Stephen Mandel of Lone Pine Capital, a Tiger Cub Hedge Fund, on Investing and Philanthropy

And I welcome all of you to Family Centers Titan Speaker Series and the first Titan event we've done virtually. I want to shout out a great big thank you to our very generous underwriters and sponsors whose names you can see on the screen next to me. This event was made possible through the efforts of our amazing Titan co-chairs, Marge and Bill Berkley, Nancy and Dominic Casserly, Mary and Garrett Moran, and Jeannie and Rick Whitmer. Thank you all. Special thanks go to Family Centers board member and the Reverend David Van Dyke and the First Presbyterian Church of Stamford for hosting us today. Thank you, David. This event is being offered free to the public. However, this is an important fundraiser, and every dollar raised goes directly to Family Centers programs helping families most negatively impacted by the COVID-19 pandemic.

Thanks to everyone who's contributed so far. For those of you who would like to make a donation, you can text Titan, T-I-T-A-N, to 91999. That's 91999. Or visit the link at the bottom of your screen. We are honored to have as our Titan speaker today, the legendary investor, Stephen Mandel, founder of Lone Pine Capital, a major thought leader in philanthropy, and a longtime supporter of Family Centers. The presentation will run about 40 minutes, and then Steve will take a few questions. If you wish to submit a question, please enter it into the chat. To introduce and interview Steve, I'd like to call on our Titan co-chair, Garrett Moran. Garrett is past COO of Blackstone's Private Equity Group.

He served for six years as the president of the nonprofit Year Up in New York City, and recently stepped down as chairman of the Governor's Workforce Council in Connecticut. Garrett, I'm turning it over to you.

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 at 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 a dollar into the stock market in an index fund when Steve started a fund, it would be worth $6 today.

If you had put a dollar into Lone Pine when Steve started the 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 to the betterment of mankind. Steve has been married to Sue and they have three grown children and last week had welcomed their third grandchild.

Congratulations. So with that, I'm gonna just have a conversation here. I think the idea is to talk about both the business career and Steve's philanthropy and Stephen 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.

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 companies' 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.

So that's the kind of thing that's hard to do when you're picking up a company for the first time. So 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 oftentimes that's it. But how do you, how do you live that? How do you make that real, given that there's a—it takes time to figure out the character.

So there's really, uh, two things we do. Um, 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, uh, the senior management group broadly. So we, you know, 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 has 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, 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. 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. It is very helpful, you know, people that work with people for years and getting their perspectives.

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—as a professional who does nothing but find people who used to work with the management team and ask them really, really good, deep questions.

We have two or three people who are—they don't work exclusively for us, but they almost do. And they're not employed by us; they're third parties, and we pay them as such, but they do a really, really good job.

And so, are there other tricks for sort of persuading or tricking managements into spending more time with you? 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, you know, 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.

So all that suggests, though, that you're spending a lot of time on an individual investment. Does that mean that you hold things for a long time, or how do you characterize that?

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 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—you know, when new management comes in, an acquisition, something that's a catalyst for driving value—that where there may not be a long-term compounding of value, but there's a closer realization of value.

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 there's no point of view on management, how do you deal with that? If it's not a company where—I mean...

Well, in general, we would probably need to find some type of catalyst 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 or— Yeah, yeah. Um, do you have any—uh, I know we—we agreed when we talked about doing this first that we wouldn't—uh, mention any names of stocks in particular, but given the—uh, only because we have to restrict them if we—yeah, yeah. So, but—uh, given that limitation, are there—are there leaders of—uh, management leaders from companies that you think of as sort of paragons? Are there, you know, the—the beyond the sort of common names that people—

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. You know, he would—every year they would have the Walmart annual meeting. Initially, it was in their little cafeteria or whatever. The audience got too big, and they actually built a new field house at the University of Arkansas to hold it because they had it in the field house, and it was un-air-conditioned. The meeting was in July, and it got pretty oppressive in there. Sam's brother, Bud, built a new field house 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 each store, to the annual meeting. And they would come 24 hours by school bus from Ocala, Florida to Fayetteville, Arkansas. So he would, he would literally at five in the morning, he would get there and he'd be up on a stage like this and all these associates would be, you know, 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 Brotman 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.

