← The Master Investor Podcast with Wilfred Frost
The Master Investor Podcast with Wilfred Frost
Lloyd Blankfein: Lessons from 2008, Identifying the Next Trigger
00:54:32
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- [00:00]
A
The future is very hard to go and identify. But I noticed the people who are very good traders are the people who react the quickest to changes because they're not so set and they're not selectively perceiving everything in the world as reinforcing of their current view. They change their minds more easily and more frequently. There are people I know who are in very senior and powerful positions who are the kind of person that was voted most likely to succeed every year of their lives starting in kindergarten. I was blessed by not being that person. So I worked, you know, I worked my way up. I knew that a lot of my, you know, a lot of the magnet, magnetism I had was the magnetic pull of Goldman Sachs and the big, very successful firm and the influence and frankly the power that you have at being at the top of that heap and the power of the firm was kind of transmitted by me. And that made me attractive. But I knew what the source of it was. I think optimism is generally justified. Things tend to work out over time. And so earlier you asked me, am I always in equities? Yes, I mostly am in risky assets because most of the time you get fairly or overly compensated for taking risk. And so if you can't bear something not working out, then don't go near risk. But most of the time people are in a position to benefit from taking more risk and having generally optimistic about the way the world would play out.
- [01:36]
B
Welcome to the Master Investor Podcast with me, Wilfred Frost, where we celebrate and learn from the success of the greatest investors, business leaders and politicians in the world, giving you our listeners, the edge. The Master Investor Podcast is sponsored by Elseg Interactive Brokers, the World Gold Council and BNY Investments. Please do remember the views expressed in this podcast are for general information purposes only. Nothing in the podcast constitutes a financial promotion, investment advice or a personal recommendation. More on that in the show notes. My guest today was chairman and CEO of Goldman Sachs for 12 years from 2006 to 2018. But that already impressive fact undersells the scale of financial and banking titan that Lloyd Blankfein is. He is one of only two major bank CEOs who led his firm into the global financial crisis and out of it and emerging stronger personally afterwards than he was before. Lloyd, it is an absolute joy to see you here in London in person. Welcome to the Master Investor Podcast.
- [02:44]
A
Will thank you very much. It's a pleasure to be here.
- [02:47]
B
And you have a new book out, Streetwise the Journey to and Through Goldman Sachs. And we're going to talk about all of that, what I have to say jumps out right at the beginning. You talk a lot about growing up in East Brooklyn and growing up in the projects and embodying, really, the American dream, I think, which we'll come to. And taking issue when you were growing up with people that grew up with a silver spoon in their mouth so much. So you say that you didn't like Superman because he inherited his strength from his father. I have to ask question number one. Why are you doing an interview with me?
- [03:24]
A
Yes. Well, you know, we know each other for a way. I mean, let's be honest. We know each other for a long time. And actually, I find. Look, I grew up with some advantages, including the advantage of low expectations, because I grew up in what here would be called council housing in there and then got scholarships to good schools. And I was totally unburdened, as my own kids are burdened with high expectations. And that is, to some extent, an advantage. Look, in any situation, there are advantages and disadvantages, but I bet we've never talked about this. But to have a prominent father and the high expectations that get associated with it is to walk into a room and wonder whether the person thinks you really deserve to be where you are. To have to get in earlier than everybody else, stay later than everybody else, so you don't get viewed to fight the label of entitled. And I didn't suffer from any of that. Anything that came my way was all a positive. And sometimes I see the stress on my own kids who have to make their own way and convince everybody that they deserve it.
- [04:30]
B
Well, I mean, I didn't think we were gonna go deep onto that point, but it is.
- [04:33]
A
Would you like to lie down on my couch while I analyze it?
- [04:37]
B
I'm sure your kids would agree it is a tiny, tiny burden with 10 to 1, obviously.
- [04:43]
A
But I guess the real punchline is I know you as someone who really. And I know you from your tenure in New York, where I watched you all the time and we appeared together at various points, and I know how hard you work and how effective you are and how disappointed the New York community is that you're spending more of your time over here.
- [04:59]
B
Well, again, you're being very generous. It's a clever attempt to soften me up before we get into the interview.
- [05:03]
A
Oh, they are.
- [05:04]
B
They are. The point I wanted to come to on this, which I'm amazed. You know, obviously we first met, by the time you were already chairman and CEO of Goldman Sachs. But you write in the book, as of today, not when you were growing up in certain rooms. I felt, and still feel illegitimate. Other people are the grownups. I'm not really. You still feel that way?
- [05:24]
A
Oh, I think we're all kind of stamped when we're young. And you can lean against those tendencies that were formed early on. But I don't ever think you ever leave them behind. Totally. Sure. I always walked into a room and when I went to college, my parents went out and bought me what they thought. My parents didn't go to college. My sibling, an older sibling, didn't go to college, to college. And their children didn't go to college because they were older than me. And so the kids weren't that much younger than me. And, you know, they went out and bought me, you know, clothes at a store where for a hundred dollars you got, you know, two suits, three pairs of slides. I mean, this is in the early 70s, during the Vietnam era, and everybody was kind of wearing jeans and everything. And I went to college, you know, based upon some movie they had seen about what college life was like in 19, the 1950s. So, yeah, I always felt a little bit like an odd duck out. And I could see it in other people looking back. And eventually, you know, you conform and you know how to do things, you know how to dress and do it. But I always felt a little bit out. You know, I have, you know, may not be as identifiable to your audience, but I have a pretty heavy Brooklyn accent, outer borough accent, and, you know, that kind of stamps me. And, you know, guess what? I can't. It is what it is. I go with it.
