The TSC Streetside Chat: Robert Wilson, Part 2
For Part 1 of the Robert Wilson chat, click here.
Tales of George Soros
Now, give us your evaluation of George Soros. First of all, did you know him at all?
Again, like Julian Robertson, I knew George Soros when I was richer than he was, and I've known George almost as long as Julian, from the '60s. I knew him before he hooked up with Jim Rogers and was just at that time managing money at Arnholdand S. Bleichroeder. And it was clear to me, from the beginning that George was an uncommonly bright guy. I remember John Train wrote a book called The Money Masters.
There's a chapter about you.Yes. And I told him, John, you must include George Soros in this, and that would have been before George was anything like a celebrity, and he made a mistake by not doing it, obviously. George, though, unlike Buffett, is the one macro player I know who has been able to do it. Paul Krugman wrote an article a week ago saying that the problem with Julian Roberts since he went from being a micro-player to a macro-player, because he had so much money, and he said, nobody can be a macro-player for very long because so many people are doing it. George Soros is the exception. He played currencies and interest rates and stock markets, as a country. He did all of the things, that over time, nobody is supposed to be able to do better than any other people, because there are just so many people doing it. Right. And so George's achievement is as dazzling in a way as Buffett's, in that he competed in a market where nobody is supposed to be able to win for very long. And did it, of course, very well and was smart enough to quit. Not quit, but semi-retire in his late 50s. I think one of the great skills that Soros has had over the years is the ability to increase his bets as he wins. It's unusual, most people ... Plungers normally get their head and their assets handed to them eventually. Yeah, and he's the kind of guy who actually will, as he's winning in a position, will up the bet and really press his advantage. Now at some point, you decided to retire, in 1986. That's correct. 1986. And my recollection is that it came about after three years of underperforming the S&P 500? Yes. I decided when I was, oh, by my early 40s I was modestly wealthy. By my early 40s I could afford to retire, and I decided I would retire when I had three years in a row of underperforming the market. I was very conscious of age and market performance. You simply have to twist in the wind, change your mind, cast off existing beliefs, take on new beliefs, and there comes a point in life where it just becomes, there isn't the energy, or, I don't know what to do that. And in that case, how badly did you underperform? Not by much, it wasn't by much. In fact, I had a small hedge fund that had a different fiscal year than mine and it was doing better, but I was tired and burned out, and one defines burned out as a combination of boredom and fatigue. I guess you get tired when you get bored. But as I said to all my friends, absolutely nothing new ever happens to me in the market any more. It's just that I can't time when it will happen. Managements always lie when they're starting to get in trouble. They will only tell you the truth when things are going well. Visiting managements or talking to them, after a while it became so boring and predictable. I have friends who just love to visit managements, and they do it year after year. I cannot, for the life of me ... In the first place, they always take too much time. When I started visiting managements, I was working for a very small, closed-in investment trust called General American Investors. I think it had $60 million of assets. In the '50s? In the '60s. That was small back then, and we had very little turnover. And so when I visited companies, I was really a little diffident about spending, you know, wasting their time. And after a while, I realized they were wasting my time. They were so absorbed in the business, of course, in those days, they didn't have as many analysts visiting them as now, things may have changed.
Getting OutNow, getting back to the decision to retire, it wasn't over a bet, or anything, you had said it to yourself. Yeah. And what did your peers think when they heard that? They thought I was out of my frigging mind. Nobody accepted my reasoning at all, they just thought, he just wants to f****** have a good time. I would say almost nobody accepted that I was burned out. And how then did you feel once you had stepped away from the game? Wonderful. Well, let me take that back. I felt very depressed for a couple of years, and depressed at the awareness that it was all over. That the most exciting part of my life was over. It was sort of, in a sense, the most vivid and dramatic period of growing old that I've ever had, and I was depressed for a couple of years, and I don't, I didn't see a shrink or do anything about that. This was, it seems to me, a logical form of depression, and