We continue this series with an in-depth interview with W.D. (Daniel) Vasquez, Chairman and Chief Executive Officer of W.D.Vasquez & Co.
In this wide-ranging conversation, we discuss Daniel’s path in investing, how he invests at W.D.Vasquez & Co., and how he allocates institutional capital as a public pension trustee and vice chairperson of the Marin County Employees’ Retirement System, where he has fiduciary duty over $3.4 billion in assets under management.
Daniel also shares invaluable advice for emerging managers looking to break into the institutional world.
This conversation was recorded on January 20, 2025.
The following transcript has been edited for space and clarity.
John Mihaljevic: It is a great pleasure to have here with me Daniel Vasquez, a business economist and investor. He is chairman and CEO of W.D.Vasquez & Co., a public pension trustee and vice chairperson of the Marin County Employees’ Retirement System, and a board director and chair of the investment committee at MarinHealth Medical Center.
Daniel, rather than having me read your impressive biography, perhaps you could tell us a little about your path in economics, education, and investing to set the stage for our conversation.
Daniel Vasquez: First of all, John, thank you for inviting me to this conversation. I’m a big fan of the MOI Global community and you personally. I read your book early in the pandemic and found it quite insightful and comprehensive. I am honored and humbled to be here.
Before I begin, let me stress that all the views I express here are my personal views. They do not represent the Marin County Employees’ Retirement Association, where I am vice-chair of the pension board. It is a public body overseeing 7,500 public employees’ pensions, totaling about $3.5 billion. Since I also chair the investment committee of the Marin General Hospital, I must note that my views do not reflect the views of that organization, either. These will all be my personal views, and I’ll gladly share them with you.
I have 30 years of investment and economics experience. I had no idea I was going to end up in the role I am in today. You can only connect the dots looking backward. If you had asked me 30 years ago whether this is what I’d be doing, I would definitely have said, “It is not even registering on the radar screen.”
Initially, I wanted to be an academic – a professor – whether in economics or policy or at a business school. When you’re the first-born son of immigrant parents in the United States, all you know is to work hard and pursue higher education, and there will be opportunities presented to you. Somewhere down the line, there will be a better place – a hope and faith in the unseen. Never in my wildest dreams would have I imagined that studying hard, working hard, and dreaming big would take me to where I am now. I am deeply humbled and appreciative every day of what has transpired and evolved, at least in my professional life.
I graduated from UC Berkeley in California a little over 30 years ago. From there, I went to graduate school at the University of Chicago. I did a master’s there and also started my further graduate studies at Harvard but did not finish at Harvard. It was there that I transitioned into investments and investment management. Fortunately, I got a chance to finish my degree many years later, which I did at Oxford.
I divide my professional trajectory into three paths. First, I had aspirations of becoming an academic. In my second act, I had aspirations in Wall Street investment management. Now, I’m in the tail end of my third phase, which is what I call the giving back stage, currently doing public service and sitting on pension boards. During the pandemic, I was serving in the military in emergency response, protecting communities in California and New York against natural disasters. I’m no longer in the military. I was discharged last year. Now, I see myself going into a fourth phase, which is pure investing. I’ve been doing it for some time, but I’m now devoting more time and resources to that pursuit.
At the end of my academic phase, I got inspired to study economics as a result of a lot of social justice issues back in the 1980s and 1990s. That’s what led me to the University of Chicago – to study under Professor Gary Becker, who won a Nobel Prize. He wrote a fascinating dissertation that turned into a book in the 1950s. That book, The Economics of Discrimination, caught my eye and intrigued me. I thought it was fascinating. It was heavy on math and empirics. I said to myself, “I absolutely have to study under Gary Becker.” That’s what got me to the University of Chicago.
I’d always say that at the University of Chicago, even if you majored in music, you were going to learn some economics because it was infused in virtually every discipline there. I enrolled in the mid-1990s. There was a string of professors who’d won the Nobel Prize for their work on supply-side economics – what we know today as the neoliberal school of thought. I had the great fortune to study under three of them – Gary Becker, Ronald Coase, and Robert Fogel. It was quite an intellectual, rigorous environment. I can honestly say it did set me up for life thereafter.