- [06:47]
B
And as we'll come to cover, you know, you obviously, your career, your path embodied the American dream. Is it harder to repeat your sort of path today or easier over the last 40, 50 years?
- [07:00]
A
I don't think it's harder. I think it's easier. But it doesn't mean that the people who are grinding through it feel that way, because anybody who has come to the point of sitting across from you has already done it. It's already in the bank and booked on the shelf, whatever you want to say. And so I accomplished it. And other people are striving today, but I think today there's more financial aid for people who aspire that reached out. Look, in my era, women had to be teachers because a job on Wall street wasn't available to them and many, many careers weren't. They didn't become engineers, they didn't go to graduate school in the sciences. And today they do. That's one category of people Certainly for minority groups, we've had generations of reach outs and making other scholarship programs at the elite institutions in the US Are much greater. I can't tell you how it feels to people, but as an observer from the outside, I think there's more opportunity today, but not infinite opportunity. So you'll always hear the story of the people, the hardscrab people with bad luck or hardscrabble lives who don't make it. And that still persists. But I think if you looked at it statistically, you had more opportunity today than you did back then.
- [08:14]
B
Obviously you had a number of roles initially and then reached Goldman by first working for J. Aaron, the commodity trading house that Goldman then bought. The title of the book is Streetwise. And you write in the book that J. Aaron bought the street smarts to Goldman Sachs when it was acquired. Was Goldman before that moment the opposite of street smart? Were they pompous?
- [08:39]
A
I would say that Goldman. Well, it's not. I wouldn't say it went all the way over to a pejorative. But Goldman was a very, very establishment firm. It hired most of its people from the Ivy Leagues and Harvard Business School and the like. And J. Aaron was a commodity trading firm. So just the background I practiced law for. I went to college and law school. And so you have student loans, you go right into. You get caught up in the vortex of going into a job at a big law firm. I left after about four or five years when a number of people would say, do I really want to do this for the rest of my life? Look for other things. I lived in New York, which is a finance town. I applied to financial firms and I interviewed at several and got a job at. None of them, including Goldman Sachs, turned me down. Which is why, you know, part of my abiding respect for the firm because they turned. They turned me down early stage. But as I was interviewing there, they acquired this commodity trading. Commodity trading at that point was considered, was declassee, was kind of the lowest, you know, lowest point among all the. All the assets you could trade, you know, would be equities and bonds. And commodity trading was something, you know, really, you know, down the totem pole. And I had gotten a job at J. Aaron and J A was acquired by Goldman Sachs. And that's how I got. That's how I got into Goldman. And it was a different culture at Goldman. You know, they had training programs and a hierarchy and real mentorship that went on. And J A and the way people got promoted, J. Aaron, is, you know, they were the driver for a more senior partner for a partner at J. Aaron. And many of them went to college, but many of them didn't go to didn't go to university, let alone Ivy League universities. And so it was a little bit more streety than it and, but again, that background was a, you know, was good DNA for the firm to absorb. And if you push the clock forward, a lot of the trading investing businesses were later dominated by people who came through the Jay Aaron part of the firm.
- [10:55]
B
This episode of the Master Investor podcast with Wilfred Frost is sponsored by BNY Investments, a trusted partner for many delivering financial solutions to investors and institutions worldwide. Worldwide. This sponsorship does not constitute financial advice. Let's dwell on what you learned as a trader for a little bit. And you wrote in this that the best traders weren't necessarily smarter or better at picking the trades, but they adjusted to changing events faster. Expand on that a little bit.
- [11:33]
A
For me, I think that, look, there are people who will always remember that they had gotten this right and never remember they had gotten that wrong. But my observation as somebody who sat at the top of this enterprise is that in my view, people won't like this analogy. But I think sometimes good traders are a lot like good poker players. Over your life, if you're playing poker over your life, statistically you're going to get the same amount of good hands and bad hands that anybody else will get because of the randomness of all. The law of large numbers takes over and everybody gets the same set of opportunity. But somehow the good poker player always wins and the poor poker player always loses. Why is that if they're all getting over time, the same kind of hands is that one will play the cards better than others, will fold quicker. In other words, get out of a bad position because they'll identify it sooner and let his opportunity run in a good position. Now poker and the distribution of cards will see more chance. And of course, in trading, you're actually doing analysis and getting it right. But so the analogy doesn't hold completely. But I would say in my observation, talking about the markets with people and then seeing what happens, the good trader could be just as wrong predicting the future as by the way, people have trouble even as we sit here today with so much going on, people could barely predict the present, let alone the future. Like people could barely describe what's going on today. The future is very hard to go and identify. But I noticed the people who are very good traders are the people who react the quickest to changes because they're not so set. And they're not identifying, they're not selectively perceiving everything in the world as reinforcing of their current view. They change their minds more easily and more frequently.
