>> the following program is paid for and presented by skybridge media llc. gary: hi, i' m gary kaminsky . the dog days of summer are markets. the dow jones down 1000 points earlier this week, spooking investors, traders, and oral one k holders, but it' s all about long-term perspective -- spooking investors, traders, and 401k holders. if you are invested in the right places, weeks like this become a blip on the radar screen. we sat down with ricky sandler, the catalyst for one of the most interesting mergers over the last several weeks, and he will share with you all the merger opportunities, activism, and how

to benefit from his strategies. lou: this show has never been solely about investments. we talked about anything that affected people and their money. >> from times square in new york city, the new "wall street week ." >> we' re pleased to welcome ricky send luck, founder, chief executive officer, and chief investment officer of eminence capital and a longtime friend of gary and i -- we' re pleased to welcome ricky sandler. tell us about your upbringing. ricky: grew up in long island, went to the same high school as gary, just a little bit younger than gary. anthony: you can say a lot younger. [laughter]

ricky: my dad was in the money-management business, an analyst at goldman sachs. when out to start a hedge fund in 1982, 1 of the early hedge fund guys. my brother went into the we did not grow up talking about and gdp at the dinner more about the goings-on in in my blood. i did not think i wanted to go into it, but after i decided to defer my law school acceptance because i talked to people who were lawyers who did not like what they did, came into the business and absolutely loved it from the beginning. anthony: another legendary analyst and hedge fund manager you work for, morris mork at goldman. you went to university of wisconsin. what did you study? ricky: accounting and finance, which i think i the underpinnings for an analyst career.

anthony: when did the bell go off, knowing you would follow in your father' s footsteps? ricky: it was the moment i decided to defer going to law school and see what it was like to work for a wild. i got into the business world and loved it from the moment i got into it. i worked for a great friend and mentor to me who is now a money manager, and he and morris, frankly, shaved what i have come as an investor. >> talk about the beginning of eminence capital. you started the firm, philosophy around the firm, culture, etc. ricky: we started with an investment philosophy i called quality value. good businesses but wanting to pay a value price. that goes back to david, kind of a classic value investor,

contrarian, and then morris, who is more of a high-quality businessman. i like the intersection of those things. sometimes you can pay too much for a great growing business, and sometimes, stocks that are cheap are cheap for a reason. i wanted us to be an organization with a great reputation, so we have a pretty terrific culture. i have great people who work or me. our research team has an average tenure of about nine years, which is really impressive in this business. i love going to work every day. >> i want to take you back to the value investment approach approach. you are buying low pe names you think are undervalued intrinsically, and on the growth side, you are willing to pay for that, but you say you are at the intersection of that, which people call growth at a explain to us why you like that most.

ricky: to me, growth and value are on the same track because a growing business can grow into a value stock. by the same token, a value stock may be statistically cheap today, but the is this is -- if certain way, it may be more expensive tomorrow. our view is that growth and value work together, and as an investor in good as this is, you have the opportunity to benefit from growth of intrinsic value. within a reasonable time, it should be statistically cheap even if it is not today. traditional growth and value investors create the opportunity for us. growth investors want to own growing businesses, businesses growing at a certain rate, growth that is accelerating, and they do not really care about the price they pay. that presents an opportunity for

us where stocks get overpriced or where we buy something that turns into a traditional growth stock and they take it to a level that is beyond what we think is fair. >> that is what is commonly called momentum investing, just buy in growth, not necessarily focusing on what the value is. ricky: exactly, what the earnings power is an on the flipside, what price you are really paying. on the flipside, looking at statistically cheap stocks based on a number of characteristics, price-to-earnings, book value, they tend to care less about where the business is growing -- where the business is going in three years, so they can get tripped up on a business that is growing slowly but looks cheap. a number of our short opportunities come from what we

would call value traps or businesses with secular pressure where the guy on the other side is saying this is a cheap stock. >> a value trap is if it looks great on a fundamental basis, book value analysis, p/e analysis, but it' s not growing enough to have a stock price appreciation. >> or maybe it is shrinking. ricky: it looks like 10 times earnings today, but it will be 20 times earnings in three years. >> would it be fair to say that eminence is shorting value traps and getting long growth at a reasonable price? ricky: i would say we own high-quality businesses we think are underpriced in the market for a given reason -- it could be a business we think will grow more than the market thinks or a business that people are focused on the short-term and we think it will regain quality, or it could be that the market is misunderstanding some piece of it. we tend to look for either a

business that will disappoint wall street expectations on the short side -- so a high-growth stock that will disappoint or a pressure where it appears to be cheap but it' we also tend to short accounting-related shorts where at statistical members we think are completely false or aggressive. right back. ricky: it has been hard to short stocks if you believe your job is to make absolute money. we believe our job is to generate wealth. >> "wall street week" is brought to you by high power, and unobstructed view. >> imagine a business built on the premise that delivering right thing to do, a firm that places investor trust at its foundation, rising above the discord of an industry defined by conflicts of interest. we live by the fiduciary

standard, a legal pledge to put our clients' interests first, not because fiduciary is the latest ad, but because that' s what we would build to do -- not because fiduciary is the latest fad. >> i was tired of being a starving artist. little more green. business plan and helped me implement it. >> they taught me how to think big. >> they helped me bring the unimaginable across all corporations. >> get your re-business mentor at score.org -- your free business mentor at score.org. gary: where did you get your business ideas? ricky: it tends to be guys paying attention to what is happening in their sectors. where is growth occurring? where is market share shifting?

