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Reasons for Optimism Amid ‘Peak Pain’: Kevin Rendino (Szn. 4, Ep 16)

Last updated on June 23, 2022

Kevin Rendino of 180 Degree Capital joins the podcast to discuss reasons for optimism (yes, optimism) in markets and why we may have already reached “peak pain.”

Content Highlights

  • Valuations for most of the market are already discounting bad news across the board. Cash balances are at peak levels seen at the start of the pandemic, in 2008, and 2001 (2:44);
  • What segments of the market are particularly interesting right now? Look to semiconductors for starters (4:54);
  • How big of a concern is Fed policy? (7:20);
  • Media companies will benefit as the economy resumes its growth and advertising budgets revamp. There are indications this cycle is already turning (13:49);
  • What is 180 Capital’s investing style and how does it work? (16:25);
  • Background on the guest (25:17);
  • The guest meets with company management often. What are some ‘red flags’ and ‘green flags’ he looks for? (31:38);
  • The ‘great resignation’ and which companies may be a great ‘pedigree’ for future executives (38:18);
  • Some parting guidance and why today’s market feels more like 1990 than 2008 (43:17).

More Information on the Guest

Stocks Mentioned on this Podcast

  • 180 Degree Capital (TURN) — the guest’s publicly-traded fund;
  • Lantronix (LTRX);
  • Quantum (QMCO);
  • Arena Group (AREN);
  • Potbelly (PBPB).

Not intended as investment advice.

Quick Video Highlights From Our YouTube Channel

Transcript

Nathaniel E. Baker
Kevin Rendino of 180 Degree Capital. Thank you so much for joining the contrarian investor podcast today. Great to have you on, you have some contrarian views here. And these are contrarian because they’re actually somewhat optimistic. And I point to a article that you guys wrote that you wrote, you and your your partner, it looks like titled reasons for hope, in a world of bad news. You discuss a glut of negativity, but you say we have now reached peak pain in the market, and that things are actually looking upward. Tell me about that.

Kevin Rendino
I don’t know if the news is necessarily looking upward today. But our view always is, investment success starts with the price that you pay for the business that you’re buying. And if you look at valuations for most of the market, certainly in the micro cap space, many of these stocks are discounting, all the bad news, whether it’s inflation rates, the war on Russia, global supply chain issues, the news is never great at the bottom, it just doesn’t work that way. It’s always darkest at the bottom. And so for us, when we look at cash balances, for example, they’re at the highest levels they’ve been since 911. And if you look at cash balances across consumers balance sheets or institutional funds, and you see where we are today, and you look back in history, we’re sort of at peak levels. And the other peak levels were the beginning of the pandemic 2008, you know, subprime mortgage crisis 911, and on and on and on. And so those are just signals to me that the market is discounting. We think a lot of the bad news and that doesn’t mean that the news is gonna get better tomorrow, but the market is, is a discounting mechanism, as you know. And so for us, the time for diversification and for being safe. that existed in November of last year, the time for getting a little more aggressive and for putting risk on is today. And again, it goes back to what I said earlier. It’s driven by price, and the price that we’re paying for a lot of these businesses are at their all time lows.

Nathaniel E. Baker
Yeah, really interesting point here and you have a chart in your piece. I’ll put this on the show notes. And as you mentioned, the cash levels FMS, average cash level, what is that exactly?

Kevin Rendino
It’s a B of A global fund manager survey. Basically, it’s just fund manager survey. And it comes from it comes from Bank of America, and they just look at cash balances across. I don’t know how they get all their data. But obviously they look at cash balances across all funds, for example.

Nathaniel E. Baker
And people will say surveys are just surveys, but it’s actual hard data, which is cash. I believe they probably get a lot of it from their prime broker maybe. But yeah, interesting point. So are there any particular segments of the market that you think are particularly appealing right now?

