A (3:20)

Daniel E. Has popularized this idea. The, the founder of Spotify, which is a lot of the alpha, comes from people that have low hit rates, basically have a bunch of 10 crazy ideas and two of them end up being brilliant. Do you think there's friction between having a high hit rate of ideas and having some of the best ideas?

B (3:39)

Well, I think what you're talking about is, you know, in baseball terms, batting average versus slugging average. You know, some people, you know, like Ichiro from the Mariners had a really high batting average and on base, but he, he didn't hit for power. And some people are home run hitters and they hit 40 or 50 home runs, but they don't hit for average or get on base. Not to overemphasize Michael Lewis, who, you know, wrote the Big Short, but he also wrote the book Moneyball. There's that scene with Brad Pitt where the quant guy is saying, you know, you're not buying players, you're buying runs. And in order to get runs, you need to get on base. I think you have to know who you are. You know, some people are Ichiro and some people are, you know, Aaron Judge. You can make money either way. You got to kind of know who you are. I do believe that there are these big hits, as you sort of mentioned. You know, maybe once in a lifetime, maybe it happens more than once in a lifetime. Hopefully. You have to know who you are. But I do think you do need to be looking for those things. And, you know, we'll talk about, I've been lucky enough to have, you know, a handful of those things happen and that there's definitely an open mind that you have to have for those kind of things.

A (4:49)

Jeff Bezos uses this analogy, as in baseball, you could hit a grand slam. In business one time, you step up to Play and you could score 10,000 runs. This asymmetry and makes it very different than baseball.

B (5:03)

Yeah, yeah. There's no such thing as winning. Winning one at bat and winning the season, so to speak, or winning the World Series or winning multiple seasons is what you're saying. Yeah, no, absolutely.

A (5:11)

That would be very exciting. Very exciting game. If you hit it far enough, you just become the World Series champion.

B (5:18)

Well, baseball has got an attendance problem, so maybe that would be a good change.

A (5:23)

So you mentioned some of these big hits that you've had in your career. Let's start with the big short, arguably one of the most famous trades in finance history. How did that come about?

B (5:36)

