Founders - #63 The King of Oil: The Secret Lives of Marc Rich

Episode Date: March 10, 2019

What I learned by from reading The King of Oil: The Secret Lives of Marc Rich by Daniel Ammann.----The spot market for oil was one of the most lucrative ideas of the twentieth century. [0:01]the historical events intertwined with the career of Marc Rich [5:15]how his family escapes the Nazi's [12:00]his first jobs + learning from his father + finding his vocation [14:30]learning the commodities business from A to Z [20:00]his work environment was training for entrepreneurship + how he thought about the opportunity in oil [30:30]Marc gets screwed on pay so he starts his own company [35:00]why Marc chose Switzerland as the headquarters of Marc Rich + Co. [37:00]why the invention of the spot market was important [43:00]why Marc Rich thought he was exempt from Jimmy Carter's executive order [46:15]the state of his business in 1990 [1:01:00]how to lose $172,000,000 [1:14:00] ----Founders Notes gives you the ability to tap into the collective knowledge of history's greatest entrepreneurs on demand. Use it to supplement the decisions you make in your work.  Get access to Founders Notes here. ----“I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested so my poor wallet suffers. ” — GarethBe like Gareth. Buy a book: All the books featured on Founders Podcast

The spot market for oil was surely one of the most lucrative ideas of the 20th century. Back when Mark Rich first began to snatch away a part of the global oil trade from the mighty oil corporations, crude oil cost $2 per barrel. In the summer of 2008, a barrel went for a record $140. Mark Rich's undertaking was revolutionary and highly successful. In the 1970s, Rich and a handful of trusted partners single-handedly managed to break the cartel of big oil, a cartel that dominated every aspect of the oil trade from the well to the gas pump. They created the first fully functioning competitive market. They invented the spot market.

Thanks to the oil trade, Rich, who came to the United States as a poor Jewish refugee boy, became one of the world's richest and most powerful commodity traders. He advanced to become the undisputed king of oil. The high point of Rich's power was soon followed by his fall from grace, a fall that cost the billionaire his reputation, his wife, and his company. Mark Rich is not known the world over as a result of his amazing entrepreneurial achievements, which were many. His name does not ring a bell because he was a unique pioneer of globalization, which he was. His name is not bound to the realization of the American dream, even though he rose from a penniless European Holocaust survivor to become one of

the richest men in America by the strength of his own will. Despite his fabulous wealth, Rich lost control over his own name. Today, the name Mark Rich means the billionaire trader who fled the United States in 1983 to avoid charges of tax evasion and making illegal oil deals with Iran during that hostage crisis. Who is this man who led a life of high stakes and high risks? Who is this man who saw wars and revolutions not as curses but as business opportunities? Who is the man who saw wars and revolutions, not as curses, but as business opportunities? Who is the real Mark Rich, the man who managed to elude the agents of the most powerful nation on earth for nearly 20 years? Okay, so that was an excerpt for the book that I want to talk to you about today, which is The King of Oil, The Secret Lives of Mark Rich. And before I do that, welcome to Founders. My name is David,

and the idea behind this podcast is very simple. Every week, I read a biography of an entrepreneur, and I try to find and pull out ideas from their life experiences that we can all use in our lives. So I have a lot of notes for this book, so we gotta get started. But before I jump into the rest of the book and the ideas I wanna share with you, I just, as a reminder, this podcast is ad-free and independent.

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to the entire back catalog, which I think is, I think I have notes from like 200 different founders by now. So please, if you do give value from my work, please subscribe and support it financially. I would appreciate that. Okay. So let me just, I have to get into the body of the main part of this podcast because this story is insane and I have way more notes than I normally do. Let's not waste any more time. Let's just go ahead and get right into The Secret Lies of Mark Rich. This is what the book hopes to answer. How did he and a handful of business partners seem to appear out of nowhere

and go on to dominate global trade in oil and other commodities? What were the crucial decisions, the milestones in his unlikely career, and how far did he have to go in order to reach them? What were his limits? What were his greatest successes and his worst defeats? What drives him and what can be learned from his entrepreneurial skills? Okay, so we're going to reflect back on his career and then we're going to travel back in time to his early life. But this is just, I have to include this part because the historical events that were intertwined

with the career of Mark Rich are insane. So let me give you some examples. Rich's is one of the most amazing careers of the 20th century. A career that is tightly woven with great events in world history. Fidel Castro's revolution in 1959, the decolonization of Africa in the 1960s, the Yom Kippur War and the oil shock of 1974, the fall of the Shah of Persia and the seizure of power by the Ayatollah Khomeini in Iran in 1979, apartheid in South Africa in the 1980s, and the crumbling of Soviet Union in the 1990s. Mark Rich and his business partners were on the scene when these events happened.

Mark Rich is the apocalyptic pioneer of globalization. There's no way I pronounce that word correctly by the way The pioneer of globalization And an architect of the modern System of commodities trading He is the inventor of the Spot market without which Modern oil trading would be

Unthinkable So they're going to now tell us a little bit about What was the world like before This invention so he before this invention. So he made this invention before I was even born. So I've only grown up in a world after the innovation that Mark Rich created. And it says, at the time, only around 5% of the world's oil was freely traded according to the law of supply and demand, whereas the other 95% changed hands according to long-term contracts and at

fixed prices. Since World War II, the global oil market had been dominated by the Seven Sisters. That's the name for the leading international oil companies at the time. And he says, this is how the author describes what the Seven Sisters are, or were, I guess. This cartel of multinational oil companies took its strongest beating from mark rich and company that's the name of uh mark rich the the main company but i'll get into later how he he had a very like tangled uh web of and a way to hide like a lot of his activities and again a lot of the stuff he did was legal um but he definitely he definitely found the value in being secretive. Okay, so it says,

they took his strongest beating from Mark Rich and company, a small company founded in the Swiss town of Zug in 1974. It is as if a small software company were to suddenly wrestle away Microsoft's market position. In next to no time, Mark Rich and his four business partners managed to achieve what all commodity traders admire and strive for. They created a new market for products that until then either had been traded in very small amounts or had not been traded at all.

So that's kind of the holy grail in a lot of entrepreneurship, actually, the creation of an entirely new market. So they managed to create an independent distribution system that bypassed of the holy grail in in in a lot of entrepreneurship actually the create the creation of uh of an entirely new market so they managed to create an independent distribution system that bypassed the seven sisters rising demand led to higher prices for consumers and rich can be found can be found at the very beginning of the oil boom that followed he began trading modest amounts of tunisian crude oil at the end of the 1960s, which also sparked the emancipation of the oil producing countries. Increased competition among the multinational oil companies meant that producers can now demand more for their natural resources than ever before. And one of those reasons is because they had way more places to actually sell that oil. He says, less than 10

years after it was founded, Mark Rich and Company was the largest and most profitable independent oil trading company in the world. By the mid-1980s, we were already trading 1 million barrels of crude per day. Mark Rich and Company soon became the largest commodities trading company in the world, trading not only oil, but also all types of metals and minerals from aluminum to zinc. Okay. So that's kind of like the outcome of him going out and starting his own company. But I want to go back in time. So we're going to learn more about like his early family life because they referenced his family had to escape Europe. They had to actually escape Hitler's Nazi Germany. And then we're going to talk about his first job.

And, well, let me get into a little bit about his personality first, actually. So he says, I'm driven. So let me actually give you more context before I even go there. So Mark Rich was famously secretive. There was only like one picture for like 20 years. You couldn't even find a picture of this guy. And it wasn't until near the end of his life that he finally agrees to sit down with the author, who's actually a business editor of a highly regarded Swiss weekly newspaper.

