HIGHLIGHTS: Paul Singer

0:00Hi, everybody. Tune in to this short version of the podcast, which we do every Friday. For the long version, tune in on Wednesdays. Hi, everybody. I'm Nikolaj Tangen of the Norwegian Sovereign Wealth Fund. And today we are hosting an investor legend, Paul Singer, who founded Elliot Asset Management and probably the most important activist investor in the world. Paul, warm welcome. Thank you. What is activist investing? Activist investing is taking a position largely in an equity security of a company and trying to engage with the company to improve outcomes, control or influence outcomes, better outcomes to unlock value.

0:46It could be management changes that are requested. It could be capital structure changes, finance strategies and tactics. Anything that will make the company earn more money, be better positioned, more rationally deploy assets. Why do you have to do this? Don't companies do this themselves? Well, as you know, the trend away from active investing, and by active investing, I don't necessarily mean activist. Active investing just means you open the mail from the company in which you invest, you try to figure it out, you try to understand the company's strategy, and maybe you'll call the company up and lob in some suggestions.

1:34But active investing is next to passive investing or index investing. Index investing now accounts for a plurality of money that's managed, particularly equity money around the world. What's the ratio of successful outcomes versus not-so-successful outcomes? Well, since I'm going to define successful as we get a meaningful percentage of what we ask for, and the stock reflects it, not just in 20 minutes, but I mean, you know, over a period of time, that we actually, our ideas actually add value. It's the only way we can maintain our reputation that gets the stock to say, oh, Elliott's in this, here's their thesis, nobody else has been able to unlock that key, the stock is worth more.

2:29And of course, it's not a question of short-termism, because actual short-termism doesn't add value to anyone really. But it's not short-termism when the market instantly, overnight or in a couple of days or a few days, understands that you are adding long-term value. You're adding enterprise value. The strategy is better. Your ability to compete is better. And in what proportion of the cases do you think you are adding value if you measure it in that way? Well, the proportion of cases in which we're adding value is, I believe, close to 100. The proportion of cases in which it's reflected in action, movement of structure, capital structure, et cetera, directors, is probably, this is just a guess, but it's a majority.

3:24It's like 70%, something like that. What are the characteristics of the investments which don't go the way you want? Do they have something in common? The worst trades are the trades that you misunderstand the risk. You put it into the wrong category. The one that's moderately horrifying is a peer, who will remain nameless, sold us a late-stage bankruptcy in a de-inking plant somewhere in the northern United States. Late stage denotes the risks are mostly gone in a complicated workout bankruptcy process, and the de-inking was their business. You know, waste paper, and you're going to de-ink it and use it again, and that's good for the environment, it's good for the human race, it's good for the galaxy.

4:24Suffice it to say that it wasn't late stage. There were important bankruptcy elements that hadn't been settled, and the de-inking plant didn't really work. So aside from hating the person that sold it to me, it's just a mistake. And we lost. It wasn't that big a position, but we were much smaller. You talked about your father. Are you still trying to make your father proud? I appreciate he probably is not alive anymore. You know, he was proud of me no matter what, to be perfectly candid about it. But no, I'm not doing it to make my father proud. No, I keep doing it because I think we do it well.

5:07Is it fun? Are you having fun? No. You're not having fun? You don't think it's fun? Oh, I don't think it's fun. I think skiing is fun. Snowmobiling is great fun. Sailing is fun. You're 80. And so if you don't think it's fun, you're 80 years old. You've done it for 50 years. You're one of the most successful people ever. Why do you continue to do it if you don't think it's fun? I get this question. I get this question. And the reason I basically, this is a little different, this format. But the reason I basically get this question is that I dig in. I'm enthusiastic about it. I get into it. It can't be boring.

5:49If you think about what you read about in the newspaper, which is largely distorted, it, parenthetically. So, wow, they're doing all kinds of different things. There's no cookie cutter thing at Elliott. So there's challenges and sometimes it's, you know, we never have a position profit celebration. Never. You never celebrate success? No. I mean, we, you know, hey, well done in an email. No cake, no champagne. No cake, no champagne. No, no, no, no. But what I want to say on this topic of fun is you can't get bored by not losing serious money. The reason for burnout is sharply diminished. You know, that's what happens.

6:42I mean, it's not just horrible divorce or terrible tragedy in the family. It's, you know, burnout is, you know, I think largely people just are drained of emotional energy by adversity. And you can't predict markets. So that's another dominant cause of me seeking never to lose money. Because if I want to be risk averse, I have to be risk averse all the time. What are the state of stock markets today? just about as risky as I've ever seen. I think the long period of time since the last major market event has lulled people into thinking that they'll always be bailed out, that there'll never be another bear market, you know, of 1974, 1987, 2008, 2007, 8.

7:53And leverage is building and building. Risk-taking is building. And those statements apply also to governments. It's absolutely astonishing, this NERP, the negative interest rate policy in Europe and Japan and Switzerland. and ZERP for, what, 10 years in the U.S.? It's crazy. It's crazy. And in the pandemic, you added to ZERP, you added these shockingly high spending deficits. We're talking about deep recession-type spending programs, spending deficits, support programs. At a time when there was no real recession. I'm talking about, I'm actually talking about during COVID also, but after COVID, you know, this year, this fiscal year, over 6 % in the U.S., 6 % of GDP deficits.

9:05So I think there's, and valuations, this AI is way over its skis in terms of practical value being brought to users. I mean, there are uses and there will be additional uses, but it's way exaggerated. What is your advice to young people? My advice to those people has been and is unchanged over a long period of time, that I value a broad, classic liberal education. They should not take business courses in college. they should take as much history political science, philosophy, religion as they can fit in so what I try to convey is you can specialize in business the tools of business and trading, I mean now hedge funds, private equity, venture capital high tech, whatever I mean that's the golden goose But in all of that, what comes out, if you specialize too soon, you get this narrow, deep skill set, and you're not equipped for the things that are actually happening in the world.