How to Earn Stock Market Returns With Half the Risk

Summary

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Podcast Summary: The Compound and Friends

Episode: How to Earn Stock Market Returns With Half the Risk
Date: September 26, 2025
Hosts: Josh Brown, Michael Batnick
Special Guest: Steve Romick (FPA Crescent Fund)

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Main Theme & Purpose

This episode dives deep with legendary investor Steve Romick, lead portfolio manager for the FPA Crescent Fund, about his three decades of value-focused, risk-managed investing. The conversation covers Romick’s approach to asset allocation, risk management versus upside capture, navigating market manias and crashes, adapting strategies over time, and why his flexible “go anywhere” mandate enables him to earn equity-like returns with much less risk and volatility than the market.

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Key Topics & Insights

1. Opening Stories & Romick’s Background

[00:00–09:59]

• The episode starts with personal stories about Malibu wildfires and their impact, segueing into Josh introducing Steve Romick.
• Romick’s investing journey: He started FPA Crescent in 1996 to fill a gap for a fund with flexibility to invest across the entire capital structure—stocks, bonds, cash, alternatives—rather than being siloed by asset class or style.

Notable Quote (Romick):

“There really wasn’t anybody that could kind of look across the landscape and the capital structure to kind of create that, look at a breadth of opportunity. And so why don’t I just create that?” [10:00]

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2. The “Go Anywhere” Discipline: Opportunity Drives Allocation

[10:00–13:45]

• Unlike traditional funds tied to fixed allocations (e.g., 60/40 stocks/bonds), Crescent’s allocation is a byproduct of bottom-up opportunity, not a top-down decision.
• When they see few opportunities, cash builds; when bargains abound, risk assets rise.
• Romick emphasizes risk management ("risk first") but notes that upside capture is equally important for long-term compounding—not just defense.

Notable Quote (Romick):

“It's the security selection... the allocation is a byproduct of what we’re finding as opportunity. If we see things that are attractive … we’re going to put capital [to work] regardless of the environment.” [11:21]

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3. Surviving Bubbles, Performance Cycles, and Investor Behavior

[13:46–20:59]

• Josh Brown highlights Romick’s long-term outperformance—even through periods where his style was out of favor like the late 1990s tech bubble.
• Romick recalls being on the cover of Money magazine in 1998, then underperforming the mania, losing most of his assets under management, but preserving capital and ultimately outpacing the market post-crash.
• Cites Jean-Marie Eveillard’s mantra: “I would rather lose half my clients than half my clients’ money.”
• Importance of avoiding “binary disasters” (zeroes like eToys) and “valuation disasters” (overpaying for great companies, e.g., Cisco at 120x earnings).

Notable Quote (Romick):

“Returns are driven not just by what you own, but what you don’t own. If you’re able to avoid some of these big disasters... you can see them coming. Didn’t know when, but you knew it didn’t make sense.” [20:18]

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4. Value Investing: Evolving Beyond Classic Metrics

[21:00–32:00]

• Value investing is not just about low P/Es or asset discounts anymore, but about finding great businesses at reasonable prices and adapting as the world changes.
• Example: Avoided dot-coms in the ‘90s for valuation reasons, but later bought Microsoft, Google, Meta, and Netflix when they got cheap amid controversy or cyclical fear.
• Emphasis on understanding the future earnings/cash flow stream and “not being dogmatic” about value.

Notable Quotes:

• Romick: “We tend to lean into businesses when people don’t like them ... we make a lot of money if they end up being something better.” [25:53]
• “Protection is still a B—it's just not the balance sheet, it’s the business.” [29:21]

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5. Position Sizing, Catalysts and Conviction

[38:00–41:20]

• Cheapness alone isn’t enough; conviction comes from understanding the business, management, and potential catalysts.
• Larger portfolio positions go to businesses with strong fundamentals, capable management, and evident or plausible turnaround triggers.

Notable Quote (Romick):

“If you have the right management team allocating capital well, good things happen to cheap stocks.” [38:23]

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6. The Dangers of Value Traps, Defiance, and Egos

[41:28–44:27]

• Some value investors doggedly defend their picks (“the market’s wrong!”) and ride failures to zero.
• Romick notes the importance of being able to admit mistakes, avoid ego traps, and move on from mistakes quickly.
• He credits his personal and professional environment for teaching him humility and learning from error, not public stubbornness.

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7. Asset Allocation and Opportunistic Shifts

[45:14–47:09]

• FPA Crescent shifts between stocks, cash, bonds, and sometimes shorts, based on the attractiveness of opportunities.
• Prefers credit risk over interest rate risk in bonds, but finds current high-yield unattractive due to low spreads and weak covenants.
• Noted that “private credit” has shifted some risk away from public high-yield.

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8. The Perils and Speed of Today’s Markets

[47:38–49:45]

• Markets move faster now—one must do the work in advance and be ready to deploy capital quickly when selloffs occur, as the window to act shortens.

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9. Gold, Digital Assets, and “Alternative Diversifiers”

[49:49–50:37] [66:25–67:36]

• Romick doesn’t hold gold or digital assets—he can’t determine intrinsic value or see sufficient additive value in his approach for gold.
• On digital assets like Bitcoin: Acknowledges their reality but will not own what he can’t value with conviction.

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10. “Half the Risk”: Track Record, Volatility, and Skill vs. Luck

[50:37–53:24]

• Chart review: Crescent has matched the S&P 500 in annualized returns since inception, with only half the maximum drawdown (28% vs. 55%) and a third less volatility.
• Romick stresses that this lower volatility and reduced drawdowns flow from process (risk management and security selection), not market timing.

Notable Quotes:

• “Our goal is to deliver equity rates of return and avoid permanent impairment of capital. ... Volatility is just things going up and down.” [51:23]
• Michael Batnick: “This is evidence that this is skill. Because being able to keep track with the S&P with a third less volatility, that’s not luck. You’ve done this for three decades.” [52:58]

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11. Current Market Conditions, Macro, and the Future

[54:02–58:50]

• Net equity exposure has trended lower over the past couple years due to unattractive risk/reward in most equities, not a macro forecast.
• Process is driven by bottom-up, case-by-case analysis, not forecasts about the Fed or economic cycles.
• Macro is accounted for in scenario modeling but isn’t the driver of portfolio decisions.

Notable Quote (Romick):

“We build a low, base, high [model] looking out over the next two, three years or longer... trying to say, OK, what can happen if the company really executes?” [56:33]

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12. AI, Technology, and Structural Change

[58:17–62:45]

• AI’s effect on margins will be industry-specific; some margin gains may be competed away, others (like in biotech, with cheaper/faster new drugs) may persist.
• “AI is a real benefit for IT services...But a lot of these phone centers...are going to be disintermediated because of that. Everybody’s going to migrate in that direction.” [61:43]
• The broader (second-order) productivity gains from AI have not yet been felt; if they aren’t, the immense investment in AI infrastructure could look ill-advised.

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13. Passive Investing, ETFs, and Hope for the Future

[67:40–69:32]

• FPA offers an active ETF with a subset of Crescent’s large cap holdings (“FPA Global”—ticker FPAG), recognizing ETF size limits with small caps.
• Romick is optimistic: As more money flows to passive and quant, more opportunities emerge for active managers willing to do deep work and wait patiently.

“I’m actually more excited today than I was 10 years ago. ... It gives people like us a greater potential opportunity.” [69:18]

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Notable Quotes

• On risk first, upside second:
  “Value investors who are no longer in business, sadly, because they were risk protection first, downside management, but they forgot about the upside.” – Steve Romick [13:45]
• On why opportunity, not allocation rules:
  “Cash becomes a residual byproduct of our, of our investment process. So we’ll pull down from that cash repository when we see lots to do, and when we don’t, cash builds.” – Steve Romick [12:04]
• On avoiding dogma:
  “Being able to keep pace with the S&P for the last three and five years despite having a cash allocation, a bond allocation, and a value discipline...How did you survive? Because nobody else did.” – Michael Batnick [25:49]
• On selling losers & humility:
  “You have to have the intellectual integrity to question yourself. ... Defiance doesn’t get you anywhere.” – Steve Romick [43:16]

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Important Timestamps

| Segment | Timestamps | Summary | |-------------------------------------------|---------------|-----------------------------------------------------------------------| | Malibu wildfire stories, intro | [00:00–09:59] | Personal stories lead into investing philosophy and guest background. | | The “gap” in funds, flexible mandate | [10:00–13:45] | Why Romick started FPA Crescent; go-anywhere principles. | | Surviving bubbles & bear markets | [13:46–20:59] | How Romick managed fund redemptions and style-drift pressure. | | Value investing’s evolution | [21:00–32:00] | Why valuation is necessary but not sufficient; adapting over decades. | | Catalysts, conviction, position sizing | [38:00–41:20] | Sizing based on business & catalyst, not cheapness alone. | | Value traps & intellectual honesty | [41:28–44:27] | Avoiding ego and public stubbornness. | | Asset allocation, bonds, and shorts | [45:14–47:09] | How Crescent manages risk with flexible allocations. | | Speed of opportunity today | [47:38–49:45] | Need to do work in advance; V-shaped recoveries. | | Gold, digital assets, and their limits | [49:49–50:37], [66:25–67:36] | Why Crescent shuns gold/crypto. | | Returns, volatility, “half the risk” | [50:37–53:24] | Crescent has equity-like returns with less drawdown and vol. | | Macro & process | [54:02–58:50] | Macro is scenario input, not the driver of decisions. | | AI, productivity & industry effects | [58:17–62:45] | Where and how AI could pay off (or not) for broader markets. | | ETFs, passives, hope for active | [67:40–69:32] | New ETF offering; hope for future active outperformance. |

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Memorable Moments

• Josh Brown comparing Romick’s drawdown chart to “a string of hit movies.” [14:53]
• Mutual ribbing about the Money magazine cover: “I really think the reason we had any money left was because people either felt sorry for me, or forgot they had money with me.” – Romick [17:28]

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Takeaways for Listeners

• Romick’s “go-anywhere” discipline and risk-first mindset allowed his fund to sidestep major blowups, withstand periods out of favor, and compound wealth over time.
• Flexibility, critical thinking, and willingness to evolve are essential for long-term survival in investing.
• True value investing in 2025 means being business analysts, not just screeners of low P/E stocks.
• Conviction should be paired with humility and a readiness to question assumptions.
• Passive flows and market shifts may actually create more inefficiency and opportunity for active managers focused on analysis and downside protection.