I got over it. Perhaps like, when a loved one dies, but, although I felt depressed, I felt far less depressed than if I had continued to play the market, which I think I would have done very badly. I grew up in a bittersweet time -- wars, depression, good times, bad times -- and this unalloyed good news, the Goldilocks economy, I don't think I could have adapted to. I would have gotten creamed on the short side, and by the time I knew what was hitting me, I would have lost the money. When you stepped down, you decided to give your money to 20 different investment managers, roughly? Yes. Exactly 20? No, roughly 20. I didn't decide on 20. It was just worked out. Yeah. Because I wanted to be highly diversified. Explain, because a lot of our readers are more in the line of being clients of money managers than money managers themselves. What were you thinking? You had a couple hundred million, it was about $225 million as I recall. What were your priorities? Who am I going to give my money to, how many people -- what was your thinking? Well, I was looking for bright people and I had been active in the market so I knew a lot of the players. But what were your key objectives? To make as much money as possible. In other words, I was looking for people to manage money the way I did, to manage aggressively, people who were not afraid to take interim losses. When you say interim losses, what's an interim loss? Well, I would be down 30% to 40% every once in a while. When I was active, the stock market actually went down once in a while, and I would be down 30% to 40% from time to time, and I didn't enjoy it, but I didn't think I made a mistake, and so I was looking for people who could be down 30% to 40%, and not think they'd made a mistake. And you wanted how many of those? Well, I wanted a lot of them, I wanted people to be aggressive and therefore, I wanted to be diversified. Because you didn't want to have someone wipe you out. Correct. So, instead of taking a deeply conservative approach to capital preservation, you used diversification as a way to have some kind of protection while at the same time allowing your managers to be aggressive, individually? Yeah. Just like if one has a lot of growth, highly speculative stocks, one should have a lot of them. Andrew Carnegie's epigram, what is it? Something just put an egg in your basket and lock the basket, have very few eggs in your basket and watch the basket, I think, is wretched advice for the investment business. Diversification is helpful. Especially if you have highly speculative stocks. How have these people done for you, without naming names? Up until the beginning of 1999, I would say that if I'd put half of my money, in fact, I actually did a rough calculation of this, if I'd put half of my money in an index fund -- the S&P, the Vanguard fund -- and half of my money in two-year Treasury bills, I would have done almost as well as these managers did. The problem is, Brett, in any year, some manager was sort of losing touch and had to be replaced, another manager, who was doing fabulously, had a bad year, and things average out. I found it very frustrating, I was in fact, running a fund of funds and when I say very frustrating, that's overstating it. I didn't do anything about it and ... Would you fire managers? Oh, yes. How many managers would you say you've had to fire? Oh, in the course of 14 years, six or seven. Out of a total of what? Well, I started with 20 and, so that would be 27, wouldn't it? So basically almost, what, about a quarter? Yeah. And did you find it hard to fire them? Not at all. Listen, I used to sell stocks. Explain. Well, if you can sell a stock, you can certainly fire an investment manager. I didn't have a close relationship to these, I don't see them socially, I have some investment managers I haven't seen in years. Which is perfectly fine with you. Fine. As long as they do well. Yeah.
What About the Little Guy?What would be your general sort of thoughts to the smaller investor about how to deal with anyone who's investing your money. I'd say put it in index funds. Right now, I'd say leave it in cash, because the market is so frothy, I'd say as a general rule put it in index funds, there are even growth stock index funds now. I don't see why small investors should horse around with money managers. Because? They cost. They're more expensive than index funds, and there's no evidence that they do as well over a period of time. Now. There are index funds, it doesn't have to be Standard & Poor's Index, there could be growth index funds. Vanguard has ... They have value ones, growth ones. And so, I think, if it's somebody young, they might want to get into the most aggressive index funds. And if it's somebody older, then they might want to be in the least aggressive. You just said a moment ago, that you think the market's particularly frothy now, and therefore, you might want to be in cash. Now that implies a certain element of market timing. Yes it does.