Back in 2006, the peak of the real estate bubble might have been a year later. 2007 started crashing in that period and really crashed in 0809. So this was early. And one of the hard things about investing is when you're early. Sometimes people say when you're early, you're wrong. So we were a little bit early, but Eddie had come to me and said, well, one of our managers wants to set up a contract to buy credit default swaps, which essentially would be shorting the subprime real estate market. And he handed me a newsletter that Jim Grant had written. It's called the Jim Grant Interest Rate Observers. It's kind of a relatively arcane, boring type type newsletter. But he's been doing it for decades and decades, considered an expert in the credit markets. And so that document outlined a particular security was based on the subprime market. Some people on this call may not have lived through that as acutely as I did. Or others, you know, they were doing things like NINJA loans. What NINJA loan means is no income, no job, no assets. Or they would have something called a liar loan where you could state your income or you could state your net worth. And there was no actual fact checking. And so there was really bonkers stuff going on. And people were borrowing money more than 100% of their home. So, you know, like when you buy a car, sometimes they give you cash back where you have your credit card cash back. They were giving cash back on homes. You would buy a home for 100 cents and they'd give you three cents back. You'd get a hundred, you'd borrow 103% of the value of the home. So things were bonkers. But with a lot of things, things go on for longer than you think. And this newsletter basically outlined how crazy it was. And the crazy part was these subprime loans were then SECURITIZED The US Market has a very sophisticated securitized market. And the conforming loans are, you know, Fannie and Freddie are, are, are, are, are traded quite deeply. But even the subprime loans were then getting securitized and then they were raided by the rating agencies, S and P, Moody's, et cetera. And so this, this pile of loans would get rated and they would rate them aaa, aa, bbb, triple B being the lowest investment grade. And the Triple B was 92% into the stack, so to speak. I don't want to get too detailed, but basically with only 8% protection of the hundred. And so that was the main point, that this didn't make sense. That's what Jim Grant was saying. So then the second thing we did, and again, Eddie encouraged me to do this, and similar to his father, he kind of said, well, Bill, just go think about this for a few days. I don't want a quick answer. Investigate it, investigate it. You know, like this seems like a really good idea, but like, I don't know, it seems kind of crazy too, right? What are credit default swaps is a new thing, all this stuff, the rating agencies, why shouldn't we trust the rating agencies? They know what they're doing, et cetera. And so the next person I met was Greg Littman. We had a relationship with Deutsche bank. And Greg Whitman, as people may or may not know, was sort of the evangelist of this trade. And he had believed in this trade. He was the guy. I don't know if there's a scene in the movie or not, but the myth, urban myth, was that he would be wearing a T shirt, those white T shirts with the black lettering that said, and his T shirt said, I'm short your house. And he believed, not so much that he wanted anything negative to happen to people, but he believed this was crazy. And so he bet his career more or less on it, and had a proprietary position on the desk at Deutsche bank. But in order to fund that position because it had negative carry, he had to do these trades to sort of support the trade and keep it on. And so he was going around and around, meeting with all the hedge fund people in some sophisticated family offices like ourselves and explaining the trade. And so I met with him and he explained it. And basically what it came down to is that if housing prices didn't continue to go up or if they went down by even the smallest amount, these securitizations would be wiped out. And so just to put some numbers on it, you could buy these contracts and the cost of insurance, so to speak, depending on which one you bought, you would make 70 to 200 times your money. So it's not 10,000 times your money, but it was a lot. And you could do it, you know, very easily. There was unlimited supply of these contracts. They were just issuing them. It was just a piece of paper contract between you and somebody else. And we started doing that. And then luckily, I think our first trade was in October of 2006. The market started to go our direction. So we had the benefit like a lot of people didn't. We had the benefit of not being too early. And we never really had major losses on the trade because what would happen is if the trade went the other way, you would have to post collateral. And, and we never really had to post too much. And then we started winning and then we continued to do these things. We became very adept at understanding what the contracts were. We ended up doing CDS on Bear Stearns, Merrill lynch, some of the other financial people. We also did what they called the pigs trade, which was shorting the sovereign debt of Portugal, Italy, Greece and Spain, which, it was a big debt crisis at that time as well. So it was a big trade and we probably made triple digit millions of profit over a course of two or three years. And the only shame of it was we probably should have done more. You know, we didn't do enough.

A (11:28)

Whether it's the big short, the pig straight, all these trades in retrospect seem very easy. But talk about being in the heat of the moment where the market doesn't go with you right away.

B (11:39)

I mean, there were a few months where we were losing money and we had, because we weren't the most, the biggest person, we, we had what they call two way collateral. So we had a post collateral, sorry, one way collateral. We had a post and they didn't have to post. So we would have a trade where we were, you know, the, the broker would market. We might not have agreed with the mark, but they would market and they would say, send us the money, send us a million dollars. Send us $2 million, whatever it was. And that felt really bad. But we, we sized it in an amount. You know, we, we got a budget from Leonard that was an amount that he was willing to lose, which was actually quite a, quite a bit of money at the time. And so we had that sort of support. The second thing was the other way actually is sometimes when you're winning. My CFO at the time didn't believe in this trade, didn't understand it started to get these marks going the other way. And he was in disbelief. He says, well, we made $10 million or whatever we had made. So we actually started to get out of some of the trades early just to prove that we were. That it was real. You know, like, is it real? Is the money actually going to come in? And then the last thing, interestingly, on this trade was we were told up and down, you know, by. By people at Goldman Sachs and others, hey, you're never going to get paid on this. You know, they'll come up with some reason not to pay you. These contracts are very complicated. You're not going to get paid. And so we probably also, you know, truncated some of our money because when we, you know, Instead of making 70 to 1, we made 35 to 1 or 200 to 1. We stopped out at 100 to 1. We probably sold a little early because we just wanted to make sure that it was real. And it isn't always the case that you get paid in the end. You have to realize the money before you can count it.