- [13:21]
B
Clearly you came up through the trading side and Jaron specifically. I was interested the extent to which you wrote about the culture clash between Jaron and Goldman, but also between traders and investment bankers at Goldman. More purely, this quote stood out to me. He said many brilliant traders are underestimated, many less than brilliant bankers are overestimated. Yeah, of course, that sort of reveals the side you came from. Would they say something similar the other way around?
- [13:50]
A
You know something? I think they might because I think one of the things in banking, again the more traditional investment banking kind of positions as advisors to CEOs, you're kind of honed and really identified. And the natural selection process hinges a lot on presentation skills and being articulate, putting together good pitches. By the way, identifying too. I'm not suggesting in any way, not also not brilliant, not the smartest people in the rooms that they go into and everything. But you can very much underestimate people who are quite brilliant. Just think of the physicist that you know who. The Nobel laureate in quantum mechanics who can't make a presentation, can't articulate even basic principles to somebody else because his head is in the mathematics. And this would be an example of people who's just. Their skill set is not honed for that. By the way, I was one of those people, maybe to some extent still am. You know, one of the problems, I don't want to jump too far forward, I know we're going to get there, but one of the problems we had during later in the financial crisis when I was already being the CEO, is that Goldman really the skill set of even a Goldman Sachs was not to be good on television and not to go and not to put yourself out front, but to be supportive of your clients. And so we were never particularly. We had a whole PR department whose sole purpose is to keep our name out of the paper. We were a wholesale firm. We didn't have branch offices where people had checking accounts or anything. So our particular Skill and our MetJean. If you wanted to be run Goldman Sachs, it wasn't because you were a good presenter, even at that, even at the overall level of the firm, or you were good or telegenic. You were there because your skill set was involved. Being effective in the background as a good advisor, as a good risk manager. And suddenly the world had changed and we became too big, too Influential, maybe too powerful to be invisible to the world. And guess what? Had to step up and do things that you weren't necessarily trained for or really selected for.
- [16:10]
B
Let's jump forward to that moment then because you've teed it up nicely for us. I mentioned in the intro, obviously you took over 2006, the financial crisis was a few years away.
- [16:20]
A
Well, really a year away. One halcyon.
- [16:23]
B
Yeah. One house in year and I guess is that moment. We'll talk about all the challenges of which there were many. But is that moment the way you led the company through that crisis, was that the most defining moment of your career, do you think?
- [16:38]
A
Yes, but really the question you're asking, let me just answer with an emphatic yes. That's how I'm identified and that's how my reputation inside the firm and outside the firm was set. In other words, the value of performance during that era. Of course nobody thinks they get valued for when you make in our industry, when you make no money. But coming out essentially flat during that period was an achievement.
- [17:04]
B
One of the things that really struck me was I guess how I would think of Goldman through that period as not really ever being at risk, certainly never needing to go cap in hand to the government, not likely to be taken over from a bigger bank. But I guess you acknowledge in the book how much you fear the worst moments, that more because of issues outside of your control that you could have gone bust.
- [17:30]
A
Oh absolutely. Everyone could have. Just let me just say in the financial crisis, which was also a banking crisis, simultaneously we could talk about the difference between a recession that has a banking crisis and one that doesn't. But it was a moment in time where the assets on people's balance sheets, in other words the value of things that you owned. If you're a big company, mortgages, but anyone, even industrial companies would be affected by this. GE was one of the most put out companies. For example, the value, everybody's solvency was being questioned. What were the values of assets? And as a result of that, in this world everyone has to make payments all day long to everybody else. I owe you money, but because I did a transaction, I know that money is going to be there because someone else owes me money and you need me to pay you because you sold it to someone else and that person gets paid. Certainly the banking system revolves around that and at the end of the day everything gets sorted out because there's this stream of payments that get made to each other and it all settles. But at a point in which you have a kind of crisis where nobody knows the value of the other person's assets, what they have and what they're worth, or whether they're solvent. All of a sudden I'm not paying you until I get paid. And that money is not. And anyway, the money that I owe you is not coming in because they don't know whether I'm solvent, whether I'll meet my obligations. So the system freezes and all of a sudden no one is making payment and everybody could be in default. That could have happened. That started to happen. And then at that point, the only balance sheet big enough to reassure the market and say, I have looked at you all, you all can afford to make these payments. I will make sure it all works out. The only one capable of doing that is the government at that point. And so I would say, could the system have survived it? Probably, yes. Would we have survived it? Probably, yes. But there was a big enough risk that when I think of I insure risks that have less than a 1% chance of occurring. Should we have taken a chance? What was far greater than a 1%? The way I said it there, you
- [19:47]
B
say 15% in the book.
- [19:49]
A
I said 15 to 20%. And I say, you know, what else is 15 to 20%? A turn at Russian roulette. Right. In a six, you know, a six shot revolver. That's a turn at turn of Russian roulette. Would we have wanted to face that? No. So if somebody said, would you have likely gone? No. Very unlikely. Was it possible? Far greater possibility than we would have wanted to go to sleep. But it wasn't. We were one of the, we were one of the most solvent with the, you know, one of the best balance sheets. But everyone would have been at risk at that time because there could have been a daisy chain of defaults and no one would have been solvent.