The Garden of EdenI mean, are most people capable, in your view, of knowing when to get in, and when to get out of the market? Well, I know I certainly am not. Probably no one else is, either. No, but there have been long periods where bonds have actually done better than stocks. Not recently. Well, that's perhaps the reason why we will now have a period where they do better than stocks. You're not predicting this. Yes, I am predicting this. What is, while you're at it, tell us what our investors, our readers want nothing more than to hear what the future will be. To just show how modest I am, I'm going to quote myself. A couple of years ago I was interviewed in Barron's, and I said I've been bearish for so long I no longer have any respect for my opinion. Unless you believe that the lessons from the Garden of Eden no longer apply, things just don't stay really good indefinitely. They never have, and the only reason I'm bearish is that things have been so glorious for so long, it will end. If I knew how it would end, then the market wouldn't be where it is. All good things come to an end. I'm talking Original Sin. And that's the only reason; forget multiples and valuations and all that. If something outside the market, if there isn't some adversity in the economy or in foreign affairs, I think the market will continue on its merry way, but something will happen. At least it always has in the past. I remember Bob Rubin was interviewed in Newsweek I think it was and somebody asked him -- I can't quote it exactly -- somebody asked him what about the market, and he said, you can take either two attitudes: that we are now in a new economy, in a new era, or you can look at 2000 years of past experience. Point well taken. Now, so much of what has been driving this market have been what they now call momentum stocks, they once were known as go-go stocks in the '60s, but, growth stocks. When you look at the Nasdaq phenomenon of those stocks, what do you make of it? Well, in the first place, one of the reasons I've been so wrong on the market is the economy has done so much better than anybody expected, practically anybody expected. And so a lot of the fluff in the market is due to fundamental causes. This huge bull market did not just come out of nowhere. And the Internet is an exciting new area, and I think one reason it so engages people is that people are using it, I mean, people see the wonders, you just mentioned the stuff that you get, this is so marvelous, there must be a way to play it. And so these Internet companies are, to a certain extent, consumer stocks, and I think that's one reason they're going up so much. But, it's going to be one of the great tulips of all time. It's going to be like the Japanese bubble, in what was it, mid-'80s, wasn't it? Or late '80s. None of these companies is earning any material amount of money, not even the Yahoo!s (YHOO) and the AOLs (AOL) are earning enough to finance anything in the way of expansion, so the day will come when people will start saying, I want to buy a company that has at least enough internal cash flow to finance at least part of its expansion. Right, right. This is happening, a lot of dot-com stocks are down, like your own. Absolutely. And so, there will be more of this. Even a giant like Cisco (CSCO), if the dot-coms can't get the money to expand, even this deity, Cisco, I would think could have a bad year. And if Cisco had a bad year, that would be the end of the world. And Cisco. It's a capital goods company. That's true. Essentially they're selling the equipment to build out the Internet, it's their basic job. What is, however, then, the future for some of the Internet companies that do survive, because obviously, some of them are going to survive. Oh, yeah. It's fabulous, I don't know whether this will turn out to be an oligopoly where everybody will buy their books from Amazon (AMZN), and everybody will use AOL as their ISP, who knows? The question I have is that once the novelty wears off, people may start deciding to play around with different Web sites. Right now, people are so thrilled to buy books through Amazon and avoid the sales tax that they don't worry about saving another buck. Maybe that will continue. That certainly isn't the way land-based retailing has worked. Customers shop, they'll drive around, they'll drive three miles to save on prices, so it seems to me that people will do a little surfing, to save prices. They aren't yet, but so who knows how it will end up. It's too new, I think there's a chance that none of them will make a lot of money. What is the meaning of the Internet for media companies, which of course is what TheStreet.com is, essentially, a news organization which found a new means of distributing content that doesn't require paper and printing plants. Well, that sort of gets to the question if ever we have, if ever you can take something the way you can a book or a piece of paper which is in electronic mode, then the Internet could really cut back on hard media, couldn't it? Right. But these things are all so new. Very few things, actually, eliminate -- you know, they still sell a lot of vacuum tubes. Oh yeah. Still sell a lot of newspapers. I remember, years ago, I met a technology advisor to Jack Dreyfus of the Dreyfus Fund, and I said, well, what do you do most of the time? Most of the time I'm telling Jack that this particular innovation isn't going to put anybody out of business. And that -- we're going back 30 years.