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Closing Thought:

“Our goal is to deliver equity rates of return and avoid permanent impairment of capital. ... Volatility is just things going up and down the road.” – Steve Romick [51:23]

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Listeners will come away with a clear picture of why disciplined, risk-aware investing that remains flexible and open-minded can deliver competitive returns over the long haul—even as markets, narratives, and technologies change.

Transcript

[Josh Brown]

So I was just in. I was just in la and I drove for the first time through.

[Michael Batnik]

Thank you.

[Josh Brown]

Drove through Malibu, like, on the PCH and, you know, on the way to lax. So you got to go through. I was in. I was in the. I was in, like, the Thousand Oaks area, Westlake Village. So you had to drive through the canyon down Malibu. And I hadn't seen it yet because this happened when? January. Okay. I could not believe the destruction. Like, a thousand. It seemed like a thousand lots were just empty.

[Steve Romick]

I drove it for my first time myself this last weekend.

[Josh Brown]

Oh, okay.

[Steve Romick]

Because I have such ptsd.

[Josh Brown]

We might have been on the same road at the same time going the.

[Steve Romick]

Opposite direction, you know, for a wedding. But it was. I went through the Palisades, and I've just not been able to bring myself to drive through.

[Josh Brown]

I have never seen anything like this.

[Steve Romick]

Dozens of friends have lost their homes.

[Josh Brown]

Yeah. It looked hard to describe, but, like, the lots where the homes used to be are separated by, like, fences or something. They used to be. So it's just lot after lot, and it's. I think it's thousands of them that were on the beach where these things were burned down to the foundation. You just see, like, concrete and wreckage, and it go. It feels like it goes on for 10 miles. I don't know.

[Steve Romick]

Yeah, it's from Santa Monica all the way up to Malibu. So 10 miles is exactly right, I would guess.

[Josh Brown]

And I don't know this for sure. That's gotta be in dollar value. The biggest destruction of, like, individual people's properties that we've ever seen.

[Steve Romick]

100%.

[Josh Brown]

Like, I know Maui was really bad, and I know California's had wildfires.

[Steve Romick]

I don't know how to inflation adjust Pompeii, but.

[Josh Brown]

Yeah. No, it reminded me of the Chicago fire. Not that I was around for it, but, like, the things that you read about it, where a quarter of the city burned down. That's what this looked like to me. And I was just. I was just blown away by it.

[Steve Romick]

Yeah, we were. We could not get to our home for. Well, we were told to evacuate. We were out for 10 days. I was able to sneak back in, you know, over the first five days. Then I wasn't. The National Guard came in and I couldn't get back in. But it's a great advertisement, actually, for Amazon, because I got back and somehow packages were at my front door.

[Josh Brown]

Oh, my God.

[Steve Romick]

I mean it.

[Josh Brown]

Delivering in an apocalypse.

[Steve Romick]

Yeah.

[Josh Brown]

I don't know how so. My brother lives in Calabasas and they Were evacuated twice from their neighborhood. And thank God nothing happened. But like twice. They just had to go to the in laws and just you. You watch the ring camera and you'll.

[Steve Romick]

Oh. So they were up in the hills in Calabasas. Yeah. It's horrifying. I grew up out there. That's where my old stomping ground.

[Josh Brown]

That's a really cool part of the country. That I hadn't spent a lot of time, but I was there for a couple days this past weekend, and somebody told me it's like a coal town. So like a company town. Like all the wealth originally in that area is from Amgen. Is that true?

[Steve Romick]

Well, not originally, no. Amgen wasn't.

[Josh Brown]

I mean, like, wasn't a thought.

[Steve Romick]

But after Amgen became the Mansions, the McMansions, later on, Amgen was not a large enough employer to develop Calabasas.

[Michael Batnik]

Okay, Steve, you remember where this picture was taken?

[Steve Romick]

Oh, God. The gat photographer promised. Promised me that he was only gonna take that picture with sunglasses. Cause I wouldn't do it. And I said I look like a. Can I say this program? Okay. You know, like I, you know, I just, I'm. I'm 35 years old and, and, you know, cover of Money magazine. The last thing I want to do is knowing the ebbs and flows of the markets. And you're not always going to be, you know, on the hit parade. And the last thing I'm going to want is to have a photograph of myself with sunglasses. But of course.

[Josh Brown]

Are there palm trees, too?

[Steve Romick]

Yes.

[Josh Brown]

It's like the kiss of death.

[Michael Batnik]

You look like Aaron Eckhart in that picture.

[Josh Brown]

No, take it down. We'll put it up later in the show. We'll put it up later in the show.

[Steve Romick]

Can you not?

[Josh Brown]

No, we're too late. I want to know. I want to know all about it.

[Steve Romick]

I'll be a sponsor. Just so you don't put that up.

[Josh Brown]

Oh, it's going up. It's definitely going up. Would you consider me to be a wife guy?

[Michael Batnik]

I don't know what that means. A wife guy.

[Steve Romick]

Does anybody here know what that means?

[Michael Batnik]

A wife guy? No.

[Josh Brown]

Nobody knows what that is without knowing what you mean.

[Michael Batnik]

No.

[Josh Brown]

Yeah, somebody told me. I'm a wife guy. One of my cousins told me this. I'm like, what do you mean? He's like, I don't know. Like, you're always doing stuff with your wife. I'm like, well, don't. Most of us. He's like, no, you do, like guy stuff, but you bring your wife. I Don't know, do I?

[Michael Batnik]

That's not. That's not true.

[Josh Brown]

Do you feel like I do that?

[Michael Batnik]

That's not true. I mean, you have brought sprinkles to stuff, but, like.

[Josh Brown]

So is it sort of true you're.

[Michael Batnik]

Not a wife guy, but I wouldn't like a wife?

[Steve Romick]

You're looking at me like I have a point of view here. I just met you guys.

[Josh Brown]

Are you a wife guy? Would you say you're a wife guy?

[Steve Romick]

If my wife listens to the PODC, I'm 100% a wife guy.

[Josh Brown]

No, it doesn't mean if you're not a wife guy, you don't like your wife. It's more like there are guys that will bring their wives to stuff.

[Michael Batnik]

Not me. I'm absolutely not.

[Josh Brown]

You're not a wife guy? I'm not a wife guy, but I am.

[Michael Batnik]

I love my wife, but not in that context.

[Josh Brown]

You love her enough not to subject you to the version of yourself when you're with your boys.

[Michael Batnik]

That's exactly right.

[Josh Brown]

Okay. I always thought that of myself, too, but I guess I'm not.

[Michael Batnik]

No, you are not.

[Josh Brown]

I am not. All right. I'm relieved now. I don't know. It seems like you're kind of a wife guy. I really am.

[Michael Batnik]

That's an interesting thing to say somebody.

[Josh Brown]

Yeah, it's a weird. It's a weird thing.

[Michael Batnik]

So, making up terms, but you have.

[Josh Brown]

Friends that you know for sure are wife guys.

[Michael Batnik]

Hate wife guys.

[Josh Brown]

All right, let's go, Jon.

[Steve Romick]

This is called easing into the financial side of the discussion.

[Josh Brown]

Before I insult any of the wife guys in the audience. We love you. We love your wife friends. We support wives on this show. Oh, of course we do. All right, all right. Thank you, John.

[Michael Batnik]

Whoa, whoa, whoa. Stop the clock. A word from our sponsor. Today's show is sponsored by Public. Public is the investing platform for those who take it seriously. You can build a multi asset portfolio of stocks, bonds, options, crypto and more. You can also access industry leaning yields like the 3.8% APY you can earn on your cash with no fees or minimums.

[Josh Brown]

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[Michael Batnik]

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[Josh Brown]

Full disclosures in podcast Description Today's show.

[Michael Batnik]

Is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute.

[Josh Brown]

That's right, Michael. Capturing value in fixed income is not easy. But bond markets are massive, murky and let's be real, lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard.

[Michael Batnik]

At Vanguard, institutional equality isn't a tagline, it's a commitment to your clients. We're talking top grade products across the board of over 80 bond funds actively managed by a 200 person global squad of sector specialists, analysts and traders. These folks live and breathe fixed income.

[Josh Brown]

So if you're looking to give your clients consistent results year in and year out, go see the record for yourself. Vanguard.com audio that's vanguard.com audio all investing is subject to risk.

[Michael Batnik]

Vanguard Marketing Corporation Distributor.

[Josh Brown]

Welcome to the compound and friends. All opinions expressed by Josh Brown, Michael Batnik and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Ladies and gentlemen, welcome to the Compounded Friends, the best investment podcast in the world. John is here. Nicole Duncan is here. Our friend Steve Schaefer in the house. Steve, you sit in a lot of these, bro. We should have like a dedicated chair for you. You like being here? You into it? All right. All right. Thanks Steve. We have a very special guest. I called him a legend when he walked in today. I read his stuff over the years. I've heard his name over and over again. He is highly specifically, I would say revered by a certain component of the investment market. My first success exposure to your research through MEB Faber. MEB always shouts your stuff out on the idea farm. Do you know that?

[Steve Romick]

Sure. I didn't know we always say that.

[Josh Brown]

But like, he's a big fan of yours too. And so am I. Steve Romick joined the FPA FPA in 1996. He serves on FPA's management committee and as a co portfolio manager for FPA's flagship global asset allocation fund, FPA Crescent. You started that fund three decades ago, Steve. I don't know if you know that.

