Episode #112: Peter Ricchiuti, Tulane University, “You’re Better Off Investing When Things Look Miserable”

Episode #112: Peter Ricchiuti, Tulane University, “You’re Better Off Investing When Things Look Miserable”


Guest: Professor Peter Ricchiuti teaches classes on finance, investments, valuation, equity research, financial modeling, and financial analysis at Tulane University. Prior to his academic career, he worked with the investment firm Kidder Peabody, then managed Louisiana’s $3 billion investment portfolio while serving as the assistant state treasurer. Peter created and runs the nationally acclaimed Burkenroad Reports (www.burkenroad.org) student stock research program.

Date Recorded: 7/09/18     |     Run-Time: 1:02:06

Summary: We start with Peter’s origin story, which includes his time in the investment world, then managing money for the state of Louisiana, then teaching at Tulane where he created, and now runs, the Burkenroad Reports program (a student stock research program).

Diving into investing, Meb asks Peter about his broad approach to the markets and the economy. Peter tells us that from an economist’s perspective, “labor” is a huge factor when evaluating economic conditions. And he believes the U.S. is facing challenges with its labor pool. From a narrower, equity-perspective, Peter tells us that right now things look perhaps a little too good. He notes “you’re better off investing when things look miserable.” At present, given so much market optimism, he’s pulling back.

The conversation turns toward the global market, and how interconnected we all are these days. Peter tells us that part of the reason we’ve done so well over the past several years is because so many countries were growing at a positive pace at the same time. This dovetails into a discussion about today’s elevated PEs. Peter believes that, here in the U.S., we’re on a “sugar high” from the tax cuts. Companies have been using that money to buy back stock or buy each other. But what they haven’t been doing as much is building for expansion. Peter believes companies haven’t been focusing as much on planning for future growth.

Next, Meb asks a question that he admits hating to get himself – what causes this bull market run to end? What are the main risk factors? Peter points toward higher interest rates. He believes we’re going to see Treasuries at 3.5%. Plus, earnings growth will begin to slow. He tells us that the economy is at or close to its peak right now – it could last longer, but as far as the peak goes, we’re in that general area now.

The conversation turns toward the Burkenroad program, bouncing around a bit: An interesting takeaway from a lunch with a small-cap company’s CEO… the attributes that Peter and his students look for in the companies they vet… the illiquidity advantage over institutions… even one great find through the program – a stock that went from $0.72 to about $150.

Meb asks which mistakes the students make repeatedly. Peter points toward looking at the past more so than evaluating the future. One manifestation of this is paying more attention to past earnings than the prospect of future earnings. Also, many of the students lack patience.

There’s way more in this fun episode: The recent Buffett op-ed piece on short-termism and Peter’s take on how to teach students to focus on the long-term… How Peter’s approach to markets has changed through his experiences running the program… The actual Burkenroad Fund, which has been around about 17 years and outperformed boatloads of competition… And of course, Peter’s most memorable trade.

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Interested in sponsoring an episode? Email Jeff at jr@cambriainvestments.com

Links from the Episode:

  • 0:51 – Welcome and Peter’s conquest of MLB parks
  • 3:22 – Peter’s origin story
  • 5:02 – His thoughts on the current state of the economy
  • 7:00 – Tariff talks
  • 10:50 – interconnectedness of the global economy
  • 12:28 – Main macro surprises during Peter’s career
  • 15:22 – What are the risk factors that could jeopardize this bull market
  • 18:51 – Peter’s approach to investing in individual stocks
  • 23:56 – The process of selecting companies for the students to study
  • 28:38 – 23rd Annual Burkenroad Investment Conference
  • 29:05 – Process of evaluating companies
  • 31:57 – Any finds from the students that really stands out
  • 34:23 – Mistakes Peter sees his young students are making
  • 38:02 – Trying to teach long-term patience to the students
  • 38:37 – “Short-Termism Is Harming the Economy” – Buffett & Dimon
  • 41:46 – What impact the students have had on Peter’s personal framework for investing
  • 43:52 – Out to Lunch Radio Show
  • 45:56 – Investing in some of the students’ ideas
  • 49:35 – “How Many Funds Do You Need? Probably Fewer Than You Think” – Weil
  • 50:22 – Other schools copying the Burkenroad model?
  • 52:36 – What’s on the forefront for Peter
  • 57:19 – Most memorable personal investment
  • 58:00 – “Buy American. I Am.” – Buffett
  • 1:00:01 – Follow Peter at the Burkenroad link and the itsneworleans link

Transcript of Episode 112:

Welcome Message: Welcome to “The Meb Faber Show,” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas all to help you grow wealthier and wiser. Better investing starts here.

Disclaimer: Meb Faber is the co-founder and chief investment officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.

Meb: Welcome podcast listeners from a hundred-plus degree Los Angeles. Today we have a really fantastic show in the air-conditioned studio for you. Our guest used to manage Louisiana’s $3 billion portfolio as assistant state treasurer. He’s now a business professor at Tulane, he’s won numerous Teaching Awards, started the nationally acclaimed Burkenroad Reports student stock research program. You’ve probably seen him in “Barron’s,” “New York Times,” “Wall Street Journal,” all these other places, maybe on his NPR show, “Out to Lunch.” I actually got to see our guest speak over a decade ago and followed up on an e-mail chain that we had that was 10 years old. The beauty of the internet today. Welcome to the show. Peter Ricchiuti.

Peter: Hey, thank you. Thanks for having me. This is very nice. Sorry about the heat there.

Meb: Yeah, you know well, I had to escape last weekend. I went up to the Pacific Northwest, and was up on the Hood Canal. And as I know a fellow baseball fan, I was really pressing hard to go see a Mariners game, and my wife said, “No, we’re going to the cabin,” so sadly…I know you’ve been to, I think, all the parks. What’s been…

Peter: Yeah, I certainly am. In fact, I’m heading back over to AT&T Park in San Francisco later this week, so…

Meb: It’s one of my favourites.

Peter: It’s been a good diversion for me.

Meb: You get some garlic fries and everything else.

Peter: Oh, yeah, and the whole stadium smells like garlic fries. It’s really something.

Meb: What’s been your favourite of all the parks?

Peter: Well, you know, I grew up in the shadow of…I grew up about a half mile from Fenway Park. So that’s kind of like the Vatican, and I love that ballpark in San Francisco. And the one that nobody ever talks about is where the Pirates play at PNC Park. At night they light up all the bridges, you know, it’s the City of Bridges and it’s just really something to see.

Meb: That regularly gets voted the best park in the country, which surprises a lot of people.

Peter: Yeah.

Meb: I finally got to check off Wrigley this year, and it was a cancelled replay day game so there was no one there and I got to sit like rightly directly behind home plate for, I think, like $50.

Peter: Oh, my God, they almost asked you to play.

Meb: And it was such a wonderful memory, because one, there was two girls sitting next to me that proceeded to get possibly the drunkest of anyone I’ve ever seen in my life. And the poor things got pooped on by a seagull. So quite an interesting day.

Peter: Oh, now, that’s a memory.

