The World According To Boyar: Podcast

William Cohan, Best selling author discusses his latest book Power Failure: The Rise and Fall of an American Icon

The Interview Discusses: 

  • The rise and fall of GE.
  • What could have been done to save General Electric.
  • Who is to blame for GE’s demise.
  • His in-depth interviews with both Jack Welch and Jeff Immelt.
  • The fundamental error that Jack Welch made that tarnished his legacy.
  • How GE capital almost filed for bankruptcy during the financial crisis.
  • What Disney can learn from GE’s succession issues.
  • The mistake GE made by selling NBC Universal to Comcast (and one thing about the deal you probably  never knew).
  • His latest media venture called Puck.
  • And much more…

Share it on:  Share on twitter  Share on linkedin  

About William D. Cohen

William D. Cohan, a former senior Wall Street M&A investment banker for 17 years at Lazard Frères & Co., Merrill Lynch and JPMorganChase, is the New York Times bestselling author of three non-fiction narratives about Wall Street: Money and Power. His new book Power Failure: The Rise and Fall of an American Icon, about the rise and fall of GE, once the world’s most powerful, valuable and important company, was published in November 2022 by Penguin Random House. He is a founding partner of Puck, a digital publication owned and operated by journalists, and a writer-at-large for Air Mail. For 13 years, he was a special correspondent at Vanity Fair.

Click Here to Read the Interview Transcript

 Transcript of the Interview With William D. Cohen:

Jonathan Boyar (00:05):

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. As a big fan of his work. I am very excited about today’s special guest award-winning author William Cohen, who has written multiple New York Times best-selling books, including his latest, focusing on general electric power failure, the rise and fall of an American icon. Bill, welcome to the show.

William Cohan (00:39):

Great to be here, Jonathan. Thank you for having me.

Jonathan Boyar (00:41):

Thanks for coming on. As I said, I’m really excited about the show. And before we get to your latest book as well as Puck, the digital media company you co-founded, both of which I really enjoy and highly recommend. I just want to delve a bit into your background. So you started your career in journalism and then received an MBA at Columbia and had a really successful m and a banking career. Worked at some great firms like Lazar for 17 years, but then you did the transition back into journalism. How were you able to do that?

William Cohan (01:16):

Well, I think desperation and fear had a lot to do with it. I was in my young forties when JP Morgan Chase decided that my career as an investment banker was over. I needed something to do. And at that time, around 2004, there were very few opportunities in banking open for me. And so I decided, okay, 17 years is enough time to do something else. And I thought, well, what can I do that I don’t need anybody’s permission to do that. I don’t need a boss to do that. I don’t have to work for anybody else ever again to do. And I landed on the idea of, you know, essentially going back to journalism by proposing to write a book about Lazard where I had worked, albeit 10 years earlier with no thought of ever, of course going back to writing or writing a book about Lazard. So it just occurred to me that it was just this fascinating and amazing place that was private that nobody hadn’t written about in decades. And having worked there, I sort of knew it from the inside out and knew most of the people who worked there and was hoping that they would give me interviews. Anyway, so I proposed this book, I wrote a hundred page proposal and got an agent and incredibly publishers went for it. So the rest is kinda history.

Jonathan Boyar (02:49):

Not only did publishers go for it, I mean I think you won the Financial Times Book of the year. I mean that’s a, an amazing fee for your first book.

William Cohan (03:00):

That was incredibly satisfying. It was an incredible day. My wife and I flew to London. There was a ceremony at the beautiful public library and London and you know, I was one of five finalists along with Tole for Black Swan and Alan Greenspan for his book about his memoir about being fed chairman. And we did not know who had won. They decided it right before they announced it and when it was me, I couldn’t quite believe it. You know, at the Oscars they put the people who are likely to win in the front row. So there’s not a long walk between getting from the front row to the stage so they can collect their award. The ones who were unlikely to win, they put way in the back. So I was way in the back and took me like 15 minutes to get up to the front to get the award from none other than Lloyd Blankfine, the c e o of Goldman Sachs at the time, who gave me the award. It was great.

Jonathan Boyar (04:06):

That must have been just especially satisfying after your kind of your career setback to really prosper on your first go around.

William Cohan (04:16):

And then it led to my ability to get back into journalism again. I mean, I got a call from Graydon Carter after that. Did I want to write Vanity Fair? Did I want to be your columnist at New York Times? You know, well all these wonderful things started happening and that’s how I resurrected myself, as you say, after a severe career setback that I wasn’t anticipating and had done nothing to deserve. And I had two young sons. And so it went from sort of being all encompassing as a banker to being around all the time at home and trying to figure out what I was going to do next. I don’t recommend this path for anybody, but must say that if my former colleagues at JP Morgan Chase hadn’t terminated me with extreme prejudice, then I probably wouldn’t be a writer today. So I’ve often thought of dedicating one of my books to them to thank them for what they did for me.

Jonathan Boyar (05:18):

You should you know, writing these books seemed like a much better life and more rewarding than being an M&A banker. Not that there’s anything wrong with being an m and a banker.

William Cohan (05:27):

Look, I couldn’t do what I do now had I not done that for 17 years, you know, it was not something that I was passing through. It was a long time. You know, Michael Lewis, who I is a friend and have incredible respect for and don’t understand how he does what he does, he worked at Solomon I think for two years. 17 years is quite a different kind of commitment. You know, I have come away with a deep understanding of the industry, not only from having doing it as a banker, but now writing books about it or now more than as a banker. And you know, as you say, being able to do my own thing, having no boss. I don’t have to worry about colleagues scheming behind my back to get rid of me. I have my own equity, which I share with my publisher and we have a great partnership and I can do pretty much what I want on a daily basis. And you know, frankly, I don’t think there’s any better way to run your life.

Jonathan Boyar (06:28):

You wrote about the Duke Lacrosse scandal as well as, you know, other books detailing the Global Financial Crisis House of Cards, which I highly recommend. But the reason you’re here today is about your latest book on GE, which some have described and I think quite accurately in my opinion as a corporate autopsy. How did this book come about?

William Cohan (06:51):

What I do on a subliminal basis, I don’t set out to do this, but whatever reason, it does seem to work out this way that every book I’ve written, I have some sort of intersection with, you know, professionally or personally. You know, I’m not starting from scratch. You know, a lot of writers choose topics that they know nothing about and wanna find something about and do it because they’re intellectually curious. And I totally get that and I do do that. But I also find that there’s, you know, an intersection with my life, which I think gives me a little bit of a leg up like the book about Lazard, while I obviously worked there for more than six years. And so knew about the firm, you know, intimately competed against Goldman Sachs, competed against Bear Stearns, went to Duke, my book about my friends from Andover, I went to Andover ge, the same thing when I was at Columbia Journalism School, 19 82, 83 out of the blue I got asked to go on a trip for a day on GEs corporate jet to go see their lighting manufacturing plant in Cleveland and then onto Louisville to their major appliance plant.


And you know, it was an incredible experience to see these facilities and to be, you know, flown around on a private jet. Mine was my first time on a private jet ever. I didn’t even really know that there were private jets. So that was sort of in my mind. And then my first job at a Columbia Business School was GE Capital Financing Leverage Buyouts. So I mean, I’d been a journalist covering public schools in Wake County, North Carolina, which was fascinating. And then went to business school and then as one did you know, in the late eighties when all you had to do was breathe to get a job on Wall Street, I got this job financing leverage, which is of course absurd. So I did that for a year and then worked for the Chief credit officer at GE Capital in Stanford for a year and then, you know, moved on to Lazard, et cetera.


And so again, I knew about GE from having worked there, not well or anything, you know, again, I never thought I’d ever write about it. And then fast forward 30 years, one of the people that I had started with at GE Capital at my office mate, was John Flannery, who turned out, stayed at GE and rose up through the ranks incredibly, and was Jeff Al’s successor. So he and I remained friends to this day and for 30 plus years. And when he was C E O, which I thought was an incredible feather in the cap for ge, he’s an incredible guy and deserved that reward or what we thought of as a reward for his incredible performance at ge. And it turned out to be an albatross. So during the course of that, he was only there for 15 months as the ceo you know, he would occasionally share with me how difficult things were and what he was surprised about.


And at one point he said, well you should write a book about this. And I said, but John, I can’t write a book about this. You’re the ceo, you’re my friend so I can’t do that. So interesting suggestion but not going to happen. And then after 15 months, he was unfairly and summarily fired and was essentially what was Theta. And I thought to myself, well now I can write a book about this and frankly I need to figure out what happened here. There’s like a dead body on the floor. How did it get there? And when Jack Welch said that he would speak to me, well that kind of sealed the deal.

Jonathan Boyar (10:27):

The part about Welch speaking with you, it’s like all your books is extensively researched over 700 pages. It’s hard to tell when you’re reading on a Kindle how long it actually is, but it’s still a page turner. It really draws you in at the very beginning. You know, you have your initial meeting with Jack Welch, which I thought was fascinating. Can you tell me a little bit about it?

William Cohan (10:52):

Of course, I knew who Jack was and knew him a little bit from the island. And so I called him up and said I wanted to do this. And he agreed incredibly. And then we agreed to have our first meeting at the Anti Golf Club, which was around the corner from both of us. He wanted to have lunch. So we get there, I mean, I’m not a member there he was, and also at the nearby Sanity Golf Club. So we agreed to have lunch. And first thing out of his mouth before I can even sit down is that he feels like he totally screwed up the selection of his successor, which was quite a revelation to me. And needless to say, and I thought, wow, this is incredible. We had lunch at the next table, it turns out was Phil Nicholson who’d been playing golf that day, cuz it was a Wednesday before the Thursday tournament began in Massachusetts, the Deutsche Bank tournament.


And he was there with Bob Diamond, who was the former c e O of Barclays, who I knew too, who grew up on Nantucket and Paul Salem, who was one of the founders of Providence Equity Partners who grew up in the same town as I did in Massachusetts. And so I thought I was like Old home week here, this is incredible. And Phil Nicholson and Bob Diamond and Paul all came over and paid homage to Jack and like everybody would just continuously pay homage to Jack, which I totally get. And it was the beginning of a incredible time where Jack met with me six or seven times between the Tuck in and Manhattan, New York at his home in North Palm Beach. And basically completely laid out for me, you know, his personal story, his history, his career, his growing up and what it was like running GE. And then his disappointment with choosing his successor, which of course he chose, he could have chosen anyone else. He chose Jeff Alt and I think was quite disappointed with the way that worked out and was quite eager to share that with me on many, many occasions.

Jonathan Boyar (13:07):

As I said, the book was extensively researched. I, I learned a ton, not just about Jack Welter, I’d like to talk about more in a little bit, but it’s also some facts or myths about GE that I guess I just assumed were correct and they weren’t first thing, Thomas Edison was not as involved with GE as the company would like you to think. Is that correct?

William Cohan (13:32):

That’s absolutely correct. In fact, everybody seems to think that Thomas Edison was one of the founders of GE. The one day that the company under its current leadership, Larry Culp agreed to cooperate with me on this book One day only. They let me go to both Crotonville on the Hudson, which was their management training center, which was phenomenal and that they’re now selling or trying to sell. And they also let me go to their research center in NI outside of Albany, which was also phenomenal. And you go in there and the first thing you’re just assaulted by is, you know, all of the Thomas Edison paraphernalia, his desk, the stock ticker, his awards, his accomplishments, his quotations. So I just assumed like everybody else that it was his doing that created this company and his company that became GE. And actually it turned out that’s not right, which I found fascinating for obvious reasons.


The real story is that yes, Thomas Edison was obviously the person who helped to create the light bulb and to help create generation of electricity. So that’s all true. And he created something called Edison General Electric, which was one of the two companies that was merged together along with something called the Thompson Houston Company to form GE in 1892. But by that time, Edison General Electric was not doing particularly well. Thomas Edison was no longer the c e o of the company, his main venture capital backer. A guy named JP Morgan was not that happy with Edison and the CEO of Edison General Electric was in guy named Henry Ard, who was another venture capitalist slash railroad Barron. He was for some reason the c e o of the company at that time. And basically ARD and JV Morgan decided that they wanted to merge Edison General Electric with Thompson Houston, which was backed by a guy named Charles Coffin and his venture capital supporters in Boston.


And Edison was completely against it and tried to thwart it at every turn and ultimately could not, as I like to say, the money man won out. And Coffin was the new CEO Edison wanted nothing to do with it and quickly sold his shares in the company and fluked off to New Jersey to do some sort of like limestone mining project, which ultimately failed to. So is he in the DNA of the company? Sure, yes, he’s in the DNA of the company, but was he a champion of the company’s creation? Absolutely not. He tried to thwart it at every turn and was overruled by the moneymen, which again, very typical as we know. Now,

Jonathan Boyar (16:36):

Another thing that I learned that I found fascinating is, you know, one of Welch’s most lauded deals was buying company. People growing up today probably never heard of but R C A, which housed N B C. However, he was really just buying back what GE had owned years before. You know, that’s a fascinating story as well.

William Cohan (16:58):

Again, one that I had no idea about either. You know, Lazard was involved, Felix Rohatyn was involved in the acquisition of RCA by GE six point whatever, 4 billion deal in 1986. I think that was the largest m and a deal in history at that point. It was on the front page in the New York Times, you know, biggest deal ever. And obviously very exciting, GE getting into the media business by owning NBC. You know, what’s jack up to? It was sort of the embodiment of Jack’s thesis that GE needed to be either number one or number two in any industry that it was involved with. And if it wasn’t, you know, you had to get out of it or if you wanted to be, you had to buy it. So I mean this encapsulated it all. And of course RCA was another mini conglomerate with other things in it besides NBC.


And it turned out I had not realized, and very few other people had realized either that GE had actually started what became RCA inside GE after World War I. Because GE had developed the very exciting radio technology, the radio broadcast technology that was used during World War I by the allies to communicate to each other over secret communications cables or lines or whatever. And a scientist at GE who had developed that technology. So after the war, Woodrow Wilson, the president and Franklin Donor Roosevelt, who was the secretary of the Navy or something like that, didn’t want GE commercializing this technology and selling it. One of the biggest customers for this technology was Marconi, which was a UK company that was a competitor of GE in this radio space, which was again the hottest thing going in 1892. The hottest thing going was GEs electricity distribution and generation business in 1917, 1918.


The hottest thing going was GEs radio technology. And basically the US government didn’t want GE selling it to the British who were our allies during World War I. They wanted the US to control that technology and basically insisted that GE not sell the technology to Marconi and in fact encourage them to create a separate business inside GE called RCA Radio Corporation of America to own that business. And basically the government encourage GE by giving them patents and other business so that they would compensate GE for not being able to sell this technology to the British. Marconi had an American subsidiary, publicly traded American subsidiary called American Marconi, and GE bought that in like a 25 million acquisition. And RCA was off to the races then in the 1930s, again, for reasons that I’ve never really quite understood other than it was too good at what it did.