And he studied Mark Rich for years. And then finally, after like a decade of asking, Mark agreed to be interviewed. And so we're going to hear a lot directly from Mark. And this is like these interviews and the time and all the research that Daniel did, Daniel's the author of the book, is the foundation of the biography. So we're going to see some direct quotes from Rich throughout the book, and this is one of them. And he says, I'm driven by what drives most people, ambition. Mankind has developed through ambitions.

Some wanted to climb higher. Some wanted to run faster. Some wanted to fly. Others to dive. I wanted to succeed in business. In order to achieve his ambitions, he traded with anyone who would trade with him, be they dictators or Democrats, communists or capitalists. Okay, so let's get into his early life. And this is, before I get into his early life, this is just him reflecting it towards the end of his life. Like, who is the person who influenced his life the most?

And this is the answer, Mark's answer to that question. He says, my father is definitely the person who influenced me the most. We fled from Belgium and he managed to build up an important business from zero. He actually did that twice. He then begins to tell me a story. This is now the author saying, a story of poverty and riches, power and morality, politics and genius, his story, and in many ways the story of oil in the past and the future. Okay, so this is a little bit about how they escaped the Nazis.

By May 8, 1940, there was real cause to fear that the Nazis would bring the whole of Europe to its knees. And so David Reich, David Reich is his father. They changed their last name when they came to America. David Reich spent virtually every—oh, this is such a smart idea. I mean, in hindsight, really—one of probably the most important decision that David Reich makes in his life. So he's seeing, you know, this rise of Nazism around him, this anti-Semitism around him, their Jewish family. And so David spends virtually everything he had in order to buy a used car. It was a prudent move for Nazi Germany commenced its push westward two days later.

So two days after he buys his car. He buys the car before Nazis move. He says, my father put us on the car. We started to drive away. I saw the German planes. I heard the bombings. The German attack and the hasty getaway are his first real memories mark's first memories the fear the confusion the uncertainty the trauma of flight

and loss of home were etched into the mind of the five of the five-year-old boy this is actually actually probably important to his life because he's always always felt like a very much an outsider like he didn't really have a country um and so a lot of that came like he's some people like um might disagree with with the decisions mark makes but he's pretty pragmatic and he just looked at at himself as somebody that just provides a service and never really got involved in politics and i think part of that is because you know he never really stayed in one place for a very long time um so it says thousands thousands of Belgians tried to save themselves that day by heading into France. Their escape to France saved the Reich family from the Holocaust.

As the Nazis, the Nazis? Nazis? The Nazis. I just did the Brad Pitt accent in Glorious Bastards there. The Nazis captured Antwerp eight days later so that's where they were living uh so his father was had unbelievable foresight to get out because eight days later they um they captured the town and i think they go on to say that nine out of the ten jewish people um that lived in that town were killed by the germans um so So then this is a little bit more about his personality. I was just kind of referencing this. Rich would always be an outsider,

someone who neither belonged to the establishment nor wanted to. So this is obviously not, like he's not the only one that feels this way. I would say most of the people that I've covered on the podcast so far have this personality trait. It kind of echoes what Yvonne Chouinard says. If if you want to understand the entrepreneur you have to study the juvenile delinquent um okay so now we're going to get into his first jobs he's in uh america and his father starts a let's see a jewelry store and it says 11 year old mark hung around and helped out in his father's shop i did everything and anything i put price tags on the jewelry and helped to clean and sell it. The wheeling and dealing, the bargaining and selling appealed to him.

It was there in his father's little shop in Kansas City that he started to develop an interest in business. And then he talks about what he learned from his father. My father had a knack for success and an uncompromising work ethic. So his father, it's also very, remained very open to different opportunities. So he gets the opportunity to sell his business in Kansas City. He moves to Queens, New York. And they just, you know, we always talk about the value of niche businesses, especially in the age of the internet. Well, this is a hell of a niche they found. This is what, in the early 1950s? So he sets up a business and its main activity was importing Bengali jute. I don't know if I'm pronouncing that correctly. I don't even know

what it is. Bengali jute to be used in the manufacture of burlap bags. The early 1950s was the best time to invest in jute. And this is why. This is interesting how his father made some money off of when there's like tragic events like war and such because that's very much the case of the son later on. So it says the early 1950s was the best time to invest in jute. Truths from the communist North Korea crossed the 30th parallel to south korea on june 25th 1950 thus making the beginning of the korean war

so the united states and 15 other foreign nations intervened and the three-year war offered david rich now he's already changed his name a stroke of luck the army needed a large quality quantity of burlap for making sandbags and demand outweighed supply mark rich worked in his father's office before and after school he's a teenager at this time the booming burlap business taught the teenager two lessons products can be sold for a better price when there is a shortage and crisis and wars can also offer business opportunities. He also never forgot how his father achieved his success. He made contacts, established trust, worked hard, was reliable,

and adjusted quickly to changing circumstances. And he had no qualms about seizing a business opportunity when he found one. That's a pretty good one-paragraph description of the career of Mark Rich. Okay. So he gets a job at this place where he's going to stay for a long time. And it's a small commodity trading house called Phillip Brothers. So Phillip Brothers is important to this story because he spends 20 years there. And he learns a lot. So basically he's learning the business of commodities from A to Z. And this reminds me of – it's interesting.

I can never predict. I think there's interesting things in all these books I read, but I usually get feedback just randomly about specific podcasts. And one of the ones I've received the most positive feedback on was the Founders episode on Samuel Zemuri. And it was based on the book The Fish That Ate the Whale, basically how he starts off as a penniless kid that sells the rotting bananas before they rot completely. And then over the course of his life, builds a company into the largest producer and seller of bananas. And anyways, the reason I bring that up is because one of the quotes I remember from that book that sticks to me even to this day is,

Samuel Zemuri says, there's no problem you can't solve if you know your business from A to Z. And we're kind of seeing that Mark benefited from working in the industry for so long and doing it literally from the ground up, which I'll get into in a minute. And it kind of, it's amazing how meteoric his rise was after. And I talked a little bit about on Twitter, if you're not following the show, you can follow the show on Founders Podcast. It's at Founders Podcast on Twitter. There's where I tell you which book I'm working on, and then I tweet out any interesting things, and one of the interesting things was, and I think I'll cover it, it's a note that I have to get to, but in 19, the years might be wrong, let's say 1973, he was an employee at

Philip Brothers, he's made $100,000, 1974 starts some company the company makes 28 million in profit he's got partners so it doesn't all go to him but still you see the drastic difference the next year they make 50 million and the year after that but they make 200 million dollars in profit okay but before he can do that he's got to learn the best the business and he was lucky because the book says he had the best teachers in the business. So this is Rich talking about his time at Phillip Brothers. He says, I was working hard and long hours. Rich only had one thing on his mind at that point,

to get out of the mailroom and start trading. So everybody has to start at Phillip Brothers in the mailroom. So it says, after a few months in the mailroom, the traffic department was the second stage for all apprentices in the learning by doing system at Phillip Brothersip philip brothers so he starts doing well in that department he was later sent to the docks by himself to supervise the goods being unloaded inspect the weight and quality and check the invoices he finally began to handle the trading transactions this is kind of similar to if you remember the podcast i did on Mike Ovitz, how he wanted to get into the talent business.

And he had to start out in the mailroom. And then I think he wound up, you know, it's supposed to take four or five years to progress. And he did it in 18 months. So Mark progressed rapidly. And we're going to see that in a minute. So Rich learned how to become a commodity trader from the ground up. And then Rich talks about, like, why he was fascinated, why he wanted to dedicate his life to this business.

He says, I was fascinated by the size of the market. Take oil or aluminum. You can find those materials in almost any product you touch. The whole world needs them, from east to west and north to south. From the very beginning, he was an astute and knowledgeable trader. There was one main reason for his success. He had specialized in a niche product, one that in the mid-1950s was only traded in minute quantities, mercury. It's kind of echoing what his dad figured out, right?

