How To Invest: David M. Rubenstein in Conversation with Ray Dalio

foreign wow what a treat it is to interview David Rubinstein right uh David about how many interviews did you do um on your show I've done about 200 of them so far on the various shows and uh and then I've done some that are not on TV but I've done some interviewing over the years and some interviewing over the years yeah I'd say uh I interviewed here on this stage I interviewed you yes you did and you did it very well which makes it more challenging for me so I'll do my best but you'll give me pointers if I need them go as we're going along um what I found in your book she wrote three books uh one uh on the leadership uh the second on you know the American dream in the American reality and third um on the investing um I counted that there were 31 interviews on how to lead 27 interviews on the Great American experiment and 23 interviews so that equaled 81 plus 200 or so is 281 interviews um and never once do we know what you think right well a good interviewer is supposed to let the interviewee do the star of the show right so I don't want to be an interviewer who basically says here's what I think about something go through a long explanation and then give the person one sentence one second to say what they think so I try not to do that well we um we get to switch roles here okay you know like on your books very very interesting on your books um the greatest minds and and the greatest leaders greatest investors are part of it um but you're a great leader and a great investor and what's differentiated us I wrote three books you wrote three books what differentiates us is that I spend all this time passing along the principles that I thought were worthwhile and you picked the principles and we're going to switch roles here and we're going to need to get your principles out of you and know what David Rubinstein thinks well they're different principles you've written a book on principles which is the principles of life and these are the principles you wrote about are the ones you operate your life on and your company and is that what you mean are those different things principles of investing yep those principles there's principles what I mean by principles is uh when you're in a position and you have to make a decision it's kind of the recipe by your decision making criteria when you're in that position to make it and because you have a great track record and I have somewhat of a track record we're in a position where we must have made enough good decisions to be where we are and we need to pass those along to others at our stage of our life I believe and so that's why I want to get your principles well principles of investing principles of life no there's principles for everything there's principles for medicine okay marriages there's principles for everything right so principles are for everything and I want to get I want to start with your principles for life so which I'll get to okay so bear with me all right go ahead okay so just a little bit of of your background um by the way your background parallels my background in uncanny ways so I'm going to learn a little bit more about myself by interviewing okay so you were born on um August 11 1949 I was born on August 8 1949 so you were born three days later than I am and um your background was somewhat similar to mine in that um your mother you were born in modest means uh your dad was um a um Postman right um and I as I understand it uh he really never earned more than seven thousand dollars a year basically and your mother was a homemaker in my case my dad was a jazz musician and it wasn't probably the same amount of money my mom was a homemaker and then um when you were 12 when I was 12 John Kennedy inspired you right and he inspired me and um you wanted to go into government and so uh you went to the uh to Duke not only because it's a great school but also because you could get the best scholarship deal there and uh you then graduated from duke you went to a wonderful Law Firm and then you went into government you went to as the chief lawyer of the Senate Judiciary Committee um and then um you worked there for um in the Carter Administration for um I think the four years of the Carter Administration and then you turn to the dark side well um I it wasn't uh I had no choice we lost the election in 1980 to Ronald Reagan so you know people come up to you and tell you how great you are when you have power and then the day after you lose the election nobody wants to return your phone calls so it's a different situation so I had to you had to go the dark side well I had to go back and practice laws the only thing I knew but I didn't know how to do practicing I wasn't really a good lawyer I didn't have the skill set so and my clients kept telling me that so I um I had to do something different and I was inspired by Bill Simon who was the Secretary of Treasury in the Ford Administration who we had replaced and he had done a famous deal you're probably familiar with Gibson greeting cards where he put in roughly a million of his home money and made roughly 80 million dollars in roughly 18 months and I read about that I said that's better than practicing law I don't know what a leveraged buyout is but I'm going to learn and I'll figure out if I could build a leveraged buyout firm in Washington not in New York um so now you never went back to government but you always been very close around government and I've never been invited back because if you get inflation to 18 they don't invite you back um would you go back I couldn't be confirmed for anything today because um today if you have made a fair amount of money it's impossible to get confirmed generally and then also if you have a reasonable reputation it could easily be destroyed by one Senator putting a hold on you and people think you've done something nefarious and you could get blocked so it's very difficult to get confirmed today and I just don't know I want to subject my family to all the uh criticism that would come of me if I'm trying to be confirmed for something not that anybody's offered me any jobs oh what do you think about that do you it's very difficult now the world has changed a lot since uh we heard John Kennedy speak well what do you think about this to be the case when I work in the Senate things were there was bipartisanship uh today I hosted dinner for members of Congress once a month and I asked them to sit with people from the office of party and they love it and they say sadly or not this is the most interesting thing they're doing in Congress is going to this dinner because they can be themselves they don't have to uh you know raise money they don't have to be seen by the press and so forth in the days when I worked on Capitol Hill briefly and when I worked in the White House bipartisanship was something that our legislator was thought to be a good one if he could get bipartisan or she could get bipartisan legislation through now if you're bipartisan you're almost written out of the party and it's so it's a different world than it was when I was doing it many years ago you know as as you know in in my study of looking at the polarity um there's populism of the left populism of the right and what you're referring to um what do you what do you think about that do you think it weakens our democracy do you think well it doesn't help and let me explain the reason for it to some extent it's not like people go into office and run for office and say I want to do something bad as an office holder they all have the best of intentions I would say or most of them have the best of intentions but the problem is this once you get into Congress you're afraid you're going to get out of Congress the job is doesn't pay much it pays less than 200 000 a year 75 members of the House have to live in their own offices because they can't afford another apartment in Washington DC so they don't make much money but to raise money which is what they need to stay in office you have to if you raise money you're more likely to win elections and if you raise money after you lose the election you can keep that money more or less not for personal purposes so they're always raising money the house members are spending 40 percent of their time raising money and when you raise money you don't raise it on the basis that this is by I'm going to do bipartisan things