- [20:26]
B
Obviously the government helped the broader system at different moments, but they didn't step in for certain banks. Lehman Brothers being the most high profile. You write this in the book. Eliminate the biggest existential risk at any cost. The first requirement of business is to stay in business. You can recover from losses and live to fight another day. You can't recover from being dead. When you look at Lehman, were they unlucky because the government made an example of them? Or did Dick fold not take note of that particular lesson and was he greedy and to blame for the time?
- [20:59]
A
I think I wasn't in his shoes. And this is the benefit of hindsight. Certainly there was, you know, it seemed that there was he would have had to have done something that would have valued the firm a lot lower than he thought the value was. And he didn't do it. You can recover from anything other than being dead. And so there were other institutions that the shares traded very, very low. The shares of Morgan Stanley traded very, very low single digits, you know, something that was very, very, you know, much more, you know, much more highly before down a lot and they recovered. It's a very, very strong firm today and they recover and it reasserted itself and the pendulum swung back the other way. But the pendulum doesn't swing back if the pendulum falls off. And so, yes, that was, you know, that was something and he had to endure a lot of criticism over it.
- [21:59]
B
This episode is sponsored by the World Gold Council, the global experts on gold. They champion gold as a trusted strategic asset, provided market leading research to help investors understand gold's role and modernize how gold is owned, traded and used, developing industry standards and market infrastructure. Learn more@goldhub.com. As we move on from the financial crisis to today, you wrote in the book of what Ben Bernanke said in May 2007 in a speech relating specifically to the subprime mortgage crisis. We do not expect significant spillovers from the subprime market to the rest of the economy a few months later. You note that Treasury Secretary Hank Paulson said the subprime problem was largely contained. When you see comments like that made May and June 2007, if you were to switch subprime for private credit, do you get deja vu at all?
- [23:01]
A
Yeah, sure. I mean, the point is, and again, I'm not doing it to mock those people who perform very well in the crisis in sorting things out and they don't get as much credit as they deserve for doing it because we never had the blow up. And because it's like when James Bond defuses the bomb before it goes off, the world doesn't thank him for it because the bomb never went off and so no one will ever know about it. So I think those guys deserve a lot of credit for what they did. But you could find the predicate for a lot more problems than there turn out to be. You just don't know. So the answer is yes, I would say that one, if one is in the game of taking risk, one has to be a good risk manager, which means you're always fearful, you're always anxious, you're always looking around corners for what could happen next. And I'll always tell you what the things I'm Most nervous about. That's a good thing to be nervous about today. Private credit. In fact, that has now come into the everybody's state of mind. Everybody's looking at private credit today. So that has echoes of it mean it's big enough. But the mortgage crisis, as you point out by saying that thing and by quoting those things and I quoted it for that very purpose to say, you just don't know. These are the brightest minds, certainly focused on the business. They're not naive people who are trying to minimize problems, but they didn't see it. Could this the problem with finding something that no one else is seeing is it may or may not be a problem. And the old joke goes, you know, yes, here I am, you know, I've identified 10 of the three problems that ever happened. You don't know. But I could tell you there are things that I would be, if I was still managing the risk of a big institution today, I'd be very, very, I'd be pointing to and very, very concerned about is something that could trigger. Now, when you're dealing with a crisis, I think an apt metaphor would be a forest that may or may not have a lot of kindling on the floor of the forest. You know, branches fall down, trees go down, the wood dries up and it's, you know, kindling and dead branch is a form of stored energy. And at some point a spark will happen that will set it ablaze. And that spark, if the, if the kindling weren't on the floor of the forest, the spark would come down and nothing would happen. Lightning would strike and nothing would burn. But if there's a lot of kindling picked up, a spark that otherwise would have accomplished nothing would set it ablaze and eventually something will set it ablaze. The mere passage of time creates the accumulation of. And I could tell you what kindling is in the context of banks and other financial institutions, but the mere passage of time causes the accumulation. And I think this is a good time to look for the spark. Could the spark be private equity? Could be private credit, could be the price of oil suddenly doubling because of what we're sitting here now and observing what's going on in the Gulf. It could be any of those things and the world might absorb that at any other time, except we haven't had a problem in 15 years or more. And so, you know, we're accumulating assets on balance sheets that are probably not worth what people think they're worth. So I can give you like an example.
- [26:15]
B
Yeah, go for it.
- [26:16]
A
We're living in a world where private equity firms are incented to sell off the assets, you know, the divisions of companies and the companies they've bought over the last several years. And quite famously that hasn't happened. They've accumulated. And some of them are finding great difficulty in raising new money because they haven't returned money, because they haven't sold things. Well, we're just coming off a period of record high equity prices and a very, very friendly market for raising financing. In fact, a brilliant period, almost unprecedented. And yet as incentive as they are to return capital, they haven't been sold. Why? Could it be that these companies were overpaid for or marked higher on balance sheets than they're worth? Very possibly. And so that would be an example of assets for which there's been no forced reckoning. At some point there'll be a forced reckoning. People will have to sell, people will have to raise equity and capital. And so that will have to happen. Usually that reckoning occurs because, as I said, we have the crisis of the century every four or five years, but we haven't had one for a long time. And because of that, the buildup of assets that may be overvalued on balance sheets or kindling on the floor of the forest has been built up. And so eventually it'll happen.
