Joel Bowman and Chris Mayer On Quality

“It's true in the stock market too, why does anything trade where it trades? Because people are willing to buy and sell it there at this moment. The notion that there's some abstract, intrinsic value that must anchor everything is fiction.”

~ Chris Mayer, portfolio manager and co-founder of Woodlock House Family Capital Fund

TRANSCRIPT:

Joel Bowman:
My guest today will be no stranger to regular listeners of this program. Chris Mayer is portfolio manager of the Woodlock House family capital fund, where he manages money for the Bonner family. He's also co-founder of the firm along with Bill Bonner. I've known Chris for almost two decades now and have traveled with him to investment conferences around the world from Vancouver to Vienna, Dubai to Nicaragua from rural France to Washington DC. I've even seen him white knuckle a donkey ride along the Great Wall of China when we visited Beijing with Bill, back in 2010. That is an image I hope not to soon forget. As his many thousands of avid readers well know, Chris is not only a terrific writer and a world class investor, he's also a deep thinker and omnivorous reader with a range of interests that span the written word from Ludwig von Mises to Ludwig Bemelmans and back again.

As such, I'm always interested to hear what Chris is reading, what he's thinking about, and what's capturing his attention, both in and out of the markets. In today's conversation, he shares with us some key insights from three of his favorite books, one on investing, one on pragmatic philosophy and a popular holiday read with some insights into the nature of quality itself. Please enjoy my conversation with Chris Mayer up next.

Let's get to our program because I'm always interested to... as you're sitting in front of a healthily stocked bookshelf there, do you have a few titles ready for us to discuss today?

Chris Mayer:
By our agenda, I picked out one investing, one philosophy and one fiction. What should we go for first?

Joel Bowman:
However you want to do this then.

Chris Mayer:
Well, let's do the investing first.

Joel Bowman:
Okay. What have we got here?

Chris Mayer:
It's this book-

Joel Bowman:
I'll link to this by the way, in the description below so people can check it out.

Chris Mayer:
Yeah. The other two are in print and easy. This one you're going to have to buy used, but it's Silent Investor, Silent Loser.

Joel Bowman:
Okay.

Chris Mayer:
Martin Sosnoff. This doesn't have the dust jacket. My copy is so read and worn it just falls open and it's got lots of-

Joel Bowman:
Lots of marginalia.

Chris Mayer:
Yeah, lots of marginalia. That's it, I was going to say, it came out in the 80s, I think. Yeah, 86. But yeah, I've reread this book multiple times and I think if I had to say the two main important ideas out of this book, one would be the importance of having a management team that has skin in the game, that are owners. He has a couple, his chapter titles sort of give it away here. He has one, he calls the case against custodial management. Another one here, the enduring rape of shareholders.

Joel Bowman:
Colorful. Probably a chapter title you might not get away with in 2021.

Chris Mayer:
Yeah, exactly. No, that wouldn't work now, would it? He really rails against what he calls custodial managers, just the professional hired hands that are there collecting their salaries and they're afraid to do anything or take any risks or be creative. And he gives counter examples of managers where it was their company that they founded or they own a large share of it and how the behavior's different. And so there's lines in there that I still remember to this day, he'll say, entrepreneurial instinct equates with insider ownership or equity ownership. He'll go through big companies where the directors own less than one tenth of 1% of the entire company and why would they be particularly motivated to do good things or make good decisions so that's-

Joel Bowman:
Especially for the long term.

Chris Mayer:
Yeah, for the long term. So that's a very important idea I took out of that book and ever since then, I've been just, that's the first thing I look at is the proxy, which is where you see compensation and ownership and the incentives and all that.

Joel Bowman:
Is that something you screened for really early on in the process when you're sifting through the however many names you've got on your radar?

Chris Mayer:
Absolutely. And it's a very good filter because it wipes out a lot of stuff. Most of the stuff that's publicly traded, insiders don't own much of it because it's been sold and it doesn't necessarily mean investment would be bad. There are plenty of examples of companies where insiders don't own any stock, but there's been a great investment. It's not a foolproof filter, but it’s a filter that gets down to the companies I want to look at, that have this good culture. Yeah, screens early.

Joel Bowman:
Have you noticed in your 30 odd years or whatever of investing, maybe not that long, maybe I'm aging us.

Chris Mayer:
It's close to that.

Joel Bowman:
Close to that. All right. But have you noticed just in general, a change in the amount of skin in the game that's just in the general marketplace, is it diluted all the time or does it go in waves? Any discernible pattern?