I'm going to work with the party of the opposite party you raise it by being appealing to the foreign after the far right and so the parties are just more and more split than they used to be and it used to be money's always been the you know the mother's milk of politics but the problem is that now you need to raise so much more and also you can now give so much more in the old days you could give a thousand dollars you're done now you can give unlimited amounts of money so people who have large sums of money to give get listened to a lot for my members of Congress and they tend to be on the far left or the far right so it's not a great situation for democracy hell of a system well it's better than the every other system I mean obviously it's it's not perfect and as Winston Churchill famously said democracy is the worst form of government except every other one uh he didn't know about fundraising though he might have uh you know not been as happy in other countries saying you lived in Singapore for three months about a year ago or so let's do some work there in Singapore I talked to the Prime Minister I interviewed him once and he told me that he had an election campaign I said well how many months was it he said no it's four days it says four days it was only four days and so you know if you had shorter campaigns and money wasn't a factor we might have a better democracy because we have such um polarity and populism on each side a populist is a person who will win at all cost um do you um worry about democracy well I worry about lots of things if you're Jewish you worry about lots of stuff we can get to the other things I'm always worried about something but you know the Democracy that our founding fathers created was not something they honestly thought would last Thomas Jefferson didn't think it would last more than 20 years so the fact that you've got a document that's lasted more than 200 years with 27 Amendments is amazing but it's still um not a perfect democracy and you know I don't know what how what is a perfect democracy it's clear the country is not we're not as bad shape as we were during the Civil War during the Civil War we lost roughly three percent of our population today that would be roughly 10 million people or so so and lost by by Battlefield deaths or disease or other things today we're not killing each other at that kind of level we obviously have a lot of tension and there are some people that have lost their lives because of fights over democracy and so forth but it's not as bad as it was but the tensions are are not good yeah not as good as better than the Civil War oh better than the Civil War that's for sure um now on this choice that you made of being uh in the career that you went into versus being in government how do you view the pros and cons of that decision well in government it's great to say I want to serve my country and be in government and you a lot of people do that and I think they deserve a lot of credit for it because the compensation is low that you're not very thankful very much it's long hours and so forth but you do get a sense you're doing something to make the country somewhat better and in certain areas but I do think that in what the business I'm now in it's a business where you're designed to improve companies make the companies better and that helps the economy and so what I say in the book is that it's not a terrible thing to be an investor who's very good because you're in a good investor you make a fair amount of money but you give away that money most of the investors are ultimately giving away the bulk of the money you are and I we both early signers original centers the giving pledge so we're basically giving away our money and you know and then you're also creating a lot of jobs you've created a lot of jobs my firm has created a lot of jobs so it's not a terrible thing to be an investor it's not like you're a nefarious person on the other hand I I recognize a day to day when I wake up I may not have the same influence that I would have if I was in the white house as a senior advisor that a president so what's the straight answer yes or no well happiness is the most elusive thing in life for sure and very difficult to be happy and most people I know are not that happy and actually the wealthiest people I know are often the most tortured Souls Mike how are you doing I want to look happy I'm happy but I'm you know unusual maybe in some sense I'm very happy but I've reached an age where you know a lot of the tensions and the the challenges of life I've kind of gone through some of them and so you told me earlier that you think the happiest age for people is tend to be when they're post let's say 55 or 60 they tend to be happier than when they're 35 or 40. and so I'm happy I just you know happiness is hard to measure there's no happiness index but I'm doing only things I want to do giving away my money my children are now happy and healthy and they're in their own business they're very they're all in the private Equity business so that's good right and uh and also I'm uh you know I feel I've done some philanthropic things that are good some I could do better you've done a great deal on the philanthropy too but so I'm pretty happy and you know I I I I you know I wouldn't don't want to live my life over again everybody would like to live long what a terrific life you have had really I I just want to say I'm a great admirer um of the of the you living the American dream and then contributing so much I just want to read some of the some of the things that um you do and David Rubenstein is chairman of the board of the John F Kennedy Center for the Performing Arts the Council of Foreign Relations the National Gallery of Art the economic Club of Washington and the University of Chicago he is also a fellow of the Harvard Corporation a trustee of the Memorial Sloan kettery Cancer Center Johns Hopkins medicine The Institute for advanced study the national Constitution Center The Brookings Institute and the world economic forum and he's a director of the Lincoln Center for the performance arts the American Academy of Arts and Science he's also a member of the American philosophical Society Business Council Harvard Global advisory I I take up most of the time if I kept continuing to read these things you could do the same thing I honestly do not hold a candle to any of that and I wanted um I wanted to get into your subliminal motivations because one of the things you said in our discussions was [Music] um that when you think about your children or the children of people who have a lot um that that could be a curse to have a lot that that's a challenge just a second okay go ahead um you'll you'll clarify do you think that the not having much and that achievement subliminally affected your drive and I'm asking the question to reflect even on myself I don't we don't know the subliminal but in other words you you extraordinary person of little of modest means background and these tremendous accomplishments and the subliminal is our real motivator what do you think subliminally motivated you to go from that one background to all that you've accomplished and done my Jewish mother maybe um now I would say when you don't have money and you don't grow up with a lot of wealth you're obviously not always but you're going to be more driven probably if you grow up in a very wealthy family it's harder to have the drive and I've said before that raising children is the most difficult thing in the world and as anybody who's raised children though it's always worried whether happy healthy and safe and so forth but if you raise children you've got a lot of money and you are the same situation do you you could be careful because your kids might say well my father's going to give me money or my mother's going to give me money they don't have to work very hard so it's very difficult much harder to raise children when you have a lot of money and you've walked we've all seen the children of very wealthy people who didn't accomplish that much the people that generally are the great greatest accomplishers and the people are the greatest leaders tend to come from Blue Collar backgrounds and middle class backgrounds the people in this book are basically from blue collar or middle class backgrounds the wealthiest people in the world it's hard to imbue ambition in those children now there are obviously