Why Mark Yusko Always Comes Back to Value Investing
MARK YUSKO: 80% of trades now are machine to machine. And the human is being left behind. Value doesn't die if. It goes out of favor. It goes into hibernation, I guess. Germany's teetering on the edge of the recession, is in recession. And we don't need to be in a deep, dark depression. All we need is a little recession. GRANT WILLIAMS: Well, that's the trouble. That's the trouble, right? MARK YUSKO: Yeah. I think the dollar's in secular decline. I think we are in a race to the bottom with the yen and the euro. And I think all developed markets have no choice. GRANT WILLIAMS: Am I glad to see you. MARK YUSKO: Oh, that's my favorite time of the year when I get to come see you. GRANT WILLIAMS: It seems like forever since you got the chance to sit down and chat. MARK YUSKO: I know. GRANT WILLIAMS: So much gone on. And whenever you and I sit and talk, we go off in all kinds of different directions. I never know where these conversations will go, but they're always good fun. But what I really want to talk to you about today is not crypto. MARK YUSKO: Awesome. GRANT WILLIAMS: We're going to give you a chance to take a break from crypto, because I know you talk about that a lot lately. MARK YUSKO: Yeah. GRANT WILLIAMS: If we have some time, maybe we'll get back to it, but I don't think you and I are going to have time, because we're going to get wrapped up. So I want to talk to you about the investment industry, because it's something that obviously you've got a lot of experience in. And it's changing seemingly every day. MARK YUSKO: Every day. GRANT WILLIAMS: So I thought we could just kind of go through, take a look at the state of the industry, get your current thoughts on the players, the strategies, what's working, and what's not working. And just try and pick through that, and see if we can come up with anything interesting. Because when I thought about it, there is so much changing. And I thought-- MARK YUSKO: The speed of the change is accelerating. That's the real problem or challenge. GRANT WILLIAMS: You're a perfect example, right? With the move into this crypto stuff. MARK YUSKO: Yeah. GRANT WILLIAMS: So when you talk to a lot of these guys, and you talk to more than most, what trends are you starting to see shifting amongst the investors and amongst the other players? MARK YUSKO: Well look, I mean, one of the reasons I'm down here in Cayman is this conference. And it's about tectonic shifts. And that integration of technology, and AI, and machine learning, and all these things that are impacting our business. And you think about it, I think the stat they threw around this morning was 80% of trades now are machine to machine, and the human is being left behind. And you got the passive boom that's changing the landscape. And active management is dead. I mean, let's go through the things that have died. Active management is dead. Hedge funds are dead. You know, big great managers from years past are all washed up, and they have no role. And it's all about the quant jockeys. GRANT WILLIAMS: Value. Forget value. MARK YUSKO: Value is dead, yes. GRANT WILLIAMS: Value is dead. MARK YUSKO: Yeah, so we need a bigger tombstone for other stuff. Or a bigger graveyard for all stuff is dead. GRANT WILLIAMS: Well, let's talk about value. You and I are value guys, and this is something that we've had in common for the longest time. And this is something that-- I mean, it's so ridiculous to me that something called value could essentially be off everybody's radar screen. I mean, value is value. MARK YUSKO: Look, it is the best strategy over a long periods of time. It always has been. It has to be, right? If you buy something below its intrinsic value, it will eventually accrete back to fair value, and probably go above fair value. So that's a good strategy. Buying something that's more expensive than fair value, and hoping that it gets more and more expensive it can work over a short period of time. But over a long period of time, value is going to win. The problem is when you have periods of excess liquidity, it favors growth and momentum. And it favors passive. Now I get really edgy or itchy when you start talking about this passive thing, because there's no such thing as passive, right? There's a slow active. Passive is a myth, right? It's like smart beta. If an oxymoron. It can't be-- beta is dumb being rule based. And the problem with passive is it's rule based. It follows rules and it can't think. So if you have a company with no growth but it's in the buy list, and someone puts money in that ETF, it must buy that. No matter what PE it is. It could go to 25, go to 30, go to 40. And so what happens is in periods of excess liquidity, that liquidity goes into these passive strategies. They have this reflexive self-perpetuating virtuous cycle, which pumps up prices. But then as we saw in the fourth quarter last year, once it reverses, that reflexivity goes the other way, now, again, they can't think. They just sell, and people withdraw money. They must sell more. And so now it turns vicious. And so I think that's where we are today. And people are going to wake up the same way they did back in 2000. Go back to 2000-- Seth Klarman-- not even arguable whether he's one of the best investors of all time. In 2000, was a bum, didn't know what he was doing. No one would give him any money. Value is dead. Active management was dead. Hedge funds were evil. Why would anyone give him money? He'd underperform the S&P 