Kevin Rendino
look, the global supply chain issue is pandemic cost. You know, and it really started after we received and Pfizer got its vaccine Moderna got the vaccinations approved, and people started taking their vaccinations and started going back to work. And certainly for the US demand has not suffered through this pandemic, as you know. And yet last fall, it really when Omicron showed up around Thanksgiving time. Many countries are back to work. And then there’s many countries around the globe that don’t have vaccination rates as high as some of the more developed countries and unfortunately, some of the countries with lower vaccination rates supply chips for computers, and they had stay at home orders in Malaysia, you know, in November, December and January. And so you got, you know, just recently with China and their COVID policy, you got stayed homeowners in the streets are empty. You know, this is a year after vaccination was The crew, if so, that is going to work itself out, as more and more people go back to work as vaccination rates increase around the globe. And so for us, we actually want to play all the areas that have been blown up because of the global supply chain issues. So semiconductors, companies like LAN tronics, or storage and server companies, kind of companies like quantum, you know, they’ve undergone, they’ve taken so much pain here in the last six to nine months, understandably so in terms of their own fundamentals. And that’s when, you know, going back to what you said earlier, for me, I feel like we’re at peak pain. Now we’re at peak pain in terms of inflation, we’re at peak pain in terms of the supply chain. And I think as things ease, that’s where you want to be going forward. That’s where all the pain is now, but I think as you look out nine to 12 months, semiconductors, servers, media companies that have undergone some advertising issues, you know that you want to play the cyclicality of the world, rather than the safety. Yeah.

Nathaniel E. Baker
Interesting. Now, what do you make of the Fed? And how big of a concern is that because the Fed has made noise here, that and not just noise they’ve moved a couple of times they’ve started their quantitative tightening, as of yesterday, June 1, and the bonds, bond markets have sold off dramatically here over the last couple months. And it seems like we have no choice but to take the Fed at their word that they are very serious about inflation, are you going to continue ratcheting up rates until inflation starts to bite? Now historically, that’s been bad for risk assets? As you know, so how big of a concern is that right now?

Kevin Rendino
It’s a concern. Because, look, if you if you just got shuttled down from Mars, and you’re gone for, let’s say, 20 years, or 30 years, and let’s say I came back today, and I said, Where’s the 10 year bond? And you told me to 80? I’d be like, Wow, what a great environment for rates, market must be making all time highs. And yet, it’s the change rate of change, or whether it’s the relative change of where we’ve been. So the question is, does Fed funds go from zero to six? Or does it stop at three, we obviously know they’re serious about fighting inflation, because they won’t stop their language around raising rates. You know, I have a difficult job, there’s no doubt about it. And I don’t want to be one of those portfolio managers is Monday morning quarterbacking the Fed, but they’re late. And the reason why they’re backed into a corner is because just as soon as February and March of this past year, when they were talking about raising rates, they were still buying bonds for their own balance sheet. So that’s a fed that is way behind the curve. They should have been doing this last year, in my in my mind, and so now they’re doing it and they’re gonna cause the economy to stifle. It’s already taking place. If you saw the ADP number this morning. I think the expectation was 300,000 new jobs, and we came in under 200. Okay, and you’re seeing, you’re seeing already the effects of their language anyway. And that’s what I’m worried about. I don’t necessarily think Fed Funds ends at 5%. But I do think the language around their their tone is causing consternation, because it’s not just our rates going up, it’s our rates gonna go up high enough to cause a recession, right? Not actually worried about inflation anymore, because I think that’ll, I think that’ll come, I think they’ll figure that out. And their actions will cause it to ratchet down. I just worry, actually, they’re too late. And they’re gonna go too far. And that’s going to cause a recession. Meanwhile, I think we’re probably in the slowest part of economic growth that we’re going to have for this year. Right now. I don’t think growth is going to be slower in q4 than it is today. I think we’re already in that you’re seeing demand suffer as a result. So yeah, it’s they’re they’re in a bind, but they cause their own bind by not taking this situation seriously. A year ago.

Nathaniel E. Baker
Can growth re in in front of us, they inflate but re accelerate? I guess it’s a proper word. With with fed with rates moving higher?

Kevin Rendino
No, I think you need to see stabilization. Okay, can growth resume? Of course it can. But we need to know that. What I’d like to know is where are rates going to stabilize? We know they’re going up in the short term, at least the short end the long end is not I think the long and I’ll look I think it’s to 83 to 90 I think 90 Yeah. So the long end is already starting to come down. So as they as they continue to to raise rates, it’s almost an enforced a force inverse yield curve, which, you know, is never great for the economy, right? So, of course the market can can resume its growth, as long as we all believe that rates are in a certain band. And I don’t know where what that band looks like, I don’t think it’s infinitely materially higher from where we are. I think it’s going to be higher from where we are, but not at levels like we saw in the 70s. You know, when utility bonds yield at 16%, you know, during the during the Carter years, I don’t I don’t think we’re going to we’re getting back there anytime soon.

