[00:03:22] Intro: You’re listening to the Richer, Wiser, Happier podcast, where your host, William Green, interviews the world’s greatest investors and explores how to win in markets and life.

[00:03:42] William Green: Hi folks, I’m absolutely delighted to be here with today’s guest, Jay Bowen. Jay is the President and Chief Investment Officer of an investment firm called Bowen, Hanes & Company, which was founded by his late father back in 1972. Over the last half century, they’ve delivered spectacular returns, turning $12 million into several billion dollars for their largest client.

[00:04:07] William Green: We’re going to discuss in depth how they did it and what the lessons are for the rest of us. Jay, it’s really lovely to see you. Thank you so much for joining us.

[00:04:15] Jay Bowen: It’s a pleasure and I’m a big fan, a big fan of your book. It’s a wonderful book because it’s so much more than an investment book. Really enjoyed it.

[00:04:24] William Green: Ah, thank you so much. I really appreciate it. And you and I spoke years ago, I think during, in the, at the height of COVID about having this conversation. So it’s been a long time coming. So I’m really excited that we’re finally actually getting to do this. In many ways the story that we’re going to tell today is the story of a father and a son who together beat the market by an absolute mile over the last 50 years and turn millions of dollars into billions.

[00:04:49] William Green: So I really wanted to start by asking you about your father who has the same name as you. He’s Harold J. Bowen Jr. and you’re Harold J. Bowen III, but known as Jay, right?

[00:05:00] Jay Bowen: Right.

[00:05:01] William Green: And your father passed away about six years ago, I think, in 2018 at the age of 87. Can you tell us about him, what he was like, or any stories that give us a sense of his character and the like?

[00:05:13] Jay Bowen: I’m so glad you asked that, because he never gets enough credit for this story. Ever, ever, ever. When we’re sometimes profiled in print or broadcast, we started getting some national acclaim several years ago, and he never got enough credit. And that always bothered me. He was too humble to care that much, but I’m so glad you asked that because he built a tremendous.

[00:05:40] Jay Bowen: Record and firm and relationship. He forged the relationship with the Tampa fire and police in the early seventies. Actually, it goes back to the late sixties, the initial interaction. And he formally forged a relationship in 1974. And like I say, he handed me a tremendous record and working side by side with him for 32 years or so was.

[00:06:11] Jay Bowen: Obviously, tremendous for me and life changing and a lot of other aspects that go along with that relationship. But I’m just I’m thrilled that you asked that because he had it a lot harder than I did when he handed me day to day responsibility. Coincidentally, we’re, we’re in our in the midst of our 50th year, which will end fiscal year will end on September 30 and he had day to day control for 25 years.

[00:06:36] Jay Bowen: And now I’ve had day to day control for about 25 years. So it’s. I think that’s somewhat interesting, but he handed me this. Powerful. Record and like I say, even though the phone was a lot smaller when he forged a relationship it was 12, 000, 000 in 1974. And for your own information, he actually initially was involved with the fund in the late 60s.

[00:07:03] Jay Bowen: He was a senior executive with financial firm in Atlanta after starting his business career in Chicago with the kind of little noise. Bank and then also he was involved with the sears organization in Chicago. He ended up in Atlanta because I think my mother was a little bit tired of the cold winters in Chicago.

[00:07:21] Jay Bowen: She had had enough. So they ended up in Atlanta and he ended up with an organization called Lionel which was a. Financial management organization back then, and they had a relationship with Tampa and so it was that was kind of the initial contact that he had with the fund down there and he. With another person in the brokerage industry down there, he actually helped set up the plan initially in the late 60s when it was just a couple million dollars.

[00:07:56] Jay Bowen: He advised them and helped set it up and was involved when he was with Lionel de Edie. And then when he left, Lionel set up his own firm, he initially set up his own firm in North Carolina, Western Salem, North Carolina, as you said, in 1972. And a year or two later, they had had such a nice experience with him that they contacted him to make a presentation, because they had become somewhat disillusioned.

[00:08:24] Jay Bowen: With the maybe disillusioned is not the right word, but they just wanted to them had really enjoyed working with him and respect to them. And so when he set up his own firm, they contacted him to come make a come make a presentation.

[00:08:37] William Green: And so just so people are clear, Jay, so for people who aren’t fully informed about the story yet, the Tampa fund that we’re talking about is the pension fund for firefighters and police officers in Tampa, Florida.

[00:08:51] William Green: So this fund basically, as I understand it, had something like 12. 14 million back when they made contact with your dad again, right? So they bring him in. In 1974, he makes this presentation, and as I understood it, the pension was a bit of a mess at the time, and some people had said that it maybe was on a path to going broke, I mean, the contributions were, I think, all going into treasuries, not stocks, right? So, he came into a pretty poor situation, is that fair to say?

[00:09:23] Jay Bowen: Yeah, and also, of course, we’re on the eve of that horrendous market in the mid-70s and the great inflation and everything else that went around went along with that. And so it was kind of a kind of a tricky period. It’s funny. I talk, there’s 1 living trustee left original trustee, a guy named Bob Smith, who was a policeman in his early 20s and.

[00:09:43] Jay Bowen: Worked with my father initially, and he lives, retired, lives in Kentucky now, and I talked to him, just a wonderful man, and he, he, he’s such a great resource, because he’s the only living original trustee left, and he, he related to me some of what you’re saying also, what a tricky period that was, and that they really wanted, as he said, we really wanted to hear from Harold again, and so, We got back in touch with him, and he came down and made a presentation, and yes, they hired his firm in 1974, and they asked us for about 12 million in 1974.

[00:10:19] Jay Bowen: And what have they grown to? I mean, give us a sense of why, why we’re here, essentially, which is just how successful the fund has been over those 50 years.

[00:10:29] Jay Bowen: Yeah, and what makes it, I think, even more dramatic is that it is a traditional defined benefit pension plan. So there’s a lot of money going out. It’s doing its job, it’s paying, providing a good, safe retirement for these wonderful public service employees.

[00:10:45] Jay Bowen: And so from 12. 1 million to 3. 1 billion. over the period and one with 1. 8 billion taken out. So when you net it all out, it’s even more dramatic than it appears in terms of the 3. 1. Because like I say, 1. 8 billion has been taken out of the fund over the 50 year period.

[00:11:06] William Green: So what we’re really talking about here to underline this for our listeners is we’re telling the story of a 12 million fund that grew essentially into 5 billion, practically 5 billion minus the withdrawals of 1.8 billion that have gone out. And this is, when we think about who the clients are, this is several thousand firefighters, is that, and lots of policemen, like who is it?

[00:11:32] Jay Bowen: It’s segregated, it’s separate. Some municipalities have, the funds are all combined, you got the city employees, the fire and police employees, it’s all, all one pool.

[00:11:42] Jay Bowen: But you’ve got other municipalities that separate the fire and police fund, and Tampa does, it’s a separate fund, strictly. For firefighters and police officers to provide, define traditional defined benefit to provide retirement for these public service employees. When they retire and so it’s, yes, it’s firemen and policemen and their families, correct.

[00:12:07] William Green: So in a way, the reason why I’m excited to unpack this over the next hour or two is that the basically I think this is one of the great untold investment stories of the last 50 years of how you guys beat the market with your stock portfolio by such an enormous margin. I think when I, when I looked at the figures.

[00:12:25] William Green: I’ll probably get this wrong, but basically from September 30th, 1974, until June 30th, 2024, we’re talking about a cumulative return of 24,900 percent for the whole portfolio, which is about 11.7 percent annualized since inception. But the stock portfolio, because this is a stock and bond portfolio,

[00:12:46] Jay Bowen: Right, it’s a traditional, 60/40 deal, right?

[00:12:50] William Green: Right. So the stock portfolio returned 81,031%, which is about 14. 4 percent annualized. And that compares, basically, I mean, the S& P 500 had to be kind of combined with the Dow Jones Industrial Average over that 50 year period to get a good comparison. But I think that annualized about 12. 5 percent and cumulatively it was about 34, 415 percent for the index. So we’re talking about an outperformance of 47, 000 percentage points for the smart [Crosstalk].

[00:13:25] Jay Bowen: Stark really demonstrates the compounding power of money, the Einstein, sixth wonder of the world, whatever you want to call it. You look on paper and you say, okay, wow, okay, that’s a 200 basis point outperformance.

[00:13:40] Jay Bowen: Wow, that doesn’t look like, but then when you compound it over 50 years, it’s just enormous. What it is, basically one way that I’ve always looked at it, it’s, it’s basically, this is not exact, but it’s the fund has twice as many dollars as they would have had if they just kept up with the S&P side.

[00:14:01] Jay Bowen: It’s really, it’s practically, it’s, it’s basically twice, twice as many dollars. So it’s an extraordinary feed. Compound over long time periods. It might not visually, it might not look like a lot, the whatever, 100, 200, 300 basis point, but when you compound it over such a long period, it’s just enormous.

[00:14:20] William Green: Yeah, I mean, this is one of the points I tried to emphasize in my book is that these relatively small incremental margins of victory added up over time become utterly overwhelming and virtually two percentage points a year is not even a small margin of victory and to sustain that over a long time is enormous and there are charts comparing the performance to the total returns of other pension funds that are over a billion dollars and I think I’m right in saying basically that You’ve been in the first percentile over five years, 15 years, 20 years, 30 years, 40 years.

[00:14:55] William Green: So this is a, it’s a story of very long term sustained outperformance. So a lot of what we’re going to do today is actually to sort of unpack how on earth that happened. And also, I think there are interesting lessons for our listeners who are not necessarily running. Municipal funds, but actually the idea of how you perform well over 50 years is very relevant for people who are listening, who have families, who have kids, who are young, and it’s a good proxy in a way for an individual investor’s career. What do you think? Do you have any thoughts on that, Jay?

[00:15:31] Jay Bowen: Oh, yes, absolutely. There’s no question that’s applicable to individual investors. Also, particularly when you look at the long term approach that was that was taken and that was instilled in me. And 1 interesting aspect of it, you mentioned the relative rankings versus other municipal funds.

[00:15:49] Jay Bowen: You’ve got 2 major databases that do that investment metrics and Wilshire and. We, we didn’t plan it this way. We know with a top down thematic long term approach we’re never going to, we’re not going to outperform every year. This is just, but we’re not. My dad always used to say, We’re really not doing our job if every year we’re, I mean, he would say that you’re way too trading oriented and you’re not taking a long term approach.

[00:16:13] Jay Bowen: I mean, we’re going to be early and out of sync during certain times, but over long rolling time periods, it’s, it’s, it’s so powerful. And that’s reflected. I’m so glad to have these databases because to me, that validates vindicates the approach that we’re taking it vindicates what’s known as the Tampa model in terms of the core unconstrained approach that we take and the head scratcher.

[00:16:41] Jay Bowen: Is you’ve got all these other municipal funds, hundreds of them, thousands of them, and none of them employ the Tampa model. None of them. It’s all the traditional multi manager, consultant driven Model modern portfolio theory models, and I just think it’s fascinating that you’ve got this one loan plan and, of course, I’m exaggerating.

[00:17:06] Jay Bowen: I’m sure there’s some small plans that have 1 manager, but you have this 1. Loan multibillion dollar plan that’s doing it. Completely different than everybody else and coincidentally. Ranks at or at the very top for every conceivable time period. And yet, it’s viewed with skepticism. It’s like, wait, that can’t be, that’s one manager, that’s way too risky.

[00:17:31] Jay Bowen: You can’t have one manager. We’ve got to, so I’ve always thought that was an interesting part of the story. That it’s so different and so unique. And I’m glad to be able to sink my teeth into the comparative databases because it makes the trustees feel good when they see the rankings because it’s basically validating what they’ve been doing for 50 years.

[00:17:54] William Green: We’ll come back in much more detail to what makes it so unique and, and how it compares to more conventional approaches. But first, I wanted to get a bit more of the backstory of it. So, when your dad started out, I mean, he’d served in the U.S. Marine Corps, right? So, I’m kind of wondering When he came and made contact with policemen and firefighters and the like, was there something about that sense of duty, the sense of service that kind of resonated?

[00:18:18] William Green: Was there, what was he like in, in terms of personality? Was there something about him that resonated with the people running the pension fund? Because, in a way, it’s sort of a strange, a strange love story over 50 years where these, these oddballs running, on the committee of the pension fund actually trusted you guys for 50 years, which is kind of extraordinary, especially as we’ll get to based, given some of the criticism that they came under over the years.

