Value Investing, Gold, and the Future of Real Assets with Whitney George

David Marcus: Welcome to Partnering to Create Wealth. I’m David Marcus, managing director at New York Private Finance. We provide tailored credit facilities to individuals using illiquid assets as collateral, helping investors, entrepreneurs, and family offices unlock capital without selling assets or incurring dilution. On this podcast, I talk with trusted advisors and capital markets professionals about how they and their clients use debt as part of a smart, long-term wealth creation strategy. Thanks for listening. Today I’m joined by Whitney George, a prominent small cap value investor and one of the most respected names in the metals and mining sector. He’s the chief executive officer of Sprott Inc., a global asset manager focused on precious metals and critical materials investments. Prior to Sprott, Whitney spent more than 20 years at Royce and Associates, where he helped shape one of the most successful small cap investment platforms in the US. Whitney, welcome to Partnering to Create Wealth.

Whitney George: Thanks for having me, David, and pleasure to be here.

David Marcus: So let’s start at the beginning. We all know you as the force behind Royce, along with Chuck, of course. But before that chapter, can you give us a sense of your early career? Where did you work? Who influenced you, and how did those experiences shape your investing mindset?

Whitney George: Sure. So I was a history major, and I had summer jobs like lifeguards and tennis pros and club managers. So I came to Wall Street in the fall of 1980, totally unprepared for what it was that I thought I wanted to do, which was institutional equity sales, which is what my father had done. My family had always been on Wall Street in the finance business. So I started having interviews. I had about 50 of them, of course, because your friends of the family introduce you to something, and then you find yourself in an HR department filling out forms, and they’ll get back to you. And eventually, I walked into an office at Oppenheimer and got an interview because they did business with my father’s company and they felt compelled, and the manager there wasn’t really paying attention. And I’ll modify exactly what I said, but, uh, he said to me, trying to get rid of me after eight minutes, “Why do you wanna be in this business?” And I said, “Because I wanna make a pile of money.” But I was even more blunt than that. And so immediately the lights went on. He sent me upstairs to the local manager, and they hired me, and I had a very unsuccessful start as a retail stockbroker at Oppenheimer. I covered Pittsburgh because they had this kind of program. They didn’t hire trainees, that was a policy, so for the first three months I was there, I worked at each department and learned about what everybody did while I was getting registered. Once I was registered, I was off into production. I think they were paying me a draw of $2,000 a month, which was a lot of money for myself and my peers at that stage in our career. I think I produced $287 my first month, then down to $87, and then maybe back up to $200. And some of the partners discovered that I wasn’t just an error account on the run—there was really a person associated with these meaningful numbers. So, you know, after getting screamed at by the partners who discovered this, people felt sorry for me and tried to help me. I blew up my first few clients in energy and mining stocks in early ’81. Then I managed to blow up my next small group of clients in technology stocks in sort of ’83, ’84. And then I finally listened to my mother’s advice, which was, “You ought to pay attention to Warren Buffett.” He had served on a family company board, Pinkerton Detectives, and my mother had gotten to know him. And finally, around ’85, I started to pay attention. I started—

David Marcus: That’s pretty amazing that your mother had gotten to know him. Uh, you don’t hear that often.

Whitney George: No. Uh, well, just in a social way. I mean, she was very attractive, and they would always sit her next to Warren Buffett at the board dinners. And so that’s kind of when I started really getting serious about investing and paying attention. And I left Oppenheimer with two senior colleagues at the end of 1986, beginning of ’87, and went to an old firm called Lay, Law, Adams & Peck. I was producing research with them and selling it to institutions like Chuck Royce. And when the market blew up in 1987, the firm went bankrupt and sold their seat the next day—I think that was October 29th, ’87. We ended up getting sold as a team to a minority-owned firm that was in the business of collecting commissions from minority-sensitive institutions who would allocate a portion. That was a bizarre experience. Spent about eight months there, and then went to Dominick & Dominick with my partners. And then finally in ’91, my first child was born, and it was time to get serious about my career, and Chuck Royce had become a great client. So I convinced him to hire me to run the research department at Royce. And, um—

David Marcus: Wow. Your first born. You owe a lot to that child.

Whitney George: I do.

