Bennett Group Financial Services
Financial Myth Busting
Washington, DC — (ReleaseWire) — 02/19/2015 —
BENNETT: Winthrop Smith is a majority owner and President of Sugarbush Resort in Vermont. Before that he served as a chairman of Merrill Lynch International, where he oversaw 9,000 employees and more than $2 billion in revenue, with client assets of $180 billion. He left that high paying Wall Street gig to work full-time at a what was then failing ski resort. Winthrop, welcome to Financial Myth Busting.
SMITH JR.: Thank you, Dawn. Please call me Win, by the way.
BENNETT: OK. Win, I used to live in Utah and I love skiing, so I understand your passion for the sport. Was it that passion that led you to Sugarbush?
SMITH JR.: It was a combination of things, Dawn. My family had grown up skiing here and the Sugarbush has a great history, a great legacy, but it has fallen in hard times. American Skiing Company was in financial distress, and we saw a chain of managers and terrible community relations, a lot of deferred maintenance. So a partner and I decided if we could buy it, find some local people to run it for a couple of years, resell it, that would be something we wanted to do. And that was the initial intent, but then, when I left Merrill, I became more engaged. I decided this could be a great second career, so I moved to Vermont. I took over the management. My partner, unfortunately, passed away, so I bought his interest out, so for the last 10 years, I’ve been the owner or manager, if you will, and it’s been a great second career.
BENNETT: Running a business in the United States is so different nowadays. Your father, Winthrop Smith, Sr. co-founded Merrill Lynch and was one of the biggest names of Wall Street. Did he teach you anything that’s helping you not only to rebuild your ski resort, but to really survive in today’s world?
SMITH JR.: He did. He died when I was actually pretty young. I was eleven years old. I knew him as a young boy, but I learned a lot about him working at Merrill Lynch from former colleagues and just by the values that he instilled at Merrill Lynch. Those values are things we really try to practice here at Sugarbush. First and foremost, you have to make sure that you put the client’s interests first, that you really focus on providing excellent service. You have to build a good team, and building a team is not easy. You have to work that out every day. You have to make sure that egos don’t get in the way of having teamwork together.
You’ve got to have a lot of respect for your employees if you want them to respect the customer. You have to operate with total integrity, and because we operate in a relatively smaller community, we have an obligation to really give back to the community, as well as receiving from the community. Those things I learned in Merrill, and we really try to practice them here at Sugarbush.
BENNETT: So, tell me about your Board of Directors at Sugarbush. I know you sit on other boards. What kind of characteristics do you want in your board members these days?
SMITH JR.: Because I own 95% of Sugarbush, you’re really speaking to all of the Board of Directors, so it’s a lot easier, because I’m totally accountable. I do sit on other boards, though. I think, as a board member, you’re not going to micro-manage. That’s why you have a CEO and a management team. It is terribly important for boards to select the right person, then review the CEO, make sure that he’s performing, not only financially, but also performing in a way that’s in the best interest of the company. What I think a director should be focused on more and more is not only the technical skills of the CEO, but the character of the CEO. You saw so many Wall Street Firms in 2007 and 2008 went down, not because they weren’t run by smart people, but because they were run by greedy people and that was a flaw in character that, unfortunately, the Boards sometimes didn’t recognize.
BENNETT: Do you think Americans’ view the financial industry has evolved since 2008?
SMITH JR.: I live in a pretty Main Street town, right now. And people deplore Wall Street. They think Wall Street was full of greedy people that brought down the financial world and created a deep depression that they’re still suffering from. And it’s too bad, because Wall Street serves a critical function to our economy and it has to regain, in my opinion, the respect and the credibility of Main Street America, if it’s really going to survive and prosper in the future.
BENNETT: If you were back on Wall Street. What would you be doing? If you were at Merrill Lynch, what would you be recommending to regain that type of respect?
SMITH JR.: I’d go back and do what my father and Charlie Merrill did in 1940, because there were similar patterns there. The average American thought they couldn’t get a break. Only the wealthy made money. They didn’t understand how to invest. They thought Wall Street was filled with conflicts of interest. What you have to do, you have to go back out to the community, and you have to talk to them in their own language. You have explained to them how to invest. You have to make sure that you have proper supervision and self-regulation as well as the regulation that’s going to come out of Washington, things like fast trading.
Maybe there isn’t anything wrong with it. Maybe there’s no damage, but the perception of that in Main Street, just hurts the credibility of Wall Street, so I’d like to see more of those people out in Main Street talking the language and really helping to educate people about how to invest and then do well for themselves over a long term.
BENNETT: What was it like growing up and having a front seat at Merrill Lynch, just as the firm’s growth exploded?