Nathaniel E. Baker
Yeah, right. But yet you think that this is a good time to be buying certain risk assets?

Kevin Rendino
we’re a value manager. I love the name of your podcast, contrarian pod.com. That’s who we are like me, I’ve been a when I was at BlackRock and Merrill, its I was a contrarian value Graham and Dodd, investor. And so we do the opposite usually of what the market is doing. And, and that means today, getting more aggressive and putting on more risk assets, not taking them off concentrating your portfolios around the ideas that you feel the strongest about. That’s what we do during these these blowout periods. And look, if you and I had this conversation in March of 2020, right at the beginning of the pandemic, when we were all moving back to our homes for at the time, who knew how long if I told you the market would be up double digit, each of the next four quarters? I’m not sure I would have even been, I wouldn’t have said it, by the way. But and I definitely wouldn’t have believed myself and I wouldn’t have expected anybody to believe me. But that’s because valuations were blown out then too. So for us, it’s, it’s about taking advantage of valuations of equities, and making sure that they’re discounting a lot of the bad news and a lot of them are right now. So we’re just getting more aggressive.

Nathaniel E. Baker
Cool. And you mentioned semiconductors, any other parts of the market that you that you are particularly interested in right now.

Kevin Rendino
So again, just cyclicality So, industrials, materials, media, companies like arena group, which is a single platform company, they house digital assets, as advertising weakens in weak economic periods. Because it’s the easiest thing to turn off. Media companies suffer as a as a result of that. And, but as as obviously, as advertising comes back, as the economy resumes, its growth or at least gets off the, you know, the basement and we get a little more bullish about the global macro economy, the media advertising media companies, consumer discretionary, information technology that just not safety. So not utilities, not consumer staples. Okay, not stay at home stocks. You know, we’re we’re on the other side of all that it’s sort of the, it’s the the opening up of the economy world that we’re focused on right now. And that’s, you know, basic industry material companies in the rest.

Nathaniel E. Baker
Yeah. And on the technology side, those are certainly some of the more beaten down stocks

Kevin Rendino
Oh, boy. Yeah.

Nathaniel E. Baker
Do you think that the basically the worst there, it sounds like maybe it has been priced in, and those have been signaling and recession for awhile?

Kevin Rendino
We’re bottoms up oriented investors, we speak to our companies all the time, that’s what we do for a living, going to conferences and kicking tires. And I don’t want to say it’s over. But there already seems to be a little bit of relief on the supply chain issue. As we’re talking to some of our Information Technology holdings, it’s actually new than that saying things are getting materially better, but they said they’ve absolutely stopped getting worse. And on the margin. They’re learning to deal with it a little better. They’re also learning learning to price their products so they can pass on the costs. So and then you look at companies like my mentioned quantum earlier, you know, the stocks gone from basically eight to $1.70 as a result of this turbulent period that we’re dealing with. And so, for us, I think things are starting to loosen up. And there hasn’t been total demand destruction. You know, there’s been a weakening of demand, and that’s also helped the global supply chain. Obviously, you don’t need as much product if you don’t sell it, but the demand is still pretty healthy. Bookings in backlog for companies are still building it. And the supply chain glut is getting a little better in the short term. So we’ll see how that plays out as the as the year unfolds. But a little bit at least the tone has gotten better.

Nathaniel E. Baker
That kind of begs the question, I usually save this for the second half of this show, but about how your what your firm does and how you invest. See at 180 Capital obviously speaks to turnaround situations. But what Yeah, tell me about about, you know, what kind of investing you guys do.