Chris Mayer:
No, I would say one pattern is that they're much more common these days to use two classes of stock. I don't like that. But almost all the new tech stocks that have come out, Google, Facebook, etc., they have two classes of stock, so they have-

Joel Bowman:
You get preferred and...

Chris Mayer:
...the inside... Yeah, they have 10 voting rights to the regular guys that have one. And so they're able to control the company with a lot lower level of inside ownership. So that's maybe one pattern I would say is much more broad acceptance of dual class stock.

Joel Bowman:
And as you're monitoring the behavior of those insiders, are there any kind of, I don't know, red flags or tells, when you get a bit of motion insider selling, are you monitoring that sort of stuff?

Chris Mayer:
Yeah, I think that one of the big tells is to me is always compensation. Egregious compensation is a red flag and that's very common.

Joel Bowman:
It's a sign that guys are cashing out or-

Chris Mayer:
They're using the company as their… It's their cash machine and they don't particularly care about rather shareholders really. And conversely, a really good sign would be where we have a CEO that has very modest salary. And instead they're getting most of their increase in wealth along with you when the share price goes up.

Joel Bowman:
Right. Seems like a pretty intuitive idea, really. You want to be investing alongside-

Chris Mayer:
It's very intuitive.

Joel Bowman:
I recall that, was it Taleb was a big advocate of having skin in the game more recently, but this, so you've been writing about Sosnoff for years. And this is back in the 80s.

Chris Mayer:
That's right. I hesitated to bring him up because every time people ask me for favorite investment books, I will grab one of his, at least, in the list or whatever, but I was like, heck with it. I'll put it out there again anyway, because I do think those ideas are important, money management or investing as more of a conceptual exercise than one that's necessarily driven by numbers and empirical analysis. He has a whole thing in the beginning where he relates it to art. He's a big collector of art, abstract art, other kinds of art. And he relates it to that saying that we use numbers and numbers for whatever reason seem to have a kind of authority. I'd say in the investment world, if have a big detailed spreadsheet with lots of numbers, somehow it's more impressive and convincing to most people than something that takes a page written in very simple English. And he questions the whole thing about how we really don't know as much as we think we know. And I like those ideas as well.

Joel Bowman:
Yeah. Well that sounds like one of Bill's dictums, something like he doesn't trust numbers, even the ones that he's fudged himself. Along those lines. And I guess that speaks to the elevator pitch of a stock, or a company, if you can explain it pretty simply, chances are that the company's going to be able to explain it to their consumers pretty simply. Pretty basic concept, easy to follow, difficult to slip things through and fudge the numbers. Think about how many numbers and spreadsheets a company like Enron or LTCM or whatever, they had quants and all the advanced math and Excel sheets in the world, but mostly in the end, it was to hide what they didn't want to be seen.

Chris Mayer:
Right. Yeah, that's the thrust of it. The idea of keeping it simpler and that there are these bigger concepts or ideas that are more important to get right. Then whether or not you've got the earnings per share number right for next year or two or whatever it is.

Joel Bowman:
Right.

Chris Mayer:
I really like the idea.

Joel Bowman:
Yeah. I like that idea about using art as a kind of analogy there, because it underlines as well, I read about this recently about the subjective nature of value and the way that we're always trying to put things in little boxes and little square things and stamp prices on them, or stamp earnings on them. But really it's the perceived utility that something has to us that gives it it's... It's us that give things their value.

Chris Mayer:
Absolutely. He mentions that I remember there's one early on where he talks about a particular painting and why it went for the price that it did. And he said, well, it's because two princes is one of the same painting. So they bided it up until one guy finally said no. And so that's what the price is. And it's true in the stock market too, why does anything trade where it trades? Because people are willing to buy and sell it there at this moment. The notion that there's some abstract, intrinsic value that must anchor everything is fiction.

Joel Bowman:
Yeah. And the notion that it's somehow permanent as well. Price is discovered in the second in the moment and being irrational creatures as we are, we probably want to bid things to extraordinary levels. And we were sending around some emails, yourself, Bill, Dan and I, about this huge big explosion in NFTs and the run up in prices there. Some of the valuations you just look there and scratch your head, my God, half a billion dollars for a pointer to a picture of a diamond. It just sounds absolutely insane. But then you've got $450 million for I think it was a de Kooning painting, which is a few, not my particular taste, as you said, why does that have any value? Well, two people, when someone wanted to buy it and someone else wanted to buy it a little bit more.

