Gyroscopic Investing

Tom Barr, Wells Fargo Advisors
Yes. Thanks for taking the call. I have a more basic question for a novice to the Permanent Fund. If you could talk just a little bit about how you make your money in terms of quantitative versus fundamental, how you’ve been able to protect so well in poor markets, and why you think that’s repeatable if we run into trouble again anytime soon?

Fake Michael Cuggino
Hi Tom. I can tell by your question that you have no clue what you're doing on this conference call. I get it. Your manager told you to dial in and you spent 15 minutes before the phone call checking out our performance and holdings on your Bloomberg panel. Then you saw the chart. And now you're curious. You can't quite figure it out.

So, here's the deal.

I have the easiest job in the investment world. I show up at 10 AM every day and I fire up the Xbox 360 and play a round of Madden NFL, with James. He's absolutely terrible. Seriously. But, you should see him sink a birdie on the 8th hole at Augusta on Tiger Woods PGA Tour. It's beautiful. But, then it's time for lunch. Sometimes we order in from Margot's but today Janet felt like Panera. She loves their bread. She always talks about how everything there tastes so fresh. It's actually pretty good, but I'm not sure its worth getting that exciting about. But, I like their soups, so I don't mind.

In the afternoon we take a few phone calls, and once in awhile we get an interview. It's all about making it look like we have a secret sauce. But, those hacks from Kiplinger always think they know when gold's in a bubble and when Treasuries are for suckers. They should go back to writing about things they actually understand, like explaining how people can save on their car insurance premiums. Anyway, that's pretty much a typical day around here.

Tom Barr, Wells Fargo Advisors
Do you have quantitative models that you use to move from one sector to another?

Fake Michael Cuggino
Quantitative models? Seriously? Uh, no. There are no quantitative models being run here. Quantitative models are for pussies. We have a staff meeting every week and we talk about who got voted off of Celebrity Apprentice. Janet never really cared for Meatloaf, but I totally called that Trump was going to fire Busey in task 7.

But, back to your question. We don't do any analysis here. We have a dartboard in the back room, by the water cooler. Our intern, Cindy, is in charge of picking companies out of a hat and pasting them on the board. Everyone gets two darts, and we just buy some of those companies every quarter. Chandler swings by a few times a year. He's always a blast. Great stories. We give him a few throws at the board whenever he's in town.

Tom Barr, Wells Fargo Advisors
One last question. ...downside. Taking the obvious year of ’08, you guys obviously did a really great job and you said earlier you didn’t have short positions that helped you. How did you achieve that? I assume you went to cash and bonds early on in the year?

Fake Michael Cuggino
Wow. You reeeally don't get it. You see, there's this leather-bound book in the store room that Harry left us back in 1982. It has all of the investment allocations written out in large capital letters. That's all there is to it. It just works. Why do we hold gold? Because the book says so. Why do we hold Treasury Bonds? Because the book says so. How do we decide how much of each asset to hold? The book tells us. It never changes. I'm not supposed to tell you all of this, but that's how the fund works.

Terry also scribbled in some tips in the margins of the book on how to deal with all of the hack reporters and advisors who can barely predict if the sun will rise tomorrow morning. And there's a red phone from the 80s by the coffee machine. If there's ever a problem, we're supposed to pick it up and speak to whoever is on the other end of the line. Terry said that it used to be a direct line to Harry. But, I believe that now it just goes to Terry's voicemail. He never picks up. We've never actually had to use the phone, but sometimes we pick up the receiver just to see if it's still plugged in.

There's not much else to tell you. 2008 was a breeze. Terry says I'm supposed to take all the credit — for the sake of the fund. But, the truth is that we just follow the recipe in the book. The SEC requires that we entertain Wall Street every quarter with these ridiculous conference calls and we pretend like we're geniuses and that we're just so good at what we do. But, the truth is that I could really care less if QE3 is happening, or if gold drops by 40%. I really don't care. Are we done here?