Special Series with Umberto Fedeli: Session One

Adam Kaufman: Hello I’m Adam Kaufman. Welcome to the Up2 podcast. Coming out of our first season it became clear to me that our show with successful business owner and power broker, Umberto Fedeli, resonated with so many of you. Given how genuine Umberto has been even in his lessons learned from the mistakes made, I wanted to give our listeners more of a chance to increase their own knowledge from this experienced veteran of close to 40 years in business and in philanthropy and in politics. So we invited Umberto Fedeli back into the studio for a special three part mini-series. Umberto fidelity is the chairman and CEO of The Fedeli Group, a full service brokerage and consultancy working in 35 states. During Umberto’s first appearance on Up2, we focused on his Italian heritage and more broad based themes. This special series, we’re going to delve more deeply into many of the lessons he’s learned during his almost 40 years in business and investing. Umberto welcome to Up2.

Umberto Fedeli: Thanks for having me, Adam.

Adam Kaufman: Right now, why don’t you talk a little bit about why you like investing. So many of the successful leaders who I know outsource this part of their lives because they’re busy running their business, whatever their core business is. But what makes you like it so much.

Umberto Fedeli: I find it fascinating, Adam. Because it’s taking a skill set where you need to know politics, economics. You need to know human nature, you need to know business. You have to know what’s going on in the economy. There are so many variables. There so many challenges and I find it very intriguing. And I like to learn. I like to study. And to me it’s the ultimate – investment is a combination of human nature and business and economics. And there’s the art part. And then there’s the science part. And I just like taking what Charlie Munger calls the lattice of mental models. All your life experiences and then using that to try to put it into action.

Adam Kaufman: Charlie Munger, the longtime vice chairman of Berkshire Hathaway.

Umberto Fedeli: Yes.

Adam Kaufman: I have a book written about him called Poor Charlie’s Almanac.

Umberto Fedeli: Yes. Read it.

Adam Kaufman: It’s hilarious. All of his whimsical observations.

Umberto Fedeli: He’s brilliant and not lacking any confidence but he’s an absolutely brilliant guy.

Adam Kaufman: Have you ever met him.

Umberto Fedeli: I’ve not met him, but I’ve read and watched probably every interview done and I’ve read much about what he says and he’s very smart.

Adam Kaufman: Yeah I hope we can find the next generation Charlie Mungers, whoever he or they or she are – one of a kind. So tell us how long have you been investing.

Umberto Fedeli: Well I started I didn’t have any funds to invest but I had a tremendous interest in my early 20s and at 25 I started doing some crazy things like options. It’s very risky, didn’t do very well.

Adam Kaufman: How does a 25 year old even know about options like…

Umberto Fedeli: Who knows, it was pure gambling and unfortunately for me the first thing I did, it made a bunch of money so I thought I knew what I was doing and it was just pure luck.

Adam Kaufman: Kind of beginner’s luck?

Umberto Fedeli: Yes and it didn’t work out. And I did something called margin. Where I took a big line of credit from a bank and took that money and borrowed more money for the money I borrowed from the bank. Then we had some call “The Crash” October 19th 1987. So…

Adam Kaufman: Could you borrow money at such a young age in today’s regulated world? Like that’s great you’re able to do that back then but that can be done now.

Umberto Fedeli: Wel, it’s difficult but what it did is I had a partner who is older and more successful and

Adam Kaufman: He cosigned or…?

Umberto Fedeli: No, we just used our company line of credit and I took a loan from a bank… quite sizable amount. And then took that money and invest that. This was in August of 1987 and then the market crash October 19th – I thought it was investing, I was actually gambling. There is a big difference.

Adam Kaufman: There definitely is. Do you remember the first company you invested in.

Umberto Fedeli: Yes.

Adam Kaufman: Do you want to talk about that a little bit?

Umberto Fedeli: Well, I bought some options on the company called U.S. shoe and I think they’re around anymore and there was all kind of rumors of a potential takeover. I’ve never bought another option since – it’s pure gambling. You have to figure out what to buy and when they buy it.

Adam Kaufman: What’s an option Exactly.

Umberto Fedeli: Well, you’re buying an option on a price of a stock. And these were not these were not covered. So that you’re buying a stock, it’s going to go up and you have to predict when and how much and then you’re buying and they expire over a period of time. So it’s pure gambling and they weren’t covered and so I’ve never done it again, but this was something I did earlier which was probably a good lesson of what not to do.

