In this week’s episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discussed three lessons investors can learn from Rush drummer, Neil Peart. Here’s an excerpt from the episode:
Tobias Carlisle: What’s the deal with Rush and value investing?
Jake Taylor: Yeah, I’ve got three lessons that Rush can teach value investors.
Tobias Carlisle: So who’s Rush?
Jake Taylor: Well, this started because last week Neil Peart, the drummer of Rush, passed away. And it turned out that there were more Rush fans out there I think than people realized.
Tobias Carlisle: Yeah, there’s a big outpouring of grief on Twitter. I saw that.
Jake Taylor: Yeah. And for good reason. The guys was an amazing drummer. But not only that, he seems like he’s a pretty amazing human. So let’s start with lesson number one, I guess. Let’s just jump right into this. So it’s 1976, and Rush has had three studio albums. They’re playing concert halls basically. They’re not big time. They’ve had one hit, Fly By Night. And their last album just flopped. The record company’s pissed. They want something very mainstream. Give the people what they want, right? Rush says, “No, not going to do that. In fact, we’re making a sci-fi concept album and the first song is 20 minutes long,” which is never going to be on the radio, right?
Bill Brewster: Wow.
Jake Taylor: So they doubled down on their own creativity because that’s what they wanted to work on. Now, the album is 2112 and it’s this story about all… It’s this kind of dystopian future where all individuality and creativity has been outlawed basically and the solar system’s ruled by the solar federation. And everyone’s controlled by these priests who basically they take orders from this big computer bank. I’ll let everyone put their tinfoil hats on and say like how much does that resemble the fed today? So there’s no music and there’s no art. And this nameless man finds this old, beat-up guitar in a cave and he starts playing it. And he takes it to the priests to show it to them. And I’m not going to ruin, I’m going to… It’s a spoiler. I’m going to let people listen to the song themselves.
Jake Taylor: So when I was about 10 years old, my dad, always been really into music, he brings me down to the basement where he kept the good stereo. He puts the headphones on me, gives me the liner notes, and he plays this song, 2112, for me. And I shed a little tear at that point. It was a moving… It connected with me. So everyone else, you can listen to is. And just really listen for the musicianship that these guys have. I mean they’re these farm boys from Canada, and yet the three of them individually are arguably the best at their instrument of anybody. It’s pretty amazing.
Jake Taylor: So the first lesson there is they’re down on their luck. Everyone wants them to do one thing, and they totally go on their own and they double down on what makes sense to them, what they want to work on. They’re really artisans of music. And I think good value investors today are artisans of studying businesses and taking advantage of that. So that’s lesson number one.
Tobias Carlisle: What is an artisan?
Jake Taylor: I would say someone who pays special care and attention to the task that’s at hand, that they’re working on, what they’re creating or producing.
Tobias Carlisle: Is it distinguished from artist? Is it artist is someone who does something for non-commercial reasons and an artisan is someone who does something for commercial reasons? I’m just asking, I don’t know.
Jake Taylor: I don’t know. Yeah, I haven’t heard those definitions that way. But maybe that does make sense.
Tobias Carlisle: I always understood that artisan was slightly lesser than an artist. Artist was someone who was doing it for the sake of the art and an artisan was someone who it was commercial.
Jake Taylor: Bill, any ideas?
Bill Brewster: Sorry. I got nothing.
Tobias Carlisle: I’ve derailed you, mate. Keep going.
Bill Brewster: I’m a little stuck in my own head thinking 2112 is the year that Tesla’s going to engulf the entire market cap of the world.
Tobias Carlisle: It’s going to get there faster than that.
Jake Taylor: Yeah, we’re on pace for much sooner than that, that’s for sure. All right, so lesson number two. It’s 1992 and Neil Peart, the drummer, he’s already been inducted into the Drummer Hall of Fame. He’s widely recognized as one of the greatest drummers to ever touch a drumstick. And he takes on a coach actually, this guy named Freddie Gruber who’s kind of a famous drummer coach and a drummer in his own right. And he completely reinvents the way that he plays drums. And he pulls in all this soul into it that before he was just so precise like a robot before. But now he’s talking about playing the space in between the drum hits. And he takes it to a whole nother level, right? So lesson number two for us is that even when you think you’re the absolute goat, there’s always room to be improving, working on your game, looking to reinvent yourself.
