FEG Insight Bridge Podcast with Xavier Majic

Chapters:

00:00:00 Intro

00:00:35 Episode overview

00:01:34 What Xavier wanted to be when he grew up

00:02:43 How Xavier’s relationship with his dad factored into his success

00:06:04 Being a captain vs. being a coach

00:08:45 Playing in the NHL

00:11:16 Transitioning from hockey to investing

00:13:39 Working with John Burbank and Jerome Simon

00:18:35 Starting his own firm

00:22:15 Maple Rock’s investment philosophy

00:27:34 Lightning round

 

Greg Dowling (00:05):
Welcome to the FEG Insight Bridge. This is Greg Dowling, head of research and CIO at FEG, an institutional investment consultant and OCIO firm serving non-profits across the U.S. This show spans global markets and institutional investments through conversations with some of the world's leading investment, economic, and philanthropic minds to provide insights on how institutional investors can survive and even thrive in the world of markets and finance.

Greg Dowling (00:35):
In honor of the upcoming FEG Hockey Classic, our charity hockey game supporting the Cincinnati IceBreakers, our guest on today's FEG Insight Bridge is Xavier Majic, founder of Maple Rock Capital. Not only is he a great investor, but he's also a pretty darn good hockey player, serving as a captain for Team Canada and playing over a decade of professional hockey. We will go beyond the typical sports investment analogies, including the old tried and true "skating to where the puck’s going to be." Hear how a pro athlete makes the leap to investing, how hockey influenced his investing style, and why he went back home to launch Maple Rock.

Greg Dowling (01:15):
Welcome to the FEG Insight Bridge. You mind introducing yourself and Maple Rock?

Xavier Majic (01:19):
Yeah. Hi, Greg, good to be here. My name's Xavier Majic. I run a full Maple Rock Capital Partners based in Toronto. This is our ninth year in business. FEG's been an investor since day one. We are a long-short equity hedge fund that specializes in industrials and commodities.

Greg Dowling (01:34):
This was a little unique. A lot of our previous guests, they had these stories about growing up and reading The Wall Street Journal and investing their paper routes. I don't get the sense that you grew up wanting to be an investor. Did you ever think that you'd actually run a hedge fund?

Xavier Majic (01:48):
No. I thought I was going to play in the NHL then make the Hall of Fame and retire and have my number retired and hung in the banners of Montreal Forums. That was my childhood growing up in small-town Canada.

Greg Dowling (01:58):
We're going to get to that a little bit later--

Xavier Majic (01:59):
Yeah.

Greg Dowling (01:59):
--how you made that transition. But that is a little bit unique right off the bat. Most people are like, "I dreamed about investing money," and you're like, "No, I dreamed about being a hockey player." You grew up in Canada, where--boy, great hockey players, they're kind of a dime a dozen in Canada. When did you know--because you went on and had a pretty good career--when did you know you were good enough?

Xavier Majic (02:18):
Being a kid and dreaming like that, I always thought I was good enough. I think it's probably somewhat delusional when you think of how many people in the world are playing a sport and how few get to do it for a living, but I never thought that I wasn't good enough when I was a kid. And I think that was just me being a dreamer from a small town. I never really thought that I wasn't going to make the NHL, which, again, is a bit delusional.

Greg Dowling (02:39):
[laughs]

Xavier Majic (02:40):
And I never did, so...

Greg Dowling (02:42):
[laughs] Well you played hockey for a long time and had some good luck. Parents are such a key part of it. My son plays hockey. We're hockey parents, my wife and I, we spend lots of time with smelly equipment, driving--

Xavier Majic (02:54):
Yeah.

Greg Dowling (02:54):
--from tournament to tournament. Your parents were in this with you. What kind of relationship did you have with them and how did they inspire you?

Xavier Majic (03:02):
I have a brother and two sisters, and the girls were figure skaters and the boys were hockey players, so most of the time with hockey was with my dad and he was my coach up until I was about 13, 14. My father died almost 20 years ago. I might get a bit emotional talking about him, but the time we had on the ice and in the car to and from practice, to and from games... Where I grew up in Western Canada is a small town called Fernie, and the next town is 60 miles away. So when we had to play games, we were in the car a lot, and the lessons I learned playing a sport... Because, you know, when I think of a hockey season, whether it's a professional one or for kids, it's almost like a microcosm of life in one season.

Xavier Majic (03:38):
You go through so many ups and downs being on a team and being in a competitive team--and especially hockey--because a lot of it is out of your control. So there's a level of competition and accepting, dealing with failure and dealing with success--all smashed into one season. And then you do it again and again. To have my father be my coach, to drive me everywhere--it was amazing, the relationship I had with him and I still feel like I have with him. I coach my son. It's a little different. Hockey in Toronto is very different than hockey in small-town Western Canada. But it's the same thing where we go through this together and I get to teach him how to play. I'm a better hockey player than my dad was. I think my dad was a better coach than I am.

