YouSaid · the spoken record

Mark Yusko

lines on the record: 31
first: 2019-10-20
most recent: 2019-10-20
sittings or episodes: 1
sources: podcast

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“I'm at Mark Yusko, M-A-R-K-Y-U-S-K-O on Twitter, Morgan Creek Cap CAP.com is our website. And we've got some stuff on there. And we do a lot of different things at Morgan Creek. We focus on the private markets a lot. We have a new fund focused on China growth equity. Nobody wants to talk about China these days except us. Again, really enjoyed this time together and hopefully we'll get to do it some other time soon.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Investing People will pay a lot of money for some reason for security selection. They'll pay very little for asset allocation, even though we know that's what drives returns. They also don't spend any time thinking about how to allocate between and a amongst the different sectors, segments, geographies, and managers that they hire. And so I think if you're more deliberate, more disciplined, if you are disciplined in investing, if you take the emotion out and you follow strategic plan and you are disciplined in your rebalancing and you're disciplined in your allocation process and you focus on people, like you said, character. I mean, I don't care how smart someone is. If they're a jerk, I just have no time for them. And so if you find people of character, if you find people of integrity, they will do the right thing, particularly when it's hard to do the right thing. And then you'll get good results.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“They come from do we make a good decision on stocks versus bonds, you know, Japan versus Europe versus US, those things really drive. Everyone gets so focused. I was that way. I told you I started a bond firm, then I went to the equity firm. And when I decided to leave to go to Notre Dame, I thought I was going to miss picking stocks and bonds. I was a stock picker. I was a big man. You're not going to get my CFA and all this good stuff. Then when I got to Notre Dame, it was like, wait a second. Jack Meyer's not talking about stocks. David Swenson is not talking about stocks. Harry Turner's not talking about stocks. He's talking about venture capital and innovation and David's talking about international investing and venture capital. And Jack Myers talking about arbitrage and those aren't Ford versus GM decisions. And ultimately I've come a long way on this to say that if you think about it.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“What if one guy was really, really way better than the others? So he wanted to give them 50% and everybody else five. I mean, you could do that too. So that portfolio construction, how you allocate amongst the managers really does matter and how you rebalance and how you construct a portfolio across the different asset classes and across the different managers. And then the last thing is security selection. Should I own Ford or GM? And the reality is probably I don't want to own either one relative to international car makers, Chinese car makers maybe, that have an advantage just in demographics. So it's only about 15, 1.5% of total. If you believe that Brinson B. Bauer says, oh, but that's not what they really meant. I'm like, well, it's actually anecdotally what I found over the years is if I look at where the returns come from.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“This is great. I never get these questions. Look, I think a lot about this. And I've said for years that there's four steps in investing. There's asset allocation, stocks, bonds, currencies, commodities. Which geography do we want to be in? U.S., Europe, emerging markets. And I think that drives the bulk of returns. Then there is manager selection. Am I going to do it myself? Am I going to pick securities myself? Am I going to outsource it to you? Am I going to go find another manager? So manager selection, second most important. Then the third is portfolio construction. And interestingly, this gets overlooked because most people, if you're going to, let's say you say, okay, I got my asset allocation. I want 50% in equities and I'm going to put these 10 managers. I'm going to give them 5% each equal weight. Well, okay. That's one way to do it.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Social proof is absolutely what this is about. You're exactly right. And it also is this never ending narrative of, oh, well, we're a tech company. What does that even mean? Technology is pretty definable thing, right? There's information technology and there's military technology. I mean, technology is pretty tangible. And so when you take a real estate business and you say as a tech company or you take a car company like Tesla, my other favorite, not so much, and you call it a software company, people get caught up in this social pressure if other people think it's worth this, then it must be worth this. I'm like, no, no, value. This goes again back to the endowment model. Value is definable in everything we do, in everything we look at. Value is definable. Assets may be a”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Like, do you know what the small change was? I didn't see it. It didn't look like the pictures changed at all. All they changed was in the first one, the kitten had 2.5 million likes and the kangaroo had 13. The second time the kitten had 13 likes and the kangaroo had 2.5 million, they were looking at the number of likes and say, oh, if everyone likes it, I like it. And that's how these bubbles are created. And that's where we are today. And it takes someone, the intrepid young boy, to say, wait a minute, he's not wearing any clothes, guys.