being involved with the core, where the core has all these things that they can use and Hawthorne gets access to that.

There was a lot of struggle early on where Hawthorne wanted to do everything themselves, but the more we said, “Guys, some of that stuff you’ll never be big enough to be better than Scotts. We can give you that stuff nearly for free,” that’s why it makes sense.

The synergies of being part of it, actually, I know the numbers, and they’re pretty significant. Separating the de-synergies of separating Hawthorne are our material. Lots of reasons to stay part of it. If you believe the bullXXXX I told you about Apollo, [00:52:00] which is where we think the majority of the money is going to be, which again, is consumer brands.

This is not inconsistent with where we are on the SMG side. There are some of these guys from the West Coast that if they sold their business today, they could sell it for $1 billion. We’ve put $150 million at the RIV, we’ve had $200 million. Plus, to say, we got $350 million to play with RIV.

If one of those people said, “We’ll join. We become the minority shareholder, serious minority shareholder,” some of these people are really good, but they’re not going to run a multi-billion dollar business. They don’t think they could. They want to be partners. They want to ride with it. All of a sudden, you say to yourself, “I need poker chips to throw in, or we end up a minority partner.” That’s where Hawthorne.

Hawthorne is the most valuable business in the pot industry in the world. If we aren’t willing to use Hawthorne as a currency, we’re going to be overwhelmed and not be able to maintain control of it. I do think that there probably are investors who say, “Why are you making it so hard for me?” I know that we’ve had interest in some of these sovereign funds from the Mid-East who have basically said, “I’m not investing in a pot business.” I love the Scotts business, but I’m not investing in the pot business.”

I think there’s arguably some, if you separate the business that makes it easier from an investor point of view to say, “I know what I’m buying here. I’m interested in the pot business, or I’m interested in the consumer branded business.” If you listen to our call, it’s not that I’m chasing growth right now, but there are a lot of opportunities that we have visibility to right now.

I wouldn’t be surprised in five years of business, it’s twice the size of this right now. Therefore, even if there are some of de-synergies, if strategically we need Hawthorne to be part of it so that we don’t lose control of it, that’s the argument that I would make.

Jonathan: I think doing something because Wall Street tells you to do something is generally a bad [00:54:00] idea, but why not spin out 20% of it get a value?

Jim: This is not because Wall Street says. This is I love the people we’re talking about partnering with on the Apollo side. Do I want those guys to be the foster and they’re telling us what to do? I just don’t think it would work. I think there’s a lot of disciplines you’d get within Scotts, access to capital markets, the discipline, accounting, all the things that just go with every day being here.

I would be afraid, honestly, if we said we’re going to take a bunch of young guys who are 35 years old, and they’re going to be the majority shareholders. I just think that that’s a business that I’m not sure I’d want to be a part of. This is not because the Street is telling me anything.

This is because I’m a much better manager, I think Chris, as well, where we understand our authority. I think we need authority in Apollo. I think the upside is big enough that I’m making the number up right now but if you said there are $50 million of de-synergies, actually, I don’t think it matters in the big scheme of things. If you could actually create what you’re talking about, which is the finest pot equity, remember, a lot of stuff has to happen so we’re map building right now. If you could do that, does $50 million of de-synergies really matter? I don’t think so.

Jonathan: Not at all. As I said, doing things because Wall Street says to do so is generally a bad idea, but one of the things that they really have a tough time is SMGs top to value for a couple of reasons. One, it’s a two-quarter business, and then you have the weather issue. Is this a business that really needs to be public at this point? Why deal with annoying Wall Street analysts?

Jim: Henry Kravis came to visit with me. This is ’07, I think it was and the stock was probably less than $50 at the time. We can [00:56:00] privatize the business. You’ll make so much goddamn money. I think Doug Braunstein was the CFO over JP Morgan and a great banker.

I said, “You’re going to go borrow a bunch of money from Doug for free because interest rates are jack XXXX and we’ll buy the company. Now, I’m going to have a shareholder with a large appetite for making money, and I’m going to have to report to you guys. Then I’m going to have to go public again to get rid of you.”

Why can’t I just go and do a big dividend to our shareholders and I’ll borrow the money from Doug for nothing and distribute it to shareholders? Which we did and in today’s market, I’m not completely satisfied, but I think at this price, I don’t think the family would want the risk.

I think you’d say to yourself, “Do I like that world where I would have to have financial partners help me out, I think? Do I want to let them in?” I don’t know. If it was your family, would you do it?

Jonathan: I think you got a great business and I’m confident in the long-term aspect of Hawthorne.

Jim: In regard to challenging it and having a calendar that’s subject to not only weather but is effectively a six-month business, I think we’re a pretty consistent earner. I think we have a much more consistent business than it sounds. I think difference between good weather and bad weather is probably a percent or two.

That’s not that huge. I don’t think it’s that hard to value. I think if you look at our debt, we tend to issue debt at investment grade cost when we’re a non-investment grade issuer. What do I think? I think we get a lot of credit for being pretty reasonably run company with pretty consistent earnings.

I would add, we tell the Street what we’re going to do, and we do it, which I view as usually a good thing for the investment community is I think if we tell the Street clearly what we’re up to and we do it, even if the results involve degradation of some of the quality of business metrics in the short-term, [00:58:00] I think the Street buys into that chip and says, “I think this team can solve that problem.”

Hawthorne is a little bit different because the problem with Apollo right now is with 280E called an 80% tax rate on the federal side and then throw state taxes and local taxes and all the burdens that go along with that, you effectively can’t make money legally in the pot industry at the moment. It’s the weirdest thing.

Who makes the most money in pot right now? The federal government. That’s XXXX up. The problem is there’s not visibility to financial returns on that money in the short-term. You have to do it based on what you think the value of the franchises and I think the Street can handle that. I think my family can handle that, but time will tell on that one.

I think that’s a more challenging valuation metric is to say, “Well, wait a minute, how much money are you bringing in? What’s the cash flow?” That’s a harder one because then you got to talk to Chuck Schumer and say, “Solve this problem dude. America is in favor. 75% of America lives in states where this XXXX’s legal. The feds need to get on top of this.”

Jonathan: Jim, I want to thank you for being on The World According to Boyar. I really enjoy learning more about your fascinating story. How the pandemic has provided a significant tailwind for the consumer business and the tremendous opportunities at Hawthorne. I look forward as a shareholder to watching your progress. Thanks for coming on.

Jim: Thanks, guys.

Jonathan: I hope you enjoyed the show. To be sure you never miss another episode of The World According to Boyar, please follow us on Twitter at @BoyarValue. Also, if you would like to receive the Boyar Value group’s latest report on Scotts Miracle-Gro, please email or click the link in the show notes. Until next time.


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Ryan Serhant CEO and Founder of Serhant, on the NYC real estate market, potential technological disruption in the real estate brokerage industry, his firm Serhant, Jolie at 77 Greenwich and more.

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The Interview Discusses: 

  • The state of the NYC real estate market and why he believes it will quickly become a seller’s market.
  • Areas outside of NYC where he is currently finding compelling long-term investment opportunities.
  • His firm Serhant which he launched in the beginning of the pandemic.
  • The process he takes when branding properties including Jolie located at 77 Greenwich Street.
  • Potential technological disruption in the real estate brokerage industry.
  • How he leveraged his fame from The Million Dollar Listing show to become one of the country’s most successful real estate brokers.
  • How he utilizes social media to successfully market properties.

About Ryan Serhant:

Ryan Serhant, CEO, broker and founder of SERHANT., is one of the most successful and well-known real estate brokers in the world.  After a decade leading the group that became New York City’s No. 1-ranked residential real estate sales team, he founded SERHANT., the first multi-faceted brokerage designed for the marketplace of tomorrow.  The new company leverages media, education, entertainment, tech and bold marketing to sell luxury real estate and it is the most followed real estate brand in the world.

Over the course of his career, Ryan has sold over $4 billion in real estate and is known for breaking market records. Ryan is an innovator, entrepreneur, producer, public speaker, author of two best-selling books, the creator of the Sell it Like Serhant digital education course to teach others how to master the art of sales to succeed in any profession, and the star of multiple Bravo TV shows, including the two-time Emmy-nominated Million Dollar Listing New York.  He now produces Listed, a YouTube series that features lifestyle passions and property listings as well as up-and-coming, diverse agents.  He is on a mission to revolutionize and modernize the real estate industry and to share his formula for success to support and motivate others.




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Transcript of the Interview With Ryan Serhant:


Jonathan Boyar: [00:00:00] Welcome to The World According to Boyar, where we bring top investors, bestselling authors, and business leaders to show you the smartest ways to uncover value in the stock market. I’m your host, Jonathan Boyar. Ryan Serhant, founder of Serhant is one of the most successful and well-known real estate brokers in the world. Over the course of his career, Ryan has sold over $4 billion in real estate. He is also the author of two best-selling books, and the star of multiple Bravo TV shows, including the two-time Emmy-nominated Million Dollar Listing. Ryan, welcome to the show.

Ryan Serhant: Thank you so much for having me.

Jonathan: Glad you’re able to join us. Normally I use the beginning of the show for disclaimer, as I’m often talking about a particular stock and want to let the audience know I own it. This time I actually disclose two things. One, we’re going to discuss a development called Jolie located on 77 Greenwich. That property is owned by a public company called Trinity Place Holdings, symbol, TPHS, in which my clients and myself own shares in.

The other disclaimer equally important, I’ve watched every single episode, of Million Dollar Listing New York except for the current season as I plan on binge-watching it. I am so excited to have you on. It’s been great following your career and congrats on in February selling the second-highest-priced single-family home in US history at a cool $132 million. Not a bad way to start the year.

Ryan: Thank you.

Jonathan: First, I just wanted to start with the New York City area.

You know the New York City Market pretty much better than anyone. Is it still a buyers’ market?

Ryan: I will tell you, it is very rapidly changing to a sellers’ market. It was a buyers’ market for very much the last four years. If I really think about it, it’s been a buyers’ market since September 2008. There’s been a surplus of inventory, [00:02:00] a significant amount of options, great negotiating room, and buyers have their choices. Now, we had two to three years in 2013, 2014, 2015-ish, where things were selling faster and it was a sellers’ market in certain sections of the city, but definitely not everywhere.

Now, we are seeing inventory be absorbed faster than I’ve ever seen in my entire career. I will tell you, what it really feels like is that this isn’t a pent-up demand from COVID the way you keep hearing about. This is pent-up demand from the Great Recession. This is pent-up demand from people that were going to buy homes or were thinking about buying homes in the future in 2007, who just never did it. Who might have bought because they needed something, “I’m having a baby, I need to move. I’m going to school, I need to move. I’m switching jobs, I need to move.”

We’ve done a lot of need sales and moving over the past 12, 13 years, but we haven’t done any of those want purchases. Pre-2008, people were buying because they needed to and because they wanted to. They were selling because they needed to sell and because, “You know what, I guess I’ll sell. I’ve made a good amount of money on this investment.” Great. You haven’t seen that in the last 12 years. Most of the sellers I deal with the New York City end up losing money until now.

All of that pent-up demand, especially in a city like New York where there’s a lot of money, and there’s a lot of access to money is popping right now. I think it’s going to take a couple more months to get to the inventory we have but I think come September, October, we’re going to be in a full-blown sellers’ market in New York the way the rest of the country has been seeing since last summer.

Jonathan: Speaking of that, is the narrative that besides in New York City area, that everyone is moving to the suburbs permanently. Is that an overblown narrative or is that really factually correct? The press loves to spin a story.

Ryan: No. If you really look at the numbers and at the data, more people actually ended up coming to the city [00:04:00] than leaving the city in the last 14 months, just because there’s so much opportunity. It’s like, “Oh, I can actually move to the city now. There are good deals.” People left, but they left temporarily. I left temporarily, and I think the city counted me as someone who left. I came back April  2020. I was here during the riots. I was here going to the office every day we weren’t supposed to but I was going every single day, walking through the empty streets of Soho. It was pretty nuts.

I was walking up the middle of Broadway at 9:00 AM on a Tuesday. People are definitely still in New York City. You know that if you come to the city now, you can’t move. Everybody who left temporarily, they all came back and they all brought their cars. Now all these people have cars who never had cars before. Plus the restaurants are all still eating indoors 100% but Cuomo hasn’t taken away the outdoors so they’re all sitting in the outside as well.

There’s no place to park, everyone has a car. Everyone came back to the city and its mass chaos and no one has anywhere to live. They’re all looking to buy-sell. It’s insane. I’ve never seen anything like this.

Jonathan: Is it across all price points?

Ryan: Yes, it is across all price points. Now, listen, it doesn’t mean that if you have a million-dollar condo and you price it at $3 million, it’s going to sell. If you have a million-dollar condo and you price it at a million and a quarter, you might get a million and a quarter, or you might at least get somebody to come and make an offer. Which was not happening last year.

Jonathan: Your brokerage firm, I believe is pretty national, or at least in certain areas across the country. If you had to pick a market now to invest in with a super long-term time horizon, where will you be buying now?

Ryan: In New York?

Jonathan: All across the country.

Ryan: Oh, my parents, for example, in the last boom, so 2003. They went to Steamboat Springs, Colorado, they went to Vail and they went to Aspen to look for a second home. They thought, “You know what, it’s going to be great. We’re going to live on a ranch. We’re going to do this new thing.” They sold their house in Massachusetts, and they were going to go out there. They lost out on a couple of bids. [00:06:00] I was younger, but I remember what it was like. Lost on a couple of bids, ended up settling on this house, beautiful ranch, tons of land in Steamboat Springs.

They’ve been trying to sell that house for the last five years, not a single person will come through, no one. Can’t get a single offer, anything because the secondary housing market is a really, really tough market. When it’s hot, it’s all people can think about, it’s buy, buy, buy. It’s like Dogecoin. It’s like, “Oh, my God, this is it. This is it.” When it’s not. It’s out of sight, out of mind. I’m at work, I’m at school, I need my own place. I’ll just go on vacation to Hawaii. Why do I need to take care of a place in Colorado?”

Then they list it again for the fifth year in a row in May of 2020 and they sold it for the asking price in one day. They had people banging down the door, leaving notes, craziness, because it is a moment in time. I don’t necessarily believe the secondary housing market will maintain its current pace because people will eventually go back to work and they’ll go back to the office. It’s great that we have this, but it’s a difficult market because there’s only so many people that can afford to spend millions and millions of dollars on a house that takes you six hours to get to.

I am very, very, very excited about waterfront property and amenitized property. I think that there are great parts of South Florida that are overvalued, but I think there’s great parts of South Florida that have not been touched nearly to the extent that they should be. I’m looking at right now, yes, there’s the Miami’s and the palm beaches of the world and it’s about location, location, location, but what about Tampa? What about the other coast where valuations are so much lower?

You still get to be in the same state, you still have great schools with great opportunity there. I think 77 Greenwich is incredibly undervalued right now. At the prices that we are allowed to sell at, I think people are going to make a significant amount of money. I remember selling in the financial district during the last crisis. [00:08:00] I was selling 99 John streets in the financial district 442 apartments. The World Trade Centre had not been rebuilt yet. You were watching One World Trade get built floor by floor by floor.

Everyone who came in said that the building was so overpriced. “This is so stupid. How could you ever convince us to buy here? Look, there’s a construction site over. This is insane. It was dirty.” Everyone complained, but the people that we finally got to buy in, 5 to 10 years later, most everyone in that building has made at minimum a 30% return, if not doubled their money. It’s just a testament to the value of owning real estate and the value of owning real estate downtown.

I can’t say for a fact that if you go and you pay a good price today on Central Park, that you are going to make a huge return in five to 10 years because you’re paying a premium now, who knows.

Jonathan: In early 2020, right in the middle of the pandemic, you started your own real estate firm, just like you started becoming a real estate agent the day Lehman Brothers collapsed. Why do that? Is it better economics? I’m sure you could probably have negotiated a pretty good deal with pretty much any major broker house or was there something else?

Ryan: Life is short. When I was a little kid, I remember going by a cemetery and my grandfather who was a very unique guy asking me who’s in there, and I said, “Dead people.” He said, “No, in there is a writer you’ll never know. In there is a basketball player you’ll never know. In there is a guitarist you’ll never hear.” I had no idea what he was talking about. I was like, “Yes, of course, we’ll never hear them. They’re dead.”

As I got older, and I really thought about it, and then I remember his personality kind of long after he died, I understood what he meant. In that, there are people who have opportunities who don’t chase them because they’re scary and they die with them. They could have been something much, much bigger had they just tried.  [00:10:00]  I’d rather regret the things I did, than the things I never tried. I’d rather regret having started a firm and maybe it didn’t work out than regretting never having tried it. It’s the whole reason I’m in New York. Everyone told me not to come to New York in 2006 with no money and I wanted to do theater like great, awesome, but you will be destitute and poor.

New York City is a really scary, dangerous city when you don’t have money and that’s exactly what it turned out to be. I needed to figure out how to pay my rent. I did it through hand modeling cell phones and espresso capsules and getting my real estate license, and doing rentals in Korea town, the Harlem, Bronx, deep Brooklyn, Queens, stuff like that. Slowly but surely I became addicted to the business and built it up.

The things that we do now to sell developments, the things that we do now to sell properties are things that I can’t do at other firms and wouldn’t make sense for me to do there because we do them on our own, to the benefit of our clients and it just makes the most sense to really build a new type of real estate brokerage, that people aren’t really thinking about yet. It’s exciting. It’s incredibly insane and totally nuts that we did it last year, but low inventory, who else started a real estate company in New York City in 2020? No one.

Jonathan: It’s good to be different. I think it’s fantastic. The current firm, how many brokers do you have?

Ryan: I think we just passed 60. We started in October.

Jonathan: How do you manage a team like that? That’s got to be really difficult. How do you get people to drink the Kool-Aid to go and join you as opposed to going to Elliman or some other well-known firm?

Ryan: Right now, it’s pretty easy. Every other firm is much, much bigger. You can go anywhere else and you can just be a number, and then you go to a listing pitch. You’re going to have to differentiate why you at this firm are different from everybody else at the same exact firm. You come work with me and I will change your career. We have lead flow that is greater than any other firm out there. There are 4 million people that are subscribed and are followed [00:12:00] to the real estate content that we put out. There are buyers and sellers that come through all day, every day. I ended up turning away more agents than we do actually hiring them. We probably hire one out of every 10 to 15 agents we interview and we also only interview agents that have been in the business for at least five years.

It’s a promise I made to my core team that for our first year in the business, you’re only going to bring in superstars, people who knew what they’re doing who just needed to get to that next level because I can really help people get to that next level. We grow the business through training. Education is a really big deal for us. We have a whole separate education business. We have a very large online sales course. We have 7,000 agents right now in 109 countries and growing every single day.

Then we amplify our brands, our agents, and our properties through media, the same way we were doing at 77 Greenwich, right at Jolie. We created the brand and we amplified it through video content so that we can Gen Z to tell their parents that they want to buy this one. You can’t do that with a regular real estate listing.

Jonathan: No, absolutely. We had Douglas Elliman chairman Howard Lorber on the show. Super smart guy, really successful. I asked him his views on this. I’m curious to hear your thoughts. Are there aspects of the brokerage industry that are going to be disrupted? In a sense, you’re disrupting it right now, but do all homes need to be listed by an agent taking a commission as Jeff Bezos says your margin is my opportunity.

Ryan: Until Jeff Bezos and Elon Musk figure out how to get a house to sell itself to another house, there will be a need for real estate salespeople, because a house is not diapers. It’s not a lost leader  item. A house is not a frying pan. It’s not a house in a box either. It is hundreds and hundreds and hundreds of thousands of dollars, if not multiple millions of dollars. [00:14:00] We have not gotten to the point yet and I don’t know when we will. We’re buying something as significant of a house is as easy as pointing and clicking.

People need recommendations. They need their hands held. There’s a significant amount of costs involved. It’s not just the purchase price. You know what I mean? Closing costs. There are New York City, New York City taxes you for the honor of allowing you to get a loan in New York City.

You want to get a mortgage? You have to pay a New York state mortgage recording tax of almost 2% of your loan amount. You know how fun that conversation is to have with people that are not from New York? They’re like, “What? Wait a minute. I want to buy there.” There are real estate taxes. There’s transfer taxes. There’s the mansion tax, there’s title tax, everything. Now I want to get a loan so I can purchase and spend more money and New York City is going to tax the loan as well? Yes. They’re going to tax my income and raise income taxes? Yes, they will. They’re going to cut the budget on the police and they’re going to cut the budget on sanitation by a hundred million dollars, so there’ll be trash in the streets and people afraid? Yes. All of this makes sense. What I’m saying is all those conversations come into play when deciding whether or not to buy a home in any city or any town.

I think the process will become more streamlined. The amount of documentation, paperwork, things that are needed to make a home sell will become more streamlined. At the same time, it’s not just one company. There’s lots of different departments. You’re dealing with the city. You’re dealing with the town, you’re dealing with a bank, you’re dealing with a seller. You’re dealing with their lender. How do you get all of that on Amazon? You don’t. Will developers be able to sell through a one-stop shop? Possibly. Then how do you differentiate yourself from the rest of the competition, and how impersonal is that?

I don’t need to have a personal conversation when I’m buying a product on Amazon. I just need to show up in a box. I also didn’t know that I needed that before Amazon showed up. Who knows, I’m excited where real state goes from here. I think the process of buying and selling a home is going to be [00:16:00] very, very different in 2030. I am very much looking forward to where are we going to be in nine and a half years? It’s already the middle of 2021, which means it’s going to be 2022 before we know it, which means we’ve got eight years left to get to the next decade, which is mass craziness to me.

With all the technology that gets invented, there comes more confusion. People aren’t really getting smarter. The brains are still there. People are people and they need their hand held. They need to understand what it is they’re spending money on and what that process is like. I think salespeople will become more educated. That’s why we focus so much on education. I think the process in which we go about marketing homes will change and a few other things.