500 for the last 10 years. And then for the next 10 years, from 2000 to 2010, what happened? The S&P compounded minus 1.9% per year for 10 years, and he compounded 17.5% GRANT WILLIAMS: Exactly. MARK YUSKO: Because value doesn't die. It goes out of favor. It goes into hibernation, I guess. It's not even hibernation, because it's not doing it, right? GRANT WILLIAMS: What is it, right? MARK YUSKO: It's perception. Look, our business has evolved over time to be more media facing, more television advertising. In the old days, there's no way you would advertise other than maybe when EF Hutton talks, people listen or whatever. But there wasn't this constant drone of advertising and trying to gather assets. And it wasn't a business of the business. It was, we take care of your money. We're stewards of your capital. We're fiduciaries. Now, it's about gathering your assets and taking a piece before you take them back from us. And I think that has led us to this point where companies have built brands that attract capital with this, I won't lose it, and I won't underperform this random benchmark that we all look at, the S&P 500. But if I underperform the strategy of value, which is to buy things when they're cheap and sell them when they're dear over a long period of time, you're not going to care because you're only looking at the short term window performance. And you and I talked a little bit about this over dinner-- is one of the big problems to me as we've gone from a culture of ownership to rentership. GRANT WILLIAMS: Yeah, for sure. MARK YUSKO: We used to own companies. We used to buy things and hold them for a decade. I think the average holding period the '60s was 11 years. Now, it's seven months, something like that. That's crazy. And you can't be the owner of a business. You can't be the beneficiary of strategy and long term thinking if you don't hold on for seven months. GRANT WILLIAMS: No. MARK YUSKO: You can't. GRANT WILLIAMS: But you know, this whole idea of value-- when you think about what investors are supposed to do, but who doesn't want to buy some of those value, right? MARK YUSKO: I think if you asked anybody, they would say, yes, of course, that makes sense. GRANT WILLIAMS: Of course, right? But to your point about Seth his performance back in that period-- and here we are again 10 years later, everything he said then was today. The only thing you didn't mention was the tech bubble, which we had in 2000 as well, right? The setup is exactly the same. MARK YUSKO: No-- we're in tech bubble 2.0. GRANT WILLIAMS: Right. MARK YUSKO: I think it broke last September. I think we're going to go through exactly what happened from 2000, 2001, 2002-- in fact, I call it #2000redo on Twitter. And I think we're there. The one thing that is true though, is as much as I pick on the growth mindset of investing, and that you can buy these stocks at any price, I've never met a growth manager who says they overpay. And I've never met a value manager who says they don't buy things that are not growing. So this element of kind of crossover is definitely there. But fundamentally, the difference to me is, if you're willing to buy something simply because the price is rising, and don't look at the value of the business, then you're not an investor, you're a speculator. GRANT WILLIAMS: Sure. Yeah, absolutely quite right. MARK YUSKO: If you buy something after you've evaluated the fundamental intrinsic value of a business, and you buy with a margin of safety, back to Seth's book and Ben Graham and all those principles that we all believe in, that's being an investor. And I'm not saying speculators are evil. There's a role for speculators. GRANT WILLIAMS: The short sellers are evil. We all know the short sellers are evil. MARK YUSKO: Well, short sellers are definitely evil. I mean, what's good about exposing frauds? What's good about bringing overvalued securities back to fair value by exposing accounting irregularities or malfeasance? I mean, how could that possibly be good for society. GRANT WILLIAMS: Just write them off. MARK YUSKO: Geez. I mean, those guys like Marc Cohodes, right? GRANT WILLIAMS: Who needs that guy? Let's talk about-- you mentioned the that you thought the tech bubble burst back in September. So let's talk about that. Because what we saw at the tail end of last year, when you dig into it, was actually a lot bigger than I think people believe, and a lot more important than the rebound since has got people thinking. You know, there's a great deal a fear-- we dodged the bullet there. MARK YUSKO: Absolutely. GRANT WILLIAMS: But under the hood, things got really bad back at the end of last year. MARK YUSKO: Really bad. Really, really bad. And they're bad for a reason. Because we've had a series of policy errors, we've had a series of just cyclical developments that is natural. And for too long, because of QE, this QE era, it overstayed its welcome. There was a role for QE at the depths of the crisis, right? You know, somebody who worked for Bernanke told me that he came into the room and he said, I've looked into the abyss, and we're not go in there, guys. Right? GRANT WILLIAMS: He didn't rip off his shirt and expose it. MARK YUSKO: No, because again, he's a very calm, rational, reasoned, thoughtful guy. And what he was saying was, how fractional reserve banking works. And you know what a levered financial system looks like. A run on that bank, we're not having that. We saw that in 1907, the Knickerbocker panic, we're not going to have that again. So buying these bonds in the short term-- that makes sense. Saving the patient makes sense. But we overstayed the welcome. And I believe it's because we got into this mentality that we have all these boomers. You know, I'm one of them, I'm one of the last years of the baby boom. And we're all going to retire. And it happens every single day in this country in the United States. 