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Steve Mandel

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86

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2021-07-20

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2021-07-20

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1

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1. “Day one, which was July 1, I mean, before we actually took in money, July 1, 1997, I wrote a business plan. It was Celia Canning and me and an 8x12 foot windowless room. I still can't type. She typed it. And I took it on the road. I went for the next two or three weeks, I think, something like that, to a lot of people that I knew and some people I didn't know and cold call people and I said, here's what we're doing. What do you think? I took input from that. made some tweaks and changes and iterated and then”

   2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

2. “We have the glass fronted offices on the inside and the assistants on the outside. That was something I saw at Tiger, which actually makes the span of views better because it's not chopped up by offices, but it also gives the more junior people better views, basically, to the outside, not that our view is largely of I-95. Not the greatest view in the world, but nothing. This is a great office building, nothing against this office building. But what I did was I wrote a business plan, literally the...”

   2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

3. “We set up a variety of fee structures to allow people choice, but also to give us greater duration of capital should they want to get a lower fee for, we have no lockups, but for capital commitments that you have a penalty associated with if you get out early. We wanted to have a very diversified LP base, so we sought that. And then within the business, just trying to do a lot of the little things, I guess I would call them and some of them not so little, that are both signals to people, but also make people want to come to work every day. So this is from just having the best healthcare we can provide to the most generous 401k to buying people breakfast and lunch, to establishing the Lone Pine Foundation where every single employee is a board member. Little clues also, like every office here is the same size. So we don't have different gradations of that.”

   2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

4. “And some of the things that were not so good and tried to leave those out and bring in all the good things. And so the overarching thing when we started was to try and create a business that was going to go on for a long time and outlast me. And so what did we do? That's how we set up our ownership structure, which is very broad ownership and not a, as is somewhat typical in the financial services business and certainly in the hedge fund business, not a lords and surf type thing. People who are not investment people are also owners and very much a part of this business. We wanted to be as fair and transparent as possible. Charged enough so we could cover our overhead, but not what the market would bear. We charge less than what the market would bear.”

   2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

5. “DJ taught me really the details of how to dive into the guts of a business, and that's what we did there. Joe taught me a lot about how to present things, actually, interestingly enough, but also a lot about retailing and managements and all that. And Julian, I mean, I think there were two things. One, just how a hedge fund works and how the balance sheet works and doesn't work and all those things. But also just such a stickler about people about integrity about smarts about background about everything just burnished into the brain. Anyway, I learned a lot not only about those things, but each of those businesses were run differently, had different ownership structures, different comp structures, all those things. And I took what I thought were the good things from all those things.”

   2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

6. “I had the benefit of, I worked at three different places before I started Lone Pie. And I learned a ton at each of those three places and had really good mentors at each of those three places. I learned a ton about businesses and investing, but I also learned a ton about what works well and what doesn't work well in terms of how to organize a business. And if I hadn't had that benefit and I had tried to do this 10 years earlier or something, I'm 100% certain we would have failed. So I worked at a consulting firm called Mars and Company where I learned I had a mentor named DDA Pen as in French for Bread who taught me a lot about businesses and how they work and it was a retail analyst at Goldman, worked under a gentleman named Joe Ellis who also taught me a lot and was a great mentor and then worked with Julian Robertson at Tiger and he taught me a lot different things in each case but a lot.”

   2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

7. “Well, but it was a small thing, and all they sold were books and DVDs. Anyway, the books a million that day, it was probably a hundred million dollar market cap company. I don't remember, but close that day at $39.”

