This is Masters in Business with very Ridholts on Bloomberg Radio. This week on the podcast, I have an extra special guest. Jay Bowen is the manager of, amongst other things, the Tampa Firefighters and Police pension funds. His firm has been managing that for over forty five years. Their performance numbers are are quite spectacular. They approached this in an absolutely unique way, UH, in fact, so unique it's become known as the Tampa model. No consultants, no third parties, no alternatives, just stocks and bonds managed by a single firm at a very low cost. UH. They run about a dozen other UH pension farms UH in around in and around southern Florida as well as elsewhere. This is really a master class on how to manage a pension fund, how to keep your costs in line, how to avoid the usual expense of consultants and third party managers. UH. It's really quite fascinating. It's always interesting when you speak with someone who's a unique contrarian and approaches the world in a different way and has been very successful using that model. If you are remotely interested in long term investing, foundations and pensions, or just hearing someone who has a unique approach. I believe you're gonna find this conversation fascinating. So, with no further ado, my conversation with Bowen and Haynes. Jay Bowen, this is Masters in Business with Barry Ridholts on Boomberg Radio. My special guest today is Jake Bowen. He is the CEO and Chief Investment officer of Bowen, Haynes and Company. The firm has managed the Tampa fire Fighters and Police Officers pension funds for over forty five years, performing consistently in the top quartile versus piers. It is one of the few pension funds in the United States that is effectively fully funded. UH. The total return on the portfolio since its inception has been nearly fourteen thousand percent UH. The annual return is of the stock portion is fourteen point six percent, handily out performing the benchmark. The total return has been eleven point nine percent annualized. That beats the SMP five hundred UM. Quite impressive for a stock and bond portfolio. Jay Bowen, Welcome to Bloomberg. Thank you very much. Am I getting your name right? Bowen? Alright, so you have really this is a fascinating story that I don't know if many people are familiar with your father founded Bowen Haines in Company in nineteen seventy two, eventually be Humming the person running the Tampa Firefighters and and Police Officers pension fund. You took the fund over in the early two thousand's, Is that right? I assumed day to day responsibility in two thousands, right? Right? Were you working for the firm before that? Yes, I came on board and actually in nineteen seven. So what was your career path? First of all, did you know you always wanted to go into finance with the father running a pension funds? I did not, But I grew up with my father taking monthly trips to Tampa, and I knew he was going somewhere on business, and when he would come home, he would go down every month in the in the seventies and UM he would take me down when I had a vacation or had a few days off from grammar school, and I became kind of enamored with the with the Tampa Bay area. I did. I did not know that I was gonna eventually be involved in the business. I was very I was an English major, very liberal arts oriented. UM, but became fascinating it and drawn. Really I wasn't a numbers person, I wasn't a math person. I was fascinated and drawn to the policy debate UM, the economic policy debate. I really became focused on that, and with the top down approach that the firm took, I kind of entered it that way. What was your what was your first job right out of college? I was in sales marketing, oriented, very very You didn't jump right into the family business, so to speak. I didn't jump right in UM. But what happened was in nineteen eighties six I went up to a Washington conference policy conference, and I was just so drawn and so and I'd always been that way really throughout my life, very focused on UH policies and politics and what was going on and what it meant and what it might mean to the financial markets. And so I really after that conference, it just really became inevitable that I wanted to get involved. Was your father interested in the sort of macro economic analysis as applied to investing or was that something that he thought wasn't necessarily relevant. He was interested in it and thought, you know, as you know, they're all different ways to do this business. There's bottom up, there's top down, there's there's mob black boxes, computerized models, there are and and phenomenally successful ways. We've just always gone about it from a top down perspective, and he was top down primarily. I'll tell you why, because when he started the firm in the early seventies, I mean, sure, it's a great time to focus on inflationary expectations and what that might mean a financial market. So multiple recessions, big pullbacks in the market. Seventy seventy four was about a fifty seven percent drop UH real real bond yields were effectively zero with inflation at ten twelve. Yeah. Yeah, there's an amazing when you look at it over long periods. I mean, there was a period from nineteen sixty eight to nineteen eighty two when the market had a negative real return, stocks had a negative real return, and that was in my view the way we view the world. That was because of UM really anti growth policies and a very counterproductive Federals erve in terms of from UH and then the FED basically funding the the UH, ratifying the inflation during the seventies, in the sixties and seventies, what are your thoughts on someone like Paul Volker who comes in and says, oh, well, let's do this and and basically takes the FED funds rate up to double digits. Right. That was a really important turning point in terms of how we of course I wasn't on board then. This was eight actually vocal Candon in seventy nine. Um. But there was a triple triple threat that happened in the late seventies and early eighties, and it really set the stage for a arguably the biggest bullmarket ever UM. And that was Paul Voker coming in to break the back of inflation, which is so key to financial assets price stability um uh, but not inflationary expectations. And then there was a deregulation effort that started with Afridkahan at the at the airline and trucking deregulation, Airline deregulation seven. And then Reagan came in UM with the tax reform UM in terms of lower tax rates, higher after tax returns, increasing in centers for work, was taking investment capital format I mean all those three things together um. And of course the DAO was sitting at seven seven fifty eight hundred with no real return um going all the way back to nineteen and I remember, and uh this is I was still focused on policy even though I was in college. I remember in eight two the tax cuts didn't take effect and there was a they delayed the tax cuts. They passed the legislation eighty The tax cuts didn't take effect until August of eighty two. Guess when the bullmarket story. Let's talk a little bit about the Tampa model. Your firm has managed the Tampa firefighters and police officers pension funds for over forty five years. That's pretty unique in the world, isn't it. It's very unique. My father for is a relationship in nineteen seventy four. We're now in the midst of our forty five year as you as you noted, we've managed every penny the entire period. It's growing from twelve million to over two billion, and they've taken over a billion out so that's three billion total cap appreciation to come of over three billion from twelve million from twelve and obviously there's been some contributions along the way country. Yeah, but the net there's been net outflows, which is what you want. That's what it's for. That right retirements for these incredibly