It just says, talk to commodity traders and sooner or later you'll hear an expression that is inevitably spoken in the tone of reverence to create a market i would say entrepreneurs probably feel the same way a lot of entrepreneurs feel the same way it is a trader's lifelong goal to match producer with consumer and find a buyer for a commodity that has previously only been traded very little the capacity to analyze the situation thoroughly and recognize trends quicker than the competition they're talking about like what the skills you need to do so he who who is sitting on a commodity without recognizing its complete potential how do technological developments or political events such as wars affect the demand for commodities crude oil to take an example was processed for lamp oil and tar for centuries before its monetary and strategic value was changed drastically

by the invention of the gasoline engine in the late 19th century. That's actually really interesting. To see the opportunity is the most important thing as a trader, Rich told me. At the time, mercury was used predominantly in thermometers, batteries, and detonators. Trading was consequently limited

and the prices were low. Having analyzed the global political situation, he had come to the conclusion that Mercury would soon be in great demand. Now, keep in mind, he's doing this in his early, early 20s. I think he's like 21 or 22 at the time. When Rich started trading in Mercury, all the indications were pointing to war. He called any producer who had the slightest connection to mercury in order to buy the stuff he located his first source at the spanish mining

company and then the name of the company's not important so i'll skip that before long he had established a good relationship with producers and consumers and was regarded as an expert in the mercury trade meanwhile the demand for the commodity soared and the United States government, which commenced a rearmament program that saw the Air Force and Army increasing their stocks of mercury by over 50%. And as one could imagine, it says the United States bought these commodities in huge amounts. Rich was now the man to see when it came to Mercury.

It was his first business coup and it earned significant profits for Phillips Brothers. So Phillips Brothers had offices all over the world, even though they were a much smaller company than Mark Rich and Company turns into. And one of those was they were doing business with the government in Cuba

before Fidel. And this is right before the revolution from Fidel Castro. And they basically lent, they had lent the previous administration a couple million dollars, or excuse me, 1.2 million dollars, because they're trying to mine this stuff called pyrite, and that was substantial for Phillips Brothers, because they were all, at the time, they were only making about six million dollars a year, so they didn't want to lose the money so after the revolution happens they send rich to havana to try to get the assets to make sure like the castro regime was not wouldn't just take it so says the 24 year old rich flew to havana shortly after the revolution in order to negotiate with

the new regime so he had he winds up staying there for a long time about six months just trying to negotiate with them and at he's successful he recoups all of he gets all their money back that philip's brothers in fact doesn't lose any money he starts making money in in cuba but this the reason i bring the story up is because it's an insight into like the how the mind of mark rich works he's just like people like how did you do this and he's just like it's pretty obvious to me. So he says, Rich analyzed the situation. What did Castro and his government need most of all? They needed hard currency.

They needed international contacts. They needed jobs. Castro must want to continue production at the mine, which would both ensure jobs and bring currency into the country. Rich thus devised a creative solution that initially appeared foolhardy. I offered to inject fresh money. The Cubans liked the idea.

It allowed them to continue with the mine, and I was able to recover the entire amount of our initial investments. So that's what I mean. A lot of times when people are like, well, how did you – because in many cases his company will have contracts with one company – or excuse me, with one country, and then that government will be completely dismantled and a new government will be put in.

And almost every single time, if not every single time, the new government continues to do business with rich. And they're like, how is this possible? Like I'm providing a service. These guys don't like, they're taking over for usually like fundamentalist reasons, but they don't know how to, like they have a resource, but they don't know how to make money on it.

So they need somebody that does that service. I have the contacts. I can buy the the product i can find them a buyer i can ensure transportation i can do all these things so why wouldn't you um so again that's just how kind of look into his mind um so it says despite the embargo rich never stopped trading with the cuban regime rich flew regularly to havana until the February 1962 trade embargo. Cuban business was subsequently conducted via the Madrid office. That's the office in Spain owned by the Phillips brothers. And it says the most important raw materials rich traded with Cuba up until the mid-1990s were typically pyrite, which I could be pronouncing incorrectly, and copper.

These were followed by magnesium ore, which was important for steel production, and nickel. So it's because of these two successes, the Cuban recouping all their money in Cuba and then making them tons of money in the mercury trade, that Phillips Brothers offered Rich at the age of 30 the position of Madrid office manager. Rich did not hesitate for a second. So that's another thing to – most of what i'm going to cover here on the podcast today is about like his business um but there's several chapters of the book that go over like the legal case against him uh this entire chapter going over like what was bill clinton's rationale for parting him which is how i came to know him. I just knew that he got pardoned and that people

were upset about it. But, and I'll share some of like the feedback that the author has, because he spent time interviewing all the parties involved. And, you know, this is 20 something years after this happened, because this happened in the early 1980s and he published a book in the early 2000s. But there's a lot of stuff i didn't know i just again heard about it's like oh this guy's trading with iran like but it's not at all clear basically the author leads you to believe that there's a ton of reasonable doubt it was very unlikely that the case against mark rich would have ever um led to a conviction and um and he makes a pretty compelling case that a lot of the people that were against Mark Rich were using him as a scapegoat for their own political purposes,

including pulling up marketing that the attorneys involved used to describe themselves for other opportunities. So again, I'm not going to spend too much time there, but there is going to be some of that that I'm going to tell you about because it adds context to the story um but the reason i bring that up is because one i didn't know that he wasn't an american citizen anymore i didn't know that his company was based in switzerland um there's just all kinds of stuff i didn't know and when you factor that in you're like oh wait this this what got told in the media and and assuming that the author is correct in his research, very vastly different. So I'm always interested in that, where what's in public and what actually happened, the difference between the two, I find that fascinating.

Okay, so this is the dichotomy of Mark Rich, though. So he's in Madrid. He's Jewish, right? He comes from a Jewish family. They had to literally lose everything because of certain governments' anti-Semitism and the desire to kill them. So in Spain at the time, he's going to be trading with people who are sympathetic to Nazi Germany, even years after the fact. So this is the dichotomy of Mark Rich.

And he talks about this guy named Franco, who was the, let's see. Well, actually, let me just read that part to you. So it says, the fact that the Jewish businessman and the ultra Catholic professor should become friends remains one of the paradoxes in Mark Rich's life. It is certainly surprising that Rich had such a great love for fascist Spain. He actually becomes a citizen of Spain and teaches his daughters to speak Spanish. So this guy, Franco says, Francisco Franco owed his victory in the Spanish civil war, mainly to support from Nazi Germany. So Mark's going to do business with this guy. So that's the dichotomy of Mark Rich here. He says, Rich was not concerned about Franco's

policies. Mark didn't care about it. He didn't care about politics, only about business and making money. This is one of Mark's strengths. This is one of, these are quotes from one of Rich's old friends. This type of neutrality has proved to be an advantage to Rich's success in business. Although some might label his attitude immoral.

