My number one bullet point is you're going to make your money by riding a trend for the very, very longest time. Or you can be like Warren Buffett. You can be one of those value investors who won't spend a nickel. And I used to just sit there and rail on Warren Buffett year after year after year. And he just happened to be in the right place at the right time and caught this bull market. I was just thinking, 'Oh my god, why couldn't I be Warren Buffett? Just believe in America and just when you're down 50%, who cares because America's going to bring you through.' Warren, if you happen to hear this, I'm deeply apologetic. You are the OG of compound interest.
There was something that we talked about when we last met that made me laugh and I thought it'd be a fun place to begin our conversation today. And it was about the difference between being an investor and being a trader, and you mentioned something basically saying you wished you could be an investor. Life would be so easy. I'd love you to describe the difference between the two and the life of a trader.
I promise I'll do that. And we'll talk about markets and AI and everything. And at the end, I'll say, 'Were you not entertained?' And I bet you'll say yes. But of all the things that you do on your podcast, the one that I think is the most important, if you don't mind, I'd love to start with that one, which is that question you ask everyone at the end.
And the reason why is because it's so funny. I gave this commencement address one time to what is now Rhodes College in Memphis. I remember when I was writing it, I was in there thinking, 'Damn, who gave my commencement address?' And I couldn't remember. It was funny. No one remembers. Can you remember who gave your commencement? You're so young. You might.
It was the president of Ireland at the time. I went to Notre Dame.
And you're Irish, right? Okay. But it was so funny because no one remembers who gave their commencement address. And I was sitting there thinking, 'God, I'm getting ready to do this for 15 or 20 minutes and no one's going to remember a damn thing. How do I make it special?' And so on this podcast, I'm assuming people listen to millions of podcasts and they probably can't really remember but fractions of them. So if there's anything they remember from this, I hope it's this part.
All right. So, everyone that listens knows that the question is, what is the kindest thing that anyone's ever done for you?
It's such a great question because the kindest thing was also my very, very, very first childhood memory. I was probably two and a half or three. It was probably 1957, something like that. And I was with my mother at this place called the Curb Market. And I got separated from my mother. And boy, you can imagine being two and a half years old and separated from your mother. You're terror-stricken. And this elderly black gentleman came up and I was sitting there bawling my eyes out because I thought my mother had left me, and said, 'What's the matter, little boy?' And I said, 'I lost my mama.' And he said, 'Here, don't you worry. We're going to find her.' And he grabbed my hand and we started walking up and down the aisles. It was an outdoor vegetable market. And I can almost still smell the fruits and vegetables. We come around the corner finally and I see my mother and I was so happy. And my mother saw me and at first she just started laughing. I remember her, she was laughing so hard. So she comes and she gets me and she says to that man, she tries to give him $5, which was in 1957 a huge amount of money. And he said, 'No, ma'am. I know you'd do that for my child, too.' And it was such a simple act of kindness, but it was so profound to me at the time. So that night, I had a prayer list with my mother that she used to go through with me every night. So it'd be God bless Mama, Daddy, Peter, Paul, Alberta, Grande, Pete, and Judy Lyn, and Sid. And then we added my mother. I said, 'What was that man's name?' She goes, 'I never got his name.' For the next 10 to 12 years, right in that prayer list would be that man. So probably four or five thousand reps.
