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Searching for Value in the Stock Market - Part 2 - Interview with Whitney Tilson, Co-founder and Chairman of Value Investing Congress

 Searching for Value in the Stock Market - Part 2 - Interview with Whitney Tilson, Co-founder and Chairman of Value Investing Congress

Whitney Tilson is the co-founder and chairman of the Value Investing Congress.

Whitney had a conversation with Benzinga's Alex Schiff on the Value Investing Congress, value investing, education reform, and the future of the United States. Below you will find a transcript of the interview. This is part 2. Click here to see part 1.

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You've also been a vocal advocate for education reform. Let's hear the “Whitney Tilson Plan” for reforming America's school system.

Well, I suggest you see the movie “Waiting for Supermen” - I think it's a powerful movie that is going to change the widespread view about our schools and what is possible with them. It's an emotional movie - made my wife cry, but it is very analytical as well. That will give people more insight than I can in a few minutes here. But basically in the last forty years, in the US, our education has stagnated. Now we're spending about double per student, K-12, inflation adjusted, but our rates haven't improved. On any metric, we have flatlined, despite spending twice as much money. And the rest of the world hasn't flat-lined. We used to have the top amount of college graduates - now we're 12th. Now it's not all the fault of our schools. I heard recently that our average student spends 7 hours in front of a screen per day. The average 12-17 year old in this country, send 50 text messages today, and a third send 100 text messages per day. Our schools are clearly letting us down. There's some good schools, but widespread mediocrity and catastrophic failure in those schools in big cities, and serving minority kids. There are a lot of complex reasons behind this, but we've allowed a big bloated system that is run for the benefit of adults, but not for children. And there is a fundamental political inefficiency here - because children don't vote and don't have a union. So attempts to make it more accountable and serve students better run into the entrenched interests of adults, and politicians who have been coopted by those adults.

Alright Whitney we're giving you the loudspeaker now to break any piece of news or sound off on anything you feel isn't getting sufficient attention.

Very very big picture - I am worried about the future of this country. I think we're amazing country with numerous advantages over any other country in the world. I think they'll require coming together, reaching big compromises. I'm almost in a state of despair about the national dialogue and how instead of unifying, we're splintering. I think part of it is the rise of the internet - people can have their own customized news. They choose to watch news and television that reinforces their prior views. I think this is an issue on both the left and the right. You see it in television shows, newspapers - you see it in congress. It worries me and makes me wonder if this political polarization is going to lead to paralysis, and then we won't deal with the big issues like immigration, like reducing our dependence on foreign oil, like social security, medicare - things that will bankrupt us unless we make some changes for example. These are hard to solve even when you have centrists, and there's no evidence of that. Now this doesn't mean the US will lose its wealth and become a third world country, but rather that the period of really great American dynamism peters out. We'll still be out - this isn't total gloom and doom - but it bums me out.

Now that we've got the tough questions out of the way we have a few more light-hearted ones for you. What was your first, and what was your worst job?

I had a big job in college - I ran college pro-painters in Wellsley, Mass. I did learn a lot about managing people and managing customers. I wasn't a big people manager. My business was not as profitable as it should have been. I learned taht people management wasn't my forte. As for worst? I've been lucky. I worked for Teaching America and then Boston Consulting, and then I worked for Michael Porter after business school, and then started my own business. So I've never really had a bad job.

Do you have a hero?

My parents are certainly heroes. I don't blame the schools entirely. After seeing a lot of terrible, terrible parenting out there. If I could press a button and fix all the schools or press a button and fix all the parents in America, I'd push the parent button, in a heartbeat. In the investing world? No question, Warren Buffett. For his investment success and his integrity, and his willingness to share his learning and his technique so that other people can benefit from it.

Okay and this last one is Benzinga's trademark question: What was the best, and what was the worst investment decision you've ever made?

The best investment decision I've ever made was to bring Glenn Tongue into my business. It's made the job a lot more fun, we've brought bigger returns to our investors, and I gave up half my business to do it, to bring in a 50-50 partner, but it was a great decision for my business. In the investing world? The single most important decision we made, was in early 2008, when we came across new data about the housing market and our view at that point was that this was the consensus view - housing prices had declined for 18 months consecutively, the Bear-sterns hedge funds had blown up, Nova Star, New Century Financial had blown up and the consensus view was that this was a sub-prime crisis that was mostly behind us. And we would probably be out of business if we had not come across new data and started from scratch with a new mind and come to a totally different conclusion that was rather than being in the 7th inning of the housing crisis, we were in the 2nd inning of the housing crisis, we then protected ourselves by shorting every housing stock in existence. That kept us in business. I shudder to think how much we lost on the long side in 2008. Thankfully we insulated ourselves, and unlike many of our friends, we went out of business. I wish I had bought credit default swaps, but we would probably be out of business without that leap. What was the worst investment? Well we've certainly owned some stocks that have gone to zero. One that comes to mind was Visible Genetics. That was a company that developed a test for AIDs patients that would tell doctors the genetic make-up of the patient. And it was an exciting technology. It was outside my competence, though and I didn't look at the balance sheets - the company was burning through cash.

Thanks Whitney. That'll do it for this episode of Zing Talk. Be sure to check out for the latest market-moving news, actionable trading ideas and insightful commentary.


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