So that's where he just looks at it. It's very pragmatic. He's like, listen, I have no influence on their politics. I'm just here to provide a service and I charge for that service. So it just depends on how you think about that. Some people are like, okay, well, that's pretty straightforward, pragmatic thought. Other people consider that, like the author just said, amoral or even immoral so i'll it's up to you to decide how you feel about that um okay so what i found interesting about this time and all the um like the the like everything he was learning about philips brother i think his work environment was uh was a good training ground for for his later entrepreneurship

and so i want to go into that and then i want to tell you about how he thought about the opportunity in oil. So it says, Rich was lucky in that Phillips Brothers was not organized along a strict set of rules. There was no first come first served rule, for example. Whoever had the better ideas, better contacts, or just better luck was the one who could make the deals. Displaying the same persistence and determination

that would always set him apart from other traders, Rich set out to take on the oil business. Now we're going to get a quote from Rich here. Oil was a product that was moved in huge quantities and had a big value, but it hadn't been traded in a transparent and competitive market. I just thought it should be possible to trade oil

despite the seven sisters. And then he summarizes like his kind of modus operandi here if i see a situation in the market and it makes sense to me then i do something about it um let's see okay so i already told you that oil at the time was not traded to free market according to free market principles there's very little latitude for price dynamics and oil producing notions sold nearly all the oil to the seven sisters at fixed prices agreed upon far in advance usually years in advance so it says the seven sisters domination of the global oil trade after the second world war extended vertically as well as horizontally they controlled every aspect of production and distribution ranging from

extraction at the well refining and transport to the gas stations where the oil was sold as gasoline the seven sisters form what economists call an oligopoly, a situation that exists where there are only a handful of suppliers that dominate the market. They were able to dictate prices independently of the forces of supply and demand. And I just think that if you're trying to encourage more entrepreneurship, more people being able to do their own thing, I think you want to avoid instances like that where you can have these kind of fake markets

that are acting independently on supply and demand. Okay, and he just talks about, this is now we're getting into his biggest invention, where he makes his most money and why he could be as most well-known outside of his legal troubles. And just came down to, he really thought he was just the right person at the right time. So it says Phil's Brothers had this German motto,

and it translates to, it is better to sleep well than eat well. And so we're going to go into a little bit about that. So it says, if principles drummed into employees, that it was better to avoid a lucrative deal if the risks involved were high enough that they might endanger the entire company. So they're trying to limit their exposure to tail risk, which is actually smart. In this respect, Mark Rich was more aggressive than his bosses. And it was this fear of risk, among other things, that would later lead Rich to leave Philip Brothers in order to found his own company. I was the right person in the right place at the right time. I was working in a commodity trading house, and the oligopoly of the Seven Sisters was coming to a halt.

Suddenly, the world needed a new system of bringing the oil from the producing countries to the consuming countries. So that's exactly what I did. Rich realized that if the oil-producing countries wished to break the dominance of the corporations, they would need independent traders like him. They simply did not have the means, the marketing know-how, the established distribution channels, contacts to the refineries,

and the market of the oil themselves. Rich knew that he could offer all of these by utilizing Phillips Brothers' worldwide organization. He wanted to repeat the success he had enjoyed trading mercury he wanted to create a market it's very interesting that he's trying to do this within phillips brothers kind of speaks that he was happy there he didn't i don't think he ever really thought about um starting his own company it's just he gets well i'll get into it right here and what i um i talked about this on twitter i think the moral of the story here is you need to pay your talent.

And so he gets screwed on pay and decides to start his own company. And so they wind up trading in oil. He invents the spot market to make a ton of money, right? But the money is going to the company. And it says Rich and Green, Green's going to be his partner, not only at Phillips Brothers, but when they actually leave and start their own company together. So it says Rich and Green's trade in oil alone earned the company between $4 and $5 million of profit in 1973. Mark Rich did not earn much more than $70,000 per year at the time.

With his bonus, it was possibly $100,000. After racking up such amazing trade successes, Rich came to the conclusion that $100,000 was nowhere near enough. He demanded a bonus of $500,000 for himself and the same again for Green. My request was influenced by what I knew the company was making, Rich said. So he meets with the company founder in many ways, like basically his mentor for 20 years, this guy named Jesse Wilson, whatever. His name's not important.

But the founder of the company just offered Rich $150,000. And Jesse Wilson said he refused to pay, he refused on principle to pay more than $150,000. And Jesselson said he refused on principle to pay more than $150,000. And so Rich says, so I had to leave. I didn't want to leave. I'd been there for 20 years. I liked the company. I always thought that the company would be my career for the rest of my life. But Jesselson got stuck on the principle. As soon as the meeting was over, Rich phoned Green, and Green didn't hesitate. I told him that I didn't reach an agreement with Justelson. Pinky, his nickname was Pinky, Pinky did not hesitate for a second. So we're going, he said. That one telephone call would mark the beginning of the most successful commodities company the world had ever seen. Okay, so this is where I meant like there's a lot about Mark that I just

didn't understand. And so I thought he was living in Spain at the time. He's also traveling everywhere. But this is the story of the founding of Mark Rich and Company and then why he chose Switzerland as the headquarters. So he says, we all liked each other and they felt that there was more opportunity to make money. To make money. This was a phrase I heard time and time again from Rich when he spoke of his own motivation or the motivation of others. Money was the prime mover. And then so it says, on April 3, 1974, in the Swiss town of Zug, Mark Rich and Company was founded. The five partners brought a total of 2 million Swiss francs and seed capital to the table.

Rich borrowed money from his father-in-law as well as his own father. So that's how he's getting set up. And then I was like, why is he in Switzerland though? So he's going to lay out exactly why. It was no accident that Rich chose Switzerland as location for the headquarters of Mark Rich and Company. First of all, Switzerland is politically neutral

and in the mid 1970s was not even a member of the United Nations. Second, Zug is close to Zurich, one of the world's best and, thanks to a strong banking secrecy regulations, most discreet financial centers. Remember, he felt secrecy was like a strategic advantage. So it's saying, okay, first of all, they're politically neutral. They also are very discreet with their financial transactions. And finally, it's a tax paradise with comparatively low income tax rates and corporate tax rates by international standards. In the mid-1970s, a mid-sized American company had to fork over

nearly half of its profit to the IRS. In Switzerland, a company only had to pay around 10% in taxes. So when you're making hundreds of millions of dollars a year, that difference of 40% is massive, massive advantage. With its policies of low taxes and simplified bureaucracy, both initiated after World War II, Zug managed to attract international companies and become an international center for trade and services. First came the American companies in the 1950s and 1960s, and Phillips Brothers was one of these American companies, the company he was working for.

These were followed by German and British companies in the 1970s and 1980s, and since the 1990s, Zogg has attracted an increasing number of Russian companies. Zogg seems to be the perfect example of supply-side economics and practice. The inhabitants of the canton of Zug had struggled for centuries, this is the interesting part, to make living from their dairy industry and livestock breeding. Yet the canton is today one of the richest in Switzerland. In March 2009, it had an unemployment rate of only 2.5%.

Okay, so now he's up and running. And this is the remarkable first year of the company where he referenced earlier that he just felt, and a lot of times he was just at the right place at the right time, kind of outside of his control, and this is one of them. The oil shock of 1974. It was a good time for a commodities trader who wanted to go into business for himself.

The world had been changed forever by the oil embargo imposed in the wake of the Yom Kippur War and skyrocketing oil prices. These developments led to the world's first oil shock, a shock that would have serious economic consequences the world over. It was a fabulous time for Rich and his partners. Mark, Rich, and company was simply swimming in oil, oil for which the U.S. and European oil companies were willing to pay a very good price. That's now a quote from Mark. It was a good situation for us. It was a shortage of oil, and we had the oil. So now I'm going to go over some of these numbers I referenced earlier.

From the company's first days, Mark Rich and Company's financial success was nothing less than astounding. Remember, the year before, he made $100,000. The year after, in 1974, the company's first fiscal year, it had a turnover of more than $1 billion while reaping a net profit of $28 million. The company's profit in 1975 was $50 million, and it went on to earn what was an unbelievable $200 million in 1976.

