Letter #150: Stephen Mandel and Garrett Moran (2020)
Founder of Lone Pine Capital and COO of Blackstone's Private Equity Group | Family Centers' Titans Series Event
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Well folks, it’s Letter #150. What better way to close out the year and the newsletter than with Stephen Mandel, arguably the greatest analyst of all time and undisputedly one of the all-time great fund managers? But don’t just take my word for it—here are a few investing legends talking about him:
“Steve Mandel is the best industry analyst I’ve ever met, who became the best long-short hedge-fund manager of his generation”
—Seth Klarman
“Steve and Lone Pine were that line in the hedge fund monthly reports that I always cringed when reading...because I knew that he had just given me another caning.”
—Paul Tudor Jones
“the success really belongs to the young people who worked here. John Griffin, Andreas Halvorson, Lee Ainslie, and probably the greatest analyst of all time, Steve Mandel.”
—Julian Robertson
Each of these investors is a legend in their own right—Seth Klarman as a value investor, Paul Tudor Jones as a macro trader, and Julian Robertson as a growth investor. Yet despite their different strategies and philosophies, they all agreed on Stephen Mandel’s analytical prowess and ability to generate returns.
Today’s newsletter is the transcript of a talk between Stephen Mandel and Garrett Moran. This is a rare look into the mind, process, and philosophy of one of the greatest analysts of all time. In this conversation, Stephen dives into everything from what he looks for when following a company, how he assesses and works with managements, holding periods, investment catalysts, companies and leaders that he admires, times when he read management wrong, sectors he’s interested in, how he sees the world in 10 years, personalized medicine and healthcare, how his team spends time, key learnings from Lone Pine that surprised him, Lone Pine’s culture, philanthropy, picking nonprofits vs picking companies, and much more!
Stephen Mandel is the Founder of Lone Pine Capital. Prior to founding Lone Pine, Stephen was a Managing Director and consumer analyst at Tiger Management. Before Tiger, Stephen was a mass-market retailing analyst at Goldman Sachs and a consultant at Mars & Co.
Garrett Moran is the Chair of the Governor’s Workforce Council in Connecticut and was most recently the President of Year Up. Prior to Year Up, Garrett was the COO of Blackstone’s Private Equity Group. Before Blackstone, Garrett spent time as the President of MMC Capital and the Vice Chairman and co-head of Banking at Donaldson Lufkin & Jenrette.
I hope you enjoy this conversation as much as I do!
On Saturday you can expect a recap of the year. Thank you for coming along for this ride—I hope you learned a thing or two. And if you did, I’d love to hear from you!
[Transcript and any errors are mine.]
Related Resources
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The Transcript
Garret Moran: Great to be here, tonight. It's great fun to be able to interview Steve and I'll start off with an introduction. Many of you know the story but Steve is a Fairfield County boy, he grew up in Stamford and Darien and has lived in Greenwich for many years. He got his education at Dartmouth and at Harvard Business School. And the big pieces of his education, or rather of his career, started off at really Goldman Sachs, where he was a retailing analyst for many years, then changed over to Tiger Management Company, the legendary hedge fund run by Julian Robertson, where he worked for another seven years or so, and then left to start Lone Pine Capital in 1997, so 23 years ago. To give you a sense of the degree of success, if you had put $1 into the stock market in an index fund when Steve started his fund, it would be worth $6 today. If you could put $1 into Lone Pine when Steve started his fund, it would be worth $25 today. That's really cool. Steve's fund Lone Cascade, long only equity fund this year, year to date is up 40%. So he assures me that that's not a guaranteed return. But the numbers are quite remarkable. Steve was formerly Chair of the Board of Teach for America, as well as Dartmouth College where he went to school. And he is the founder of the Lone Pine Foundation that you'll hear a little bit about later on, as well as the ZOOM Foundation, which is their family foundation that's got about a billion dollars of assets ready to be deployed for the betterment of mankind. Steve has been married to Sue, and they have three grown children. And last week welcomed their third grandchild. Congratulations. So with that, I'm going to just have a conversation here. I think the idea is to talk about both the business career and Steve's philanthropy and Steve and Sue's philanthropy. And I thought I'd start off Steve, with just a general question about, in your investing business, what are the key things you look at when you're following a company, just a broad brush?