David Marcus: Although, although it was your good judgment. I gotta give you some credit.

Whitney George: So things went well at Royce in the early ’90s, up until the mid-to-later part of the ’90s. Then small cap value fell out of favor—that was, you know, the technology and ultimately dotcom boom. And we did something at Royce that in hindsight was more lucky than good: we basically hired all of our competitors in the small cap value space who were looking for homes, because nobody wanted that style anymore. And when the world turned in 2000 and small cap value came back into favor, we had all the talent, and we were the only game in town. And that began a tremendous run for the firm and for myself. After not being able to do anything right my whole career, I could do nothing wrong from about 2000 until about 2011, ’12, including the financial crisis. Our numbers were so strong in the prior years that we had positive inflows into our funds every week during the financial crisis except for two. So as value investors, we were able to dollar cost average into the massive decline, and when we came out the other side, things were great. Our assets went from roughly three billion to 30, then in the financial crisis back to 15, and then coming out of that in the next few years, we built the firm to 45 billion in AUM, which was pretty much a silly number when you’re doing small cap value and microcap.

David Marcus: You had such huge success, you could almost argue too much growth for a small cap manager. How did that play out?

Whitney George: Well, you had to get to know the companies you invested in pretty well if you’re gonna end up owning 15% of anything that you might like. And of course, when things go the other way, that does produce some difficult problems.

David Marcus: Right.

Whitney George: So we were bought by Legg Mason in 2001. They had all kinds of issues with other acquisitions during the financial crisis, including the demise of Bill Miller, who was a very famous investor who beat the S&P 500 for 15 years consecutively and then had his stud-to-dud moment. There was a lot of concern that I might be the next one. It got very political there. Legg Mason started overseeing everything I was doing with risk managers that they had gotten from Fannie Mae and AIG. And it became apparent to me that Chuck Royce really didn’t want an heir apparent. He wasn’t gonna go anywhere for a long time. So it was time really for me to find my final, you know—

David Marcus: Yeah.

Whitney George: —career. I had become a big shareholder in Sprott. It came public in May of ’08 at the equivalent of $100. And I loved the asset management business, and I loved the precious metals business. Since 2001 or so, I’ve had 10% of my net worth in physical gold, because I determined back then that the money printing would never end. And at the time that I was looking for something to do after Royce, which was the fall of 2014, I called up my friends at Sprott. We had been large shareholders of Sprott at Royce in our funds, so I thought I knew the company pretty well. I called Eric Sprott, and Peter Grosskopf was then the CEO, and I said, “I’d like to make a career change. You’re trying to build a diversified mutual fund business. I’ve been in that business. I think I can help you. And by the way, I really would like, in the middle of a bear market in precious metals, to do what I did at Royce, which is hire all the available talent when nobody else is looking.” They said, “Sure, come on.” And I landed there in March of 2015, at which point I discovered that all of the younger employees were doing everything they could possibly do to get away from gold and silver and Eric Sprott, because of the terrible performance that they’d had during the bear market. So that was a bit of a cold shower. But because I had bought a lot of stock in Sprott between Royce and landing at Sprott—I’d never owned any equity in what I was doing, because Royce was owned by Chuck and then by Legg Mason—I was able to get my mentor, who’s our chairman, Ron Dewhurst, an Australian, to join the board. Ron had run JP Morgan’s North American asset management business through the 90s, so he was very knowledgeable about asset managers. And finally, he helped me convince the board to split the company in two and let the diversified mutual fund managers in Canada go their way, and begin to pursue what my dream had been, which was to lay into a bear market, attract all the talent, and wait for your turn. So we started that process in August of ’17. We split in two. The existing Sprott started out with some physical trusts we still have and some gold mining ETFs. We had about 5.8 billion in AUM, and we began a series of talent acquisitions. We bought the old central fund and turned it into a physical trust. We bought John Hathaway’s business with his mutual fund from Tocqueville. We then got into the uranium business. And so through a series of acquisitions of assets that nobody else was interested in, we built the foundation of what is today Sprott, with about 50 billion in assets under management.

David Marcus: And the group that split apart, you took one half of it. The group that went the other way—where are they and how are they doing?