Once I finished at the University of Chicago, I worked for a few years on Wall Street. I worked at The Conference Board, where I was an economic analyst – my first real job out of Chicago. I was maintaining the consumer confidence index and the leading economic indicators. I was the young analyst scrubbing all the data that would get reported on a monthly basis – what I would call “taking the GPA of the national economy.” This was during the Clinton years. There was a lot of optimism in the air. More importantly, I learned the practice of macroeconomics – or at least capturing the musical notes and the cadences of the economy – because I was literally measuring it on a monthly basis.
It was hugely insightful, but what I wanted was to pursue further studies and get my doctorate. I did a master’s at the University of Chicago, then went to Harvard – after about 2.5 years at the Conference Board – and started working directly with Professor Michael Porter of the Porter’s Five Forces fame, among other conceptual and intellectual pursuits. Working with Professor Porter was probably the most pivotal, insightful, and influential experience in my professional career because I learned an awful lot. He took me under his wing. I call it a four-year apprenticeship.
At the time, I didn’t even know the scope and range of his work. Back then, I had no real plans of doing corporate strategy work. I responded to a posting by the economics department of Harvard that a professor – who remained unnamed at the business school – was looking for a researcher who already had a master’s and understood industrial organization and econometrics. I had already taken all those classes at Chicago. When I met with Michael Porter the first time, I didn’t even know who he was, quite frankly. I think it worked to my benefit because what was supposed to have been a 20-minute interview ended up being a two-hour conversation on a Friday afternoon. On Monday, I get hired.
He hired me to do a lot of econometric modeling. He was doing a lot of national competitiveness work at the time. I got to see and experience a wide range of issues and do hands-on practical analysis with multiple institutions, organizations, and international bodies, such as the UN and the World Economic Forum. I was running the models for The Global Competitiveness Report for about two to three years. It was quite an apprenticeship – one that I’m so thankful for to this day. That was 20 or 25 years ago.
After four years with Professor Porter, I realized I did not want to be an academic. I learned quite a bit about academic life and realized it was not for me. This followed the insight that the currency in academic life is your publications – where you publish and how much you publish. Ink was your currency. I had a great example in Professor Porter. It took him about 40 years to get to a position where he could really make a difference in the world. Quite frankly, I didn’t want to wait that long. Also, my son was born at the time, and I needed to make some money, so I joined the world of Wall Street and investment management.
I got my initial training at Morgan Stanley. I am thankful to that organization. At the time, it was a wonderful role. They probably had the best research shop on Wall Street. I refined a lot of the practical applied work that I learned in the theoretical context at Chicago and Harvard. There were wonderful writers at Morgan Stanley, like Barton Biggs and Michael McVey.
I got some good training, both in writing and in understanding the nuts and bolts of investment management. When I joined Morgan Stanley, it was the transition from a world where the business model used to be strongly commission-based – the stock broker model – to one that is probably more familiar now to the audience where it’s very advisory and consultative-based. I got trained as a broker but practiced as an advisor. It was quite a transition. I’m so lucky to have experienced and seen that evolution of the investment management industry.
After that, I went into private equity. I worked at Hamilton Lane Advisors at the time. The company’s now public. I was employee number 65 or 66. I got hired as the portfolio manager for one particular client. It happened to be CalPERS, which is the biggest institutional client in the United States – possibly the world – at least in terms of public pensions. I did learn a lot in the world of private equity: how to do deals from the beginning, carry them through, handhold them all the way to the very end to close, manage funds, do portfolio construction, and play the game of valuation. This was all practical, hands-on. It was quite an experience. This was nearly 20 years ago.
The combination of all those experiences led me to pursue some entrepreneurial aspirations. After about three years at Hamilton Lane, I started my own asset management firm. That was the precursor to W.D.Vasquez & Co., which is what I have today. From there, I pursued the second phase in life where I became more entrepreneurial and got some key insights into fund management, exploring the roles I’m doing today.
John: That’s such a wonderful path and background. I think it is indeed an American story one would aspire to. I’m curious how your investment philosophy developed over time as you have this background in economics and then went to Wall Street to get the more practical experience. How would you describe your investment philosophy? Perhaps you can tell us about its evolution over time, if that’s appropriate.