Adam Kaufman: Mm hmm. And you weren’t like involving your parents or a professional adviser this was just your own pursuit.

Umberto Fedeli: I was doing my own thing as I typically do, I beat to my own drum.

Adam Kaufman: Well, what’s your overall strategy with investing. I mean, you have another business that is operating all over the place. Separate from the Fidelity Group, what’s your strategy with your personal investing. If you’re able to share that?

Umberto Fedeli: Sure, I think you evolve over time and we’re a work in progress. And I think I’m now looking at the correlations of investment lessons and life lessons and it’s amazing that there is a positive correlation. Today, our strategy would be primarily looking for really, really high quality companies – best in class. Great, great, quality companies. I used to be a Graham Dodd, deep value investor a gentleman that Warren Buffett and learn from. And that was one of my biggest mistakes we actually studied 350 of our picks and looked at all of our mistakes and analyzed what we did wrong and why and how. And I knew the three biggest things I did conditionally over and over most were one or two. Pareto’s Law works almost at everything in life, it’s usually a small percentage of things.

Adam Kaufman: Pareto’s Law?

Umberto Fedeli: Yes.

Adam Kaufman: What is that?

Umberto Fedeli: Pareto’s Law is basically the 80 20 rule. But, for instance, years ago someone said, Hey five percent your customers are going to be half your business. I said, I didn’t believe it. …went back and 5 percent was two thirds. Said, 10 percent will be two thirds. I didn’t believe it – it was three quarters.

Adam Kaufman: Definitely.

Umberto Fedeli: And so 20 percent was 90 percent. Our smallest 20 percent was less than 1 percent. So it’s the same with decisions. It’s a small amount of decisions that are important. Warren Buffett has made most his money and a handful of investments. Now sometimes, you don’t necessarily know which ones are going to be the big, big winners. And so we went back and studied our mistakes and we looked at 10 years of data 350 picks and my number one mistake over and over again is, it’s called a value trap. I bought things were really, really cheap. They weren’t necessarily good. But I got sucked into… I couldn’t pass up, a great deal. And then we looked at our second mistake and that’s believing projections. Eighty three percent of major acquisitions do not add value, according to a study in Columbia of over 2000. And I believe projections ,because you don’t see bad ones. So in private deals I would tell you I never saw that projection.

Adam Kaufman: Right.

Umberto Fedeli: Eighty three percent of time in the public companies, they mean, well but a lot of execution risk. And the third mistake was, I lost patients. And so my guys who analyze the data said, 80 percent of times that I left things alone we’d be better off and they said, no, about half the time selling was the right decision. So we went back and looked. They said, yes, it was the right decision, selling, because buying was the wrong decision. The other half the time I ran up patients and it would have been right leaving it alone. So those were the three major mistakes over 10 years and three hundred and fifty selections of public equities. Then we also studied what we did well. So, I think it’s important to learn your mistakes, but also learn what you do well.

Adam Kaufman: So let’s peel back the onion a little bit on the mistakes. There’s a lot of good learning there. So one of them was, projections. So the companies themselves, forecast their future growth expectations or sales. And so you would follow those projections?

Umberto Fedeli: Primarily where I got burned, Adam, is when there is a major deal and they’re buying a company and they’re gonna be doing this and doing that and doing this and integrating this and doing that and doing that and so forth. That’s when we got in trouble, believing all these things were going to happen. I believe the management thought those things were going to happen. But then things kind of happen.

Adam Kaufman: Sure.

Umberto Fedeli: And the execution risk – if you will.

Adam Kaufman: Right.

Umberto Fedeli: So the study showed, and that’s why we do extensive research and studying and great investors and books and…

Adam Kaufman: …so you re-evaluate your prior decisions?

Umberto Fedeli: Absolutely!

Adam Kaufman: A lot of private investors don’t take the time to do that. Professional investors do, but that’s really impressive you do that.

