[00:04:19] Joel Tillinghast: And they would get those and every two years or so they’d get another teaser subs. Because they like to save money and weren’t trading that [00:04:30] much. But I was curious about them because they were interested in them. There were lots of numbers and as a kid I was fascinated with numbers and enjoyed working out things that like if you divide or if you multiply 1, 2, 3, 4, 5, 6, 7, 8, 9 by eight, you get something like 98, 7, 6, 5, 4, 3, 2, 1.

[00:04:53] Joel Tillinghast: Not very precisely. But yeah, I liked numbers and there were lots of them and tried to understand what the numbers went and liked seeing growth progressions. And a company called Beckman Instruments had very strong earnings progression and. My dad was a biologist. He was excited about a piece of lab equipment that allowed him to do tests on with chromatography where you, the proteins out and you tell what’s in there and did it with much greater speed.

[00:05:34] Joel Tillinghast: Arnold Beckman, who had founded the company, is sort of, tech genius beloved to biologists and healthcare people because these instruments really did save time and allowed them to do things that they weren’t able to do before. So, one of my first two purchases, along with Central Main Power was two shares of instruments.

[00:05:59] William Green: And how [00:06:00] did you come up with the money for?

[00:06:03] Joel Tillinghast: I had saved money from selling vegetables, door to door, mowing lawns, gifts. Yeah, that was about $104 for the two shares of Beckman Instruments. The commissions were huge, but and how did it turn out over the next four, five years? Not very well. The earnings of the company kept going up.

[00:06:26] Joel Tillinghast: The starting PE had been something like 40 and that compressed and kept falling. So, by mid, by 1974 was probably down to about an eight pe so it was kind of disappointing, although market relative, it probably was all right, that in absolute dollars it, it was very disappointing. I held onto it and the earnings kept growing and in fact they kept growing at a double-digit rate.

[00:06:59] Joel Tillinghast: Cause back then kept turning out more innovative instruments that sold well and they kept doing well. And until they got bought by a drug company, Smith Klein, which merged with Beam, and they later decided that drug companies really shouldn’t be in the healthcare instrument research business. And they spun it back out.

[00:07:28] Joel Tillinghast: So, I got some [00:07:30] of what eventually became Glaxo Smith. When they bought it out. But also, some Beckman instruments, which later got bought out by Danaher, but I still have Theo Smith client shares. And the dividends every quarter are something like two or three times the initial purchase price of the stock.

[00:07:51] William Green: So, I think last time I spoke to you, you had made something like a hundred times the original price just off the Glaxo. And then, you know, you’d got the spinoffs to Allergan and Danaher and all these other things. And what strikes me as absolutely amazing, and I was going to write about it in my book, Richard Wiser, Happier, and then I ended up focusing on a different part of your story.

[00:08:11] William Green: But it’s an absolutely extraordinary thing that you’ve basically owned the first stock that you bought at the age of 10 for now. 54 years. That’s astounding.

[00:08:22] Joel Tillinghast: Yeah. So it is, I guess after all that time it should be given, giving me dividends of three times my cost basis every quarter.

[00:08:32] William Green: But it gives us sense of just how preternaturally patient you are.

[00:08:38] William Green: I mean, there’s something kind of beautiful about it because obviously you also really adored your father and he was a kind of hero to you, and so you were inspired by him. And there’s something kind of wonderful about the fact that your first stock pick was in some way inspired by the fact that your father was a biologist.

[00:08:52] William Green: And so, in a way it was within the family’s circle of competence, even if not within your circle of competence. And in a way there’s something about this [00:09:00] original stock purchase that is kind of revealing about who you are and your family background, your incredible patience. But also, I think it illustrates some really interesting ideas about investing that you would later in internalize.

[00:09:12] William Green: So, I mean, for one thing, this idea that even if you buy a great company, if you overpay for it, it’s a huge mistake. Is that fair to say that’s one of the great lessons of this early investment? Yeah,

[00:09:25] Joel Tillinghast: I guess if you have the greatest companies like Amazon, looking backwards has not really mattered what price you paid, but for really quite excellent.

[00:09:37] Joel Tillinghast: But human companies like Beckman Instruments, yeah, the price matters a fair bit because markets slow, innovative companies lose their edge, things change, and so not overpaying is really important. But I guess I lucked out in having a really superb company with Beckman Instruments and not so much with central main power, which paid a dividend, but really didn’t do a whole lot for me.

[00:10:10] William Green: I remember you saying that another of those very early companies you bought was Armstrong Rubber, and you telling me that there was this kind of miracle that you would get a $4 dividend for its quarterly, which was exactly the same amount you got for mowing lawns. And I was just wondering, was there a kind of beauty to investing to this idea that just by using your mind and [00:10:30] placing these intelligent bats, you could make money without actually having to do any very vigorous work in a yard or harvesting tomatoes and zucchini and the like from your parents’ garden?

[00:10:44] Joel Tillinghast: It was sort of amazing. Obviously in three months I could do a lot more lawns than dividend checks from Armstrong Rubber. But yeah, it was kind of amazing to see that you could earn money without having too physically yourself.

[00:11:04] William Green: There’s also an interesting thing when I think about Beckman instruments, that in some ways it illustrates your colleague, Will Danoff’s point to me in my book, which is that stocks follow earnings, that eventually, if a company’s earnings grow very strongly, that’s likely to be reflected by the stock price.

[00:11:20] William Green: Albeit you, you don’t want to overpay. Is there something, I mean, in some ways there’s a difference between you and will, right? And your more valuation conscious. Can you talk a bit about how this company maybe illustrates that fundamental difference between you and will? Who in some ways is the other great fidelity investor of your generation who’s been there for all of this time?

[00:11:42] Joel Tillinghast: Yeah. Oh, for value is the present value of dividends from here to eternity. And retrospectively, unless you had a very high dividend discount rate, the realized dividends on Beckman Instruments have said it was [00:12:00] really pretty undervalued. Even at 40 times earnings. But that’s a rare stock, and I think there are big constituencies in the market.

[00:12:12] Joel Tillinghast: You can model the market as having three or four different types of agents. One agent says, give me something that’s getting much better right now in a very visible and public way. So, nobody’s going to say anything bad about it. Will is good at this. I’m terrible at that. The second set of agents says, how can you beat the market?

[00:12:37] Joel Tillinghast: It’s by having companies that grow earnings and probably the rest of their business at above average rates further into the future than people are imagining with higher visibility than people. And I think that this works because people’s attention sort of scattered and they’re distracted by what’s happening now and wow, it’s getting so much better.

[00:13:02] Joel Tillinghast: But I think what Will is fantastic at is thinking about will this business be bigger five or 10 years from now? And is it the best in class? He doesn’t want to have the number three in anything that’s at a cheaper multiple. He wants the best in class. He wants the business winner where you can confidently talk about where they’ll be in [00:13:30] five years or 10 years.

[00:13:31] Joel Tillinghast: It takes big barriers to entry. It takes domain expertise. A focused and brilliant leader sometimes will get obsessive about this and pushes it as be with billionaires. The will Jeff Bezos makes the right decision. Well, the track record says yes will Mark Zuckerberg. Well, the track record is mostly positive, but I have my concerns that’s part of which we’re evaluates.

[00:14:03] William Green: So, in a way, part of the moral, I think when I look at the differences between you and Will Danoff is that you’ve both found ways to invest that suit your personality. So I remember you saying, for example, once to me that, that will is great at building these relationships and he is very intuitive at judging people like Jeff Bezos or he was incredibly early in meeting Elon Musk and seeing that there was something special about Musk, that Musk was doing at Tesla and made a very early investment in Tesla.

[00:14:32] William Green: Is that fair to say that in some way, part of the key to being a very successful investor is to understand your own abilities and temperament, what you are strong at? And so, you are playing a very different game. So, you’re still exploiting the fact that stocks eventually, the stock price eventually will follow the earnings, but you are much more value oriented.

[00:14:52] William Green: You’re much more defensive than.

[00:14:55] Joel Tillinghast: Yeah, I think stocks will follow earnings. I’m skeptical [00:15:00] of people’s ability to look too far out into the future. Cathie Wood, do you love her, or do you hate her? What I admire is she is trying to look into the distant future, which I think not enough people do, but she’s also trying to do it in the area where things change.