Chris Mayer:
That's it.

Joel Bowman:
All right, mate. So we've got Sosnoff, I'll link to this guy in the bottom for our investment book. Anything else you want to say about that or you want to move on to the next?

Chris Mayer:
Yeah, we can move on to the next one. Next one was philosophy. I picked out a slender book here that it's called Philosophy as Poetry by Richard Rorty. And it's a collection of free lectures that he gave. So Rorty, I guess you would call him an American pragmatist kind of like William James, John Dewey, John Sanders, that kind of tradition. And I think that in general, pragmatism is a very interesting, useful thing to study as an investor or as a person generally. But this particular thing I really like because Rorty sometimes gets academic and whatnot, but lest he's speaking very plainly the lectures how he delivered it. And I guess there's a couple of key ideas that I like. One is that he asks us to think about philosophers and even scientists more generally in the same way we think of poets.

Chris Mayer:
In other words, they're not really discovering something that then is real and true, but they're giving us, they're giving a description of something from their point of view. And he has this line in there. Well, if you think about the world that way, it really changes the way you think about a lot of things. Because then every theory and every idea can always be improved upon. It can always be redescribed again by somebody else. And he has this line there I like that he says the the difference between a great poem or the answer to a great poem is a still better poem.

Joel Bowman:
Okay.

Chris Mayer:
So you can translate the poem to anything else. You could say that the answer to a great scientific theory is another scientific theory or a better one. And better in his sense is not necessarily better in terms of representation of some kind of reality, but better in the sense that it allows us to do more things.

Joel Bowman:
Interesting.

Chris Mayer:
I really like that idea.

Joel Bowman:
Yeah. That brings up the concept of when we look at it in more artistic or poetic terms that gives the notion of art, whether it be literature and the form of poetry or the visual arts, you find that, that realm is always struggling to throw off the old yoke.

Chris Mayer:
That's it.

Joel Bowman:
And always, you go through whether it's the-

Chris Mayer:
Economics that do that too.

Joel Bowman:
Yeah. I was thinking the impressionists throwing off the... What was it? The Salon des Refusés or however that's pronounced.

Chris Mayer:
Yeah.

Joel Bowman:
That was where they take on the moniker that they were insulted with and made it their own. And then said, hey, well, this is the new school, we're throwing this off. But yeah, go all the way back, the Reformation to theCounter Reformation, it's all this process of trying to go in new directions and explore new things. Very interesting. So do you find that applicable to your investing in a way?

Chris Mayer:
Yes, it just makes you change... Changes the way I think about anything. The so-called experts when they say certain things, I think of them as well, that's just one story and that's one story. And there are other stories there, even if it seems like a really good story today, it doesn't mean that there couldn't be a better story later. I remember there's another line in the book that he says, there's nothing that we've talked about that we can't talk about differently. So that seems to cover a lot of ground there too. And so whether it's the mouth of some expert economist, or whether it's some great investor who says something, it's not the end of the discussion. It could always be another story, another way to look at it later. And so I really like that idea.

Joel Bowman:
Yeah. It's interesting to think, too, that I was just having this discussion with actually a lady in the bank yesterday. She got talking to my little daughter who had a little frozen doll and we got to talking, she had some kids there as well. And we got to talking about the stories the kids have and how... This is actually a pretty long line in the bank. But she got to talking about how a lot of the stories that we retell even our children, harken back to really ancient stories. Something as seemingly frivolous as a kid's cartoon goes all the way back to in some ways the Odyssey. We have cartoon characters going into the underworld, the eternal themes of jealousy and vengeance and hubris and all these kind of emotions that we see playing out whether it's in a piece of poetry that resonates throughout the ages, or when we look at something like a stock market, what else is a stock market but a big canvas for all of the hubris and machinations of human emotion that we project out into the world from booms to bust to manias and...

Chris Mayer:
Also reminds me of Carl Jung and his ideas of the archetypes, the same thing, wise old man, the maiden, the hero. Some of these things that just recur.

Joel Bowman:
Right. All these eternal archetypes.

Chris Mayer:
Yeah, eternal archetypes.

Joel Bowman:
I think probably he was studying. Yeah. And studying those. You might not be able to see around the corner necessarily, but they do tend to repeat themselves with some manner of predictability, if not regularity.