Jonathan: I want  in a second talk about 77 Greenwich, but I just had a couple more questions, just my own personal curiosity clearly being on Million Dollar Listing and the publicity surrounding that helped your career. There’ve been a lot of brokers in the show. Most of them not experienced your level of success. What did you do to leverage the show, to get to where you are now? What do you think separated you from the other brokers who weren’t as nearly as successful?

Ryan: I will squeeze every lemon I can find. I will not leave any stone unturned and I am relentless when it comes to working for my clients. That’s what people will say about me. I’m just relentless and getting deals done, relentless in anything. If I put my mind to it, I’m just going to go after it because why not? It’s like climbing a mountain. You ask people who’ve climbed Everest, why would you do that? And they say, because it’s there, there’s the opportunity. I think there’s two different types of people. There are people who will take initiative and take opportunity, and there are people who will do work, and do what they’re told. It’s a very, very fine line. I think that when I saw that opportunity, we had the show, I waited one day in 2012 for my phone to ring because I thought, “Oh, millions of people are watching me sell real estate boom business card to the world. Let’s go, phone is going to ring off the hook.”

I stared at that phone [00:18:00] for an entire day and no one called. Apparently, people don’t believe pick up the phone and call people that they watch on TV. Like you’re not watching the news and you’re like, “Hey, Anderson Cooper. What’s up, buddy? How do you even get that guy’s phone number?” I said, okay, well, I got to make use of this. What it enabled me to do was open doors that I knocked. If I knock on the door, I can use the show and the publicity from the show to get people to open and have a conversation with me that they otherwise might not have had to be able to take on projects like 77 Greenwich and everything else that we do.

The publicity that I use from the show and the content that we’re able to create helps me open doors that otherwise never would have come to me because I just don’t know those people. I think that I work every single day. I work seven days a week. I’m up at four in the morning. My last appointments are typically sometime between eight and 8:30 PM. If I have a dinner event, I try to get out by 9, 9:30, but sometimes they go to 10, and dinner events are back right now and I miss a good Zoom. I think that our ability need to really, really put things out into the atmosphere to create a brand is then what it’s all about. That’s what we teach our agents.

There’s strategy to creating a brand, which is figuring out what your core identity is, creating consistent content around it, and putting it out there into the world so people know it. Then shouting every single success you have from the mountain top because success begets success. Brand and brand recognition and awareness, which is really what your question is, is reputation. Reputation, If you pull the layer back is then perception that the world has of you.

Then if you pull that back even further, perception is your core. It’s what you believe in yourself. It’s your confidence. If you are confident about being the best real estate agent in the world, and you put that out there to the world and you create content about it, then the world’s perception of you is going to be like, “Okay, they’re the best, look what they’re doing. They’re super successful.” Perception. [00:20:00]  Then that perception is going to turn into what people say about you behind your back which is your reputation. That reputation is your personal brand.

Jonathan: One of the ways you put yourself out in the world is social media you’re a prolific user. You have unbelievable content. One, I guess how many people do you have working for you just solely on social and what are the best mediums of social media to attract business?

Ryan: I would say for us because we’re in a visual medium, Instagram is very important followed by YouTube. YouTube is the second biggest search engine in the world owned by the people that own the first biggest search engine in the world. Search is life. You search for everything, anything you don’t have to search for it, whether it’s outside in the park or it’s on your phone. We want to put out consistent content over and over. Some of it’s terrible though. Some of it is not good. Some of it no one cares about it. They don’t like, whatever, but you got to keep putting it out.

Then we put out content that really works. That’s great. We put out content I think is amazing that no one cares about that’s annoying. Then we put out content that I think is stupid. Whatever. Then everyone loves that. I am like, “I don’t understand people.” More than anything, it’s about being consistent. I think if there’s anything to say about us, is that we are consistent. Consistently consistent.

Jonathan: Trinity Place Holdings, they have a property, 77 Greenwich Street. If you look and you rebranded it to Jolie, if you look at Million Dollar Listing, a whole transaction takes place in about 15 minutes, I’d love to see if you can maybe take me behind the scenes. How did it come to be where you’re now representing this? It’s a relatively large building, this whole building. How did that work?

Ryan: When we started the company, the new company, Serhant, we did exactly what I did when I first got into the business, which is no one’s going to care that I started my own company unless I make them care and I’m going to reach out to everybody and just let them know, “Hey, here’s what I’m doing. Here’s how we’re great. [00:22:00] Would love to know you.” If I don’t already know you. We put a book together and put a package together and had it not been for COVID. I would have done this all in person and dropped it off. It would have been a lot. Due to COVID, everything had to be digital. I sent emails to every single developer that I know and don’t know. One of the developers we reached out to was Matt and the team over at Trinity.

It wasn’t about 77 Greenwich. It was, you guys are developing towers in New York City. I would love to know you. I just started a brand new real estate firm in the middle of a pandemic. I believe in New York City more than anyone. I’m signing a lease for a 15,000 square foot building in Soho. Everyone’s calling me crazy because they think New York is dead. I disagree. I would love to meet you to talk about your future projects.

A lot of people responded. One of them was Miriam and Jeff who worked with Matt and they just want to talk about the future. Then they brought up 77 Greenwich. Then we had those conversations and I’ve known about the building for a long time. I think more people needed to know about the building and those conversations led to meeting with Matt and those conversations led to putting the sales team together, just sending them an agreement, to it being negotiated, to proving to them that we could really, really make a difference in traffic and in deals and in offers and in understanding the story against intense market headwinds, which is what we do.

It’s worked out well so far. It hasn’t been that long. We only just started, we’re cranking deals. There’s 90 units, it’s 42 stories. It’s got amazing amenities. There’s one, two, three, four-bedroom apartments. Amenities are at the top of the building. You’re at the school, you’re at the park. I know the area incredibly well because when I got into the real estate business, I was living at 88 Greenwich directly across the street.

When I got cast on Million Dollar Listing, I was living in 88 Greenwich in a little studio apartment they had there. Apartment 1213, which has like a little alcove. That’s where I put my mattress on the floor. The minute I got cast, I was like, “Shit, I can’t be living in here on this little studio.” I took all the money I really didn’t have and went and rented [00:24:00] a massive two-bedroom at 20 Pine street, which is a couple of blocks away. I was selling 99 John street at the time. I’ve lived in most of the buildings in the financial district. I know the area incredibly, incredibly well. I’m a big, big believer in it. I think it’s awesome. I’m just excited to be a part of their team.

Jonathan: You rebranded it. I’m not sure if they had difficulty or whatnot. It just wasn’t selling as well obviously,that’s why they hired you. How did you come up with a new concept? You have a whole team that does this, is this you personally, how does that?

Ryan: Sorry, I didn’t fully answer one of your last questions about social and the team that handles all of that. We think about social all the time. It’s a big part of the business now because it’s targeted advertising and it’s authentic and it’s organic a little bit of a push, but our business has made up a couple of different departments. We have the studios team. Serhant studios is our in-house film studio and amplification center. That’s 10 people. They create all the content and handle the social, both for me and for the company, and for our project. They don’t just focus on me all day. I wish they would, but they’ve got other things to focus on. They help with all of that.

Coming up with the brand and the story, we have ID-LAB, and they are our marketing and innovation hub. They just sit there all day long and they brainstorm and they think of amazing new ideas. We put in front of them and I said, listen, “77 Greenwich. Here’s the renderings they have right now. Here’s what the building has. Here are the pros. Here are the cons. Come back to me, let me know what your thoughts are, hash it out.” We came up with a lot of different ideas, lots of different names, lots of different stories, but we kept coming back to 77 Greenwich being rooted in a very specific location.

There’s a lot to the financial district that people I think are unaware of. You think office buildings, you think World Trade Center, maybe there’s a couple of other buildings you think about but you don’t think, restaurants, you don’t think atmosphere necessarily. You don’t think park space. You don’t think dogs. Our head of new development [00:26:00] has a dog. We said, what? We really like the name, Jolie. We think the building has been branded previously as masculine big edges, feels like an office building. We don’t want to do that. This is a building that has a lot of three and four bedrooms. It’s amazing for families. It’s great for pets. We want to give it a different identity, make it a little bit softer, make it sexy. People don’t necessarily know where 77 Greenwich is. People are like, “Oh, Greenwich is that Greenwich village? Where is that? Oh, is that battery park? People don’t know. We wanted to give it a name that give it a root in a story. Then we made a video where someone, me, lives at 77 Greenwich and has a dog and runs around and follows the dog through a very French financial district and goes through all the French bistros and coffee shops.

Just has a good time because when you live at this building, you will have a good time because the investment will be great, but also your life will be great. We hashed it out with Trinity and went through all the different ideas and options and they give us pushback where they wanted to. I do give them credit for giving us leeway. They’re the types of developers, who they do what they do, and they do it really well. They expect to hire people who are really good at what they do and give them the runway to do what they do well. They’ve done that for us and it’s been very rewarding and I think they’re happy so far.

Jonathan: What’s success for you on that property?

Ryan: Selling out and beating expectations, our blended price per square foot there is a little bit over $2,000 a foot. When you have a sellout, if we can achieve that and achieve that in the next 12, 18 months, that would be really, really great. It’s 90 apartments, but there are 90 large apartments in a building that is still heavily under construction. Although it’s getting there, we’ll be able to start closing probably some of the smaller units in the next couple of months, closing all the bigger ones by the end of the year.

That’s pretty great. They have an amazing construction team. That’s working very, very, very, very, very fast. They do great, great work. As the building gets more complete, people [00:28:00] will be able to move in. Right now, what we’re seeing a lot of, for all of our projects that we’re selling, is the people who are purchasing now are people who are coming back to New York City and they need a place to live now. They either sold their place last year, or they gave up their rental and now they’re coming back and saying, “Okay, well, can I move in on June 1st?” I am like, “June 1st is next week. That’s impossible.” Like, “All right, well, then I got to do something else.” I am like “Okay.”

Once we’re able to say, you can close in 60 to 90 days, that’ll be a huge, huge difference.

Jonathan: What’s next for you? Obviously. You have a lot on your plate, but you’ve clearly built a great brand. You’re known for real estate, but I imagine that’s going to translate to other things as well. Where do you see yourself? Five, 10 years from now.

Ryan: I’m very focused on 2030

Jonathan: Nine years from now.

Ryan: I say that because it’s like, I just think you remember 2010, 2010 was the year for when I finally said, “Okay, this real estate thing, isn’t just here to pay rent. I’m going to do this. I think I can do this. I don’t know that many people, but I think I can teach myself how to sell real estate, high-end in this crazy city that I’m not from. I think I can figure it out.”

Then I got cast on Million Dollar Listing and I started filming at the end of that year. That doesn’t feel that long ago, 2010. Now it’s 2021. 10 years went by real fast, let alone 11 years. 2030 is going to be here before I know it. I’m very focused on myself in 2030. Where is he? What’s he doing? Because I’m going to be that guy before I know it. We’re all going to be ourselves in 2030. It’s going to be here before we know it. What am I doing today to set up his life so that he’s having the greatest year of his life. My biggest deal? I haven’t even done it yet.

I’ve done big deals, but I haven’t done the biggest one yet because I haven’t even met that guy yet or her yet. That’s exciting for me. I’m hoping to build the greatest and largest real estate firm in the history of the known universe. I’m figuring out how I’m going to [00:30:00] do it. We are seven months in. Touch base with me in a couple of years and our future selves, we’ll see each other in 2030. I hope I was right. Well,

Jonathan: I look forward to doing that in 2030, but hopefully, I can meet you in person before that. I want to thank you for joining me on The World According To Boyar. It was great having you and I look forward to watching the latest season of Million Dollar Listings. Thanks again for your time.

Ryan: Thank you, man. Thanks for [unintelligible 00:30:27].

Jonathan: I hope you enjoyed the show. To be sure you never miss another World According To Boyar episode, please follow us on Twitter @Boyervalue. Until next time.

[00:30:44] [END OF AUDIO


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IAC CEO Joey Levin on why his company took a 12% stake in MGM, which companies within IAC he is most excited about, lessons learned from working with Barry Diller, and how he approaches capital allocation.


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The Interview Discusses: 

  • Lessons learned from working with media mogul Barry Diller.
  • Why they decided to take a 12% stake in casino giant MGM.
  • Which businesses within the IAC portfolio he is most excited about.
  • How he approaches capital allocation at IAC.
  • Which stage he believes Angi is at in their fixed priced transformation.
  • Why he believes Angi’s “take rate” will increase with time.
  • IAC’s major competitive advantage.
  • Why he believes is a major opportunity for IAC.

About Joey Levin:

As CEO of IAC, Mr. Levin is responsible for the strategic leadership of IAC and its operating businesses and also serves on IAC’s Board of Directors. Prior to his appointment to CEO of IAC in 2015, Mr. Levin was CEO of IAC’s Search & Applications segment, where he oversaw strategy across IAC’s mobile and desktop software and media businesses. Prior to this, Mr. Levin served as Chief Executive Officer of Mindspark, an IAC subsidiary. Mr. Levin has also served as IAC’s Senior Vice President, M&A and Finance. Prior to IAC, Mr. Levin worked in the Technology M&A group for Credit Suisse First Boston (now Credit Suisse).

Mr. Levin is Chairman of the boards of Match Group, Inc. and Angi Inc. and also serves on the Board of Directors of Turo and MGM Resorts International. He graduated from the Jerome Fisher Program in Management & Technology from the University of Pennsylvania, with a BS in Economics from the Wharton School and a BAS in Engineering from the School of Engineering and Applied Sciences.


Click Here to Read the Interview Transcript

Transcript of the Interview With Joey Levin:


Jonathan: Welcome to The World According to Boyar where we bring top investors, best-selling authors, and business leaders to show you the smartest ways to uncover value in the stock market. I’m your host, Jonathan Boyar. Today’s special guest is Joey Levin. Since 2015 Joey has been CEO of IAC, which owns a collection of largely online businesses such as Angi, Vimeo, online publisher Dotdash,, as well as the host of other smaller, faster-growing businesses. Joey is also executive chairman of Match Group, which until recently was controlled by IAC, is on the board of casino giant, MGM, where in August of 2020, IAC opportunistically invested $1 billion to acquire a 12% stake in the company.

Over the past five years under Joey’s leadership, IAC shares, if you include spin-outs, have compounded at an annual rate of 60% versus 17% for the S&P 500. Full disclosure, clients of Boyar Asset Management, as well as myself, own shares in IAC, as well as IAC controlled Angi Homeservices. Joey, welcome to the show.

Joey: Thank you. Thanks for having me.

Jonathan: Really excited about the interview. I guess I’ll just delve right in. IAC has a market cap of a little over $20 billion, Match’s market cap is a little below 40 billion. You’re CEO of IAC and executive chair of Match. You’ve accomplished this, and you’re only in your early 40s. How do you achieve this level of success at a relatively young age?

Joey: One step at a time, [00:02:00] I guess. I’ve been very fortunate to be a part of IAC, which is a dynamic business with a dynamic chairman and a philosophy that generally– There’s a lot of components, but probably one of the most central elements is to do things differently, try and create new ground or try and go against whatever is the status quo. Things like specific experience or age are less relevant at IAC than they might be at another place. The thing that matters at IAC is people being passionate about something that they’re working on, working really hard on it, and wanting to get a chance to succeed at it, which is something that we give people.

Jonathan: You mentioned an executive chairman. That’s obviously Barry Diller. What are some of the important things that he’s taught you along the way?

Joey: Always think bigger is probably a big one. You think you’re thinking big at something. You say, “Look at this little business that’s doing a few million dollars of revenue. We can imagine one day if we work a lot of things out, we could do a $100 million in revenue.” Most people would say, “Wow. Well, that would be quite an accomplishment for a little business.” We could say that to Barry, and he’d say, “Well, why bother then? Because there’s a much bigger opportunity. If you’re not going for a bigger opportunity than that, then why bother?” That boundaryless thinking has been really important to creating value at IAC and really important to consistently setting the bar and the ambitions higher.

If you start with small ambitions, [00:04:00] the best you do is achieve those. We’re trying to look bigger, go after bigger markets, bigger opportunities with bigger wins that could work out for IAC. That’s been a pretty important one. Also, the willingness to allow yourself to be challenged, to challenge others, and to be comfortable in that state of constantly challenging and being challenged. I don’t ever have any problem disagreeing with our chairman on anything we want to disagree on, nor certainly does he with me. That gets us along with all of our colleagues.

That I think gets us to better answers because if you just start with one and everyone agrees or doesn’t challenge it, then you don’t explore the nooks and crannies of it in a way that allow you to prepare better for the future or better for thinking about what could go wrong or things like that. That challenging culture is really at the essence of getting to better answers I think. Those are some of the important ones, but there’s a lot.

Jonathan: Speaking of thinking big, in August of 2020, you announced a billion-dollar stake in MGM. It’s now May 2021 and that investment, using share prices, increased by about 128%. You get shown deals every day and you obviously pass on most. I’d love to hear how you sourced the idea and what gave you the confidence to give it the green light.

Joey: MGM in particular was a period where we were hair on fire looking at opportunities [00:06:00] knowing that we had a very short fuse because this was March and April of 2020, no one knew what the future looked like, everyone was scared and our businesses were in fine shape. Some businesses declined meaningfully for a short period, but we knew we had a very strong balance sheet. We knew we had the ability to get to the other sideway. As we do always believe that, ultimately, things come back to normal relative to challenging situations.

We said, “We have a very short window to deploy capital here. Let’s make sure we don’t miss this window.” We were looking at ideas round the clock in that period to try and figure out where to go. One thing we realized early was that buying an entire company in that window was probably impossible. Boards of directors weren’t meeting in that window to say, “How do we sell the company?” The only ones that were, were ones who were truly out of money, truly bankrupt, or at a significant risk of near-term bankruptcy. We looked at some of those but didn’t see ones that fit.

We realized that if we were going to put a lot of capital to work in that window, it would have to be likely through public companies and minority investment public companies. In that context, we looked at ones that didn’t have a control shareholder where we could be a meaningful shareholder and where we thought we could add value in the company. Also, ones that were clear leaders in their category with very clear asset value and enough capital to get to the other side, whether their own capital or capital we could contribute. That actually narrowed the field pretty quickly.

Among those, MGM was an idea that I think originated with somebody from our board, Alex von Fürstenberg, who had been talking to somebody else [00:08:00] about the idea. I think we had talked about it a few times in passing, but that one was something that we started to get excited about. I think he was, if not the catalyst, certainly a meaningful catalyst in it. We were looking at that in the context of all the other things we were looking at and as we do with every idea, we went through this process I was referring, which is taking apart the idea and figuring out all the reasons why it wouldn’t work.

Could they run out of money? Would the world change in some meaningful irreversible way? All these things you go through and then get what they were doing strategically. At each step, we didn’t find a blocker. In fact, we found more exciting opportunities, which was the sum of the parts thing, which was something that we’re familiar with. They had, basically still do, three different public companies under the same umbrella. They also had this really interesting theme that’s been relevant for us, which is an offline to online migration through a joint venture they have called Bet MGM, where they are one of the top three players in the US for digital gaming which is a business that’s a multi-billion dollar market today probably be 10x bigger 5 years from now, somewhere in that neighborhood.

You’ve got a market, you’ve got a leader in a very established category with great cash flow, which is I think some downside protection, then you’ve got a digital upside opportunity which is just a huge growing category with tailwind and a leadership or a potential leadership position there. The combination of those two things, which was the cash flow and downside protection plus the upside optionality, was really all we needed to proceed. You add to that a seasoned, solid, strong management team, they just had a new CEO, but a [00:10:00] person who had been in the business for an eternity and who knew it backwards, forwards, upside down, and sideways.

That was a winning formula for us. That has, so far, worked out very well, very quickly. Probably we’ve joked internally, I’ve joked a little bit dangerously, which is generally to create a billion and a half dollars of value, we’ve had to work for years and years, decades, making mistakes harrowing moments, all the things that you do to get there, which are very rare. This one happened in a few months. We didn’t have to do much work at all. The management team on their own did all of that. We were just, sitting back observing.

Jonathan: How did you come up with $1 billion? I think you had about $4 billion of cash on the balance sheet around that time, roughly. Did it just sound like a nice round number or was there just a capital allocation decision there?

Joey: It was two factors. One, it was a little bit of nice round number of us saying, this is about in the neighborhood of what we’re comfortable with, but the other big factor was we were buying in the public markets. We could buy up to 4.9% quietly and then our goal after that was to buy as much as we possibly could before we had to disclose. I think it ended up being a little bit more than a billion, but a billion and change we put in and that got us to 12%. I think they had 10 days to buy– I can’t remember how it works. You have 5 or 10 days to buy, and we bought as much as we possibly could in that time, which got us to the 12%, which ended up being somewhere in the neighborhood of a billion.

Jonathan: You think MGM is more of an attractive opportunity, even though the valuation has gone up now that you have certainty over COVID vaccines or as much certainty as you can, as it was when you bought it, obviously at a much lower price, [00:12:00] but you had that visibility that the world’s not going to end?

Joey: Yes, absolutely. MGM, I think they said last quarter, they had bought back some of their own stock. That’s, I think, a testament to the answer to your question. Yes is the answer. Two things have worked out probably better than we thought. Number one, the pace of the recovery. We always believed it would recover and we always believed they have enough capital to do that, but the pace of the recovery has been faster. Two, the pace of acceleration at BetMGM in capturing share. Now, there’s still a lot of unknown at BetMGM.

Most significantly, all the businesses in this category are losing an enormous amount of money and continuing to lose an enormous amount of money because it’s very competitive, it’s hard to acquire customers, it’s expensive to acquire customers. I think MGM has some unique advantages that they’ve been successfully leaning into. Nonetheless, it’s expensive. There’s still a lot of unknown as it relates to what happens when all of this spending shakes out or settles down. For now, taking real share in what is a huge and growing category.

Our thesis was that the offline and the online work together, that they both enhance each other. In some categories, online destroys offline. In this category, I think online enhances offline. One of the best examples of that was the state of Michigan, it’s the state where MGM has the best property in the state in Detroit. The MGM was at the beginning, other [00:14:00] states we’ve been late joining, this one was at the beginning. The combination of being there from the get-go with a physical property, and the success that we’ve seen there demonstrated how this whole ecosystem can work together in MGM’s favor.

