>> Neil Irwin:
I'm--I'm Neil Irwin. I'm the chief economic
correspondent at Axios. I'm thrilled to be here at the
National Book Festival with David Rubenstein, who, if
you've followed the world of business over the last few
decades, you know the name, you know some of the work he's been
involved with. Founder, co-founder of Carlyle
Group, one of the world's largest private equity firms
who has made a second career of of being an interviewer,
television presenter. How would you describe what you
do? I'll let you do that, but welcome David Rubenstein, who
has written a wonderful book called "How to Invest", that
features interviews with some of the world's leading investors
in a wide range of varieties of investment that we'll be
talking about over the next 45 minutes. My first question for
you, David, is why are we here? Why-- you're 73. You've made several billion
dollars. Why are you writing books and doing
interviews? And, uh-- >> David M. Rubenstein: Well, the
implication of your question is that money is more important
than ideas, and it's not the case. Money is, you know,
a fungible kind of thing. But I--I'm interested in ideas
as much as I'm interested in money. And I sign I was
original sign of the Giving pledge. I'm committed to giving
away all my money anyway, so I'm not that focused on my money.
[Applause] But you know, I
have a love of books. I-- my parents weren't wealthy,
and so to get books when I was young, I go to the library in
Baltimore and and I just love reading books. And the real
question is, why didn't I write books when I was in my
thirties, forties or fifties? Now I'm an old man by, by some
standards and I'm writing books, so I'm trying to churn them out
and kind of what I call a sprint to the finish line, try to get
as many books as I can before I can't write them anymore. >> Neil Irwin: So--so you have
an interesting-- this question of how to invest, how do the
great investors do what they do? You know, you're a co founder
of one of the biggest investment firms in the world. You say in
the, I believe the intro, you're not really an investor
yourself. Elaborate on that. >> David M. Rubenstein:
Yeah, I've-- Carlyle. When I started Carlyle
in 1987, I'm a lawyer. I worked in the White House for
President Carter. I managed to get inflation to 19
percent, which nobody thought would ever be seen again. We'll
see whether that comes back. But, um, so I had to go back and
practice law, and I wasn't really that good
as a lawyer either. So I decided to try
something different. I started the first buyout or
private equity firm in Washington and it took off. But to build it, I really
brought in people that had MBAs. I have a law degree, not an
MBA, and they knew how to invest. So I decided I would
take on the role of fundraising or recruiting,
strategy, and so forth. So I wouldn't say I'm the
investor-- investor. Nonetheless, I sat
through and have sat through several thousand
investment committee meetings. And so I learned a little bit. And I serve on a lot
of nonprofit boards and I serve on the investment
committees of many of them. So I picked up something. But in the end, I didn't say,
here is the way to be a great investor. I interviewed these
other people who are great investors and I gave some of my
ideas, but that's it. >> Neil Irwin: If nothing else, you've
had a good ringside seat to, uh, >> David M. Rubenstein: I
did. I've seen some really good people, and I've,
over the years, gotten to know some
of the best people. And I dedicated the book in
part to my two partners that helped build the firm with me,
but also to Warren Buffett, who is-- who I didn't interview for
this book, but I've interviewed him before and written about
him in other books. And he is, you know, role model
of being a great investor. >> Neil Irwin: So--so you
write that great investors were usually raised
in either a blue-collar or kind of middle
class household. Why--why do you think that is? >> David M. Rubenstein: As a
general rule of thumb, investing is designed to make
money and to do it well, you have to probably
have a certain hunger and a certain passion
and a certain drive. And very often, if your father
or mother is a multibillionaire, you may not have
that drive. [Laughter] So usually people that have the
drive are like me, came from blue-collar backgrounds. My parents
didn't complete high school. And very often you see that
kind of drive from people that that really have, you know, a
need to kind of prove themselves in the world and they haven't
been given everything. >> Neil Irwin: So you
also write that, that many of these people had some
major setbacks along the way. Talk about setbacks. Is there a
way to distinguish the good kind of failure from the bad kind of
failure? >> David M. Rubenstein:
Yeah. I mean, anybody in life that gets anywhere has failed. And some people can pick
themselves up and get back into the arena. And other people
say, look, I just I'm not good at this. I'm just going to
stay, not trying to accomplish anything. And if you look at
the great investors in the world, the ones that I've
interviewed, certainly they've all had sort of failures
and they all kind of pick themselves up and
got back in the game. And--and they've
all learned from it. And I've often said that, you
know, when you get somebody that's never failed, you have
somebody that's, that is probably either not trying to
accomplish that much or they're not going
to be that great later. And one of the classic
examples, I try to disguise the person's name, but I met
somebody early in my career who went to Harvard College
summa cum laude. Rhodes Scholar, president of
the Harvard Crimson. PhD from a major
university in Economics. Yale Law School-- Yale Law
School. Yale. Editor in Chief of the
Law Journal. Supreme Court Clerk. White House
fellow. That person. Everything. Every time people.