dedicated public safety employees. So it's do it's doing its job right. See, I would imagine that you're completely ticket proof in Florida, that anybody pulls you over. It's like I'm the guy who manages your retirement account and that, oh, of course, I have a nice day, Mr Bowen. Yeah, Tampa, Tampa. I think my father was pretty safe within the city limits, and I hope by him. So you go from twelve million to over three billion including outflows to what do you credit this? Uh performance? Yeah, it's a it's a confluence of events. And by the way, my father four's actually was involved with this fund in nineteen in the late sixties when he was with another institution when he started his firm, UM he helped kind of set the fund up and helped with the investent policy statement back then. And then when he started his own firm, they were dissatisfied and came to him in seventy four. So that's and hired him when it was at twelve million. And it's really um I tell you what um I think. And it's funny. The pension attorney down there coined this term and I love it. He said, you know what you've got here, and he he sees pension public pension funds all over the country. Um, he's involved almost in every state, very prominent pension public pension fund attorney. He said, you know you in Tampa. He told the board you all have a perfect rainbow. And he said perfect rainbow because you've got a great city, competent. You know, they're all kind of moving parts. That the true the health of a pension fund. We're just one component. We're an important one, but they're all kind of moving parts. I mean, you've got he said, you've got a really competent, strong municipal city government, well managed. Well, it's if Tampa were stock, I'd be buying it. Can I tell you I visited Tampa repeatedly over the past few decades. Tampa is a booming city. Twenty thirty years ago that it was kind of a mess. You know who else has seen that as Jeff Finnick, really Jeff Finnick is he is Misiality Fidelli. He is Mr Tampa. Now there he purchased the hockey team is involved in a massive development effort on the waterfront. So he saw the value there. A few years Ago, and he's very involved in Tampa. And as I say, if Tampa were a stock, I would be buying it. But a competent city government. And here's the important on that funds the pension fund. They fund it. They put the money in. A lot of these municipalities that are in such trouble don't um so Tampa. Actually it's a it's I think it's the best run major city in America. That's one component. Number Two, they have a board and my non member board that is extremely responsible on the benefit side. You know, they're not reckless in terms of allow the Dallas fire and police, in terms of uh promising all these these It's a very very responsible, dedicated board. And then number three, the third part of the perfect rainbow is that we've had good investment returns. It's so easy to make promises that come due decades in the future and not to fund it because by the time people are pointing fingers, the people responsible along gone. So so how to what do you attribute Tampa avoiding what is a typical fate of local governments and municipalities, which is to just kick the can down the road as far as they can. And we see it in the pension space with very high expected returns for expensive hedge funds, and that ends up being matched with very low actual returns. What what's the what's the secret to good city government? Yeah, I just think it's they have the board. Of course, it's run by the board. Their three firemen, three policemen, and three people appointed by the city UM and they've just been uh, it's it's it's an extraordinary situation over the last forty five years. It's an extremely dedicated board. And I think here's one thing that I think has missed in this whole debate. And pick your number four or five trillion dollar underfunded, underfunded crisis average municipal fund. I think the funding ratio is um and you're in the nineties. It's I don't know, it's fully it's fully funded. But I think what they've done down there is they've realized what the they've never lost sight of what the core mission of this fund is. It's not to generate fees for layers and layers and layers of people. It's not to allocate assets to every asset class under the sun UM. It's to provide a good, stable retirement for these public safety employees. And to do that, um, they've and with their focus firmly on that, they've avoided a lot of the conflicts of interest. When you look at a lot of these funds, there's just enormous conflicts. And just to I can give you one small antidote to give you an example of how they stayed out of trouble back And I wasn't on board, but my father used to love to tell the story of the mayor down there in the the mayor of Tampa in the mid seventies. After he was mayor, he became chairman of a major insurance company and he made a presentation to the board to put uh quite a large percentage of the fund in an insurance products, guaranteed investment contracts, annuities, that kind of thing. And he thought he had it in the bag. He was, he was the mayor, He knew some of the city trustees, and soft the sales crew from New York came down in their fancy suits and they gave the presentation, and the board vited him down and it was just a stunner. Nobody could believe that the board. But what I mean, this never happens. I mean it usually funds like that are riddled with these kind of conflicts. Um. And they have always I mean not their exceptions every now and then the board met, But for the most part, it's extremely dedicated board that they've they've avoided the pitfalls and the conflicts of entry. You know, earlier we were discussing some of the pushback to your model of not using consultants, not using third parties who might add fees, no alternatives like hedge funds or private equity. Um. How unusual is that set up in the world's defension funds. It's unprecedented, exceedingly unusual. In fact, when the trustees go to these conferences, I mean I cringe a little bit. They go to these investor conferences. They're sponsored by consultants and everybody else, and they they're all always at these conferences, national conferences, and they're swarmed, of course by various service providers and what you can't have one manager that's FIDUCIALI you can't do this, rack Ins. And then I'm the former chairman of the board policeman. I used to love it. He would carry around the compounding any return his back pocket and he would just show it because my returns how you do, and they were just going, okay, well we'll see learning. So hey, can you keep up with this if you can't always start? I recall some time ago there was an article in the Wolf Street Journal about I want to say it was in Nevada. Somebody is managing a small pension fund and effectively he comes into the office each day with his crossword puzzle. Everything is in indexes. He doesn't do anything, and their core structure is is That's the only other example I'm familiar with of somebody approaching single manager, no consultant, no third party. But so now that's too Are there anybody else who remotely, even at least is thinking or looking at this sort of model? You know, it's funny because you would think, I mean, we have received a lot of national acclaim over the years because of the uniqueness and the performance. But the industry, there's the model, the consultant driven multimanager model. They have got such a stranglehold on the industry that they're really there is they're they're going halfway towards indexing. But in terms of of course, here's a little bit of indexing, and now let's are seeing a move towards that within the municipal arena, but a move towards a core, one core, unconstrained manager for the Bulkley assets. No, um it's it doesn't matter. The evidence can