Peter Ricchiuti: A Pearl of a Money Man
The Stand Up Economist
“You’ve put me up in a wonderful hotel, just beautiful. The towels are so fluffy I could barely close my suitcase. Thank you, it’s really working out for me here.”
“By the way, did you know that ‘La Quinta,’ in Spanish, means ‘Next to Denny’s?’ Most people don’t know that.”
“The economy and stock market are very late in this cycle. As evidence, I’ve made so much money in the market I pay someone to walk around with my Fitbit.”
“But things are getting concerning now. For instance, I was watching CNN, and Wolf Blitzer’s report on the economy was making even me nervous. And by the way, if my name were ‘Wolf,’ the last thing I’d do is grow a beard.”
“My theory on the interest rate cycle of the past forty years is that rates have been a direct reflection of the height of the Fed Chairman. Paul Volker was very tall and rates were very high. Alan Greenspan was shorter, and rates starting coming down. Ben Bernanke was shorter still, and rates kept falling. Janet Yellen was diminutive, and rates hit 0%. The new chairman, Jay Powell, is quite tall and rates are rising again. If the president wanted lower rates, he should have appointed a shorter Fed Chairman.”
The Money Man
Peter Ricchiuti has been compared in some circles to Warren Buffett, the greatest value investor of our lifetime. Beyond that, there’s clearly more than a little Robin Williams in him, so attending one of his lectures is sure to be part economic update and part stand-up routine. How refreshing is that? His uniquely effective delivery style has transformed rather dry and complex subjects into understandable and entertaining presentations.
Ricchiuti (pronounced Ri-Chooty) is a bit like a scatting jazz artist from the South and that’s no coincidence. For over thirty years, he has resided in New Orleans, Louisiana, one of the nation’s most historic culinary and entertainment capitals. Along with his elite entertainment value – his broad smile, outsized swagger and non-stop one-liners – comes an extraordinarily bright economist, finance professor, entrepreneur and money man.
In 1976, not long after graduating from Babson College, the Boston native started his finance career with legendary Wall Street firm, Kidder Peabody & Co.. In his early days at Kidder, a veteran advised him to trust his own instinct and never follow the herd, saying, “If the majority of people were right, the majority of people would be rich, and they’re not.” Ricchiuti has that quote tattooed on his left buttocks, he says, so he’ll never forget (we took his word for it). True or not, there’s no doubt this money man has been following his own instinct ever since.
When the opportunity arose, he moved to the Deep South’s lowlands to become Louisiana’s Assistant State Treasurer responsible for managing its $3 billion pension fund, which he did very successfully. In 1986, Ricchiuti earned his Masters of Business Administration from the University of New Orleans and decided to remain in the world of academia. He has been a highly acclaimed and awarded professor of finance at Tulane University’s A.B. Freeman School of Business ever since.
Teaching the Young
On Meb Faber’s Podcast (July 2018), Faber and Ricchiuti agreed that “high schools are doing a terrible job teaching financial literacy – both personal finance and investments.” At Tulane, Ricchiuti set out to change that in a way as big as his personality. Every year he teaches two hundred lucky students the financial, analytical and investment management skills they’ll need to make their way in the business world.
Beyond that, just experiencing Ricchiuti’s character – his impressive energy, sense of humor and confident communication abilities – leaves an indelible impression. One can’t help but absorb critically important presentation skills while also learning to never take oneself too seriously.
A clear message he delivers is that the economy and Wall Street (and life) can at times be befuddling and humbling, more complicated than we’ll ever fully grasp, so we may as well have some fun with it. Famed economist, John Kenneth Galbraith, may have said it best: “there are two kinds of forecasters, those that don’t know, and those that don’t know that they don’t know.”
Ricchiuti well knows that he doesn’t know, and by clearly getting the joke he inspires his students to approach life’s challenges with diligence and a tireless work ethic, as he does, and always with a light heart and a one-liner at the ready. “I teach the kids about our tax system by eating 38% of their ice cream,” he quips, “it’s worked out well, at least for me.”