[Steve Romick]

I do know that.

[Josh Brown]

FPA is a Los Angeles based institutional money management firm practicing a disciplined approach to value investing with approximately $30 billion across multiple strategies. He is a multi year award winner in the mutual fund community and someone who has earned Tons of respect over the last few decades. We're so excited to have you here. Thank you for joining us.

[Steve Romick]

Thanks for having me.

[Josh Brown]

Did Steve make you come? He did all right.

[Steve Romick]

I really tried to get out of it.

[Josh Brown]

He did the right thing. We're going to have so much fun today. I promise. I promise.

[Michael Batnik]

Steve, you were a young man when you had that, when you got the responsibility.

[Steve Romick]

No, I think he just, I think he just called me old.

[Josh Brown]

No, it would have been funny if he ended the sentence. You were a young man.

[Michael Batnik]

You were young once.

[Steve Romick]

I was young once.

[Michael Batnik]

But you had a lot of responsibility as a relatively young man.

[Steve Romick]

I did.

[Michael Batnik]

That's impressive.

[Steve Romick]

Well, I started working for a hedge fund back in the mid-80s and I realized there was kind of a gap in the market. There wasn't a public fund that really kind of served my interest. And so I said, why don't I just create one? And so I did.

[Josh Brown]

What was the gap?

[Steve Romick]

Well, the go anywhere fund, everybody, you know, a lot of investment part. There weren't as many investment partnerships then as there are now. And there's fewer now than there were 10 years ago, I would guess. But back then there was, you know, you were, you were really siloed. You were a large cap investor, you're a small cap investor, you were a US investor or national, you were debt or equity. And if you were debt, you were high yield. You were, or you were, you were high grade. And so there really wasn't anybody that could kind of look across the landscape and the capital structure to kind of create that, look at a breadth of opportunity. And so why don't I just create that?

[Michael Batnik]

You were 60, 40 before 60, 40 was a thing.

[Josh Brown]

It's a really great point. Like a lot of the most well known investors or even asset management firms, probably not recently, but over the long term or throughout the history, you became known as a bond shop or a stock shop or these are growth guys, these are value guys. The ability to do what you thought makes sense in that moment was probably where the big gap was.

[Steve Romick]

Yeah, I mean, at moments in time, at moments and we will look like other people and we'll own a lot of stocks that other people might own. At a point in time is. The crowd isn't always wrong, but often it's not always right. And not to be able to have that, that, that flexibility to do something different is. Can be problematic.

[Josh Brown]

What's the hardest part of your job? The stock selection itself or choosing the allocation levels for the different asset classes that could be in your in your fund.

[Steve Romick]

It's the security selection. I'm going to broaden it up. This is not stock, Whether it's stock or bonds, It's a security selection because the allocation is a byproduct of what we're finding as opportunity. We don't make an allocation decision, oh, we want to be 30% in cash, 20% in cash. If we see things that are attractive, offer good risk rewards where we can protect our capital on the downside, and then see good optionality on the upside, we're going to go and put capital regardless of the environment.

[Josh Brown]

So if you see 50 stocks that you just absolutely have to have because you recognize there's an opportunity there, you don't have a problem taking down your bond exposure because you're not up against a wall of, hey, you're supposed to be 20%, this many bonds, 20, 30% stock, like, you know, cash exposure.

[Steve Romick]

Because we don't actually have. We don't have much bond exposure at all today. We can dive into that if you'd like a little bit. But, you know, yeah, we. It's. It's cash. Cash becomes a residual byproduct of our, of our investment process. So we'll pull down from that cash repository when we see lots to do, and when we don't, we, you know, cash builds.

[Josh Brown]

I want to start by quoting you. Is that okay?

[Steve Romick]

Sure. Nobody else does.

[Josh Brown]

All right. You said this year, earlier this year, in the midst of the, the, the, the tariff tantrum. I don't know. Do we have a name for what went on in March?

[Michael Batnik]

Tariff tantrum.

[Josh Brown]

Tariff tantrum. Okay. You said this a decade ago, I gave a speech to the CFA Society in Chicago and said the one thing you shouldn't be surprised by is surprises. Nothing's ever certain. At the end of the year, more than 40% of investors thought there was less than a 10% probability of a stock market crash during the depths of COVID in 2020, less than 15% of investors thought there was a less than 10% probability of a stock market crash. Investing, like life, is eminently unpredictable. I anticipated there would be fires here. There were videos of Richard Nixon in the 1950s hosing down his roof. I had fire hoses on my property, a pump to take water out of the pool. But even the best laid plans. So it sounds like you are end quote. So it sounds like you are risk first or risk management first, and then seeking opportunity secondarily. And I guess that explains why you've been able to survive for 30 years basically doing the Same thing that you've been doing. A lot of people haven't had that longevity.

[Steve Romick]

Do you think it's evolved? It's evolved along the way, yes. I certainly believe that risk first has been paramount for what we do. But the longevity isn't just tied to that. It's also, there's a lot of my brethren over the years value investors who are no longer in business, sadly because they were risk protection first downside management, but they forgot about the upside. So we are very mindful of the upside to it and making sure that we, you know, are always seeking the opportunities. There's generally something to do and I'll credit my, my partner Mark Landecker more than anybody else to really pushing me in that direction.

[Josh Brown]

I want to put up a chart of the total return of your fund. And I know there are compliance rules, so we're not going to have any forward looking statements here, but I mean, this is one of the most impressive things that I've seen outside of looking at like just an index fund or something. I mean, you have really done the job for the people that have entrusted you with money and you've done it for a really long time. Do you ever look at this and say to yourself like, I did it. Like, do you feel that sense of accomplishment by now? Do you give yourself that at least?

[Steve Romick]

Generally not. I feel a little bit like a movie producer. You're only as good as your last hit movie.

[Josh Brown]

I know, but there's a lot of hit movies in here.

[Steve Romick]

Yeah, I mean, there's been good movies. There's also some, some drawdowns in there, you see too. But fortunately our drawdowns have been a lot less than the market. We've had these market drawdowns. But no, I don't really, we don't, you know, we don't rest on our laurels. We're always looking forward and it's. And I think that if I were to sit back and think about the. Yeah, well, we've look in. Arguably we've done a good job historically, but what keeps me getting up every day is knowing that I need to keep doing that.

[Josh Brown]

Yeah. Can I show you a picture?

[Steve Romick]

No.

[Josh Brown]

John, if you would. So, all right, but let's talk about this. First of all, the timing of this is unbelievable. This is Money magazine, the 1998 Ultimate Guide to Mutual Funds. So I'm guessing this came out in early 98, right? Or late 97.

[Michael Batnik]

This is your Madden cover. It was all downhill from here.

[Josh Brown]

Well, so, so you're on the COVID You're sitting on. Is that a limousine? What is that, Benz?

[Steve Romick]

No, no, it's just a used BMW.

[Josh Brown]

All right, stop. Used?

[Steve Romick]

It was. I swear to God, it was used.

[Josh Brown]

For the photo shoot.

[Steve Romick]

No.

[Josh Brown]

All right, but you were one of the five fast ranking stars and probably the handsome one. So they put you on the COVID This is you at 34 years old. And. All right, you've already expressed to us you didn't want to be in the picture. We understand that. But that's kind of cool when you're in your 30s. Like, that level of recognition. People said, this guy knows what's going on. This guy's good at what he does. I mean, you have to admit that's kind of cool.

[Steve Romick]

Yeah, it was cool at the time, but the sunglass thing really was not cool.

[Josh Brown]

Okay, I get it. Well, I think it looks cool today. Look at the subheadings, though. Beat the year 2000 bug is on the top and then cash in on falling rates. From this point forward, we basically had 24 months to get out. Right. Is that the way you'd think about it?

[Steve Romick]

Yeah, I mean, it's like. I mean, I think more important point is they put me on the COVID of Money magazine only to see my relative performance decline, you know, precipitously.

[Josh Brown]

You were in the wrong stocks for that two year period.

[Steve Romick]

For that two year period. 100%. I mean, we were behind the market by 40 some odd percentage points, give or take, over the years.

[Josh Brown]

So to back up for people that weren't around then, if you didn't own Internet stocks. And in 98, that was Amazon, eBay, Yahoo, AOL, Netscape, like, if you were not in that trade, you might as well have not existed.

[Steve Romick]

Sun Microsystems and Lusca.

[Josh Brown]

Sun Micro emc.

[Michael Batnik]

You look like Berkshire.

[Josh Brown]

Yeah, I was gonna say that looks eerily similar to, you know, the Warren Buffett cover. Warren doesn't know what he's doing.

[Steve Romick]

Like that was that Eran. That was Barron's in that era. I mean, I really think the reason we had any money left in the fund was because people either A, felt sorry for me or B, they forgot they had money with me.

[Michael Batnik]

So you lost 85% of your assets?

[Steve Romick]

Yeah.

[Josh Brown]

There's a famous quote. You probably know the guy's name, the French guy that ran First Eagle Global.

[Steve Romick]

Jean Marie Aviard.

[Josh Brown]

Okay, Legend. Another legend. Jean Marie Evillard, said, I would rather lose half my clients than half my clients money. And that became sort of a rallying cry for value investors over the years since, like, I'm not Going to chase this. I don't care if you redeem me. It's just this is not ended up.

[Steve Romick]

Being the right decision because we made money in 2000 when the market was down. In fact, you look over the five years, 98 to 2002, if you were to carry that chart further, chart five, John. We actually, you know, earned it all back and, and then some. And we ended up well ahead of the market. So we start off the same place you see in that chart. So that's you into 98.

[Josh Brown]

That's you on the hood of the, of the used BMW with the sunglasses on at 10,000, perfect timing. You turn that into 14, 10,000 into $14,000.

[Michael Batnik]

Did you feel bitter? Like, did you call the people that.

