BILLIONAIRE DAVID RUBENSTEIN ON HOW TO BE A GREAT INVESTOR

All right, So here we are with the legendary David Ruberstein. Thank you for joining us. Yes, you're not familiar with David. He is the chair of the board of Trustees of Duke University. He is the host of Bloomberg's pay a pair of conversations, and he is the co founder and co chairman of private equity firm the Carlisle Group, which is a global private equity investment firm. How much the assets on the management four hundred billion?

If that number has changed, please correct me for four million advantage under management right now, which is amazing.

Yes, so thank you for joining us.

Appreciate it, my pleasure. Thank you very much for having me.

And he's an author too. We'll talk about his book.

Yes, I'm looking for Yes, very important.

So all right, so let's get into it. I want to start off with, you know, some education for the audience private equity. Can you explain what private equity years? I feel that people have a good understanding of venture capital because that's been the news a lot, and that's been very popular the last couple of years. But I think that the general public still doesn't have a good understanding, or they might not have even heard of private equity?

Can you explain? Explain?

In the United States, the phrase private equity means one thing. Outside the United States, it means another thing. In the United States, private equity more or less means all private investments.

It could be venture.

Capital, growth capital, the stress debt, anything where you're buying an asset that is something that's going to be held privately. It's not going to be public when you own it. And the theory behind private equity is that when you have something that's not in a public setting, you can make changes, you can improve it, you can in send people, you can pay them more, and ultimately you'll get a

So that's what it is.

Basically fixing up something in a private setting, making it better, and ultimately selling it after three to five years. That gets you a return of maybe twenty percent a year.

Thank you for being here, A huge fan of your show.

Can you talk to us about the importlance of being a controller in the face and conventional wisdom? And are there any sexes right now? You think people should take a ConTroll and take on in this environment.

Right, the greatest investors in the world of generally or contrarians. If you just went along with the average common sense view of what the average person thinks, you would be one of the pack and you wouldn't do anything that make you stand out. So contrariants take a view that's different than the average common sense wisdom.

Today.

For example, the common sense wisdom that the average investor would have is get out of the stock market, sell whatever you have. The economy is going to hell in a handbasket, and we're going to be in a recession. The smart investors would say, now's the time to come in, buy things in a discount, and eventually in the recessions always end and eventually in three or four years you have bought something at fifty cents on a dollar and then two or three years are gonna be worth three

Well, our audience is, you know, filled with retail investors. We have some institutional investors, I'm sure, but a lot of retail investors and obviously they're learning the market, they're understanding, they're investing in. What are some habits that you've come across in your career that you've noticed that great and good investors have, right, so they can have an age.

Well, people who are great investors generally, this is their life. This is what they do full time. They don't kind of have a day job and then they're picking stocks at night and then they kind of they do Well, you have to do this full time. You have to be pretty smart, good with numbers. You have to have a willingness to read enormous amounts of material. You have to admit a mistake when you make it and get out of a bad deal, because everybody.

Makes a mistake.

I think it also takes some humility to be a great investor, because you realize you're going to make mistakes, and you can't say I'm so brilliant and the market's wrong, but I'm right and the market's wrong, and you start losing money, and you know, those are things that make great investors. The average retail investor who buy stocks in the public market, you know, they're probably not great investors.

So let me ask you this, what are your thoughts in the handling of the economy by the Fed this year?

Been my thoughts on what I'm sorry, can you speak up.

The Fed's handling of the coat?

Okay, I should disclose that I hired a young man that worked for me years ago, and he was at our firm for a number of years and he left.

His name is Jay Powell, so now it's the chever in the Federal Reserve.

But he doesn't give me any insights. The Federal Reserve made a terrible mistake. They underestimated how serious the inflation was going to be. The United States government injected five trillion dollars into our economy to deal with COVID. And you put five trillion dollars into an economy that's roughly a twenty two trillion dollar economy, you're going to get inflation. So we got a lot of inflation. The Fed said for a while it's transitory, which means it'll.

Be gone soon. They were wrong. So now they're going.