exceptions to every Rule and there's some people who I'm sure from billionaire families that are hard working and done a lot but it's a general rule of thumb it's it's you're more motivated to prove something and accomplish something if you don't have anything to begin with and so in my case I I was trying to you know make make a life for myself that my parents would think was you know useful um that's so true I have a friend who's a psychiatrist who wrote a book called The Gift of adversity which I think is uh and when we um and when we I look at the study the dynasties in history and and so on you find that just as you say that the most successful people you can't tell where they come from so how do you think about our society now in which there is not equal opportunity in other words there's a well there's never been equal opportunity I'm not talking about exactly equal opportunity I'm talking about the fact when we grew up I could go to a public high school that was good I was lucky enough to have parents who took care of me and so on and that's basically all that I needed all that you needed probably but we have situations on a state of Connecticut my wife works in their 22 percent of the high school students in Connecticut are disengaged or disconnected in poverty in their environment disconnect disengage means that their absentee rate is greater than 25 present their failing classes disconnected means they don't know where they are because they've dropped out of school this is not equal opportunity never totally equal but it's different do you disagree with that do you think that we could draw from the population well the income disparity is greater than it ever was and there's no doubt there a lot of people have a staggering sums of money and a lot of people at the bottom one of the most tragic things is that people believe in the American dream who typically come to this country we have 50 million immigrants in this country more than any other country in the world no other country's even close they're attracting that many immigrants the immigrants tend to believe in the American dream and they come for that reason many people now who were born in this country particularly those in the lower social socio-economic classes do not believe in the American dream as much as they used to and I would say particularly in often minorities they don't believe in it because they don't see that they're going to rise up and we have a problem in this country for take Literacy for example about a third about 30 percent of Americans are functionally illiterate which means they can't read past the fourth grade level and and you can't read very well or you're unable to read it all you're not likely to rise up so we have lots of challenges in our country while it's got a lot of great resources we have a lot of problems we're not going to solve that problem uh anytime soon if I knew what the solution was I'd be in Iowa New Hampshire and so forth but there's no there's no easy answer to solving that income disparity problem or the lack of equal opportunity what are your what are you going after well what I'm trying to do now is uh you know not do I mean in other words what is it that fulfills David Rubinstein well I like it when I have a famous person interviewing me because um usually it's a role reversal so that I could attract you or the why I could attract you that makes me feel good but I what I like is feeling I'm giving back to the country it's a country because of my last name I'm not sure that I could have achieved this in some other countries there was a show last night on on PBS about the Holocaust and how the United States didn't do as much to prevent the Holocaust as it could I was a Ken Burns documentary that was well done I thought and the Jews came to this country but in my parents and I mean my great-grandparents came here grandparents came here but they came here at the bottom of the economic totem pole and there was a lot of prejudice then today I I think the country is much less prejudiced against people like me obviously people are Jewish is less Prejudice than it was but I I want to give back to the country so a lot of my gifts as you note have I have been to try to make the country somewhat better that I realize no one philanthropist is going to make the country better by him or herself but um you're a leader in patriotic philanthropy you've made um changing big changing impact on the Washington Monument the Lincoln Memorial Jefferson Memorial Monticello you um the Kennedy Senator Smithsonian Library of Congress national museum of African American history and culture you've bought copies and shared copies of the Magna Carta the Declaration of Independence and so on so you in my opinion uh personify that American dream and and I I share your views about immigrants and such things and so I um is accomplishing important well I think people have a greater self appreciation of what they've done and what they're about if they've accomplished something if you fail that everything you've ever done in life you probably wouldn't feel so good about yourself you probably feel better about accomplishing something and actually seeing it in my philanthropy I have four principles one start something that otherwise wouldn't get started to finish something otherwise wouldn't get finished three make sure it's something I'm intellectually engaged with so I'll stay involved not just write a check and four I'd like to see progress in my lifetime now that that excludes some things I can't I'm not going to solve all the problems of the world in my lifetime but the things I can I can deal with I'm trying to deal with but in the end you know people fault me all the time I was faulted recently in the New York Post saying that I had given money to Monticello and Montpelier to re restore them and then they said now that I'm too woke because the tours of Monticello Montpelier emphasize the fact that Jeff Jefferson and Madison were slave owners now that's not completely accurate in the sense that the tours don't emphasize that they do mention they were slave owners and they were slave owners and George Washington was a slave owner and many of our first presidents were slave owners I think in history you should learn the good and the bad and and point it out to people so I don't hide behind what Monticello is doing or Montpelier is doing but I think it's you know it's important that we learn you know from the past and that's one of the reasons I'm caring about history is teaching people the mistakes we made in the past hopefully so we can learn how to do things better so but it seems that as you say accomplishing is a very high priority for you just a second I'd like to accomplish something actually get something done I hear people do too there were there were people a lot of people who might have a different approach than Savor life you know um go to the ball game um savoring life in a way that doesn't have so much accomplishment um what do you think about life choices like that well the country allows people to make their choices and People based on their upbringing make their choices that makes them presumably happy if people are happy going to you know sporting events and I go to sporting events too but if they're happy doing that and it gives them a greater sense of fulfillment or happiness than than doing what I'm doing that's fine I don't have any problem with it everybody can't do the same thing so tell me Orioles or Nationals well I grew up in Baltimore and I do think the Orioles uh you know be you know it's a good team and I live in Washington's a national good team and we'll see what happens you sure are a good interviewee uh you you have diplomacy still I've uh learned you know if you get in trouble if you say some things you're not supposed to say I've done that many times in my life so I'm trying to be careful not get myself in trouble um while we're on the subject I understand that you ran into a little bit of difficulty when you were trying to impregnate a [Music] a panda you were trying to impregnate a pranda not personally but um no um the panda situation for those who don't know about it is that they're only about 2 500 pandas on the face of the Earth there's seven and a half billion people and why is that because pandas have the most unique reproduction system of any mammal and because also they where they