Daniel: Sure. I stumbled onto what we now know as value investing. At the time, when I was doing my academic work, I had no clue what value investing was. In fact, I came into it very late in life. Even after I started my own asset management firm, I didn’t know who Warren Buffett was until 2006, when he made the big announcement that he was going to give away all his money. I said, “Who’s this billionaire giving away all his money when he passes on?”
I got exposed to the intellectual framework we now know as value investing going back to Graham and Dodd – if not John Maynard Keynes, who I consider the real first value investor – later on in life, late in the game. I’d assume most investors want to get into it early on and start making money. That wasn’t actually my pursuit. It was that one announcement that raised my eyebrows because when I launched my asset management firm, it was originally meant to be a private equity fund, but I started it literally one week before Lehman Brothers went bankrupt.
I will never forget that. It was 2008, September 8. I opened up my office, got all my licenses and certifications from the SEC, and was planning on doing the same investment strategy I was doing at Hamilton Lane as a portfolio manager. I even had initial anchor investors to help seed me. However, 2008 happened; all hell broke loose and markets froze. Nobody was trusting anyone. I had all my key anchor investors say, “Danny, we like you, but we’re going to hold off right now and see how this plays out.”
When you’re an entrepreneur, you have to improvise, pivot, and be flexible. It’s not the strongest who survives; it’s the ones who are most adaptive to change, to quote Darwin. I had my licenses. I already knew a lot of professionals in the world of investment management. Many of my early clients were people who felt they were not well served by their advisors and lost a lot of money during the 2008 financial crisis. I said, “You know what I can do. I’ll take your money. We can start something new and do it at a fraction of the cost you’re probably paying now, but we’re all in this together, and everything’s looking positive if we can ride this out in terms of the market downturn. We have nowhere but up to go.”
The initial investment strategy, the investment philosophy of “buy low, sell high, get things at a margin of safety” came as a result of luck because that literally got started at the bottom. Buying Berkshire Hathaway at 40 cents on the dollar, buying Pfizer at 60 cents on the dollar, buying a whole bunch of companies trading well below their intrinsic value was a no-brainer. I was buying bargains with the little money I had.
It was around that time when I started to understand margin of safety and the keen insights from Graham and Dodd, John Maynard Keynes, and other practitioners and value investors. I did not know properly at the time where the connections were. That came afterwards in terms of the academic world and the practitioner world. You always hear about the moat. Buffet and Munger always talk about the moat, but if you unpack what the moat means, it’s really competitive advantage or what they call sustainable competitive advantage.
I didn’t make the connection until years later that I was getting knowledge from the horse’s mouth – Mr. Corporate Strategy Competitive Advantage himself, Michael Porter. Whenever I read about the moat and tried to unpack it, I would say, “This is just Mike’s five forces in value chain and activity system.” It simply clicked. I made that connection between the practical world and the theoretical world.
When I was working with Mike Porter in the late 1990s, I had no aspirations to be an investor. I just aspired to be an academic. Fifteen years later, I’m trying to grasp this concept of moat. From what I understand, it is Mike’s five forces with a little more color added to it. I think even Buffett might have said so in one of his annual meetings in 2001 or 2002. Somebody asked him about Mike Porter, and he said, “I agree with the fella. We talk about moat all the time. He goes off and writes the book about it,” which is true.
Even to this day, I still find very little work around combining what I call the qualitative hard work of truly understanding moats and the work Professor Porter laid out way back in the 1980s of understanding industry structure, understanding a company’s position within an industry, the evolution of industries, and market positioning within that industry. I think it pretty much deals with the micro economics of understanding competitive advantage, and where we are today with so much data and computing power, even academia gave us some ideas that might be questionable.
Peter Drucker said, “If you can’t measure it, you can’t manage it.” We seem to be at a point where we’re over-measuring. Sometimes, the hard stuff involves being qualitative, doing your five forces analysis, and doing your value chain analysis for the company as well as the industry. I think Charlie Munger once also said that macroeconomics Is what we have to deal with. We have to contend with macroeconomics because microeconomics is what we do. Coming out of my apprenticeship with Porter, that resonates with me because that’s all we did with a lot of micro-level analysis – the economics of management, of managerial decision-making processes – but that’s hard to capture in the database.