   2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

8. “I still have not looked. I think I know the answer that we stuck with the short, but obviously cutting it back a fair bit along the way. And the company was bankrupt like a year later. And I'm sure we lost money on it in aggregate. And the other one that always sticks in my mind, this was the day I feared the most every year was the day after Thanksgiving because it was the day when a lot of people were at home, echoes of what's going on now, you know, retail traders sitting at their desks. It was a half-trading day, so short period of time. That day, day after Thanksgiving, 1998 market closing at one o'clock or whatever, there's a company called Books a Million. We were fortunately not short the stock going into that day that operated a chain of, I think, a couple hundred bookstores in strip centers in the southeast. And the stock was $5 going into that day. And they announced”

   2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

9. “Computers and peripherals one year out of date last year's models and selling them online out of a warehouse in California. And the company was basically bleeding, it had like $100 million of cash on the balance sheet. It was bleeding like $20 million of cash a quarter. It never made underwriter estimate, et cetera. And it had been public, I don't know, for two or three quarters. So in the third quarter of 98 September quarter, they reported earnings like mid October. Again, same thing, burning cash, no sign of this business is actually going to create any value. And stock was $12, and we were short 50 basis points of the stock. Six weeks later on No News, the stock was 108, nine-fold increase in six weeks.”

   2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

10. “Well, they can be very vicious. And our first year in business was 1998. I don't know if people remember, but it was a pretty tumultuous year. This is the Russian debt crisis. There was a run on emerging markets. Hong Kong authorities jumped in in, I think, August of 1998 and actually bought 10% of the index. Greenspan came in and basically eased big time monetarily and speculation went wild in the fall of 98. We had come through the Russian debt crisis and all that doing pretty nicely. And then we were short a number of things in the internet and telecom space that we thought did not have business models that were going to survive. So I'll tell one particular one was a company called OnSale. It was founded by the guy who founded Go Computers, which was a pen-based computer thing. And the business model was buying last year's HP and compact.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

11. “For a long time, the move from cash and check to digital forms of payments has been going on for quarter century or whatever longer. And it still has a long way to go. And it's still innovating and new forms are being created. And it's still a really dynamic area of change, even though it's been for a long, long time. So when you see something that where either the market itself is not that big or the incremental innovation is quite marginal, that's where you stay away, basically.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

12. “Well, it usually does start the other way around. It usually starts with the companies and then we figure out that they're part of a trend. And you're right. Things don't last forever. Some last much longer than others. So in our early days, wireless was, I think, our single biggest area back in the late 90s, early 2000s. And that was when smartphones hadn't even existed yet. People carrying cell phones was not ubiquitous. And is that grew and developed? It was a terrific growth business. And we surmised that all the big incumbent telecoms would have to get into the business and they'd probably have to get into it by buying some of the companies that we invested in. But after a period of time, it's a commodity business. And we haven't owned anything in the wireless space. And I don't know, probably 15 plus years, right? But other things have much longer legs, payments, which is a huge area for us now and has been a big area.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

13. “Et cetera, I mean, barely existed back in the late 90s. Now there are hundreds and hundreds of these pods out there competing every day.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

14. “Yes, back to your earlier question when they phrased it a little differently, but when I was going around with my tin cup starting this business and investors would basically ask like, how are you going to make me money? I would say, well, this long side is very efficient thing. And if we can scratch out couple hundred basis points a year of alpha on the longs, that would be pretty good. But this short side, this short thing is very inefficient. And we think we can really do quite well with that. That'll be a larger source of quote alpha than the longs. And that actually for our first till the financial crisis was true. And since the financial crisis, that has definitely not been true. And there's a whole bunch of two major factors in that statement. One, interest rates were very different pre-financial crisis and post, and there's just the P&L dynamic of short rebate, et cetera, that plays with that. But then second, there's just way, much more competition. The whole notion of these platforms, millennium, citizens.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

15. “We absolutely couldn't do today. I mean, there was no problem borrowing pets.com and e-toys and on sale and all these crazy things. And today, when things like that appear in the markets, the borrow cost shoots up to ridiculous levels immediately. Access to borrow is very limited. And so the best shorts, if you will, the things that are generally are retail driven and a large misinterpretation of the economics of the business are much harder to execute.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

16. “short side was much much less than it is now and when there's incremental capital playing on the short side that does change the supply demand dynamic because it's actually truly incremental to incremental demand for a limited supply of good short ideas a borrow and good short ideas and the way i phrase it was a lot of the things that we did back in the late 90s and early 2000s shorting in the internet and telecom bubble”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