Umberto Fedeli: It’s the same reason I go to confession. If you can’t analyze your mistakes and your faults and what you did wrong how are you going to really improve as a person or an investor. So, it’s the same principle. And we looked at what we did wrong and we believe these projections. Now the study showed that the two situations that worked well on acquisitions where you could take cost out – cost synergies versus marketing synergies. It’s easier to take cost out of a business than to grow it – or tuck ins, that’s one of the reasons that the banks work is that a bank that has…

Adam Kaufman: Aquire something small…

Umberto Fedeli: Yeah, a bank that has a platform can take up to 50 percent of the cost out, if they’re worry in that market. Half of the cost out – right?! So so that’s why it works, so cost synergies are a lot easier to execute than marketing synergies, because a lot more things have to go right. So these projections on deals that were going to happen you buy this company because they’re buying this and doing this and doing that…

Adam Kaufman: lots of excitement

Umberto Fedeli: a lot of excitement, a lot of interest, it’s sexy, but eight out of 10 times it doesn’t happen.

Adam Kaufman: So, projections was a common mistake in the analysis. Buying cheap stocks was your second one, I think you mentioned. So you would…

Umberto Fedeli: …the other way round though, by far value traps was number one by far. That was the biggest mistake that probably 80 percent of my mistakes were value traps. The second biggest mistake would then be believing projections on deals. And then third was giving up too soon, you know where…

Adam Kaufman: Patience…lack of patience. Let’s stick with the value stocks, our audience can relate to this. So you might follow a stock for a while and you might say once it gets down to 38 and that’s when we’re going to buy and you did that too often is that like the scenario we’re talking about?

Umberto Fedeli: Yeah, I find something it looks like if such a deal. Ok, it was as a great buy. …price to book, price to earnings, whatever. You know, we look at qualitative and we look at quantitative factors.

Adam Kaufman: PE ratio?

Umberto Fedeli: PE ratio, price to book, you know ,price earnings, price to cash flow, was all kind of numbers, but at the end of the day, if the business isn’t a good business. And you’re just buying it cheap…Buffett refers to those as, cigar butts. You got one puff. You’ve got to figure, when you get in, when you get out. They’re called Net/Nets. It’s Graham Dodd. And so the hard way I’ve learned, you know what, if you buy a great business that has a durable competitive sustainable advantage…

Adam Kaufman: …a moat as he calls it.

Umberto Fedeli: …as a moat! You have some advantage it’s a good business. They have some type of advantage and you have to discuss what is the advantage this business has? Why is it so good? Now, we like today what we call “forever quality value growth compounders.” Very hard to find and hard to find at a reasonable price. These are far less than 1 percent.

Adam Kaufman: Right.

Umberto Fedeli: We like at least “quality value growth.” which are in the top 10 to 20 percent. Again, not easy to find and finding at a good value.

Adam Kaufman: I don’t even know, are we allowed to talk about like what types of companies would be in that category?

Umberto Fedeli: Sure!

Adam Kaufman: We’re not professional investors

Umberto Fedeli: No, no…

Adam Kaufman: so we can talk about whatever we want.

Umberto Fedeli: There are certain companies are just great businesses. OK. So let me give you one that’s a great business and stock that we own, Visa. They don’t take risk, every time there’s a transaction they get a little piece off the top. And I don’t care who you give a credit card to anywhere in the world, when they start shopping, Visa makes money. It’s a big brand. A big moat. Perfect example, Google, PayPal, is another incredible company, right? Facebook, they’re just incredible businesses where they have such advantage – they have scale, they have visibility, they have durability, they’re just great, great businesses.

Adam Kaufman: Facebook. Do you ever worry about its attention right now from the government or does that affect how you buyer or sell the stock?

Umberto Fedeli: In the short term you might worry, but we also – when we studied, Adam, the successes that we had after we studied the failures which was more difficult actually, because I was trying to look is it a certain industry or is there a certain thing we did? And what I found that we did very, very well with…when we took fear and uncertainty, which creates volatility and all of a sudden people are afraid and they sell. And so when someone sells someone’s buying. But the more people are selling the price goes down more people are buying the price goes up. And what we did well with was fear and uncertainty that created volatility. Volatility can be your friend and volatility could be an opportunity and I gave you plenty of examples. So we bought Facebook last year in the peak of all the the crisis about what was happening. All the issues, the stock got beat up and we bought it and we kept on buying it down, kept on buying it down. Because long term, by the reading the research and also our opinion was long term the young people who are using it and all the various disruptors that they own – they didn’t really care about what the politicians had to say.

Adam Kaufman: Right.

Umberto Fedeli: The advertisers were looking at as long as people were using it, they would keep on advertising it. So in the short term, there’s a lot of noise. Now, potentially they could hurt them. But in the long run, I still felt that they had such a great business model, such a great advantage, such scale…

Adam Kaufman: Moat.. and they definitely have a moat.