A (13:30)

One of the complex things about these type of trades is that as a generalist, as a family officer, how do you know that you're not the dumbest person in the room? And how do you know that you know the topic well enough to be able to make these kind of traits?

B (13:47)

I think that's a good question. Have this saying, you know, it's not the fool who asks in that movie. Tom Hanks plays that character in the movie Big. And he basically isn't. There's this scene where, you know, there's something that doesn't make sense to him, and he. Well, he keeps saying, I don't get it. And then the guy sort of describes it and he says, yeah, yeah, but I don't get it. And so I think we're in that camp. And then I'll give you another favorite punchline of ours is, you know, victory moves from man to man. And so I wouldn't say that we're complete generalists. There's certainly areas that we don't travel in, but we really focused on being opportunistic and adaptable. And I think a lot of times when you talk to a hedge fund manager, they'll say something like, you know, I know this stock better than anybody else. You know, I know the management team, and, you know, I have the best model. And I actually think that can work against you because you have this sort of confirmation bias. You have this knowledge base that you have built up in the company, and Maybe the management team and you know, the switching costs are high. That's not our approach, you know, and one of the other things I talk to you about is that Seth Klarman comment about, you know, it's not that he's so smart, it's that he's paying attention to the right areas. And I think that's what we try to do. We're not trying to be the smartest guy in the room, we're just trying to be in the right rooms.

A (15:18)

And how do you cultivate the right mindset to be just enough insider to see the opportunities and outsider enough to know that conventional thinking is wrong?

B (15:29)

We like to think that we're spending a lot of our time, you know, having the right, having the right friends or the right peers. One of my neighbors called the other day and asked for a recommendation on a mason. I gave her the person that I use. And so the way I look at it is, you know, investing is more of a team game or can be a team game, particularly on the family office side. And so we're trying to cultivate knowledge, we're trying to, you know, we're trying to evaluate people and get ideas from our peers, from our friends. And so why do I, I don't need to come up with every idea. Even in the big short example, that wasn't our idea. It was just that we knew enough people and we were open minded enough to, to, to, to lean into the, lean into the opportunity.

A (16:19)

Think of different communities as different herds of sheep, pun intended. And I'm one of the sheep that tries to go into different herds. So I have the Silicon Valley herd, I have the family office herd, I have the institutional investor herd. And if you just do nothing else, bring up new ideas between the different herds, you could come up with some really good ideas that sound extremely first principle, but really just taking common sense from one herd and bringing it to another herd.

B (16:45)

I'll give you a little bit of, you know, an analog there which will fit your. What you're saying are we were relatively early. We weren't super early, but we started investing in 2017 and we invested with two people. And you know, and this is a good pattern recognition, I think. So the two people we invested in, one was sort of like 26 years old. He had been like a real estate agent who got into crypto. Not a financially trained person, you know, sort of somebody who was, you know, interested in the sector and was integrated, knew a lot about it, but wasn't classically trained. Let's just Say, and he was, as I mentioned, mid-20s. The other guy we invested with was in his 50s and he had kind of a consumer retail background. Then he had gone into venture capital in the consumer space and had been pretty successful in his own right, but then got the crypto bug himself. You know, early 2012, 2013, he was one of the earliest investors in Ethereum and other things. So he had made a lot of money, but he was a completely different guy. Right. He was a veteran. Maybe not a Wall street veteran exactly, but sort of a veteran investor, decades of experience. We invested with both. But I kind of like the fact that we were getting confirmation of this pattern, this use case from two different people, completely different people. And so that's a pattern we look for. So kind of what you're saying, we like when there's different people liking something, there's also people you probably have in your universe who are always pessimist, there's people who are always optimistic. And you also have to kind of calibrate everything like that. So, you know, when one of your tech guys calls you up and say, oh, this is the next new thing, they're always saying that, right? And again, I'm not saying they're wrong, sometimes they're right, but a lot of times you have to discount those people. But when you're somebody who's in their 50s or 60s or 70s, talks about something that's interesting from a tech point of view, that's interesting why that guy never invests in tech. So when you had a crypto guy in his 50s telling you he was all in that, that, that was pretty meaningful.