Stephen Mandel: So I'd say there are a number of things, of course, but as one goes longer and longer in this business, spend more and more time thinking about people. Thinking about the characteristics of the people running the business, not only how smart they are, but what their ethics are, how they set a culture at the company. And so, obviously we spend time on a company's competitive positioning, what their financials look like, what kind of sustainable moat they have around the business. But more and more, we spend a lot of time really trying to understand the people, how they think, what kind of culture they've created, how they motivate their people, what kind of people work there. It's just become more and more, over time, spending on people.
Garret Moran: So that's the kind of thing that's hard to do when you're picking up a company for the first time. So what, in practical terms, I mean, I think, as a business, Wall Street guy for my career, I think there's a sort of convergence between someone who delivers good numbers and someone who's a good leader. People tend to equate the two and and oftentimes that's it, but how do you... How do you live that? How do you make that real given that there's—it takes time to figure out the character?
Stephen Mandel: Right. So there's really two things we do. One is we try and spend as much time as we can with them, which is, you know, there's limited time, we can't monopolize their time. But we try and spend a lot of time, particularly with the CEO, but with the senior management group broadly. So we try and visit them wherever they are, and spend as much time as frankly, they'll let us. And that varies between companies a lot. And then we spend time checking them out through both our networks of people we know, but also, one thing that is evolved, and we've really, we weren't doing this so much at the beginning, we've kind of evolved to do this over the last, I don't know, 15 years or so. There are a bunch of, generally former journalists, former reporters who have kind of carved out a niche of being able to get former colleagues of management to talk and find out all kinds of things about how they ran the business, how they treated their people, how they compensated people, and it's shocking, frankly, how good these people are at getting people to talk, and the level of detail they get into. So we get, literally transcripts, from these interviews, and we'll have a dozen or so on an individual. And it helps paint a picture. I mean, we form our own judgments by meeting with people, but it is very helpful—people have worked with people for years and getting their perspectives.
Garret Moran: Yeah. I've spent a lot of time in my career hiring people and having headhunters do the due diligence. And at one point at Blackstone, we figured out just what you described is a professional who does nothing but find people who used to work with the management team and ask them really, really good, deep questions.
Stephen Mandel: We have two or three people who are... they don't work exclusively for us, but they almost do. They're not employed by us, they're third parties, and we pay them as such, but they do a really, really good job.
Garret Moran: And so are there other tricks for persuading, or tricking managements into spending more time with you?
Stephen Mandel: Well, I would say this. One thing we try to do, and hopefully we're more successful than not, is be a resource for them. So if they think that we know a bunch about emerging competitors, or we know a bunch about somebody they might consider hiring, if they view us sort of as an intellectual peer in effect, that's really, really helpful. And that changes the nature of the dialogue with management considerably.
Garret Moran: So all that suggests that you're spending a lot of time on an individual investment. Does that mean that you hold things for a long time? Or what's the... How could you characterize that?
Stephen Mandel: We try to hold things for a long time. When we enter an investment, we think we're going to hold it... In general, sometimes, I would say we have... This is gross oversimplification, but we have businesses that we expect to compound value for a long time and we expect to hold them for a long time. Sometimes we make a mistake and we don't hold them for a long time or sometimes the stock price gets ahead of where we think the return profile is and we sell it. But we have other types of investments where there's a catalyst for realizing value: a new management comes in, an acquisition, something that's a catalyst for driving value where there may not be a long term compounding of value, but there's a closer realization of value.
Garret Moran: So if one of your analysts comes in and says, Wow, I found this company, it's just cheap every which way I can look at it. And then they're... No point of view on management. How do you deal with that? If it's not a company where I mean...
Stephen Mandel: Well, in general, we would probably need to find some type of catalysts for the realization of that value. And yes, I mean, if something is abjectly cheap, relative to its intrinsic value, yes, we would absolutely look at it. We would go through a process though of trying to understand the management, what they're trying to do to realize value. We are not Activists. I would say we are, I guess there's a word that's come into the lexicon, Suggestivists, where we will engage with boards and with management about if we don't think they're doing everything they should to run the business right or realize value, we'll engage in a dialogue with them about that. But we don't go public with that, or wage proxy fights.
Garret Moran: Yeah. Do you have any... I know we agreed when we talked about doing this first that we wouldn't mention any names of stocks in particular. But given the...
Stephen Mandel: Only because we have to restrict them if mention them, so...
Garret Moran: Yeah. But given that limitation, are there management leaders from companies that you think of as sort of paragons of their... beyond the sort of common names that people...