It forced GE to spin off RCA into its own public company and that’s when David Sarnoff became the C e O of rca. So from the 1930s to, you know, for the next 50 years, RCA was its own independent company, became a mini conglomerate that owned everything from like banquet chicken to carpet manufacturer to big television manufacturer to of course N B C, both on the television and the radio side. It was in all these crazy things, many of which my firm Lazard had helped them put together. Then Jack decided he wanted to buy it and essentially buy it back.

Jonathan Boyar (21:05):

It’s fascinating. I want to get back to that at some point because alt later sold it to Comcast for a song. But just take a quick step back. The book is called The Rise and Fall of an American Icon. And in my opinion, the title is a dramatic understatement as GE just did not rise to become the most powerful company in the world, depending on someone’s age, they wouldn’t realize how important GE was to American business. In some ways they were the Apple or the Microsoft of their day. Now they’re being the process of being broken up into a few separate companies that’s already started to occur whose total market cap is a fraction of the market cap. GE was when Jack Welch retired in 2001. Besides the obvious that nothing lasts forever, what can successful companies learn from your book to prevent what happened to GE from happening to them?

William Cohan (22:04):

If I had the real answer to that, Jonathan, I would probably be the highest paid consultant in the world. And the most sought after each situation, of course, is sui generous. I think ultimately GEs downfall occurred not because it owned GE Capital, one of the largest unregulated financial services companies in the world, which obviously suffered dramatically during the 2008 financial crisis, which again, talk about discovering something that nobody knew. Very few people realized the trouble that GE was in as a result of the 2008 financial crisis. Everybody knew what trouble the banks were in, you know, wall Street banks and the car companies and AIG. But you know, GE was as desperate as any of them and they kind of did it on the down low and got rescued very quietly. Not part of the tarp, not part of a specific rescue.

Jonathan Boyar (23:09):

They were close to filing bankruptcy, correct?

William Cohan (23:13):

GE Capital had hired Solomon and Cromwell twice to prepare the bankruptcy papers for GE Capital, which I had no idea about. And I worked at GE Capital and presumably was paying attention to these things, written two books about the 2008 financial crisis, you know, the collapse of Bear Stearns for one, and how Goldman Sachs made it through without suffering the same fate as Bear Stearns. And I didn’t know about it. So how do you avoid what happened? I think a lot of people would say, well, that Jack just planted the seeds of the destruction that occurred on Jeff ALT’s watch. I personally don’t subscribe to that theory. I think obviously Jack didn’t subscribe to that theory. And I agree with Jack. I think had Jeff listened to the warnings that he was being given regularly about the risks that were inherent in the way GE Capital was financing itself, financing itself in the short term commercial paper market, and then lending long term.


So the big mistake that people make in banking and always gets banks into trouble is borrowing short and lending long. Now that’s of course what fractional banking is all about. That’s what the banking system is all about. You couldn’t have banks if they couldn’t borrow short and lend long because that’s how they make their money. But you have to be constantly aware of the risks that are inherent in that model. Now look, even if you theoretically do understand how banking works and you do have a finance background, you would’ve thought Dick Fuld understood how banks worked and had a finance background, but obviously Lehman Brothers went down the tubes and you would’ve thought Jimmy Cain understood at Bear Stearns the risks in banking. So I’m not saying Jeff Immelt was unique in this, but he had been warn several times by Bill Gross, of course, the one time Bond king.


He had been warned repeatedly by James Grant, my hero at Grant’s interest rate observer repeatedly and even by his own treasurer about the risks that were building up in GE Capital. But Jeff, you know, is not a finance guy despite having gone to Harvard Business School, he was more of a marketing guy. He was an incredible salesman. He could probably sell ice to the Eskimos to use the pathetic cliche, but you know, he failed to really appreciate the risks that were building up at GE Capital. And then when people told him, another story that I found incredible was Michael Pralle, who was running GE Capital’s real estate business, which was incredibly successful. Basically begged Jeff to begin to sell GEs real estate business in 2007. And Jeff ignored it, ultimately fired him, was waving a McKinsey study in front of everybody’s nose saying that the real estate trees were going to grow to the sky.


And then of course a year later, <laugh>, the real estate market was a disaster. And Michael Pralle was right and Jeff should have listened to him. Jeff should have listened to a lot of people that he did not listen to about the risks that were in GE Capital. So my view is you’ve got to choose a ceo. It’s so basic, who really understands the business lines that the company is in. If half of your business is coming from a gargantuan, unregulated financial services business, you’d better have a pretty good idea of how financial services work. So I don’t think Jeff did, and I think Jeff got into deal heat and he either would pay too much for companies he wanted to buy, or as you were referring to NBC Universal, you know, he sort of got snookered by Comcast when he got desperate to sell something, anything. As he burned the furniture beginning in March of 2009 when he sold that to Comcast for two pieces, what ended up being around 30 billion? Well, you know, pretty much in no time n NBC Universal was worth a hundred billion obviously before the pandemic. Now it’s had some tough times, not worth that much at the moment, but certainly worth more than the 30 billion that Comcast paid for it and Jeff sold it without an auction. How do you sell something that valuable and important without an option? I don’t get it.

Jonathan Boyar (27:48):

So basically you’re pointing a little bit to se succession pointing to leadership as obviously things that are very important to companies. So for a real world example, you know Disney right now is in a business that’s undergoing major change, you know, streaming, et cetera, and Iger claims he’s not going to be there for more than a couple years. What could Disney learn from GE to help find the right successor to grow through these transitional problems?

William Cohan (28:21):

She’s somebody who is highly skilled and highly competent, who understands the business lines that you are in, right? There was reporting over the weekend from my friend Charlie Gasparino  about Adam Silver, the NBA commissioner being on the shortlist to run Disney. Now, I don’t know Adam, we’re both Duke graduates. He’s got one of the greatest jobs in the world, he’s very tall.

Jonathan Boyar (28:53):

Why would he give up that job?

William Cohan (28:54):

Why would he give up that job to be CEO of Disney? A job for which he is extraordinarily unqualified. Extraordinarily unqualified. So if the Disney Board chooses Adam Silver and then Adam Silver makes the mistake of accepting the job, that is a disaster. That’s like not learning anything from the GE experience. That’s just incredibly huge mistake. I understand the headline attractiveness of potentially having Adam Silver be your c e o because that’ll bring a lot of attention to Disney and some NBA like excitement. Okay? But he doesn’t understand anything about the business. He’s never worked in the business. Negotiating television contracts with ESPN and a B C is not the same as running the movie business, running the entertainment business, running the cruise bus, all the businesses that Disney’s, again, it’d be a disaster. So I don’t know how his name gets I on a list like that, but obviously please Disney Board do not make that mistake.


And the problem is, you know, again, and Jeff Immelt did it and unfortunately Jamie Dimon does it, these guys hang around the hoop too long. They have a bad habit of sort of wanting to get rid of any executive who potentially threatens them either, you know, potentially as a successor or just either power play kind of way. And so, you know, the cupboard is kind of bare cupboard is kind of bare at JP Morgan for a successor. The cupboard is kind of bare at GE. Now, again, I’m so glad they chose John Flannery, but to not give him the chance and the runway to do what needed to be done was unconscionable the cover of his bear at Disney. Obviously, you know, Iger chose Chapeck and then he gets rid of him after two years. I mean it’s kind of unconscionable. So it’s really important to develop talent, to nurture talent, to not become an Imperial c e o and think that you are the only one who can do the job to recognize that IER was there for 15 years.


Of course Jock was there for 20 years. Immelt thought he was going to be there for 20 years. He only made it to 17. That’s just too long. Sorry, you’re not there to be the Imperial c e o. You’re there as a steward for a great corporation. That was once in G’s case, the combination of Apple and Microsoft and Google rolled up in one. It was this huge technological leader, it was a financial leader. It was the most respected company of all time at one time. It was the most valuable company of all time at one time. And you know, you are a steward of that, that’s a privilege and you’re not allowed to wreck that. And yet it gets wrecked. Joseph Schumpeter, the Austrian economist, talked about creative destruction and unfortunately it’s truly there even though you can’t see it. You know, obviously Apple has had its ups and downs, but since Steve Jobs came back the second time and Tim Cook who doesn’t nearly get the credit he deserves, he took over a company that was worth 300 billion and now it’s worth two and a half trillion. I would say that that is an incredible value creation job that he has done. But no one can imagine Apple going away at this point, but I suspect it will. Nobody would’ve expected GE to disappear, but it’s disappearing.

Jonathan Boyar (32:34):

Do you think he gets too much credit? I mean listen, you can’t argue with the numbers 12 billion when he started 12 over 650 billion. But if you put the time period, he went over the greatest bull run in US stock market history. I mean he was at 20% a year. I think GE Stock compounded the s and p I think roughly 14%. You know, I don’t know if you’ve read The Outsiders great book, he talks about eight CEOs.

William Cohan (33:06):

Yeah, I have read that book. I know him.

Jonathan Boyar (33:08):

Yeah, <laugh>, who kind of says Welch. And you know, he devotes his introduction, not really criticizing Welch just saying how much credit these other people should get. I mean, do you think part of this was just a media play?

William Cohan (33:22):

Jack had the media beating out the palm of his hand, obviously owned  NBC started CNBC and MSNBC and would go on CNBC all the time. So he owned and started one of the most important financial news networks. So he had the media eating out of his hand cause he was so charismatic. And he also had the Wall Street research analysts eating out of the bottom of his hand largely because as you said, I mean every quarter he met or exceeded expectations, 80 straight quarters. And I would say that pretty much every Wall Street research analyst who covered the company covered it because they were manufacturing or industrial research analysts, not financial services research analyst. So they didn’t understand the risks that were brewing at GE Capital only Jim Grant did is more of a financial journalist than a research analyst, although it could go either way on.


That doesn’t work for an investor bank publishes a newsletter. So the combination of having the Wall Street research analyst eating out of the palm, his sand and the media eating out of the palm of his sand and then just outperforming every quarter. I mean that’s very potent, obviously. I mean you might have been like the meme stagger of its day, but certainly it’s valuation got out of hand. You know, people say to me all the time, oh my God, geez, valuation, can you believe it? It was 45 PE or 60 PE for an industrial business, you know, in a financial services business. That was like ridiculous alchemy. And yet, you know, look at all the people who value Tesla at ridiculous multiples. What is Tesla for some reason in Tesla, which is a car company has in various times have been worth more than all the top 10 car companies combined.


Now I, I don’t know if it’s still worth as much as the top 10 combined, but something like that, it’s absurd. That’s a company that’s changing the world and we should not question its valuation, but GE, which also was changing the world and was actually generating the profits now obviously in retrospect was overvalued. But you know, I think Jack was the beneficiary of a very long bull market. But you know, it’s always something Jonathan, it’s always something. I mean I listened to David Solomon the other day at the Goldman Investor Conference. You know, we’ve just been through the roughest three year period, the most volatile three year period. You know, who could have predicted? It’s always something. It’s always something. And so sometimes you have the good fortune of living through, you know, a long bull market. But it wasn’t a straight line. It was 1987, which was significantly down year and what’s been the greatest performing sector and one of the greatest performing sectors since the 2008 financial crisis financial services. Because a lot of the competition went away. And so actually it was a mistake in my mind, but obviously I wasn’t the c o for Jeff Alt to get out of GE Capital to sell GE capital because he didn’t like being a sifi. Well the financial services industry, if he stayed in it would’ve saved GE instead of getting out of it and using the proceeds to buy back stock when it was overpriced.

Jonathan Boyar (36:42):

I fully agree with that. And not to defend alt because he really destroyed value, but if you come in at 47 times earnings as the CEO and you know, GE stock fell about 30% in value over his tenure. A lot of that is just multiple compression. So I guess using just the stock price probably wouldn’t have been a fair judge of how he did.

William Cohan (37:09):

I asked Jeff, he came into the job a day before nine 11. His first day in the job was September 10th, 2001. Obviously the world changed dramatically on nine 11. I experienced it myself. Many of us did, especially on Wall Street. And it was a tough time for ge. They made the engines on the jets, they had reinsured some of the buildings on the Work financial center. They lost some employees. They owned NBC, which went without advertising for a period of time. Jeff, why didn’t you reset? Why didn’t you say to the investment community, to the Wall Street research analysts as people suggested that he do by the way reset and say, look, okay, I can write the script. I’ve just succeeded the greatest c e o of all time. This is an incredible company. But you know, as we’re going to see now post nine 11 people were too enthusiastic about the valuation of the company.


I wanna reset you all to what is the new reality here? It’s going to be tougher. The insurance business is tough. The jet engine business is going to be tough. The power business is going to be tough. The financial services business is going to be tough. NBC is going to be tough. Let’s just reset everybody’s expectations around what this company can do. It’s still a great company. We had an unbelievable leader and let’s just reset. So the stock would’ve gone from 40 to maybe 30 or 25. That would’ve been the best thing that would’ve happened to Jeff. But he wouldn’t do it. He didn’t wanna do it. And I kind of understand that too. That’s a very hard thing for a CEO e o to do, especially a new c e o.

Jonathan Boyar (38:48):

And Jack would’ve killed him.

William Cohan (38:49):

Jack might’ve killed him. He threatened to kill him after March of 2008, after Bear Stearns went down the tubes, when he missed the first quarter of 2008, Jack went on CN b c and said, I, I’m going to take out a gun and shoot you on national television if you missed earnings projections again. So you’re right, he might have, but you know, Jack wasn’t the CEO anymore for Jeff’s own wellbeing and the well being of the company and the expectations that he was setting for the company, he really should have done that. Now again, it’s easy to do that in retrospect, that’s the easiest thing in the world, but he should have done it.

Jonathan Boyar (39:28):

Really cognizant of your time and you know, I love the book. I just briefly want to talk about one of your other ventures puck, which I’m a big fan of. It’s an online, I guess, media company, you know, financial news and et cetera. Can you just explain a little about it, why you formed it and tell us that story?

William Cohan (39:50):

Ever since I was a newspaper reporter in Raleigh, North Carolina, as I mentioned, I never understood why publishers viewed journalists as cost centers, as a cost of the business as opposed to content creators and should be rewarded as content creators. The reason he’s able to sell ads and subscriptions is because of what we were writing, but we were treated as a cost to bear. The newspaper would have 60% EBITDA margins and part of that was because he was paying people like me, 13,000 a year. I mean it was absurd. So I always found that quite objectionable, but not that I could do anything about it. And not that it’s changed any, but along comes puck, the idea of Puck. And one of the main ideas behind it is that the journalists or the content creators, everything that I had talked about and thought about in 1982 and 1983 when I was in Raleigh.


So here we are nearly 40 years later and this is coming around and I was at Vanity Fair and it was started by John Kelly, my former colleague from Vanity Fair. And the idea being that I’m going to get the best journalists and writers that I can and I’m going to give them equity in this venture as well as pay them because I recognize that without them we have nothing and we have to build this business around them. And that was sort of everything that I had thought of. And that didn’t happen at Vanity Fair. That doesn’t happen at the New York Times. That doesn’t happen the Washington Post. That doesn’t happen at the New Yorker. The writers, the journalists deserve equity. We deserve to benefit from the value that we are helping to create. So that was very appealing to me and that’s why I decided to leave Vanity Fair after 13 years. Also because I didn’t really recognize the new Vanity Fair anymore after Gradon left.