Perhaps his greatest success at Tulane has been in creating Burkenroad Research Reports. Since 1993, forty teams of five students have each been assigned one small, underfollowed public company in Louisiana or the five surrounding southern states. The teams research their company to its minutiae, including analyzing financials and going out into the field to meet with management, suppliers, retailers and customers. After getting to know the business intimately they write a comprehensive investment report, available to the public at burkenroad.org.
His students have taken helicopters offshore to oil drilling rigs in the Gulf of Mexico, seen the inside operations of regional banks, retailers and restaurants, and they’ve been to chicken processing plants. “That was a tough visit,” Ricchiuti recalls, “a little like visiting prisoners sentenced to death. But not to worry,” he assures with his patented chortle, “with a couple of years of therapy the students who made that trip are doing better.”
The program has been so successful that 17 years ago, Hancock Horizon Funds of New Orleans-based Whitney Bank started a mutual fund based partly on the students reports. Now with over $800 million in assets, Burkenroad Small Cap Fund has outperformed 99% of all mutual funds since its beginning (source: Freeman School of Business – Tulane Univ.).
Ricchiuti calls this result “disturbing, given the analytical team’s payroll is zero.” Full disclosure – Hancock supplements the student’s research with its own and experienced managers make the final investment decisions, but we forgive the professor whenever his comic side emerges (in fact, we welcome it).
“The stock market is a leading indicator,” he preaches to his students, “informing us about what’s likely ahead in the next six to twelve months.” He also reminds them that, “you’re paid on Wall Street for knowing what companies will look like in three to five years, not what they look like today.” Proudly, he reports that over 750 of his Burkenroad students have gotten the message and gone onto successful financial careers all over the globe.
His fondest Burkenroad memory was in 2008 when he took a group of 27 students to Omaha, Nebraska to meet the authentic Warren Buffett. Planned well in advance, the visit turned out to be smack in the middle of the most devastating global financial crisis since the Great Depression.
Just eight days before they were to arrive, venerable investment bank, Lehman Brothers, shocked the markets by closing its doors after 164 years in business. On that same ominous Sunday evening, Bank of America rescued Merrill Lynch from a similar fate while Wall Street and the Fed together released Lehman’s lifeline. With the market reacting chaotically, Buffett had just written a Wall Street Journal editorial encouraging optimism and advising that the best investment opportunity of our lifetime may be in our midst (of course, he was absolutely correct).
Professor Ricchiuti had other concerns. He was worried that his students long-anticipated opportunity would be cancelled. Instead, Buffett welcomed the students with warmth, grace and humor, was exceedingly generous with his time, and even hosted them for lunch (making everyone drink Cherry Coke, of course, the Oracle’s favorite beverage).
“I love Warren Buffett,” Ricchiuti says glowingly, “and I love Jimmy Buffett too, it’s an amazing family.” If you’ve been paying attention, you probably realize there’s no relation between the two Buffetts.
Each year, Burkenroad Reports hosts their annual conference on the first day of New Orleans’ world-famous Jazz Fest (this year on April 26th). Experiencing Ricchiuti live seems the perfectly appropriate way to begin the Fest.
Out To Lunch
We’ve been thinking all along that Peter Ricchiuti is to a degree “out to lunch,” but now we can legitimately declare it. About eight years ago, top business periodicals were naming New Orleans “the best city in the U.S. to be an entrepreneur.” Of course, it triggered Ricchiuti’s own entrepreneurial spirit once again and he started ‘Out To Lunch,’ a weekly radio program broadcast on NPR.
Every week he invites one or two local entrepreneurs to Commander’s Palace to chat about their business experiences and philosophies over lunch. “It’s one of the finest restaurants in the country and the lunch is free,” he says, “so they always say yes.”