I think that was really, really compelling. That a little bit validated the thesis, probably more than a little bit validated the thesis and that’s been a positive too. When we look at it overall, I think we feel stronger now than we did going in.

Jonathan: In your letter, right after the stake was announced discussing the deal, you left it pretty open-ended on how you would assist MGM. What have you been doing to help? I know obviously, you’re on the board as well — You obviously have great expertise on internet-related businesses. Are you actively engaging with them?

Joey: Very much. I had a call with them last night. Wherever they need us is the answers to specific examples, we’ve trying to help with talent. We’ve helped with sourcing or recruiting some folks. With some of the technology questions that MGM needs to answer for itself and also through the joint venture where and I see employee has joined the board of the BetMGM joint venture. With ideas and direction and helping with the storytelling, all that we’re trying to be helpful with, but we’re not doing anything really ourselves.

We’re passengers here with a team that’s very capable and doing well, doing it all on their own. It’s just us, we’re here to help when they need us and whenever they call, which they do sometimes, we [00:16:00] chip in.

Jonathan: You’re about to spin off Vimeo I think this week or so. Right now the most valuable piece of IAC after the spin-out will be your stake in Angi, your cash, Dotdash and obviously your MGM stake as well. You have a lot of lesser-known companies under the umbrella. Which are the ones that you’re most excited about that investors really should be paying more attention to?

Joey: I really am excited about all of them. If I want to pick out some that you haven’t mentioned that are fun right now, you take one called Turo. Turo we’re the largest minority shareholder, but own a meaningful stake in the business. I’m on the board along with my colleague Mark Stein. The businesses in a fantastic macro situation right now, which is, they’re in the business of peer-to-peer car sharing. If you think about Airbnb as it relates to hotels or vacation homes. Turo does similar for cars.

As a owner of a car, you can generate income from your car and as somebody who needs a car, you can get the most unique set of car inventory anywhere from Turo, generally at a pretty attractive price too relative to the rest of the market. What’s happening macro is two things that are really helping the business, besides the general situation which is Turo’s a much more engaging experience, much better experience. Once you use Turo instead of a traditional rental car, you really don’t ever want to go back to a traditional rental car. [00:18:00] What’s leading to a lot of discovery right now is, number one, there’s a lot of more, it’s called local mobility.

People are less getting on planes. Airplanes are starting to recover, but still even domestic travel on airplanes is still down, so people are taking cars, they’re taking cars for trips and sometimes they use fun cars for trips. That’s really helping Turo. By the way, even in that context, the rental car companies are based in airports. When there’s less people in airports, we don’t need the airports to operate our cars, they are spread out all over the place. The airports also all want to take a tax on the consumer to use cars in airports. We, fortunately, avoid some of that infrastructure by being a different kind of company.

Long-winded, the two macro things that are happening, one is the local mobility, the second one is that because during this crisis, a lot of the car companies sold off their fleets, and now with the chip shortages, the OEMs can’t make new cars, they can’t replace those fleets. You see these stories about the rental car companies charging insane prices for access to cars because the supply and demand aren’t lining up. We have supply and we can grow our supply. We don’t need to go to the OEMs and buy 1,000 of the same car at a time. We’re finding this all the time. Somebody whose operation is working picks up a second car.

Sometimes they buy a second car, sometimes they get a second car from their sibling or their brother-in-law, or father-in-law, or somebody who’s not using a car or who only use the car part-time. They realize that this is a yielding asset and that all these things are unused and they can do it. The business is seeing fantastic growth right now, which is a lot of fun. I think the way it’s transforming [00:20:00] the categories, something that’s going to be very– It is already and will continue to be something that is very beneficial for consumers. That’s a fun one, but we’re, again, minorities there.

We’re also in this category that I think is fascinating, which is matching temp labor with employers. This category lately has gotten a lot of tangential noise because of what’s happening with stimulus and what’s happening with unemployment benefits, and whether people are going to work or not in these light industrial jobs. What this platform does is it matches workers with employers. That traditionally happened, really still today, almost entirely offline. There were resumes, there were interviews, there were phone calls, there were literally physically going to pick workers up at a certain location and move them to another location.

Now in a small way, because it is still very small, but I think if you fast-forward a few years, then we’ll all be down with software, it’s just a better way of doing it. Knowing whether somebody is available to work, knowing whether somebody is proximate to a work location, knowing whether somebody is commute could be half-hour shorter, knowing whether their commute could be a few dollars cheaper. All these data points, knowing their propensity to show up on time, their ability to operate a certain kind of machine. Most of those things are actually relatively binary.

There’s not a huge amount that’s accomplished in an interview in jobs like that. You’re qualified for the work, you’ve done the work and you’ve either demonstrated or not an ability to show up and show up on time for that work. Software is going to be better at judging that than people are at judging that. That’s the idea with this platform is to match the workers with the work and really help the workers [00:22:00] in that context get better jobs, better-paying jobs that are closer to their home, that are more convenient for whatever they need to accomplish and getting rid of a lot of the hassle that really adds no value in that ecosystem.

We’ve got one business doing that in the light industrial space and we’ve got another business doing components of that, not in the same way, in the healthcare space. I think that it’s a pretty interesting category for us. That’s a fun one.

Jonathan: IAC is known for taking businesses, as you mentioned just now, that are primarily currently conducting most of their business offline and transitioning them to online. You’re doing with those businesses that you just referenced. You did it with Ticketmaster, Expedia, Match Group, Angi. Are there really any major categories left for IAC to enter that haven’t meaningfully transitioned from offline to online?

Joey: I thought for sure we’d be out of gas on this strategy by now or five years ago and there’s still a lot more. There’s the one we were just talking about temp labor. It’s almost entirely offline right now. Even Angi is probably still 10%-ish online, definitely less than 20% online. Healthcare is another huge one. We’re basically nowhere in healthcare other than a bit through this employment business. Healthcare is still significantly offline. Food has only in the last few years moved online. The pandemic was a big catalyst for that, but food just probably over the last three years moved massively online. It was otherwise offline.

Offline to online is a little bit– We still talk about it and it’s still, I think, a great way to look at it, but it’s a little bit old news in the [00:24:00] sense of what does offline to online mean anymore? There are different evolutions of online. Another big theme for us has been in a few of our businesses that we’re in that we’ve considered entering is the first amazing moment in going online, you might remember, but most people probably don’t, is this thing of there’s a list of all the available information online. That was transformative when you could find all the information, whether that was in travel or whether that was in ticketing or whether that was just in search, with Google offering you 10 billion results on any query.

Now, what’s happening is, just having the information is not– that’s obviously table stakes. In fact, that can get annoying. What you really want is the curation. You really want to go down to one answer or a couple answers and that curation is a whole other evolution in these businesses where you see disruption from the person providing the lists or the entity providing the list, the entity providing the match and, ultimately, the entity providing the transaction. In all of our businesses, probably Angi most pronounced is, we’re trying to enable that transaction online. That’s another evolution.

Jonathan: As I mentioned earlier and as well-known, you’re about to spin off a Vimeo. You have about $3 billion in cash. Do you have a preference of how you’re going to use it? Do you anticipate any of your current businesses needing a lot of cash, or you think it’s going to be spent on acquisitions? How do you see your use of capital going forward?

Joey: It’s probably not likely a huge amount of capital in just P&L losses. I do think one thing we have been doing with Angi and probably will continue to do is reinvest profits in Angi, but probably not. [00:26:00] Not likely going below zero in those businesses to reinvest, at least not a significant amount of cash into those businesses. We’ll invest into businesses and reinvest P&L, but I wouldn’t say materially more that way. That really leaves acquisitions or new acquisitions, acquisitions in our existing categories, or acquisitions of our own business, which is another word for share repurchases.

We’ve gone through periods where there was after the 2008 spinoffs where we span off four businesses in that period. I think we bought back over a few years basically half our shares. That’s one option. Another option is getting into new businesses and buying more businesses. I think both are possibilities and both are something that we analyze pretty regularly and we’ll continue to analyze regularly.

Jonathan: I guess when Anjali, who is currently leading Vimeo, came to you when it was a much smaller company with a new vision for it, you ended up plowing a lot of money into growing it to where it is today. What gave you the confidence to aggressively invest in that business?

Joey: The big thing that Anjali did was, she convinced us that it was– she really made the case for it being a much larger market than we originally thought. With the tools business, the services business, software as a service business had been Vimeo’s business for a very long time. We thought it was a small cottage business and we needed a really a big ambitious business. That’s what led us into the entertainment business, building our own streaming service. We knew that it was a big market, there were some big players in that market, eventually [00:28:00] ended up being basically every player in that market, but there were some big opportunities there.

What Anjali showed was that, actually, the market for people that needed those services were not just the software as a service video software as a service, were not only the most highly talented filmmakers, which was the bulk of Vimeo’s paying user base at one point, it was really anyone who could use video in their business. When we realized that, it became worthy of significantly more investment and significantly more acceleration. That’s what led to certainly the next $300 million of capital going into that business under her leadership.

Jonathan: For every Vimeo grand slam success, I imagine there has to be a lot of failures. How do you know when it’s right to walk away from an investment? You walked away from the streaming part of it and with the benefit of hindsight that was a great move because you have some deep-pocketed players. How do you know when to walk away?

Joey: The streaming business never really made it out of the crib or the womb or something if we keep going with the analogy. That was relatively easy. We’re investing in things constantly. When you see some sign of traction, you keep going, and when you see no traction, you pull back. You have to think about it differently. The way we think about it is, it certainly ties to the scale of the business. We have a big business, take for example. We bought Ask Jeeves at some point. We bought that business for a billion and nine and at that time it was doing about 75 million EBITDA. [00:30:00] There was no question that we lost the search battle.

We lost that probably not that far after we bought the business, we lost to Google. Google was certainly winning when we bought it. Google was probably winning to a greater degree than we even realized when we bought it. We lost that. Instead of pulling out of Ask because there’s not really an easy way for us to do that as the owner of the asset, there weren’t a lot of people interested in buying it at that point and there wasn’t really a viable path to selling it. For us, it was, “Well, we have to make this business work in a different way, so we have to reinvent.”

We don’t usually have the option. For example, as a passive investor, you could buy something under a thesis, the thesis doesn’t work out, you sell it the next day. That’s not available for us. We may buy something, own something, we were trying and it’s not working, well, then we try something else and then we try something else and then we try something else until we find something that works. We did that with, we did that with Ask Jeeves, we did that with basically every single one of our businesses. We’ve disrupted ourselves and tried something new rather than pulling out completely.

We don’t usually have the option available to pull out completely. We can pull out of a strategy completely and we could do that frequently, and we can pull out of something small, but if it exists as a business and it had a reason to exist as a business, then we ought to be able to pivot it and change and adapt and explore new alternatives until we find the thing that’s working. That’s on us to do that. We don’t really give up or cut things loose in that context.

Jonathan: Just want to focus a little bit on Angi, where you own roughly 85% of the company, [00:32:00] You’re making a big bet on fixed price services. It’s really complicated trying to figure out how to charge for jobs, sight unseen across different markets. How close are you to getting this right in terms of execution? How much further do you need to go? It’s really hard.

Joey: It is really hard. I think we’re close in the sense that we’ve proven it in certain parts of the market and far in the sense that we haven’t proven it in other parts of the market yet. You always learn more things good and bad as you scale further. You have certain assumptions on your ability to automate things. Sometimes you find you can do more things that you didn’t realize you could automate, and sometimes you find you can do less things that you were counting on to automate. We’ll go through those realizations over time, but if you focus just on the homeowner and the homeowner experience.

We’ve determined with certainty that for the vast majority of homeowners, when they get the full experience, they’re going to be happier. Full experience means you go online, you find the service you want, you pay for the service you want, that service is completed, and you’re done. You skipped the step where you have to negotiate, you skipped the step where you have to evaluate different providers for the service, and you skipped the step where you have to chase the person down to show up or finish the job or all that stuff. That is really a magical experience.

When you know you can deliver a magical experience relative to the incumbent, then everything else from there is just engineering to optimize that magical experience. Once you’ve seen the magical experience and delivered the magical experience, then you know the direction you’re headed with very high confidence, and you know there’s [00:34:00] no turning back from that direction. All you have to do at that point, I say all you have to do like it’s easy, it’s very hard, but all you have to do at that point is optimize. That is the phase that we’re in right now.

We talked about this how we change frequency. If you’re coming in and doing a fixed price job, what we call now Angi Services, if your first experience is an Angi Services job that gets fulfilled, your frequency, with a couple of other things built into there, change your frequency by 4x. That is transformational. I allegorize that to a bunch of other experience that we’ve admired, like Amazon Prime. When I first signed up for Amazon Prime many years ago, I remember saying, “Well, we get a package every now and then, and we like Amazon. I feel like I know that it’s $10 to ship something, so if I ship a few things, maybe one thing a month, it’s going to work out that we’ll be close enough with this two-day shipping.”

What happened is, we went from that to, we have a package from Amazon at our house four times a week, probably at least. The transformation was that you could rely on it. Once you can rely on something, then your behavior changes meaningfully. I believe that that same opportunity is available within home services. Right now, the average person does six to eight jobs and we get a little under two of them. I think the right number of jobs could be a multiple of that. Our portion of those could be also a multiple of what it is right now00:35:48]. That’s the behavior that we’re looking for.

We’re starting to see some of the early signs of that. That leaves me pretty optimistic about it. That’s why we’re putting in the [00:36:00] level of capital that we’re putting. I think that the faster we go, the better. Meaning a lot of these gains, a lot of these marketplaces are about building up liquidity on both sides of the marketplace. You got to keep the service professionals engaged and happy, and you got to keep the homeowners engaged and happy. The best way to do that is to keep more volume moving through the system. That’s what we’re trying to do right now.

Jonathan: Right now for Angi, your take rate or the amount Angi receives from a job, I think it’s a little less than 10% for the fixed price services. If you look at a company like Uber, they get roughly 20% or so. Is achieving a higher take rate over time realistic?

Joey: I’m not sure you’re right on your estimated take rate on the fixed price services. It’s going to be higher than that. The answer on take rate overall is yes, I do think it goes up over time because I do think we add incremental value over time to the service professional. We can actually start to make their operation more efficient and save them real costs and share in the savings with the service profession. You may not need a receptionist or a calendar person to be making or booking the calls, or a salesperson to be going out and doing the sales.

You could be more efficient with just people doing the work, and by the way, people doing the work in a finite geographic space, which saves on travel time and things like that, optimizing the schedule, optimizing the payments, not having to do invoice and collections, and things like that. You take a lot of those nuisances out of the equation for the service professional, you can start to justify a higher take rate because everyone’s doing better. The loss there [00:38:00] is the inefficiency and the unpleasant part for both sides. That added happiness is generally going to be added opportunity to share in the economics.

Jonathan: IAC is famous for not holding things forever. You let them go and break free. I’ve always thought that a major home improvement company like Lowe’s, which you do have a partnership with Angi, should own part of. I think it makes sense for both sides. In your mind, does it make sense for Angi to be a standalone, or would it be better to partner with a larger organization, or you’re just trying to achieve what you’re trying to achieve?

Joey: I always default to we’re on our own. We’re always open to things. If somebody calls and says something that makes sense, we certainly listen, but our mentality always is and always has to be we’re on our own forever. You’re right that we’ve spun off a lot of businesses and plan to spin off a lot more businesses. Our philosophy, when we get into something is we own it forever. Spinning it off doesn’t mean we don’t own it anymore. It just means our shareholders own it directly. Same owners before the spin as the owners after the spin.

Now, in reality, of course, some people trade in and some people trade out, so it’s not going to be all the same owners. Our thought is, when we buy something, we buy something to own it forever, we buy something for our shareholders to be able to own it forever, and we do that really efficiently. That forever mindset has been a massive competitive advantage for us, in that, very few other people operate with that mentality. [00:40:00]

Jonathan: No, absolutely. Short-termism is rampant. I know we’re running out of time. I just wanted to touch briefly on You bought it not too long ago. Before you bought it, the site had some major safety issues which was profiled in a Wall Street Journal story, which I guess gave you the opportunity to purchase the company. They had a lot of hard problems that they needed to address. What gave you the confidence that you could right that ship?

Joey: A similar situation, in that, we looked at the Care’s market position, which they were, I don’t know, 30x the next competitor on audience. They were the default brand in the category, based on the genericness of their name, but also the brand equity that they had built in that area. Is a very large category, which we felt and we’ve been at least right on this part is that the category has a natural tailwind to it, not just offline to online migration, but also more of society feeling a responsibility to help in care, childcare, and senior care.

We’re seeing this on the enterprise side with the growth in the enterprise business at care, and we’re seeing this in government in the discussion in some of the infrastructure bills that are coming out around care. We’re seeing the necessity of this in what’s happened to the workforce, the makeup of the workforce over the course of the pandemic, and particularly women in the workforce. Now, they’ve borne much more of the brunt of childcare than men in the workforce. People are realizing, enterprises are realizing, government’s realizing this is a problem that we have to solve.

We looked [00:42:00] at that combination of things and said, “This is a really attractive place to be.” Generally, our view is that mistakes are fixable, the company made some mistakes in the past, those could be fixed. I don’t think that they fundamentally undermined the principle of what could be accomplished in that category. I think they just made some mistakes and we had the ability to work on fixing some of those. I think we made progress on– It’s impossible to be perfect, but I think we’ve made progress on a lot of those. We’re seeing that come through in the numbers a bit.

Jonathan: Has the pandemic changed the company’s prospects in your opinion?

Joey: Yes, it has. In a business like Vimeo, that came through in real-time where growth rates tripled, or whatever, overnight. In care, it’s perhaps an even bigger impact, but slower because it awakened the world to our responsibilities in helping with care. Now people are seeing that that needs to now translate into the business and people engaging with the right product to solve these problems. The spotlight on carrying the responsibilities around care is there in a way that would not have otherwise come. That’s going to, I think, be really important to the growth of that business.

Jonathan: Joey, you’ve been more than generous with your time. I want to thank you for being on the show and telling us more about your fascinating career as well as your vision for IAC and Angi in the future. We look forward to watching IAC’s and Angi’s progress. Again, thanks for being on.

Joey: Well, it’s my pleasure. I’m looking forward to all that too. I hope to see you again.


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Legendary Investor Leon Cooperman on asset allocation, interest rates, Berkshire Hathaway, and where he is currently finding value in the stock market.


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The Interview Discusses: 

  • How his investment strategy has evolved since retiring from managing money professionally.
  • His thoughts on asset allocation.
  • Which areas of the stock market he is currently finding value in.
  • How to invest in a potentially rising interest rate environment.
  • His sell discipline when investing in equities.

About Leon Cooperman:

At the end of 1991, following 25 years of service, Lee retired from his positions as a General Partner of Goldman, Sachs & Co. and as Chairman and Chief Executive Officer of Goldman Sachs Asset Management to organize and launch an investment-management business, Omega Advisors, Inc., which he ran for 27 years before converting it to a family office at the end of 2018.  At its height, Omega Advisors managed more than $10 billion of client funds.

At Goldman Sachs, Lee spent 15 years as a Partner and one year (1990-1991) as of-counsel to the Management Committee.  In 1989, he became Chairman and Chief Executive Officer of Goldman Sachs Asset Management and Chief Investment Officer of the firm’s equity product line, managing the GS Capital Growth Fund, an open-end mutual fund, for one-and-a-half years.  Prior to those appointments, Lee had spent 22 years in the Investment Research Department as Partner-in-charge, Co-Chairman of the Investment Policy Committee and Chairman of the Stock Selection Committee.  For nine consecutive years, he was voted the number- one portfolio strategist in Institutional Investor Magazine’s annual “All-America Research Team survey.

A designated Chartered Financial Analyst, Lee is a senior member and past President of the New York Society of Security Analysts; Chairman Emeritus of the Saint Barnabas Development Foundation; a member of the Board of Overseers of the Columbia University Graduate School of Business; a member of the Board of Directors of the Damon Runyon Cancer Research Foundation; a
member of the Investment Committee of the
New Jersey Performing Arts Center; and Board Chairman of Green Spaces, a committee organized to rebuild 13 parks in Newark, NJ.

Lee received his MBA from Columbia Business School and his undergraduate degree from Hunter College.  He is a recipient of Roger Williams University’s Honorary Doctor of Finance and of Hunter College’s Honorary Doctor of Humane Letters; an inductee into Hunter College’s Hall of Fame; and a recipient of the 2003 American Jewish Committee (AJC) Wall Street Human Relations Award, the 2006 Seton Hall Humanitarian of the Year Award, the 2009 Boys & Girls Clubs of Newark Award for Caring, and the 2009 UJA-Federation of New York’s Wall Street and Financial Services Division Lifetime Achievement Award.  In 2013, Lee was inducted into Alpha Magazine’s Hedge Fund Hall of Fame and was honored by the AJC at their 50th anniversary with the Herbert H. Lehman Award for his professional achievements, philanthropic efforts, and longstanding support for AJC.  In 2014, Columbia Business School awarded Lee its Distinguished Leadership in Business Award, and Bloomberg Markets named him to its fourth annual “50 Most Influential” list (one of only ten money managers globally to be so honored, selected “based on what they’re doing now, rather than past achievements”).  He was inducted into the Horatio Alger Association in April 2015.

Lee and his wife, Toby, have two   sons and three grandchildren.


Click Here to Read the Interview Transcript

Transcript of the Interview With Leon Cooperman:


[00:00:00] Jonathan Boyar:Welcome to the World According to Boyar, where we bring top investors, best-selling authors and business leaders to show you the smartest ways to uncover value in the stock market. I’m your host, Jonathan Boyar. Today’s guest is Leon Cooperman, one of the most successful money managers in history. If I went through his full professional biography we would run out of time. I’ll just go through the highlights.