And then it's saying, well, how does this even happen? It says the market reaching, well, first of all, you're beneficial because you have a huge amount of instability in the market you're just having to reinvent at the time. But it's also, Mark Rich and Company operated according to a completely different philosophy than did phillips brothers it was more aggressive faster and more oriented towards a long-term contract so mark always talks about the competitive advantage of his company with speed and i want to get into this whole the whole time the book like there's so you know

everybody we study on this podcast nobody they're they're human, which means they all have flaws. So as a byproduct of that, when we're studying their lives and their decisions, we're going to learn a lot of like good ideas from their experience that we can then take and use in our own lives. Right. But you're also going to learn the shit not to do. And there's a lot of that in the book. Like it's, and I'll specifically call it out when we get there, but this is something that, well, you know, I'm not even going to say anything until I get there. Just know that the whole time he's got some good ideas, right? So long-term thinking. He probably uses the term long-term thinking 50 times in the book. Agree 100%. I think more of us should be oriented in that direction. But what I realized is like,

wait, yeah, it's nice that you have these long-term contracts when prices go up, but what happens when you have long-term contracts and the market's going in the other direction? And I've read enough about like financial markets and being fooled by randomness, et cetera, et cetera. And I was like, well, sure enough, that's going to happen to him later. So just remember I said that we'll get to a story in the future, but the whole time reading this book, I'm like, it's like, yeah, that makes sense. But it's only because the prices are going up. So anyways, we're going to get into it.

So it says, the partners recognized opportunities and followed up on them faster in the competition. They saw themselves as pioneers who were pushing forward into new territory, and they were interested in obtaining contracts that extended as far as possible into the future. Remember that. Ecuador is selling oil. Fly over there immediately and don't just buy the oil that is up for sale get the client to agree on a long-term contract Turkey is looking for oil fly over there right away and sell it to him pinky and I that's his partner again

pink and I flew to Houston to discuss an oil deal rich recalls on the way there we learned that Turkey needed oil pinky who once lived in Turkey instantly or interrupted his visit to Houston and flew to istanbul he concluded a very profitable transaction we were faster than everyone else and then i just want to um right in the middle of of this story they talk about something that i think needs to be like explicitly said because i didn't know you know i'm not i wasn't familiar what what it even meant like how do you invent a spot market? And why is that important regarding oil? So we're going to go into a little bit of that here. Thanks to the spot market, consumers were no longer dependent on a single company controlling a value creation chain that began at the oil wells and ended at the gas pump.

Now buyers could purchase oil whenever and from whoever they wished. A large number of offers would soon develop, and a buyer could look for the cheapest barrel in the spot market. From an economic point of view, the spot market was much more efficient than the Seven Sisters oligopoly. On the lookout for profit, companies attempted to find a niche at some stage of the process and remain as competitive as possible. The result was that from the mid-1970s onward, oil was traded more freely, more efficiently,

and at more transparent prices than ever before. So that's the important part. Tankers and refineries, the fixed costs, could be used more efficiently than under the multinational oil companies and governments thanks to independent oil traders like Mark Rich. Buyers for any possible surpluses could be found much more quickly and supply gaps were easier to fill. In short, supply and demand could be balanced much more efficiently. The spot market brought with it an increase in productivity that helped to turn the entire industry inside out. Oil was now precisely what Rich had predicted only a few years before,

just another commodity. Mark Rich invented the concept of the independent oil trade. That is why he is such an important person in the history of the independent oil trade. That is why he is such an important person in the history of the trade. And this is, I would say, Mark Rich's management philosophy. Rich did not put much stock in university education, but instead entrusted employees

with as much freedom and responsibility as they could bear. We throw young people into the swimming pool. Either they sink or they learn how to swim. I would say either people into the swimming pool either they sink or they learn how to swim i would say either they learn how to swim or they sink um so it says and then this is one of his uh employees who worked for him for 25 years he says he lets you do do it the way you see best it allows you to put your whole heart into it without any limitations he leaves you to decide using your best judgment i think that's the environment if you're truly

talented like that's probably even if you're working for somebody else like you're that's the environment you want to be in you want people want they crave autonomy and you can have that as an entrepreneur you can have that within an organization as long as the management structure reflects uh that that level of freedom that you want okay so this is the like this is part of the like i'm not again i just said i'm not, again, I just said, I'm not going to spend too much time on his whole case, but this is pretty black, again, kind of black and white here. Remember Mark Rich, he runs a Swiss company. He's a, he has, he's a citizen of Spain, Switzerland, later Israel,

and then he winds up renouncing his U.S. citizenship a few years after he found the company. But this is why Rich thought he was exempt from Jimmy Carter's executive order. And Jimmy Carter was the president at the time when Iran took the hostage. They stormed the U.S. embassy in Iran, and they held everybody hostage, right? So Jimmy Carter's like, listen, I'm going to sign this executive order. He says, President Carter's executive order, and basically saying, you can't, you know, trade with anybody, but there was an exemption. So it says, President Carter's executive order excluded any person subject to the jurisdiction of the United States,

which is a non-banking association, corporation, or other organization organized and doing business under the laws of any foreign country. So that part, organized and doing business under the laws of any foreign country. Mark Rich wasn't doing business under the laws, was not organized and was not doing laws under the United States. It was doing it under Switzerland.

Years before this event happened in Iran, right? Or Persia, I guess. I know, whatever. Rich believed that his Swiss company was exempt from the order according to this definition. The spring of 1979 saw the beginning of one of the 20th century's most

astounding business partnerships. Shortly after the revolution, the anti-Semitic, anti-capitalist, and anti-American regime of the Ayatollah Khomeini decided to do business with none other than the Jewish-American businessman Mark Rich. In the end, the new government, which had canceled most of the contracts signed during the Shah's reign, decided to trade with one of his most important partners. And this is why. This is now Mark talking about this time in his life. They respected the contracts. So their main state-run oil company there is the NIOC. They continued to sell Mark Rich and Company 8 million to 10 million metric tons of oil per year.

As stipulated by the contract, Rich had signed with the Shah's government. Remember, he goes back. He's like, I don't do business with people for one time. I do it forever or over the long term. So he had a long-term agreement with what before was Persia and now is Iran. They didn't have any objections, he says. And this is, again, an insight into how his mind works. He says, as if nothing at all unusual about the situation, I had asked him how he had managed to gain the trust of the new Khomeini regime, even though he had worked closely with the Shah's government. His laconic, and that's a great way to describe the way he talks,

answer helps to explain why traders such as Rich exist in the first place and why they were in such great demand. We performed a service for them, Rich explains. We bought the oil, we handled the transport, and we sold it. They couldn't do it themselves, so we were able to do it. And so the book also goes into, like, not only is the exemption of Jimmy Carter, his executive order, pretty straightforward,

but there was, like, American companies that were allowed to do this as well, and they list a bunch of them even defense contractors because they had uh like like different subsidies or they owned equity in different companies that were located outside of the united states so they wouldn't trade directly with an american company but there's american companies that had interest in these companies does that make sense um so i don't know like it's just i there was just so much more nuance to what i you know i spent nearly zero percent zero like no time looking into mark rich before i started reading this book so it's not like i had a well-formed opinion other than just what was reported about him but i find what we reported about him and what's in this book to be

vastly different and there's tons of examples of this too where it's just like another lesson of human nature. So think about what's going on here. They talk about the new government in Iran is anti-Semitic and anti-capitalist, right? And let's say you're reading the newspapers around this time in 1970s, 1980s, and they don't recognize the right to Israel to exist. They want, publicly, adamantly, we will not sell oil to Israel. We do not sell oil to Israel. money-making schemes that Mark Rich ever has is like there's a secret pipeline going from Iran sold to Mark Rich and they knew Mark Rich was selling that oil to Israel and it's like the

hypocrisy of fundamentalists where it's like they're they they they have these beliefs that they espouse in public and maybe they do it to gain support from a large group of people but privately they all take the money and that's what i find like so gross about like these people these people that desire to control other people and then are so hypocritical because you know and they're also lying so if you were alive and you're reading the newspapers like yeah iran doesn't sell the oil to israel they did they were selling like 10 million something like 75 million barrels a year. They were selling tons of oil to Israel and then lying to everybody while they're doing it. So I don't know. I just think it's like this obviously still happens today.

