Working With Michael Price | The Acquirer's Multiple®

During his recent interview with Tobias, Michael Mitchell, who is IgnoreNarrative on Twitter discussed Working With Michael Price. Here’s an excerpt from the interview:

Tobias: How did that all come about? How did you get started? How did it happen?

Michael: I started my career in 2004. Well, really, I started in 2003, I interned for Michael Price at his family shop, MFP Investors. I fell in love with investing when I met Michael Price. It was like stars aligning for me. This is the first billionaire I’ve ever met. He’s just so matter of fact, it makes everything so simple. He walked me through me a group of people through his thought process on Martha Stewart Omnimedia back in 2004 and how he had his analysts do some of the parts, stuck an enterprise value on, subtracted that, divided the equity by the share count.

I was like, “Oh, my God, this is the easiest thing in the world. This is so easy.” The guy made himself a billionaire doing it. It’s like I could absolutely do this. I fell in love with it. I got an internship with him in 2003, which is a lot of fun. I asked him at the end of the internship, I psyched myself up, I went in as Michael. He’s a larger-than-life character. “I really would like to work for you. I’ll do anything you want, and I will work for free.” He actually said, “I’m sorry. You’re overpriced.” [chuckles] I said, “Okay.” “All right. Well, I can’t afford to pay you.” “It looks like I’m going to have to go find another job.”

He helped me get a job at Jefferies in research. I was there for a year. It was a great job in ‘04. I covered post-reorg equity. Companies that Jefferies bankers– at the time, I don’t think this is the case now. At the time, the banker, especially in high yield was just like, whatever. Whatever needed to get financed, they would finance it, and so the lifecycle company would go get high yield from Jefferies and inevitably would default. then the high yield team would pass it over to the equity team and the equity guys didn’t want it because it was in reorg. I was this weird hybrid analyst, junior analyst, I work for a guy called Farooq. Farooq, he’s a wonderful person. I was this weird hybrid guy who–

Tobias: I know Farooq.

Michael: You know Farooq?

Tobias: Yeah.

Michael: I worked for Farooq for two years. Actually, one at Jefferies and then one at Kellogg Capital. We picked up the paper when it was in bankruptcy, and then would cover the reorg equity. I loved that job. All the jobs I’ve had, it was my favorite. After a year, Farooq had become this very popular character. We’d done well and it was a great time to be in restructuring in ’04. He got a job at Kellogg, so I was stranded. I didn’t know what I was going to do, and I begged Farooq for a job at Kellogg.

He said, “Well, we’ll see what we can do.” Then somehow, I just– my bet, he just got tired of hearing me beg, he was like, “Yes, you can come be my junior analyst at Kellogg.” I did that for a year. I enjoyed Kellogg. They actually were based in New York office where I worked, but they were based in La Jolla. I got to go to La Jolla once a quarter, stay as I think it’s the nice mission hotel, I forget the name of it.

I was in La Jolla one week for every three months, it was amazing. It was a scam. You may have a different plan. They always tell you, “Oh, it’s California.” It’s just three hours later, we start work at 4 AM, but we get off early. We never got off early. We always worked until 5. I was like, “What? I’m working 13 hours here.” The view was better, I guess, and the weather was amazing. I was there for a year. Farooq left. The fund was small, $50 million, did special sets and had amazing performance in 2004. In 2005, it was flat and it was like there’s not enough economics to go around. Farooq was like, “I’m just going to do my own thing.”

He left and that put me into another holding pattern that I didn’t know what I was going to do. It just so happens that one of Michael Price’s senior analysts got a job at Breeden Capital, as a head of research in trading for a new startup hedge fund, and he needed an analyst, so he called me. I needed a job, he needed analyst, it was perfect. The timing was great, it was just as Farooq left, the next week, Bob calls and says come on over to Breeden.

I went to Breeden. I was there for five and a half years, four of which Bob was there. He left to start his own fund. He now is a partner at Cardinal Capital, made some of the best friends of my life when I was at Breeden. I have interesting stories, which you’ve probably heard me tell, which I’m happy to talk about it again if you want. Then, Breeden after Bob left, it was obvious to me that I didn’t want to be there anymore. I spent 18 months looking for another job.

Finally, the guys at Locust Wood Capital took pity on me in May of 2011. I really liked the structure of that fund. It was a $400 million long, short– but mostly very long bias, but event driven, special situations fund. The guy, Steve Errico, who runs it had been there for over a decade, his number two, a guy called Bill Gibbons had been there within the entire time, the turnover was low. There were three guys, $400 million. I thought, “My God, if I could get this job, and we could grow from $400 million to a billion, it could just be a wonderful setup for me with being the fourth guy.” Sure enough, it was great. We grew from $400 million to $1.2 billion when I left.