Jonathan Boyar (41:50):

As part of, you know, at Puck you write a lot about the media business. I mean it’s an area that you obviously know quite well and you write about Zla and Warner Brothers Discovery and you have an interesting theory, which I do share on what’s going to happen in the media landscape or what you think would happen. And that’s NBC Universal, which you know, took go full circle back to your book, somehow combines with Warner Brothers discovery and you know, I’d just love to kind of hear your thoughts on that.

William Cohan (42:21):

I get a lot of heat for this idea or pushback. Look, I think that you have to somehow be able to see Ryan Corners and that’s Z’s job, that’s Brian Roberts job each on its own aspires to be the top competitor in the industry or the best in the industry, right? Let’s stipulate for all the problems that it’s having, that Disney is at the top of the heap, but there’s also incredibly deep pocketed competitors like Apple with its, you know, apple TV and Amazon with MGM and Prime. And then you know, down at the sort of bottom is, you know, our old friend Paramount Global, which is kind of an afterthought at this point. Even though it has some attractive assets, it’s valuation is sort of disappeared. So in the middle you have Warner Brothers discovery with incredible assets and you have n b NBCUniversal with incredible assets to be at the top tier of the competition.


It’s just inevitable that they’re going to have to combine. Not only are their assets relatively complimentary and I think and be hard at this moment in this regulatory regime, which is being particularly persnickety after years of doing nothing after, you know, hands off. But I think they can’t do anything anyway until the reverse Morris Trust rules are fulfilled, which is two years of being independent. So that would be April of 2024. So sometime in the run up to April, 2024. Cuz you know, these deals take a long time to close. It seems inevitable to me that Warner Brothers Discovery and N NBC Universe are going to have to get together, create some sort of joint venture, a combination where I think Brian Roberts kind of needs to have 51% ownership. So he gets 51% with Z running it as the c E O and then they become an extremely formidable competitor to Apple, Amazon, and Disney.

Jonathan Boyar (44:20):

In some ways, they become Disney in that they have theme parks, a network, and great cable assets.

William Cohan (44:28):

That’s right. They might be better than Disney. They don’t have a cruise ship, I don’t think so. Don’t have to have that headache.

Jonathan Boyar (44:35):

Well, if the NBA commissioner becomes CEO of Disney, they will be better

William Cohan (44:41):

If they make a mistake and choose my fellow dookie, Adam Silver as the NBA commissioner. That will be a big mistake. And the combination of N NBCUniversal and Warner Brothers discovery will be number one. Now, you know, it’s interesting. Both Warner Brothers discovery and Disney have about the same amount of debt at this point. Nick Dad, close to 48, 50 billion. It looks a lot better on Disney than it does on Warner Brothers discovery. And now as you mentioned, Zaz and his team recut their compensation deal so that they’re rewarded for paying down debt. They have done a good job of paying down the debt at the expense of obviously CNN. People gripe quite a bit about what’s going on over there and other people gripe about what’s going on in other parts of the business. But his main job now is to pay down this debt.


They have to get to investment grade. And now the CFO has promised that they will, they’ve got to do that. All bets are off until they do that. The equity is up this year. It was probably oversold last year, but to create more equity value, it’s like a publicly traded LBO at this point. They’ve got to pay down the debt and get the equity value up and then, and that’ll give him the currency to do a deal and all good things will happen at that point. Then he has more leverage with Brian Roberts, who’s obviously going to drive a hard bargain. So I applaud the W B D board for whatever they did to recut the compensation package, whose eyes has plenty of money. So I don’t worry about him, but he’s got to be rewarded for paying down that debt.

Jonathan Boyar (46:14):

One thing with that debt though, and I don’t know if it was Malone, I don’t know if it was a board, I don’t know if it was Zaslav, but they did a fantastic job in that. Most of that debt is fixed rate. Most of that debt is due past 2040. So least he has the benefit of time,

William Cohan (46:29):

Right? But don’t forget when the deal was done, the deal was done when the Fed was making money free. You know, on the other hand, you know at and t, the price of admission was taking, you know, whatever, 50 plus billion of debt, forget whether it’s fixed rate or floating, right? It’s still 50 billion of debt, you still have to pay it back. It’s a shit load of debt on a company that wasn’t generating that much ebitda and who knows what the EBITDA is. Cause they’re now going proforma adjusted EBITDA.

Jonathan Boyar (46:58):

There’s a lot of jargon,

William Cohan (47:00):

Please stop with the proforma adjusted. Just what is the real EBITDA number? Stop. Because that’s what creditors really need to know. That’s what the rating agencies really need to know. That’s how you’re going to establish credibility in the credit markets, and that’s what it’s all about right now.

Jonathan Boyar (47:17):

Well, bill, I really want to thank you for your time. I love talking about your book Power Failure, which I highly recommend people check out. And I’d also recommend people take a look. If you’re interested in media finance, take a look at Puck. You know, it’s a site I personally subscribe to. I get a lot of really valuable information there. And just thanks for appearing on the world according to Boyar.

William Cohan (47:41):

Thank you hiring me, Jonathan. It was great.

Jonathan Boyar (47:44):

I hope you enjoyed the show. To be sure you never miss another world according to Boyar episode, please follow us on Twitter at Boyar value. Until next time.

Tags: DisneyGeneral ElectricNBC Universal


Never miss another podcast click here to subscribe today!

Available wherever you download podcasts:

About The Boyar Family Of Companies

Boyar Asset Management
We have been managing money since 1983 utilizing our proprietary in-house value-oriented equity strategies. We manage money for high net worth individuals and institutions via separately managed accounts. To find out how we can help you with your money management needs please click here

Boyar Research
Since 1975 we have been producing independent research on intrinsically undervalued companies across the market capitalization spectrum and in a wide variety of industries using a business person’s approach to stock market investing. To find out how we can help you with your research needs please click here

Share to:

Chip Brewer, CEO of Topgolf Callaway Brands discusses how he turned around Callaway’s traditional business and more…

The Interview Discusses: 

  • How he turned around Callaway’s traditional business.
  • How “off course” golf is now larger than “on course” golf.
  • How Topgolf is increasing participation in traditional golf.
  • The economics behind a Topgolf location and why scale matters.
  • Why he does not believe a rising interest rate environment will impact the expansion of TopGolf.
  • How he had the confidence to “bet the company” and purchase Topgolf in 2020 (during the throes of Covid).
  • The significant opportunity they have with Toptracer.
  • His thoughts on the current valuation of Topgolf Callaway Brands.

To request a copy of our report on Topgolf Callaway Brands that appeared in the recently released Boyar’s Forgotten Forty, please click here.

Share it on:  Share on twitter  Share on linkedin  

About Chip Brewer: 

Oliver G. “Chip” Brewer III has served as a Director and the President and Chief Executive Officer of Topgolf Callaway Brands Corp. (“Topgolf Callaway Brands” or the “Company”) since joining the Company in March of 2012. Mr. Brewer oversees all areas of the Company, and under his leadership, Topgolf Callaway Brands has transformed into an unrivaled tech-enabled Modern Golf and active lifestyle company, with a portfolio of global brands including Topgolf, Callaway Golf, TravisMathew, Toptracer, Odyssey, OGIO, Jack Wolfskin, and World Golf Tour (“WGT”).

Mr. Brewer served as Director of Topgolf International, Inc from 2012 until March 2021, when the business merged with Callaway Golf Company, and served on the Board of the National Golf Foundation from 2014 to 2019. He was the President and Chief Executive Officer of Adams Golf from January 2002 to February of 2012.

He is a 1986 graduate of the College of William and Mary, and he received his MBA from Harvard University in 1991.


Click Here to Read the Interview Transcript

 Transcript of the Interview With Chip Brewer:

Jonathan Boyar (00:05):

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 Chip Brewer, CEO O of Topgolf. Callaway Brands. Chip was president and CEO O of Adams Golf from January, 2002 to February, 2012. Chip then joined what was then called Callaway in March of 2012 as a director, president and c e o where he oversees all areas of the company. And under his leadership, Topgolf, Callaway Brands has transformed into a tech enabled modern golf and active lifestyle company with a portfolio of brands including Topgolf, Calloway, top Tracer, Travis Matthews, Jack Wolfs Skin, and much more. Chip, welcome to the show.

Chip Brewer (00:58):

Thank you Jon. Great to be with you.

Jonathan Boyar (01:00):

I’m really excited to have you on the world. According to Boyar, Boyar research has been following Callaway for quite some time now. I think the first time we profiled the company was in 2009 when I had a market cap of about 489 million. Today the company’s Mark Cap is well over 4 billion and it’s a vastly different business. In large part, these are the changes you have implemented. You know, I look forward to today to hear more about the Topco Callaway story and where you see the business going in the future. So you joined in 2012. At the time, the business, meaning the legacy Callaway had gone through, I believe about five CEOs in the decades since the founder Eli Callaway passed away in the early two thousands. Business really was not in good shape. Then why did you think you could turn around the company when so many other people had had failed?

Chip Brewer (01:53):

Good question, Jon and I was obviously hopeful that I could turn around the company, but was I sure. I don’t know if I was sure or not. I had been around the golf business for some time at that point. I had been at Adams Golf for 14 years. I ran that company for 10 years. But Adams Golf was a niche player or at that time the industry had its top tier players, which are candidly still the top tier players. The Calloway Tailor-made Titleist Ping, if you would, which are scaled OEMs. And then it had a really strong second tier of players, Adams, Cleveland, other brands that have since gone away, Tommy Armour or Lamar. But those second tier don’t really exist anymore. It’s kind of consolidated even further. And it was such a great opportunity for me because I, you know, really loved the game of golf, the golf industry, and this my chance in the majors right to step up and see how I could do at a big brand.


And the opportunity was also one that wasn’t doing well. But it’s an incredible brand with great resources. But the first day I walked in, Jon, I was intimidated too. I didn’t wanna show that. But the headquarters out here is big and when you’re running a company, we had more people in r and d at Callaway than we had in the entire company that I had run prior to being here. So it was a stretch opportunity for me as well. And, but I was foolish enough to believe that maybe I could add a little value and we’ve had a nice run.

Jonathan Boyar (03:43):

That’s an understatement and that’s a nice run. What skills did you really learn at Adams golf that you were able to translate into your success at Callaway?

Chip Brewer (03:54):

Well, by the time I got here, so I knew a lot about the golf industry. I grew up around the game, so I grew up like a lot of other avid golfers. I grew up caddying in the Northeast. I worked in a golf shop, I played high school golf, college golf. So I have a family that is very involved around the game. My dad was a great player, still a good player. So knew golf as a traditional golfer and had a passion for it. But Adams golf makes you scrappy, it makes you learn. I was there 14 years by the time I got here, I kind of knew the industry and I was very hands on the equipment side. So coming here with the strength of the brand and the r d resources, it was a neat opportunity and we were able to kind of bring the company back to some of the basics that Eli used to do and focusing on outstanding golf equipment. That is what we call D S P D. And I’ll unpack that for you in a little bit.

Jonathan Boyar (05:06):

It’s interesting, you mentioned your dad was a fantastic player. You played college golf, the prior permanent c e O of Callaway golf, a guy named George Fellows. I think one of the things you probably don’t remember, but you, you were in our office 2013 2014 and you mentioned that he was a tennis player, not a golfer. Obviously you don’t need to be a golfer to run Callaway Golf, but how much do you think that’s,

Chip Brewer (05:33):

You’d say that Jon, but it’s interesting cuz in theory you don’t need to be an avid golfer to run a golf equipment company, right? It should be doable that you could just bring in a great business person and they can successfully run a golf equipment company. But then when you actually look at the tape and look at the track record, it is a perfect record. It never works. So every successful, in my mind, successful c e o of OEMs that in the modern era, they have all been cut of a similar cloth in that they have a background somewhat similar to what I just talked about, Eli Calloway, even the modern era, while you align at Titleist who clearly did an incredible job, Mark King at TaylorMade, even current Dave Mar Titleist, we all have to have a, seems like even though I get why it doesn’t, in theory you should be able to rely on other people’s expertise for understanding the consumer and understanding the nuances of the product. But in practice it seems to work and it only seems to work when you have somebody that really has firsthand understanding of those things. And it could be, there’s so many nuanced decisions that go into a successful c e o of an equipment company, whether it’s tour sponsorships or product decisions or how the marketing’s positioned, et cetera, where you just bring in a classically trained marketer or classically trained c e o. Candidly, it doesn’t generally work.

Jonathan Boyar (07:27):

That makes a lot of sense except for one part of the equation because you are shifting or you’ve shifted to something called modern golf, which is something I I love to talk about and I would think was someone who is a golf purist or who grew up in the game might not really like that transformation. So you have to also keep somewhat of an open mind too.

Chip Brewer (07:50):

Yeah, that’s right. But first foremost, when I got here in 2012, we needed to restore Callaway to being the number one golf equipment company in the world and turn around our core business. So job one was that and once we were successful at that and then you know, you start looking at what can be next and how do we grow from here. But until you get that job one done, it is all about that job one, we’ve been fortunate in that we’ve had the opportunity to do more than just that job one here. But you know, we don’t wanna underestimate that importance and it’s still that way, right? It’s like we’re gonna talk a lot about all the growth initiatives and how much we transform this business. And we probably won’t talk about the Paradigm Golf Clubs, but the Paradigm Golf Clubs are freaking awesome and they are again, the expression D S P. So they are pleasingly different, demonstrably superior. And making sure that we continue to do all of that is that’s critical. We can’t get lost in our new initiatives and not remain competitive on the golf equipment side. Why we have these fancy new growth areas that we really do have in spades here.

Jonathan Boyar (09:24):

Yeah, I mean the r and d that goes into some of those clubs you just mentioned are, are unbelievable. I think what you spent 60 million a year on r and d or so, is that right?

Chip Brewer (09:36):

We spend a lot of more than that now. So Jon, we spend quite a bit across all the different business units, but even in the core business it’s a significant and important investment and it helps differentiate us.

Jonathan Boyar (09:49):

Yeah, I mean you have people work for Nasaa who are designing clubs.

Chip Brewer (09:53):

It’s crazy and it’s exciting and it’s fun and we literally have rocket scientists and the software engineers now because of the AI significance and a lot of really smart, highly motivated people working on golf equipment. But then at the same time we’re selling nachos and entertaining you as you’re going to halts in Long Island. And it’s kind of cool because golf is so much bigger, broader, higher growth, the energy around the modern game and the sport and our position in it, which is very unique and hopefully leading.

Jonathan Boyar (10:33):

So you, you recently changed the stock symbol from E L Y, which is your founder to M O D G short for Modern golf and you change the name of the company to top golf Callaway Brands. For those of you who don’t know, can you just define what modern golf is?