A (18:52)

On crypto, I had a similar experience where I, I went out and talked to fund managers and people and a lot of people were talking about the trade. They're like, this was levered. And then you leverage this and you hedge this and then you put out this token, you rug pull and all this stuff. And then I met a manager that explained it in very similar venture capital terms. I find the best founders early in the space, and I build a portfolio of people that I believe have the distance to create enduring franchises. And I invested in that guy because it was a venture schema. Now, I might have been predisposed to think old school into the space, but it's a manager that did well versus sometimes you could get caught onto this hype that this new asset class is completely different and unlike anything else. But usually there's some aspects of it that in some learnings you could bring from the past.

B (19:39)

Yeah, absolutely. And I think one reason why we were able to in both of those trades, the big short or even the crypto is that the crypto trades were venture investments. And people have a different mindset with venture. They don't mind losing all their money because there could be a hundred to 1,000 to one. I mean, one of the trades this guy did was truly a thousand to one. I mean, he was buying Solana tokens at pennies. And you know, that's over $200 a token right now. So. But it was money you were prepared to lose and you don't mark to market. And that's another, you know, thing I always tell people it's like watching water boil. It doesn't boil any faster and it can make you do, you know, get upset or you can emotionally impact your investing if you watch it too closely. And so sometimes if you sort of set it aside and don't pay attention as much, I think you might do better.

A (20:38)

Talk to me about how you avoid the temptation to just be busy and focus on the things that really move the needle.

B (20:46)

We used to have this term fizzy and it was, what it stood for was fake busy. And you know, people have this false sense that they have a busy schedule, you know, so I have a lot of people coming from Australia. I work, you know, for an Australian based family. So a lot of the Australians will come through New York and they'll fill their schedule up. You know, they'll have all these meetings back to back to back to back and they think that's productive. And maybe for a one week trip that is perfectly fine. You know, that does kind of make sense, but I ruthlessly try to avoid that myself. There's a bunch of things that, that you know, and I'll mention a few people's names, but you know, you know, there's John Cleese who, who is the comedian Monty Python fame. You know, he has this lecture on creativity and you can't be creative if you're running around, you know, juggling things, you know, meeting to meeting. It just doesn't work. You need to find this sort of quiet space. There's another guy that I like to read is, is a guy named Cal Newport. He's a computer science professor. I mean he's a little extreme, but he, he talks about like not answering emails, you know, and not picking up the phone and, you know, being kind of turned off, you know, unplugged people would say. And I, and to some extent I agree with that. So I think you have to be, you Know, sort of like at Leonard was not tied to a schedule. I don't want people intruding on my time. I want to be able to have blocks of time to do meaningful, deep work. And how do you do that? You got to turn your phone off. You got to schedule yourself in a certain way. You got to, you can't, you can't have little bits of pieces of time and expect to get things done. You need blocks of time. So I try, for example, not to have meetings on Friday. You know, I try to have Friday end of the week to kind of get the things done that I haven't been doing all week. And for the more, more immersive thinking.

A (22:41)

Type projects, this idea of conscious procrastinate, procrastinating. You're, you're procrastinating not because you're, you don't want to face the task, but because it's not the highest value thing you could be doing with your time.

B (22:55)

Yeah, absolutely. I mean, I don't know how your schedule is. You know, how do you, how are you, how do you get yourself to.

A (23:01)

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B (25:29)

That's kind of directionally what I'm suggesting is that is that you, you've almost conditioned your network to know, you know, like it's not that you're, you're not interested in the meeting or responding, you just respond on your own pace. And that makes a lot of sense to me.

A (25:48)

One of your other mentors, billionaire Seth Klarman, said we're not that smart. We're just hanging out in the right places. We touched on it a little bit, but what does it mean to hang out in the right places? And how do you operationalize that as an investment strategy?