Kevin Rendino
So the history here, if you don’t mind me going through it. I worked at BlackRock and Merrill for 25 years, and then was off to retired, retired. I don’t know what that means. But I went off to run a family and friends fund from 2000. And started in 2012. Because I wanted to focus on an area to market that wasn’t as picked over as the large cap value space is, which is where I participated as a portfolio manager for 25 years. And I wanted to find some, some asset class that just wasn’t as ETF and indexed as the large space. And I found this micro cap world. And I’m like, wow, this is really interesting. There’s a bunch of companies that have asymmetric risk reward characteristics to them. And let me see if I can apply sort of the lessons learned from 25 years of investing with an activist approach. And when I say activist approach, it’s it starts as collaborative and collegial. But let me see if I can help these some of these companies, engineer, turnarounds and their share prices, either because they don’t know what it’s like to be public, or how to be public. Or maybe they’ve got some governance issues on the board, or maybe they have some asset allocation issues, as it relates to their investing their own cash. Let me see if I can help. And I’m like, wow, there’s a tremendous amount of value down here. Many of these stocks are orphan, they’re not followed. Many of them don’t even have any coverage, let alone, forget about 10 or 15 companies that cover Google, or 20. Some of these companies down here have none. And they’re left for dead. And so we looked at some of the valuations and like, wow, there’s 100% return in this individual company over a three year cycle. And I found a lot of those. So it ends up I ended up getting nominated to the board of the predecessor company to 180 was called Harrison Harris, and it was a VC. They was a BDC focused on VC investment and was broken. Their their expenses were too high. They didn’t have enough capital to invest successfully in the VC world. They just didn’t have enough scale. And so we gave the board an idea for how to, you know, basically changed the construct of the business that I was overseeing as a board member, which was doing what I was doing in my retirement, investing in small cap companies with a value orientation with an activist bent. And they’re like, great, will you run it? And I said, Yes. And so myself and Daniel Wolf, my colleague, five years ago set forth a strategy to invest in micro cap companies with a value orientation with an activist bent. And fortunately, for the 180, shareholder, it’s been a quite a successful turnaround for us. And well, we are, we’re a turnaround based on turnarounds. Because we invest in turnarounds, that’s what we do for a living. And so it’s been a lot of fun. And although the market hasn’t cooperated in the last three months, these are the kinds of markets that we love, because it gives us the opportunity to invest in well run businesses whose stocks are out of favor, but over a three year cycle, you got 100% return profile. So this is where opportunities exist. And so we’re pretty excited. So that’s what we do. We invest in small cap companies, and we’re activists.

Nathaniel E. Baker
And so it sounds like it would hold you hold for a pretty significant period?

Kevin Rendino
Yeah, we’re investors, not traders. Yeah. I’d say, you know, anytime you do, you’re, you know, we we say what kind of company are and when it’s running properly, because we’re not buying companies that are running properly today. If they were they wouldn’t be, you know, trading at all time lows or 52 week lows. And so we always ask ourselves, What can this company earn when the cycle is normal, or when they turn their business around, or when they’ve got their peak operating model working? And then you discounted back three years with whatever cost of capital you use. And that’s how you arrive at a at a buy price. And, and we let it play out now in this kind of market, your time horizon doesn’t have to be three years because valuations have been blown up. We think we’ve got 100% Return profiling many names over a one year cycle, forget three years. But that we are investors and we take very significant positions in companies, we’re concentrated, but we also own at times five to 10% positions in the companies that we own. And then we get involved, sometimes we end up on the boards of these companies. Sometimes we write letters, we want a recent letter to the board of directors of comScore. But we’re involved, we’re here to stay, we’re here to make 100% on our investment, and that doesn’t necessarily come overnight. It takes time. But fortunately for us, we’ve, we’ve built a track record of success in the last five years, and hopefully the next five years will replicate the last five,

Nathaniel E. Baker
that’s great. So the exit opportunity, like the exits you look for is, I guess, when it’s reached your evaluation, or

Kevin Rendino
that’s right, so the exits are, that can be different that the share price just can go to a place where they now reflect a proper valuation or times of peak valuation, because the business is performing well, but it gets above and beyond what our appetite is for the continuation to hold that investment. So to your point, it reaches our price targets. Sometimes, in the case of the street.com, which we owned, or synacor, which we owned, we can end up going on a board and have a say in the inevitable outcome of the business. And both of those turned out to be outright sales. In the case of the street, we sold the assets in the case of synacor, we sold the company. So outcomes can can come from that also. But we’re always very vigorous, about rigorous about with vigor about and making sure that we are continuously evaluating what we own, why we own it. And does the thesis still make sense? Because sometimes you’re gonna get it wrong. And to be successful in this business, you got to be right two out of three times and make sure the one time you’re wrong doesn’t outweigh the two times you’re right. So outcomes, also an exit sometimes come because you got it wrong. Your thesis changed for whatever reason. And we’ll sell a position, even if we’ve made a little money broken even on it or lost a little money, because we no longer have that conviction. And that’s another way of exiting a position because you got it wrong. So outcomes come in different forms.

