Rubenstein Provides an Investing Master Class

after that massive sell off. His comments, I've got a lot of play online because who doesn't want investing tips from the best in the business. And luckily for us, he's back with some more tips. David Rubinstein is founder and co executive chairman of Carlisle Croup. He's also the host of Bloomberg Wealth on a Bloomberg Television He joins us to be a zoom from Washington, d C. David, good to have you back with us this afternoon. How are you I'm doing fine. Thank you for having me. Yeah,

thanks so much for joining us. I want to start with the markets because I think a lot of people are spooked right now. I'm just give us your interpretation of what you're seeing when you look at the equity markets right now, clearly the markets are not happy with the higher inflation numbers, and I think that's a big factor. When you have higher inflation, you can expect higher interest rates, and the Fed is next week like the increase interest

rates by seventy five basis points. There's some who think it could be a hundred basis points, but I doubt that that that that would happen. That would probably really hurt the markets much more because that would show the Fed is much more nervous about inflation than it has said it is, although it has said it's it's worried, But I think a hundred basis points would be much more than their guidance has been. So if they were to do a hundred basis points and market will really

sell off. In my view, seventy five basis points and markets already assuming that's going to happen, so probably not a big surprise of the markets. I think the news from fed X that you were just talking about probably is going to scare people early tomorrow because someone fed X is canceling its guidance. That might mean that other companies are gonna follow suit, and that might mean earnings are gonna be less than people expect. So I think markets are gonna be choppy for a while, there's no

doubt about it. Well and FedEx here is right now down about shoppy. But you still think there are opportunities, especially when we see the equity side of the markets. David a lot that that is a time to enter you You stand by that the greatest more fortunes in the stock market are generally not made when people see a top of the market and they say, now I'm

going to get in. Generally markets are down and then what happens is people say, I think it could go down further, and they try to look for the bottom of the market. Anybody that's looking for the top of the market or the bottom of the market generally is on a fool's Errand so markets are shares her off now what more than from the peak, and that's a pretty good downside. It could go down a little bit more, but I don't see another twenty percent down. The markets

are pretty much near the bottom. They might be five percent more to go or maybe a little bit more. But I think we know a lot of what's going on in the markets now and not likely to see big changes. Now the Ukraine Russia situation has had some positive news, maybe that work could be over sooner than we once thought. And I think uh now m generally the inflation situation not under control, but the FED seems to be on top of the situation, maybe more than

it was before. So I'm not expecting we're going to see another decline in stock crisis. David, and I want to get into your book in just a moment, but would you concede that it's safe to say that we really don't know kind of how things go on the other side of it, considering the pandemic that we're coming out of, the amount of stimulus that was pumped in to the global economy, that we still don't quite know and there's still the same risks, right, we could get

another variant that sets things back, Um, China still struggling. Uh. Geopolitical, as you said, some good news out of Ukraine, but it's still a little bit up in the air. Do we Is it safe to say we don't quite really

know how this all plays out? Um? This is what lawyers often call a case of first impression, which is to say, we have something that's relatively unique in the sense that we haven't had five trillion dollars injected into an economy quite the way the federal government did and then know what the impact is going to be an inflation in the markets a year or two later. So we had this gigantic injection and to prevent uh A set during COVID. We did prevent it recession, but we

also gave us a lot of inflation. UM. If you go back at any time in the market history, you'll always fullfind that there are problems. There's never a case where people say, you know, everything is looking great and actually turns out to be great. It's rarely the case that you don't have challenges right now. We have the

challenges you to discuss plus UH. You know, the challenges of getting people back to work, the challenges of awarding another UM, COVID type pandemic, the challenge of the U. S. China relationship, the challenge of the Russian situation, the energy situation, money challenges. But that's what makes great market great investors great. They can see through the challenges and get in when they going is good and other people think it's bad, but now it's probably not a bad time to begin investing.

Hey David, um, is there any concern Do you have any concern that the Fed could overdo it? Because monetary policy it takes a while to take effect in the economy. We're still getting some pretty hot numbers when it comes to jobs, but an inflation still high, of course, But are you concerned that the Fed just goes too hard when it comes to interest rates? Well, of course, the Fed didn't make a mistake that it admitted it thought

the inflation was was going to be transitory. Obviously was not Um J Pal who used to work at my firm, and I've known him for a long time, though I'm obviously not getting inside information from him now. Um. I think he's a very cautious person. He likes to tell you what he's going to do, and they'd like to then do it. Um, he's pretty much said, I'm gonna go the Fed's gonna FOMC is gonna go up by

seventy five basis points. I think if they were gonna go a hundred basis points or more, I think they would have tipped the markets a bit, because, as I said earlier, a hundred basis points or more now would shock the markets, and I think it would be uh something that would see a big sell off in stock. So I don't see that being tipped from the FED. And obviously he doesn't control what the FMC does, but he has an enormous amount of influence, So I suspect