Chris Mayer:
Yeah. What you said about projecting, that's another key point is that... And we talked about value isn't really out there, intrinsic values, what we make it. And he generalizes that same point, that truth isn't out there, we say things and we make distinctions and so those things can change.

Joel Bowman:
Right. Yeah. I remember in our last discussion you were talking about Alfred Korzybski and a similar idea with... There's, what was it? The map is not the terrain, I think was his.

Chris Mayer:
Yeah. The map is not the territory.

Joel Bowman:
The map is not the territory, that's it. But that we project classifications onto things. But there's not like there's something, I think your example was, there's this thing called the economy in the backyard and we can go out and point to it, hey, look, there's the economy. Look at it, wagging its tail and doing what we say it's supposed to do. But I think when you appreciate concepts like that, it underscores all the more how ridiculous it is when people think that because there's this thing that we can look at now we can start tinkering with it and we can manipulate it and make it do what we want it to do when these things have lives all of their own, and they're highly complex concepts.

Chris Mayer:
And once you get it too, it colors the way you process all this stuff. Investors will always talk about value versus growth and there's always this, now buy value, now buy growth. And it's, again, we're treating it as if these entities that were readily identifiable out there, growth, this is value, and they're just these things. But it doesn't work that way at all. It's a matter of opinion, some people, and a lot of times they're based on very arbitrary numbers, it might be price to earnings, or price to book. And so companies can switch in and out categories. It's not a very stable concept in any way. And also there's another thing he says in the book. I remember you jog my memory when you were talking about these entities have some separate nature and he goes, we have all these expressions, gravity or rights, human rights.

And he says, we should treat them as noises and marks, which I really like that idea. They're things, they're just, they're words and noises we make to describe things. I think when you bring all that stuff down to earth, it's good for you because it lowers the power of words to control your thinking in general. Other people use these words and they seem to have magic power over people. You can say certain things get them riled up. I can say certain other things and... Weird.

Joel Bowman:
I always think about that with even just with studying other languages. When you hear somebody use what might be considered a highly offensive malediction in one language. And if you don't speak that language or you've only got a mild comprehension of it just like water off a duck's back, means nothing to you.

Chris Mayer:
Right. It's just some noise.

Joel Bowman:
Yeah. Meanwhile, other people are freaking out, my God, how can he possibly say that and tell other people? It's just nothing.

Chris Mayer:
I have a funny story about that, but it's off color. So it'll have to be...

Joel Bowman:
We'll put that in the bonus material.

Chris Mayer:
Yeah.

Joel Bowman:
All right, mate, should we get onto the fiction?

Chris Mayer:
The last one.

Joel Bowman:
What have we got?

Chris Mayer:
All right. So the fiction one, I don't read as much fiction as I used to, but I did read this book earlier in the year when I was on vacation and it's a famous book. So it goes against the grain of my general picking things that no one has ever heard of.

Joel Bowman:
You liked it despite your best self.

Chris Mayer:
Yeah. It's very famous. People have talked about it for a long time, but I've never read it. I finally got around to reading it and I really liked it. It's Zen and the Art of Motorcycle Maintenance.

Joel Bowman:
Classic. Yeah. All right.

Chris Mayer:
1967.

Joel Bowman:
Pretty cool.

Chris Mayer:
And yeah, I-

Joel Bowman:
Made you want to get on your holiday you get out on the road?

Chris Mayer:
Yeah. Well, I like the way he weaves that road trip around the philosophical ideas. So I don't even know where to start with some of them. It's just this general attitude to questioning and thinking he has this long meditation on quality. Well, what is quality? What are we saying when we say something is quality, what are we talking about? And there's a lot about that, and there are other little things he says that I remember that I like. Some of them are well worn ideas. He talks about you want to improve the world, you start with yourself. That's an old idea from Voltaire and tend your own garden to Goethe, sweep your own doorstep and all that. But-

Joel Bowman:
And now Jordan Peterson is "make your own bed" or something like that.

Chris Mayer:
Make your own bed, whatever it is.

Joel Bowman:
Same kind of deal, right.

Chris Mayer:
Same kind of idea.

Joel Bowman:
Same repetition. Yeah.

Chris Mayer:
He has that. And he makes other little interesting observations. I remember there's one where he talks about you're never dedicated to something that you have complete faith in or complete confidence in. And he uses the example of the sun, he says, no one is a fanatic shouting that the sun is going to rise tomorrow. Though it's interesting because then he says, people have these political religious beliefs that they get all bent out of shape about, why is that? His idea is that because they are in doubt.