be so overwhelming and so powerful in terms of the potential benefits from a return standpoint for with feastandpoint, but um it's it's never accepted within that arena. And one question I always have, not that we're in this league, is that everybody says it's it's reckless and irresponsible and how can you do it? And there's one man And I'm always thinking in the back of mind, well, you know, Warren Buffett and Charlie Munger. There have two of them, and they manage but fifties. Not that we're in that league, but they manage fifty or sixty billion, and they're just two of them. I think it's even more than that. And yet and you don't hear the you don't hear the you know, we gotta we gotta break it up. We've gotta break it up, we gotta put some of that, we gotta there. There have been people who have suggested that over times, you know, you'll unleash a lot of value if we break up Berkshire Hathaway. That that sort of anytime there's a big pool of money, people are gonna look at it as an opportunity to capture some of it. And if we break up Berkshire Hathaway, my firm is ready to stand to garner a whole bunch of investment banking fees from the process. It's never coming out of academia. Objectively speaking, here here's why Berkshire Hathaway should be broken up. Um So, but you bring up a really valid point, which is the pushback has been pretty outrageous. There were accusations about it. They wouldn't go so far as to say fraud, but accounting issues and why do they change accounting so often I read about this. It's you, you're I'll let you defend it. But some of the pushback to this has been pretty It's incredible. You know, in the in the in the we do have a First Amendment and I love it. And we've got in the digital age and the you know, the free flow of information, the flow of information anybody, particularly in the bloggosphere and online. You know, you can say anything. It's out there, and it's funny it there's just we are the enemy to the to the standard conventional model that I think we're a threat. I think we're a it. And some of these their fee structured to the overall model itself, the model or model I think is a threat to the multi manager consultant driven model. And so there's been a concerted effort and this listen, we've heard this. My dad heard it throughout the seventies and eighties. I mean he he listened, He laid the groundwork. I mean, I'm the beneficiary of what he did. He he's the one that had to get bloody back in the seventies and eighties when man, they were coming after that fund, even though it wasn't as big, they were coming after it like you wouldn't believe. But what happened was the results were so good that all of a sudden, the city started being on our side because the city. It's great for the city. When then they were they were able to cut taxes, so they became allies. Let's talk a little bit about your investing style and and where we are in the market cycle. You describe yourself as a top down thematic investor. What what does that mean? Yeah? And one important thing to know with this relationship, which is a pretty extraordinary being typed down in thematic were able to really in the board allows us to focus on the real long term and I mean real long term. They actually, and I can say this with a straight face, and they would tell you with a straight face, they take a twenty year investment. They really do, which makes sense for a pension fund. Just most don't. The actually yeah, and the actuaries love the twenty years because that's the kind of the average snapshot of a career of a public safety But the reason we take a twenty year is that we found that there hadn't been a twenty year period that has not included a bull market and a bear market, and a recession, and a speculative bubble and a war, I mean throughout the financial history. Um, we love. I think that's a great time frame to measure the competency of a manager in all time periods. And we can show now every every October when I go down there to the review of the fiscal year, which is there on a September physical, we show another twenty year rolling setup performance data. And right now we can show twenty five sets of twenty year rolling performance and you can show really good out performance for each of the twenty years segments. So they've allowed us to take a twenty year approach and it ties into the top down thematic. And just to give you a couple of examples, when I say thematic and top down, we're looking we're trying to look at a variety of particularly on the policy front, tax policy, trade policy, physical policy, regulatory policy, international policy, even foreign policy. What does that mean to financial assets, what does it mean to stocks, what does it mean to bonds? Um. It's funny, as I said earlier, they're all kind of different ways to do this. I remember Peter Lynch, who I just thought was great. I remember him saying, you know, if I spend five seconds on economics, it's five seconds too much. He was bottom up and he was thinking, you know, they're they're people all kind of successful ways to do this. We've just always focused on the on the top down. I mean, just to give you some examples. In the early eighties, Uh, it was really important to focus on the monetary and the tax in terms of what that might mean for inflationary expectations, for interest rates, um, for various industry of sector. In industry categories. For instance, my father determined after Valker came in that we were gonna that he was going to break the back of inflation. And I can remember him showing me some charts, Uh, Coca Cola, Campbell Suit flatline. They had flat lined for ten, fifteen, twenty years. That's because of the inflation. The ravages of inflation had really hurt heavily compend they had done nothing, and it was his view that this was the time to really start shifting our emphasis to the staples area, to household product companies into food companies like Coca Cola and Campbell Suit propctory game with those kind of companies. And so that flowed from the top down viewpoint on inflation and then the other side of it what we talked about the deregulation, but what was going on on the tax front in terms of you had taxed the Tax Form Act of nineteen eighty and then you had the second round in n six which brought the top marsin right down to believe it or not, and you know, brought in the base, did away with a lot of deductions and credit, made for a much more efficient productive um system that raised real growth. We thought with the top down analysis that we did, that we were we were in for a period of much faster real economic growth because of an increase of incentives for work and risk taking, an investment capital formation. And so number one, we thought the emphasis that you could really start focusing on stocks common stocks. Again, as I said from six eighty two, the real return on stocks was negative. So it was a matter of from a top down standpoint, Okay, we like common stocks, and then within the common stock arena, which sectors, which industries, which sectors are going to benefit from these trends. Um As we moved into the nineties, um the top our, top down work indicated that okay, here we go, this is really an integrated and related global economy. So let's focus on these companies that have a strong strategic international business plan. And I can remember in nine nine seeing the cover of Fortune magazine. Jack Welts was on the cover in that ended up being one of our and I remember reading that article and thinking, Wow, this guy really has a great business plan. Management was really important to us, and I think the stock rose four thousand percent during his tenure to two thousand. The timing was perfect, so Welch on the industrial side, ruben Mark on the consumer side at Colgate Colgate Um late eighties, early nineties, just