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Valuation is a really funny thing, particularly when the herd gets involved. Because the herd and herd animals, they like the comfort of the herd. I saw this crazy thing. So we have this unique family, we have older, two older kids, and we have a little, and we have an eight-year-old. So he's keeping me young. And we're watching a Netflix show the other day. And it was about social media. It was really wild. They showed a picture of a kitten and a picture of a kangaroo. And they said, which one do people like? And everybody picked the kitten. And then they said, okay, we're going to make one small change. And they made the one small change. And everybody, like the kangaroo.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Washing money, allowed them to stay private and collect these big sums of capital from desperate organizations that bonds didn't give many yield and stocks weren't making many money. And so they just, they thought, oh, this is a great story. And this can grow to the sky. Well, yes and no. There are certain companies, networks, most of them, companies like Amazon or Facebook or Google that warrant higher than average multiples and higher than average valuations. But then there are some of these other businesses, and I'll lump kind of cloud computing in here. I'll lump, you know, the WeWork stuff. People were ascribing competitive advantages to businesses where no competitive advantage exists. And WeWork is the poster child for that.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“They're willing to pay, I believe, ridiculous valuations just to get exposure to these companies they think are going to be dominant. And I think part of the problem that happened here, just like in 2000, was, look, there are plenty of examples of companies that should and do fantastic moats and fantastic excess valuations. But then there's a whole bunch of other companies that don't have as a protective moat around their business model. They actually have proven that they don't know how to make money. Ultimately a company has to make money for its shareholders or at least pretend to. So I think that's a long way of saying that we work and some of these other things, these companies should have been public four or five years ago. This environment of QE world of water.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Which is if you think back to the glory days of venture capital and the great stories of Amazon when I raised $60 million of venture, I think it was or something like that. And it's created as hundreds of billions of dollars of cap, is companies didn't stay private a long time. They didn't stay in this kind of no man's land or purgatory. They raised some capital. They executed and they went public. And the good ones were successful. The bad ones went away. They went bankrupt and they went away. Now we live in this world of participation trophies where everybody gets to stay alive because money is free. And on top of that, because there's so much wealth that's accumulated at the top of the pyramid, all these sovereign wealth funds and all these big corporations have all this cash burn a hole in their pockets.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“No, look, I think it's, again, a really great insight. And it's the result. QE era and the free money era and what the free money era has done is it's destroyed price discovery, it's destroyed allocation of capital. It's given us all this misallocation of capital. And what it really changed was the ability for capitalism to function as a clearing mechanism for bad companies. So companies that shouldn't exist have existed for too long and it makes it really hard to compete. So one way that these companies felt that they could outcompete these companies that they shouldn't have to compete with was to accumulate huge pools of cash through the, I'm not called quasi-private markets because I'll debate one semantic thing with you, Preston, that I think is really important here.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“And I said, this is what differentiates the really, truly great ones, the Yale's, the Princes, the Stanfords, the Notre Dames, the Dukes, the UNCs, is this relentless focus on innovation. And I actually think innovation might be another asset class. There's only four asset classes, stocks, bonds, currencies, commodities. Maybe innovation could be a fifth one. Now, you could say, well, no, really, it just expresses itself in stocks or currencies or commodities or something. But I think if you have a relentless focus on getting in front of innovation, you end up with superior returns. And when you look at the very best performing funds, they have very high weighting in venture capital and things that really get out in front of these long-term secular trends and innovation. That's a little longer than the thumbnail sketch of the endowment model, but value bias, discipline approach to strategic policy.