Joel Bowman:
Yeah, things they don't understand, can't comprehend.

Chris Mayer:
They don't understand it. He says a lot of an interesting ideas about those kinds of things in the book. It's a big fat book, really but it's really like three books in one. There's the road trip, then there's this personal narrative and then there's the philosophical discussion around quality.

Joel Bowman:
Yeah. His musings in that. I like the-

Chris Mayer:
Have you read this book?

Joel Bowman:
I have read the book. It's been some years, but I remember reading it after I'd done a couple of road trips across the US. Not on motorcycle. But just in the car actually I drove a U-Haul across the country once carrying our friend, Eric Fry's possessions from Connecticut to Southern California without a driver's license.

Chris Mayer:
Nice.

Joel Bowman:
I might hastily add. But yeah, I like that idea. That's another expression of the idea of America, I think, and it goes back to Kerouac's On the Road and this idea of Westward, almost peeking over the mountains, that kind of frontiersmanship attitude. I think that's a very American expression of discovery, expansion, whether that's discovery geographically or as Pirsig says in his book, self-discovery.

Chris Mayer:
Right. Yeah. There's a lot of great road novels, Kerouac. This one, yours is added to the list of road-

Joel Bowman:
Bit of a road trip there. Yeah. Little-

Chris Mayer:
Very American idea. Definitely is.

Joel Bowman:
Nod to some of the greats there. All right. I'm going to add one last because just since you mentioned it was a holiday read, which sometimes I think are the best. I don't know if it's just because your mind is maybe more ready to accept fiction or to be taken away into a fictionalized setting because you're relaxed and maybe you've got the salt water lapping at your ankles or you just-

Chris Mayer:
Yeah, I think that part of it. That's when I read fiction too. I was out in the Smokey Mountains out in North Carolina. It was sheep farm that turned into a B&B, and very remote, very isolated, a lot of quiet time. So yeah, I think there's something to what you're saying there.

Joel Bowman:
Yeah. So this, I picked up a book actually I was in, I guess it was a month or so ago now I was over in Greece with my wife, for her, she had a symposium over there. It was a virtual symposium. So we didn't actually have to be there, but we used it as an excuse to get over and visit some old ruins. And anyway, went down the beach one day. I forgot my book. So I found myself in one of these little mini marts sifting through the scant helpings. And I found this book by John Mole and, but the title of the book was It's All Greek To Me and I didn't have high hopes for it because it was the best of slim pickings, but I found it really pleasant to read.

And the basic gist of it was that it's semi-autobiographical, but as a 40-year-old ex banker or as a 40-year-old banker, he decided to give himself the birthday present of quitting what V.S. Naipaul describes as the "embarrassment of employment." And so he moved his long-suffering family, four kids in tow and his wife out to a Greek island and bought a rundown pile of rocks with goat droppings everywhere, and a roof half collapsed and whatever. So it's just a story about him returning to the simple life, saying farewell to the rat race and the nine to five and just going out into the middle of Greece, reading philosophy and history and writing novels. So that obviously resonated, that found a pretty sympathetic ear for me, and obviously reading it on a Greek island didn't hurt either.

Chris Mayer:
Yeah. Sounds good. I thought you were going to say you read Henry Miller's Greeks book, which one of my favorites of his.

Joel Bowman:
The Colossus of Maroussi. I read that, too. It was you who gifted that to me quite a few years back and yeah, one of my favorites of his along with Stand Still Like The Hummingbird and The Oranges of Hieronymus Bosch.

Chris Mayer:
Yeah. That's one of my favorite books.

Joel Bowman:
Yeah. I feel like we could do a whole episode just on Henry Miller. Mate, I know you've got a busy schedule, another call coming up. I've got to dash off to the airport, actually myself, so I'm going to thank you very much for your time as usual.

Chris Mayer:
Always fun to be on with you talking about books and ideas and things.

Joel Bowman:
For sure.

Chris Mayer:
We'll do it again. I'm sure.

Joel Bowman:
Yeah. Hopefully sometime soon we'll be able to do, take this mic out to a pub or a café or a backyard barbecue setting and do it in person.

Chris Mayer:
That'd be fantastic.

Joel Bowman:
Awesome, mate. Thanks Chris. Thanks for listening to this episode of the Bonner Private Research podcast. You can find more conversations like this in the members only section of our website. We look forward to hearing from you either way. Until next week.