[00:18:47] Jay Bowen: Yeah, I think that’s exactly right. It’s all about trust. And he built this trustful, they really respected him and they liked him. And I think the Marine Corps definitely played a role in terms of making him resilient and making him connect.

[00:19:02] Jay Bowen: With some of these public safety officials. I don’t think there’s any question about it. He would, when he forged the relationship, they just had enormous trust and respect for him. And that’s why they called him back to make that presentation in 74. And he used to, it’s funny. He used to go down and again, just to, he never gets enough credit.

[00:19:24] Jay Bowen: He really took the brunt of the early criticism and of the, the, the, they were, Fight, even though the fun’s a lot bigger back then, the fighting to get control, to get their hooks. Into that plan once it was started and then when it got bigger and bigger and bigger in the 1970s and the 1980s particularly, I mean it was, it was really, he had to really fight some fierce battles in terms of keeping the plan.

[00:19:52] Jay Bowen: He was under a lot more stress. Then I’ve had to deal with to try and keep the plan together. I mean, he was being attacked from all sides often mean it was just really tough. And then you have the performance side of it, where there, that was a lot of pressure, but he forged a relationship with those board members.

[00:20:14] Jay Bowen: And I can remember when I was little third, fourth grade, my mother would say, well, your father’s going to Tampa again, and he would go every month. He would go every month, and he forged this relationship, and I can remember he would tell me, they would pick him up at the airport, and they would go have breakfast or lunch, and I think he really took pride in educating these trustees, because they were really, really dedicated.

[00:20:41] Jay Bowen: He had three policemen, and still do, three policemen, three firemen, and then three city trustees that the mayor appoints. So it’s nine trustees, and my father always said, It’s really the police trustees and the fire trustees that they’ve got the majority. If there’s ever a vote, they’re the ones that they’re going to determine the fate of the plan.

[00:21:03] Jay Bowen: And so he really, he forged these really terrific relationships and friendships. We just had our, we had a little 50th anniversary celebration down there, and some of the trustees came that are retired now from the 1980s and 90s, and they were just really good friends with him. He really, there was a chairman, there was a chairman that was chairman for 12 years, and a vice chairman that was a fireman, and he was vice chairman for 10 years. He was really able to forge a very close, not with all of them, but with a lot of the trustees, a very trusting relationship. And I think he felt it that it was incumbent on him to really educate the trustees in terms of what he was trying to do and why he was doing it. And. When they would see what he said over a long, particularly over long time periods come to fruition, I think it really helped embolden him with the trustees and they just completely bought in to what he was saying and they completely bought into the long term approach and they had their eyes firmly set on the distant horizon in terms of what this plan was all about.

[00:22:19] William Green: Well, I remember you telling me when we spoke last time that I think it was the chairman of the trust when he would go to these investment conferences and people would sort of pillory him. For the fact that they had all that money just with this one small firm in Atlanta and he, I think you told me he would keep the returns in his back pocket and he’d pull them out and everyone would just kind of go quiet and be like, Oh, all right, well, I see actually your returns are pretty amazing, better than ours. And it was sort of shut them up.

[00:22:51] Jay Bowen: Exactly. I mean, and the, the other thing my father had to deal with that much more than I’ve had to deal with is that this. Really desire for, I mean, the fund, even though it was, whatever, 25 million, 50 million, 100 million, 200 million, I mean, everybody wanted to get their hooks into it. And it was viewed, I think, as a fresh piece of red meat. You had this one manager, and it was like, wait a second, think of the fees that fund could generate.

[00:23:17] Jay Bowen: For the consultant and for the brokers and for the multi managers and for the whatever the deal of the day is, the, you are just and the trustees, like you say, they would go to these conferences and they would just be swarmed and they would be particularly when he was responsible for it. They would really be criticized from a fiduciary standpoint for only having one manager and there was just he really had to fight the story.

[00:23:41] Jay Bowen: He, I remember 1 story he used to love to tell and these trustees were selfless, dedicated, they often gave up promotions to do the right thing. I mean, there’s a, there’s some incredible stories about some of these original trustees when pressure was put on them to do certain things. He loved telling the story.

[00:24:01] Jay Bowen: About this was in the early 80s and the former mayor of Tampa had joined an insurance company out of New York. I’m not sure which company it was, but he had come down. He had brought a. The sales team down to try to sell the fund on guaranteed investment contracts that they needed to put at least half the assets into guaranteed investment contracts.

[00:24:27] Jay Bowen: And they brought all these fancy salesmen down from New York in their fancy suits and they gave the presentation. And of course, they just, the other thing my father used to always say is everybody always underestimates these policemen and firemen. They underestimate their intelligence. They underestimate their common sense.

[00:24:45] Jay Bowen: They underestimate how savvy they are, which is what these people I’m sure did. They thought they had it in the bag. The mayor was with the former mayor was with the, was this firm and they thought it was just done and the board voted down and it’s just, everybody was slack jaw. I couldn’t believe it that the board would do that.

[00:25:02] Jay Bowen: But of course it was the exact wrong time to wait into these guaranteed investment contracts because it was on the eve of. A really nasty period in terms of what was going on in the body market in terms of interest rates and that kind of thing. So that’s 1 story. He liked to tell, but he was, there were all kind of different challenges in terms of people trying to get their hooks into this thing.

[00:25:27] William Green: I think this is the this is the first point that I want to underline because there are a lot of there are a lot of lessons that we’re going to draw out in our meandering conversation and about how to make money over the long term as an investor and I think this is the first one that we want to draw attention to which is that people have very perverse incentives and this is something that Charlie Munger talked about very eloquently where he basically said, look, if you, you should always basically pay attention to incentives first, and, and he, he had these very pithy comments about how you should particularly be aware of investment advice that’s especially profitable for the investment advisor.

[00:26:07] William Green: And so the part of the backstory here, as we’ll discuss as we go on, is that Jay and his father, charged unbelievably low fees to this pension fund. And that’s appalling for everyone else who wants to get their hands all over the fees. I mean, what you, you’ve traditionally charged what 0.25 percent flat fee, is that about it?

[00:26:32] Jay Bowen: Correct. Yeah. I know my father decided back in the eighties, he just felt like, look, if we’re going to have total management responsibility, We need to, we need to really be aggressive and competitive on the, on the, from a, from a fee standpoint, and he just wanted to do a flat, flat 0. 25, and he felt that was fair to everybody, particularly, and even today, when you look at the average, when you add it all up, and there’s so many hidden fees in terms of these various layers, particularly with the poster child would be something like a CalPERS. I mean, when you go through the various layers of fees, it’s I think it’s easily 40 to 50 basis points, at least the average. So the fees are, I think, certainly. Competitive and that was by design by him. I mean, he really felt it was important if they were going to trust and trust us with the entire fund, then we needed to have a very competitive fee.

[00:27:27] Jay Bowen: And the other thing that he always emphasized and made me realize is that, look, this is not just some blob, some fund that we’re working with. These, these are people’s, this is, this is, this is a retirement. I mean, they’re entrusting us. With the retirement and so he always felt like it’s taxpayer money.

[00:27:51] We want to provide a good retirement for these public safety employees and he always emphasized airing on the side of caution and taking a really high quality approach. The more adventuresome stuff he was fine with it. These other managers. Whatever the case may be and depending on the, on the, on the client, if it’s, he always felt like if it’s private money, if it’s a private endowment or a private foundation, you go for it, you can take as much risk as you want, but he always emphasized because it was a defined benefit.

[00:28:25] Jay Bowen: Retirement money for public safety employees and it’s taxpayer money. Basically, he really felt like we should air on the side of caution. And the reason I mentioned that is. I think the results are actually on a risk adjusted basis a little bit. Better than they appear because it was done. And is continuing and the other thing he made me realize it.

[00:28:50] Jay Bowen: It was done with a, and it still is done with a very high quality approach. And he always emphasized that it can be just fine. You can do, you can do what you need to do for this plan without swinging for the fences every day. You can take a very high quality long term approach and it’ll work out. That’s been very important.

[00:29:09] William Green: We’ll go into that in a little more detail in a minute. I just wanted to close out this idea of not overcharging and of low fees, because this actually is a very important lesson for our regular investors as well, because as you pointed out in an article that I think you wrote for Barron’s several years ago, this is a quote from that article, you, you said there should be an intense focus on fees, which can have a jaw dropping impact on fund values over the long term.

[00:29:34] William Green: And you pointed out that if, say, you’re running a 5 billion fund that returns 7 percent annually after fees over 20 years, it would actually yield 1. 9 billion less than a fund returning 7.5%. And so just that half a percentage point a year over 20 years in extra fees is kind of catastrophic. And I think this is something that’s really easy for regular investors to actually clone and emulate from you.

[00:30:01] William Green: Just to think about what, what am I actually getting for the extra fees that seem tiny in the short term? I mean, who cares about half a percentage point? When you’re, when you’re trying to make them, when you think you can make 50%, on your cryptocurrencies in a day or whatever, people don’t really focus on half a percentage point but over time, it becomes colossal. Do you have any thoughts on that, Jay?

[00:30:25] Jay Bowen: There’s just no question that the numbers are so astounding, just as we mentioned on the compounding power, how powerful that is, it’s the same. It’s the same side of the coin with, with fees over long time periods. It might look minuscule as you say, Oh, 20 what’s 25, okay. So my fees, 50 basis points instead of 25 basis points, but good grief. Over long time periods, it can, it can just be enormous. And yes, I think it’s really critical for individual investors. I mean, it’s, as I tell my kids, it’s all about after tax. Doesn’t matter what your pretax income is. If the marginal tax rates 100%, it really doesn’t matter what your pretax income is.

[00:31:06] Jay Bowen: I mean, you really need to look at it after fees. That’s so important, particularly over long time. People, Getting lulled, I think, and seduced into thinking maybe it doesn’t matter, but just, just vital over long time periods.

[00:31:19] William Green: And one of the things obviously that has, has made this such a lucrative business for so many people to get in on managing these trillions of dollars in, for state employees, for their pensions and the like, is that they’re hiring lots of hedge funds and venture capital firms and private equity firms and the like, which charge very hefty performance fees.

[00:31:41] William Green: In addition to their annual management fees and then on top of that you have this layer of very heavy expenses for consultants who are advising you on, where to put the money and as I wrote about in my book, Buffett is wonderfully funny about these sort of hyper helpers as he puts it, who are always sort of Advising you to kind of move your money around in a more aggressive way.

[00:32:06] William Green: And they’re kind of hiring and firing people. Can you talk about that world of experts? I mean, these aren’t bad people. They’re like you and me. They’re just trying to make, make a living and send their kids to college, but they’re not necessarily. They’re feeding at the trough, right? Tell us how it works, like, about this kind of, this little, it’s not even a mini industry, an enormous industry that’s grown up around all of these funds.

[00:32:33] Jay Bowen: Right. And I’m glad you mentioned Warren Buffett and his, anybody who wants to just see some, I mean, nobody has written, nobody does it better in terms of, he usually talks about it in his annual report, and Charlie Munger used to also. Nobody, I think, has a more accurate critique of the, of the, of the consultant industry and modern portfolio theory.

[00:32:59] Jay Bowen: Situation than Warren Buffett. He routinely writes about it in his annual letter, I think, and anybody who’s interested in what he has to say about this should really go do a search and look at some of his writings on the consultant industry and modern portfolio theory. Because it’s just, it’s just priceless the way he articulates it.

[00:33:23] Jay Bowen: And I remember my father always, always, he always pinned it. He always felt like ERISA, which dates back to 1974, I think it was the Employee Retirement Income and Security Act, which was really designed for private pensions in terms of regulations and fiduciary responsibilities, that kind of thing.

[00:33:42] Jay Bowen: But what happened, my father always said what happened was a lot of these public funds surrendered, the boards got spooked about being fiduciaries. And so they handed it off to the consultant. We’re going to, we’re going to let the consultant do it. We’re, we’re, we’re done with it. They got nervous, they got cold feet.

