Charley Ellis on How America Actually Got Built (Investing in America Series) | #633
Meb Faber interviews Charlie Ellis, founder of Greenwich Associates and author of 'Great American Investments,' covering Ellis's career highlights including his pioneering work on share buybacks, his famous 'Loser's Game' indexing thesis, and his new book profiling 14 bold public investments that shaped America. The conversation spans topics from long-term investing principles to historical government initiatives like the Louisiana Purchase, Social Security, and the GI Bill.
Summary
The podcast opens with host Meb Faber introducing Charlie Ellis, an 88-year-old investing legend who founded Greenwich Associates in 1972, served on Yale's investment committee, and has written over 20 books. The conversation begins with an unexpected topic: Ellis's earliest book on share repurchases, written shortly after his Harvard Business School graduation. Ellis explains that post-WWII companies had over-leveraged with debt for government contracts and then overcorrected by paying it down too aggressively, leaving them under-leveraged. He argued companies should borrow to repurchase shares, an idea Goldman Sachs helped popularize by sending copies to 1,000 corporations. That concept has since grown into a trillion-dollar-plus annual phenomenon.
The discussion then shifts to Ellis's most famous work, the 'Loser's Game,' and his views on indexing. Ellis argues that the optimal investing strategy for a 25-year-old is to start early, invest in low-cost index funds, avoid taxes by not trading, and avoid active managers who charge fees. He estimates the average investor loses 2% of returns annually through mistakes, fees, and taxes — turning a potential 7% return into near-zero after accounting for inflation, errors, and management costs. His core message: compounding works best when you do nothing to interfere with it.
The bulk of the conversation centers on Ellis's new book, 'Great American Investments,' which was inspired by his wife's COVID isolation mandate. Ellis catalogues 14 major public investments — including the Louisiana Purchase, Alaska, Social Security, the GI Bill, national parks, the internet, NASA, and the National Institutes of Health — arguing each was driven by one or two visionary individuals who navigated democratic processes to produce transformative national outcomes. He highlights Frances Perkins as the architect of Social Security, noting her psychological savvy in wearing conservative clothing to disarm male colleagues and her disciplined weekly check-ins with FDR to keep him committed to the program.
Ellis discusses the financing structures behind these initiatives, noting that the Louisiana Purchase was essentially a long-term margin loan with no upfront capital, and that Alaska was sold cheaply by a motivated Russian czar worried about overextension after the Crimean War. He emphasizes that favorable deal structures — not just visionary ideas — were critical to these investments succeeding.
On the question of America's future capacity for bold public investments, Ellis points to AI as the most likely next transformative force, though he warns it may eliminate jobs faster than expected. He also highlights America's unique culture of volunteerism and philanthropy — tracing it back to Tocqueville — as a durable foundation for civic progress. He cites Yale's need-blind admissions (40% of students on full scholarships) as an example of forward-looking American institutional investment in human capital.
The conversation closes with Ellis's most memorable personal investment: Berkshire Hathaway. After a disappointing business lunch with Sandy Gottesman in the early 1970s, Ellis asked Gottesman for his favorite long-term investment. Gottesman said 'Berkshire' and declared he planned to hold it 'forever.' Ellis subsequently convinced his Greenwich Associates partners to put their firm's emergency reserve fund entirely into Berkshire at roughly $700/share. That investment has since returned nearly 100x over 50 years.