[Steve Romick]

Fired you and said, ha, No, I didn't because that doesn't do any good. But Josh, what I did, I did 100%. I did have one client, will remain nameless, institutional, separately managed account. Who fired me in that period? And 12 years later, 11 years later, they came back and became a client again. But it was a committee. And I don't think they remember they had money with me 11 years earlier. I didn't remind them of that fact.

[Josh Brown]

Okay, so what did you own while. All right, so it's an impossible environment to not lose your head, at least temporarily, because there literally are stocks like Dell Computer that are going up 5% a day every day for six months. I was there. I remember it vividly. Thankfully, I was managing $10, so nobody cared what I thought. And I had no context for what I was witnessing. You were a little bit older than me, so you kind of knew what was going on. What did you own in order to stay out of that fray? And were there people in your firm that were like, Steve, what are you doing? We gotta get long. We gotta be in this trade.

[Steve Romick]

Well, first, let's start with the firm. I'm very fortunate to have always had great partners at First Pacific Advisor and you know, at the time, that's what.

[Josh Brown]

The FPA stands for. Thanks. All right.

[Steve Romick]

Bob Rodriguez was leading the charge of the firm then and he was operating similarly. So no pushback from the firm at all. Pushback from clients. How do you not own Microsoft when it's growing like it is? And both in its earnings and its stock price, I mean, it's a one decision stock.

[Michael Batnik]

Did you never own those names?

[Steve Romick]

I did. Oh, yeah. We bought Microsoft. To jump forward for a minute. We bought Microsoft in 2009. 10. I guess it was 2010, but I.

[Michael Batnik]

Mean, in the late 90s did you?

[Steve Romick]

Didn't own. Didn't own one now. Didn't own one. And so returns are driven not just by what you own, but what you don't own. So you're if able to avoid some of these big disasters. You can see them coming. I mean, you could see the disaster coming, didn't know when, but you knew that it didn't make any sense. And so we were able to avoid all of it just because we felt the right thing to do was to, A protect capital. B, these valuations didn't make any sense. C, there were lots of companies offering terrific opportunities at the time. Companies that were relatively mundane businesses where insiders were buying a lot of stock, like Pinkerton's, which has since got sold, the security services firm or ihop, the pancake house.

[Josh Brown]

So you are still sticking to your discipline, looking for lower valuations where there was more potential upside if things went well. And everyone else was thinking, the Internet is going to change the world in ways that you cannot imagine. And if you're not in these stocks, you're missing out on the greatest opportunity in history. That crowd was right. They just owned the wrong stocks and they own them at the wrong price.

[Steve Romick]

Price matters.

[Josh Brown]

Price matters. So that's the big takeaway. It's not that Microsoft didn't change the world multiple times. It's that paying 70 times earnings, they could change the world and you could still lose money as an investor.

[Steve Romick]

And a lot of it was, you know, I would call it being dead. Right. Yes. Internet was a thing, as we well know. It's it, it is a thing. And at the time there wasn't the infrastructure around it to support the businesses we thought they might be able to do in the future. So for example, eToys. Yeah, eToys. Market cap to speak after it came public, exceeded the entire toy market.

[Josh Brown]

Yeah, that made sense at the time.

[Steve Romick]

I mean, yeah. But meanwhile, there was no ability to deliver these, these piscos, these toys and small tickets to people in any kind of economic fashion.

[Josh Brown]

Right.

[Steve Romick]

There wasn't the distribution system that exists, you know, to the home today, you know, or the distribution centers to kind of do it and break pack, you know, these different things and sell something and deliver it, you know, at $12 average ticket.

[Josh Brown]

So there were two types of disasters looming. One of them was companies that just made absolutely no economic sense for the reason that you just cited. Those are the pets.com and the eToys. And I don't know, were there 500 of them? Ish, something like that. I don't know the number. They came public as fast as they could do the paperwork. There was like literally no limit. Webvan, Peapod. It's just like this endless list. That's one type of disaster. The other type of disaster is paying 120 times earnings for Cisco. Cisco's fine still exists, still a dominant company, but you had to wait 20 years to get back to those previous peaks. So I guess avoiding both types of disasters, it's not equally difficult.

[Steve Romick]

Again, comes back to that statement, price matters. So you're saying both avoid the binary that companies are going to zero and avoid the companies that are good businesses. But the valuation doesn't justify its perspective earning stream. Going back to the example of Microsoft. Microsoft's earnings over the next decade, give or take, were up about 18%, you know, compounded between 2000 and 2009. It ended 2009 lower than where it started the decade with growing earnings, with 18% earnings growth.

[Josh Brown]

Yeah, that's how expensive that stock was coming into the decade. And Ballmer lost his job over it.

[Steve Romick]

No, he didn't lose his job over it.

[Josh Brown]

What people were like, he had it.

[Steve Romick]

For years after that. And we bought this stock because we bought it at a point in time where people were really fearful about, you know, form factors. And well, people aren't going to. People are going to be using this iPad that sits in front of me and not use PCs. People are going to not use Microsoft Word, they're going to use Google Docs, they're not going to use DOS. They're only going to use iOS based products. I mean lots of that was there. And since then they've obviously found a way to be moderately successful.

[Michael Batnik]

People learn lean a lot on history and prior market cycles. And I think that the dot com bubble and bust was very destructive not just for all of the money that was lost at the time, but a whole generation of investors who thought that history was going to rhyme. So one of the quotes from that period, in retrospect that a lot of people look at is from, and you've highlighted this is from the CEO of Sun Microsystems. So he said at 10 times revenue, to give you a 10 year payback, I have to pay you 100% of my revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard for 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with 0rd for the next 10 years I can maintain the current revenue run rate. Now having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don't need any transparency, you don't need any footnotes. What were you thinking? And so we know how that ended. And I think a lot of people have been making the analog for the last 10 years, since 2015 when we coined fang, about that period of time you guys have somehow managed because you lived through it and you made a lot of money through it, but you have somehow managed to more or less keep pace for the last three and five years despite having a cash allocation, a bond allocation.

[Josh Brown]

It's almost like a miraculous and a value discipline.

[Michael Batnik]

Yeah, like how did you survive? Because nobody else did.

[Steve Romick]

Well, we were. Look, I'm not gonna. Luck does play a role sometimes you just get it right for periods of time. And certainly that's part of. But you know, look, being thoughtful about what businesses are going to be better businesses in five to 10 years or at least as good, if not better. And that is to say those businesses that are going to throw off more cash flow than they throw off today. And what are you paying for that cash flow in the future today? So if you just look at that and think of it like a bond. If you just were to invert every investment you were to make from a PE basis and look at it on an earnings yield basis and better yet, look at on a pre tax free cash flow basis. Take the company's cash flow before taxes and before interest expense and look at it on an unlevered basis. That's the numerator. And divide that by your denominator, your enterprise value and kind of compare it to a bond and look and see how much you're going to get for that, like a Treasury inflation protected note, well, that'll give you some kind of growth in the future. So what do you want to pay for that growth is what we always come back to. And some things just get to be too expensive and short, so we back away. So we tend to lean into businesses when people don't like them. We still think that there's a few good puffs left in those cigars, if not more. We make a lot of money if they really end up being something better. So Microsoft's a good example of that. We bought Google in 2011. People were really, really quite fearful of the global economic Landscape. We bought Meta, which is Facebook, at the time, during the Cambridge Analytica scandal, people were gonna. Streaming was dead during COVID so Netflix traded down. So we bought Netflix, which we don't own in Crescent anymore. But when you can find these businesses you think are gonna be better in five and 10 years, and that is. And you have a variant view as to that perspective, there is, you know, often money to be made.

[Josh Brown]

Would you rather own a company that you think the prospects are going to be better even if it were more expensive versus a company that's already expensive? But you agree the businesses, the business is going to be great and the market is. Right. Like, what's more important to you? The outlook for the company or the valuation?

[Steve Romick]

It's. You could. They're, they're, they're connected. It's a problem. Well, it also, I mean, I'm not going to pay 100 times earnings for a company that. It doesn't make any sense.

[Josh Brown]

Here's what I'm asking. If I gave you Nvidia's last 12 quarters and I came to you three years ago and I said, here's the next 12 quarters, you have to pay 50 times earnings for this company, you would though, right?

[Steve Romick]

Sure. If you know the company's going to grow earnings.

[Josh Brown]

None of us do.

[Steve Romick]

Right. So it's all a function of your conviction what the growth rate of the earnings stream is going to be prospectively. The greater the conviction, the more likely we're willing to pay up for something.

[Josh Brown]

I asked you that question because I think unfairly, a lot of people think of value investing as this P E is lower than that P.E. therefore, press the buy button on this one. And I mean, I did see some of that with like intel versus Nvidia a few years ago.

[Michael Batnik]

Amd definitely.

[Josh Brown]

Yeah. So there does exist that mentality, but that's not actual value investing. That's just looking at publicly available numbers and being as, as unthoughtful as possible about it. There's a lot more that goes into figuring out is this truly a great business and worthy of a premium multiple.

[Steve Romick]

But you bring up an important point, because value investing historically was really about the protection of the balance sheet, as it was historically practiced and written about, starting with Graham and.it was about the protection of the balance sheet. Buying a company below book value. Better yet, buying it below its working capital, its net working capital.

[Josh Brown]

Good luck doing that now.

[Steve Romick]

Yeah, exactly. Right. But. And that's the way we started out and really thought about protecting capital. But then we realized over time that so many of those businesses were businesses that were more likely to be disintermediated and disrupted by technological innovation, you know, better competition, et cetera. So we really wanted to say, we really sat back and said, all right, we have to really consider what the value of the business, what the enterprise is, how good is that business and own these better businesses and pay a good price. So the protection is still a B. It's just not the balance sheet, it's the business. And so there's more volatility that comes to that. Valuing a piece of real estate, you know, doesn't move around, you know, as much as valuing a business.