Nathaniel E. Baker
Interesting. Very cool. All right. Kevin Rendina, I want to come back and ask you some more questions about yourself and how you came to you touched on it, but how you came to this current station in your career, and some other stuff on the markets. But let’s take first a short break, and then we’ll come back. If you are a premium subscriber, do not touch the dial, you will not get the break.

Nathaniel E. Baker
Kevin Rendino. This is the segment of the show where we ask our guests to discuss his or her private not to private but just a personal background, I guess, and how they came to this segment of their career. You touched on at the start BlackRock, Merrill. Yeah, take us back a bit and tell us how this all came together.

Kevin Rendino
I think I was 12 years old when I bought my first stock, public service, gas and electric. And so I always had a love for the stock market. I didn’t know what that meant as a career. But after I went to Boston College, I knew I wanted a career in finance and I wanted a career in the investment management business. I wanted to be around the stock market. Fortunately for me, I got a job at Merrill Lynch’s analyst program, a two year program. And then from there, I got an offer to work in the asset management business on the largest fund that we had, it was called the basic value fund. That was the only job I ever had. I started as an analyst on the funds that I ended up running along the way, Merrill sold itself to Blackrock so instead of the Merrill Lynch basic value fund, it became the Blackrock basic value fund. And so from 88 to 2012, that’s all I did. And it was a great career. I loved every second of it. But as I said, earlier, I wanted at the end, I probably started getting a little bored. How much value was I actually adding to GE and IBM and Procter and Gamble and I saw this wave this train of index investing coming my way and I saw all the Alpha getting sucked out of all these large cap value names. And so I decided to find that asset class that was not picked over as much that was an ETF and index and that’s how I ended up down here at the in the micro cap world and for my friends and family fund. I’m now running 100 Navy capital and we’re having a blast, although as I said earlier, all that fun coming into work every single day in the last three months because it’s been a brutal tape. But we love what we do. We’ve been fairly successful in it. I’ve just applied all the lessons basic investment lessons that I that I’ve learned over 30 years of doing this and applied it to the micro cap world. And, and there’s asymmetric risk reward here. So yeah, we were having a good time. And we’re, we usually are in rooms by ourselves, we’re with companies that nobody follows, or no one’s looking at. But that’s the opportunity. So for us,

Nathaniel E. Baker
interesting. There are surely some unique challenges of, you know, investing in such small stocks, especially, I would assume the liquidity issue. Is that something that?

Kevin Rendino
That’s the biggest

Nathaniel E. Baker
Yeah

Kevin Rendino
you touched on the biggest one, and it’s good at the end of the day, because when you get in markets, and so fortunately, for us at 180, we have permanent capital. So we’re a publicly traded closed end fund, we’ve got our assets, and nobody can take the assets away, because permanent capital is the best form of capital. But you get in these environments where investors are afraid they’re getting redeemed, or they have to sell force liquidations, and when you’re selling a company, 150 or $250 million market cap, and you have to sell 300,000 shares a day in a tape like we’ve had in the last three months, you get this whoosh factor, where the stocks just fall apart, they just the bottom drops out, and they just, they get crushed, because someone’s got to sell and there’s not a lot of natural buyers. So for us that lack of liquidity is good at the end of the day, because we can sit here the basket with our permanent capital and buy things and investors are throwing it out the window. But when you’re going through it, it’s painful. And that’s why with companies like quantum, for example, it’s gone from five to $1 $75.75 isn’t the right price for that business. Arena group went from like 15 to eight. So you know, the liquidity issue is an issue. It’s our biggest reason for outperformance over time because of our permanent capital. And when you’re going through it, it’s a problem. That’s really the only and by the way. Liquidity is never a problem if you get your stories, right, because if you’re right, and you’re in you’re right on your thesis, and you’re right on the stock by the time it starts working and the business is performing property liquidity is always there for these companies. They’re usually illiquid at the bottom and, and liquid at the top. Yeah. And that’s just the story of micro caps.

Nathaniel E. Baker
Yeah, but that can cause all kinds of problems, like the listings and such if it goes south of $1. Right. So I guess those are some unique risks?

Kevin Rendino
If the stock goes below $1, for illiquidity purposes, you get into a delisting. So then they’ve got you know, they basically can do a reverse stock split, those situations usually are have negative connotations for investors, and you get into these vicious cycles. So it’s not an asset class for everyone. On the one hand, on the other hand, if you look at micro caps versus small caps, mid caps, multi caps and large caps, the investment profile and the performance of the of the sector outperforms over time. So for us, it may not be it shouldn’t represent 100% of your portfolio, but it shouldn’t, it should represent some part of your portfolio because of the asymmetric risk reward characteristics that the group has.