In a world with so much data that people are running so many analytical correlations, multiple regressions, the truth is that a lot of it’s just spurious but defensible. If there’s anything I would suggest to young investors or any investors, it would be that there’s a lot more analysis going on, but there’s a lot less real thinking and real wisdom. That’s why taking lessons from Charlie and others is helpful.
Greater precision in your metrics doesn’t necessarily mean greater accuracy. When you incorporate some of the more rigorous stuff about doing the qualitative work, it’s hard because it’s time-consuming. You have to get to the level of understanding the footnotes, the details. That’s where the richness comes out.
Having spent a good number of years at Harvard looking at virtually all the American industries, one of my big projects was to restructure the way the United States government structures and codifies its industry. We know that today as the North American Industrial Classification System (NAICS). When I was doing it, it was just the Standard Industrial Classification (SIC) system. If you were to follow the GICS or the CFA categorization of industry or even the financial media’s categorization, you would think there are 10 or no more than 15 industries in the United States or around the globe because those are the ones that get the most attention.
Having spent a lot of time understanding the structure of American industry 25 years ago, I can say there are over 1,300 industries in the United States alone, and about 400 of them are already at world-class in terms of market share. Understanding the dynamics, understanding what’s happening when businesses compete, and defining the industry properly could lead to some unique insights in terms of investments. I lean heavily on that now. Looking back, I can say now all the elements were there for me to be an investor, but I had absolutely no idea I was going to be one. It was really a coincidence. I knew that if I studied hard and pursued a career in academia, I’d have to familiarize myself with the research, the data, and the articles themselves.
That’s a long-winded answer to your question about the evolution of my investment philosophy. I missed out one other important component – I must say the immigrant background helps. It helped me. What do I mean by that? When you’re growing up as an immigrant in the United States, you learn how to – as we said – make a dollar out of 15 cents, which means you had to make the dollar stretch when you were growing up poor. Fast forward 30-plus years, and I want to buy dollars for 15 cents. It’s comparable to what Buffett would always say, borrowing from Ben Graham – you want to buy dollars for 50 cents. I want to buy them for 15 cents. That adds to my value philosophy and deep value, if you will.
Those are the components that influence my investment philosophy today. I see tremendous opportunities around the world. You don’t want to fish where the pond or the lake is crowded. I see a lot more ponds and lakes around the world where the fishermen are barely starting to show up. There are tremendous opportunities there as well.
John: The desire to buy dollars for 15 cents really resonates with me. I believe background can play a big role in making that intuitive.
I’d love to talk more about the activities of your company. I know that you embrace investments with three different characteristics – one being non-control, passive; the second being arbitrage, opportunistic, and special situations; and the third being control ownership, active investments. Perhaps we could look at each of those in turn. Could you tell us more about how you think about the first one – non-control, passive – and perhaps illustrate it with a past or current example?
Daniel: I’d like to start with some of the controls because that feeds into the other one – ironically, some of the first investments I made were on the control side, when I was working with Professor Porter.
We have three buckets – control/special situations, arbitrage, and non-control. The control ones are where we have influence over operations and management decisions as well as equity ownership. The second bucket is arbitrage/special situations/opportunistic. These are short-term investments, 12 months or less. You can call them cash management strategies. When you have excess cash in the accounts, what are you going to do with it? How do you leverage your cash? This could be any security – equity, bonds, or it could even be commodities where there is mispricing in the markets. Again, cash equivalents could be commercial paper, T-bills, and such.
The third bucket is non-control. These are minority equity stakes in publicly traded companies. They are quality companies – quality value holdings. You can think of what you would build a portfolio around. Berkshire would be a typical non-control. I certainly don’t have any control over Berkshire but, of course, I’m a Berkshire holder.
I’ll start with control. When I was working with Porter, really understanding some of the mechanics from an econometrics perspective, my friends used to always joke with me about trying to find a sixth force and put some econometric model around it. I wasn’t, but I was doing different projects, albeit related.