Whitney George: They’re called Nine Point. They bought themselves in a management buyout. I’d say it’s been mixed. I don’t know that they’ve made a lot of progress. I’m sure they made a lot of money. We managed some products for them in the gold space, and we’re down to the last one that we sub-advise. The company had two floors, about 250 employees; half went with them, and all the people that were related to gold mining and metals activities stayed. And the core of our executive committee was kind of formed at that point. I still didn’t have a role in management, but became the chief investment officer at that time. But I did have a lot of influence in terms of how compensation schemes were restructured, the products, and so became president in 2019—because I think they were worried that I might leave—and then CEO a little over three years ago—

David Marcus: Okay.

Whitney George: —in 2022.

David Marcus: So, today aside, gold’s recent rally has been driven in part by liquidity and momentum flows, including retail participation. Do you see that as changing or even challenging its role as a traditional safe haven?

Whitney George: Uh, no. I think really since August, we’ve had this recent liftoff. I mean, gold’s been strong and outperformed the S&P for this whole century, so that’s not new. It does it in its own fashion, so it makes it a great diversifier. I think, you know, obviously Trump has created enough uncertainty that more and more people are looking for diversifications. I like to say gold’s the original alternative investment, and I think threats on the Fed’s independence have added another leg. Fundamentally, until the last year or so, central bank support was really what was underpinning gold’s price. When we weaponized the US dollar after the Russian invasion of Ukraine, that sent central bank buying to the next level. I think central banks were sellers up until 2000, started buying it after then, doubled their pace after the financial crisis, and tripled their pace in 2022 after the invasion. So clearly there are large parts of the global economy where they would like to be able to transact in something other than US dollars—China being obviously the first and foremost. They’d like to have gold so that they can purchase oil in one currency and then have it easily convertible in Shanghai into gold, and therefore become less and less dependent on the US dollar, with less need to buy US treasuries as a result. So this is currently being referred to as the debasement trade, and clearly wherever we were headed, our current president is accelerating the pace, and that’s why I think you’ve seen the acceleration of the pace of the gold price. Because I think ultimately the end game is that the global financial system reverts back to some form of a gold standard, and we very well could take the lead by being the first ones to do it—i.e., let’s issue treasuries settled in gold and continue our reserve currency status. But it’s gonna take something like that, because the trend is definitely away from that.

David Marcus: So sticking with this macroeconomic and market structure line of questioning, the US faces mounting debt, persistent inflationary pressure, geopolitical tension. How do you see these forces shaping markets, and is there a realistic path to addressing some of these structural issues, like our debt?

Whitney George: Yeah. Well, it’s not just our problem. Japan has the same issues. I don’t know how many governments France has had in the last three years. We’re in a fiscal position that hasn’t been as bad since the end of World War II, and the prescription out of that is that you first and foremost grow your economy hot in nominal terms to continue to boost tax receipts. And then you allow the currency to devalue, so the ultimate debt that you have to pay off is less onerous. And I think what that means, obviously, is higher inflation for longer than people expect, a lower dollar, and some form of yield curve control like they did after World War II. The 10-year Treasury rate, I think, was fixed at two and a half percent for 10 years. That’s what it was—it didn’t matter what the economics were. So the real losers, obviously, were bond holders.

David Marcus: What risks do you think investors are underestimating right now?

Whitney George: You know, the market is expensive on just about any kind of historical metric. I don’t think the market appreciates that we’re likely to have more inflation for longer. You’re hearing about the tariffs being—again, we’re back to transitory, but they’re calling it something different this time.

David Marcus: Right.

Whitney George: But again, I don’t think investors have quite figured out the easiest way out of the current mess. Currently, we’re not gonna have austerity. It’s unclear… You know, tariffs are a tax, so I don’t think that’s necessarily a bad idea, and they are gonna be inflationary, and the consumers are gonna pay them if they’re allowed to stand—and some of them will stand through conventional means. I expect the Supreme Court to rule out this emergency War Powers Act idea. That seems to me—

David Marcus: As a mechanism for the administration to do whatever it wants, essentially.