they were better known overseas and they were in this country. UH, they were a bigger player in Asia that they were in the U. S UM. So that ended up being one of our biggest consumer holdings. G ended up being one of our biggest UH industrial holdings. And that flowed from the top done work we did in terms of during the nineties this move towards an integrated and related global economy. Late mid to late nineties it turned more into a out of hot tech innovation, risk taking entrepreneurship. Who was going to benefit from that? But I'll tell you what was really important from a top down standpoint during the nineties and UM is was I remember Greenspan given Humphrey Hawkins testimony. I'm saying that we have reached a point of price stability, and we think the economy can grow at above trend um at price stability, which was a dagger through the Phillips curvers um and and the Philips curve has reflected that ever since. That was so important. That was a great moment that he would let it run, and he did let it run. That was from a top down perspective, that was very important. Let let me throw some of your own quotes that you and and have you, um respond or explain some of them, because a few of these are quite fascinating. Quote. We could be in the early stages of a move by business away from an obsession with financial engineering and bottom line earning his growth towards business investment and top line growth. Uh, explain what you mean by that? And are we seeing any evidence of that yet? Yeah? I think we. I think we're in the early stages of seeing some evidence. You know, during most of the two thousand's, particularly post financial crisis, UM, you had a very sluggish economic growth situation, way below trend from a real growth standpoint, and you just had there was this obsession, I mean, a daily obsession with corporate America, with streamlining, with downsizing, with stock buybacks, just ringing, ringing, ringing. The costs. It's all on the call side to generate that EPs. Forget the top line. You know, we're not gonna worry about the top line right now. Well, but we're still seeing a ton of stock backs today. You're still seeing a lot of that. But my view is that. UM, we're on the verge of a pickup in in UM business investment, in capital spending and business fixed investment, where the focus is going to be more on growing the top line because the you have another era here where we're moving into. There's a lot of deregulation going on. We've got tax reform that's happened on the corporate not so much on the individual side, but a big cut on the corporate side. They showed on the corporate side, and I think we need to give it time. I think people are being premature to say, oh, yeah, that and let its having results in. I think it's just starting to see inklings, uh, particularly the capital spending. And and here's the kicker, we could be in for another burst of productivity growth. You know we've been it's been woefully under trend for a long time. And how much of that is a measurement issue and how much of that is genuine lack of gains and productivity. There's probably a little bit of both. But UM, I mean, just to give you the example, business fixed investment UM during the last decade or so, it's been about half of the norm. And you know, you're just starting to see some pickup. Now say that again business fixed and kind of capital spending plant is half of normal. Um, wow, it's been the growth has been about the growth has been about half of normal. But you're just starting to see and productivity has been woefully inadequate, under one percent, where the post war War two averages closer to two. We had that burst in the ninety late nineties it was two point five two point eight. First quarter year on year productivity growth was two point four. This is about a ten year high. Yeah, so I think it's too early to I mean, I just we're starting to see someone you want to see a trend there that and and that, let me tell you that is the silver bullet productivity growth. That's the silver bullet for um wage real wage growth, for employment growth, for corporate um earnings and active mean, it's it's it's so important. It ties into one of our themes top down themes currently, which is the Fourth Industrial Revolution. So that was literally the next question I was going to ask you what is the Fourth Industrial Revolution? How does what does it mean? And how would we position our cells for that? Well, Yeah, as I say, I mean, I think it really could have an impact on economic growth and on productivity growth and really UM, I guess you could say an kind of an extension of the Third Industrial Revolution, which was more focused on information technology computers. Uh. The burst of productivity growth in the nineties was more computer hardware and software UM oriented. I mean you might remember the four horsemen, Microsoft and Cisco and Dell an Intel, UM, that was kind of the core there. UM. Now what we're seeing is uh some fully important, fascinating new industries that could have a big impact on economic growth. Profe official intelligence, UM, robotics um UH, information automation, high tech automation, UH, information technology, quantum computing, three D printing. You got a whole a rate five G the five G UH area where it's the fifth generation of wireles networks coming um industrial automation. So there's just some areas that uh, we're really focusing on companies that are involved in these areas because we think some of them some of it has already started, but some of it there's probably a few years away in terms of coming to fruition. But we think that we're poised when you when you when you mix these potential new technologies with the backdrop from a deregulation and tax standpoint where we've increased in cinemas for capital formation and for new business development. I think when those two intersect, we could be in for a good burst of productivity growth. We have been speaking with j Bowen of Bowen, Haines and Company. If you enjoy this conversation, we'll be sure and come back and check out the podcast extras. Will we keep the tape rolling and continue discussing all things pension investing relating UH You can find that at iTunes, overcasts, Bloomberg dot com, Stitcher, uh spot five, wherever final podcasts are sold. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. Check out my weekly column on Bloomberg dot com. Follow me on Twitter at Ridolts. I'm Barry Ridhults. You're listening to Masters and Business on Bloomberg Radio. Welcome to the podcast, Jay. Thank you so much for doing this. I was quite fascinated by your background and the whole story. Just I am clearly confirming my priors because you land right in the sweet spot of my pre existing beliefs. Most stuff is too expansive. Consultants don't add any value. Um, most pension funds would be better off doing a simpler stock and bond portfolio as opposed to owning hector acres of forest land in Canada and private equity. But that's head um. But those wine vineyards in California, well you get to go on vacation swing by Hey, I'm one of the owners. You get the v I P treatment on the backs of whoever the year. We say that we are unconventionally conventional. I like that expression, the unconventionally conventional pension fund. And you're not in Tampa. You're located in Atlanta. You've been there most of your whole life? Is that right? Pretty much? We the firm has actually started My father started the form in North North Carolina in nineteen seventy two. Is that what you grew up? Born Atlanta, moved to North Carolina, then moved back to Atlanta, relocated the firm back in Atlanta in the late seventies. So I've been to Atlanta a number of times, and I have to tell you very surprisingly impressive barbecue. But I know there's like a little bit of a barbecue controversy