Speaker 1:
From the Library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership and vision in global business, the dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week, we feature stories of those who hatch plans, create jobs and harness the engine of capitalism, right here, right now at the NYSE and ICE's exchanges and clearinghouses around the world. And now, welcome, Inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
If you crack open David Rubenstein's latest book, How to Invest, and you know a little bit about David, you know there's a shrewd organizer at work. Ever since I've been watching David, he's been interviewing someone on a stage or in front of a camera somewhere. Those interviews, the ones on the record anyway, represent a vast archive of dialogue with leaders, investors, historians, even Sylvester Stallone, to mine for more content later on. Last night, for example, I listened to David speaking with my old White House friend, Ted Whitmer, and my fellow book club member, Jonathan Alter, talking with David about two presidents, Abraham Lincoln and Jimmy Carter respectively, both of whom have connection with David in unique ways.
But this book, How to Invest, is different. As you read in David's notes at the beginning of each interview and in the acknowledgements, many of them were conducted expressly for the book, many recorded virtually over the past year. And it's a deep dive into the investor's brain. I also spent time over the weekend reviewing the episode guide of David's main vehicle over the last six years, the David Rubenstein Show: Peer-to-Peer Conversations on Bloomberg Television presented by Wells Fargo. That's NYSE [inaudible 00:01:59] symbol WFC. Eight seasons, and the first episodes were in 2016. First season in order: Bill Gates, Lloyd Blankfein Warren Buffett, Ken Chenault, Eric Schmidt, Indra Nooyi. Now, I bet most of our listeners of Inside the ICE House can recite bio facts of all of them, but how about the most recent season? Season eight episode one was Anne Wojcicki, episode two Andrew Liveris of Dow and episode three airing on the day that we are talking to David here Inside the ICE House is Sam Bankman-Fried. Sam Bankman-Fried, you know him. We talked about Sam a few weeks ago, back with Chris Edmonds, the Chief Development Officer at ICE. Sam is co-founder and CEO of FTX. And during the most recent crypto winter, Sam sees an investing opportunity of the first order, and he's on a buying spree. And will his vision be rewarded when the winter turns to spring and then summer? Only time will tell, I suppose.
Shrewd organizer that he is, David's book cuts into three categories, mainstream investments, alternative investments and cutting edge investments. And if Sam's interview had been done before How to Invest went to press, David's interview with Sam might neatly fit into the latter category. But what kind of an investment does a sports team represent? In my hometown of Boston, Robert Kraft bought the New England Patriots for $175 million in 1994. John Henry bought the Red Sox in 2002 for about $660 million. Today, those franchises are estimated to be worth $5 billion and $3.9 billion respectively, not a bad return on investment, 28 times over 28 years for Mr. Kraft and six and a half times over 20 years for Mr. Henry. I think I'd take those bets. Both men and their teams have built still growing empires over those investments, and I doubt that they will ever sell. But down in Washington, DC, the Lerner family bought the Nationals in 2006 for $450 million, and now the team is valued at about $2.23 billion. And bidders are lining up with Steve Cohen's 2020 purchase of the New York Mets for 2.4 billion serving as a model.
How do you evaluate the investment? If you read David's book, paying close attention to his notes on investing at the beginning of the book, you consider his rules and perspectives based on 35 years worth of sitting in on thousands of investment committee meetings. David would factor in luck, price, due diligence, management, realistic expectations, rate of return, commitment, value added and the timing of the deal, all sound, salient pieces of advice. In his first appearance on Inside the ICE House back in 2018, David said, and I quote, "I don't really want to slow down. I'm trying to do what I can sprinting to the finish line, which is to say, get as many things done as I can." Well, he's been sprinting indeed, interviewing investors for his book and looking at all kinds of investments for himself as he writes for people "who want the pleasure and excitement, though, at times the risk and pain of investing their capital directly." His rule number one: do not risk more than you can truly afford to lose. You learn that and a lot more in How to Invest: Masters on the Craft out now from Simon and Schuster. Our conversation with David Rubenstein is coming up right after this.
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Josh King:
Our guest today, David Rubenstein, is the co-founder and non-executive chairman of the Carlyle Group. He also serves as the chairman on the boards of the Kennedy Center, the Council on Foreign Relations, the National Gallery of Art, the University of Chicago, just to name a few. David is also the host of two shows on Bloomberg TV and New York Historical Society Podcast and has written several books, including his most recent, How to Invest. Welcome, David, Inside the ICE House.
