Home > Leadership Reimagined > Episode 46: A. Michael Lipper

Episode 46: A. Michael Lipper

Iconic Investing Insights for Turbulent Times

Janice Ellig, CEO and founder of Ellig Group, sits down with real leaders in this series of game-changing conversations, bespoke to fellow champions of change. Heralded by Bloomberg Businessweek as one of “The World’s Most Influential Headhunters,” Janice is often consulted for her expertise and commitment to gender parity, equity, inclusion, and diversity.

We are honored to present this month’s episode of Leadership Reimagined, “Iconic Investing Insights for Turbulent Times” with A. Michael Lipper. As the Founder and President of Lipper Advisory Services, Michael joins us today to discuss investment strategies that will help you navigate turbulent times and come out ahead.
Lipper Advisory Services provides money management services for wealthy families, retirement plans and charitable organizations. Often referred to as an icon in financial markets history, Michael is known for his distinguished career of over 50+ years consulting with many of the largest investment organizations in the world. Michael is also a managing member LSF Partners, LP, a private financial services fund, and a trustee of the Stevens Institute of Technology board and a trustee of Caltech (California Institute of Technology). He is a regular contributor to the global press and the author of Money Wise: How to Create, Grow and Preserve your Wealth.

It is our privilege to share this episode of Leadership Reimagined “Iconic Investing Insights for Turbulent Times” with Mike Lipper!

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SHOW NOTES: A. MICHAEL LIPPER

A. Michael Lipper on lessons from the racetrack

One of the things you learn very quickly is you can’t figure out a race if there’s too much or too little talent in the race, or you don’t have enough data. The second thing that you learn is the bidding public makes one or two entrants a favorite by putting more money in. The interesting thing is, historically, favorites win about a third of the time. So you don’t normally want to go with a crowd. The second thing you learn, and this applies very much to life in general as well as investing, is racing luck. Things happen all the time that you don’t know in advance. The key is to not bet all of your assets on one thing, because racing luck can happen. The third thing is that the objective of a day at the track is to walk away with more money than you walked in with. So if you bet carefully, which means only picking ones that make sense to you, all you need most of the time is one winner out of three races, because they tend to be longer odds. The final thing is, after each race, you should look at the past performance of the winner and say, “Why didn’t I pick that one?” You learn more from your losses than you do from your gains.

A. Michael Lipper on the origins of Lipper Analytical

Janice Ellig:

Those lessons that you learned at the racetrack, you took forward in your life. So can you describe how you were able to learn from some of that and create the wealth that you’ve done?

I tried to replicate the racing form. It didn’t really exist for mutual funds. Yes, there was performance data, but it didn’t compare against others or over time. I read – and this was death-defying – the Investment Company Act of 1940. It’ll put you to sleep, but it became clear that the independent directors of funds had to renew the investment contracts each year. Historically, they counted on the advisor to provide the data. I saw an opportunity. I went to the major attorneys for the fund and said, “you’re taking a huge risk. You’re taking judgments from the judged. Much better to have an outsider do it.” Yeah, we could make mistakes, but they’ll be honest mistakes, and you’ll get it cleaner. And over time, we’ll do it better than anybody else, because we will do more of it.

We looked at not only performance, but also fees, turnover, a whole number of things that weren’t generally looked at.

In the investment world, people can accept that you’re only going to be right some of the time, but they really shouldn’t accept it when something happens on a repeated basis that they didn’t know about.

A. Michael Lipper on how to read numbers

The greatest religion in the Western world is the worship of numbers. People use numbers as if they came from the Almighty. And number one, are they accurate? Often they’re not. But more importantly, they don’t measure all the right things. My attitude is that the numbers help with one thing: they help you ask some of the right questions. You’ll get some answers, and you won’t get others. But the more answers you have, the greater the reliability of the predictability of the numbers. For example, when a company increases its share of the market, is that good? Ninety-odd percent of the analysts say, “that’s wonderful.” I would say, “why?” Often it’s because they cut prices. And, yeah, they bought market share, but they then trapped themselves into a cheap price for a long time, so the earnings won’t materialize. And maybe if they’re gaining market share in one area, they may not be gaining it in another. There are any number of companies that have ridden a technology, have ridden a philosophy, a sales trust right into the ground because, by God, they were right. Well, each day you get numbers, and the further you get away from your objective, the more you should be asking questions.