Chip Brewer (10:52):

Yeah, so modern golf is the combination of off course and on course golf. Golf was only, you know, around at golf courses and green grass ranges forever, right? And it was a very small, very exclusive, unfortunately limited business and sport. And the National Golf Foundation put out some stats on this recently where golf course golf is now larger than Enco golf. And so how the world is going to experience golf, it may be like I did, I grew up around the game in traditional golf and I caddied and I played on a golf course and everything that goes with that. But I think well already more people are gonna experience golf at a top golf than are gonna experience golf on a traditional golf course. And that change is gonna accelerate and it’s exciting as heck and it democratizes the game. It brings in new energy, structured growth, younger demographics, more diverse demographics, it will feed traditional golf. I mean top golf’s the greatest thing that’s happened to golf since Tiger Woods. It’s just transforming the game. And there are other avenues around the game that are helping on this, but top golfs by far and away the biggest factor in there. So modern golf is a new interpretation, which is the only reasonable interpretation of golf that includes both traditional golf and golf course entertainment, golf concepts.

Jonathan Boyar (12:35):

So I mean you mentioned top golf and just briefly what for those of you who don’t know, and I imagine there are a lot less who don’t know about this now obviously it’s growing rapidly. What is top golf?

Chip Brewer (12:48):

Top golf is a golf entertainment venue concept that takes a driving range and crosses it with a nightclub and high energy entertainment complex that is a total engaging, totally inviting, fun, easy place to go, have fun with friends and sometimes practice golf but not really. It’s more social, more entertainment. And it just changes the approach to golf because it’s totally fun. It’s in big pie density locations usually. So it’s not remote locations and different parts of the day it has a whole different vibe in the afternoons or the evenings and the weekends, it’s date night, it’s also birthday parties and corporate events. But really appeals to everybody, golfers and non-golfers. You literally talk to people now and they’ll, you’ll ask ’em, do you play golf? And they’ll go, no, but I top golf, it’s like a verb. And the tam for golf, so like golf equipment oem, when I put that hat on, I’m really looking at about 8 million people that I’m targeting annually. So there’s about 8 million that spend an adequate amount on golf to drive golf equipment revenues. The TAM or who we would look at for targeting for top golf is everybody. And so it just changes the dynamic of the sport as we build these out and make this national and international concept more available because you know, it seems to resonate so highly with people.

Jonathan Boyar (14:40):

Can you just break it down, if you wanted to build a top golf three years from now, I think that’s the lead time or so to, to build.

Chip Brewer (14:47):

Yeah, so it’s, it’s a lead time on a top. Golf can be anything from 10 years. Cause if you’re working with the municipalities and we’re working with the city of El Segundo on on that site, which is the one near lax, a big one that converted a municipal golf course that was losing money and not successful into a top golf along with a 10 hole part three course. That was a 10 year project. We’re working with the port authority here in San Diego. That will be a long tail project. So these things can take some time to work out if it’s totally an easy project, it’s still three years from start to opening day to get a top golf from concept permitting, construction opening. They are fairly capital intensive. They can be anywhere from ballpark 20 million to 55 million to build. We use reap financing to finance 75% of that.


And there’s a fair amount of proprietary knowledge, some proprietary technology and you know, at some point during the podcast we’ll talk about how we got comfortable doing the deal, right? So they’re not easy to do quite frankly. And there’s a operating acumen that goes into it as well as a ability to choose those locations and successfully open and negotiate ’em. But when you do ’em right and we know how to do ’em right, they are very attractive return. So 40 to 50% cash on cash return or a levered return of 40 to 50% in in that third to fifth year.

Jonathan Boyar (16:33):

So you have a, in a lot of these, a partner I guess it’s more of like a REIT that helps you with this. How does that relationship

Chip Brewer (16:40):

Work? Well the REIT does the financing for us, so takes some of that capital costs out and that was especially important in the early days when the company was private and you know, we were an investor and then there was private equity and a couple other key investors. But they’ll finance 75% of it at a a reasonable cap rate and it’ll allow us to do more of these on a somewhat more efficient capital structure. But it’s still requires a fair amount of capital going in. So you’re still putting in ballpark seven and a half million per location more than that for the bigger ones.

Jonathan Boyar (17:22):

I mean with, with a 40 to 50% cash on cash return, you still have a lot of margin for error. But you know, with interest rates rising, does that worry you with future returns and future expansion opportunities?

Chip Brewer (17:36):

Not really Jon, because here to four, so at this point we haven’t had to raise our cap rates to the, so we’ve with top golf, top golf has become more proven, more credit worthy, et cetera. That’s probably offset some of the rate pressure that otherwise would’ve been there. But even if rates continue to move up a, there’s enough margin in these things that we would be able to absorb that. But B in more importantly is that we’ve been able to outperform our stated profitability goals for these things. So we’re getting better at this. We’re not only creating structural growth but we’re also improving the profitability of ’em. So yes, lower cost money would be better <laugh> but of the things that keep me up at night, that’s not it. As long as we continue to move on the past, we’re moving with these venues, we’re in pretty good shape and we’re wildly excited about it.

Jonathan Boyar (18:43):

So internationally you’re going with partner franchise partners. How come in the US because you have a lot of green space, I mean I think you said you have 200 or 250.

Chip Brewer (18:55):

That’s right. We think we can do 250 of ’em in the US

Jonathan Boyar (18:58):

So you can get there a lot faster if you franchise them, sometimes slows better. But if you can find the right franchisee who knows what they’re doing, we Is that something you would consider

Chip Brewer (19:09):

Here to four? So we never say never on many things Jon, right? Unless it’s something to do with ethics and integrity where there’s very few nevers. But at the moment we like in the US and the UK and we haven’t determined what we’re gonna do in Canada yet, but we like owning them and one of the reasons for that is we get to control the culture and the experience so strongly. And so if you look at some of these people that have worked for franchised operations and then move back and forth, you hear that theme a lot. And so your experience, I think it was before we hit record here, when you were talking about going to Holtz and you talked about how good the people are, the people we call ’em Playmakers at top golf, an incredible difference maker and how we recruit, train, being able to run national campaigns across things, advertising programs.


We just signed a national partnership with Honda. There’s a lot of merit to doing that the way we’re doing it in the UK and in the us which we also have a hundred percent good. Great knowledge and expertise when you go into the Middle East China, I’m looking at you, you’re giggling, right? Yeah. Obviously leveraging some other people’s expertise, local connections, knowledge and financial resources in those markets with options to purchase equity in the future. Negotiated in the to the deal, but options not obligations. That’s a really good balance and And we’re very happy with that.

Jonathan Boyar (21:04):

Yeah. And they’re trying to get a land approval in Abu Dhabi or wherever is probably difficult.

Chip Brewer (21:10):

You generally end up partnering with a Yeah, somebody that has that knowledge, connection, expertise and you know we have the Dubai site and our partner is very well connected there and does a great job and we got an amazing site going. So the strategy that they employed and we’ve continued on, that makes a ton of sense and we’re excited about it.

Jonathan Boyar (21:35):

So what’s the competitive advantage? You obviously have the Playmakers as a top golf, it costs a lot of money and you have the technical know-how. Is there anything else?

Chip Brewer (21:46):

A lot of it Jon, and this is one of the things that I, you know, I spent 10 years on the board of Topgolf prior to us merging with him. So when I got to Callaway we had a minority investment in that business already. Topgolf and I spent 10 years as a board member there gambling, watching him grow, watching him learn, watching him make mistakes, gaining a lot of insight and knowledge. It’s a great business if you do it right and it’s a very difficult business if you don’t do it right. And we’ve already had competitors come into the space and build a few venues and say no moss, this is not for us. We’re moving to a a different concept and I watched that at Topgolf, some of the early venues and operations. You get a few wrong, it’s really tough. Even at Topgolf they didn’t make much money through 2019. So you need a bunch of venues, you gotta be really good at operating ’em, you better have a world class real estate development team and building out the venues. This is a business that does really well at scale, not so great until you have that scale. And there are some other barriers to entry, right? Where it’s like once you put one in, putting one next to that one is probably not the easiest or smartest thing ever for somebody to do. So good structural business from that perspective,

Jonathan Boyar (23:23):

What’s the biggest barrier of entry to creating one of those? So we mentioned earlier I went to the Postville location, it’s exit 62 up Long Island Expressway. So people who are not familiar with the area, it’s a decent drive from New York City. Is it because land’s so expensive that you can’t have it in more community locations for metropolitan areas? Or is it, what’s the strategy behind that?

Chip Brewer (23:47):

Yeah, it really is use of land, right? They do well in high traffic, high density areas and Ville is in itself a high density, right? But it is probably too far out to pull a lot of traffic outta Manhattan. But it’s got high density, high net worth, high protractive demographic market in and of itself out in Ville. And you know, the barrier to entry of doing these is the expertise and then if you just do one, it doesn’t really add up to anything. You’ve gotta do multiples of them to scale it up. You can’t have a real estate team. I mean they have a world-class real estate team and operations team that you have to be able to share across. Right now we have 82 owned and operated venues. So we’re last year to a little over 1.5 billion. So when you have that level of scale, you have the resources to support all these things appropriately. You just open one venue and you think you’re gonna have the expertise to identify, develop and run ’em. You might, but good luck. It’s could be a lot of work.

Jonathan Boyar (25:08):

So you said you know you can get about 200 in the US you’re around 80, 82 now, but is there a diminishing return? Is the hundred 80th site you think gonna be as popular and profitable as the ones you’re building now or are you hitting the kind of low hanging fruit in terms of good geographic areas?

Chip Brewer (25:28):

We think that we’re gonna be able to do two 50 in the us will there be some diminishing return maybe, but it’s pretty far out and we’re also improving the economics of the model as we go along. You know, when we did the top golf transaction, we talk about the profitability of the individual venues as EBITDA margin. So EBITDA margins were in the 29% range. We thought well let’s see if we can get, you know, we put a goal out there getting to 32%. Now we’ve exceeded 32% and we’re not putting another number out there yet, but we believe we’ll be north of that going forward. So as you’re improving the economics of the model and I talked about on the last earnings call these new ones like in Boise and Wichita that we opened that are a new more cost effective model for these mid-size markets. We’re pretty confident on the economics of this and the growth path.

Jonathan Boyar (26:28):

So before, you know, we alluded to the top golf deal that you did and in retrospect to use a different sports metaphor, it’s been a grand slam. I mean it’s been a fantastic use of capital. However the deal is announced in October of 2020, which seems like ages ago when it’s really not. That was before we knew the good news on the vaccine front. So you took a big gamble,

Chip Brewer (26:55):

It was a little bit of a bet the company and it certainly bet my career and reputation play so,

Jonathan Boyar (27:03):

So what gave you that confidence? I mean those are the exact words. What I was gonna say was that the company type of deal, like and if you read the outsiders or other business books, you know CEOs do that, you know maybe you’ll be in the next edition <laugh>. Like what gave you that confidence?

Chip Brewer (27:20):

Well being on the board, be honest with you Jon. So I didn’t approach this lightly and I didn’t approach it without a candid, I had insider perspective. So we had talked about, oh at the Callaway board strategically was there a way for us to acquire or merge with top golf? We had talked about it numerous times through the years and we couldn’t ever get that done because top golf was so proud of its valuation that it thought it was going to be much more valuable than Callaway Golf. So even at that stage when it had almost no profits, so it just wasn’t a deal that could get done at that time. Covid hit and they were ready to go public. So they were gonna go public in mid 2020 but Covid comes in March, the world shuts down and they weren’t adequately capitalized at that stage.


So they needed a plan and that dynamic in that environment created an opportunity At the same time I had been on that board for 10 years. There’s two things or three things that I thought I knew that I could bet on. One was the consumer loved top golf for 10 years. We never had a consumer issue. We had plenty issues, <laugh> issues longer than I can bore you with longer than my arm, right? A list of issues. But the consumer loved it, they loved it in different economic climate. Let’s see, was always as stupid as it sounds, the biggest complaint was the weight was too long, right? And so, okay, that’s a good problem. I like that as my starting point. The second thing that I was highly confident on was the real estate team. They identified and opened venues and I guess that second and third so the real estate team could identify these sites and they were world class, still are, they just do a phenomenal job.


It’s a unique skill. I watched it develop from mom and pop approaches, which candidly that’s risky capital when you’re doing it that way to world-class team. And then our ability to open these venues. So cuz it’s such a capital intensive thing, right? You gotta feel good that you’re gonna be a, if you’re deploying that much capital, you’re gotta have a high certainty that it’s gonna have that return that you’re putting on your Excel spreadsheet. And I felt good about those points and that’s what gave me the confidence to propose it to the board and the board. It wasn’t from left field, although the timing was unique. A funny story on that Jon so literally worked on it all summer, I mean it was consuming and was fortunate cuz the golf equipment business was doing great by then after a near death experience. Quite frankly, just like everybody else, when analysts are asking me, well how long can you last with zero revenues?


And I’m like, how the hell do I know how long I can last with zero revenue? So I’m guessing not long, didn’t model that one. So we get through the zero revenue conversation at the same time we’re negotiating to buy top golf, which sounds insane, but that’s the way it works. Get the deal announced and so it’s sometime in late fall and it’s literally the weekend that I wanna, we’re gonna announce it on Monday. One of the variants of Covid starts spiking again and I know the stock is going to get destroyed if I announce this deal into this and I’m like literally calling up advisors and board members, I’m like do we do it? Do we don’t? And we do it, the stock does get destroyed. It goes from like $20 or $21 to 15 the week or two after, right? Because my existing shareholder base gets scared, which I get it. And then it recovers wildly goes way back up. And then since then has had its mandering path but it wasn’t as smooth sailing as it always looks in the background. But it was something we had confidence of and the reason we have confidence is cause I, I had 10 years of experience watching this thing develop.

Jonathan Boyar (31:56):

So part of what you bought bought is somebody called Top Tracer with the top acquisition. For those that don’t know, can you just briefly explain what what that is?

Chip Brewer (32:05):

Yeah, top Tracer is the leading range tracking technology but it’s also on, you’ll see it on TV quite a bit too. So if you watch PJ tour events or the majors, you’ll see these lines draw on the track the golf ball during flight and it’ll tell you the ball speed, the launch angle and where the ball ended up, et cetera. And so the cool part about that is it converts driving arranges and makes ’em a modern tech enabled location. So you would go to a driving range and be able to use Top Tracer to either play different types of entertainment games or a more improved practice experience. So literally I could be going to a driving range and hitting shots and practicing my game and getting better data on that and doing what’s called a combine. And then my niece or nephew could be next to me knocking down a virtual castle.


And when you put it in driving ranges, if it’s a driving range that charges for the buckets of balls or time the revenues go up 25 to 40%. So wildly changes what driving ranges are all about and we use it at all the venues we’ll have it in all the venues by the end of this year is the leader in this space. I’ll tell you I think that driving ranges will move to it almost a hundred percent in the future because it’s such a better experience and you know it’s transforming that it’s a great synergy with Callaway because we get all the data and the ability to have that interaction and with the golf consumer. So if you’re practicing and you know, I’ll know that you were practicing and how you were hitting your six iron and I’ll be able to hopefully help you become a better player and have more fun doing.

Jonathan Boyar (34:10):

And is it a big CapEx for the driving range?

