Bethany McLean

Supported by Greenhaven Road Capital, finding value off the beaten path.

Bethany McLean spoke with Patrick O’Shaughnessy about her career, her writing, her contacts, and her (evolving) skepticism. We’ve highlighted Bethany McLean‘s conversation with Barry Ritholtz too.

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Critical dogged empathy. O’Shaughnessy heard that “good investors are a bit like journalists.” Jason Calacanis has heard this too. We’ve talked about the Sizzle (and Steak) of selling, and there’s a lot of people out there telling us now nice it is. Investors and investigators sniff through the hot air. Chris Douvos said that to be an investor, “you have to be a professional skeptic, everyone is a fantastic salesman. You can sit there all day and get pitches from people and every opportunity is as exciting as the last.”

Jim Chanos agrees, “There are thousands of people gainfully employed, making a lot of money, who are there to promote stories…who are always going to tell you why it’s fantastic. There are only a handful of people who are there who are going to say ‘This glass might be half empty rather than half full.'”

You get to talk to smart and interesting people, McLean tells O’Shaughnessy. “I just like to figure things out.” But the critical dogged empathy required to figure things out took time to develop. It was like a muscle. McLean had no cynicism or skepticism is the early days. After a few wrong theories about stock perforce, “and I just don’t like being wrong,” she started to look closer.

She hounded Chanos and Doug Millett. What are you working on?

Enron they said.

But with only a start the end wasn’t clear. McLean had to dig. She had to ask questions and then sit and listen. How?

“To start, you have to really care. If you really care what the person has to tell you that will come through and people with respond to interest.”

Eric Maddox said, “It was important to look at both sides as objectively as I could.” Chris Voss said, “There’s a lot more space between Yes and No that most of us realize.” Maddox and Voss, along with Getting to Yes were all in our Negotiation post. McLean knows this stuff. Do your work ahead of time, she told O’Shaughnessy.

“You need to know what’s knowable because there’s nothing more off putting than having asked for someone’s time only to show that you haven’t done your work.”

There are no real-life movies, though movies will be made about real life. McLean has to dig, exhume, and reconstruct. She’s a financial archeologist.

“For me, writing is an act of finding clarity and it’s an iterative act. You try to write. You realize you don’t understand. You go back and try to figure it out. You try to write again. You realize you still didn’t figure it out. But it’s all a process of finding clarity.”

It’s a difficult process because life is a series of part-of-the-reason explanations.  McLean says that the bad businesses she covers are a mix of self-delusion, rationalization, ego, and idealism. These are the things an investor or investigator needs to understand because some subjects need convincing. “I convinced Microsoft that I didn’t have it in for them.” This takes empathy. “Even if you see that they’re skewed in their point of view why it’s skewed.”

David Ogilvy tried to build empathy and understanding. “I have always tried to sit on the same side the table as my clients, to see problems through their eyes. I buy shares in their company, so that I can think like a member of their family.”

McLean tells stories. Often she tells the counter-story. O’Shaughnessy said, “This idea of storytelling in business is amazing because of the power that you can create something from nothing with a great story.”

Sometimes those stories are buoyed by obfuscation. Mike Pearson, McLean guesses, was so successful because he “spread a veneer of efficient capitalism over it.” Another story  is the home ownership story. It’s the focus of McLean’s latest. This is a great part of the podcast as McLean and O’Shaughnessy discuss the tangledness of life.

Mortgages are forced savings mechanisms. That’s good right? Fannie Mae has an implicit guarantee. Is that right? McLean says, “The irony of the worlds most capitalist economy-in theory – having a government supported housing system is huge. The way in which this has happened is fascinating too because it was sort-of accidental and I love things that have come to seem inevitable but were actually accidental in the way they were structured.”

Accidentally structured could be every story.

So is fracking. What do you need to dig lots of holes? Not shovels but cheap capital.

This podcast felt old and wise. It’s not about crypto. It’s not about machine learning. There’s no new factor for investors or book suggestions. If anything McLean’s study of failure felt peaceful.

 

Thanks for reading.