Leon started [00:00:30] his investment career at Goldman Sachs, where he eventually became chairman and CEO of Goldman Sachs asset management. Prior to that he ran the firm’s research department. For nine consecutive years, he was voted the number one portfolio strategist in Institutional Investor magazine. At the end of 1991, Leon retired from Goldman to start his own investment management business Omega Advisors which he ran for 27 years before converting it to a family office. At its height Omega managed [00:01:00] more than $10 billion of client funds.

Mr. Cooperman and his family are extremely philanthropic. He and his wife, Toby, are signers of The Giving Pledge and have generously made substantial gifts to both Columbia where Leon received his MBA, and Hunter college where he obtained his undergraduate degree. The Cooperman’s also made the largest donation in St. Barnabas Medical Center history as well as countless other major donations to help those less fortunate. Leon, welcome to the show.

Leon Cooperman: Thank you, [00:01:30] Jonathan. I’m getting so damn old. I’m dealing with the children of people I knew many years ago, but a very good platform.

Jonathan: No. I was speaking to my father Mark and he remember being the same stock US Shoe with you years and years ago. He said it was run by the worst CEO he ever met.

Leon: The highest ratio of talent to brains.

Jonathan: [laughs] In 2018, you converted to a family office. One of the reasons you cited was you did not want to spend the rest of your life trying [00:02:00] to chase the S&P 500. Now that you’re just managing your own money, has your investment process or strategy evolved at all?

Leon: Well, let me give you a little bit longer answer proceeding it. Everybody, myself included, was shocked when I retired. I love the business. I live by the motto, “Do what you love, love what you do. It’s not work. It’s just something you just enjoy doing.” I feel very much like, if you’ve seen Godfather 2, I’ve always seen it 50 times, there’s a scene at the airport where Hyman Roth gets shot. Right before [00:02:30] they shoot him, he says, “I’m a retired executive living on a pension.”

I’m a retired money manager living on investment income. The bad news is I have no active income, meaning I have no income from wages or salaries or from clients. The good news is I live on dividend and interest income and capital gains. Had losses, that’s the bad news. The good news is I have no pressure. I think at age 78 it was a good swap to go from income-oriented to absence of pressure. Particularly my case, you mentioned [00:03:00] it very kindly, my wife and I have committed. We told Warren Buffett this nine years ago, asking for half isn’t asking for enough, we intend to give away all our money. I was working 70-hour work weeks for charity, many people I didn’t know. I’m happy with my decision.

How has my life changed? I told everybody who asked me when I announced my retirement that my change would be as follows. I’m going to sleep an hour later in the morning. When I was in business I got up at 5:10, got in the office at 6:45. I’m going to go to the gym three times [00:03:30] a week to deal with my weight issue which I’ve carried all my life. Both of those I’ve done very religiously.

The third thing I’m going to do, I have not done. That was I was going to learn how to bid in bridge. I have very good card sense and how to play a hand well but I don’t know the bidding conventions. I have been so damn busy in retirement that I’ve not had the chance to take any bridge lessons. You hit on one other thing, I’m going to be more long-term oriented, be tax efficient. The great Warren Buffett, I guess, almost 40 years ago in one of his annual reports went through a hypothetical [00:04:00] example of every year you bought that year’s hot stock, you’ve made 50%, sold it, paid your taxes and reinvest in what was left, the next year’s stock make 15% as opposed to a 15% serial grower. At the end of 40 years you had thousands of times more money left in the long-term investment approach than in the trading approach.

Now, of course, it was a hyperbola example because if you’re trading your hope to get more than 15% when you go into that year’s hot stock but I am more [00:04:30] long-term oriented, more tax conscious and also because I’m very heavily weighed in common stocks, because I think the market is fully valued and more likely to fall and go up a lot, I’m putting more money into non-equity deals or private deals, real estate and other kinds of deals where I know the people, where I have confidence in the people.

Jonathan: That raises an interesting question. Obviously your circumstance is very different than most. The traditional rule has always been 60/40. This is a very vague rule, equities to bonds. [00:05:00] With interest rates where they are in the market- [crosstalk]

Leon: No bonds. I think bonds offer return free risk, return free risk. Basically, if you take the 1.45% treasury, you tax effect it, that the people that are buying treasuries that are taxable probably have a 40% tax rate, so you keeps 60 of the 1.45, which is 84 basis points and the inflation rate is running 2% or more, basically you have a negative return on your capital. There are [00:05:30] many stocks you could buy that have dividend yields higher than the treasury yield and are growing. As much as I’m not overly enthusiastic about equities a class, I would say that they clearly are superior to fixed income and I own very little fixed income.

Jonathan: If you were back your role as a portfolio strategist at Goldman, what would you be advising clients?

Leon: I would say minimal exposure to bonds. Everybody has their own– If I’m dealing with wealthy people [00:06:00] I tell them, “You’re already wealthy. Do what makes you comfortable. If you’re not comfortable don’t do it.” I’m comfortable having no fixed income, so I have stocks and cash. Stocks are infinitely better than bonds and I don’t expect a lot from the stock market.

Jonathan: Even the non FANG type of names, are their value in the smaller type of stuff?

Leon: Yes. I’ve said this before, I’ll repeat it again. We’re really dealing with three stock markets. The first market, which is very well known and discovered is the [00:06:30] FANG market. That’s the Googles, the Facebooks, the Amazons, the Microsofts of the world, and against the 1.4% bond rate they’re not expensive. I went back, if you can give me a second, I went back and looked at the NIFTY 50 1972.

In 1972, JP Morgan US through trust ruled the roost. They had a philosophy, only the right stock at any price. They were impervious to what they paid as long as they bought a world-class growth company. [00:07:00] In ’72 they paid 65 times for Avon, 25 times for DOW, 48 times for Kodak, gone, 26 times for GE, 37 times for IBM, 34 times for Kmart, gone, 90 times for Polaroid, gone, 30 times for Revlon, almost gone, 31 times for Sears Roebuck, gone, 34 times to Kresge, gone. 41 times for Xerox.

In 1972, those valuations were alongside a 10-year government of 6.5%. [00:07:30] The 10-year government at 1.45, it’s hard to come up with the conclusion anything is overvalued, but I believe that the 10-year government is overvalued. I don’t believe in using an overvalued instrument to discount a stream of earnings. That’s the first market. As long as we avoid a recession and interest rates go up very gradually and modestly the FANG stocks are okay.

In fact, in the family office, even though I’m a value investor, my biggest position is Google. I have a 4% position in Microsoft. I have 6% in Google. I got a little bit of [00:08:00] Facebook. I got a 2% position in Amazon. That’s one market. Expensive but not ridiculously so. The second market, which is ridiculous, are the Robinhood market, and that’s a bunch of 30-year-olds that are getting checks in the government that are trading in an environment of zero interest rates, zero commissions.

They’re playing the game. I guess they can’t go to sporting events and so they’re playing the stock market. I think that’s going to end in tears. I’ve said that previously. Unfortunately, the first time I said that on television was on [00:08:30] CNBC, the very next day, somebody committed suicide who lost a lot of money on Robinhood. That’s a very sad outcome.

You look at things. Carl Icahn is about as smart as they come. He sells his mistake in Hertz at 72 cents a share. Two weeks later the Robinhood crowd is trading it at five. GME, I don’t know Gabe Plotkin but I’m sure he’s a very smart guy, but he got squeezed here. For GME to go from 20 to 500, we had a 50 billion market cap, it’s irrational [00:09:00] and the whole market trades in a very crazy way. I think that when it goes down, and it will go down one day, it’s going to go down as fast as it went up.

The third market, the market that I track in that Boyar Research tracks in, and that’s the value market. There are plenty of things you could find to do there. I’m reasonably fully invested. No bonds of any consequence. I recognize, what’s been going on in the last several years is everybody has been pushed out on the risk curve. The person that bought [00:09:30] T-bills 10 years ago said, “I can’t survive in zero. I’ll take duration and inflation risk not buying T-bonds.”

The T-bond buyer says, “I can’t get by 1 to 1.5, I’ll buy industrial bonds.” Industrial bond buyer says, “I can’t get buy on 2% or 3%, I’ll buy high yield.” Now high yield buyer says, “I can’t get by on 4% or 5%, I’m going to buy structured credit, which is an opaque market has a higher yield.” Then your structured credit guy says, “Well, the stock market is hot as can be. I’m going to pay 2,500 into my fixed income fund and [00:10:00]  I’m going to put in equities.” The equity guys put 2% in Bitcoin. That’s what’s happening. Everybody’s moving in the risk curve.

It’s very clear what’s going on. I understand it. I’m not saying it’s wrong, but you should appreciate it. The only man who is wrong is Mr. Powell as the head of the Fed doesn’t acknowledge what’s going on. What’s going on is very simple. Before the COVID virus hit, there were 5.7 million unemployed people in the country. At the peak in March or February, it got up to 23 million, April I should say. [00:10:30] April, 23 million. It’s now down a little bit over 10 million. We’re conducting fiscal monetary policy with the aim of getting the unemployed back down to 5 million.

Just look at what’s going on. If you spoke to 100 economists today, they all would agree the potential for real growth in US economy is about 2%, close to around 2%. How do they get there? They say real growth is a function of productivity growth and labor force growth. Productivity growth is about 1.5% trend, labor force growth grows about 0.5%. [00:11:00] The potential for the economy to grow in real terms is about 2% real. The economy is growing 6% real based upon the forecast yet we have interest rates near zero. That doesn’t make you grow in three times trend yet the fed is keeping interest rates pinned as low as they can possibly be.

On the fiscal side, we’ve injected a trillion dollars more in stimulus into the economy that has been lost in wages. We got the pedal to the metal, whatever you want to say. I think that [00:11:30] one day someone’s going to wake up and look at all the debt that’s being created. This nation was founded 245 years ago, we had no national debt. I think we had in 2019 21 trillion of debt. That went up 3 or 4 trillion this past year. It’s going to go up another 3 trillion this year. There’s a pace of growth in debt far in excess of the growth in the economy, which means more and more of our income is going to have to be devoted debt servicing.

It’s not going to come about through immaculate conception. Most bear markets have [00:12:00] causative factors and the causative factor will be a recession or possibly a change in fed policy. The fed will change if they lose control of the things and inflation starts to accelerate, but you see tremendous inflation and commodity prices, but that’s less relevant because the big cost of business is labor. Once labor starts to go up, then I think you can let the genie out of the bottle, but it is what it is. I would say, unequivocally in my mind, well selected the stocks are the place to be, bonds [00:12:30] are the bubble.

Jonathan: When you graduated from Columbia Business School in the ’60s, the 10-year was around 5% nominal, eventually reached almost 16% in ’81 and rates were choppy for a while in the ’80s. But the long-term trend is basically on a path to almost zero, which is crazy. There are signs that rates may finally be rising, which makes sense, based on what you just said, although people have been saying this for years. However, most equity investors, myself included today, [00:13:00] have not invested through a prolonged rising interest rate environment. What do you think the investment implications for equity investors will be if rates start to rise? How does someone navigate that?

Leon: Well, it’s really a function of the magnitude of the rise and the slope of the rise. I’ll give you some statistics. From 1960 to 2012 the market multiple was 15 times. Now we’re about 23 times, 22 and a half times. In that period [00:13:30] the 10-year government averaged 6.2% currently 1.4% and the fed fund rate was 5% currently in year zero. The stock market is not discounting current interest rates. It’s obviously more risky appraised because of the level of rates, but I would say, the market could accommodate a rise in rates. I would say 2% gradual rise would not be a problem for the market.

I think the bigger question is what the fed is doing. Keep in mind, the most important thing I’m going to say in this podcast [00:14:00] is inflation over time is a friend of common stocks because the inflation in a company’s costs get incorporated in their selling prices, which lifts the nominal level of revenues and earnings. It’s only when the central bank is trying to cover inflation does a market get worried because the market understands curbing inflation is tantamount to curbing growth, but we have Mr. Powell telling you, ‘The stocks are not expensive against interest rates.” What he doesn’t tell you is interest rates are ridiculously low, they make no sense. People are not going to constantly buy [00:14:30] bonds with negative returns, they’re going to gravitate into higher risk assets.

I also would make the point that there is history for a prolonged period of under performance of the major averages. I got my MBA, you mentioned Columbia, on January 31st, 1967. Had a six-month-old child, who’s now 54. I had no money in the bank. I was relatively newly married. I owed money to the government because of national defense student loan that I had [00:15:00] outstanding, and I could not afford a vacation.

I went to work at Goldman Sachs the very next day, February 1st, ’67. The Dow was roughly 1,000, 14 years later it was 1,000 and only commenced that rise in 1982. I made a lot of money picking stocks. That’s what I think we got to do. I don’t expect much from the averages over the next few years but I think you can make some money picking stocks, but you won’t have the tailwind that we’ve had, you’re going to have a headwind of rising rates. I also would say this, if rates belong where they are, [00:15:30] meaning 1.4%, 1.3% and the guy has been very, very right, it’s Van Hoisington in Houston. Basically, he thinks rates going to go lower but if rates prolong at 1% you don’t make double-digit return to the stock market. You make single-digit returns, which is evidence of what to expect in economic growth. I believe in the capital market line.

Jonathan: Columbia Business School, you said you started work the very next day. My former boss, one of your very good friends, Mario Gabelli has told me the same-

Leon: We were classmates [00:16:00] and we’re very friendly to this day. He’s terrific. I know he was on a podcast with you. Mario is a great guy and terrific human being and one of my best friends.

Jonathan: He’s fantastic and one of the articles I was reading said you, him and a guy by the name of Art Samberg of Pequot Capital, one of the world’s largest hedge funds at a time, all carpooled to Columbia together, were in the same class.

Leon: Yes, unfortunately, Art just passed away at roughly age 80 to a bout with cancer, which he succumbed to. He was also [00:16:30] a terrific human being. Yes, we were lucky. The only luckier ones were Columbia. I don’t know the total, I know I’ve given about $40 million at Columbia. Columbia changed the trajectory of my life. If you have some grandparents listening to this podcast., I can tell you, the MBA made a big difference.

Mario and I have a similar philosophy. We both say we like to hire PhDs, poor, hungry and driven. I never could have gotten into Goldman Sachs with a BA from Hunter College. It was the MBA I got from Columbia [00:17:00] that opened the door. Warren Buffett’s says the language of business is accounting. I learned accounting, operations research, statistics, stuff like that. I made a lot of friendships I kept for the rest of my life. Mario and Art were two terrific human beings. I really miss Art. He’s terrific. I speak to Mario every week and he is a great human being.

Mario and I used to jostle with each other. When we were in between classes, we would run to the only phone booth at Columbia. We would be pushing each other, shoving each other to get access to the phone to call our broker. [00:17:30] We had the same broker. I forget the name of his firm. The only thing I know about the firm is Buster Crabbe used to be a salesman at that firm. He was the old Tarzan guy. What I love about Mario is the only thing that’s changed about him in the last 50 years is the color of his hair. He had a redhead when I went with him at Columbia and now he’s got a full head of gray hair, but he’s just a terrific human being.

Jonathan: No, he is, he was a fantastic boss, a great teacher and it’s just amazing when you think about it, that that class produced one of the best investors of a generation. [00:18:00]

Leon: Well, we all started with the Roger Murray, who was a fabulous practitioner. The original publication, the book, Security Analysis is 1934 Written by Graham and Dodd. I think the second or third edition was Graham and Dodd, Cottle and Murray authored one series, one edition and it was amazing. In the original Graham and Dodd, they had a two-page thread of about 20 ratios over 10 years. It’s a way of looking at a company [00:18:30] to study those ratios and the direction.

I did a study contrasting JP Stevens and Burlington Industries. Two textile companies, both not around any longer. Roger Murray, in grading my paper, found the transposition in one of maybe 100 ratios that I put into the report. The guy was amazing, true practitioner, but he really honed my interest in the profession.

Jonathan: One of the things I’d love to ask you about it, and I think it’s [00:19:00] probably the hardest part of investing is when to sell shares. I really think it’s unbelievably difficult. First, when you were running money professionally, how did you decide to trim position that increased in value?

Leon: Well, we did it in a very disciplined fashion but now that I run my own money, and I don’t want to pay taxes, I totally take my highly appreciated stocks, I give it to my foundation and then I give it away to charity. As you kindly mentioned, I’m took The Giving Pledge with Warren Buffett, and I tend to give away all my money.[00:19:30] Whenever I buy a stock, we identify the upside and the downside. When a stock appreciates to my upside objective, I re-examine the thesis, either raise the objective or I sell.

Second reason I sell something is I find another idea. I’m not the Federal Reserve, I can’t print money. I find another idea that has a better risk-reward profile than the one that I have. I’ll sell that and move the money into something else. The third reason I sell [00:20:00] is because I changed my view of the market and I decide to become more defensive and I want to raise cash. Right now I’m of the mode where I’m looking to sell things on strength. I fully believe, but I could be dead wrong, that the market will be, and I say this on a day like today where the market’s up 2%, but I think the market will be lower a year from today than it is today. That’s my modus operandi.

Jonathan: On a specific example, it’s not a huge position for us but at least according to your latest 13 after you owned a company called SunOpta which we own as well. [00:20:30] It’s a stock that’s appreciating in the portfolio in a good way, for us it’s- [crosstalk]

Leon: I had an absolutely terrible start there, let me tell you. I’m known for being very candid. I got a call from a very bright guy who decided to close his fund and basically he was going to set up a SPV for Sunopta. Even though I didn’t know the guy, a guy I respected a lot told me he was a very bright guy. I put in a decent sum of money into his SPV and bought the stock at seven a quarter [00:21:00] and it went straight to two bucks. I then decided to do some of my own research. I bought a boatload of stock at two and a quarter. It’s now I think around 15 or 14.

Jonathan: It closed today around $15. It’s not crazily expensive so how do you- [crosstalk]

Leon: It could be in that area where everybody wants to go. It’s the health foods and oatmeal and  oak milk and I’m still there. I have a pretty decent sized position between what I put in with the fellow that ran the SPV and what I now own directly. It’s a big position. I’m playing a little bit of momentum there. Typically I’ve owned low multiple stocks. Like I gave an example, I have a large position in something called Mr. Cooper, a mortgage finance company. It’s gone from 5 to 30 this year, and guess what? It’s going to earn probably $7 or $8 this year. It’s going to earn five next year. They’ll be buying back a lot of stock. It’s not much different than year in book value even though it’s up five fold. [00:22:00]

You got to do your own work today. Wall Street is really, I hate to say this because I came in out of Wall Street, useless. I have a decent sized position in something called Paramount Resources. For four months the stock traded two bucks. For four months all the analysts on Wall Street had $2 price objectives. The stock is now 10 and a half and everybody’s price objective is 11. At two bucks there was nobody yelling buy. There were very few that I know were yelling buy. I kept on buying because I felt [00:22:30] good about my analysis. I felt the price of what was going to grow up because I believe in economic theory.

Excess returns brings in competition which kills returns and inadequate returns dries out competition and capacity which improves returns over time. The oil industry went from, I don’t know, about 12%, 13%, 14% of the S&P down to a low of 2% or 3%. They were not going to invest in anything but the highest return projects. They all resorted now, the model seems to be [00:23:00] we’re going to pay dividends and not spend a lot in CapEx.

Jonathan: Switching gears just a little bit, you probably went down for a different reason. I know you’re living in Florida now back from high tax New Jersey.

Leon: I came to Florida because I got arthritis all over my body and I wanted a warm climate. I have spinal stenosis in my neck. I love the lifestyle down here.

Andrew Cuomo said, “People are leaving New York because of the weather.” They don’t get it. They talk about everybody paying their fair share. It’s a tax and spend model. New York, New Jersey, Connecticut, California they’re going to lose population because people aren’t stupid. I live in a gated community with lots of security. I enjoy it down here, I ride a bicycle [00:24:00] everyday. I don’t do that in New Jersey. I have entertainment at night, I have a country club I can eat in. I can eat out but I like the lifestyle but I did not come down for taxes. It’s definitely a plus.

I’m telling you, the real estate down here in my club is on fire. I’ll tell you an example. My son and daughter in law asked me to take a visit for one of their friends was looking to buy in St. Andrew’s Country Club where I have a home. They came down two weeks ago. I gave them my view which was very positive. They put a bid in a house. Bid [00:24:30] the guys’ asking price 2.175 million. Three people came in and bid against each other. The has went for $300,000 above the asking price, above asking price. This is my second home in St. Andrews. My first home I bought 25 years ago, I sold it 25 years later for what I paid for it. Now things are on fire. I think it has a lot to do with people coming from New York down here.

A friend of mine lives in Frenchman’s Creek up in Jupiter and he put his house in the market, sold on one day for his asking [00:25:00] price and the next day somebody came in at $100,000 over asking, but he already executed a contract, he’s a very honorable guy. That’s what’s going on. I don’t know if I preempted the question, but there’s no question that New York, New Jersey, Connecticut, California are going to lose population unless they start recognizing they got to get their expenditures under control.

I am a believer in the progressive income tax structure. I believe rich people should pay more in taxes. What we have to do as a nation is coalesce around the question, [00:25:30] what should the max in tax rate be of wealthy people? I called Warren Buffett seven years ago, I have enormous respect for Warren. I asked him that question. His response then, it may be different now was, “If you make $1 million a year, 35% tax rate. If you make over $5 million a year, 40%.” I have no problem with that. I’ve said publicly, “I’m willing to work six months for the government, six months myself, but we’re well pass that.”

I go nuts when I hear about this expression, whether from Phil Murphy or even Joe Biden when they talk about [00:26:00] fair share. What is fair share? What is fair share? It’s nice to talk about what someone else should get of somebody else’s work effort. I’m prepared to give 50% of my work effort to the government. I think that’s reasonable and it’s fair. Beyond that I think it becomes confiscatory. If you ask Bernie Sanders, he’d probably say 90% marginal tax rate. If you ask AOC, God knows what she would say, probably say, “Take it all.”

Elizabeth Warren is 70% plus a wealth tax, which makes no sense. I’ve written her a five-page letter explaining to her why it [00:26:30] makes no sense. Then Paul Krugman writes The Times asked the question, he says, “64%.” I think that’s too high. You take away the incentive. The wealth tax makes no sense. They have such a negative dialogue about wealthy people. Again, I’m not a spokesman for the wealthy. I grew up in the South Bronx and went Morris High school in South Bronx, City University of New York in the West Bronx.