17. “Largely that's helpful in understanding companies and analyzing them, but it really has very little to do. We're not making any decisions about, oh gee, you know, we just saw a little change in inflection in sales this quarter and we're going to barrel in behind something or dump something as a result of that no. And the other dynamic is on the long side, the actors have changed quite a bit. There weren't ETFs, Passive was small, hedge funds were small, but there was a large amount of aggregate money invested long in public stocks. Whether it's an ETF or a large mutual fund or a hedge fund or a family office or whatever, they own the stocks and somebody buys them and somebody sells them. And there's still sort of the same supply demand dynamic. On the short side, it changes a lot because at the beginning, there weren't a lot of hedge funds. It wasn't that big a business. And the competition on the...”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

18. “Think the same way I would define it now, but with a little bit of a twist on the short side versus the long side. On the long side, I think it's really the same. We have invested pretty much forever behind change, largely. And when I say that, sometimes it can be a large technological change that is, sometimes it can be a managerial change, sometimes it could be a regulatory change, but something that is changing the dynamic for a multi-year period and investing behind those big areas of change has generally been what we've done on the long side forever. And I don't think that really has changed. Clearly, what you start alluding to before in terms of the amount and type of data and the speed with which you could access that data has changed dramatically with the internet.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

19. “And frankly, that sometimes was an edge because not everybody was actually doing that, hard as that is to believe. Now we have 18 zillion tracking services that tell you how sales were this morning.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

20. “That wouldn't be reflected until some analyst was smart enough to suss it out. I remember there were a lot of companies that I followed then that literally they might report at 5 p.m. and all that would come out would be sales and net income, no balance sheet, no funds flow statement, no complete income statement, nothing. And it was basically up to you or the investor, the analyst, whoever to call up the company and get the rest of the information. Again, some of this was pre-rule FD. I mean, when I was a cell site analyst at Goldman, and even when I joined Tiger in the earlier days, we just call up these companies hour sales last week. And they would.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

21. “I put it on two levels. If there was a significant surprise, let's say a company had been banging out 20% earnings increases and then all of a sudden they weren't. Yeah, that reaction would be instant. Then as it is now. But in many cases, there are things that were much more.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

22. “Oh, that is still the same, which is you are curating some group of products, whether you're making them yourself or you're buying them from others, but you are curating an array of products to offer to customers. And you are pricing them at a certain level relative to the marketplace, and you are getting them to the customer in a certain way. That may be having the customer.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

23. “Which is one of the things that retailing does, even Amazon requires tons of people, even though they don't have stores, or they have some stores, but very few. You have to treat your people right and give them opportunity.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

24. “There's been controversy about this for sure. But I think treating their people with respect. You know, Walmart has been critiqued over the years for many things, but they have always treated their people with respect. And that doesn't mean that they were necessarily paying the highest scale, but they offered people, and this was more probably more true in the early days when it was still growing like crazy, a great chance to advance. They took many, many people, including Doug McMillan, who's the CEO now, started working at age 16 part-time in a store. And there are just example after example after example of they took people from working part-time in the summer after school, whatever, to rising up through the management ranks. And so I think ultimately, particularly in a business that requires tons of people.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

25. “And that is what I would describe as a bad culture. There have been retailers that were honestly successful for a reasonable period of time until that catches up with them. Yeah, I say that the best model is clearly one that wins for everybody. Wins for your employees, wins for your customers, wins for your suppliers, and then ends up winning for your shareholders. Costco is the one, to me, that has demonstrated that maybe more than any other where the employees get paid the best and treated the best in terms of benefits, et cetera, in retailing. No one charges lower prices. Vendors love them because they're totally straightforward and simple to deal with. They get paid on time and they do business in huge volume. And the shareholder is one.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

26. “Well, bad culture, and I will not name this company, but there was a company I used to follow way back at Goldman Sachs, whose basic idea of how we be successful financially is if we screw our suppliers enough, screw our landlords enough. and screw our customers enough, there'll be money left over for us.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

27. “Retailing is a lot about culture, and it taught me to look at culture and understand what makes a good culture and what doesn't make a good culture. It taught me also about how things can be replicated and what scale means and what can be done with scale. I would say those are probably the two biggest things.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