To increase interest rates a fair bit to get inflation down now. As you may have seen last week, inflation came down a little bit still at seven point seven percent. The Fed wants to get inflation down to two percent per year. That's what we had for the last twenty five years, two percent a year. It wasn't a big factor. Getting back to two percent is not easy. I know a lot about inflation because I worked in the Carter White House when we got inflation to nineteen percent.

Nobody's ever to do that again, right, so.

Please, please, So I would say the Fed is now serious about fighting inflation. They're going to keep increasing interest rates for a while, and I spect in December they will have another meeting and they'll increase interest rates by another seventy five basis points, or almost one full point. So yeah, I think the Fed has probably made a mistake in the beginning. Now they're trying to compensate for it, and I think they're doing a reasonably good job now.

In light of the FTX scandal.

Looking back at the interview that you deal with Sam as An investor. Is there anything in hindsight that made you say something about him or the strategy of the company didn't.

Feel right, which would about him ftx oh FDx Yes, Sam Bankman freed, Well, it was the only interviewer I had with a guy showed up in a T shirt, shorts and tennis shoes. That's all he had wore, and that's apparently that was his normal dress.

So I was a little It was a little unusual. Usually people dress a little bit better for the interviews.

He's look, you meet a lot of people in this world who are brilliant young people, and when you're a brilliant young person and you haven't had a failure, you think you really are brilliant, and you walk on water.

So he had never made a mistake.

Really, he built a business where in at the age of thirty, he's worth twenty two billion dollars. So when you were thirty years old, you guys look like you're maybe a little older than thirty. I don't know, but when you were thirty years old, if you were worth twenty two billion dollars, you would think.

You walk on water. Absolutely, he may have thought that.

I would say, it appears that they made a terrible mistake, and whether it's criminal or not, I don't know. But they were taking customer accounts and putting them into other businesses that the customers didn't know about. So let's suppose you have an account at Merrill Lynch and you put a thousand dollars into it and they told you later, guess what. We took that thousand dollars. We lent it

Noted.

So there was there was one thirty three year old guy that did walk on water, but that was unusual. I had to get a love it walk on water. I love it. I love it.

Obviously one of the greatest investors of our time, obviously the Carlo Group. Like we said, four hundred billion managing assets prior to even get into finance. I know you studied law, So what was that transition like from you going into law to find out?

Well, let's be honest, if you're going to be good at something, you have to love it, and I wasn't. I didn't love the practice of law, and my clients told me I wasn't that good at it. I went to law school to make my mother happy because she said you'd either be a doctor or a lawyer.

So I didn't want to go to medical school. So I went to law school.

And I was really interested in politics, and so I was really interested in working in government. And I went to work for Jimmy Carter at the White House for four years when I was in my twenties, and you know, we got in place in the nineteen percent and the result was we didn't lose.

We lost the election.

So I had to go back and practice saw it, so I knew but I wasn't that good at it.

My clients reminded me of that.

So I decided to do something different and I started affirm in Washington nineteen eighty seven that grew to be one of the largest private equity.

Firms in the world. So I got lucky.

I surrounded myself with really smart people that knew more than I did.

And the key to.

Really building a great business is surrounding yourself with smarter people than you. So that's what happened. I built it that's now one of the largest firms in the world in this area. But I was attracted to it because I thought, if I'm going to be not in government and government doesn't want me because I didn't do a good job, and I'm going to be in the private sector, I might as well make the most amount of money I can make.

And business people.

And privatecy firms are making a lot more money than lawyers, and they ought to actually seem to be more enjoyable. So that's why I started, and it worked.

So let me ask you this. You talked about inflation a few times. Last week a report came out and they said that they thought that inflation might have peaked and that that was good for the market. Do you think that inflation has peaked?

Well, it's it's an interesting question.

Last week, the numbers came out that said that inflation rate from month to month the year to year was seven point seven percent Now, if I told you inflation was going to be seven point seven percent annualized, you would run for the hills.

But because it was previously.