- [27:41]
B
I guess the other kicker to your point about the 15 years without a crisis is the balance sheets of governments have gotten a lot worse because the response has tended to been, you know,
- [27:50]
A
kick the can, because I kick the can. And no, you know, no fault of the government, you'd say, in the governments still haven't recovered from the government and the government hasn't undone the swelling of the balance sheet that happened because they stepped in at the financial. So a lot of the risk has gone from the private sector onto the government's balance sheet with big outstanding debt and obligations. So yes, that's another, that's another part of it for which hopefully there won't be a reckoning. Because if the government balance sheet is in trouble, who can assuage the market that the government is okay, well, it's a genuine.
- [28:28]
B
This is my next question. I mean, particularly with oil prices surging and the threat of inflation, because I think it's fair to say one of the tactics being used by Scott Bessen and team has been more short term issuance to offset the supply of long term issuance, which if rates have to go up again, which is probably more of a threat here in Europe. But is that something that could be
- [28:50]
A
the spark, you know, anything to be, you know, think of the spark as being the straw that breaks the camel's back. That straw didn't, did it was the accumulation of a lot of straws that did it. And that was the last one. Yes, almost anything could do it. But you bring up an interesting point. That's one saying is how does a government default? The US Government borrows for the most part in its own currency. How could it default? It defaults. They could print as many dollars as they want. If the government owes you dollars, I assure you they can pay you back dollars. They just run the printing press. But the point is, the US government defaults on its debt by allowing the dollar to inflate. So you lend the US government money for 10 years and we pay you back the dollars that you lent us. Those dollars don't purchase what they used to purchase. And that's how the US government deflates. And so everybody is watching inflation because the way the government also defaults to its creditors is by allowing its currency to inflate.
- [29:53]
B
And on the positive side, on the US economy, maybe more than the current market valuation. I was really interested. You talk about the greatest strength of the US economy is its remarkable resilience.
- [30:05]
A
Yes.
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B
But more than that, you link in the same way that you talk about when a firm gets bigger to maintain its way of doing things. You have to have a strong culture that you think that the US economy has a very strong culture.
- [30:20]
A
You know, it does. And it's kind of weird because everybody, you know, the US now is providing great theater to the rest of the world. Cause as you know, I don't know
- [30:29]
B
about great theater, but theater, well, entertaining
- [30:32]
A
theater, you know, great. I say great in the sense of entertaining. Not necessarily, not necessarily great outcomes in the immediate. Don't forget, tragedy could be great theater also.
- [30:41]
B
That's true.
- [30:42]
A
So in that spirit, it's great theater, like great tragedy is great theater. But the strength of the US is in some ways that it deals with its problems very aggressively. The social contract is a little bit different. The stresses and strains, the fighting. The US has been ground zero for a lot of crises, and yet the US recovers quicker than almost anybody else has its trials. Everyone, believe me, I know this firsthand. You get called in front of Congress, you get beaten up, you vent and attack legislation, very aggressive legislation, gets drafted very, very quickly. And then over time, as tempers calm down and everything, it comes back down again. But it deals with its problems very, very quickly, very aggressively, and sometimes with immediate damage. In the short term, but it gets to the long term quicker than anybody else in Europe. And I know this because we ran businesses all around the world. The social contract is different. If you have to retain your employment base for a long time, you can't exactly make changes very quickly and you have to suffer with inefficiency for longer. Different societies have different values, but in the US is very good, some people would say very bad, but very good of just going forward, getting to the new place as quickly as possible. Trials, tribulations, regulation that comes out quickly that then has to be altered, allowing people to be fired more than other countries would. But you get to a place and you get to a better outcome and that's good for growth. US is the biggest economy by far and has the highest growth over a longer period, by far. Usually size. It works against flexibility and resilience and the ability to adapt and change. Aircraft carriers are harder to turn around than smaller ships, yet the US is much more responsive because of some choices it makes. And by the way, not everybody would recognize those are the best choices.
- [33:05]
B
This episode is sponsored by Interactive Brokers. Building wealth starts with the right broker and Interactive Brokers helps you reach your goals with powerful tools, global market access, low costs and unmatched financial strength. That's why the best informed investors choose IBKR. Learn more at ibkr.com masterinvestor. Hi guys, it's Wilf. I hope you're enjoying this episode. Just a quick reminder to please hit follow or subscribe on your podcast or video app so that you never miss an episode. And if you've got time please do give us a five star rating and leave us a comment. It really helps other people find the podcast too. Now back to the episode let's snapshot on the UK and London. You spent a lot of time here in the 90s and 2000s and I had under appreciated how important London was to Goldman Sachs. Yes, particularly during that period. Even in the 80s before that. What's your snapshot? London as a financial center today versus then.