SMITH JR.: It was really exciting, Dawn. I started in 1974, right out of grad school, and spent nearly 28 years there, and during the last 10 years, I was responsible for non-US business. After the fall of the Berlin Wall, as companies began to democratize, as capitalism went around the world, it was a very exciting era. So, I would’ve gone back and done it exactly the same way. Then, I’m not sure that I would be as excited today.
BENNETT: Which brings me to the question with the acquisition of Merrill Lynch by Bank of America of Merrill. I’ve been managing money for 30 years, so I’m well aware that the Merrill Lynch Principles were celebrated by everybody in the industry. Do you think those principles are still there? Are those practices still there?
SMITH JR.: Bank of America, in my opinion, has done something very smart. They’ve continued with the name of Merrill Lynch, Pierce, Fenner & Smith as the broker-dealer and as the piece for their private wealth business. The people running that, Andy Sieg and John Theo, are both Merrill Lynch veterans. They still talk about the Principles. They celebrate the history. I’ve actually been invited in this past year to speak to over 20 Merrill Lynch functions, about the history, about the culture and people receive it very well, both the veterans and the new people, so they are trying to keep that culture for that part of the business. Will it be long term? That’s the question. For everyone from Bank of America, I don’t know, especially in the branch offices around the country.
BENNETT: In the private wealth side, I’m seeing a lot of the larger wealth managers leave and go to independent houses. What do you think about that trend?
SMITH JR.: You see that and you also see people coming in. Unfortunately, in Wall Street, there is too much turn-over. It’s rarely in the best interest of the clients, but a lot of the people I knew have left. Some have gone to UBF, some have moved on to Morgan Stanley because they’re run by former Merrill Lynchers, but I’ve also seen many people stay there and they are doing far better today than they were ten years ago when I left.
BENNETT: And these are the wealth managers? Or it is the people in management?
SMITH JR.: The wealth managers.
BENNETT: So, after 28 years at Merrill, you resigned as an Executive Vice President. What was your real motivation to leave?
SMITH JR.: It was really the new incoming President, Stan O’Neal, and he’d asked me to stay on as Vice Chairman. You know? Great title, great pay and I was almost going to do it, but I had a conversation with him to really see if I wanted to stay and we talked about the Principles and it’s very clear to me that he had no regard for them. He had no regard for the history. He had no regard for the culture, and in the middle of a sentence, I actually cut him off, and I said, “Stan, I’m sorry, I can’t work for you. I’m going to retire. I wish you the best of luck,” and then, I walked out. That was a bit impulsive, but I was convinced he was going to marginalize the firm, but I never thought he could actually nearly bring it down.
BENNETT: You said leaving Wall Street to work full-time running a ski resort was one of the best decisions you’ve ever made, so in hind sight, would you have left earlier?
SMITH JR.: If things had been different at Merrill, and not what I saw about to happen, I would’ve stayed, probably, until retirement, but it changed and sometime fate is very strange. I ended up meeting a sweetheart I knew as a child. We got married, which wouldn’t have have happened if I didn’t move to Vermont, and I actually love what I do and I think I’m making a difference up here and it’s a lot of fun and life has to be fun.
BENNETT: So, Sugarbush is making money?
SMITH JR.: It is. We turned around a failing organization. In the last 5 or 6 years, it’s operated well and we’re actually having a pretty good year this year, as well.
BENNETT: I don’t know if listeners know this, but running ski resorts is difficult. It’s a lot of fun, because you could go take a break and ski, but it’s also very difficult to turn a profit.
SMITH JR.: It is. In some ways, there are some parallels to Wall Street. It’s a highly leveraged business. Leveraged worth. It’s operating leverage in your favor and against you. We operate in winter for about 160 days. We make our money in 40 days, so a day like today where it’s cold and it’s windy, our skier volume is quite a bit lower than it should be, and it’s hard to make up for that. So, you have to make sure you haven’t over-leveraged, and that’s where I’ve seen a lot of ski resorts fail. That’s when they have a tough year and they’ve got too much debt. They go out of business or they get taken over by a bank.
And you saw Wall Street do that in 2007, too, so there are those parallels. The other thing in the ski industry we’ve learned is we’ve really got to diversify, so we have to have to have a business beyond skiing. We have to be in the lodging business, the food and beverage business and we have to operate 365 days a year and so, we actually are doing more and more in the non-ski season as well as in the winter season.
BENNETT: I think that’s what makes Aspen so successful, because it has a great service.
SMITH JR.: Absolutely. It’s a very well-run company.
BENNETT: What it would take to bring you back to the Street? What could someone offer you to go back to Wall Street?
SMITH JR.: They couldn’t offer me anything, I wouldn’t go back. There’s that old saying, “You could never get a home again” and I loved my 28 years, but I’ve moved on, I’m focused on what I’m doing. I keep my toe in the water. I do sit on Boards in the US and Canada, and Eaton Vance in Boston. So that’s enough to keep me intellectually involved in my old world, but not too involved that I’m going back in the full sense.