And also blue-eyed, blond-haired, chiseled,
everything you want. And you kind of say, this
person has got everything, you know. And so anytime anybody
see this resume or look at this person, they say, we're going
to give him a job. So he kept getting these great
jobs. But any time when finally there
was a crisis in a job that he had, he wasn't prepared for it
because he'd never failed before and he didn't know how to
really deal with the trauma of failure. And so I think failure
is probably a pretty good thing because it makes you stronger. >> Neil Irwin: So we're
going to go to some of the specifics of the
investors you interviewed and the book is about. Can I ask
a philosophical question first? Is it--is it good or bad for for
America, for society, that people who have this particular
skill at investing can become worth billions and billions of
dollars? You know, a very good surgeon might only be worth a
couple of million dollars. Is--are the numbers out of whack
in some way? >> David M. Rubenstein:
Well, look, if Warren Buffett was a schoolteacher, would the
country be better off or not? I don't know, because the truth
is, many very talented people go where there is a fair amount of
money to be made. On the other hand, there are
many very talented people who go into professions
that don't pay a lot. Schoolteachers, or firemen,
or policemen or others. So it depends on what you
really want out of life. Would it be better if people
were capped at how much money they could make? You know, I
don't think that's realistic or likely to happen. I'd say that
the investment world is a world where you make a lot of money
if you're really good at it. But most people who are great
investors, they're not trying to flash their wealth there. They love what they're doing so
much so that this is what they want to do. And after they have
enough to pay for their basic family needs and so forth and
their children's needs, they basically are giving away the
money. And so I wouldn't say it's the greatest system we
have in the world. On the other hand, trying to
reinvent it is probably not realistic. And I don't think
we should fault people for wanting to be
good investors. And this is the reason I think
it's an important skill set. My son-in-law worked at a
company called Moderna. Now, he wasn't the one who came
up with the with the vaccine. >> Neil Irwin: But not the reason we're
actually in a room today instead of on Zoom. >> David M. Rubenstein:
But in fact, when he was at
Moderna, he kept trying to get me to invest and I said, hey, this
company is not going anywhere. [Laughing] So--So--I--you know,
the people that put up venture capital money and there was a
flagship ventures is the group that put up the venture capital
money for Moderna. They did a pretty good job for
United States and society. And so when people allocate
capital in an appropriate way, you create a company,
you save a company. I think it's good for an
economy. So in the end, what you're getting is you're
getting more tax revenues out of those companies. You're
getting people that are going to give away a lot of their
money because they're made a fair amount of
money out of doing this. So I don't think it's the end
of the Earth to say that being an investor is just a matter-- or
a matter of of just greed and trying to make money. I think
people that do this are really they're doing some things
useful for society, our society or whatever society
they might live in. And so I don't fault people for
being great investors. >> Neil Irwin: Well, let's-- you
mentioned a self-deprecating opportunity you missed. There's two
more you mention early in the book. Tell me about why you
passed on Mark Zuckerberg and Facebook when
he was a college student. >> David M. Rubenstein:
My then son-in-law to-be is now married to
my daughter for about ten years or so. But when he
was an undergraduate at Harvard, he had been a classmate
of Mark Zuckerberg, he said Phillips Exeter and
a classmate at Harvard. And he told me
about this classmate. He said he's starting this
company. And he described it to me. And I said, Look, I've
been around before. All these student dating
companies never get anywhere. This is not going to work. I've
seen them implode before. So no. So somebody who did put up
30 thousand dollars, when they needed 30 thousand dollars, who was a classmate
of Mark Zuckerberg's, I think made 13 or 14 or
15 billion dollars out of it. So that was a mistake I made.
Yes. [Laughter] >> Neil Irwin: You
also said you you missed how important Jeff
Bezos and Amazon would end up. >> David M. Rubenstein: Yes.
Carlyle had bought a company that was called Baker
and Taylor, the second biggest book distributor in the
United States, started in the 1850s.
Hadn't made a profit since the 1850s,
never made a profit. We bought it from
W.R. Grace, and it didn't really have
that much going for it. And it turned out that a
salesman one day told me, guess what? Somebody wants
to buy a bibliography or rent a bibliography we had. And since we already had the
bibliography of books in print, I didn't think it was that big
an idea to sell it to somebody. We rented it. The guy
apparently said he wanted to give us 20 or 30 percent of the
company we were starting, and our smart salesman
said, well, I don't we don't take stock in
newly-formed companies. We want cash. So we got 100,000
a year. And after about two years, I
said, hey, maybe this company is going somewhere. Maybe we
should take in a stock. So I went out to see Jeff Bezos
and I said, you know, I'm the guy that is a part owner of
this company. I think I'd like to take the
stock in Amazon as opposed to the hundred thousand a year. And can you give us the 20 or
30 percent of Amazon now? I said, but David, that was a
year and a half ago. I don't need you so much
anymore. But he did give us a little bit of stock. And when it
went public, we sold it right away because we had no
confidence it was going to get anywhere. So that was
a mistake. [Laughing] >> Neil Irwin: You mentioned Warren
Buffett a minute ago, and dedicated the book to him. And he's--he's
not interviewed in this. But--but what is it you admire
about Warren Buffett in this? >> David M. Rubenstein: Warren
Buffett is a person-- in terms of his track record. Have you
put your money in the bank? Let's say over the last 60
years, you probably would have averaged maybe a half a percent
rate of return a year or so because bank interest rates
are not that high, historically. He's averaged 20
percent a year for 60 years. You know, over a 60 year
period, he's averaged 20 percent a year. So he's obviously very
good at this. And he took a 1,000 or 2,000 dollars
that made it into roughly 800 billion in
terms of net worth. That's what the company
is worth today. And plus, they've--they've
obviously done other things with it, the money. But he's a very
focused person. He likes what he's doing.