Whitney George: Exactly. Exactly. So higher inflation’s gonna be tougher on PE multiples, as it traditionally has. Although I do think there are a lot of things to get excited about. I think the AI productivity miracle that people are banking on may take a little longer. The gating factor there, which I think we’re well exposed to, is energy. That’s why we have the largest product suite in uranium for the power of the nuclear renaissance—because you’re gonna need that, and you’re gonna need it faster than it’s traditionally been able to occur, and you’re gonna need to have it outside of the utility industry, which is regulated and very slow-moving, because Meta and Google and Microsoft aren’t gonna wait for the utilities to decide to give them the power and get through the process of permitting and building a nuclear plant. So I think there are enormous opportunities, but I think they might be different than what has worked for the last decade and a half.

David Marcus: Yeah. You’ve remained incredibly committed to value investing in real assets, even during long periods when they were out of favor. What’s kept your conviction strong through these cycles?

Whitney George: Well, I’ve been at it long enough to see it work often enough to understand that I’m always too early. My wife says at least two years, in most cases. But when you get it right, the ultimate returns are fantastic. I started buying Apple stock the day that Steve Jobs died, back in 2013. I was buying Microsoft and all these other companies in 2009 when I was a small cap investor. So—I fortunately don’t need to produce monthly or quarterly performance, which is a huge relief. I did have a hedge fund I ran for a long time, and that just became too frustrating and too unsuccessful after a very good start. It’s simple math. There are things that you can sense, you just can’t get the timing right. So you look for attractive opportunities, and as long as things are holding together, you dollar cost average. I invest in companies with very strong balance sheets, so I take that risk off the table. I invest in companies that have high return on invested capital, so they’re good businesses. And I tend to be contrarian when I buy them. Right now, I’ve had some mining companies in the portfolio. Last week, I was pruning them because I don’t let anything get over 5% of the portfolio. I have a lot of steel stocks—three specifically—because, you know, you can’t just build more power, you can’t industrialize without steel. And there are some great companies, particularly when they’re paying nice dividends and they’re buying shares back aggressively, so I’m prepared to be patient.

David Marcus: Well, you may have answered my next question, but looking back at your career, what was a period or investment that taught you a lasting lesson? And I’m wondering maybe if it was the hedge fund, but I’ll let you answer that.

Whitney George: Well, I had a period where I thought that management was so important, and was investing in companies where managers with great track records were coming in to try and turn them around. There was the woman that ran Charming Shoppes, you know, who was behind the softer side of Sears. And there was a guy that had done incredible things at Nike that was running Reebok. Those were some names. And what I discovered—something I should have known already from reading Warren Buffett’s letters—is that when a great manager encounters a difficult business, it’s the business’s reputation that prevails. So that was—

David Marcus: Interesting.

Whitney George: Yeah, kind of one lesson. I learned a lot from Chuck and still use the basic metrics and how he looked at businesses, how he looked at balance sheets. For example, I look at a leverage ratio, which is an old DuPont model concept of assets over equity. If it’s above two, I’m not interested, and that eliminates a huge swath of the universe.

David Marcus: And I know you focus on cap rates.

Whitney George: Right. Cap rates, which is essentially earnings yields.

David Marcus: Yeah.

Whitney George: You know, operating income over enterprise value. I’ve found that usually buying things at a 15%—

David Marcus: Cap rate or earnings yield.

Whitney George: —and selling them at a 7 or 8% yield, it works out pretty well. I mean, that’s tax affected. That’s like buying things at 10 times earnings and selling them at 20 times earnings. Once you get above 20 times earnings, then you’re relying on something outside of business fundamentals—

David Marcus: Right.

Whitney George: —to make it work. Whether it’s a growth investor going crazy or a momentum investor, but—

David Marcus: It’s out of your control.

Whitney George: Yeah. Business activity tends to cease there. There’s not a lot of takeouts and things like that in most normal or run-of-the-mill businesses.

David Marcus: In a 2017 interview, you said, “I don’t believe the world is going to end. I think we’ll muddle through. Most of my portfolio is built on that optimism.” Do you still feel that way today, or has anything shifted your outlook?