- [34:15]
A
Well at the time I thought there was some possibility that if the clock rolled forward it wasn't going to be during my tenure. But we were working towards London becoming bigger and bigger. I thought at some point for a global financial institution, London could be the global should be the global headquarters and part of it was the geography of Greenwich Mean Time. You wake up in London and part of your morning overlaps with Asia and your afternoon overlaps with New York. So that could be all of Europe. But you add into the rule of law, the culture, the judicial system here, which gives you the confidence in which to invade. Everybody wanted, you know, was happy using English law and the English judicial system. And again, other advantages too. The melting pot nature, you know, the ability of London to. And diversity of London that makes it very attractive. By the way, London is still very important and maybe the most important financial center for again the European zone. But now because of Brexit, has to share it with other European countries that have drawn from London certain parts of the financial infrastructure that otherwise would have been here. And so it's much more distributed than it was before. And so it takes a little bit away from the kind of gravitational pull of London.
- [35:44]
B
I like that your chapter on London was titled Lloyd of London.
- [35:47]
A
Yes, Lloyd of London in the singular.
- [35:49]
B
Lloyd's has been more in focus of late for other reasons with the Straits of Hormuz. But that piqued my interest. Quick question on gold before I want to get to some career advice. There's lots of great quotes in the book for people listening. But you launched the Goldman Sachs commodity index in 1991 and you reflect then on how asset managers didn't really have gold and other commodities as a portion of portfolios back then, which is crazy, or grains or any of these, or
- [36:16]
A
oil diversifying assets because gold really was quasi financial asset, but the others weren't at all.
- [36:22]
B
So my question to you on this is from back then where exposure would be very, very, very low and there's lots of potential new buyers to enter. You see a year like last year where gold goes up so aggressively as it did. Is the opposite true now when you snapshot as a former gold trader, is gold overly stretched to the upside today?
- [36:43]
A
You know, I started life in gold trading. It was the place where I got a job. It didn't make me a gold bug.
- [36:52]
B
Interesting.
- [36:52]
A
Yes, it didn't make me a gold bug. And it certainly doesn't make me a crypto bug either. I like assets that accrete in value, that either pay, that get more valuable with the mere passage of time, or unless something occurs that makes them less valuable, or they pay interest or a dividend or have a yield. But you can't argue with thousands of years of history where gold was prized. You know, you can't eat it, you can't live in it, you can't wear it, you can't plant it and get a crop. But I would say at this time the value of gold has been established, unlike the value of crypto.
- [37:29]
B
Right.
- [37:30]
A
Although people will say that crypto is the new. Obviously, people are saying that crypto is the new. Some people are saying that crypto is the new gold. But gold could go to $100,000 the ounce, but it'll go there without me.
- [37:44]
B
Which is really interesting, by the way, to your point about liking valuing cash flows, I think it was in the interview you gave to the Times. You said you're 100% in equities.
- [37:52]
A
I have been mostly, yes, in equities. Now, some of those equities are very highly volatile with a high that move with the market. And some are very safe equities and don't move a lot and pay yield. But yes, I'm mostly in equities. One of the, you know, one of the occupational hazards of my earlier life in trading is that it stuck with me. I tend to know the price of everything all the time. And so I. Part of the soundtrack of my current life, or the background noise, if you want to put it that way, is markets. And so I'm always playing in markets and I'm always buying and selling, and I do that every day. I can't say that I'm an investor. I'm more of a transact. I hesitate to say trader, but really, I'm really a transactor all the time.
- [38:41]
B
You're playing poker using your analogy, then, yeah. This episode is brought to you by lseg, the leading global financial markets infrastructure data and analytics provider. To learn more about how ELSEC connects businesses, investors, and markets worldwide, visit lseg.com. Let's end the final 5, 10 minutes talking about advice for our listeners for their careers. Because there's just. Honestly, I'm trying to pick my three favorite quotes on this. There are so many to it. But I think one thing that comes out across all of the book is which I found in my career, and I find it quite depressing, but it's a reality you just have to own and confront. But there's a lot of corporate politics in progressing in a big firm more than just being good at what you do. And I think that comes out a lot. And one of the quotes which I really like on this is you say if you want to keep growing and rising in an organization, you need the support of your subordinates, not their grudging cooperation.
- [39:51]
A
Yes.
- [39:51]
B
Is that something you realize straight away or did you learn it as you rose up through the organization?