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“We can buy private investments where we lock our money up and can't get access to it. Or we can use structure, just a fancy term for leverage. And so if you look at an endowment, they say, well, bonds, let's just look at bonds for a second. Bonds normally earn a 2% real return, meaning 2% above the risk-free rate. If I have to spend 5% real, 5% above the risk-free rate, bonds aren't really going to help me that much. So I'm not going to have very many of them. Equities make 7% above the risk-free rate long term. So that sounds pretty good. So I'll have some of those. Private investments make another 5% above equities. So you get 12% above the risk-free rate. That's better. So they tend to have more private equities instead of public equity, more private real estate instead of public real estate, more private venture capital and private debt. And so the last thing that differentiates”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“You do actively, and one just kind of sneaks up on you. The other part of the endowment model that's important is endowments, like foundations, pension funds, and multi-generational families of means, have a long time horizon. And so time horizon arbitrage is at the root of the endowment model. And if you look at endowments, they tend to have a much higher weighting in private investments, private equity, private real estate, private energy, private debt. And that's because it takes advantage of the illiquidity premium. And if you think about investing, and investing, there are only four ways that we can make money. If we stay in the risk-free rate, if we stay in cash, we get the risk-free rate. We make no real return above inflation. It's not a very good outcome. Then we have to choose to take 1 of four risks. We can take credit risk. We can buy a bond. We can take equity risk. We can buy stocks. We can take illiquidity risk.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“It's a value oriented strategy. So you buy things with a margin of safety. So kind of Seth Clarminesque at Bow Post. It has to do with a very disciplined approach to an investment policy. So again, David talks about this in his book, and I've talked about it in different ways over the years is that there's nothing wrong inherently with market timing, right? People don't like it, but there's nothing inherently wrong with it. You just have to understand what it is. Market timing is where you move your portfolio away from a strategic target. And rebalancing is when you move the portfolio back toward the strategic target. But market timing sometimes is not necessarily a bad thing. It's just, it's an overt bet that you want to make. And I would say there are sins. I'm good Catholic boy. There are sins of omission and sins of commission. Just know the difference.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“The arrogance, the abuse, the expenditures, the funky deals, the valuations, you know, the vision fund numbers. I mean, it feels very similar.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“And I looked at my partner and I said, Did he just say that out loud? Then, believe it or not, he says, and look, let's face it, this is a game of enriching the general partner, not the limited partner. And I just went, oh, MG. Now, if you go to Silicon Valley and you meet with this particular firm, they'll say they threw me out of their fund. I actually know the real story. But the funny part, I'll tell a not-so-nice story of myself. I might have done a little happy dance, only a little one, only a little one. when they lost 85% of their clients' money because it was just ridiculous. And I feel badly for those clients, but I feel badly that people gave this guy money given how arrogant he was. So here's the thing. Today, I feel some of these same feelings.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Only benchmark in Sequoia, who are two of the greatest of all time, said, oh, it's definitely the entrepreneurs. And that arrogance and that ego was just so unbelievable. In fact, there was another one. There was a better one. I had gone on record, again, anecdotally, saying that I just didn't think that a billion dollars raised for a venture fund made sense. Most of the great venture funds were $100 million, $200 million. And a billion just seemed like a lot. So this venture capitalist comes out to North Carolina. We're having dinner. And he says, you know, Mark, I'm so sick of hearing you talk about a billion dollars is too much. You know, we're not raising a billion. I said, John, $960 million is a billion. So that's the first problem. And then he says, but look, I've done the math. And at 800 million, I make more off management fees than I do.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Back out in the first quarter. So you saw a little bit of quantitative data on liquidity. Now, I'm a big believer that liquidity drives markets. That's one of the things we should all really focus on. And I sat in Julian Robertson's office and listened to him tell me why he was in the highest cash level he had ever had. Or I did a conference call with Paul Tudor Jones and he talked about why he was raising his cash levels or you talk to a venture capitalist out in Silicon Valley. I'll give you another one. So we went out to Silicon Valley and it's probably January, February of 2000. I met with 40 venture capital funds. And I asked them all different questions. But I asked him all one similar question. I said, what is it that makes venture great? And only two, only two firms out of 40 said, oh, it's the entrepreneurs.