Whitney George: No, absolutely—it has not shifted. I like to use volatility to my advantage, and certainly we’re getting plenty of that. So much of the investment dollars are now passively invested, which creates opportunities. It just means that nobody’s counting cars in the parking lot at Walmart anymore. And so you tend to get all of your gains and losses all at once. Most of the time the stock’s just sitting there staring at you, doing nothing, and then they report earnings and everybody’s excited and it’s up 20%. So the performance pattern has changed, and I think it’s because, again, passive strategies are so dominant out there in the investment world.

David Marcus: What excites you most about the future of Sprott and your current investment strategy?

Whitney George: Well, I think we’ve created a very specialized asset manager—an alternatives asset manager, if you’d like—in a part of the market that nobody’s looked at for two decades. Nobody has wanted to invest in mining companies, but yet these are critical. We need these materials. There are supply deficits in silver, supply deficits in uranium—and that’s before anything new happens—supply deficits in copper. The industry has been under-investing, so there are not a lot of new discoveries. There are not a lot of new mines in the pipeline, and it’s very difficult because Mother Nature has basically given up all the easy pickings. So you’re gonna need a price response in copper, in uranium, in silver—you’re having it in gold—to induce even the beginnings of new supply, and they’re very long cycles in the commodity world. It takes ten to fifteen years from the first time you discover something to when you might have a producing mine. The supply response is very, very slow. And commodities are pretty simple. The cure for a low price in commodities is a low price. So as a value investor, it’s pretty simple to figure out what’s the supply, what’s the current demand, are you running your stockpiles down—and wait. Time will cure the problem if you’re buying in at low prices. And then the flip side is they can go crazy on the upside. From lows to highs, a lot of these commodities will go up tenfold when something triggers a change, and then back down again.

David Marcus: Right, of course. How have your funds done over the last seven, eight, nine years? Have there been a lot of inflows?

Whitney George: There have been in our physical trusts. That’s fairly recent, in the last two years, starting with gold. I’d say from the time I got here until coming out of COVID, there hadn’t been much activity or inflows. But certainly coming out of COVID, we had a big year in silver. There was a silver squeeze at one point. That trust went up by $2 billion. These are unique—we actually issue shares that are backed by physical material stored at the Royal Canadian Mint. They were created after the financial crisis for people who were concerned about counterparty risk. Now, of course, it’s not only the amount of supply, it’s where that supply is that matters, which is a less efficient market as we de-globalize. So you’re gonna need more of the material in aggregate for the same level of demand than before all of these resource nationalization kinds of moves. So that’s gonna be with us, I’m sure, for the next few years. At some point, I’m hoping people back away and we go back to the old world order, but it’s not gonna be for a while.

David Marcus: Right. How do you see the role of precious metals evolving in institutional and private portfolios?

Whitney George: So recommending precious metals in America, or gold specifically, presented an investment professional with career risk. It implied that they were thinking something very negative—because we have the world’s reserve currency, why would you need a pet rock that does nothing for you? Today, you have Morgan Stanley’s chief strategist coming out a month ago or so saying he would recommend, instead of a 60/40 portfolio, a 60/20/20 with 20% gold. That is unheard of. For the last 10 years since I’ve been here, I’ve talked to institutional investors. They might own gold personally, but they would not dare take it to the investment committee for an allocation in the pension because they thought they might lose their jobs. That’s how underowned and dangerous the topic has been. Obviously, that narrative has changed dramatically, and it just takes markets a long time for that to rebalance. In the ’70s and ’80s, having 5 or 10% of your assets in gold was kind of considered sane. But now—it’s maybe overbought, but it’s certainly underowned. It’s probably less than 1% of people’s allocations on average. And it’s performing now, and so money chases performance.

David Marcus: Of course.

Whitney George: The funny thing is to see the same people that have been chasing meme stocks and Bitcoin are now jumping into gold.

David Marcus: Well, Bitcoin stole the gold narrative for a younger generation.

Whitney George: Yeah, digital gold. Exactly. And we’ve lost our shirt at least four times in digital gold kind of ventures. But now you’ve got some new product ideas out there, and you have—

David Marcus: A secretary of treasury who said a year ago, before Trump was elected, that gold was his single largest holding.

Whitney George: You’ve got a president who’s gold-plating the White House. I mean, they clearly like the stuff.