His guests are as diverse as the region itself, including artisan bakers of French bread and muffuletta buns, and a company that purifies the countless local oysters consumed by New Orleans’ nearly twenty million annual tourists, ensuring the economy keeps juking and jiving. Other business owners who have stopped in for a nosh and a chat include those in the fields of healthcare, technology, energy, leisure, fashion and a myriad of consumer products.
The show also promotes non-profits who are building and maintaining affordable housing, helping educate underprivileged children, and filling a host of other community needs, including famed New Orleans chef Emeril Lagasse’s Foundation.
One of the guests Ricchiuti highlights is ‘Yellow Jacket,’ a local company which has developed an iPhone case that can act as a stun gun. “They’ve weaponized the iPhone with the highest voltage allowed by law,” he says excitedly. “But here’s the kicker, when you stun someone, it charges your phone. Can you believe this?” Pausing to consider, he worries they may be incentivizing the wrong behavior and scats, “Hey, sorry Larry, my phone was running out of juice. Here, let me help you up.”
The common theme of his radio program – a celebration of positivity and the entrepreneurial spirit – is no different from that of Throomers, the website you are enjoying right now. The only distinction, besides the choice of medium, is Ricchiuti focuses on his local economy while Throomers is focusing on a broader audience.
Speaking of the local economy, the energy industry is vital to Louisiana so it’s a regular topic for Ricchiuti. With the price of oil at the low end of its recent range ($46/bbl.), and many shale producers struggling to make a profit, he highlights Liquified Natural Gas (LNG) facilities being built at the Gulf ports as an interesting development worth our attention
“Over $50 billion has been invested in these facilities so far,” he says. “With natural gas plentiful in the U.S. and priced at about $3.50 (per million btu), they are freezing the gas (265 degrees below zero) to 1/600 of its size and loading it on ships for export. In Europe and Asia, the same gas sells for $6 and north of $10, respectively. It’s a classic arbitrage,” he concludes, believing that natural gas will be a long term winner.
More Pearls of Insight
On investing, Ricchiuti says, “it’s hard to get people to look out a year, never mind two or three.” He recalls one of his students saying incredulously, “Look out a year – that’s two or three girlfriends from now.”
An unabashed value investor, he decries human nature’s deleterious effects on portfolio performance. “People get overly optimistic about the past few years,” he says, “so they tend to buy the most expensive stocks that have performed the best. This is one of the biggest mistakes an investor can make.” Like ‘The Oracle’ himself, Ricchiuti prefers selecting among lagging, troubled companies and would rather invest when “things look miserable,” which isn’t exactly the case today.
“The stock market is a leading indicator,” he constantly reminds his students and audiences, “and it has been flashing warning signs. Our economic expansion is in extra innings, 110 months now, and the unemployment rate is a low 3.7%,” he says. “Since 1948, market returns have been 3x higher when unemployment tops 6.6%.”
“In addition,” he continues, “interest rates are rising and entrepreneurs are telling me their biggest problem is finding good labor.” He warns that “these are signs of an economy late in its growth cycle.” On the never-ending cycle wheel, the next inevitable stage after “late” is called “recession.”
“Capitalism and democracy are the only systems that have ever worked throughout history,” he says, “and every seven to ten years you get a washout, you clean out the excesses and start a new cycle. It’s not easy, but that’s how it works.” While sanguine, his words also feel a little ominous given the last “washout” came in 2007-08.
He laments the country’s unsettled immigration policy, saying, “To stay on a growth path, we need more young immigrants in the U.S.. Nearly half of Fortune 500 companies were started by immigrants or their children and most of our talent in the sciences is coming from parents born overseas.”