The UnderdogsWhat do you make of a lot of these beaten-down, old-line companies wherever they trade, whether it be in the Nasdaq or the New York? They always do, don't they? Actually not beaten-down old companies, a lot of them are, a lot of these companies that are down from their highs are growing 15%, 20% a year. They aren't beaten down, they aren't like the old metal-bending companies. No, but their stocks are beaten down. Yeah. Value always wins out. They won't stay down if they continue to grow. They never have. And so these stocks, which you would deem as more value stocks than growth stocks. A lot of them are growth stocks that are down. I mean, what was it last year, among the IPOs, those IPOs that had no earnings grossly outperformed those IPOS where there were earnings. But that said, if we were to see a problem in the Nasdaq market, don't you think it would hit the entire market and drive all stocks down even lower, even in this beaten up area of the market? Probably, though that's hard to say. It probably, it would affect the economy, so much wealth would be lost ... Some people argue, well, if the Nasdaq goes down, people will just shift into these value stocks and they will not share the decline, they'll go up, Nasdaq will go down, the averages will stay the same, everybody will be happy. But the wealth in the Nasdaq now, I think, I don't think all of that could be replaced by shifting into the basic stocks. And so therefore, you would be a little bit doubtful of the rotation theory? Yeah. How has the game changed for the individual investor, for better or worse, do you think? As we sit here today? The individual investor usually gets screwed in the long term and I don't know why that shouldn't continue. He'd enjoy it more now because he can trade on his computer. But you don't believe that there has been, to some degree, sort of a democratization of the markets? Well, there's a democratization in that there's much more wealth in the country but again, in the late '20s there was a great deal of public participation. The elevator boy talking stocks. But then, they were tending to do it in the old bucket shops, and now, at least, they can do it with a Vanguard, or a Fidelity, or with a Merrill Lynch, people who are somewhat ... A lot of very good brokerage firms -- you know, I don't think any brokerage firm went bankrupt in 1929. Or if there were, just one or two. There were good companies then. No, I'm not suggesting otherwise, but I do think that the participation of the public, in the market has never been greater. Well, no, it hasn't been greater, but it has been fairly great in the past. It certainly was in the late '20s. Given that the public participation has never been greater than it is today, where do you think the individual has any kind of an edge? You're the little guy and ... how should they play it? In order to outperform the market, you've got to spend 18 hours a day on it. It's sort of incredible that you would not perform an operation on your wife when she gets appendicitis, but you'll play the stock market, and they both take almost comparable skills and comparable intensity and comparable attention spans. The one thing you can do, the other thing you wouldn't dare do. So you're bound to get screwed. You are competing against people who are really working much harder at it, and probably have a special aptitude for it. So it's not that the little guy is being victimized by the monopolistic forces of evil, he doesn't give it the time and attention that is required to even perform as well as the averages. So how then, can the little guy begin to educate himself or herself? Well, he can quit his job and work as an analyst at some major investment company, if he wants to make it a career, and even then the odds are against him. It's like tennis. It's a competitive game. To do better than the vast horde of people playing the game is very hard. Doesn't it then come down to who you choose to do your investing for you? Yes, it does. However, Brett, it is important to know that people like to gamble. They go to Vegas, they go, regrettably, to Atlantic City to gamble, and now to Indian reservations. There are certain people who just love to play around with the market, and people take some pin money and want to spend half an hour a day trading, God bless 'em. Just realize that they are going to be at a disadvantage like they are in Vegas or in any casino. Has the market always had these casino-like aspects in your mind, or do you think there was a time when it was more of a rational basis to stock prices? I think probably there was less rational basis. People didn't have the information they have now, there wasn't a) the required disclosure and b) the electronics. So I think people are much better informed now than they have ever been, so the quality of the market is better, but there have been these tulips. Remember, we have been in a bull market since 1974, really, and if you've been making money for how many years is that? Twenty-six years. If you've been making money for 26 years, you really can't lose, can you? In what sense? I'm joking. I'm being facetious, if everybody, who has bought on weakness for 26 years has made money ... They're going to keep doing it. What do you think it would take to really break that kind of a psychology? Oh, a 50% drop in the Nasdaq. So, take the Nasdaq from say, 4500 down to 2700 ... And actually, it won't be 50%. It will be nearer to 70%, and maybe the whole market, the S&P will be down 40%, this used to happen, Brett, perhaps you're too young for this kind of thing, it used to happen every five years, five or six years. These numbers I'm giving you may shock your readers but it's run-of-the-mill for most market periods, the volatile end going down a lot in the averages. So Nasdaq down 70% and the overall market down 40%, 50% wouldn't be unheard of. And it wouldn't be the end of the world either. Yes, but what do you think it would do to a lot of the current people in the market who have never experienced that? Well, they would be in very bad shape because many of them who are in the market are really relying on the market to provide their nest eggs when they retire. A lot of people will be severely shaken. And of course they're not going to have, as you did, a short position, probably. If they did, they probably would have lost their nest egg already. So, what would you say to, if you had a nephew or a niece in his or her 20s or 30s and was coming and asking, Uncle Bob for some advice ... Right now I would say put it in bonds. I would say all of it, for now, yeah. Short-term bonds. Yeah, whatever, something that can't go down much, or up much. Just wait a while. And that's because primarily, because of the valuations, and at some point, something bad will happen, fundamentally, to the economy. And meanwhile, you could make -- this sounds derisory -- but you can make 6% interest. I don't know if municipal bonds, for somebody that young, is making a lot of money. Don't they yield 5%, 4%?