going on in Atlanta. Now, what's happening there. Well, of course, the real controversy is North Carolina. I mean that's the core, that's the core rage in debate that even gets physical. You know, you've got the three regions, uh, Central, Western and Eastern the Eastern, and what is the debate, And it's the sauce Do you want or vinegar is that vinegar based? Which is the Eastern? Do you want mustard base which is or do you want the more traditional tomato base that molasses tomato base that's sweet caramelized over. But you're right about Atlanta. They've got all of them. They've got all three. You can make. You can take your choice. So I didn't realize this issue, this controversy erupted in North Carolina. I think that's the kind of the core. And people have come to blows over particularly Eastern versus the Central. You know, see, I'll get in a fight over someone over the mustard the vinegar base. Those people can get violent the vinegar base. My mother was born in Rocky Mountain, North Carolina, and she she would even get violent with me if I didn't want the Eastern I mean, you know over, yeah, you got it. And this is this is really a real thing. This is not This is going on still to this day, it's all fun and games until somebody loses an it's all fun and games still the vinegar sauce comes out, then there's real. Uh, there's real trouble. Amazingly, New York actually now has decent barbecue, but mostly when people transplant here from from Texas or Tennessee or somewhere and will open up a not a New York City barbecue, but a barbecue joint in New York City. And there are a few smokers here. Um. Also in Long Island City there's this big you walk three blocks away, you can smell brisket. It's really really good. So um, you're back and forth to to Tampa. You're managing a number of other Florida pension funds. Um. Where else in the world are you, um managing money for either pension funds or other clients. We're small, we're streamline. We've got about three billion under management, about a hundred twenty relationships. We UH foundations, endown the funds, UH profit sharing plans, pension plans, municipal funds, and family groups. UM. We're not marketing oriented. UM, we're not an asset gatherer who allocates the assets to other managers to pool funds, and we actually manage each account individually and pick the stocks or stocks and bonds if it's a balanced account, and the business comes through referrals. And we just my father decided a long time ago, you know, instead of having an aggressive marketing effort, maybe we could have been a lot bigger, we would just focus on the investment side and rely on referrals for new business. And those are very satisfied relations very satisfying relationship. Um and long the our average client has been with us years. We've got some four I mean, so when somebody comes on board with us, it's from a very high level, it's from a referral, and typically they're gonna be with us for decades. So do all the portfolios look alike when you're buying individual stocks? Do you run into an issue where I remember running into a trouble with Visa when we were buying it at sixty eight and two years later it was two d Do you does every portfolio look alike or do you have to take into an account, Um, hey, we can't buy stock X y Z for this account because it's so much pricier than it was when we were buying it. For that, Yeah, I mean we do try to justify our holdings all the time. We're constantly trying to justify. And what my favorite thing to do, particularly when you're taking a twenty year approach, and we've done this in Tampa on numerous occasions, is to take the cost out of the stock. You know, say we bought Visa and our cost in it was ten million and now it's worth forty million. I love taking the profits and taking the cost out um and reducing So in other words, pull ten million, let's a thirty million run if it still fits into our top down apprecasion, if the numbers still look good. Most of our portfolios, I mean they're individually managed, so they're gonna look a little different. Could just as you say, from a timing standpoint, ESA might look good one day and not five years later from evaluation standpoint. But the vast majority of our clients are very philosophically compatible, high quality, long term oriented. Some of them maybe a little more income oriented. Some of them are balanced. They want to balance a prodech. They're gonna look a little different. But the typical institutional portfolio is gonna look very similar. Um. So we mentioned um spending, you spend a lot of time thinking about FED policy as part of the top down approach. Um, we're recording this literally on the day that there's a FED meeting. What what do you think about this pressure on the FED to lower rates? Should the FED really be a fully independent entity? Or should they you know, respond to the political pressures, Um, both from Congress and the White House. They should certainly be independent. Um. What would keep me up at night would be if Congressional committee chairs were deciding FED policy. Would that would not be a good a good model. I do think the FED really needs to be uh shaped, shaking up we need. I just think the models are flawed. Um. If you go back to nineteen thirteen, UM, I think that there august reputation belies their record. Okay, well aren't especially good. It ain't pretty. I mean you're at the nineteen thirteen and they presided over a double of doubling of prices during World War One. If you believe in Freedman Schwartz monetary theory, which I do, the definitive history, they were the most responsible for the Great Depression. They presided over the doubling of prices during World War Two, they financing in place of the seventies. UM. I just I think they need some new models, some new thinking, and I'm very encouraged that they're on it. They are on it. They're looking at you got particularly Williams and and Pal. Also. I think that Pal has said more than once that he is convinced that the Phillips curve is dead. UM. He gave a very important speech in Jackson Whole last year, last August, where he addressed that issue. You're you're you're you're having. I mean, you got Williams with the flexible inflation, flexible targeting, You've got there there, there's talk about price rule, there's talk about nominal g D P P growth targets. I just think it's time to shake it up. Now. What I would like to see him do, and which is why I think they should lower rates. I really would like them to focus on price stability UH and and a stable dollar, stabilizing the dollar. And if you look at these forward looking price signals, and I'm talking about the yield curve and I'm talking about commodity prices UM, and I'm talking about the far and exchange value of the dollar. They're all saying the FETE is too tight, right. The yield curve, if you look at the five year and the three months, it's been inverted for a full quarter, and the ten year briefly inverted, and more or less it's not especially steep. And I don't know if by the time people are listening to this, the ten year versus the three month is inverted, but it's certainly sending a warning signal it is. And listen, I know that's not a secret. That's pretty well publicized, the inverted YOL curve. But it's only given one false signal in post war in the post War two era. And the thing is that the lash can be very long and variable in terms of terms of what it means, but we're focused on that. I think that they can engineer a soft landing. I do. Uh. The question right now is is this gonna look like nine where they raised rates They almost inverted the curve. They raised rates in February, then they cut rates in July. I believe the curve was about invert and then we were off to the races. They did not invert the curve. Is it gonna look like that, or is it gonna look