He continues by saying, “We’ve noticed that some of the smarter, more ambitious kids in the class are foreigners. It’s predictable though. On weekend evenings the foreign students are often found on campus developing trading algorithms while our best American students are visiting the French Quarter enjoying a few beers and the world-class music clubs.” Ricchiuti stresses that both pursuits are admirable and have their place in a good and balanced life.He also worries about a growing healthcare crisis in America, noting that “just 13% of workers are normal weight and without a chronic health problem.” But “an even bigger problem,” he believes, “is our growing income and wealth inequality. It’s like we live in two separate countries.” While he professes to have no solutions, he implores, “We must consider all options to make this a fairer country. Capitalism only works when people believe they can share in the growing pie of wealth creation.”
He leaves this point with a dire warning: “These great divides are usually solved in only a couple of ways, either with much higher taxes on the wealthy, or by revolution or even war.”
Our Bright Future
Now 61 years of age, Ricchiuti believes one of his true blessings is being around young people, saying, “today’s generation has a strong work ethic, is smarter than in the past, and is much more community-minded. It’s the best generation yet and our future is in very good hands.” He further says, “this generation is more urban, more mobile, and are starting families later. Pure hell for them is to live in a gated community on a cul-de-sac and commute to an office park.”
He also notes that “campuses are decidedly female and women are generally better educated. 1/3 will earn more in their marriage than their husband, and that number will rise.” He cites a Brookings Institute study in saying “a record number of men are marrying up educationally.” (editor’s note: doesn’t that make the men the smart ones?)
“The average American today lives better than the ‘Robber Barons’ of the late 19thcentury,” Ricchiuti adds, “insofar as medical services, transportation, communications, entertainment, and many other basic comforts.” Warren Buffett shares his optimism, having said, “For babies born today, life will be better than ever – they are the luckiest crop in history.”
Regarding our growing population of boomers entering their retirement years, Ricchiuti again cites Brookings when saying, “A happy, work-free retirement is a myth. We are all happier and healthier when we are active and feel needed. So get out in the world and get needed. There are a surplus of people out there who desperately need you.”
The Money Man’s Bright Future
As for Ricchiuti’s future, he often says, “the four most dangerous words in finance are ‘this time it’s different.’ That just isn’t the case.” We think that goes for the professor’s future path as well. It appears to be more of the same for this highly productive and contented husband, father, teacher, and money man.
Perhaps he’ll write a follow-up to Stocks Under Rocks, his debut book inspired by his experiences with Burkenhead Reports? Amazon’s review says it “will be the next classic for every personal investor who wants to find great investments and have fun doing it!” Or perhaps he’ll indulge another passion by revisiting every baseball stadium in the country to take in a game, as he’s already done at least once?
However that goes, we’re certain he’ll continue to thrive in his most noble profession. After all, in 2014 his teaching style was awarded “top honors” by Wharton School and he’s twice been named Freeman Business School’s ‘best professor.’ In addition, ‘Reimagine Education,’ a global education awards program, has been equally impressed, naming his teaching delivery ‘best on the planet’ in a competition of more than 400 schools representing 43 countries. These are no small feats, and when you’ve been named ‘MVP’ of your sport, it’s a good indication that retirement is still several years off.
We also suspect he’ll continue to inform and entertain audiences throughout the country on both the radio and in live appearances, as he has more than 1100 groups in 47 states and several countries to date.
His Greatest Gift
Whatever is in store for Professor Peter Ricchiuti, we’re 100% positive (20% + 70%) that it will be with a devilish gleam in his eye and a smile as big as the Bayou on his face. We think the professor has embraced something that many great minds before him also came to understand. A small sampling:
Humanity has unquestionably one really effective weapon – laughter. Against the assault of laughter nothing can stand.– Mark Twain
He that is of a merry heart has a continual feast.– Proverbs 15:15
Everyone is so afraid of death, but the real Sufis just laugh: nothing tyrannizes their hearts. What strikes the oyster shell does not damage the pearl.– Rumi
Every time he graces our presence, this “pearl” of a money man reminds us of the essential need to lighten up and laugh out loud. And this may be his greatest gift to humanity of all.