Exclusive Audio Interview with Michael Lee-Chin

Richard C. Wilson: Thanks for being with us here today, Michael. I want to start out by talking about things to avoid. What’s the number one most costly mistake that you’ve made or seen other investors make that could easily be avoided by somebody hearing it from you in this interview?

Michael Lee-Chin: I think it’s not inspecting what you expect from agents vigilantly. You see, that principal-agent problem is a source of 99.9% of all problems that you’ll come across in business, the principal-agent problem. So today, anytime I come across a problem, I ask myself the question, who was the agent? Who is a person that should have been responsible? I don’t want to hear about a department. I want a person, I want a cell phone number. And I call that person and say to that person, “If this was your business, if this was your house, how would you have treated it?“

And invariably, because everybody owns whatever they own, and they treat it with diligence and respect. They treat it like a true owner. Firstly, they take responsibility. Secondly, they have accountability. And thirdly, they suffer consequences, whether or not they were the cause of the problem, but they still suffer consequences. So the lack of ownership attitude is a big problem. Our focus as investors, and business people, is to work to make our staff better owners and we eliminate, as I said, 99.9% of the problems.

Richard C. Wilson: So essentially, when you’re talking about the principal-agent problem, you’re basically saying who was accountable for this? Who should have been accountable for it? Who was not watching all the details or who needs to have some consequences? Because at the end of the day, even if it wasn’t their fault directly, they’re basically responsible for what happened and someone needs to be held responsible for that.

What is a strategy worth far more than a million dollars that you wish someone had provided you with earlier on that you could share here with the listeners?

Michael Lee-Chin: Just governing your life by frameworks for everything, so that you can minimize emotions. You’re guided by, whenever there’s an issue, you superimpose that issue against the background of a relevant framework. In my case, the most relevant one is if I want to achieve success in any area, any endeavor, I default to the following framework. Identify a role model.

Secondly, kneel at the role model’s feet. Role model, how did you do it? Get the recipe. And thirdly, don’t change the recipe. Do exactly the same, and make sure your role model is the best in the world, and that is applicable to everything.

The other framework that is important is to make sure that it is your framework that should guide your decisions. Because when you have a framework which is basically your value system, and your principles, and you have a decision to make, you superimpose the decision against the framework and the answer will come back to you. You don’t even have to think once you have defined your framework, your values, your principles.

Richard C. Wilson: So it sounds like, Michael, that a framework, developing your outlook, your framework, your set of values is really central to a lot of your success. And I see that essentially finding a role model that you can emulate, you can figure out a recipe for your industry or what you’re trying to get done, and then following that seems to be really central. And I like thinking about it as a framework.

We talk about billionaire mental models and scaling strategies quite a lot here, and you hear a lot of people talk about values. We just did a second-gen billionaire interview where we talked about values determining everything they do, but looking at it really as a framework I think is a great way to phrase it.

What was the major turning point or the point of increased momentum or a strategic choke point that once acquired, completely changed everything you were doing?

Michael Lee-Chin: In my case, I identified early when I was 32 that we were in a consumption boom. This is 1983. I’m a member of the baby boomer community, and baby boomers were the largest cohort in the North American population so whatever we do, there goes the economy. So in 1983, I was 32, so I asked myself, what do thirty-two-year-old families do? And my answer was right now, they’re in the process of buying a house, buying a car, buying furniture. They’re consuming, so we’re in a consumption boom right now in ’83. But you don’t create wealth by doing today what everybody else is doing. You create wealth by doing today what everybody else will be doing tomorrow.

So in ’83, at 32, I thought, okay, what are people going to be doing tomorrow? 10 years from now? Baby boomers, because we’re the largest cohort in the North American population. Well, 10 years from now, I will be 42. And then all of a sudden, I’m going to say to myself, oh my gosh, Mike, people aged 42, your cohort, they’ve been busy consuming. They have not saved enough, 23 years to retirement, so there’s coming a saving and investing boom. So how best to participate in that? You can buy shares in a bank, but in that way, you could suffer from underwriting loan losses. You could buy shares in an insurance company, but through that, you could suffer from underwriting losses. Or you could buy shares in a wealth management company. Bingo.

So I started loading up on wealth management personally. I bought in. I loaded up my front pockets, my back pockets, my side pockets, and then I called everybody and said, “Look, this is what you should be doing.“ And I started an aggregating vehicle, a fund. That now was not a diversified fund, but a fund specific to aggregate opportunities that will prove themselves in the future. So I started buying wealth management companies in 1983 when in Canada, the entire wealth management industry, the AUM, the assets under management, were 5 billion. Today, 2 trillion, 400 times.

So it goes back to another framework which we have codified in the form of what we call the three P’s. To create wealth, you have to predict, you have to plan, and you have to persevere. So today, we are predicting that the baby boomers being my age, with me being 73, what do the seventy-three-year-old people think about? “I want to live long and I want to live a healthy life.“

So we’re in the early innings of a healthcare boom. And unfortunately, the older you become, the more likely you are to get cancer, so we’re in the early innings of an oncology boom. We are therefore participating financially, from a wealth creation problem, in that oncology boom by investing in targeted radionuclide therapy, TRT, which will disrupt traditional chemotherapy and radiation therapy. So those would be my answers to the three questions.

Richard C. Wilson: So investing in what people are going to do tomorrow or 10 years from now. I think that is excellent advice and something I took note of right there. The three P’s as part of your framework, predict, plan, persevere. The thing that really jumped out at me is in 1983, it’s hard to imagine there’s only $5 billion of wealth management industry size in Canada, and now it’s over 2 trillion.

So when an industry grows by 400 times, you can imagine that rising tide is going to create opportunities, and you didn’t take the approach of having a diversified investment fund. You were pretty laser-focused on where you had conviction on where things were going in the future. And Peter Thiel likes to say that the only way to predict the future is to go deep on something that in your mind, is inevitable. It’s coming, this change is coming, but others don’t seem to see it yet, or they’re not taking action on it.