- [39:58]
A
I learned it as I rose up, but I was always more naturally attuned. I kind of, you know, because of my background, I had a Bit of a chip on my shoulder. And I think I was a tough, I was a tough peer to have to be in the firm, you know, with my people who are same level as me and maybe even tough to manage. But I was always naturally very attentive to the people who reported to me. I'm not sure why, I just identified always. And I saw myself, you know, more simpatico with them and I realized that they're more important to you in a lot of ways. And having a good relationship with them was often much more important to having a good relationship to the people above you. If you are a high performer, people are clamoring for you to do their work for them. In a firm like Goldman, everybody wants you to do their work for them. When you're really good and you have a choice then of who you want to work for, you can steer yourself this way or that way because everybody's happy to have you. But in order to do a good job, you need the enthusiastic support of the people who are your subordinates. When you ask them what's going on, do they give you a three word answer or do they make you understand what's going on so you could be better informed, so you could tell the people above you so you're very knowledgeable. By the way, do they wait for you to ask them or do they come to you and tell you is your partnership with them, is your contract with them so that they know you're good for them and therefore they're going to be good for you? That they're incented to want you to do well and do it? Because at the end of the day, the higher you get, the more superficial you are on all the elements that you're responsible for and you're really relying on the people under you. How grudging is their support or how enthusiastic is their support and their help? And I thought that I always really enjoyed that and I had that. And so I also, on the other side, what I didn't do as well was I don't always, didn't always make myself so friendly to the people around me. And I joke, but it wasn't really a joke. I said if I'd known I was going to grow so senior in the firm, I would have been a lot nicer to people on the way up because then I would have had to spend much less of my time apologizing to them once I got to those positions because I needed their support. As I moved up the letterhead, well,
- [42:23]
B
you're really frank about all of that stuff in the book, which I appreciate. Another bit of advice I love, because I didn't expect this. I thought you'd be, which obviously you're a risk taker and embrace that side of capitalism and innovation. But because of that, I would have thought you would encourage people to take a gamble. But you said that you regularly spoke with Goldman partners and people that were either still there or left reaching out for career advice when things hadn't quite gone their way. They didn't get the promotion. And your feedback to them often was suck it up, to stick it out and to not give in on the 10 or 20 years of credibility they'd built in a certain firm. Because sometimes we have people here that say, you know, take that leap of faith, leave the firm and go and try something. And they're both right.
- [43:12]
A
I mean, it depends who you are and what stage of life. I was a practicing attorney. I worked in a law firm for five years and I looked around and I said, you know, it's not for me. And basically one of the reasons I thought that was because all the people in the other office liked it so much more than I did. They were going to eventually, they were going to be much, much better than me because of their enthusiasm for it and my reticence about it. And so I took that leap. I was young, no kids, just, you know, I think I was engaged when I left, but I wasn't even married. And it was a good start. And it wasn't just out of conservatism. If somebody is burning to be somebody different, a different kind of career, go into a different direction, by God, do it. And do it even at a later stage if you don't like your current job because, you know, life's too short to be unhappy for such a big chunk in your career. And your business life is so much a part of it. It's your wealth, it's the success of your family and get yourself to a better place. But too many times somebody gets frustrated with their job, their boss, and they go to another firm that's just like the firm they left, where they have no credibility, where they're coming in to an organization, where the people who could have gotten the job that they're getting are offended by the fact that someone new is coming from the outside and are going to be hostile. And so sometimes it works. So if you're blocked in your career and people think differently, you know, poorly of you, but sometimes it's just, you know, it's just a moment in time and see it. But if you're miserable, you have the right and frankly the duty to make yourself happy. So make yourself happy. But too many times it's just a moment. And one of the things that happened in the Goldman Sachs because of the Goldman Sachs IPO is people were suddenly made rich. And if you are really striving and getting ahead and have to make the mortgage payment and your third child is due any minute, your boss upsets you, you don't leave because you have to tough it out. But guess what? If suddenly you became rich, oh my goodness, one bad day at the office and you go somewhere else. And a lot of people, you know, there's some people who look back and that was a good moment for them. But a lot of people look back and are sorry that they left what they had, what they left behind, what they had.
- [45:25]
B
Some great advice there for people rising up through the ranks. This final bit really is for those right at the top of the tree. You talk about, I think actually stems from a meeting you had when you were covering Robert Maxwell. But you talk about how really successful CEOs and business people get deluded by their own self importance. How do you stop that from happening when your company is so big and important and so many people inside and out probably are kind of kissing the ring somewhat every single day.
- [45:59]
A
Well, I think just what you just said, your company is big and important and people are coming to kiss the ring every day. But you understand that it's not necessarily, and certainly in my case, it's certainly not your good looks and it's not your athletic prowess, it's your platform. Now you earned your position. But you know something? When you don't have that position, you won't be as good looking or as tall or as athletic as is reflected, directed back at you by the rest of the world. And I think it helps to be reminded that what was it in the. The when you know, when you came back from the tribute from, you know, from, you know, the successful Roman, you know, general, and he's riding in the chariot and someone stands behind him and say, you know, sick transit glory, you know, thus, thus fleets glory. And I think I was always, look, I was benefited. Look, there are people I know who were in very senior and powerful positions who were the kind of person that was voted most likely to succeed every year of their lives starting in kindergarten. I was blessed by not being that person. So I worked, you know, I worked my way up. I knew that a lot of my, you know, a lot of the magnet Magnetism I had was the magnetic pull of Goldman Sachs and the big very successful firm and the influence and frankly the power that you have at being at the top of that heap and the power of the firm was kind of transmitted by me and that made me attractive. But I knew what the source of it was. And so I think it's good for people to read history and understand. And by the way, just think of the path of your predecessor and what happened to them after they left their jobs and you'll understand where your authority comes from.
- [47:43]
B
Well, your predecessor went on to be Treasury Secretary.
- [47:46]
A
He did.
- [47:46]
B
So I guess he did not a good example.