[00:34:02] Jay Bowen: We’re going to, so the consultant, and it became bigger and bigger and bigger and bigger, that industry. And as you say, they’re not, I mean, they’re not, they’re not, Bad people. They’re genuinely trying to add value. I just think they’re operating out of a flawed playbook, flawed, modern portfolio theory playbook, but the industry got bigger and bigger and they became the go to fiduciary entity for all of these public plans.

[00:34:30] Jay Bowen: And what would happen is, and I’ve seen it over the decades, I’ve seen the booklets they produce. They come in every quarter and it used to be really egregious. I mean, it was so painful the way it used to it’s gotten better in terms of the longer term approach, but they would plop down this massive document every quarter where they would analyze and critique.

[00:34:54] Jay Bowen: All of the managers, and what their Sharpe ratio was, and what their beta was, and what their alpha was, and pick your Greek letter, pick your Modern Portfolio Theory term and they would, they would do a rigorous analysis of each manager and which one’s underperforming and which one’s outperforming and okay, now I think it’s time to shift money from this manager to this manager because he’s underperforming and literally, I mean, sometimes this was done every quarter.

[00:35:19] Jay Bowen: And here we are trying to take a 20 year approach and it’s just, it just makes your head spin. Now, Tampa is unique. They’ve never bought into that. They’ve never bought into that, but all these other municipal plans, the consultant became the go to entity, became more and more important as the years went by in terms of doing manager searches, doing asset allocation strategies.

[00:35:43] Jay Bowen: Hiring and firing managers, producing the quarterly reports, assessing and evaluating the managers, telling the board when they need to do a manager search, and of course, there are a lot of perverse incentives with that model because it kind of encourages turnover and activity, for a variety of reasons.

[00:36:04] Jay Bowen: So they just got stronger and stronger in terms of their grip on the municipal fund industry. And it’s just textbook classic. You have a. Whatever 100Million dollar plan or a billion dollar plan, they’re going to have 10. 20, 30 managers, all different disciplines, all different styles, all based on this theory that you need to be diversified.

[00:36:32] Jay Bowen: And it, equating, equating volatility with risk really, which is what it, what it flows from. And it’s just, to me, when I look at the hard data, it’s just been a prescription for mediocrity really.

[00:36:46] William Green: Buffett said at one point, business schools reward difficult, complex behavior more than simple behavior, but simple behavior is more effective, and I think that’s part of what this gets at, is that there’s something There’s something very seductive about this idea of getting some consultants in who are going to use all of these Greek letters, who are going to give you this, this sense that this is a science that you can really manage in an incredibly detailed way based on, past returns and volatility and stuff like that, that somehow there’s something kind of very seductive about it, but also delusional, no?

[00:37:26] Jay Bowen: Right. And it’s funny you said science. I mean, My father used to hammer away, one of the early lessons he taught me, he would, he would come in my office and he would say, look, this is not a science. It’s an art. He would say, it’s like painting a picture. You got this portfolio and you’re constructing it.

[00:37:45] Jay Bowen: And if you do it right, it’s just like a beautiful picture. He would always say that he would really always emphasize that it’s, look. It’s not in his viewpoint that it’s not a science. Now, having said that, I will say this, there are plenty of ways to manage money. And there are plenty of people who do it that have been much more successful than I that do it other ways.

[00:38:06] Jay Bowen: They might have a black box or they might have a formula or they might, it might be completely technical and more power to them. We’ve just always felt the most comfortable viewing it more as an art than a science. And taking a, a top down thematic approach. I know that’s not for everybody and there are other managers who do it just the opposite.

[00:38:28] Jay Bowen: I remember Peter Lynch. Who I’m a huge fan of Peter Lynch. I remember him saying that, well, gosh, I mean, five minutes spent on economic analysis is five minutes wasted. He, he was, he, he didn’t care about that kind of thing. And so yes, they’re different. They’re all kinds of different ways to do it. We’ve just always been the most comfortable viewing it more as an art than a science and my father really instilled that in me.

[00:38:54] William Green: Let’s talk more about this idea of being a top down thematic investor because as you say it is kind of unusual what do you mean by it for a start and also can you give us a sense of how this approach kind of grows out of your unusual experience and really out of your dad’s unusual experience right that he started you know the seventies during a period of stagflation and stuff so it was a time where actually you kind of needed to have some top down understanding because otherwise you were really vulnerable.

[00:39:26] Jay Bowen: Right. I think that’s right. I mean, the example I like to use is that when you look at some of these numbers, I mean, between 1966 and I think 82, the market really didn’t go anywhere. I mean, it was, it actually had a negative real return. I think negative 6% and we always felt the reason for that. Was really bad policies, bad monetary policy, bad fiscal policy during the, the great inflation of the seventies, really policy oriented.

[00:39:54] Jay Bowen: And so when I came along and it’s funny because I’m not a numbers person, I’m not a math person. I’m not I mean, my father was much more oriented towards his brain was much more, more mathy numbers I’m much, I come at it really the other way, much more, my liberal arts background and I’m not a mad person at all, but I was completely captivated and drawn to the policy debate. I just found that fascinating, what the monetary policy and what that meant for financial assets. And when you had periods of price stability, what that meant for stock returns like the 1948 to. 1966, when you had an incredible period from a price stability standpoint and the market compounded at a strong double digit rate.

[00:40:41] Jay Bowen: And then you had this period from 66 to 81, 82, where you had negative real returns and you had the great inflation of the, of the seventies. And so when I came in, I can remember even before I was, even when I was in college, I very much was drawn to the, to the policy debate and what was going on. And I would talk to my father, we spent a lot of time talking about the, the 1980 election and what that meant, and then the end of the 70s, what that meant when Alfred Kahn was deregulating the airline industry and the trucking industry, and then Carter put Volcker in, and then Reagan was elected and just these transformational changes on the tax.

[00:41:18] Jay Bowen: Regulatory and monetary fronts that were coming. When I talk, when I say top down, it’s. That’s what we were really looking at. Okay, what is this going to mean? What is Paul Volcker going to mean to financial assets? What’s it going to mean to the bond market? What is Ronald Reagan’s tax reform of, of 1982 and 1986 culminated with the Tax Reform Act of 1986?

[00:41:39] Jay Bowen: What’s that going to mean for financial assets, for the, for the bond market? What, what’s it going to mean that the change in the regulatory structure that was going on in the eighties. And what I always remember is even before I was in the business, really, really talking to my father about what Volcker was doing, that, that he was.

[00:42:01] Jay Bowen: Going to break the back of inflation and I remember my father thinking, okay, this is really going to, if this happens, if you’ve got price stability coming in on the monetary side. And you’ve got higher after tax rates of return on the fiscal side, because of a tax reform and a more efficient.

[00:42:21] Jay Bowen: economy with higher real growth rates. This could really, for certain, and I say top down, so you start by answering these broad questions about what’s going on in the monetary world, in the fiscal world, regulatory world, what that might mean for different sectors and industries, and you break it down, and then when you focus on the industries and the sectors that you think might do relatively well, then it becomes more of a, Traditional valuation standpoint, where you’re using traditional valuation metrics.

[00:42:51] Jay Bowen: And I can remember my father, he would open up the value line and this is in the mid-80s and he would say, look at this chart of Campbell’s soup. Look at this chart of Coca Cola. Look at this chart of Gillette. These are all staples, consumer staples companies, and they had just gone, I mean, absolutely just dead, dead, dead money.

[00:43:13] Jay Bowen: And he got a sense that because of what was going on the monetary and fiscal fronts that this was the time to really build big positions in these companies. And he did, he did, he built for Tampa, he built significant positions in Coca Cola, I think the cost, his cost was a dollar and a half. Gillette, some food, Heinz, Campbell Soup, I mean, they had just flatlined.

[00:43:37] Jay Bowen: And let me tell you, the bull market started in August 1982. Coincidentally, it started when the, the tax cuts were delayed for a couple of years during that tax reform act of 1980, they phased them in, which we always felt was a mistake because it delayed people’s behavior. But once they kicked in, that was it.

[00:43:56] Jay Bowen: I mean, the staple sector really just took off because you can imagine what happens to their operating leverage when those margins are able to. When inflation comes down and their margins are able to expand and my father would joke, he would come in my office. Because he would hear that Warren Buffett was taking a stake in Gillette and Kogia’s.

[00:44:16] Jay Bowen: Oh, well, Warren Buffett’s copying me again. I mean, we got to, he would, he would laugh about that. But that, that’s kind of a flavor of. Of the top down were in the 80s really focusing on this consumer staple sector because of what was going on the inflation front and what that might mean. So they’re the profitability of those companies.

[00:44:40] William Green: What’s a very distinctive approach, right? Where you’re beginning with a broad analysis of macroeconomic and political and technological trends and the like. And you’re, you’re looking at tax policy and trade policy and fiscal policy and regulatory policy, and even foreign policy.

[00:44:55] William Green: And then you’re saying, okay, so what’s this going to mean for stocks and bonds? What’s it, what’s it going to do to inflation and interest rates? And then you’re doing the bottom up analysis to say, okay, so who’s going to benefit from this and what do we want to do? In this sector that’s likely to benefit, but I guess I have this, there’s almost broader philosophical question, which is how noble actually any of that stuff is.

[00:45:16] William Green: I mean, to what extent are you. I can see that it’s very relevant and very important, but I always kind of had this prejudice that it was just, unless you had particular gifts, which maybe you do, it was just incredibly difficult to make any predictions about this stuff.

[00:45:35] Jay Bowen: It is, and my father would always warn me that, look, in terms of the political situation, you can forget trying to predict what the stock market’s going to do based on an election, because it can It can just go so many different ways and it and there can be no rhyme or reason sometimes but there’s certain, I think, you know what, and I, I think you make a very valid point and I think there’s certain times where the top down work is more valuable than other times.

[00:46:01] Jay Bowen: That was just, that’s so seared in my mind, the 80s, because it was such a dramatic, what I saw and what he saw going on, on the, on the monetary and fiscal front and what it means to interest rates, so long term interest rates. I mean, this 40 year bull market in the bond market, I mean, that’s the genesis of it was, was back then, what, what that meant in terms of what kind of exposure you wanted in the bond market and the bond side, we haven’t talked about really the bond side of the portfolio.

[00:46:27] Jay Bowen: That’s viewed in Tampa that’s viewed really for income instability. It’s not a time. It’s a timing strategy based on interest rate anticipation. It’s not a. It’s not a trading strategy, but just as there was a, some themes in the eighties on the stock side, on the bond side, that was such a wonderful time to put money to work in long dated maturities on the bond side.

[00:46:51] Jay Bowen: So we really view the, the stock side of the portfolio for. Capital appreciation and the bond side really is there for income instability. We’re not trying to aggressively trade the bond portfolio. It’s really there for income instability. But I think your point is valid. I mean, there are going to be times when the top down work is more valid than at other times.

[00:47:15] Jay Bowen: I mean, just to give you another small example, as we moved into the and I’ll say that the moves that my father made in the early and mid-80s I mean, it really powered that portfolio for several decades. I mean, when you look at the, the, the cost basis of some of these positions he built back then, it was, it was really something.

[00:47:38] Jay Bowen: And the other two companies I remember that had such an impact on me, Some of this was top down some of it was not as much top down, but I can remember in the, in the latter part of the eighties, he came into my office and dropped this fortune magazine on my desk and said, see what you think of this article.

[00:48:00] Jay Bowen: And it was, I think it was a cover story. It was on Jack Welch. And he said, I think that he really emphasized how important one person can be in an organization, how it can make a huge difference in terms of the direction of a company. And I remember him saying that I think this, I think this could be something and, of course, the stock, it was a very problematic company, particularly in the early 80s.

[00:48:24] Jay Bowen: I think Welch came on in the early to mid-80s and I read the article and it was the classic. It almost these guys almost remind me of. Military generals. I mean, it’s vision, strategy and tactics. I mean, how are they going to do it? How are they going to turn around? What’s their vision? What’s their strategy?

[00:48:43] Jay Bowen: What’s their tactics? How are they going to provide shareholders with a really good, good return? And both of us just thought, wow, that’s great. We need to look at this company and that ended up being one of our, one of our biggest holdings and over the ensuing 20 years or so. I think the stock returned something like 4000%.

[00:49:03] Jay Bowen: I mean, it was just and that’s 1 man with 1 vision and that made me realize. Again, how important one person can make the other one that’s on the industrial side, the other one that impacted me that I never have forgotten on the consumer side. And this was more in the early 90s. I think our emphasis shifted a little more from a top down standpoint.