10,000 people turn 65 every single day for the next 17 years. And those people don't have enough money to retire. Where's their capital. Well, it's in for when 401(k) plans and in stock market. And so we've got to get those values up. And so we've had this third rail of policy that used to be about jobs and inflation. And now, there's this third rail, and everyone is, we don't care about the market. Well, yes they do. Because every time the market has even gone down a little bit, the Fed has changed their tune. They've either increased liquidity or there's been the Shanghai Accord with China for them to inject liquidity. And every time, we've had a drop, we've had a V bottom. But the problem is-- and I've talked about this right around the Christmas time period when we-- to your point, it was really bad. It was really dark on the 24. I mean, stuff was starting to unwind and unravel and there was really a lot of tension. And they called together the group. You know, the working group on economic stability or plunge protection team, whatever you want to call him. We can't go there again. Well, they do. So they inject a little capital and you got some buying, and we get a short squeeze. We get this nice V shaped bottom. Whew, it's all good. No, it's not. Because I use the analogy of a rubber ball bouncing down a set of stairs. Each bounce is higher, it's just kinetic energy. But the end of the trip is a bad place. And we're at the point where there was a time where buy the dip or buy the something dip, it was a good thing. But now, it's sell the rip. So we should be selling into each of these rips in the overvalued markets. There are plenty of undervalued markets around the world, But in the overvalued markets, which are the developed world, Europe, and the US, and Japan, we should be lightening up on these risk assets, particularly the indices. And so I think people are fooling themselves if they think that it's all good. And I called the cupboard is bare market. Mother Hubbard went to the cupboard to get a poor dog a bone. When she got there, the cupboard was bare. And the poor dog's going to get none. And I think that's where we are. And I think that's going to be a very unpleasant outcome for a lot of people that are so dependent on this singular exposure. And they've been conditioned that way, really, since the '80s, that stock should be the core of your portfolio, and big cap US stock should be a core your portfolio. And I just don't understand that. I mean, to me, particularly for four people have a long time horizon, for all the young people today, they shouldn't own a lot of stock. They should own private businesses, and they should have innovation, and venture capital, and real assets in the things that will take advantage of-- the greatest source of alpha on the planet today is time arbitrage. GRANT WILLIAMS: So let's talk about the outcome. You mentioned the outcome there, and this is what interests me, because I agree. We can see where this is going, right? And we can see how it wants to go there, which is quickly. And we can see how desperately they, the plunge protection or whatever don't want it to happen. How do we end up getting there? Because I think we have to get there. MARK YUSKO: Yeah. We do. We do and we will. And it said, the reason I think this is just like 2000, 2001, 2002 is think about what was created in that period. We had this big injection of liquidity because of Y2K. We're all afraid of Y2K and we pumped half a trillion, back when half a trillion was a lot of money-- people forget that a trillion is $1 every second for 31,710 years. It's a lot of money. So half a trillion pumped in, and it went into small cap stocks, tech stocks, and we created a bubble. We created the greatest bubble of all time. Because it got so narrow and we had four stocks that you could not lose. If you bought Cisco, Intel, Microsoft, and Qualcomm, you could not lose money. No sell ratings on these stocks, everyone said to buy them. Cisco was selling at 286 times earnings. GRANT WILLIAMS: I know, right? It's crazy. MARK YUSKO: Think about that. Paying $286 for $1. You have to live something like 100 and something years to make a 10% return. GRANT WILLIAMS: But it was crazy back then too. This isn't a hindsight deal. MARK YUSKO: But no one thought it was crazy. No one thought it was crazy. Everybody bought Cisco at $70. Everybody. And today, it's like, $35. 18 years later. In fact, that basket of four stocks is underwater. GRANT WILLIAMS: Yeah. MARK YUSKO: Microsoft is up a lot because of Azure and stuff, but it's crazy. And then what happened is you had a bunch of companies that took advantage of the cheap interest rates in 2001. We had the recession. We had the recession in '01. It was exacerbated by 9/11, OK? That was an unknown unknown that really did make things worse. So they cut interest rates a lot, and then people load up on debt. You had WorldCom and Enron. And in 2002, what happened? The debt bubble blew up. And so 2000 wasn't the bad year. It was only down 9%. 