historically live I've been more and more development has occurred in China so there are very few places they can live anymore but they the female goes into estrus again reproduced only for four hours a day one day a year that's you know you got to be there for that four hour period of time and so were you looking on well I'd say what happens is in the wild is you know when they get together in that four hour period of time they haven't they're inexperienced you only do it one day a year for four hours you don't know what the where the parts are supposed to go so they don't really it doesn't work so well so in captivity um they if it doesn't work the normal natural way after two hours they will artificially inseminate the uh the female and sometimes that works sometimes it doesn't how did you come by the interest to do that well it wasn't because of my interest in uh reproduction necessarily I I was the chairman of the Smithsonian the Smithsonian owns the National Zoo and the National Zoo is one of 26 zoos in the world that have pandas only three in the United States and uh what happened was they said the sponsor the people you have to pay the Chinese about a million dollars a year uh to get the pandas and this the organization that would have been paying it for 10 years decide not to do anymore so they they were afraid they were going to lose the pandas and so I said well I'll put up the money for it and so then made me an expert on Panda reproduction you learn amazing things so yeah I mean they said you want to see the artificial insemination uh the panda I said no do you want to see the semen extracted from the mail absolutely not that'd make you cringe yeah I would um failure uh a lot of people look at you or I and think wow what a tremendous amount of success these are smart guys they've been become tremendously successful and I don't think they understand how important failure is in the process can you tell me about some of your failures through all my failures but um in the book on a leadership and in this book I point out that the great leaders and the great investors have failed because you learn a lot from failure and I have failed many times we've made some Investments That backfire didn't work out I missed out in some great Investments I should have done like Facebook or Amazon Netscape I passed on them all I've made a lot of mistakes and lost money for people and myself so I've had lots of failures and you have to learn from your fathers and get back on your feet and I there's a person I knew many years ago who had never seemed to fail he had been I went to Harvard summa laude Rhodes scholar Yale law school Supreme Court Clerk editor-in-chief of the L Law Journal PhD as well in economics he never failed everything and he was he was blonde hair blue-eyed chiseled athletic and he's gonna never failed everybody saw his resume they said we now hire this guy AI so they kept giving them great jobs but when he finally met a real hurdle and he didn't have the temperament to deal with failure he failed and he and didn't do a good job and so he kind of lost his job I you have to learn how to fail in order to learn how to succeed Bill Gates Steve Jobs Jeff Bezos they all had failures everybody's had failures if they've accomplished anything and so in your case you know you've written about your failures and you know you you lost all your money at one point right earlier and he's got to go to your father and borrow 14 000 I was so broke that I had to borrow four thousand dollars from my dad for family expenses right so you failed and you you obviously did pretty well since then so I've had lots of failures too but in the end you can't dwell on your failures because you won't get anything accomplished you have to learn from them and get get back on your feet so principles of life I'd like to get your some of your principles I think you said that principle so well about failure can you say it again what what is the principle for failure the principle for for achieving Success Through family failure what would you carry if you're going to be successful in life generally I think you've got to have a vision of where you want to go you can't just sit at home and just say I hope something good will happen you have to have some initiative and try to do something uh secondly you have to be prepared Jim Baker famously said that his father taught on the aphorism which is a prior preparation prevents poor performance prior preparation prevents poor performance here's a principle so and that's very good try to be prepared also try to have some humility if you are successful there are some great leaders that are not you know so humble and there's some not great leaders that are also not humble but their you know humility is a virtue you can't see Abraham Lincoln running around saying you know I just won the Civil War you know give me some credit for that I mean he never would say that you know great leaders are people you admire because they have some humility and they have humility because they failed and they know the challenges of life so humility and self-respect respect for other people you know I think it's obviously and one of the golden rules but I think respecting other people's feelings and trying to not hurt anybody or embarrass anybody in in a way that is harmful to them is you know is a useful principle of life how have you carried that in your performance I know when I think about um my worry about being wrong um I do two things I try to find the smartest people who disagree with me to try to stress test and then I try to diversify so it's K I think being in the markets has taught me some things about life and life is applied to the markets what are your when you take that humility and so on how what how do you carry that to an investment principle or two you mean failure or the risk of being wrong well you recognize in life you're going to be wrong you know a lot and so you have to use your best judgment and use your gut and your instincts so Warren Buffett for example has been in his the book points out that he's compounded his investment success roughly at 20 a year for for 60 years which is pretty good and so he's made mistakes but he uses what other people use now is your gut your intuition which is basically the set of experiences you have that lead you to make decisions so in your case if you have an investment decision I assume you don't get a 500 page memo and analyze it and ask everybody and Grill everybody you have gut instincts now after so many years of doing this you can make a judgment based on those instincts um can you take a tell us a little bit about a failure I'm like what was was 2008 a difficult year it was uh it was a terrible year for us we had a bond fund uh we we were not we were private Equity Fund but we had built a uh a private credit fund and uh it it went it broke it lost let's see a billion dollars of money so if you lose a billion dollars that's not good and we have a lot of investors and my partners and I were the biggest investors in it we lost hundreds of millions of dollars of our own money and so it was not pleasant and so we had to live through it and deal with the investors so you know whenever you lose money for investors it's not Pleasant now we've made a lot of money for investors over the you know a 35-year period of time but people don't want to hear about your successes when they've lost some of their money do you worry about being long only and you could see a bad set of circumstances like that again do you worry have you and what are your lessons that you've learned to prevent getting yourself into that position again well in that particular case we we overlovered we basically what we were doing was we were barring against an effect Ginny Mays and Fanny and and Freddie Mac Securities which as to which you could borrow 98 cents on a dollar in a repo financing so when you can borrow 98 cents a dollar you can lever up quite nicely and enhance the returns when they when their crisis happened all of a sudden JP Morgan and other Banks said no these Securities are only worth 90 cents in a dollar so you have to put up a lot more money and we didn't have the cash in that facility to put it up so we lost the Lawson as other people did during that time so what we learned is you know in the lesson of investing is don't put too many eggs in one basket and don't do things that are