[00:15:22] Joel Tillinghast: The fastest things are the most dependent and there’s little history to tell you what to do. And if you’re defending her and say, she may not know much, but she knows a whole lot more than anybody else about where the industry she’s talking about will be in 10 years, and I think Will does that with ingredients or assumptions that I can trust.

[00:15:52] Joel Tillinghast: He does look at track record. Mostly businesses are run by human beings. And so, saying this is a really amazing manager in Elon Musk or Jeff Bezos or whoever is, gives you confidence in the outlook and more confidence than the market. It’s hard for people to value that, and I think that’s part of what Will does so well.

[00:16:21] Joel Tillinghast: But I am trying to do that with more caution because some of the businesses that I have are more commodity like, and [00:16:30] you can’t look so far I tend can’t shy away from those, the super commodity businesses, as does will, which means that something like energy is somewhat tough for us because, They don’t have as much control over their destiny.

[00:16:48] Joel Tillinghast: There are better managers, there are worse managers, there are better positioning, there’s worse positioning, but you don’t have companies able to set their own agenda and will gravitate to companies that are setting their own agenda where no focus group said, gosh, we need Amazon World Services. But now it’s the biggest contributor to profits at Amazon.

[00:17:14] William Green: I wanted to go back to some of your earlier experiences as an investor, because I know amazingly after you had been studying Value Line as a young kid of eight or nine, You ended up getting a job at Value Line later on after college, and I think you told me once that you were paid $13,000 a year and worked in Queens and won the stock investing prize.

[00:17:33] Joel Tillinghast: I worked in Manhattan.

[00:17:34] William Green: But lived in Queens. And I was wondering if you learned anything from the value line formulaic approach to investing in terms of how to deal with emotion or how to just, how to think about the relationship between value and growth and the, like.

[00:17:52] Joel Tillinghast: The value line has got its name because they have what they call a value line.

[00:17:58] Joel Tillinghast: The [00:18:00] multiply earnings or cash flow times average multiple and say, this is the fair value of the stock. And so, it’s undervalued or overvalued, and it’s an oversimplified version of value investing, but it is value investing. And I think that influenced me a lot. And they also have what they call a timeliness rank, which is more a, is this a good short-term trade or trade over the next year?

[00:18:33] Joel Tillinghast: And there, it’s a bunch of things that go into the timeliness rank. Are the earnings rising fast? Is the stock price rising? But going back to the value line itself, it’s a reiteration of will’s mantra, stock and earnings go together. The- or at least the value of it does.

[00:18:54] William Green: They’ll eventually be some kind of convergence between the growth rate and the growth in intrinsic value and the stock price itself.

[00:19:02] Joel Tillinghast: Yeah. The idea of value line that if you have a fixed multiple of 10 in the earnings go up by 50 cents, then the fair value is up by dollars, which is obviously oversimplified, but directionally correct. And

[00:19:20] William Green: then you ended up spending about four years as a financial futures research analyst at Drexel Burnham Lambert, I think from the early eighties around 1982 to 86.

[00:19:29] William Green: And [00:19:30] in your book, which is excellent, which I have behind me, which is Big Money, Think Small. Sorry, I keep getting the name wrong, but it’s a really interesting book. I was rereading it yesterday. a very helpful book. So, thank you for writing it. In your book, you described this really formative experience of trying to figure out whether you could predict economic statistics and then making an early bet using futures on margin, on interest rates back, and I think about 1983.

[00:19:59] William Green: Can you talk about what happened and what you learned from that? Because it sounds like that negative experience also had a pretty big impact on the type of investor you’d become.

[00:20:09] Joel Tillinghast: For part of it, I was still, that time I was still in business school and had lots of student loans and a tight budget, even though I was working and so didn’t have that money to trade and brought my job at Drexel was as a research economist.

[00:20:30] Joel Tillinghast: Part of that is putting together hedging packages for customers that wanted to hedge their interest rate. But a lot of the volume of a brokerage business was within active traders. A lot of them traded around the economic statistics. So, if employment was looking robust as it may have recently, then they’ll say bearish for bonds.

[00:20:57] Joel Tillinghast: And my job was to [00:21:00] forecast, will producer prices be up 0.2% for 0.4%? And there are some tricks because some of the statistics use bits and pieces of other statistics that have already been released. So, if you have the industrial production number, you know something about the GDP. If you leading indicators were then got much more focus, but some of the components had already been released, like s and p prices.

[00:21:32] Joel Tillinghast: Well, you knew that. Jobless claims and other things so you could come up with a better estimate and it wasn’t then completely in the market. The problem, lots of people around me who were making much more money than I was and thought, wow can’t I was moderately good at it, forecasting PPI and the other statistics and, well, can I trade this to make money?

[00:22:01] Joel Tillinghast: And I did this, it started with one contract I. And a futures contract on TBIs, I think was a million dollars, but you could buy one by putting up margin of a thousand dollars or $1,500. The problem was you had to put up the variance margin, so if the price went down by $3,000, you had to cough up [00:22:30] the loss or lose your deposit and get sold out of the position and probably get your account closed if you were not a Drexel employee, maybe even if you are a Drexel employee.

[00:22:43] Joel Tillinghast: It went really well for about four months. I’d say it started in January as I was heading to my last year of business school and it, I managed to make about $40,000, which given my income and lack of net worth at the time was truly fantastic. Was thinking I could pay off my student loans, which were, I guess, less burdensome than it seems like some students today are stuck with.

[00:23:17] Joel Tillinghast: But then in early May, as I was heading towards graduation, the market also changed. And my lucky streak, I guess there’s a temptation to pyramid and keep adding to the positions. If you’re winning, you want to press your bets and say, that’s not a bad thing to do. But it comes with a lot of caveats. If you’re doing it with borrowed money, it’s a terrible idea.

[00:23:45] Joel Tillinghast: But if it’s all mad money, you’d say push a winning bet. As far as you. And you then found,

[00:23:54] William Green: if I remember rightly that interest rates suddenly started to tumble when you were betting that they were with Surge.

[00:23:59] Joel Tillinghast: [00:24:00] Yes. And so, where I’m going is with 40,000 in equity, you had something like 25 million worth of notional exposure, which was really disproportionate to anything else for me as a counter party.

[00:24:21] William Green: You were like the long-term capital of yeah. You were the long-term capital of college students.

[00:24:26] Joel Tillinghast: Yeah. If it was all equity and rates were going in that direction, in your direction, then say that’s great. But it was all borrowed. And so, over a couple of weeks I basically lost back all of the 40 grand and in an agreed thing, I don’t know if they shut down my account or just said, you know, I think it would be a good idea to take a holiday from this for a while.

[00:24:53] Joel Tillinghast: And it was hurting so much from losing back the $40,000 because it felt so smart. Like, wow, this is great. Like, let’s annualize that. That’s 10,000 a month that it was making.

[00:25:07] William Green: What do you think it did viscerally, like, Joel, like that experience of actually going through that pain and fear of loss, how did that searing emotional experience actually shape your view of investing and whether you, how in some ways, conservative and defensive you realized you needed to be in order to survive as a successful.[00:25:30] [00:25:30] Joel Tillinghast: Don’t do anything with borrowed money unless the thing you’re borrowing against is giving you an income stream that can cover it. You never ever want to be a seller. Why would stocks sell for less than they’re worth? There’s a whole bunch of behavioral reasons. One of them is people get forced out of their holdings and it happens every financial crisis that something gets sold at an absurd price because they had to.

[00:26:02] Joel Tillinghast: And so, no margin for me, I think it’s not so much conservatism, but a recognition, the interest rates. Lots of people know about this GDP. Lots of people know about. Do I have a really good edge? Probably not as much as I might with the smallish public listed company where management and know what they’re thinking.

[00:26:31] William Green: So is part of the moral, just the, for almost all of us, unless we happen to be George Soros or Stanley Druckenmiller or someone like that, we should just avoid trying to make money off these macro predictions. Like it’s just too difficult that even for someone like you who was spending your whole life at the time trying to make macro predictions, it just was too difficult in a sense.