Greg Dowling (04:16):
[laughs]

Xavier Majic (04:16):
But I would call him--even after when he wasn't my coach, when I left to go to college--every game. I called him after every game for my entire life. So the game would be over, the first thing you'd do is call my dad and tell him about it. And this is 4 years of college and 10 years of pro, and 1 year of junior. So 15 years of being gone, I called him after every game. He always listened, which I thought was amazing. He'd always listen and say something. I felt like even when I left home, he was always with me. So I can't say enough about the relationship I built with my dad because of hockey.

Greg Dowling (04:45):
Wow, that's a great story, thank you for sharing that. It probably resonates with a lot of listeners who--even if it's not hockey, it could be travel soccer or basketball, AAU basketball. There's just the... All that time on the road, it can be a grind, but it's also--you make moments.

Xavier Majic (04:59):
Yeah. And then it's even like, you know, you think of the tough love. It's interesting because my son's 12 turning 13 and body contact starts next year. It's a big jump in hockey when you go from no-contact to contact, it gets pretty violent fast. You have to deal with some things in the sport which are like, I think “bullying's” strong, but there's a level of intimidation that starts. I remember when that started for me. I was a smaller kid and our rival was this town called Kimberly and there was a guy named Dave Doucette who was big and strong and mean. He was the best player on his team, I was the best player on my team, and he'd always try to kill me every game [laughs]. I think it made me a better player, because I was always looking out for him, so I gained an awareness of what's going on in the ice. I also distinctly remember this moment when I came off the ice crying because he hit me and my dad said, "Enough of this crying [inaudible]. You have a stick in your hand, use it." Which is basically like, "Grow up; stand up for yourself. I'm not helping you anymore." I'm kind of thinking of that conversation I'm going to have with my son and it feels like, I'm not sure if you can say that in today's day and age.

Greg Dowling (05:55):
[laughs].

Xavier Majic (05:55):
I think that's coming.

Greg Dowling (05:57):
That's great. Yeah, head on a swivel, right? You've got to--

Xavier Majic (06:01):
Yeah. Look around.

Greg Dowling (06:01):
You've got to look around.

Xavier Majic (06:02):
Where's Dave Doucette? He's trying to kill you.

Greg Dowling (06:04):
So you've had a couple big milestones in hockey. Probably one of them was being named one of the captains for Team Canada, I believe in '99 and 2000. Talk a little bit about that. And then, what are the characteristics that make up a good captain? Is there anything there that you learned that you now apply in running your own business?

Xavier Majic (06:23):
First off, it was a real honor. It was voted on by my teammates, so that made it really special. And it's something that--you don't try to be a captain. The traits to make a good captain is basically doing the right thing all the time and being the kind of person that you do the right thing when no one's watching. That's kind of the bar. I think of, "Okay, well, do you pick up garbage when no one's looking?" I guess that's--for me the trait is doing the right thing, putting the team first, leading by example and pushing others to be excellent. It's not coaching, it's leading. What I'm learning as our business has got a little bigger--it's still pretty small in terms of number of people--but what I've learned is that there's a difference between being a captain and a coach.

Xavier Majic (07:01):
I'm still a really good captain, which is leading by example, trying to be the first one in the office in the morning, working harder than everybody, even though I'm the boss. I think that that's what being a good captain is. Even after you're successful, showing that you're doing this because you love it and putting the team ahead of yourself. But there's also a level of empathy that a coach has that I've learned to be better at. A captain would be leading by example, and if someone's not pulling their weight, you might just say, "Let's [inaudible] go. I don't really want to hear any excuses." Like there's reasons, no excuses, right? That's kind of a statement that a captain makes, but a coach, I think, needs to be a little more empathetic in saying, "Why is that behavior happening? Can I listen to this person and help them get on the right page?" Where a captain's just like, "Let's go. Come with me." I think that my captain skills have helped a lot, but it's important for me to work on my coaching skills if I want to really take this company to the next level, and it's something I've been working on the last couple years.

Greg Dowling (07:51):
That's great. In hockey, it's backcheck, forecheck, right?

Xavier Majic (07:54):
Yeah.

Greg Dowling (07:55):
You can't just sit on the ice and tap your stick and say, "Pass me the puck."