2001 not even that bad a year, it was only down 12%. But 2002, down 22%. It was bad. That was 48%, 49% peak to trough. And here we are, what happened in 2001? January market was up by 5.5%. Why? Everything was fixed. The tech bubble was fine, everything was going to go back up, it was a return to normal. And then down 30% because the recession hit in the first quarter. Now we didn't know as a recession because a recession always gets called later. GRANT WILLIAMS: After the fact. MARK YUSKO: In fact, I think it's a great stat. I think 87% of recessions aren't recognized until April of the year in which they occur, which is crazy. And so I think that one got named in September. So negative GDP first quarter, positive second quarter, negative third quarter. 1% growth for a whole year. Not negative, but enough of a recession to trigger earnings to fall. Then 9/11 exacerbates it, and we have the debt crisis. And I think the same thing is happening now. If you look at every piece of economic data, it's fallen off a cliff. If you look at earnings, fallen off a cliff. I showed this one chart and my around the world last week on my 10 surprises. Tech earnings expectations literally made a 90 degree turn, and a fall in an unbelievable amount in the last two months. And it's because people are realizing that things are not as good as they appear. ECB just cut European growth rates. Germany's on teetering on the edge of the recession, is in recession. And we don't need to be in a deep, dark depression. All we need is a little recession. GRANT WILLIAMS: Well, that's the trouble. That's the trouble, right? You're right. Everyone's talking about the end of the world. We don't need that. MARK YUSKO: Because we all are victims-- not victims. We're all a product of the environment in which we grew into the business. The bulk of the people in the investment business today, what's their most recent memory? The global financial crisis. And so they think that's a normal downdraft. No. Normal downdraft is 2000, normal downdraft is 1994. A normal more downdraft is 1983 when I was living in Seattle when they said, last person to leave, please turn out the lights. Seattle is a pretty cool place now. Amazon likes it. So I think we're at this point where we have this last gas rally here in January. And now, people are going to have to wake up and say, wait a minute, earnings aren't that great, growth isn't that Great valuations maybe are too high. And I don't know that we have to go down 30%, but I think by the end of this year, we're going to be down high single digits, low teens, and that's going to be a wake up call to people. And then next year in 2020 that I actually get really nervous. GRANT WILLIAMS: Well, let's start with that, because I'm curious as to what you think the reaction will be. Let's say we do end up, let's call it 10% down this year. How do people react? Because that's not a good look. And to your point, there are people in this industry who would have no clue what that's like. MARK YUSKO: Yes. GRANT WILLIAMS: A couple of years down, what happens? What do people do? Do they overreact? MARK YUSKO: QE 4. Well, individuals will overreact. Look at December-- had, I think I'm right on this, all time record outflows from mutual funds. I think it was all time record. People freaked, because you know, we're down 19.8% in the S&P and over 20% in NASDAQ, and people freaked. GRANT WILLIAMS: Which is ridiculous this, but. MARK YUSKO: It is ridiculous. It's especially ridiculous because time horizons are just too short for everybody. Even a 55-year-old guy like me you know, god willing, I got a long time. And that means I shouldn't be investing for five years or 10 years. I shouldn't have as big bond weighting. I should have more innovation inmy portfolio, more real assets. If you're in your 30s, you should have zero. I would argue it should be actually against the law to own bonds if you're under 50 in your retirement account, right? And so since most of these ETFs and mutual funds are held in retirement accounts, panicking doesn't make any sense. Now I can argue that preparing in advance, rebalancing back to a more balanced portfolio. The problem is if you started eight years ago with a balanced portfolio, 60-40, you've got a way big overweight in equities. You should have been rebalancing it back to bonds. And a year ago in my 10 surprises, I said the biggest surprise of all would be the bonds beat stocks for the year. And literally, people are laughing at that. Like, this guy, you literally have lost it. I mean, this crypto stuff is bad, but that-- you lost it. And through October, oh, see, you're just an idiot, right? Well, bonds actually beat stocks. And people are like, no that didn't. Yeah, it did. That wasn't huge. And it wasn't a rousing victory, but it was a victory. And I think the same thing's going to happen this year as people forget you know, January last year, big return. Bonds went down. By April, it closed. But then stocks took off, bonds were kind of meandering down. And by September, the alligator jaws were really wide. And I'm sure-- we have maybe even talked about this-- is alligator jaws always close. GRANT WILLIAMS: Always. MARK YUSKO: Always. And so the wider they get, the more dangerous they are. And I think that's where at the end-- one thing I know with pretty good certainty is that people who are 65 to 85 have a preference for fixed income securities over equities. They just do. And we're going to have a whole bunch more of those people. And I think Raoul's has been writing a lot about this in that we're going to go from a trillion a