um will be something around seventy five basis points. The real change is whether we will have another fifty basis points increase the remainder of the year, which is what the market seven have assumed, or could it be the case that we get more than fifty basis points or the remainder of the year. And then, of course, right now the markets are generally assuming probably not any real increases early next year, and who knows that could change, But right now I think we're the markets really want

some good inflation numbers. The next time some inflation numbers come out, hopefully they're better than the ones we just saw. Do you find it okay? And we promised we're gonna get to your book, But is it wacky that we have such a strong labor market and yet, David, you know that we constantly talk about about the labor market. The unemployment rate is a misleading number in many respects. It's the one we all know. And right now the

number is I think three point seven percent. It went as low as three point five per cent um and that's as low as anything I can recall. Um, But that doesn't take into account how many people are looking for jobs. Uh, the amount of people in the labor force is less than it used to be. And remember, unemployment rate is the number of people in the previous month who are in the labor force and looking for jobs that can't find them. Uh, the labor force is

actually smaller than it would be ideal, um. And so there probably are you know, more people who would like jobs but don't think they can find them in the at the salary they want, or they the kind of style work style they want. So I think it is hard to believe that that that the unemployment rate is so low when you know, I do know people that are still looking for jobs, and I think that you know,

we should recognize it. Generally, an adult population, you have about six working population and adult population who are in the workforce. Now that number is probably closer to sixty two or six. So we have more people who could work, but they've taken themselves out of the workforce and that's why the the unemployment rate is so low. All right, so let's talk about the book How to invest Masters on the Craft, Uh, And I do wonder, you know, David,

Generally successful investors, I would argue that are successful. It's because of their different says. They find opportunities where others do not. So at the same time, I wonder, is there's something that successful investors all have in common. Yes, they have these things in common. They tend to come from blue collar and uh, middle class families. They don't come from very wealthy families. They tend to be pretty good students. These are not typically college dropouts or high

school dropouts. As a general will of thumb, they tend to be pretty good in math. They tend to like to make decisions. They tend not like to delegate. They tend to be people who will um defy conventional wisdom. The conventional wisdom say now is not the time to to invest. That's when they invest. They also tend to be relatively humble because they've made a lot of mistakes over the years. Every investor does. They also tend to

get rid of their mistakes pretty quickly. A really good investor when they when he or she makes a mistake, they don't labor over it for months and months and months and still about it. They get out of the position and they go into the next thing. They also

tend to be i'd say, relatively philanthropic. Clearly, if you're if are in the business world and you're an investor, as opposed to being in the endowment world or or or a nonprofit world, you tend to make a lot of money as investors, and they tend to give away a large percentage of it. So I generally these are people who are quite articulate, quite smart, and quite hard working. We're hard work is not a problem for them because what they do is what they love. Investing is not

for them work, It's it's pleasure. And once they've made whatever they need to make a billion dollars, two billion, ten billions, twenty billion dollars, they don't stop working. They work until they you know, I just can't do it anymore. Um. They don't tend to retire at fifty five or sixty. Some of the names on here, I mean, this is a who's who of of the Wall Street world and also Silicon value when it comes to alternatives. I mean we're talking people like Larry Fink, John Gray, Sam Zell

are featured in here, Rate Dahio. When it comes to hedge funds, we got John Paulson on hedge funds, Mark Injuries, And when it comes to venture capital. I want to go back to what you said about mistakes though, because I think this is something that doesn't get enough attention, because a lot of people look at these folks as people who have just been so successful, and you know,

the mistakes aren't really what what's written about. What are some prominent mistakes that you learned about when you were doing reporting for this book. Well, of course, um, every investor has his or her stories of their mistakes, and I wouldn't put myself in the great investor category. But I turned down Facebook when Mark Zuckerberg was in college. Um, I basically didn't. I told Jeff Bezos his company wasn't gonna get anywhere, and I sold his stock relatively early,

right at the I p o UM. When Mark Andreeson came to my firm to try to raise money at the beginning for a net escape, I told him it would never get anywhere. So I've you know, made a lot of mistakes myself. I think every investor, UM makes mistakes, and that's what life is all about. So every one of these investors will tell you about one mistake they've made or another. And I could go through each of those investors and tell some of the mistakes that they

told me they make. But you know, in the end, uh, they get over it quickly. UM. I I tend to be a person who likes to talk about my mistakes thirty years later. Um. They don't do that. They tend to go on to the next thing. And that's one of the reasons the great investors they can clear their mind of their mistakes. Well, you know one thing I