In the late 1990s, there was a small company called MEM Cargo Foreign Services. It was a freight consolidator that sold space in airplanes, trucks, and ships to freight forwarders to send products and packages down to Latin America – but not up from Latin America. This was exporting down to Latin America. Full disclosure: It was a company my mother had started. She had the brilliant idea of contracting with multiple air carriers, shippers, and trucking companies. The idea was hers, but I was literally bringing in the conceptual framework I was learning directly with Professor Porter, applying and implementing it with her company.
I ended up taking some ownership and making some management decisions. I had some influence over the operation. To cut a long story short, she ended up selling the company for a nice profit. At the time, we had about 10% share of the export market into Latin America from the New York City area. The company was based at JFK. I was extremely proud because it was my mother’s company. It was my family’s first real entrepreneurial endeavor in the United States. I was happy to be implementing some of Porter’s frameworks in our execution, operations, and corporate strategy. That set the tone. I was like, “Hmm. This is interesting.” At the time, though, I still wanted to be an academic. I had no aspirations to be a pure investor.
The second control company I had was a chocolate company called Casa de Chocolates. It was interesting when I helped start this company. It’s still in business. It’s based in Berkeley, California. It was also some friends that started the business. It was a wonderful – and still is – niche strategy. I was at the front end of setting up the corporate strategy. If you consider the three generic strategies – a low-cost producer, a differentiator, or a focus strategy – this one’s a differentiator and a focus strategy.
I still have some influence over it, but it’s certainly not as big and doesn’t have the same unitary economics or scale economies that See’s Candy did and still does. However, it’s still up and running and actually growing. It’s opening up its second location. It trades online and also has a retail presence in Berkeley, California. I think it will establish a retail presence in Oakland.
It’s hugely rewarding to have the exposure and experience of shaping a business organization from its inception all the way to growth and into maturity and see it become profitable with the people you love and have a relationship with. I understand now why Buffett and Munger don’t want to let go of many of their portfolio companies even if they’re not performing as expected. It’s the relationships, the people you care about. You obviously want profit. You want return on equity and all the right metrics pointing in the right direction. You don’t want it to lose money, but it’s all about the people.
Those control situations whetted my appetite, and I started thinking, “This is interesting.” I wasn’t breaking any new theoretical ground in terms of the research, empirical analysis, correlations, or econometrics, but it was a lot of fun.
The second category would be opportunistic/short-term mispricings/arbitrage. This is short-term paper. This is how I view it. The most recent example of this was Silicon Valley Bank here in California. The story there is simple. Some treasurers were not prepared for the movement in interest rates – whether it was the 10-year paper, five-year paper, or two-year paper. They simply got caught and didn’t plan properly for a rising interest rate environment.
If you study history – and when I say history, I don’t mean 10-, 20-, 30-year histories where a lot of market participants get caught up in – one of the big insights I had when I finished at Oxford after three years is that history has a different context in different places. In a place like Oxford – and Europe in general or other parts of the world – history means centuries, like 600, 700, 800, or 900 years.
I read two phenomenal books recently. One is The Price of Time by Edward Chancellor, who built on the work of Richard Sylla and Sydney Homer in their book The History of Interest Rates. They track interest rates going back 4,000 years, from the days of Babylon and Mesopotamia all the way through the Renaissance, the Enlightenment, the modern era, and through to the financial crisis and the pandemic, particularly Chancellor’s book. When you look at interest rates history going back 4,000 years or so, there’s an inverse relationship – when society advances, interest rates and the cost of business go down, and when humanity abuses civilization, the cost of capital and the cost of business go up.
I think it was Jim Grant who once said that the most consequential prices in all of capitalism are interest rates. If you truly understand the long-term trends, the broad brushstrokes of world history, you see that the price associated with people abusing civilization or treating each other right is usually an increase or a decline in the cost of doing business. I know these are gross overgeneralizations, but there is a pattern there if you go back – not only to the data but also to the history. Those are two great books on the subject.
Based on that reading and my understanding of world history, all you had to see from the data was that we were running negative interest rates – which were not even in the finance books when you first learned finance – and that this was going to be a low in interest rate behavior, an all-time low, if you will. I still think we’re on the foothills of a rising interest rate environment, especially in the West.