[00:26:55] Joel Tillinghast: I think if you spend all your time trying to do it like George Soros, that [00:27:00] you can do that, but it’s beyond my skillset and I think it’s very difficult. Generally, right now we have an impending profit recess. And analysts come to me saying, are you interested in buying the home builders? Are you interested in buying me the old Facebook?

[00:27:21] Joel Tillinghast: And figuring out what’s discounted, even in a fairly specific case, is really difficult. Figuring out what the moving pieces are for a whole economy and for aggregated statistics it’s a really tough game and you’ve got to be amazing, like George Soros is to be able to do that well.

[00:27:43] William Green: So in a way, when you are looking at companies, when you have a team of something like 130 stock analysts at Fidelity, right, who come to you and they pitch stuff like this, the housing stocks and energy stocks, and are you really not thinking that much about macro stuff at all? You’re just, you are. You are just looking to see whether they’re fundamental things, like whether they have a good moat, whether they have enduring competitive advanced tiers, whether it’s cheap, whether the cash flow is predictable, what are you focused on?

[00:28:11] Joel Tillinghast: If the house is burning down, you can’t focus on the architectural qualities, but I do not ignore current events, but usually it isn’t conclusive about what I’m. I do have macro-opinions, but mostly I want analysts to help [00:28:30] me imagine different scenarios. What if British interest rates go up another hundred basis points and mortgage rates follow?

[00:28:40] Joel Tillinghast: What will that do to affordability of homes in the UK? What will that do for consumer spending and how catastrophic is that for the companies that we’re talking about? And it might be not at all, or it could be a very big impact. And sometimes companies can have more competitive position and be better placed to withstand those kinds of shocks and sometimes they can have worse positions since that.

[00:29:12] Joel Tillinghast: That’s what I want from analysts. Since the fund has a bunch of British stocks and has. To home builders. It’s a relevant question to, to are they cheap because they’re selling for less than their stated net asset value? Or will this be too devastating for housing to, for them to make a decent profit in the next year or two?

[00:29:36] William Green: So, you can’t really ignore the macro environment, but it seems like given your very low turnover in the fund, you’re also trying to find companies that are going to be okay over the long run, sort of in, they’re going to muddle through difficult macro environments. Is that a fair description?

[00:29:53] Joel Tillinghast: Yeah, and I’m looking for what I think Will is looking for, which is adaptive [00:30:00] companies that have a strong hand to start with.

[00:30:04] Joel Tillinghast: Nobody knows the future, but some companies are more adaptive than others. Next, a UK retailer. The fund holds used to be mostly high street stores with a catalog business, and they could have completely lost their position during the internet age, but in fact to repurposed catalog into internet selling, and now it’s the majority of profits and is growing well.

[00:30:35] Joel Tillinghast: So, there’s a good adaptation. I think you always want an adaptive management team, and I think that’s part of the secret sauce of why we’ll spend so much time on meeting management and understanding their thinking.

[00:30:50] William Green: Another legendary investor of the last couple of generations from Fidelity that you are very closely associated with Poly, because he was the person who really got you hired at Fidelity.

[00:31:00] William Green: It’s Peter Lynch. And I wonder if we could talk in some depth about the story of how you came to be there and work with Peter and what you learned from him. Because I, I love the story of, I mean, in a way it goes back to after your slightly disheartening experience at Drexel Burn and Lambert, you ended up at Bank of America Financial Futures.

[00:31:17] William Green: And then my sense is you had a little bit of an existential crisis and decided I’m going in the wrong direction. And you started to reach out to famous investors and draw up a sort of short list of people you wanted to work for. Can you tell us what [00:31:30] happened, who you wrote to, and then how you came to be in contact with Peter Lynch?

[00:31:35] Joel Tillinghast: My short list was Mario Gabelli, Michael Steinhart, George Soros, Peter Lynch, and

[00:31:43] William Green: Michael Price, I think was another giant

[00:31:46] Joel Tillinghast: Michael Price. The mutual shares guy. And I tried to get interviews with them but didn’t do very well. I did get to meet Mario in person, but not the others at that time. And I called up Peter Lynch a couple of times, but his secretary, Paula Sullivan finally said, who’s calling?

[00:32:10] Joel Tillinghast: And she put me through. And I was just, after my other job search, I was expecting to go to a director of research or human resources department, all of which would be fine if it produced the desired result. But we had a good call. And talked about a few stocks and I got an interview schedule, and I flew out and the meeting, or the interviews were supposed to start at nine o’clock and I thought they would be done by noonish and my dad was going to meet me there.

[00:32:50] Joel Tillinghast: New niche, but the interviews kept going on, and around two o’clock they got brought over to Peter Lee’s office and Peter [00:33:00] had lots of people dropping in. Peter was a great believer in the two-minute drill, a quick pitch, and as a screening device, he would consider absolutely anything. So, the interview itself was somewhat distract.

[00:33:17] Joel Tillinghast: But I was thrilled to watch Peter Lynch in action fielding all of these pitches. And we did actually have an interview light component, but this was supposed to go from two o’clock to two 30 then wind up, but it got to be about 4 45. And Peter was trying to wind down for the day, and I think he did make one of those coded calls to Carolyn.

[00:33:44] Joel Tillinghast: His wife forgot what it was, but he had a coded sort of way of saying, I’m arriving at five, or I’m arriving at six. I am arriving at seven. So, the dinner would be all right, but around 4 45, cut it off. And I was just thrilled by watching all the people come and go and the different pitches, and my fabulous dad was waiting.

[00:34:10] Joel Tillinghast: Down at the doorstep of Fidelity to meet with me and had been there for five hours, which was amazing. But yeah.

[00:34:22] William Green: I also wanted to report a little, but you are probably too modest to admit any of this job, but there’s a beautiful forward to your book where [00:34:30] Peter Lynch gives his version of it and he says that Paula Sullivan, his assistant, said to him, you’ve got to talk to this guy Joel.

[00:34:38] William Green: He keeps calling and is so sweet. He’s from the Midwest and I think he might be a farmer. So, then the way Peter tells the story, he says, I told Paul I can give him five minutes, which is very interesting because as you say, he was open to anything. Like he was prepared to take a two-minute pitch or five minutes or whatever.

[00:34:53] William Green: And what Peter said is we ended up speaking for over an hour. You kept pitching him stocks like Puerto Rican cement and Kreisler and San Francisco Savings and Loan, which he was very intrigued by. He said, despite the fact that I think you once told me he owned about 400 savings and loans, so, but he was very impressed and he said in his account, he said he then immediately called the head of Fidel’s investment decision and said, we’ve got to hire this guy.

[00:35:17] William Green: He’s unbelievable. He’s as strong as anyone I have ever met. It’s a kind of amazing thing, right? I mean, something extraordinary happened in that first call, and it’s interesting because I can see from this conversation that we’re having today and also from the last time we met in Ella’s office, you’re a very gentle soul, right?

[00:35:34] William Green: You’re a quiet, slightly shy person. You’re not like a brash Wall Street person. And there’s something kind of amazing about the fact that Peter was so open to you that he kind of saw your talent so quickly.

[00:35:47] Joel Tillinghast: Yeah. I’m so grateful for that. I think it’s like this path dependent and I got a lucky break there.

[00:35:56] William Green: It’s an amazing thing. I have a young friend, a guy in Israel [00:36:00] called Samuel Goldberg, who’s very really smart guy, former chess player and judo champion and the like, who was also a sniper, which I think gives a sense of the sort of temperament that he would have who’s obsessed with value investing.

[00:36:11] William Green: And he wrote to me last week and was saying, you know, how do I get an internship? Like what do I do as someone who’s obsessed with value investing? And I sort of wanted to get a sense from you of what do young people who actually want to get started in the business, who clearly have a, have this almost this sort of religious experience of understanding value investing and being deeply drawn to it and want to get started, but don’t really know how to break in, what do you do?

[00:36:34] William Green: Because I had no idea really what to tell Samuel at all.