You know, this is a company that—I can mention these names because we're not involved in either, but we—this is a company that, you know, is 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 healthcare benefits of anybody in the retail business at the same time as lowering the lowest prices for their consumers and just thought, you know, just they had built it. And if you, you know, if you go into Costco and you just look at people's badges, it always says when they, you know, it says their name, but it also says when they started, and I was just in there the other day and, you know, the two people I was dealing with, you know, one was 1999 and the other was, you know, 2003, right?

I mean, they—and they're very proud of the fact that a two-cashier household can lead a middle-class life in America.

So what about heartbreaks in terms of management teams that you misread or situations? This would be a lesson that people could listen to and take something away from. 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 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. 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 a company worth nearly $50 billion today. And they've always had a fantastic business, but they had some— So was the heartbreak both that they disappointed you and you sold the stock too early?

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.

So I'm interested in delving into the areas of innovation that you're looking at. For our audience's purpose, you could describe sort of the sectors broadly that you're in, and then we could maybe talk about what's exciting today.

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, you know, 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. 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 check 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 to consumer payments, but business-to-business payments as well—and is allowing many people who've been unbanked before and had difficulty dealing with the banking system to really enter the—you know, 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 in basically almost everywhere in the world.

The software space, you know, so that you had a movement from, you know, physical software that you're, you know, deploying to what are called SaaS models, software as a service models, where software is, you know, in the cloud and, you know, 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, we think of with the major e-commerce players, but it also gets into how we communicate, gaming, consumption of video. It's a broad phenomenon that's really changing how we communicate. 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 is

deals with targeted therapies, personalized medicine, and kind of the merger of software and biology, which is happening as we speak.

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 sort of thinking about now? And it might be for poor people as a class, or it might be internet, I'm not— Well, I think— In other words, it might not literally be us, it might be— 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, you know, your predisposition to certain diseases, and you will have a personalized—and I hope this permeates to society broadly, but it will, you know, probably start, unfortunately, when people are better off, but that will be standard.

I do think—I think it'll be a longer time before you get away from that. What does that mean, that personalized medicine will be standard? So, it means that, you know, your genetic profile will be with your doctor, with your physician, right? And

Off of that, you may have—there'll be preemptive 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 preemptive interventions that could stop that.

So you would, yeah. You're looking, though, at software and medicine. What's gonna make healthcare stop inflating faster than everything else?

That is a real—that's a really hard question because, you know, even in the world where, like, if you look where, you know, there is, you know, national healthcare through, you know, European countries, Japan, etc., there's—they're inflating, too. Their costs are lower than ours, but they're also inflating, and 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 the way that works best in this country is if the entire system, like you have at Mayo or Intermountain Health, etc., employs the docs and 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 has 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, you know, if you're gonna support the research and the clinical trials and all that that go into that, the drugs have to be priced at, you know, $200,000 a year.

And it's very hard for the FDA to say, you know, "No, we're not gonna." And so that, you know, 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.

Are there—I mean, a couple of things occur to me listening to you. You have to have a bunch of experts on your team. You have a small team of people, right?

You have about 15 investment people.

Yeah. And you're talking about some pretty esoteric topics. So I guess you've got some really smart, focused people.

We try and focus our people. There's a lot of things we don't really spend any time on. You know, 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—we have basically two or three people who are, and we don't do a lot. 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 of things. And we do that across various spaces.

I mean, whether it be aerospace or—I mean, we have people on the outside that we rely on.

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. That's about right. When you started Lone Pine, and if you look at what you were thinking about then and what you're thinking about today what what did you you probably open to thinking you really knew what you wanted to do you had fifteen years of experience you were in you had been investing is there are there one or two things that you really learned in the in the course of running Lone Pine that that you sort of didn't expect to learn or you just relearned have you been relearning things you knew when you walked in to set the place up well I had certain

I think the principles that we had, if you looked at our original business plan and you looked at it today, the principle—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 a bedrock of what we've done. But if you look at other things, we said, kind of, the maximum amount of money we can see managing: 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.

I felt like, "There's not gonna be a need for any more." We now have 95 people. We, you know, I was like, "I don't want to have all this, I wanna keep it very lean and we're not gonna need a general counsel." And now we have a general counsel and compliance department of like six people.

So things change. Those are normal growth things, though. You have a reputation, the firm has a reputation for being a great place to work, very sort of humane, good culture. And I'm assuming, from what you've just said, that that was sort of part of the plan.