year of inflows into the system to a trillion a year of outflows from the system as people start to retire, and have to take withdrawals when they turn 71 and 1/2. They have to. There's no choice. And I just think-- liquidity drives markets. And I know if you've ever done something with the Cross Border guys, but I love those guys. GRANT WILLIAMS: Yes, really good. MARK YUSKO: I mean, they're awesome. And liquidity drives markets. And the quantity is falling off a cliff globally. I mean, falling off a cliff. GRANT WILLIAMS: Which is hard to even believe. I mean, take QT out of the system, but the ECB is still in there. POBC is still in there. How is liquidity-- you can see how it might be easing. But falling off a cliff seems counterintuitive. MARK YUSKO: I know. It does seem counterintuitive. But I think it must have to do with the fact that emerging markets are a bigger component, and they were all forced to tighten when the Fed raises rates. And so they're all forced to tightened. India just announced a cut. Brazil had announced a cut. But I think that was part of it. I think part of it was like, the Swiss National Bank wasn't as active as they were. They're not big, but they stopped in the UK, central bank. But I'm with you that anecdotal evidence didn't support the hard data that people were showing. GRANT WILLIAMS: This is why it's so dangerous, because you don't see it coming. You're right, liquidity drives markets. If it's kind of evaporating underneath the surface, then we're in real trouble. MARK YUSKO: Well, what was interesting is I think global M1 growth peaked in August of last year, and had fallen pretty dramatically through the first week of December, which makes sense when the stocks were falling, too. And then since that first week of October, there's been this injection, and it reminds me very much of 2016. So the spoiler alert to my view is exactly what happened in 2016. So I marveled that people comb through my old tweets or my old letters to find the one thing that I said that was wrong. I'm wrong all the time. Yeah, I mean, I just hope to be right 51, 52. Like, the legends are right, 58. I aspire to be more than 50. And my problem it doesn't matter if you're right or wrong, as you and I talked about it. It's how much you make when you're right, how much you lose when you're wrong. But the point is that they throw this out. They say, well, in 2015, you said this was going to happen. Well, it was happening. If you go back to 2015, PMI was collapsing. By first quarter of 2016, PMI was sub 50. That's contraction. We had the biggest drop in corporate earnings, I think, at that time in history, because of the oil collapse. Now granted, that was more industrial, but it was still, overall, the S&P earnings were collapsing. I think maybe the great financial crisis was worst for the whole market, But that segment was really bad. Stock market was down 12% in six weeks, first six weeks of 2016. Oil was $26, looked like it was going to zero. And then magically, everything went up. What happened? China put a trillion dollars into global economy. They bought oil futures, they bought iron ore futures. S&P bought stocks, and everybody bought stocks. And so that happened. And so I changed my mind. And I said, right now, looks like we're going to really inflate this bubble. And I wrote a couple of months later that now, it looks like 1928, '29, and we're going to have Hooverville type bubble, 2,800. And I said we hit 2,800 in October '17, and then would crash. And we hit 2,870 or something in January of '18-- I was only off by three months-- and then it started down. And then remember, February, there was this big bounce again. What was that? Stealth QE. Stealth QE. The Fed's not allowed to buy stocks. But corporations are. GRANT WILLIAMS: Corporations are, yeah. MARK YUSKO: So here's the deal. Mr. CEO, I will cut your corporate tax rate. Here's the deal. You are going to buy back stock. And that is stealth QE. And don't let anybody tell you definitely that is what's going on. And that's how we've kept the market levitating for the last few months. And that started to go away. The data started to swamp the ability to buy back stock. And so now they're doubling down on that, and saying, everybody's got to buy back stock. And now, it's turned into this political football, where they want to outlaw it again. Now I personally am in the camp that the pre '81 view was right, that it is insider trading. That's just me. And I don't want to get into a big debate with everybody on that, but that was my view. I think it's used for stock price manipulation and enriching the management. But that's just me. But I do think it is a form of stealth QE, since the Fed can't buy equities directly. GRANT WILLIAMS: You know, you touched on something that I want to talk to you about, because it's a bugbear of mine. This idea that people are throwing brickbats at you for stuff that you said. MARK YUSKO: Yeah. GRANT WILLIAMS: Listening to you here rationalize this, and put your best guess forward as to what's going on, right, which is what we're all trying to do-- MARK YUSKO: Every day. GRANT WILLIAMS: End of the day, none of us know anything. We are all trying to guess. MARK YUSKO: Nobody knows about the future. Nothing. GRANT WILLIAMS: Nobody knows nothing. MARK YUSKO: Nobody knows nothing. GRANT WILLIAMS: Right. So when you talk to the greatest investors of all time, talk to anyone around you know. Seth knows nothing. Jeremy Grantham knows nothing. Kyle, Jeff