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Richard Lawrence

lines on the record: 85
first: 2017-08-14
most recent: 2017-08-14
sittings or episodes: 1
sources: podcast

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“And as the years have gone on, like a lot of what you're talking about is basic metrics but may be applied to a part of the world that you don't have the same level of financial analysis sophistication. I know that's what it was like 25 years ago. What's similar and what's different today in your markets?”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, we have 20 to 22. In the early years, we had kind of a basket trade on a particular industry, so we had a few more. And a lot of people in the early 90s, though it was really popular to have like 12 stocks, and I didn't like that. I like 20 to 22. I get good diversification. I'm in seven or eight countries, and so I can pick out the best businesses in each country. And if you find four or five new ideas a year, four or five stocks grow out of the portfolio, there's enough to make it interesting.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“Taiwan Semiconductor. I mean, you can own a stock for 17 years. Instead of needing 20 to 22 stocks, I need 19 to 21 stocks. That's good for everybody, including me.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“Really, is your projections on return on equity, operating return, or your normalized growth rate? Are those numbers accurate?”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“Because the guy growing at 30% with a 10% return on equity, you just haven't figured out he's going to dilute you because he can't fund it, right? So that equation was pushing me towards high profitability businesses, which was really consistent with what my investment philosophy was. So, you know, we look at a variety of things. I think in today's world, it's more complicated. We have bigger types of businesses in the portfolio, so such as infrastructure, which you can't. But for most of the 26 years, we brought pretty similar businesses and we were looking at what we call normalized growth rate, which what we think it can grow its EPS at over three to five years. And we look at valuations, yields, prices of the book. I mean, it's not really rocket science.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, when I was working for John Bush, I came up with this thing, we want to buy stocks with PEs, half the growth rate, and half the return on equity. So if you got a company growing at 20% with a 20% return on equity, we want to buy it at 10 times. Now, that's hard. But that ratio, that equation, and a few people have equations out there that are useful. What that does is that pushes you towards high profitable businesses because it's much easier to find a company with a 30% return on equity growing at 10% than...”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, my largest investor left right before it really hit in June of 1997. I replaced him and then calmly took my new largest investor down by 60%. But then they came back in with additional capital and we made them hundreds of millions of dollars afterwards. But you lose your biggest investor. It's like everything's challenging. And so I have created what you call the roadmap for a bear market. So calling every single investor more transparency, more discussion, more Know give them the detail and the transparency through the portfolio. You can't hide. There's no denying I just kicked the hell out of everybody, right? So you just talk about your big positions and why you've got confidence and debt-free balance sheets run by good guys helps you get through. Yeah.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“Were country specific businesses for the most part, yeah. Very few regional businesses. So when you invested in Thailand, you invested in Thailand with Thai managers and Thai balance sheets and Thai bank support and whatnot, same we're Indonesia. And by 98, you know, all these markets had largely opened up. So we were traveling everywhere from Korea to Indonesia. And, you know, we weren't managing huge money. And so we had kind of the pick of the litter, anything we wanted to really buy we could buy.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“And within one week, we found two companies in Fosan, Hong Kong, Kingboard Chemical, about two and a half times earnings, and Kaffeti Korral at about six times earnings. Both companies we own for more than seven or eight years afterwards, both are highly quality companies, great guys, particularly back then. They were really. One was manufacturing laminates in China. Kingboard was doing that and growing really quickly because they were so competitive. And Paul Chung knew how to grow a company fast. On the other side of the column, Michael Chan and Captain Crow was just moving. He had been kicked out of Central because of high rents during the boom years. He moved back in and was just killing it. And then from there, we went on to, you know, next one, next one, next one.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“That was not pretty. I think at the peak, we turned 120 into about 40 million. We turned about 120 million into 40. We were down 45 and then down to like another 25. Finally, just from exhaustion turned, along the way, we were fortunate to get backing, so we had additional capital, and I remember in. October 1998, so right towards the end, we had just raised 30 million, so taking us from 40 million back up to 50, 60, 70 million.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“Large foreign exchange reserves, interest rates went to 36%. And in that world, when Hong Kong with a fixed peg to the US dollar goes to 36%, equity value just evaporates. And so it was like hitting the reset button after a natural catastrophe”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“We went in classic 97, a classic emerging market crisis. We had 5% negative current accounts deficits. We had had very fast loan growth that was being funded with dollars. We had government deficits, and we had high LD ratios in the bank. And of course, when the foreigners first pulled the money, all the forex reserves went overnight. And those five factors is what takes an emerging market correction into emerging market wipeout. And 97-98 was top five wipeouts of all time in the stock markets. Indonesia, Thailand, Korea went down over 95% in dollar terms. I mean, almost everybody I knew was going bust, even guys who had no debt because just business collapsed, confidence collapsed. Interest rates in Indonesia went to 99%. They couldn't go to 100 because the computer systems couldn't handle traditional. In Hong Kong with no foreign debt.