[00:49:25] Jay Bowen: This is after the Berlin Wall came down. It really became apparent that we were entering an integrated interrelated global economy and these companies. That had a good plan to exploit these emerging markets and other regions of the world. We thought really, we’re going to have an advantage from an earning standpoint and profitability standpoint.

[00:49:45] Jay Bowen: And he showed me this article on Reuben Mark, who was the CEO of Colgate. It had a great run at Colgate, I think, from the early eighties to the end of the 2000s. And, again, this is an example of how one person can make such a difference. Colgate, back in the early 90s, believe it or not, it was better known in Asia than it was known in the U.S. I mean, it had a, He had a great, great exposure to these global markets and a lot of these companies had 50, 60, even 70 percent of the revenue is coming from overseas. And so that’s another one on the consumer side that we, that we focused on. But I think it really taught me how important 1 person can be, that has the vision, the strategy, the tactics, whether it’s Jack Welch or Reuben Mark in the 90s, or whether it’s somebody like a David Cody at Honeywell in the 2000s or Steve Jobs.

[00:50:37] Jay Bowen: And Tim Cook, there are a lot of headline CEOs that get all the attention, but there are also some really unsung heroes out there that have just built, maybe with smaller companies that you haven’t heard of, that have just built tremendous records. But I’ve never forgotten that period, and particularly the, the Welch, Jack Welch and Reuben Mark that really, really taught me that, boy, when you’re looking at these organizations and at these companies, man, I mean, one person can make a tremendous difference.

[00:51:09] William Green: I want to go back to something you were saying a couple of minutes ago when you were talking about bonds and having a balance strategy and I know you’ve often with different funds. I guess you might have 65 percent stocks, 35 percent bonds or 70 percent stocks, 30 percent bonds. That’s or 60 40 that sort of thing and when I look at your long term returns.

[00:51:31] William Green: One of the things that’s striking to me is how much better you would have done if you had known bonds at all. And I mean, massively better. And I’ve often wondered, I think this is partly because when I was kind of coming of age as a, as an investor in the late nineties and there were those studies on, was it Jeremy Siegel writing about stocks for the long term?

[00:51:52] William Green: And I just sort of internalized this idea, the bonds, it was sort of a lousy long term bet. And, and actually I was probably totally wrong in terms of, writing that massive wave of, of interest rates coming down. But there is a part of me that’s always been kind of deeply wary of putting too much money in bonds and when you look at it now, like, what is the case for owning bonds versus having a very hefty portion of one’s portfolio just in equities?

[00:52:21] Jay Bowen: You’re on it. You got it. That’s it. Nobody’s really, I’ve said for forever, municipal funds should not own bonds. They should not be bonds. It’s just the overwhelming, the data is so overwhelming.

[00:52:33] Jay Bowen: And listen, these municipal funds are in perpetuity. They’re long term, they’re, they’re, they’re, the actuarially they love, the actuary loves the 20, we take a 20 year approach and the actuary loves the 20 year approach because it matches up to the obligate. That’s kind of the average life of a, Career of a fireman or policeman, and so the data is so overwhelming.

[00:52:52] Jay Bowen: I like looking at. I really started seeing my teeth into this. About 10 years ago, we did, I did a study. And I looked at every 20 year rolling period in our financial history. And there wasn’t a 20 year period that did not include a bull market and a bear market. And a speculative bubble and a war and a recession.

[00:53:14] Jay Bowen: So, you got 10 year periods that didn’t include all that. But you can never find a 20 year period That didn’t include all of these variables. So to me, that was such a great period in terms of measuring the competency of your manager. I mean, a lot of managers can look great in a bull market and a lot of managers can look great in a bear market if they’re positioned correctly.

[00:53:35] Jay Bowen: But to me, the. The way to see how you’re to really look at how your manager is doing from a comprehensive standpoint is to look at their 20 year rolling performance and not only did I look at Tampa’s 20 year rolling performance, how the stocks did, how the total fund did relative these unmanaged indexes, but I also looked at going all the way back to 1926, how all of these asset classes did for these rolling 20 year periods.

[00:54:04] Jay Bowen: And it’s just what you’re saying. You just scratch your head. And you say, wait a second, why are these defined benefit pension, why do they own bonds? They would their performance if they can take a long term approach. There would be no unfunded liability crisis You know you just and it’s always State by state municipality by municipality.

[00:54:27] Jay Bowen: They’ve got the you’ve got these rigorous asset allocation rules and they all include a fairly hefty allocation to fixed income and it’s the reason they do it is because it can really Make you look good over short term time periods when you have the bear market the inevitable bear market Typically, you know the bond portfolio is going to give you a cushion and your total return is going to be better than your than your stock return, but to me If you can focus on the long term, which these plans should be focused on the long term there is not a There just isn’t a case to own bonds now granted you’re going to have periods like In the early 80s, when you could nail down some extremely attractive rates, interest rates in the bond market.

[00:55:16] Jay Bowen: Of course, your real return wasn’t that great because inflation was double digits, but the nominal return on these bonds was 16, 17%. I mean, so there are, there are going to be certain periods where it might make sense, but to me, Thank you. I’ve said for, for quite a while, I mean, if I could wave a, if I were the, the, the municipal fund emperor, I would say no bonds. Long term 20 year approach in all stocks.

[00:55:44] William Green: I once talked to Jack Vogle about this and, the founder of Vanguard, and he said there was a tremendous argument for owning a single balanced fund. And so I did this with a pension fund of mine. It was part, I was writing the chapter on simplicity and my book, and it was sort of a, almost an experiment.

[00:56:01] William Green: I guess I did it for my wife at one point where I got her just one Vanguard fund. I guess it was one of those target funds that has like 80 percent of the money in stocks. And then 20 percent in bonds and it’s sort of split between foreign bonds and US bonds and foreign stocks and US stocks, but very heavily U.S.

[00:56:18] William Green: And I thought there was something kind of elegant about it. And then I did the same with a pension fund of mine. And so there’s only like, and it’s only one, one investment of mine, but it’s, but yeah, I’m sort of, it troubles me almost that I have like 20 percent of that. Fund in bonds, but then I sort of in a way, I’m like, well, Vogle lived through a lot. He saw a lot of turmoil and he understood why it was necessary to have bonds for survival. What do you think?

[00:56:44] Jay Bowen: Well, I will say this, I mean, I should have, I should have mentioned this in my comments on it. Your age does play a factor. I mean, I could like one of the One of the ladies that worked for our firm for 45 years, she was, had a nice stake in our property sharing plan and she was about to retire.

[00:57:05] Jay Bowen: And by all means, if in that situation, you never know what the day is going to bring every short term periods. I mean, I didn’t want to see half of her assets evaporate because we had a, some event, exogenous shock. So, I mean, depending on your age. Yes, I mean, that’s got to be a factor in terms of whether you want to, I mean, at some point you need to, depending on what your income requirements are and what your financial situation is, depending on your age, you’re certainly going to want to dial it back.

[00:57:33] Jay Bowen: Absolutely. Yeah. I should have mentioned that. What I’m mainly focused on are these in perpetuity municipal pension funds where it really, it doesn’t matter.

[00:57:44] William Green: I think that this gets Jay at a really interesting and important topic, which is the whole issue of survival by avoiding catastrophe over the course of 50 years or over the course of an individual’s investment lifetime and there are various things that you do that help you to survive.

[00:58:02] William Green: So one obviously is having a better money in in bonds. One is I remember you saying at one point that. You’ve rarely allowed a single investment in a stock to get beyond 5 percent of the portfolio. You tend to trim them back. Another, you’ve, you’ve talked about owning, say, 50 to 60 stocks for the Tampa fund or with a smaller fund, like a 10 to 50 million dollar fund that, that, because you, you have a lot of other clients, maybe there would be 30 stocks.

[00:58:28] William Green: So there’s some degree of diversification in the stock portfolio. Can you talk about how you think about this issue of diversification and just making sure that you’re going to get to the finish line, because I think this has really important ramifications for all of our listeners who are trying to figure out, well, how do I actually survive and get to the finish line?

[00:58:48] Jay Bowen: Yeah, that’s a great, I’m really glad you asked that because it allows me to mention a couple of things that I think are important. Number one, we, my favorite thing to do when we establish a position is, if I’m lucky enough to have made a good investment, is to take the cost out of it. To take profits so you have not cost in the stock.

[00:59:09] Jay Bowen: So, in theory, the stock could go to zero and it was, you didn’t lose money. I mean, that’s a, that’s just an instinctively comforting feeling when you’ve taken all the cost out through profits and everything else is, is, just gravy, gravy, so to speak. We, that, that’s really, really like that type of situation.

[00:59:29] Jay Bowen: And we, we’ve been faced with that recently through our, again, top down work, mainly focused on the fourth industrial revolution. We ended up with a very large position in NVIDIA. And I mean, every time we turned around, it was becoming four and five percent of the portfolio again, every day. And we took, we’ve taken, we’ve taken more profits in the stock than the current position.

[00:59:54] Jay Bowen: And it’s still our largest, I mean, that’s how well it’s done. So it could go to zero and it would still have been a moneymaker for us. So I think taking on the, really taking cost out of it. And again, this is, this brings up a point I mentioned earlier. As a deined benefit is managing retirement money for a municipal fund.

[01:00:17] Jay Bowen: I just think we need to err on the side of caution and if we were a hedge fund or some private entity where we could really swing for the fences and we could let the position run to 10, 20, 30 percent. That’d be fine, but with, with taxpayer money, I just think it’s prudent to kind of keep your eye on it if a position becomes, 4 or 5 percent, even after taking a lot of profits, that, that can certainly happen.

[01:00:43] Jay Bowen: I think, I think that’s a good discipline to have. I mean, yeah, you might miss some upside, which we have. Yeah, we miss some upside by, by taking these profits, but I just think it allows you to sleep a little better. A little better at night, knowing that you’ve scaled back, you’ve taken all the cost out this idea that if the stock goes to zero, it was still not a loser, not a losing investment.

[01:01:08] Jay Bowen: That’s all. Somewhat comforting, what typically, like you say, we’ll own 40 to 50 names and in Tampa and something else that I think is important when I, when I analyze the Tampa situation over the years, just as 1 person can make a big difference. In terms of whether it’s Jack Welch, or Reuben Mark, or Steve Jobs, or David Cody, or some of these unsung heroes that run some incredible companies.

[01:01:37] Jay Bowen: Boy, in keeping with that, how much of a difference one stock selection can make. And just to give you a small example, this is not exact, but we, and this was very painful. Because it had been a long term holding, but I decided back in around 2011 to get out of our Coca Cola position. It was, it represented about, I think the cost basis was something like one and a half.

[01:02:06] Jay Bowen: And, and so it’s a tough, it’s a tough decision. You never want to become, It’s another lesson from my father. You never want to become emotionally attached to these companies if you feel like there’s a no matter how good it’s been. You just want to make sure where it’s going. And for us, to us, to us, because of our limits on how much we can invest on the stock side, if we want to establish a new position, we have to sell something that the money just doesn’t magically appear.

[01:02:32] Jay Bowen: We’ve got to if we want to establish a new position, we’ve got to sell something. And so. I think this is a good example of how just one decision can make a huge difference in a portfolio. And I’m not going to get them all right, and I’ve gotten plenty of them wrong, but you think about the Coca Cola that was liquidated in 2011.

[01:02:52] Jay Bowen: And that’s when I decided to establish a position at Apple. And basically the idea, from a top down thematic standpoint, that the Coca Cola was What I viewed as a kind of a 20th century company operating in a 21st century Whole Foods world type situation, and I felt like their global consumer footprint might be decreasing, whereas Apple.

[01:03:17] Jay Bowen: As we speak now, I think their global consumer footprint is something like 2 billion people. So, in a way, you’re switching from one consumer company to another. I mean, different industries, different companies. Okay, the, the, just say that back then we were building 25 million positions each, in each, each stock.

[01:03:37] Jay Bowen: Okay, the Coke, over the ensuing, 13 years through 2024 through, through June 30. I was looking at some numbers compounded annualized at 8 percent and Apple compounded annualized at 25%. So if we had kept the code, it would have been worth 75 million, but the Apple became worth 550 million. So just that one investment decision that just that one.