He loves what he's doing. He doesn't--he's living in the
same house he bought in the 1950s. He doesn't really go out
and buy lots of art or other kinds of accoutrements of
wealth. He just is a person
who loves what he's doing and this is what
he does all all day. So I admire his intellect, I
admire his focus. And so he's also very, very
charitable. He was the person who
set up the Giving Pledge with Bill
and Melinda Gates. >> Neil Irwin: So you
argue at one point that, um, that this nation was
essentially a speculative investment when it was
founded, that the settlers in Jamestown were basically a
venture capital type of situation. Is this DNA in our
nation of investing? >> David M. Rubenstein:
Well, this country has-- does value entrepreneural activities
and does it value investing. And think about it, Jamestown
was basically a situation where people in England put up some
money to create a colony in Virginia with the idea they'd
make money on it. It turned out to be a terrible
investment, but-- and many other colonies were created as
investment activities. So our country has that-- that--
that instinct to kind of create something out of nothing. And
we valued people here for their Horatio Alger kind of abilities
to kind of rise from nothing, to go up to what we now call the
American dream. Sadly, many people
in United States don't believe in the
American dream anymore. It's ironically, people from
outside the United States who come here. We have 50 million
immigrants in this country, 50 million. The total population
is 330 million people. 50 million people have come
here, presumably because they thought there was an
opportunity for a greater life. And many of them have gone on
to great fame and fortune because they've built great
companies and so forth. So I do think the American
dream is alive to some extent. And the the
entrepreneurial instinct of the country is pretty strong. >> Neil Irwin: So
another thing you write, so in more the
mechanics of investing, you write that the depth and
breadth of an investment committee memo, which
can be 2 to 300 pages, does not guarantee the
best investment outcomes. Can you talk about intuition
and instinct versus kind of very thorough analysis in investing? >> David M. Rubenstein: Warren
Buffett has been doing this for a long time, so
he has a pretty good instincts and a pretty
good intuition, and he does not have a big committee
of people giving him memos. He does it very often by
reading something himself, and he makes a decision. In the way
that the private equity world, the venture capital world,
those kind of worlds work. You tend to have teams
of people, they do the research and then they
send you a memo, which is typically three or four
hundred pages at this point, and you're supposed
to read this thing, and overnight, and
make a decision. And I try to tell the younger
people in our firm, look, the quality of a deal does not vary
directly with the fatness of the memo. And basically a ten page
memo would do the trick, too. But people don't tend to get
that message. So instinct is very important
and great investors are great people in any industry have a
certain instinct and intuition and gut feeling for what
the right thing to do is that they don't really need
a three or four hundred page memo to tell
them what to do. >> Neil Irwin: Okay, one more
quote I'm going to read you from, from your book before we talk
about individual great investors. You say some of the
wealthiest individuals I've ever met are not
really happy people. Some individuals with comparatively
modest professional success are extremely pleased with their
lives. How does that apply to? >> David M. Rubenstein:
Well, my point was that a lot of wealthy people
are tortured souls. Some of the wealthiest
people I know have very terrible personal lives. They have very
sad situation. They don't really happy with
themselves. But some people I know who had no money or have
no money are very happy with their lives. And, you know,
expectations is a big issue. Of course, your expectations
are lower. So money, obviously,
and we've all heard this before, it doesn't
buy happiness. Now, people can make jokes
about it, say, well, I'll try it anyway. But but, you know, the
truth is, I can't say that I'm a happier person than I--than I
was before I got a lot of money. And in the end, you know, I
think the biggest challenge with having money, among other
things, is raising children. The hardest thing to do in life
is raising healthy and happy children. And it's even harder
if you've got a fair amount of money because there's obviously
a tendency to spoil your children. So all of you who
raise children know it's not easy and it's always a, you
know, experience. And if you're doing it now,
people ask me, When do you stop worrying about
your children? I say, When they turn 60
or something like that. You're never stop worrying.
About your children. And and if you get a call late
at night from your child or are you ever worried about what
they're going to tell you? So there's always a challenge
in raising children, but I would say I'm reasonably happy. I
don't go to a psychiatrist. Nothing wrong with them, but I
have never been to one. Maybe I shouldn't go to one. I
don't know. But--but I'm pretty, you know, I'm pretty happy and, you
know, and as I-- Thomas Jefferson in the
Declaration of Independence talked about the pursuit of
happiness. But he never, in these
subsequent 50 years of his life, actually defined what happiness
means. And so it's the most elusive
thing in life is personal happiness. And so I'm pretty
personally happy. But, you know, other people are
happier than me and there are people are sadder than me. >> Neil Irwin: All right. Let's start
talking about some of the individuals you-- you interview and profile in the
book. Larry Fink is the founder of
BlackRock, largest asset manager in the world. Trillions and
trillions under management. Good chance your
401k is in their portfolio. >> David M. Rubenstein: A lot
of people here might have some BlackRock facilities.
What I point out in the book is that he
was from modest circumstances. His father I
think had a retail business of some type, and he grew up in
middle-class circumstances in Los Angeles, went to UCLA, UCLA
business school, went to first Boston, was a mortgage trader,
mortgage backed securities trader, and he was the youngest
partner at First Boston. But then he lost 100 million dollars one year for the investment process
that he was doing. And he was ostracized, and
people kind of said, hey, you're terrible. And ultimately he
quit the firm. He then built the biggest money
management firm in the world. So you might say he's the most
influential investor in the world. Blackrock now manages
more than 10 trillion dollars, trillion dollars. And so he has an
incredible impact on on the investment world, and and pretty
impressive in person. >> Neil Irwin: So yeah,
your quote was, uh, when they were formed, BlackRock
was created in 1988. You thought this
would just be another bond firm seeking
its place in the sun. You did not think they would in
time actually become the sun. So it's a very, very
competitive business. How, what did they
see? What was he able to do that most
people were not? >> David M. Rubenstein:
Well, the bond is one where it's a very small
margin business. And basically they
built a--a platform that was pretty
good in research. They had returns are probably
good, but not necessarily much better than others. But they
ultimately bought some-- they made some acquisitions.