David Rubenstein:
My pleasure. Thank you for having me.
Josh King:
So luck, price, due diligence, what goes into evaluating an investment in a sports franchise?
David Rubenstein:
While sports franchises are a little bit different because there are some ego involved as well, but the return is not the most important factor. But it is a factor. Many people who buy sports teams are interested in things other than just the rate of return. But as you've noted, the rate of return in sports investments has been pretty attractive on recent years as people increasingly get into this area. And now, you're going to see sovereign wealth funds coming in as passive investors. You're likely to see private equity firms getting in as well. So it's not just a few wealthy people who have some extra cash buying these teams.
Josh King:
I lived in Washington for a long time, looked at the south side of the river, Anacostia, wondered what could ever be done there. What the nationals have done on that piece of real estate and the way they've expanded the geographic footprint of Washington DC and created a lot of economic development beyond the franchise and the stadium itself, it's huge.
David Rubenstein:
It's true. The Lerner family owned a lot of the land around the National's park, and they helped develop it. And now it's a bustling. Area they're selling now. It's been public information they're selling. They are talking to a number of people, and I suspect by some time at the end of the year, something will get done.
Josh King:
I'll be tuning tonight to watch your interview with Sam Bankman-Fried. What should we expect?
David Rubenstein:
Sam, for those who don't know him, is a 30-year-old who at one point was worth $22 billion. He's the youngest person who signed The Giving Pledge. He's also a person who created FTX, which is one of the biggest crypto exchanges. He's unusual. He lives in a dorm room, more or less, in the Bahamas with a number of friends. He only owns one suit. Everything else is tennis shoes, shorts and T-shirts. He doesn't really aspire to spend a lot of money. He gives away a lot of money for philanthropic purposes and very involved in politics, now giving away money to politicians and political contributions. He's unusual.
Josh King:
Quite a journey for you, David, from that first show with Bill Gates. What are the similarities and differences on spectrum of perspectives from the very beginning with Gates and now your sit-down with Sam?
David Rubenstein:
Well, Bill Gates is a different personality. He was a really good investor or capitalist, I would say. He built a great company. Very smart in terms of technology. Sam Bankman-Fried is as well. When I started doing these interviews, I didn't have as much experience as I do now. And you have more experience than you did when you started this presumably. So I've learned some things I did wrong and some things I could do better, but I've found it easier to get people to come now because now people have seen the show. And it's seen all over the world, so people actually know it quite well. And I've been surprised that many times when I go somewhere outside the United States, people come up and they want a selfie with me. And many of these people are younger, and they don't know that I've ever done anything other than interviews. They think I'm a full-time interviewer.
Josh King:
I wanted to ask you about how you feel about this journey as this full-time interviewer. All these many years, as you moved from the day-to-day work of running Carlyle to the journeys into the minds of these leaders, these investors, and then people like Ted Whitmer and Jonathan Alter. Your sprint to the finish line is turning out to be more like a marathon.
David Rubenstein:
Well, I'm living a little bit longer than maybe I thought. I'm in pretty good health. I'm now 73 years old. I just turned 73. When I joined a law firm and I started my career at 23, the head of the firm, Judge Rifkin, came in and gave us a talk to all the young people. And I remember thinking he was a [inaudible 00:10:15] old man. I looked it up recently. He was 71. So he was two years younger than I am today. And I remember telling President Carter that he would win reelection because Ronald Reagan was so old. He was 69. Anybody that old couldn't get out of bed in the morning. Now 73 seems like a young age to me. So it's something I didn't anticipate would happen.
Josh King:
On the topic of history, on longevity, one of the books that you published since we last sat together was the American Story: Conversations with Master Historians, which you published in 2019. One of the sections there was David McCullough on John Adams. Let's hear a little bit of McCullough talking to Rita Braver about Adams 20 years ago.
David McCullough:
... the book about Adams and Jefferson and their crisscrossing intertwining lives. And the more I got into it, the more I read, the more I discovered how much I didn't know about John Adams.
Rita Braver:
And so he decided to drop Jefferson and focus on Adams. What kind of a human being was he?
David McCullough:
He's this rather a short, stout, round-faced to fellow, who loves to talk, loves to have a good glass of Madeira, loves his family and friends around him.
Rita Braver:
But why is Adams the least known of the founding fathers? McCullough says it's in part because he was not as dashing as Washington or Jefferson, not as folksy as Benjamin Franklin.