Nathaniel E. Baker
Yeah, no question. I’m wondering if you say you meeting management is a big part of the process, as I suspect it should be such small companies, but the what are some kind of red flags that you find that you look for? And what are some green flags like as far as like, when you interview management’s or anything like that you can speak to

Kevin Rendino
Yeah, so, you know, we’re quantitative investors, and the price that we pay for the business that we buy defines investment success. And for us, it’s got to, you know, our valuation metrics is two thirds the market multiple and neither price to earnings or cash flow, half the market and price to book above average yield, below average enterprise, one times enterprise value to revenue. And that’s and anybody can do that. I mean, we you can run those screens, you can find out what those companies are. So what’s our secret sauce? It’s evaluating management management is everything to us. Never underestimate the ability of a great management team to take a bad company and turn it into a great one. And we’ve seen horrendous management teams wreck great companies. So it’s everything to us. And what I would say is for me, having done this since 1988, you can recognize a good management team from a bad one, you just can’t. Some of it starts with their own ownership of the business. I don’t necessarily want to own a company whose CEO owns 40% of the equity. Because in those some of those cases, it’s just a family run business, or it’s a life style business for the CEO. And you can’t ever force a CEO to change because he’s got the whole equity controls the board, and there’s nothing you can do to change.

Nathaniel E. Baker
I wasn’t sure there. Sorry. I was gonna say that’s kind of because most people you hear at least when you look at analysts, like oh, they have skin in the game they have, you know, they like maybe this for large cap stocks. Maybe that’s the difference. But yeah, yeah, that’s interesting.

Kevin Rendino
We want skin in the game. Don’t get me wrong. Yeah. And we want our CEO is buying stock and this kind of environment. But for us, as activists, if we don’t feel like we can inevitably change the board, then we won’t get involved, right? And if the CEO or management team owns 40%, or something like that, they’re immovable. And so for us, we want a management team to have skin in the game, but not too much, that it influences their our ability to affect change if need be. Because at the end of the day for us, not that we show up at a company launching a proxy battle day one, but we have to be able to say to ourselves, can we win a proxy contest if we have to, and so ownership matters. So it’s basically a value and I know this is it’s, it’s, um, it’s subjective stuff. Like Paul pickle, for example, he runs LAN tronics. He was talking about the supply chain issue two years ago. No joke, literally, not two years ago, in January of 2021. He came from microsemi. He was the Chief Operating Officer at microsemi, which was a great, wonderful set semiconductor company and he ended up selling the business. He ends up on the sidelines lantronix hires them what a great hire, you got the CEO of microsemi to run this little little semiconductor company you kidding me? What a homerun. And he’s done an unbelievable job of turning around lantronix applying all the lessons he learned at microsemi to a smaller company, kind of like what we’re trying to do or one at potbelly a restaurant company, it’s been mismanaged for 10 years, because they were always focused on unit growth and never focused on the restaurant comp store sales. How do you get how do you grow comScore sales in the, in the restaurants that you own. We ended up the board ended up firing the CEO, I think with our help, we follow the 13 D, they ended up hiring the COO of the former CEO of Wendy’s who, what a great job he did at Wendy’s. He wasn’t the See, he wasn’t gonna get the job at CEO of Wendy’s. And so for him, this is the next best thing to be the CEO of a public company a smaller one, but given him him a chance to run a business. And so it’s evaluating the history of these executives, where did they come from? were they effective? Did they create value before? And can they do it again? And it’s really just the valuating success track records of the companies that we own? Yeah, and are they seem players? Or is this all about them? Or are they about hiring the best people around them and spreading the wealth and making sure that the management the compensation of the company doesn’t all go to two people does it is it spread out to to all employees and so putting the right governance in place is really important to us. Having a moral compass is really important to us. ESG stuff important to us. And so it’s a lot of this is qualitative. And it’s, I’m trying to give you a sense for how we think about it. But it’s not as easy as running a quant screen. Because it’s a lot of it’s a lot of subjective stuff. Yeah. And so so that’s it, but management is everything to us, we will not own a company. If we don’t believe in the management team, unless we’re going to try and blow the business up. Sure. change and change the management team.

