3 Takeaways - Former Secretary of Commerce Wilbur Ross on Investing, Entrepreneurship, and Trump (#214)

Episode Date: September 10, 2024

With no exaggeration, Wilbur Ross is brilliant, successful, blunt, compelling, and completely devoid of baloney. Here, he reveals his thoughts on investing, China, entrepreneurship, serving as U.S. Commerce Secretary, the greatest threat to America, working for Donald Trump, and more. When Wilbur Ross talks, be sure to listen.

Wilbur Ross's career is a remarkable tapestry woven with turnarounds, high stakes investments, entrepreneurship, and service at the highest level of government as Secretary of Commerce. Navigating Main Street, Wall Street, Washington, and China, as well as having Donald Trump as his boss when he hadn't had a boss in years, requires a rare blend of skills, as well as an understanding of both the private and public sectors. In today's global economic and political environment, what does Wilbur Ross see as the most important factors for success? And where does he see the greatest opportunities and risks? Hi, everyone. I'm Lynn Thoman, and this is Three Takeaways. On Three Takeaways, I talk with some of the world's best thinkers, business leaders, writers,

politicians, newsmakers, and scientists. Each episode ends with three key takeaways to help us understand the world and maybe even ourselves a little better. My guest today is Wilbur Ross. He's an American businessman who served as U.S. Secretary of Commerce until 2021. He was previously founder and CEO of W.L. Ross & Company, which focused on distressed assets and advising companies on bankruptcy. As a very successful entrepreneur and as a former secretary of commerce, I'm looking forward to a wide-ranging conversation on entrepreneurship, investing, government, China, and how he navigated having Donald Trump as his boss. Wilbur's new book is Risks and Returns. Welcome, Wilbur, and thanks

so much for joining Three Takeaways today. Well, thank you very much for having me on. It's a reunion of the two of us from a whole different period in each of our lives. So it's a good opportunity to be reacquainted as well. It is my pleasure as well. Let me start by saying thank you for your service in government. Thank you. You are a very successful investor. What, in your opinion, are the secrets to investing, if there are any? I think the secrets are more in the way that you approach it. Markets, especially the public markets, have a natural upward bias because we have an expanding economy, we have expanding wealth, and so the tendency is for markets over time to go up. So you have a good tailwind when you're investing. The issue then becomes which companies to invest in, when to buy, when to sell.

And that's where it gets to be a little trickier. And I think the key for a successful investor is to have a set of disciplines. What segments of business are you comfortable with? What segments do you really have conviction will be good over the longer term? And what segments are you personally well enough acquainted with that you can make a decision? So if you have those three characteristics pinned down, then I think the next one is stick to your plan. Be disciplined. Don't just catch the next comet that seems to be coming by. And if you look at Warren Buffett, who perhaps is the best investor the world has ever seen, he is extremely disciplined. And when he is thinking about buying a business,

he figures out what's the price that he's prepared to pay. And that's it. He doesn't really negotiate. He doesn't try to lowball and come up. He comes with what he thinks is a fair price, but one that he can live with. And that's it. And if he can't get it for that, he walks away. That kind of discipline is very difficult for people to have. At 63 years old, at a time when many people are looking toward retirement, you started a new company to focus on distressed assets, and the company was very successful, and you eventually sold it. What do entrepreneurs have in common, and what are the secrets to success of entrepreneurship? Entrepreneurs have definitely some characteristics in common.

The first is they tend to have more self-confidence than the average executive. And second, they tend to be often a little bit headstrong, feeling that they can do better on their own than as part of some big mother company. And the third characteristic, though, is the most difficult one to live with. And that characteristic is most serial entrepreneurs, people who've started businesses after businesses, have had some failures along the way. And the key to that is to get back up, start over again, either with a new business or try to revive the old one. So being undauntable is a key characteristic of being an entrepreneur. Now, that doesn't mean you should take reckless risks, doesn't mean you should do silly things. But if you've thought it through, and for whatever reason, it could be the economy,

could be a law change, could be anything, made one business fail, that doesn't mean at all that the next time you won't succeed. A classic case is one of the companies I was very involved with, actually, when I was pretty young, a company called Biocraft Labs. They were an early company in making generic drugs. When patents would run out on very expensive drugs, they would come in with the same formulation at a very cheap price. So they built a very big business out of that. But the entrepreneur who built that business, Harold Snyder, his first business effort was his father died, left him a very modest amount of money.

