Whitney George, portfolio manager of the Sprott Focus Trust, is a career-long value investor who has described himself at times as a “Buffett groupie” reflecting his long-standing admiration of the legendary investor.
Like Buffett, George seeks to capitalize on the manic depressive behavior of the aggregate stock market, a group author Benjamin Graham memorably referred to as Mr. Market —the fictitious business partner who impulsively offers to sell his share of the business or to buy the reader’s share every day.
Unlike Buffett, however, George seeks value investment opportunities in gold and silver mining stocks, a practice Buffett famously eschews.
In this exclusive interview with the Sprott U.S. Holdings CEO, Rick Rule, George takes us through his career as professional money manager and explains his rare interest in both value investing and natural resource companies.
Natural Resource Stocks
Transcript (edited for readability)
Rick: You are known to me as a value investor person who is interested in fundamentals and, like myself, a contrarian. I’d like to begin with discussing what sort of character flaws, what part of the early part of your upbringing caused you to become a contrarian and a value investor. Tell me something about what happened pre-Wall Street.
Whitney: Well, pre-Wall Street, I grew up in a family that had some of its own dysfunctions, was independently-minded, fought with my mother probably from the time I reached puberty until about the age of 30. And so, I was of—I was probably a difficult son. I failed at getting into Princeton University which made me the first in 3 generations to mess that one up. I did go to Trinity College and had a fabulous 4 years where I majored in history. But when I—it became time for job, I really wasn’t qualified for very much. A history major with summer jobs, a tennis pro and a yacht club manager and maybe a lifeguard really wasn’t ideal for getting a job on Wall Street.
My grandfather was a $2 broker or an odd trader on the New York Stock Exchange. My father was in institutional sales in the ‘60s and ‘70s and had an up and down career. So, I really didn’t know much about anything else other than everybody seemed to go to Wall Street. In 1980, that was a fairly difficult proposition. I believe I had 50 interviews over the course of 2 months and failed to get any offers except for a headhunter who thought that I was good at interviewing.
And finally, I was interviewing at Oppenheimer where I knew nobody and the manager said after about 10 minutes of my interview where he was paying more attention to his Quotron machine, the then-version of a Bloomberg at the time, and said, “Why do you want to be in this business?” And I told him in rougher terms, “Because I want to make a boatload of money.” And all of a sudden, the light went on and I was upstairs meeting the branch manager and on my way at Oppenheimer & Co. and started the day Ronald Reagan got elected.
And it was a difficult start. So, I started out as a retail broker. It had been my intention to be an institutional broker like my father because that sounded much more glamorous, but I didn’t even have a sniff at that. So, I started out in a very aggressive program at Oppenheimer. They were early pioneers of cold calling, and I produced $87 on my first month as a retail broker. I had to get registered very, very quickly. They had no training program. In fact, they hid me from the partners because they weren’t supposed to hire inexperienced underproducing people.
Maybe it was $287 the first month down to $87 the third month and soon, therefore, some of the partners discovered that I wasn’t an error account on the trade blotters but an actual person that was underproducing so miserably. And I was brought in to offices and screamed at by one partner after the other. One told me his dog could open more new accounts in a month. The other said his 7-year-old daughter could produce more.
And so that was my beginning as a retail broker. Of course, back then after a resource boom, the first ideas that I selected for those few new clients that I was able to convince to give me an order where resource stocks, which promptly in 1980 and 1981 went down the toilet. So I do have some experience in resource investing.
The next interesting thing I saw was Milton Friedman was a special limited partner of Oppenheimer in those days. And in 1981, he persuaded—or the management persuaded everybody to buy Ginnie Mae futures which was the first glimpse I had at derivatives. You could buy with 10:1 leverage. You could put a $10,000 Treasury bill down and control $100,000 worth of longer-term interest rates.
Rick: Theoretically playing commission on $100,000 with $10,000. Yes.
Whitney: Absolutely. And the minute the trade went in your way, you could double up and get even more leverage, and I watched that trade blow up the entire Chicago office and very early on decided the derivatives were not something that I wanted to play with. Shortly after that, we had our first technology boom in the early ‘80s and so I quickly migrated from buying resource stocks to investing in the first PC companies at the top for my second book of clients. And that ended very, very poorly and at that point I figured that it might be a better way to invest.
My mother had always told me to pay attention to Warren Buffett. Warren Buffett had served on a board of a family company called Pinkerton Detectives, very interesting company, originally started to be the Secret Service for Abraham Lincoln, not a particularly strong start for them. And Bob Pinkerton was the third generation to run Pinkerton Detectives and Warren Buffett served on the board and my mother got to know Warren Buffett and told me I should pay attention to what Warren was doing. Of course, you don’t—I was not listening to my mother at all until about 1985 when I hooked up with some other value investors.
We started to use Oppenheimer screens to find our own ideas and suddenly life became a lot better—looking at businesses, understanding business valuations, finding those that we’ve offered trading at a discount to what they were ultimately worth, made a lot more sense than chasing the recommendations of the partners and investment bankers at Oppenheimer.
The problem with that was Oppenheimer always told people you should invest in companies where you’d like to buy the whole company. And my 2 older partners at that time and myself convinced our clients to buy over 51% of an auto parts refurbisher in Chicago which resulted in a 13D litigation and so we had to find a new home. And off I went with 2 older partners and we started writing value research as The Value Group.
Rick: You were thanked and excused for following the firm’s instructions.
Whitney: Yes, absolutely. Well, I wasn’t so much in trouble because