Nathaniel E. Baker
Yeah. Are there any speak of pedigree? You mentioned Wendy’s, a couple others? Are there any particular companies that you think have a great where you are you see that on somebody’s resume as an executive, or as a former executive of a company where you think they do a really good job? Where you think like, wow, okay, they did this. It’s kind of like, you know, the Bella check tree, although that doesn’t work that well. Yeah, so maybe not a good thing. Apple but but yeah, you know, like there’s some of these companies that pride themselves in their management programs you know ge the whole six sigma thing right for so long, um, or anything like that that you

Kevin Rendino
The world’s changed and I’m old now so back in the day it was the GEs, it was IBM if you were a salesperson, IBM, you could go anywhere that doesn’t exist as much today it’s a weird I mean, we’re in this great resignation period for for people and trying to figure out what the right pedigree is, you know, maybe it’s Salesforce now and it’s true nation technology that the companies are just they’re just different. We always like to own a company where the CEO came from a bigger company because they’ve they’ve learned they’ve learned lessons so that’s why I gave you the two examples of land tronics and and and potbelly because both executives came from companies that you and I knew and then were really successful at that. But the old days of the of the GE analyst program now exist as much unfortunately anymore. So for us, it’s just but it’s Parcells has a great football tray right. And Bill Walsh, you could follow that. That’s a damn good one. So for us, it is following the tree of where that executive came, came from. And even for me, I think I’ve seen this with our investors, our stock was left for dead when I first got here in 2000, middle of 16, as a board member, and then when we started March of 17, and I was announced as the Chief Executive Officer at this little company that nobody knew. They all said, Well, where did this guy come from? where he came from Maryland BlackRock, what what is he doing? Coming from a from BlackRock? Why is he doing this? And so they sort of followed my tree. And then the call started coming in. And we started talking to our investors and like, wow, this is and they understood why I’m doing this at this part of my career. And they’re like, Well, this is really interesting. He was really successful at a much bigger company, maybe you can apply those lessons here. And we do that as well. Arena group, which I mentioned, the person that runs it as Ross Levinson, he was one notch away from running Yafo. He ran the LA Times, like this is a big company executive whose fortunes are say who’s who found himself somehow sort of looking for a job, an opportunity, like arena Group presents itself. He’s like, Yeah, I want to do that. He’s incented to do it. But he’s running a public company. And so we that those are kinds of the kinds of companies that we’re following, and, and we’re getting really good businesses run by really good executives, a lot of these executives don’t want to work with these big companies anymore. Yeah. Tired of it. In the, you know, punching the clock. I know what you used to do for a living. So yeah, I know, I got tired of working for a big company. I wanted to do something more entrepreneurial. And we find that a lot of our companies have CEOs that came from bigger companies synchronous, the executive work that Verizon and AT and T forever. Now he’s running a public company. So

Nathaniel E. Baker
yeah, it is interesting what you say about big companies, we find that hating it for various reasons. But yeah, if you have that on your resume, and I know that also from hiring people, it is kind of like oh, okay, you did that you were able to deal with that for however many years. It just speak to some kind of, yeah, fairly or not. It does. I don’t know. It seems to reflect some kind of quality of some kind. Yeah,

Kevin Rendino
Quantum Jaime Lerner runs it. He came from Cisco. so it’s, it’s it’s just, it’s following that tree.

Nathaniel E. Baker
Sure. Very interesting. Very cool. All right. Kevin Rendina. Thank you so much for joining me contrarian investor podcast in a very interesting conversation.

Kevin Rendino
Now, first, thanks for having me.

Nathaniel E. Baker
Yes. My pleasure. Thanks for coming on.

Kevin Rendino
These are very, you know, interesting times. 180 degree capital only cares about generating returns for its shareholders. And we’ve got our own Twitter page and our website, we publish white papers, and they’re meant to provide context of markets, visa vie history. And fortunately, for me, I’ve seen a lot of bear markets over my career, and this is just another one of them. This one’s a little different in scope, but it doesn’t make it different in terms of other ones. It’s just the the reasons how we got here are different but it’s a bear market. We’ve seen these before. For and we know how it, we know how they end and we know the recovery that can come. So we’re just trying our best to provide a framework around markets at all times whether the markets are at high levels or low levels. And the only thing I would tell your, your audience is to be patient, don’t get overly emotional about times. These could be up, there’s many opportunities in marketplace, if you do your homework, don’t worry about the next trade, worry about where your equities are going to be in three years, or five years. Not in three minutes. And so that’s how we think about the world. And we think that’s always been akin to how we’ve made money over cycles. And, and this cycle. I know, they say it’s different this time. It’s never different this time. Yeah.