B (26:02)

There's a couple of different things. I mean the punchline there might be the old one. Location, location, location. You'd rather own the worst house on the best street than the best house on the worst street. And like I said earlier, we're not staffed up to be better at. Some of the people out there are amazing at analyzing specific companies or in this case specific houses. But if you get the zip code right, you'll often do really well. Woody Allen would say, you know, 80% of life is showing up. And so we just spend our time trying to figure out where the most interesting things are. Hang out in the right areas. I'll give you a couple more sort of mantras that we have. We have this saying, don't let the great be the enemy of the good. And what that means is you Start doing work on something, you get some patterns, it's in the right neighborhood, you don't overthink it. And often what I've seen people do is they overthink something and they never buy it because they say, oh, this stock is a buy at $40 a share. It gets to 41 and they still don't buy it. And then that could be a 20 bagger or whatever. So one of the great investments, they sort of are so sure of themselves. They have this false sense of precision. We say we want to be vaguely right, then precisely wrong, things like that. The other thing, and maybe this is related, is we have the saying investing is not a game of perfect. And what I mean by that is that's actually an adaption. There was a book, a golf related book, I'm really into golf, but called Golf is not a Game of Perfect. And if anyone's played golf, you know that it's not an easy sport and it's a game of inches, but it's the six inches between your ears. It's all mental. A lot of it's mental. And then there's bad breaks, there's bad luck, there's wind, there's all sorts of things that can happen. And so you just have to understand investing is you're going to make mistakes. And there's no, there's no once you sort of give, forgive yourself for that. I think you actually will do a lot better. And you understand, you know that, that you mentioned earlier, you know, sometimes you have a high slugging percentage. Well, that must mean that you're failing a lot. And that's perfectly okay.

A (28:27)

You mentioned that trade where you thought you think it's worth $40. You don't buy it at 41. One of the mistakes I've made as an investor over and over, selling too early, it's up, you know, 2x. You might buy Bitcoin at $40, it goes up to $90. You think you're a genius and then, you know, 10 years later it's at 125,000. How do you, how do you resist the temptation to crystallize your trade? And how do you, how do you not sell too early?

B (28:56)

Well, this might not be a scientific thing, but we often will sell some sell half, you know, and, and, and you know, I think that's something that I learned. You mentioned venture. I know you spend time with some venture folks. You know, one thing, when you look at the venture market, there are these periods of time where the window is open. You know, you could have said 20, 20, 2021 was one of those times. Maybe we're in one of those times again. You're actually seeing the animal spirits come back to the public markets. You're seeing some pretty successful IPOs recently, but it's not a straight line, these things. So we do. One thing we do, particularly in the public market is we, we set a price target and a return profile and we're not afraid to trim, but we're also not afraid to add. And so what we try to do is is it possible to be adding and trimming and adding and trimming? Not that we trade every day, but the market's not perfect, as I mentioned before. And so we will be willing to sell some and keep some and then with the idea that if it goes back down, we'll buy it again. And we've done that very successfully. So I think that's a discipline. If you convince yourself that, hey, I'm going to take some money off the table, but I'm leaving some on the table and then you're really disciplined about buying it back if it's viable. Obviously the public stuff is more viable than venture. But the biggest mistake I see on the venture side is, is not to take a little bit off the table to then enable you to be more patient for the remaining.

A (30:37)

That's something I've. I've really changed my thinking over the last 10 years, which is it's all good if every at bat could be a hundred x or a thousand x. But if you don't have that at bat, if you ruin yourself, you lose the opportunity to make those at bats. Your expected zero, expected value is zero. And you'll see people going in and out of industries, in and out of careers because they forget rule number one, which is stay in the game. You need those at bats.

B (31:05)

A question, David. I mean, I don't know exactly your portfolio, but you must have things that have stayed longer than you would have originally anticipated. You know, things that you invested in in 2020, 2021 are still on the board. And I would imagine you're wishing some of that had been monetized so you can do the next thing, whatever that is.