Tobias Carlisle: I like that one. I think that’s a good one.
Jake Taylor: They’re all good, Toby. Come on.
Tobias Carlisle: And I love the fact that he went from… Well I haven’t heard the third one yet but I agree so far. I like it.
Jake Taylor: Yeah, fair.
Tobias Carlisle: But I like the idea of getting a little bit of soul in there too.
Jake Taylor: Yeah. I’ll let you figure out what that means for your investment process.
Tobias Carlisle: I’ll get a little soul in my Excel spreadsheets, syncopate the cells and things like that.
Jake Taylor: Yeah, exactly.
Tobias Carlisle: On the off beat.
Bill Brewster: Get down with some circular references.
Tobias Carlisle: Riff.
Bill Brewster: That’s interesting because the Akre article’s got me... I mean I’ve been pretty in my own thought process about that. It’s one of those-
Tobias Carlisle: Still reeling. Still reeling from the Akre article.
Bill Brewster: I’m just thinking on it, man. I don’t know that about reeling, right? But, look, that guy’s got a lot of wisdom so it’s not… I think that at least thinking about stuff like that is remaining somewhat stupid. So it’s fine if I get through this thought process and come back to my original answer, but at least I’ve questioned it, right? Which is sort of like this guy hiring a coach and going out and reinventing himself a little bit. I mean I don’t know where I’ll come out the other side of thinking through this, but at least it’s not staying still.
Jake Taylor: Well and isn’t that the real attraction of this whole game is that it forces you to grow? Otherwise, you’re going to get left behind. It’s always adapting to what you might be good at. And it pulls you into a better version of yourself if you really are dedicated to it.
Tobias Carlisle: I agree, mate.
Bill Brewster: You can do the opposite too.
Jake Taylor: Fair. Fair point.
Bill Brewster: It’s always pulling in some direction.
Tobias Carlisle: Well that’s an interesting point. I mean it’s kind of a truism of it that if you don’t adapt, then you get left behind. And by definition the people who are still in it are the one’s who’ve managed to adapt, and so you don’t see the ones who get left behind. But then also you have to be careful because there are lots of cycles where if you start doing what is popular in the cycle, you’re going to get whipsawed when we go back to a more normal… It’s devilishly difficult to do. I don’t know what the solution is but it is something that I think about a lot. And particular apt what you’re talking about, this market has been particularly kind to growthier value investors. It’s been a very, very good period for growthier value investors. So does that mean you want to start incorporating more growth into your forecasts? I don’t know. I mean every year that I have thought this is the year when we go back to a more normal cycle, that hasn’t happened.
Jake Taylor: You just keep turning it up to a… I thought it was already at 11, and now we keep turning it.
Tobias Carlisle: Yeah. We’re at 13 now I think.
Jake Taylor: All right, so lesson number three. It’s 1997, he’s on top of the world. His 19-year-old daughter dies in a car crash, his only kid. And 10 months later his wife passes away from cancer. Yeah, talk about just a brutal, brutal year. So he disappears and he rides his motorcycle around Northern and Central America for a year and covers 55,000 miles. And he says what brought him back from the brink was to just be out in nature like that and to see so much of the Earth and to reconnect with… Part of it was with how small he is in the world and insignificant really, but more look at nature and the amazing things and the beauty there. And he comes back and he ends up getting remarried, having another kid. I think the lesson for us there is that during difficult times maybe we shouldn’t be wallowing or looking to everyone else for the answers, and maybe we should be spending a little bit more time in nature, a little bit more time disconnected, a little bit more time with our own thoughts to process things, and it might serve us well.
Tobias Carlisle: That’s a good thought. I sort of think that I need to meditate on that. I hate to be filling up the air with nonsense thoughts but I don’t want it to be dead air either. So I don’t know, I need to think about that one. It sounds good.
Bill Brewster: Yeah. No, I think everyone has a tendency to think what’s going on in their own life is what matters. And, more often than not, it’s really not. So I agree.
Tobias Carlisle: Well what does matter?
Bill Brewster: I don’t know if that’s a dead comment or not.