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, of course interest rates were higher, valuations were lower, the skepticism about Asia was higher. And you got to remember in the early 90s, Asia didn't work. I mean, the good companies weren't going anywhere. It was these crappy companies, these leveraged real estate companies, these leveraged holding companies, these crazy entrepreneurs. And we've seen a little bit of a repeat of that in more recent years in China, right? But it really didn't work. And I was struggling. I was beating my head against trying to get these good guys to perform and act correctly. But they just didn't see the reward for doing it, right? Until 97, 98.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah. So I want to take you back to some numbers that I pulled out of one-year-old letter. So when you were doing this, and a lot of things you talk about, this is what people want, right? Everybody wants to look for superb business with a great manager, buy something cheap. When you were getting started, this is the end of 1994, 23 years ago. Your portfolio was trading in the following metrics. A P of eight times. Seven times free cash flow. A 17% normalized growth rate, 19% ROE, average market cap two hundred thirty million dollars. So, but the difference was back then, I mean you were managing a very small amount of money, and what did investors say to you? I mean, you put these numbers in front of people and, boy, anyone today would say, well, that's a no-brainer, right?”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, but there are a lot of good guys out there who really are willing to share and looking for partners and really looking to build great public companies. Now go back to the mid-80s, early 90s, there weren't any role models. So these good guys, they couldn't track, like I'm going to do what this guy did because there was no other guy had gone before him. And so they really suffered until 97, 98 came along. And then the guys with integrity, really, that we changed it, the guys who had the know-how, the full range of experience, right? So then third, we just want to be in bargain valuations. We want to be an intelligent contrarian. You know, I think Mark has taught me more about that than anybody. And then lastly, we do everything for long-term capital gains. We don't have any of this high turnover, none of that.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so let's describe it first off. So, the first thing is we want to be in superior businesses. In many ways, I can give my dad credit for that. He always talked about being in great companies, right? Superior businesses have free cash flow. They generate cash. They have a large moat. They high returns on investment, whether you return on equity, operating return, however you want to do it. They largely have debt-free balance sheets, and they're self-financing their growth. That's what a superior business is. Then we talk about management with integrity. We used to use this word integrity a lot 25 years ago because, frankly, it was integrity. Were these people willing and honest to be able to share the benefits of their public company?”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“I had found Buffett in the early 80s and was reading Buffett. You know, and then when I got to Hong Kong, I'd finished by then the CFA torture and was reading more broadly about putting this together. But it was really when I moved into Mark's offices, instead of working for someone else and executing someone else's stuff, I was now, you know, the lights are out. How am I going to invest? And that was where I came full circle back to Buffett, intelligent investor, and a lot of these other people who have had influence on me, some of whom I've known, some I just read. It's so much of available. And that was where I really came up with the investment philosophy, which I describe as rigid and demanding yet flexible, right? That was really pure. So where did you tuck a little?”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“Has the collection of Mao buttons in the world amazing? And in fact, I had known Mark for a number of years, but really that was where I became really enamored with what he brings to the investment world. The thought, you know, and he's a very different guy, he's a macro guy and I'm a quintessential company guy, but Mark was so good. He always told you the other side of the coin. He always made you think about something that you weren't thinking about. And he wrote well, he communicated well.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I got my freedom in 1991. We sold the company and I had a little bit of money. And I went over to my friend Mark Farber's office. And I said, Mark, I'd like to see if I could get a desk in your office. I didn't ask for an office. I said, just give me a desk. And I don't want to be your employee. I just want to be in an environment where people are investing as principals. And I want to be in that environment because that's what I want to be. And he gave me his little library, which was about maybe 12 by 10, had a desk lined with books, a wobbly aluminum chair where the guests sat. And outside there was a little Filipino who Mark was buying all the Mao buttons at the time. And this guy, this Filipino, literally right outside my office, he would polish and put in little plastic sheaths MAU buttons all day. And Mark.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“It was just an investment company, and if you define me as a very disciplined investor, which I would like on my tombstories, it was a disciplined investor. This was a very undisciplined vehicle. But we went all around the region and we did real estate, we did stocks, and we did some venture capital with mixed success really. But I think with focus comes success and we were not focused, but we were really one of the first people to go around to all parts of Asia and invest.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“Taiwan was open. Singapore was open in late 885 they suspended for a week so they were pretty discredited in the Panel crisis. No Thailand, no Indonesia, no Philippines, no Korea, of course no China.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“And I hooked up with another guy, Bob Meyer, and the first thing we did was we bought a shell company and we injected in some capital. We had $4 million in capital, and we're the 93rd largest public company in Hong Kong.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, they'd have their markers, and then you'd see the hand come in and rub it off, and it was all done with closed circuit TVs. So you'd literally see a hand come in and put up another bid or another offer.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“That was late 85 when we got to Hong Kong, it was about a year after the joint declaration had been signed where they were to agree to put Hong Kong back to the Chinese. And Hong Kong was just an incredible place. It had four stock exchanges. And when you listed, you actually bought physical space on some whiteboards where they'd put the bid and ask in. And the first thing I did.