Meb: I know, well, and then the Cubs blew it in, I think, the bottom of the ninth. They had a chance against the Braves. Okay, well, I imagine we’ll talk about investments at some point.

Peter: I knew we we’re here for something.

Meb: Yeah. Look, I’m familiar to you, but why don’t you give us a little origin story, how your windy road from Fenway down to the swamps and everything of New Orleans, what’s the origin story, career path?

Peter: Well, you know, it’s funny I always talk about I taught here for 31 years at Tulane. And my students, because they’re 22, 25, they think life is gonna be linear. And of course, it’s not, it’s very circuitous, and my career was very circuitous. I went to Babson College up in Massachusetts. I was raised in Massachusetts, and then went to Cater Peabody, the investment firm. And then came down here to manage all the state’s money, we had about three billion under management. And while I was there a lot of constituents asked me about how they could find investment information on publicly traded companies in this region. And you know, we’re so far from Wall Street that I realised there was nothing there. And I was teaching part time at Tulane and I thought, you know, we’ve got these really smart students that want to get experience, and we’ve got these companies that are kind of orphaned companies, nobody’s following them.

So we created it 25 years ago, we created Burkenroad Reports. And all the reports are free, they’re online if you just go to burkenroad.org they’re all free. And I think the thing we’ve been most proud of is we sent 750 students from this program on to jobs in the investment business. So it’s been a great springboard. And then we have the Burkenroad mutual fund, which Hancock Bank manages using the students’ research and that’s in its 17th year. And during that period it’s helped performed 99% of the 1,700 stock mutual funds in the country. So it’s been really terrific. It’s made up of these little unknown companies in the South. So that’s been a lot of fun.

Meb: That’s awesome. We’re gonna get deep there in a little bit. I really wanna chat a lot about that. I wanna talk first, let’s chat a little bit about your worldview as a teacher. I mean, you’ve spent the last couple three decades, you mentioned, teaching. So let’s talk a little bit about markets. So, like, I know you teach security analysis, but let’s start broad base. As a finance professor I’m sure you take a look at the U.S. economy. You know, a lot of people take a look around and see some of the lowest unemployment in our lifetimes, and times are all good and everything, just pop ping champagne bottles. What’s your worldview right now, how things look to you, the U.S. economy?

Peter: Well, you know, the truth of the matter is you’re better off investing when things look miserable. And I just think there’s just too much optimism out there. You know, one of the big problems I have in Burkenroad Reports visiting companies and on the radio show we do here, I’m always talking to business people, and I always ask them is kind of an ice breaker, “What keeps you up at night?” And I would say 95% the answer is always, “Finding labour.” And I think that we’re really at an interesting junction, particularly since the president wants to, you know, throw half the people out of the country and not let anybody in.

And that’s kind of odd because if you asked an economist the single most important variable in determining how an economy is gonna be going forward, it would be the population of working age people. So we’re really running up against a wall in here. And of course, one of the things you hear people say sometimes [inaudible 00:06:30], sometimes it’s that. But the percentage of working Americans is still is a lot of people in there. But in that group these are people that are retired, you know, maybe have a disability, they’re managing households, they’re going to school. I mean, this is not an extra layer of potential employees. So I think we’ve got a real problem on that end.

And of course, you know, I’ve been doing this forever, I guess 40 years altogether, and you know, I’m a free markets guy and I think tariffs and trade wars are prosperity killers. So this is a very odd time for me. I think maybe these people think it’s a zero sum game, if anybody makes any money it’s coming off of my plate, and that’s really not the way it is. And you know, the pie is infinite if everybody can do well. So I was very bullish back in ’09, when everybody wanted to…you know, thought we would be eating our young in the street and things like that. And now that everybody’s very optimistic it’s made me want to pull back a little.

But you know, the truth the matter is for most investors they’re better off just buying some…I think back of…you know, I’ve known hundreds of people that have made millions of dollars in the market and they’ve all been almost the same story. They’ve bought good stocks or good funds at attractive prices and held on. So I think we’re talking about at the margin, being bullish or bearish, I think the core should just hang in there and a lot of it with index funds, particularly.

Meb: You know, so it’s funny, there’s a lot of charts, like for example, if you look at unemployment rate, and you mention same thing with…and you could even extrapolate it to tax revenue or any number of indicators where I think most people would assume, “Hey, really low unemployment, it’s great.” And then for future returns for the stock market, it’s actually the opposite where when everything looks rosy and shiny, historically, that’s when you wanna be doing the opposite of what you think. And when times are really bad it has a high correlation simply to stocks being down as well. I was laughing when you said, “What keeps you up at night?” because last night my dog was snoring, and that’s what kept me up like half the night. He’s 12 years old so you feel bad kicking him, but I was just giving him a little elbow.

Peter: Yeah, and that might be the other 5% when I ask people, it’s unruly dog, so it’s something.

Meb: There’s one more tweet that was funny. A buddy tweeted out today, he said, “Well, the one surprising benefit from these tariffs and trade wars is that there’s supposedly a large glut of U.S. steak.” And he says, “Steak prices should be plummeting.” I said, “I’m all for it now.” This is how I wanna vote, just based on…

Peter: Yeah, carnivores unite.

Meb: Yeah.

Peter: The funny thing I was gonna say is that, you know, the group that is…Louisiana is very much into this discussion because South Louisiana is the largest port in the United States by tonnage. And so we are more vulnerable on these tariffs than anyone else, so if it seems like I have a little extra angle on this thing, it’s very, very, very, very important to us down here. The odd thing is that it seems to be hurting those red states more than the blue states, the people that, you know, really supported the president and they’re really scared to death. You know, everything from pig farmers to grain farmers, and such. So it’s very…and then the port here in Louisiana, which Louisiana supported the president as well. So I know he said, “Trade wars are easy to win,” but I just don’t see any historical reason to believe that it’s…plus this is a different world now. It’s not 1970 where we dominate the world and kind of can push people around. There’s other big players, like China, out there.

Meb: Yeah, talk to me a little bit about…and by the way, you’re talking to the world’s worst grain farmer. And I think we’re like harvesting wheat as we speak right now in…we have a small family farm in Western Kansas. And our long-time podcast listeners will smile because last time this year our wheat farm had burned down due to an errant combine.

Peter: Oh.

Meb: It’s okay, there was insurance on it and everyone is fine. But I am humorously the worst wheat farmer on the planet, as my listeners know, so they’ll laugh at that comment.

Peter: I see a guy that should hedge.

Meb: Yeah, believe me, I should hedge by selling the farm, is the correct hedge, I think.

Peter: Better than buying the farm.

Meb: Yeah. So you mentioned an interesting point in that, you know, particularly in this day and age we no longer exists in a vacuum, particularly with the economy. And maybe talk to me a little bit about this interconnectedness of the global economy, and is kind of what we’re seeing in the U.S. similar to what’s going on in the rest of the world, or what other major forces do you think are at play as kind of the way the world looks today?