When you read the newspaper, like you were actually thinking you're getting well-informed news. Like what's the chances? We just know how humans are. And humans today are just like they have been. They were in the 70s just they were 2000 years ago. So I don't know. I bring that to people's attention because like don't think like like I don't want to be naive and think that this behavior stopped happening. And as least like there's no way I can ever we can ever find out like the real truth of

all the in the world's much too complex to do that. But it's just to be like just being skeptical is probably a good idea. Just like believe what you can actually verify. And when you have that kind of mindset, I just think that the amount of stuff that you can actually verify firsthand and therefore could probably believe is really small. So I don't know anyways um so it's what happens is mark is competing with a bunch of other you know commodity traders this time and some of them they they try to get they snitch on them to regulators and say hey look at this guy he's doing these um because at first it's

like a tax evasion case right and then during the research of the tax evasion they find all these deals with iran and then they they make that as hey you're trading with the enemy and so the note i left myself on this page is this case is bananas and i don't want i just want to be clear i have no idea what is true and what's not. I'm so far removed from it even after reading the book. I don't know. But I do know both sides are probably lying and both sides did some shady crap. So this thing is insane. So it says the spark in the powder keg was a dispute over business documents belonging to Rich's companies. So the famous Southern District,

the attorneys in Southern District of New York, which are involved in tons of high-profile cases, the other ones that are going to go after Rick. So it says the Southern District had begun subpoenaing millions of documents from Mark Rich International after he got snitched out by these other guys, and oil companies and resellers in the United States

that had done business with Rich. Mark, and this is the confusing part, and it's just the very top of the confusing part. So he's got this other company called Mark Rich International. So Mark Rich International was a Swiss subsidiary with a branch office in New York that paid taxes in the United States. They comply with subpoenas.

However, Mark Rich and company, his main company, as a Swiss company operating in Switzerland under Swiss law, refused to obey the order. The company argued that the Swiss secrecy law prohibited the company from producing documents. So if you know anything about Switzerland, you know that the reason they are considered neutral and they have, I would say, one of the most unique histories of any country the world over is like they really demand that you respect their sovereignty, which I appreciate. I like you should have the right. I mean, if you are, you know, you are organized as a country, you have borders, you have your own culture and customs and ways you want to do things like if especially if you're not a war, like why would other companies, countries be able to come in and kind of tell you want to do things. Especially if you're not at war, why would other countries be able to come in and kind of tell you what to do? So this complicates things

because Swiss is central to their identity. It says, nevertheless, District Judge Leonard Sand denied Rich's lawyers' motion to dismiss the subpoenas and ordered Mark Rich and company to produce documents located at the company's headquarters in Zug. This is crazy. When the company continued to refuse, Judge Sand ordered a draconian contempt fine of $50,000 per day

until the documents were delivered. The fine was applied beginning in late June 1983, even though the Swiss government protested the decision with unusual vigor as an unacceptable violation of Swississ sovereignty that fifty thousand dollar day fine they went to paying like i think it was like 21 million dollars or something

like that rich refused to pay the fine until later he secretly sold this is like again why are you doing this man he secretly sold mark richard international to alec some guy his close friend and one of the founders of the company who then ran the company under the name Clarendon Inzug. Judge Sand labeled the sale as a ploy to frustrate the implementation of the court order and threatened to freeze up to $55 million of Mark Rich and Company's assets in 20 American and European banks and other companies that owed Rich company money. Rich lawyers began to negotiate a resolution. Lawyers for both sides met in Judge Sand's apartment and discussed the case until late into the night.

They finally reached a deal just before midnight. Rich agreed to pay the New York court $1.35 million towards the fine and to produce court-ordered documents in Switzerland and pay off the remaining fines a future date. The agreement appeared to smooth all the ruffled feathers and it seemed as if the case would finally take on a semblance of normality. Four days later, however, Weinberg, one of the attorneys that is going after Rich, received a telephone call. A guy said, this is deep throat. He called out of the that mark richard's law firm and warned us the subpoena documents were being shipped out of the united states on a swiss air flight so that

his own law firm is is telling the prosecutor hey these guys are trying to get the documents out of the united states see this doesn't look good for rich weinberg could not believe his ears he cursed so loudly that his colleagues came into the office to see what was wrong he immediately sent a few agents to john of canada national airport and uh they actually the plane was already on the runway and ready for takeoff the police were able to stop the plane only minutes before its departure thanks to the tip-off from rich's own law firm agents recovered two steamer trunks full of business documents now rudy giuliani is working

there many of you might know who he is at the time he's an up-and-coming lawyer before he's a mayor of new york this is the media savvy giuliani had the trunks brought to judge sand's courtroom as physical evidence of rich's brazen behavior and immediately held a press conference to publicize the seizure by this time mark, Mark Rich had lost all credibility. As a result of the incident, a furious Judge Sand ordered that all of Rich's companies produce the subpoenaed documents by the following Friday. By Friday, Rich's flabbergasted attorney asked, we have 48 offices worldwide. By Friday, Judge Sand ordered. So I'm going to skip over a lot of that part because I don't, there's just too much like too much unknown, but there's this whole war going on between

the American prosecutors, Mark Rich, his attorneys, the judge and the Swiss government. And the Swississ government like they would have if they said hey he committed tax fraud then if you would just follow our procedures we'd do a provisional arrest of him and we'd be open to extraditing him but the swiss were very big on respect and they felt that like the way the attorneys would talk to government officials in Switzerland, they talked to them like they owned them and like they were their boss or something. And so they wind up not not complying. And then later on, they even call into question if they really wanted ever wanted to arrest Mark Rich, because there was things like the extradition thing, the extradition memo or whatever that's sent from one government to another. It expired and they never even

bothered to reassess it or resubmit it rather with the Swiss government. And so I don't know who's telling the truth here. So I have no idea. So I'm just going to skip over that part anyways because we want to focus on more of his business. But there's just a really good case that basically Mark Rich's mark rich's attorneys and swiss government saying that giuliani and weinberg were doing this just for political clout they use that to get into publicity then they use that in turn publicity to not only get better jobs some of the private market some of the uh like the mayorship of new york and else, but it was just like a sham all the way through. So if you're interested in that, read the book because it goes into, there's several chapters

where it just goes into all these intricacies. And again, I'm not an attorney, I have no idea, but they've got an entire chapter here named Rudy Giuliani's failures, including an offer, like he turned down an offer to have Rich arrested. And no one knows why he did that because in the public he was saying we have to get this guy he's on the fbs most wanted list etc etc yet in private he rebuffed an offer to arrest him and then a few years later they tried

to um the u.s uh some of the attorneys this is the weird part they're like it's a violation he violated the law we must go get him yet they try to kidnap him in switzerland even though that's a violation of international law so it's just like it's it's it's a wild story like this this this book is bananas um so anyways i just want to give you that context and again i just want to focus on a couple other things because it's kind of outside the scope of what we normally talk about in this podcast but it is a very fascinating and i a couple other things because it's kind of outside the scope of what we normally talk about in this podcast. But it is very fascinating, and I really enjoyed reading it because it reads like a James Bond-esque thriller. Okay, so here's a personality.

More about his personality. Rich is an acute observer and a man of few words with a soft voice and a barely noticeable lisp. He is always precise and to the point. There is something cat- This is such an interesting description. There is something cat-like about him, beyond his apparent nine lives. He cautiously keeps his distance and waits.

