Ron Gross is the director of U.S. investing at The Motley Fool and a frequent guest on the Motley Fool Money podcast. In today's episode, Ron talks with Motley Fool host Mary Long about his early days on Wall Street, what he's learned from crises, and the attributes he looks for when hiring new analysts.
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This video was recorded on June 23, 2024.
Ron Gross: I did the opposite. I figured that we've come out of every recession in the history of recessions. Stock market has rebound 100% of the time, and if it didn't in this time, it would be the only time in history it hasn't. I bought more stock, rather than sell stock. It was probably the best capital allocation decision I ever made because those investments back in 2008, probably are my biggest winners today just by the sheer fortune of being able to buy great companies at low prices.
Ricky Mulvey: I'm Ricky Mulvey, and that's Ron Gross, the director of US Investing here at the Fool. Over the summer, we're spending some time getting to know a few of the Foolish analysts you frequently hear. For today's show, Mary Long caught up with Ron to discuss how a sitcom character kicked off his career, what attributes he looks for in new analyst hires and lessons learned from tough times in the stock market.
Mary Long: Ron, I have honestly, had the immense pleasure with being tasked with rounding up a number of different fool analysts and chatting with them a bit about how they wound up where they are today, how they got started in investing, and you are definitely someone that we wanted to talk to; so thank you for taking the time to walk me through your life, I guess.
Ron Gross: Wow. How much time do you got? No, it's my pleasure. I love doing this thing.
Mary Long: We can start broad. I know that you had an investing career before you came to the Fool. But we can rewind even further. How did you find investing in the first place?
Ron Gross: All right. Set the scene. It's the mid 1980s. I've actually told this story at Motley Fool Money before. It's the mid 1980s, and I love a TV show called Family Ties. In that show is a character called Alex P. Keaton, played by Michael J Fox for Back to the Future fame. He's a high school student who loves economics and the stock market, and maybe most of all money. I was just enamored with this character. I just loved it. It was just very exciting to me. Something about it, really just captured me. That started it. It really did. This was pre-Internet, so I didn't like, hop on the Internet and start doing research. I probably bought a book or two to see what this was all about. But shortly thereafter, literally, a couple of years after, I went to college and got my degree in finance and investments. Then a couple of years later, I went and got my MBA with a concentration in finance and just honed my knowledge and my skills over years and years and years, fast forward 30 years later. But it all began with Alex P. Keaton and family tied television show.
Mary Long: Personally, I love that because one of the first jobs that I really wanted to be, to have, to pursue, I wanted to be an FBI agent, and that was because of TV shows. Very different fields that I wound up. I'm actually not an FBI agent now, I promise.
Ron Gross: That's good. Glad to know.
Mary Long: But it is funny how a TV character can set a desire and a path into emotion.
Ron Gross: That was it.
Mary Long: when you graduate college, then you mentioned you got your MBA, did you take off time in between, or was that a straight shot that you followed?
Ron Gross: No, I worked for two years before going back to school. I'm originally from New York, moved to Connecticut to work for a couple of years then moved back to New York for graduate school.
Mary Long: What were you doing for those two years?
Ron Gross: I really wanted a job in the investing industry. But I graduated college during a recession in 1990 and it wasn't so easy. I did the best I could do, and I got a job in the investment department of a huge insurance company; Hartford, Connecticut, being the home of huge Insurance companies. I moved to Connecticut, did my time at an insurance company for two years. It was lots of fun. Met a lot of great people. But then I went back to NYU to get my graduate degree, NYU and Columbia being the main schools in New York City for investing professionals or those who want to be investing professionals. That's really where I learned more and then started on my so called Wall Street career.
Mary Long: I want to talk about your Wall Street career, but before we get there, it sounds to me, having heard the story from the TV character inception to today, it sounds to me like investing has always been the focus and the plan. Apart from two years of a minor detour at an insurance company, you've pretty much stayed to that. But is that wrong? Like, is there anything else that you entertained pursuing as a career before this?
Ron Gross: Just peripherally. Upon entering graduate school, I thought maybe I would be an investment banker, not an investment manager or an analyst. I wasn't positive of either one of those, so I let the two years in school guide me. But it was going to be in the investment industry, regardless.
Mary Long: I know that you worked at a hedge fund in another life, how did you wind up there? From there, how did you wind up here at the Fool?