found among the investors that you talked to. I always think about Sam's l a lot, uh in terms of when he sold his read at the height, um, and just before everything came undone from the great financial crisis in the housing mailtown. And I do wonder, is there is there a lesson there in terms of who were you know, was he just super smart lucky timing? Like what is it? Um? You know, really smart people tend to have better luck than not people who are people

are not so smart. So it's Sam's LL's case. He's really smart. He wasn't really looking to sell his company. He got an offer, and then he was willing accept that offer, and another offer came at a higher price. He kind of ran an auction, and he wasn't intending to. But it shows you he makes mistakes too, because he got a higher price than he ever expected in a higher price, and he would have had had he not

run a little auction. The profits that are above the price he initially accepted was a large sum of money he made. He took that money and brought the Chicago Tribune and it went bankrupt. So he quickly learned that running a newspaper not as easy as running an office building.

I'm trying to think of, um, you know, the the average investor out there, people who are listening to our show, people who have Bloomberg terminals, who are you know, making their own personal investments, and even beyond those people, David, and I'm wondering what lessons they can take away from listening to the pros. The most common mistake that investors make. The pros would say, and I think I'm talking about average investors always. The book is not designed to make

you into Sam's l or John Gray, that's unrealistic. Note book is going to do that, but it's designed for people who are average investors who um dabble in the market, or they buy funds and they have other people dabbling for them in effect. UM. I would say that the cost common mistake that people point out to me is that people when the markets are going up, they rush in and they want to catch it at the top, and then when the markets are going down they want

to sell. And even a brilliant person like Sir Isaac Newton considered the time the smartest man in the world. UM that, you know, the discovery of gravity and a whole variety of other things. He um He invested in in a in a south Sea corporation publicly traded stock um uh company, and he got out and made a big profit, and he said, you know, I'm smart and other things, not just physics. But then the market kept going up and up and up. He said, maybe I

missed the top. He put all of his money and borrowed money to go back in and he in the company went bankrupt, so he went bankrupt too. So here's a guy who's one of the smartest men in the world, but he got caught up in the in the temptation of seeing other people making money when he wasn't making it. So you got to be very careful and I think

know what you're doing. Also, one of the advantages of of of being a value investor, in a long term investor's Warren Buffett is they tend not to sell a lot. And when you sell a lot or you buy a lot, you have a lot of transaction costs and you had to pay taxes. One of the things that Warren Buffet has done and over sixty years, he's compounded a year for sixty years. Nobody's ever done that before. UM is

he doesn't sell very many things. He therefore he doesn't transaction cost fees, but he also doesn't pay taxes um in the sense that he's not having capital gains taxes, but the stocks going up and he's not selling. And that's an important thing. People should hold on the things for quite a bit longer than they they attend to well. And I think that's an interesting thing to say. And here I am watching shares of I want to go

back to that headline of FedEx. It's down about twelve percent and the after hours after the company withdrew its fiscal year earnings forecast, and it's also taking down shares of Ups in the after hours, which are now down about six percent. I mean things like this, David, You know, we try to glean so much from it of what

it's telling us about the economy. We start off our conversation talking about this, But I mean, how do investors, you know, have to think about things when they're seeing maybe a position that they are going down twelve percent here in the after hours? You know, how do you figure out is this still something I hold onto or is this something I sell? Let me ask you this. If Warren Buffett was a shareholder in FedEx, I don't know if he is. Do you think he's gonna wake

up tomorrow morning and sell that stock? And the answer is no, because he's he likes to buy great companies and stick with them through thick and thin. They generally that will work out, as he proved in a lot of companies. As biggest holding now is Ample, which he bought was much lower price than it is today. Um, you don't know whether the FedEx a remove of guidance is because there's some exogenous thing that's unique to to

FedEx or UM. It just reflects the fact that there's not much shipping going on because not much economic buying and a lone of things are being bought and shipped and so forth. You just don't know and toy to see what the what the reason is for the withdrawing to guidance. That's a big drop, that's for sure, a big drop. But I just don't know yet what the

reason is. And let me be fair to you in our audience, the CEO of FedEx and global volumes declined as macroeconomic trend significantly worsened later in the quarter, both Internet actually and the US. We are swiftly addressing those headwinds, but given the speed at which conditions shifted, first quarter results are below our expectations. Um, there's a little bit of color. How does that make you think about something like this? Yeah, well, they emphasized the word global, so

maybe the global um. You know, maybe the economic problem is outside the United States more than in the United States. And there's no doubt that Europe is on the precipice of a recession because of the high energy prices, high inflation, high interest rates, and the whole war in Ukraine and the impact on the supply chain in Western Europe. So it could be that's part of the problem. And obviously Chinese economy is slowed down and that could be part of the problem as well. I'd be surprised if the

problem is only because of the United States. I don't think that's probably the case. The US economy is chugging along. Okay, we're not in a recession. We may or may not go into one, but we're com clearly not in one. Right now, we're speaking with David Rubinstein, the founder and

co executive chairman of Carlisle Group. He's also the host of Bloomberg Wealth on a Bloomberg television the author of the brand new book How to Invest Masters on the Craft, David, the people you spoke with, um, again, really interesting names there. I want to go to Mike Novogradha. Can I just say that there's a lot of men. There's a lot of men. Well, um, there are a lot of women too. UM I would say, obviously it's easy to do a book like that and fill up with old white men.