They bought Merrill Lynch's asset management business. They ultimately bought
the Barclays Global Index business. And by
making these acquisitions, they were able to
manage them pretty well. And so it's one thing to buy
things and have them, another thing to buy them and have them
and manage them well. And when you get to be as big
as they they are, you have a hard time retaining people
because they feel they're not adequately paid, they're
not rewarded enough. So he's done a pretty good job
of keeping this going. >> Neil Irwin: You
talk to Larry Fink about ESG investing, environmental,
social, and governance, kind of being
concerned about those issues. There's--there's that's become a
more controversial area. Republicans are
concerned companies are too woke. How do you think? >> David M. Rubenstein: About--
for people who aren't familiar with the investment world, ESG
has become a major factor in it. E stands for Environment, S
stands for social, and G stands for governance. And the idea is
that historically, if you were an investor, you wanted to get
the highest rate of return you could get, legally. And so you
would invest in oil drilling or anything that might
destroy the atmosphere. You don't really care. You're just going
to get the highest return you could. The concept of worrying
about the ESG impact, the environmental impact, the
governance impact, the diversity and inclusion impact of a
company has become very important recently, And Larry
Fink has been a big leader in the ESG. And as you suggest,
now, people are saying, well, maybe that's not such a good
thing because we weren't so much about ESG that now when Ukraine
is invaded by Russia, because we've been worried about
renewables so much, maybe there isn't enough oil and gas to
help fuel Germany and other parts of Eastern or Western
Europe. So some people have been
rethinking whether we're focusing so much on ESG that
we're maybe losing sight of some other values we should have. But on the whole, I think ESG
is more or less here to stay as a factor in the investment
world. And the theory always was if you worry about ESG, you'll
get a lower rate of return, because by definition, you're
excluding certain things you could invest in. I point out in
the book by interviewing David Blood, who's a leader in ESG,
that actually their rates of return have been higher than
the average rates of return. So you can make
pretty good returns in this area if you focus on it. >> Neil Irwin: So one of the people
you interview is John W Rogers, the investor
who told you, I don't email because of every moment
something's beeping at you. Instead of being able to read
and concentrate and think about the long term values of
companies, you're constantly swept up in the current noise. Does that make sense? Does it
take that kind of focus to-- >> David M. Rubenstein: Well, to
be-- John Rogers, if you don't know him, is an African
American businessman. I served with him on the
University of Chicago board. He was the captain of the
Princeton basketball team. He's a very good friend and
basketball colleague of Barack Obama, chose not to
go into the Obama administration because he really has this
obsession with investing. He's like a value investor,
like Warren Buffett. And he built the largest
African American owned investment company in the
world. He started it only two years out of college, when it
was fairly audacious to do that. And now it's it's very, very
large, very successful. And he's a person who-- he
doesn't, he's unusual in one respect. He's on the board of
McDonald's. And to be a loyal person, he
goes to McDonald's for one meal a day every single
day. [Laughter] And he's been doing
this for 20 years, and he seems to be reasonably
healthy. So. [Laughing] >> Neil Irwin: You interviewed
John Gray, who's the president of Blackstone,
another big private equity firm. He came up through
the real estate practice, which he built there. You know, he tells a story in
your book about when he was starting out in that line of
business, really kicking the tires of individual properties. Now they do tens of billions of
dollars deals. At the first, it was a 6 million
dollar shopping center, and he was interviewing every tenant
and counting the cars in the parking lot. Is there
something to be said for kind of starting
small and learning? >> David M. Rubenstein: It's--
usually you have to start small. John Gray, for those
who don't know, is a person from Chicago,
went to Wharton undergrad at Penn and then went
to Blackstone when Blackstone was very, very small. I think he
joined in 1992. Blackstone was
started in 1986, I think. And so he was doing M&A,
investment banking. But then they decided to buy
some properties in real estate and he got into it, and he built
the largest single real estate business in the entire world. I think Blackstone now manages
maybe 200 billion dollars in real estate assets, and he's done
some spectacular deals and now he's the president
of Blackstone, and and essentially
running it day to day. He's also very philanthropic
and very, very talented, likable person. He talked about a deal
in the book where he bought bought Hilton Hotels for
Blackstone as part of a real estate and corporate
deal and black-- and during the Great Recession,
Hilton was going this way and it looked like it might go
bankrupt, and his career might go with it. But he they turned it
around and turned out to be the most successful
buyout deal in history. They made a 14 billion
dollar profit, which is not bad. >> Neil Irwin: You also spoke
with Sam Zell, who's a legendary real estate investor, a
very colorful character. You know, he, again, highly
successful real estate investor, less successful, he tried to go
in the media business with Tribune. Is there
something different about real estate and
managing other types? >> David M. Rubenstein: Well,
he was a very, very iconoclastic real estate person,
and he's very direct and very,
you know, colorful. He wrote a book, the title of
which is "Am I Not Being Subtle Enough For You" or something
like that. He's very direct, and uses some
words you won't--we won't use on the stage. But also, you know,
now in his eighties, he's still riding motorcycles around the
world. He basically was on the other
side of a major real estate deal with John Gray. And he sold the
largest real estate company in the world at about a 29 billion
dollar valuation and made a lot of money doing it. But he, as
you suggest, he went then bought some used some of that proceeds
to buy the Chicago Tribune and went bankrupt. So he wasn't
good at everything, I'd say. >> Neil Irwin: I think that's a
recurring theme in this book. >> David M. Rubenstein: Nobody's
at everything all the time. Nobody. Everybody has their
failures. And the trick is something that
I don't have the trait of. I mentioned the Amazon deal. I mentioned the--the Facebook
deal, because I'm still thinking about these 10 and
20 and 30 years later. They're really great investors. They go on to the next thing,
the next minute and they make a bad trade or make a bad deal. They say, okay, I made a
mistake. I learned from it. Go on to the
next thing and they never talk about it again. I
don't have that trait. I love to talk about it for 20
or 30 years later. [Laughing] >> Neil Irwin: So this ties
back to what we talked about earlier, about having some
failures and learning from them. You spoke with Ray Dalio, the
founder of Bridgewater, one of the biggest hedge funds in the
world, and you tell a little bit of his story. He says he wasn't
a very good student in high school and his first job at an
investment firm. He and his boss got in an
argument on New Year's Eve party and got a little drunk and he
punched his boss. He ends up starting
Bridgewater, he made in 1982 a big error of
judgment that almost sunk the firm. Tell
me about those. >> David M. Rubenstein:
Okay. So, Ray Dalio is from Long Island, was a