Well, I was just talking to our COO today, and we had just gone through reviews last week. And I was just so proud and so thrilled, because many of the people... I have sat on every single person's review for 22 years. Never missed one. "Wow." And, you know, it's always... but now, you know, I used to know when we had 17 people, I knew basically what everybody 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 worked remotely and all that—the innovation and the implementation of stuff that we've done over the last, you know, whatever, eight months, was just... and seeing the, not only the commitment, but just the new things that people have done, you know, 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, right? I mean, Trello and Slack and... I mean, so that, 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. You know, we have, you know, 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. You know, we're by far probably the highest female leadership and ownership of any firm like ours. And so, and we've, we've always had a, you know, inclusive philosophy, both in terms of ownership, but also, you know, many firms like ours sort of run like two classes of citizens. You kind of, the investors is one type and everybody else is the other, and we haven't done that. More owners in the non-

investing people than we do in the investing people. And, um, so all that hopefully helps, you know. And then we tried to do all the sort of, what I'll call, the little things, right? You know, best healthcare we can get, you know, highest 401(k) match, uh, you know, matching gifts, our foundation, which we'll get into in a second, I guess, but, you know, all those things.

So good, good, uh, good, uh, window onto 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?

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, you know, initially we were, you know, a very small group. There were, I think, 15 people when I joined, and so we started, and it was just, you know, it wasn't everybody contributed. It wasn't, you know, like a tax on the profits that, you know, you had a choice of contributing, and everybody was highly encouraged to contribute. And it was focused predominantly on children and 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. 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 so we used to have an office in London where we still do, process of, person there, those people there are moving back here.

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 of—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 the foundation does. And then 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.

What's the biggest difference between picking a great company and picking a great nonprofit?

I think there's one aspect that's pretty much totally the same, and that's the leadership. And maybe even in some ways more important in the nonprofit, because it is in many ways even more reliant on a leader or a small group of leaders. 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, you know, are very tangible, right? They are measured in dollars. They're measured in, you know, physical outcomes that, you know, you can track and judge.

So there's a scorecard that is, you know, 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. You know lots of things about how students are doing on test scores, on graduation rates, on attendance, on social and 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, et cetera, and it's a long game, oftentimes much tougher to judge.

Am I right assuming that you've spent most of your—for you, the single largest time commitment has been Teach for America?

In recent years, yes. When I was Dartmouth stuff, it was probably that.

And I know TFA has gone through—it's 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?

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 had other professional experiences before they join. And the idea is they make a two-year commitment to teaching in the classroom, 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. You know, "I personally saw, you know, Johnny or Sally, you know, advance, you know, two grades by my own personal efforts," and, and, and it, you know, affects them for the rest of their lives. And the idea is that, you know, 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, et cetera, et cetera. 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.

When you say "alums," you're talking about your teachers?

The people who have gone through the program.

Right, not their students. Not their students.

Well, and it's interesting, a lot of their students have now become TFA teachers, right? Yeah, okay. Which is one of the coolest things that happens, right, when a kid, and they come and they go back, and they go back to the same school that they were in. Anyway, we now have 3,000 school principals across the country, and 300 school system leaders, and I don't know, 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, right? Because those people can actually start impacting the system. A teacher can impact their kids, but can't really impact the system. And so the 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 put yourself 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.

And what form does that take? How do you support that?

So all of that's gotten spun off.

Okay.

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 LEAD, 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 , separate governance. TFA supports it financially, but at a declining rate, and it is a minority of the financial support now. And it is, 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. Yeah, okay. And it's a separate 501(c)(3). And same, so, you know, the New Teacher Project got, you know, spun off from TFA, and that's—they've gotten into... And there's other organizations, Relay, New Leaders for New Schools, that have either loose or tighter affiliations with TFA that perform those other functions in terms of training.

So separate from the TFA diaspora, in education, what's got your attention in the philanthropic landscape? Well, I hope...

I think, big supporter of a bunch of charter schools, and, and I think a large part of the innovation happening in certainly Pre-K to 12 education is happening through a bunch of charter networks around the country have been quite innovative in terms of their approaches, and that—I still find that very exciting. I hope that—and this is, I was just talking about this today with somebody else, 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 U.S., 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, et cetera, that there's one-on-one tutoring and then there are huge online classes. And these are large companies, you know, the aggregate market caps of these companies, public and private, is probably in the, you know, range of like a hundred billion dollars, and in China, in China, and they—there's huge demand for these, for their services, huge demand. And so, and, and largely because, you know, Chinese parents, particularly with single-child households, etc., are, you know, willing to spend, yeah, a lot of money on this. And so I'm hopeful that, you know, my ultimate hope would be we can, you know, figure out how to get our system better, but I—that's a big lift, and there's a lot of entrenched interests not wanting to change that. So some of these solutions, like charters and like

what I'll call supplemental education, can be workarounds. And I'm hopeful somehow that we can get this going here in the U.S. somehow, and that there's an economic mechanism for districts to buy into this kind of thing. And that's a vague idea at this point in time, but it exists in other places in the world. It's maybe a workaround to the reforms that are needed at the district level, which are tough to happen.

