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

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

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The Interview Discusses: 

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

About Leon Cooperman:

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

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

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

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

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

 

Click Here to Read the Interview Transcript

Transcript of the Interview With Leon Cooperman:

[music]

[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,

Warren.

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

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

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

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

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

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

 

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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

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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

 

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