Stephen Mandel: Well, I grew up as a retailing analyst, way back when, and basically, I had sort of two management teams that I looked up to and kind of basically idolized. One was Sam Walton, at Walmart, who just had an incredible facility with people like I've never seen anyone before or since. Every year they would have the Walmart annual meeting. Initially, it was in their little cafeteria or whatever, and then the audience got too big, and they actually built a new fieldhouse at the University of Arkansas to hold it because they had it in the fieldhouse, and it was un-air conditioned, the meeting was in July, it would get pretty oppressive in there. So, Sam's brother Bud built a new fieldhouse for them so they could play basketball games, but also have the annual meeting. Anyway, he would be in there, every store got to send three employees, associates from the store to the annual meeting. And they would come 24 hours by school bus from you know, Ocala, Florida to Fayetteville, Arkansas. And so he would, he would literally, at five in the morning, he would get there and he'd be up on stage like this. And all these associates would be down there, and he'd be just, you know, Oh, Betty Lou, you know, I was in your crafts department in Ocala, and you had this great display. And, you know, you just sit there and watch this and just go this is just like, unbelievable. So, yeah, them and Jim Sinegal and Jeff Brockman at Costco were two people also that I just thought the world of in terms of the kind of culture they built at the company. Now there's a company that—I can mention these names, because we don't, we're not involved in either, but we—this is a company that was able to offer the lowest prices on the highest quality goods, and at the same time, pay their people at the top scale, and offer the best health care benefits of anybody in the retail business at the same time as offering the lowest prices for their consumers and just thought, you know, just they had built it. And if you go into Costco, and you just look at people's badges, it always says when they, it says their name, but it also says when they started at Costco, and I was just in there the other day, and the two people I was dealing with, one was 1999 and the other was 2003. And they're very proud of the fact that a two cashier household can lead a middle class life.
Garret Moran: Yeah. So, what are the... What about heartbreaks in terms of management teams that you misread? This would be a lesson that people could listen to and take something away from.
Stephen Mandel: Well, there are two situations... we're not involved in either so I can mention both names. One is actually... that we had large positions in and completely botched. We've botched many things, but these turned out to be fantastic investments and we had the businesses analyzed correctly. But the managements at the time, managements have changed in both cases, managements at the time were just screwing up and we just couldn't take it anymore, basically that they... it was like I cannot back these people. And first was Green Mountain Coffee, which ultimately was acquired for a large multiple of the price that we sold it for. And the second was Lululemon, which has turned into... the company's worth nearly like $50 billion today. And they've always had a fantastic business, but they had, you know, some management issues.
Garret Moran: So was the heartbreak both that they disappointed you and you sold the stock too early?
Stephen Mandel: Yeah. Well, I mean, Yes, they were disappointing us in terms of how they were doing... They both had terrific businesses, but they were mismanaging them. And then we bailed because we just sort of couldn't take it with management anymore. And then eventually management got replaced, and they started realizing the intrinsic value of the business.
Garret Moran: So I'm interested in delving into the areas of innovation that you're looking at, and maybe for our audience's purpose, you could describe sort of the sectors broadly that you're in, and then we can maybe talk about what's exciting today.
Stephen Mandel: Yeah, one of the... I mean, we're in a very unusual time in many respects, right? I mean, obviously, with COVID going on, but we're in an extremely low interest rate environment, which creates a lot of economic distortion, frankly, and is, frankly, beneficial to people like us, and often hurts people who do not have capital to deploy. But we're also in a... and this is one of the most exciting things about being in the business that we're in, the level of innovation and the level of progress coming, largely from new technology, is just like we've never seen really in the history of the world. And so the areas that we find the most interesting there, and there's a lot of things going on, but I would say digital payments is one area. So, for a long time, the cash and cheque has been moving to various forms of digital payments, but this is accelerating rapidly and is moving both across the world, is moving not only from to consumer payments, but business to business payments as well. And is allowing... many people have been unbanked before and had difficulty dealing with the banking system to really enter the... through Cash App and other forms of saving money basically, or handling money, entering the economy in a digital way and not having to deal with cash as much. So that's one area and there's kind of innovation happening there all over the world. And it's being replicated in a kind of a similar way, basically almost everywhere in the world. The software space, you've had a movement from physical software that you're deploying to what are called SaaS models, Software as a Service models, where the software is in the cloud and that has changed not only the economics of that business, but the ability to innovate faster. And that software is infusing every aspect of society. A third area will be the digital consumer. So this is not only just e commerce broadly, like we think of with the major ecommerce players, but it also gets into how we communicate, gaming, consumption of video, it's a broad phenomenon that's really changing how people not only consume products, but also consume services, entertainment, etc. And then, and so those are three large areas we invest in, and a fourth would be what's happening in biotech. And that deals with targeted therapies, personalized medicine, and kind of the merger of software and biology, which is happening as we speak.