Over eight percent, it was eight point six percent, seven point seven percent looked wonderful. So yes, it may have peaked. I think it probably has. But remember inflation was pretty high because we injected so much money in the economy. The war or in Ukraine had a very high effect on energy prices and the food supply chain, so there are many things that produced this high inflation. I think

Just one month isn't probably enough. I'm looking forward to reading your book. Can you share with us what's one lesson you learned from maybe Jim Simmons, Ken Griffin and maybe John Paulson around how they invest in A very impactful lesson that will help audience tonight.

Well.

Ken Griffin is a guy that built one of the most successful hedge funds of all time. He's also got a separate company called Citadel Securities, and he's extremely wealthy. He basically believes in analyzing data very carefully. He surrounds himself with really really smart people and he tries very hard to get the best people in the country who are really good with numbers. He tries to steal people from Google, not steal, but recruit people from Google, Facebook, Microsoft, Apple.

You're make.

Good trade, like say, it was the greatest trade of all time, and so he did pretty well.

But basically he analyzed.

The fact that mortgage market was probably over inflated, and he correctly bet on that.

Yeah, most people say no risk, no reward, obviously in your space when you're managing people's money that you know may not be true.

Maybe it is.

Can you talk about the importance of risk management when you're talking about private equity, So I.

Think in private equity, I'm sorry.

Risk management the important.

Well, you know, risk management is a way of managing your money where you're basically in effect hedging. You're trying not to get the highest rate of return, but you're trying to protect against the downside.

Private equity is different than that.

Private equity is basically saying we're going to fix a company, make it better. We're not trying to hedge against it. So it's different. I would say, depends on what somebody really wants out of life. If you're seventy five years old and you're living on the retirement income and you don't have a lot of money coming in, you don't want to take a big risk. You probably have a more a risk management kind of approach, which is to

It depends on your situation.

How much money can you afford to lose, for example cryptocurrencies. I always told people, don't put more in than you can afford to lose, and some people did.

People did.

Is what's your economic outlook for twenty twenty three?

I would say for twenty twenty three, I suspect the United States will probably go into a recession. That's a very common view, and that's because if you go back from to nineteen sixty, almost every time the Federal Reserve has increased interest rates dramatically, the result has been a so called hard landing or a recession. So it's unlikely we're going to be able to avoid it this time,

Ernest, what's up?

You have a walk into a small business and everything just works like the checkout is fast, there are seats of digital tipping is a breeze, and you're out the door before the line even builds odds are they're using Square. We love supporting businesses that run on Square because it

On what matters most ready.

To see how Square can transform your business, visit Square dot com backslash go backslash eyl to learn more that Square dot com backslash, go backslash eyl. Don't wait, don't hesitate. Let's Square handle the back end so you can keep pushing your vision forward. This episode is brought to you by P and C Bank. A lot of people think podcasts about work are boring, and sure, they definitely can be, but understanding a professional's routine shows us how they achieve

Seven eight nine.

I suspect it to be a two quarter recession, and you know, two quarters is not that serious, So I think the economy will probably slip a bit in that period of time, but I think inflation will come down, the unemployment rate will go up. I suspect the unemployment rate will probably go up to about four four and a half percent next year or something like that. Congress is not going to do anything, not that anybody will

If you would get into private equity in twenty twenty three, what would be the differences in your strategy in twenty twenty three versus when you began in your career.

Well, when I was starting, inflation was not a factor and certain things were not available then today, I would say a good thing in twenty twenty three would buy distress debt. Distress debt is when you're buying debt that our company that's not doing that well, and you buy it, you know, fifty cents on a dollar, and probably we'll come back to a dollar if you know what you're doing and it's a good deal. So I would buy

Yeah.

So for obviously for twenty twenty three, you said the outlook is a recession. But in these type of environments you mentioned some set are there other sectors that retail investors definitely should be looking at. I know you said maybe indexes we should start, but other sectors.

That's one on the retail side that we should be looking at. Well.

Yes, for example, healthcare. When I worked in the White House before you were born, were any of you born in nineteen seventy seven, any of you alive then?

No?

No, no, right, So I was working for President Carter in the White House. At that time, the GDP of the United States was seven percent in the healthcare area seven percent. Today it's about twenty two percent. So that means we are spending much more money on healthcare because people are wealthier and they want to live longer, and so what they do is they spend money on healthcare, telemedicine, all kinds of pharmaceutical things you can buy. So I think healthcare is going to be one of the great

So the name of your new book is how to Invest Masses of the Craft. So along the lines of that, I definitely want you to talk about the book. But what are some keys to becoming a great investor?