He put it into the laundromat business and it promptly failed. So he then decided, well, I don't understand that business. But he was a biochemist by education. So he then hit upon the idea of making these generic drugs. And he did it sufficiently well that the day when I took him public, he was listed on the New York Stock Exchange, and he went on the Forbes 400. So he was a dramatic example where he pretty well wiped out his inheritance, but turned right around with something that he was more familiar with. And that's the other message. Knowing what you're doing, having some sort of experience that's relevant is quite important. After a long career in business, you then joined the government. What are some of the things that surprised you about government? any kind of risk. And there's a reason for it. In private sector, if you take a bit of a risk

and you succeed, you get an economic reward for it. In public sector, there is no such economic reward. So there's really not a lot of upside to taking a risk. But there's a very big downside, because if you take a risk and it doesn't work, there's always the inspector general happy to make trouble for you. There's always the Congressional Investigating Committee happy to tear you apart on TV. So the incentive for people in government is to be very cautious, not experiment, not take risks. And it goes to the point but really don't work. So the system is structured such that it discourages innovation. And that's a real big problem because many of the bureaucrats are actually very well qualified, have very good ideas, but they're trapped in this dysfunctional

organizational structure. And as a result, their good ideas never get into play. You had an inside perspective on China, both as Secretary of Commerce through your meetings with Chinese leaders and also through your relationships with American CEOs doing business in China. How do you see China? China is going to grow. China is going to, at some point, if our policies continue and if theirs do, at some point, it'll be as big as we are or possibly even bigger than we are. That's probably just a fact of life. The question is, how long will it take them to get there and what will be the methods by which they get there? I think if it's a level playing field, that's fine. We should be up for competition, whether it's from China, whether it's from Japan, or whomever it's from,

should not bother us as long as it's a level playing field. And unfortunately, China has adopted a practice of making it a very un-uniform trading field. So that was what Bob Lighthizer as our trade rep and myself and others in the administration were trying very hard to resolve. And I must say, Gina Raimondo, my successor at Commerce, has done a pretty good job following through on the same kinds of principles that we had, and in some cases even going further than we were able to get to. So that's one part of the present administration where I think there's still room for improvement, but at least is headed in the right direction. Let's talk about Donald Trump.

You first met him when you were in a bankruptcy claim against him, and yet he subsequently named you Secretary of Commerce. And you essentially had been your own boss for many years, and you hadn't had a boss before you became Secretary of Commerce and having Donald Trump as your boss. What was it like to work for him him and how did you navigate his personality? Well, first of all, I knew him much better than most of the people who came into the administration for the very reason that you mentioned. I had first had dealings with him way back in 1990. So that was a long time before. And then I had subsequent dealings with him over the years. And in fact, on some occasions, I was actually on his side of the equation against other parties. And while he certainly is a complex personality, he is very, very smart and is very, very in tune with what's going on and what the country needs. Early on in the primary season, I was on Squawk Box one morning.

And at that point, most of Wall Street was not supporting Trump. So they asked me, if Trump is the nominee, would you support him? And I said, well, of course. reasoning was. And that led to me getting into the campaign in a fairly big way, helping them raise money. And maybe more importantly, I wrote quite a lot of editorials for them, mostly in regional newspapers. And I also was their surrogate at debates with some of the left-leaning think tanks. So I got pretty involved. And that is what ultimately led to his selection of me for the job that I was doing. What was it like to work for him? It's complicated because he is trying so hard to accomplish so many good changes at once that you have to hold your breath while you're going on this very rapid ride. For example, the first day that I was in the Oval Office after having become Cabinet Secretary, he started out by showing me two ceremonial pens.