A (31:26)

I haven't ran empirical, empirical numbers and I think that's something that, something that the mind is probably going to trick you on. But I have had things go both ways. I sold draft gangs close to the peak, which was my biggest trade. I also sold Palantir when I thought it was really good. And then it went up another 5x. I did not See that? I did not see that coming. Or Robin Hood as well. I think the way that I would reframe, rephrase what you're saying, is that the price of that asymmetry, of riding it up, is you have to sell, you have to take some off the table, which gives you the staying power to get that asymmetry. The mistake that I actually made in both of those trades is that I sold all of it. I should have sold some of it and let the rest of it ride and kind of avoided this binary thinking because there is that power line asymmetry. Even the public markets. Marc Andreessen has talked about this. He believes the best public investors actually run their portfolio like a power law.

B (32:26)

Something that somebody said to me one time. There was the hedge fund manager, Hugh Hendry, I don't know if you remember him. His firm was called Eclectica. And he was kind of more of a bearish guy. He was up, I think 30 or 40% in October of 2008. I mean, he was perfectly positioned at that point in time. And we met with him, we never invested with him, but he was a very interesting guy. And he had worked with a guy named Crispin Odie, who was another famous person out of the uk. And one of the things that he said that he was taught was Crispin had this line, can you imagine beans in the teens? And what he meant by that was this was, I guess soybeans could go into $15 of bushel or pound, whatever they're measured in. And they're trading at $2 right now, let's just say. And. But sometimes you have to sort of dream, you know, you have to have this sort of idea that, well, this could happen. And as you mentioned, like Palantir, when we had an opportunity to buy palantir privately at $5 a share, now it's I think 200.

A (33:34)

I bought in at about 471, I think.

B (33:36)

Yeah, so that was probably a similar round. And so it's one of these things where, you know, you have to have an imagination. Is it possible that defense tech primes, you know, are going to switch from the. The current four or five of them and switch to, you know, the Palantirs and the Andurils and the spacexes, Maybe, you know, maybe not. And by the way, you've already seen the move. I mean, those three companies I mentioned, I think have a market cap as big as all the traditional primes, if you add up, you know, Lockheed, General Dynamics, et cetera. So that's already happened, actually, Even though that 98% of the contracts are still with the original primes, the incumbents, that move already happened. It just happened in the last five years. So things like that happen all over the place like the climate change say oh this is a 1 in 100 year storm. Well, 1 in 100 year storms seem to be happening more and more. I think these 5 to 1, 10 to 1, 100 to 1 power laws are happening every day constantly and you just have to be open minded to find them.

A (34:43)

Tell me about Terrace Tower Group. What are you guys focused on today?

B (34:48)

