We Study Billionaires - The Investor’s Podcast Network - TIP230: Billionaire Larry Ellison Lessons (Business Podcast)

Starting point is 00:00:00 You're listening to TIP. On today's show, we talk about billionaire Larry Ellison. Ellison is the fifth wealthiest person in the United States with a net worth of $54 billion in 2019. He started his first company in 1977 with only $1,200 of his own money at the age of 33. Since that time, he has transformed and built Oracle into a $184 billion company. Of the people we talk about on the show, Larry's personality is quite different. it's extremely aggressive and he comes across with this winner takes all mentality.

Starting point is 00:00:34 During our discussion on the show, we highlight a few of the characteristics that we think are beneficial to the members of the TIP community in some important business lessons that they can gain from Mr. Ellison's opinions. So without further delay, here's our coverage of Mr. Larry Ellison. You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. Hey, everyone, welcome to the show.

Starting point is 00:01:15 I'm your host, Preston Pish, and as always I'm accompanied by my co-host Stig Broderson. Like we said in the introduction, we'll be talking about Larry Ellison today. So before we play any questions and answers, I quickly want to provide a little bit of an overview of Mr. Ellison. So you'll hear in some of the Q&As that Larry is a fighter. He's a person who really questions all forms of authority in the status quo. fact, I think many might even suggest that he bucks the system, simply to buck the system and to fight back any opportunity that he has. And later in the show, you'll learn why that's part of his personality. As a part of this personality, he moved to California to the Berkeley

Starting point is 00:01:53 area in his early 20s, and he started working as a computer programmer. Larry attended multiple colleges, but didn't graduate from any of them. So in 1979, Larry read a research paper while he was around the Berkeley area that was written by IBM on something called relational databases. IBM was not executing and building a product on this idea of relational databases. But when Larry read this research paper, he thought I could build a product using this technology that he read about quicker than IBM could because I'm just a small business with just myself and a couple of friends. and he felt that he could build a product there and go to market.

Starting point is 00:02:37 So long story short, Larry started selling the software, which he hadn't even coded yet to government organizations who needed the capability to access large amounts of data in a quicker way than what the current technology existed. And Larry created that product. Eventually, once he got on contract, he created this product and delivered. So after he delivered the product, this put Oracle on the map. He started making some very decent money for the company. And throughout the, this continued to progress, but then by the mid-90s, Oracle kind of hit a rough patch.

Starting point is 00:03:11 They weren't really growing at that point. And he went through this transition of how can I remain competitive. And what you saw as he started developing this strategy by the 2000 time frame where he was actually conducting acquisitions, mergers and acquisitions with other companies. And one of the things that kind of really allowed Ellis, to continue to grow his company, his own personal net worth, was his ability to make that transition of just building a product early on and then becoming an expert at mergers and acquisitions and particularly in the software space where he would see strategic opportunities to buy a company and merge that with some of his other products in order to own the intellectual property around

Starting point is 00:04:00 key streams of how data was being stored, transmitted between different types of protocols over the internet. So a really quite fascinating story. When you look at everything that he's accomplished, everything that he's done, you look at his personality. It is drastically different from, you know, we're huge fans of Warren Buffett. We like his personality where, you know, we think that he has a good message, good ethical message, not that Larry Ellison isn't ethical. It's just that his approach to achieving

Starting point is 00:04:34 what it is that he has done is drastically different, very aggressive winner take all type mentality. And it's just really quite fascinating to see two people with very different personalities that also achieved at a very high level when you're talking about business accomplishments in their life. All right. So for the first question that we're going to play here, Larry was asked, how would you deal with criticism, and this is how he responded? There are an enormous number of people in the world who really want standard answers. They want everyone where their hair the same way, everyone to conduct business the same way, everyone to dress the same way, everyone go to the same church. And if you wander outside of these norms, people are highly critical because it's threatening to them.

Starting point is 00:05:19 Because they're living their life one way and they believe that's the proper way to live their life. And if you live your life a different way and you answer questions differently, that makes them feel like very uncomfortable. comfortable. And they say, well, this person's different from I am, I am, and then they have to say, and then they say, they say, they go a little further, and they say, this person is different and wrong, and I'm different and right. It takes a certain amount of strength not to succumb to fashion. I try to think things through, and I try to always ask two questions about my personal policies in life. Are they fair? Are they morally correct? And do they work? And if other people, someone has a logical criticism that can explain to me why what I'm doing is wrong, and they can

Starting point is 00:05:58 convince me, I'll change. If they really can, you know, if they can have good reasons, I mean, I'll just alter my behavior. I love it when people point out I'm wrong, explain to me why I'm wrong, and I've been changed. That's great. I don't want to be wrong. I would love to be right. And if I am wrong, I love it when people stop me. So I think there was a very insightful comment. And I think it's a great chance to talk not only about criticism, but also really about tolerance and how we view people that are different than ourselves. And we, we, we We have this tendency to think that we are very different than the people we surround ourselves with.

Starting point is 00:06:35 You know, hey, I'm a dentist. My friend works at a bank. We're so different. I live in an apartment. My best friend lives in the house. But, you know, generally, we just tend to surround ourselves with people who are very similar to ourselves. And we attract those people who are very similar, who read the same news, they listen to the

Starting point is 00:06:52 same podcasts. And whenever we have disagreements, because of the same. because we have these shared values, we tend to focus on what we do have in common instead of what we disagree upon. We're not in the, we're not looking for the truth. What I see right now, and this is not really to talk about politics, and I definitely don't want to take sides or anything, but you have one group and they're watching CNN and they know the truth and they know that people are watching Fox, you know, they're wrong, and then you have people watching Fox that know that they have the truth, and people are watching CNN.

Starting point is 00:07:26 they are in the wrong. And by definition, they can't really be possible. I think it's a dangerous development you have for society. Really, the last thing I want to say about this, where Larry Ellison is talking about truth, like the truth-seeking, want to prove other people wrong, and be proving that he himself is wrong. I think it sounds good.

Starting point is 00:07:49 I think that's probably a good way to live for a lot of people. But I think it's also very important that if you do want to live that way, which I found very inspiring, you need to have a social contract in place. Let's say, for instance, Preston Me, I can't remember if we specifically told each other that we can be very honest with each other and disagree, but I feel we have that kind of relationship, and it's something that develops over time and something that you can feel whether or not you have. If you want to live the way that Larry Erison is talking about, you need to have that social contract in place.

Starting point is 00:08:24 Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year, bringing together activists, technologists, journalists, investors, and builders from all over the

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Starting point is 00:12:56 painful to watch and stand by and do nothing. So the purpose of that particular hike through the Santa Cruz Mountains on that particular day was to discuss taking over Apple computer. My idea was simple. Buy Apple and immediately makes Steve's CEO. Apple wasn't worth much back then. About $5 billion. We both had really good credit. And I had already arranged to borrow all the money.

Starting point is 00:13:27 All Steve had to do was say yes. Steve proposed a somewhat more circuitous approach. First, persuade Apple to buy next computer. Then Steve would join the Apple boy. and over time the board would recognize that Steve was the right guy to leave the company. I said, okay, that might work. But Steve, if we don't buy Apple, how are we going to make any money? Suddenly Steve stopped walking and turned toward me. We were facing each other when he put his left hand on my right shoulder and his right hand on my left shoulder. staring unblinkingly into my eyes.

Starting point is 00:14:12 Steve said, Larry, this is why it's so important that I'm your friend. You don't need any more money. I said, yeah, I know, I know. But we don't have to keep it. We could give it all the way. I was whining. Steve just shook his head and said,

Starting point is 00:14:34 I'm not doing this for the money. I don't want to get paid. If I do this, I need to do this standing on the moral high ground. The moral high ground, I said, well, that just might be the most expensive real estate on earth. But I knew I had lost the argument. Steve had made up his mind right there and then at Castle Rock in the summer of 1995 to save Apple his way. At the end of the hike, right before we got back into the car, I said, Steve, you created Apple, it's your company, and it's your call.

Starting point is 00:15:14 I'll do whatever you want me to do. I went on the Apple board, and then I watched Steve build the most valuable company on Earth. So pretty incredible story here. It really kind of comes across and shows you how powerful an idea can go, especially when it's backed up with moral high ground, a sense of purpose, not worrying about the money. He was after something that was deep rooted into his soul and not necessarily the external things that so many people start a business for. Obviously, Steve, not starting a business, but taking over a business that he had created. And I think that that's a really, really important thing to highlight when people are thinking about what is the fundamental thing.

Starting point is 00:16:03 driving me to create a business if you're trying to go to that route or to get the job, the next job in the company or whatever it might be. I would strongly encourage people to think about that sound clip. This was just an amazing story. I never heard this story before. So it is well known that Larry Ellison and Deep Jobs were really good friends. And I think there were more than 25 years that were close to being best friends. And they had this very special bond. It also reminds me of this quick story, and then I'll go back to Larry Ellison afterwards. But I reread the book Creativity, Inc. by Ed Cattnell here the other day, where he also talks about this special relationship he has to Steve Jobs, whenever Jobs was acquiring Pixar. He asked this question to Steve that,

Starting point is 00:16:49 what if we disagree? And Steve Job answered, I would just explain it better so you add would understand what I'm right and you're wrong. I remember that. That is ridiculous. Yeah. But anyway, this was really to talk more about Larry Ellison. And I think give credit where credit is due. You know, I don't think he's getting a lot of credit, if not any credit at all for him, you know, making Apple happen too. Yes, he was not the iconic person that you saw there on the billboard, but he had an important role to play and rebuild in that company. I think this story also tells a lot about how underrated Larry Ellison is. I don't even know if we talked about him before on the show, not an episode specifically

Starting point is 00:17:35 about him, but just even in passing. I mean, he is the seventh richest person on the planet. If you look at the other people in the top 10, you know, we have DeF Bezos, Bill Gates, Warren Buffett, Mark Zuckerberg, everyone would be people that we know. And even, you know, you know someone like Steve Jobs, and now we're talking about him again, you know, I'm guilty as charged. And he was not at all as financial successful as Larry Ellison. might be something to do with, we know these other products, we don't know what Oracle is doing.

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Starting point is 00:21:32 This is a paid advertisement. All right. Back to the show. All right. So in the next question here, Larry, it pertains to how he developed his personality and the personality that he thinks contributed a lot to his success. and how it was formed in an early childhood. And here's his comments on that idea.

Starting point is 00:21:52 I don't think my personality has changed much since I was five years old. Probably the single most important aspect of my personality, and as far as determining my success, has been my questioning of conventional wisdom, my doubting of experts just because they're experts, and questioning of authority. And while that can be very, very painful in terms of your relationship with your parents

Starting point is 00:22:15 and your relationship with your teachers, it's enormously useful in life. I was adopted within my own family when I was nine months old. I was born in New York City. My mother was 19. She wasn't married and really was unable to care for me. I tried until I was nine months old. And then I was adopted by my maternal aunt and uncle in Chicago

Starting point is 00:22:35 and moved to Chicago at the south side of Chicago. I believed until I was 12 years old that I was not adopted. I had no idea that I was adopted within my own family. So again, I don't attribute very much of my life, my personality to my adoption. I do attribute an awful lot to my relationship with my father, who was a Russian immigrant, came here, was very, very poor, dearly loved this country as only an immigrant can, loved our government as only an immigrant can. He was a pilot in World War II, a bomber pilot. He really had the philosophy of my country right or wrong. He never questioned the government's policies, never questioned authority,

Starting point is 00:23:27 and didn't really want me to question authority. I had some teachers when I was very young that I thought were telling me things that weren't true. And when I tried to ask questions, they basically wanted me to basically, you know, pare it back what they said. They really weren't interested in a discourse. with a child or a debate with a child. They said this was true and you are smart if you can repeat it back to me exactly what I said to you. And I had a real problem with that as well. So I had very strong authoritarian figures both in school and at home, which served as wonderful

Starting point is 00:24:00 examples of how not to be. So I personally really liked this discussion. And the reason that I liked bringing this up is because it reminded me of another interview that I had heard fairly recently, and I believe I heard the interview on Real Vision TV with Stan Drunken Miller, and he was asked kind of a unique question where evidently Stan has kids and the person interviewing Stan, for people that don't know, Stan Drunken Miller is also a billionaire, a real famous investor who learned under George Soros and whatnot. Anyway, in this interview, Stan was asked, you know, your kids turned out so good. And they've gone on to be successful.

Starting point is 00:24:44 They've grown up to really kind of be great kids. And the person asking the interview says, you know, for a lot of people that come with substantial wealth like yourself, sometimes that's not how things play out for the children that are, you know, grow up in that kind of household where there's this massive amounts of abundance. So how did you do that? And he said something that to me, I'd never heard. before and it kind of really made me think hard and it relates to what Larry Ellison was just

Starting point is 00:25:17 talking about. And Stan Drunken Miller says, you know, I was told once that if you get the first five or six years right, everything else falls into place with your kids. And what he's really getting at is how powerful and how highly influenced a person is with the wiring of their brain at that early, early developmental stage of their life. And what I find fascinating is when you study machine learning and you learn how deep neural networks work, so much of how those neural networks are developing their prediction or their understanding of the data that they're being fed

Starting point is 00:26:00 is highly influenced by the first flow of data that's kind of coming through it, just like how the human brain works. And so what I find fascinating about, Larry Ellison's comments here as he's talking about how the thing that has had one of the most profound impacts on his personality that he thinks is why he's been so successful really goes back to that exposure that he had at a very young age of people trying to force him to fall into line and regurgitate facts and to really listen to authority. And what it has done is it has forced him in the way that he takes in information to do the exact opposite and do it fairly

Starting point is 00:26:46 aggressively. All right. So this is the point in the show where we play a question from the audience. And this question comes from Robert. Hey, Preston. Stig, it's Robert from Northern California. My question today has to do with Buffett's owner earnings. In one of his shareholder letters, he sets out his definition, which is as follows, owner

Starting point is 00:27:03 represent reported earnings plus depreciation, depletion, amortization, and certain other non-cast charges, plus the average annual amount of capitalized expenditures for plant and equipment, etc. that the business requires to fully maintain its long-term competitive position and its unit volume. I am wondering how this differs from EBITA, which is something that he has rallied against in many of his shareholder letters.

Starting point is 00:27:27 Thank you. All right, Robert. So you're digging into some hardcore accounting, and we absolutely love that. I'd just explain it like this. Free cash flow is what he's getting at when he's talking about owner's earnings. So if you go on Google or you go anywhere and you kind of look up the equation for free cash flow, that's pretty much what you're going to find. And for EBDA, this is your earnings before interest, tax, depreciation, and amortization.

Starting point is 00:27:52 And so for Buffett's opinion, the way he looks at EBDA is that depreciation and amortization is a real expense to the business. So not including that in your understanding of what free cash flow is, is just a complete misnomer and something that Wall Street does in order to beef up the multiples that they are able to sell equity for. So that's kind of where all that is coming from. And if you go to one of the shareholders meetings, he talks about the, usually this question gets brought up about EBITA.

Starting point is 00:28:23 And I mean, his point is 100% valid. Your depreciation, even though it might not be something that you're, physically seeing day-to-day or your amortization, it's actually taking place over the long-haul of the business. And that absolutely has to be factored into the expense to the business when you're trying to calculate what something's worth. So I don't know if that really kind of answers your question, but I'm kind of curious they see Stig's take on it. I think this is a really insightful question because if you look at the bottom line and says net income, you know, it would be logic to think that's the money that I can take out of the business. That's my money. As the only,

Starting point is 00:29:00 But the net income, it's more accounting more than anything else. And the frustrating thing about owner's earnings is that you can't really calculate it, or at least you can't be 100% accurate in calculating what it is. So Preston was getting at it before. He said it's the free cash flow. And that is correct. And you can't come up with a number that is free cash flow. But the way free cash flow is calculated is that it's taking your operating cash flow. and then you subtract your investment cash flows. And what Barron Buffett is getting at really whenever he talks about the owner's earnings is the more abstract concept of how much money do we need to reinvest in the business

Starting point is 00:29:43 to sustain that business. So it's something that you have to estimate one way or the other. So if you're looking at a company like Apple, there's definitely capital expenditures for the iPhone business to maintain the current revenue. And then they're setting up their new cloud division. And how does that work? Is that to maintain the current revenue? Is it to grow new revenue?

Starting point is 00:30:06 It's a different number. It's something that I can estimate and Preston can estimate and Buffett can estimate, but we'll probably come up with three slightly different numbers. The reason why you hear Wall Street and so many other people talking about EBITs is because that is very easy to calculate. You can talk about the valuation of a company and say, oh, it's six times EBITDA. the fair value is 15 times EBIT then. And it's very easy to calculate. So it seems that we are

Starting point is 00:30:34 very certain of that is the true value. I would prefer owner's earnings at any time, even though it's harder to estimate. All right, Robert, fantastic question. As a token of our appreciation for leaving your question, we're going to give you access to one of our free courses on the TIP Academy page on our website. The course that we're going to give you is our intrinsic value course. And our intrinsic value course teaches people how to determine the value of an individual stock. It also teaches you how to think about the market cycle and when you're buying your stock. And it also teaches you some stuff about options trading. So we're really excited to give you this course. If anybody else out there wants to check out the course, you can go to tip intrinsic value.com

Starting point is 00:31:15 or you can just go to our website and click on Academy link at the top of the page and course is right there. So if anyone else wants to leave a question on the show, go to ask the investors.com. And If your question gets played on the show, you'll get a free course. All right, guys. That was all that Preston and I had for this week's episode of The Investors Podcast. We see each other again next week. Thanks for listening to TIP. To access the show notes, courses, or forums, go to theinvestorspodcast.com.

Starting point is 00:31:42 To get your questions played on the show, go to AsktheInvesters.com and win a free subscription to any of our courses on TIP Academy. This show is for entertainment purposes only. Before making investment decisions, consult a professional. This show is copyrighted by the TIP network. Written permission must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - TIP230: Billionaire Larry Ellison Lessons (Business Podcast)

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