Garret Moran: So if we think about how we live our lives today, compared to 10 years ago, a huge amount has actually changed—the things we take for granted that we do with our phone and so forth—dramatically. We're gonna ask you to give us the crystal ball. 10 years from now, what will seem routine then that we're not thinking about now? And it might be for poor people as a class, it might be, you know, internet, I'm not... in other words, it might not literally be us, it might be...
Stephen Mandel: Yeah, I think a number of things. I think it will be... I don't know the exact timeframe. But I think personalized medicine will be standard, meaning that everybody will have a genetic profile. And that genetic profile will determine your predisposition to certain diseases. And you will have a personalized, and I hope this permeates to society broadly, but it will probably start, unfortunately, with people who are better off. But that will be standard. I do think, I think it'll be a longer time...
Garret Moran: Before you get away from that, What does that mean? That personalized medicine will be standard.
Stephen Mandel: So it means that your genetic profile will be with your physician. And off of that, you may have, there'll be pre-emptive things that will, maybe, if you're predisposed to have a certain type of cancer, for example. There may be genetic engineering that will change that predisposition. There could be other pre-emptive interventions that could stop that. So you would... yeah.
Garret Moran: You're looking though, at software and medicine. What's going to make healthcare stop inflating faster than everything else?
Stephen Mandel: That is a really... That's a really hard question. Because even in the world where, like, if you look where there is national healthcare, through European countries, Japan, etc, they're inflating too. Their costs are lower than ours, but they're also inflating. That's a really tough one because... if you look, just, there are things we can do to slow that down. And there are certain aspects of managed care that are very good at that. And, and the way that works best in this country is if the entire system, like you have it, Mayo or Intermountain Health, etc, you know, employs the docs, and can basically can manage the population health through that whole geographic area. That's a way—it's gonna be a long time for us to get to that point—but there are drivers that are... if you look at pharmaceuticals, for example, which has increased a fair amount, it's up to close to 20% of healthcare spend now, which is probably doubled over the last 15 or 20 years. All of that is through innovation. So 90% of the drugs prescribed in the United States today are generic. Low cost, generic, in terms of number of scripts. But every day that goes by, there's a new innovation, often for rare diseases, certain types of cancers that are life changing for the people who have them, but there may only be 50,000 patients, 10,000 patients, and so the economics of that are such that if you're going to support the research and the clinical trials, and all that go into that, the drugs have to be priced at $200,000 a year. And it's very hard for the FDA to say No, we're not gonna... and so that... even though 90% of the scripts are generic and low cost, that 10% are really expensive. But they are often the difference between life and death for people, or between a very compromised life and a more normal life. So...
Garret Moran: A couple of things occurred to me, listening to you. You have to have a bunch of experts on your team. You have a small team of people, right,
Stephen Mandel: We have about 15 investment people.
Garret Moran: Yeah, and you're talking about some pretty esoteric topics. So I guess you've got some really smart, focused people.
Stephen Mandel: Well, we try and focus our people. There's a lot of things we don't really spend any time on. We don't look at utilities basically at all, we don't really look at commodity-based businesses. So there are a whole bunch of things we spend very little time on. And we also leverage outside expertise. I mean, we do not have PhDs in biochemistry on our team. We have basically two or three people who are—and we don't do a lot. And healthcare is not a huge space for us, but it's an interesting space. We have a number of people on the outside that we pay a fair amount of money to who have that expertise. And we lean on pretty heavily, certainly on the science side. And we do that across various spaces, whether it be aerospace, or I mean... we have people on the outside that we rely on.
Garret Moran: So you spent about, I think, I calculated about 15 years in your post MBA career before Lone Pine and 23 or so since then.
Stephen Mandel: That's about right.
Garret Moran: When you started Lone Pine, and if you look at what you were thinking about then and what you're thinking about today, what did you... you probably open to thinking you really knew what you wanted to do. You had 15 years of experience you had been investing. Are there one or two things that you really learned in the in the course of running Lone Pine that you sort of didn't expect to learn or have you been relearning things you knew when you walked in to set the place up?