[00:36:38] Joel Tillinghast: Investing, period. I think it’s hard. I never had a summer internship, but it’s become much more important. I process is too long and too bureaucratic for my taste, but it’s a, someone like him should send a letter to both the director of research, which at Fidelity would be Pam Holding and Tim Cohen, and they should also send one to the designated Human Resources recruiter and that you can find on the website.

[00:37:15] Joel Tillinghast: It is tough. It’s the people who attended Harvard, Yale, and Princeton and Wharton are fabulous people, but they have the inside track on this because a lot of the interviews, [00:37:30] I don’t like the way this is Yeah. Handled actually. But I’d say a person like Kim and all hers who are out there should send a letter to the director of research.

[00:37:43] Joel Tillinghast: A firm that they went or to the HR department there.

[00:37:48] William Green: And you’ve obviously done lots of hiring over the years and so you’ve obviously sort of seen lots of the young analysts who become stars later. And I’m curious, like when you think of what you look for and also what Peter Lynch saw soaring you, is it that kind of intensity, that competitiveness that deep fascination with stocks that you almost can’t explain? What is it that you and he look for that’s that X factor?

[00:38:13] Joel Tillinghast: Curiosity is like, why is this so? I think so many mistakes come because of the human capability of building in what’s not there and assuming too much about what it is you’re looking at. And so, I think curiosity is number one. And employers generally, they want people who really want the job.

[00:38:39] Joel Tillinghast: It’s like how often many times is too to tell someone I love you. It’s never too much. And the employers want to hear it even if they know that you want the job, spell it out for and make it real. Cause in my case it was easy because [00:39:00] having had a disappointing employer or two, I really wanted to work for people who I totally respected.

[00:39:08] Joel Tillinghast: So, if you are interviewing with the job that you really want, don’t be shy. Tell them.

[00:39:16] William Green: I was very struck in interviewing you and Will Danoff and many years ago, Jeff Vinnick, who is another of the giants of your generation, who were all, I think all three of you in some ways mentored by Peter Lynch. The, there’s an intensity to all of you.

[00:39:32] William Green: I remember Will saying to me at some point, I just care more. And there was always I remember him saying to me that the way he found Tesla was on a Friday afternoon. He was like, well, how come we don’t have, or Thursday, late afternoon, he’s like, how come there’s not anything after four 30? And so, they went to see this one extra company.

[00:39:49] William Green: And likewise, Jeff Finnick told me that he would get back at in the evening after, you know, hanging out with his, I think four kids in those days and would then do several hours more reading after they went to bed. Is that fair to say that when you look at the most successful investors you’ve seen in your cohort of fidelity, they’re just really intense, like profoundly competitive, driven, passionate people.

[00:40:13] Joel Tillinghast: Yeah, I think it’s sort of required.

[00:40:17] William Green: Peter never really took a vacation, right in his 14 years though, did he ever take a day.

[00:40:23] Joel Tillinghast: Yeah, I’d say he was actually more intense than any of the [00:40:30] people just referenced, which may be also why the years as an active fund manager were shorter, so it’s hard to sustain.

[00:40:40] Joel Tillinghast: And that was why Peter needed the secret code to tell Carolyn what time he would be at. I think one of them was actually Mr. Johnson is coming in, so just put the food in the leave, the food in the oven because of course he wanted to talk to Mr. Jay.

[00:40:59] William Green: You said to me once the Peter was the most flexible investor, you’d ever seen that he had this incredible ability to switch between short term trading and long-term trading.

[00:41:10] William Green: Can you talk a bit about that? Because I think sometimes because he wasn’t around for that long, right? He had a 13- or 14-year stint and then he quit. There’s always this suspicion that, or sort of prejudice that, you know, was he really that great? Would he have been able to sustain it? Can you talk about what it was that made him so special?

[00:41:28] Joel Tillinghast: He was always curious about how things worked. He did of course, want companies that were getting much better right now, but there are companies that he held for several years, actually Chrysler and Fannie Mae, some others, but he was always checking in the conversations would hide like, this will help you next year.

[00:41:54] Joel Tillinghast: This will help you in the years beyond where In Fannie Mae’s case, they had a [00:42:00] bunch of high-cost debt that was rolling off in the coming year. But also, in the next year and the next year after that. So, the visibility to improved interest margins and earnings was huge.

[00:42:14] William Green: So, what would be the most fundamental thing you think you took from working with Peter? If there’s one thing that’s really had an enduring influence on the way you manage money, what would it be?

[00:42:26] Joel Tillinghast: I’m not sure that I can copy his mental flexibility. He’s totally willing to change his mind when the facts are different. And I think a lot of us get entrenched in our beliefs and try to defend something that’s wrong and trying to delicately say this.

[00:42:48] Joel Tillinghast: I see a lot of this in politics in both parties where they’re wrong and they pile on further justifications or mistakes that they made. Peter would have none of that or little of that, he would change his mind.

[00:43:06] William Green: He also seems to have had an incredible ability to take information from a mass of different sources and piece it together, which is something that I see with you as well.

[00:43:16] William Green: because I know that you, in your early years you were an analyst studying, you know, natural gas or coal or all of these other things and it seems like part of your skill as well as his, is to take little pieces of information from one area of the [00:43:30] economy and apply it elsewhere.

[00:43:32] Joel Tillinghast: Yes, he absolutely did that. As a natural gas analyst, if I brought him the news that gas prices are up by 25 cents, he would say, what’s that mean for the pipelines? What’s that mean for the gas distribution companies? What’s that mean for the producers? What’s that mean for the petrochemical companies? And there’s a whole bunch of knock on.

[00:43:57] Joel Tillinghast: It may not be conclusive, but it tells you what you should be asking. All of those companies from one piece of information, and he was fantastic at that.

[00:44:08] William Green: I remember Bill Miller saying to me that his early experience as an intelligence analyst in the military, before he became a money manager, was incredibly helpful precisely for that because you would have this mosaic approach where you would take information from one area, something that seemed minor, but once you combined it with a few other things, you could see a pattern that other people couldn’t see.

[00:44:32] Joel Tillinghast: I think it is cause people, when you do it badly, it’s called anecdotal and scientific. When you do it, well, I guess Gladwell would call it in slicing.

[00:44:45] William Green: When I interviewed you in Boston for my book, Joe Richard, wiser, happier, I came and I asked you basically to explain your extraordinary returns, which are really incredible.

[00:44:56] William Green: I mean, it’s, you’re a real anomaly, right? I mean, I think you’ve beaten the market by [00:45:00] about 3.7 percentage points a year over 32 years. It’s an astonishing performance, and one of the things that was really striking about our conversation was that you focused really primarily on listing all of the standard stupidities, as Charlie Munger would describe them, all of the things you tried to avoid.

[00:45:19] William Green: And I wonder if we could talk about that a bit, because that strikes me as such an incredibly helpful approach to, because it’s so difficult to imitate the positive qualities that someone like you or Will Danoff or Peter Lynch have, but it’s much easier to apply this principle that you have of at least identifying all the dumb things.

[00:45:37] William Green: The unoriginal era, as Charlie would describe it, that leads to so much disaster in investing. Can you talk about some of the things that you just avoid because you’re constantly having analysts come and pitch you stuff, right? You have this army of 130 analysts pitching you stuff. What are you just saying?

[00:45:53] William Green: No, not doing that. These are mistakes. I’m not repeating.

[00:45:57] Joel Tillinghast: I think you want to start by doing a little introspection about what do you think your approach is? Why might you have an edge? And if you’re a momentum investor, I’ve seen actually lots of successful momentum investors, maybe even more than they’ve seen successful value investors.

[00:46:17] Joel Tillinghast: But you should know that. And when you’re in the second half of 2021, you have to realize things are not getting better in [00:46:30] the tech stocks that had worked so well. And you have to think about, am I a growth investor? Am I a value investor or am I a, am my case a value investor who tries to include some growth aspects to, because growth is part of value.

[00:46:48] Joel Tillinghast: You have to understand that. And those, what you’re trying to do creates your blind spots. So, most of the time the fattest piece of the momentum profits of the momentum investor come when the stock is above their value and it’s just a colossal piling on. So, a value investor says run. But that’s the wrong impulse.