Xavier Majic (07:58):
That's right. Yeah, that's right. You have to do the stuff that you don't get credit for. And if a whole team does that--this is the thing about hockey that's great is, you do something unselfish and it creates a success somewhere else. And you don't get credit for that. It's not measurable. But I tell you, if everyone's doing that little bit, if everyone's doing that little bit that is for the team, everyone becomes successful. So it's really important that our culture is "team first," which is weird for a hedge fund, because there's lots of individual talent and egos involved in wanting to pick stocks for a living. But if everyone does a little bit for the team, you get success--it's hard to measure where it comes from--and everyone does better. I think that that's a beautiful thing when you're a part of a team like that, it's really special. And it's one of the reasons why I love this company so much, because we fight to create a place that's like that.

Greg Dowling (08:45):
You eventually get drafted by the NHL.

Xavier Majic (08:46):
Yeah.

Greg Dowling (08:47):
And then you spend a lot of years in professional hockey in North America and in Europe. I've got to say these names, these are some great names [laughs]. Some of your stops include the Jacksonville Lizard Kings, Kentucky Thoroughbreds, the Manitoba Moose. Now some of these names really don't sound all that different than the Charlestown Chiefs. And for those listeners who are not big hockey fans, that's a reference to the movie Slapshot, which you may or may not have seen. So Xavier, what was it like to play in the minors? Any stories you could share?

Xavier Majic (09:16):
After I graduated from RPI, I signed with Montreal Canadians. It was the year of the lockout, '94-95, and I was playing in the American League, which is AAA. Because of the lockout, a bunch of guys got sent down to the American League from the NHL, and I got sent down to the East Coast League, which is AA. So I'm playing in Wheeling, West Virginia, which is its own special place, for the Wheeling Thunderbirds. We played against the Johnstown Chiefs in Johnstown, Pennsylvania. The Johnstown Chiefs is a real team and the movie was based off of--Slapshot was based off that team. The rink is exactly the same as it is in the movie. And that's a movie that hockey players have seen 20, 30 times on the bus rides when they're growing up. It was really humbling to be in that movie, because that's what it felt like. When I talked about being a kid and "I'm going straight to the NHL," there wasn't one part of that path that involved playing hockey in Johnstown, Pennsylvania. And so when you go to the minors, it's really competitive, it's very cutthroat, and there was a real humbling moment to be on the ice. But also, it's still hockey and still fun, so...

Greg Dowling (10:14):
That's crazy. You're actually going like, "Oh my gosh, I've been here before. Wait a minute--"

Xavier Majic (10:18):
Yeah.

Greg Dowling (10:18):
"--I just watched the movie. This is surreal."

Xavier Majic (10:20):
Yeah, and the arena is exactly the same, so you knew where everything was. Another one--you mentioned Jacksonville Lizard Kings. I know there's lots of stories, and some of them you probably can't tell.

Greg Dowling (10:31):
[laughs]

Xavier Majic (10:31):
But in Jacksonville, we had a lot of long bus rides. That was in the same league, in the East Coast League. We had a lot of long bus rides in the southeastern United States. On the bus rides, people are playing cards, they're watching movies. I sometimes would sit up and just talk to the bus driver. I think I probably lost money playing cards or something. So I'm sitting talking to the bus driver and he goes, "Hey, Dave, I've got to take a leak." And I'm like, "Okay, well pull over." And he's like, "Well no, why don't you just drive for a bit? I'll go in the back." And I'm like, "Oh, okay." And so he steps out and I step in and I'm driving the bus down the interstate and he walks through the whole bus and the coach is like, "Wait, who's driving?" And he's like, "Well, Majic's driving." He is like, "That kid can't even see." Anyways, yeah, we had lots of fun stories.

Greg Dowling (11:08):

As a kid, you're imagining playing--

Xavier Majic (11:11):
Yeah.

Greg Dowling (11:11):
--Madison Square Garden, and here you're driving the bus in the minors.

Xavier Majic (11:14):
Driving a bus in the minors. Yeah, there you go.

Greg Dowling (11:17):
[laughs]. Let's do this transition to investing. It's kind of fun talking about the transition too, a little bit.

Xavier Majic (11:22):
Yeah.

Greg Dowling (11:22):
I mean, at some point in time you're like, "Gosh, I'm in Wheeling, I'm in Manitoba, I'm in Lexington. I'm going to go do something else.

Xavier Majic (11:30):
I'm in  Sweden.

Greg Dowling (11:32):
Yeah. How do you decide, "Okay, it's time to move on"?

Xavier Majic (11:35):
Yeah.

Greg Dowling (11:35):
And then how did you decide to go into investing?

Xavier Majic (11:37):
I mentioned I grew up in a little town called Fernie, BC that's 5,000 people. My dad went to U of T and my mom was actually from New York, so we were exposed to different things. I went to university in New York State, studied engineering, but my sister went to a university outside of Toronto. She ended up marrying a guy named David Fear who has his own hedge fund. He's from small-town Canada as well, closer to Toronto. He worked for Julian Robertson at Tiger. When Tiger shut down, I was in the middle of my hockey career, it was right after I was captain for Team Canada. He said, "Hey, why don't you come with me to Berkshire Hathaway?" And so I went to Berkshire Hathaway and I met some of his friends. I listened to Warren and Charlie. Like many investors, that was my introduction to what investing was, and I really liked it.

Greg Dowling (12:19):
[laughs] Well hold on. Did you even get an appreciation of who Warren was or were you just kind of like "This old guy? He's, he seems pretty witty."

Xavier Majic (12:26):
Yeah, Dave sent me a book to read ahead of the meeting.

Greg Dowling (12:29):
Okay.

Xavier Majic (12:29):
He said, "Here, you should read some of the letters." Dave's a very prepared, diligent person, so he's like, "You're not going there blind." So I did read it, and I got excited about it. But then hearing him talk... Some of my old bosses were like this--that really, the smartest people explained complicated things in simple ways, and I think Warren and Charlie are the best at that. So I was six years into my career. I played four more years after that. I started reading all the books. Still to this day, Dave is my mentor and I ask him for advice all the time. I read all the books I could and started reading The Wall Street Journal every day. That's when I kind of got the bug of being an investor. I was 26 years old.

Greg Dowling (13:04):
Wow. You basically went to the Wayne Gretzky of investing. You could have had a lot worse introduction. You could have ended up at like an Edwards Jones office in Western Ontario.

Xavier Majic (13:15):
It's interesting. If you start day trading or you start doing something that's not fundamentally sound... Think of golf, right? If you start learning to golf on your own and you get a hitch in your swing or something that doesn't work and then you have a coach that untrains something that's wrong, it's really difficult. But if you start with Tiger Woods' coach... So I started--I had no experience trading and I just started reading Buffet books, so I think it was pretty lucky that that was my introduction.

Greg Dowling (13:39):
You go from that and then you end up working at Passport and Lonestar. Two very different people, eclectic people--

Xavier Majic (13:46):
Yeah.

Greg Dowling (13:47):
--really smart people. Can you talk a little bit about those experiences?

Xavier Majic (13:50):
Yeah. Finished hockey, graduated from business school--and my wife is from California, so she was living in, she's a dentist living in San Francisco--and I had difficulty finding a job. I didn't have a background in finance. I had an engineering degree, 10 years of professional hockey, and I went to HBS. I wanted to work at a hedge fund, like I wanted to be an investor, which sounds kind of crazy that that was my goal, because I hadn't been a banker or any of these things. Dave's advice was, "Life's self-selecting. There's investors that have different backgrounds, they're not all bankers. One of those guys will find you, one of those people will find you and they'll hire you. And San Francisco's full of people like that versus other places."

Xavier Majic (14:24):
I met John Burbank and Jerome Simon at the same time--in 2006, after I graduated. John ended up hiring me and I worked for Jim Cunningham in the commodities basic materials group at Passport. I worked for him from 2006 to 2011, which was a pretty crazy time for commodities. 2006, you're in the middle of the China demand growth boom and commodity shortages that were demand-led, and the GFC where everything crashed and then it all came back. In 2011 when I left Passport to join Lonestar, you had this switching dynamics in the markets where there hadn't been enough investment to provide enough commodities for any gross scenario and you had basically the start of a 10-year bear market in commodities. So I got to see these different environments.

Xavier Majic (15:04):
When I started with John, I think Passport had 9 investment professionals and it was $500 or $600 million. And then he got the CVS trade right and our firm ballooned to $5 billion and like 28 investment professionals or something, it was really big. Then we had a really bad end of '08 and then regrouping. So it's like, you think of a hockey season and the highs and lows of a hockey season, it kind of prepared me for working for him. First off, he's got a wonderful, huge brain and is a kind man and is very, very creative. What I took from him is, "Change is mispriced. Do the math." If something's changing in the world, just dig into it and try to understand it, because it has a potential to be massively mispriced.

Greg Dowling (15:44):
I think of him as being a really good macro investor.

Xavier Majic (15:46):
Macro investor in understanding big changes in the world, yeah. And getting there. Not necessarily trading macro products, but--

Greg Dowling (15:53):
Correct. Definitely not trading macro products like a traditional global macro manager.

Xavier Majic (15:58):
But he's one of those guys that should--if he didn't run a fund and wasn't super successful, you could see him doing like monthly letters explaining what's going on in the world. Like, "What I learned this week." He'd be way better... If he did that, he would be way better than anyone else at that, obviously.

Greg Dowling (16:11):
Yeah.

Xavier Majic (16:12):
That's why he is not doing it. But I left in early 2011 to join Jerome Simon, who is more of a distressed investor, more of a single-stock short seller, and less thematic investor. More of a micro investor than a macro investor. But the similarities to John... Well they both had non-traditional backgrounds, they went to the same school, and they both liked things that were massively mispriced. You couldn't go to John or Jerome and say, "Hey, this has got 15% upside." They would just look at you like, "What are you talking about? Why are you wasting your time?" Going to Lonestar, it was a smaller firm, I think there was 5 investment professionals, we all were a bit more generalists. I learned how to invest in energy from Jerome. I learned how to do distressed. I really learned how to short sell individual securities from him.

Xavier Majic (16:51):
In short selling, there's a lot more behavioral issues that you have to deal with being a short seller, and Jerome had some really simple and smart tricks on how to deal with your own brain and your own fears. I think part of his genius was being aware of his own shortcomings. To be a short seller, you have to have a chip on your shoulder, you have to be aggressive, you have to have some bravado, but you also have to let yourself off the hook at times or you're going to blow up. And so there's little behavioral tricks I learned from Jerome that we still use today. I think it's really lucky to work for those two guys. They're both wonderful people and very different, but again, looking for things that are massively mispriced.

Greg Dowling (17:24):
It's funny, there are some investors that you can look at their family tree and be like, "Wow, they're totally different." I look at Maple Rock and your investing style, and I can definitely see elements of both Passport and Lonestar in what you do.

Xavier Majic (17:37):
Yeah, for real. I learned how to invest in distressed from Jerome, so one of our great places of opportunity is when there's a distressed cycle in commodities. And it's because commodity investing is difficult. Investing in companies that have variable cash flows is difficult. A lot of people like things that are stable and figuring out if they grow from 10% to 12%. When you're dealing with cyclicals and commodities, it's like, "Well, are the margins going to be 10% or 40%?" And the revenues can change drastically. And so we have frameworks to invest in commodities, which I learned from John and we've developed ourselves.

Xavier Majic (18:05):
The distressed process where you have--laying out the cap structure, you're dealing with some of the wise guys that set up these companies, and it's scary. Commodities investors aren't used to that because commodity companies aren't supposed to be levered, because of the variable cash flows. And then the guys that understand the wise guy games, how the distressed workouts work, they're used to things that aren't variable. So when those things happen together, it's really interesting for us. And it works on the short side as well. But two years in our nine year history where it's like our firm has been a perfect fusion of Passport and Lonestar.

Greg Dowling (18:35):
Let's talk about the genesis of Maple Rock. So you're having a pretty good career, you're in San Francisco, you married a California girl.

Xavier Majic (18:41):
Yeah.

Greg Dowling (18:42):
You decided to just pack it all in. You're going to launch your own firm, but you're not going to do it from New York or San Francisco. You go to Toronto, where, again, there's a lot of great hockey players in Canada, there's not that many big, great hedge funds. There's some for sure--

Xavier Majic (18:56):
Yeah.

Greg Dowling (18:56):
--but not many. Why?

Xavier Majic (18:57):
There's a few reasons for that. I have three young children. I feel Canada's a simpler country to raise children in than the United States. Not that I--they're all American. I love the U.S. So there was that. And one of the things I learned from the differences between John and Jerome is Jerome had a smaller firm and had fewer LPs and stickier LPs than John did. That gave him a real competitive advantage. When you think of Buffett's competitive advantage, I think the biggest one is that he had captive capital with the Berkshire Hathaway structure. Hedge funds, especially if you're doing things that can tend to be volatile, you need time for them to work themselves out. So one of the goals when we started Maple Rock was to have really good investors that would stick with us for a long time and let us do what I wanted to do, which was invest in things that are more volatile than other people are comfortable with.

Xavier Majic (19:39):
Part of that is like, "Well how much money can you raise?" because you're starting a business, you want to hire people. I had savings from my career and Toronto's about half the price of San Francisco for almost everything. With the budget I had, it gave us five years to prove ourselves versus two and a half years. There's still a gun at your head when you're starting a company, but it just made the gun a little further from the side of your head than doing it in the states. The third part about it--in theory--we wrote about this when we started the company, that we we're going to get the best Canadian talent because everyone wants to move back home, which is sort of true. But I also thought, "Well hey, if you can be a great firm in Canada with Canadians, and people want to live in Canada, then you don't have much competition from other places in Canada."

Xavier Majic (20:17):
So it's hard to get talent, but once you get it—well, people settle in in Toronto and they can't leave. I talked about the culture of a great team and I don't think that many hedge funds are great teams. There's some weird incentives. There's end-of-year bonuses, there's subjective bonuses. It always seemed that at the end of the year... You get calls in mid-November from your friends all the time saying like, "Hey, how are things going?" Making sure they get a bonus. And then the boss is like, "Hey, are people going to leave?" So you have this like circular reference of distrust, which affects like six weeks of the year at least. You have this artificial year-end that is weird but real. And it's like, "Well hey, if I know that the people that work at Maple Rock can't go anywhere else, then I can treat them well, and I can break this circular reference of bad culture." I think that that's really been beneficial to us and our performance, because we have a really good culture here. When you're dealing with commodities, investing in things that are changing so much, you really have to be able to put your hand up and say, "Hey, this isn't working," and move on, and there's a culture of accepting that that we have here that really has a lot to do with being in Canada.

Greg Dowling (21:10):
Two things that I took away from that. One, I think you're so right. If you think of a hedge fund in New York City, if you want a new job, all you've got to do is take the elevator up a floor or down a floor.

Xavier Majic (21:19):
Yeah.

Greg Dowling (21:19):
There's a little bit of a moat. There are some hedge funds in Canada, but not as many as you'd fill up an entire building in Midtown, and there's many buildings in Midtown that are just full of hedge funds.

Xavier Majic (21:28):
Yeah.

Greg Dowling (21:28):
The other thing I thought that was great about Warren Buffet is--we hear this a lot too, and try to apply it: "When you're looking at a firm, you should always underwrite who their investors are. Who are you alongside of?"

Xavier Majic (21:37):
Yeah.

Greg Dowling (21:37):
"And what is the philosophy about growing the company and growing the asset base?" Most healthy organizations grow, but unhealthy organizations grow too fast.

Xavier Majic (21:45):
Yeah. We did things in our launch limiting our growth. It's the circular reference of, "You put that in your docs, then people will give you money." And it's the kind of people you want. But people don't want to put that in their docs because they might change their mind and want to be $20 billion someday. What I learned from the difference between Passport and Lone Star, is 6 or 7 on the investment team is good enough. I love to pick stocks. If you get too much bigger than that, you end up managing more than picking stocks. You start a company to have a culture that you love, but also to just create a vessel to do what I love, which is picking stocks.

Greg Dowling (22:15):
We kind of hit on this around the edges. We talked about your background and what you brought from it, but we probably haven't just let you talk about Maple Rock. Maybe for those who are listening, what is your stated philosophy? What are you doing and what are you not doing?

Xavier Majic (22:29):
Yes, I mentioned we look for things that are massively mispriced. Where we find this usually is around things that are changing. "Change is mispriced. Do the math," is one of our key investment traits. My background is in commodities, mining commodities, energy, cyclicals, chemical companies, industrials. There's a lot of change in those industries, they go into and out of favor, there's a lot of cyclicality. And so we focus mainly on those more cyclical, less stable industries. "Less stable" might be the wrong word, but more variable cash flow industries. Then we’ve found that some of those investment traits actually apply to things like countries. One of our key competitive advantages is our culture and our asset base. We're not afraid to look dumb, and that lets us go to places that other people can't go for, whether they're liquidity reasons or just being afraid of looking stupid.

Xavier Majic (23:11):
Whether that's playing hockey in Johnstown, Pennsylvania, riding the bus all over North America and Europe, getting beaten up so many times--I don't think that you can really do anything that's going to hurt me. There's a toughness to our firm that helps us go to places that scare people. One of my favorite investment traits recently is "that's uninvestible." Oil was uninvestible when it was $30. Currently, now China's uninvestible. If something's uninvestible, maybe it's being avoided for behavioral reasons, or maybe it's right, maybe there's a reason to avoid these things. But we look for potential massive mispricings and go investigate it. We're true value investors. We do bottoms-up work and try to track whether things are working or not. We individually short sell and we've done that since day one. It's really difficult to know what's going to happen in the world, but if you can stick to short selling, it helps you manage all the unknowables.

Greg Dowling (23:56):
I love that. Kind of reminds me, there was a Wall Street Journal article maybe just a few weeks ago. It talked about the Bruins and how they're having an amazing season this year, but it talked about load management and how in other sports you'll see--like the NBA or the NFL or whatever--they'll rest players. "We're going to rest players." "Load management," they call it.

Xavier Majic (24:13):
Yeah.

Greg Dowling (24:13):
They were just talking about how the Bruins players and their stars are playing every game. There is just a little bit of this kind of "suck it up" mentality in hockey. Do you feel that way--

Xavier Majic (24:21):
Yeah.

New Speaker (24:21):
--in how you invest?

Xavier Majic (24:23):
There's reasons, no excuses. I said that earlier.

Greg Dowling (24:25):
Yeah.

Xavier Majic (24:25):
That's kind of a hockey mentality. You play three games in three nights; you're exhausted that third night, but there's no excuse for playing bad. And someone's watching you. When you're playing professional sports, someone's watching you practice, someone's watching you walk around the rink, they're always watching you, judging you, so you better do your best all the time and suck it up. It's a really good term. No one's going to feel sorry for you. I think that there's a toughness that's inherent in most hockey players and probably lots of other professional athletes as well. Is it valuable in investing? I mentioned dealing with pain. People talk about hockey being this tough sport and getting beaten up, but it's a very beautiful, creative sport. You're highly skilled, and it's just a very interesting sport.

Xavier Majic (25:00):
When you think about it, because you're skating with a stick and a puck, it's really very, very highly difficult. Everything's hard. The ice is hard, the sticks are hard, the boards are hard. And then there's people on the other team that are trying to really hurt you. At the same time, you're supposed to do something beautiful and creative. Like soccer give and goes. It's like soccer with violence and probably more skill because you have to learn how to skate to even start with this. I understand that there's that point of creativity where you're intense, but not too intense that you're squeezing the stick too hard, that you miss easy things and you're not creative. There's a level of suck it up, but then there's an emotional energy that needs to happen for creativity to happen. It's intensity and it's accountability, but it's also forgiveness and kindness and accepting mistakes.

Xavier Majic (25:39):
In hockey, if you're like, "Hey don't do that, don't do this. Don't turn the puck over at the blue line." Well you're never going to make a good play at the blue line if you're thinking of making a mistake. We're dealing in industries that you don't have any idea--there's so many outcomes that could happen to what we're doing. We're more looking for unpriced optionality that you can track. As opposed to saying, "Hey this is my idea," it's like, "Hey, this is an idea." That just helps us not be worried about making mistakes. And I think that gets us to be thinking creatively and getting our ego out of the process. It's very difficult, but it's fun when you're there. When you're in that creative space, whether it's investing with your--brainstorming with your teammates or you find something new, that's really exciting. Just like it was making a nice three on two coupled passes where you read off someone and the puck ends up in the net. I mean it's such a beautiful thing. You have creativity surrounded by so much pain; I think that's what's similar between hockey and investing.

Greg Dowling (26:30):
The analogy that I always hear is the old Wayne Gretzky, "Don't skate to where a puck is..."

Xavier Majic (26:36):
Yeah.

Greg Dowling (26:36):
"...skate to where the puck is going." And you have a little bit of that too. Like you're talking about China's uninvestible or oil was uninvestible at $30.

Xavier Majic (26:43):
Yeah.

Greg Dowling (26:43):
That's part of your unloved mantra as well.

Xavier Majic (26:46):
Yeah, like with oil, there's an inevitability to the price of oil reverting to a mean, and that's a function of the physics of a shale well. So that's a "when" not "if." When oil goes below $55, the recount shrinks in the United States and oil production shrinks. If you understand the physics of an oil well in the Permian Basin, you know that that's science. So when someone says it's uninvestible when oil's $30 and securities are priced at half price to $55, it's "easy." I'm using air quotes. It's easy to do that. But we did it in '16 and then everything we bought went down 50%. You're dealing with--the path from 1 to 2.5 could be 1 going to 0.5 first. Creating a culture and a firm that can deal with that more than likely reality that you can't pick the bottom in these things, which it's not so ridiculously hard to recognize massive mispricings. I think that that's interesting.

Greg Dowling (27:34):
So what do you have at your desk?

Xavier Majic (27:36):
On my desk, I have post-It notes that have some cheesy motivational expressions on it. I have a picture of my mom and dad, a picture of my kids, and a picture of me and my wife.

Greg Dowling (27:45):
I knew the Post-It notes. So why don't you read a couple of them?

Xavier Majic (27:48):
One of them says "[inaudible] expectations." I'm sorry for cursing, but that's what it says.

Greg Dowling (27:52):Yeah, maybe I would've picked another one to read, but that's okay [laughs].

Xavier Majic (27:55):
[laughs] One of them says, "Let it go to think of the blue sky." I think you always have to let things go. There's one here that--my favorite one is "Hope hurts" and it has a cartoon of an ag commodity speculator where it shows him getting happier as the price of corn goes up and then in total despair as the price of corn goes down.

Greg Dowling (28:12):
I love that. The other thing I know that you have--not at your desk, but just around your office--is whiteboards. Why do you do that?

Xavier Majic (28:18):
We have whiteboards everywhere. It's something I plagiarized from Jerome, my boss. Part of it is getting people out of their desks to stand up and to brainstorm live. But the main thing is to be able to simplify an idea into something that's small enough to fit on a whiteboard. So with Jerome with distressed, we had lots of T bars with assets and liabilities, and then you had key assumptions for every stock. We don't have it here because our office isn't big enough, but in Lonestar, almost every position had the simple thesis on the whiteboard, and you had to change something when earnings come. It's the same thing here. You go up and actually change the number. It's not for risk management purpose, because sometimes the number gets better and it tells you you should buy more, and sometimes the number gets worse, and it tells you you're wrong. It's a way of getting out of your desks, simplifying ideas, and then tracking the path to profits are a road to Stuckey's. We have that in a 1-pager now. And our big ideas, our big themes are all on the whiteboard. We set the office up so that when we're doing team meetings, there's whiteboards to brainstorm around.

Greg Dowling (29:12):
Couple more closing questions. You've played on a lot of different hockey teams. Do you have a favorite hockey team? Who do you root for?

Xavier Majic (29:19):
Well, when I was a kid, it was the Oilers. I was a huge Gretzky, Messier, Jari Kuri... It was the best team.

Greg Dowling (29:23):
Oh yeah.

Xavier Majic (29:23):
I think Gretzky was amazing. So that was when I was a kid. When the Oilers traded Gretzky to the LA Kings, it kind of crushed--it did break my heart, like it did many Canadians.

Greg Dowling (29:31):
[laughs]

Xavier Majic (29:31):
And so after that... Then I got drafted like four years later, so I really wasn't a fan. When we lived in San Francisco, I was a Sharks fan, that was Joe Thornton and Patrick Marleau. They had had great teams there, and it was really fun to go to those games and watch Joe. I thought Joe Thornton was amazing. Then moving to Toronto and having kids, we're Leafs fans now. The team is very exciting. They seem to be snake bitten. But yeah, we're Leafs fans now.

Greg Dowling (29:53):
They're always very good, but can't win a playoff game.

Xavier Majic (29:56):
Yeah, that's tough.

Greg Dowling (29:57):
Maybe this year.

Xavier Majic (29:58):
Yeah, maybe this year.

Greg Dowling (29:59):
This year is different. Like that old investment saying, "It's different this time."

Xavier Majic (30:02):
Yeah, it's different this time. Yeah.

Greg Dowling (30:04):
Give me your favorite investing book and favorite hockey book--and it could maybe be a hockey movie if you want to do some sort of different type of media.

Xavier Majic (30:12):
Yeah. Bruce Greenwald, a professor at Columbia, wrote two books that I think are excellent. One, Value Investing, and the other one's called Competition Demystified. I think they're just easy reads. I think it's concepts that--they're Buffet concepts in value investing with really clear examples, and he's a very good teacher. And then he did Competition Demystified, which I think is Porter's Five Forces written in layman's terms. I think he writes the two best investment books, in my opinion. And then hockey books, the most recent one I read Mark Messier's autobiography, which he was awesome. But there's a book, there's a novel that's fiction called Beartown. It's written about a small town in Sweden and what hockey's like in really small rural Sweden, which really reminded me of growing up in rural Canada.

Greg Dowling (30:50):
I think they made a HBO or Showtime movie of that.

Xavier Majic (30:54):
Really?

Greg Dowling (30:55):
Yeah, I think they did. Yeah. Because there's a situation and I'm sure the book's good, because the...

Xavier Majic (30:59):
The movie was good?

Greg Dowling (31:01):
Yeah, it was excellent. It's more like a series. Nowadays everything's like a series.

Xavier Majic (31:05):
Yeah, it's like a teenager thing. Yeah, yeah.

Greg Dowling (31:06):
Yeah, yeah. Good. Oh, that's awesome. Hey, Xavier, this has been a lot of fun. Thanks for sharing your wisdom.

Xavier Majic (31:12):
Yeah.

Greg Dowling (31:13):
And your experiences both on hockey and investing.

Xavier Majic (31:15):
You're welcome. Thank you.

Greg Dowling (31:17):
If you are interested in more information on FEG, check out our website at www.feg.com, and don't forget to subscribe to our communications so you don't miss the next episode. Please keep in mind that this information is intended to be general education that needs to be framed within the unique risk and return objectives of each client; therefore, nobody should consider these to be FEG recommendations. This podcast was prepared by FEG. Neither the information nor any opinion expressed in this podcast constitutes an offer or an invitation to make an offer to buy or sell any securities. The views and opinions expressed by guest speakers are solely their own and do not necessarily represent the views or opinions of their firm or of FEG.