Ron Gross: Graduated graduate school, and got my first so called real job in the investing world as an equity research analyst at Standard and Poor's. First as a journalist, then I followed the exciting world of utilities, the utility sector, before finding my way to the technology sector focusing on telecommunications equipment companies, but more interestingly, the very first Internet companies were just coming public: so Yahoo, Netscape, companies like that. People listening to this will laugh because I know nothing about technology now. But back in those days, that was my job, and it was very exciting because the Internet was brand new and didn't have any idea it would be what it is today. But that was a really exciting time to be in that field. From there I went to a small investment bank as an equity research analyst, also, following technology companies and some other sectors as well. At that firm is where I started my first hedge fund with the chairman of that investment bank, and it was a value focused, small CAP activist hedge fund. we would take positions in companies and try to create some change if we thought there was improvements that could be made to enhance shareholder value. Did that for multiple years. Then moved to Maryland, fast forward for personal reasons. This is where we wanted to settle down with our children who were getting to be grade school age, and we were trying to decide where we wanted to be. This is the neck of the woods where my wife is from, so we thought this made good sense. Came here, still worked for my hedge fund in New York, started my own hedge fund at the same time, did those things concurrently for five years. Then got introduced to the Fool and that was 16 years ago. Originally introduced to the Fool because they were considering getting into the asset management business, which we now have a whole asset management division. But spoke to the folks at the Fool for six months or so about that potential business. Ended up joining the Fool on our membership side after getting to know everybody again for six months and really thinking there was something special here. That was right around the 2008-2009 recession. Things were getting a little dicy in the hedge fund world and so both things collided at the same time. Met these great group of people at the fool. Wall Street was shaky, the economy was shaky, everything was shaky. Thankfully, they offered me a position, and I happily accepted. as I said, that was 16 years ago.
Mary Long: Wall Street was shaky around 2008, but I'm sure coming to a company that specializes in investment advice was also shaky around 2008. How did you navigate that transition when so much external stuff, and I would think internal considering it's 2008 was unknown?
Ron Gross: It was a tough time. What I did know is that the way I made most of my money in the hedge fund world was by taking a carried interest or a percentage of the profits I generated. Typically 20% in the industry is typical. If there weren't going to be any profits for any period of time to come, who knew if we were in a recession, we were going into depression, I didn't really know. 20% of nothing is nothing, so the proposition of that was a little bit scary. Now, of course, all businesses, especially investment in businesses, were shaky back in 2008, 2009. But the Fool offered me what I felt was something more stable, more concrete. Again, getting to know the people over time we was a big draw for me, doing my thing in Maryland, but also in New York, at the same time, had grown a little bit tiresome and having something here in this neck of the woods with wonderful people solidified it for me.
Mary Long: I think often when we talk about like the Foolish investing philosophy, we juxtapose to the conventional wisdom on Wall Street and the short term horizon that most of those traders are dealing with. Having had a foot in both worlds, how has your investing philosophy changed over time?
Ron Gross: My hedge funds were value investing focused, and they were also long term focused as well. We weren't traders. in that sense, that jives with the Foolish philosophy. The activist component is something completely unique, where we would sometimes end up being litigious or contentious or whatever you want to to add to that, where if we thought we saw something that needed to change in a company, we would do a proxy fight or do whatever we needed to do, that's certainly not something we get involved in at the Fool. We attempt to just relentlessly find great companies that we can hold for long periods of time. We did that as well, back in my hedge fund days. We were focused on smaller companies, so we weren't buying Apple or NVIDIA, or Microsoft, but smaller companies, which we do at the Fool as well, but we were exclusively focused on small and microcap companies back in the day. The really emphasis on value investing, very valuation-focused. We do some of that at the Fool, but my hedge funds were exclusive to that.
Mary Long: Does that activist part of your brain still go off? Like, is there a company that you're looking at now or you have looked at since coming to the Fool, where you're like, oh, I would buy into that if only they did this.
Ron Gross: The answer is yes, certainly less than back in the day because everything was looked through with that lens on of what could be different here to enhance your holder value. I definitely do some of that. It is even more so when I see an activist investor actually get involved in a company, and then I want to see, what's their platform? Are they long term? Are they short term? Did they have a good track record? What are they trying to accomplish here? That is more interesting to me, maybe than the average investor, just because of my background.
Mary Long: It sounds like most of your career, you've been broadly, well, you've dabbled in different specifics. You've been broadly in this finance and investing world. Anything from any of those earlier experiences or even before, when you're watching family ties or before then, any experiences, skills, attributes that you think have really set you up for success today?
Ron Gross: Becoming educated in the field was essential. It doesn't have to be in school. We have plenty of members at the fool who are self taught hopefully with our help, but probably on the side, too, and that's perfectly fine, but educating yourself, at least in the basics of accounting and finance and competitive advantage and how business models work and how companies make money, that's essential. That's table stakes in my mind, and lots of folks go ahead and do that. I think I'm well suited to the business because of my temperament. I'm relatively even keeled. I have patience. I'm intellectually curious to the point of where I always want to understand why something is happening or how a company makes money, or why a stock is down or why a stock is up. I think those characteristics are essential when we hire here at the Fool. For the investing team, I always ask candidates what three things do they think an investor really should have, and I'm looking for those answers. I'm looking for patience, intellectual curiosity and a way to understand one's emotions or be even keeled, if you can and if you can, at least recognize when you're not being even keeled and when your emotions can maybe be getting the better of you, because at some point, we all know accounting and finance so there's something that differentiates us all, and that often is emotions. We sell at the wrong time, we buy at the wrong time because we're either fearful or we're greedy or we're nervous, or we're happy, and at least being able to recognize when that might be happening to you, you can help to mitigate some of the damage that can do.