which stocks in the sector might have a short-term problem but a long-term outlook? we do a fair amount of screens, companies where the accounting is all messed up and free cash flow and earnings are growing in opposite directions. it has been hard to short stocks if you believe your job is to make absolute money. we believe our job is to generate wealth. >> essentially, you' re taking on possibly less risk than the overall market, but you will perform in a way that gets you more reward given the measurement of risk you are taking. ricky: it' s our longs can outperform the market and shorts can underperform, we can generate return respective of what the market does. one of the problems is people' s mindset is not oriented the

right way on the short side. it' s the market is going to be up 7% a year on average, if you break even on shorts, you are a hero over the long-term. someone would look at that and say they spent all this money on the short side and did not make any money, what a waste of time. that is not true in the business model that we use. and you invest in strategies like eminence, it is not relative performance but the absolute return. we used to say you cannot buy groceries at a supermarket with relative performance. >> i think that' s right, and i think investors who short stocks need to realize that. the wind is blowing against you, so you' re right inch mark is not if you are making money -- your right benchmark. >> let' s talk about michael kors and ebay. ricky: michael kors is a classic

today. people would pay any price in terms of that growth. and deceleration and no price they want to touch it at. we think it' with a ton of international growth potential. it has not overextended itself into outlet to damage the brand. it trades under 10 times p/e ratio with a significant amount of growth internationally. >> would you call this broken momentum? ricky: yes. s the point you made earlier. ricky: it' s growing slower than it was or was growing and now is declining. we have to believe that it is not broken lash broken -- broken-broken, and in this case, the brand is not damaged and there is still growth potential. >> you would buy a wonderful company at a fair price and a fair company at a wonderful price -- is that your

philosophy? ricky: we would do both, but if i had to choose between price and quality of business, i would >> let' over the years, you have sometimes engaged in activism or friendly activism in terms of management doing the right thing or not doing the right thing in terms of shareholders. is michael kors' management managing this slowdown in the right way? ricky: we think so. we think they' about not over distributing to outlets penetrating international opportunities, buying back stock with free cash flow, so we think they have been doing the right rings -- things, so we would not they have run through the classic cycle that sometimes companies expand at a certain rate, and that starts to slow

and mature, and investors get excited on once tied and depressed on the other -- investors get really excited on other. >> talk a little bit about ebay. you like that name. ricky: we actually like both pieces of ebay, and before it split up -- >> that' s paypal and ebay. ricky: yes. before it split up, it was perceived to be a company losing share. amazon was growing at 30% and ebay was growing at 12%. somehow, that is negative. as a growth investor, you want companies gaining market share and growing quickly, so ebay was caught in this value investors haven where it' s a good as this, great financial characteristics, but investors were discounting it a lot.

high-quality business inside of it, paypal, which we think has an enormous opportunity. >> when you look at the payment space and what will happen in this business over the next as opposed to credit cards or cash -- people paying with phones, ebay is the that position. we think paypal has 20%-plus we think it' s margins are lower long-term because of the investment they are making to grow the business internationally. we think that is growth at a reasonable price. >> another busted momentum name you have been buying is zynga. ricky: it was sort of a hot ipo a couple of years ago. their games were really popular on pc, the facebook platform. when the world shifted to

mobile, they missed it. we see a business where long-term, there is significant growth in gaming, significant growth in mobile gaming as the world goes to 2 billion to 3 billion smartphones, and zynga has great games in development and great franchises. they have transitioned their business now, so we think they are well-positioned to capitalize on where the world is going now. >> what is your thought on gaming in general? ricky: we' re excited about the it' s one where we have been accumulating positions. happening to the gaming industry is now that publishers are no longer selling a $50 package piece of software but delivering you a game are three significantly better. one, the direct relationship

with the consumer allows you to extend title lifecycle. you could sell madden 2006 and then met in 2007, but now you can sell an upgrade package to the 2006 owner -- you could sell madden 2006 and then madden 2007, but now you can sell an upgrade package to the 2006 owner. >> like us on facebook. follow us on twitter and instagram. sponsored in part by betterment, investing made better. >> what should i do with my money? investor or just starting out, the answer is betterment, the smarter way to invest and the largest automated investing service in the u.s. if you are building wealth or preparing for retirement, we provide a personalized recommended asset allocation and