I’m a son of an immigrant, my father came to America from Poland at the age of 13 as a plumber’s apprentice. He died carrying a sink up a four-story tenement [00:27:00] from a heart attack. I’m self-made, I’m giving it all away. That’s the American dream. Why are they crapping on wealthy people? How do you get wealthy in America? You get wealthy because you develop a product or services that somebody needs. Is the world better off or worse off because of Bill Gates, Jeff Bezos, Larry Ellison, Bernie Marcus, Ken Langone? I say infinitely, the world’s better off.

These people made a lot of money, they developed products and services that the world found useful and they then took this money, they recycle it back into society. There’s no reason to criticize them. [00:27:30] Raise the tax rate, don’t damn them. Praise them for what they’ve done but don’t damn them. Sorry for being a soapbox, Jonathan.

Jonathan: I get what you’re saying and I agree with it. Without them- [crosstalk]

Leon: We’re talking to ourselves.

Jonathan: -not only would the world not be better off, there’d be a heck of a lot less hospitals and a heck of a lot less museums. All the people you just mentioned are extremely philanthropic. They’ve helped the world in immense way.

Leon: I would always say to your listeners, many years ago I figured out there’s only four things [00:28:00] you could do with money when you think about it. One of the four things you could do with money, the first thing you could do is you could pleasure yourself. You could buy a plane, you could buy cars, you could buy homes, you could buy art. If you’re an art collector you never have enough money because you can spend $100 million on one canvas.

I don’t collect art and I happen to have a view that material possessions brings with it aggravation. I’m a less is more kind of guy. I’m married 56 years to the same woman and she taught as an educator for 30 years. She was very purposeful. We didn’t collect things. The second [00:28:30] thing you do with money is you give to your children, but if you have a lot of money, giving all your money to your kids is a mistake which will deprive them of self-achievement. I’ve given my kids a reasonable sum of money. One made it all on his own, one needed it because he’s a scientist, didn’t make a lot of money, but I wouldn’t give all my money to my kids, it’s just so damaging.

The third thing you do with money is you give it to the government, but only a fool gives the government money. You don’t have to give, you pay your tax as a taxpaying citizen, but you don’t give them extra. The fourth thing you do with your money is you recycle it back in society and that’s what [00:29:00] I’ve elected to do. You mentioned The Giving Pledge. The fact is in Colombia, the biggest thing I’ve done is called Cooperman College Scholars. I gave $50 million to send 100 plus kids in Essex County, New Jersey to college, I pay their tuition. You’re changing their lives. The average lifetime earnings of a college graduate is well over $1 million more than a non-college graduate. Plus you give them tools to be competitive in the world that we’re in. I enjoy giving it away.

Jonathan: How do you select the scholars?

Leon: We have a board of around 15 people that interview the kids [00:29:30] and we have requirements. Number one, you have to live in Essex County, New Jersey. Number two, you have to be academically qualified. We have a board that interviews the kids. I believe in teaching people how to fish, not giving fish. Third, you have to have a financial need unmet by government. Fourth, you have to enroll in a free three-week pre-college program designed by Franklin & Marshall, which explains to these young kids what to expect when you’re in college because they need mentoring, need direction.

We give them up to $10,000 [00:30:00] a year plus other things. The wonderful thing which I take zero credit for, the only credit I take is putting the money in to enable it to happen, 35% of Newark High School kids go to college. Historically, only 5% manage to graduate. I have Twinkle Morgan running the program, a lady who’s just terrific. My first cohort just graduated college. We started about five years ago and we had a 73% graduation rate which is fabulous.

Jonathan: Do you ever see the kids? [00:30:30]

Leon: I meet with them every year. This year I got to do it virtually but I meet with them every year. I explain that throughout life they’re going to have setbacks but what makes you a success is how you deal with the setbacks.

Jonathan: This weekend Warren Buffet released his annual letter which everyone makes a big deal out of. I don’t know if- [crosstalk]

Leon: -a lot of wisdom.

Jonathan: He’s a very smart guy. Is there anything in the letter that surprised you?

Leon: Nothing about the stock market though.

Jonathan: What I thought was kind of odd, I don’t know if you did, was he didn’t [00:31:00] talk about why he didn’t put any meaningful amount of money to work during March and April. Do you have any idea why he didn’t?

Leon: Yes, my guess is he thinks the market is reasonably fully valued. He’s a very rational guy and very unusual. Not only did he not put a lot of money to work but he sold his airlines and he very rarely sells in the hole. He had a pessimistic assessment of the airline business. He sold at the wrong time but I have enormous respect for him. [00:31:30] I would say that he’s probably having trouble finding cheap stocks which is why he spent 25 billion buying his own stock back. I think that he would probably acknowledge the stock is undervalued but I don’t think he thinks it’s that undervalued.

Jonathan: You’ve always mentioned that Henry Singleton at Teledyne was one of your best investments. You don’t think he would do something like he did, just buy back massive quantities of stock?

Leon: Not really. Let me digress for a moment. It just shows you [00:32:00] the foolishness of Wall Street. In 1982 Businessweek had a picture of Dr. Singleton, the founder of Teledyne, on it’s cover. They pictured him as Icarus, the mythical Greek god, with the wax wings that flew too close to the sun. The wings melted and he crashed and he fell to earth and they were highly critical of his stock repurchase activity. Singleton [retired 90% of his stock, never selling a share of his own stock.

He was born [00:32:30] with humble beginnings in Texas, I think to the son of a cotton farmer. Number one in his class, the Naval Academy, PhD in electrical engineering, brilliant, brilliant guy. He basically bought back, like I said, 90% of his stock before anybody understood stock repurchase. I was going to reach into my case here. I have a couple of letters from Warren Buffett on the subject.

In 2007, November 23rd to be precise, I gave a speech to Value Investing Congress. [00:33:00] I gave it one two subjects. One, stock repurchase which I was highly critical of the way it was being done in 2007. Everybody was buying stock back at a high and Dr. Singleton well explains his approach. Warren wrote me a letter. This is November 23rd of ’07. I’ll take the liberty of reading it to you.

Dear Lee,

I don’t think you could have picked two better subjects. Henry is a manager that all  investors, CEOs, would be CEOs, and MBA students should study. In the end he was 100% rational and there are very [00:33:30] few CEOs about whom I can make that statement. The stock repurchase situation is fascinating to me, that’s because the answer is so simple. You do it when you were buying dollar bills at clear cut and significant discount and only then,

the general observation would say that most companies that repurchase shares 30 years ago, now it’s like 45 years ago, we’re doing it for the right reasons. Most companies doing it now are wrong when doing so. Time after time I see managers who are attempting to be fashionable or perhaps subconsciously hoping to support their stock. [00:34:00] I gave Loews, L-O-E-W-S, the conglomerate, as a good example of a stock repurchase that it did it the right way. Loews is a great example of a company that has always repurchased shares for the right reason. I could give examples of the reverse but I try to follow dictum. I love this praise by name, criticize by category.

Best regards,


I would say that relative to other people’s stocks he feels this stock is cheap, but I don’t think he feels this stock is like terribly undervalued [. Then, I’m looking [00:34:30] for the other letter he sent me. I have to do some memory. In 1982 I sent a letter to Businessweek. When they had Singleton on the cover, I was saying this guy was great and he said this guy was terrible. I felt motivated when I was an analyst at Goldman to respond to Businessweek.

I wrote him a seven-page letter telling them how dumb they were and how wrong they were and Buffett sent me a letter, which by the way in 1982 I framed and to this day is hanging on my wall in my office. He wasn’t famous in 1982. I say that’s my biggest [00:35:00] mistake because I thought so well of whom that I took his letter, I framed it and hung it on my wall but I never bought his stock. That was a big mistake.

When he said, Dear Lee, I always enjoy both the quality of your writing and the quality of your reading. I used to write a monthly report. You’re letting to Businessweek regarding Teledyne was 100% of the mark. Best regards, Warren. He told me offline back in ’82 in the bear market that he tried to buy it and he missed it by about four or five points and it went up around 300 points [00:35:30] afterwards.

Jonathan: I just want to thank you for your time. You’ve been more than generous. You’ve had a wonderful career that I’ve enjoyed following.

Leon: I’m a private citizen but I’m still working because I said I didn’t have any time to take bridge lessons because I’m busy. I got 40 positions in my portfolio. I talk to companies, I believe in doing research and I study the macro environment. They know, I’m a man with an opinion. Could be wrong-

[00:35:58] [END OF AUDIO]


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David Zaslav, CEO of Discovery, Inc. on the future of streaming and Discovery Plus

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The Interview Discusses: 

  • How he helped launch CNBC.
  • What it was like working in the cable industry when it finally started to gain popularity.
  • David’s views on the current media landscape and where he believes there could be consolidation.
  • His thoughts on how content will be bundled in the future.
  • David’s thoughts on the current multiples for content companies and why Netflix and Disney have been able to garner premium multiples.
  • What it was like working with Jack Welch, John Malone, and the Dolan family.
  • And much more…

About David Zaslav:

As President and CEO, David Zaslav sets the strategy and oversees all operations for Discovery’s global suite of brands across pay-TV, free-to-air, direct-to-consumer and other digital platforms. Under his leadership, Discovery began trading as a public company in 2008 and became a Fortune 500 company in 2014. More recently under Zaslav, Discovery acquired Scripps Networks Interactive, in a transaction which closed in 2018. The new Discovery comprises nearly 20% of ad-supported pay-TV viewership in the U.S. and nearly 7 billion monthly video views, making it #1 pay-TV portfolio in the U.S.

Since Zaslav took the helm, Discovery has launched some of the fastest-growing cable networks in the U.S., including Investigation Discovery, a leading network for women in total day delivery; and OWN: Oprah Winfrey Network, a top network for African American women. Under his leadership, Discovery networks have hit numerous milestones, with TLC breaking all cable viewing trends and recording its most-watched year ever in primetime for 2020. Brands including HGTV, Food Network, TLC and ID regularly rank among the most-popular networks for their core demo of female viewers.

The company’s global distribution platform has, under Zaslav’s leadership, expanded to 3 billion cumulative worldwide viewers with a diverse set of brands, creating an unmatched international portfolio for viewers, advertisers and distributors. Zaslav has diversified Discovery’s content offering with investments such as Discovery Kids in Latin America, the leading preschool network across the region. Discovery has further strengthened its presence in key international markets through numerous transactions including the acquisition of Eurosport, which led to the groundbreaking agreement with the International Olympic Committee making Discovery and Eurosport the home of the Olympic Games across Europe through 2024.


Click Here to Read the Interview Transcript

Transcript of the Interview With David Zaslav:


Jonathan Boyar: Welcome to The World According To Boyar, where we bring top investors, best-selling authors and market Newsmakers, to show you the smartest ways to uncover value in the stock market. I’m your host Jonathan Boyar. Our guest today is David Zaslav, president and CEO of Discovery Communications. Prior to joining Discovery, David worked at NBC where he’s credited with launching both CNBC and MSNBC. David is here to talk about his fascinating career, as well as the launch of discovery’s latest initiative Discovery Plus,

The Boyar Value group has been following Discovery since 2006, shortly after it was spun out of Liberty Media. Full disclosure, clients at Boyar Asset Management, as well as myself, are Discovery shareholders. What attract us to Discovery is the power of its brands and global reach. It’s available in 220 countries, 50 languages and delivers 8,000 hours of original programming each year. Best of all, from an investment standpoint, unlike its competition, most of its content translates well internationally. It’s able to spread the cost of its programming over its global subscriber base. David, welcome to the show.

David Zaslav: Thank you, Jonathan.

Jonathan: Thanks for being on. I’m really excited. First I just want to talk about early on in your career, you were a young lawyer in Manhattan in the ’80s, and you were reading a trade publication, and I guess you saw an article discussing how NBC, which at the time was really just a broadcast company, wanted to get into cable and you did something quite unusual. What did you do?

David: I had started out as a corporate lawyer and I was at a great firm and I was busy working away, writing prospectuses, but I knew in my heart that I didn’t love it. I didn’t think I was actually that great at it. I was working real hard at it. A partner transferred into the law firm. He was general counsel at Warner Communications and he represented MTV and CNN and Discovery and Nickelodeon. I started [00:02:00] in my spare time doing extra work in that area. I loved it.

The partner’s name is Richard Berman. He’s a federal court judge now in New York, wonderful guy. I love working with him. I got a sense of the industry. I loved it. I started subscribing and reading everything I could about it. Subscribed to the Hollywood Reporter and Broadcasting and Cable and Multichannel News.

One day on the cover was Jack Welch and Bob Wright. Bob Wright was the chairman of NBC at the time. GE had just bought NBC and NBC really was the center of the universe. Broadcast was all that mattered at the time. Cable was just getting started. In fact, all the cable programs, services at the time were losing money. It was an experiment. It was all in the startup phase. Jack was in the on the cover with Bob saying that he thought cable was part of the future and he wanted to figure out how to get it. He was going to get NBC into the cable business.

I wrote a letter to them saying, “I’ve been doing a lot of work for MTV and Nickelodeon and Discovery. I love the cable business, it is what I want to do with my life. If you’re going to go down this road, I’d love to be on the journey with you.” Jack wrote on the top, “Bring this guy in, let’s take a look at him.” In retrospect, it was a handwritten letter at the time. I just thought this was a way to maybe get a shot. Looking at it now, I think it’s pretty astonishing that they read it and they brought me in.

It was the beginning of a great journey. I got very close to Jack, learned a ton from him, learned a ton from Bob Wright. It was an all-star cast at NBC. I was quite lucky to be involved in NBC at the very beginning when they were starting cable and to be around such a great and smart group of people, because it had a big [00:04:00] influence on me and how I saw the world.

Jonathan: You took a pretty big risk. I mean, you were a corporate lawyer at one of these white shoe firms, and I think you took a pay cut to do this.

David: I took a big pay cut. I knew when I was doing the corporate work that I just didn’t love it. It was hard for me. We all think we’re good at everything, but it was difficult. You had to write these prospectuses, you had to comply with all these different regulations, it would get sent to the SEC and reviewed. I looked around at the partners and I just thought like, “I’m not sure that’s what I want to be.” In many ways I was stuck.

I had an apartment then they’ll pay me a lot of money. My life raft was Richard Garman that I somehow by luck, I got exposed to the cable business and got the bug, but it was a no brainer to me to leave and take a pay cut just because I felt like I want to be doing stuff that I really like. I was passionate about cable. I really believed in it and getting in early stage, in retrospect, there was no experts. There were experts in every area on the broadcast side, there were no experts in cable. I got to do a lot more and I got to expand.

I did take a 50% pay cut and they all thought I was crazy. There were times when I thought I was crazy. There were times– When we launched CNBC, at that time, since all the businesses were losing money, we tried to structure our attack on cable by using partnerships to limit our downside risk. Jack was like, “We got to find a partner.”

We found Chuck Dolan from Cablevision. We partnered with almost everything with Chuck. In the beginning, Chuck owned 50% of CNBC, we’re 50/50 partners and we owned a big piece of Bravo and AMC and what was called Romance Classics, which is now WE. We launched together after a big analysis that we launched News 12 Long Island, the [00:06:00] first regional news network. We did an analysis that said this was the biggest contiguous population that doesn’t have its own news. I wonder if a local news network, cable network could work. We launched News 12 Long Island and each of those, we did as partners together,

During those first few years, I got there in ’88, by ’91, every single one of them was losing money. As ’92 came, we did a very bold experiment with the Olympics, called the pay-per-view. We offered it on pay-per-view also in partnership with Chuck Dolan and they had this big thing at Boca for GE with all the GE leaders, which Jack presided over.

That year, CNBC, all of our investments with Chuck were losing money and the pay-per-view Olympics lost $100 million, which was a huge amount of money at that time. It was a real experiment in will people pay for content, specifically? Everything was losing money. We lost $100 million on that. I remember, I was heading down to Boca, and the whisper from Ohlmeyer, who, great guy, he passed away about a year ago, but a brilliant entertainment executive, he always used to say when we go up and present to GE that, “For the cost of what we’re losing on what’s Zaslav’s doing, I could have done four more pilots.”

At the time, that argument was, “You’re nuts, Jack.” I could have done four more pilots. We could have had two more great Primetime series for what we’re wasting there. We were heading down to Boca and Don was convinced that not only was this going to be my last Boca, but I wasn’t going to come out of there, that everything was losing money. That year, Jack gave an award for innovation. I got the GE Award for innovation and those guys, they were laughingly, we were all friends, cracking up, innovating by losing money on everything [00:08:00] that he is involved in, but Jack was trying to make a point.

This stuff is hard. We were making progress. We were fighting the fight. We went from 20 million subs to 30 to 40. There were only direct response advertisers in. We were fighting to get real advertisers into cable. We were able to stand up a news network with CNBC that we were proud of. We did a local news network with News 12. We tried a lot of things that didn’t work, but we learned from it. He really wanted to drive this idea of risk and innovation.

Now, over dinner about a month later when I was talking to him and we were cracking up that Ohlmeyer thought that I wasn’t going to get out of Boca with my job. He said, “You got a year or two to turn this around or you’re not going to have a job.” It was a double-edged sword always with Jack, we need risk and innovation. It needs to be measured. When things don’t work, let’s talk about what’s not working, let’s figure out what we learned from it and how we can do things differently to succeed, but ultimately, it was a business.

We got very lucky because when it turned and it turned when the number of subs started to scale, at the same time, subscriber fees were growing, subs were growing, and it became– Tom Freston did a great job with MTV and Turner got turned around with Malone’s help on CNN. It became the cool place to hang out. Once MTV really hit its stride and CNN hit its stride, then advertisers wanted to be there. When they wanted to be there, we went from selling Ginsu knives to selling Ford Mustang convertibles. We got the advertising and CPM’s increasing. We got subs increasing and fees increasing. We had a great run for over a decade in the cable business, really just an extraordinary run.

Jonathan: You mentioned Chuck Dolan who is obviously a pioneer in this. He was responsible for

[00:10:00] starting of HBO, et cetera. He was your partner on– Came into CNBC but he left right as you were buying FNN out of bankruptcy.

David: It just shows you how precarious at the time. There were times when we would go up to GE, we didn’t know GE was going to continue to fund CNBC, was losing so much money. What happened was, when we launched CNBC, we actually wanted to launch a news network. In order to launch it, we needed to get the cable operators to support us. They sent me to meet with Malone. I went with Bob Wright, and a guy named Tom Rogers. We met with John Malone. I was the little guy holding all the materials and the presentations.

We talked to John about launching a news network, but John, immediately, he had just bailed out, Turner. He was an investor of Turner and Headline. He said, “We got two news networks that we’re putting a lot of resources against.” FNN at the time was doing a lot of infomercials during the day, so you couldn’t tell the difference between an actual news segment and something that was sponsored as an infomercial by Charles Schwab or by Salomon Brothers at the time.

John, we were in his office, and he pointed to it, he goes, “Do you see that. That’s an infomercial. We need original content in cable. We need to build content that people believe is credible, that they can believe in, they can count on.” That was what he and Ted were trying to do at CNN. He said, “If you’re willing to do a business news network with real investment and integrity, I would support that.” We went there thinking we’re going to launch a news network and we left with a business news network. That’s how we did CNBC.

Then a few years later, we were at 25 million homes, and FNN was at 25 million homes. John had launched us. We had gotten a lot of other operators, not all of them. We were both really struggling. They went into bankruptcy. [00:12:00] We were negotiating against the wall street journal to buy them. We felt that we needed them to survive. We went up to Jack to make a presentation out of what we can do if we put these two together and why we needed this to save CNBC.

We had this big deck with all kinds of detail of return on investment and what we could pay. Jack said, “Put that all away. The real question is, if we can own business news? If we do this deal, we own business news. Is it a business? Is it a real business that we can be proud of? Is it a business that we can make money on? Is it a business?”

At the time, we couldn’t answer that question. We had to comeback to answer that question. He said, “Because if we go at this, we can’t lose.” The GE philosophy at that time was if we were going to get into this auction, we weren’t going to lose. We came back and we talked about it. We really had a strong belief that we could build a real business around it, we could build it globally. We went into the wild west of the bankruptcy court and we bid against the Wall Street Journal, and we ended up getting it.

At that time, they were about to hit the gavel when we called Chuck and Chuck decided he wasn’t with us. It did give us some trepidation because Chuck had created HBO, we were partners on almost everything, he’s super brilliant. He didn’t see it. He didn’t see that business news was a business. We went anyway. We then owned 100% of it. It turns out, it was a good business. Chuck was right about almost everything else over the years that we’ve worked on together, but he actually did that.

We ended up restructuring our whole partnership years later where we took Bravo, and he took the rest of those assets. It was very fruitful. Jim Dolan was involved. It worked very well, the partnership.

Jonathan: Absolutely. Obviously, the Dolans are, I [00:14:00] think, much better operators than people give them credit for. Around the same time, they ended up buying Madison Square Garden for a few hundred million dollars. They did have other good returns at the same time.

David: I think Chuck and Jimmy are underrated. They have a lot of innovation, great operators, and great value creators. We had a chance to trail along with them for a while, which was fun.

Jonathan: You’d mentioned John Malone. You’re fortunate to have him as your largest shareholder, at least in terms of voting rights. When you want to make a deal like buying scripts, how do you use someone like him as a resource I know he’s on your board of directors, but it’s more than that.

David: Look, I’ve been around John now for 15 years. I met him when we did the deal to start CNBC over 30 years ago. He’s got the most brilliant strategic mind, I think, maybe of anybody in business. As I said earlier, I think you’re so defined by who you get to hang out with. Somehow, I got extraordinarily lucky, I got to spend 15 years with Jack Welch and I’ve spent the last 15 with John Malone, you could argue, very different.