Every night for that man. Now, fast forward to 1986. I'm living in New York City and I'm lying on my couch, 32 years old, and I'm watching 60 Minutes, and Harry Reasoner is interviewing this guy, Eugene Lang. And Eugene Lang was a businessman who had gone back to give the commencement address to his elementary school up in Harlem, which over the course of the intervening 60 years had completely transformed from a gentrified area into an African-American, Hispanic community with almost a population entirely consisting of people of color. And Gene asked the principal, 'How many of these kids, these 12-year-olds, are going to go to college?' The guy said, 'Statistically, maybe, I don't know, eight or nine percent, something like that.' He could not believe that because obviously he had graduated from that school, gone on to college, and then done very well. So right there on the spot, he decided, 'I'm going to promise every one of those kids, if they graduate from high school, I'll put them through college.' And that resonated with me so much. And he adopted that class and he created something called the I Have a Dream program. I said, 'I can do that. I can do that.' And the next day I called him up and he said, 'You know, it's funny. Three or four other people have called me and we're all meeting at my apartment on Tuesday night.' I got there late and I was seeing myself up in Harlem or somewhere on the Lower East Side, Manhattan. I got Bed-Stuy, the highest crime, crime-ridden community in New York at that time, even higher than the Bronx. And that began this journey. I put my heart and soul into it. I spent about... I'd go over there every Tuesday. I went to the commencement address of this elementary school, did the same thing that he did, told them that if they graduate from high school, I'd put them through college. Of course, everybody was jubilant, right? It was a big surprise. The parents were so happy. That began this big journey for really the next 14 years because I kept adopting successive classes. I had tremendous passion. We were doing after-school programs. We were playing sports, teaching life skills. About three years in, I realized these kids aren't doing that great now. They'd gone on to different junior highs. They're not doing that great. So, I started hiring some tutors. Figured that out. And then probably four years in, I had one kid who got killed. I had a bunch of girls become teenage moms. So now all of a sudden, I'm dealing not just with the academic challenges, but also with the social challenges to boot, of which there are many. Along the way, I learned so much by failing. I learned so much about what it takes to actually beat poverty. And by the way, 1987, the year after that, was when Robin Hood started. And then that informed me through, certainly was extraordinarily instructive. And as we built Robin Hood out and began applying metrics and making sure we had goals and standards and a variety of things, it also led me ultimately to start one of the first charter schools in the late '90s in Bed-Stuy right next to that spot. Actually, I started a charter school called the Bed-Stuy Charter School of Excellence. The first one started out as an all-boy school. We named it Excellence because I wanted these boys to know that we were going to demand excellence of them. And we completely, totally crushed it. We had hired the absolutely dream team of educators to do it. And within about four or five years, we were number one out of 543 elementary schools in New York City. The point being that you can have all the passion in the world, but you have to have a plan. There has to be a great pedagogy in what it is that you're trying to do when educating a kid. Why is all this relevant? Well, just think about this. So, here was this one simple act of kindness of this elderly man helping this young child. In that case, a black man helping this young white boy. And so when I saw Harry Reasoner and I saw that elderly man helping those young kids, it was the photo negative of what had happened to me. And I thought, 'Wow, it just was instinctive.' The point here is that one simple act of kindness can have waves of betterment. It can be so transformative and so multiplicative. There's no doubt in my mind that 4,000 reps of thanking that elderly man to help me as a child inspired me when I saw Harry Reasoner interviewing Eugene Lang to emulate that in a sense. I keep thinking how instructive it would be if intentionally we just all start every day with a goal of one simple act of kindness. It doesn't have to be anything big. It can be as something as small as what happened to me when I was three. And look at the possibilities that come from it. Just imagine if 350 million Americans intentionally set out every day for one simple act of kindness. What I will say, particularly to the young people that might be listening to this, I'll tell you before 2000, I would say 2000 was kind of the turning point. All this demonization and criticism and the attack mode that we seem to be in, it didn't exist. It's not the way, by the way, that this generation that's perpetrating it and promoting it was raised. It's not the way we were raised. It's not the way of the '70s, '80s, '90s. You didn't have these vitriolic attacks.
There was a much higher level of civility and respect. And I think down the road we'll get back to it. But so I would just say to young people, you don't have to accept today as what this country historically has been about because it wasn't that way when I grew up. It certainly wasn't that way and it's not going to be that way in the future.
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Absolutely incredible story. Maybe my favorite version of this answer that I've ever had. First time I've ever done it at the beginning of the episode, which makes it fun, too. What was your message in the commencement speech that you ultimately gave? What did you decide was the message to leave them with?
So I got up there and I looked on the dais and I said, 'How many of you...' There's like 20 people over 50 or 60. 'How many of you remember your college commencement address?' None of them. Not one of them could remember. I love to hunt and fish. So I go through and I talk about just kind of the normal challenges they're going to face in life. And I also talked about how going through this process, I wanted to make sure I was going to say something that was memorable. So right there at the end, I said, 'So whatever you do,' and I pulled out my bow and I nocked an arrow. I said, 'So whatever you do, aim high and shoot straight.' When I went like this, the whole crowd goes, 'Woo! Aim high and shoot straight.' And I had an apple on a table over here and smashed it.