Nathaniel E. Baker
It’s actually another guests on here. That’s a very tagline for his service. Well, that begs the question, what what period Do you think this is most like?

Kevin Rendino
it’s got pieces of the 70s?

Nathaniel E. Baker
Really?

Kevin Rendino
because of inflation?

Nathaniel E. Baker
Yeah.

Kevin Rendino
But then it’s got like, you know, pieces of 1990, when Saddam Hussein invaded Kuwait, we went to a war with Iraq,

Nathaniel E. Baker
Right!

Kevin Rendino
Because it’s got energy component to it. It’s got a war attached to it. So it’s got a combination of both of those. It doesn’t feel like 2008, because that was that was based on subprime and leverage in an asset class, which was never should have existed to begin with. But it’s got the same exact feel to it as every other bear market on March of 22,008 2019 9087. That part is that the fear and greed piece, it’s no different than any of those other bear markets. And so somebody said to me yesterday, he’s like, I just, you know, I think seven years we come back and the markets exactly where it is today. And I just left and I’m like, my investors can only see today’s lunch, they can never see past. They can never see beyond the current environment that we’re in. And I’ll reiterate what I said to you earlier, in March of 20, if we had this podcast, and I said, Look, well, 180 degree capital is going to be up 20% 18% 20% and 18%, in the next four quarters. I wouldn’t believe that either. But that was the reality. And the reason why it happened was because valuations got the levels that discounted all the bad news at the time. We don’t know what the news is going to be like a year from now. We don’t even know what it’s gonna be like in six months from now. So my my message is, it’s, it’s, it’s got pieces that look like other periods. It’s just all the same.

Nathaniel E. Baker
Yeah. Now he’s literally one haven’t thought I haven’t had anybody raised that. Because yeah, it’d be invasion, right, like Russia, Ukraine, and which obviously caused a spike in oil. And then you had recession, which ended up bringing Bill Clinton into office. And then But then you had a huge rebound in the 90s. By tech and stuff. Yeah, productivity, I don’t know, for quite a while, who knows, man, who knows what technology is capable of? We’ll see, I guess,

Kevin Rendino
you know, the Russia, The war could end. And I’m not saying it is. And he’s feels like he’s mentally not there. And it feels like an unstable situation. And I mean, I worry about nuclear stuff. But that work could end in tomorrow, or three months or sick, maybe maybe it does, I don’t know, maybe rates stopped going up and a month and a half. Maybe inflation comes down. Like there’s a lot of things that could happen that are bullish, that we’re just not focused on right now. Because it’s hard to look past the pain of your screen and the world, the world’s mess that we’re living in right now. And some of the messes, you know, the humanitarian tragedy, of course, going on in Ukraine, but the rate stuff and the inflation stuff. That’s that’s kind of normal stuff that we can deal with as investors. It’s the it’s the unknown of Russia, maybe just chaiwat just trying to invest in new invade Taiwan. That stuff’s kind of hard to analyze.

Nathaniel E. Baker
Yeah, I mean, those are all potential, I guess, black swans. What have you. Exactly. Very cool. All right. Kevin Rendina. Thank you so much for joining me contrarian investor podcast today, maybe just in the final note, if you want to tell listeners how they can get in touch with you, to the extent that you want them to of course, and if not, that’s perfectly fine. We don’t ask for LinkedIn profiles or anything like that. But I guess it’s just as far as like public social media profiles. If you’re not you meant and you’re on Twitter and anything else?

Kevin Rendino
Yeah. 180 degree capital.com is our website. That’s our Twitter handle. As I said, we mentioned, we’ll send out white papers from time to time, you can always email me, email me at our corporate office. It’s Kevin at 180 degree capital.com or Daniel at 180 degree capital.com. He’s our CEO Daniel Wolf. And we talked to anybody that wants to talk about 180, we talked to I don’t care if you own 100 shares or a million shares. It’s, we’re a public company, I run a public company. It’s not my company. It’s the investors company, shareholders company if they want to talk about one ad, and we’ll talk about one ad for as long as they want to.

Nathaniel E. Baker
Very cool. Awesome. Well, thanks for that. Thanks for taking the time to speak today. Thank you all for listening and look forward to speaking to you again next time.

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