I started in that second bucket as a result of that insight. I began managing my cash positions appropriately in terms of buying short-term paper, T-bills, even commercial paper. Many of the short-term strategies in the rising interest rate environment made a lot of sense. That’s from a cash management perspective.
Another example in terms of a buyout for that second bucket was a deal I was quite proud of because when I first started my asset management firm years ago – again, I no longer run an asset management strategy per se; the model is a little different now – I purchased an aerospace supplier. The company had phenomenal numbers, phenomenal return on equities, phenomenal operating margins, and low debt. From my prior experience with my mother’s business, which got bought out and is no longer in operation mode, I knew something about the airline industry because we would contract with them.
Around 2010 or 2011, I noticed a publicly traded company called Precision Castparts. Its numbers were phenomenal. It had top market share as a global supplier to the big airline manufacturers – Boeing, Airbus, Embraer. The numbers looked good, but as a result of the tail end of the financial crisis, it was trading at way below its value. I thought it was just going to be a quick little pop, so I kept it because I was waiting for the price to rise to its intrinsic value. Lo and behold, a few years later, it was purchased by Berkshire Hathaway, which bought the entire company for reasons similar to what I had deduced a few years earlier. I said, “Wow! Wait a second. I had something interesting here.”
Professor Graham once said. “You will be proven right not because the market agrees with you or disagrees with you or because of popularity. You will be proven right because your logic and your reasoning are right if you do the analysis and if you do it well.” That’s exactly what happened. I got the stamp of approval from Buffett himself and Berkshire when they bought the entire company. They overpaid for it, which was his mistake, as we found out years later. However, it was a company flying under the radar. It wasn’t followed too often by Wall Street analysts. I saw it there and had a little insight and enough confidence to say, “Let’s take a bite.” I bought it for a whole bunch of my clients at the time. When Berkshire acquired the entire company, I made a lot of money for my clients and for myself.
Those are two examples within the opportunistic/special situation bucket.
The last one is the non-control bucket. These are pretty much your listed companies trading at value or quality companies. Obviously, I want to buy companies trading below their intrinsic value. One example I’m happy to share is very similar to Precision Castparts – aero supplier, metal manufacturer, copper manufacturer. It’s Mueller Industries (MLI).
When I purchased it, it was in the small-cap range, about $800 million or maybe $700 million. It’s probably approaching $2 billion to $3 billion now. It was a similar thesis – low debt, wonderful return on equity, wonderful margins. The company had restructured and reinvested in itself during the pandemic. It caught many tailwinds as a result of a lot of the new infrastructure legislation in the early years of the Biden administration. This is an infrastructure play in metal manufacturing – a copper infrastructure play. MLI supplies a lot of companies doing proper infrastructure and manufacturing development here in the United States, particularly in the southeast. It’s based in Tennessee and doing quite well. Since I’ve held it for the last couple of years, we’re probably going on 3X on the position.
What I see in Mueller Industries are very similar characteristics in terms of fundamental and flying under the radar that I saw in Precision Castparts 15 to 16 years ago. I’m hoping Buffett will buy it in. That’ll probably give me another stamp of approval and feed my ego for a split moment, but that’s an example of a non-control position that’s publicly traded.
Those are the types of companies I look for, not just in the United States but around the world. We’re industry-agnostic. After many years of understanding industry behavior in the United States in the academic context, I have no preference for one industry over another. As Munger would always stress, it is important to know your circle of competence and knowing what you don’t know is more important than what you know. There are many things I avoid because I don’t know them well enough, but there are so many opportunities out there where you don’t have to know every little thing to make money.
There are over 45,000 publicly traded companies in the world this year, with 3,000 to 4,000 of them here in the United States. There’s a vast ocean of opportunities out there. There’s never a shortage of the right opportunities. If you’re willing to scrub and do the qualitative work, the quantitative will validate your qualitative. That’s how I see it.
John: You seem to be quite good at holding your investments until value is realized. That’s not always easy for a value investor because you want to buy things, to get the dollar for 15 cents. As that gap starts to close, being able to not sell too early is an extremely important skill. I’d love it if you share how you manage to hold on to the right investments long enough.