Peter: One reason the market has done so well, and the commies have done so well, is it’s the first time, in recent history at least, all of the world was synchronised. Everybody was…just about all the nations were growing at a positive pace at the same time and we haven’t seen that in a long time. And now, you know, this kind of battle is you against the world and all of that. You look at things like China, and China has the potential market that is so much larger than the United States, as all of these people become middle class and just seems like the wrong group to get mad at you, you know. And then giving up our allies, and the other thing is it’s just more confusing than it used to. Like one of the things you had people say is, “We’re gonna put tariffs on these German cars come in.” Well, you know, the Mercedes is made in Georgia, the BMW is made in South Carolina, the Toyota’s made in Mississippi. I mean, what are we talking about here? And it seems like it’s kind of a time warp but it’s a very, very different world out there right now. It’s not as simple as it used to be.

Meb: It’s complicated. Economics has always been pretty complicated. So you talk…you know, you’ve been doing this for 30 years. What would have been kind of some of the main macro…and this can be economic, it could be related to the markets, kind of surprises. For me, I’ve mentioned a few times in the podcast getting to see negative yielding sovereign bonds was kind of a strange phenomenon. But as a professor, do these look just kind of like normal times like various times in the past? Are there any particular areas that you kind of shake your head and say, “This is a big surprise,” or, “This is crazy?” Anything that comes to mind?

Peter: Yeah, you look at today’s PEs versus historical rates. They’re just out of the range and people seem to think…you know, people use the four most dangerous words in finance, you know, “This time it’s different,” and it never is. The seven most dangerous words overall are, “Hey, we’re getting the band back together,” but that’s a whole different thing. But yeah, just evaluations here just seem crazy in that they assume that this market will continue to expand forever. And what you’ve got, I think, is a sugar high from this tax cut, and the real issue on the tax cut is what is that money gonna be used for? And since ’09, what corporations have been doing is they’ve been taking these record profits and doing it…they’re buying back their own stock, they’re buying each other, or they’re hoarding cash. And that’s exactly what they’ve done in multiples of that since the tax cut came along. So the idea that this tax cut was gonna expand the economy in a major way just isn’t gonna happen.

You know, I sat on the board of a company myself and I’m not throwing stones here, but you know, if you’re a C-suite executive or a director, I mean, you look at it and you take some of that money and take a real risk, like building a distribution facility in south Florida or something, or do you just take that money and keep buying back your own stock? Because these stocks ultimately run on earnings per share and that’s a pretty simple, relatively risk free way to move up those earnings per share, you basically have the same profits divided by a smaller number of stocks out there. It’s a smaller number of shares. And so if you look at two big trends you can see why the market’s gone up. It’s companies buying back their own stock and then it’s companies buying each other

You know, in the year 2000 there was 6,600 publicly traded companies on the Wilshire 5000, and now there’s 3,300. So if you take the fact that we have half the number of companies and the companies that exist have much fewer shares, you know, that’s kind of the intro to the economics book, you get more dollars chasing fewer shares of stock out there. And I think that’s really been pushing it, but I think…because now that I know you’re a farmer, I can use this expression, is, “I think we’re eating our seed corn.” So, we’re not planting for future growth, we’re just doing these things that really don’t add much to the future of the company. So we’ll have to see.

Meb: And so, you know, as this is like the most impossible and my least favourite question when I’m doing chats with people and they ask me, so apologies ahead of time. But what are you…sort of like if you were to look out, and I know it’s always obvious in retrospect, but what’s kind of causes this the end, you know, is this 10-year bull market or this economic expansion, what do you see is the main sort of risk factors? Is it the sort of macro tariffs, is it simply old age, is there something that…is it rising interest rates, anything in mind that comes to the forefront as is the big sort of catalyst or risks?

Peter: Sure. I think you get a couple of things. Basically, bull markets don’t really die of old age. So, something occurs and I think that two things are higher interest rates because, you know, the fact that we’re really out of employees, that means, I know it hasn’t happened much yet, but wage inflation is really in the cards and that’s the ultimate inflation. Commodity inflation runs up and down food, oil, things like that, but wage inflation is in the cards. And you’re gonna see a 10-year treasury three and a half percent probably early next year. And when you do those models like we do in class that tries to do…like the dividend discount model, for example, it tries to figure out what a company’s worth. The overall rate of interest is a key, key determinant.

The other thing is, I think, that earnings growth will start to slow down. The sugar high from the tax cuts will be over, and we are at the peak of the economy. Now, whether this is the exact peak or a peak like this could last even a couple more years but not much more. And I think when these tariffs hit, and I would say about half the conference calls I listen to now somehow bring up, you know, what are the tariffs gonna do to you? And of course, everyone is negative, and when that starts to impact earnings per share I think people are gonna get a little bit spooked. And I think that could happen. You know, people are so complacent now. From ’09 to ’18 or something, or ’17, I’d go to cocktail parties, or barbecues, or here we have crawfish boils, and nobody would ever ask me about the stock market.

Now I go out and everybody’s got some crazy idea or, you know, even Bitcoin or something like that, they wanna find the most speculative thing they can get their hands on. That’s never been a good sign. And of course, you know, at Burkenroad Reports, we’re following such…I mean, if things have really worked out, we’ve had 45 companies bought out since…you know, we follow 40 a year and we’ve had 45 bought out in the last 25 years. But to be totally honest, they tend to be very boring companies. We’ve had a company, Reddy Ice, that was a company that made ice cubes. We have a company called Crown Crafts that’s the largest maker of baby bibs in the United States. They’re not very exciting, but that’s where the money is made, not the one that…sometimes I think if you go to a party and other people own the same stocks you own, you probably should go home and sell them.

Meb: Well, and just think about how much Reddy Cubes would have sold for if they changed their name to Reddy Cube Coin.

Peter: Yeah, isn’t that the truth?

Meb: Reddy Crypto Cubes and they’ve probably got 10x. All right, so let’s transition a little bit. I mean, I love chatting macro, but chatting macro in so many ways is a little bit like just kind of gossiping because it’s really hard…like you mentioned earlier, it doesn’t necessarily impact, you know, a fair amount of the advice, general investing advice, for people that I think you mentioned. But let’s talk a little bit about your kind of framework in thinking about equity markets perhaps from the bottom up. So as you’re serving and maybe even talk about the origins in the security analysis class, about kind of the approach to investing in individual stocks. Because for a lot of people, I mean, this is an old school, go back to the time of Ben Graham, and Peter Lynch, and everything else that a lot of pros have really struggled at during the cycle. So maybe talk a little bit about kind of your just overall framework for stock picking and security analysis.

Peter: Well, part of our program, as you know, we have 200 students, we divide them up into teams of 5, and each team is responsible for writing an investment research report on each company. And part of it is one day out with the CFO and the CEO, and I try to join them for that. And it’s so interesting because, first of all, a lot of people just view stocks as ticker symbols and, you know, they don’t even realise there’s people behind these companies and everything. And you learn the most interesting things that maybe don’t even show up on a balance sheet or an income statement.