I think I'm going to take the opportunity to see if we have questions from the audience.

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?

Hmm. Everything's a finance book, right?

Boy, that's—I like to read lots of things. I don't have, like, a book that I would say is, you know, really shaped my life, but I can tell you, sort of books that have made an impression on me are biographies of—as you might, I don't know if the webcast can see this, but I have my Abe Lincoln socks on here—biographies of people who've really overcome incredible odds to achieve what they've achieved are inspiration to me. So I talked about Sam Walton. Abe Lincoln is a hero of mine, you know. Even reading books, you know, read the Grant biography, I don't know, last year, a year before, and you, you know, you see a character that clearly, you know, had, had, had flaws, but also just had, you know, an overwhelming drive to, you know, achieve, and that—

I've been sort of lucky in my life that I've not had to overcome incredible—I've had supportive parents and all that kind of stuff, that never had to really overcome incredible odds to succeed or whatever, but that always inspires me.

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.

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 benefited from, you know, 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 it the Internet bubble of 2000, it lasted about 27 months. It was really from about September of—you know, Alan Greenspan, I call him Uncle Al, the speculator's pal, threw gasoline on the fire in September of 1998, and it ended in March of 2000. So that's—my calculator's right—that's about 27 months.

And this will burn out, too. When the retail investor, 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 contracts, this, like, right now, is double what they were a year ago: 22 million open contracts, 11 million open contracts a year. So there are a lot of aspects to this being somewhat of a bubble. And it will burn 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—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. You know, they may not be worth necessarily what they're trading for, but they're real companies, right? And so in the 2000—you know, the '99, 2000, 2001, you know, 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.

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?

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 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—you know, 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, you know, it's just a commodity now. You see a zillion ads on TV and these guys are just beating each other's heads in. So, you know, 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, right?

A lot of them, five years ago.

Yeah. I mean, so that's the, to me, the amazing thing about the U.S. economy is this, right? I mean, the big, a number of the biggest industries and biggest employers in the country, you know, you go back 50 years ago or 30 years ago, you know, have—their employment count has shrunk. They're like, you know, mostly manufacturing-type industries, right? But we've had massive growth in other industries, right? Where we lead the world, right? Technology, entertainment, healthcare. Right? I mean, they have filled those, you know, and it's tough on some, you know, if you're, you know, a 50-year-old person who is working in a GM plant or whatever, you know, it's hard to repot yourself. So it is, it's incumbent on government to help, you know, sort of bridge some of these, you know, gaps, but the economy is unbelievably dynamic and that's—

You know, that's one of the great attributes of this country, right? You just look at the value, you know, 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.

So we have time for one more question. And Macrae, 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?

Always, yes. But again, they have to—you know, often they're unloved for a reason, right? You know, there are areas of our, you know, this is the, you know, Schumpeter's creative destruction, right? I mean, there are areas of our economy that are in secular decline, right? We're not gonna 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 wanna own a mall. There are a lot of businesses that are—you know, we've seen this, you know, unfortunately in the publishing business, right? I mean, you know, I would not want to be a cable channel without a lot of original content that people really want to watch, right?

I mean, you know, the cord-cutting is not putting you in a good place. So there are a lot of businesses that are 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.

That wasn't a very cheery last question anyway, so...

Well, 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, you know, some bad luck happened to them, right? He took the job one day before 9/11. And I remember 9/11 happening. An airplane that we owned with engines that we made crashed into a building that we insured. So anyway, I attribute their issues to two things. One—or three things, really. There was a culture set 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 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 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 you have a long-term care contract, your assumptions are wrong and that snowballed. And then there were some, I think, 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—got hurt.

But they still have, I mean, they have two really outstanding businesses. 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.

Thank you, Bob. Thank you, Steve. It was a great conversation. Thank you. Tune in next week. We'll have a two-hour version of this.