Jack may be probably the greatest operating business leader maybe in history. John, the greatest investor, and maybe most brilliant strategic thinker. John has the ability to see how everything comes together. He has conviction in, for instance, he saw way before anyone else that the real value to cable was broadband, not the cable. He together with Mike Frese went and rolled up most of Europe and a lot of Latin America by buying cable systems. He had full conviction that whatever he was paying was really a discount, because the broadband wasn’t being valued and the broadband was the value. He’s been a great mentor to me. It’s a gift that I get to talk to him.


Jonathan: I hope you are enjoying [00:16:00] the interview with David Zaslav. To be sure you never miss another World According To Boyar episodes, please follow us on Twitter @boyarvalue. Now back to the show.

Speaking of value creation, I look at a company like Viacom, who for years basically plowed almost all their free cash flow into share buybacks instead of investing in content. Their current content quality reflects that. What was it like for you when you bought scripts, and Wall Street puts you in the penalty box for a deal that, in the long run, is so much better for the company than simply shrinking your share count? How do you manage through periods like that? It has to be extremely difficult.

David: It’s really not. We have our public shareholders. We have the Newhouse family, who really are long term investors. They’re really driven by quality, investing in quality and long term growth. Malone is the same way. We don’t have any conversations with either of them about what our rating was on Friday, what this quarterly number was. It’s, “What is our long term strategic strategy?” That alignment, I think, has made us really entrepreneurial. It allowed us to move very quickly.

At GE, and GE was very different than operating this company, as a CEO of a public company with two investors that are aligned in long term growth. The deal that we did with Oprah, for GE, that might have been a month and all kinds of analysis. We saw Oprah, we thought we could build a great network around her that she’s a great curator, she was all in. That was one conversation, and boom, we’re converting Discovery Health into the Oprah Winfrey Network. I thought that owning the Olympics and all of Europe on top of Eurosport, and owning it for a decade could create real value. We’re very aligned. That decision was made very quickly.

[00:18:00] What we’ve done in the last five years is we’ve transformed our company from a free to air and cable company, where we were very successful, because we had 10 to 12 channels in every country free to air channels, and content that work well, as you mentioned around the world. We recognized pretty early. John was quick to raise this issue that, we were growing 10% to 15%. Our market share was never higher up, our stock price was never higher. Our free cash flow was growing ,this is about six years ago.

We were talking about how well everything’s going. John said, “How well would we do with our content if people could watch anything? How many would still watch us?” At that point there’s 40 channels in France, we had 10 of them. We had all this beachfront real estate. We had a really unique advantage that a lot of people were watching us, and liked us, but we weren’t necessarily their first choice. Maybe we were their third choice. We had this whole debate about the world is going between DVR and mobile screens, that people are going to be able to choose to watch anything they want.

This strategic advantage of these channels and beachfront real estate was going to be eroded over time. We had to stop looking at ourselves as a cable and free air company that bought content to fill that time. Our question became whenever we did a program deal was, is this content that people would watch before they’d watch anything? That’s why, after that conversation, we went and we bought Eurosport which was investing like 100 million in sports. We took that to three or 400 million a year.

We bought cycling. We bought all the majors in tennis. We invested in local sports in Europe. We started transforming the way we produce content for our channels. We want the fewer bigger better. We need more content that people care about when they could watch

[00:20:00] Anything.

Over the next couple of years, that got really refined as the world got sharper and moved quicker than even we thought. I think we were the earliest mover in this direction. We early on said, we’re going to own all of our IP globally. We’re going to upgrade the IP we have. We’re going to buy content that people want to watch when they could watch anything. Then we had to ask the question, what content do we own that people will pay for before they’ll pay for dinner? It wasn’t good enough that they would choose us over anybody else for free. What do we have that’s so important that they’ll pay for that before they’ll pay for dinner.

Sports in the Olympics we thought was important with that.

That’s why we went so hard against Chip and Jo. That’s why we did the Scripts deal. People saw the Scripts deal as a deal that we were buying a cable channel business that over time was going to decline. What we loved is, we looked and we saw that they owned all their IP. They had no participants. There were really no competitors in the food and home space. They hadn’t taken it international. We were in every country and we had the ability to proliferate that content on existing channels or launch channels. More importantly, we were looking to launch a global platform.

We saw home food, cooking and travel and DIY as a massive IP library that also had huge appeal to families, to women. We looked at it and we thought, and it also was very strong in terms of how well it worked around the world. We viewed the script’s deal as an acquisition of brands, characters, and most importantly IP. When we put our IP together with theirs, that we would be pretty formidable.

For a very long time, we’ve seen the world differently than most media companies, because most of the media has been attracted to this idea of [00:22:00] scripted series and scripted movies, which is a lot of fun and it’s pretty sexy. There’s a lot of big stars, but for me I’m very driven by data and I’m driven by viewership patterns. That’s how we decided to launch ID, a crime channel. We took a look at what people are actually watching. What’s making CBS so successful. What do people love? They love crime. May not be sexy, but we launched it. It was the number one channel for women in America with crime.

Every time we looked at the viewership data and the analytical data, it said to us that more than 50 or 55% of what people watch is not scripted series and scripted movies. That we have a real game here. If we could take the level up of discovery and animal planet and food and HG and TLC and ID and Oprah that this real life entertainment that maybe when you ask somebody, “What did you watch this weekend that you loved?” Maybe they’ll say The Crown, but when you actually look at the data, they spent more time watching 90 day fiance.

When you look at the social data, what are people talking about online, there’s much more social energy against 90 day fiance, or chip and Joanna Gains than there is against The Undoing, which is an unbelievable series on HBO. There was a real fork in the road over the last couple of years where they gold rush effectively of seven great media companies fighting over a scripted series or scripted movies and we may be wrong.

This is where John was completely on board that, let’s just follow the data. If for the last 25 years, people have spent 50% or 55% of that time watching this content that we have in these genres that we love, and 45% to 50% on scripted series and scripted movies. Do we think that over the next 10 years, when there’s a more aggressive transition to acquiring content and consuming content than [00:24:00] paying for content, that they’re only going to consume and pay for the scripted series and scripted movies and behaviorally not still want the stuff that they’re spending half of that time with now.

In essence, that’s been our bet and we’re going to see if we’re right. We just launched Discovery Plus. We did a deal with the BBC to get their entire natural history library with all the great titles, Planet Earth and Frozen Planet and Blue Planet. Most of those we worked on with them. We’re producing a lot of new content with the BBC. That’ll be exclusive globally with us. We did a deal with History and A&E and Lifetime to get some of their best content and with a mission of, let’s see if we can own, let’s see if we could be this broad, compelling entertainment offering in these content genres that are not scripted series or scripted movies.

We think it’s a great companion.

If we’re right, then this will be the companion that if you have Netflix or Disney, then you have Discovery Plus, you have HBO. They’re all great, but they’re not all going to survive. Disney and Netflix now, they’re above the globe. They have real scale and you got to admire what they’ve been able to accomplish. You got six or seven other players trying to compete. I think those that compete in the US only are going to have a very difficult time. I don’t see in the long run, how that really works.

Ultimately being able to offer IP globally and the scale of that and the efficiency of it is so compelling that I think it’s hard to compete otherwise, but those are great companies and they’re fighting that out. If we’re right, not only are we a great companion to each of them, a reaggregating of the bundle, but most of those services don’t have content that by their very nature, it’s not a companion. People get up in the morning and they put on food network or they put on HG, or they put on ID. The same way somebody gets up in the morning and they put on [00:26:00] The Today Show.

Jonathan: You had just said Discovery Plus is complimentary to Disney Plus and Disney and Netflix, is there a chance of ever bundling them together, or does having Discovery plus as a standalone kind of service preclude that?

David: Nothing’s precluded. What consumers are doing is they’re doing their own bundling. In a way, the basic cable bundle worked really well for so many years, because even though it was 250 channels, the average person only watches five or six channels. When you put that clicker in your hand, each person in the family curated differently, each person had their own five or six channels and that worked very well.

What we believe is there’ll be a re-clustering. In the end, there’s not going to be 20 apps and you’re going to be sitting there on Google saying, what’s what? They’ll probably be some consolidation on the scripted series and scripted movie side. We think that there’s going to be times that you want to watch Star Wars, that you want to watch the next season The Crown. There’s going to be times you want to watch Bobby Flay and Guy Fieri, and you want to see Oprah doing a super soul session about what life’s going to be like after the pandemic or Chip and Jo.

We think we’re part of a concentric circle, we’ve just taken our space. I think the consumer themselves will be reaggregating, but I also see that it’s not unlikely that some of us come together and package it. We’re 4.99, somebody else is 6.99, but together you can get us for 7.99. Then you go with that other programmer. We have to figure out what’s the secret sauce of what’s the right basic cable got it. How do we put it all together in one place in charge?

One of the problems is that at least in the US the price just kept going up, and unlike the US every other market doesn’t have sports in basic and so it got very, very expensive. They’ll be a rebundling and it’s not unlikely that a year or two from now, if we get to big scale, [00:28:00] they’ll probably be a lot of players that say to us, “Can we bundle with you? Can we come in with you? We’d love to get access to your millions of subscribers.” Or, “Would we love to be bundled with Disney or Netflix?”

Over time, that could make a lot of sense. It might make a lot of sense for them too. We’re probably the best at what we do. Ultimately, I think either by the consumer doing it, or by us coming together, or by consolidation of those that are too small. Ultimately there’ll be a rebundling that’ll make it more efficient and easier for consumers.

Jonathan: You mentioned consolidation. I was looking back at our reports from 2006 and 2008, and you had the precedent transactions, BET went for 24 times, Bravo 23 times, Comedy Central 29 times. Today you’re seeing really good companies trading at much more modest multiples. What happened to the good old days?

David: What happened was, in those days, the industry was a train track. It went on forever. All we did in those days was try and build the biggest train, or the widest train, or the fastest train. We pay a big multiple for BET. Someone pay a big multiple for Bravo, because the view was, it’s going to make my train faster to go on this track and the track is going to go on forever. The phones that are all TV sets and the cost of cable content, and the appeal of being able to put together your own content of everything you want to watch made it pretty clear that that was not going to go on forever. It went from growing double-digit to slight growth, to flat, to declining.

We think it’s going to decline slower than people think, but that track’s not going to go on forever. There’s a whole demographic that doesn’t get an apartment right now and they, one, have to wait for cable to get hooked up because they got their phone and they have broadband may be more important than cable to a lot of people at this point. The world is changing


in a meaningful way, and the real question on multiple is the multiple compressed because when you look at the terminal value, nobody could really predict how fast will it decline, How much longer are people going to be watching on sets in their TV on a cable based on a cable or free-to-air offering.

Disney has broken out, because Disney has proven because of their IP, their global IP, and offering it on Disney plus, that they are a global IP company. They are not a cable and free to air company. We’re still valued as if we are a global cable, and free to air company. We’re in every country, virtually every country in the world, and every language. Our share is still growing. Last year, we had over 3 billion in free cash flow, domestically and internationally, I think we outperformed everyone really and commercially and from viewership perspective. We’re trading at half the multiple we were trading out a few years ago, and that’s not unfair.

No matter how great of a job we do, if we can outperform every quarter, the fact that subscribers are declining here in the US and they’re declining a little bit outside the US and behaviorally people are watching more content off of the traditional platform. It’s fair to say that when there’s some uncertainty, and that the value should go down. Our whole mission with Discovery Plus is there’s only two global IP companies and that’s Netflix and Disney. We’re the only other global IP company in the world. We’re one of three.

The difference between us is we have different content than them. The advantage we have is we actually have content in every language in the world. We have boots on the ground in every country, we have relationships, we understand culturally each country. If you said, “What company has more local content in every country in the world?” We’d be number one. Our mission is to prove that we’re not a cable and free-to-air company, although we’re proud of that. We’re outperforming in that free cash flow [00:32:00] and that continued good performance, we think is going to be a real engine for us for a long period of time.

If we can scale Discovery Plus above the globe, then if we can prove that people will pay for our content, that 50% it’s not scripted series or scripted movies, then we’ll be a global IP company. Then all of a sudden, we got a train track that goes on forever again, because if we have a relationship with consumers around the world with unique content, unique brands, and unique stories, then it goes on forever. That’s why Netflix its valued is so high because they’re a train on a track that goes on forever.

Our mission is that traditional business is more like a boat now that had a river with a current with it and now the current has moved against it. We’re adding engines and firepower to power through it but ultimately, the current is against us. If we can take all of our global IP and with Discovery Plus build a real global IP business, then the value creation for our shareholders will be enormous.

Jonathan: When you bought scripts a few years ago, how close to what it is now, like with Discovery Plus, did you envision it? Was this all part of a master plan of putting everything together or have you had to pivot along the way?

David: No, it’s been pretty close. One, we thought that together with Scripts, we could be the number one media company in America for women. We thought that it was a very good proposition for the ability to market more broadly to women. We had TLC and we had ID but now we have the top five channels in America for women plus the number one channel for African-American women. We thought that even in the traditional marketplaces could be advantageous. We started producing content almost two years ago for Discovery Plus.

When we launched with 55 original series, we’ve had in mind all along that we need great [00:34:00] original content on Discovery Plus. When we closed on scripts, the first visit I made was to Waco, Texas, to figure out how do you get Chip and Joanna Gaines back with us because there’s just not that many great authentic characters that America loves. Chip and Jo also have an ability to curate content that people love, and that’s the secret sauce of what we are. We’re not just great brands and great stories , we’re the characters that you love. There’s just not that many great, charismatic, authentic characters that people love.

As you look around, whether it’s Martha or Oprah or Chip and Jo or Mike Rowe or Guy Fieri or Bobby Flay, you look around at our portfolio. I think that’s another differentiator for us and I think in the long run, that’s going to help. It also helps people curate. When they come to our platform, some of these streaming services we noticed, people go there and they go, “Okay, what do I do now? What do I watch? It creates some anxiety.

Even in the research, a lot of people said, “I don’t need more content,” because they are going through these platforms where there’s just lists of series, “What the hell do I do?” Iger and Chapek were very clever in the way that they organize Disney Plus. It’s almost very retro, they organize Disney Plus and then they basically put five logos out. Those five logos are the five channels that you love on your cable system.

There’s 250 channels, but what am I getting when I get Discovery Plus. When I get Disney Plus, I’m getting Pixar, I’m getting Star Wars, I’m getting Marvel, I’m getting Disney family movies, I’m getting Nat Geo. It’s a very calming effect, but it also is very inviting from a curation perspective. I’m in the mood to see some Disney family movies, so you go through that portal. I think that’s a big advantage for Disney. Netflix has a different model where they’ve just been able with their algorithm to be very effective about recommending things to you, and they’re so successful [00:36:00] that their friends recommend things to you.

Jonathan: You’ve been more than generous with your time. You had just mentioned Disney, and they have a great business model in that they own great IP, but they’re able to further monetize it with merchandise and theme parks. Have you ever thought of some partnership or joint venture as lots of your content would degrade in that kind of ecosystem or could you do it alone because you are a global IP company, and you should be able to monetize it even further and get that premium multiple?

David: For us, I think we have such an efficient model on the cost of our content, the speed to market, we don’t have any participants, we own all of our content 100%, we have a factory that converts it to 52 languages. The efficiency, we generated over 3 billion in free cash flow last year, our margins remaining very strong. For us, I think Disney is a great merchandising company. They do have theme parks, and hotels, and all this other great stuff.

For us, if three years from now, or four years from now, Discovery Plus is a full-on scale global IP offering, Discovery will be a huge company because on the left side, we have this traditional business that’s a free cash flow machine that’s growing, that has brands and characters people love. If we can prove that we’re a global IP company, I think then will be one of the sustainable winners, and we’ll likely be one of the players that people look to tuck in with.


Jonathan: David, I really want to thank you for your time. I’d love learning more about your career, and especially the exciting things you’re doing with Discovery Plus. Thanks for being on The World According to Boyar.

David: Thank you, Jonathan.



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Caleb Silver, Journalist & Editor in Chief of Investopedia, on how Investopedia is helping individual investors and how to get your website on the first page of Google.


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The interview discusses:

  • The state of financial journalism
  • How Investopedia is helping individual investors
  • IAC’s strategy with Dot Dash
  • How you can potentially profit from Investopedia’s proprietary anxiety index
  • How to get your website on the first page of Google
  • And much more…

About Caleb Silver:

Caleb began his career producing wildlife documentaries in South America and the American southwest. His career in business news began at Bloomberg, where he worked as a senior television producer and was nominated for a 2003 Emmy Award.

Caleb then joined CNN, serving as a Senior Producer for The Situation Room with Wolf Blitzer, as well as the Executive Producer of Caleb and his team at CNNMoney were nominated for an Emmy Award for New Approaches to Business & Financial Reporting. He then returned to CNN as the Director of US business news.

Caleb left CNN in 2014 to form Frog Pond Productions, a digital production and consulting company, and then joined Investopedia in January 2016 as the VP of Content. He also serves as the treasurer of the executive board of the Society for Advancing Business Editing and Writing. 

Caleb is frequently featured as a markets, economic and consumer trends expert on NBC, MSNBC, ABC Radio, Marketplace Radio and Cheddar TV, in addition to markets commentary in his daily newsletters. 

Click Here to Read the Interview Transcript

Transcript Of The Interview With Caleb Silver

Jonathan Boyar: Welcome to the World According to Boyar, where we bring top investors, bestselling authors, and business leaders to show you the smartest ways to uncover value in the stock market. I am your host, Jonathan Boyar. Today’s guest is Caleb Silver, Editor-in-chief of Investopedia, a leading business website with over 19 million monthly unique visitors. Caleb started his business news career at Bloomberg, where he worked as a senior television producer, Caleb then joined CNN and was a senior producer for the Situation Room with Wolf Blitzer. Eventually becoming the director of US Business News at CNN. In 2016, he joined Investopedia. Caleb, welcome to the show.

Caleb Silver: Thanks for having me. It’s a real honor to be here.

Jonathan: Interestingly, you started your career as a documentary producer but pivoted to business journalism. What made you switch?

Caleb: That was an easy pivot. Actually, not at all. I was in journalism school in graduate school at NYU in New York in the mid-’90s but I had started as a documentary producer, and I just been traveling around Central and South America producing Wildlife documentaries but I wanted to go to graduate school. At NYU, they had an internship program with Bloomberg and Bloomberg News and Bloomberg TV was really just starting out. I knew how to shoot I knew how to edit so I had some TV skills. Then I started working for them and interning for Bloomberg, right as the internet bubble started forming in the late ’90s.

As that was happening, I became more and more fascinated with the story of money in the story of business news and was able to translate my production skills into being an actual TV producer. When I got out of graduate school, I did some more documentary work, but then I was eventually hired by

[00:02:00] Bloomberg right as the bubble was forming. I jumped right into the middle of a big frothy internet bubble.

Jonathan: What was it like starting at a time where the market, I guess it was 96, 97 was frothy but if you said to sell the market, you would have been wrong for about five years, or four years, what was like being in the media business then?

Caleb: It was fascinating because it was really the birth of the companies that are some of the giants and today, was just forming. I got to know Jeff Bezos, early on in his days as CEO as a very new public company, got to interview him several times, obviously got to know the companies that rose like rockets and fell like Icarus like the of the world.

I was learning about these internet businesses, learning about e-commerce, learning about this new form of the digital economy while I was covering it, and that was totally fascinating and at that time, there was a lot of giants and billionaires being born out of startup companies, but also some established companies like Berkshire Hathaway I got to interview Warren Buffett several times. I was thrown right into a very busy mix at a very active time. Bloomberg was trying to cover it in a responsible way because it’s a strict business news media organization and it was a great place to learn.

Jonathan: You mentioned you got to meet Bezos at the time. Could you tell that this is a guy who was destined to become one of the greatest entrepreneurs of all time?

Caleb: Absolutely, you can tell. Just by the way, he carried himself and by that raucous laugh that he has. He would just look at you in that funny way and you’d asked him a question. He would just laugh in your face. When are you going to make a profit, Jeff? He would just laugh right in your face and say, “We’re not interested in the average student providing the best customer experience on the planet.

You just knew he was singularly focused but you also knew because of the company he carried and the investors that swam in as pilot fish to his whale, you knew that he was going places. I was there for the ups and downs of the big internet calls when Blodgett calling for $500 a share on Amazon and we interviewed him. All that was happening

[00:04:00] at a time it was moving quickly. In this new business news television network, it was really a fun place to be.

Jonathan: Do you think the media, I’m just saying as a whole, I’m not saying where you were, but just as a whole, has done right by the individual investor during these ups and downs?

Caleb: I think there’s always room to say that the media could have done better or miss something or were cheerleading the bad behavior on the way up and making stars out of some of the folks that didn’t keep folks best interest during the financial crisis. There was a lot of that business journalism suffers from access journalism, which means, you want to talk to the power and the powerful. I mentioned, Warren Buffett, I mentioned Jeff Bezos, that’s cool, there’s celebrities in business news. Sometimes we deify business leaders too much and we don’t dig deep enough when something seems too good to be true.

I think it’s gotten better and I think it continues to get better but there’s always going to be times when you look back and say, “We should have looked a little bit harder.” You can say that about the financial crisis and what was happening in the mortgage industry. You can say it about what’s happening now in terms of the uneven recovery and the money going, the stimulus packages and the rescue packages, you could set it in the internet bubble as well.

We always suffer from that because we get caught up in it like sports, and we don’t get deep enough at times, but at the same time, there’s some incredible business news journalism going on right now that will define our medium for generations.

Jonathan: In terms of educating the public, I know they’re telling you what’s going on, but when I see CNBC, in March on Sunday night, having special reports, America in crisis, et cetera, is that healthy or is that something that is more sensationalism?

Caleb: There’s always going to be sensationalism and CNBC, which I have a lot of respect for, but they also do treat the markets and investing like a sport. They’re programmed that way and they’ve always been that way. When you have these massive drops like we experienced throughout March, it’s a programming opportunity. Why? Because their ratings are

[00:06:00] high, while there’s a lot of market volatility and is no different for Investopedia, we have a lot of traffic. There’s a lot of volatility. People are very concerned about their investments in their finances. We benefit from that as well.