Gundlach-- none of these guys. We don't know anything. MARK YUSKO: We don't know anything. GRANT WILLIAMS: We're all trying to figure this out. What is it you think that makes people so crazy about this stuff? When you come out and say, here's what I think is going to happen, and when it doesn't, people are like, you're an idiot. Well, I couldn't have known. This is a guess. MARK YUSKO: Here's the thing. I think part of it is social conditioning. You know, we're socially conditioned now with participation trophies, and we're all great, and everything's right. But this whole thing that you have to be right-- no, you don't have to be right. And I think part of it, too-- look, I am, if you haven't noticed, a hyperbolic personality. I tend to speak in hyperbole. I tend to live in hyperbole. If you ask me my thought on the market, I'm going to give you an answer. Now that's my answer based on the information I have. I don't have all the information. I have the information I can get, and I work pretty hard. And I get good information, I have good advisors, I have good friends, I have good people like you I talk to. So I feel pretty good. And our business, right-- investing the business-- is about taking intelligent risks. GRANT WILLIAMS: Exactly right. MARK YUSKO: If we take no risk, we get no return. So we have to take risks. And the only risk we can take are intelligent risks, because we don't know the future. It's unknowable. So I can gather as much information as I can. And I can never gather it all because I'm human. And then I'm going to make a decision. And that's going to be my decision. I'm going to act on it. And I think the problem is so many people, they're afraid to make a decision, because they're afraid of being wrong. Because they've been told they're right their whole life. And they don't want to ever be wrong. And the second is, if you make a decision, well now, you could be held accountable for it. They don't like that, because if you're wrong, and someone tells you you're wrong, then you feel bad. I don't want to feel bad. If you play basketball and you shoot about shot, and then you think about it, what do you do? You go back, and you make a mistake on defense, and commit a foul. If you have instant erasure, don't you remember taking that shot? Now, you go back, you play good defense, steal the ball, make a layup. So the same thing in investing. If I'm obsessed about trying to be right every time, I would just crawl in a hole and go because I am wrong at least half the time, maybe more. But because I don't care if I'm right or wrong, what I care about is do I have a good process. GRANT WILLIAMS: Exactly. MARK YUSKO: Do I have a good process. Did it come to a good decision. The outcome we're going to judge ex post. All I can do is focus on my decision. I mean, on my process, and making good decisions. I can't control the outcomes. Now when I get the feedback, did I make a good decision? Well, I can actually objectively decide did I make a good decision or a bad decision based on my process. Did I have a good outcome or bad outcome? That's out of my control. GRANT WILLIAMS: Of course it is. MARK YUSKO: And what I want right are good decisions, good outcomes. Sometimes, I'm going to get good decisions or bad outcomes. And then I change my mind. New information comes along. It's like the famous Keynes quote, right? He gave a speech. Next week, gave the same speech, said some different, and the guy said, I was at your speech last week and, you said the exact opposite. Well, sir, when the information changes, I change my mind. What do you do? GRANT WILLIAMS: What do you do, exactly. MARK YUSKO: Yes. And the other thing is-- and this one really does bug me a little bit-- people love this idea that if someone was wrong about something in the past, you can't trust their view today. GRANT WILLIAMS: Right. MARK YUSKO: That's completely illogical. They're independent events. Now, if you evaluated why they were wrong, and you say, they have a crappy process, so I can't trust anything they say-- GRANT WILLIAMS: Fair enough. MARK YUSKO: Fair enough. Done, right? Crappy process will lead to crappy outcomes. But if someone has a good process, and a pretty good track record of success, and is right more than they're wrong, and tends to risk mitigate when they're wrong, then this decision, you have to evaluate in real time. At the end of the day, and maybe be the title of my new letter is Nobody Knows Nothing-- no, I don't profess to know-- I can't know, especially about the future. But what I never want to be is the person who doesn't act because they're afraid of being wrong. GRANT WILLIAMS: Well, the thing you risk by jumping on every time someone gets wrong is you make people unwilling to share their views. At the end of the day, what we really want-- we want as much information as we can. And you can decide if someone is, to your point, their process is no good, and discount them. But for investors, how do they manage that ex post process of being wrong? I've put everything into this, I was absolutely convinced x was going to happen. It hasn't. How do you then go through the process of admitting you're wrong, which is a hard thing for all of us to do? You don't want to wait a little bit longer in case I'm right, and I'm so convinced. How do you go through that process, and what do you do? You just reach at your facts if you still believe it? You cut the position a little bit? How do you handle that? MARK YUSKO: Dean Smith has this great line. GRANT