Yeah. So, I don't know whether they still remember or not, but I know when everybody was ducking, I thought, 'Oh, they're going to remember that.' I told the president of the university, I said, 'Listen, you don't have to tackle me or anything like that. This is part of it. I'm just trying to let these people have a night that they'll remember for some time.'
And it's an excuse for me to ask my other question about this difference between investing and trading. So I'd love you to explain the life of a trader in contrast to that of an investor.
If I just think about when I started, I started in 1976. Inflation was raging. I started on the floor of the commodity pits. Stuff was literally going up and doubling and cutting in half every year. The volatility was insane. To give you an example of how crazy things got, Bunker Hunt was squeezing silver at the time and he bought about 200 million ounces at an average price of about three, twelve bucks. And between 1976 and 1980, we had crazy monetary policy. Inflation started ripping and silver went literally through the roof. Ultimately, I started out on the floor of the COMEX exchange. I bought a membership on COMEX, which was the metals exchange at that time. I got in the pit and was executing some orders for them sometimes along the way. And the bottom line was it was just this most amazing bull run. And I want to say by like '79, silver was around 30 bucks an ounce. And all of a sudden he was worth about five or six billion, which made him worth three times the next closest person in the world. Bunker says, 'Well, I think this silver here is the most valuable asset and resource on earth.' Someone asked him, 'What are you going to do with all that silver?' And he goes, 'I'm going to bury it. I'm going to bury it. In fact, what I'm going to do is I'm going to buy 20 million more ounces and I'm going to bury that, too.' So he buys 20 million ounces at 35 bucks. And when that happened, it just roofed, right? Well, it goes to 50 bucks. So at 50 bucks now, he's worth about 11 billion and he's got a multiple of five or six on the next closest guy. I just couldn't even believe what I'd seen and how much money that this guy had made. Anyway, so that was when COMEX decided the commercials had been just eradicated because they're sitting there holding physicals and having to put up this margin every day and their banker's going, 'Yeah, I can't do it.' So anyway, they made liquidation only. Silver collapsed. It went from 50 bucks to under 10 bucks in the space of about eight weeks. And that had a searing impact on me to see him go from the richest guy to virtually bankrupt in the short space of six or seven weeks. Right then and there, I would never own anything for the... or trust anything for the rest of my life. You know, again, my grandfather when I was really young said, 'Son, you're only worth what you can write a check for tomorrow.' That also had a really deep impression on me. So liquidity has always been something that's been... it was in my DNA as a child because that was my grandfather's favorite saying all the time. And then also just my early trading days because my early trading days, I had a $10,000 account. I'd run that thing to a hundred, run it back down to zero. And also living in my early 20s, I had this friend, he's such a character, he could take 2,500 bucks or five grand and run it to two million. Of course, the market moves and we're crazy like no one I'd ever seen. We were brokers at that time at EF Hutton. And we called him a mortician because he'd get an account with 10,000, churn about $100,000 in commissions, take it to a million bucks, and then have it in deficit. So you learned that liquidity was really important because the volatility was so huge and we're all living on the edge. But so that had a real impact on me. The idea of owning something for the long run was laughable because look how much money you could make by trading in the short run because the volatility profile was off the chart. One of my mentors who got me into trading was teaching a class on investments in Virginia and asked me to come be a guest lecturer. And I started in '82 and I've been doing it every semester since. I remember one of my favorite stories to tell that class is I would go through how all the greatest fortunes in the world were made. I'd always ask them, 'Who's the richest guy in the world?' And back then it was Bill Gates and Warren Buffett. 'How did they get there?' And my point to them would be they got there by riding a trend for the long run. And that would be my big lesson to them. I'd always have two or three bullet points. My number one bullet point is you're going to make your money by riding a trend for the very, very longest time. I said there are many different ways to achieve it. You can own a company like Bill Gates or Steve Jobs, whatever. Or you can be like Warren Buffett. You can be one of those value investors who won't spend a nickel. And I used to just sit there and rail on Warren Buffett year after year after year. And I would self-congratulate myself for trashing him because, you know, he just happened to be in the right place at the right time and caught this bull market. If that guy had been in Japan, forget it. Never would have happened. If it started 1989 in the Nikkei, forget it. It never would have happened. Different story. Right place, right time. Bull market genius.