[Josh Brown]

If I had a stock that I was very certain was going to deliver a minimum of 20% earnings growth next year, and it was currently selling at 16 times earnings because there was some idea out there in the market that it was about to be disrupted by automation, would that be the type of stock that you would say, all right, we got to take a second look at this.

[Steve Romick]

If it's going to be disruptive, we wouldn't look at it at all.

[Josh Brown]

But. But you don't know that it's going to be disrupted the same way.

[Steve Romick]

I thought you, I thought your premise was that it would.

[Josh Brown]

I can't tell you that it will. I could tell you the reason it's 16 times earnings in a 22 times earnings market is because that's the concern.

[Steve Romick]

Around 100%. That's the kind of business we'll look at.

[Josh Brown]

That's Uber. That's $200 billion market, $250 billion market cap, 23% earnings growth expected for next year. So cheap they're buying back shares, which is not a thing that you would normally see a company like this doing. But how could they resist? And I look at something like that and I say, okay, I believe in automation. But then I also believe this company's gonna figure out their own automated taxis. How hard could that be? There's gonna be millions of automated cars.

[Steve Romick]

Well, they're gonna have to figure out by licensing somebody else's technology. Yeah, they won't build it or they get acquired. Maybe Google ends up acquiring them. I mean, I mean, that's not a call. Let's be really clear.

[Josh Brown]

Understood.

[Steve Romick]

I'm just saying that anything's possible.

[Josh Brown]

Well, I guess my point is, even in this moment, with the S and P selling at a high multiple relative to history, there are lots of those types of companies right now. Adobe's another great example.

[Michael Batnik]

Salesforce.

[Josh Brown]

Salesforce. There are businesses right now that people are very convinced AI automation is going to be the end of those companies.

[Steve Romick]

Franchises, in some cases it'll be true.

[Josh Brown]

To your point, it'll probably happen.

[Steve Romick]

So it's our job to sit back and understand whether or not how likely it is to be true. And by the way, just because it will be true, if a company can generate a ton of cash flow and return, you know, along the way and return that cash flow to its investors, it may not be a bad investment.

[Josh Brown]

Right.

[Michael Batnik]

You said so. I guess I'm just, I'm very impressed. A lot of people that were around back then, especially in their formative years, and maybe it wasn't formative for you sort of earlier in your career.

[Steve Romick]

They got stuck when I was younger, as you pointed when you were. Before I got old is what you said.

[Michael Batnik]

But a lot of these people got stuck and said, like I've seen this movie before, we know how this ends. We know that value and small value and whatever will have its day. And you have to evolve with the times. These businesses are fundamentally different. The operating margins, which was one of the big points in 2015, is like, these are unsustainable. Competition comes in. You wrote in 2015, buying a company at 20 times earnings, hoping for growth in earnings and a Future P of 2022. 22 times, excuse me, is not a recipe for good risk adjusted returns. Kind of is now a little bit.

[Steve Romick]

I mean, for the time being. Yeah. And by the way, things change. Things change.

[Michael Batnik]

And you've evolved, obviously.

[Steve Romick]

Yeah.

[Josh Brown]

Is that one of the hardest parts is to throw things away that maybe you believe in, but you recognize that if the rest of the world doesn't believe in something and never will again, it might not be important anymore. It's one of the things that I've learned.

[Steve Romick]

And we're also, well, buying a business. When we buy something, we want to have a clear view as to what the future looks like. I mean, what we want to have a clear view doesn't mean it's going to unfold that way. I guarantee you it won't. It'll unfold differently. And so what we have to. We always lay out what our KPIs, our key performance indicators are to watch and monitor that business along the way. Because we're going to be wrong. We look, one of the biggest mistakes we made was not buying Amazon earlier on, at least in the financial crisis. We didn't buy it.

[Josh Brown]

Everyone's biggest mistake, right?

[Steve Romick]

And well, not everyone's. Well, a lot of people out there made a ton of money. But sadly it was one of ours. And so, you know, I read the everything store book and after I read that I'm like, I was so sad, you know, because I didn't, I'd spent the time, I didn't spend the time really enough on the web hosting business and what they were doing. And I spent a lot.

[Josh Brown]

Aws.

[Steve Romick]

Yeah. And I also was less willing back then to pay for, you know, I'm so concerned about the here and now and what was obvious about the future as opposed to like, oh, they can always change pricing and charge more money for X or Y to create greater profitability in the future. I was less willing to do that. But it really depends on the management team and what they're communicating that they're.

[Josh Brown]

Likely to do it makes you feel any better. That was the biggest miss according to Warren and Charlie. That was their biggest miss. They knew it was gonna work and they just couldn't bring themselves to do it because it looked so different from every other retailer they had ever invested money in.

[Steve Romick]

So misery indeed loves company.

[Josh Brown]

Can we, can we talk about the modern market? Today's market?

[Steve Romick]

Yeah.

[Josh Brown]

Okay. Dying to get your thoughts on this, Michael. You have a couple of charts that are worth scrolling through just to set the table.

[Michael Batnik]

So we are in a period of time where not everything, a lot of things are working really well and it's the things that you want to see working. And there's of course a lot of bullshit but like for the most part the market is acting very well. So we've got the NASDAQ 100 has closed above its 50 day moving average for 102 straight days. And there have been longer periods of time where it's done this, but they're, they're few and far between. You've got the NASDAQ 100, as I just mentioned, the S and P as well as the Dow and the Russell 2000 all making all time highs. And you're seeing it in the sectors, the leadership sectors, financials, tech, communication services. And then you're seeing it in terms of like the equal weight. Equal weight tech vs equal weight s and P. H, it's everywhere. And it's not just in price. It is being driven, thank God, by fundamentals. So when you're looking at earnings estimates for the S and P from the Nasdaq as well as the Dow all up until the right, you're seeing everything you want to see. I guess the question that Josh and I were talking about earlier, let's equal.

[Josh Brown]

Weight tech really quick. We did that. We got that one.

[Michael Batnik]

Is, is the market too good right now? Does it feel too easy?

[Josh Brown]

And do you automatically get concerned when Michael shows you charts everything at an all time high like every major index or. Not necessarily.

[Steve Romick]

No, that's my DNA concern. But that doesn't mean there aren't opportunities. So when you look back you we look back and let me just start with making analogous to the Internet bubbles. We were talking about the dot com bust back in 2000 and when you look back then 25% on a capitalization weighted basis 25% of the S and P was trading at greater than 10 times sales. Today it's 35%. So yeah, that raises our hackles and we get that doesn't mean there aren't opportunities out there. We, you know, despite, you know those nice charts you say upward to the right there are companies that are less important to those indices. They're smaller cap that are trading less expensively both domestically and abroad. So we have a large component, about 40% you know of companies domiciled outside the United States. We also have a number of companies that are more cyclical, you know and you know and those companies are less interesting to the masses and are and are not hitting new highs. We've got certain healthcare related companies not to dive into specific names and healthcare is too broad a term that we're finding as opportunities. But a lot of these companies along with those small mid cap companies are just trading below the radar. But what's interesting is there is this table I'll send you guys that really shows over the last from the October 22 market low. How have things done through June 30 and large cap growth has appreciated 108%. Large cap value is only at 51%. But to help make my point, small cap growth is up a lot less than large cap growth at just 41%. But it's also up less than large cap value. So there is more opportunity. Now look again, we're talking at an index level and they're comprised of lots of different types of companies. Doesn't mean every company's cheap. Obviously you need a catalyst though when.

[Josh Brown]

You'Re buying let's say a healthcare company that has sat out this entire rally. Let's say it's selling at a huge discount to the overall markets. Multiple is the fact that it's that it's cheap and that the business is a good business. Is that enough for you or do you also want to know why it might someday attract the attention of other investors who Will buy it higher.

[Steve Romick]

If you have the right management team allocating capital well, you know, good things happen to cheap stocks.

[Josh Brown]

Okay, so you believe like it's not important why it will go up. It's just important that this business is throwing off a lot of cash flow. It's defense, it's got some moat. And we think this is going to be a good business for the next few years. Therefore, it's a good investment and someday someone else will agree with us and, and buy it higher.

[Steve Romick]

We do think about what catalyzes it. It's not that we don't think about it. We do. We just don't always have an answer.

[Josh Brown]

Okay.

[Steve Romick]

I mean, if you think about our position sizing this kind of gets into that, you know, the greater conviction you have in the company, this business and its mode and its growth rate and its management team to allocate capital well and understand what the catalyst might be in the future. All of those things, you know, you check the boxes, you know, come back rosy. Then, then you end up with a larger position.

[Michael Batnik]

I'm sure when you look back over your career, you think about how nonlinear businesses are in terms of the path that they travel. Ups and downs. Like Netflix has had a million different hiccups along the way. So how important is getting the industry group right versus getting the winners and the business? Like we're, we're talking about fundamentals and value investing and you know, ratios. But like these, at the end of the day, these are, you have to a business analyst.

[Steve Romick]

Right. 100%. I mean, I'm more partial to the idea of having tailwinds. I don't mean like gale force tailwinds to, to push my, my America's cup yacht, you know, you know, across the finish line. I just mean that the fact that the, why do I want to buy a business a la sequel where it's, it's, it's deteriorated and will deteriorate fighting.

[Josh Brown]

A prevailing trend that's.

[Steve Romick]

And then, and then, and then sometimes along the way, it's like will a company that's fighting that prevailing trend, to use your, your phraseology, you know, is some companies will fight as successfully as others won't. Why was, you know, why has Walmart been successful and target successful, but Sierra's not. Yeah, right. So we just, you know, we're always mindful about what the management teams are doing. It's not. When you analyze the business, you gotta understand the management.