that are too risky now nobody anticipated the 0708 crisis that well but clearly it was you know it was a terrible time for the market it's the worst time I've ever seen probably for you too no if well it turns out not because I go lower in short 2008 was turned out to be a great year for us but but I mean you you look at the stories of what happened during that period of time there's a new excellent book that's coming out in October by John Mack who was the CEO of Morgan Stanley and I just interviewed him and it's about his book and and he points out they came this close to having to take the firm I know it will do you think something like that could happen again well it's always a mistake to say that nothing can happen again that was bad so there will be crises in the future there's always been panics crises Financial calamities that always happens that's that's the way the investment world is uh in our case we've tried to protect against it I think other firms are too but nobody is is perfect and you know if uh certain things happen to our currency or there were things we can't anticipate there could always be problems but right now I think people have learned about the mistakes of 2007-2008 but increasingly in my firm I see people who weren't in the investment World in 2007 2008 they're young I was at a meeting recently with some of our people and these people were very young and so they haven't lived through that I mean I was doing something at the Kennedy Center the other day we've we had a uh an exhibition of President Kennedy and I wanted to have that there because the Kennedy Center is a living Memorial to President Kennedy but two-thirds of Americans were not alive when President Kenny was alive including my children and so they don't really know about President Kennedy so you're dealing with young people they don't have the the background of a lot of the young people haven't been through Tucson 7 2008 so you've got to remind people this but you can't remind people of things as much as have them live through it when you live through it then you really remember it and that's also one of the reasons that when things happen in history before our times they are risks that might reoccur I would think there's some similarities that exist but I don't want to get into that because I know I have limited time and I want to be able to pass along other questions but before I do of these 23 investors that you interviewed including you yeah including me um are there there's so many different ways of making money in the markets right um are there any common elements sure the the investors now this was a book of interviewing the greatest investors in our country and it's not designed to make anybody reads it a great investor nobody is going to read a book about Tiger Woods's golf style and become a great golfer you have to live that the world of of investing for most of your life to get to this point this is a book that's designed for students who might be interested in learning about the investment world and what it takes to be really good average investors who say well maybe I'll pick some stocks myself or bonds myself and some tips for them and then people who don't have the ability to really pick stocks or bonds or other kind of instruments but want to pick funds and let the fund managers do it and it's designed to give them some principles but the great investors do have certain things in common these are what they have in common number one they tend to be from blue collar or middle class families as I mentioned second they tend to have pretty good skills in academic life they tend to have pretty good educations they're not people who generally dropped out of high school and just got lucky by investing well three they tend to be pretty good in math they're not necessarily math wizards but they're pretty good in math four they like to make the final decision they don't like to delegate they they say all right give me all the facts and I want to make the decision myself I'm not going to go home and you you make the decision that's not them they also are people that are intellectually curious they just don't want to they want to know everything they can about everything they they're like intellectual sponges and not just about their investment area if they're an expert in let's say quantum physics and they invest in that area they don't want to read only about that they want to bid everything because their thinking is at some point some piece of information will come into my brain and I can use it later so they're incredibly uh Curious and they read enormous amounts next they also tend to be from Workaholics I would say they also tend to be people who are happy and they make mistakes but they get over quickly I'm not probably that good at that I can remember mistakes for 30 or 40 years and I can't get over it but a lot of great investors they're on the next thing they get out of the position they go the next thing they don't think about it again they all have that in common and the most important thing they have in common I'd say is they're willing to go against conventional wisdom the conventional wisdom is by X or Y or Z they don't want to buy X Y or Z they want to buy a b and c or something different the conventional wisdom is what they generally go against and they're willing to have they have the courage to stand up to the conventional wisdom the conventional wisdom is the the path of least resistance is always easy to take if people tell you do this and do that and you do it well nobody's going to yell at you but if he's going to do something different people are going to say well you know what you're doing and you might if you make a mistake people want to yell at you because you did something wrong that that takes a lot of courage and that's what a lot of these people have what a great summary uh would you be able to tell a young one who's got it before they demonstrate it well I can tell certain things I mean there was a great investment banker many years ago when I was young I was involved in the bankruptcy of New York City as a young lawyer and it was a young investment banker who came in and worked on us Felix Rodin and he had a really brilliant mind I could see it right away what a brilliant mind he had he didn't have an MBA and I've seen other people who are really good in finance who don't have an MBA and so I tell young people come to our firm all the time if you have this certain skill set you don't need an MBA typically they have college degrees and they've had some training but I can tell that two or three or four percent of people have such intellectual curiosity such drive and such a willingness to kind of do what it takes to be great that they don't need to go get an MBA the opportunity cost for them is is too great but that is not the majority of people in fact a lot of people in here don't have mbas they're really talented you you do have an MBA but I think you wanted an MBA kind of you you didn't do you love college but you wanted I think have the impermeister of Harvard Business School I think I've got it right or you certainly got into Harvard Business School and you were happy to went there right and so it gave you a certain impromatra to say I went to Harvard Business School it's a great place and uh I would say a lot of people in here didn't get that kind of uh background they didn't go to business school at all I'm going to uh now turn to some questions from the audience um um what's your process for study is it reading is it notes is it anything else so how do you find the time to do this process right for studying what you're doing well a process for study for learning well I I have some tricks one I don't play golf that saves a lot of time two I don't drink alcohol that saves a lot of time too but also I interview a lot of authors and when I interview authors I feel it's a courtesy to read the book so I I'm Force feeding myself to read a lot of books so that's how I do it and I read the books pretty carefully but I but I'm reading books on subjects I know something about if I had to read a science textbook I probably couldn't get through it but I'm reading biographies business books history books I know the subject matter reasonably well so I can read it pretty quickly and then what I do is when I'm preparing an interview I then write down the outline of what I want to ask people but