I’d mentioned Crown Crafts, they’re kind of between New Orleans and Baton Rouge, and they’re makers of baby bibs and all the stuff you’d find inside a crib and such. And so the one thing that cracked me up is that to figure out what makes these companies tick, like we were visiting with the CEO and one of the students said, “To find the driver for your company is we’re using the rate of U.S. births.” And the CEO said, kind of surprisingly said, “That’s actually not it,” and we were kind of stunned or whatever, and he said, “No, it’s the rate for U.S. first births because by the time you get to the second and third kid you’re using the same bib you used on the first one.”

And so every one of these companies has these nuances that you just get in there and you start to figure out what really makes them tick. We had a company called Cyber Onyx, it was recently bought out by an Italian firm. And that company made a device that was implanted in your chest and there was a lead that went up into your brain, and that was to stop different brain functions that, you know, needed to be remedied by a kind of a rhythmic piece. And you know, we looked at that company for about a year until we finally figured out that the key to that business was the battery ran out every two years. And they had a whole group of people that every two years needed to buy a new battery from them, you know. So they’re all a little bit different and they’re all very interesting, you know.

I drive down the highway and I see a truck of a stock I own, I wave at them. These stocks become your little friends. But I think that is the story and sometimes it’s just the macro wins are so strong, you can’t really fight them. Like for instance, Louisiana is the third largest producer of oil and gas in the United States. And of course, so you’ve got companies that are well run and such. But they’ve still been driven into the ground over the last three, three-and-a-half years. So sometimes the macro does overtake the micro analysis. And oil, by the way, is kind of interesting, you got prices up between $70 and $75, which would indicate that you would start to get people back to work even in the Gulf of Mexico, which is one of the more expensive places. But the oil service stocks aren’t moving very much and I think that’s telling you that people don’t think this is gonna hold.

You’ve got President Trump telling the Saudis to produce more oil, and then at the same point, sanctions against Iran. So there’s two million barrels that are off the market. So a lot of mixed signals on that. And we took five students out to West Texas a few months ago to see the shale fields, which are just enormous. You know, they have really been able to…it’s not even oil drilling, it’s like mining, and it seems like they have unlimited ability to pull oil up in there. So you get industries where you got to understand the big picture before you get whittled down to the little picture.

And I would like to tell you about what I think is the most interesting story in energy right now, and that is in South Louisiana to the southwest kind of not too far from Texas on the coast is these L&G facilities that have been built. And they are the most interesting thing in the energy field. You know, we’ve been not only we found enormous amount of natural gas in this country, but even when we’re looking for oil we find natural gas almost by accident. And that we have so much gas, every pipeline, every ship, every storage container is filled with natural gas. And so it’s driven the price of natural gas down below $3/1000 cubic feet.

So what they’re doing is they take this gas, the pipelines all go down around Lake Charles, Louisiana, and they take that natural gas and they freeze it. And they actually lower it 265 degrees below zero and it shrinks it to 1/600 of its size. Then it gets loaded in these ships, and while it’s below $3 here, it’s about $6 in Europe, and about $10 in Asia. And so they ship it across the world, reheat it and make the arbitrage. The project down there has been $50 billion. And that’s, I think, the largest private investment in the history of the country, so there’s a lot of little stories going on that don’t get a lot of attention but it’s a fascinating time to be an investor.

Meb: So to talk to me a little bit about the process, particularly with this army of young students. And I’d also like you to talk a little bit about…touch upon some of the benefits of the inefficiencies perhaps that you mentioned geographic locations. So maybe people aren’t following some of these companies because they happen to be located in sort of the Deep South. And maybe that they’re also small caps that might be under-followed, and do the students select from a list, are they going out and picking their own? What’s kind of the whole process there?

Peter: I actually do that part, and of course we get a little bit of turnover every year because companies get bought out, or recently in the oil business kind of a few of them have gone out of business. But they all fit a certain character and that is that they’re usually under a billion in market cap, they’ve got a good balance sheet, they’ve got good profit margins, but not great profit margins so they don’t attract a lot of competition. Another thing we like is when management owns a lot of the stock because they’re definitely in the same boat you’re in. And I think that’s our big advantage. I remember getting called by…we had a nice write up about us in “The New York Times,” and I got a call from an Ivy League professor, and he’s very interested, and then at the end he said, you know, “We would do something just like that, only we would do large companies like Microsoft.” And you know, basically, I guess because he hadn’t been in the business.

But you know, that’s the whole key, the key is to find companies that you’re gonna add value and the inefficiencies are in those smaller companies. It’s also kind of an interest…what that leads to though is kind of an interesting topic, which is some people think that the field isn’t levelled and that, you know, the institutions really dominate and such. And I really think it’s just the opposite now because when I was in the business, oh, 35 years ago, the commissions were so high, now they’re next to nothing, and research was something, you know, you had to smuggle out of another firm or such. Now it’s all available to everybody, so I think it’s really a lot more democratic process to be an individual investor now.

And that the third part is just we’re talking about right now, these companies, you know, they’re not penny stocks by any means but they’re relatively illiquid, if you are an institution that needs to come in and buy a million shares or such. But it’s another example where that individual can come in and buy 500, 1000 shares and not move the market. And they kind of have that market to themselves. So I think that stock picking is a lost art, and I think we’re better off doing it now than we have in the last 40 years.

Meb: I agree with you. You know, it’s funny, I listen to a lot of these professional managers complain about the rise of indexing and how it makes the world harder. And I kind of scratch my head because in my mind it should actually create a lot more inefficiencies for them. But the challenges for so many of these guys, like you mentioned, they’re trying to decide whether they buy Microsoft or Apple. And most of those companies have, I don’t know, 50 analysts following them, if not a 100, where most of these kind of smaller companies there’s the real opportunity for value-added research. And I mean, I don’t care if it’s you go have dinner with the CEO and he’s drinking a ton of whiskey because he’s depressed about his company, you know, that’s value-added research in my mind. And so there’s a lot more opportunity but I think a lot of it goes along with…

Peter: You go to jail for that, by the way, regulation FD. Actually, you don’t go, the CEO goes to jail.

Meb: That’s right.

Peter: You could ask whatever you want.

Meb: I wasn’t even saying if he’s telling you anything, he just looks sad and he’s drinking a lot of whiskey.

Peter: Yeah, that’s right. But you’re right, you’re absolutely right. I think these small companies…you know, we go to companies that an analyst hasn’t seen them in a couple of years, it’s like they got a sign up, “Welcome Tulane Students,” and it’s like, “Oh, they’re almost here, get the donuts.” And that’s what we find the…and the students, I remember we’re visiting a little company called Buy East Deal Once [SP] here in Louisiana, it was at 3 for a long time and then got bought out, I think, in like ’70 by the Chinese. But I remember a student asking, because they’re very smart but they’re young, so one of them asked the CFO, you know, “This is such a great story. Have you tried telling the story to Wall Street?” And of course he just cracked up laughing because that’s what he spends half of his time trying to get Wall Street interested in the story.