I had a very, very, very good run there. I did well from really 2012 all the way up to 2017. In 2018, I kind of came to a crossroads where I had been pushing the firm, to get more concentrated to take bigger bets. What I had noticed over time– Toby, you should just stop me because if you let me go, I’ll just–

Tobias: No, keep going.

Michael: This will be like 45 minutes–

Tobias: That would be ideal, I don’t want to talk.

Michael: [laughs]

Tobias: Go.

Michael: I had been pushing for– at Locust Wood, what I noticed I knew this myself coming out of Breeden. What really struck me at Locust Wood was, our best ideas generally were homeruns. Generally, we were very– When we had a lot of confidence and conviction in something, it generally worked. For whatever reason, the midfield ideas for us, the things that we– I like it, I see how it could work, like Eastman Chemical would be good example for me. I like it, I see how it can work, but it’s a low conviction bet.

There’s commodity cycles I don’t fully understand, and one of them has been beneficial, two of them have been terrible, is that going to continue? Their acetate tow business I like but the end markets, not necessarily, you get all this. What I found over time was when we really had confidence it did well, so what I was pushing the firm for years, really in 2016-2017, because I was doing so well, I had a lot of political capital, I was trying to use my political capital to get us just to focus on our best ideas.

My dream for that portfolio was no more than 20 securities, of which I was arguing that no more than 10 of them should matter and 10 should be on the farm team. My spearhead of that was Charter, which we had made a really big bet on when they announced their merger with Time Warner, they’ve done really well for us and I thought it had a lot more to go.

We were moving that direction. Another guy joined the firm in 2016 or 2017, had a very different view. The view was for more diversification, looking at the index that we had benchmarked ourselves to the S&P and then trying to talk in terms of we’re short this factor or we’re short this industry, and we’re long this one because we’re not long in it, and that never really resonated with me. That’s the way he thought about the world. Ultimately, in 2018, I had a material drawdown, and I think I ended that year– Personally, I was only down 4% or 5%. But in the fund, I think I was down 20% or 25%. At one point, I was down like 40%. The push was, “Mike, you need more ideas, different businesses.” I just was like, “Man, I don’t need different businesses. I need to buy more Charters, how much Charter can we buy?” I think Charter was like 275 or 300 times, I was like, “This is the only thing we should own.” It was clear that I lost that fight.

I had two aha moments. There was one where my boss was like, “You’re just going to have to change.” I thought about that very seriously of like, “Well, do I want to do it?” And could I do it?” Ultimately, he said– I’ll never forget, it was great. It was this aha moment where he said, “Mike, I can’t fire myself,” and I thought about that and I was like, “You know what? You’re exactly right.” You can’t you’re the guy, this is your fund, you’re not going to change, you can’t change and this is what you’re doing. You can’t fire yourself. If I want to do something different, I have to quit. There isn’t a solution. There’s not a middle ground here. I can’t fire you. If I was the PM, I would fire you. I’d fire the factor guy. I was pretty open about that. I’m the problem and I think differently, I’m just going to leave, and that was the first aha.

The second was, I took a week and I went to Colorado, my wife and I have a place there. We’re moving there, but we have another place there where we vacation. I took a week, it just struck me that is a really– Tobias, I’ve been so blessed. It struck me that a million-dollar bonus didn’t mean anything anymore. It really didn’t move the needle. It’s not that I have this enormous amount of money, I’m Chamath, I’m just as wealthy dude, it’s not true.

I have way more money than I need, but regardless of how much money I have, I didn’t need any more. If you gave me another million dollars, I would still be in this house, I would drive the same car, I would eat at the same restaurant, my kids will go to the same university, whatever that is. There’s nothing about more money that was going to change my life. When I got to that moment, I just asked my wife, I was like, “Why am I doing this? I’m miserable. I’m getting home late, I’m stressed. What’s the point?” She said, “Well, there isn’t.” I said, “Well, let’s just move to Colorado and open a practice for you there. I’ll do that, and I can invest our money.”

I showed her how compound interest works. I told her, I was confident that over time, I could compound our money at 10% that it would be lumpy, but that was my target. I showed her that based on how much we have and how much I think we’re going to burn, and me doing 10%, we’re going to die with so much money, we’re going to give it all away anyway. Really, it’s a question of, am I giving away a pile this big or, am I giving away a pile this big? It’s not going to change my life. That was the decision tree. I retired at 39. I wanted to get in just before my 40th birthday, so I could say, “I retired in my 30s.” [chuckles] That was it. I’ve been on my own for two years. It’s been great.

Tobias: Well, congrats.

Michael: Thank you.