like two thousand seven where they just sat idly by when the curve was inverted. They waited, waited, waited, or worse than that seventy four where you had an inverted YOL curve and they kept raising rates. I don't think we're in for that because the inflationary expectations are so benign. UM. I do think they need to cut UM. I think they will. It would be our preference again for them to focus on forward looking price signals, stable dollar UM. I would prefer them to be aggressive on the front end UM, so they can be hawkish on the back end UM. I'd like to see him move fifty at this next meeting UM, because I think if they don't, if they go too slow, they're gonna still be behind the curve. I mean, if you look at the natural it's it's almost like the natural rate that you know you hear about the Wicksillian natural rate is moving down, is trending down faster than the policy rate is training down. So for them to catch up, they need to get get ahead of that. How do you reconcile the different signals from the stock market, which keeps making new all time eyes and the bond market, which is saying, hey, an economic slowing is coming. Yeah. I think the stock market is discounting a soft landing. There's no question. I mean, earnings, earnings have been flat this year, and the market is mean surprising, right, it's um And then the bond market is complete as you know, I mean, it's completely rolled over. I think no growth expectations have really trended down. Real rates have trended down. Uh, it's just signaling a reduction in the Wixillian natural rate of interest, reduction, a nominal growth expectations. There's just it's just no question there's been a slowing and the FED needs to acknowledge that and get out ahead of this thing. Is this a global slowing that's affecting the United States trade war or whatever, or is this just a natural deceleration of the U s economy following the expansion since well, you know what, I think the Fed made a mistake in twenty particularly in eighteen. They were just too tight. You've had nine rate increases, um, you've had they took with quantitative of tightening, they took about southern billion out of the system. They're just it was just that combination, because you can't we can't say rates are too are very now they're not. And but you know what, a lot of people look at it just from an absolute standpoint and think, oh, well, race stuff, But you know it's always relative. It's all relative. It's where they came from. I just think they moved too far, too fast. But I have to say I think that's the main reason. Then you've got this this trade disputes a big overhang that needs to be sorted out. UM from a global economic growth standpoint, I've got to give Pal a lot of credit. Though this has been overshadowed by the policy rate debate. He acknowledged back in May that the QT that it was too much and they're gonna they're really ratcheting that back now, the QT. So the liquidity situation is just starting to improve. Prove if you look at the numbers I saw on M two growth on reel and one growth, the aggregates, the monetary aggregates are starting to stabilize and even trend up now. So people haven't really a lot of UM policy wants are focusing on the rates. They're not focusing on quantitative Titan exactly exactly you think that's as significant as the rates. I do. I do, and I think Pal deserves credit. I think Pal is kind of an unsung hero in a way. I mean, Number one, that speech he gave at Jackson Hole last August, where he basically said that fits the Phillips curves. It's done, it's done. I think that's a huge stride. It's a big admission for the FED anyway. Yeah, and then uh, you know Poal is pragmatic. He's pragmatic. You know, he's he's a business, he's he's and this on the QT. I think that's important that they're doing that. I think the FED has some great innovative thinkers now and I'm encouraged that they're looking at these new models that they're open to that that the I think they realized that some of these models are backward looking and not particularly effective. So I'm encouraged that it's on the table, and I hope they'll move to more of a rules based approach, either a price rule, which is what we had we kind of had to de factor price rule back in the eighties Wayne Angel and man Mannie Johnson. It was kind of a commodity price rule, and then with Greenspan, who was very good on the Phillips curve. Um, I've I've warmed to a nominal DDP growth target. Maybe that kind of thing. But the important thing is they're open, and they're looking, and they're examining, and they're exploring maybe some new models. I think that's important. I'm curious as to your thoughts about something. I was given President Trump's um desire for low interest rates, and he said this repeatedly, at least since he's been elected. Previously he was against low interest rates, but once he took the office, Hey, everybody likes low interest rates. I was very surprised that both Powell and Clarada, were two well known inflation hawks, were appointed his chair and vice chair. What what are your thoughts on that? And how have they adopted two adapted to the current situation. I've you know what I've got. I've got a lot of faith in both those guys. I mean, Claradas he's got a great background this aside, and on the academic side, he's just not a academic. No, he's a rock star world deal um and Pal's very pragmatic. Two, So, I you know, I don't know who's pulling the strings on these fat appointments exactly. But I like the idea of shaking it up, shaking the institution up. I know the Steve warm and Kane didn't work out well. Those were kind of real outlier, But the Judy Shelton and the St. Louis. Isn't she a hard money? Is a gold Bug traditionally has been. But if you but if you listen to her recent interviews and testimony, and I'll be looking forward to the testimony. I mean, I think she's on it in terms of these pod look at these price signals and what they I just I like the idea of shaking the institution. I really do, even with the gold Bug. And by the way, by the way, when it's all said and done, Trump will have appointed six out of seven. That's that's it's it's fed for better or worse, snow getting away with that. I'm like you, I'm impressed with pal. I'm very impressed with Clarada. The leadership is is important, and I think they may be his two best appoint across across the board. So I have two specific portfolio questions I don't want to before we get to our favorite questions. In our speed round. I don't want to pass these two by. The first is, given your your focus on stocks and bonds, how do you think about position sizing? How significant is that, How concentrated are you? Um? Typically, how many holdings do you have? And when you add a position or add to a position, how big or small does that? Usually get yeah and ten. The Tampa model typically typically will have about fifties sixty conk stocks with the balance and bonds. And importantly on the bond side of the portfolio, we haven't talked about it, but it's strictly there for income in stability. It's a timing strategy based on interest rate anticipation, where uh, it's a very conservative bond portfolio. They have to be securities have to be readed a or better, which keeps them out of a lot of trouble. So treasury corporates and very plain boring COG quality, pure interest rate anticipation strategy, buy and hold. We're not trading a lot of people in the business. I see they don't realize how much money can be lost on the bond side. I mean it can be very very risky. So the bonds we're taking enough risk on the stock side, which we don't need to do anything on the bond side. It's that very very boring and quality oriented. The stock side typically fifty to sixty. Uh, nobody will accuses of being a closet indexer. And our smaller accounts usually thirty common