And it’s just Wall Street’s only gonna follow a company where they can make some money. And the way you make money is trading, so it’s gotta have a lot of volume or a lot of shares out there, a big float, or the company is gonna need to, you know, do financing. And so if you’re a good company running well with good margins in a boring field in a Deep South state, it’s gonna be tough for you to attract Wall Street’s attention. And also they fired a lot of analysts over time, and they fired a lot of small cap annalists. So I think it’s never been a better chance to see these kind of companies. And we have a conference once a year. April 26th of ’19 is the next one. And the 40 companies we follow, basically I’ll send their CEO and CFO to present at the…it will be the 23rd Annual Burkenroad Reports Conference, and it’s all free and open to the public. But that’s a good example, sometimes you’re out there, you visit with the management, you hear their presentation, and there’s nothing that shows up on the income statement. But you get an idea whether this is someplace you wanna put your money, you think, now that you’ve met the people that are running it.

Meb: Well, I think it goes along with the general…you mentioned sort of a lot fewer stocks over the past 20 years. But also if you look at something like CNBC ratings or just the general disinterest as people have gotten walloped by two big bear markets the past 20 years that people don’t really talk…with the last year exception I think, that people in general have a much more of a disinterest in stock picking than they did 15, 20 years ago. And I see it just with my friends and family, and it’s a great thing if you’re securities analyst because it means you have less competition. But tell me a little bit about the process and how this has evolved over the past 30 years. So you know, you all mentioned you do site visits, you design models, publish…and by the way, the research reports that end up getting published, are they publicly available, privately available?

Peter: Oh, yeah, if you go to burkenroad.org, they’re all free and you can see them in there. And I think you’ll be very impressed with what the students do, you know, because they spent four months with a team of five students doing these. And one of the things that makes them so valuable in the workplace is they’ve developed from scratch these financial models to try to determine what earnings are gonna look like, what the company’s balance sheets gonna look like. Because you know, we always tell the students that people on Wall Street make a lot of money and they don’t pay for knowing what the company looks like now or what it looked like two years ago. It’s, what’s it gonna look like three to five years down the road?

And they do a lot of research. You know, in addition, they will talk to customers and they’ll talk to suppliers. And remember last year, sometimes they come up with some pretty great things. One group went to the boat show here in New Orleans, because one of the companies we follow is Marine Products, they make boats, and just with a clipboard went around talking to people about whether this was the year they were gonna finally make that purchase, and what they were looking for in a boat, and how they were gonna make their decision. And so it’s one thing to get information from management, which is terrific, but to get that independent research, I think, is really excellent. So we dig around and dig around. I remember one group of students, we were following Rollins, which is the company that owns Orkin Pest Control, and they went out and they got four different bids for getting termite and cockroach removal in their house, and got very detailed bids and saw the way they differed in the way they did business.

By the way, we learned something funny from that story, which is one of the things that the bug company said was that their big problem, of course, is finding labour but it’s beyond what you and I were talking about. You know, it’s trying to find a guy, it is mainly male, a guy who you’d trust walking around your house with that little spray thing, and then at the end you can tell them that you think you might have rats enter the house and if he could go chase them. And so what they found is that it’s ex-military people that are the best recruits for that. So you learn these little things that, I don’t know, I think makes you interesting at cocktail parties.

Meb: Yeah, a couple of comments is, one, I’d love to know of like are there any stories that stand out in this time of doing it where your students uncovered something where you were like, “Oh, my God this is the most amazing buy, like it doesn’t make any sense why this company’s so cheap. This is the best looking stock I’ve ever seen.” Or on the flip side, have you ever had students covering something where it’s like skeletons in the closet, you’re like, “Oh my God, we have to run away from this company?” Anything that stands out in particular in, sort of, your mind?

Peter: One is, obviously, we’ve had great winners and great losers like everybody else. I’m always suspect of people who don’t admit that they’ve had some awful mistakes. But about 22 years ago we picked up a company that’s just across the lake here in New Orleans called Pool Corporation, and they were setting out, they’d just gone public, and they were setting out to be the largest distributor of swimming pool equipment in the world. And they were starting from a very low base and we started talking to them and just everything started to make sense that, you know, all these people that clean pools and all the people that manufacture pools, they can’t be buying. It’s very cumbersome to buy a motor from one company or ladders from the other company. And they became that person, and it’s been really remarkable.

I mean, we’ve never had a victory like this anywhere else. But that stock went from, you know, 72 cents to $150 and you could just see it. You know, you could see there was a niche they were filling and how important that was. And of course, that was another example when you started to realise, well, wait a minute, we were so focused on how many new pools are gonna be built, which is sort of a function of housing starts and all, but it was the idea that you were building that base of existing pools and they all needed to be maintained that was that the real secret story in this piece.

And the other is companies where we’ve…I had one company, I won’t mention the name of it, but they were…one night we met the CEO and he was driving a Hummer and that indicated to me that maybe he was insecure. That’s what I thought so…

Meb: It depends on which Hummer, especially if it was the really old one. There’s like the tank. There’s like the really wide ones.

Peter: Yeah, that was it because they had just come out.

Meb: I love those.

Peter: And they we’re negotiating with the AFL CIO and I thought this was funny, but it probably wasn’t gonna…but their key to negotiating with the AFL CIO was they were all gonna grow beards to look tougher.

Meb: Oh my gosh.

Peter: And I thought, these probably aren’t gonna work. That company went bankrupt but…

Meb: Interesting. So, like, these students are pretty young, and for most of them have really never lived through multiple market cycles, which…

Peter: That is the truth.

Meb: …may be good or bad. I mean, the fact that they haven’t had a long enough time to really be poisoned by the short-term world. Are there any sort of mistakes you see them repeating where it’s either temporal, meaning like it’s 2007 and they’re just bullish on everything, or is it something where every year you tend to see the same sort of whether it’s behavioural or whether it’s financial modelling, any mistakes that you see that are kind of consistent or specific to certain times?

Peter: Absolutely, and that is that they tend to look at the past instead of going forward. They’ll look for companies that have had a good two or three years and be very optimistic about it. And they’ll look at companies that have been troubled instead of looking at them as, you know, look a little deeper and maybe there’s some opportunity, and obviously, the stock is very cheap. So they tend to look at the past more than focusing on the future, and of course, that’s a mistake that a lot of investors make. And then I think another thing is that they tend to look at past earnings versus future earnings, like you know, they’ll focus on trailing PE verses forward PE.

So I think those are the things they just tend to…they can’t really sometimes see the force in the trees. And that’s exactly the same as most investors. When we talk about companies we like, it usually starts out as a very sad story. I always tell people, when I’m at a cocktail party and I tell people what we’re buying, you know, usually after a couple of minutes that person’s telling me they have to freshen their drink and they’ll be right back, and they never come back. And everybody wants to…so a lot of times you just…and also patience, that’s the other thing. We have a class across the hall from ours, which is a trading class, and I think they’re holding period is like 18 seconds.

And I’m asking them to come up with target prices using a lot of different valuation models for where the stock’s gonna be 12 months from now. And you know, that just seems ridiculous for this generation. They’ve been so used to watching CNBC and trading the tape and that’s just…and one student, I told him we had to come up with a number for 12 months from now. And he said, “Oh, my God, that’s like three girlfriends from now.” So yeah, and that long term perspective is…you know, when I was taught the business back in Boston by pretty conservative stock pickers and money managers, and so I saw the idea of maybe needing a couple years for the story to turn out. And this generation just doesn’t seem to wanna do that but that’s just a function of society.