They’re going to take advantage. TV networks, especially are going to take advantage of the fact that they have a lot of eyeballs on them and make the most of it by dropping in specials like markets in turmoil. By keeping up the breaking news bar all day long to make sure people are still glued to the TV, their businesses at the end of the day, their media businesses, but inside those businesses are some very responsible and professional journalists. At CNBC, at Fox Business News, at the Wall Street Journal, wherever you look, there are some really good business journalism happening, but of course, they’re going to take advantage of the volatility to make a big deal out of it.

Jonathan: You were an executive producer at the Situation Room with Wolf Blitzer, and this was a major show. Can you just take us behind the scenes, what would it be like to work there today during a crisis like this? What would a day be like?

Caleb: Today I still think they’re working from home. Everything that we were trying to do in a newsroom are having to do with the challenges of working from home, that’s it. CNN is doing a pretty good job of it. I joined the situation room, right as Hurricane Katrina was forming. In fact, I was down in the Gulf of Mexico the week before doing stories on how to evacuate oil platforms in the event of a hurricane. Katrina hit and right basically when that show started and what that show was, was basically live feeds coming from all over the country. The situation in Wolf Blitzer would present you those live feeds as he was seeing them.

There was almost no delay between what was coming into our newsroom and what was going out on air and we had to react and pivot very quickly as there was real-time developments happening during Katrina. There was evacuations, there was flooding, there was the Superdome, there was oil spills. There was nonstop activity and instead of repackaging, we just gave it to you live. It was a rush and you had to be super nimble and that show is three hours. I think it was actually two hours and then it came back for an hour. We were stuck in our seats

[00:08:00] covering breaking news basically the entire time.

Jonathan: Now you have to talk about your current gig at Investopedia. In full disclosure, I’m a member of the editorial review board at the company and our research service, has profiled your parent company, IAC, on numerous occasions. Investopedia is part of Dotdash, which is owned by IAC. What is Dotdash?

Caleb: Dotdash you’ll know as from internet 1.0. was an enormous reference website, really born in the early days of the internet. That changed hands a few times. Most recently, was with the New York times when IAC bought it years ago, I think 2014 or 2015. Then IAC bought, Google had a big algorithm change as Google likes to do, and basically pushed a lot of results way off at the first page.

It was a lot of competition and Google, of course, runs its own search engine and wanted a lot of its results, but it pushed a lot of’s results back and if you know you’re not on the first page in a Google search result, you’re basically not there. They tried to rescue and instead the CEO, Neil Vogel, and his team realized that the internet was very vertical, people have high intent when they go search for something unless they’re browsing and they’re browsing news or browsing other sites.

What had was that high intent traffic, it’s not people going into and browsing around it’s people searching something very specific, whether it be a recipe, whether it be symptoms for a health matter, whether it be information about their finances or about their investments, had all that content, but it was broadened under this one big umbrella. They broke it into about seven or eight vertical sites. Verywell as the health site, TripSavvy as the travel site, the Balance is the personal finance site. All of these were

They broke it into these sites, rebranded it, relaunched it, and basically rescued these sites from the second or third page of Google traffic started growing again.

[00:10:00] In the meantime, Investopedia was purchased by, IAC, I believe in 2015 in another transaction, we were in a different part of IAC called the publishing unit. After a while, they realized that Investopedia was very similar to the old sites to the new Dotdash sites.

They folded us into that group two years ago. Now we’re a part of a portfolio of about 12 or 13 sites, including, We bought TreeHugger and the Mother Nature Network recently, of course, there’s Verywell Health site, TripSavvy, I mentioned. We’re a part of a big portfolio that reaches about 100 million people monthly across our sites, but it’s all high intent content. It’s stuff you browse, it’s stuff you go to for a reason.

Jonathan: I hope you’ve been enjoying the interview with Caleb. To be sure to never miss another World According to Boyer episode, please follow us on Twitter @boyarvalue.

You’ve mentioned, it’s interesting, if you’re not on the first page of Google, you’re basically not there, which is obviously true. What amazes me about Investopedia is, if I wanted to look up a financial term from Google, let’s say EBITDA, without fail, you’re usually number one or number two, how does that happen?

Caleb: That’s one of the benefits of being 21 years old. Investopedia is 21, in the internet years, Jon, as you know that’s like 210 years. We’ve been around a long time. We’ve been around with a lot of reference content that has what we call backlinks. We show up a lot in the first result or for a second or third result because we have a tremendous amount of content, 30,000 articles on the site, we’ve been around for a long time so we have that credibility. We also have a lot of backlinks from influential sites. It’s great to get sites, especially .gov or .edu sites, sites that people respect in the authority. Referencing Investopedia is part of it, so we have that.

We have loyal users who rely on us a lot, and we spend, Jon, a ton of time working and improving our content. You mentioned you were on

[00:12:00] editorial review board. We have about 50 people or experts across the entire industry of investing in finance, that review every one of our articles and tell us if it’s good or if it needs improvement, we go and improve it, we put it back out and we’re on this constant state of improving and bettering our content for our readers. We want to make sure that we are giving them exactly what they’re looking for and that plus that legacy and a good reputation is what helps you get to that first page of Google.

Jonathan: basically almost failed because of Google’s actions. You’re heavily relying on Google for traffic. They’re basically frenemies. How do you protect yourself to make sure that doesn’t happen again?

Caleb: Well, Google updates its algorithm at least two times a year. In the finance space as you know, there’s two things that are really important to get right on the internet, medical information and financial information. Google has a thing called, Your Money or Your Life, YMYL. They have real human beings who are smart people reviewing content across our vertical, right across the entire finance space. They make an algorithm change and they’re looking for more authority, or they’re looking for more expertise from the sites that are providing the information that we’re providing.

They want to make sure that we have by-lines from real authors that actually know what they’re talking about, that we have a review board of experts like you and others who are actually are professionals in their field and they’re saying, “Yes, this is the answer that is the closest to what people are looking for her.” This is giving them the information that they need.

They have reviewers that look at that content and they say, “Yes, that’s actually what the intent of the searcher of the reader was.” They reward those sites that do better. That’s principally how they work. There’s, of course, sponsored paid advertising you can get on Google and that’s a completely different game and we don’t play that game. We play the, make the content as easy and clear and direct to answer user’s questions as possible and we’ll get that traffic, and people will come back to us and rely

[00:14:00] on us year after year after year.

Jonathan: People go to your site or direct to your site to find that information, pre-COVID. It was a great economy, unemployment was at record lows. What were people looking to learn more about?

Caleb: Pre-COVID, we were at record highs. It was record high after record high, but there was some creeping volatility. We saw a lot of searching interests around volatility about what happens when multiples expand, what’s a market bubble. We also had a lot of people even looking up the other side, what do we do? How do we potentially short the S&P? How do we diversify if we feel like we’re a little heavier right now? It was a lot of the stuff you feel when the market gets a little bit tippy and toppy, we started to get a lot of that search and a lot of that search attempt.

Don’t forget, we had just come out of 19, which was great, but there was still the phase one of the trade deal that was being implemented so eyes were on that. 2020, it’s been a crazy year so far. I believe we had some attacks on oil fields, all kinds of activity happening in the market outside are preloaded.

Jonathan: Starting with say in February or late February, early March when COVID was front-page news, how have those searches evolved? Today it’s May 26, the market is up big at least as of half-hour ago. It’s been a dramatic rise up. How is the evolution changed?

Caleb: Well, we see it in what we call our anxiety index, the Investopedia anxiety index. That measures search volume around fear-based terms around the economy, with the macroeconomy, around financial markets and around personal finance, credit, and debt. There’s about 13 or 14 key terms that we look at, we look at the whole corpus, and we look at where that search volume is increasing.

As we got into this heavy volatile market, in late February, March, it was obviously around volatility, we were having big seed market drops, we were having circuit breakers, trip at the stock exchange. People

[00:16:00] were looking at that, they were looking at what happens in pre-market trading, they were looking at ways to short the market and hide in gold and hide in fixed income, but then we’re also seeing, interest rates, the Federal Reserve and a barrage of monetary policy and taking interest rates down to zero.

They started looking about negative interest rates, they were looking at the Feds impact on the economy, the Feds impact on the stock market, you can see the anxiety rising and it was rising even before market volatility got crazy. The anxiety index and the VIX usually track each other fairly closely, and the anxiety index we found trips a little bit earlier than the VIX because people are saying to themselves what’s going on, let me go learn what’s going on coming to Investopedia and other sites to figure out what is happening in the market dynamics and then going and executing trades. It moves a little bit ahead.

Then what we’ve seen since is this great divergence as the markets rally 28 to 32%, over the last month or so. The markets done great, but people are very concerned about their personal finances and about the economy, which makes total sense when you see what’s happening on unemployment, when you see what’s happening rising bankruptcies when you see what’s happening with these continuing jobless claims. You see there is real great divergence between financial markets doing great, but the economy deteriorating under our feet.

Jonathan: You’re basically crowdsourcing over 90 million users a month on how they’re feeling?

Caleb: Right, and that’s one of the benefits of being as big as we are. We get our finger on the pulse of what investors are feeling. These are mostly individual investors that come to us. There are institutional investors that come to us but they get their research and they know the game like you. This is real investors and they’re active and that we have several newsletters.

I write two a day, one of the morning called the Express and one in the afternoon  We actually pull and survey our readers because these are very active investors all over the world, about what they’re feeling, what they’re doing with their money, stocks that they’re buying, securities or instruments that they’re getting

[00:18:00] in and out just to see what they’re doing. These are very smart engaged investors who have a very particular point of view on the markets.

Jonathan: How far back does the index go?

Caleb: The anxiety index goes back pre-financial crisis, so 12, 13 years. We have data going all the way back that we’ve been gathering year after year after year. The surveys we do, we do them every month now because the markets change so much, and investor behavior has really changed. The animal spirits are out in the wild, as you know, Jon, and it’s fascinating to watch.

Jonathan: I guess your wildlife documentary skills will come in handy.

Caleb: Right, full circle. I’m back to doing what I started doing.

Jonathan: This seems like very valuable data that you have. It seems pretty forward-looking not backward-looking. I’m not a fan of the VIX, I think it’s too complicated. What you’re seeing seems a lot more real. There’s a firm data tracker by Nick Colas, I don’t know if you know him. He measures volatility by the number of days, the S&P 500 has increased or decreased by 1%. Typical year I think it’s 54 times, I think right now we’re on May 26, and it’s already happened roughly 54 times in a year plus or minus 1%, but this seems like a real measure of what true volatility is.

Caleb: I totally agree. I never would have thought of it. Beforehand, I was at CNN Money and I have created the fear on money index which actually looking at money flow through a variety of instruments, and you mentioned your friend with the S&P and moving 1% or more, that measures the put-call ratio, it measures stocks making 52-week highs or lows. It’s got real inputs from the market, but it’s exact, in that, you can actually get those numbers.

The anxiety index is a sentiment index, which is this feeling, “Oh my gosh, what’s happening? Let me go learn about this to make sure I understand it because I need to reallocate rebalance, put money

[00:20:00] somewhere. We see a lot of that and it makes a ton of sense.

I came from the news world as we talked about, the news world is very push. “Extra, extra, read all about it, here’s what’s going on, let me tell you, let me tell you, let me tell you.” The Investopedia world and the dotdash world is really a pull world where we’re pulling information by what people are searching for, it’s a very different set of muscles that you use and a very different way of looking at the market and the way investors are behaving and I find that fascinating.

Jonathan: The anxiety index speaks to investor behavior. I’ve always loved studying individual investor behavior. I always feel whether you’re wealthy, whether you’re just a regular person on the street, I think the individual investor’s worst enemy is usually themselves, their emotions.

Caleb: Absolutely.

Jonathan: What are you doing during a time like this, to stop that, to help an individual, for lack of a better term, from himself or herself?

Caleb: Right, great question. We’ve had to go into a lot of our content, which is written throughout various market cycles. Don’t forget, we’re 21, so a lot of the pieces on our site are old. We’ve got to make sure that we’re speaking to people in the voice of what’s happening today because you always have to make sure you’re talking to your reader where they are right now. We’ve had to update a lot of content, we had a lot of stuff on investing in oil stocks and how to invest in oil stocks.

When oil collapses, the entire energy complex basically collapse under our feet, we had to update a lot of that content and make sure that people realize that this was happening, and a lot of what they were about to read needs to be seen through these lenses right now. There was a lot of that going on. I also mentioned that we have newsletters. I write a newsletter in the morning and one other night, always from the point of view of the individual investor, which I am, who is just looking to make sense of the world and then make the right decisions based on where they are in life.

I don’t pretend to be an expert stock picker, because I’m not, I don’t give investing advice, I give investing

[00:22:00] perspective. I work with experts like you and others to give perspective on what’s happening because the best thing Investopedia can do, is educate people about what’s happening and help them, lead them to making good decisions, and not tell them what to do, but say, “This is the right way to think about these things in order for you to make a call” and then hopefully, people will be reasonable or talk to a financial advisor.

We’re big believers in financial advisors and planners, and then do the right thing, but it starts with education. That’s why we’ve been able to be around 21 years, and now we’re able to do well in times where people are really seeking to make sense of the world.

Jonathan: I could be totally off base, but at least in my opinion, investors in Cannabis Stocks, investors in cryptocurrencies, for the most part, are going to lose their money. It’s probably put you in an uncomfortable position because I imagine that those are pretty high intent-driven folks. How do you explain to the average investor how they should be making decisions with regards to, “some hot topics”? Well, Cannabis was hot about a year ago, crypto is hot and now it’s not, how do you do that?

Caleb: Well, you have to disclose that right away to the reader. We do have a lot of interest in Penny Stocks, Cannabis Stocks, Crypto, you name it, but that’s been going on forever. Even before Tulip Mania, there was some other mania. There’s always going to be people on the fringe and traders, and people that like the actual market. Look at what we’re seeing these days with all the signups on the online brokers and this intense trading activity, even in the options market, because the market’s been hot and bottled that’s brought a lot of new investors in.

We start with education and that is telling people right away, trading Penny Stocks trading and options. Any of these are dangerous instruments, you have to know what you’re doing.

If you haven’t learned the basics of how to invest in pick your security, pick your asset class, read this first. We give them a step by step, we even have online courses they can take

[00:24:00] If they want to go and trade, we’re not going to stop them. We want to make sure that they know the rules of the road first because the road can be very bumpy.

Jonathan: You talk about the uptick in trading. There’s an interesting theory circulating that how day-trading is replacing sports betting right now, there’s no sports to bet on. Are you seeing any of that? Is there any evidence from your searches, et cetera, that that’s actually the case?

Caleb: No, but there is a lot of evidence that there’s a lot of first-time investors coming to the market. We see that through traffic for things like intro to investing, or options basics, or how do I invest with $1,000 or how do I choose an online broker to start investing? We get all of that.

Plus, we do review the online brokers and the Robo-advisors, and now Forex brokers to rank them by our experts, to tell people which is the best platform for them based on their need. We do a lot of that now. We’re getting a ton of traffic there, because people are signing up, good for the industry, but people are also getting into a risky place.

Trading and investing in the stock market’s always been risky, but when you have a dynamic like you have today, where the market has been extremely volatile, when you’ve had these intense swings in both directions now, but you have an economy that’s crumbling and people’s personal finances being upended, it’s super dangerous because what you don’t want is for people to take the money that they need to live or pay their bills, or take care of their family and try to invest it in the stock market to make a quick buck, that is the easiest way to get burned.

Jonathan: You mentioned that you have experts rating the best online brokerage firms, et cetera, which I think is a great service to have, but they’re also some of those are your biggest advertisers. How do you separate church and state there?

Caleb: Great question. They are our biggest advertisers. They’re our biggest advertisers because our readers are interested in investing and usually convert and sign up. They’re our biggest advertisers for a reason. When it comes to product and platform reviews, we are completely editorially-focused on that.

[00:26:00] There is no pay to play. You can’t pay to get more stars from us. We review them with our experts who have been doing this for 25 to 30 years, reviewing online broker platforms, completely objective and separated from advertising.

Our biggest advertisers are not necessarily our best online brokers in terms of our rankings and that’s proof that we don’t favor anybody when it comes to that. We have to be completely objective and that’s what our readers expect from us. The minute we cross that line, Jon, whether it’s in this or anything, giving stock picks or doing things that are disingenuous to the mission of educating investors, is the minute our business falls apart in everything that we’ve built over the last 21 years falls apart and fades away.

Jonathan: It’s rare in someone’s career to work for one media mogul. You’ve had the opportunity to work for two, currently, your sites owned by IAC, which is controlled by Barry Diller and his family. You worked at Bloomberg, which was obviously controlled by Michael Bloomberg. They seem to be very different personalities, but I imagine there’s some similarities too. Is there a way you can compare and contrast them?

Caleb: That’s a good question. Well, I’ll tell you what, I was a very young man in my video production business. When I was 21 or 22, I was at National Association of Broadcasters show. I saw Michael Bloomberg for the first time, never even heard about the man. I’m from New Mexico so I didn’t really know what was happening with the New York finance scene. I saw him speak about the future. This is about 1993.

He was talking about, one day we won’t have newspapers, or we might publish what we’ll really have is some a tablet where we’ll touch things and new pages of the newspaper would come up. He started talking in those types of terms. I said to myself, “I want to go work for that guy. That man sees around corners, I want to get to know what he knows and his view of the world. Funny enough, I ended up working for him several years later and he’s super intense.

When you go to work at Bloomberg, you go into your first day in orientation, everybody had to meet Michael Bloomberg at his desk in the middle of the

[00:28:00] newsroom, in the middle of the TV newsroom, right there with everybody else, no office, sitting out there on the open. You line up the medium in a parade of about 20 people and then it’s your turn, Michael’s working on his Bloomberg or he’s writing something.

He looks up at you and your orientation person says, “Hey Mike, this is Caleb. He’s going to go work as a TV producer for Bloomberg TV. This is his first day.” Mike looks up at you and says, “Don’t F it up,” and looks down and when you moved on, Mike was tough like that. Years later, I was covering business news for CNN and we started reading about Barry Diller and how he had chartered this career from the movie business and from USA networks and into QVC and Expedia and all of these businesses that he created in this whole notion of businesses that are marketplaces and matchmaking places, of course IAC owns match.

I said, “That’s a very fascinating person with a really interesting view of the world, running a company that is building the future on these electronic and digital platforms. I want to work for them someday.” Luckily enough, there was an opening at Investopedia at the right time in my career and I got to do that. I don’t have a lot of exposure to Mr. Diller, but I do have a tremendous amount of respect for him and the team that he’s built.

Jonathan: Caleb, thank you so much for your time. I really learned a lot from the state of business journalism, how to get your website to the top of Google. I really encourage our listeners to visit Investopedia. I truly think it’s a great site to learn more about investing.

Caleb: Jon, thank you. It’s been a pleasure and we appreciate your partnership and your friendship with the site and the work that you do. It’s an honor to be here. I really appreciate you inviting me on to the podcast.

Jonathan: To be sure to never miss another episode of the World According to Boyar, please follow us on Twitter @boyarvalue. Until next time.


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Mellody Hobson, President & CEO of Ariel Investments, on the advantages of a diverse workforce and the changing media landscape.

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The interview discusses:

  • Why having a diverse workforce is a competitive advantage;
  • The changing media landscape;
  • Why the business of content curation will be critical in the future;
  • The reason why movie theatre companies will survive;
  • A behind the scenes look of when Mellody’s husband George Lucas’s company, Lucas Films was sold to Disney;
  • The sale of DreamWorks (Ms. Hobson what Chair of the Board) to Comcast;
  • Characteristics of George Lucas that would surprise most people;
  • How Ms. Hobson was selected to join the board of Starbucks;
  • Why Mellody believes her board service has made her a better investor;
  • And much more…

About Mellody Hobson

As Co-CEO, Mellody is responsible for all firm-wide management, including strategic planning and growth as well as every aspect of Ariel’s business beyond research and portfolio management. Prior to her formal appointment to Co-CEO, Mellody served as Ariel’s President for nearly two decades and functions as chairman of the board of trustees for Ariel Investment Trust.

Ariel Investments is headquartered in Chicago, Illinois, and has offices in New York City and Sydney, Australia.  The firm manages assets of retirement plans, college saving accounts, and personal investment accounts.  With strong ties to the community, Ariel is focused on making investing accessible for everyone.  Individuals are able to invest $1000 in the firm’s mutual funds.

She is Vice Chair of the Board of Starbucks Corporation, and also serves as a director of JPMorgan Chase and Quibi, a short-form video content company. Mellody is former Chair of the Board of DreamWorks Animation.  As a Chicago-native, Mellody is involved in numerous organizations that focus on improving the city.  She serves as Chair of After School Matters, a non-profit that provides Chicago teens with high-quality, out-of-school time programs.  In 2017, Mellody became the first African-American woman to become Chair of the Economic Club of Chicago in its 90-year history, a two-year term which ended in 2019.


Click Here to Read the Interview Transcript

Transcript Of The Interview With Mellody Hobson

Jonathan Boyar: 00:10
Welcome to The World According to Boyar, I am your host Jonathan Boyar. In today’s interview we talk with Mellody Hobson, co-CEO of Ariel Investments. Ever since Mellody gave a Ted talk in 2014 that now has over 3.8 million views, I have followed her career with interest. She’s had a fascinating journey that I wanted to share with you. She was one of six children raised by a single mother in Chicago. As a child, her phone was shut off, her car was repossessed and she was evicted from her home. Despite this, Mellody was able to get into Princeton, secured a job at Ariel investments where she’s now not only co-CEO but also the firms largest shareholder.

Jonathan Boyar: 00:59
As if this was not enough, she’s also on the board of JPMorgan Chase and vice chair of Starbucks. Mellody is also married to Star Wars creator George Lucas. Mellody, welcome to the show.

Mellody Hobson: 01:12
I’m delighted to join you.

Jonathan Boyar: 01:15
Well first, I’m really excited to have you on the show. Your day job is being co-CEO of Ariel investments. Can you briefly describe Ariel to everyone?