Umberto Fedeli: Big time and it would be a winner. And I looked at it as a buying opportunity. I can give you plenty examples, so that’s where we really did very well.

Adam Kaufman: Fear and uncertainty, I like that so would you consider the current Boeing situation, similar to what you did when you purchased Facebook a year ago during their problems?

Umberto Fedeli: Yes ,it could be. Now, it’s not one that we happened to own. Boeing is a great, great company it’s a big, big company. My only concern about a company like Boeing sometimes, is if a company is so big can they keep on growing and keep on growing and keep on growing. Facebook has the opportunity to grow and Visa has the opportunity to grow. Google has the opportunity to grow and PayPal has the opportunity grow so as big as they are the market is so big that they haven’t reached saturation. So sometimes the business is so big and you’re thinking how many more planes can they sell? How much more growth potential can there be?

Adam Kaufman: …in the age of Lockheed Martin, just as big almost.

Umberto Fedeli: Yep. Now so, Boeing isn’t one that we own or one that we’ve looked at so I can’t tell you know a lot about it, but I’d like businesses that have incredible growth potential that are high quality that are a decent value. Now I look at something called the PEG ratio price-to-earnings growth if they can earn, you know, if they can grow, much faster than than the PE ratio you’re paying – again you have to be careful there because look at projections, but if you look at the past success and see tremendous growth. Right? We did the same thing we looked at 130, 140 of our bank picks.

Adam Kaufman: I still want to tackle the common mistake, number three, a lack of patients. Cause, I think that’s a common problem. A lot of us deal with the emotion of watching CNBC or something we learn in the moment. So, what did you learn about your lack of patients when you analyzed back 10 years?

Umberto Fedeli: I think it has to be…You have to have major conviction, so you have to really say, “I like this business long term.” So, Warren Buffett would say, “if you don’t like it for 10 years, why would you like it for 10 minutes?” So, you have to look long term and say is this someone I want to buy and put away long term? And he looks at his time horizon as forever. …now there’s no such thing as forever, but for a long time. And I think sometime when you’re buying something to get in and buying something to get out then you have to figure out when you get in when you get out. Somebody one time said investing is like the bar soap where you touch it the smaller it gets. So Buffett will say Wall Street makes money on activity, investors make money on inactivity. So the more things you do, the more mistakes you make, but if you have great convictions and you really like the business and you’ve really studied the business and you read a lot about it you read reports and you look at things and say, “This is a great business. I like it long term.” When it goes down, you get excited – because then you say, “guess what? I can buy some more on sale,” When you’re trying to figure out when you get in when you get out. So now, I’m not interested in buying things for trades anymore. I had a period of time where I did a thousand trades in three years. That’s a lot of practice. I wouldn’t suggest it.

Adam Kaufman: So that’s almost day trading.

Umberto Fedeli: Well, we were pretty active. We’re doing a lot of trades and I don’t know if…I did like the activity, but it’s not the right way to be an investor. But you do learn a lot. You’re not going to learn a lot unless you do a lot of something.

Adam Kaufman: When I was preparing to talk to you about this today, I saw somewhere that you wrote about investing, time is your friend, but on the other hand, timing the market is not a good idea.

Umberto Fedeli: It is true. So if you look at the statistics and you bought a quality company – and if you held it for 10 years, your chances of making money go into the high 90 percents. At five years you’re at 80 percent. So, the longer you keep the things, typically, if they’re high quality and are good businesses, they tend to work. Now that doesn’t mean it necessarily to be a great investment, but time is your friend. The magic of compounding is incredible. But you have to look at, do they have good return on tangible capital? More so than just equity, because if you’re leverage you can have a high return on equity, but you have to look at it, is it a good business? How are the financials? You look at qualitative factors, you look at quantitative factors, you come up with your criteria, you come up with a checklist, you develop a process. These are things I never used to do, by the way.

Adam Kaufman: Right. Right. But these are the things you know now, that you wish you knew when you were younger – back to the question.

Umberto Fedeli: Oh, I made I made so many mistakes, because I was… what I was doing is I was just trying to do things before I knew what I was even doing. So I was just doing things, right, and just taking shots whithout even know what I was doing.