Mary Long: Do you have any anecdotes from recent memory or a long ago memory when of you despite having a pretty even temperament, that those emotions did get the better of you or you were tempted to sell before you should have or fill in the blank?
Ron Gross: Disasters, sometimes we call black swan events are the easiest ones to think of and 2008-2009 is the one that immediately comes to my mind because everything was bad. I didn't know if we were going into a depression or not. I didn't know how long it was going to last and I didn't know what was going to happen to stocks. The natural inclination is to move to cash in that scenario to be safe. That in a sense as why the stock market crashes are correct, because people move to cash because they don't want to have risk in situations like that. I did the opposite. I figured that we've come out of every recession in the history of recessions. The stock market has rebound 100% of the time and if it didn't in this time, it would be the only time in history it hasn't. I bought more stock rather than sell stock. I was probably the best capital allocation decision I ever made, because those investments back in 2008, probably are my biggest winners today just by the sheer fortune of being able to buy great companies at low prices. I bought Costco and Microsoft in 2008, just wonderful companies, wonderful investments. It's not easy to do, things were bad. Same thing like COVID comes to mind, the pandemic comes to mind. The market was tanking, we didn't know if we'd all be at home forever, we didn't know if we were going to get sick, if our loved ones were going to get sick, if businesses were going to be able to be reopened, very scary time. No one would be faulted for having extreme anxiety about life and certainly about your investments and about everything during those times. But then you just have to make your decision about, is this really going to be it? Is the stock market never going to recover? If so that's probably not my worst problem. If things are so bad, the stock market is not going to recover. There's probably some real bad stuff going on, and my money might not be my biggest problem. Again, I said, I think, 100% of the time, stock markets come back, and I don't think this is going to be the one time it doesn't, so again, I purchased stocks rather than sold them.
Mary Long: There's an inherent optimism in that. Yes, there's the realist take too of, if this really is all bad, I got bigger problems, but the continuing to buy and looking to the future and having an underlying belief that even though things are scary now, I don't think it will always be that way, to have that as a North Star, that's a strong thing to return to, for sure.
Ron Gross: It might be easy for me to say, because since I do this professionally, and I do it literally every day of the week for 30 years, if you just dabble in it, it's maybe not so easy. You're not used to dealing with those emotions, and you want to derisk, and you just want to feel safe. I completely understand that. But if that's happening, at least recognizing it is important.
Mary Long: You've given us an overview of your career, and in the early days, you mentioned, you were into tech, you were studying utilities, and now your focus is maybe elsewhere. Whether it's in investing or it's entirely outside of investing, and it's just in life, what are you intellectually curious about now?
Ron Gross: Interesting. Well, it's hard not to be intellectually curious about artificial intelligence, unless you're under a rock. It's like I felt about the Internet back in the day, but maybe even more because the Internet seemed just like a way for us all to learn and communicate and be connected. AI seems like it's something could be potentially some whole other thing. But fascinating. If you play around with Chat GPT or Cloud or any of the LLM models, just fascinating and only in its infancy. It's probably like AOL dial-up was to the Internet back in the day where you could have said, I don't think this is that great. It's so cumbersome. This Internet thing, eh. But now look what it's turned into. I can't only imagine what AI is going to be like ten, 20 years from now. That for sure. But then I've got, crazy other hobbies and stuff. I love to cook, so I'm just constantly searching for gadgets or recipes or food items. I'm the worst golfer in the world, but I'm constantly trying to get better and watching YouTube golf videos and reading and understanding or attempting to understand. I love music, so I'm constantly not only listening to, but researching music as well. I play a little some instruments, and I'm always very amateurishly, trying to get better at those as well. Lots of stuff to keep me busy and sometimes in trouble, sometimes out of trouble.
Mary Long: That's a whole lot of hobbies, but as one final question, those hobbies make me so curious. If you were not an investment analyst right now, what would you like to be doing?
Ron Gross: It's funny. I once told someone that I would be perfectly content just playing a piano in a dive bar and that would be a happy life for me and they were like, you are so full of it. No way would that make you happy Alex P. Keaton of Mr. Family Ties, who loves money, the stock market and economics. Maybe I had a little vision of myself that isn't actually true there. But hey, I think a lot of us, if we could be musicians, that wouldn't be too bad.
Mary Long: I'll tell you what, if I ever hear that Ron Gross is playing at a dive bar near me in Denver, Colorado, I will be there. I want to see that piano playing.
Ron Gross: Appreciate it. Don't hold your breath.
Mary Long: Well, Ron, thanks so much for taking the time to chat with me today. It was great learning more about your background, how you wound up here and about some of the stories and ideas and stocks that have informed you and made you who you are today.
Ron Gross: Thanks, Mary. Always a pleasure. Appreciate it.
Ricky Mulvey: As always, people on the program may have interests in the stocks they talk about, and the Motley Fool may have formal recommendations for or against so don't buy or sell anything based solely on what you hear. I'm Ricky Mulvey. Thanks for listening. We'll be back tomorrow.