Chip Brewer (34:13):

No, this one’s pretty small. So the venue business is a pretty capital intensive business. Literally the driving range signs a five year agreement with us. All they’d have to do is get power and data to the driving range and we’ll take it from there and then they sign a agreement with us and pay us either per day or something along like that for over a five year period of time.

Jonathan Boyar (34:38):

So there’s no real upfront cost. So it’s a no brainer for them.

Chip Brewer (34:42):

Minimal upfront cost a hundred percent.

Jonathan Boyar (34:45):

And I think you said that you have about 3% of the 610,000 bays out there are have top tracers

Chip Brewer (34:56):

Very early days, particularly in the green grass, particularly in the US as you would expect in Asia it’s going pretty quickly cuz they have a lot of covered driving ranges there. So we’ll convert that market really quickly. And in the US there’s not as many other than top golf, right? A good for a covered bay driving range doesn’t really exist that often. So you really gotta go after what we call green grass driving ranges, which doesn’t mean it’s actual grass but it just a driving range whether you’re hitting off mats or not. That is one layer, one level if you would and not always most modern or engaging concept, but we’re gonna make ’em better.

Jonathan Boyar (35:42):

Is the competitive advantage there, the Callaway sales staff who’s already selling into the range or

Chip Brewer (35:49):

Yeah, our competitive advantage in this space is that our installed base, the quality of the games, the network if you would across it so that you, we can leverage the same reach to consumers and tournaments and programs across, you know, by the end of the year it’ll be I think 30,000 bays that will have installed. So you’ll be playing competitions and be able to play the St. Andrews challenge against your friends and you need a big installed network to make that fun. And then you know, our reach, because of our reach across modern golf, we know all these range owners and green grass locations and we can do some fun things with that.

Jonathan Boyar (36:35):

So something that I guess it premieres in two days, something called Netflix full swing, you know it’s being released in a few days. It seemed like a similar type of docuseries that they had for Formula One. Is this anything that, do you see the same thing happening that happened with Formula One to golf or is that just wishful thinking?

Chip Brewer (36:59):

I don’t know. I think golf probably more. Formula One in the US was pretty nichey prior to the big growth spurt and the Netflix documentary, which obviously had a an amazing impact on that sport and the awareness and participation. So we’re not starting in a similar spot, but there’s a lot of excitement about this Netflix full swing and Jon, there’s just a ton of really cool things going on in and around modern golf right now. I mean from the tours to top golf to other golf entertainment concepts and Five Iron and golfs on and the Netflix documentary, they’re now, it’s this new concept called Tomorrow or T G L, which is a Monday night competition that they’re gonna try to launch in 2024. There’s just a lot of energy, a lot of money, a lot of momentum around the game at a time where if you accept my definition of golf as golf is modern golf, it’s the combination of on and off course golf, which there’s no question whether it’s going to grow. There’s so much energy and money being invested in and around it. New venues, our venues alone at Topgolf will add three to 4 million unique new modern golfers every year just on the venue installations alone. So okay, that’s essentially 10% growth for the entire modern golf ecosystem just on the venues.

Jonathan Boyar (38:57):

So by building these, I think the stats are 50% of the people who go to a top golf of, or not golfers, but 75% of them have a interest in playing golf after, is that correct?

Chip Brewer (39:13):

That’s correct. Although over time what you’re gonna see is even a smaller percentage of them are gonna be traditional golfers because as we build out the, so it’s already a little bit is it only makes sense, right? There’s only 25 million traditional golfers, there’s 28 rounding golf course golfers en course traditional golf grew last year by 500,000 golf course golf grew by 3.1 million and we’re gonna add 11 venues a year. 11 venues a year is gonna add three to 4 million more uniques, other people are doing more and then that’s gonna have a positive impact on the traditional game of golf because some portion of those, no matter how you research it, it always comes back that experience a top golf increases your interest and desire to learn traditional golf. And we’ve got some interesting stats, you know, on that. But there’s been just multiple surveys and they all come back with that. It’s just in a really great spot right now and the Netflix thing can only only help. I hope it has the same impact that it did on Formula One, but it’s gonna have some positive impact and it’s gonna build on these other things that are going on. Which candidly the biggest thing going on, you know, other than is the venue growth. We’re driving same venue sales growth and venue growth. We’re putting more golf clubs in people’s hands and they’re having a great time with it.

Jonathan Boyar (41:00):

So I just wanna just briefly touch on, on valuation, you know, one thing that has weighed on the stock is that investors believe golf is gonna be a pandemic fad besides people being able to work from home more often. What makes you think and also besides the funnel from from top golf that this is just not another pandemic fad because when you joined the company in 2012, they were talking about the death of golf.

Chip Brewer (41:29):

Yeah, golf’s been pretty low growth over, you know, an extended period of time it had that one, you know, nice run but then it’s been, we’ll call it stable Jon, but you know, your question’s a little leading cuz it’s sort of like asking Mrs Lincoln, you know, besides that, how was the play, right? <Laugh>, so top golf does exist, so it is one of the factors I, you know, you can’t factor that out. I do think that is one of the reasons like why did golf grow last year if the covid pandemic was going to recess and obviously it could have, I didn’t know, now you have to be arguing that it is gonna recess, but it didn’t recess last year so there was no reversion. What we have here is a delayed reversion and maybe, but not only did it not have a reversion last year we grew on traditional golf, 500,000 participants.


So it’s sort of running in the face of facts, the game of golf, the sport of golf has a lot of energy momentum and work environment, you know, hybrid work, remote work is clearly very good for it. The growth of top golf there didn’t ever exist, something like that. There wasn’t this 3 million new participants coming at the game the previously, so they’re fundamentally different situations and I understand why people would be concerned about a reversion, but most things that have reverted have already done that. The fear of a top secret delayed reversion is, is still, I don’t know how you would make that argument either, I guess.

Jonathan Boyar (43:31):

I guess it would have to be a deep recession coupled with work from home being much less profit.

Chip Brewer (43:38):

That’s right. And you still would have the top golf impact and all the other money coming in and and energy around the game to counter that. And golf has not been particularly sensitive traditional golf to a recession in the past other than the great recession in 2009, which it did go down low double digits. So the 10, 14% decline in golf equipment sales that year. But that was literally financial meltdown bigger than anything. It wasn’t a real, it was something extraordinary and other mild recessions were not that sensitive to it. I can’t answer the question as it relates to top golf, but you can see that Topgolf is the same venue. Sales have been ramping up, not down.

Jonathan Boyar (44:32):

Yeah, I mean I had a great time at Top Golf, but certainly wasn’t cheap by any stretch, but I had a great time. If we have a bad economic period, you know, are people gonna pay a couple hundred dollars to go to that? I, I don’t know if you looked into any research on that or just, you won’t know until you do it.

Chip Brewer (44:51):

No, we’ll know it if we see it Jon. We’ll obviously look for it, but I can tell you this, you know, you can look at our, we announced our same trend sales quarterly, I’m assuming the economy didn’t strengthen over the last year and our same venue sales are increasing during that period of time. I’m not here saying that’s not guidance. I’m not saying we’re gonna constantly grow or increase at an increasing rate, but we, there’s just no sign of it. So we’ve got a strong consumer, it’s engaged, it’s clearly on trend and that it doesn’t seem like a reasonable huge risk to us right now.

Jonathan Boyar (45:31):

Right now you’re trading at about, you know, we look at everything e v to EBIDA for the most part about nine times 20, 23 estimates below golf industry transactions. You’re really not getting any credit for the fast growing top golf top tracer business. What gives you the confidence that the street’s gonna eventually properly value you?

Chip Brewer (45:56):

Good question Jon. You know, that is a source of bewilderment at times. We went through a period right after we did the transaction where the stock went down, then it raced up and it went up to $37 a share at its peak and would’ve been some multiple in the high twenties of ebitda. And when people started worrying about a reversion and growth became a little more out of style, you know, we’ve traded down and you know, we do think we’re undervalued right now. I guess the faith is that if we continue to demonstrate that we’re gonna be able to continue to deliver profitable growth and we’re also at a point, you know, where we’re transitioning very quickly from, we’re not one of those businesses, were all of the cash flow is way out in the future. That’s the stuff that I understand. Some of the T we’re transitioning to positive cash flow this year. So we’re optimistic that as we can, if we can continue to perform at this level and generate strong growth and increasing profitability, the markets are usually pretty rational on that over time. They’re not always rational in the short periods and that creates opportunities for people. But profitable growth, cash flow, Jon doesn’t usually go outta style. So we’re gonna try to deliver on that.

Jonathan Boyar (47:27):

And you’re putting your money where your math is, you bought stock in the open market twice in the past year as well as the cfo. You know, how come the company’s not being as aggressive as as you are? Obviously you can make your own decisions for your own self personally, but is there any anything to read into that? Because

Chip Brewer (47:46):

We’re our capital? So we basically, it’s a simple playbook, Jon, when we did this deal with Topgolf, right, we committed our resources. We’re putting in hundreds of millions of dollars a year of incremental capital into building venues. So essentially our free cash flow became committed and it’s committed to building venues. The venues generate a 40 to 50% cash on cash return, the same venue sales growth has continued to scale, the venues are continuing to be more profitable. So we feel great about that allocation of capital. But we’re fully committed on that. And you know, we also want to maintain a leverage ratio as close to three or lower as we can. We’re a little over that right now. Buying back stock is essentially a capital allocation decision and I made my personal capital allocation decision. I don’t have the opportunity that the company has on building these venues, but we’re very excited about how we’re deploying that capital.

Jonathan Boyar (49:01):

If the street remains irrational and doesn’t give you the valuation that I think and assuming you think you deserve, would you ever consider spinning out a portion of top golf to help highlight the value of it?

Chip Brewer (49:18):

Well, we consider all things so you know, obviously Jon, we’re, you know, shareholder value is the first on a list of all important metrics that we’re focused on. So we’re sophisticated on that and are constantly evaluating different approaches to that. But I don’t really want to get into speculating on what different avenues might be on that. We’re gonna continue to execute. We think we’ve got a unique asset here in top golf Callaway brands. It’s, we’ve got structural growth, improving profitability. We’re gonna make that transition to free cash flow generation this year. We’re creating a leadership position and really a unique competitive advantage in what is a very attractive space right now. So we’re gonna focus on that for the moment.

Jonathan Boyar (50:14):

No, I think that sounds like a, a good plan and I, you know, I have to thank you Chip. This has been unbelievable hearing about your story, the top golf story, future of golf. You know, it’s one thing, reading about it is another thing, talking to you about it and going to the venues and, and seeing how exciting it is. And I just want to thank you for hearing on the world according to Boyar. Yeah, it’s great to be on Jon. Thanks for your time and thanks

Speaker 3 (50:42):

For including us. 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.


Never miss another podcast click here to subscribe today!

Available wherever you download podcasts:

About The Boyar Family Of Companies

Boyar Asset Management
We have been managing money since 1983 utilizing our proprietary in-house value-oriented equity strategies. We manage money for high net worth individuals and institutions via separately managed accounts. To find out how we can help you with your money management needs please click here

Boyar Research
Since 1975 we have been producing independent research on intrinsically undervalued companies across the market capitalization spectrum and in a wide variety of industries using a business person’s approach to stock market investing. To find out how we can help you with your research needs please click here

Share to:

Tom Gayner, Co-CEO of Markel discusses the evolution of Markel into a Fortune 500 company, the secret to success in the investment business and much more…


The Interview Discusses: 

  • The secret to success in the investment business.
  • His investment thesis on both Home Depot & Diageo.
  • Why investing through the covid crisis was harder than investing through the financial crisis.
  • How covid has impacted Markel’s insurance operations.
  • His thoughts on Berkshire Hathaway investing in Markel.
  • His observations of Warren Buffett as a fellow board member at The Washington Post.
  • How Markel decides whether to invest in private companies through Markel Ventures or in public securities.
  • Why he thinks it is possible for Markel Ventures to one day be larger than Markel’s equity portfolio.
  • Why most investors who tried to use insurance operations as funding mechanisms have failed.
  • How he decides to add to existing equity positions.
  • The advantages of having low turnover in his equity portfolio that most investors do not appreciate.
  • His thoughts on when it is appropriate to use leverage.
  • Markel’s capital allocation priorities.
  • His thoughts on the cable industry.

Share it on:  Share on twitter  Share on linkedin  

For more information on the 2023 Markel Shareholders Meeting, please visit

About Tom Gayner:

Thomas “Tom” Gayner is Co-Chief Executive Officer of Markel Corporation, a diverse financial holding company including insurance, reinsurance, and investment operations around the world. Markel is listed on the Fortune 500 and is headquartered in Richmond, Virginia, with 61 offices in 16 countries. Tom joined Markel in 1990 and oversees all investing activities. He is also responsible for Markel Ventures, a wholly owned subsidiary which acquires controlling interests in manufacturing, technology, and service companies. Prior to Markel, Tom served as Vice President of Davenport & Company LLC of Virginia and as a certified public accountant with PricewaterhouseCoopers LLP. Tom serves as the Chairman of the Board of the Davis Series Mutual Funds and on the boards of the Graham Holdings, Cable One, and Markel. He is a member of the Investment Advisory Committee of the Virginia Retirement System. Tom is a graduate of the University of Virginia and The Lawrenceville School.

For any questions or to ask a copy of the Markel report, please email us at


Download Special Sample Reports

After you’ve done so, we encourage you to check out our special preorder bonus offer and gain immediate access to our October and November 2022 subscriber research reports before we present you with this December’s Forgotten Forty.

Click Here to Read the Interview Transcript

Transcript of the Interview With Tom Gayner:

[00:00:00] [music

[00:00:05] Jonathan Boyea: 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 Boyer.

Today’s special guest is Tom Gayner, co-CEO and soon-to-be sole CEO of Markel, a Fortune 500 financial holding company with a market capitalization of about $18 billion with offices in over 16 countries. Tom also serves on the board of directors of Markel, as well as Cable ONE. He’s also chairman of the board of the Davis Series of Mutual Funds. Tom, welcome to the show.

[00:00:43] Tom Gayner: Thanks so much for having me. Good to be here.

[00:00:45] Jonathan: I’m really excited to have you on The World According to Boyar. I’ve been following Markel for years and I’ve always admired your business and what you’re trying to build. Boyar Research formally started covering Markel late this summer when shares were trading around $1,200 and our team published an extensive report where we made a case of why we believe it is worth over $2,200 per share.

Markel is really well known in the value investing community and some people have dubbed Markel to be a baby Berkshire. For those at home, less familiar with Markel, do you mind giving us a brief overview of your firm?

[00:01:18] Tom: Certainly. Markel’s first off, a fun place to be. We appreciate you guys checking in on us and following us and I enjoyed the work that you did and the report that you wrote.

We got our start back in 1930 in Norfolk, Virginia when a fellow named Sam Markel, who started the business, started out by providing insurance for the jitney industry, as was called, you’ll might think of it as the Uber of its day. In the early days of the automobile, there were veterans and people who had a car that were offering a nikel a ride sort of thing. They were known as jitneys.

It was a new industry. There was not actuarial data. That was not insurance as you might suspect. Accidents happened and people were looking around for who’s going to be responsible for that. Sam Markel was a member of the Norfolk City Council. He was also in the insurance industry. He very entrepreneurially said he’ll start a company to provide insurance for that.