Adam Kaufman: When I got into investing a little bit, my friend who was a professional investor told me – maybe I was in my late 20s, “just look around you, like, see what people are buying.” It was a very un-technical bit of advice, but it was helpful. What stores are people going to in the malls – back when there are malls? What kind of cars are people buying? What commercials are you seeing the most on TV? So, I I began, from a practical standpoint…kind of like, consumer analysis, it wasn’t really analysis, but consumer observation. Do you think that’s a helpful way to look at things too?

Umberto Fedeli: A little bit, but that was Peter Lynch’s theory…

Adam Kaufman: Right.

Umberto Fedeli: …in the book one on Wall Street

Adam Kaufman: Fidelity, yeah.

Umberto Fedeli: Yeah, he was, with Magellan incredibly successful. It’s one thing to look at, but it can be a fad too. So what you got to be careful of is it a long term advantage or is it a fad. So when you’re looking at certain stores… my friend said, “oh no, no” that’s going to be a brand. I said, “let me take some pictures out and show you something called leisure suits.” And I started laughing. I said, “well, they thought those were cool, right?” So, there’s a difference. So, for instance you talked about fads or looking around – there’s two retail stocks I like. One I own and one I wish I own. And the one I own is T.J. Max and we bought it when Whole Foods got bought out by Amazon. Retail stocks got killed, real estate stocks got killed, and we said what retail stock is not going to be affected as much? They’re going to build a thousand new stores. You know, they have home brands they have different, things they have different products, they have over a thousand buyers, tens of thousands of items, they’re not dependent on one brand and the other one that I wish I owned that it never did, is Costco. They have a great model.

Adam Kaufman: I love Costco.

Umberto Fedeli: They also have that recurring income where you pay a membership fee, so they have that recurring income so then they can sell their merchandise at much less of a markup.

Adam Kaufman: Speaking of brands. Back to my simple way of looking at potential stock buys. Do you know the shoes, Vans?

Umberto Fedeli: I’ve heard of them, but I don’t know them.

Adam Kaufman: Yeah, but when I was in high school, they were really popular with the surfer or skater crowd – and I was in high school 30 years ago. We have three kids, three teenagers – all of them still wear Vans, 30 years later. So, just sitting here I’m looking up, why have I never invested in Vans or whoever owns … I don’t know if Nike owns vans now…V.F. Corporation. But that’s an example of a brand that has withstood the test of time.

Umberto Fedeli: It could be, but sometimes I have to stay away from things where I’d say, it could be good, Adam, but I just can’t tell.

Adam Kaufman: But if it’s lasted 30 years. Isn’t there a chance? Isn’t it de-risked a little bit, that it could last another 30 years?

Umberto Fedeli: Yes. Obviously, the more time goes by. But, then on the other hand, is it worn out or is there another brand that’s going to take him over? Buffett will tell you to stay in your circle of competency and not expand your circle just have the discipline to stay. The problem with that – it sounds good. The thing is a baby, as a baby my circle competency is only a co,uple of things I know how to do naturally. So if I stay within my circle of competency I would still be drinking milk, right? Very limiting. So at some point you also have to gain knowledge and say, hey the world is changing a little bit. And remember Buffett also talks about the two sins, and this comes really from the Catholic Church, the sins of omission and the sins of commission. He’ll tell you the biggest mistakes he made weren’t the things he invested in that didn’t work, they’re things he should have done that he never did. He should’ve invested in Amazon and didn’t. He should’ve invested in Microsoft.

Adam Kaufman: Yeah, he was not an early adopter in technology.

Umberto Fedeli: No, he just said, "Nope, it’s not my circle I don’t do it, it’s not my circle, I don’t do it. Well, if he would’ve just invested in Microsoft when he became friends with with Bill Gates, it probably would’ve crushed all the other stocks that he currently owns.

Adam Kaufman: When he ended up donating the large majority of his net worth to the Gates Foundation that was a page and a half long letter. That was the largest transfer of money in U.S. history on a page and a half – no contract. Unbelievable. Have you ever been, by the way, to a Berkshire Hathaway’s annual meeting. I’ve gone once.

Umberto Fedeli: I have not. I’ve watched and watched it live on my iPad but I’ve actually never attended one. But he’s very open about his mistakes.

Adam Kaufman: Yes.

Umberto Fedeli: And sharing them in the end report and even when he gives talks and he’ll tell you it’s the things he should have done that he didn’t do that were his biggest mistakes. Just kind of like life. It isn’t the things you necessarily tried to do that you mess up on. It’s the things you maybe you regret that you should have done that you didn’t do. And that’s why to me there is a fascination of life lessons and investment lessons.