David Marcus: Yeah, making it sexy again. That—

Whitney George: Yeah, that’s a very different world than we’ve lived in for two decades. And, you know, getting back to risks, I think the biggest risk is all of the money that investors have put into the S&P 500 and how concentrated that’s become, and how exposed they are now becoming to AI not developing as quickly as they’re pricing it to develop. And again, I think Mother Nature has some constraints on how quickly you can get there. Even if you’ve got the technology, you gotta power it.

David Marcus: I was talking with a venture capitalist recently about China’s lead in a number of critical areas, including robotics, renewables, and battery technology. He said government-led investment is always misguided, that it just doesn’t work. And of course, we’ve seen versions of that here, too, from the Obama administration’s backing of Bloom Energy to Reagan’s push into semiconductors. Are you concerned about China pulling ahead in those areas?

Whitney George: Well, it’s a command economy run by a president for life, so I’m not sure how that works out. As an investor, we’ll compete. They have their hands around our neck when it comes to rare earths, for example. But, you know, rare earths aren’t that rare. There are plenty of deposits. The reason they have a chokehold is, unfortunately, the processing of rare earths is a pretty dirty business. And very often, the rare earths deposits come with radioactive material. So we’ve let them have it. Now we’re gonna pay a price if they’re going to hold us hostage, but these are not problems that can’t be overcome. It may take a little longer than people would like, and it’s gonna cost a lot more money than people would like, and it might have to happen more through friendshoring—in places like Australia and Canada—than the United States, until we do something about the kinds of environmental regulations that would never allow that kind of activity to happen here. But again, things are changing very quickly.

David Marcus: If we were to have this conversation in five years, what do you think will have surprised most market participants?

Whitney George: I think they’ll be surprised by the price of gold backing currencies, and that will have a disciplining effect, if that should occur, on government spending. The mining industry will be a bigger industry in this country, for sure. I think by then we will have gotten over this idea that tariffs will solve all of our problems—not that many people believe that’s true anyway. And I think they’ll be surprised—I’m an optimist—that equities will have continued to perform well, with some rotations, and maybe not the indexes that are kind of overweighted. But broadly speaking, I would expect… you know, again, this is a very resilient economy. I’m not quite as enthusiastic about America as Warren Buffett, but I think we’ll come to our senses on immigration. We need foreign workers. So we’re gonna try a bunch of these things out, but I don’t think the world’s gonna end.

David Marcus: I like that take, and I’ve saved my most important question for last. I heard a rumor that your neighbor, Taylor Swift, has been funding the wedding costs of a bunch of locals in order to keep them out of the church on the date she wants. So what do you know about this? I assume the two of you meet for coffee and gossip regularly.

Whitney George: No. I have never met her. My two sons have been to her house for a party and had a great time. The rumors are not true. All of the guests at the Ocean House next summer are keeping their bookings. So I would expect to hear something, but I’m not sure the town is capable of providing the right security and things like that for a wedding, unless it’s very, very small and kept very, very quiet. I guess it could be, but it’s hard to believe it will be, knowing the way she does things. It would—

David Marcus: Yeah, exactly.

Whitney George: Exactly. I mean, it would be fantastic for business at the hotel I own part of, but I’m not sure that it’d be the best thing for the community.

David Marcus: I hear that the hotel’s doing pretty well even without the Taylor Swift wedding.

Whitney George: The hotel has been doing really well. We have fantastic management. It turned 15 years old last May. COVID was like a new beginning for the hotel—when nobody could go to Europe, all the high-end travel agents discovered the Ocean House. And so it’s a great experience. It’s five-star everything and really acts like it, and we have great leadership there, so I’m really happy about that. I had very little to do with it.

David Marcus: Well, this has been such an interesting discussion. I hate to end it, but Whitney, thank you so much for taking the time to chat with me today, and I look forward to talking again soon, I hope.

Whitney George: Okay, David. That was great. I really appreciate it.

David Marcus: Thanks for listening to Partnering to Create Wealth. If you found today’s conversation useful, please consider subscribing and sharing the podcast. To learn more about how we help our clients unlock capital using illiquid assets, visit the New York Private Finance LinkedIn page or visit our website, nyprivatefinance.com. I’m David Marcus. See you next time.