Stephen Mandel: I had certain... I think the principles that we had at... if you looked at our original business plan, and you look at it today, the principles, the investing principles and the principles about running the business, and how we treat our partners and how we treat our people and all that, are the same. Those are the same. And that's been sort of the bedrock of what we've done. But if you look at other things, we said, you know, the maximum amount of money we can see managing is a couple billion dollars. Now it's 30. We were just a long short hedge fund at the time. And now we are much—I mean, we still have that, but the larger amount of capital is in long only. I felt we could run with a team of—we had 17 people at the start and felt like there's not going to be a need for any more. We have 95 people. I was like, I don't want to have all this—I want to keep it very lean. And we're not going to need a general counsel. And now we have a general counsel and compliance department of like six people. So things...
Garret Moran: Those are normal growth things, though. You have a reputation, the firm has a reputation for being a great place to work. Very humane, good culture. And I'm assuming from what you've just said that that was sort of the plan?
Stephen Mandel: Yeah, well, I was just talking to our CEO today, and we've just gone through the reviews last week, and I was just so proud and so thrilled to see—because many, many of the people—I have sat on every single person's review for 22 years. Never missed one. And it's always, but now, you know, used to know, when we had 17 people, I knew basically what everyone did. Now, I know what everybody does, but I don't really interact with a lot of them on a day to day basis. And so, seeing... and COVID brought this out too, I mean, because it was a forcing mechanism when we work remotely and all that, the innovation and the implementation of stuff that we'd done over the last eight months was just... and seeing not only the commitment, but just the new things that people have done—implementation of all kinds of new technologies within our firm, just in the last eight months, that probably we should have been doing before or were doing before, but not to the same extent... I mean, Trello, Slack and... And hopefully this doesn't come by accident. Meaning we set the place up, so we're... we have 95 people and we have somewhere, pushing 40 people are owners. We have... we've always, I mean, we didn't really think about diversity, equity and inclusion when we started out. I mean, that term didn't even exist, but we sort of always have run the place that way. We have, by far, the probably highest female leadership and ownership of any firm, like ours. And we've always had an inclusive philosophy, both in terms of ownership, but also, many firms like ours sort of run like two classes of citizens—you have the investors as one kind, and everybody else as the other. And we haven't done that. We have more owners in the non-investing people than we do in the investing people. And so all that hopefully helps. And then we tried to do all the so-called little things right. The best healthcare we can get, highest 401k match, matching gifts, our foundation, which we'll get into in a second, I guess, but all those things.
Garret Moran: So good window onto the how you think about the business and a good transition to philanthropy. It'd be great—for those of you who don't know Lone Pine, it's—for those who know anything about Lone Pine have probably heard about this, but you guys have a really interesting philanthropy model. Why don't you describe that for folks?
Stephen Mandel: Well, I kind of learned it, and we modified it some, but when I was at Tiger, we had a foundation that we started, that was Julian's idea. And it was, initially, we were a very small group. I think there were 15 people when I joined. So we started, and it was just—it wasn't everybody contributed, it wasn't like a tax on the profits. You had a choice of if you contributed, and—everybody was highly encouraged to contribute—and it was focused predominantly on children, families, social service type stuff, not totally unlike what Family Centers does, in the New York area, where we work. And so when I started Lone Pine, I wanted to do something similar, and we modified it. Some in a number of ways. So the way it works is everybody who's an employee is a board member. So everybody who's an employee has a vote. We have the same thing. We encourage—we just got 100% participation this year—we encourage everybody to give, because when we give to organizations, one of our asks, and requirements, in fact, is that the Board of those organizations are 100% contributors. So we have that. And we have a small staff of four people. And they are doing most of the due diligence, and it is focused on children and families in the areas where we operate. So New York and Fairfield County. And then we have a small office in San Francisco. And we used to have an office in London, where we still do... process of... person there's... people there are moving back here, but... and then, every employee has the option to serve on what we call a return on investment group, which is a small group of people analyzing each one of the potential investees we look at. And the staff, the small staff of four, also work with those groups, but they also work with the employees individually on their own personal philanthropy, whatever that might be, that might have nothing to do with what Lone Pine Foundation does. I think the other part of the model is really trying to work with the organizations that we fund to help them. Not just give them money, but convene them together, provide professional development for their people, do all kinds of things to help them beyond just writing them a check.
Garret Moran: What's the biggest difference between picking a great company and picking great nonprofit?