We're one of the two co founders of Westfield. Westfield was founded by Frank Lowy and John Saunders, immigrants World War II, post World War II to Australia, basically penniless. Partnered together, built a really great real estate franchise. They were partners about 30 years. Saunders went off on his own, took his side of the assets, founded Terrace Tower and then he passed away about 10 years later. And so what, what happened there was his two daughters owned the business but they weren't really involved in the business. And so the, the business was run by a board proxy for a while and then was ultimately taken over by, by his son in law Richard Weinberg, who's my CEO and main family principal. And Richard made sort of three important points and that'll kind of explain you ask like what do we do or why do we do it. First thing was is he didn't want to have the same real estate assets. So the real estate assets we own are retail and office, which even 15 years ago, and I met Richard 15 years ago, weren't the best. I mean they weren't data centers or you know, industrial logistics or healthcare facilities or whatever other areas you think are the right ones. Retail in Australia actually is a lot better than the US. You're anchored by grocery, which is a 80% duopoly. There's less square footage for retail by a big margin, things like that, but it's still not a great, great business. So he had a view, he was a real estate by background person, but he had a view that I want to diversify from real estate. I want to have different assets. The second thing that he decided, and this sort of leads to me, the second two things I guess was that he wanted to have an internal team. He didn't want to just turn the money over. You picked the bank, ubs, Goldman, JP Morgan, et cetera. He had a view that the Americans had this thing, this family office construct this sophisticated idea that you should have your own people. And what he meant by that is you want your own somebody who's your fiduciary, sitting on your side of the table, looking out for your best interest. And too often, and again, I'm not trying to beat up the wealth community, but too often it's a little more one size fits all. It's suitable, but maybe not perfect. And so he wanted something because he's a larger family, he wanted a more custom bespoke model that fit, hit whatever he wanted. And then the last bit, and this will lead directly to me, was he wanted to be outward facing. So Australia is a, is a wonderful, wonderful country. They call it the lucky country. It has so many, so many positive attributes, but it's 10,000 miles away. You know, it's not exactly the center of financial innovation. The investable opportunities in Australia are limited. So he had a view that as the size of wealth, that he wanted to be a global investor. And his view, and he spends a lot of time in the us, has a residence in the US was that the US was the best location. We have the best talent, we have the most innovation. Despite all the whinging that people do about what's going on in this country, it's still really the best country to be in. It's still the most opportunistic, entrepreneurial, most depthful investment market in the world. And he wanted to have feet on the street here in New York, here in the States. He didn't want to be a tourist. A lot of times when you're overseas, you get the investments that are sort of second, third hand, nobody else wanted and they kind of fall into your lap. He wanted to have a better network and more first principles, empirical network in the US and so that's kind of how we started. That was about 15 years ago. We had our first conversation. We were at that time 100% real estate. Now we're closing on 5050 and I spend my time managing the non real estate 50 and that's split, you know, between equity and credit, roughly 60, 40. But it's not your, it's not your father's 60, 40. I mean it's not the S and P and the Barclays aggregate. It's, you know, the equity is public securities. We manage at this point majority of it ourselves. We do have a cadre of outside managers, active managers as well. And then we do a lot in the private space, private equity venture and a lot of directs and other strategic investing. And then on the credit side, it's entirely private credit. We don't do anything normal. We're not doing high yield, we're not doing investment grade. We generally don't hold term deposits or things like that. We have cash around here and there, but we don't do the traditional stuff. So everything we do is very bespoke, very opportunistic. And we now have built a team. We have a 12 person team, 10 of whom are in Sydney. I sit in New York, although I spend about 10 or 11 weeks a year in Sydney right now.

A (39:57)

I had the pleasure of having dinner with you and Richard when he was in town. A lot of people want to have these, like, very different portfolios. How'd that happen? How did you go from concept to executing such an idiosyncratic portfolio? And what were some of the roadblocks?

B (40:13)

Well, yeah, it's a fair question. It was not a straight line. Richard and I met in the summer of 2010 and as I mentioned, we were 100% real estate. So there was definitely an inertia. And this is true for all families. So anyone who builds a business, whether that be a private equity business or real estate business, they're always biased to what I'd call bricks and mortar. They want physical things. They don't trust the ones and the zeros or owning fractional things. And part of it was just convincing. Just the initial, Even the first 25 million or 50 million or whatever it was, to go outside of real estate was a big push, big step. And then initially we, you know, because of sort of that edict of mistrust, you know, concern about what's going to, you know, some things we don't control. There was this view that we should only do hedge funds because hedge funds theoretically are hedged or are less risky. Not always the case, but in theory they are. And so we started out with hedge funds. And so our first investments were in 2011. Looking back, you probably should have been long, only, you know, there was a big run over the last 15 years. You would have outperformed by being long most of that time. So that's kind of how it started. And it was bits and pieces. The way we had another inflection or step function of change was we had an asset sale in 2018. Our biggest asset, we sold half of it, ironically, to the successor company to Westfield, was a listed REIT in Australia called Center Group. And we had a big pile of cash. The price was billion four divided by two, so it was north of $700 million. And we had this big pile of cash. And we said, well, I was given this task of replacing the income of what we had sold, it's like, well, you owe us this for distributions. And so that's how we got into private credit. And again, another thing, I know it's a hot topic, a hotly debated topic right now in private credit. But private credit in 2018, particularly in Australia, was kind of. Nobody knew about it. I mean, there is no high yield market in Australia. There's no syndicated bank loan to speak of market in Australia. There's some private equity, but not as much. Most people buy investment grade bank bonds or some corporate bonds. And there's something called hybrids, which are bank hybrids that are actually being phased out. But basically nobody really knew what private credit was in Australia. That's all changed. But back then it was a big push. So for the first year, every private credit investment we made, I had to go to the full board, every single one. And that relented. So you could see, even now it looks like pretty nice that we've moved from 100 to 50, 50. We do this, this and this. But it was not a straight line and it wasn't without some, you know, we had to prove at each level that we were doing the right things and that we were thinking of the risks in a sensible way.