[01:04:09] Jay Bowen: Top down idea. Well, wow, we really, I really like, I’m intrigued with Apple and okay, well, how are we going to fund the purchase? Well, let’s look at some of these consumer companies that maybe, maybe the outlook is not as bright as it once was. And so that, that’s a, I think for individual investors, I mean, just one decision like that can, I mean, another one recently was the decision to sell J& J four or five years ago and buy Eli Lilly. Again, it was based on some. Top down work and the emphasis that Lilly has on what now is, of course, a lot of blockbusters. It was, it was really the pipeline. They really had the pipeline. And J& J was struggling under a lot of litigation issues and so on and so on. And again, you look at those numbers and just the hundreds of millions of dollars that made the difference, that one switch.

[01:05:04] Jay Bowen: So even in a, even in a multibillion dollar portfolio, one stock, one position, and again, I, listen, I’ve gotten plenty of them wrong. And I’ve been wrong twice plenty of times, which is the stock you sell moves up and the stock you buy moves down. I’ve done that numerous times, but if you can get some of them right, just this, that one investment decision can really make a big difference for individuals.

[01:05:31] William Green: You mentioned Jay, a very important top down theme that I’d like to explore a little bit you, you use the phrase the fourth industrial revolution and you’ve described this in some of your letters to shareholders as, as a kind of mega theme that touches everything, whether it’s industrial sector, healthcare sector, financial sector Can you talk about what you mean by the fourth industrial revolution and how you’re actually positioning yourself to play this?

[01:06:00] William Green: Because when I, when I look at your portfolio and I see these things like NVIDIA or Teledyne or, or, or Apple, I’m curious, or Microsoft, I’m curious, A, what you see is this huge mega theme and B, how one can position oneself to benefit from it over many years, hopefully.

[01:06:21] Jay Bowen: Yeah, I think it does touch a variety of industries and of course, it’s anchored as we. Seen the last year or two by AI, I think is kind of the anchor of this fourth industrial revolution. And basically what I’m talking about is on the heels of the computer revolution, the third industrial revolution, which was anchored by computers. And this is kind of the follow on to that in terms of the digital, more of the digital revolution.

[01:06:48] Jay Bowen: That’s going to from a technology that just incredible technological innovation in terms of what it might mean to. Different industries and sectors. And as you say, I think it touches just the just the artificial intelligence theme alone. I mean, when you hear these CEOs, I heard the CEO of Medtronic a couple weeks ago talking about what it might mean for them from a from a.

[01:07:14] Jay Bowen: In terms of medical device standpoint, drug discovery, gene editing, genomics, all, it just, it touches healthcare. It touches the industrial side, the material side. It, it just has a wide ranging, I think, implications in terms of what it might mean for a variety of different companies and industries.

[01:07:36] Jay Bowen: But in, in addition to ai, there, there are other. Really fascinating innovations going on also industrial automation, for instance, in the, in the industrial area, what’s going on there. You got different areas of, of technology that you have nanotechnology, for instance, what’s going on there, 3d printing.

[01:07:58] Jay Bowen: There are just a lot of high tech innovations, it reminds me a little bit of the mid to late 90s where you had just a wonderful period, innovation, risk taking, capital formation, congruent with price stability on the monetary side, Greenspan really let the economy run, I can remember like it was yesterday, Is Humphrey Hawkins testimony where he basically took a shot at the Phillips curve and indicated that we can grow the economy above trend rates with price stability, which was really music to my ears.

[01:08:35] Jay Bowen: He let it, he did let it run. And you had these, of course, back then it was internet related. Whereas now it’s AI related, the Netscape IPO was 1995. And we all know where eventually where that led in terms of the bubble situation, but you did have a lot of innovation and capital formation and risk taking.

[01:08:57] Jay Bowen: And of course you had the four horsemen back then. Which was Dell and Microsoft and Intel and Cisco. And if you didn’t own those stocks, you can forget it. It is very similar today to the magnificent five or six. We did not own the majority of those stocks. So we had a period of outperformance, excuse me, of underperformance.

[01:09:20] Jay Bowen: Back then, we just thought from evaluation standpoint, they didn’t some of them looked a little and we were wrong. I mean, we missed, we missed it with some of them. And that was a period where you had a lot of, like I say, different today, but still a lot of innovation, technological innovation that was flowing from the Internet.

[01:09:41] Jay Bowen: And of course, you had the, you had the tech bubble. I’m off track here a little bit, but if you didn’t own those 4 stocks, there was no way you kept up with the market but benefit of the long term approach is if you didn’t own those stocks when it, when it, when everything burst, then you did keep up with the market.

[01:09:59] Jay Bowen: So. Again, when you look at it in long 20 year rolling increments, I think that’s a great way to measure. But in terms of the fourth industrial revolution, we’re really after, from a top down standpoint, after the companies, again, that had the vision, strategy, and tactics to exploit it, to exploit these new technologies that hopefully it’s going to, it’s going to help these companies from a profitability standpoint.

[01:10:27] William Green: So when I’m looking at your portfolio, I can see names like Nvidia and Tetra Tech, which I think does technology consulting and sustainable solutions and Palo Alto Networks, which does cyber security solutions and things like Vertex Pharmaceuticals, which does biotech and Netflix and Apple and Microsoft Teledyne technology.

[01:10:46] William Green: So there’s a lot of tech there and obviously a big focus on companies with high growth rates, yeah. But then also, you’ve traditionally looked for companies with lower valuations than average, and I’m, I’m just wondering how you grapple with this problem as you try to set yourself up for sort of durable, sustainable success over 20 years, how you deal with the problem of things like Nvidia becoming very pricey.

[01:11:12] Jay Bowen: Yeah, and I tell you, hardly a day doesn’t go by when I wonder how my dad would have navigated this environment because he was much more of the gram and did, the value line. All right, let’s go, look at this, look at this sales per share, look at this return on equity, look at this free cash flow yield, look at this, balance sheet, look at this dividend.

[01:11:32] Jay Bowen: Very, very much more on the value side, which was great in the 80s and 90s. He would have adapted. I know he would have. He would have come up with something, but it’s such a, it’s such a different game now. It’s so different. The traditional, I mean, you can put together this beautiful portfolio from a valuation standpoint and just get absolutely steamroll for 10 years, for 15 years, for 20, so you really do have to adapt and I think that, that this concept that I think Charlie Munger I think he’s the one that’s such a great statement that he would rather own great companies at good prices than Average companies at great prices or something like that and I think the adaptation that… [Crosstalk].

[01:12:20] William Green: Yeah, I think it’s a great, great company, great businesses are fair prices rather than fair businesses at great prices. So he kind of shifted Buffett away from cigar butts towards very high quality companies. But there’s a, there’s a real conflict here, right? Like how, how, how you justify staying in Nvidia, but how you dare not to own it.

[01:12:42] Jay Bowen: It’s really tough to gauge, okay, what is the market willing to pay if you have this company that is generating just consistently double digit returns?

[01:12:55] Jay Bowen: And profits year after year. Okay. Well, is a 30 multiple. I mean, then you look at the peg ratio. You look at the P ratio to growth rate to kind of gauge it that way. And when you do that, something like a video, of course, does not look very expensive when you look at the relative to the, to the growth rate, but something like a Costco, for instance.

[01:13:16] Jay Bowen: You just scratch your head and you think, gosh, I mean, okay, when is the multiple just, I know there can, it’s a fantastic company with great returns and profitability and, but I think that’s the big, and I often wonder how my dad would have handled this environment in terms of trying to sort out when it kind of shifts from a long term value to just A situation that just doesn’t make sense anymore from a from a valuation standpoint.

[01:13:50] Jay Bowen: I mean, with the NVIDIA and with a lot of these holdings, they’ve done so well, which is why they’re sort of our largest just that they’ve just done so well. And we have taken an awful lot out of them from a profitability standpoint. I do think we’re early. In this AI situation, just as in 1995, when Netscape had their IPO, that was early.

[01:14:12] Jay Bowen: I mean, you had years and years of capital investment and profits and good, good earnings for a variety of these companies before the whole thing careened out of, out of control in the, and you, and you had the tech bubble, but it’s something I think about a lot, that’s for sure.

[01:14:28] William Green: I always loved that quote that Templeton used to quote. I don’t know if it was his words or someone else. He used to say what the wise man does in the beginning, the fool does in the end. And so I think some of it is, you just don’t want to be the last person to pile into these things after they’ve gone up because you’re motivated by a terrible fear of missing out.

[01:14:48] Jay Bowen: Well, and here, just to give an example, I think this is stunning. Some of these days we’ve had in the last few weeks, we had a day where the. S&P, the market cap weighted S& P, was off over 1%, and I think 490 stocks were up. But, because of the market cap nature, the handful that were down, it tanked the whole, that was a day where the equal weight S&P was up over a percent.

[01:15:17] Jay Bowen: And the market cap S& P was off over a percent. And I think that we’re going to start seeing not exactly that dramatic of a shift, but I do think you’re going to start seeing at the headline level, it might not look like the market’s doing much and it might. Look like it’s churning a little bit. It might even be that the market cap weighted index might be moving down.

[01:15:39] Jay Bowen: But what’s going on underneath the hood, I think is really interesting. I think this could continue and it brings up another point. A very important part of our portfolios over the years have been what we call future blue chips. And these are companies that might be, from a, we like to look at revenues more than market cap, but they might be say a billion to 5 billion in revenues.

[01:16:01] Jay Bowen: But we think because of their Transcribed Leadership and vision and strategy and tactics and global. Business plan that they’re going to be multibillion dollar companies looking out. Oftentimes these companies do represent intriguing long term value. I’m glad you mentioned in Tetra tech, because that would be one of these companies that I think it’s been a very quiet situation, consulting and engineering.

[01:16:25] Jay Bowen: This would be what I would call an unsung CEO. You got these rock stars that get all this publicity, but there’s some companies out there that are. Run by the just superbly run. And if you look at the returns that that management has been able to generate over the last 10 to 20 years, it’s not a high profile name, but they’re just right in the heart of the infrastructure theme, which is another top down theme of ours from a construction and engineering standpoint.

[01:16:53] Jay Bowen: Another 1 badger meter. Which is flow control and some other products like that have just a very powerful niche of small under a billion dollars in sales. But again, the management team over the last 10 and 20 years, the returns they produce for shareholders have just been tremendous. So that’s always been a very important part of our portfolio.

[01:17:12] Jay Bowen: These companies that are smaller. And for 1 reason or another, the technological niche and the management and the business plan, we think they’re going to be multibillion dollar companies looking out. These companies become acquired because a lot of the, a lot of larger companies are looking at the same thing we’re looking at.

[01:17:30] Jay Bowen: I can think of several over the years. Loctite was acquired by Henkel, the German company, and Lubrizol was acquired by Warren Buffett’s Berkshire. We had CPC International, the food company acquired by Unilever. Warner Lambert was acquired by, I think, Pfizer. I mean, you’ve got, there’s some great companies out there that are doing a wonderful job for their shareholders that don’t get the Publicity that the big ones do, but that’s always been over the last 50 years. That’s been a very important part of our portfolio, these, these smaller, what we call future blue chips.

[01:18:06] William Green: When you look at the backdrop at the moment, I know with your, your top down focus, you’re, you’re always taking a view on the fiscal situation, the monetary situation, the regulatory backdrop, all of those things.

[01:18:18] William Green: What worries you at the moment? I mean, whether it’s Federal Reserve policy or the U.S. debt burden or the possibility that valuations in the market are too high and that it could be like a sort of 1999 2000 kind of bubble, like, what are you looking at that you think our listeners and viewers ought actually to be aware of?

[01:18:41] Jay Bowen: I think that the Fed is such the 800 pound gorilla. It’s such the Important entity in the investment equation, what the Fed is doing and what interest rates are doing and what the liquidity backdrop is. And my, my biggest concern is, is the, is the Fed, we can, they continue to be wedded to this model.

[01:19:02] Jay Bowen: I just, in general, I’m not a big fan of discretionary monetary policy. I just think if you go back to the founding in 1913 of the Fed. I don’t know how to say, I mean, I feel like the August reputation of the institution is belied somewhat by the facts, but when you look at the record, I mean, let’s face it, they oversaw a doubling of the price level in World War I, a lot of their actions led to the Great Depression, doubling of prices during World War II, they financed the Great Inflation of the 70s.