About this episode
My guest today is Charles Ellis, founder of Greenwich Associates, longtime member of Yale’s investment committee, and author of more than 20 books, including the classic Winning the Loser’s Game. In today’s episode, Charley reflects on writing the first major book on share repurchases 50 years ago, when the idea was so foreign that Goldman mailed it to 1,000 corporations as a “legitimizer.” Charley also walks us through his new book, Great American Investments: A History of the Bold Initiatives that Shaped a Nation, covering 14 audacious public investments from the Louisiana Purchase to the Marshall Plan. He explains how each came down to one or two obsessed individuals, why Alaska turned out to be the bargain of the century, and how Frances Perkins muscled Social Security into law. As the episode winds down, he shares the lunch with Sandy Gottesman in the early 1970s that led him to buy Berkshire Hathaway at $700 a share — and hold it ever since. (0:00) Starts (1:54) Charley on stock buybacks (8:06) Current state of investing and behavioral economics (11:37) Advice for young investors and long-term strategies (16:41) Charley's new book: Great American Investments: A History of the Bold Initiatives that Shaped a Nation (25:42) The origins of social Security (32:46) American entrepreneurship (36:43) Will AI be the next great American investment? (42:34) Most memorable investment ----- Sponsor: Ivy Invest - To learn more about Ivy Invest's SEC-registered endowment-style fund, view the prospectus, and learn how to invest, visit ivyinvest.co/fund ----- Follow Meb on X, LinkedIn and YouTube For detailed show notes, click here To learn more about our funds and follow us, subscribe to our mailing list or visit us at cambriainvestments.com ----- Follow The Idea Farm: X | LinkedIn | Instagram | TikTok ----- Interested in sponsoring the show? Email us at [email protected] ----- Past guests include Ed Thorp, Richard Thaler, Jeremy Grantham, Joel Greenblatt, Campbell Harvey, Ivy Zelman, Kathryn Kaminski, Jason Calacanis, Whitney Baker, Aswath Damodaran, Howard Marks, Tom Barton, and many more. ----- Meb's invested in some awesome startups that have passed along discounts to our listeners. Check them out here! -----Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com). Learn more about your ad choices. Visit megaphone.fm/adchoices
Key Insights
- Ellis argues that the average investor loses approximately 2% of annual returns through a combination of behavioral mistakes, active management fees, and unnecessary taxes — turning a nominal 7% return into near-zero real returns after inflation.
- Ellis claims share buybacks were a genuinely novel and controversial idea when he wrote about them in the early 1970s, and that Goldman Sachs distributing his book to 1,000 corporations was the catalyst for mainstream adoption of the practice.
- Ellis contends that Frances Perkins deliberately wore dark, conservative clothing with white collars to subliminally remind male colleagues of their mothers and grandmothers, as a strategic tactic to gain influence in a male-dominated political environment.
- Ellis argues that Social Security's design as a self-funding program — rather than relying on general revenue — was Roosevelt's deliberate safeguard against future political reversal, a structural decision he credits as essential to the program's longevity.
- Ellis claims the Louisiana Purchase was essentially a zero-money-down real estate deal, with credit extended over a dozen years, making it one of the most structurally favorable asset purchases in history.
- Ellis argues that the Russian czar sold Alaska cheaply not because of its lack of value, but because of strategic overextension fears after the Crimean War — illustrating that motivated sellers, not just motivated buyers, drive transformative deals.
- Ellis contends that the internet cost less than one million dollars in initial government investment, making it arguably the highest-return public investment in American history on a cost-to-impact basis.
- Ellis recounts that Sandy Gottesman told him in the early 1970s he planned to hold Berkshire Hathaway 'forever,' a conviction Ellis adopted by putting his firm's entire emergency reserve fund into the stock at approximately $700/share, yielding nearly 100x returns over 50 years.
Topics
Transcript
Welcome to a special series of the Meb Faber Show on the past, present, and future of America. I'm sitting down with some of the most notable historians, thinkers, and investors in U.S. financial history, all tied to my new coffee table book, Investing in America, The Rise of a 250-Year Bull market, out July 4th. 1980s, David Swenson took over Yale's endowment. It was a pretty conventional portfolio, mostly stocks and bonds. And he asked a simple question, why are we investing like everybody else? So he did something radical. He moved a huge chunk of the endowment into private markets, like private equity, venture capital, hedge funds, assets that were illiquid, sure, but also largely uncorrelated with public…
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