[Michael Batnik]

So this is a business that's in secular decline. A stock that I tried to bottom fish And I, I didn't, I sold it. Western Union, for example, if you were to just look at the fundamentals. Just like the, the Strip away the business, they pay their dividend every year. I don't think they've ever cut or not paid, at least in a long time. It's a 10% yield, it's cheap. But obviously it is being disrupted. It is under a massive amount of pressure. Not specific to that, but a company like that reinventing itself, is that interesting to you?

[Steve Romick]

I don't know Western Union well enough, but just. And this might be way off base, but superficially, what I know of Western Union in terms of delivering money from point A to point B and somebody here who might be able. Migrant workers sending it back to their home, you know, in a province in Mexico, you know, is a way, you know, to, you know, you know, get money back to them and help their families. You know, you can Venmo. I mean, the digital banking system is there. So I don't see stable Again, I don't know what else. I don't know what else there is, you know, out there in their Western Union business again, as I haven't studied it. But if it's just. That's what it is. That's not. Doesn't hold any interest for me to want to look at.

[Josh Brown]

One of the things I wanted to ask you about was just this idea that there are some value investors who will. I mean, they don't last long, their careers don't last long, but there are some value investors who will become personally invested. Almost like a defiance. Like, I'm not wrong, the market is wrong. You'll see. You'll see. And I saw people ride cirrus to zero, and I'm sure you did too, in JCP, Kodak, JCPenney, million of them. And look, number one, I'll just stipulate it's really hard to know when doubling down. Sometimes it might actually work out well. And then you have the coal industry, where every company in the industry goes to zero. The steel industry, I think we were left with one and now Japan owns it. We've seen entire industries disappear. So how do you guard against making that type of error where everything you believe might be true and yet that prevailing wind that's in your face just. It never goes away until these companies just entirely disappear.

[Steve Romick]

Sometimes what's inexpensive is there because of ephemeral headwinds. So it's our job as analysts, business analysts, to your point, to understand what is ephemeral. Is that going to change if this is just a cyclical business, or is there something that's secular, that's happening, negative now, we might get it wrong. And there was an example. We didn't buy Amazon, but we did sell our entire portfolio of retail stocks. Last one standing was Walmart. And then we sold that and then we bought back because we had owned it previously. We bought back petsmart and for a minute, just a starting position, then we ended up selling it quickly because we realized we were wrong. So you have to have the intellectual integrity to question yourself.

[Josh Brown]

Yeah.

[Steve Romick]

You know, you just can't rest your loads and defiance doesn't get you anywhere.

[Josh Brown]

One of the problems, and one of the origins of that defiance is when you go out publicly and you quote, defend the stock or you plant your flag or I know you don't do this stuff, you go on Twitter and you say, this stock that I just bought at 20, that now is 10, I'll bet my life it's gonna make a comeback. Cuz people don't like to be publicly wronged. So maybe not talking about your biggest positions in such a public way or putting your life on the line for a stock is like a really great way to avoid that issue.

[Steve Romick]

And it's also like what your DNA is and how willing are you to admit you're wrong. And you know, and you know, a lot of that's just formed by your DNA and some of it's formed by your environment. I've got, I live with five women, my wife and four daughters, and they.

[Josh Brown]

Regularly tell me I'm wrong guy, I told you, I knew it. I was right.

[Steve Romick]

I didn't say I was just kidding.

[Josh Brown]

So, okay, so in the context of your life, you're somebody that's comfortable being wrong 100% and then not putting yourself in position where you have to like defend something to the death.

[Steve Romick]

We'll take our mea culpas. Well, we'll say we were wrong and why we were wrong.

[Josh Brown]

You know what people get really attracted to high conviction type of people who come out and say the 10 year is going to 6% and you're gonna wish you listened to me. That stuff gets a lot of attention in the short term. You can't survive 20 years doing that because you're gonna be wrong and you have to have positions that you're comfortable backing off on publicly.

[Steve Romick]

So yeah, I mean, look, the world can change, the world does change. Companies can change. As you, as you pointed out, you know, I think it was Michael who said it, you know, and you have to Be on top of that. So if you go out there and speak with great conviction about a certain company, then you're gonna come out and after you've sold it and say, okay, here's why we sold it. I mean, just, it's just too much noise. We don't, we don't want to be in that business. Yeah, we want, we want the number there. The first slide that you showed.

[Josh Brown]

Yeah.

[Steve Romick]

Shows upward to the right. We want that to be our slide over the next 20, 30 years.

[Josh Brown]

Right. We get things right, we get things wrong. But the sum total of all of that effort is this.

[Steve Romick]

Right. And our portfolio moves in and out of different, different asset classes and different sectors based upon where that, that fear is. And so like our energy exposure was a lot higher, you know, in the early part of the, in the early April. That's, that's the, that shows our whole.

[Josh Brown]

Okay, so the blue is stocks.

[Steve Romick]

The blue is, the blue is stock, you see, that moves around. The green is bonds. And the bonds that we own are not high grade. We buy. We're. We, we'd rather accept credit risk rather than interest rate risk. We think we can understand that better.

[Josh Brown]

Interesting.

[Steve Romick]

We don't, we don't know what direction, you know, the tenure is going, you know, over the next five years.

[Josh Brown]

And you're not, when you do that. So like I see these periods of time where you're heavily invested in bonds, you're not just flipping it into hyg, like you're actually looking at each individual credit. Yeah, okay.

[Steve Romick]

Yeah. Our high yield exposure today is just 1% a little less. And that 1% is, you know, high yield does not. Isn't that interesting Today, Today we're talking about tighter than average spreads, lower than average yields, and worse than average covenants.

[Josh Brown]

Yeah, sounds great.

[Steve Romick]

High yield spreads are 300 basis points, you know, over treasuries, it's 200 basis points less than the 500 basis points, you know, average over the last, you know, 20 years. The yield is 7.1%, which is about a point less than the average of the last 20 years. And covenants, as I said, those four, as they've as poor as they've ever been, so, so much and so in favor of the borrower that you don't even have, you know, the confidence you can get the keys to the kingdom back in the event of, of default. Now, on the positive side, I'm looking at the hyg, for example, I think, you know, I've read that that the, you know, I haven't Parsed it, you know, individually, myself, but I've read, you know, something about it that suggests that the hyg, the high yield index, has more EBITDA per. On per average company in there than at any point in time.

[Josh Brown]

It's higher quality than the tech, higher quality businesses.

[Steve Romick]

The lowest price.

[Michael Batnik]

Makes sense, right?

[Steve Romick]

So, yeah, but a lot of that risk is shifted over to the private credit market.

[Josh Brown]

What is this net risk exposure, this red line?

[Steve Romick]

Well, because we end up with some shorts at periods of time. Okay, so like, if you go look into the financial crisis, so you'll have short.

[Josh Brown]

You'll have shorts in the portfolio.

[Steve Romick]

Is there a max?

[Josh Brown]

Is there a max limit?

[Steve Romick]

Well, not a max. I think it's. I'm not sure if there's actually a maximum. In our charter, we've just never approached. I think the most we've ever had was like 11%.

[Josh Brown]

Honest. Seeing some shorts.

[Steve Romick]

I'm not gonna talk about them.

[Michael Batnik]

You want to wait for a better pitch. You have the ability to go into different areas of the market. De risk, up risk. But the pitches seem to be happening so much faster these days. It's like they're 175 miles an hour. When you finally have a chance to swing, it's like, what just happened? And I'm talking about the V. Bottom.

[Steve Romick]

No, really a great point. You have to be prepared in advance for when it does happen. Because the world has had a tendency, you know, since the financial crisis. We rebound very, very quickly.

[Josh Brown]

Everything's faster now. Like, why wouldn't the market react faster?

[Steve Romick]

I'm 62. I'm much slower.

[Josh Brown]

But every aspect of our life has gotten faster. So why wouldn't we expect stock market. There will be faster.

[Steve Romick]

There will be a point in time. I would argue that things will go down to stay down for a period. I just don't know.

[Michael Batnik]

22. They did for 22 for 18 months.

[Steve Romick]

Yeah. But I don't know when that's going to be or what's going on. What next is going to happen that's going to, you know, create that. That opportunity, you know, but we have to do the work first. You just have to be ready to go and hit those, you know, hit those pitches, you know, because, you know, they're coming at a point. So, for example, I did a ton of work on Embarrassingly, you know, given that we have nothing to show for it, you know, on. On deer. Because I said that pitch when that comes. Because, you know, I did this about a year and a half ago, and I said deer is like is the. Is the best ag equipment manufacturer in the world. You know, case do all in and ag go pale by comparison. And earnings are going to be down because the ag complex is up in value so much. Commodity prices are up so much. And when people are making farmers make more money, they buy more equipment. And so business is good. So business is going to be bad again in the future. It's a cyclical business still and so we'll be able to buy it stock hit a new high. And so it's like. So there was work was for nothing. So again being prepared. But this idea, well, deer turned the.

[Josh Brown]

Tractors into iPhones that have to update software and everyone's got to pay monthly and they made it, it made it the best business in the world.

[Steve Romick]

Well yeah, it's the technology. They lead in technology by far. It's pretty, it's pretty great business. But you know, across the firm we have this sensitivity to losing money and trying to be prepared. That's why our fixed income team led by ABHI Patwadin, you know, is done is one of the reasons why it's done as well as it has as well.

[Josh Brown]

Oh wow. I noticed there's no gold in that allocation. But can you go there if you feel like it?

[Steve Romick]

Yeah, I mean I just don't feel that people are paying us to make a gold decision because if you were to go and buy gold, you can have 5% and you'll people have it or even 10% if gold were to, you know, double from here.

[Josh Brown]

Yeah.

[Steve Romick]

What does that mean about the rest of the market? What have you really done for your portfolio? And it's. I just don't know that we're adding the value on our team that offers some kind of variant view to it doesn't mean that does not suggest for a moment that gold isn't worthwhile owning. I'm not saying that.

[Josh Brown]

Well, Evard did that. So first Eagle Global famously would combine stocks, bonds and gold.

