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Jonathan Boyar:Welcome to the World According to Boyar, Where [00:00:00] Jonathan Boyar:Welcome to the World According to Boyar, where we bring top investors, best-selling authors and business leaders to show you the smartest ways to uncover value in the stock market. I'm your host, Jonathan Boyar. Today's guest is Leon Cooperman, one of the most successful money managers in history. If I went through his full professional biography we would run out of time. I'll just go through the highlights. Leon started [00:00:30] his investment career at Goldman Sachs, where he eventually became chairman and CEO of Goldman Sachs asset management. Prior to that he ran the firm's research department. For nine consecutive years, he was voted the number one portfolio strategist in Institutional Investor magazine. At the end of 1991, Leon retired from Goldman to start his own investment management business Omega Advisors which he ran for 27 years before converting it to a family office. At its height Omega managed [00:01:00] more than $10 billion of client funds. Mr. Cooperman and his family are extremely philanthropic. He and his wife, Toby, are signers of The Giving Pledge and have generously made substantial gifts to both Columbia where Leon received his MBA, and Hunter college where he obtained his undergraduate degree. The Cooperman's also made the largest donation in St. Barnabas Medical Center history as well as countless other major donations to help those less fortunate. Leon, welcome to the show. Leon Cooperman: Thank you, [00:01:30] Jonathan. I'm getting so damn old. I'm dealing with the children of people I knew many years ago, but a very good platform. Jonathan: No. I was speaking to my father Mark and he remember being the same stock US Shoe with you years and years ago. He said it was run by the worst CEO he ever met. Leon: The highest ratio of talent to brains. Jonathan: [laughs] In 2018, you converted to a family office. One of the reasons you cited was you did not want to spend the rest of your life trying [00:02:00] to chase the S&P 500. Now that you're just managing your own money, has your investment process or strategy evolved at all? Leon: Well, let me give you a little bit longer answer proceeding it. Everybody, myself included, was shocked when I retired. I love the business. I live by the motto, "Do what you love, love what you do. It's not work. It's just something you just enjoy doing." I feel very much like, if you've seen Godfather 2, I've always seen it 50 times, there's a scene at the airport where Hyman Roth gets shot. Right before [00:02:30] they shoot him, he says, "I'm a retired executive living on a pension." I'm a retired money manager living on investment income. The bad news is I have no active income, meaning I have no income from wages or salaries or from clients. The good news is I live on dividend and interest income and capital gains. Had losses, that's the bad news. The good news is I have no pressure. I think at age 78 it was a good swap to go from income-oriented to absence of pressure. Particularly my case, you mentioned [00:03:00] it very kindly, my wife and I have committed. We told Warren Buffett this nine years ago, asking for half isn't asking for enough, we intend File name: EP.19 - Leon Cooperman FINAL.mp3 1 to give away all our money. I was working 70-hour work weeks for charity, many people I didn't know. I'm happy with my decision. How has my life changed? I told everybody who asked me when I announced my retirement that my change would be as follows. I'm going to sleep an hour later in the morning. When I was in business I got up at 5:10, got in the office at 6:45. I'm going to go to the gym three times [00:03:30] a week to deal with my weight issue which I've carried all my life. Both of those I've done very religiously. The third thing I'm going to do, I have not done. That was I was going to learn how to bid in bridge. I have very good card sense and how to play a hand well but I don't know the bidding conventions. I have been so damn busy in retirement that I've not had the chance to take any bridge lessons. You hit on one other thing, I'm going to be more long-term oriented, be tax efficient. The great Warren Buffett, I guess, almost 40 years ago in one of his annual reports went through a hypothetical [00:04:00] example of every year you bought that year's hot stock, you've made 50%, sold it, paid your taxes and reinvest in what was left, the next year's stock make 15% as opposed to a 15% serial grower. At the end of 40 years you had thousands of times more money left in the long-term investment approach than in the trading approach. Now, of course, it was a hyperbola example because if you're trading your hope to get more than 15% when you go into that year's hot stock but I am more [00:04:30] long-term oriented, more tax conscious and also because I'm very heavily weighed in common stocks, because I think the market is fully valued and more likely to fall and go up a lot, I'm putting more money into non-equity deals or private deals, real estate and other kinds of deals where I know the people, where I have confidence in the people. Jonathan: That raises an interesting question. Obviously your circumstance is very different than most. The traditional rule has always been 60/40. This is a very vague rule, equities to bonds. [00:05:00] With interest rates where they are in the market- [crosstalk] Leon: No bonds. I think bonds offer return free risk, return free risk. Basically, if you take the 1.45% treasury, you tax effect it, that the people that are buying treasuries that are taxable probably have a 40% tax rate, so you keeps 60 of the 1.45, which is 84 basis points and the inflation rate is running 2% or more, basically you have a negative return on your capital. There are [00:05:30] many stocks you could buy that have dividend yields higher than the treasury yield and are growing. As much as I'm not overly enthusiastic about equities a class, I would say that they clearly are superior to fixed income and I own very little fixed income. Jonathan: If you were back your role as a portfolio strategist at Goldman, what would you be advising clients? Leon: I would say minimal exposure to bonds. Everybody has their own-- If I'm dealing with wealthy people [00:06:00] I tell them, "You're already wealthy. Do what makes you comfortable. If you're not comfortable don't do it." I'm comfortable having File name: EP.19 - Leon Cooperman FINAL.mp3 2 no fixed income, so I have stocks and cash. Stocks are infinitely better than bonds and I don't expect a lot from the stock market. Jonathan: Even the non FANG type of names, are their value in the smaller type of stuff? Leon: Yes. I've said this before, I'll repeat it again. We're really dealing with three stock markets. The first market, which is very well known and discovered is the [00:06:30] FANG market. That's the Googles, the Facebooks, the Amazons, the Microsofts of the world, and against the 1.4% bond rate they're not expensive. I went back, if you can give me a second, I went back and looked at the NIFTY 50 1972. In 1972, JP Morgan US through trust ruled the roost. They had a philosophy, only the right stock at any price. They were impervious to what they paid as long as they bought a world-class growth company. [00:07:00] In '72 they paid 65 times for Avon, 25 times for DOW, 48 times for Kodak, gone, 26 times for GE, 37 times for IBM, 34 times for Kmart, gone, 90 times for Polaroid, gone, 30 times for Revlon, almost gone, 31 times for Sears Roebuck, gone, 34 times to Kresge, gone. 41 times for Xerox. In 1972, those valuations were alongside a 10-year government of 6.5%. [00:07:30] The 10-year government at 1.45, it's hard to come up with the conclusion anything is overvalued, but I believe that the 10-year government is overvalued. I don't believe in using an overvalued instrument to discount a stream of earnings. That's the first market. As long as we avoid a recession and interest rates go up very gradually and modestly the FANG stocks are okay. In fact, in the family office, even though I'm a value investor, my biggest position is Google. I have a 4% position in Microsoft. I have 6% in Google. I got a little bit of [00:08:00] Facebook. I got a 2% position in Amazon. That's one market. Expensive but not ridiculously so. The second market, which is ridiculous, are the Robinhood market, and that's a bunch of 30-year-olds that are getting checks in the government that are trading in an environment of zero interest rates, zero commissions.
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