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Again, such a great question. And I love the word intuition too, because Michael Steinhardt talks about this. He says, you know, intuition is just the supercomputer in your brain that's always on and processing all that information. And you're absolutely right. There are lots of macro indicators, right? We had the inversion of the yield curve. We had the first quarter 01 things kind of turned negative. But that was exposed the intuitive feeling of 2000 itself. So kind of first quarter 2000. And it's interesting, you know, we didn't have the inverted yield curve yet. We really weren't seeing much slowdown. It really had to do more with valuation. We were reaching valuation peaks, which we'd never seen before. Worse than 1929. And there were other things that were happening, as I said, there was the reversal of all that liquidity in the fourth quarter of 99. They were sucking that back.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Us to the top of the league tables. And it was that discipline of saying that something doesn't feel right. And I'll give you an example. So when we first recommended putting money into hedge funds back in 2000, so a year before the 01 period, my board chair says, what are you talking about? Why would we take money away from our best performing funds? I said, well, because they've gone up a lot and we're way overweight long only and our policy says we should rebalance. They're like, no, no, no. These are our best managers. We should press the bet. And I said, well, yeah. But discipline usually makes sense. And just, again, something didn't feel right. Look, it took a whole year before we got to 2001 where things started to really get ugly, but they did.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Of UNC, and he'll let us have a big position in his fund, and we can add some of these other guys. And the chancellor says, well, Mark, that's going to be a problem. Because the board banned hedge funds. What do you mean they banned them? And they had voted to ban them because they read an article in 1996 called The Fall of the Wizard that Julian had lost his touch because he was down 9% when the market was up. And they thought hedge funds were bad. That's where all the bad guys were. What was interesting about it is I said, all right, fine. We won't have any hedge funds. We'll have long, short equity, enhanced fixed income, believe it or not. We went to 60% in hedged funds. I was at to add the D at the end so they actually hedged. 2000 to 2002, the whole market was down about 50 something percent when we were flat. So that movement of such a big portion of our assets into hedged strategies is really the thing that propelled”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“And there was silence. And he said, Mark, are you there? I'm like, yeah, yeah, I gotta go. I gotta go. And we sold. Now, here's the funny part, right? The stock went down to four, so it went down. 96 now think at four it still would have been an eight bagger which is still a pretty good outcome but we end up making 200 times our money which was really good and again it goes to this discipline of saying something doesn't feel right something doesn't look right let's take action let's rebalance let's let's take our profits and not get greedy so fourth year had to start taking jump shots starting to get a little harder to add value And that was 2001. If you remember 2001, Things are starting to get ugly, right? We had the recession that nobody knew about. Markets are starting to fall. They were down double digits by the end of the year. And about, I guess, nine or 12 months earlier, I'd had a really funny experience where I went into the board meeting and I said, all right, guys, we've made lots of money in 99, 2000 first quarter. So let's buy some hedge funds. We've got these good relationships. Julian Robertson is a great.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Distributions, these investments we'd made a couple years ago. And what was interesting is we had this one investment. It was a company called Art Technology Group. And all they did is help companies change their name to dot-com. That's it. Nothing special, but this company had gone public and it went public. We went in at 50 cents and gone public at four or five dollars and had run to $104. This was better than beyond meat. I mean, this thing was unbelievable. And they distributed the stock, the venture capitalists distributed the stock. It's a venture fund up in Boston. And I called up and I said, hey, Bob, what should I do? He says, well, I'm an insider, so I can't really say anything, but I can say two things. Revenues of $6 million, market cap $6 billion.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Did a little bit better with process. Second year had to take layup, still pretty easy. Maybe we hired some really good managers. Maybe we started to do a little bit more esoteric strategy beyond just the basics. Third year had to take a free throw. And that third year, it's interesting, that was the year, you know, you remember back when Y2K was coming along and everybody was worried that Y2K was going to shut down the world. And the Fed was worried about it. And the Fed put half a trillion back when half a trillion was a lot of money. I think they've done that in the last couple weeks and the repo market. But half a trillion dollars was a really big deal. And the markets went crazy up in the fourth quarter of 99. And it just didn't feel right to me. And so we start talking to our venture capitalists and we start talking to some of the stuff that was going on and we got to start getting these.