28. “It gets to both the scale of the market, but also when you have a better mousetrap and can replicate it. And that was certainly true in the case of Walmart, but there's many, many examples of this around the world. You can look at Zara and you can look at IKEA. There are examples all over the world of this. It needs to be incrementally better. It does not have to be leaps and bounds better. That was one thing that I learned from Walmart and others in the retailing.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

29. “If you look at a lot of, it's changed a little bit in the last few years or more recent times, but many of the richest people in the world are retailers.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

30. “When people talk about margin of safety in investing, they usually talk about things that are financial in nature. They talk about asset value or they talk about sustainable return on equity or whatever. I'm much more focused on nature of business franchise and the replicability of that and the quality of the people running it. Now the quality of people running it obviously can change. You have the Warren Buffett thing. You should invest in a company that a chimp could run because someday a chimp will run it. But I've always leaned more towards the business quality aspect of it. And retailing was an interesting area to grow up in as an investor because it is a rapidly changing field and there's always winners and always losers. And it does get to your notion of the business unit replicability.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

31. “This was, I guess, pre-rule FD and all that kind of stuff. You as an analyst could participate. I mean, not watch. You were asked questions, but was kind of a great thing.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

32. “maybe a few thousand people there. The place holds 14,000 or something. And there was spillover into another place. And he would just be answering questions and he'd go, you know, oh, Betty Lou, I was in your crafts department in OCA, Florida and your VPI item was just incredible. And you'd see Betty Lou just go like, oh my God. I was just captivated by that. His office was this little plastic faux wood paneling, you know, eight by 12 foot little room, right? And just how he conducted the Saturday morning meeting they would have a Saturday morning meeting at 7 o'clock a.m. for all the key people, all the regional managers would be out in the field, flew back for that and all the key merchants and finance people, et cetera, would be at that meeting and just how he conducted that meeting and how he motivated that crew was just something to watch. And the great thing was at the time.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

33. “Would get to send three employees at Walmart, they're called associates, and they would come by unairconditioned school bus from around the country. You know, sometimes a 20-hour drive or whatever. And they would go right to the field house and they might arrive at three.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

34. “He was in his mid 40s. He's right. I had never seen anybody before really or since who had the capacity to connect with people and make them feel like they were the most important thing to him. And I used to talk to other guys at Walmart about we would try and guess how many people he knew by name. And we would come like 100,000 people by name. I would go every year to the Walmart annual meeting. And the Walmart Annual Meeting was held in the University of Arkansas Fieldhouse where they play basketball and stuff. And in the beginning, that fieldhouse was not air conditioned because basketball is played in the winter and there was not a need to air condition it and it was never used in the summer much except and the annual meeting takes place in June. So actually after a while Sam's brother Bud donated the money to build a new field house which is where they hold it now. But anyway, so every Walmart's.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

35. “The paper off the machine as it was coming across with their earnings, the earnings had some level of detail, but then I would literally call up the CFO to get other data items that weren't in the release. And then I would put something out over the Goldman Sachs system. And that was basically it. There was no, they beat the number, the whisper number. There was none of that. The earnings just came out and it was usually pretty uneventful. And that was it.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source

36. “I think it's a very appropriate company to frame the conversation because Sam was my idol, actually. So I was a retailing analyst at Goldman Sachs back in the 80s. And I started out as a food and drug retailing because I won't go into this, but I had a background looking at supermarkets as a consultant before joining Goldman Sachs. Walmart was getting into the food business and my colleague and mentor, Joe Ellis, was the person following Walmart, and he was good enough to hand it off to me, I think, in 1985 or six somewhere in there. It was my most important stock that I was following and I spent a lot of time there. And the world was a very different place. So when Walmart reported earnings, they reported them during market hours. There was no conference call. I literally had to go into a separate room. There was no internet or anything. I had to go into a separate room with a teletype machine and rip.”

    2021-07-20 · Invest Like the Best · Steve Mandel - Investing Behind Change - [Invest Like the Best, EP. 235] · IDENTIFIED FROM THE TRANSCRIPT · source