[01:19:30] Jay Bowen: And we’ve had this, they inverted the yield curve before the great financial crisis, because they were wedded to this Phillips curve model. And then of course, the last few years, they had a 10 quarter overshoot on the inflation front. I mean, you had nine, you had nine, 10 percent nominal GDP growth and a zero bound Fed funds rate.

[01:19:48] Jay Bowen: So I just, again, it’s not that I, listen, I have a lot of respect for the people in the institution. I know they’re trying to do, they’re trying to do great. I just, I worry about the model, the discretionary monetary model, and I feel like we’d be better off with more of a rules based approach, maybe.

[01:20:09] William Green: And the danger to the discretionary approach, Jay, that you’re seeing specifically is what, that they’ll be too restrictive for too long, and so… [Crosstalk].

[01:20:17] Jay Bowen: For instance, right now, right, that, that just, just as they were too easy for too long after the COVID situation, that, that, that maybe now they’ll, kind of rearview mirror optics.

[01:20:27] Jay Bowen: Where they, they might wait too long to start being more accommodative because I think they’re restrictive right now on a variety of fronts, depending on the metric you’re looking at, whether it’s the inverted yield curve or the real fed funds, right? Or money growth, or depending on what the, or for looking inflation, inflationary expectations.

[01:20:48] Jay Bowen: But I’m hopeful because the last couple of, I know they want to, they’re ready to move, they want to move. I think they’re a little bit hesitant because of that 10 quarter overshoot they had on the inflation front. But my concern would be that they wait too long and then the, the horse is already out of the barn, so to speak.

[01:21:04] Jay Bowen: I mean, you would, you would hope that they would be not just completely reactive. And in other words, once the numbers are clearly visible, then it’s too late. I mean, they need to be, I think they need to be more forward looking. We had a hint of that back in the 80s and 90s when I think Greenspan was basically operating off of an informal price rule that mainly Johnson and Wayne Angel had kind of developed where they were really looking at commodity prices, and gold, and the foreign exchange value of the dollar, and the yield curve, kind of whether to gauge.

[01:21:35] Jay Bowen: Whether they were accommodative or restrictive. I mean, that’s not a hard formal rule. I mean, maybe a nominal GDP target. I just think I would love to see a thorough, I don’t know whether you do it with a, how you would go about, I mean, obviously it would, would probably take legislation, but I just, it would be great to really explore different.

[01:21:57] Jay Bowen: Alternatives to the current hyper discretionary system where they’re able to, to blow their balance sheet up to, 9 trillion. I don’t know, but yeah, my, my, my, my concern now would be that they, that they wait too long, but I’ve been hardened by the last couple of press conferences that I think they’ll move in September. Get the ball rolling.

[01:22:16] William Green: It seems like longer term another of the structural dangers that you’ve been focused on are things like national debt and entitlements and I know you’re, you’re pretty obsessed with economics and I wonder if you could kind of put this in perspective a little bit. You, you wrote in one of your letters to shareholders that the executive and legislative branch policymakers need quote, to put the country on a long term glide path towards solvency and sanity on the spending front.

[01:22:43] William Green: And you said the recent numbers and trends are breathtaking and call out for reforms to avoid the prospect of a compromise in living standards. Could you just quickly put that in context, like explain what the situation is and, and, and why you think this trend is likely to matter to markets going forward if nothing actually is done?

[01:23:03] Jay Bowen: Yeah, it’s funny because you’ve seen this situation before where you’ve had a really big increase in the, for one reason or another, maybe war or national emergency. We’ve had a big increase in the federal debt. But gosh, I mean, these numbers today, I think they used to call it mega numbers. M.E.G.A. My eyes glaze over mega numbers.

[01:23:25] Jay Bowen: It’s just because, it’s so astounding, a billion used to be a lot, then it’s a trillion, and then it’s 2 trillion annual deficits, and 30 trillion of federal debt, and I mean, yeah, at some point, nobody knows when it’s going to be an issue. I think the good news is that historically what you see, if we can just, I think it’s the path that’s important.

[01:23:50] Jay Bowen: It’s not, well, we need to cut the deficit in half in the next year or two, or we need to, the federal, the national debt needs to be, we need to, it needs to immediately be reduced by 10 percent a year. I mean, to me, it’s really the glide path. If you can just get on a, if a plan can be developed that just puts the, puts the country on a, on a glide path where it’s, where it’s moving in the right direction, particularly Just as a metric, you can look at as a percent of our of our GDP, the debt and then the other part of that equation, of course, is growth.

[01:24:27] Jay Bowen: I mean, that’s such a wonderful elixir if you’re growing it in real terms at 4 or 5 percent instead of 1 or 2%. I mean, that means. Trillions of dollars into the treasury and trillions of dollars more revenue over these 10 year time periods. So it’s really a matter of growth oriented policy to allow us to grow above trend along with some type of plan on the spending side.

[01:24:56] Jay Bowen: To, I know that’s easier said than done to get the trend moving in the right way. It doesn’t have to be done overnight. I think the markets would be completely satisfied if they saw the trend moving, moving in the right direction. That’s going to require a lot of heavy lifting, obviously. And it’s going to require, I mean, entitlements have to be part of the equation and so it’s, it’s somewhat complicated, but it’s not possible.

[01:25:20] Jay Bowen: I mean, it’s, it’s, it’s certainly doable. And as I mean. It just doesn’t seem to matter right now to the markets, the dollars reserve currency status, the level of debt right now is not that there’s no, I think it’s one of those situations where it’s not going to matter until it matters.

[01:25:40] William Green: I remember feeling that way for many years about China, even when I was living in Hong Kong until I guess from around 2001 to 2006 or 7.

[01:25:50] William Green: You would go visit China and you’d be like, I don’t get how this is sustainable and, and yet it kept being sustainable, they would keep building buildings that no one was occupying and stuff like that. And it was this amazing magic trick and at some point, you’re like, I give up, I’ve been wrong about this for so long.

[01:26:06] William Green: And then many, many years later, it’s like, no, no, like a lot of those things that didn’t seem sustainable ended up being unsustainable, but it can, these things can go on. And obviously there were so many other positives going on, but It feels like things can go on for so long being sort of making you scratch your head and then suddenly it stops and everyone’s like, well, of course it was always going to stop.

[01:26:28] Jay Bowen: That’s so true.

[01:26:30] William Green: It feels like you just have to position yourself so that you’ll survive when eventually, this game of musical chairs stops like you, I mean, I think that’s one of the interesting lessons, right? When I think about your success over 50 years, it reminds me a lot of this guest I had on the podcast, Fred Martin, who I also wrote about in the book.

[01:26:47] William Green: Who’s a very savvy survivor who started, he was actually, he was on a destroyer, I guess, in, in Vietnam. So he had a very keen sense of how you survive. And he, like you, he’s, he’s not ultra diversified, but he’s diversified enough. He would sort of say, yeah, I need to have like 35 stocks. He was just sort of setting and he lived massively within his means.

[01:27:10] William Green: He was always thinking about how you survive whatever happens. So if I’m wrong about this, or will I be, okay? And that, that seems to be one of the essential lessons of, of your success and your father’s success over 50 years is just given how uncertain everything is. You just, you just want to be somewhat cautious, not unaggressive, but cautious.

[01:27:33] Jay Bowen: Well, you know what? That, that brings up a really good point that I think is important for individual investors, particularly. And I think it’s really, really a big reason the plan has been so successful over the last 50 years. And it’s funny because I determined fairly early on, I mean, the 87 crash hit very soon after I Came on board and it, I was, it was just dizzying was 22 percent on the Dow. And one day, I mean, can you imagine coming in and seeing the Dow off 8, 000 points? I mean, it was, it was just, it was a stunner and I didn’t know, I thought, gosh, I mean, this is a very short career for me. I thought it might be over. I mean, I just, it was so dramatic and it was, gosh, it was just a strange feeling, but my father was always adamant that that was, he always thought it was an Issue a technical correction that it really didn’t involve fundamentals that it was, the advent of portfolio insurance and that was the also the when program trading was computerized trading was starting to kick off and it was all exacerbated when you had that had that crash, but quickly over the years realized.

[01:28:41] Jay Bowen: And mentally became meant to my mental framework was geared towards. Okay, let’s face it. It is going to hit the fan every 10 to 15 years. It’s just automatic. I mean, you can go through financial history. You had the whatever the nifty 50 and then the great inflation of the 70s and then the 87 stock market crash and then the.

[01:28:59] Jay Bowen: The tech bubble, and then the corporate scandals in the great financial crisis, and then cove it. I mean, it’s really you just got to accept that every 10, 12, 15 years, you’re going to have. A dramatic event and it’s really going to be unpleasant and it’s really going to impact financial assets in an exceedingly negative way.

[01:29:19] Jay Bowen: I mean, I just, I know that and I feel like I’m, I’ve become over the years somewhat seasons because I’ve seen so many of them and I’ve been ready. And what I saw my father do then has really influenced me because he was, he said, and it made me realize. What you do during those periods, I would argue, is almost more important than how your position going into the event.

[01:29:46] Jay Bowen: When I look at, particularly with Tampa, it’s the moves that we made after the 87 crash, and after the tech bubble, and after the great financial crisis, with the luxury of being able to take a long term approach and being wrong for a few years maybe. But it’s the moves we made then in terms of really building some significant positions in stocks that had been, I think unfairly punished, for instance, after the looking at the 10 years after the 87 crash, the market compounded at 18 percent a year.

[01:30:17] Jay Bowen: And you can see that after all of these really financial shocks to the system, whether it’s the great financial crisis. After that, we had strong double digit returns for the next decade. So I think a valuable lesson is. Now, granted, this is assuming that you don’t think it’s over, and we’re just going to, it’s just over, and that you need to never buy another, but if you, if you think that, that, as Virgil said, every calamity can be overcome with endurance.

[01:30:53] Jay Bowen: If you think that if you if you have the power to take a long term approach, it’s what you do during those dramatic and traumatic periods, what you’re buying the positions you’re building. And then you are just and you’re there and, and and. With confidence that over the next 10, particularly 20 years, it’s going to really pay off.

[01:31:13] Jay Bowen: It’s made a big difference. And I think a lot of municipal funds, because of the consultant driven nature of it, just at the wrong time, they will make asset allocation decisions that are wrong. They’ll shift out of stocks into bonds. They’ll shift out of stocks into private equity and hedge funds because they’re looking in the rear view mirror and they think that the outperformance is going to continue in those asset classes.

[01:31:36] Jay Bowen: I’ll never forget the, everybody wanted to be Yale. Everybody wanted to be David Swenson. I think, and of course nobody can be dead. There’s only one, there’s only one John Templeton. There’s only one more, but there’s only one David. I mean, but everybody, all of these municipal funds were all the consultants.

[01:31:52] Jay Bowen: Where they wanted these funds to pile into private equity. And man, when it hit the fan during the great financial prices, it was years before they could even mark to market some of those holdings. And I’ve seen that a lot in the municipal fund arena. That just at the wrong time, and oftentimes it will revolve around a financial crisis, the asset allocation decisions, a decision is made to move out of stocks into other asset classes.

[01:32:21] Jay Bowen: Whereas what we did in Tampa during those periods was exploit what we thought were really cheap prices and build some significant positions in stocks that over the next 10, 15, 20 years became really some of our largest holdings.

[01:32:38] William Green: Yeah, there are so many important and profound lessons, I think, that come out of this, among them, you’ve got to be able to position yourself to survive, to get through these periods, so you can’t overreach, or you won’t be able to be opportunistic.

[01:32:52] William Green: But then you do have to have courage, what Munger would call gumption, to take advantage of these periods of disruption and dislocation. And so it’s this weird combination where you’re having to be cautious enough so that you don’t overreach but aggressive enough so that when everyone else is panicking you can be opportunistic and then I think another just really important thing that.

[01:33:15] William Green: I just wanted to underline when you were saying, how so many people were trying to follow David Swenson’s Yale model. This is really important, right? I mean, so many people in your business ended up deciding they had to go into these more adventurous, high risk kind of alternative investments like Hedge funds and private equity and venture capital and, timberland and, Californian vineyards and the like.