Stephen Mandel: I think there's one aspect that's pretty much totally the same. And that's the leadership of, and maybe even, maybe even some ways more important in the nonprofit because it is even in many ways even more reliant on a leader or a small group of leaders. And we—our diligence is not quite the same. We don't hire out ex-Wall Street Journal reporters to go talk to Bob's former colleagues, but we do try and get to know the leadership of these organizations well and back people who are real leaders. The other part, the scorecard part is much harder. Outcomes in the business world are very tangible, right? They are measured in dollars. They're measured in physical outcomes that you can track and judge. So, there's a scorecard that is very frequent and it has many components to it. In the nonprofit world, that varies, and it's tougher. Some organizations—so if you're supporting, let's say, a charter school, the metrics are relatively straightforward. Lots of things about how students are doing on test scores, on graduation rates, on attendance, on social-emotional indicators. You have a pretty good... but on organizations that are trying to foster system change, where you're interacting with the political system, etc. and it's a long game, oftentimes much tougher to judge.
Garret Moran: Am I right assuming that you've spent most of your... for you, the single largest time commitment has been Teach for America?
Stephen Mandel: In recent years, yes. When I was Dartmouth stuff, it was probably for that.
Garret Moran: Yeah. And I know TFA has gone through, its matured and it's gotten into new businesses. Maybe you could talk a little bit about where that's going and kind of what's interesting now. What's the innovation today at TFA?
Stephen Mandel: Well, it really has to do more with the maturation of the... so the big idea behind TFA is you get highly talented leaders, generally right out of college, but there are, increasingly, a number of people coming into it who are older and have other had other professional experiences before they join. And the idea is they make a two year commitment to teaching in the classroom, always in low income schools, both in urban and rural settings around the country. 52 regions in the country, as of now. And the idea is that they, through their own personal experience of seeing both the problems that exist, but also the potential in their kids, understand that, you know, it's not the kids fault, this is a solvable problem. I personally saw, Johnny or Sally advance two grades by my own personal efforts. And it affects them for the rest of their lives. And the idea is that a healthy portion of them go on to be teachers for the rest of their lives, but we want a large portion of them to become leaders outside the classroom, meaning principals, superintendents, elected to public office, business leaders, lawyers doing pro bono work in the community, doctors, etc, etc. And so, for years, the whole thing was basically, Okay, let's get these people in the classroom, let's make them successful in the classroom. Increasingly and increasingly, the focus gets more and more on the alums, because that's ultimately where the action is.
Garret Moran: And when you say, alums, you're talking about your teachers.
Stephen Mandel: People who have gone through the program.
Garret Moran: Right, not their students.
Stephen Mandel: Well, and it's interesting, a lot of their students have now become TFA teachers, which is one of the coolest things that happens. When a kid graduates and they go back to the same school that they were in... And anyway, we now have 3000 school principals across the country and 300 school system leaders, and about 400 people now elected to public office, including, a person in Congress. So that's happening, and that's where the action is in terms of the ultimate impact, because those people can actually start impacting the system. A teacher can impact their kids, but can't really impact the system. And so an increasing focus has gone there—it's still important to get people into the front end. And so the next pivot is to try and hold the organization accountable for what happens actually broadly in the communities that we serve, which is a trickier thing, to be self accountable for and measure. But that's kind of the next pivot. But we've had programs all along to get people to be school principals and school superintendents and elected to public office and in public policy positions, etc.
Garret Moran: And what form does that take? How do you...
Stephen Mandel: So all of that's gotten spun off. Okay, so TFA itself, what it does is it recruits, trains, supports, those new teachers and supports its alums, really, in a way like a college might support its alums in connecting them with each other and helping them find jobs and stuff like that. But the actual work of—so like the public office, public policy stuff, there's an organization called Leadership for Educational Equity that was part of TFA years ago, got spun off, I think it's probably about almost eight years now. Separate 501(c)(3), separate governance, TFA supports it financially but at a declining rate, it's a minority of the financial support now. And its entire being is helping get people, coaching them how to run a campaign and run for public office, tell them where they're eligible to run, getting people into public policy jobs, showing them, training them for that how to get those jobs? And so that's what that organization does. And it's a separate 501(c)(3). So, you know, the new teacher project that spun off from the TFA, and that’s... they've gotten into... and there's other organizations, Relay, New Teachers, New Leaders for New Schools that have either loose or tighter affiliations with TFA that perform those other functions in terms...
Garret Moran: Yeah, so separate from the TFA diaspora, in education, what's got your attention in the philanthropic landscape?