Okay, so I'm skipping over a bunch of pages, because that has to do with all the back and forth between the Swiss and the U.S. government. So this is interesting. So remember, he founds his business in 1974. He gets indicted by the United States in the early 1980s. But this is the state of his business in 1990, which I found very surprising.

Even though he was pursued by the most powerful nation on earth, which did everything possible to thwart his business dealings, Mark Rich was able to continually expand his company until it became the world's largest and most successful independent oil and metals trading company. In 1990, seven years after he was indicted in New York, he was active in 128 countries, had 48 offices around the globe, and employed 1,200 people. He bought and sold 1.5 million barrels of oil each day, more than the daily average output of Kuwait. He ruled over a trading empire with an annual turnover of $30 billion. The company earned anywhere from 200 million to 400 million in

profits each year. That's pretty crazy. Think about the amount of leverage, 200 to 400 million in profit with 1200 people. That's amazing. Okay. So this is one of his keys to wealth, where he talks about like what he feels is like helpful and success. And he's going to go into long-term thinking. And then he does this. I'm going to go into the limits of his opinion here. The key to success in real wealth is long-term thinking, Rich says. Six months in South Africa in order to negotiate the purchase of a mine. Six months in Cuba to ensure a loan is paid back, advanced financing of a smelter that will

not be completed for years to come. Such actions are nearly unthinkable for listed companies obsessed with quarterly returns. In some businesses, long-term thinking has been virtually forgotten. On the other hand, it is the traditional virtue of family businesses in which one generation always has its children in mind. It is my belief that this long-term way of thinking is the most important secret of Rich's success and can explain many of the strategic and courses of action he has followed over the years. Rich was always interested in obtaining long-term contracts with his clients. In economic terms, the development of new markets, making business contacts, and negotiating contracts

cost a lot of money. Once a business relationship has been established, many of the so-called transaction costs no longer apply. The longer the relationship, the lower the marginal costs and the higher potential profits. Okay, so that makes perfect sense and works really well when you're, again, the commodity you're trading goes up over time. Okay, so remember at the beginning of the book it talks about, like, he was one of the richest people in the world, but he had to fall from grace. He loses the ability to ever travel to the United States again. He says he loses his wife and loses his company. So there's a lot to be learned from him, but a lot to be learned through his mistakes as well.

So one of the most devastating parts of the book I found was that he had three daughters. One of his daughters gets leukemia. She dies at the age of 27. She's in a hospital in seattle and he cannot travel there because he'd get arrested the minute he comes back to america um and so like it talks about like he's on the phone with his daughter in the same room with the rest of the family as up until the point she dies and he's just sobbing and sobbing and sobbing

over the phone so i could not imagine not being with your daughter at that time. I don't even, like I said before, I have a daughter. Like I just couldn't, I couldn't fathom that. And that's something you don't wish on anybody else. But it's also like the reason I bring that up is because the note I have on this book or on this page that I'm going to read to you is just don't be this person. Don't be the person that does this. Like, it's fine to have a passion for work.

It's fine to have a passion for entrepreneurship. Like, it makes perfect sense. We want to be successful in what we do. Work takes up a large part of your conscious waking life. So you should be doing stuff you love to do and just, you know. But damn, man, nobody is going to be on their deathbed wishing i just wish i did one more trade i just wish i did one more thing like no one thinks that way think about all the

books that we've read the uh especially the ones where they're written by the person towards the end of their life like phil knight talks about i wonder like if i could go up go and do it all over again like he felt like his relationship with his son could have been better sam walton same thing like i was expanding walmart but i i did that at the sacrifice time with my family and no one's like oh i wish i had one more walmart like no i wish i had a morning i wish i could have had lunch with my son or whatever the case is so this is his his ex-wife is being interviewed um first of all well i guess i'll get there too but like they wind up getting a divorce i'll get into that minute but he's she's saying he was constantly working it was

difficult sometimes his work was his hobby and his family suffered as a consequence denise that's her name once complained once complained to her friend that rich made too little time for his family and this is a quote from rich i don't have any time for you during the week, he told her. I can give you a half hour on Saturdays and 45 minutes on Sundays. Come on, man. That's not... You're not going to live a happy, fulfilled life at the end of your life if that's how you treat your family.

You just won't. And it's interesting because even in the book it talks about he's too busy for seeing his kids when they grow up. Even though he says they have a good relationship with them now, but the author meets his family somewhere to go skiing with them.

And Rich's daughters, the two that are still alive, are there and they're skiing, they're having a good time. And then when it's time for them to leave because they have to go back to work, or I think most of them live in America too, he's like, please stay. Just one more day when it's time for them to leave because they have to go back to work or i think they most of them live in america too he's like please stay just one more day one more day like no we have to go back we have to go back and might when i read that i'm like oh so now you want them to stay like but what about how like

you weren't even around when they were a kid that's nice that you made a lot of money but what i mean what that's nice you have a billion dollars but you spend no time with your kids that's not successful that's not that's not being successful. Like your kids are small for such a tiny percent. Think about your, even if you don't have kids, think about like your own life, like the time you spent with your parents growing up. And Tim Urban, the writer of Wait But Why, has a great blog post that I recommend, send to everybody and recommend it. It's called The Tail End. It's really a fascinating way to look at time. And, you know, most cases,

if you don't live in the same city as your parents, when you grow up, like 90% of your in-person time is used up by the time you're 18. And that time from a parental perspective goes by so fast, even though it felt like, you know, your childhood at the time, you know, took a long time. At least feels like it went by slower than maybe it does your your 20s 30s 40s etc and it's just like why like you can work later your kids are young for

a tiny amount of time and by the time just like you the reason i are asking you to like look back on your childhood like your parents are extremely important to you hopefully forever but like you become your own person and then you're like then you know forever, but you become your own person. And then you go on. You have your own job. You meet your spouse or you do whatever it is that you do. And it's just different. And I don't understand these entrepreneurs or anybody. It's even people who work regular jobs that make time for your family.

It is the most important priority. It is what makes us human. There's a reason that you have this flood of emotion when you have a child and this comes from somebody like For a decade. I was like, there's there's no way i'm gonna get married or ever have kids like Laura, I came to that conclusion. You usually like based on like Like my family dynamics growing up. I was like, why the hell would I do that voluntarily? No way and wind up getting married and why the hell would I do that voluntarily? No way.

And wind up getting married and having a kid. And I like want to smack younger David. Like you dumb ass, you didn't know anything you were talking about because it's like the most fundamentally satisfying thing. And there's a reason why humans, like we're drawn to procreate, to reproduce and to to spend time molding that person. And the satisfaction you get, it's incomparable to anything else. So just don't be this person, man. You're going to regret it. Okay, so, and Mark makes a lot of mistakes. He's under a lot of pressure.

They talk about, and I'll get into how he loses his company in a little bit, but he's getting pursued by the United States constantly. He's going to wind up making the largest financial mistake of his life. He winds up cheating on his wife with a younger woman. He starts drinking every day at the office. It's just bad decisions all the way around. And it costs him dearly. So this is the structure of mark's companies

but in with the mistakes i've just mentioned his divorce cost him 365 million dollars 365 million dollars plus breaking up his family that's not success rich's company was a confusing network of over 200 private companies and subs subsidiaries spread over five continents. Many of these companies, all of which existed under the umbrella of Mark Rich and Company, were closely connected with one another, whereas others were completely independent. A few of the companies had equitable interest in outside companies. Rich and his partners had originally created this labyrinth structure because it would allow them to both minimize risks and to make private deals without letting others know

that Mark Rich was controlling the show. Now the convoluted network of companies offered a further advantage. It was nearly impossible to determine Rich's wealth. And so what happens is he calls this one of his biggest failures. He has this affair with some young German woman and his wife offers to take him back because she was adamant about not divorcing.