terrible high school student, barely got into Long
Island University, but he did reasonably well there and
got into Harvard Business School subsequently. But he built the
hedge fund called Bridgewater, which is the largest hedge fund
in the world. And let me explain it, what
this means. In the hedge fund world, you
typically have a hedge fund that will do well for four or five,
six years, but then has a bad spot and very often they go out
of business. His been in business for 50
years, 50 years, and it's managed now
about 150 billion dollars. And of all the hedge funds in
the world of all of them, his has been the most profitable,
produced the greatest profits for investors. But
he has his downside. As you mentioned, early on, he,
he punched his boss in the face. He got fired the next day for
that. He then lost all of his
money, had to go to his father to borrow
money to pay the rent. But ultimately, he had a
techniques that he used, principles he calls, and he's
built this incredible firm. And it requires a lot of self
reflection in the firm. It's very intensive analysis
about mistakes you've made. And this is how the principles
in which he's built this firm and lived his life. Very
impressive person. >> Neil Irwin: So I'm going to
mention two people you interviewed who I believe back-to-back in
the book who said if you read carefully, kind of directly
opposite things a little bit. So I'm going to
get you to weigh in. Stan Druckenmiller worked with
George Soros, said you only need about 120 IQ to be a
great investor so long as you have an
extraordinary work ethic. You also talk to Jim Simons,
the founder of Renaissance Technologies, off the charts,
brilliant mathematician, mathematician. Are
there just different forms that being a great
investor might take? >> David M. Rubenstein: I divided
the categories in different types of investing. So. Jim Simons For
those who don't know, was a world-class
mathematician, not a pretty good mathematician, but world
class, one of the top ten mathematicians in the entire
world, and he was the chairman of the board of the math
department at Stony Brook and New York University at the age
of 29 or 30. And after a while he got tired
of doing mathematics and he's kind of stumbled into investing
in-- through mathematics and using quantitative algorithms to
decide, essentially, where there's an inefficiency. And today this
is a gigantic industry, which is to say mathematics or
quantitative skills are used to figure out where there's a
market inefficiency. And you get in there quickly
through a computer trade, typically before the
inefficiency is closed. And he's made
staggering rates of return. For the last 30 years, he's had
a rate of return on his main internal fund of 40 percent a year. So 40 percent a year is pretty good. And so, uh, but
he's iconoclastic. He doesn't wear socks ever,
and, and, uh, I interviewed him. We gave him an-- we were
together on the board of the Institute for Advanced Study
where Albert Einstein taught, and he, uh, Einstein
never wore socks either. His theory was that the big toe
will eventually push a hole into the socks. So
why bother with socks anyway, they're
going to get a hole. But this guy had a black tie
dinner. I interviewed him and I looked
down. He had no socks on. He also, to my amazement, he
smokes two packs of cigarettes a day and he carries around his
own ashtray. And you kind of say, you know,
is this a smart thing to do, but you're not going to change
them? He's a very smart person. He's made a staggering
amount of money, but he's giving it all
away at this point. >> Neil Irwin: But does it
take-- is work ethic alone, and-- and reasonable
intelligence enough, too? >> David M. Rubenstein:
It's always tempting to say, look, you don't have
to work that hard, you know, mother might say,
don't work so hard. But the truth is, hard
work is really going to get you further
than not hard work. And I'd rather invest with
people that are smart and hardworking than people that
are lazy and not that smart. As a general rule of thumb,
hardworking, smart people will probably make you more money
than lazy people who aren't that smart. You know, as a general
rule of thumb. And Jim is very, very smart. >> Neil Irwin: So two
things from--from two different chapters that--that kind of struck me as similar.
So Stan Druckenmiller had a famous trade with George Soros
that it broke the Bank of England. He was betting against
the British pound in 1992. John Paulson famously bet against US
mortgages in the housing boom and made a great deal of money
from doing that. Both of them described that as
an opportunity where they saw a relatively small potential loss
but a huge potential gain if they were right in their thesis. >> David M. Rubenstein: Yeah,
these are called asymmetric trades, where on the
downside you might lose one or two or three
percent of the money if you, if you're wrong. But on the upside
you might make 100 times your money. So in the trade you
allude to, John Paulson made the biggest, most profitable trade
in the history of Wall Street. He bet against subprime
mortgages and basically guessed right that the way he
structured and made roughly for himself and his investors roughly
20 billion dollars, which is a lot of money. The other trade
is Stan Druckenmiller. You may all remember or maybe
not remember in 1992, the British pound was was under
pressure and Druckenmiller was working for George Soros, a
very famous hedge fund person. And he said we should short the
British pound. And George Soros listened to
the argument and said, okay, but let's double down
and do it more. And George Soros' argument, a
famous investor would always say, if you have a really good
idea, they come along rarely double down, triple down on it,
because rarely are you going to get a great idea. If you have a
great idea, put as much money as you can into it. And
that's what they did there. And they kind
of made a fortune. What was then considered a
fortune, one billion dollars, when the British pound had to be
devalued. >> Neil Irwin: How much do you think
John Paulson, who has an amazing
trade that makes his investors a lot of
money, makes him a lot of money, how much does
that predict future success? How much is that a replicable
kind of process? >> David M. Rubenstein:
Well, it's--it's rarely the case if you have the greatest
trade in the world, you're going to make
another trade as great. John Paulson hasn't had a
success as good as that one since then. And while Stan
Druckenmiller has done very well, he now is not managing
money for other people. So it's hard to know how
successful he is. But as a general rule of thumb,
if somebody made a fair amount of money, and they know what
they're doing, and they're still willing to work hard at it,
they'll probably do well in the future. They may not have as
heroic a deal as John Paulson had. But generally
people that do this, this is what they do for a
living. They enjoy it. They don't just say, okay, now
I'm going to go sit on the beach. They're pretty hard
working people. And as a general rule,
hard working people are smart and generally
do pretty well in life. >> Neil Irwin: So a lot
of the people in your book talk about teamwork and having investment committees
that reach decisions in a collaborative way. I gather
that's how it works at Carlyle most of the time. Marc
Andreessen is a famous venture capitalist, describes a
different approach at his firm, 22 different general partners
at Andreessen Horowitz. They all have authority
to make investment decision on their own,
up to a certain threshold. What are the trade offs of the
more individualistic versus? >> David M. Rubenstein: Well,
in the venture capital world, the private equity, or the
buyout, where generally you have committees, and the
committees generally have to operate by unanimity, or
certainly consensus, but even typically unanimity.