Stephen Mandel: Well, I hope, I think—big supporter of a bunch of charter schools, and I think a large part of the innovation happening in certainly, pre-K-12 education is happening through a bunch of charter networks around the country have been quite innovative in terms of their approaches. And I still find that very exciting. I hope that—and this is—I was just talking about this today with somebody else who is a funder in this area, that there actually can be for-profit entities that spin up in the K-12 space that are supplemental to what districts are doing. And where there's an economic model that can support them. So in China, for example, there are a number of public companies, many of them traded here in the US—and private companies—that provide supplemental education to Chinese secondary students from the ages of very young up through 12th grade. And this is test prep, learning English, but it's also just basic math, science, etc., that there's one on one tutoring, and then there are huge online classes, and these are large companies. The aggregate market caps of these companies, public and private, is probably in the range of like $100 billion. And there's huge demand for their services, huge demand. And so, and largely because Chinese parents, particularly with single child households, etc, are willing to spend a lot of money on this. And so I'm hopeful that... my ultimate hope would be we can figure out how to get our system better... but that's a big lift, and there's a lot of entrenched interests not wanting to change that. So some of the solutions, like charters and like, I'll call it supplemental education, can be workarounds. And I'm hopeful somehow that we can get this going here in the US somehow, and that there's an economic mechanism for districts to buy up to this kind of thing. And that's a vague idea at this point in time, but it exists in other places in the world, and it's maybe a workaround to the reforms that are needed at district level, in terms of top-down.
Garret Moran: I think I'm gonna take the opportunity to see if we have questions from the audience.
Moderator: We did get a number of questions here in the chat. This one comes from Ryan Lynch. Steve, he wonders what non-finance book has had the biggest impact on your thinking?
Stephen Mandel: Hmm.
Garret Moran: Everything's a finance book, right?
Stephen Mandel: Oh, boy, that's... I like to read lots of things. Don't have like a book that I would say has really shaped my life. But I can tell you... sort of a... books that have made an impression on me are biographies of—as you might, I don't think the guys can see this, but I've got my Abe Lincoln socks on here—biographies of people who've really overcome incredible odds to achieve what they've achieved are an inspiration to me. So, you know, I talked about Sam Walton. Abe Lincoln is a hero of mine. Even reading books, I read the Grant biography, I don't know, last year or the year before, and you see a character that clearly had flaws, but also just had an overwhelming drive to achieve and that... just people... I've been sort of lucky in my life that I've not had to overcome incredible... had supportive parents and all that kind of stuff that I never had to really overcome incredible odds to succeed. But that always inspires me.
Moderator: So, going back to finance, Isaac was wondering, looking at the financial landscape that we're currently in, and the market being at record highs, he's wondering if you feel that we're on the verge of a bubble, similar to 1999, 2000?
Stephen Mandel: That is a great question. I think there are definitely elements of that. There's a lot of crazy stuff that has been going on. Frankly, some of which we've benefited from, things going to valuations that I would have never expected they would have gone to. It's interesting. I've thought about the... so the bubble usually ends when the Federal Reserve takes the punch bowl away. And if you look at the bubble in the... Let's call the internet bubble of 2000, it lasted about 27 months, it was really from about September of when Alan Greenspan, I call him Uncle Al the Speculators' Pal, threw gasoline on the fire in September of 1998 and it ended in March of 2000. So that's... if my calculus is right, that's about 27 months. And this will burn out too. When the retail investor, as exemplified now by the Robinhood investor is heavily involved—I was just actually listening to Bloomberg radio on the way over and the volume of open options, options contracts... right now, is double what they were a year ago. 22 million open contracts now, 11 million open contracts a year ago. So there are a lot of aspects to this being somewhat of a bubble. And it will burn it out at some point. I don't know if it's 27 months or sooner, or longer. The one difference, though, there's a big difference. The companies that—in general, there are a few that, you know, I'm not sure all these electric vehicle companies are actually going to survive—there are a bunch of things out there that probably will end up being zeros. But by and large, most of the companies that are getting all this publicity and stuff, and all this trading volume, and very high valuations, are real companies. They may not be worth necessarily what they're trading for, but they're real companies. In the 1999, 2000, 2001 era, many, if not most of those companies, should never have existed in the first place. They never really had a business. And so that's a pretty big difference between then and now. But there are also a lot of parallels.
Moderator: Rishi was asking, if there was one idea that you had or thought 10 years ago that you were really confident on that you're maybe not so wild about anymore, what would that be, and what changed your mind?