I guess this will be my 50th year. And the difference between my trading and investing is I just take our fund, which, our BVI fund for 40 years, it has a minus .12 correlation with the S&P 500. So you can see the difference between investing and trading. So 100% of our returns are alpha. 100%. And I was just thinking, 'Oh my god, why couldn't I be Warren Buffett? Just believe in America.' And just went, 'When you're down 50%, who cares? Because America's going to bring you through.' And you just get... and not that he doesn't, he works as hard as any human being, but it's that belief system that's so fantastic as opposed to... I feel like I'm like a right guard and I've been a right guard in the NFL for 50 years where I'm just every day just fighting in the freaking trenches every day. And every time someone says to me, 'Gee, I want to go into trading,' I said, 'Go long, short, go on the equity side, go do...' And I just, I've always envied that belief system. It's such a great belief system and it's worked so well for so long. But I would have huge difficulty to have been in Warren's shoes in 2008, '09, have a 50% drawdown. It would have had a really material impact on me. I don't think I have his calm and patience and fortitude to be able to do what he does. And so anyway, I was listening to the Acquired podcast on Berkshire Hathaway and for the first time I learned that at nine years old, nine years old, he understood the power of compound interest. And actually when I listened to that podcast, I just went, 'Oh my god, this guy is a genius and I have been the biggest fool.' I've always wanted to write a book called What I Realize Now, which will go through the successive mistakes of beliefs that I've had my lifetime. What I realize now is what an idiot I was. That guy is a flipping genius because he understood the power of compound interest which I somehow managed brilliantly to avoid my entire career. He understood it at nine. He went out at 17, went to Columbia and sought out Benjamin Graham. What a genius.
Now the great thing from that podcast is that he was also so smart that he partnered with Charlie Munger. Charlie was clearly, clearly a tremendous genius in his own right because whereas Warren would buy 50-cent dollars, right? Charlie understood the power of compounding for companies that were growing all the time. And I think the two of them together, man, what a combination.
But anyway, if Warren, if you happen to hear this, I'm deeply apologetic. You are the OG of compound interest and I wish I was one-tenth as smart as you are.
Didn't you talk to him about what he thought about AI soon thereafter when we first talked about it? What was that conversation like?
You cannot be a trader, investor, whatever term we use, and not be a really good risk manager. Anyone that's really succeeded investing or trading is first and foremost a great risk manager. I went to this conference about 18 months ago and I just was so alarmed by what I heard. And then I mentioned it on CNBC and he watches CNBC every day and sent me a note and said, 'I agree with you 100%, but the genie's out of the bottle. I don't know if we can get it back in.' I think he's completely on board with the belief that we have some real threats from AI. The problem with AI is that the news... I don't like in the last 12 hours the news that keeps coming out is just more disturbing. The biggest problem with AI is that if you think about the way AI is being deployed, practiced and deployed right now, it's the build, break, iterate model. Build it, break it, fix it and iterate. If you think about it, that's been the invention model since the beginning of man. Build, break, iterate. But we've never been in a situation where the tail event, the break, could do so much damage, could be hundreds of millions if not billions of lives. What's so scary when I was at this conference, which is only about 35 or 40 people with one modeler from the four biggest model companies, and when I was able to ask them pointedly, 'How do you think that AI safety gets resolved?' The pretty much the consensus answer is, 'I think we'll finally do something about it when 50 or 100 million people die in an accident.' I mean it's crazy. My big problems with AI are that one, there's no plebiscite on this. There's no vote. There's no way for the public to say yay or nay on the pace at which we're going. And that's the way that most innovation occurs. Again, this one has a tail event on it that's so large. I go back to when the nuclear bomb was dropped. 18 months later, our Congress and our administration was smart enough and forward-thinking to create the Atomic Energy Commission to begin to try to regulate something that had huge tails. Here we are, we're three years in and regulate, what are you talking about? If there ever was a leadership position that needs to be taken by any president, it's on AI regulation right now, not just the United States, but convening with China, with all the other purveyors, to make sure that we don't do something that has catastrophic consequences. And that's just on the safety side, not even what's going to happen to social disruption. Matt Schumer came out with a very lengthy essay on how the two new models that were released six days ago are going to be so unbelievably disruptive to the workforce. So you just, the news in my mind keeps getting more alarming. If this was... I can tell you if this was anything to do inside Tudor, this thing would have been so contained so long ago. I mean that's what a good risk manager does and yet there's zero risk management here.