That’s really where Markel started and it’s our legacy of being a specialty insurance company. We were fortunate in that over the course of the next 30 or 40 years, we had the growth of the automobile, the growth of the interstate highway system, and the long-haul trucking business. All of those were wonderful growth waves that Markel rode for quite some time.

It became a bit more of a commodity and the data became more actuarial. The profitability started to diminish and Markel started to diversify into other things that also coincided somewhat with the generational transfer between Sam Markel and his four sons, they became an agent of Lloyds of London again.

That focus on specialty insurance and things that other people might not do or not a commodity needed some underwriting judgment and artistry. They did that for some period of time. The third generation of Markels came into the business. This would’ve been in the 1970s or so, and they started building out an insurance underwriting operation, moving away from the agency model, really more towards underwriting.

Steve Markel, who was one of the three members of the third generation was the gentleman who led the IPO, helped separate what it meant to be a member of the family versus a member of the management team, brought in outside capital with the IPO, ultimately hired me.

The model was basically what we observed taking place at Berkshire where we had a specialty insurance operation that was willing to take the pennies of underwriting profit that they were making and invest them longer term. That’s where we pleasantly and favorably get that name of Baby Berkshire. Yes, we do indeed follow that model. I joined to be part of that effort of managing the investments and similarly to Buffet where that capital started with the insurance business. It morphed into investments and then into buying, controlling interests in various businesses in all kinds of different industries. We have three engines, we call them these days.

There’s the insurance engine, which is the legacy of the business. There’s the investment engine, which grew out of the insurance company. Every insurance company has an embedded investment operation, and then Markel Ventures, which is our collection of about 19 or 20 different businesses that operate in a variety of industrial and service fields.

[00:04:35] Jonathan: You’ve been in this business for quite a bit and one of your early mentors told you the key to the success in the investment industry is to survive the first 30 years.

In your first 30 years, you saw a lot. You had the savings and loans crisis, long-term capital, the dotcom boom and bust, and the global financial crisis. I’d love to hear how this helped prepare you to navigate through COVID in the last year, which to put it mildly, has been an extremely challenging environment to one, run a company and two, to be an investor.

[00:05:06] Tom: Thanks for reminding me about Mr. Reynolds. The gentleman you referred to as a mentor was a guy named Ned Reynolds and he worked at Davenport and Company in Virginia, which is where I started in the investment business. He was a spectacular mentor to me in so many ways.

That particular comment that he made to me was unsolicited. He just happened to be standing next to me one day and randomly said that. There were so many things that I can remember him saying that really weren’t part of a conversation, just statements, but that is one of the ones that stuck with me a tremendous amount. Now, the reference to 30 years, I think what he meant is generation. One of his other sayings was, “What you want in life is a young doctor and an old broker.” What he meant by that is that the day you graduate from medical school, in many cases, that’s going to be your peak level of technical knowledge of what’s happening in the world of medicine.

Then you’re out practicing and you learn different things, but in terms of staying on top of exactly what’s new, that might have been your peak moment. If you’re a broker, if you’re in the investment business, an investment advisor, counselor, it should be that each day that goes by, you should learn something and you should be a little smarter, a little better, a little wiser that the next time you see it. His point was that 30-year generational time frame. Normally, you’re seeing things for the first time through the first 30 years, and then you’re seeing the same thing the second time around.

You look in today’s market, all the things that happened, I mean, that are still unfurling with the FTX situation. Every financial story like that seems to unfold in roughly similar lines. There’s something that comes along, it’s new, it’s now well understood because it is new. It is described in very sophisticated terms or seductive terms such that money goes in, and at some point somewhere along the line, somebody wants to take a little bit more money out than what’s coming in and things seem to go sideways.

That has happened over and over and over and over again. Once you’ve seen it once or twice or 300 times, you should be a little bit better about not falling for the next time around or handling it better. That’s really the essence of what he was talking about through that story of lasting the first 30 years. I think there’s an epic amount of wisdom in that.

There’ve been some nuances to that. For instance, in the ’08-’09 financial crisis, by that time I’d been in the investment business about 25-ish years. I had told that story several times and good friend of mine reminded me of that. He was roughly the same age as me and he says, “Tom, I was hoping by the time we got to 25 years, we could round up to 30, but I guess we’re going to have to live through it.”

We did and we got through it, and now I’ve been at Markel for 32 years. It was basically year 30 at which time the COVID pandemic hit, and that was new to me. I had read about pandemics, but I had not had any firsthand experience with it. It did feel new. I’m hoping at this point we’ve crossed through the list of things that, at least you have had some familiarity with by the time they had come around.

This is a business where there just, is literally no substitute for experience. You can read about things, you can study things, you can be diligent, you can do your homework, but until you feel the visceral gut punches of what it means to live in a volatile market or not know what the next day will bring, you just don’t have the skills to be, an expert is not exactly the right word, but someone who can calmly deal with the circumstances you face.

The good news is, whether the 30 is a round number, whether we’re rounding or using truncation, I’m at least over 30. I think I’ve seen a good number of the things that one is likely to see and it just, it helps you have perspective about things

[00:09:03] Jonathan: In terms of perspective, what was more difficult investing through 2008-2009, the dotcom melt-up, and then crash or the COVID environment, which hopefully, is on the flip side of, but who knows, which has been harder for you in a professional sense?

[00:09:24] Tom: Frankly, the COVID’s been harder in a professional sense because in the ’08-’09 time, and again, I’ve been through ’98-’99, the dotcom implosion. In ’08-’09, you were looking at a balance sheet problem. Just leverage had been become too prevalent and the system of just too much debt.

I started out life professionally as an accountant. I can look at balance sheets so that I feel pretty comfortable in analyzing what debt is all about and not just the explicit debt that you’re going to see on a balance sheet, but the ways in which debt is hidden in structures. A lot of the derivatives type issues that you would have, a lot of going back to our early accounting days where people used leases and accounting treatments were such that you didn’t have to put the totality of the lease on your balance sheet.

I’ve been through rising interest rates when insurance companies more the life side than the PNC side, would have bonds on their balance sheet, which would help add costs rather than mark to market. Because if you’re in the market that impairs the capital too much. With the last couple of months and interest rates going up, that movie is playing all over again. All of those things, I had seen financial stuff before.

I lived my whole professional life in the financial world. I have not been a medical person so when you saw the pandemic come across and the human death toll that was happening there, I had zero experience, zero frame of reference, zero ways to understand that. That’s a more frightful thing to work your way through and less sense of internal confidence about, “Oh, I’ve seen this before, this is what’s going to happen next.” I did not have that at all. Thank God I made it through, we’re here.

I think and I hope very much on the other side, not just in the pandemic itself, but in understanding what it is that we as citizens, that we as governments should do should we be faced with these kind of circumstances again. I rather suspect people a lot smarter than I am, that say, this is the nature of the world and the idea of pandemics is not something that should be foreign to you. Because with the interrelated nature of travel, commerce, people going all around the globe for all kinds of reasons, we’re connected in ways that we didn’t used to be. That’s a good thing but it does connect to some risk of future pandemics as well.

[00:11:45] Jonathan: As someone who runs an insurance company that incalculable risk is got to be a really scary thing. Obviously, you have actuaries, et cetera, who are taking this into account, but you have some interesting lines of business, event cancellation, other things that almost are impossible to quantify. How do you go about doing that?

[00:12:04] Tom: Event cancellation, funny you should bring that up or not so funny, but I guess I can laugh a little bit at this point, that was probably the largest single source of loss for us in the pandemic. I don’t blame our underwriters or actuaries or anybody who was involved in writing that business from the word go because they were doing exactly what you would think they should do in the form of being disciplined and having a diversified risk.

If you’re insuring a wedding in New Jersey and a folk festival in upstate New York and a music festival in California and a wine festival in Oregon and a tennis tournament in England and a parade in Japan, this worldwide global spread of business. Boy, you think you’re doing a pretty good job of diversifying because what is something that’s going to happen that’s going to affect all of those things? A tornado or a hurricane, a weather event, all those sorts of things, which would normally cause a problem with events. Those geographically tend to be isolated.

The pandemic was something, it touched everything, every concert got canceled, every sporting event got canceled, every parade got canceled, every wedding got canceled. It was just something that we had never seen before. That said, that is not a business right now that we think we can price reasonably well because we’ve seen data that says all the techniques we used to manage risk and price that went through a period where that just didn’t work. We have not yet figured out how to properly price the risk that’s involved with something like that.

[00:13:36] Jonathan: Not that you needed it, but you received the investing world’s equivalent of the Good Housekeeping Seal of Approval when Berkshire bought shares in Markel. How did you find out they took a position?

[00:13:48] Tom: Same way everybody else found out, seeing the 13F filed. It was earlier this year, it was sometime during the first quarter of this year, that they took their position and we found out about it by their publicly disclosure of the 13F.

[00:14:01] Jonathan: Did you make any contact to the folks in Omaha?

[00:14:03] Tom: I’ve been very fortunate in that I started going to Omaha back in 1991. That was the first year I went to the Berkshire annual report. At that particular time, there were probably only about 700 people that attended that meeting. Buffett was not the celebrity then that he is now. You literally could go up to him at the annual meeting and introduce yourself and chat for a little bit. Actually, I did that back in 1991 and that’s good fortune to at least having some social interchange with him since that time.

Now, I was super lucky in that I was asked to serve on the board of the Washington Post company. I think that was back in 2007 or so. At that time Buffett was on the board so we were fellow directors of the Washington Post company for a number of years until he left that board. I got to have something of a professional relationship with him through that time and five board meetings a year and five board dinners and that sort of thing. I’ve studied him, I’ve read everything he’s written. I’ve had the good fortune of being able to chat with him directly. He’s been a spectacular role model and mentor so I was delighted and grateful when they showed up as owners.

[00:15:13] Jonathan: You were on the board of the Washington Post with him and you mentioned you got to read all of his letters, which everyone else who’s in the investing world has the opportunity to do. You got a first-hand view of him in action. There are things that people who haven’t read of all his letters in his interviews would be surprised about him or something that you can tell us about him that you found particularly interesting in terms of how he goes about business and how he prepares et cetera?

[00:15:41] Tom: One is, what you see is what you get. Buffett is almost super human in his dedication to being a great investor, a great leader, a great manager, a great historian, a great student of the game. He has been so good that sometimes people think, oh, there must be a magic trick involved or some freak of nature or some secret formula, whatnot. No, I think that’s what you get when you combine a pretty high IQ with a phenomenal work ethic and phenomenal concentration and surrounding himself with phenomenal people.

Whether that’s Charlie Munger, Ajit Jain, Greg Abel, Ron Olson, all those kinds of people that would be in his–, just on and on and on. If you think about, and he talks about the concept of 20 punches, 20 great ideas. We’ll take his top 20 people that he would’ve spent the most time with over the last 70 years and line them up and think about the collective IQ and talent and wisdom of whatever people he spends time with. Just an undiluted and unfiltered way to be extraordinarily good at this, and he’s done it for a long, long period of time, which is where the compounding really kicks in.

Morgan Housel, who wrote a wonderful book called The Psychology of Money, happens to pleasantly be on the Markel Board. He is a good friend and colleague and helpful counselor to us. I think the statistic, if I remember it, is something that two-thirds of Buffett’s wealth occurred after he became 60 years old. He spent a lot of time just pounding it out, grinding it out year after year after year after year after year of compounding and then he survived to where these compounding mechanics and math just create extraordinary numbers.

One thing I would urge people to do when you’re studying them, don’t overthink it. Don’t think there’s something there that isn’t. Look at what’s obvious and take things for what they are and try doing it for 30 or 40 or 50 years yourself and see how it works out. I suspect that it will work out relatively well. Maybe not as well as it did for him, but I think that would be fundamentally good way of trying to approach the investment business.

[00:17:56] Jonathan: Getting back to the traditional Markel Insurance Company, having a profitable insurance company, the beauty of it is each quarter you essentially get yourself inflows of cash to manage on a consistent basis. For the portion you decide to allocate towards equities, how do you decide to add to existing positions versus making new investment?

[00:18:17] Tom: Let me back up a second there before I answer that question because you said something very, very important and I want to make sure that your listeners get this particular part. Having a insurance business is profitable. Boy, that just rolls off the tongue. It’s easy to say, but very hard to do, and I want to thank the insurance folks on the Markel team because they are the ones who funded so much of what we’ve been able to do on the investment and venture side and it is hard.

There are other people who have tried to use insurance operations as funding mechanisms for investment vehicles, and generally speaking, that hasn’t really worked that well. I do think there’s some cultural reasons why that’s the case. If you think about investment type people, and here we are in New York n the center of some high-end investment-type talent. Investment people tend to be pretty well compensated, they tend to have somewhat pleasant lifestyles and maybe some ego in the game and that sort of thing.

If you’re an investment person, you want to be part of an investment culture that accepts and handles things in that way. If you’re part of an insurance organization, the insurance organizations are typically run by people who have come up through the realm of underwriting or sales or actuary or administration type stuff. It’s a grinding it out. You got to be detail-oriented and you got to just go after it day after day after day in small incremental ways, and you have to avoid catastrophic losses as opposed to make big gains, which is sort of the mindset on the investment side.

I think it’s fairly rare that you find an organization that culturally, a first-rate investment person and a first-rate insurance person would feel comfortable within the insurance side. There would be maybe a little scoffing or under appreciation of the discipline that first rate insurance people bring to the table. The insurance people might not be willing to pay the invest people as much as they think they should get. You look at birth Berkshire. It is the absolute archetypical example of a place where those two sides of the tent have leaned into one another, and you have absolutely first rate investment talent, ie Buffett, and first-rate insurance talent as exemplified by Ajit Jain,

the people at the Geico, National Indemnity and Buffett himself with his understanding of what goes on in insurance. I would posit that Markel, to some degree, has been that. We have a culture that has embraced both the details and the disciplines of insurance and investing at the same time. I’m lucky enough to be the investment guy and come up through the investment side, even though as a be responsible for insurance side as well. How that has practically played out is I’ve now been at Markel for 32 years and 32 years, if I’m doing my math right 12 months a year. That’s 384 months that I’ve been there.

On 379 of those 384 months, money has been deposited into the investment account from the profitable operations, both of the insurance business and now increasingly, Markel Ventures. Markel Ventures have been around since 2005. We’ve been profitable every single year since we started that as well. You use the phrase dollar cost averaging. You’re exactly right in that every month I have positive flows that I’m dealing with and I can choose proactively to make investments because, and I’m not just playing them on paper. I have cash flow to invest almost all the time.

That’s been a wonderful advantage over the years of compiling the investment record that we have, is we’re not dealing with one of the challenges that oftentimes investment people face in that their clients want to take money away from them after they’ve had a bad run. You probably should be giving them money and the clients want to give them money after they’ve had a great run you probably should tap the brakes a little bit.

[00:22:21] Jonathan: It’s 379 months of positive cash flow out of 384?