A. Michael Lipper on companies that failed by refusing to pivot

Let’s start with the Big Three automakers. They had control of the U.S. auto market, and yet over time, they lost share to the imports and more importantly, the high priced imports. Another example is something called the Nifty 50, where they took the top 50 leading stocks in the market, and that was meant to be somebody’s portfolio. Well, over time, a number of those Nifty 50s actually went bankrupt.

People in the scientific world look at laws as though they’re always right. In the business world, that’s never the case. They’re right some of the time, some more than others.

A. Michael Lipper on the danger of groupthink

Crowds are comforting for most people. They scare me, and it goes back to the track. They may be right. If they’re right, the returns won’t be great. If they’re wrong, and you happen, by luck or by skill, to find the thing that does work, the returns are much greater.

This is also important when you’re trying to decide when to sell. You have to recognize that periodically crowds can make prices, but you have to identify when to get out. And it’s usually when everybody says it’s great.

A. Michael Lipper on navigating recessions

There have been at least three bear markets that didn’t generate a recession. One important question is “is the recession going to be short or long?” Short ones tend to be essentially a price move. You just drop the price on things, and that’s the cure. That happens every now and then, but not frequently. Then you have the longer recessions. I believe that economic cycles are due to imbalances where things are not well managed or not efficient. You can correct some of those in a recession. Unfortunately, if you don’t correct enough of them, you get a depression. The thing that’s facing us now is perhaps the most difficult, which is stagflation: a period of high inflation and slow growth. So your sales don’t grow, but your expenses do. Are we going to go into that? I don’t know. But I think it’s possible. And I think in terms of a portfolio, you should have some of your investments chosen with that possibility in mind. Not all of them, because it may not happen.

[For those investments,] I tend to look at the depth of belief. For example, a lot of companies are going to show declining earnings. There are two sources of declining earnings. One is that the business itself is declining. The second is that the business has lower earnings because it is continuing to invest in a new product or new strategy that isn’t right for today’s market, but might be right later. It’s that sort of investment that has appealed to me. Then I have to make some guess as to whether they’re making the right bet and when that bet will pay off.

A. Michael Lipper on how the average investor can hedge their portfolio in 2022

Two different approaches. The first approach is to commit that you’ll spend 5 hours a week on your investing. If you’re not going to spend that much time, the odds of getting any insights are low. The second piece approach is that most of the people who listen to this podcast probably work for medium to large-sized companies. Your biggest single investment is your job, and that’s where you want to be diversifying. If you are not a complete believer, I would suggest that whatever you do, you average. Don’t put all your money either into the market or into a given stock at one time, but take that amount of money and say, I’ll put 10% in, and for the next ten quarters I’ll put another 10%. Big money is made by long term holding. The reason that works is you don’t get shaken out by periodic market declines. But for a young investor, they can be more patient. They have more time.

A. Michael Lipper on long-term investment strategy

My attitude is that cyclical behavior is normally a five year period. You want to invest beyond the five years. I think now in particular you want to invest some of your money overseas. Your biggest risk today is the U.S. Dollar. It’s beating all other currencies. Again, going back to the racetrack. It’s the favorite. You want to bet on some other things. Not to the exclusion of the dollar, but you want to have investments overseas now roughly a third or 40% or maybe 50% of the profits. And let me define profits. Cash flow, free cash flow is earned overseas by the major companies. So you’re doing that now without knowing it. But you’re not getting the benefit or the risk of what foreign investors do in their local companies.

Years ago, when I was an analyst, I worked for a firm that was very much involved in a European company, and they were pushing that. And I upset a lot of people, which is normal, in a meeting. I said, “why is it that for this great company that we’re recommending every day, the local market is a net seller?” Well, I was right. What the local market saw was that the company was taking too much risk.

A. Michael Lipper on choosing funds over stocks

For example, it’s very rare I will have any direct investment in pharmaceuticals because that’s a game that’s won and lost by the new products. I don’t understand the nuts and bolts of how those products are developed. So instead of betting on one company, I will find good funds that invest in pharmaceuticals, who have doctors and consultants, et cetera, who understand the things I don’t. Stay with what you know. I can assure you I would not be a good investor in fashion stocks.

A. Michael Lipper on researching investments

You need to work on yourself. I would suggest that, yes, you should read the financial press, but also you should read the trade press in areas of your interest and knowledge.

A. Michael Lipper on investing in leaders

Right now, we talk about the supply shortage, and I think that’s miscast. I think the real shortage is capable executives. Leadership is poor. The people who are executives now have managerial skills and very definitely political skills, but they’re not great teachers. This is why I think you’re going to have problems with the unions. We used to be in a business where in annual reports, company after company, within the first page, they said, “our biggest assets are our people.” We’re not saying that now. The front-line people don’t feel that the leadership is going to look after them. It’s going to create changes. Those are the things to be looking at.