Tobias Carlisle: What does matter?
Bill Brewster: Well, I mean other than my family and stuff, I don’t know. My portfolio really doesn’t, you know? I mean my ego wants it and I want to be known as somebody that does this well. But the world doesn’t really care if I’m here or not. So as long as I’m, I think, being prudent… I found the Druckenmiller interview pretty interesting. And listening to him talk about how his portfolio is now that he’s running his own capital versus how much risk he might be willing to take if he was running other people’s in the race. And he said it-
Tobias Carlisle: What did he say there? Did he take more or less?
Jake Taylor: Didn’t that feel backwards when he said that?
Tobias Carlisle: Yeah.
Bill Brewster: It did seem backwards because a lot of the times he was like, “You know, I’d probably be taking more risk if I was still in the game. But now that I’m running my own money, I’ve sort of backed off the risk.” And maybe that’s something that I should keep in mind. I think I probably have not hit the accelerator as hard as I can because there’s real consequences to messing that up. And I think that’s true if you’re participating in a fund structure too.
Tobias Carlisle: Maybe what Druck said is impolitic but true. Everybody likes to say, “You know what? I’m most careful when I’m running outside money,” but maybe… I mean that’s why you want to see the manager with lots of skin in the game, right?
Bill Brewster: Yeah, that’s right.
Jake Taylor: Yeah. I think the lesson is to the LPs in that message of, “Listen, the incentives are for these guys a lot of times to be swinging for the fences and trying to make a name for themselves, not necessarily to steward your capital through difficult periods.”
Bill Brewster: Well, and it’s especially true in a lot of private equity funds. I mean that incentive structure is such that at some point… I mean I’m involved in a real estate one and they tend to pull down a capital call every quarter. And I almost feel like I think they’re doing good deals. I don’t think that they’re doing stupid things. But sometimes I wonder, “How much are you pulling in just to get your fees going?” Right? And your carry.
Tobias Carlisle: What happens if you don’t meet a call?
Bill Brewster: If I don’t meet a call?
Tobias Carlisle: Yeah.
Bill Brewster: Then I’ve defaulted.
Tobias Carlisle: But what happens to the money you’ve already invested? Do you forfeit that?
Bill Brewster: I mean I would imagine… Yeah, I’m pretty sure they have a claim to the extent that… I mean they would probably try to sell my interest to somebody else. But there’s all kinds of penalties with that.
Jake Taylor: You don’t just get diluted by the other money or something?
Bill Brewster: I think that you may. I mean I would need to go through this. But I know that there are fees associated with it, and they’d probably place your slug with a different investor, is my sense. But I don’t know.
Jake Taylor: And they’re calling every quarter?
Bill Brewster: Pretty much.
Jake Taylor: Interesting. There can’t be that many deals out there that regularly, right?
Bill Brewster: Yeah, well I mean that’s part of the question, right? But I do think they’re good at what they’re doing. But I do question the incentive structure and how they call some of that.
Jake Taylor: So barber, do I need a haircut this quarter?
Bill Brewster: That’s right, yes.
Jake Taylor: Oh, I do. Shoot. All right.
Bill Brewster: And then the other thing that I said to somebody at a family office, and he hadn’t even thought of it which makes me terrified of how that family office operates. But the difference between their marketed IRR and my IRR is so different…
Tobias Carlisle: That’s some voodoo right there.
Bill Brewster: … when they’re calling. I’m sitting here in cash waiting for a capital call. My IRR is from the day that I’ve committed. There’s is since they called it. And he was like, “I didn’t even think of it that way.” I said, “Well, I mean do you even know the game you’re playing? That’s terrifying, man.” But anyway, I don’t know how we got off that tangent.
Tobias Carlisle: I think it was such a profound point that Jake made that we couldn’t possibly talk about it for very long.
Jake Taylor: Move forward from that.
Bill Brewster: That’s fair.
Tobias Carlisle: We have to put this podcast in another category.
Jake Taylor: Yeah, I guess maybe I wasn’t After Hours enough.
Tobias Carlisle: It’s a good thought. I mean I haven’t had enough things happen and as badly on that scale to had to have dealt with it. So I haven’t thought about it enough, which is very lucky for me.
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