[Steve Romick]

But even then, his gold position, how big did it get at its peak?

[Josh Brown]

Well, probably the gold miner position was the proxy for gold. In that case, maybe.

[Steve Romick]

Yeah. So I just don't. I'm including gold miners, you know, junior gold miners, gold ETFs or even just owning the bullion all in the same bucket.

[Josh Brown]

I want to put up a couple of your slides. John, can I have Chart 13 please? This is from your deck. Fund objective met since inception. So congratulations, congratulations. But walk us through these three different charts and why these are the ones that you want investors to pay attention to. When they look at your fund.

[Steve Romick]

Yeah, we have to show this one from inception because it shows the S&P 500. But the MSCI acqui is really, has been our benchmark since 2011.

[Michael Batnik]

And you definitely beat that, right?

[Steve Romick]

Yeah, we've beaten that. And so, as you know, International has not done as well as the US which helps explain why our equity, like, rates of return are like 40 basis points, you know, behind, you know, the S&P 500, in part. But we've done that with averaging 30% or so in cash along the way. So it's really incredible. A lot less.

[Josh Brown]

When I look at this, I say this incredible.

[Steve Romick]

Our goal is to do deliver equity rates to return and avoid permanent payments of capital. Permanent impairment of capital means losing money, monetizing, you know, realizing that loss, rather. And whereas, you know, volatility is just, you know, things are going up and down the. And so you can look at the drawdown. And the drawdown's, you know, half of the markets.

[Josh Brown]

Well, can I. So for the people that aren't watching or listening, I want to say this out loud, okay? Since annualized total returns since inception. And guys, picture every disclaimer you've ever read in your life, okay? That's what's on the bottom of the slide. Okay? You guys are neck and neck with the S and P at 10% and change. But then the largest drawdown in the s and P500 since the inception of your fund, as we all know, is 55 and a quarter percent, which I'm guessing that's great. Financial crisis.

[Steve Romick]

Yeah.

[Josh Brown]

Okay. And your largest drawdown is 27.87%. So that's the objective of the fund. The reason you're going anywhere is because sometimes you don't want to be fully invested in the stock market.

[Steve Romick]

Right?

[Josh Brown]

Okay.

[Michael Batnik]

And a third less volatility, it's like that's a byproduct.

[Steve Romick]

I want to be very clear. A third less volatility. And just speaking for what the chart shows, for those of you who can't see it, our volatility has been 10.89. The S&P 500 is 14.96 since our inception. But volatility is a byproduct of our process.

[Josh Brown]

What is that? Rolling 30 day? What is the volatility? Or is that just standard deviation?

[Steve Romick]

Standard deviation. That's it. Standard deviation. But we just don't. We don't target it. It's just, you know, if you. If you're a value investor, if you're thoughtful about the. If you believe price matters, you're thoughtful about the businesses you own, and you know, you're seeking to protect capital. You're inherently going to have lower volatility.

[Michael Batnik]

The mutual fund industry, I mean, there's been a million slides showing index flows up and to the right. Mutual fund flows going the exact opposite direction. And a lot of that is. Listen, even the ones that do app perform. Luck versus skill. How do you untangle all of that? This is evidence that this is skill. Because being able to keep track with the S and P with a third less volatility, that's not luck. You've done this for three decades. So pat yourself on the back. Pretty good, John.

[Josh Brown]

Can we have chart 15, please? I found this one interesting. This is the FPA Crescent Fund's net equity exposure.

[Michael Batnik]

Whoa, whoa, whoa. Why are you so bearish?

[Josh Brown]

Stop. So this is you versus the MSCI acqui. Like, what's the right way to explain this? Like the percentage of your portfolio that's currently in equities on a net basis versus the performance of the index itself. The acqui in this case.

[Steve Romick]

And this, this, this. Look, there's a lot of noise, but.

[Josh Brown]

You'Re just, you're trending lower since 2022.

[Steve Romick]

Right?

[Josh Brown]

That's like. If I were to draw a trend line. You are growing increasingly bearish as the market rallies.

[Steve Romick]

Well, I don't. Bearish. Bearish presupposes a view to the future. We're just not seeing in the present the, the, the, the attractive risk rewards.

[Josh Brown]

So what if I also drew a line that said forward earnings multiple? Like it would probably.

[Steve Romick]

That would be a better, that would be a better chart than this position. I know, I know. We have other slides too. You just picked this one. Okay, we've got lots of slides, right. But this just shows you this slide. One can expect that as the markets are rising, you know that especially rising quickly because you can see that dip as it rises that you, you know that we are going to be. Get more exposed or less exposed. Less exposed as the market rises and get more exposed as a decline. So you can see, look at the, look at Q1.25.

[Josh Brown]

So we had pulled our 50% net equity exposure, right.

[Steve Romick]

And so. But then Liberation Day happens. We found out more opportunities, you know, as a result of our president's. Yeah. And so then we started getting more invested, but unfortunately it gave us only a couple days. Again, to your point about the 175 mile an hour fastball you gotta hit.

[Michael Batnik]

I would assume that you're surprised. Again, having read your 2015 letter this morning, because I'm surprised that it's, that it's been, we're 10 years later and at the time it's not like things felt cheap or exciting. At the time, Amazon was $200 billion. And I remember thinking, holy shit, that's a lot of money. Like a $200 billion markup. Oh my God. And it's 10 years later. And of course there's been pullbacks and corrections and bear markets along the way, but these businesses have never been fundamentally stronger. Is it conceivable that this is just a sort of.

[Josh Brown]

He wants you to say it's different this time.

[Michael Batnik]

No, no, no, no, no, obviously it was different this time. I mean, clearly it was.

[Josh Brown]

Yeah, yeah.

[Steve Romick]

Well, some companies are gonna last longer than others and perform better for longer periods. And you mentioned, you know, at the top of the hour you were talking about Cisco. Cisco has far underperformed Microsoft. But did we actually know that was gonna be the case? Of course not. In February of 2000 when the market was peaking. So look, we have a portfolio of stocks. Some we're going to be more right on than others and we're going to be surprised on the upside and the downside by different companies in our portfolio.

[Josh Brown]

So you're very much focused, bottom up, looking at these securities themselves. How much do you think about the state of the economy and macro stuff? Does that enter into the process, sort of like working backwards because the companies are talking about these things or do you pay attention to these things from a top down perspective at all?

[Steve Romick]

When we look at companies, we build models and there's this false precision to the models because you plug in certain assumptions and you end up with this very precise earnings per share result or precise free cash flow result. And the truth of the matter is that it's just a function of our assumptions. And we're not, we're not anchored to that type of precision. When we build our models, we don't look to see what is likely to happen over the next quarter, six months, year, we build a low base, high, looking out over the next two, three years or longer to try and say, okay, what can happen if the company really executes? And recognizing that they could stumble and maybe not execute, that would be the low case. Maybe the industry goes through a downturn that could contribute to the low case. And in the high case, everything happens terrifically. And so that's how we really think about the macro backdrop. You know, that's all set against the macro backdrop. What it could happen in a Weaker economy. What happens if rates rise? If it's a more levered company, they have to refinance their debt at a higher level. What happens in the event of a recession and unit volume gets hurt? What happens as a result of tariffs where a company has to either raise their prices in order to maintain margins or do they not maintain their margins because they're going to basically eat it for their customer to make sure the unit volume stays there? Those are all the questions we're always trying to anticipate upfront when we build our models and then we constantly fine tune them as we gather new information.

[Josh Brown]

So this is on a case by case basis. Each investment, not a, I think the Fed's going to cut next week, therefore we should own 10% more financial stock. That's not the way that you're thinking about the macro picture.

[Steve Romick]

Correct.

[Michael Batnik]

Okay, so one of the things that traditional value investors that are not bottom up have gotten wrong over the last decade has been things like the Cape ratio and margins and their mean revers, reverting nature that may never mean reverted. And a lot of the reason is because the index is primarily at this point the large tech companies, their margins have a much different profile than the 493. As you look out with your portfolio, do you expect to see margin expansion as a result of this hopefully productivity wave that we see coming as a result of the AI spend? Do you think that's going to happen?

[Steve Romick]

No, I think that it depends on the industry. So I don't want to make a too broad a statement about that. So the AI, a lot of the, there's a large language models and the big AI that's out there, how that unfolds and who's the winner from that and what the margins will be? I just don't have a point of view the applied AI and how it's used to help your business and whether to distill, you know, the SEC filings and look for certain things and to be able to pull from it using Grammarly for me to help write my shareholder letters so I don't look completely moronic, you know, making, you know, basic, you know, basic grammar mistakes. You know, then there's also AI that's going to be used in certain businesses that will, that will really help these businesses and it's not going to get competed away. Companies like biotech companies, which we don't have any expertise in to be fair. But the lab, the bench strength in the labs because of AI is up exponentially and that's good. That's good for the world. You can deliver. Hopefully over time we expect, you know, drugs are going to come more frequently, new drugs at lower cost and that shouldn't get competed away. What could happen of course is regulate on a regulatory basis. You could end up with less marginal life for these drug companies because there's more marginal in the US Than elsewhere. So there's other risks to it. But some companies that are, that are benefiting from AI, a lot of it. You know, some companies will have first mover advantage and they'll be able to reduce their cost. And then let's just take the, you know, let's look back in the 1970s and some of these vertically integrated apparel manufacturers with retail locations and they moved or moved to offshore their manufacturing. So they were able to manufacture at a much, much lower price point, bring a, you know, even with, despite the long lead time, with therefore higher financing cost, you know, as well as they have to pay to ship it to get to the United States. But they were able to bring it back and have this big pricing umbrella because their comp. Their competitors didn't have that. So they had this excess margin. Well, all the other guys realized that and said, oh, I'm going to go overseas and do that. And that got competed away. So you're going to see some of that happen to.