[00:22:28] Tom: That’s my swag estimate. The 384 is right. The 379 is– It might be 377, it might be 382. I don’t know. It’s the vast, vast, vast majority.

[00:22:37] Jonathan: Unless those four or five, six months were really bad, that’s an amazing record.

[00:22:42] Tom: I can remember why those four or five months took place, 9/11. That’s a month or two where, my goodness gracious, you’re going to get your bearings and make sure that the world is on its axle and the early days of the COVID pandemic. Those really were the only two periods where in a month or two or three where we were finding our footing and making sure we were somewhat cognizant and somewhat aware of what the world really was.

[00:23:08] Jonathan: You have a big portfolio in terms of names, but it’s relatively concentrated in terms of positions and the same. You have some very low-cost basis in companies like Home Depot, Diageo, some other great names. Is it psychologically hard to buy more of those names over time? How do you invest as money is coming through?

[00:23:28] Tom: Fortunately, that’s psychologically, for some reason, it’s not hard for me. Let’s take each of those examples you cited. Home Depot, basically in the ’08-’09 crisis, housing, obviously, was one of the epicenters of where the problems were. I’m not a handy person. My in-laws one time gave me a toolbox and my wife just laughed and laughed and laughed, and I think I gave it to my son. I’ve never used one of them. I’m just not good at that kind of stuff. Now, as a homeowner, there have been times when I’ve gone into either Home Depot or Lowe’s, and by the way, we own both of them.

I know that there’s something I needed to do to keep my house maintained properly, and those are the places that I got it. I never spent money there voluntarily, shall we say. It was my observation that many times when I was spending money at one of those places from my house, I had no choice in the matter. If I went in my house not to fall down or rot or have lights that work or plumbing fixtures or what have you, it had to happen. When I looked at housing stock that exists and just the maintenance load that exists, I thought those were spectacular businesses.

Whatever happened on the financial side and debt side and whatnot, they were better at distributing home maintenance equipment and supplies and everything for the existing stocks, set new construction aside, than anybody else. We started buying it and fortunately bought pretty good-sized positions in both of them from time to time since then. While that was the dramatic big add, I’ve added to it as recently as this year added to those stakes.

I don’t find it uncomfortable to buy more, and in fact, almost just the opposite because you get to know a company and you live with them and you see them do what they said they would do and live up to their promises and you get to know the management a little bit when you see some wobbliness in the price or some short term price action. That is a very comfortable thing for me to step into and buy more of.

Similarly, Diageo, I think we’ve probably owned that for 25-plus years at this point. I can’t recall a single incident when I bought a lot of it. It’s just something that I added to bit by bit over the years and can’t call a single catalyst as to why this year’s batch of Johnny Walker Black Scotch motivated me anymore or less than prior years. I’ve always been comfortable with their business and the way they run things. We’ve added to it over the years.

[00:25:53] Jonathan: Home Depot, in particular, is just such a well-run business. Shameless plug for The World According to Boyar. One of our first big guests was Ken Langone and then Frank Blake who did a fantastic job turning around that company. It’s amazing how they continue to be so profitable and it’ll be, you have any thoughts on, with people probably not buying new houses anytime soon, should the remodel business be strong going forward? What do you think?

[00:26:23] Tom: I think it will and in point of facts, the case that says that new home sales are under pressure and right now when the church rates rising, they are well every single day that goes by that I live in my house, all I know is it needs more maintenance. I grew up in a farmhouse that was 250 years old my parents bought that before I was born and they owned it, their whole lives and it never didn’t need something.

[00:26:51] Jonathan: I hope you’ve been enjoying the show. Boyer Research will be releasing our annual forgotten 40 soon, which contains our 40 best catalyst-driven equity ideas for the year ahead. To learn more about how to purchase this special issue from Boyer Research, please visit boyer Now back to the show.

[00:27:14] Tom: In terms of your portfolio, I looked at your 13F, you have about 130 stocks, and you have a lot of responsibilities. Soon you’ll be running the whole company. You’re co-CEO now. In January you’ll be the only CEO. You have two other people helping you manage equities. What kind of information do you need to stay on top of the stocks that you own?

[00:27:36] Tom: Well, if I can find the next Berkshire or the next Home Depot, not that much. One or two ideas a year really power the investment returns and we do tend to hold on to things that we own. Berkshire was the very first stock I bought from Markel when I joined in 1990. Home Depot, we just talked about that would date back to 2008, which is now 14 years.

The portfolio turnover, generally speaking, is a single-digit percentage. We certainly try to be reasonably aware of what the current quarters are and the current developments. We’re not trading these like many other operations. Nothing wrong with trading, not right or wrong, it’s just different. We tend to buy and hold things. That also creates some tax efficiency in that the unrealized gain tends to build over time.

That would really be a strong argument against selling because if we have something that’s appreciated dramatically. When we sell that for a dollar, we don’t have a full dollar to reinvest. We have $0.75 or $0.70 or something like that. The amount that your replacement has to go up to replace the real value that you’re receiving upon selling after you pay the taxes is pretty dramatic, which creates a bias.

Some might call it an endowment effect, and some might call it a flaw, but it has worked out. There’s also some pretty nice math to that thing that has gone well and that managements do a good job of and are good business, oftentimes those are pretty persistent. I think there’s the statistic that if you want to make a guess as to which show on Broadway will play the longest, the best answer to that is the one that has already been playing the longest.

What that means is you have crowd-tested data that says this is a good show. Shows can have runs that last years. You might think, that show’s been there three or four years now. Come on, it might be there 15 years after that. Whereas the new thing that just opened and, maybe some people are buzzy about it, talking about it, that might be gone in 30 or 90 days. There’s a lot to be said for the persistency of some of the leading companies that we have and the amount of day-to-day work that’s associated with owning Berkshire and Home Depot. I got to tell you, it’s not that much.

[00:30:01] Jonathan: We’re big believers too in the magic of tax-deferred compounding your investors complain about investment management fees, but the biggest costs, at least in my view, most investors pay by far is taxes. By deferring those gains as long as possible, you don’t have to pay the tax man. At some point, something might get so overvalued, you might want to trim or sell. What would make you want to sell a profitable investment?

[00:30:27] Tom: When I think there’s been a fundamental change in the business. Our turnover is not zero, nor should it be that zero or 10% range. I do look at every single name that we own. We think about it, the [unintelligible 00:30:41] and Tyler Brown who work on the equity team with me. I mean, this is the sort of thing we would talk about and say, is there anything that has fundamentally changed that we probably ought to go ahead and sell? It’s not an act of topic of conversation, and it does get acted upon with some discipline and some regularity.

The other great thing that happens at Markel if you look at our top shareholders, you mentioned Berkshire. I’m not going to put them in this category right now, but somebody like your Chris Davis, folks at Baillie Gifford, who are very large shareholders, the folks at Principal who are very large shareholders, I tend to talk to them. I tend to see them at the Berkshire meeting. I hope that they’ll come to the Markel, maybe, which is on May 17th in Richmond, Virginia this year because the informal gatherings where you get to talk to other investors, frankly, I joke with those people when they own Markel stock.

I say, here’s the thing, you are smarter than I am, but I’m managing money for you. If you see something that I’m doing through the public 13F files, this is not insider conversation at all. If you see a name there that just seems like, why is that there? Let’s talk about that. Similarly, if there’s an idea that you have that’s a great idea, and it’s public, it’s 13F, you’ve bought as much of it. The very first person you ought to talk to about that is me because, in essence, that’s a way of getting more of that holding into your portfolio when it’s owned through Markel.

Conversations that have been long term in nature and with long duration friends, that’s a very productive way to help manage the portfolio of what’s in the Markel portfolio. I joke, while I only have two people working with me on the Markel payroll. I got 20 unpaid volunteer consultants whose interest is for Markel to succeed and for the investment portfolio to be run well. Would put you in that category to some degree in that, you’ve written about Markel, we’re having this conversation.

You’ve been aware of Markel for a long time. If we were both to write names of people we knew in the investment business down, there’d probably be a fair amount of overlap or one degree of separation. There is epic value in the friendliness that exists in this business from time to time to try to help one another in ways that both of you are better off.

[00:32:59] Jonathan: Thank you for putting me in the same conversation as Chris Davis and Davis Funds. That’s a really interesting way of looking at it. You have a really– It’s simple but not easy investment style where there are four pillars and one of the pillars is staying away from companies with high leverage, which makes sense. John Malone is kind of the master using leveraging. I noticed he’s in your 13Fs through I think Liberty Sirius and Liberty Broadband. Why does he make the cut even though they’re highly levered names?

[00:33:31] Tom: I think John Malone and the companies he’s led and the teams that he’s assembled, while they use leverage to build it out of nothing. If you go back and read the Cable Cowboy book, this sort of origin story in the cable business. After a period of time, you just have to tip your hat and say this guy is smart. He knows what he’s doing. I think his team does as well. There is some diffusion of the risks that happened because he’s connected to so many different entities, and some of those entities would have different leverage profiles and different cash flow profiles.

Some of them would be more appropriately leveraged than others. Even within our own business where we are on the low end of leverage in the way that we run things within Markel Ventures. There are some businesses within those 20 companies where we do use some leverage and it’s appropriate because those businesses tend to have a fair amount of fixed assets to them. Real estate type things or fixed assets, tangible assets, it’s appropriate to use leverage for that, especially in the era that we’ve just been in where interest rates have been extraordinarily low. We’re not dogmatic about zero leverage.

There are other businesses where the assets tend to be a little bit more intangible. The old joke about if you have an advertising agency, your assets could go out the elevator every night or in today’s world, log off their computers remotely, wherever they are. The point is, those sorts of businesses should have less leverage. Look at things in more than one dimension. Leverage versus no leverage is not a conversation you can have in isolation. You have to say, what kind of business is this? What kind of people are running it? How good have they proven to have been? Are they new at this? All of those factors go into what comfort level you should have with leverage.

[00:35:24] Jonathan: In also how you structure it. Malone is the master craftsman and structuring some of these things, Warner Bros. Discovery, which, obviously, has been a disappointment thus far. Most of the leverage isn’t due till 2040 and is at 3% or 4% fixed rate. It’s pretty astounding.

[00:35:39] Tom: In fact, I’ll tell you this story, I don’t know if this is going to make it through the editing process or not. This goes back probably 15, 18 years or so. One day I came to work and I opened the Wall Street Journal and there was a story in there about Walt Disney having just sold an issue of 100-year bonds and maybe the interest rate on them was 5.75% or something like that. I saw that and I went into our CFO’s office and I said, “We got to do some of this.”

I’d further joked, I said, “That 100-year bond they just sold,” but they were refinancing a 100-year bond that is 6% coupon that had a 5-year call and that was almost dead on exactly what the circumstances were. Anyway, we called our bankers, and again, this is an 18 or 20-year-old story and our banker said, “Walt Disney, that is a well-known consumer name. Markel, nobody’s ever heard of that. Nobody’s going to give you 100-year money.” I pouted a little.

The very next day there was a circumstance, I was looking at something and I don’t know if you know Eskimo Pie, the dessert Eskimo Pie. Eskimo Pie at one point was actually owned by Reynolds Metals, which is a Richmond-based aluminum company. The way Reynolds Metals came to own Eskimo Pie was there at some point 30, 40, 50 years, whatever, when Eskimo Pie couldn’t pay their bill for the aluminum wrappers that they put Eskimo pies in. Reynolds ended up owning the company. They ended up spinning it out and it was a publicly traded separate entity that had a market value, maybe $20 million, $25 million.

I said to our CFO, I said, “We should buy Eskimo Pie. Then changed the name of Markel to Eskimo Pie.” Then that way we could call people up and say, “You want some Eskimo Pies?” Who could say no to that? Now, needless to say, that was one of those silly ideas that I have that did not get executed. The point is that you’re just making terms and conditions that matter a great, great deal. In the last board meeting we have, I put some documents together for our board talking about that particular point in specific.

I think it was last year during calendar year 2021 that the Austrian government sold some 100-year bonds. Now, the Austrian government, I’m going to say that’s a pretty good credit. It’s not bulletproof, and the range of credit quality, they’re right up there. That’s a credit-worthy thing. I think the coupon on it, if memory serves, was 0.85% for a 100-year bond. Those bonds today are trading at about 48%.

Now, some people call that bond investing safe. If you go down and are buying a 2-year treasury at 3.7% or something like that, whatever the rate is, okay, I get that. That’s pretty safe. I think you’re going to be paid back. The inflation-adjusted and the nominal dollars that you’re going to get are going to be recognizable.

The world probably not going to change in 100 years. That’s insane to put money out for 100 years at a 0.85% interest rate just strikes me as silly. Point is, if at Markel we were offered the opportunity to sell 100-year bonds at 0.85% and put debt on our balance sheet, we are going to do that. I don’t think that offer is probably going to be forthcoming anytime real soon.

[00:38:57] Jonathan: Crazier things have happened over the last 10 years.

[00:39:00] Tom: And they have and here’s the good news, they do. By going to work every day, by just trying to be rational, to be thoughtful, to read the paper, to study what’s going on, to be aware of markets, you’re going to be presented with opportunities from time to time in irregular fashion to do things which will have benefits for years and years and years to come.

Sometimes that’s like Home Depot and Lowe’s in the middle of the housing crisis where I’m having to spend all this money there as a consumer and I didn’t want to. I thought, “That’s a really good business,” and that’s one of our large [unintelligible 00:39:31] these days.

[00:39:32] Jonathan: You’ve been a member of Cable ONE’s board for quite some time. Cable companies like Comcast and Charter have been horrific performers of late due to fears over Fixed Wireless Access. Is this as big of a thread as the market seems to be telling us? Should we read into the fact that Markel has low exposure to cable companies as a percentage of the portfolio, that you’re not bullish in the long-term aspect of that type of business?

[00:40:01] Tom: No, that’d be an overread, and in fact, I personally have been on the Cable ONE board. I’ve personally bought some stock recently in Cable ONE because the price action seems rather dramatic to me, shall we say, we’re also shareholders of Comcast. We do have some investments in the cable business. Cable’s a funny industry and the stocks of Cable ONE, Comcast, Charter– I’ll just talk about those three because I think it’s more fair to talk about those than some of the other ones. I think the stocks are way more volatile than the business itself.

If you go back into Cable ONE, take that as an example, when that first came out as a spin-out of Washington Post, Graham Holdings, I think the first trades were roughly at about $350 a share. It subsequently went up. Cable ONE had a very differentiated strategy. Tom Might, who was the CEO of the company at the time, was very public in the idea of unbundling and he thought carrying the video was really not a profitable activity for the cable companies to do. He really saw the splitting of the broadband connection versus what you were watching ahead of the curve. Cable ONE was criticized for that and then came to be celebrated for it and the stock went up a bunch.

Now, that was added to and magnified by the pandemic when amidst quarantine, amidst working from home, having a broadband connection to your house, that’s oxygen. You would think of that like oxygen, like your water connection, like your electric connection. You just can’t function in the modern world without it. The growth rates went up and Wall Street has a tendency to really love growth and assign pretty high multiples to it.