Stephen Mandel: Oh, gosh. I mean, the world has changed in so many ways. I mean, the actual economic world and, you know, I look at the areas that were the biggest areas of investment for us back, let's take it even more, 20 years ago, versus today are areas that we don't basically almost don't invest in at all. So we were pretty significant investors in retailing, back then, land-based, retailing. The Walmarts, etc, of the world. We were big investors in wireless. That was actually our biggest area of investment back in our early days. We haven't had anything wireless in, I don't know, 15 years, probably. I mean, it's turned into... then it was a new thing and all the big telcos had to get into the game, and they were acquiring wireless companies, and it was a great thing for us. But now it's just a commodity. Now, you see like a zillion ads on TV, and these guys are just beating each others' heads in. So a number of the things that were large areas of investment for us, we don't do anymore. And the things that are very large investment areas for us basically didn't even exist then.
Garret Moran: A lot of them five years ago.
Stephen Mandel: Yeah. To me, the amazing thing about the US economy is this, right? I mean, the biggest industries and biggest employers in the country, you go back 50 years ago, or 30 years ago, their employment count has shrunk. They're like mostly manufacturing type industries. But we've had massive growth in other industries where we lead the world. Technology, entertainment, healthcare. They have filled those... and it's tough on some... if you're a 50 year old person who is working in a GM plant or whatever, it's hard to repot yourself as... so it's incumbent on government to help sort of bridge some of these gaps. But the economy is unbelievably dynamic. And that's that's one of the great attributes of this country. You just look at, look at the value created, all the most valuable companies in the world, like, none, I mean, Europe, there's like, none. Japan, none. I mean, like in the top 20 now. It's all the US or China.
Moderator: So we have time for one more question. And Matt Berry, speaking of the ways in which you look at investing, he was wondering, do you see much merit in considering unloved or forgotten about companies? In terms of investment?
Stephen Mandel: Always, yes. But again, they have to... often they're unloved for a reason. There are areas of our...this is Schumpeter's creative destruction. There are areas of our economy that are in secular decline. We're not going to use as much fossil fuels 10 years from now as we're using today. If you're a fossil fuels based energy company, you're in decline. If you're a land-based retailer without much of a web presence, you've got problems. I would not want to own a mall. There are a lot of businesses that are—we've seen this, unfortunately, in the publishing business. I would not want to be a cable channel without a lot of original content that people really want to watch. I mean, the cord cutting is not putting you in a good place. So there are a lot of businesses that are in in secular decline. That doesn't mean they can't be reasonable investments. But there has to be a large—either margin of safety in that, or a catalyst somehow to change what they're doing. Because many businesses that are unloved are unloved for a reason.
Moderator: Steve, I know that was the last question. I want to sneak one more in.
Garret Moran: That wasn't a very cheery last question anyway.
Moderator: I don’t know that this one will be cheery either, but it’s just along the lines of what you were just saying, that sure there were lots of companies in industries that needed to sort of fade or are fading... did that have to happen to General Electric? I mean, when I think about General Electric, the story of the company that it was, and what it manufactures, and some of the things that we still need in this country today. Seems like it took a knockout punch. And I’m wondering if you think it could have been different.
Stephen Mandel: You're hitting in an area that's very close to home, because the former CEO is a very good friend of mine. So... and is a wonderful person. And was, I think, a wonderful leader who they... so I attribute their issues to two things. They still have some wonderful businesses, by the way, that have been... some bad luck happened to them. He took the job one day before 9/11. And I mean, 9/11 happening was... an airplane that we owned, with engines that we made, crashed into a building that we insured. So, anyway, I attribute their issues to three things: there was a culture set back by Jack Welch, which was very hard for them to admit that anything was wrong. And that, I think, caused some cultural issues. There was stuff that was done back in that era that allowed them to make some quarterly earnings that came back to bite them literally 30 years later, that probably should have been identified along the way. But you know, there was a very large write off of an insurance contract which was basically a long term care contract where their assumptions were wrong. Like, people are living longer and healthcare costs more money, so if you have a long term care contract, your assumptions are wrong and that snowballed. And then there were some well intentioned, but turned out to be ill-timed acquisitions. One in the energy space and one in the power space. And those were just ill-timed, as oil price cratered and the power markets, for a number of reasons, this is gas turbine markets. So... But they still have, they have two really outstanding businesses that are gonna... One, obviously, the jet engine business that has been hurt by COVID and people not flying as much, and they make money by the maintenance of those jet engines. And then their healthcare business is an excellent business. And so, those will... the company will go on and I think... and I don't have an opinion about the share price, but the company is gonna do fine.
Garret Moran: Thank you, Bob. Thank you, Steve. It was a great conversation. Tune in next week. We'll have a two hour version of this.
Wrap-up
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