A (43:26)

Going back to 1989 when you started at Salomon Brothers and I was four years old, what's one piece of advice that you would have given yourself younger, Bill, that would have either accelerated your career or helped you avoid mistakes?

B (43:42)

I'll give you some advice that my mother used to give me, which I think is a good one. She had this saying, touch it once and you know, it related to some of the things we talked about. But basically when you touch something, finish it, don't think about it too much. Don't have this sort of switching cost. You know, you make errors when you have to go back to it and figure out know what page you were on. So that's one thing. There's a cartoon that I've seen in the New York Times. I forget the person who did it, but it has this little Venn diagram and it has one circle that says things that matter. And then the other ven circle is things you can control. And then the overlap is the things you should focus on. And again, simple punchline, but so, so important. And I think if everyone went around asking themselves every day, is this something I can control or impact? Is this something that matters? And if it does both, then do it. And if it doesn't do both, then don't do it. Obviously you got to do Things that, you know, if you work for somebody or whatever, there's obviously some of those tasks. But once you have some autonomy and some agency, I think that's the most incredible thing to say. And then I'll just use this nothing impossible mantra that we have. So the story was when Saunders came over to Australia, he had this dictionary, an English dictionary. I don't think he knew English very well. And he scratched out the word impossible because he obviously was on this journey. That was amazing and incredible. But again, I kind of have this thing, whether it's from my investment banking days, when you were given something that seemed like an impossible task and you had to get it done, you just don't give up. You gotta have a resource and don't question it as quickly because often things are more possible than you can imagine.

A (45:42)

The way that operationalize impossible or the creation of new asset classes. I've had the privilege to interview people that literally create new asset classes. And the best way that that's been articulated is similar to Clayne Christensen's adoption curve. Look for your true believer. Look for the early adopters early and keep on messaging your narrative over and over into the market and keep on getting the early adopters then, then the early majority, then the late majority, and eventually the market will coalesce to you and will will come around to your, to your style of thinking. But you have to sequence in such a way that you're hitting the people that are most open to new messages early on. And that's how you really operationalize impossible.

B (46:27)

Yeah. And I think what we're trying to do, just to dovetail it to what I said earlier, we're trying to meet as many of those people, evangelists as possible. And I think our advantage is that other than a few people, most people only have one of those in their life. They only do that once we have the opportunity. The idea is that we could do it many, many times. The other thing that I'll just mention something again, it's a newspaper thing. People don't really read newspapers the same way they used to, or at all. But one of the things I used to do is I used to read the obituaries when a famous person would pass away and I would read it. And often I was struck by they were able to accomplish that thing that you knew them for. It wasn't always at 20 years old or 25 years old or 30 years old. You asked me what would I give advice. People don't always figure stuff out right away. So some of the best ideas happened when people were later in life, they had some other career or whatever, and then they went a different direction. It's that perspective that things can change later and you can make a power law. Not everything happens when you're in your 20s. If you miss it, you could have a power law execution in your 30s or 40s or much later in life.

A (47:50)

Not everybody's a freshman dropout from Harvard, although I did just interview one last week, Stephen Wang. On that note, Bill, thanks so much for taking the time. I know it's very precious and looking forward to continuing this conversation in person very soon.

B (48:03)

Absolutely. Thank you so much. David.

A (48:06)

Thank you. That's it for today's episode of How I Invest. If this conversation gave you new insights or ideas, do me a quick favor. Share with one person, your network, who'd find it valuable or leave a short review wherever you listen. This helps more investors discover the show and keeps us bringing you these conversations week after week. Thank you for your continued support.