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“Wine in a Malaysian console. And that, and the fact I wanted to take another year off and travel. So with my wife, we went around and we traveled for a year and ended up in Hong Kong. And that was what year.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“I was there for three and a half years, and frankly, I still love working with John Bush today. I mean, he's one of the great, great, great all-time investors in ethical money managers, cared like my dad and others. He just came into work and never cared about himself. It was always about the clients. And it was magnificent to see, really. I mean, he's a wonderful man. I'd still work, but then I really didn't want to be in America. I didn't really want to be in New York. And so one day I went into the, was walking around Central. I went into the Malaysian consul and I picked up some piece of paper and said the Malaysian economy had grown at 6.8% compounded for 20 years without a down year. And I said, all right, I'm out of here.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“No, John was really a growth investor. He was a great company, and my dad was a growth investor too, really. And he used to say, we want Bush companies. So John had a model. And he said, just look for companies with these characteristics that they're growing. They've got a 20% return on equity. They got management that we can deal with and approach and talk to. He says, just go out around the country and find them. So I would read the old short S&P pages on companies looking for growth and 20% returns on equity. And then I'd travel around the country. And John said, well, go find them. So it was wonderful. And every time I'd come back with a lousy company, John was saying, we're actually not going to do that one, Richard.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, it was another story, an embarrassing story. I was about two weeks away from graduation and I'm sitting around my apartment with all my buddies and they Sopic jobs comes up. And one by one, they all say they got this job or they got job, that job, and I go, guys, when were you going to tell me I needed to get a job, right? And so I went to my economics professor and he said, Richard, go to Venezuela.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“No, it's after college. I just went down to Venezuela of all places, which at the time was the richest country in South America. And I worked there for two years and I traveled for a year around South America, just kind of backpacking my way around.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“Is rather by chance I had spent a summer when I was at Brown interning with John Bush at J. Bush and Company down on Wall Street. And I came back after three years in Latin America. And I had this vague idea that, you know, maybe there was, you know, something someone John Bush might know in Latin America where I'd go back there and make my living. And I walked into his office. I haven't told this story in a while, but I walked into his office and his analyst who ran his research department had just quit to go back to school. John said, You want a job? I said. I don't know. He says, I'll pay you $30,000. So I came back over to my dad's office and he goes. And I go, Dad, I think I've been bought. What did he offer me? I said $30,000. He says, Yep, son, you've been bought.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“Not dinner table, but after dinner conversation with my mom had going to bed because she didn't want to hear about it. But he would come in and he always had these things. He'd walk in the room. He says, you know, the greatest thing about the money management business is you get to learn something new every day. You know, there's something new happening in the world or there's some new technology, and that's great, boys. That's what you want in life.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“And this has been the 60s. This was even before he started his own business. This would have been in the 60s. But of course, I'm coming home. He's coming home every day and I'm looking at the sports pages at the Met scores. And then I'm looking at the mutual fund. And the thing never went up. Of course, it was 69. And finally, I realized that I really didn't want to, I didn't like memorizing poems to begin with. And it's funny because, you know, dad was in his own right, a very, very successful investor, really cared about his clients and primary research. A lot of what I do came from dad.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“Oh, well, that goes back to my early days. I was a teenager, even almost practically younger. And my dad was managing a multifamily, what you'd call now a multifamily office over at 610 Fifth Avenue. He had effectively like a mutual fund even before that at Axe Houghton out in Terrytown. And he did a deal with me that if I memorized a poem, he'd give me shares in the mutual fund. So that was good.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“Our conversation starts with a look at investing in Asia in Overlook's early days and walks through the particulars of the approach Richard takes to investing and running his business, including attractive investment attributes, management integrity, portfolio construction, selling discipline, and China Yangtze Power, the only stock the firm has supersized in an SPV and its history. We discuss Overlook's long-held cap on subscriptions and periodic reductions in its management fee to business philosophies that Richard believes have been key drivers of Overlook's success. If you enjoyed my conversation with Tom Russo, you won't want to miss this one with Richard. Richard, great to see you. Thanks for joining me.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source
“My guest on today's show is Richard Lawrence, the chairman and executive director of the Overlook Group, a $5 billion investment organization focused on Asian equities that Richard founded in 1991. Over the past quarter century, overlooked developed and implemented disciplined investment and business philosophies that interconnected to drive extraordinary results for its partners. Overlook as compounded capital at an annualized 14.5%, outperforming its benchmark by an insane 9% per annum. But that's not all, as Richard would proudly tell you himself, the capital weighted return of the average investor in Overlook is nearly identical to the time weighted return over any period of time, a rare feat in the money management industry. Indeed, today's capital base is the result of four billion dollars of investment gains on top of one billion dollars in contributed capital.”
2017-08-14 · Capital Allocators · Richard Lawrence – Compounding in Asia (Capital Allocators, EP.21) · IDENTIFIED FROM THE TRANSCRIPT · source