[00:47:16] Joel Tillinghast: If you’re trying to be a skilled momentum investor, you might say it’s just now getting recognition and more people will recognize this stock at the same time. As a value investor, I kind of ignore short term movements, unless there’s something that says, wow, this throws my whole expected value into the trash.

[00:47:39] Joel Tillinghast: There’s no way the store will ever make the kind of profits. I thought now that vendors are not shipping them merchandise. So, I think some of the blind spots come from what your approach is, and you have to be aware of those fine spots. Knowing yourself and how do you react to the setbacks, [00:48:00] and are you truthful to yourself?

[00:48:03] Joel Tillinghast: Are you going to come up with endless justifications or why what you did was not a mistake? Or will you go to the confessional and say, yep, I blew it.

[00:48:16] William Green: You said something that really stuck with me, Joe, where you said, staying away from your own ignorance can make a huge difference. So, it’s not just self-awareness in terms of how you’ll react emotionally-

[00:48:27] Joel Tillinghast: It’s knowing your circle of competence, or I guess more optimistically the circle of expertise.

[00:48:35] Joel Tillinghast: Where do you know more than the average guy about this industry? Do you know more than the average person about this specific company and their whole industries where insurance is difficult because it’s a whole series of assumptions, and you can generically know whether the assumptions that they’re making are conservative, aggressive, or average, but that doesn’t protect you when.

[00:49:10] Joel Tillinghast: That’s hard to verify. So, there are parts of insurance that scare me, and I think the AIT was a case where they had gotten into a different business than they realized where if they looked at the derivatives, they’d say credit insurance is [00:49:30] a low rate online or a highly correlated high severity, very low frequency business.

[00:49:38] Joel Tillinghast: And they say, oh, that’s kind of terrifying to an insurance company. Rather than, this is kind of wild since I lost money on a I, I’m bitter. And so, you know, assuming that management might have not done this biotech to my biologist dad’s disappointment cause there’s so much cool experimentation and there.

[00:50:03] Joel Tillinghast: It’s so hard for me to tell the path of innovation. There’s phase one, there’s phase two, there’s phase three, there’s commercialization, and sometimes even if it does get approved and goes on the market, sales will disappoint and handicapping those odds is beyond my ability

[00:50:25] William Green: In a way, knowing just that you can’t model that, that you can’t really figure out the cash flows and the growth in the future.

[00:50:32] William Green: That seems to be almost enough to keep you away from that. But you also said to me, you know it’s going to make you crazily emotional.

[00:50:39] Joel Tillinghast: Yeah. There are people like Fidelity’s brilliant analyst. I trust her a great deal, but as a portfolio manager, I can’t do it unless I can verify her thoughts to myself.

[00:50:56] Joel Tillinghast: And so, it’s an area that I stay away [00:51:00] from.

[00:51:01] William Green: You listed for me an array of things. I love this quote where you said to me, I quote this in my book. You said, don’t pay too much. Don’t go for businesses that are prone to obsolescence and destruction. Don’t invest with crooks and idiots. Don’t invest in things you don’t understand.

[00:51:16] William Green: Don’t invest in what you don’t know and stay away from your own craziness. And I just thought there was a wonderful list of things where, you know, you, before we start thinking about what we should do, just to have a list of things where we know I’m just not going there. It’s not a game I can win.

[00:51:32] Joel Tillinghast: Yeah. How do you beat Jordan? You play chess against him rather than basketball.

[00:51:39] William Green: I actually think about this a lot recently. I think much more since I, I wrote the chapter about you and Charlie Munger about just, it’s called Don’t Be a Fool, where I just think about the importance of playing games that I’m equipped to win.

[00:51:53] William Green: And it’s been kind of a crushing realization that there are certain games where emotionally and intellectually and in terms of my passion, I’m just never going to really win at the game of picking individual stocks. It just doesn’t suit me. And it’s been incredibly clarifying and liberating to say, well, so yeah, so I should be interviewing people, I should be writing books and I should, it’s just, but it’s kind of painful to admit that you’re not suited to a game.

[00:52:17] Joel Tillinghast: It is, and it’s especially tough because the people who professionally pay play the game disproportionately went to selective schools [00:52:30] and they know that they can learn. But despite years of intermittent effort, I still don’t get biotech. And it’s kind of hard to tell yourself. Yeah. There are plenty things that I’m not particularly good at.

[00:52:47] William Green: I remember Chuck Acri saying to me, we, we can’t dance with all the ladies. And I just suddenly realized, oh, he’s got this like really narrow pond in which he’s fishing, and he has the discipline to do it again and again. So yeah, that self-awareness and the ability to choose the right game seems to be critical.

[00:53:05] William Green: But what’s also really distinctive with someone like Acri, he’s very focused, right? He has a very narrow portfolio of a few major holdings. You are really unusual in the, your massively diversified or almost more than any other great investor. I know. I think when I looked at Fidelity low price stock a couple of days ago, I think you own something like 880 stocks.

[00:53:27] William Green: What’s the philosophy behind that? because it’s almost impossible to pull off what you’ve pulled off. It’s like the only, remember Bill Ru saying to me once, the only other investor I’ve ever come across who can do really well with a hugely diversified portfolio is Peter Lynch, and you seem to be the second one.

[00:53:42] William Green: So how do you do it and why do you do it that way?

[00:53:46] Joel Tillinghast: Think of it as two portfolios. One, although it could be more, but think of it as two portfolios. One of them is for longstanding high [00:54:00] conviction holdings. I do have some fairly chunky holdings. United Health is over 5% of the fund metro, the Canadian supermarket.

[00:54:11] Joel Tillinghast: Is close behind. AutoZone is also a very substantial holding. If you took just the top 50 or hundred stocks, you might say this is actually fairly concentrated fund even relative to Fidelity. And one of the ongoing discussions that had with Morgan and Sam is.

[00:54:37] William Green: These are your two successes that people.

[00:54:39] Joel Tillinghast: Who don’t yet two success successes is what will work for them.

[00:54:43] Joel Tillinghast: Because they want the fund to work for them. And I think they’re still figuring out what works for them. But there was a hint that maybe 5% was too chunky because actually there are other fidelity funds that do not have any 5% bets, although Will has several. And so, in a sense, I do have concentrated bets.

[00:55:10] Joel Tillinghast: And there are concentrated bets in the sense that the fund holds 10% of metro Canadian supermarket, which is as large and as concentrated as the regulations allow.

[00:55:25] William Green: Do you think this is partly a reaction, Joel, like that you [00:55:30] internalized in some ways those early lessons from when you got in trouble investing on margin and you went through the horror of losing money with two aggressive stances there?

[00:55:39] Joel Tillinghast: Something is that so we didn’t get to the other 800 companies, although some, it might have to be three because some of those are 25 basis points of the fund, but 10% of the company, so they’re concentrated holdings of a small company. And on that there are people who say it’s too small to make a difference.

[00:56:06] Joel Tillinghast: Do it anyway and think we’re terrific companies that are small, the fund does have a concentrated relative to the outstanding shares holding, but then there’s the large number of companies where they see something interesting going on. See either a possibly terrific business or a really dislocated valuation where I’m begging the analysts to tell me more and begging brokerage researchers to tell me more and trying to signal to the companies reach out to me and tell me more.

[00:56:46] Joel Tillinghast: And I add to those when I do get more and it’s good more the here’s an industry with barriers to entry. Here’s really topnotch management team. Or it’s [00:57:00] eight times earnings, debt free and earnings are growing where it is a request for information. Consultants absolutely hate that because you are supposed to leap to pay conviction.

[00:57:15] Joel Tillinghast: I am still trying to learn and eagerly looking for a book on what not to do. What signals do you ignore? What opportunities, I think people like Buffet are great at saying, Nope, not interested. After two minutes, Peter also had that capability, although his conclusion was, I think sometimes like mine that it puts into the, I went to watch this space and find more.

[00:57:49] William Green: Tom Gayner does something similar where he has a kind of a middle way approach where he’s somewhat diversified and somewhat concentrated, and he looks at he might have a hundred and 10 stocks and he likes the fact that they’re in his portfolio so he can concentrate on finding more about them.