Mellody Hobson: 01:25
Sure. Well, we’re a Chicago based investment management firm. We specialize in equities only. We’re a long only equity manager. Yes, we still exist and we focus on value investing, so companies that are undervalued but show a strong potential for growth and we have two real sweet spots. We focus on US stocks that are in the small and mid-size asset classes and then we have a team in New York that focuses on global investing.

Mellody Hobson: 01:57
So global and international stocks around the world, all cap sizes when we do our international and global investing. So across all the cap ranges. And we’ve been doing this since 1983 and one of the areas of distinction for us, our longest running portfolio, our small cap value strategy has had the same portfolio manager since inception, which is almost 37 years. That’s unheard of these days in the investment world and he’s done that and added tremendous value to our clients, outperforming the benchmark by over a couple 100 basis points per annum since inception.

Jonathan Boyar: 02:34
In a previous interviews, you’ve stated the diversity of your firm is really the secret sauce. Can you elaborate a little bit on that?

Mellody Hobson: 02:42
I think that it’s a competitive advantage and it’s one of the things that’s unfortunately lacking in the investment management industry because we have a very very diverse group of people. I think we were able to look at investment decisions and really ponder questions from all sorts of angles that leads to a better outcome and ultimately has driven the results that we have. I often quote Scott Page who wrote the book The Difference. He’s a professor at the University of Michigan and he came up with the first mathematical formula for diversity and in this book he talks about the fact that if you’re trying to solve a really hard problem, hard, you want diverse perspectives, even diverse intellects.

Mellody Hobson: 03:28
And the example that he gives that I think is so great is he talks about the smallpox epidemic and when it was ravaging Europe, all of the greatest scientific minds were stumped and the person who ultimately let them to the breakthrough solution was a dairy farmer who noticed the milkmaids were not getting smallpox. And to this day, the smallpox vaccination is bovine based because of the observations of that dairy farmer. And we really believe in that idea at Ariel when we think about diversity being a competitive advantage, we start to think about when we’re trying to sit around a table and solve the really hard problems that are natural to value investing. Some say value investors catch a falling knife. How do we make sure we catch the right side? It’s all of these diverse perspectives and opinions that allow us to poke holes at an argument and ultimately we think come to a better solution. In fact, we would say if we all agree there’s a problem.

Jonathan Boyar: 04:25
You have a research driven firm. You obviously spend a great amount of time analyzing each investment opportunity. Where in the process do you start to think about the diversity of the company you were thinking of investing in?

Mellody Hobson: 04:39
Early in the process because we want to be invested in 21st century companies and a 21st century company in our mind is diverse. At the top of the organization, throughout the organization and certainly board executives and the like. And that is the only way we believe that you can ultimately understand all the potential customers you may have, be it a business to consumer company or business to business company. We think all of those opinions shed light on the ultimate way that you sell the product or service.

Mellody Hobson: 05:09
And so at the end of the day when we think about owning 21st century companies, we think about diversity and if they don’t have it, we’re certainly going to agitate in that regard. Often because we own large positions, especially for our US stocks and we can really impress upon them the importance of having all of those voices around a table.

Jonathan Boyar: 05:30
Having a variety of viewpoints is critical. I certainly agree. What type of input do you have on the investments Ariel makes?

Mellody Hobson: 05:40
So what I would say is I’m not a person who is second guessing decisions and I’m there cheering them on in terms of what they do and how they do it. Because I recognize just right off the top, stock picking is very very hard and outperforming is even harder and we’ve been able to do that over time. And so it’s not about second guessing someone’s decision. What I do contribute is my Rolodex. And so the team often comes to me with specific requests or general requests and ways that I can help through the relationships that I have. Shed light on a stock or an idea. I’m actually doing that today for John with someone specifically.

Mellody Hobson: 06:19
So it might be this person you know, this person sits on a board with you, this person is a good friend. Can we do a call with them to vet this idea? And we do that a lot. And so, I’m brought into the conversation as a way of enhancing our decision making through relationships that I have. And we’re not trying to get any nonpublic information or anything like that. We’re looking for insights that will allow us to make better decisions.

Jonathan Boyar: 06:47
I’m really interested in your insights on the media landscape. You were chair of Dreamworks. You certainly know the space well. How do you see it changing?

Mellody Hobson: 06:58
Well, I think the world has changed in a major major way. We’ve obviously seen a media consolidation in our lifetime that is probably the most significant happenings in the world of media since the invention of the camera. I think that when you look at the fact that it’s very hard to be a standalone, just let’s talk about film companies. Dreamworks was bought by Comcast. You had Pixar that was bought by Disney. Lucasfilm that was bought by Disney. Even though those businesses and the content that they produced were outstanding. It became harder and harder for those businesses to compete as standalone companies against the media giants.

Mellody Hobson: 07:38
And so we’ve seen those giants consolidate and actually expand their content in such a way that has made them even more formidable in a way that I think actually serves the consumer very well in terms of what they continue to produce. The other thing we’ve seen is the streaming wars, and I think this is a real thing. I see it from the perspective of Quibi and I think our customers and just individuals in general have decided they want to get information when they want it, where they want it, how they want it, and the media companies have absolutely adjusted it to that. And so we’ve seen that take place in a way that I think is fundamentally changed how we take in content. But at the end of the day, I still believe the old idea that content is king and if you have great content, people will watch it, they will find it, they will consume it.

Mellody Hobson: 08:28
The one problem I think we have now is that because there’s so much content and all of it is not good, I think that at some point there will be organizations and my husband is the one who’s really convinced me of this, that we’ll curate that for you so that you can find your way through all of it that exists and so much does it exist today. So I think the future does have some form of curation attached to it. I think the future of streaming real and permanent, and I think we will see it in various iterations like Quibi that are doing short form content or obviously you have others who are coming in and new ways. Disney targeting children with Disney plus or clearly Netflix in terms of how they disrupted the whole industry with streaming to start with.

Jonathan Boyar: 09:15
The curation angle is really really interesting. How do you see that evolving? Is it artificial intelligence? How does this go and who’s the winner overall 10 15 years from now?

Mellody Hobson: 09:26
Well, first of all, I don’t know if there is a company yet doing this and the question is will the existing services, create some form of curation. I think the issue with that is that stays as a closed system and ultimately the question is will there be a curator that will look across all these platforms and help you navigate them? So I’m not sure exactly what form it will take. One would imagine that some form of machine learning or artificial intelligence will be involved and we see that already. Obviously Amazon does that very well. You buy a book and it says if you like this, you probably will like this. We’ve seen it with Apple, with music, so that’s not hard to imagine.

Mellody Hobson: 10:04
I just think that the question is who, what, when, where, we don’t know any of that yet. I don’t think that’s taken any form at all. The one other thing I’ll say about media that I think is important is I do think that there will still be, and again, my husband has really convinced me of this. We will still go to the movies. We will go to theaters because it’s a social event. Certainly at all levels of incomes now people have flat screens, they have big flat screens, but there’s something social about going out.

Mellody Hobson: 10:35
We can listen to a CD in almost perfect form of a song, but nothing competes with a live concert. And so this idea of media only being in your home, certainly we have a lot of opportunity to watch in the way that we wanted our home or on the phone or on an iPad or what have you. But there will still be a world of going to the movies and the question will be, can you uplift the movie experience like we’ve seen in some of the stadium seating and the movies that have the movie theaters that now have food at your table. All of those things, I think we’ll see more of that, more expensive but a better experience.

Jonathan Boyar: 11:15
This interview is about you and your amazing career, but if someone who grew up watching Star Wars, I have to ask at least one or two George Lucas questions. I mean, can you tell us something about him that most people would be surprised to know?

Mellody Hobson: 11:27
Gosh, people know so much about him because he’s been out there for so long. I think for me, the thing that I think was just the most amazing discovery very early on is just he has a really incredible sense of humor and it doesn’t come across, and I joke with him because he never smiles in pictures. And so when you see him in a picture, he has the straight face. And so people don’t really know. He’s just really really funny. Very very clever. And maybe that’s just the nature of being a writer. I don’t know. But that would be my number one thing that I would say that most people would not know about him. But I think the other thing is he literally watches television every day, every single day. I come home and he’s like, I’ve been watching a Fred Astaire marathon. I’m like, what! I mean, he’s a cinephile file. So he television or movies or when he worked on the Clone Wars, he literally watched the Sopranos every season from beginning to end cause he wanted to see how a really strong television show could work.

Mellody Hobson: 12:30
And he literally just sat for weeks and weeks and all he did was hour after hour, watch the Sopranos, he’ll do things like that as a form of research. And last last but not least as he’s learned. So he researched his subjects and he goes very, very deep and it’s something like I never would expect it, he’s like books on tape about string theory and I’m like, “What!” You never know how I might use that one day. And that was something I just had not expected. Super, super, super learned.

Jonathan Boyar: 12:59
Well yeah, I was recently reading Bob Iger’s book, which I highly recommend. And while reading it, I was really excited to see your name mentioned as you were present during some of the negotiations when Lucasfilm was sold to Disney. I guess it was back in 2011 2012 or so. Can you tell us a little bit of behind the scenes of what went on?

Mellody Hobson: 13:20
Well, I would say I wasn’t front and center in those negotiations, but I was on the periphery. I was there for the very first breakfast or lunch. No, it was breakfast that we had at Disney World where the subject was broached. It was funny, we went to the Brown Derby restaurant and it was closed and it was just the three of us and an entire restaurant, which I was like, this is strange, but ultimately Bob Iger brought up the subject of, what are you planning to do with your company? So then, it made sense that no one else was around as we were having this conversation. And then along the way, I was obviously there for everything as it was occurring. I remember when George went to sign the papers in Los Angeles.

Mellody Hobson: 14:01
I was in Chicago that day and I kept saying to him, are you okay? Are you okay? Because I thought, that’s very, very, very hard, and ultimately everything worked out. And Bob was very very kind and thoughtful. Every step along the way. I have a lot of respect for him and not only how he’s run that company and the tremendous success that they’ve had there and the vision that he has, but just how he dealt with George and how he included me in the conversation.

Jonathan Boyar: 14:30
And he kept his word on how the franchise would be treated.

Mellody Hobson: 14:35
Yeah. He’s a pro. He knows what he’s doing and as I said, certainly, they’ve been very fortunate to have him as a leader and we remain a shareholder, a large shareholder of Disney. And a lot of that is because we know that Bob is such an excellent steward for the shareholder.

Jonathan Boyar: 14:58
I hope you’re enjoying the interview with Mellody Hobson. To be sure you never miss another World According to Boyar interview, please follow us on Twitter @boyarvalue.

Jonathan Boyar: 15:06
So I would imagine in many meetings you attend outside of Ariel, you’re both the only woman and the only person of color. Does that add a tremendous amount of pressure on you? Do you feel kind of a weight that you always have to be on your game and great?

Mellody Hobson: 15:30
I’ve always felt that, but it’s not a weight, it just is. So when you’re black and you have a mom like mine, she made it very clear what you’re up against. She made it very clear what I was up against at a very young age and she conditioned me and so I don’t walk in thinking about it. It just is. I have a friend, Holden Lee who used to be the head of HR at Pepsi. He was on the Starbucks board with me, is so smart and Holden once I was talking to him about these issues and he said, “Mellody, how long have you been black? How long have you been a woman?” It was just such a funny comment and it really perfectly crystallized it for me. It just is. So no, do I walk in carrying a weight or something on my shoulders or burden. No.

Mellody Hobson: 16:13
I walk in knowing this is just life and me and situations that I’m in are often very unique and hoping to do a good job so that the next version of Mellody that comes through is received very very well.

Jonathan Boyar: 16:27
Well, your Ted talk, which has been viewed 3.8 million times and counting was certainly received well. The title of the talk was colorblind or color brave. I highly encourage people to watch it and it’s entirety. But if you had to pick one or two takeaways for people to have, what would they be?

Mellody Hobson: 16:48
The number one thing is what the title of the talk was about. And so I said, color blind or color brave. I was really speaking to the countless number of times that people have told me over and over again that they’re colorblind and I really decided I wanted to challenge that because those who often said it to me were the ones who are in the most homogeneous environments. And so I said, you know what, if you actually could, instead of not seeing race, see it. Because if you saw it, you would see that it was missing in your life. And so I am asking people instead of being color blind to actually embrace the idea of race, embrace the idea of speaking about it, noticing it, talking with others about it, and ultimately, as I called it, being color brave.

Jonathan Boyar: 17:29
So in the speech you describe an incident involving yourself and Harold Ford, would you mind retelling it?

Mellody Hobson: 17:35
It’s a funny story, but it’s also sad at the same time. You have to keep a certain sense of humor about these things in life or else you’d be a little bitter. But Harold had called me, he was running for US Senate and he was, a very well known Congressman from Tennessee who came from a family of political leaders and Harold a young, black guy running for US Senate. He called and he said, Mellody, we’re early in our careers and he says, I need help finding and getting some national press. Can you help me at all?” I called a friend that was a big deal at one of the biggest media organizations in the country. And I went to her and I said, is there anything you can do to help? And she said, let’s do an editorial board lunch for him with a bunch of people.

Mellody Hobson: 18:26
She says, but you come to New York with him. So we both fly to New York, we’re in our best suits, we look like shiny new pennies as I described it in my Ted talk. And we get to the building and we’re directed upstairs and we see the receptionist and we said, we’re here for the lunch. The reception has us follow her through this long meandering hallway. And Harold and I are not paying much attention because we’re talking to each other because we haven’t seen each other, and we’re very excited. We’re excited for the whole experience. So we finally ended up in this room and we get to this room and it’s barren. And she turns to us and she says, where are your uniforms? And we look at each other and we’re like, wow.

Mellody Hobson: 19:07
And just as it was happening, my friend runs in recognizing that we’ve been detoured not to the lunch but to the service area and she’s just red in the face. And so I joke with her, I say, this is exactly why we need more than one black person in the US Senate, because at the time we had only had one and I did it in a joking and funny way, but it was just to suggest, the situation underscored who see people, particularly people of color through a certain lens, can’t see us in all the ways that are possible. And so, it was a stark moment but it certainly put a finer point on the reason for the lunch.

Jonathan Boyar: 19:48
So you certainly have an extremely demanding day job, being co-CEO of Ariel. And I guess in your spare time you’re on a bunch of for profit boards. Why did you join a board?

Mellody Hobson: 20:02
Because it’s an area of interest. I feel like I can contribute and learn and those things are exciting to me and they’ve often been companies with leaders who are well known for their excellence and I want to be around excellence.

Jonathan Boyar: 20:20
You were formally chairperson of the board of Dreamworks. You were young when you initially joined the board and other members of the board were David Geffen and Jeffrey Katzenberg. How were you able to get appointed to such a prestigious board so early in your career?

Mellody Hobson: 20:35
Well, it’s a more interesting story that doesn’t start with Dreamworks. It actually starts with Starbucks. And I received a call one day from Bill Bradley who I had worked with very very very closely when he was running for president. And it didn’t work out obviously. And he called me one day and he said, “Mellody, I’m going on the board of Starbucks and I’m taking you with me. And I said, what? And he said, you don’t know this, but there’ve been a number of times you’ve been on the phone with Howard Schultz and I’ve told them how diligent and hardworking and smart you are and that they really should think about you for the board and now he wants to meet you.

Mellody Hobson: 21:15
And so through a series of interviews that took place over a couple of years, I ultimately was selected to join the board. And from there, Howard called me one day and he said, “Mellody, I’m going on the board of Dreamworks and I’m taking you with me”. I was like, “What!” I mean, it was one of those crazy calls and he said, “Dreamworks is going to IPO and Jeffrey Katzenberg is looking for board members and I told them you would be great. And so, it’s interesting, part of it was just doing a good job where I was. So with Bill Bradley when he was running for president, I work so hard on that presidential campaign and I was very very very focused while working at Ariel. And I would split my day into two parts and work six, seven hour days at both organizations for a couple of years, seven days a week.

Mellody Hobson: 22:05
But I’ve worked as if it was a job, it was not a job. And ultimately that commitment and that devotion was the reason that Bill recommended me at Starbucks. And then when being on the Starbucks board, once I was there, I poured my heart into it. And that led Howard to recommend me. So the big takeaway that I tell people all the time is whatever you’re going to do, you want to be a team player and you want to do it very very well. I had no idea that volunteering for Bill Bradley would lead to being on the board of Starbucks and ultimately vice chair of the board. But it was because I just put my head down and did the work and it was all about being a good teammate to Bill. And this idea of being a good teammate was something that John Rogers had always stressed to me. John Rogers is the person who founded Ariel. He had always stressed to me from the very very beginning of working at Ariel. He always said, the more you help your teammates, the more you help yourself. And the way that the Bill Bradley relationship and Dreamworks and Starbucks all played out is a testament to that statement.

Jonathan Boyar: 23:06
And that’s an amazing story. And basically you had two or three full-time jobs at once and did a great job for each of them. I mean, you must have extraordinary time management skills. I mean, how do you organize your day?

Mellody Hobson: 23:22
Well, that’s a really great question because, I spend a lot of time asking people how they organize themselves because I’m always looking for an edge in a way to be better. I can’t quite get to Jeffrey Katzenberg point where he only needs four hours of sleep. He’s one of those like 10% of people on the planet can live on four hours. But he basically jokes, he gets an extra day every week, which he does because I worked with him for a long long time and I know it to be true, but I can’t do that. But what I do spend a lot of time thinking about is how to be efficient. So everything from one of the things I do at Ariel is I have office hours, which I learned in college.

Mellody Hobson: 24:00
I said, why don’t we do this at work where there was a stated time every day that you could go and see a professor without making an appointment. And there’d be a line outside their door, but they were their office hours. I do that at Ariel and we set that time up on my calendar for people to know when they can communicate with me on small issues that … Actually, it’s 15 minutes or less. It’s not a meeting but it’s not a phone call or it could be a phone call if it’s office hours when I’m outside of the office. And so that’s one way to organize your time so that you don’t have people coming at you all day long because we have a very open door policy at our firm. And so we want to be approachable and accessible to all of our teammates. But the downside of that is just being interrupted constantly. So by coalescing everyone around the office hours, that helps make me more efficient as one of many examples.

Jonathan Boyar: 24:55
Just switching topics a bit. You serve on a bunch of corporate boards. What do you think the biggest responsibility of a board member is? Also you were chair when Dreamworks was sold to Comcast. Can you discuss how a sales process like that works?

Mellody Hobson: 25:11
I think the most important role of a board member is to understand the leadership of the company, succession and capital allocation. To me those are top top top of the list. In terms of the sale of Dreamworks, it was a fascinating process. It was a once in a lifetime experience. It was fun and grueling at the same time and it started with a phone call that I got one day from Brian Roberts. He started by calling Jeffrey Katzenberg first and Jeffrey had super voting shares of Dreamworks and for that reason could not in any way negotiate anything related to the company because he had this special class of shares and all shareholders in that kind of transaction must be treated equally.

Mellody Hobson: 25:52
So Jeffrey said, I can’t talk to you but you can call our board chair. So it’s 6:00 AM in the morning on a weekday, it’s actually a Thursday I remember. And the funniest thing about it is that when he called my husband answered the phone, he called the home phone and I had already come back from my workout and I was actually literally taking a bath and my husband made the joke, you want to take a bath with my wife, which was just completely inappropriate, of course. I told you about that sense of humor. And so he hands me the phone and Brian Roberts, whom I met but didn’t know really well, said, we have an interest in the company. And so it just sort of started there. And that immediately went to an in person meeting in Los Angeles that Saturday. And then it just played out over the next couple of weeks. I mean, all day negotiations an back and forth and up in the middle of the night.

Mellody Hobson: 26:47
And during that period my baby was a baby. And so because I was doing calls throughout the night for about a couple of weeks, this went on for about two weeks and we did a deal very fairly quickly because I was doing these calls in the middle of the night. I slept on the sofa in the family room because my guest room was my baby’s room. So I slept on the sofa. And the big joke that I had that the people who worked in my house must’ve thought that I had a bad marriage because every morning they’d come and see this pillow and this blanket. But I slept on the sofa so I didn’t wake everyone in the house up because I was doing these calls all night. So it was crazy and it was very very invigorating.

Jonathan Boyar: 27:30
How did your board service made you a better investor?

Mellody Hobson: 27:35
In every way, every way. A better leader, a better investor. I think a better person. And that’s because I’ve had one jobs since I graduated from college. I’ve only worked at Ariel, this is 28 years now. So that could be a very insulated experience. That could have been a very insulated experience, but it hasn’t been because I’ve had these other outlets and by serving on corporate boards, I can tell you in no uncertain terms that it’s led to Ariel being run better because I get to learn everything from internal audit to a whole host of things that you can bring back to your organization and make you better. But you also have experiences in a board room that are not the same but certainly are suggestive in terms of issues that we confront with companies that we own.

Mellody Hobson: 28:26
You can say, I remember this in one of my own experiences and how it might relate to something that we might see with one of the companies in our portfolio. And then also just understanding board dynamics. That’s very enlightening when you think about the issues that companies confront on a day to day basis. What are they thinking? How are they dealing with this? Who’s in charge? All of these things are really informative. So Warren Buffett is the one that said, being involved on boards made him a better investor and a better leader. And I’m 100% in agreement of that point of view. It’s been a gift.

Jonathan Boyar: 29:03
Well, Mellody, you’ve been more than generous with your time. Thank you so much, and it was delight having you on the show and hearing about your fascinating career.

Mellody Hobson: 29:12
Thank you so much for having me and have a happy holiday.

Jonathan Boyar: 29:19
I hope you enjoyed the show. To be sure you never miss another World According to Boyar interview. Please follow us on Twitter @boyarvalue, until next time.

Disclaimer: This interview does not constitute a complete description of our investment services and is for informational purposes only. It is in no way a solicitation to buy or an offer to sell any securities or investment advisory services. Any statements regarding market or other financial information is obtained from sources which we believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Past performance is no guarantee of future results and there is no assurance that any targets or forward-looking statements will be attained. This interview represents the views of Boyar Asset Management as of November 13,th 2019 and may change without notice. Boyar Asset Management may own shares in any of the companies discussed during the interview. 



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