What you're referring to is at Marc's firm, invest, the
partners in the firm can pick the investments to make
themselves. In other words, if they really feel strongly about
something and the committee has turned it down,
they can allocate a certain amount of
the firm's capital to it. And that's a little bit
unusual. At another firm, I referenced in the book, Sequoia
Capital, everybody has to agree to it or the deal doesn't get
done. Marc Andreessen, for some of
you may have heard of him, he's a very famous venture
capitalist, but he invented a company called Netscape, and
this is another one of my mistakes. He was
brought to me in my office at Carlyle. He was
just out of college. He came in with, I think,
sandals and jeans and very long hair and
looked like a college kid. I thought it was the son of the
man who was bringing him in, who was a very famous venture, very
famous Silicon Valley executive. And his name is James Clarke,
who built Silicon Graphics. And they said that they wanted
to get us to invest at Carlyle in a company that was going to
navigate the Internet. And we brilliantly said, well,
what is the Internet, and why would we want to navigate
it? And we didn't understand it. But then they wanted us, so for
a company that had no revenue, no employees yet,
they want us to value the company making
125 million dollars. And we smartly said, No, that's
ridiculous. They came back later, I think
at 75 million. We turned it down again. That
became Netscape, and they sold it to AOL for
four and a half billion. So. >> Neil Irwin: So--So
you asked a lot of your interview subjects about
cryptocurrency and blockchain. I think it's fair to say more. A majority were pretty
skeptical that-- and you were doing these interviews
when that market was, was very hot. How have
things-- what's your view? >> David M. Rubenstein:
As a general rule of thumb, people over the
age of 40 are fairly skeptical and people
under the age of 40 are less skeptical.
And that's often because this is
a very novel idea. John Paulson hates
cryptocurrencies, but I interviewed Mike Novogratz, who
at one point I think had ten or 12 billion dollars of Bitcoin. And so he bought it at a very
low prices. So my own view is that
cryptocurrencies are not for the faint of heart. It's very
complicated and you might lose all your money if you go to Las
Vegas and you're willing to spend some money and you know
you're going to lose, then you can allocate the same amount of
money to crypto. And maybe it won't be
disappointed because you enjoy the fun of it. But for people
who are serious about making money, I think there is money
to be made at some point in crypto. It's going to be
shaking out for a while. I interviewed the other
day for a TV show I have, Sam Bankman-fried, who
is 30 years old and had a fortune at one point have 22 billion dollars. Basically, he built FTX,
which is a leading crypto exchange. It's really for
younger people, and I think the Congress of the United States
is unlikely to regulate it because I think many of the
people who are in this business are fairly active politically. They're libertarian and
tend to be maybe more Republican than
Democratic in some respects. And they really, I think, got
in Congress excited that this is the wave of the future and we
shouldn't overregulate it. So I don't see any
regulation that's going to put it out of
business anytime soon. >> Neil Irwin: I'm going to
ask one more question of David, but we can line up with about
10 minutes for your questions. Okay. You cover a lot of
people in this book, who have I not covered? Who
would you like people to know about who
we've not discussed? >> David M. Rubenstein: Michael
Moritz is a person who built-- helped to build the largest, most successful venture firm in
the world called Sequoia. He has an, uh,
unusual background. His parents were Holocaust
survivors. He grew up in Wales, which is
not where you see a lot of Jewish refugees, I
would think, in Wales. But he came to the United
States, went to college here, went to graduate school here,
and ultimately became a reporter for the-- for the Time magazine,
wrote some stories about technology, and
ultimately got out of that and got into the business
of venture capital. And he you know, he put money
into some of the greatest venture capital deals of our
time that say things like Amazon or Google. And so they made a
lot of money and they're very-- maybe the most
successful venture firm. >> Neil Irwin:
All right. Let's start on the
side of the room. >> MEMBER OF AUDIENCE: It's
about the investors that you've talked about are--are
essentially workaholics. And you describe that in other
interviews. So when they're not
working, and they're not sleeping, what
do they like to do? Warren Buffett likes to play
bridge, for instance. >> David M. Rubenstein: Well,
they all have some other things. Some people play golf, a sport
that I don't do, but they generally tend to be hard
working people. But they do have some time off. And they I would say they--they
tend to spend time on philanthropy now, or some of
them have collections of art or whatever it might be, but
generally they don't have nothing else. They all have
something else they do. And Warren Buffett,
as you just-- he played-- he plays bridge, I think three
or four hours a night, which to me seems like not a way I'd spend
a lot of my time. I don't know how
to play bridge, but but obviously it
may work, you know? So there's a story. One time I
you know, I was thinking I heard about Warren
Buffett and Bill Gates. They were calling somebody and
somebody said, let's call the girls. And people were saying
Warren Buffett and Bill Gates are calling the girls. And we
wonder what it was. They have these female bridge
players that they play bridge with, and they had a free
evening one evening. So they're bringing these
female bridge players up who are much better players than they
were. They're pretty-- Warren Buffett is pretty serious
about bridge, apparently. >> MEMBER OF AUDIENCE: Good
afternoon. So I'm a college student studying finance
and law. And basically at the beginning of my personal
and professional development. You spoke about
the importance of work ethic, perseverance and
being able to learn from failure. I was wondering what
other skills or character traits you believe were integral to
your success that were largely overlooked by many people? >> David M. Rubenstein:
All right. One, read. You
can't read too much. All the people in this book
that I talk about, they all have an incredible thirst for
knowledge. They will read anything, even
if it's not relevant to their day to day lives. They just
think you can-- you can't learn too much, and
never know what will come back and help you.