[00:58:06] William Green: But they’re sort of the farm team. And it sounds like it sounds.

[00:58:11] Joel Tillinghast: There’s more and that’s true. They’re the farm team, but it’s also a set of comparators. Where if I’m looking at US banks and say, well, what are superior banks? And have a list of a couple dozens of them [00:58:30] and can mentally compare and say, Eagle Bank of Maryland, how does that compare with East West Bank of California?

[00:58:38] Joel Tillinghast: And then let’s compare that with cos Valley Bank and then let’s compare that with West Bank in Iowa. Let’s compare them. Some of it is to give a comparison the other way before Wells Fargo started to have their issues with compliance and overselling, my approach might be any bank that I buy has to be as good as Wells Fargo needs to have a return on equity and growth prospects that are higher or the same as Wells Fargo and.

[00:59:16] Joel Tillinghast: Some of it, and it has to be selling at a lower price to book or PEs and Wells Fargo. So sometimes you can have a benchmark stock, but it’s hard If I look at small cap healthcare and say everything has to be as good as United Health. There are companies that are as good as United Health, but they’re much more expensive.

[00:59:41] Joel Tillinghast: There are companies that are less expensive than United Health, but they’re not as good. So it sometimes helps to have the sort of benchmark stock that has to be take and guess that would lead towards a more concentrated portfolio because some might say that’s a, there’s a message in there [01:00:00] that there’s nothing in small healthcare that is as good if you accept that the PE of 22 or whatever is acceptable.

[01:00:11] William Green: One of your most successful investments of all time is something where I think there weren’t.

[01:00:16] Joel Tillinghast: Before we leave that. Yeah. Have you read any books that are any good on what to say no to? I’ve seen books that correctly say it’s a good thing to drop what you don’t need, but I suck at doing it and looking for guidance on what not to do and what opportunities.

[01:00:41] Joel Tillinghast: I haven’t seen it. Cause the temptation is let’s kiss all the girls.

[01:00:45] William Green: Yeah. And its a, this is a very central theme of my book, not only in the chapter about you and Charlie where I’m saying don’t be a fool. Like, hear all the things to avoid. But also, I write in the chapter about high performance habits, about what I call the art of subtraction, which is just the habit that I think all of the best investors have of saying, these are just things I’m not going to do.

[01:01:07] William Green: I’m going to, it’s almost like having a not to do list. And I remember talking to my friend Jason Zweig about this from the Wall Street Journal and him saying that when he looks at people like Warren Buffet, Charlie Munger, Bill Miller, they all have this incredible ability to say, I’m not particularly good at this thing, and it’s not what I really care about, and I’m just going to be maniacal about focusing [01:01:30] only on other things.

[01:01:31] William Green: And so, I think there’s deep wisdom and deep practical wisdom in this idea of just saying no to things. And it’s something Warren does famously, right? I mean, Warren says the difference between successful people and very successful people is that the very successful people say no to almost everything.

[01:01:48] William Green: But I, yeah. So, I mean, it’s clearly a theme that I explore a lot in the book, but I haven’t seen one book that does it brilliantly. So yeah, it’s a, but maybe I just haven’t read enough.

[01:01:59] Joel Tillinghast: Please contact me immediately. If you or any of your listeners come up with something, cause…

[01:02:06] William Green: Yeah. But your book is also very good at that.

[01:02:10] William Green: I mean, your book does a great job at saying, these are the red flags. When you look at companies, I mean, don’t look at companies that have too many footnotes and opaque accounting and disclosure that’s extensive, but in comprehensible, you know, don’t invest in countries like Russia where there’s not enough rule of law or countries with high inflation like Turkey.

[01:02:30] William Green: I mean, you’re, you are very good, I think, in that book at identifying a lot of the things not to do. But in a way, what I had to do in reading your book and also in listening to or reading various interviews with you over the years, you have to gather these things from different parts of the books and interviews and kind of compile a list of things not to do.

[01:02:50] William Green: And likewise, from Charlie’s list of 24 causes of human misjudgment. He was really, I think he’d only read three psychology books, but he was compiling them in [01:03:00] this very intelligent way of saying, this is what I’m not going to do. These are the ways in which people screw up. So, I do think you have to kind of do the work yourself in a way.

[01:03:07] William Green: It’s not, I haven’t seen it really conveniently arrayed I wanted to go back to this amazing investment of yours, monster beverage, which I guess originally was Hansen when you first invested in it and I remember interviewing you about it and you saying basically that your cost basis was 8 cents.

[01:03:25] William Green: And I checked this yesterday and it was at $97. I know it’s had lots of splits and the like, but it was up at least a thousand-fold. Can you talk a little bit, I mean, I know you’ve been modest about this and have sort of said you lucked into investing in it because really you love the fruit drinks, not the energy.

[01:03:41] William Green: But there are lessons from this investment that you’ve had really for over 20 years. I think what should we be learning from this enormous success of this massive long-term holding of yours? It’s gone up a thousand-fold or more.

[01:03:56] Joel Tillinghast: Great successes are up in a complete surprise, even to their beneficiaries.

[01:04:02] Joel Tillinghast: Don’t sell luck short. But the odds were very much in my favor in that weirdly met them at an American Electronics Association beverage service and the stock was selling for I think, 10 times earnings. I think it was debt free. The earnings weren’t growing. I liked the products and really liked the management because they seemed very intense.

[01:04:29] Joel Tillinghast: Like [01:04:30] they’d had two or three monster beverages themselves. But yeah, they really seemed strategic and motivated. It wasn’t going to go bankrupt because they had no debt. Three drinks. Like that’s not very economically cyclical. It’s not going to get waylaid by cycles. 10 times earnings totally fine. That’s a 10% earnings yield.

[01:04:53] William Green: So, there was a lot more that could go right than wrong in a way.

[01:04:59] Joel Tillinghast: Yeah. It seemed like the general ways to screw up were minimal. I just didn’t see how they were going to screw up.

[01:05:10] William Green: But how did you hold it for so many years? I mean, you’ve held it for, what, 20 plus years already while it’s gone up a thousand-fold.

[01:05:18] William Green: That seems almost inhuman to be able to do that. What enabled you to do that temperamentally or intellectually?

[01:05:25] Joel Tillinghast: I think it was about four years or five years later, the. Earnings per share were higher than the cost basis. And this is something that tried to push on analysts that what I really want is a low PE on earnings five years out where you’re imagining a sustainable world.

[01:05:50] Joel Tillinghast: It’s not so much shipping cycles, oh my God, they could be huge, and then they go bust. So that’s not what I’m looking [01:06:00] for. I’m looking for a huge growth in earnings and having had the growth in earnings and realized that, yeah, when I was 20, I probably would’ve liked to Monster drink a lot better than dropping No do into a Coca-Cola, which is what I did then.

[01:06:19] Joel Tillinghast: Yeah, I probably would’ve wanted that. And it’s still, the multiple was higher, but the earnings were much, much higher. They still had the same terrific management. They still didn’t have debt. So, what could go wrong? Well, growth could stop, but consumer products companies have more inertia than technology products or ladies’ fashions, which annoyingly have almost no inertia, at least the stocks that I buy.

[01:06:48] Joel Tillinghast: One way that I presented it for the analyst was to take some of the amazing buffet winners and said, what was the pe entry and what was the PE five years later and was like, Geico was like one-time earnings, five years later. Wells Fargo also a single digit, even Coca-Cola was a fairly modest multiple, five years out.

[01:07:18] William Green: So, in a way that goes back to what you were doing at Value Line, where there were this kind of three to five year, if I remember rightly, projections. So, so, so in a way it was training you to look further [01:07:30] out to see what a justifiable valuation was. Is that fair to say?

[01:07:35] Joel Tillinghast: Yeah, but also saying the company’s where you can look five years out or 10 years out with confidence are rare unless you’re Cathie Wood and even her list is not that long.

[01:07:49] Joel Tillinghast: So, so I think she won’t disagree that looking out five or 10 years with confidence is difficult and it’s easier to hold onto companies where you can look with at least some confidence.

[01:08:04] William Green: I wanted to ask you a little bit about the emotional aspect of investing, because you said this extraordinary thing in your book where you wrote, are you willing to do the digging and endure the pain, loneliness and worry that go with superior returns?