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Recruiter called, phone rang, said there was a job in North Carolina to your original question, the key about North Carolina was they were in the 84th percentile. They were one of the worst performing endowments in the country. It was white paper, right? It was a great opportunity to go in there and take all the things that I had learned, going around with the best endowments in the world and help them. I came in and I said, all right, we're going to have a process. We're going to have discipline. We're going to have this value bias. We're going to focus on innovation. We're going to put some hedging into the portfolio. And there are a lot of interesting things along that process, but I use the basketball analogy. The first year, everything we did was a reverse tomahawk slam. We look like Michael Jordan. We didn't even have to do anything hard to look really good. It was about putting in process, about having a discipline of rebalancing, about focusing on buying what went on sale, selling what was expensive.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Great leader at the top of the endowment, Bob Wilmouth. And he basically said, all right, guys, you're two young guys. You want to bring us into the age of endowment, investing, and this Cambridge model or this endowment model, go for it. And so we really dove in and we visited with the guys at Stanford. They taught us about venture capital. We visited with the guys at Harvard and Yale and they taught us about hedge funds and more esoteric strategies. So that's when I got my first kind of exposure to, again, a concept we'll probably talk a lot about today, which is innovation as an asset class. So as much as I'm a value guy at heart, I learned very quickly that the biggest returns and what really separated the best endowments, the Yale's, the Princetons, the Stanfords, the Harvard's from everybody else was they had these big portfolios of innovation and venture capital.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Professors out of Northwestern, and they basically taught me the meaning of value and they taught me about quantitative investing and they taught me about this process of they had a coffee mug and it said invest without emotion and it was really all about focusing on making decisions based on processes and valuation rather than how you feel about something or get excited about something and to your point I learned from a couple of things. I learned One from a firm called Cambridge Associates so Cambridge Associates was our consultant they had these great white papers on every topic you can imagine under the sun and I just devoured them they also had an annual gathering once a year and they get all the chief investment officers together and the head of the Harvard Endowment Jack Meyer and he kind of took me under his wing and really taught me a lot about investing and Scott and I were you know we're a year apart and so we were learning this together and with this”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Med school. Back then, I'm an old guy, so back then you could still go to business school right out of undergrad because it's like they try to trap you into the PhD program. Took one class with Gene Fama, said, that's not happening. So I just studied and got my MBA, took the first job offered, went to work for an insurance company. If I was a resume inflator, I'd say I was an M&A analyst. I'm not a resume inflator, so I was a business analyst. I did spreadsheets because there were no such thing as spreadsheets before I started. And then Lotus 123 came along. The first happy accident was the guy who was doing investments retired. And my boss said, hey, why don't you take over the portfolio? And it was pretty simple portfolio. It was fixed income. And so I learned bonds. And then I got a call to go work for an equity firm. I worked for this firm called Disciplined Investment Advisors. And the great thing about that, it was a value equity shop, one of the first quantitative shops.”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“It's such a great question, and not where I thought you were going to go at all. And I love the insight of the question. You know, it's interesting. I'll back up just a little bit to go forward in the sense that, you know, I say my life is a series of happy accidents. I didn't go to school to study business and investing. I actually went to school to be an architect. That only lasted one semester. I didn't love it. Then I did engineering for three semesters because that's what dad wanted me to do. I didn't love that either. So a girlfriend at the time, she said, why don't you do what you want to do? novel concept okay so i really like biology and chemistry i really thought i wanted to be a doctor and what's interesting is i look back now and that biology and chemistry training i actually think is the perfect training to be an investor particularly a value investor and that theme of value will will go through this whole time we're together and so you know i graduated i decided not to go to”
2019-10-20 · We Study Billionaires · TIP265: Mark Yusko - The Endowment Model of Investing (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT