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RWH053: Trouble Ahead w/ Bill Priest

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Jan 12, 2025

Guest

Bill Priest

Bill Priest, a seasoned investor and Vice Chairman of TD Wealth, shares insights from his six decades in finance. He discusses the dangers of complacency among investors and highlights the importance of free cash flow and cost of capital. Bill expresses concerns about stagflation and suggests maintaining cash reserves to weather economic storms. He also warns against overinvesting in growth stocks and offers caution regarding investments in China, all while praising the unstoppable rise of AI.

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ADVICE

Diversification and Saving

Diversify investments to mitigate the unknowable future.
Start saving early, even small amounts, in a balanced portfolio.

insights

INSIGHT

Bits and Atoms

Look for companies that substitute technology (bits) for labor and physical assets (atoms).
These companies can improve profit margins, asset turnover, and return on assets.

insights

INSIGHT

AI's Impact

AI is not just a bubble; it represents a structural change impacting margins and cash flow.
Consider if the tech sector's pricing already reflects expected AI-driven growth.

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#38636

Free Cash Flow and Shareholder Yield

New Priorities for the Global Investor

William (Bill) Priest

Lindsay McClelland

This book, written by veteran investment professionals William W. Priest and Lindsay McClelland, introduces the concept of Shareholder Yield as a method to gauge investment opportunities based on the magnitude and deployment of free cash flow. It argues that traditional metrics like the P/E ratio are being eclipsed by a free cash flow-based approach. The authors provide a comprehensive analysis of the present equity market, discussing the impact of globalization, rising interest rates, and deflating asset bubbles on investment strategies. The book offers a practical framework for identifying market anomalies and making informed investment decisions in a rapidly changing global market environment.

#92032

Winning at Active Management

The Essential Roles of Culture, Philosophy, and Technology

William (Bill) Priest

In this book, Bill Priest provides an in-depth look at the essential elements of successful active management in the investment industry. He discusses the critical roles of culture, philosophy, and technology in navigating the challenges and opportunities within investment management. The book offers practical insights and strategies for investment professionals and those interested in the field.

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Against the Gods: The Remarkable Story of Risk chronicles the intellectual journey that has led humanity from relying on oracles and soothsayers to using sophisticated tools of risk management. The book delves into the history of probability, starting from ancient civilizations and their limitations in understanding chance, to the modern era where risk is quantified and managed. Bernstein discusses how the development of probability theory and risk management has been a key factor in distinguishing modern times from the past.

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In this book, Francis Fukuyama posits that human history is moving towards a state of idealized harmony through the mechanisms of liberal democracy. He argues that liberal democracy is the final form of human government, driven by two powerful forces: the logic of modern science and the struggle for recognition. Fukuyama draws on the philosophical ideas of Hegel and Kojeve, suggesting that liberal democracy meets the economic and psychological needs of humanity, including the desire for recognition and dignity. The book explores the implications of this thesis, including the potential paradox that the satisfaction of basic needs might lead to a lack of outlets for human striving and recognition.

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The Dictators Who Want to Run the World

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In 'Autocracy, Inc.', Anne Applebaum provides a detailed analysis of how modern autocracies operate, highlighting their sophisticated networks of kleptocratic financial structures, surveillance technologies, and professional propagandists. These autocratic regimes, spanning countries like China, Russia, and Iran, collaborate across borders to maintain power and undermine democracy. Applebaum argues that international condemnation and economic sanctions are ineffective against these autocrats and calls for democracies to fundamentally reorient their policies to combat this new threat. The book serves as both a historical investigation and a practical guide for defending democratic values against the rising tide of autocracy.

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In '21 Lessons for the 21st Century', Yuval Noah Harari tackles the most pressing questions of our time. The book explores issues such as the crisis of liberal democracy, the rise of nationalism, the impact of technological advancements, the threat of terrorism, and the challenges posed by climate change and nuclear war. Harari presents these complex contemporary challenges clearly and accessibly, inviting readers to consider values, meaning, and personal engagement in a world filled with noise and uncertainty. He emphasizes the need for critical thinking, communication, collaboration, and creativity in navigating the future and suggests that individuals must identify strongly with a global community to confront global problems effectively.

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JD Vance

In 'Hillbilly Elegy,' J.D. Vance recounts his life growing up in a dysfunctional family in Middletown, Ohio, with roots in Kentucky's Appalachia. The book details his experiences with poverty, addiction, and family violence, as well as his journey to joining the marines and eventually graduating from Yale Law School. Vance provides a personal and insightful look into the decline of the white working class in America, exploring themes of family, culture, and the loss of the American dream. The memoir also touches on the political swing of the region, particularly in relation to the 2016 presidential election and the appeal of Donald Trump to this demographic.

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Richer, Wiser, Happier

How the World's Greatest Investors Win in Markets and Life

William Green

In Richer, Wiser, Happier, William Green draws on interviews conducted over twenty-five years with many of the world’s greatest investors. The book highlights that the most successful investors are mavericks and iconoclasts who question conventional wisdom and think rationally, rigorously, and objectively. They maximize their odds of long-term success in markets and life by drawing insights from diverse fields such as neuroscience, economic history, psychology, philosophy, and more. Green explains how these investors can teach us not only how to become rich but also how to improve our thinking, decision-making, risk assessment, and resilience, and how to turn uncertainty to our advantage.

In this episode, William Green speaks with Barron’s Roundtable member Bill Priest, who is Vice Chairman of TD Wealth and founder, Chairman, and Co-Chief Investment Officer of TD Epoch. Bill is the co-author of several books, including “Winning at Active Management.” Having prospered for six decades in the financial markets, Bill has seen it all. Here, he talks about his core investing principles & why he believes investors are too complacent in the face of mounting risk & fragility.

IN THIS EPISODE YOU’LL LEARN:

00:00 - Intro

06:50 - How Bill Priest fell in love with the stock market.

40:30 - Why he focuses relentlessly on free cash flow & cost of capital.

41:11 - How he goes about analyzing a business.

48:41 - Why growth stocks may start to struggle.

50:47 - Why he’s worried about the threat of stagflation.

59:16 - How investors can protect themselves from an unknowable future.

1:03:36 - Why AI is unstoppable, not just another bubble.

1:07:35 - Why he’d be “very careful” about investing in China.

1:15:38 - Why you should keep ample cash to ride out difficult times.

1:17:20 - Why his exposure to equities is much lower than usual.

1:21:16 - How to be a successful leader.

1:57:16 - What he’s learned from his daughter about happiness.

Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences.

BOOKS AND RESOURCES

Bill Priest’s investment firm, Epoch Investment Partners.
Bill Priest’s book, “Free Cash Flow & Shareholder Yield.”
Bill Priest’s book, “Winning at Active Management.”
Anne Applebaum’s book “Autocracy, Inc.”
Ruchir Sharma’s book, “What Went Wrong with Capitalism.”
William Green’s book, “Richer, Wiser, Happier” – read the reviews of this book.
Follow William Green on X.
Check out all the books mentioned and discussed in our podcast episodes here.
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