One do reasonably well in school. Two keep reading, Always read stuff you never know when's going to be helpful. Three, be willing to go against the conventional wisdom. Four surround yourself with smart people. Next, maintain some humility. Next, make sure when you make a mistake and own up to it, share the credit and be willing to take the blame. And also I think in the end, if you make a fair amount of money, be philanthropic.

I think it's very helpful.

You've done incredibly well in your career. Like what drives you to continue going and how many hours a day are you putting into massing your craft?

I am old now, I'm seventy three years old. So when Ronald Reagan was sixty nine and running for election against Jimmy Carter. I told Carter, look, Reagan is so old he can't get into bed in the morning. He's sixty nine years old. Now I'm seventy three, so you know, I'm old. But what motivates me is I want to you know, I came from very, very modest circumstances. My parents didn't graduate from high school. I was the only child.

And so that's what motivates me.

In your book, How to Invest, you got you got the opportunity to interview some of the greatest investors in the history of the United States of America. A lot of success stories were told, but I'm interested in seeing what was some of the mistakes as some of these investors need right because we hear the glory stories, but obviously they had to go through some trials and tribulations to get to that point. What are some of some of the mistakes that you can share.

Well, they all made mistakes. Everybody's made mistakes. Ken Griffin now one of the greatest investors, now, very wealthy guy. His company almost went bankrupt. His company almost went bankrupt and in great recession. The guy that runs the biggest henche fun of all time and the most successful head fund of all time is Ray Dalyo. He invested one way when he was early out of business school and he lost all his money.

He had to go to his father to borrow four thousand dollars. He was broke.

So you know, he also made a mistake of punching his boss in the face one time. That's become a good idea. So people always make mistakes. Warren Buffett made mistakes. They all make mistakes. You just have to pick yourself up off the ground and learn from your mistakes. That's the key. If you find somebody that never made a mistake. You've got to be careful because that person has too big an ego and telling people how great you are is not a good thing.

You know.

There may be some people are presidents of the United States who tell people how great they are, but generally, I don't think that's a good idea.

You know.

Can you imagine Abraham Lincoln saying I won the Civil War by myself?

No, it wouldn't happen.

You want somebody that's humble and great investors have a certain amount of humility. They've made mistakes, but they've learned from it. So you guys seem like you're in sports as well. You got these those tennis shoes behind you. Are you great athletes?

Also?

Now that's subjective, definitely love sports. The memorabillion in your background as well.

Well, I'm a terrible athlete. But I'll show you this. This is from Coach K. We won the national championship when I was the chairman of the board of Duke. I was sending him plays from him by hand signals. He said, that was the key, is those hand signal plays. That's how we won.

Yes, Coach K.

The legend of so let me ask you this, ninety eight point five percent of asset management firms, which includes private equity VC and investment management firms, ninety eight point five percent are run by white men. Obviously, a lack of diversity is understatement. Do you do you have a problem with that? What's your thoughts on that?

Well, if you read my book, it wasn't ninety eight point five percent of the people in that book were white men. So I had a fair number of people who were women and minorities because I thought it was important to show that while there has been a bias towards white men and it's been a white male society, it's it's it's changing a bit.

You know.

I don't think it's a great situation. You have a this country is going to be a minority white country in my lifetime. Right now, probably the country is about sixty fifty eight percent white, but I suspect if I live long enough, it's going to be less than fifty percent, and that should be reflected in the investment management and other things. So I put a number of African American leaders in the book in the investment world, and I've interviewed it many others as well. One in the book

I have a quick quote, a two parter, what does your day to day schedule look like? And who has been your favorite guest on the show of the last few years and what was the biggest lesson you learned from them?

My favorite guest was like asking which of my children is my favorite?