[01:08:20] William Green: And I was thinking about this question of how to handle the pain. And I know for example, that there was a period during this crazy bull market that ended recently where assets were kind of flooding out of the fidelity low price stock fund. I think in the first half of 2020. It went from, so like 33 billion, which is enormous fund to maybe 20 billion.

[01:08:37] William Green: And so, you could see people acting irrationally and being hasty and betting on crazy stocks and you, they’re just being patient and prudent and long term and value oriented. And I’m just wondering how do you endure the pain, loneliness and worry that go with superior?

[01:08:56] Joel Tillinghast: For value investors, your markets are [01:09:00] not as punishing.

[01:09:01] Joel Tillinghast: Why is that? It’s because if you really thought that the I value of a stock was $50 and it’s dropped from $40 to $20, it’s like, wow, this is so compelling it, this stock will work. Dealing with the underperformance during a raging and somewhat speculative bull market was a contributing factor to my decision to retire.

[01:09:33] Joel Tillinghast: Really? It was very painful. Yeah, it’s very hard because I don’t have. There were a small band of value investors fidelity. And I wish during that period that I had something that was both comforting and productive to those people. And I had nothing. I had nothing for me to tell myself than my stocks or selling for less than their value.

[01:09:59] Joel Tillinghast: And so am good with them. But of course, it hurts if you’re a competitive person that you are behind the benchmark.

[01:10:08] William Green: I remember Joe Greenblatt once saying to me, what else am I going to do except buy stuff cheap? He’s like, I believe that it’s going to work in the long run, and what else am I going to do? I don’t have another approach.

[01:10:18] William Green: And John Mary Aard said the same thing to me. He’s like, what else could I do? I can only be a value investor. It makes sense to buy stuff cheap, to buy it for less than it’s worth. And it’s tough, right? I mean, you went through this crazy experience where even [01:10:30] you had owned game stock, I think before it became a meme stock, and suddenly it went from under 20 to over $300.

[01:10:37] William Green: You must just be watching that and just thinking I just, how do I play this game in any sort of sensible, responsible way?

[01:10:45] Joel Tillinghast: And so, when I bought it, it was a combination of, I thought it was undervalued because it had been a consistent cash generator and a bit of reluctance to accept reality. The indeed video game sales had changed and the, maybe their business was more impaired.

[01:11:09] Joel Tillinghast: So, when it lifted it off from single digits and got to 38, they sold some of the stock and blew out pretty much all of the rest when it was 63. And from there it went to like $350. Like, so did I do what I was meant to do, thinking about my approach. Yes, it, even with the help of the guy from Chewy Brian Cohen, who knew about internet retailing, the possibility of the growth opportunities was somewhat challenged, and it was fairly valued to overvalued 38 and 63.

[01:11:54] Joel Tillinghast: And so, I sold, but if you were really [01:12:00] unpleasant, you’d say you blew a, you threw away a billion dollars’ worth of the holders’ money by selling at those prices and not waiting until it hit three 50. And my only defense is I was doing what I was supposed to do and annoyingly a matter of public of how many shares were sold and what price.

[01:12:25] William Green: So when you announced Joel that you were going to retire as a fund manager at the end of 2023, was it partly just a reaction to the emotional and psychological drain and exhaustion of going through this long period where a less rational approach to investing was doing better and it just, at a certain point it becomes harder and harder to be banging your head against the wall and swimming against the tide to mix metaphors?

[01:12:51] Joel Tillinghast: Yeah, I think. Yeah, it is hard to tell. I think there’s rarely been as much stuff that seemed crazy to me that was going on in financial markets and the rest of the real world than over the last two years. And it’s hard to handicap it. But yeah, it was sort of emotionally exhausting. But the other thing that was going on was my dad was getting to the end of his life and I guess that brings thoughts of mortality.

[01:13:29] Joel Tillinghast: And [01:13:30] he did finally pass in December last year. But realizing that, yeah, all of that was a complicating factor along with the emotional disappointment. Disappointing certain expectations of my shareholders. I think also that the market for funds has changed, and Peter went where the opportunity is or was.

[01:13:58] Joel Tillinghast: I tried to go where the opportunity is. If I can understand it, we’ll be enough. It goes to where a subset of the opportunity that you know is extremely well. But modern funds are sort of annoyingly pushing towards making you look like an index fund, which I think is not a favor to the fund holder because if you’re going to hold a closet index fund, you might as well just hold the index fund.

[01:14:32] William Green: I remember Will telling me that years ago he got advice from Warren Buffet and said, look, I’m managing, I think it was 200 billion. You know, what advice do you have? And Buffet saying, concentrate more like, like you can’t concentrate that much, but at least make bigger bets when you have really high conviction.

[01:14:50] Joel Tillinghast: And I think Will has absolutely followed that because I think today, you’ll find in his ginormous fund some 7% [01:15:00] bets, the SCC regulations limit the number of 5% and higher bets that you can have. And so, I think he has followed that advice.

[01:15:12] William Green: You’ve talked to me before about your sense of mortality and it always weighed somewhat heavily on the, on you.

[01:15:18] William Green: This question I remember you talking about being in Japan, going to investment conferences and the like in 2011 when I think it was a 9.0 earthquake hit that triggered the tsunami that hit Fukushima, and it seemed like that had a really powerful impact on your life. And I, can you talk a bit about how that also has shaped your view of how you wanted to live your life and what you wanted to contribute?

[01:15:42] Joel Tillinghast: Yeah. That was an, especially in, I was at a conference in Japan and there had been some tremors on Tuesday before the earthquake, and one of them was very brief, it might have been half a minute, and I looked at the company manage. And translator during that. And the translator said, oh, that was an earthquake or tremor.

[01:16:12] Joel Tillinghast: And since they did not seem freaked out, I was not freaked out. Since people’s reality is defined by what people around them think is real. Friday was different. We were in a company meeting and the cups started to [01:16:30] slide around and were threatening to fall off the table, and the company became increasingly worried, and we walked down through the fire escape to the bottom floor, and in amazing Japanese lightness and kindness, they served us some free.

[01:16:52] Joel Tillinghast: Which I appreciated. But everybody went down to the bottom floor. I tried to get the taxi to take back to the hotel, but the taxi never arrived. The phone C cell phones went dead and went back to the office owed back. So, we walked back to the hotel, which was a pleasant walk than a horrific walk. And the Nate was very difficult.

[01:17:23] Joel Tillinghast: A reception got moved from the floor to the bottom floor of the hotel. And when a, my hotel room was on the 23rd floor and the building was sway. You could see it. It was rocking and the aftershocks continued. In the midnight, another member of our group went down to the front desk and started crying. And she got transferred from like the 19th floor to the second floor.

[01:17:53] Joel Tillinghast: Cause the spookier part was the rocking. I had wanted to tell my dad, you [01:18:00] know, what was going on, but when I did call the, my uncle Howard had a stroke and he proceeded to die before I got home. And so, I didn’t tell my dad about the earthquakes out and even trains to the airport and flights were all canceled.

[01:18:21] Joel Tillinghast: So, it got delayed a day did get out. The airline made an extra profit on that, but Fidelity thought that it was money well spent and so did I to escape. Yeah, it was just a reminder that life can be short and unexpected.

[01:18:41] William Green: And it seems like that was one of the reasons why you ended up writing your book was partly that you were starting to think about what do I want my legacy to be?

[01:18:50] Joel Tillinghast: Yeah. I think that was part of it and hope that I could write something as awesome as the Peter Lynch books, but he’s a more gifted storyteller and guess and too geeky and produced the book that’s probably more for professional investors and really avid personal investors.

[01:19:13] William Green: I think it’s a good and valuable book that has, it has good stories, good practical advice, and it’s authentic and its hard-earned wisdom.

[01:19:21] William Green: I think it’s; I mean, I would definitely strongly encourage our listeners to read. I’m also curious, knowing that you’ve gone through a lot over your [01:19:30] lifetime, you know, loss of family members struggles with work and with markets that aren’t cooperating with rational analysis and earthquakes and the like.