Secondly, I think humility. The people I interviewed,
they've accomplished a lot of pretty good things. They're
pretty successful and very wealthy, but they're
pretty humble. And, you know, humility isn't a
virtue that all of the leaders in our country have,
as we have observed. But--but it's a
virtue that I think is pretty good. And
they are pretty humble. And I also think teamwork is
something important. Learning how to work with other
people is really important, and learning how to share the
credit is something that a lot of them have-- they
don't usually talk about about "I, I, I," they
talk about "we," even though maybe
they made the best decision themselves, they tend
to talk about their partners. So those are some of the
things, teamwork, sharing the credit, taking the
blame, humility, reading, and I think, you
know, generally, hard work. >> MEMBER OF AUDIENCE: I was
wondering if you could talk about university endowments. More
specifically, those chief investment officers that you admire at, at various
universities such as the-- David Swensen. >> David M. Rubenstein: So for those
who don't follow this business, in 1900, the Endowment of
Yale was 10 million dollars, the Endowment of
Harvard was about 5 million. And because tuition paid for
everything, but as universities got to be bigger, more
buildings, more students and so forth, and they subsidized
students and so forth, they needed to develop endowments
that would provide income for tuitions and research and
buildings and so forth. And so in college, endowments
became a big thing. Harvard's endowment, I'm on the
Harvard Corporation board is now over 50 billion dollars. And these money is used for, I
think, very good purposes. David Swensen was a person who,
at the age of 33, was put in charge of the Yale Endowment,
and he came up with a way of managing the Yale
Endowment that now is called the the Yale
motto or the portfolio motto, which is to say, put a
heavy amount of money into so called alternative investments,
private equity, venture capital and so forth, and also seeding
a lot of new firms. So he would get much better
terms. And this model is one that's used around the the
United States now and around the world. And he's really
dramatically influenced the way college endowments
are managed now. And they're-- big, much
bigger than they used to be. I mean, some of the biggest
endowments are Harvard, Yale, Princeton, Stanford. They're
all 30 billion dollars or more. And this pays for a lot of
scholarships and so forth. Swensen sadly died last year of
cancer, but he, he created a lot of proteges, and one or two of
them are in the book. And one of them I'll mention is Paula Valeant,
who used to work for him. And the last ten years or
so she was managing the Bowdoin Endowment and it turned out in
managing the Bowdoin Endowment, she outperformed all
the fancy Ivy League endowments, and
including the Yale one. And so she-- and he
pointed out to her that she had exceeded the master.
And so, you know, she's in the book, and a very
impressive person. >> MEMBER OF AUDIENCE:
Hi. I'm also a college student, like the other guy before,
we go to the same school. But what is your personal
philosophy when it comes to philanthropy, and you apply
principles that you use in investing to your philanthropy? >> David M. Rubenstein:
My philosophy on philanthropy, and
what's the second part? >> MEMBER OF AUDIENCE: Do you
apply principles that you use in investing to your-- choosing
your philanthropic causes? >> Neil Irwin: Do you
choose-- use principles from your investing in
philanthropic decisions? >> David M. Rubenstein: I did-- was an original signer of the
Giving Pledge. And you're supposed to give away
50 percent of your net worth upon your death or--or
during your lifetime. Of course, it's a
voluntary thing. And so if you die and you
haven't given away any money and you don't do it in your will,
they can't disinter you. So it's a voluntary thing. I have you know, I've been
involved in a lot of philanthropic things that I
care about in this--in this city. I've tried to, you know, help
out in some--some--some organizations here and other
monuments, memorials. But I--you know, I
don't have a foundation. I do it all myself. I kind of
know sort of what I want to do. And the principles are trying
to make sure you know what you're interested in, trying to
help other people, trying to figure out whether you've
actually made progress by getting some reports back
about what you've done. But in the end, my main
philanthropic efforts to try to give back to the country, which
has made it possible for me to kind of come from modest
circumstances. And so I--I'm giving back most
of my country what I call most of my money and what I call
patriotic philanthropy, which is to give back to the country, to
remind the country-- the country of the history and heritage of the
country. And they use the same principles of trying to do the
research, know what you're doing, talk to a lot of people. There's no perfect
way of doing it, though. You know, in philanthropy, we
don't have a metric-- in business, world, we have a metric called
profit and loss profitability, internal rates of return in
metrics. In philanthropy, you don't have
a metric that's equivalent, so you don't really have
quite as good a way to measure whether
you're successful or not. >> MEMBER OF AUDIENCE:
Thank you. >> MEMBER OF AUDIENCE: Hello.