I I just I'm doing things I really want to do I want to interview people I want to read the book so it's not a chore and I'm not doing anything it's a chore at this point in my life everything I want to do I'm doing I'm not I'm not punishing Myself by doing things I hate to do it strikes me that when I think of the enormity of what you do to just read all those books and interview um and then to do the uh all the that we described before that it's almost like a Leonardo da Vinci there must be a great passion um that absorbs you how do you do this in time how do you manage your time well I don't have the IQ of so many people that got perfect SATs and you know one Nobel Prize I'm not at that level for sure but just by my theory has always been I'm not as smart as I would like to be or as smart as some people I know but if I work harder I can you know catch up to some extent so um that's what I've done when do you wake up when do you go to bed I try to get about five and a half hours of sleep a night now Jeff Bezos when I interviewed him disappointed me by saying he gets eight hours every night he can't get by with less than eight hours and so I said my God how am I gonna you know no wonder I'm not doing as well as Jeff Bezos uh eight hours every night um I I get by in about five and a half hours a night and you know that seems to be okay um next question here what do you think about the U.S economy uh with inflation low unemployment and polarity well um you are better to answer that than me but I'll give it a my stab first and you can comment as well like the U.S economy in right now is not technically in recession uh Europe is more likely to be in a recession in my view than we are I think the Asians and Chinese economy that you know are slowing down they're not I guess all China is not in a technical recession now but the U.S economy is trying to deal with the problem we injected five trillion dollars into the economy obviously has an inflationary impact and what happens in Ukraine is having inflation impact as well and trying to absorb the 5 trillion and the energy price increases has given us very high inflation and now we're trying to deal with it with higher interest rates which generally throughout the course of history when you have rise interest rates enough you as you know better than anybody it tends to produce a so-called hard Landing which is a euphemism for recession so I don't know that we're going into one but but I think right now we're we're tiptoeing around and I don't like to use the word recession you may have heard me say before that when I worked in the Carter White House um uh the inflation advisor Carter said I think we're going into a recession and and the Press got all upset about it and Carter called him in and said how can you agitate the Press by saying we're going to recession don't use the r word so this man Fred Khan a former Professor Cornell said okay I won't use the r word anymore and he went out and said I think we might be heading into a banana and he used the word banana as a um as an exchange word because he knew reporters weren't going to write a headline says Carter's inflation advisor thinks we're heading into banana so we could be heading into a banana but it's too early to say and you you let me know do you great answer great answer okay um five pieces of advice maybe you don't have time for all five to give your uh kids regarding um their I think that says resources and how they thrive in the workplace well work hard prepare don't think your father is going to give you a lot of money try to be respectful of other people and try to do something useful with your life so that your parents and your children will think that your life was a meaningful life so in my case since I'm the only child of my my parents you know there's probably slightly more pressure on me to achieve something though they didn't have high Ambitions for me so you know one of the greatest Thrills of my life is making my parents happy when because they live long enough to see some of the things I did but interestingly when my mother passed away she and I went through her possession she had all the news clips of me but not of any of the things that Carlisle had done or money I'd made was all about the gifts I had given and she had told me the one I was giving away money that she was more proud of me for that than anything else so you know when you can make your mother proud that's a good thing and you know particularly with Jewish mother much prouder that's joyous um what's your view of American journalism American journalism has suffered a lot because newspapers are closing down that newspaper business is not quite what it was now obviously things are online American journalists I think do a great service for our country because they're relatively modestly paid compared to private Equity people that say and and they're trying to provide the truth but sometimes some people on the far left or the far right exaggerate things to make headlines that may be unfair but generally I'd say the state of American journalism is pretty good you think the state of American journalism is pretty good generally I mean obviously how many exceptions do we have well there are some people that have criticized me and I don't think those people are so good but uh but I'd say generally journalists most of the journalists I know in reputable Publications are interested in giving the facts as they see them but obviously every human has biases and there's nobody that's perfect so sometimes they may tilt slightly to the left or slightly to the right and you know everybody would like to have journalism right down the middle but it's hard to do that um there was a question here about um the types of assets that should be held in this environment should they be hard assets and um what percentage of your wealth would you invest in those assets and I might also ask you about crypto okay like on hard assets you mean real estate or or I presume that that's what they're referring to um throughout the course of the the world the most common investment has been real estate that's the asset that most people have had when people get wealthier they send to buy other things they make other Investments but I think in having most for most people their biggest investment is their house for most people now that's not for everybody but for most people and I think having some real estate is probably a reasonably good investment because it tends not to go down in value as a general rule of thumb the problems that people get in real estate is when they over lever it and when they over lever it with personal guarantees but Johnny I think real estate and hard assets are a reasonable thing to have crypto is a more complicated a subject but I'd say as a general rule of thumb look to what young people are investing in because young people and what they're doing with their lives they tend to be much more likely to set the trends for people like you and me so if if younger people are investing in crypto for example it's not something you should ignore because in the end younger people are going to keep doing it if it works reasonably well and we've seen crypto has done well for some people I interviewed Sam bankman free the other day who at one point was worth 23 billion dollars he's 30 years old he's a crypto guy and there are other people I've interviewed in the book Mike novograts who's a crypto investor as well I think crypto is not going away in part because they've done a very good job in the crypto industry of lobbying Congress to not have an unduly legislated and unduly regulated I also think that the Russian oligarchs confiscation of their assets by Governor governments has made people think who have money wait a second somebody could come and do something like that to me so I want to have some of my Assets in something things that nobody knows I have that are able to be transported around the world and the government can't devalue it so I think you're going to see crypto not going away now the U.S government will eventually have its own digital currency which is not a cryptocurrency but I think digital assets and digital currencies will be here for a long time what is your best guess of how the U.S and China relationship will proceed over the next 10 years well you know China much better than I do I'll you can comment as well I've spent a lot of