BENNETT: We’re in a very challenging economy right now. The central banks control everything, S&P earnings are really tough, and the macroeconomic data is at a low. It’s very challenging to keep clients even inspired to want to stay in the markets because they know it’s being controlled. What can you offer to financial managers such as myself?
SMITH JR.: I’ve never focused as much on the macro. I mean, the macro has an influence, but it’s always really focusing on the micro and that’s choosing the industries and the companies that have growth opportunity. And I think Warren Buffet has done that as well as anybody. Finding the fundamental values, sticking with it and sticking with it in the time horizon that you can afford, I think, is the way you do it. It’s always worked and I think it always will work.
BENNETT: In October 2008, of course, the markets took a hit. A lot of people think we’re getting into something worse. What would be your thoughts on portfolio management in a time like this?
SMITH JR.: Again, I think you can’t generalize it, it really depends on your particular situation. What are your use of funds going to be? When do you have to have them? Do you need them for a college education or for retirement? And that portfolio allocation really starts from that first inquiry, and if you have a long term horizon, if you’re a young person right now, if I would be advising my children, I would say, “Don’t watch the juice every day. Don’t care if the market goes up or down.” Dollars costs average, so take $1000 a month, if you can afford it, invest in high quality stocks and stick with it over a long-term.
BENNETT: Is it just US-centric?
SMITH JR.: No, not at all. We’re in a global world, so I think you have to look global and find out who are going to be the leaders of the future. The other thing I’d say is too often we talk too little about dividends, and dividends play a fundamental important part in the total return. So, one of the great opportunities after 2008 when the market collapsed was buying really quality stocks that had 4, 5 and 6% dividend yields, had the history of increasing those yields. And you can end up in 10 years with a good quality stock with a 9 or 10% yield if you bought it correctly.
BENNETT: But those yields or dividends are one of the first things that a Board of Directors will cut very easily if they’re having a difficult year. I was telling the listeners that the S&P 500 reported their 4th quarter earnings and about 80% of the company’s reported, they’re down 6% year over year. If we’re stepping into a slowdown, it’s so easy for Boards to cut dividends.
SMITH JR.: Well, my experience is that Boards cut dividends only when they absolutely have to, and if you look at companies that have had a record of maintaining or increasing their dividend for several decades. That’s that type of company I would look at, and all I have to ask myself is, “Can they still remain competitive in this environment? Can they have a value proposition?” And if they do, then I think that’s a different situation.
BENNETT: Do you find that the financial boards that you sit on in Canada have different issues? Or are they the same as here in the United States?
SMITH JR.: I would say that there are many, many similar issues. You obviously have different regulatory issues in Canada and the United States, but most big issues are very similar.
BENNETT: Do they have less or more regulation?
SMITH JR.: Ironically, we used to criticize the Canadian Banks for being old fashioned about going global. And they were probably the healthiest banks after 2007 and 2008 because they had tighter regulation than what we had in the United States.
BENNETT: We have so much regulation, now. Government’s very big in our industry. I saw a statistic recently that 40% of broker-dealers and over 1000 hedge funds closed down in 2014. It is a different world to manage money in because we are spending so much time with the regulators.
SMITH JR.: Oh, yes. And I find talking to my advisors in Merrill Lynch, they’re frustrated because of the paperwork they have to do, the extra administrative work they have to do. It takes them away from what they’re trained to do, and that’s to advise and to manage portfolios.
BENNETT: Do you think you’ll ever take Sugarbush public?
SMITH JR.: No. I wouldn’t. I really wouldn’t want to have to worry about the quarter to quarter earnings, or year to year earnings. As a private company, what I care about is cash flow. So, do I have enough cash in my bank account to toughen up a slow year? And earnings to me will be irrelevant. It’s all about having a cash flow to keep us sustainable and viable and continue improving it.
BENNETT: Have you had good snow this year?
SMITH JR.: We’ve had excellent snow. The northeast is been blessed this year because the west is tough. I mean, they’re all having a very difficult year. It’s dry, it’s warm. California had the driest January since 1840, and it is almost too much snow in Boston, but in the mountains we’ve had 180 inches so far. We had the best mid-December we’ve had, and the only thing we’re suffering with for the next few days is it’s cold, but we’d like to remind people there’s never a bad day for skiing, just bad clothing, so if you dress properly, the conditions are fabulous.
BENNETT: Win Smith, thank you so much for being on Financial Myth Busting.
All data sourced through Bloomberg
About Dawn Bennett
Dawn Bennett is CEO and Founder of a national radio program called Financial Myth Busting http://www.financialmythbusting.com
She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN a as well as take podcasts on the road and forums for interaction.
She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett or firstname.lastname@example.org
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