They tried to do that for a few years and it just it it doesn't work out. And Mark Rich, what he feared most publicity and now on the newspapers all over the world, because this is happening after he's been indicted by the United States, is covering his very nasty divorce. Because Denise was married to him for 30 years, raised his kids. She felt she was entitled to more. At the time, he's rumored to be worth about a billion dollars, and he offers her $3 million. And that makes her go thermonuclear and starts putting all his dirty business out in public. So Denise's father was actually a rather successful entrepreneur.

He started the Desco shoe company. He always had respect for Rich, so he flies the switch and he's like, listen, the lawyers have made this a big mess. Let's make sense of this whole thing. And Mark Rich really looked up to him. He actually, Denise's father provided some of the seed capital for his company. And so they make an agreement that they're going to give him $365 million. So $165 million comes from because she bought shares in the company at the very beginning.

And then he gave her another $200 on top of that. And then what happens is, again, the benefit of learning about these people's lives at the end of their lives, they speak pretty frankly about what they regret. I think us being exposed to what people towards the end of their life regret, and you see the same patterns over and over again, it's something that we need to benefit because we hopefully have many decades ahead of us. What he does is he marries his mistress six months after he gets divorced and he's got to pay her a couple like they they get divorced soon after he's like oh

oh man so he talks about why they get divorced oh because his new mistress now wife is too obsessed with luxury what did you think she was dating you for like what do you mark man mark is smart in a lot of ways but it's just like so anyway he destroys his family marries his mistress that then she keeps asking for more and more luxurious things finally he tells her no and they get divorced then he's got to pay her like another 10 it says tens of millions of dollars anywhere from like 40 to 50 million dollars for a. It's like, even if you have a billion dollars, like you don't want to be doing that. Um, and just, you know, again, like, what is that? What's the example you're setting for your daughters there? Like some people, I'm not, I'm not one of these people

that say you've got to, once you're married, you have to be married forever. No, there's, there's, you know, not to get too much detail, but it would be much better if my parents would have divorced. They never did. But you just, these are not good decisions. And I understand they were all prone to this. I make bad decisions all the time. I'm sure you do as well. But it's just, oh, it's so frustrating when you deal with somebody that clearly had a very interesting mind.

And it just does this you know like i don't i just oh okay okay so now i'm gonna skip ahead because i feel i've already spent way too much time there a little bit emotional about all this i don't know why i probably do know why because i think about this in terms of like having a small young daughter okay um okay so now we're at how to lose 172 million dollars in one trade so this is what i mean about like when i was thinking i was like okay long-term contracts make sense what happens when the prices go the other direction this is what happens when the prices go the other direction a single bad deal cost him 172 million took his company to the edge of collapse it was the deal

that finally forced rich to sell his company please Please don't get the wrong idea. Now, this is somebody that used to work for Rich that doesn't want to be identified with talking to the author of the book. Please don't get the wrong idea. I have the greatest respect for Mark Rich. I am what I am thanks to him. But this megalomaniacal deal also belongs in his biography. So Mark has this trader named Rosenberg who works for him. And Rosenberg wanted to secretly corner a market in an attempt to manipulate global prices of a metal. And that metal is zinc. So Rosenberg and his partner simultaneously began buying huge amounts of zinc in an attempt to drive up the market price in the hope of obtaining a higher price for the zinc that they had purchased. When I read that, I'm like, why would you do that? So you're going

to buy, like, I understand when you buy things, right, the market keeps going up because there's more people buying, but then they're going to hold onto it, stop buying, hope the market keeps going up and then sell for a profit. That is extremely high leverage, highly leveraged position with no hedge. That seems to me very not intelligent. It says, by September 1992, zinc had risen to $1,400 per metric ton. They were buying, buying, and buying, and making the market go up. It was a high-risk speculative operation. However, they were unable to keep their secret operation under wraps. The trade press soon began publishing articles detailing this inexplicable rise in zinc prices. The artificially inflated prices were followed by a very real slump. So it drops down by over 25%. There was no way out.

This insane attempt to manipulate the global zinc market ended up costing Mark Rich and company $172 million. Not only did Rich lose a lot of money, but he also came out of the fiasco with his credibility severely damaged. His senior traders with experience in the metals markets had warned him of this adventure. So the entire time he's trying to execute this trade, he's being told this is a bad idea and he ignores them.

He says, this is artificial. There is no physical demand. It is a bubble that will burst, they told him. He refused to listen. And this is really interesting. It talks about like his mental state at the time too.

You're drinking too much. You're under a lot of pressure. You're having family issues. That's why you have to like, it's very hard to be successful when you're not focused and it's hard to be successful when you're and when you're when you're not focused and it's hard to be focused when you have all these problems so this causes him to violate one of his own rules he was ignoring one of his most important business principles

for rosenberg had done nothing to hedge his long position he's completely exposed so they lose 17172 million. They have to liquidate before it gets even worse. And a lot of his key employees leave. And he's forced to bring back a person, a younger trader that a lot of people had allegiance to, that wants to basically take over the company. And so because of this, he's kind of forced out. He's forced to sell his own company.

And this is, you know, I always talk about when you build something from scratch, you dedicate all your time and effort to it, and then it's taken away by somebody else, whether it's an investor or whatever. That's just got to be heartbreaking. So it said the takeover contract stipulated that Mark Rich would gradually reduce his majority stake in the company over several years. Management and high-ranking employees would in turn purchase Rich's shares. So that's actually something I didn't cover, but I think it's important. Remember when I told you that he

got kind of screwed over by his boss at Filters Brothers, where he's making them four to five million a year, but they only give him 100,000 and they don't let the talent participate in the upside. When Mark founded his company, he solved that by making a lot of even like the secretaries would have share options and that single company I think created more millionaires than any other company in Switzerland I don't know if that that record still stands so that is actually a good idea you did you know she wanted you want to not only the thing is an aligned incentives but it also like it like, all the gain shouldn't just go into one person. Okay, so it says, I was weak, Rich says, about the sale of his company.

It was as if he was describing a struggle in the animal kingdom. The old lion had been driven off by the younger challenger, and now the young lion had taken over the leadership of the pride. I was weak, and the others could sense it, so they took advantage. And this is the end of his time at his company. The value of Mark Rich and Company at that time was estimated at a billion to 1.5 billion. The company was active in 128 countries and brought in an estimated profit of 200 to 400 million each year. It was the market leader in oil, metals, and minerals trade. As is the Swiss habit, the parties agree

to strict confidentiality regarding the final selling price. It's time to disclose this secret here. Rich could have demanded much more for his stake. In the end, he settled for the book value and set the price at $480 million. Mark sold cheap, one of the buyers told me He winds up making about Because there was a stipulation in the contract On future performance He wound up collecting about $600 million instead of $480 So he made a little bit more On Monday, November 7, 1994

Rich finally sold the last of his shares in the company That he had founded And stepped down from the administrative board The name Mark Rich & Company, the name that had made history in the commodities trade for 20 years and continued to stir up so many negative associations, vanished from the scene. As soon as possible, so it seemed,

the new owners renamed the company Glencore. Today, the company is still the world's largest commodity trader, and in terms of annual turnover, it is the largest firm in Switzerland. No competitor, no former employee, no spin-out has managed to become bigger and more powerful than Glencore, formerly known as Mark Rich & Company. Nevertheless, there is not a single mention of Rich's name on the company's website, not even under the category history.

He was purged. So I'm going to leave the story there. If you want to read the whole book, and I'd recommend reading it. I actually found this in a thread on Twitter, and it was recommended heavily. It's a crazy story. And if you want to purchase the book and support the podcast at the same time,

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