I don't ever tell people, but I would say a guest that I thought was really good was Jeff Bezos, because what makes a guest work well is he has a sense of humor, sense of humility, plays along with some jokes I might give, and he also it's good to do this in front of a live audience, because if you have a live audience that it makes it makes the interviewee uh plant to the audience a little

You mentioned uh, your children, your three children, uh, and obviously you mentioned him as you know, being great guests. I wonder did they take an interest in your career path as well. I know you wanted to do low because of what your parents said. Well, what was the interest in your kids as as you were going through your career.

Well, when I was building my firm, I was running around the world raising money and doing stuff, so they didn't probably know what I was doing when they were younger.

They just had no clue.

It now turns out that all three of my children are in private equity and they have their own funds. So now they call me up and asked me if I can introduce them to an investor or, I can help them and analyze the deal.

So in that way, it's good.

But my kids all were well educated, they went to really good schools, But I didn't push them to do any of these things. They kind of came to it eventually. I don't know why, but they did.

Yeah, before we leave, I wanted to ask you this question. What do you personally look for in investments? It could be an investment in a company, investment in stocks, Like what's important to you to say, Okay, I feel comfortable making.

Out When we're looking at an investment in a private company, we're looking for a management team that's pretty strong, committed to it.

They've got a lot of their own networth tied up into it.

You want to make sure the company has the ability to survive downturns, make sure the capital structure works, make sure it's a product that is likely to be popular in the future.

Not just now, but in the end, you're looking for the right price.

You know, you can have the greatest company in the world, but if you pay too much for it, it's not gonna work. So you've got to pay at the right price and make sure that you're not overpaying for these things.

One of the biggest things that I find men have a struggle with is balance. You have any advice for men that are running businesses but are also trying to have a good healthy work life balance or do you think that's a fallacy?

Well, that's the great conundrum in the world.

I mean, can you really build a great business and have a healthy personal life and have a good balance of life. Some people figure it out. You know, obviously it's not it's not perfect. It's not easy to do. You know, some of the wealthiest people in the world that you've read about recently, they've they've become the divorced. So you know, you could say that's, you know, maybe because they work so hard. Who knows, I'm divorced because

For sure, if you can do it again, would you do anything differently?

I had to do anything differently, what I would do is I wouldn't have gone to Las.

Probably I would have gone to business school. That would have been good.

Secondly, I wouldn't have spent four years in the Carter White House because I you know, maybe I would have been better for the country. I didn't do that, and I came out and practiced law for five years after I left the White House.

That was a waste of my time.

But in the end, I probably would have given away more money by earlier. I've given away, you know, well over a billion dollars in cash to are lots of things around the country. And I probably wish I had worked harder, made more money, and given away more and started earlier. But on the whole, you know, I'm seventy three. When you're seventy three, you read the obituary pages every day to see who your age is dead.

And you guys are too young.

You don't read the obituary I'm sure, but no doubt you must have known somebody in your life who died when you thought it was earlier than they should have died. So I'm always, you know, thankful I'm still alive and trying to do things that make sure I don't, you know, die prematurely.

Well, you talked about the things that you're looking for when you're analyzing the company. I wonder if from on a daily basis the deal flow, how often are you involved or is it a process before it even gets to you?

Okay, Carlisle.

Is probably investing ten billion to twelve billion dollars of equity every year, and we're probably doing around the world. I don't know, fifty seventy deals a year. I sit on the investment committees of many of these things, but I am not doing the deals. So I read the investment committee memos, I give them my thoughts. They generally ignore them when I give them my thoughts the farm or not. I have a family office and they do.

One deal that much.

So I just hire good people and hopefully they don't come up with good recommendations. You know, if you keep turning down the recommendations the people you hired, they're going to quit. So you have to trust them a bit. So I generally trust people and generally don't turn down the recommendations. So I've made mistakes. I turned down Facebook personally, and when Mark was in college, I turned down in effect Amazon when when Jeff was just starting the company. So I make a lot of mistakes.

Well, mister team, has been a pleasure. Before we leave, anything that you would like to say.

Look, thank you, thank you all for inviting me, and uh, you know, I appreciate it.

Good day, all right, take care, thank you so much, A good one. Bye.

My graduates from my school being forced back drop bag drop my drop back drop drop