WILLIAMS: Duke and UNC in the same conversation, how about that? MARK YUSKO: The same conversation. All my Carolina friends will be happy. GRANT WILLIAMS: Yeah, exactly. [INTERPOSING VOICES] MARK YUSKO: But you know, Dean Smith has this-- RALF, right? Recognize, admit, learn, forget. And so you have to recognize you made a mistake, right? You have to admit that you made a mistake. You have to learn from it. And you have to forget about it. And so the process again, dominates the outcome. A good example. March 9, 2009. We're in our Monday morning meeting, and we had three weeks before, assigned four teams to take for potential outcomes of what was going on in the world. Markets are headed straight down. So one team was all the way down. Like Great Depression down forever. One was stop going down, but don't get better. One was gets incrementally better. And one was we're wrong, it's a recovery. And a long, long story short, we all gave our presentations. And clearly, we all had a bias, because we had been short in size in '07 and '08, and made a lot of money for our clients. We made a lot. And so we are definitely biased. But the team that did the recovery was so compelling that we all kind of went, huh. And literally, while we're having the meeting, President Obama says, you know, I really think this is a good time to buy stocks. And what did we do? We ignored them both. And we blew it. And so we didn't get-- because it was the best presentation of the four, by far. But we had our bias. Obama basically told you, I just fixed it all, right? So let's go buy some stocks. But we didn't. So what did we do? A year later, we looked back and said, we messed that one up. So we went back, and we went through this analysis. Said geez, David had the answer, and we just didn't see it. And so we analyzed our process. We said, we had a great process. We actually in advance, did these debates, called theme debates. We actually got good information on both the pro and the con. We had real time good information. But we ignored it, so we let our biases get in the way. And so that was a learning experience. And so I like to say all the time that I clearly underestimated the impact of QE. I didn't get it. I didn't know David Zervos then. I didn't understand the power of it. All I remembered was what I had read from Ray Dalio, his work from the 1930s experience, where it really didn't work out that well. But I forgot it actually did work. In '30, '31, it worked pretty well. Failed '37, but I did get that deep. And so a long answer to your really good question, which is, we analyze the mistake, learn from it, and then forget it. And then try to do better next time. So we still do our theme debates, and we try not to be quite as dismissive of things that we disagree with. And something that I think is really, really important to investing, and I talk about this all the time, probably ad nauseum to people, is the reason our business are harder today, is because of the echo chamber we all live in. So because our life is dominated by what we like on social media, we're served up only information that supports what we believe. And we actually not only don't hear the opposite, we get inverse stories sent to us that make the opposing look bad. So a great investor today now has to go further, and seek alternative views. You have to seek out- - if you're a bear, you've got to find a bull, and you have to sit down, you've got tell me why I'm wrong. If you're a bull, you got to find a bear. And I think that's hard for people, because there's a cognitive dissonance. Why would I want to talk to somebody, they're stupid. They don't believe what I believe. GRANT WILLIAMS: Well, and today, everywhere you look, the two sides are so far apart. So trying to a rational conversation, bull to bear about anything, the two sides speak different languages. And so there's the inability to sit down and talk about anything, whether it's Tesla or politics. MARK YUSKO: That's a really important point. Such an important point-- that people who are on opposite sides of any issue today because of this polarization we live in, can't talk civilly. And you and I were talking about this the other day about Twitter is one of the best pieces of advice I got when I came on was block early and often. And you said, well, I don't block. And like, well, I only block for lack of civility. You want disagree with me, bring it. I want to talk to you. But if you call me names or you tell me I'm stupid, no, I have no time for that. And that's the problem-- is just if someone believes something different than you, doesn't make you stupid or them stupid. It makes you both have something that you should exchange. GRANT WILLIAMS: Exactly right. MARK YUSKO: A big piece of this is when we think about what makes great investors great, it's one, the ability to do good work and have a good process. Two, it's the ability to not get caught in the vicious cycle of being dragged down if you make a mistake or do something wrong or lose money. And there's the other thing, what's the best loss, the first loss. Don't say, I'm right, the market's wrong. Just get up, move on. You got other ideas. And so there are all these things that the great investors do that make them great. And I think a big piece of it has to do with combating the environment in which you're in. And I use that word intentionally because it is like battle now. Because you got more competition. You got more tools. You know, the combatants are more heavily armed. And I