Sheldon Stone - Liquidity, Covenants, and Capital Availability

Navigating the investment world is an enormous task, especially when looking at company numbers and the people running them. That's why we're thrilled to have Sheldon Stone on the show. Sheldon was the first in his family to go to college, attending the highly respected Bowdoin College. He was part of a remarkable class of 225 students, an experience that shaped his unique perspective on life and career. Hailing from New Jersey, Sheldon Stone has had a fascinating career journey. His time at Bowdoin wasn't just about hitting the books; it also laid the groundwork for his expertise in bonds and financial markets. In today's episode, hosts Michael Mauboussin and Tano Santos sit down with Sheldon to dig into the nuts and bolts of investing. Sheldon shares his path from studying government in college to becoming a seasoned Chief Investment Officer. We dive deep into critical considerations like balancing liquidity and safeguarding investments, understanding the growing high-yield market, and why intangible assets like brands and patents are making financial waves. Sheldon, Michael, and Tano will explore Sheldon's unique educational background, the trade-offs in investment strategies, the rise of the high-yield market, the role intangibles play in today's financial world, and so much more!

Key Topics:

• An overview of Sheldon’s professional background (3:13)
• 40-year partnership with Howard Marks: mutual dynamics and shared intellect (8:38)
• Early high-yield bond market inefficiencies and technological limitations (11:23)
• How equity holders' approach affects creditor relations and company ease-of-work (18:57)
• Company growth via flexibility over ratings and the role of private equity (20:38)
• Operating in 300-550 basis point spreads; equity investment opportunities (24:18)
• Importance of new issues for returns; market appetite and deal quality (26:25)
• Role of equity market signals in bond investments; sector focus (28:34)
• Credit scoring matrix: eight critical factors for buy/sell decisions (31:17)
• Asset recovery rates: tangible vs intangible; market sentiment effects (39:25)
• Impact of rising rates on leveraged loans; stability measures (46:55)
• Challenges with interpreting delinquency rates; sector diversification strategies (50:30)
• Characteristics of influential investment committees: camaraderie and vital CIO (52:04)
• Teaching at Columbia; credit analysis as a career path for students (54:12)
• What keeps Sheldon up at night and excited about the future (57:14)
• Sheldon’s book and theatre recommendations (59:00)
• And much more!

Mentioned in this Episode:

• Charlie Ellis Book | Winning The Loser’s Game
• Howard Marks’ Books
• The Most Important Thing: Uncommon Sense for The Thoughtful Investor
• Mastering the Market Cycle: Getting the Odds on Your Side

Thanks for Listening!

Be sure to subscribe on Apple, Google, Spotify, or wherever you get your podcasts. And feel free to drop us a line at valueinvesting@gsb.columbia.edu.

Follow the Heilbrunn Center on social media on Instagram, LinkedIn, and more!