stocks and Tampa is bigger, so it's really more fifty to sixty. How big can anyone position get? And typically we'll let them run and love to take the cost out um. Certainly, if it gets to a point where it's representing, you know, three four of the total equity portfolio, it really alerts us to thinking that we need to scale back some. But as long as the as long as the fundamentals remain in place in the we're enthusiastic about the long term value, then we have We never just sell it just because it's doubled, tripled, you know, it's always hopefully it's in perpetuity, that's what. And there's still some remnants in that portfolio from nineteen seventy four. But you have holdings that you're dad porches. You still have insult there. I mean there's not a lot, but there's there's some Coca Cola. The guests and Proctor, proct and Gamble. You know, Gillette was a big holding and Proctor bought Gilette. I mean, my father always he always joked again, not that we're in this league, but he said, you know, we were on Coca Cola and Gillette four or five years before Warren Buffett was well, you can thank him for help driving me the appreciation of and and my last of these questions, So the past decade is seeing huge inflows to passive indexing. Um, how do you think about this impacting what you do? Does it help your process? Does it heard it? Does it create more opportunities? How do you look at the passive index with a twenty year approach that gives us time to re establish an equilibrium. I think over a short term it concerns me in terms of the increased volatility. And I think that over I saw some data was a hazing high frequency trading now accounts forever half the volume on the New Mark stock Exchange. I mean, I think there's some unintended consequences that are gonna occur when we have the next bear market. Um, I mean there's a potential toxic and when does that start? You know, the FED can engineer that soft landing. I think we're mid cycle, so so, in other words, this could be a really extended economic cycle. Of about that Washington seminar I went to in nineteen eighty six. One of the speakers was Beryl Sprinkle, and he was Reagan's count Chairman of the Council of Economic Advisors. He said something that I've never forgotten, and you hear it a lot now, but back then it was the first time I had heard it. He said, you know, economic expansions don't die of old age. They dive in apt policies and typically it's emanating from the Fed. Um. So just because we're level overtightening and on the market side, investor classic since World War Two when the curves inverted eighty five percent of the time we have a recession at a beer market. I mean, that's just the deal. You know, stop start, stop start um. But it's not age, and we're we just started the eleventh year this expansion. There's no reason we can't be midside, mid cycle if we handle the policy side correctly. Um so what Australia's just counting, that's right, But the quantum, the passive, it concerns me that so much now is computerized and technical. Um as somebody said, um to to harness the wisdom of crowds, you actually need a crowd, you know, the price discovery UM, the fundamental valuation analysis. It's just it's not it's so much of it is automatic, the combination of the past investing, the e t f s, the index funds. If the algorithms have a predisposed notion to buy, they can also it can also be on the sell side. And so when you have you could really have some outside, outside sized moves on the upside and the downside. I just suspect they're going to be some unintended consequences of this massive move into passive into algorithms that I think during the next bearer market could really be somewhat disconcerting. Now, over the long term, I don't think it matters, because there'll be a equilibrium re established and it'll it'll sort itself out. Go too high, it'll go too low. But eventually, I tell you, I really feel for the individual investor, and I think it's one of the reasons individual investors underinvested. This volatility is just can keep you up at night. I mean, it's just incredible in terms of what it means just uh psychologically to watch this volatility that can and a lot of it's because of passive I mean you can see it on the tape when when when okay, we're gonna sell this bang. You know, it just depends on the so and it comes out of nowhere. The fourth quarter of really was a wake up call for a lot of people, right um there. One interesting point I'll make is that the piece for Barons on the twentyear Investment Approach and somebody answered online and said, you know their Fideli broker said the best account he ever had with somebody that forgot he had the e I've heard, I've heard jokes like that, and it's it's absolutely true. So let me jump to my favorite questions. In our our speed rounds, we ask all our guests this and we always get some pretty interesting um answers. What was the first car you ever owned? Year making model? First car was a nineteen sixty nine sable brown oz Babile Delta AD, a two door with a rocket four fifty engine. That was a lanyard, wasn't that? That was a giant I remember the very heavy but a strong engine it had it had it had a vinyl top, and on one road tip the wind got up under the top, off the whole thing. Another fine General Motors product. UM tell us the most important thing we don't know about Jay Bowen Gosh, I would say that my very first job was selling vibrating pillows. I don't know how, I don't know how many people know that vibrating pillars. Vibrating What is the purpose of a vibrating pill college summer job. It was a size of a throat pillow with batteries in the back, and it relieved. People put it behind their back, They put their feet on it, they put their neck on it. It was a tension reliever. And um, I answered an ad that said two hundred dollars a week guaranteed, and then in small print it set if you sell for a day. Um, I answered yourself. I answered the ad and I became the top salesman nationwide. Yeah, so that was that was my first job, vibrating pillars. Well, who are some of your early mentors? And I have to assume your father is gonna uh loom large in that that list. On the investment side, there's just no question. I mean when you work with somebody for thirty two years, day in and day out, shoulder to shoulder. On the investment side, I mean it's just and for most of the day you're talking about investments in the stock market. I mean, you know you're not exclusively, but it's just was so just the intensity UM on financial markets, just day in and day out. I mean that he's just it's not not even close. UM. On the On the economic side, UM, Arthur Laugher UM is somebody I met in the mid eighties, UM who had a big influence. He would have the particularly when I really started to focus on monetary policy, UM, trade policy, physical policy, tax policy. He would have these very high profile Washington conferences where you were able to meet UM, very high level of people UM in the Treasury, uh AT, O, mb UH, Council of Economic Advisors, the FED, um Cato Institute. UM. In turn, their interest in uh N spent and was a will to spend time with just some extraordinary people. On the policy side, I mean you had people like UM, Milton Friedman and and Vernon Smith, and James Buchanan and F. A. Hyattk I mean Nobel laureates who were around. You had conferences. UM, particularly the Annual Monetary Conference, got a very high profile Annual Monetary Conference that Jim dorn Ruyns, where UM was really able to start focusing on the on these issues and and the and and just being in that environment allowed me to really focus on from a top down standpoint some of these key policy issues. That very interesting. I've done a number of shows with the Art Laugher over the years, and my takeaway from him is always he's a really nice guy. And