time there we've invested a lot of money I used to go there many times a year it's harder to go there and obviously now and I don't think you haven't been able to go for a while either I would say that the U.S China relationship is as bad as any time since uh Nixon went to China and then the Carter Administration we actually officially recognized China for the first time Nixon went and did other things there but we officially recognized them during the Carter years and I would say the relationship is terrible now in part because the political pressure in the United States would be against China is very high there is no political benefit the United States on saying I really think China is is being nice to us and we should be more accommodating there's no political benefit to it I'll take for example the tariffs that president president Trump put on that would be deflationary to take those tariffs off and the administration recognized that but they don't take them off because it will be seen as being weak on China and you can't get anywhere politically in this country by being seen as weak on China so I think it's going to have to wait to another presidential election and some other things happen now maybe when XI ji ping has officially gotten his third term and he feels less pressure maybe he'll be more accommodating the president United States historically meets the president China the first year of his administration President Biden hasn't been able to do that they're probably going to have a brief meeting in the Agee and the G20 Summit in Asia not too long from now but it's not going to be a meeting that they would say anything a great accomplishment is going to occur um if we stop doing business with China the way we stop doing business with Russia does that concern you well what now Russia we we get virtually nothing from Russia we get vodka from Russia there's some people in Europe that obviously get energy from Russia but Russia doesn't make a lot of things that we really need and and it's not a central part to the global economy not a central part to the U.S economy China has become over the last 40 years a central part of our economy so if we were to say we're not going to take any products from China the inflation will really Skyrocket because the products we're buying from China now are we're buying them because they're lower costs and the ones we can produce in this country so I think it would have a damaging effect on our in our economy if we were to say we're not going to import anything from China I think that would be a mistake uh which book did you learn the most of or would you most like to recommend principles by Ray Dalia that's the right answer you got the right answer that is a best-selling book so more than two million copies in China and it's a very very thoughtful book so I would highly recommend that uh but picking a second but look depends on the purpose if you're on a on a if you're going to be on an island and you have nothing that's going to have one book what would be the one book you would take uh obviously the Bible because it has so much in there so much history so much other things in it but if it's not the Bible I would say um how to invest is probably the book on that Desert Island right we've evolved a long way right um a question here was uh both of you have a sense of humility what is uh your belief or uh source of that a lot to be humble about that's what I would say um look I I recognize I when I was growing up there were always people smarter greater athletes better looking more Charming everything and so you know you you as you as I said in my book on leadership I had a theory that there are three parts to life the first third is when people are some of the superstars that road Scholars and so forth very often they Peter out and they don't live up to the potential in fact of the presence the United States probably only one in the last hundred years was somebody who could be said to be a superstar when he was young that was Bill Clinton who's a Rhodes scholar most of the people who rise up to the president United States were not Superstars or anything when they were younger and so my theory to justify my good luck is to say well if you're not so good in the first third maybe you can work hard in like a tortoise ketchup in the second and third third but I I try to have a fair amount of humility because I know all my weaknesses all mistakes I've made and all the things I should have done better so that it's not that hard for me to be humble I would agree I'd say that because it was asked for both of us I I would say um getting banged up a lot making mistakes is one of those things that teaches you fear that you're going to make mistakes which still can't stand in the way of your audacity to do great things and think differently so you are making we are both making decisions in ways where we know that we can fail I'm a principal pain plus reflection equals progress right I mean that's um so I think that it's just a natural course and so success is achieved through failure and the learning that comes of it I think we most people would know I mean you had challenges we had challenges at the beginning of Carlisle week we had a lot of challenges and just got lucky um what do you think is most misunderstood about our political system today particularly internally and then by those outside how how significant money is to it I mean money is so significant to this uh uh the system we have now that that campaign donations just drive it we call them campaign donations you can call them something else in other country we call them something else but it's it's uh you know it's it's it's driving politics so much so and it's just unfortunate that people are are willing to appeal to the base or instincts of people on the left or right and the result is you've got a divided government it's in the divided government we can blame Congress for being unable to get anything done but Congress really reflects the American people and the country split down the middle ideologically and it's not likely to change that much when John Kenney ran for president Richard Nixon campaigned in all 50 states and I think John Kennedy campaigned about 45 States because they didn't know how all these states were going to go today we know how every State's going to go with the exception of about eight or nine states and and so therefore the country is pretty divided red and blue and they're very few people in between the so-called purple States and it's much different than it was in 1960. so the power of the money class to influence politics and then when you're comparing that to um knowing that people can come from any class and you don't know where they're coming from does that concern you well the money class throughout history has more influence than the non-money class historically except when it gets to a revolution then you tend to have people at the bottom of society rising up and saying we're going to overthrow the system the French Revolution or other things like that but or that's what I mean right well the money class has a disproportionate amount of influence in most Societies in any society there's a lot in this in this country for sure a lot of influence and and I've been surprised that it there hasn't been more I would say reaction against it more significant reaction against it there has been some obviously but there hasn't been we haven't had rioting in the streets over some of the uh things that the so-called money class might want it might happen at some time but generally the country has a big safety net not perfect for everybody and obviously a lot of people are still suffering and we have enormous amounts of homeless people uh around this town and other major cities but as a general rule I don't see any big social Uprising against the money class generally in history in the arcs combination of large wealth gaps large values gaps bad economic conditions and a lot of debt a lot of printing and money and then in history um even acts of nature droughts floods and so on when there's stress it's a real stress test do you do you think that it's an environment that we can hold up under those stress tests well or are you concerned well the United States is a pretty stable country relatively speaking there are some countries where the governments are falling all the time there's military coups we're