[01:33:37] William Green: And I think one thing that’s been really striking about what you’ve done over 50 years is just how simple you kept it, but you, you didn’t do anything exotic. Can, can you just talk about that? Cause even with your bonds, right? You never did anything speculative with the bonds. So you’ve been pretty aggressive and opportunistic.

[01:33:56] William Green: But you weren’t shorting, you weren’t playing around with options and futures. Can you just talk about that? Because I think that’s a really important lesson about not having to be too exotic in order to succeed.

[01:34:07] Jay Bowen: Sure. It’s a really boring, boring approach. I mean, it’s, it’s, we say that we’re, Unconventionally conventional.

[01:34:14] Jay Bowen: I mean, it’s like a throwback, and it’s not, yeah, there’s nothing, I wish I could offer a more dynamic tale, but it’s, it’s very boring. And it’s just what you’re saying, I mean, these, unfortunately, here’s what happened to these plans, these, the reason we have a liability, unfunded liability crisis, so many of them became unfunded for a variety of reasons.

[01:34:36] Jay Bowen: And they felt like they had to reach for return. And so they’re sold these, this, this idea that, okay, well, you can get a higher return here, or you can get a higher return there, whatever the deal of the day is, private equity or hedge funds or private credit. And I’m not disparaging those investments.

[01:34:54] Jay Bowen: They’ve been wonderful for a lot of people. I’m just saying for a conservative, high quality taxpayer funded Define benefit plan. I think it needs to really err on the side of caution. And the good news is it can be done with a really high quality, long term, conservative approach. These other plans, they’ve dug themselves in a hole.

[01:35:14] Jay Bowen: And to get out, they’ve had to reach for return and reach for yield, but often what they don’t realize is commensurate with that, they’re increasing the risk. And so then when you have an event, a liquidity event or an interest rate event or a reset, it exacerbates the situation and then they’re, they’re in, then they’re deeper into the hole and then they got to reach for yield again.

[01:35:36] Jay Bowen: And it just goes on and on. Whereas if they adjust. Out of the gate, taking a more simple, vanilla, high quality, long term approach, they wouldn’t be in this mess. And it’s really, really hit home. It really hits home for me when I look at our 30 separate 20 year rolling periods, we’ve got every September 30, another fiscal year ends and every October when I go down, I’ll put another.

[01:36:07] Jay Bowen: Set of 20 year rolling data out for the board to see, the next one will be 2004 through 2024 and what that shows them. I think it really emboldens them in terms of what they’re doing with this high quality, conservative, vanilla, boring approach. They are able to, number one, most importantly, is meet their objectives.

[01:36:29] Jay Bowen: They’re able to meet their objectives. We’re not trying to, we’re really not trying to hit it out of the park every day. We just want to meet their objectives, provide a good retirement for these public safety employees. And when they look at these 30 separate 20 year rolling increments, what they see is that they’ve, they’ve hit their objectives.

[01:36:48] Jay Bowen: The total fund over these 30 separate 20 year rolling periods is Has really done well, and it really shows them how much the equity side of the portfolio has added value, how that’s been the driver, the equity side, and how that’s done better in each of those 30 year rolling periods, how that’s done better than, than the indexes, and it also shows how much better stocks have done than bonds, because we’ve got that chart on there too, so it gives them a snapshot of these 20 year rolling periods How their total fund did, how their equities did, how the S& P did, and how the bond market did.

[01:37:27] Jay Bowen: And it, it, I think they look at that and they think, wow, you know what, we might get ridiculed for having one manager and everybody might tell us we’re fiduciarily irresponsible when we go to these conferences, but you know what? The job’s getting done in a high quality way and I just think these other, a lot of these other municipal funds for one reason or another have just dug themselves into a hole and that they’re forced to reach for return to get out of it.

[01:37:56] William Green: You’ve described yourself before as having the mentality of an endurance investor and I know that you’re also an endurance athlete that you’ve done a lot of half marathons and that you, I think you’ve done the escape from Alcatraz race about a dozen times. And I, I wanted to ask you about that race and whether there are any lessons for investors because it seems like there’s a, there’s a connection between the way you’ve invested and your father invested so that you succeeded over 50 years and also your obsession with endurance, athletic feats and survival.

[01:38:30] Jay Bowen: Yeah, it’s funny. I did a lot of very active from a physical fitness standpoint, a lot of cycling and running and swimming and. I was doing it initially for mental and physical health and wellbeing, because I didn’t realize it, but I’d been self-medicating for decades in terms of the powerful neurotransmitter effects of physical activity, and then I, of course, I found out later in looking into it that brain science does show that physical activity has a dramatic neurotransmitter effects it increases gray matter in the frontal lobes of the brain.

[01:39:08] Jay Bowen: It raises levels of serotonin and endorphins and dopamine leading to higher levels of focus and concentration and working memory and executive function. I mean, all of that, I mean, I would be one of those that years ago I would have been the A, D, H, all of them, the H and the A and the D and all of that.

[01:39:25] Jay Bowen: And. I didn’t realize I was self-medicating. I would come home and just run and run and run and it was so great. And so I realized, and particularly when I had the luxury of doing it, structuring my day to optimize my performance. I could do it in a way, I can pretty much be anywhere. I can really the rhythms of my day revolve around physical activity because it has such for me.

[01:39:50] Jay Bowen: Probably more than most people. It has such a dramatic neurotransmitter effect. It turned me from a kind of an average student into a really good student. Just, just, I mean, I could just see it in my own life and my own ability to focus and concentrate and think and write. I mean, some of the best sessions I’ve ever had have been like the corner of a pool parking lot after a morning workout in my car with black coffee and an iPad.

[01:40:18] Jay Bowen: I mean, it’s just, it’s just been dramatic for me. So I’m doing all that for, for mental and physical health. And I felt like, well, gosh, I might as well race if I’m doing all this, I might as well race. And so I really love triathlon racing. Yeah, I just did my 14th escape from Alcatraz triathlon. Come on in here.

[01:40:38] Jay Bowen: I mean, there are, there are a lot of lessons, parallels in terms of. You got to, you got to focus on the long term and you’re going to be faced with stumbles and hardships and, and challenges. And you got your eye on that horizon long term. And so, yeah, there are some, some parallels, but that’s been a, it’s been an extremely important part of my work. Life being able to structure my work life in a way to optimize my day to day performance. It’s been really important.

[01:41:11] William Green: That’s a brutal race, right? The escape from Alcatraz thing. I was looking it up and it’s a mile and a half swim, I think, and an 18 mile bike ride and then an 8 mile run. So you’re putting, and you’re 62, right? I mean, you’ve been putting yourself through a lot physically.

[01:41:28] Jay Bowen: Yeah, it’s such an adrenaline rush, that one. I mean, it’s kind of a quirky distance. Yeah. Not one of your traditional distant triathlons, the Ironman, half Ironman Olympic distance. It’s kind of a quirky, quirky distance, but yeah, it’s a, it’s legit.

[01:41:42] Jay Bowen: That’s for sure. And it’s, I just love it. I mean, I love the adrenaline and, and I hope I can, I can, I can stay at it, but you’re right. I mean, they’re parallels. During those hours of racing from a mental and even spiritual standpoint, there’s a parallels with that and investing definitely in terms of what you need to be focused on.

[01:42:01] William Green: What do you think has been the most important lesson? Like, is there something where you really transfer something from your athletic life to when you’re looking at your portfolio and you’re thinking about how to build generational wealth for your clients in terms of relative to the, yeah, I mean the, you actually, the there are things where you’re able to, to kind of take a mental model from the triathlons and be like, yeah, I’m sort of doing the same thing here when I’m building, when I’m building wealth for the firefighters and policemen of Tampa.

[01:42:35] Jay Bowen: Yeah, there are. It really is. I mean, I do love the Virgil. I love the Virgil quote. All calamities can be overcome with endurance. I mean, it’s just a classic. If you’re involved in one of these long races, I mean, my God, what you go through mentally and, and physically, and even spiritually, I mean, it’s just over several hours and yes.

[01:42:57] Jay Bowen: Then you, you’re looking at this portfolio and, and, and again, it really makes you want to focus on the, on the long term and, and, going in when you’re constructing this portfolio that look, as I said earlier, I mean, it’s, it’s, it’s going to hit the fan at some point. We know that every, every 10 to 15 years.

[01:43:15] Jay Bowen: It always does. But if you have the mental strength to, to realize that and to focus on the long term and most importantly, and this is where we have the luxury. Most money managers don’t have this luxury. I mean, this is really unheard of. They, this, this fund really does take a 20 year approach, quarter to quarter, year to year.

[01:43:36] Jay Bowen: I mean, of course it’s, it’s built on itself because every year when we’re able to show another 20 year rolling, It just makes it, it’s like this spiral upward, I mean, it reinforces how valid our approach is. Of course, if we were brand new, and this was year one, and we were saying, hey, you need to take a 20 year approach.

[01:43:57] Jay Bowen: I mean, that might be a little bit different sell. So we were, we have the luxury of having the record, the track record. And being able to show the data. So when we have the inevitable and we listen, we’ve had some bloody periods. I mean, the great financial crisis and the tech bubble, I mean, just some really bad, really bad back to back years that, that have really, and, and, and what I always like to say in that situation, and this would be valid for individual investors also is that, listen, these losses.

[01:44:34] Jay Bowen: If you haven’t realized them, they’re not losses. They’re on paper. You’ve got this loss on paper. But if you can have the endurance and focus on the long term, that paper loss, as long as the fundamentals are good with the company, that paper loss is going to be a paper gain. I think the problem comes emotionally.

[01:44:56] Jay Bowen: People are just so anxious that they realize the loss. They realize it. Then it’s a loss. Okay, well then what are you going to do with that money? You got a, are you going to time it? Is it going to be so magical that you reinvest it right at the right time? I mean, it’s a, it really is an endurance equation.

[01:45:16] Jay Bowen: And if you’re an individual investor or an institutional investor and, and you’re looking at the, this is a great way to think of it, that one of those op-eds I did with Baron’s, somebody from Fidelity wrote in and I, it was an article called Investing with Rip Van Winkle, and it was on the 20 year approach and how if you woke up in two, 2000 and, and 14.

[01:45:40] Jay Bowen: 94 through 2014, if you’d been awake, you would be an emotional wreck. I mean, you had the tech bubble, the corporate scandals, the great financial crisis. There’s no way you hung in there. There’s no telling what you did with your portfolio. But it was just an incredible 20 year period from an emotional standpoint, if you were an investor.

[01:45:57] Jay Bowen: But if you were asleep, and you woke up on December 31st, 2014, Your stocks were up almost 10%. And think of the blood, toil, tears, and sweat that you saved yourself by being, being asleep. And my, and I got the biggest kick out of somebody from Fidelity wrote in and said, You know what? The best account I’ve ever had was somebody that forgot he had the account.

[01:46:20] Jay Bowen: It’s the best performing account he ever had. Which I thought really encapsulated the whole concept of taking a long term approach. I mean, this Fidelity broker had a client. And he never heard from him, and he forgot he had the account. I don’t know how big it was, but It was the best performing account he ever had because there was no activity.

[01:46:41] William Green: The phrase that came to mind as you were talking about that, I just, as I think about your career, I was thinking of the, if I were writing a chapter about you in a book, it’s, it’s the phrase is the loneliness of the long distance investor that there’s, you’re a long distance investor, you’re an insurance investor.

[01:46:57] William Green: And to take a kind of 20 year or 50 year approach, you really had to be kind of Incredibly independent spirited to kind of break away from the conventional way of doing things within your peer group does that resonate at all.

[01:47:15] Jay Bowen: Yeah, that and again you know what it really goes back to the we have such a luxury of having this client and because of my father.

[01:47:26] Jay Bowen: From the very beginning, the way that he educated those trustees, and these trustees pass it down to other trustees, and they take pride in the long term approach, and they know it emboldens them, and the TAMPA model is validated when they look at these long term results. It’s, it’s really, it’s a shame to me that there’s so many municipal funds, and this is applicable to individual investors also, that for one reason or another, they’re just not, they just don’t buy in to the long term approach, and they try and trade it, and they try and time it, and yeah, some people can do that.

[01:48:04] Jay Bowen: There’s some enormous success, enormously successful people that can operate like that. But for, again, getting back to this conservative defined benefit plan with taxpayer money involved, I mean, this is the way to go, I think, and it’s proven to be correct. And it’s just, to me, it’s just tragic that all, that so many other municipal funds have gone the other way with it.

