Michael Mauboussin – Investing in times of (the Coronavirus) Crisis

SPEAKER_1 (0:00)

Value Investing is more than an investment strategy. It's a fundamental way of thinking about finance.

Welcome to Value Investing with Legends, a podcast hosted by Tano Santos, the David L and LCM Dodd Professor of Finance at the Heilbrunn Center for Graham and Dodd Investing at Columbia Business School. Our mission today is to promote the study and practice of Graham and Dodd's original investing principles and to improve investing with world-class education, research and practitioner academic dialogue. In this podcast, you will hear from some of the world's greatest investors, their views on the investment management industry, how they develop their investment process and how they see the field changing over time. To learn more and to subscribe to this podcast, please visit www.gramanddodd.com.

Tano Santos (0:50)

Welcome to a new edition of the Value Investing with Legends podcast. I'm your host Tano Santos, the David and Elsie Dodd Professor of Finance at Columbia Business School, and the Faculty Director at the Heilbrunn Center for Graham and Dodd Investing. We're doing this podcast in a very quiet, very empty Uris Hall here at Columbia Business School. The university and the business school have gone fully online for the rest of the academic year. The students are not coming in and most of the faculty will be teaching from their homes. I'm teaching and starting next Tuesday, my two spring semester courses, Modern Value and the Value Investing with Legends class, all online. It is an amazing thing to see the university absolutely empty of students, actually incredibly sad.

This is of course all due to the coronavirus crisis, COVID-19, the global pandemic that has hit the world like a hurricane and which has required extreme public health measures.

As a result of all these, the economy has gone into a tailspin and the markets have crashed. The VIX, the Volatility Index is through the roof and markets all around the world, commodities including, are severely down. The uncertainty is extreme. Just to give you a glimpse of where we are, on a note published on Wednesday, March 18th when we are recording this, Deutsche Bank put out a note saying that US GDP can be down by as much as 13% on an analyzed basis in the second quarter of 2020

To put that into perspective, Deutsche Bank mentions that the rate of decline would be more than 1.5 times the sharpest contraction during the 2008 global financial crisis. So I wanted to have a conversation about all these things and how to think about markets, but also how to think about what is going on at the broader stress psychology of markets aspect of this terrible crisis. And I cannot think of anyone better than my guest today, who is the first repeat guest of the Value Investing with Legends podcast, Michael Mauboussin. Welcome again to the Value Investing with Legends podcast.

Michael Mauboussin (2:59)

Thank you, Tano. Great to be with you.

Tano Santos (3:00)

Yes. So the last time we heard Michael, he was director of research at Blue Mountain Capital Management here in New York.

Now he's head of Concilient Research at Counterpoint Global inside Morgan Stanley. And I think the word Concilient was invented for someone like Michael, because I cannot think of anyone whose knowledge has brought and covers so many different fields as Michael does. He was also, of course, the managing director and head of Global Financial Strategies at Credit Suisse. Before that, he was chief investment strategist at Legg Mason Capital Management.

So he has a long and distinguished career in financial markets. But most importantly, Michael is, of course, wonderful author of books like The Success Equation, Entangling Skill and Like in Business Ports and Investing, Expectations Investing, Reading Stock Prices for Better Returns with Alfred Rappaport. And my favorite of Michael's book, as I said in our first podcast, More Than You Know, which was named one of the best business books by Business Week when it came out. Most importantly, of course, Michael is an Ajan professor here at Columbia Business School. He's an outstanding member of an Ajan faculty. Michael, thank you so much for coming under these difficult circumstances to talk with us.

Michael Mauboussin (4:20)

My pleasure, yeah.

Tano Santos (4:21)

So I wanted to divide Michael, this conversation in two parts. And I think we should first talk a little bit about what is going on, obviously. It's very much in the mind of our listeners.

And then talking about markets, how they're reacting, how do we interpret these enormous fluctuations that we're seeing, how should we behave as value investors in this environment.

And then turn to the issue of psychology and how this is going to be progressing. So where do we start there? So why don't we start broadly and then we zero into financial markets. And I want you to give me your thoughts about how you think this crisis is going to impact the economy at large, financial markets in particular. How do you think about this shock? Let's start there.