[01:19:40] William Green: I’m curious if there’s anything that the rest of us who are, you know, also face our own traumatic and painful situations and setbacks and challenges. If there’s anything that you found really helpful in dealing with adversity that has put things in perspective in some way.

[01:19:56] Joel Tillinghast: Give me patience to accept the things that I can control and accept the things that I can’t, just because it was a bad outcome.

[01:20:05] Joel Tillinghast: If you can’t think of how, you would’ve done it better with the information that you had at the time, then there’s no sense or if you can’t control it, there’s no sense in beating yourself up on things you can’t control. Things where say, gosh, if I had held onto Amazon for more than briefly would’ve been different.

[01:20:28] Joel Tillinghast: But in fact, yeah, I want companies that are producing current earnings in cash. So, it was probably never meant to hold onto Amazon 20 years ago.

[01:20:41] William Green: So, in a way, it’s, to some degree being gentle with oneself and a little forgiving of oneself is something that you.

[01:20:48] Joel Tillinghast: Yeah, absolutely. If you can’t control it and wouldn’t have made a better decision, then be gentle.

[01:20:58] Joel Tillinghast: And if you would have made a [01:21:00] different decision with the information you had, then be darn sure that you learn that. And remember that in my case, having 12 Ru Cokes and some beer is a really horrible idea. Be sure that you take away that and don’t repeat it.

[01:21:19] William Green: But a couple of monster beverage this might be good.

[01:21:21] Joel Tillinghast: That would be some 40, 45 years ago, but don’t do it.

[01:21:26] William Green: You’re handing on the fund after I think 32 years, a little more. It’ll be by the end of 2023 when you retire as a fund manager and stay on as a senior advisor to the equity team. You’re handing it over to two people, I think have worked with you for the last 15 years.

[01:21:43] William Green: A lady you mentioned before, Morgan Peck and Sam Chaz. Am I pronouncing that correctly? That’s great. Can you give us a sense of what it is you’re trying to convey to them? Not just about how to pick stocks, but about a sense of commitment to shareholders, which I think is, has been one of the defining characteristics, both for you and Will Danoff, this sense of actually really deeply caring about your shareholders.

[01:22:07] William Green: What are you trying to convey to the next generation? Because my sense is that you deeply care about this baby fidelity, low price stock. I mean, this is your creation that you are handing on.

[01:22:18] Joel Tillinghast: Try to do the right thing. Try to, the fund is less volatile than the market, so it’s somewhat easier to hang onto in down markets.

[01:22:32] Joel Tillinghast: Although that doesn’t mean that they’re not as disappointed as I am that it’s down and you can’t avoid that. But I think it’s less likely to make you sell at the wrong times. Yeah. Try to choose when they’re available. The best-in-class companies is quite trying to push to Sam Morgan. Beyond that, it’s more like Howard Marks implied, which is a thousand little things.

[01:23:00] William Green: What do you mean about a thousand little things?

[01:23:03] Joel Tillinghast: He had a book. The most important thing, you know? And the conclusion is there’s not a most important thing in investing. There are a thousand little things. Yeah. But I think the really big thing is do what the shareholder would do for themself if they had the knowledge that you have, which since we spend all day on it, we should have better knowledge, but do what they would do if they had the same knowledge.

[01:23:34] William Green: I remember you once saying to me, Joel, that people had often said to you, why don’t you run a hedge fund where you’d get, you know, 2% annual fees and 20% of the profits. And you had said to me, I’m not really interested in making people who are already rich, many rich. And my sense with you with Fidelity, low price stock, I think you probably have about a million shareholders, something like that.

[01:23:54] William Green: And you’ve been managing maybe 70 billion in assets. My sense about you was that you really [01:24:00] did, you know, one of the distinctive things about your career is the degree to which you cared about whether you were doing a good job for those people.

[01:24:08] Joel Tillinghast: Yeah. And I think Will cares about it a great deal, but yeah, finance is not a business that used with a lot of human meaning, but there are places where you want it to be of service to someone.

[01:24:27] William Green: When you look back on your career having had this incredible run, what gives you a sense of satisfaction about it? Cause you’ve come through this very painful period in a sense in the last few years, albeit your long-term record is still great, but it’s, you know, it’s obviously been a frustrating decade in a sense. What do you look back on with satisfaction?

[01:24:48] Joel Tillinghast: I’m glad that the most fund holders have gotten a satisfactory return, and I’m also glad that there are up and coming people like Morgan and Sam at Fidelity who will continue to try to do that. Looking at the attention to shareholders, I can see people in the growth group who have been affected by Will’s approach.

[01:25:12] Joel Tillinghast: And yeah, I think producing satisfactory results for a lot of average people, for a huge number of average people in developing talent in the next generation.

[01:25:27] William Green: And when you look to the future you look, [01:25:30] I’m 54, I look at you now. I think you’re 64. I think of you as a relatively young man, unlike the Beatles when they were saying, you know, when I’m 64, and it seemed incredibly old.

[01:25:39] William Green: When you look to the future, what do you see yourself doing? What, in addition to obviously offering advice to people like Sam and Morgan, what, how do you intend to spend the next 20, 30, 40, 50 years, I hope?

[01:25:51] Joel Tillinghast: I sometimes wonder whether I want to rewrite and update the book. Cause there are new stories and there’s some topics that I think some might be left out, some might be added.

[01:26:05] Joel Tillinghast: So, I’m not sure if I’m going to do that. And one of the things that I had talked about with my dad in the summer or before he passed, he was not so keen on that. It was asking him about a book that he had worked on but not published. And he was sort of pushing. They had some thoughts about international trade and how that affects economies and societies and he thought that was very interesting.

[01:26:39] Joel Tillinghast: I might do that, although I think the likelihood is more the, it will update the big money thing. Small. There’s also a trustee at Wesleyan University and trying to work with them. They do not, I’m on the campus affairs committee, not the investment committee, [01:27:00] and so I’m pushing my thoughts where they’re not really wanted.

[01:27:05] Joel Tillinghast: But I think the, in looking for someone to help maybe in academia write about university spending rules, because I think that there is a problem with what they call the Tobin rule that really would be solved by looking more look through income.

[01:27:24] William Green: And you’ve mentioned your father a few times and I was reading his obituary yesterday and he is obviously a remarkable human being.

[01:27:31] William Green: And I wonder if I could just ask you as a final question, if there’s anything in particular that he taught you through the way he lived his life or through things he told you that you could pass on to us? Really, in some ways, in, in honor of his memory.

[01:27:47] Joel Tillinghast: Listen to everyone. Observe everything. Don’t believe everything you think.

[01:27:52] Joel Tillinghast: Keep exploring. My dad was an exceptionally kind man. Yeah. Keep learning. That’s what he did all his life. It’s an article in the Wall Street Journal about spiders and how they produced the web, which was actually his specialty. And a so miss his descriptions and knowledge of a, apparently there’s some moisture in it that is required to produce it, but then it dries off. But keeping learning. That’s what he would say.

[01:28:25] William Green: That’s a good legacy. Joel, thank you so much. It’s been such a pleasure chatting [01:28:30] with you. I really appreciate your generosity in sharing your ideas, both in your book, my book, and in this conversation today. It’s always a delight chatting with you.

[01:28:38] Joel Tillinghast: Thank you.

[01:28:40] William Green: All right, folks. That’s it for today’s conversation with the great Joel Tillinghast. If you’d like to learn more from Joel, you may want to glance at chapter eight of my book, Richer, Wiser, Happier, where I wrote a couple of pages about him. Joel also wrote a very good book of his own that I would definitely recommend.

[01:28:56] William Green: It’s titled Big Money, Think Small. The subtitle is Biases, blind Spots, and Smarter Investing. It’s full of really practical advice about how to invest more intelligently and equally important, how to avoid dumb and costly mistakes. I’ll be back very soon with some more terrific guests, including a great investor named John Spears, who has spent almost half a century at an iconic investment firm called Tweety Browne.

[01:29:22] William Green: In the meantime, please feel free to follow me on Twitter @WilliamGreen72 and do let me know how you’re enjoying the podcast. I’m always delighted to hear from you. Until next time, take care and stay well.

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