- [47:47]
A
Well actually that's not a particularly. By the way, five of my last six predecessors went into the cabinet.
- [47:53]
B
By the way, the quote you use for this summarizing this, which I love, although with our mix accents I have to say it very clearly. You said your temperament was more of one of a worrier, not a warrior.
- [48:07]
A
Yes. Cause I am a risk taker and I think I was pretty good at managing risk and nobody's perfect, but I was pretty good at it. And, and so everyone's saying sometimes the people who are big traitors, they're big he men and very self imported like that. And I said, you know something, whatever strength I had in that area comes from being a worrier, not a warrior.
- [48:30]
B
And just to round this off, going off a tangent, can you apply that to America and its president right now or not?
- [48:42]
A
Well, I would say that our current president is and I wish him success because we're all thrown in because he is the leader. But I would say that he's sui generis and there's not anyone like him to make a good analogy to it. But he seems to be awfully. He has certainly more confidence all the time than I have had at any one time in certain things and does a lot. We couldn't be more different in kind of our approach to things.
- [49:15]
B
Are you worried about where we are?
- [49:19]
A
Yes. And by the way, I see some very good outcomes for some of the policies that have been put in place and I see some very poor possibilities for the over exercise of executive power in a government that's structured to have checks and balances and have constraints on power and to force external influences on the executive of the person who occupies the executive seat. And so the, I'll use the word usurpation, that may be too strong, but I'd see the, you know, the seizing and the exercise of powers that are ambiguous, that haven't been by tradition haven't been exercised by the executive or the lack of consultation with the legislative branch, or maybe sometimes showing a lack of respect for the judiciary. I don't like that, and I don't like that a lot. And on the other hand, I'm not so, you know, I'm not so, you know, not so tied up in a knot over that that I don't recognize that some of the things that have been done have actually been quite. Have had quite effective outcomes. You know, policies on immigration even, you know, possibly at the expense of the UK and Europe, getting other countries in Europe to contribute more to the common defense budgets. You know, reconciling the cost of pharmaceuticals in the United States, which overpays for pharmaceuticals and effectively subsidizes research. I could tick through a number of other examples of policy outcomes that are quite positive. But then again, I also worry about the norms and the traditions of American government. You know, not every, and certainly in the UK you understand this because you don't have an explicit written constitution. You just have history and tradition and certain norms. To a certain extent, US has that too. And some of those norms are being tested in ways that I'd rather not have them see been tested. So, you know, again, like everything in life, pluses or minuses. But I could see some very, very good policy outcomes. At least I see them as good because I identify they're going in the direction that I kind of like certain aspects of the economy as well. But I see some things that I don't like. There we are.
- [51:41]
B
We are basically out of time. We've run out over time, in fact. But I could have gone on for ages, had tons more questions. But I want to end with a question. We end with all of our guests, which is, what is your overriding piece of advice? It can be investment or career advice or both for our listeners.
- [51:58]
A
Well, I'd say most of the time, things tend to work out. So I would say a lot of this conversation is about anxiety. And I worry about this and I worry about that. But that's, you know, I find it, you know, most of the time, things work out. Now I don't have to spend a lot of time obsessing about it because I could take good outcomes and success in stride. The things you have to spend your time on are the things that go badly, but don't. Just because you spend a lot of your time on it. Don't view the world in a pessimistic way. I think optimism is generally justified. Things tend to work out over time. And so earlier you asked me, am I always in equities? Yes, I mostly am in risky assets because most of the time you get fairly or overly compensated for taking risk. And so if you can't bear something not working out, then don't go near risk. But most of the time people are in a position to benefit from taking more risk and having generally optimistic about the way the world would play out.
- [53:02]
B
Lloyd, it's been an absolute pleasure to catch up with you today. Thank you so much.
- [53:05]
A
Thank you, Wilf. I really appreciate it.
- [53:07]
B
Streetwise is out now in all good
- [53:09]
A
bookstores and we really do miss you, miss you in the States.
- [53:13]
B
I don't know about that. Yes.
- [53:14]
A
Well, okay, how about this? What? I know, but I miss you in the States.
- [53:17]
B
Well, that's very kind of you and it's been great to catch up. This is our fourth interview and it's been an eight year gap since the last one we reflected on. I've really thoroughly enjoyed it. Thank you again for this extended conversation, Lloyd Blackburn.
- [53:32]
A
And thanks for having me.
- [53:34]
B
Next up on the Master Investor podcast will be Dan Moorhead of Pantera Capital talking crypto. Lloyd won't like that one, so don't tune in.
- [53:41]
A
I like talking about it.
- [53:42]
B
I like talking about it. Anyway, that's coming up next week, so please hit subscribe or follow if you haven't done so already. The Master Investor Podcast is sponsored by Elseg Interactive Brokers, the World Gold Council and BNY Investments. Please do remember the views expressed in this podcast are for general information purposes only. Nothing in the podcast constitutes a financial promotion, investment advice, or a personal recommendation. More on that in the show Notes this podcast is produced by Paradine Productions and Master Investor limited In association with Birdline Media. If you've enjoyed the show, please do subscribe on YouTube or click follow on your podcast platform, and you'll be automatically notified each time a new episode drops.