not likely to have that so I think the stability of our country is one of the things the Constitution has helped ensure and I think it's interesting that in this country we don't swear an allegiance to a leader we swear in allegiance to the Constitution that's what the oath of office is about in other countries um they don't have they don't swear in allegiance to the Constitution they swear it allegiance to the government of power typically so we have made the reverence for our our founding fathers and reverence for our constitution Paramount and I think it's difficult to have a overthrow of that so easily obviously we've been challenged recently on that but I I think it's unlikely that that we're going to have a military coup or social unrest such so that the entire government will be overthrown I think that's unlikely and our um how would you contrast or compare what the United States is like today versus when you um graduated from high school well when I grew up I graduated from high school in 1966 the United States population was probably 220 million people today it's 330 million so it's a third bigger today in those days Civil Rights was just beginning to come to the table the school that I went to Duke University was was segregated up until 1963 as were other Southern schools like rice to Lane Emory Vanderbilt so we've made a lot of progress in that at the Ivy League schools when I was going to college were by and large male oriented not all of them but up Harvard Yale Princeton were all male so the world has changed in that sense as well there's many different changes in the country but I think the country is wealthier than it was but the wealth is more at top than it was before when the Forbes 400 list was first put together in 1981 I think it was to be on that list you had to have a net worth of 125 million they got you in the top 400. today it's probably two or three billion I guess so the wealth now obviously is some inflation but the wealth uh aggregating at the top is just staggering when you think about it well I see that we're running out of time so let me ask you one question okay so if you wanted to give advice to somebody how to be a great investor and you built a great company it's the largest hedge fund in the world and I think if I have it right you have produced more profits for your investors than any other hedge fund history that's pretty nice so if you were giving advice to somebody who wanted to sort of hedge fund today what would you tell that person to do well you have to have the passion of the game you ran down your list pretty good I think um you have to have the passion of the game you have to know your nature you have to know what you're good at and what you're not good at and have people around you who are good at the things that you're not good at you certainly have to have the humility you have to be um you have to love the ride it's a roller coaster and then you have to learn from it I think you have to learn how to diversify so that I think the most important thing that you could learn is how you can dramatically reduce your risk without reducing your return by knowing how to balance risk well in terms of the different kinds of Investments that you make and I think you have to have that humility and that Curiosity that you're talking about to pull the best out of that to have people stress test your thinking I think that those are elements for being a good investor and they may help help other ways I think your list was uh was a very good list that you have to be an independent thinker against the consensus in order to make money in the markets you have to bet against the consensus and be right you have to bet against the consensus because the consensus is in the price so you have to bet against the consensus and you have to be right so you have to have that element that you referred to I think those are the elements well I would also want to add for the average investor the average investor is not going to be Ray dalio um or some of the other people that I have in the book who are the best in the Venture world or whatever the average person should not put too much in any one asset class or one investment the average person in my view should read what they're investing in and learn about it so they know what if they're investing in a fund know what the fees are know what the valuations are know how to get access the information know how to you know ask the right questions and also don't expect to be a genius in the investor world if you're a genius in making widgets it's very unlikely you're also going to be a genius in investing sometimes people are so brilliant they think I've built a great new company I can do anything but it's not that easy to do and the people who are in this book are people been for their whole career there's very few people who are making a staggering Fortunes in the first five years of their investment career rarely happens it takes a long time to do it so this is a book that's really designed to have the average person see what the great people did learn a little bit from it but I have my own views in there about what people should do with their own money and that's obviously diversify know what you're doing read up be on top of it and and don't try to make a fortune in your investment on the side business because it's not likely to happen yeah there I I'd say there are two types of being an investor there is I have your I have money that I need to invest and then there is receiving money or having money themselves and making an investment decision on the first type you're trying to pick an investor right who will invest for you in what because you know that you're not going to be the pro who's it's like you're not going to be your own doctor you're not going to be your own investor so the skill that is required to pick the right Investments but not only the right Investments but the right investment managers are a different skills they're different skills than the skill to be a professional investor it's like being a specialist if we use the medical example um there's the generalist who will pick the right doctors for you and then there's being a specialist so you're a specialist in private Equity I'm a specialist in what I do Global macro and and liquid markets so I think it depends on what you're doing and so for the average person I think that as we're as you're referring to you have to know that competing in the markets is more difficult than competing in the Olympics because there's more people trying to do it and it's a zero-sum game and so that kind of humility and you have to be able to pick well that's why I think when you said fees pay attention to fees pay against attention to track records pay attention to diversification of asset classes and then because people do it pay attention to changes in the people who are going to be managing the money I would like what I say in the book is this if you're picking a fund look at the track record make sure the people produce a track record are still there make sure they have a lot of their own money and invest alongside you make sure that the young people are not leaving the firm because they're not being adequately incentive make sure their organization not being sued for fraud all the time make sure that the organization is one where you can get the information you want when you want it and on an understandable basis make sure the fees are fair and make sure you know who the other investors are because smart money knows how to find good Investments and you've never heard of anybody else investing alongside you that's not a good thing I think that this is a great contribution because everybody is an investor uh when your dad saved he was an investor um and so everybody's an investor and this book and that list is a tremendous contribution to others so thank you very much thank you for taking the time Ray and thank you for um all coming and I uh I appreciate everybody's coming I didn't know whether they thought this was going to be Rubenstein or Springsteen here so I think we part of the crowd thought this was going to be Springsteen showing up again but thank you all very much and thank you Ray thank you foreign

Channel: The 92nd Street Y, New York

Views: 121,038

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Id: 1TSXuGSxZyY

Length: 68min 17sec (4097 seconds)

Published: Wed Sep 28 2022