Adam Kaufman: Can you think of a particular stock you wish you did buy? …just as the Buffett not buying Microsoft example? Something you wish, maybe you had the opportunity to and you pass? In my world of venture capital, my business partner – he calls this the anti-portfolio – things we missed.

Umberto Fedeli: There’s so many of them. So, Amazon is one should have bought.

Adam Kaufman: So, you considered it early on and you said no?

Umberto Fedeli: Of Course, I’m thinking, “it’s too expensive…”

Adam Kaufman: If I remember the more books they sold, the more money they lost for the first few years!

Umberto Fedeli: Yes because they’re trying to build their business up.

Adam Kaufman: Right.

Umberto Fedeli: But that’s one I should have bought. Microsoft is one I should have bought. Costco.

Adam Kaufman: You mentioned that.

Umberto Fedeli: …is a great company, great model, great management. I mean, it’s just it’s a real winner. There are so many like that that I should’ve bought that I didn’t. I didn’t understand technology, so I was just… I said, I don’t understand it, so I’m not going to invest in it. Well, that’s not true today. I still to understand it, but I’ve invested significantly in it because things are changing faster – better. We actually now have around 26 or 27 high growth platform disruptors that I think are going to be the leaders. But I can’t tell you for sure. Some of them already are the leaders so we bought Facebook and Google when they were out of favor through fear and uncertainty or visa maybe on us a little bit out of favor or PayPal. That’s easier for us to do. You know, looking at something new and trying to project into the future… We studied hundreds of successful companies. …my young guys who’ve actually helped me and we came up with what we call factors. What were the things that existed consistently, where it worked?

Adam Kaufman: So you have an inside team. You keep saying, “we,” so you hired people to help you do the research.

Umberto Fedeli: I have a couple of really, really smart young guys, who just read every book, read everything you can think of. And they helped me analyze, helped me, sometimes I read a report and I said let me drink another bottle of caffeine bought another cup of coffee because it’s kind of complicated and they can read something like that and then give me, “here’s what they’re saying.”

Adam Kaufman: Do you ever delve into an industry and say, “let’s attack this new virtual reality” or just start reading about it, or you just react to companies? Or do you ever look more broadly into an industry?

Umberto Fedeli: Well right now in the last few years an area that I’ve been fascinated with – even though I’m not technically competent at all. I’m just fascinated by these software, cloud based disruptors. …the ones that are going to change the way things are done. So for instance, I can give you an example if you want.

Adam Kaufman: Please, yeah.

Umberto Fedeli: One we recently bought and I think it’s going to be a big winner but I don’t know for sure because it’s still new – is Docusign.

Adam Kaufman: You know the longtime CEO and chairman he just resigned is from Cleveland.

Umberto Fedeli: Yeah, from Rocky River, I heard, right?

Adam Kaufman: Keith Croft, yes, he went to Rocky River high school and he’s, believe it or not, now the Under Secretary of State for the United States.

Umberto Fedeli: Well, they’re eight-times bigger in their space than the second biggest company, which is one we also own, called Adobe – great company.

Adam Kaufman: Mm hmm.

Umberto Fedeli: Does it have the visibility now, right? Now people start to say “docusign this.” So it’s a dollar to docusign versus 30 or 50 dollars to have it sent by express mail.

Adam Kaufman: So easy, it’s so user friendly.

Umberto Fedeli: People say, “well, other people might do it. What’s their advantage.” So, these aren’t easy but the scalability of some of these companies… So, Dropbox is another one. You say, “well, Microsoft does that, and Google does that,” right? But they work with Salesforce and they work with Adobe… and so the potential of some of these…so you think a company like Dropbox, they have, right now, half a billion people that use it and only two and a half percent of the people are paying in the last three years they’ve doubled the number of paid. If they double again in five years, not three years, these numbers are so enormous. The scalability is incredible. Now, are they going to be the winners? We’re betting they are. We’re betting Docusign is. If you wait til they are for sure the winners then they are so expensive then you can’t even make sense these things won’t even trade at a multiple of earnings are traded or multiple of sales because of the potential.

Adam Kaufman: I don’t know if you’ve been on to San Francisco lately, but the newest, largest building in San Francisco is the Salesforce building…

Umberto Fedeli: Incredible company.