I don’t know about you, but when we were talking about writing the names on a piece of paper, if I had to have a piece of paper and write names of people who don’t have broadband connection these days, there’s not that many. These include people who live out in the country and rural places. The growth rate of new subscribers has diminished from what it was a couple of years ago. Not just Cable ONE, but Comcast and Charter as well. Those stocks are down a bunch as Wall Street seems to be rerating the fundamental growth rates of new customer acquisition.

Now, while new customer acquisition may be at a slower rate, maybe more population-constrained, I don’t think you’re going to lose customers. Nobody is giving up their broadband connection. I think the dependable recurring nature of the cash flows in that business, and you can also spend a little less on CapEx when you’re not adding customers so much. They seem like pretty good businesses to me, which is why I bought some personally and why Markel has bought some.

The third layer of that, and again as Buffet said, he learned investing from Ben Graham, he learned about managing the business from Andrew Singleton. Look at Singleton’s behavior at Teledyne in response to what happened in stock market volatility. When the market was up, Teledyne would use their shares as currency and raise capital. With Cable ONE, we did too.

When the stock was pleasantly valued, we did raise some capital and I think in some pretty good structures. It’s a matter of public record. You can look at the queues. We’ve been buying stock back in. I think in the face of stock market volatility, Cable ONE has acted rationally and I enjoy being associated with the company because they’re interested and concerned, and motivated by acting rationally, which is all I ask of people. It’s a fun company to be connected to.

[00:43:40] Jonathan: I just want to talk a little bit about Markel Ventures. You started in 2005, but you started thinking about it in 1990. In 2005 you launched it, where you purchased controlling stakes and businesses. That year Ventures had about $2 million in EBITDA. Last year Ventures, I think, had about $400 million or so. Would you be surprised if one day Ventures value is significantly greater than that of the equity portfolio?

[00:44:08] Tom: No, and really the way that that would come about is just trying to be rational. One of the beautiful things at Markel is we really have a 360-degree view of where we can allocate capital. The first choice and the favorite thing that we would do in allocating capital would be to fund businesses we already own. Where things are going well and the people who are running those businesses have the opportunity to deploy capital, earn good returns on it, and they’re already inside the tents, they’re already proven winners. That’s number one on the list. We fund them first.

The second is where there are opportunities to buy a new platform, to buy something different, and add it to the kit bag and let them grow and prove themselves over time. Third is we can buy publicly traded securities, whether those are equities or debt. Fourth, we can buy in our own stock. It’s in that one, two, three, four order, but all four can be taking place at the same time simultaneously, which is our circumstance where we sit right now. We really don’t think about a target as to how big insurance should be or how big ventures should be.

What we think about is on every single day when we come to work, we think what is the logical thing to do with capital? If that answer would point us in a certain direction disproportionately for a certain period of time, that’s going to become bigger and that’s an outcome, not a goal or a target.

[00:45:31] Jonathan: When someone joins the Markel family, you buy their business or controlling stake in their business, how much autonomy will you give them? How much attention are you paying to what they’re doing on a day-to-day basis? How does that relationship work?

[00:45:47] Tom: We try to give them as much autonomy as is humanly possible. We are a public company, we file public company financial statements. We get monthly financial statements from each of the businesses within Markel Ventures. We have quarterly board meetings as a normal process with the Markel Ventures companies. We review the annual budgets for the Markel Ventures companies.

The managers in those companies would have capital expenditure authority limits and decisions that below a certain size, they make completely on their own basis and try to do the best for their company. If something comes up, a merger opportunity, an acquisition, a capital expenditure that’s larger than what is budgeted or intended, that’s the thing we need to talk about off-cycle and middle of the month or between dates in the quarter. We really try to have a fun and business-like mutually reinforcing relationship with the people who run those businesses but make no mistake.

The people who run those businesses are the CEOs of those businesses and we back them and give them as much autonomy as we possibly can. We try to impose as little corporatocracy as we possibly can because we want the people running these businesses to have a sense of ownership and pride that this is their business. This is what they identify with and build it out over a long period of time. Other companies do that in different ways and I’m not going to say it’s right or wrong, it’s just different. Our approach is one that fosters as much autonomy as possible.

[00:47:19] Jonathan: A lot of these people whose business you bought either their family businesses or their entrepreneurs so it’s got to be a huge adjustment for them. How do you incentivize them in terms of either their pay package or whatnot to continue doing what they were doing?

[00:47:35] Tom: I think the word incentives is oftentimes defined and understood solely in the context of money or finances. While that is important, there’s more to it than that. There are cultural incentives. It is a point of pride for some people that oftentimes these family businesses are usually not first-generation family businesses. They’re second or third, or in one case, a fourth-generation family business that we have purchased.

There’s a bit of identity that comes with that heritage of running a family business that the home that Markel offers to somebody like that, they’re wired the right way. They’ve been wired that way since birth to think generationally and make sure that the next generation gets a better business than what the previous generation did so that’s very helpful.

In terms of the financial stuff and the financial stuff is very important. One of the hallmarks and tenets of how we would design incentive systems is multi-year. Generally speaking, we do the very best we can to have as long a time horizon as possible for the way somebody would earn financial incentives. Personally, for me, my incentive compensation is based on a 5-year rolling average. Every year at the end of the year, we’re not just toting up what happened this year, we’re toting up what happened the last 5 years and the next year, the oldest years are going to roll off and the newest year is going to roll in.

In essence, again, I’ve been there 32 years. You get used to thinking in forever terms when that’s the way you do things. The typical timeframe that would often be in place at most of the is 3 years. I would be happy if it was 5, would be happy for 10, I’d be happy if it was 12, but 3 years is already weird enough compared to what most other people do that tends to create that length and in a time horizon that’s different from what most other people do but it’s very helpful to that.

[00:49:34] Jonathan: Now, it’s early December 2022, the capital markets, I wouldn’t say are frozen, but it would be pretty difficult for a leverage deal [chuckles] to get done. Now with Markel Ventures and you have obviously your own financing, are opportunities being shown to you, is that now a competitive advantage that you are a willing cash buyer?

[00:49:55] Tom: It is. Let me answer specifically your comment about the year-end coming. I can pretty much promise you we’re not doing a deal this year. [chuckles] Here it is. We’re December 6 or 7th or whatever it is today, right now, just to do legal postcards back and forth between now and year-end is highly, highly unlikely [unintelligible 00:50:13] financial market side.

Now, if you went back and you read the annual report for the last couple of years or listened to conference calls or anything, I would have said that given the pricing that existed in the private equity world, it would be unlikely for Markel to buy something this year in 2021. We did buy a couple of businesses. 2020, same story. 2019, same story.

They all took me by surprise, and to some degree, they were inbound phone calls.

Now, the amount of spread between what we think things are worth and what they were trading for in the market just kept getting wider and wider, such that, again, I just kept saying, it’s highly unlikely for us to be able to buy anything, but some unique or special circumstances came about that we were able to.

That did not happen in 2022, and I’m pretty sure it won’t. That said, prices are coming back down, interest rates are going up. The leverage transactions that are out there are being re-underwritten. Our phone is ringing more today with inbound calls than what would have been the case six or nine months ago. Will we act on one of those? Probably. Will that be in 2023? I don’t know. We’re having conversations and we’re talking to people, so we’ll see.

Now, that said, even within this year where we didn’t do any new whole businesses, we did do some expansions of some of the businesses we already own where they were able to buy a competitor that they would have known. Those were not massively big deals to Markel very large.

They were big deals to the people who did them. Markel’s ability to be ready, willing, and able to fund and backstop those deals is a very important incentive for the people running those businesses. Again, that’s partially a financial incentive. It’s partially pride. It’s partially just the fun of being part of something that’s growing. All of those things are non-quantitative aspects of what incentives really mean.

[00:52:12] Jonathan: You’re having your annual meeting, I think it’s May 17 down in Virginia. What has been like the last couple of years going to those meetings?

[00:52:21] Jonathan: Thanks for asking. Yes, May 17, 2023. I hope you and anybody who’s listening will be here. Going back a couple of years, I guess this would have been 2021. You got to make plans. It came to be that in January, February, and we’re thinking about the upcoming annual meeting in May that was still in the midst of quarantine, and my bias if possible, I wanted to have the meeting live because I’m a social person, I like people. Again, that building of community and just hanging out with people is a very valuable thing.

We were sitting around the table at lunch and four or five of us, and just spitballing ideas, where could we possibly have the meeting where we could accommodate the world in which we lived but still try to get people together? I came up with the idea that out at the Richmond Raceway, there’s a concert venue out there and it’s a 6000-seat arena and it has a cover on the top for the roof, but the sides are open air.

Rather than have it inside in a theater or something convention center like we did in previous years, we try to meet people halfway so at least it is an open-air venue. We called out there and really for some amazingly low price, and I mean amazingly low price, we were able to book that venue. We did. Thought that would be fun to give that a try and we also wanted to be fun to give people a reason to be there. We decided, after the meeting itself we would have food trucks, we would have beer trucks and we would have a band.

You asked what it was like. I called the band that somebody around the table had recommended and I spoke with the leader of that band and made inquiry about what music they played and whatnot. I said, “How long will you play?” His response was, “How long do you want me to play, man?” He hadn’t had a gig in two years. They were just glad to be there. We had over 500 people come. The people were glad to be there. For so many of them, it was the first time. Being in a social crowd and the hugs, the joy of being together again, it is really quite vivid and very much on display at that.

Then the next year we did the same thing and we went back to the raceway. This year we’re going to go to the grounds of the University of Richmond and we’ll be in the arena where the basketball games are played. It’s called the Robin Center and we’ll have fun and that will give us the opportunity to host a lot of people. First year we did it a couple of years ago we had 500. Last year we had a little over 1,000 people. At that particular rate, we might have 2,000 people and that would be great. We’d love for people to come. It’s a great opportunity to see the business leaders of Markel

[00:55:00] Tom: to mix and mingle with the crowd, to ask questions that you have, but really to get to know one another.

Again, it’s just going back to how incredible the Berkshire experience for me has been over the years, the number of people that I’ve met in and through Omaha over 30 some years of going, it’s changed my life. It’s made for an entirely different trajectory and formed a lot of relationships. People all over the world come there and it’s real crossroads of the world to connect there. We’re hoping Richmond, Virginia turns into a variation on a theme on that particular idea where people from all over come and connect with one another and have a day and a half of fun in Richmond, Virginia.

[00:55:38] Jonathan: Sounds like a fantastic event that everyone should consider going to. Tom, thank you so much for your time. It was great having you as a guest and learning about yourself, about Markel, about how you pick stocks. It really has been fantastic.

[00:55:52] Tom: Thank you. Appreciate it.


[00:55:55] 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.



Never miss another podcast click here to subscribe today!

Available wherever you download podcasts:

About The Boyar Family Of Companies

Boyar Asset Management
We have been managing money since 1983 utilizing our proprietary in-house value-oriented equity strategies. We manage money for high net worth individuals and institutions via separately managed accounts. To find out how we can help you with your money management needs please click here

Boyar Research
Since 1975 we have been producing independent research on intrinsically undervalued companies across the market capitalization spectrum and in a wide variety of industries using a business person’s approach to stock market investing. To find out how we can help you with your research needs please click here

Share to:

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…


Share it on:  Share on twitter  Share on linkedin  

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.


Never miss another podcast click here to subscribe today!

Available wherever you download podcasts:

About The Boyar Family Of Companies

Boyar Asset Management
We have been managing money since 1983 utilizing our proprietary in-house value-oriented equity strategies. We manage money for high net worth individuals and institutions via separately managed accounts. To find out how we can help you with your money management needs please click here

Boyar Research
Since 1975 we have been producing independent research on intrinsically undervalued companies across the market capitalization spectrum and in a wide variety of industries using a business person’s approach to stock market investing. To find out how we can help you with your research needs please click here

Share to:

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…


Share it on:  Share on twitter  Share on linkedin  

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.


Never miss another podcast click here to subscribe today!

Available wherever you download podcasts:

About The Boyar Family Of Companies

Boyar Asset Management
We have been managing money since 1983 utilizing our proprietary in-house value-oriented equity strategies. We manage money for high net worth individuals and institutions via separately managed accounts. To find out how we can help you with your money management needs please click here

Boyar Research
Since 1975 we have been producing independent research on intrinsically undervalued companies across the market capitalization spectrum and in a wide variety of industries using a business person’s approach to stock market investing. To find out how we can help you with your research needs please click here

Share to:

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.


Share it on:  Share on twitter  Share on linkedin  

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]


Never miss another podcast click here to subscribe today!

Available wherever you download podcasts:

About The Boyar Family Of Companies

Boyar Asset Management
We have been managing money since 1983 utilizing our proprietary in-house value-oriented equity strategies. We manage money for high net worth individuals and institutions via separately managed accounts. To find out how we can help you with your money management needs please click here

Boyar Research
Since 1975 we have been producing independent research on intrinsically undervalued companies across the market capitalization spectrum and in a wide variety of industries using a business person’s approach to stock market investing. To find out how we can help you with your research needs please click here

Share to:

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…

Share it on:  Share on twitter  Share on linkedin 

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.


[01:00:00] [silence]

[01:00:02] [END OF AUDIO]

Share to:

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.

Share it on:  Share on twitter  Share on linkedin  Share on facebook

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.




Click Here to Read the Interview Transcript

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


Never miss another podcast click here to subscribe today!

Available wherever you download podcasts:

About The Boyar Family Of Companies

Boyar Asset Management
We have been managing money since 1983 utilizing our proprietary in-house value-oriented equity strategies. We manage money for high net worth individuals and institutions via separately managed accounts. To find out how we can help you with your money management needs please click here

Boyar Research
Since 1975 we have been producing independent research on intrinsically undervalued companies across the market capitalization spectrum and in a wide variety of industries using a business person’s approach to stock market investing. To find out how we can help you with your research needs please click here

Share to:

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.


Share it on:  Share on twitter  Share on linkedin  Share on facebook

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.


Never miss another podcast click here to subscribe today!

Available wherever you download podcasts:

About The Boyar Family Of Companies

Boyar Asset Management
We have been managing money since 1983 utilizing our proprietary in-house value-oriented equity strategies. We manage money for high net worth individuals and institutions via separately managed accounts. To find out how we can help you with your money management needs please click here

Boyar Research
Since 1975 we have been producing independent research on intrinsically undervalued companies across the market capitalization spectrum and in a wide variety of industries using a business person’s approach to stock market investing. To find out how we can help you with your research needs please click here

Share to:

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


Share it on:  Share on twitter  Share on linkedin  Share on facebook

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]


Never miss another podcast click here to subscribe today!

Available wherever you download podcasts:

About The Boyar Family Of Companies

Boyar Asset Management
We have been managing money since 1983 utilizing our proprietary in-house value-oriented equity strategies. We manage money for high net worth individuals and institutions via separately managed accounts. To find out how we can help you with your money management needs please click here

Boyar Research
Since 1975 we have been producing independent research on intrinsically undervalued companies across the market capitalization spectrum and in a wide variety of industries using a business person’s approach to stock market investing. To find out how we can help you with your research needs please click here


Share to: