The Chris Voss Show - The Chris Voss Show Podcast – How to Invest: Masters on the Craft by Billionaire David M. Rubenstein

Episode Date: October 3, 2022

How to Invest: Masters on the Craft by Billionaire David M. Rubenstein NEW YORK TIMES BESTSELLER A master class on investing featuring conversations with the biggest names in finance, from the legendary cofounder of The Carlyle Group, David M. Rubenstein. What do the most successful investors have in common? David M. Rubenstein, cofounder of one of the world’s largest investment firms, has spent years interviewing the greatest investors in the world to discover the time-tested principles, hard-earned wisdom, and indispensable tools that guide their practice.​ Rubenstein, who has spent more than three decades in the hypercompetitive world of private equity, now distills everything he’s learned about the art and craft of investing, from venture capital, real estate, private equity, hedge funds, to crypto, endowments, SPACs, ESG, and more. -How did Stan Druckenmiller short the British pound in one trade for a profit of $1 billion dollars? -What made Sam Zell the smartest, toughest investor the world of real estate has ever seen? -How did Mike Novogratz make $250 million off crypto in one year? -How did Larry Fink build BlackRock from scratch into a firm that manages more than $10 trillion? -How did Mary Callahan Erdoes rise to the top of J.P. Morgan’s wealth management division to manage more than $4 trillion for individuals and families all over the world? -How did Seth Klarman perfect value investing to consistently deliver net returns of nearly 20 percent? With unprecedented access to global leaders in finance, Rubenstein has assembled the most authoritative book of its kind. How to Invest reveals the thinking of the most successful investors in the world, many of whom rarely speak publicly. Whether you’re brand-new to investing or a seasoned professional, this book will transform the way you approach investing forever.

You wanted the best. You've got the best podcast, the hottest podcast in the world. The Chris Voss Show, the preeminent podcast with guests so smart you may experience serious brain bleed. The CEOs, authors, thought leaders, visionaries, and motivators. Get ready, get ready, strap yourself in. Keep your hands, arms, and legs inside the vehicle at all times because you're about to go on a monster education roller coaster with your brain. Now, here's your host, Chris Voss. Hi, folks. This is Voss here from the chrisvossshow.com, the Chris Voss Show. Hey, welcome to the show, guys. We certainly appreciate you guys tuning in.

We've got an amazing show coming up that I think your minds are going to be blown. We have David Rubenstein, who is a New York Times bestseller. He is basically giving a master class in his newest book that just came out September 13th, 2022. He's the legendary co-founder of the Carlyle Group. His book is called How to Invest, Masters on the Craft. We're going to be talking to him about his book and his amazing insights that he has put into it. Also, in the meantime, refer to the show of your family, friends, and relatives. Tell them to go to youtube.com, 4Chance Chris Voss. Ask people, have you sat down

and subscribed to The Chris Voss Show? The family that loves you but doesn't judge you. The best kind of family there is. Go to goodreads.com christmas a big 130 000 linkedin group and the linkedin newsletter subscribe to all the wonderful stuff that's going on over there as well without further ado he is the author as i mentioned before how to invest masters in the craft just came out september 13th 2022 it's hot off the presses Still has that wonderful pressed ink smell. For those of you who are probably buying it in hard copy, for those of you who are buying on Audible, you may have trouble smelling that.

But he is the New York Times bestselling author of How to Lead the American Experiment and the American Story. He is the co-author and co-chairman of the Carlyle Group, one of the world's largest and most successful private equity firms. Mr. Rubenstein is a chairman of the boards of John F. Kennedy Center for Performing Arts on the Council on Foreign Relations. We've had a number of Council Foreign Relations people on the show. And the National Gallery of Art. He's the original signer of the Giving Pledge and a recipient of the Carnegie Medal

of Philanthropy and MoMA's David Rockefeller Award. The host of Bloomberg Wealth with David Rubenstein on Bloomberg TV and the David Rubenstein Show, peer-to-peer conversations on Bloomberg TV and PBS. He lives in the Washington, D.C. area, and now he's on The Chris Voss Show. Welcome to the show, David. How are you? Well, my pleasure to be here. Thank you for having me. It's wonderful to have you as well. Any dot-coms or places on the internet you want people to come see you or find out more about you? No. Anybody intelligent will be watching this podcast or listening to this, so that's all I need, right? Well, let's not push it on this show. We have an incredibly brilliant, intelligent audience. Thank you very much. And those not this podcast or listening to this. So that's all I need, right? Well, let's not push it on this show.

We have an incredibly brilliant, intelligent audience. Thank you very much. And those not watching on YouTube, I encourage you to go check out David's office on YouTube. He has a plethora of collectibles behind him that is just extraordinary to look at. But David, what motivated you on to write this book, sir? Well, I've been in the investment world for about 35 years, and I've observed a lot of mistakes that people have made. But I also thought that I could get access to the best investors in the United States, interview them, and let them describe how they became so great. And the idea was not to enable somebody to read a book and become a great investor, but to give them some tips on how they can, as an average person, invest better than they're already doing. That's the idea behind it. There you go. It's a build as a masterclass on investing. And I imagine you guys have some

success in your background of investing that will give you those insights. Is that correct? Yes. In my own firm, I started the firm in 1987 with $5 million, and now we manage about $370 billion. Wow. The firm has done pretty well over the years, one of the larger global private equity firms. And I have learned some things about investing over the years, so I wouldn't claim to be a great investor myself. But I interview the people who are the best venture capital investors or distressed debt investors or hedge fund investors in the United States. And they have some pretty good lessons. There you go. So is it a good time to invest in Bitcoin or what? No, I'm just kidding. Well, I'm not sure. Bitcoin, I interviewed

somebody who's a leading investor in Bitcoin, and that's Mike Novogratz. But I would say, with respect to Bitcoin or any cryptocurrency, you have to be very cautious. They could go down in value dramatically. But if you can invest money that you can lose, you can afford to lose a certain percentage of your net worth and you enjoy the game of crypto, then you can do it. But you should realize it's very, very risky and you really need to know what you're doing. Most definitely. I've got a lot of friends that were crypto bros in the tech field. And I don't know, I think they're just swimming in their backyards right now in Puerto Rico or something.

So you talk to, in your book, you describe a lot of different examples of stories of people like Mike Novogratz that made $250 million off of crypto in one year. Talk to us about some of the different examples and stories that you have in your book that you featured. Well, I have my own stories of bad investments I made or avoided or I wish I hadn't avoided. I had a chance to invest in Facebook when Mark Zuckerberg was in college, and I turned it down. I had a chance to invest in Netscape when I was getting off the ground, and I turned it down. And when Jeff Bezos was starting his company, Amazon, I told him I didn't think it would get very far.

The novel would wipe him out. So I made my mistakes. But everybody in the investment world has made mistakes. Warren Buffett's made mistakes. We've all made mistakes. And the trick is to learn from your mistakes. Anybody that tells you they haven't invested and lost money is obviously lying. Every investor of any consequence has lost money on something or another.

So you have to be in the game. You have to know what you're doing. Is your book good for people from all walks of investment life, from the guy who just has a little family, wants to throw a couple of bucks in the stock market? The book is designed for average people who are not professional investors. So if you're not a professional investor, the book is designed to give you some ideas of what you should avoid or what you can do.

But you're going to be watching or listening to the lessons from the greatest people in the investment world to see what they did. But all of the investment people have started out modestly. They're pretty smart. They go against conventional wisdom and they admit their mistakes. They have a fair amount of humility because they admitted mistakes they'd made. And then you cover a fair amount of different variety of investments. You talk with Sam Zell about real estate investing. And so you cover more stuff than just stock market stuff. Yes. I covered what I call traditional investments, which would be our mainstream, which is stocks and bonds and real estate. And Sam Zell is one of the great real estate investors of

the last hundred years or so. But I also cover what I call alternative investments, which is hedge funds, private equity firms, venture capital. And then what I call cutting edge, which would be things like cryptocurrencies or infrastructure or ESG or SPACs. So different varieties I try to cover to get the best person I could in each category. There you go. What are some stories that stand out in your book that you would share? Well, John Paulson, for example, thought that mortgages were going down in value, particularly subprime mortgages around 2006, 2007, and 2008. And so he, in effect, shorted the subprime mortgage market, and he made $20 billion, the most successful trade anybody's ever done in one kind of trade like that.

So, you know, that's an interesting story. Another person, Stan Druckenmiller, bet that the British pound was going to fall in 1992. And he made what was then a staggering sum, a billion dollar profit on that one. I'd say another interesting one is Mike Moritz, who runs Sequoia, or ran Sequoia, the biggest, most successful venture firm. And he went in early into things like Google. And now he's an early investor in Stripe, which is no doubt the most highly valued, privately owned company now in the United States is Stripe. Really? Payment processing company.

And it's probably when it goes public, people think it could be worth $200 billion, started by two brothers from Ireland, who really have built an incredible company. And it's the most highly anticipated new IPO that will be coming down in the next couple of years. Recently, the pound has been crashing again. You highlight a story that you mentioned earlier. Maybe there's some money to make in shorting that, or what do you see in the current? Shorting what? The British pound?

British pound. Well, I think that was a good bet a couple of months ago, maybe a couple of weeks ago, maybe even a couple of days ago. that or what do you see in the shorting what and shorting the british pound british pound well i think that was a good bet a couple months ago maybe a couple weeks ago maybe even a couple days ago it's down now so much so that it's hard to see it go much lower now there is talk about the british pound going to parity with the dollar and that would be a gigantic drop from where it had been i think that that investment game has largely been played and i don't think there's a lot of money to be made now in shorting the pound much more. It may go down further against the dollar, but the largest drop has probably already occurred.

Hi, folks. Chris Voss here with a little station break. Hope you're enjoying the show so far. We'll resume here in a second. I'd like to invite you to come to my coaching, speaking, and training courses website. You can also see our new podcast over there at chrisvossleadershipinstitute.com. Over there, you can find all the different stuff that we do for speaking engagements, if you'd like to hire me, training courses that we offer, and coaching for leadership, management, entrepreneurism, podcasting, corporate stuff.

With over 35 years of experience in business and running companies as CEO, I think I can offer a wonderful breadth of information and knowledge to you or anyone that you want to invite me to for your company. Thanks for tuning in. We certainly appreciate you listening to the show and be sure to check out chrisfossleadershipinstitute.com. Now back to the show. There you go. There you go. So what's your advice for people that, say, are an average investor out there?

What do you think is maybe one of the better vehicles that are out there to invest in? It looks like we're seeing a drop in mortgages. That will continue for a while. There might be a rebound somewhere in the future. Well, the most common mistake that investors make is they get in the market at the wrong time and they get out at the wrong time. When markets are going up, they often rush in. And when the markets are going down, they rush out, which is actually the opposite of what you should do. But for the average person who is not really interested in learning how to be a professional investor himself or herself, the best thing to do is to get a good fund manager. It can

be in cash, it can be in fixed income. It could be in stocks. It could be in bonds. It could be in venture capital. And let that manager manage your money, making sure you know what they're doing, that you know what the fees are, and basically be educated about what their fund manager has done. Trying to outguess the markets or beat the markets as an average investor working part-time doing it is a fool's errand. Yeah. I mean, is buy low, sell high always seems to be the one thing. You know, I studied to be a stockbroker back in the day in the 80s. I mean, I remember when the P&E rule was if it hit 15,

you were like, oh, that's maxed out. Of course, that's definitely changed the world of tech stocks and the current stock market. After something has happened, it's always easy to say, I should have done that. But the trick in investing is figuring out where the future is going to be. Life is about predicting the future. But in the investment world, you particularly can measure how well or poorly you've predicted the future. And really, that's what great investors do. They anticipate where a company is going to go, where an economy is going to go, and they get there before the economy or the company gets there.

That's definitely something people should think about in trying to, you know, because a lot of people chase the market when it reaches its most highest peak of excitement or exuberance. And usually by then, it's starting to hit its peaks and everything else. I had friends that were still trying to buy real estate when I could see the Fed was going to move. And I was like, you really don't want to be investing in real estate right now because the Fed is going to do a lot of movements. And they're really behind the eight ball. What are some other examples or advice that you tease out? Yeah, best investors typically go against the grain.

So what everybody else does is not the way to be a great investor. So typically the greatest investors have not followed conventional wisdom. They've gone against the grain or with conventional wisdom. And I think that's an important factor people should take into account. But generally make certain when you're getting an investment process, you're getting a fund, make sure you know what the fees are. Make sure you know how to get information about how the performance is doing. Make sure the organization is a stable one. Make sure the people in the organization are putting a lot of their own money alongside you. Make sure you know the other investors are, because smart money knows how to find good deals. If you've never heard of anybody else investing alongside you, that's not

a great sign. Private equity funds seem to be just having a heyday. They seem to be larger than ever and controlling just an incredible amount of money. Is investing in those a good thing to be just having a heyday. They seem to be larger than ever and controlling just an incredible amount of money. Is investing in those a good thing to be doing these days? There are thousands of private equity funds, and obviously some will outperform the market. But the trick is to invest when somebody has a long track record, the people that produce the track record are still there, the fees are reasonable, the disclosure is very good, and that there are other investors alongside you who are very sophisticated. And also make certain you know what rate of return you're expecting.

So to expect you're going to get 25% annualized rates of return is probably unrealistic. Realistic returns of private equity are probably mid-teen, 15% net would probably be a reasonable expectation from a good private equity fund. There may be some that do better, but you shouldn't expect 25% because you'll probably be disappointed. What do you feel, do investors have to be able to read the markets? We have a war going on. We have disruption in goods and services. How important is that to read or do you leave that up to the fund manager? Well, if you try to time the markets based on what the news is every day, you'll go crazy. Markets are always going to do something crazy based on overreacted to current events. So what you should do is find a manager that's invested through good and bad times and let that manager make a decision about when to sell, when to buy, what price to pay. Because I think it's

difficult to really do that when you're sitting on the sidelines. It's a mistake to think that you're a genius in making widgets or a genius as an athlete. You're going to be a genius as well in investing. It's two different sets of skills, and you just can't think that somebody's going to be great as a manufacturer and become great as an investor. That just doesn't happen regularly. So you probably shouldn't email your fund manager every day saying, did we go up today? Did we go up today?

I would say probably getting a good fund manager you can trust who's honest, who's also available to you to tell you what's going on is probably a good thing to do. I've heard some people say that you should kind of set it, forget it, make good investments, and then let them ride and let them build over time. Time is... Warren Buffett has done. Remember, Warren Buffett averaged 20% a year for 60 years in a row. Yeah. How'd he do that? Well, he doesn't sell a lot because when you sell, you pay taxes if it's profitable, and also you have transaction costs.

So to avoid transaction costs and also to avoid taxes, if you don't sell, you're better off in most cases. Yeah, because taxes will dilute your investment capital, right, that you can be investing in something else. And over time, I mean, technically, I think the long order of things or the assumption is, is that, you know, the stock market will go up, values will go up, real estate will go up. And we've certainly seen that over time. Well, look, over the last hundred years or so, the Dow Jones and the S&P 500 largely

have gone up by around 6% a year. So while it's not staggering and particularly when you have higher inflation, but I suppose it's 8% a year because of inflation. That's not terrible. And so if you're trying to get much higher rates of return, you really need to know what you're doing and go into really good private equity funds, which may be difficult to get into for the average investor. What are some of the time-tested principles you outlined in the book that you could tease out? Well, I think it's very important to actually do a lot of reading about what you're investing in.

You can't know too much. And I think it's also important to make sure you understand the fees because the fees can be very difficult to understand sometimes. Now, if you say, I don't want to have a manager, I'm going to do it myself, that's possible. But you really need to know what you're doing, put a lot of time into it, and really invest with somebody that knows as a partner who's doing, somebody who has experience doing what you want them to do. And so I think it's very difficult to beat the market on a consistent basis if you're not a professional, and even professionals have a hard time doing it. There you go. There you go. Should you find a fund, or if you're going to invest yourself, what kind of balancing should you do? Should you find a fund or if you're going to invest yourself,

should you, what kind of balancing should you do? What should you put some in gold and secure funds? Look, it depends on how old you are and what you need the money for and what your yield is. Let's suppose you're older and you're living on a fixed income. You want a certain amount of current yield and probably going into fixed income instruments like bonds probably helps more. If you really don't care about that, you just care about capital appreciation, then probably stocks makes more sense because they may not provide dividends, but they will probably go up over a period of time. Gold is a bet on basically inflation. When inflation is high, gold should go up.