And again, I think that’s another opportunity for investors. If you’re buying small, unknown companies, and you’ve got patience, and the management owns a lot of stock, that’s gonna be a big deal. And that management owning a lot of stock is so much more important than it was before, because if you look at executive compensation, which I do admit is kind of out of control now, but if you look at it it’s almost all stock compensation. I mean, you really can’t…you know, if you were a director and you offered the CEO $5 million a year or something for a normal company, it’d be like the shareholders will take you out and shoot you. But if you offer them a reasonable salary and a bunch of stock options, and preferred stock, invested stock, that’s how people really make money. So you know, for good or for bad, you have people inside the company focusing 100% on getting that stock price up.

Meb: We love that, the concept of skin in the game. It not only applies to the CEOs but also to investment fund managers. I mean, there’s something like half to 80% of mutual fund managers have zero to less than a $100,000 invested in their own fund. And that’s the same sort of situation where you want everyone’s interests aligned. But you know, it’s really interesting and probably the hardest as a money manager challenge that we face as investors is this subject or topic of patience. And Warren Buffett and Jamie Dimon recently came out with an article talking about companies shouldn’t be focusing on short-term quarterly guidance.

And as an investor, you know, there are market approaches. So as a quant, you can talk about cycles of value and even asset classes, like U.S. stocks versus foreign, vice versa, yada, yada, that operate on the terms of many, many years, certainly not quarters, weeks, months. And maybe talk to me a little bit about the challenge, or if you solve the problem, you know, conveying to your students, who are in their 20s if that, about trying to teach that concept of long term and patience. Because it’s a mistake that we see not just individual investors make, all the academic research shows that institutions are equally as bad about this on their pension fund, hiring and firing decisions. They fire the funds that have had the worst three-year track record, hire the ones who have the best, and then they reverse.

Peter: And you’re probably better doing it the other way around.

Meb: Same thing with the S&P 500 committee. And so maybe talk a little about that because we…it’s probably the number one problem I think people really struggle with is this topic of patience and long-term view.

Peter: And you know, it’s funny, with the individuals, they might lack patience and such. But they don’t have a gun to their head. I mean, if they can get the discipline to have patience it’s gonna pay off. But the institutional folks, they really are in a jam. They’ve got to produce these numbers every quarter, they get reviewed, you know, they’ll come and make their update to the pension fund and such. I sat on all those pension funds for years. And there’s a couple things that happened in there. One is they’re…the big thing is that they try to sell their losers before the end of every quarter so that the people on the board don’t say, 20 years ago, or say, “Jeez, you own Enron in here,” you know. So they try to get those names out and a lot of times they’re selling them at prices that they’re just giving them away.

And I think the other problem that you’re seeing is people start to drift towards whatever’s been hot. And like, for instance, now alternative investments, private equity is the idea that, you know, you can’t make these money in the stock market anymore, this is where you ought to go. And these fields, these asset classes, they all get very crowded. So now you’ve got zillions of people out chasing private equity deals, and you don’t have zillions of great private equity deals out there. They get more and more and more expensive.

So I think there’s that problem as well. It’s just human nature really plays against you in all of this. And you know, the other thing, I think, we talk about this at the university, probably more of a university discussion right now, but it’s going to be a big discussion is these corporations right now by law they are beholden to only the shareholders. And that’s the whole thing is get the earnings per share up and that’ll get the stock price up. But a lot of people now are starting to look back and saying, “Well, wait a minute, is it bigger than that, are they beholden to stakeholders? Do they owe anything to the employees? Do they owe anything to the community and their customers and such like that when they’re making decisions?” So I think that’s gonna be the big philosophical discussion over the next 10 years. If you attend the right cocktail parties that will be that will be discussed.

Meb: How is this kind of…you’ve been doing this for 30 years, and the interaction with students and these courses and following these companies, is there any ways this has sort of changed your personal kind of framework and approach to markets and investing that you’ve kind of either learned from the students, either insights, or mistakes, or the old art of concept of teaching something requires you to become you know, more of a master at it? You know, anything that’s kind of changed in your approach over the past few decades?

Peter: Yeah, I really have, and it’s been me really looking for companies that are out of favour, you know, and trying to not chase the hot ones. I think one of the big problems I think people are gonna have going forward, I guess is maybe the default button, is that everybody is putting their money in these S&P 500 index funds. Well, I think the index fund concept is good but everybody is in the same 500 companies, and these 500 companies are basically the most expensive companies in the market. Because all that money has been pouring into them and there’s no research or anything, they’re just the largest 500 companies by market capitalisation.

So, that scares me and I think mainly a lot of people ought to start to look at if they’re gonna index, maybe index a mid-cap index. So the small cap, like the Russell 2000 or such. So you know, when I first got in this business it was in 1979 and an older guy pulled me aside, who I now think was like 26 years old, but he told me, he said, “Peter, remember if the majority of the people are right, and the majority of the people would be rich and they’re not.” And I have always remembered that. In fact, I have that tattooed on my left buttock. It’s a very important thing to remember. And so, I know it’s radio so you won’t be able to see that but that’s…

Meb: That’s all right, you can take a photo and we’ll post it to the show notes.

Peter: The other thing I’ve learned a lot is I know how companies…I am totally fascinated with how companies make money and how people are managed. We have a…you know, New Orleans after Katrina became the number one city in the country for young entrepreneurs. So about eight years ago I started a radio show on the local NPR affiliate called “Out To Lunch.” And every week we bring in two business people, usually entrepreneurs, to Commander’s Palace, which is one of the greatest restaurants in the world. So everybody says yes just for the free lunch. I don’t know if they want to be on the show or not.

And they talk about the trials and tribulations of running a business, and the mistakes they’ve made, and the positives. And it’s been very, very eye opening it’s made me very optimistic because I just see so many young people starting businesses these days. And I think that’s the other point I wanted to bring up is, you know, I’m 61 years old and people my age, the baby boomers, tend to look down at today’s young people. It’s like, “They’re living in their parents’ basement saving up for a new tattoo.” And that’s not what I see at all. I see that this generation is, first of all, with computers and all they’re much smarter than we were.

And the other thing about them is that they’re much more community minded. I think they’re a better generation than my generation. After Katrina, here at Tulane, we started mandatory community service, so every student has to, whether it’s tutoring little kids, or you know, fixing up a house in maybe a low-income neighbourhood they have to do X amount of hours every year. And to give an example about today’s young people, we have averaged 35,000 applicants every year for the last 7 years, and it’s because…and I think we’re doing a lot of things well too, but it’s because these kids, that’s what they want to do. They wanna give back. And I think we’re in great shape. I know some people it’s like, “Oh, I don’t wanna hand this over to the next group,” or whatever. I think they’re gonna do a much better job than we did. I’m really, really, very optimistic.

Meb: That’s what I often tell people when I’m particularly depressed about something, I say go read, either it’s “Entrepreneur Magazine” or “Inc Magazine.” Sometimes they have this like lists of like, whether it’s “40 under 40,” or, “Here’s the top startups and entrepreneurs around the country,” and you read about these people in these stories. And it’s so just kind of empowering and exciting and just changes your worldview because these…and it doesn’t have to be young people necessarily, but just people in general, entrepreneurs, some of the problems they’re tackling, it’s pretty awesome. So we haven’t really mentioned it much but the cool thing about this Burkenroad program is it’s also…you mentioned that there’s an actual fund that utilises some of the research out of the program that’s been around for going on…

Peter: Yeah, the fund, almost 17 years. Yeah.

Meb: Wow, and the performance has been great and it’s hundreds of millions of dollars in the fund. Maybe talk just briefly…yeah.

Peter: Yeah, trades publicly. Trades under HHBUX and a lot of people confuse it because what we do…what we do that’s self-side [SP] research, we’re the only ones in the country that do it. The thing we get confused with is something we have, and about 200 other schools have, is where they took some money from the endowment fund and they manage it in a fund, usually large cap stocks in class. But this is an actual fund that trades out in the market. It’s run by Hancock Bank, actually it’s now Hancock Whitney Bank, and their money managers utilise the research that we do as well as other sources. And the fund is really…although it’s not all our companies, it’s all companies like ourselves, you know. And it’s been really terrific.

My original idea was to have the students manage an outside fund, and after I spoke to the university’s attorneys and got them to put the gun back in the drawer, we worked on another plan because there’d be huge, you know, financial liabilities for something like that. But they used our research, and of course the research is available to anyone, you know, it’s right there at the website. But that’s been very fulfilling because when we first started I kept thinking, these are great little companies and they’re fun to look at. And you know, I think some of them are gonna make great investments. But on they’re own they seemed, you know, quite risky because of their size. But if you could buy them as a group, I thought things would really work out, and that’s kind of what’s happened.

The other thing is, you probably talk about this on your shows, but one of the saddest things is people come to you with their investments and they might have 10 mutual funds and they think they’re very diversified, and you look in the same…they have the largest same 20 companies in all the funds. So you’re really not getting any diversification. So with this fund and all of the smaller cap funds, I always tell them, you know, “I don’t know if it’s going up or down, but you know, you’re at least getting some diversification. You don’t own these things. For good or for bad, you already own these in another fund.” And the buyouts have been funny in the last year or two we had companies…we had Popeye’s Fried Chicken, which is a New Orleans company, kind of an addictive fried chicken, and they got bought out by Burger King. And then Cash America is a pawnshop, headquartered out of Dallas, and they were bought out by one of their competitors.

So you know, you see these companies and they don’t…I think one of things that hits people is nobody thinks they’re publicly traded companies. They just don’t seem like they would be. And you know, maybe they shouldn’t be, but they are, and it creates…I was on “NBR” once, a “Nightly Business Report” out of Miami, and the guy was asking me a couple of questions that I was kind of ready for, but then at the end he asked me, he said, “Peter, I think you’ve got very smart students, I don’t doubt that, but you’re fishing in the right hole.” And I thought, you know, I never put it that way but that is the truth.

Meb: Yeah, I think it’s great advice. You know, the example we often use, the phrase my buddy Josh Brown uses for the mutual fund situation you’re talking about is they’ll get a client that they’re bringing a portfolio and he calls it “mutual fund salad,” meaning there’s just this mess of, you know, overlapping funds. But in many cases financial advisers, which we love in general, but particularly the older ones, they’ve just accumulated a lot of funds. And there was a “Wall Street Journal” article that we referenced recently that said the average financial adviser that’s been in business for 20 years owns 200 mutual funds across his clients. And like how you even, you know…and the reason why is because he buys them, forgets about them. And some of that is tax related, but maybe that number, it should be [crosstalk 00:49:55]…

Peter: And diversification on his part, but I mean, how could you ever keep up with so many funds?

Meb: It’s crazy bones, I know, but that’s people…it again goes back to the behaviour, kind of some of these concepts of people not feeling diversified with only one or two funds, particularly, even oddly, if they’re fund to fund. And we struggle with a lot of that as a public fund manager trying to keep people behaving, and it’s hard. You know, you guys were kind of pioneers in this. Has many other schools…I know many schools now probably have security analysis classes. I certainly took one as undergrad at Virginia. Has anyone else kind of copied the model of the publishing security analysis reports, or are you guys still kind of in the wilderness?

Peter: I think we’re in the wilderness. It’s a lot of work. The program, we were trying to figure this out recently, but when you take into account the salaries and the travel, you know, flying these kids around is a lot of money. It’s about $800,000 a year to run it. So you know, most people can’t afford it, I think, and I’m not complimenting myself here at all, but it would have to be run by somebody who’d been in the business. It’s not a very purely academic area and you need somebody who would really, you know, buy into it that it would be theirs. And I think that’s what’s required so we’re the only ones doing it.

And I’ll tell you one of the reasons we’ve done so well in the placement side is these kids are great, you know, they graduate, they love Tulane, they love the Freeman School of Business, and they loved Burkenroad Reports. And when they get to a good job they have a wonderful knack for throwing the rope back over and trying to hire a couple more existing students. And that’s been a great perpetuating mechanism that’s worked out very well. And one of the things we tell the students is you don’t have to go to New York. I mean, there’s great positions all over the world, and certainly all over the country. We have people at work over there and in Los Angeles. We’ve got people all through Texas, in the middle of the country. New York tends to be the…they kind of promote themselves as the be all and end all. But you know, we’ve got people everywhere and different cities is gonna make different kids happy.

Meb: I think you call your alumni Burkendorks.

Peter: Yeah. And then we tried another one where they would just be “Roadies,” like Burkenroadies. So we’re working on that part. In fact, we just got a new approval on something is that graduation, if you were in the Burkenroad Program, you get a set of Mardi Gras beads with our logo around it and it’s to wear on your robe. So we’re really kicking in some things here.

Meb: So we’re winding down, we’ve kept you for an hour already, we got a couple more questions we wanna ping with you with. Peter, you seem to have a pretty curious mind. Is anything on the forefront as you’re kind of thinking about markets, about investing, about research, in this program in general that either we haven’t talked about or something that you’re kind of summertime marinating on, anything in general?

Peter: Well, I’ve got a good place to marinate because we just opened a new business school building about eight weeks ago. But I tell you what is, and that is that I think at some point the issue of wealth and income and equality is gonna really come back to bite us. Is that we’ve never had so much for the wealth captured in such a small group of people. And you know, we’ve really become two separate countries, people that are doing very, very, very well and then people that just can’t seem to really make any headway. And I think, you know, if we don’t do something about it…and I have no idea what to do, by the way, is if that doesn’t rectify itself. If you look back in history, it’s usually been either a war, or a revolution, or much, much higher taxes on the wealthy, and I saw John Tudor Jones the other day say that none of those were on his bucket list.