A leader may be brilliant, but unable to translate it to the foreman, and that’s a problem. We cut out a lot of supervisors because the accountant says they don’t produce earnings. That’s true, but what they produce is culture, and that’s what builds the long-term value.

A. Michael Lipper on Washington and Lincoln’s strengths as leaders

Both George Washington and Abraham Lincoln, if you looked at their military win-loss records battle by battle over their entire careers, they both were net losers. The amazing thing is that they both learned, and at the end of their careers, they were winners. Washington took care of his troops. He lived with them. Washington learned from his mistakes. He also learned how to use his allies, and he happened to be very lucky. That always helps. Interesting point: General Cornwallis, after his defeat in the American Revolution, then went to India and had a brilliant military career. So it wasn’t that Cornwallis failed. It was the other conditions. And that’s how you look at things.

A. Michael Lipper on the future of cryptocurrency

I have great faith in the technology of blockchain, and we are already seeing it applied successfully in non-currencies. My issue with cryptocurrencies is that I don’t like things that I can’t sue. I always assume with any investment, there’s a risk I’m going to have to sue. There’s no case law on crypto. Now, the Fed today is talking about what rules have to be in place for cryptocurrencies. If they do regulate, that changes things. I’m perfectly willing to be late to that game. Many of the people involved in the game today are highly speculative, highly leveraged, and strong sales types.

A. Michael Lipper’s parting words

Investment is an art form. It’s a year-round endeavor where you have to be looking, admit your mistakes and learn and move on.

Remember, I reserve the right to be wrong.

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Janice Reals Ellig

Chief Executive Officer

As the head of the Ellig Group, Janice is dedicated to increasing the placement of women and diverse candidates on corporate boards and in C-suites by 2025. Janice joined the legacy firm in 2000 and became Co-Chief Executive Officer in its transition to Chadick Ellig in 2007; she assumed sole ownership of the company as the Ellig Group in 2017 with a new focus on Reimagining Search. Prior to her career in executive search, Janice spent 20 years in corporate America at Pfizer, Citi and Ambac Financial Group, an IPO from Citibank, where she was responsible for Marketing, Human Resources, and Administration.

Heralded by Bloomberg Businessweek as one of “The World’s Most Influential Headhunters,” Janice is often consulted for her expertise and her commitment to gender parity, inclusion, and diversity. She frequently appears at speaking engagements and as a media guest, and she has penned multiple articles for outlets such as Directors & Boards, Directorship, Corporate Director, The Huffington Post, and Forbes.com. Janice also co-authored two books: Driving The Career Highway and What Every Successful Woman Knows, acknowledged by Bloomberg Businessweek as “the best of its genre.”

A tirelessly active member of the industry and champion of her causes, Janice is Founder of the Women’s Forum of New York’s Corporate Board Initiative and its signature event, Breakfast of Corporate Champions. Since 2011, Janice continues to spearhead this event to honor companies committed to board diversity and to encourage CEOs to sponsor board-ready women for the Women’s Forum database. (LINK: www.womensforumny.org).

Janice is personally committed to several NFP organizations: Board Director of the National YMCA and Past Chair of the YMCA Board of Greater New York; Trustee of the Actors Fund and Committee For Economic Development (CED); Incoming Chair, University of Iowa Foundation; Women’s Forum of New York Past President and Chair of the Corporate Board Initiative; member of the Steering Committee, US 30% Club and The Economic Club of New York.

In recognition for her many philanthropic activities, Janice received the University of Iowa Distinguished Alumni Award in 2011 and the Association of Executive Search Consultants (AESC) Eleanor Raynolds Award for Volunteerism in 2008. Named one of the “21 Leaders for the 21st Century” by Women’s eNews, she was also a recipient of the Channel 21 Award In Excellence for her contribution to “Excellence in the Economic Development for Women.”

“Listening to our clients’ needs, learning their business and understanding their culture is how we present the best talent and provide  a competitive advantage. We place candidates with the character, competencies, commitment, (intellectual) curiosity and courage to make a difference. Our goal is always to go beyond the expected and deliver valuable advice, measurable results and great talent!”

– Janice Reals Ellig

  • Champion of gender parity, diversity, and inclusion
  • Industry expert, speaker, and author
  • Founder of the Women’s Forum of New York’s Corporate Board Initiative
  • Committed board and committee member and philanthropist

T: (212) 688-8671 ext. 226
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