Managing His Money NowWhat do you do with all your money these days, because you must be almost a billionaire by now. Well, no, I'm not a billionaire, but I'm very well off. I'm worth multiples of when I retired. The reason I don't want to give you a number is that one of my money managers who has made me so much money has been in the Internet companies. He really has a deeper understanding of them than I do. He's made me a great deal of money, and I suspect, in the last month and half, he's lost me a great deal of money, too. I don't know what I'm worth. I don't keep track of it every day. I get monthly statements from my money managers and let's see, this is the middle of April, so I'll never know what I'm worth in the middle of April ... and I know what I'm worth at the end of April, or sometime early in May. And normally, that wouldn't matter, but the Internet group has been so volatile that I don't know where he stands, and I'm not going to call him up and ask. I have enough to live on. And you have the bright managers and you have one short-seller. I have two short-sellers, and they've lost money consistently. But one thing I want to emphasize: I'm convinced that I am much richer today than if I had not retired. I would have had a terrible time in this market, the whole culture has changed and I was too old to change with it. I mean, Julian in effect said that in his parting remarks. He had done much worse than most value investors. It wasn't just value vs. the Internet. He had f***** up on the value. Sanford Bernstein, the quintessential value player, who never will compromise its virtue, won't lift a leg for anything, they were up a little last year, and I think are flat or up a little this year. Right. So he did unusually bad. I mean, you didn't have to buy US Air (U) to be a value player. No, and Waste Management (WMI) had some, unfortunately, fraudulent aspects as well, so what you're saying is that it wasn't so much that he was a value player. It was that he picked the wrong stocks. And that it was time for him to step down.
You Can't Take It With YouSo what do you do with all your money these days? How do you spend your time and your money? Well, I don't spend much money. I think I told you years ago that one of the most boring things to do with money is spend it. And so, you give some away and ... That's my main problem now is to give a lot of it away, and that's hard to do. Many of the ways you can give tons of money away are to supplement government programs. A lot of my friends are giving money to educational ventures. I would say right now, this is the most popular form of philanthropy, whereas my feeling is, that this should be done through the political process. The amount of money that I or any of my friends can give is just a trickle, relative to the total sums spent on education. Or you can give money to programs up in Harlem or the underclass. You can give an unlimited amount of money there, but the government is spending trillions on this and doesn't seem to be accomplishing much, and most people I know who are doing it aren't accomplishing much, either. So it's hard to find things that the government is not heavily involved with. Where you can really make a difference. Bill Gates has done it, I mean, the idea of developing medicines for Africans. The governments throw all sorts of money at the Africans, but not in this medical research area. So this guy who's known for some original thinking is probably doing a rather imaginative job with this great fortune. Well, do you have your own foundation? I do, but unlike Gates, it's a conduit. Let's skip that. I have my own foundation, period. And that's how you give the money out? Well, yes. You have to have some nonprofit, some entity to give out, and your primary area is ... Well, I don't, really. The foundation is really a function of the tax laws. OK. Fair enough, because of the tax laws. If there were no tax laws, I wouldn't have a foundation. And I don't think Gates would, either. To whom to you give money? What I tend to support the most are those things, that if they aren't saved, will be gone forever, like the Nature Conservancy, land acquisition. Now the government does a lot of land acquisition, but the Nature Conservancy is not dealing with the kind of vast tracts. The Nature Conservancy, in fact, is trying to do whole ecosystems. Make a deal, we'll develop that area and leave this other area pristine, because that's where the birds are, and that sort of thing. And World Monuments Fund, which preserves crumbling, beautiful buildings around the world. And the Environmental Defense. I suppose no matter how much the environment deteriorates, it can be restored, but after so much damage ...
The Wonderfully Human MarketFinal question: Why did you first go to Wall Street, what were you seeking to achieve and did you get what you wanted? Well, I first, I wanted to do something, I wanted to be involved in an intellectual pursuit as distinguished from sales, and I took two years of law school and got Cs, University of Michigan Law School, and I decided I wouldn't make a good lawyer, and I think that decision was correct, and then I went to First Boston, investment banking, which at that time, had the prestige that Goldman Sachs or Morgan Stanley had. I wended my way through that and got into the stock market, which is, in some ways as severely intellectual as nuclear physics, because, there could be no emotion involved. You must treat everybody at arms' length, because everybody is trying to deceive you, and there are very few money managers I know who are really highly social. Some of them may be seeking social grandeur, but they don't tend to like people, they aren't comfortable with people because they are really somewhat of an anti-people business. I used to say to my ex-wife that the wonderful thing about the market is it's so human. I'm dealing with humanity, and don't have to put up with any feedback. Except your clients. Well, except, I didn't have clients, remember? I made the decision early on that I could not, emotionally stand having clients, and managing money the way I was going to then, high-risk high volatility. I felt that I would have enough trouble handling my own emotions, from having to handle the stress of other people. And, at the end of the day, so you went in for something, an intellectual desire ... Something intellectual where I could make a good living. Did it provide you that? Of course, yeah. I mean, if it hadn't, I would really need a shrink, wouldn't I? I was never a Warren Buffett or a George Soros or a Julian Robertson, but I was a mini-celebrity for a while, and I made a lot of money and had a great deal of fun. Making money, there's, it's the greatest pleasure in the world, and I mean the greatest.
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