So I think that divide, I think, is something we really got to keep an eye on because, you know, capitalism only works when everybody thinks they can move up in the chain. If they give up on that thought, it sort of collapses. And they gave a poll, it was during the presidential election, and that’s 70% of America believes that it’s not a fair playing field. So, I think in all this wealth creation and all these rising stock markets and all, I think we’ve got to start to at least consider some options there to make this a fair country. And I think that’s…you know, hopefully there’s some good minds doing that I don’t have the answer at all. But it’s what I hear when I go to the heartland. And I do about 40 speeches a year around the country and I talk to people that aren’t in the market and it’s just they’re more fascinating to talk to than anyone else.

I was up not too far from your wheat farm they’re giving a talk. And this person came up to me and I told her the lecture is about the stock market and she just said, “It’s a casina.” And first of all, it’s casino, but that’s the way they view it, you know, versus a part of the growth of American commerce. And America has been…anybody that had bet against the United States in 1776 has lost and they’re probably gonna lose again, you know. So we could have…and that’s the thing about capitalism. Capitalism is every 7 to 10 years you get to washout, you don’t know the extreme of that washout, but it clears the system and grows again to a higher plateau. And people just got to recognise that’s part of the plan. I mean, capitalism and democracy are the only systems that have ever worked. But that’s part of the equation.

Meb: It’s challenging. You know, we talk a lot in this podcast about, particularly when it comes to personal finance and investing as close cousins, you know, there’s a pretty big behaviour gap. And the frustration on my side with neither those courses are taught in high school and certainly not required to my…I mean it’s like 5% of high schools teach them. And that’s probably…

Peter: And that’s almost criminal.

Meb: Yeah, that’s on my to-do list for the next few years is to try to work on that.

Peter: Okay, go out and teach some kids?

Meb: Yeah. No, I don’t wanna teach them. I wanna institutionalise it somehow, that there is a system for teaching them. That’s why we have great professors like you. I’m unqualified. I’d be the world’s most boring…

Peter: My best friend lives in Santa Monica so I’ll come out there and help you.

Meb: Perfect. I think then if any of the business students are listening, I think it’s actually one of the bigger business idea opportunities that we talk about is creating some sort of these online education for not just personal finance but also investing modules where there’s not really any good resources if you wanted to go and learn about a lot of these concepts. So maybe that’s a thesis project for some of your Tulane students to build some of that out, because it’s a challenge. I don’t know, I don’t have any good answers.

Peter: I think it is. But you know, that experience when you tell somebody who’s maybe in middle school or the beginning of high school how these things work and, you know, their eyes get big and they see the light bulb go off. I mean, that’s a pretty great feeling.

Meb: Agreed. And it’s tough though too, you know, you talk about like the age of a lot of 17-year-olds preparing for college and the task of saying, “Hey, you know, this is a pretty big life decision. It’s gonna affect you for next 30 years, about taking on $100,000 of student debt,” and all these challenges without equipping them with the basics. Anyway, I’m on my soapbox, sorry. So anyway, if you got any good solutions, anyone else listening, let me know. All right, Professor, last question we ask everyone and you may have mentioned it already. So if you have you’re gonna have to pick number two. What has been your most memorable personal investment in your lifetime? It could be good, it could be bad, it could be anything you can think of, but the first thing that comes to mind, what’s been the most memorable?

Peter: My most memorable investment experience is almost 10 years ago I brought 27 students to Omaha, Nebraska to spend the day with Warren Buffett. And that was the most amazing experience. We were there eight days after Lehman Brothers had closed. It had been scheduled for months and months. I thought he was gonna cancel, he didn’t cancel. That day he penned that article in “The New York Times” that this was the opportunity of a generation to buy stocks. And you know, I meet a lot of famous people by doing public speaking but some are great and some aren’t, just the way you’d think, but Buffett was amazing. He was very warm, very kind, very funny, very generous with this time. He took us out to lunch and made us all drink cherry Cokes, his position in Coca-Cola, and so I think that was my most memorable investment experience. Does that work?

Meb: Yeah, it works great. You know, I checked that off my list, the Omaha experience, it’s such a fun little town. I highly recommend all listeners to hustle it up because you probably only have a few…as far as the life expectancy tables.

Peter: You’re not an actuary, but…

Meb: And also, it’s less well known but Charlie Munger holds court here for “The Daily Journal” meeting in Los Angeles, which is much more accessible and an easy one to go to.

Peter: No way, I haven’t heard of that.

Meb: Yeah, so look it up, and you can find transcripts, and I think Yahoo may even live stream it. But you know, he’s well into his…I think he’s into his 90s now and physically kind of slowed down a lot, but mentally, I mean still one of the brightest people and witty and funny as well so that’s a fun…

Peter: And you know, what I love about him is, you know, when you get to a certain age you kind of lose that filter and you just say whatever you want to say, and that’s what I love about reading his transcripts.

Meb: He just does not…

Peter: I hope to get that stage myself.

Meb: He does not care, that is for sure. I love it. He will say whatever is…and then the best is like when they ask him a question, a question he’s probably heard 10,000 times or just doesn’t care to answer, he’s just like, “I got nothing to add on that.” And I channel that any time I go on TV and I say, “I’m gonna be the world’s worst guest but I’m gonna channel Charlie Munger and say, ‘I got nothing on that.'”

Peter: No, you can’t be the world’s worst guest and the world’s worst wheat farmer.

Meb: You know, hey, this is behaviourally, I’m self aware of all of my…this is why I’m a quant. I was the world’s worst security analysis so I’m a quant. I know my limits.

Peter: Well, I think you’re a very good guy on the radio so you got that going.

Meb: All right, Professor, it’s been a lot of fun. Where can people find more information if they want to follow Burkenroad, they wanna follow your musings, what’s the best resources?

Peter: Really, two spots, burkenroad.org is you’re gonna be able to see all the reports and all the little musings we’ve had. And the other is the radio show is available. You can get it as a podcast if you go to itsnewoleans.com. And you know, it’s a very upbeat, kind of funny show asking these people the questions about businesses and I think you get a big kick out of it, and we really do eat so you will hear forks and knives hitting the plate.

Meb: And by the way, I think you neglected to mention this, and correct me if I’m wrong, but the conference you guys hold every year, I believe it’s free, and more importantly, is it still on the first day of Jazz Fest?

Peter: Exactly, yeah, and that will be all…you can register right at that website. It’s gonna be April 26th of next year. And that is true, you know, Jazz Fest is…you know, Mardi Gras is what happens if you book it as the world’s greatest free party, you get exactly that, you get a wide variety of people. But Jazz Fest is just the most phenomenal if you love music. A lot of people think it’s all about jazz. It’s actually all kinds of different music. And we are there the first week. Our conference is the first half of that Friday and it goes Friday, Saturday, and Sunday. And that would make a pretty terrific weekend.

Meb: Count me in. I’ve never been and it’s been on my to-do list as well, so next spring, Jeff, you’re coming along. Professor, it’s been a blast, thanks so much for taking the time out.

Peter: Thanks so much, a lot of fun Bye-bye.

Meb: Listeners, you can find the show notes, the archives at mebfaber.com/podcast, wide links to Burkenroad, all these reports, all the other good stuff we talked about today. If you love the show, if you hate it, please leave a review. We read every one of them and appreciate your input. Thanks for listening, friends, and good investing.