One was a big, fat one, and the other one was much skinnier. And he said, which of these two pens do you think is better to use for the ceremonial signings of legislation? Knowing his penchant to do things large and bold and scale, I naturally picked the big pen. And he said, well, I agree with that. But there's also another difference. I'm only paying $5 for each of these pens, having the government pay $5. The prior administration was paying many times that for the skinny little pens. And so it was strange in one sense that that would be one of the things on his mind. But I learned he often speaks in metaphors. And that was a metaphor for reminding me of the importance to get the budget under better control than it had been. He then went on to talk about the forthcoming NAFTA. We had a big, long discussion of that.

And when he got enough of my views there, he then reverted to conversation where he said he had just gotten off the phone with the CEO of Boeing and he knocked down the price of the two Air Force Ones that were then on order by a couple of hundred million dollars. Now, if you weren't accustomed to dealing with them, you might say, well, this is just skipping all around. There's no focus. But each of those three discussions had a reason. The first and the third one were meant to make very, very clear to me

that it was so important to run the government more efficiently. And then the one in the middle, which took up most of the time, was one of the center points of this whole administration, which was dealing with the trade issues that we have. How optimistic are you about America's future? Well, I'm optimistic about it in several regards, and I have one really big worry. To me, the optimism that has always characterized America, the entrepreneurial spirit that has always characterized America, and the innovation capability that has also always characterized America. I think those are still pretty well in place. But what has been happening, in my view, is the educational system has been failing the young people. We're not teaching them the things that they need to know.

In terms of the lower grades, one through eight, we rank generally around 30th in the world in fundamental subjects like reading, like writing, and arithmetic. If you're going to remain the number one country, you can't afford to be 30th in the quality of your educational system. And when you get to the high school level, in some ways it's even worse. So I think that our greatest weakness is that we are not properly educating our people for the world that's becoming ever more technological. And so if we lose out in the contest for world power,

it's going to be our own fault. So that's my one worry, that we will make self-inflicted wounds that accelerate the process of the country no longer being the dominant power. I'm much more worried about that than I am about China or Russia or Iran. What are the three takeaways you'd like to leave the audience with today? First of all, I believe that both from an economy point of view and from a national defense point of view, the world was in pretty good shape under Trump. You didn't see as much activity by the Iranians, by the Chinese, and by the Russians as you're seeing now. And I think the reason is Trump was known to be someone who would respond very, very strongly if they pushed him too far. Not that he's a warmonger, not that he's a bomb thrower, quite far from the fact, but they knew there would be a breaking point where he would really let them have it.

He's not going to be one who wants to start a war. He would want to end wars. But at the end of the day, I believe that if he has to, he will react very forcibly to any kinds of incursions that other countries make on our sovereignty and our national defense. Kamala Harris has indicated that she likes the idea of price controls. I think price controls have been thoroughly discredited time after time. There is no success story anywhere, anytime to price controls. Her interest in it, I think, really amounts to a confession that the Democratic policies are going to be wildly inflationary. And her answer to how she will overcome that apparently is, oh, well, don't worry, I'll just put in price controls and cut out price gouging. Not going to work. The third takeaway is that despite all of these issues and despite the things that

we have to overcome and the opportunities that we have to create from what otherwise are adversities, that Winston Churchill will prove to be correct when he said, the Americans usually come out with the right answer, but only after they have explored every wrong answer that they can think of. I think we've been going through exploring some wrong answers, and I hope we're right on our way to getting the right answers. And we are resilient because at the end of the day, the only person who can hold you back as an individual is yourself. And I believe the only way that America can be held back is by itself if it makes mistakes in policy.

Thank you. Thank you, Wilbur, for your service in government. Thank you for your time today. And I very much enjoyed your book, Risks and Returns. Thank you very much for having me on. If you're enjoying the podcast, and I really hope you are, please review us on Apple Podcasts or Spotify or wherever you get your podcasts. It really helps get the word out. If you're interested, you can also sign up for the Three Takeaways newsletter at threetakeaways.com, where you can also listen to previous episodes. You can also follow us on LinkedIn, X, Instagram, and Facebook.

I'm Lynne Thoman, and this is Three Takeaways. Thanks for listening.