Adam Kaufman: That company is just buying so many private companies, we’ve actually had in our venture fund a company acquired by Salesforce… I think they had like four million in sales it was a cloud enterprise business like you’re talking about called Relayed IQ – I think they bought them for like 400 million dollars and only four million in sales.

Umberto Fedeli: They just bought a big company in the last month or two. …symbols are DATA – Tableau. Salesforce is an incredible company and they’re integrating … it’s one we own. It’s one in our basket along with Facebook and Adobe and PayPal. These are great companies.

Adam Kaufman: You know the old adage, unrelated to investing, You have a big house, there’s always somebody with a bigger house, you have a cool car, there’s always someone the cooler car? You’re a spectacular member of the Cleveland Clinic board, you raise a lot of money. Marc Benioff the sales force chairman, he’s already donated one hundred million to UCSF Medical Center and he’s already committed another hundred million.

Umberto Fedeli: He’s been an incredibly successful guy, a very talented guy. But the lesson there, Adam, and then life lesson, then investment lessons…

Adam Kaufman: Yeah.

Umberto Fedeli: Life’s about a contribution not a comparison.

Adam Kaufman: Good. Human nature is, we want to compare.

Umberto Fedeli: It becomes passive aggressive and it’s a road to hell.

Adam Kaufman: So I know used to be feisty, like, this is a very enlightened viewpoint you have now. How did you come to this conclusion about not comparing yourself to others.

Umberto Fedeli: It’s a work in progress. So, years ago I’m in Alaska and a WPO trip and…

Adam Kaufman: Young Presidents Organization…

Umberto Fedeli: …now I got kicked out, because when you turn 50 you get kicked out.

Adam Kaufman: Right, rocking chair

Umberto Fedeli: …and so at 59 today, we bring another group. It’s the more mature version of that group. But, I was here with my entire family. So, it was right around 19/20 years ago and there were 35 speakers. And one of them, I was there my good friend, Bob Stein, at the time Bob was chairman and CEO of Dairy Mart, and it said Robert Spitzer SJ the journey of excellence, 4 Secrets of Happiness.

Adam Kaufman: He’s a he’s a priest, Right?

Umberto Fedeli: Well, I said to Bob, I said, “Bob, SJ, You know what that stands for?” And he goes, “no.” I said, "Bob, I’ve never seen a Jesuit priest, a rabbi, a preacher, at a Young Presidents Event.

Adam Kaufman: Right.

Umberto Fedeli: So we went to hear him speak – for the next hour we were mesmerized. He was the most brilliant speaker had ever heard. He’s got an undergraduate degree in accounting. He has a master’s from the Gregorian Institute in Rome, in divinity. He’s got a doctorit in philosophy. He was president of Gonzaga. He’s a consultant. He’s worked with little companies like Costco, Boeing,…

Adam Kaufman: Companies we’ve talked about.

Umberto Fedeli: …Caterpillar.

Adam Kaufman: I think you introduced me to him at a Legatus event, that Catholic CEO organization.

Umberto Fedeli: Well, today I’m on his board. It’s ironic, I met him in Alaska and I went up to him to speak and he is an amazing individual.

Adam Kaufman: So he taught you this lesson of not comparing yourself to others.

Umberto Fedeli: He goes through different Secrets of Happiness, a Journey of Excellence. He has a program that takes 20 hours just to be introduced to it. It’s hundreds and hundreds of the greatest books Covey, Seven Habits of Successful People. Aristotle, Plato, Man’s Search for Meaning, and in this process they go through and you know there’s some philosophy but there’s also some studies going backwards and it’s one of the things that he really shares. If you are into Level 2 comparison game, as he calls it, level one would be eating candy cookies… the proplem is you need more of it and you need more of it. Level 2 he said, this is where most of you Young Presidents are, this is what he said in the talk – Power, Control, Success. Someone’s gonna be more successful. Someone’s made more money. Someone’s given more money away.

Adam Kaufman: Always.

Umberto Fedeli: So, if you’re into that – it’s passive aggressive. If you understand that life is about a contribution not a comparison… Men and Women for Others, which is a Jesuit motto and somewhat of a Christian belief and also somewhat of a Jewish belief you go back to the Old Testament. But it’s also in a book that our mutual good friend, Bobby Campana, shared with us one.

Adam Kaufman: Yes.