[Josh Brown]

Yeah, I've heard from a lot of people you ask like, all right, it's the AI era. Why would you be bullish on small caps? Why would you be bullish on health care and all of these areas that have either nothing to do with the AI boom or are so disconnected that it's almost like we're having two different conversations. But I've always thought, and I've heard this from a lot of people, if the AI boom is not going to turn into a bus, the only way that happens is if all these other companies find a ton of value in using these tools and adopt them and pay for them. Otherwise, in other words, if you don't get an earnings growth benefit in the rest of the stock market, then by definition all of this capex spending by the mega caps is going to look wasteful in hindsight. It has to work.

[Steve Romick]

You're going to have to. Well, first off, Semiak companies are going to be incredibly successful. Yeah, some, some aren't. Which ones will those be? You know, we'll all find out. Yeah, exactly. And, and you know, but I mean, look, there's no question that, you know, AI is a real benefit for, for, for IT services for, you know, Calling a tech support line, you know, or calling for a retailer to want to return something, you could end up with these, you know, questions for a return that can all be handled by AI. So a lot of these phone centers that are located in other parts of the world that have a very, very low cost labor pool, you know, are going to be disintermediated because of that. Yeah, everybody's gonna migrate in that direction.

[Josh Brown]

Right. So I, I sort of feel like the, the secondary benefit of the AI boom has not been felt yet. And all of a sudden there are a lot of companies that are going to come out and start raising their earnings estimates and the reason why is going to be productivity. I just.

[Steve Romick]

To the extent that isn't competed away, which will be business industry specific, some cases it will be be.

[Josh Brown]

That's a really great point. I wanted to ask you with the two or three hours we have remaining, I wanted to ask you a couple, couple of other hot button items that are going on in the markets right now. The independence of the Fed and just generally what you think of monetary policy given the unemployment rate versus inflation push pull, you think that's something that is gonna be very impactful on the markets or not really or to be determined?

[Steve Romick]

Well, I mean tbd, it's not something I really can opine on. I have no idea.

[Josh Brown]

Okay.

[Steve Romick]

I do. I mean we, we do have a Fed chair that you know, has come out and said that security prices are rich. So.

[Josh Brown]

Yeah, I don't know why he had to do that.

[Steve Romick]

Well, by the way, I mean you have, you had Greenspan96 who called for irrational exuberance. And then when he. At the S&P 500 price level, even after the decline, after the, in the dot com bust, it was still higher than when he called it. You had Bernanke who said that in 2007 that the subprime crisis would not spread to the broader economy and Yellen said in 21 that the inflation would be transitory. She admitted her mistake in that regard. So I mean you just.

[Josh Brown]

Okay, you don't worry so much about the public pronouncements.

[Steve Romick]

We are really good at responding to pitches that are thrown to us. But what you're basically asking is what pitch is going to be thrown to us? We don't have any idea.

[Josh Brown]

Yeah. Quarterly earnings reports versus I don't know, annual. How important will this be to your process if all of a sudden 300 of the S&P 500 decide, oh this is cool, we'll talk to you every January.

[Steve Romick]

Look I. Well, first they're talking about semiannual and using the European. They'll talk to us twice a year, but they'll talk to us along the way. They just won't give us numbers in between. They'll talk to us along the way. Actually, they might be able to talk to us more because there'll be less quiet, period. So I'm actually, I'm qu. Completely in favor of it.

[Josh Brown]

Because you like it.

[Steve Romick]

Businesses don't generally change much from quarter to quarter. I've already laid out that we are looking longer term anyway, so I'd be fine with annual reporting maybe. It separates the renters from the owners and it. Look at these companies. It lowers the reporting cost for these companies. It frees up the management time to focus on what's important.

[Josh Brown]

Does it potentially lead to increased volatility? Because there's a higher potential for surprises and some of those will be negative.

[Steve Romick]

I don't know that that's necessarily the case. I don't think if you look at the volume of the UK market versus I'd have to go back and look.

[Michael Batnik]

Yeah, but you're not, you're not investing in disruptors, so.

[Steve Romick]

Well, at times we are. And we, we look, we've. We own some of them. We've owned some of them over time. I mean, Netflix was a disruptor, right. Or is, you know, as far as, remember Hollywood Pictures and, And you know, a Blockbuster Video and Movie Gallery. We were actually, we're short.

[Josh Brown]

I think I owned a couple. I owned Blockbuster at one point.

[Steve Romick]

Yeah. I didn't.

[Josh Brown]

Yeah.

[Steve Romick]

I mean, I was short. We were short.

[Josh Brown]

Hollywood Pictures of movie gallery 247 stock market trading.

[Steve Romick]

God, I hope not.

[Josh Brown]

Well, just. It's inevitable, so.

[Steve Romick]

I know. I like to sleep at night.

[Josh Brown]

I don't like it either. I don't like it because it's like money's on the line that we're ostensibly responsible for and we're sleeping.

[Steve Romick]

Sleeping.

[Josh Brown]

So I don't, I don't love it.

[Steve Romick]

Yeah. Except for the fact that the news won't be coming out in the middle of the night. So that's really gonna be the bigger driver. It's gonna be. At the end of the day, it's gonna be noise. Right. I mean if you, if you, if you, if your assumptions are correct and you look out into the future and you've got that longer term point of view. Yeah. You can have more volatility along the way. But all we care about some price. I say this as if I'm, you know, sleep with you know, sleep well, which I don't. You know, you know, is. Is the day you buy something, day you sell something. Something.

[Josh Brown]

Did you have trouble seeing the entire asset management industry make this really hard pivot into digital assets, considering that outside of staking the majority of all of this activity, there's really no cash flow generation? Very difficult to value these things. They're mainly a function of supply demand, making them look more like commodities or currencies than they look like stocks. Like, did you have trouble watching that?

[Steve Romick]

Give me an example of what you're talking about.

[Josh Brown]

Bitcoin, Ethereum.

[Steve Romick]

Yeah.

[Josh Brown]

Digital assets.

[Steve Romick]

Yeah. So I think, look, I think that cryptocurrencies are real. Right. But I just don't. We don't own them because at least speaking for myself and not my partners, I just don't know how to value them. Is Bitcoin worth 112,000? Is it worth 50,000? Is it worth 20,000? I just don't know how to value it. And if I can't ascribe a value to something and be able to articulate why I believe that's the value, I won't own it.

[Josh Brown]

What if somebody says the way to figure out the value is the network effect? Because effectively these are technologies and so the more users, the more they highly. They should be valued. Or the more.

[Steve Romick]

That's just as. That's his direction. That's not value. That's just the direction of the value. That's not giving me a benchmark.

[Josh Brown]

Okay. I want to.

[Steve Romick]

And then what happens with when quantum becomes a thing and you can bust the RSA algorithms ostensibly at a million qubits. So if that happens, what happens to your digital wallet?

[Josh Brown]

There's going to be so many Lamborghinis for sale on the secondary market the day somebody comes out and says, my quantum computing has just solved all these equations at once. Has anybody ever. Or how many times I should say, or how frequently do you get people asking you why you don't have an active ETF version of your extremely popular mutual fund?

[Steve Romick]

Well, we have an active ETF subset of our fund. Right. The son of. So we have, you know, our FPA Global symbols, FP A G. Okay. And that is our larger capitalization companies that we're not worried about scaling. So if you have any.

[Josh Brown]

Can that go anywhere?

[Steve Romick]

Or that's just stocks. It's really. It's delivered programmatically from our larger companies that we own. Doesn't own the debt, doesn't own the. These smaller companies, doesn't own any derivatives.

[Josh Brown]

No liquidity problems.

[Steve Romick]

Right. So you don't have to worry. I mean, one of the problems with ETFs is they can become too big. So how do you do that with small cap? So we want to be always true to our investors. So this is something we can look at it with a look at our investor, the straight face and say, look, if you want a more fully invested version of what we do for the large cap, carve out of what we do. Then, then, then here we hand you fpag, you know, run by my partners Brian Selma and Mark Landecker.

[Josh Brown]

Are you, are you just generally speaking, are you hopeful for the investor class over the coming years? Not there won't be a bear market or there won't be a correction, but just generally speaking?

[Steve Romick]

Yeah, I'm actually more hopeful because with these pod shops and at the end all the trend towards passive, I think it gives people like us a greater potential opportunity. So I'm actually more excited today than I was 10 years ago. Go.

[Josh Brown]

I love that.

[Steve Romick]

Valuation notwithstanding, in the market at the moment, those are, that's. That can just be temporary.

[Josh Brown]

I love that. Thank you so much. This is the man, right?

[Michael Batnik]

The man.

[Josh Brown]

All right, we're going to break to dinner and then we'll come back and we'll do you good. You think we got it all right?

[Steve Romick]

Can we just eat dinner right here? Let's bring it in.

[Josh Brown]

This is, this has been so awesome for us. Michael. I. Michael and I are obviously fans of what you do and your track record speaks for itself. But also, I think anyone that reads any of your stuff learns something every time. So thank you so much for that. Really appreciate it. We always end, Steve, we always end the show by asking people what they are most looking forward to or what's something they have coming up out on the horizon that they're excited about.

[Michael Batnik]

Why is there a plus year that was a preemptive?

[Josh Brown]

The audience is very, very actively anticipating.

[Steve Romick]

This great fervor professionally. I look forward to the next cycle to put capital to work. I mean, I look forward to that dip, you know, buying something that's significant.

[Josh Brown]

It'll be 10 minutes long. Are you going to be ready?

[Steve Romick]

Well, we'll see. Well, well, I'll tell you after the fact and then, you know, personally, I just kind of hope I have grandkids one day, but I'll need some son in laws for my daughters first.

[Josh Brown]

Steve. All right, dude, you're the man. Thank you so much for being here. Really appreciate it. I want to say to all the pounders out there listening. Thank you guys so much for, for watching, leaving us ratings, leaving us reviews. We really appreciate it, guys. Great job this week. We're good. Yes. All right. Thanks so much. We'll talk to you soon.