And when inflation is low, gold should go down. I think the run-up on gold prices is probably past us now, and I think it's probably too late to go into gold and really make a lot of money now. Is it true that one of the things you have to realize about the stock market is whatever they're pricing in today sometimes is months or years down the road, whether it's bet on earnings for a company or things like that. And so you have to realize that's already priced in sometimes what you're betting on. Yes. I mean, they trade on typically on price-to-earnings ratios, PE ratios, but those are often for well into the future. And so it really means, let's suppose you have

a PE ratio of 15, PE 15. That means that you're betting that you're going to get your money back in 15 years, more or less, at the earnings that the company has. And that's a long way away. Sometimes a company was recently sold for 50 times revenues. A young venture capitalist or entrepreneur built a company. It was sold to Adobe at 50 times revenues. Well, that's a big price. Sometimes those things can be justified.

Maybe that one is. But generally, make sure you know what you're doing. And as a general rule of thumb, buying things with PE ratios in a single-digit range makes a lot more sense than buying something with a 50 times PE ratio. Yeah. So it has a chance to go up. I remember the dot-com era was crazy. I was investing in that when the dot-com era came out. It was crazy to make a lot of that when the dot-com era came out. It was crazy

to make a lot of money, very exuberant market. Of course, I saw the top of it and it crashed. Do you talk about the book you mentioned, alluded earlier, depending upon your age? I remember being trained as a stockbroker. One thing that they talked about was, you know, when you're younger, you can do more high-risk investments. When you're older, you want to do something that's more safety and secure. Well, when you're older, you may not be working anymore. You're not earning current income and you're living off of retirement. So you got to be more risk averse. When you're younger, you feel like you're never going to die. Nothing can go wrong. And basically, you're smarter than everybody else. And so you'll make mistakes, you'll learn. It may not be a great investment

returns, but at least you'll feel, well, I'll go out and make more money later because I can do so. But I think it depends on your age and what your net worth is and how much money you need to live on and so forth. What do you think is the real future of, if you were to say a segment of stocks or valuations or companies would be really hot in the future, maybe a year or two out, what would you put that in? Maybe tech or AI or anything? Well, AI companies will do very well. Of course, there are so many different types of AI. You have to understand what they do.

Things relating to biotech, CRISPR would be pretty good as well. Well into the future, things relating to quantum computing will probably do pretty well. Space-related companies, things that deal with the exploration of space, things that deal with healthy food will probably do quite well also, because there's a big interest in that now. And so those are some things that are trends. So you co-founded your company, how many years ago was it? I started it 35 years ago. 35 years ago. Any advice you have to entrepreneurs or people who are looking to start their own companies? Don't listen to people telling you it can't get done. People told me it wouldn't get off the ground. Make sure you're passionate about it. Make sure you really want to work hard to

build it. Don't be afraid of mistakes. And also surround yourself with people that are smarter than you and are willing to work hard as well. And remember, building a great company takes years. It doesn't happen overnight. Bill Gates, Jeff Bezos, Steve Jobs, they struggled for many, many years before they actually got it off the ground and they became successful. It takes a long time to actually make it work. But if you're really dedicated, you can, in this country, build a great company. It's one of the great things about this country, isn't it? Right.

We do believe in the American dream, as it's so called, and entrepreneurs in this country do quite well. There you go. If you could go back, would you do it differently? Would you maybe, I don't know, become a fishing instructor or something? I wish I had started earlier. I started when I was 37. I wish I had started at 27. I also wish that I had avoided some of the mistakes I made.

But, you know, in the end, I'm reasonably happy with where I wound up. There you go. I mean, life has interesting twists and turns. I remember saying to my business partner when we were 22 and we started our first multimillionaire company, I said to him, you know, we should do this now because we're 22 because I don't think I'm going to have the energy of this when I'm 50 to start a company. Well, you're willing to try a lot of things and it's not the end of the earth, right? Yeah, you can live on top of it and sweat equity your way to success, which is what we did.