Your point about great investors and traders are great risk managers. In the face of AI, how do you think about this exogenous variable lurking?
The one thing that I think should be part of this next election, the simplest, most important thing that we can do is we can demand that all AI is watermarked. That's the single most transformative thing that we could possibly do for the country, for the world. Make it a felony if someone knowingly violates that three times and put them in jail. I want to know what's authentically human and what's not. And when that happens, talk about restoring trust in the country, which I think is one of the biggest problems. I would say two times since this year began, I've had very serious people call and say, 'Did you see XYZ?' And of course, it turned out to be a deep fake. I think just so we can get back to some truth and honor and normal discourse, I think we've got to do that. And the reason why it's so important is if I go back to that conference 18 months ago, I would say a significant portion of the scientists there envision a future where humanity is going to have a chip in our brain that's going to allow us to access so much knowledge, power, etc. So, I'm just kind of looking down the road and thinking, okay, we really need to know what we're reading, what we're looking at, because again, that group without having any feedback from the rest of America thinks that a blended human with a machine is perfectly acceptable, is the future, should have inalienable rights. For me, I don't think that's the case. I'd vote no. I think most humans would vote no.
So, coming back to some of these themes of investor versus trader, risk management, etc., I know you learned a lot from this guy, Eli Tullis. And I love these lessons that were formative for you for what became, you know, the trading legend that you now are. What did he teach you? And was there any specific episode from your time with him that taught you the biggest or most important lesson?
God, he was so strong. He was really good at executing at the maximum apogee of fear as well as greed. He was so good at smelling that because he traded hardly anything but cotton. He would just sit there and he would just focus and he could just... he was just so good at waiting for exactly when there was just too much elation or when there was too much fear. And so that was really helpful. And then I would say the number one thing I learned from him was... oh, we were so long cotton one weekend and there was a great drought, spectacular drought, and of course it rained all through the belt over the weekend. Walk in, market was limit down. He'd gotten absolutely smashed. I thought, 'Oh my god, it's over.' That day for lunch, his wife brought in four of her friends. He had the most beautiful office I've ever seen in my life. And he came out and just, oh my god, he had a smile on his face. Oh, ladies, and flirting with the wives. I mean, I was sitting there going, 'Are you kidding me? This guy's just broke and he's acting like he's Rock Hudson or something.' Wow. Boy, I tell you what, I'll never forget that one to this day. When the going gets tough, the tough get going. And you wear it here and you have that confidence you're going to come back. Hugely important.
Feels like the right time to ask you just what trading means to you. You've said before that the whole world is just this interconnected series of capital flows and part of the job is being on top of that and taking positions based on what's going on in the world. But mostly I interview investors who buy stakes in companies. I very rarely interview someone that is moving and putting on major positions in any sort of asset class or trading instrument. And so I would love to just hear you describe like what to you trading is, like what is the literal act that you are doing every day with such excellence for decades.
There's a couple of metaphors that come to mind. Well, let's start with boxing because you have an opponent. In this case, it's the market. You know, you're going into the ring with this opponent who's after you the whole time. And I'm thinking more of a classic one as opposed to a Mike Tyson one. But you're kind of parrying, jabbing, feeling each other out, looking for an opening. And then every now and then you'll have a great opening and you take a big shot and you may land one. If I think about big shots, just Bitcoin 2020, a knockout. Two-year rates 2022, knockout. You have these incredible opportunities at times if you just sit and wait the whole time in the interim. Some of it you're just gathering information, looking for those openings. You're always trying to make progress. You're always trying to win the round, but there'll be those few opportunities where you can do something really material.