think computers make people smarter, and they're faster, and things happen. And one thing that I've been actually thinking a lot about-- we started this whole conversation about how is the business changing. The idea that a human being could create an organization that would do real substantive fundamental work and gain an edge-- I don't know. I'm worried about that. I think, how do you compete with satellite imagery that's processed in real time. How do you compete with high frequency traders that are scalping pennies on milliseconds. How do you compete with people who get the first call from the Treasury Secretary and you don't. I don't know. GRANT WILLIAMS: I'll answer that question for you. MARK YUSKO: OK. GRANT WILLIAMS: Value. MARK YUSKO: Value. GRANT WILLIAMS: That's how you compete, right? MARK YUSKO: And you are 100% right. And that is exactly why that's where I always migrate to. At the end of the day, that's exactly where you migrate, because it's the only place you can get an edge. If you do the work, and you buy assets that are below fundamental intrinsic value, you will eventually win. Not tomorrow, but eventually, you will win. And that's why you're the smartest guy I ever met. GRANT WILLIAMS: Well, listen, I can't let you go without one more question. And that's the dollar, because this is something you've been very vocal. MARK YUSKO: Yes. GRANT WILLIAMS: And I just want to see if your opinion has changed, if your time horizon has changed. Because it's kind of been whipping around. We had a great debate on Real Vision between Luke and Brent recently. MARK YUSKO: I know. You guys left me out. You know, the three of us did the original-- GRANT WILLIAMS: It was a really small table. it was a really small table. MARK YUSKO: It's all right. But you know, we did the original five part-- five hours-- five hours-- we debated the dollar 18 months ago. And look, my fundamental view has not changed at all, but it goes back to that time horizon thing. Which is, I think the dollars in secular decline. I think we are in a race to the bottom with the yen and the euro. And I think all developed markets have no choice. They've got bad demographics, they got too much debt. And they have deflation-- persistent pernicious deflation. So the killer Ds as I call them. And the only way out of that is currency devaluation. Now what I missed last year was two years ago, we were the lone voice saying the dollar was going down. And we got it. And I went back, and I go through my 10 surprises, and I go back, and I review them. How did I do last year. And what I remembered-- and actually put it in my presentation-- I said the spoiler for the dollar last year was I thought it would continue to go down in secular decline. The spoiler was that a year ago in 2017, everyone was long. By 2018, net short. And that was a problem. So there were too many people in that short. And what I didn't see-- again, can't know everything-- I did not see the trade war coming up. And the dollar actually did weaken from January 1 to April 12. So my view was actually looking good. But to that point of view have to change your mind when the facts change, as soon as he announced that trade war, it was clear that there was going to be a flight to the dollar. Now the dollar didn't go crazy. It went from 88 to 96 and 97. And now it looks like it's making another rounding top. So I'm still in the bear camp. I still give props to the guys who believe there could be a dollar squeeze and one last cathartic move up before the collapse. I actually don't think is going to happen. What I actually believe happened is every 18 months or so, one of the big three has to take the baton. And they have to take their medicine, and they have to strengthen their currency. And the euro did it 18 months ago. They went three months too long. And now they're suffering, because they're going to have a bad recession. But when the euro got to 1.27, something like that, that was bad for Germany, bad for France. So they passed the baton quickly. And the yen took a little run and got strong January to April. And the Japanese stock market went down. And then we took it, and we went from April to October. GRANT WILLIAMS: September, yeah. MARK YUSKO: And I think now we passed it back to Japan. You know, yen got strong, their market went down. So I don't know who's going to get it next. Actually, what I think is going to happen is I think China is going to take it. And I think the Chinese currency is going to strengthen. Kyle and anybody else thinks it's going to weaken. I think the Chinese currency is going to strengthen. I think they're going to try one last Shanghai Accord 2.0 to save the world. But I think the cupboard is bare, and I think we're going to have this slow, steady decline in value. That's what it's all about. It's all about value. GRANT WILLIAMS: You call it a baton. I think of it more as a hot potato. MARK YUSKO: Hot potato is a better description. GRANT WILLIAMS: As always, it's so much fun. And I wish you could sit here all night and continue this conversation. But we can't, we've run out of time. Next time, perhaps we'll get together and talk Fortnite, you and I. Because who wouldn't want to watch that? Two 55-year-old guys talking about Fortnite. MARK YUSKO: If we get up and floss right, how would that be? GRANT WILLIAMS: I'm not sure what that is, but I don't like the sound of it. As always, great fun, and let's do it again soon. MARK YUSKO: Awesome. GRANT WILLIAMS: Thanks, mate. MARK YUSKO: Thanks.