#61 - Mr Common Sense - Rich Pzena on how to build an $80bn deep value firm, survive 60% underperformance and buy stocks on under 10x normalised earnings.

**Stephen Clapham** (0:00)
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Check out the school on our website, behindthebalancesheet.com, where you can also find the show notes to this podcast. While you're there, don't forget, sign up for our popular and free weekly sub stack. Hit the sign up button on the top right of the homepage. In this episode, I sat down with Rich Pzena on a recent visit to London. He's the founder of the eponymous 80 billion value investing firm, Pzena Investment Management. We discussed his childhood observations of his father's stock market portfolio gyrations, how he started a value firm just in time to be crushed by the dot-com bubble. By February 2000, he was underperforming the S&P by 60 percent, and he was ready to sell the firm. But he explains the extraordinary turnaround which then happened. We dig into what business quality really means, how to distinguish temporary problems from permanent impairment, and why, as a value investor, 40 percent of your positions can lose money, but you can still deliver a good performance. We also get into position sizing and holding periods, the discipline of selling at fair value, why Pzena rotates sector coverage for analysts, and how they think about mentoring young analysts and talking to CEOs. I think you'll really enjoy this episode. It's a master class in deep value from someone who's lived through some really difficult cycles. So Rich, I'm really pleased to be sitting down with you in London. Last time I saw you was in New York, and we always start with the same question. Did you always want to be an investor?

**Rich Pzena** (4:44)
Depends how far back you mean by always, I guess.

**Stephen Clapham** (4:47)
But half the people on this podcast did a newspaper round and invested the money, and the other half had no idea what they wanted to do and just ended up in it.

**Rich Pzena** (4:56)
Yeah, it's interesting. I never thought of it as a career. So for me, I grew up in a household where I had a father who's an engineer. He had made a decent living, but he wanted to be rich.
And so he invested in the stock market, and it was dinner timetable conversation my whole childhood.

**Stephen Clapham** (5:20)
Oh, really?

**Rich Pzena** (5:21)
And it was highly cyclical, okay?
However he did was his mood. So it was either he was happy or he was not happy. Oh, dear.