Minus the endowment answer, and the mention of Melinda
Gates, we really didn't hear much about women
in this world during this talk. So what do you see
as encouragement for more women to be
involved in the field? And who are some
women within the industry? >> David M. Rubenstein: In the
field of investing, or-- okay. in the book, I think 25 percent of
the people in the book are female. I should have been maybe more. I tried very hard to find
leading women investment professionals. As we
all know, there weren't-- It was largely a white male
profession for a long time. Paula Bohlen, who manages
now the Endowment, not for Boden, but Rockefeller
University, is in it. Kim Liu, who managed
the Endowment for Columbia University, is in the book. Sandra Orbach, who is in my
firm at Carlyle, is the most senior professional in the
private equity world. And so you have to have role
models and get other people to follow, follow the women or
their role models. I would say it's been tougher
than you would think to get women to rise to the top of
these organizations. For example, in the business
I'm in the private equity world. There are no women running
major private equity firms. There just are none. In the
venture capital world, of the famous venture capital firms,
none are being run by women. So we've got a long way
to go. Now, in business schools today, roughly
50 percent of the business school classes are at Harvard,
Princeton-- Harvard, Wharton, Chicago, Stanford. Good business schools, are
roughly 50 percent. At some point, hopefully in my
lifetime, you'll see the major firms having women at the top. But it doesn't exist right now,
honestly. And you probably know
that, right? [Laughter] >> Neil Irwin: Yes, sir. >> MEMBER OF AUDIENCE:
Mr. Rubenstein, when you started your lecture, you
mentioned that you're more fascinated by
ideas than than money. What do you think of this idea
that the famous phrase life, liberty and the
pursuit of happiness? Isn't the pursuit of happiness,
by the Founding Fathers, was used as a euphemism
for acquiring property? >> Neil Irwin: In life, liberty
and pursuit of happiness, was pursuit of happiness a
euphemism for-- >> David M. Rubenstein: Ah, okay.
All right. Well, you're obviously a scholar in that
merit. Um, happiness did not mean, you
know, going out and having a nice party.
Happiness was a plagiarised a bit from a--from another piece
of work that Jefferson was referring to. It generally
meant the ability to pursue the ownership of property, and
that's what it really meant. So it wasn't in the happiness
sense, but I sometimes use it because it's a word that people
understand. What Jefferson didn't mean in the same way that we
mean happiness, honestly. And you must know that.
All right. >> Neil Irwin:
Yes, sir. >> MEMBER OF AUDIENCE: David,
you've written a number of books on how to succeed or what is
success in politics, in investing, when are you going to do a
biography? >> David M. Rubenstein: Yeah.
I'm trying to figure out whether, you know, anybody would
buy it. So, um. [Laughing] The only person that actually
encouraged me to write it was my mother, and she's
passed away. So I'm not sure
anybody else would, would read it. I--I don't know. You know, it's an act of-- when
you write a autobiography, you have to kind of, you're saying
I've done something useful and you should-- others should read
about it. I'm trying to figure out
whether I'm comfortable writing such a thing yet. But but I
also know as I get older, if I don't do something at some
point, you know, I won't have the brainpower to do it. So I
am doing what I call sprinting to the finish line. You know,
I'm now I just turned 73 and, you know, it's--it's an older
age. Then, of course, I'm not old enough
to be president of the United States yet, but-- [Laughing]
But it's an older age. And I remember when I was
growing up, I looked Dwight Eisenhower looked like an old
man to me, and he was--he left the presidency when he was, I
think, 69 or 70. So I remember telling Jimmy
Carter, you don't have to worry about re-election. You're
running against an old man. He's 69 years old, Ronald
Reagan. So it turned out that Reagan is
now four years younger than I was. I am now. So and I
remember when I started my practice of law, I went to a
large firm and the head of the firm, a famous federal judge,
came in and I thought he was a doddering old man and he was
giving us his words of advice. I looked it up recently. He's
two years younger than I am now, so I realized I
better get something done. I haven't
decided to do that. My publisher's thought about
it, but I have-- I'm thinking of some other
books right now. But anyway, I will
get your name, and if I write one, I will send you
a copy. Okay? [Laughter] >> Neil Irwin: Sir. Will
be the last one, I'm afraid. >> MEMBER OF AUDIENCE: Thank
you. You mentioned a number of the opportunities
that you missed. Do you have any personal
rules of thumb that you could share to avoid missing any
future opportunities like that? >> David M. Rubenstein:
To avoid missing-- >> Neil Irwin: You talked
about opportunities you missed. Is there a rule of thumb for avoiding
missing future opportunities? >> David M. Rubenstein:
Well, yes. One, listening to people who
disagree with you is probably a pretty good thing. And trying
to be more open minded, you know, not thinking,
you know everything. I'm more willing to try things. And I used to try them. I, I
made a lot of mistakes in investing world and like the
fishermen like to talk about the fish got away. I tend to talk
about the deals that got away, but I'm more worried about the
deals I did that didn't work out because then you're actually
losing money as opposed to things that you didn't make
money on. Anyway, I--I--I'm--my--I have
three children there are in the private equity world. You can
say I did a bad job of parenting or or whatever. I mean, I have
no poets, no playwrights, no artists. They're all in private
equity. And, you know, we'll see
whether that was a good thing for them to do or not. But I'm
trying to help them a little bit, and now I
listen to them more than they listen
to me. [Laughter] >> Neil Irwin: With that
we have to conclude. The book is "How to Invest".
Thank you. Thank you very much. >> David M. Rubenstein:
Thank you. [Applause]