So this is an amazing book, and it's great that you're sharing all this data so that people can learn more and do more. What were some leaders that inspired you or maybe authors of leadership books that inspired you or motivated you as you were building your company? Well, when I was a young man, John Kennedy was running for president, and I was inspired by his commitment to public service. There's no doubt that he was inspirational young man. John Kennedy was running for president and I was inspired by his commitment to public service. There's no doubt that he was inspirational to me. And as you read back on people great in American history, you know, Abraham Lincoln held the country together. There's no doubt that he's a spectacular leader. Teddy Roosevelt did a great job in reviving and revitalizing the presidency. There's no doubt he's unique and a great leader as well. In the business world,

I think I've been inspired by what Bill Gates was able to do as a young person, what Steve Jobs was able to do as a young person. And of course, Jeff Bezos done a spectacular job in building Amazon. And I imagine one of the things that you enjoy having the level of success you did is giving a chance to give back. You were the original signer of the Giving Pledge, recipient of a Carnegie Medal of Philanthropy. Tell us a little bit about that and how important that is to you. I came from very modest circumstances. My parents were not college or high school educated. And so I got lucky in life and made a fair amount of money by normal human standards, not by the standards of, let's say, someone like Elon Musk, who's the richest man in the world, But by normal standards, a lot of money.

And I decided to be an original sign of the Giving Pledge. And I basically give away all my money over a period of time. So I'm very actively involved in education, medical research, and also what I've called patriotic philanthropy, fixing up the Washington Monument or Lincoln Memorial or Jefferson Memorial or buying the Magna Carta to remind people of our history and heritage and hopefully educating them about the good and bad things we've done in the past. Do you have Warren Buffett on speed dial and text message?

I know Warren, but I don't think I would call him every five minutes and have him on speed dial. Darn it. I was going to ask you if he used emojis. I did dedicate the book to him. Oh, there you go. I was going to ask you if he used emojis when he texted. I'm not trying to do that, but I'm going to learn how to use them. There you go. We had someone who was texting with, oh, who's the big health guy who navigated us through the coronavirus, someone from Good Morning America, and we found out that he does use emojis.

So I'm always curious how many people do that. So what's the most prized possession in the booths behind you, the boxes behind you? Behind me is a rare copy of the Declaration of Independence. This is a facsimile. I own about 10 rare copies and play around the country. This is a facsimile of it, a very rare copy of it. And then behind me, I have some championship basketball game balls from Duke University. I was chairman of the board at Duke and went to college there. I won a few NCAA basketball championships. And so that's something behind me that I value as well. There you go. I love the importance of the Declaration of Independence, the Constitution, what this country was founded on. And I learned how important it is that that's

an inspiration to the ideal of the human spirit, the human mind. And entrepreneurism, I think, is what made us a great country, wouldn't you say? I agree. Entrepreneurs really built this country because people that started these companies and built them into big companies really helped fuel the economic growth of this country. The Declaration of Independence has the most famous sentence in the English language. We hold these truths to be self-evident that all men are created equal, that they're endowed by their creator with certain unalienable rights, that among these are life, liberty, and the pursuit of happiness. And that's what this country is about, though we obviously have not lived up to that principle as much as we should, but we're making progress. There you go. There you go. Anything more you want to tease out on the book before we go?

I would just say that people should be realistic about their expectations of investing and that they do make a fair amount of money or any money investment. Try to give something back to the country. The country is an incredible country, the greatest in the world. But it only is going to be great in the future if everybody gives something back in their time, their energy, and maybe even money. It's something, some cause that can make this country slightly better than it is. There you go. There you go. There you go.

We are all stewards to this young democracy, and we've all got to make sure it gets to the next generation and those following. So give us your dot coms, David, where you want people to look you up on the internet. Well, david.rubenstein at carlisle.com is the way that people can reach me. There you go. Thank you very much, David, for spending some time with us is the way that people can reach me. There you go. Thank you very much, David, for spending some time with us on the show.

My pleasure as well. Be sure to check it on YouTube so you can see the wonderful array of shelves and data he has. Order up the book wherever fine books are sold. Stay out of those alleyway bookstores. Go order the book, How to Invest, Masters on the Craft, out September 13th, 2022

by David M. Rubenstein. Thank you very much, Franz, for being on the show. Thanks for tuning in. We'll see you guys next time. Thank you. My pleasure.