I don't know how much people always arguing with him on a policy base, hold the policy aside. He just happens to be a genuinely nice but just the best of the best. Yeah, he's really really great. So what investors influenced your approach to looking at the market and looking at stocks again? My father is it's just so overwhelming. I mean, it's so overwhelming in terms of being molded, uh, in terms of taking a long term approach, taking a high quality approach, and the investment decision making process, you know, being topped down from a thematic standpoint, but then being bottom up when you get this, when you get the candidates, the candidates. I remember him coming in during the late days and saying, okay, we've got mid late eighties. I want you to look at Colgate and Gillette and Campbell's Soup and Procter and Gamble and tell me what looks the best from a uh free cash flow standpoint, free cash flow yield, the dividend history, the management, the sales per share, the balance sheet. You know, do really helped me kind of formalize the process in terms of deciding UM, not only top down work, but then selecting the individual security. Quite interesting. Tell us about some of your favorite books, be they fiction, non fiction, investing related or others. What what do you like to read? Yeah, you know, outside I read so much finance and economics during the day. I try to get away from that. UM. I really like biographies. I really like historical biographies. UM it's a few examples. Well, there's there's a couple now that that I'm reading. UM one UM hero UM. Michael Korda, uh life in Times of Lawrence of Arabia just a just a fascinating historical figure. You know, he led the Arab revolt against the Turks in World War One. I mean, you're the famous movie in the early six Petero tool but just a scholar, a writer, a warrior, a journalist. It's just a fascinating individual. I mean, I just found that very interesting. Um. Another recent historical would be Andrew Roberts new book on Churchill, which is a one biography, which is hard to do, but I would say it's probably gonna in retrospect end up being the best one volume biography. Andrew Roberts is just tremendous. He wrote The Storms of War on one World War two, is a great great biographer. On the finance side, another book that's fascinating is The Lords of Finance something like that. That's I think that one. The Pulitzer that was a really interesting nine or ten one. I did not until I read that book, I had no idea how much monetary policy led to World What two. It's just amazing. I mean, I love it. The focus on the four central bankers of the world back then in the twenties and what just the just how it all went down, and it's so beautifully written to it's just tremendous. So that's a great one. I'm I'm a big fan of the American novel, the classic American novel, you know, Hemingway. I just The Old Man in the Sea on its get old. And the thing about those books, particularly a great gas here or um uh J. D. Salinger, Um, you can read them. Yeah, you can read them in one or two sittings, and you can reread them ten twenty years later, you can reread them. Um. On the modern side, it would be more Um Walker Percy the Movie Go or The Last Gentleman. He's just great fiction novelist. And then Tom Wolf, of course, I want to say Hemingway's all Man the Sea is like a hundred pages, like you could sit down and that's a short flight. You can you can go through that whole quite quite interesting. So tell us about a time you failed and what you learned from the experience. Yeah, that's a great one, great question, um, thinking about that, and it would one that really stands out is we started a mutual fund in the early two thousand's and it was just a mistake. I mean we decided to you know, you know, we we would have these inquiries in terms of we would really love to invest with you, we don't meet your minimum. Um. So we had these visions, all right, we'll just start a mutual fund. There's no big deal. Oh, my gosh, the time and the money and then the realization the light bulb comes on that way a second, these things are sold over and now they're just sold. We didn't have the ability to do that, and plus we were had to rely on somebody else for a lot of stuff. I just didn't. It taught me that we needed to focus on our core uh discipline in terms of the investment side with current clients and just rely on referrals. It didn't work, It was expensive, it was time consuming. It was just a mistake. UM that venture. What do you What do you do for fun out of the office? Um? Guyship would be dominated by triathlon racing? Yeah, triathlon? Quite interesting. Tell us what you're most optimistic and most pessimistic about today? Gosh, I would say I'm most optimistic about just the continuation of the entrepreneurial and innovative zeal that this company, excuse me, country possesses. It's just incredible. I think the energy and the drive, the American spirit that's still there and with new company startups and the vision, I just think that's so exciting. UM. And I guess that ties into what I'm most I guess what I would be concerned with is that we somehow we lose that and we fall into more the European lethargic UH state where we're growing, but you know, you have demograhical issues. You just got this financial repression environment where you have abnormally low interest rates, low growth rates, demographic issues, a lot of disancenters for capital formation and new business startups. I would hate to see us fall into that model, um that you're seeing somewhat in Japan and Europe. I want to keep our zeal going here. Our last two questions. If a millennial or recent college grad came and said they were thinking about a career and asset management, what sort of advice would you give. I would say that there's more than one way to do this. UM, don't necessarily take the conventional route. You don't have to have a finance degree, you don't have to major in finance. They're all kind of different ways to be successful in this business. And UM, no job is too small. Absolutely learned something. I don't care what you're doing. If you're in the door at any institution, man, I mean, just take advantage of it and get in the door and and work within that environment to see where you're where you're comfortable, and where you can flourish. And our final question, what do you know about the world of investing today that you wish you knew when you begin almost forty years ago? Right? God, you know the one that stands out is that I wish I'd put the entire portfolio in thirty year treasury bonds. Everybody there were long stch is where they were beating stocks, weren't there. Yeah, it's it's something, um, but really, you know, I would say that you don't always have to be right. You know, you don't always have to be right. I could really beat myself up initially for being wrong every now and then, and you're gonna be wrong. The other side of that, you're gonna be wrong and you need to learn how to absorb it, to process it, to accept it, and to take the loss and move on. Great, great advice. We have been speaking with Jay Bowen of Bowen, Haines and Company. If you enjoy this conversation, well be sure and look up an Inch or down an inch on Apple iTunes overcasts that your Spotify wherever your final podcasts are found, and you can see any of the previous two hundred and fifty such conversations we've had over the past five years. We love your comments, feedback and suggest in his right to us at m IB podcast at Bloomberg dot net. I would be remiss if I did not thank the crack staff that helps put together this conversation each week. Michael Batnick is my head of research. Michael Boyle is our producer slash booker. Charlie Valmer is our chief engineer. I'm Barry Ritolts. You've been listening to Masters in Business on Bloomberg Radio