I tried hard not to do that. UM. I have in there, for example, Kim Lou who is the woman that runs the endownment for Columbia University. Are really impressive investor. Also is in there, Paula Belan who runs the endownment for Rockefeller University. Sandra Horback, who's the most senior woman in the enthigher private equity world. She's at Carlisle. UM, so I would say, Uh, what I tried to show is that there are women and minorities who are moving

up into the pantheon of great investors. But let's be honest. Today there are more white male uh people who are considered great investors than women, right the wrong, and that may change in time. And in part what I wanted to do is inspire people who are not white man else to go into this business and see that you can become Paul of Balin or Kim Liu or African American that's in there, John Rodgers, who built the largest African American investment firm in the country, Aerial Capital. Right,

we've talked with John him. Can I talk about crypto? Yes? You can? Alright, I want to ask David about crypto because, um, you know in the alternative section, Mike nova Gradson, who's a name very familiar to our audience. Um, but also somebody who has you know, dabbled just in traditional finance trad FI as it's known, and also in defy with

when it comes to crypto. Um, your thoughts after interviewing him for this book and about whether or not crypto actually has staying power because he did make a lot of money and also recently lost a lot of money when it comes to crypto, Yes, well overall he's ahead. Um. He bought bitcoin when it was very very very uh cheap, and now while it's below more than half below its peak, it's still well above what he paid for it. So he's still you know, as I think billions of dollars

of bitcoin and um, I think he's going okay. Um. Um. When I interviewed him, market was a little high for for for crypto, so I uh, you know, recognized the markets to come down. But my own view on crypto and I don't own crypto currencies myself, like I have invested in companies that service the industry because think the industry is gonna be around for quite a while. The people that buy crypto tend to be younger people. You don't see a lot of seventy and eighty year old

white men running out and buying cryptocurrencies. You tend to see a lot of twenty year old and thirty year old people buying it, or even teenagers buying it. I interviewed for my Bloomberg TV show the other day, Sam Bankman Free it was thirty years old worth at the peak billion. I think it's down by more than half

now because cryptos come down. He built f t x, which is the big trading platform for crypto, and his view is my view as well, is that you tend to find uh investment trends started by younger people, and crypto is one that younger people have started. And I think they like it in part because they can trade it frequently, of course, but it has fluctuations which makes them think they're gonna make money and they're willing to take the risk about it going down. But also they

the privacy associated with it. You don't dependent on nobody else knows what you really own. The government can't take it away from you. I think a lot of wealthy people around the world saw what happened to the Russian oligarchs and they're saying, maybe I should put some of my money and something that government doesn't know I have, can't take it away. And there's no doubt some people who are trying to maybe avoid taxes and therefore they

don't report what they own. There's a lot of reasons people are gonna buy crypto, and I also think that people that are buying it to a large extent are

they tend to be very libertarian in many ways. They want to be countered to the government, and they've lobbied Congress, and I've had a lot of Uh, there are a lot of members of Congress who are Republicans who are listening to what they're saying, and I think it's unlikely you're gonna see a lot of over regulation from the Congress of the United States or over legislation on the crypto industry. Do you own crypto, David, I, I, you know, I own current I own companies or investments in companies

that service the industry, like Packs those brothers. But I haven't bought currencies myself, though in hindsight I wish I had in some respects. And and I tell people initially, if when you go to Las Vegas and you gamble, if you're reasonably intelligent, no, you're gonna lose money, But you say I'm having a good time. I don't mind gambling and losing money because I've allocated a small amount

of money for it. And so if you can lose one or two or three percent in Las Vegas, you can allocate the same money amount of money to crypto. And if you lose it, you know you've had the pleasure of owning it and talking about it and so forth. But if you start putting fifty of your net worth in that could be more dangerous for sure. Well, David, we really do always appreciate all the time that you

give us and so appreciate you. Also weighing in on some of the day's news, David Rubinstein How to Invest his latest book, Masters on the Craft David of course, foundering co executive chairman of Carlisle Group, host of Bloomberg Wealth on Bloomberg TV. Great read and as he said, there's a diversity of voices within his book talking about investment theories and ideas UH and what they have learned in terms of their craft, their investing craft,