Umberto Fedeli: You know, have you gone from success to significance? – the book, Halftime. And all the sudden saying, have you gone from success to significance? Okay, so you can make a bunch of money, but have you made a difference in someone else’s life? If you look at the last book written by by one of the great business writers today, that does extensive research. Jim Collins.

Adam Kaufman: Mm hmm.

Umberto Fedeli: Great by Choice.

Adam Kaufman: Mm hmm.

Umberto Fedeli: And these are books he writes, Built to Last…

Adam Kaufman: Good to Great…

Umberto Fedeli: …Good to Great. How the Mighty Fail or How the Mighty Fall, it’s not just, someone says, “you like his writing,” I say, “no,” I like his research. Because it’s based on research, not just his opinion.

Adam Kaufman: Yes

Umberto Fedeli: And the last book he wrote, Great by Choice. His conclusion was the same conclusion as Mother Teresa. She said, “people wait do they become really rich or powerful to make a difference.” …then I can do this and I could do that. She goes, “you can do ordinary things in an extra ordinary way.”

Adam Kaufman: I know you live that, you you say that all the time and I can see it in your business. I can see it in social events. It’s a great mantra to have. I’m gonna go back to something you said about not comparing. I was teasing you a little bit about how much Benioff gave to UCSF… For me, I like running and I would get so depressed in races whether it’s a little 5K or a marathon or anything in between. I would get depressed at how many people would finish ahead of me. I mean, it really bothered me. Hundreds, thousands of people. And one day, somebody said to me, “you know, don’t compare yourself to everyone in front of you. Think about everyone who are in the house, not even out there running with you.” So that helped me a little bit but I’m still comparing, I guess, which isn’t good.

Umberto Fedeli: It’s not good, but it’s part of human nature and envy is a horrible, horrible thing. It’s unfortunate part of human nature. I would share it with you – this. You’re ultimately, when you’re running, you’re competing against yourself.

Adam Kaufman: That’s how it should be looked at. You’re right.

Umberto Fedeli: And in life, you need to become the best version of who you can become. It doesn’t matter about anybody else in front of you or anybody else behind you. They’re going to be more successful people, people gave more money.

Adam Kaufman: People with more hair…

Umberto Fedeli: …people with more hair, who ran faster and at some point you just have to sit there and say, “am I making a difference?” You have that opportunity to do that every day. So, Mother Teresa is doing ordinary things in an extraordinary way. Same conclusion in Jim Collins’s book Great By Choice, these are ordinary businesses that did things in an extra ordinary way.

Adam Kaufman: Absolutely.

Umberto Fedeli: Look at the great football teams, the best football teams you’re watching on Sunday. And the worst football team. They have some unique plays that nobody else, they invented them some new plays or is it great execution?

Umberto Fedeli: …and team, like the recent NBA Finals. …probably the team with the most stars did not win, but they won the NBA championship.

Umberto Fedeli: It’s the execution.

Adam Kaufman: Toronto.

Umberto Fedeli: …it’s ordinary things in an extra ordinary way, be it teamwork or A or B or being super good at service or being very good at various things, right? The comparison game to bad game to get into it.

Adam Kaufman: It’s a great point and I’m going to try to remember for my own self you know what you’re saying here. Thank you Umberto for coming in today. Can we do this again?

Umberto Fedeli: I’d love to.

Adam Kaufman: …because, I just feel like there’s so much more we could talk about. And I look forward to the next time we sit down together, but for now, thank you so much.

Umberto Fedeli: Thank you, Adam.

Adam Kaufman: Umberto really got me thinking after today’s conversation. These are my key takeaways. Investing in a good company is more important than just investing in a cheap stock. Time horizon. How long you have in front of you plays a big part in how you invest. Timing the market is not a good idea, however. Even professionals can’t beat the averages. Umberto talked about the sins of omission. We can learn a lot by looking backwards at maybe opportunities that we passed on or decisions we chose not to take. And finally, perhaps most importantly – don’t fall into the trap of comparing yourself to others. Life is about contribution not comparison.

Adam Kaufman: I’m Adam Kaufman and I’d like to thank you for listening to part one of our special mini-series with Umberto Fedeli. I sincerely hope you enjoyed today’s episode and I encourage you to subscribe to up to on your favorite podcast app. Or you can visit Up2Foundation.Org. Up2 is a production of Evergreen podcasts and special thanks go out to our producers Sarah Willgrube and Brigid Coyne and the audio engineer, Dave Douglas. Thank you so much for listening to the Up2 Podcast.

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