[01:48:28] William Green: I think there are a lot of things that we’ve discussed that are replicable, whether it’s, both for other funds, but also for individuals, whether it’s keeping expenses down, taking a long term perspective, not overreaching, being opportunistic in times of turmoil when there’s disruption and you can buy bargains.

[01:48:45] William Green: Understanding a little bit about things like the monetary backdrop and the like, like, and long term trends and themes that are likely to drive returns in particular sectors over many years. But I think one of the problems is, it’s really hard to find an individual. Who you come back for a long period of time.

[01:49:05] William Green: There’s real key man risk here. I mean, you guys have been right over 50 years, but even now there’s the and I have this problem as an investor in Berkshire Hathaway. Like, what do you do when you’re betting on someone? an individual or the culture of a small group of people. How do you think about that? I mean, what happens? I mean, you’re 62, you have a couple of children. What, what happens after you?

[01:49:30] Jay Bowen: Yeah, that does, that does come up. And as I tell them, tell the board, if something happened to me, if a shark, if a shark got me at Alcatraz, I mean, nothing happens to their position in Apple or Nvidia or Honeywell, that’s still there.

[01:49:45] Jay Bowen: And the portfolio is so high quality just because something happens to me, their portfolio doesn’t evaporate. Also, that’s number one. It’s amazing how many people don’t even think of it that way. So, they would have plenty of time to make a move if they wanted. Now, we do have four senior professionals, and so, if something happened to me hopefully, we would continue on.

[01:50:08] Jay Bowen: I mean, I’m obviously, I’m, I’m living and breathing it, that’s all, that’s, my day is totally consumed with the Tampa portfolio, and that would, that would shift. But I think that the board realizes that they would have You know, we would hopefully continue on as is, and if they needed to make a move, the quality nature of the portfolio would give them time to, to do that in terms of future generations.

[01:50:33] Jay Bowen: It’s something that’s we have that that I’ve got to think about. I mean, I’m going to always be doing this just through family office and our handful of clients, including Tampa. I’m going to always be doing this, but if something does happen, yeah, we, the, the, the, the next, the next generation is something that, that we’ve got to grapple with.

[01:50:57] Jay Bowen: It’s tough though, because it’s so, my father is funny. My father tried to build a bridge between himself and me, and it just didn’t work for one reason or another. He couldn’t find the right, he thought it was very important to have somebody between us, the generation between us. To him before it was handed off to me and he couldn’t, he just couldn’t find the right, the right person.

[01:51:23] Jay Bowen: He would, he had some funny, yeah, he would come in and he would say, well, so and so, this guy, extremely articulate. He’ll talk 30 minutes on why we should buy this and 30 minutes on why we should sell this and write up these incredible reports but could never move. He would, he couldn’t make a move.

[01:51:41] Jay Bowen: He just was, for one reason or another, was so gun shy. And I remember when my father told me that, thinking, okay, my father is never going to say that about me. I know my father liked, even if you were wrong, he wanted somebody that was decisive. And he had a heart attack in 1990, and I was kind of thrown into the mix sooner than probably I should have been in terms of day to day responsibility on some of this stuff.

[01:52:06] Jay Bowen: And I can just remember writing up these tickets and thinking, you know what, I might be wrong, but he is not going to say I was indecisive, I’m making decisions and so we did we actually didn’t have an intermediary, which is very unusual. I mean, it just never could find the right the right person.

[01:52:21] William Green: I think there’s an X factor here, Jay. I mean, I think that’s one of the difficult things. I wrote an article for Forbes many, many years ago, maybe 25 years ago, 20. Yeah, some 27 years ago, called the master and his apprentice, which was about Marty Whitman trying to figure out who his. Who his replacement would be.

[01:52:38] William Green: And I talked in that about how Templeton kept in a lock box, the names of people who could replace him. And it’s difficult, like there’s some X factor that’s very hard to explain. And, and so, in a way your story is an amazing example of certain principles that are timeless and that work and that all of us can.

[01:52:59] William Green: Can benefit from and I think it’s also a reminder of just how hard it is to do this and how rare it is and how anomalous you guys are. You’re, you’re sort of the exception that proves the rule. Like you’ve exposed a lot of stupidity and bad investing in among your peer group by doing it differently, but actually emulating what you do is tough, like you’re, you’re a hard act to follow.

[01:53:23] Jay Bowen: Yeah, and again, it gets back. I hate to keep harping on this, but it’s so important. We are just. Our, our, our client and clients plural, I mean, most of them have been with us 40, and of course for Tampa, 50 years, we just have this luxury. It’s a real luxury of being able to take a long term approach.

[01:53:41] Jay Bowen: And before we bring a client on board, it’s, I think it’s very important to make sure that we’re compatible. It’s hard for brand new money to agree to a 20 year approach to some extent, but. At least we do have a track record that we can show, that’s for sure.

[01:53:58] William Green: I wanted to ask you one last thing before I let you go. You’re sitting there in South Carolina in front of a beautiful collection of your antique books, and you started out not as a financial person, but actually studying English literature college, and you’ve been a big reader over the years. And I know you’ve read both a lot of literature and also a lot of history books about Everyone from Winston Churchill to Lawrence of Arabia and the like, and I’m just wondering when you, when you think about the literature, the history, the spiritual books you’ve studied, what do you take from those about endurance, because it seems like In many ways, what your career kind of embodies is the spirit of endurance.

[01:54:41] William Green: And you look at, you look at people like Lawrence Arabia, who was kind of indomitable, or Churchill, who talked about going to, from failure to failure without visible loss of enthusiasm, but how has your reading informed this sense of the importance of endurance, indomitability, just continuing to keep going?

[01:55:00] Jay Bowen: Yeah, I am a big Anglophile, I’ll say, a major Anglophile, particularly on the antiquarian front and on the Historical front and on the on the literature front. And yeah, I mean, you’ve got these it’s amazing truth. The reason I love biography and I love fiction. Also, I love the classic English fiction.

[01:55:19] Jay Bowen: I love James Joyce and Joseph Conrad and D. H. Lawrence, just absolutely spectacular. I mean, I love fiction also, but history, the truth is, truth really is stranger than fiction. I mean, some of these stories are just so tremendous and they’re so inspiring in terms of what one person can do. Can accomplish and what it can mean to, to, to his country or to the world in terms of Winston Churchill or T. Lawrence, of course, is just so fascinating on a variety of fronts that these stories are just, I’m just so captivated. And this is a little bit off point, but just I think it’s important to tell you that I made a decision a while ago that I like literature and history and reading. And so I think I’ve become a better investor by, when the, when the week’s over, it’s over.

[01:56:13] Jay Bowen: I mean, I don’t do investment books. I don’t do annual reports. I don’t do research reports. On the, on the weekends, I mean, I can remember initially it was like, there’d be a stack of annual report and I think there’s something to be said for absolutely Clearing your brain and, from a critical thinking standpoint, whether it’s focusing on other literature or other writing or reading, or it’s totally unrelated to investments in a, in a strange kind of way.

[01:56:49] Jay Bowen: I think that actually makes you a better investor because you come at it. I think you don’t have this feeling of burnout, and I think you come at it somewhere rejuvenated. So, I think it’s really important for me to explore these other, these other areas and completely leave the other stuff. You just leave it and sometimes it’s impossible to completely abandon it, but you leave it and you’ve got your mind going in all of these other interesting and fascinating areas from a, whether it’s literature or history or writing.

[01:57:32] Jay Bowen: I’ve really enjoyed, I’m, I’ve really enjoyed writing short stories and I’m working on a novel and. I just think that it is, I can’t really put my finger on it, but in a strange way, I think it actually, yeah, you’re missing, you’re going to miss some stuff. You’re going to miss reading this research report or that annual report, but in some ways, I think it makes you a better investor and a better thinker, having, more, more diversified and you’re coming at it from different angles and you’re absorbing different stories and different lessons and just maybe even subconsciously. It’s going to impact the way that you think critically and maybe the way that you, that you manage money. It’s hard to articulate exactly, but that’s been important for me.

[01:58:22] William Green: Yeah, that’s really interesting to me. I spoke recently to Bob Robotti on the podcast. He’s a brilliant investor who started out in his early years working with the guys from Tweety Brown and then with Mario Gabelli and both Bob and Mario Gabelli never read books.

[01:58:39] William Green: And there’s really interesting to me and so I, it emphasizes the fact that there are so many ways up the mountain you can, you can be someone like Bob or Mario, who’s just voraciously hungry for information from reading, trade magazines for 50 years and that works for them and, and then there are other people like Bill Miller, who I’ve interviewed over, 23, 24 years, so many times, who’s just profoundly intellectual and could take something from Wittgenstein and apply it to get them, to buy Amazon.

[01:59:13] William Green: I just think there are so many ways up the mountain, but I think part of what’s interesting about what you were just saying also is both with your exercise regimen and with your reading and studying and writing, You’ve managed your energy in a way that’s given you more endurance like that. There are ways that it they’ve allowed you to continue playing the game at a very high level for a long time And so I think that’s one of the great takeaways for me is that we in our own idiosyncratic way we’ve got to figure out what do I need to make myself durable.

[01:59:50] Jay Bowen: See and I’m so lucky that I can structure. I am so fortunate. I’m so like, I mean I can structure my day some, a lot of people don’t have that luxury. I can, I can structure my day that will allow me to absolutely optimize. My performance and that is it’s unconventional and it’s a little bit quirky.

[02:00:11] Jay Bowen: My wife will tell you and it’s, it’s sometimes strange mealtimes and late night work times. And it’s just different. It’s completely different. But it for me anyway, it’s well, it’s what works for me. And it took me a while to realize that. I mean, I was remote way before being the coven. I didn’t blink an eye because I’ve been doing that kind of thing forever because I’m so distractible and I need to be able to hear a pin drop to do.

[02:00:39] Jay Bowen: I just, my father was exactly the opposite. He could sit in a room and there could be a party going on and he could read a book. I mean, I’m, I’m completely the opposite. I’m, I’m just, it’s got to be, I mean, it’s got to be really dead, dead, dead quiet for me to, and it’s just great that I’m able to structure my environment like that. I’m very fortunate and lucky because a lot of people don’t have that luxury.

[02:01:03] William Green: And self-aware that you figured out this is how I operate well I need to exercise I need to have peace and quiet I need to read I need to write it so I think I think that’s one of the last lesson I’d like to emphasize as we sort of figure out like.

[02:01:18] William Green: Why you and your father have been so successful it’s like you figured out how to structure your own habits your own day your own lifestyle in a way that enables you to be you know a long distance athlete of an investor so I feel like there have been so many great lessons here so thank you so much Jay for sharing all these insights.

[02:01:40] Jay Bowen: Well, thank you. It’s been a real pleasure. I really enjoyed it.

[02:01:44] William Green: It’s just been a delight and it was a long time coming this conversation. I’ve been looking forward to it for a couple of years So I’m glad that we finally got to do it. And I hope now it’s the first of many.

[02:01:55] Jay Bowen: Good deal. Great. I really enjoyed it.

[02:01:57] William Green: Thanks so much.

[02:01:58] William Green: All right, folks. Thanks so much for tuning in to this special conversation with Jay Bowen, I hope you learned as much from it as I did, I always find it fascinating to study people who’ve sustained their high performance over exceptionally long stretches of time. This episode was also a particular treat because I don’t think Jay has ever told this success story in anything like such depth.

[02:02:20] William Green: I’ll be back very soon with some more great guests, including a very rich conversation that I had recently with Brad Stulberg. Brad is an expert on sustainable excellence and a coach to high performing entrepreneurs and executives and athletes and the like. He’s also the author of a very interesting book titled Master of Change, which is subtitled How to Excel When Everything is Changing, Including You.

[02:02:45] William Green: In the meantime, please feel free to follow me on X, @williamgreen72, or connect with me on LinkedIn. And as always, do let me know how you’re enjoying the podcast. I’m always delighted to hear from you. I’m now racing off for dinner with my wife and kids as it’s my birthday today. I can’t think of a better way to celebrate. Until next time, take good care and stay well.

[02:03:08] Outro: Thank you for listening to TIP. Make sure to follow Richer, Wiser, Happier on your favorite podcast app and never miss out on episodes. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com This show is for entertainment purposes only, before making any decision consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.