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the resolution of smarter, more straightforward, personalized investing has started, and we are leading it. >> i enjoy watching "wall street week" and i' m sure you will too. >> another theme you have as it relates to the home theater business having an impact on the movie business -- talk about what you see there and the opportunity. ricky: we' re short regal cinemas, the largest movie theater operator in the country. in decline. over the last 10 years, the number of tickets sold is down about 15%. going to the movie theater is kids. kids do not hang out there anymore. we think this business is in valued very highly, so regal is a company that pays out a 4% dividend. company. >> a lot of people screen for

dividends and look at the dividend and say it is a cheap stock but never do the accounting work or look at the is sustainable. what kind of advice would you give viewers? they are not accountants. how do they try to understand if can grow and is sustainable? ricky: you need to think about where the business will be in five years and if you think the cash flow of the business will years. even the owners of regal think it is low growth at best. ? do you like that? ricky: we do not. we think imax has issues as well. the movie theater business in making nicer seating, dinner.

amc is putting a lot of capex in and trying to reinvigorate it. we think the business will shrink, and you will have to put to retrofit theaters, and older theaters lower the industry. regal explicitly put themselves nobody showed up. no buyer. guy, but you have to come to work every day thinking about overall economy. what is your outlook? ricky: we are on the cautious side in terms of exposures. that -- >> what does that mean? 40% long? ricky: our portfolio today is about 140% long by 95% short .

a lot of hedge funds, as you know, anthony, are not really hedging. this is a true hedge fund. >> what' s the data on your portfolio, the measurement of the portfolio relative to the overall stock market? ricky: the current data of our total portfolio is probably around $.30. >> that' s interesting. for the viewers, that means that if the market is a data of one, you are taking 70% less risk than the overall market. i want to go to men' s wearhouse, a specific name of yours, a bank deal with a unique transaction. tell us about it. ricky: we like to invest in good businesses, and we had done work on men' s wearhouse and just banks. we think those are good businesses. men' s wearhouse is a good -- anthony: even though kerry does not shop at those?

gary: i got to tell you, i like the way i look. >> you had a position at joseph ranks -- joseph banks. ricky: we did not have a bit. we did have a position when they made a bid for men' s wearhouse. they made a hostile bid that got leaked to the press that men' s wearhouse flatly turned down. our view is this transaction, powerful. scale, leverage, cost savings, controlling the message to the consumer -- how about instead of by one, get for free, by one and get three and a half free? bit? ricky: so we nudge things a little bit. we told them this was a powerful

combination, so they had to figure out a price to sell the sad or, better yet for us, how about they by joseph banks and we as long-term investors benefit from the combination of these companies? they agreed with us and made a for joseph banks. ultimately, we had a position in in men' s wearhouse. buyer than the seller in this transaction. powerful, so we pushed joseph banks to negotiate with them. >> phenomenal story and write in the wheelhouse of what gary said about activism. telling the merits of activism. case. little bit. ricky:

companies, so we should have some boys and how the business is managed -- we should have is managed. we also tend to suggest things even if we like how the business is doing. the continuum of being an engaged shareholder. one of the best things happening are listening. anything. they just have to say that this is a smart investor that they should listen to. >> you guys are short trench government debt. ricky: yes. france is a country with a balance sheet that looks closer degrees, with a fiscal deficit that looks closer degrees, and with a country that does not have the capitalist will to pull in itself out, so they have elected socialists , and they

have big pensions, and it' s priced at 830% premium to german bonds, which are extraordinarily too low -- it' s priced at a 30% premium to german bonds, which are extraordinarily low. if this does not work out, i lose 1.3% a year. by the way, i hope it does not work out. >> "wall street week" will be right back. >> dear fashionist as, athletes, ballerinas, first responders, we' re honored that our fibers have your back. >> you can join millions of americans turning off the old media for newsmax tv. we in over 40 million homes on directv, dish, and verizon f plus, you can watch us anywhere in the world.

just download our free app from your iphone or android. do it today and find out why millions are tuning in for real news and better talk. >> from fuel to durable tires, we help make it all better. if life is really all about the journey, let' s ride. >> "wall street week" is sponsored in part by morgan stanley, where capital creates change. association. that ball? ricky: to play? >> to play or watch. to play, tennis. >> favorite book? ricky: i like "into thin air" by jon krakauer. that just spoke to me. >> favorite vacation spot? ricky: aspen.

i love the mountains, the activity, biking, hiking. >> wisconsin football? ricky: we' ve had a great run of sports. it has been a great time to be a fan. >> we want to thank you for spending time with us today on "wall street week." s it for us today. check in with us all week at wallstreetweek.com. until next sunday, have a prosperous week. [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. visit ncicap.org] >> the preceding program was paid for and presented by skybridge media llc.