David McCullough:
He's quick tempered. He's abrasive at times. He's often tactless. He can be very vain. He is brilliant. I think that's probably as important as anything to know about John Adams. He had a great capacity to move people with the force of argument. He was himself a force.
Josh King:
David, we lost David McCullough earlier this month at age 89. What did America lose with his passing?
David Rubenstein:
He was a great storyteller. He wrote books about people that were well-known, but their stories weren't as well known as he made them become. So his book on John Adams won the Pulitzer Prize. His book on Harry Truman won the Pulitzer Prize. His book on the Panama Canal really helped influence Jimmy Carter to give back the Panama Canal to the Panamanians. He's had a lot of influence with his books, and he was somebody I interviewed several times in front of members of Congress. He's always effusive. You could see why he was so popular. And I'll tell you one little story about him. He told me once he had a unique technique of writing books. He would write the paragraph and then he'd have his wife Rosalie, who passed away just a little bit before he did, read the paragraph back to him. And he would make sure that it sounded right, not just read right.
One time after doing this back and forth, I think it was on the John Adams book, she said, "David, this sentence doesn't really work." He said, "Read it again." And he said, "It's okay." She said, "No, it's not a really good sentence." "Read it again. Damn it," he said, "it's a good sentence. Keep it in there." And so that was it, and they kept it in. The review came out, and Gore Vidal wrote a review of it. And the review said, "This is a spectacular book. I've enjoyed every part of it. But there's one sentence in this book that's terrible. And let me tell you what that sentence is." David was a person who, if you were to put a historian on Mount Rushmore, it would've been David. He had not just ability to write well, but he could talk about his books with such enthusiasm you felt like you were living there at the time that the story was written about. So his books were great. I interviewed him most recently on his last book. It was called The Pioneers, which was about the settlement of the west, and before that, The Wright Brothers. And I interviewed him about some other books, but a great person. We really lost a great American when he died.
Josh King:
So let's now consider the new book, How to Invest. It describes investing as the ability to predict the future. Obviously, if you're going to buy a baseball team, you want to make sure it's going to have a good return. But you are arguably best known for your work in preserving the past. You bought the first printing of the Declaration of Independence. You bought Abraham Lincoln's signed copy of the Emancipation Proclamation, even a 1297 copy of Magna Carta, loaning them out for public display. Predicting the future, on the one hand, in this book and preserving the past, a lot of your life's work, do you see a connection between the two pursuits?
David Rubenstein:
Well, I'm preserving the past. I'm trying to remind people of what happened before on the theory that if you don't remember the past, you're condemned to relive it. That's a famous saying by a number of historians. And so the idea is learn the past and avoid those mistakes. And so I think it's a good thing to teach people about the past. In terms of the future, what I was trying to point out of the book is that all of life is about predicting the future. When you meet your spouse, you go to college, whatever you do in life in terms of your career, you're predicting the future. You're saying this will be a good career for me because something will happen in the future that'll make this career a good one. This spouse will be a good partner for me or so forth. There's no perfect way in life to measure by metrics whether you've made a right decision on your future guess about whether your partner's going to be the right one or your career's the right one.
In business and investing, we have a perfect metric. It's profitability, earnings per share, so forth. And so in the business world, you're making a prediction of the future, but we have a very, very good way of measuring whether your prediction is good or not. And what I try to do is take the leading investors in the United States and people who have been making great predictions about the future in their given areas, it could be distress bonds, or it could be venture capital, and figure out why they did so well. What did they have in their background? How did they become the masters of their craft? And then hopefully, some of their wisdom will seep down to the reader, and the reader will learn how to be a better investor, not so much because you're going to be the greatest investor in the world if you follow these people because that's hard to do. But it can, I hope, give you some insights about what it might be to be a better investor, even if you're an amateur investor.
And I hope to inspire as well younger people to go into the investing business, not because I want them to get rich and become members of The Giving Pledge, but because I think allocating capital is a very important thing that made America great over our history, and it will in the future. Again in other words, if a venture capitalist allocates capital to something like Moderna, that can have a great benefit to our country. Or allocate capital something like Facebook or Apple, and that can have a real benefit as well. And so I really think we should not look at people who are investors as just rich people making even more money for themselves but as people who are helping a country grow by allocating capital in ways that'll make the country have more jobs and more wealth.
Josh King:
And we had Steve Schwartzman on the show when his book came out a couple years ago. One of his mentees, the person who's now running the firm, John Gray, and Sam Zell, they almost made their fortunes and burnished their investor reputations on deals they did together, a buyer and a seller.
David Rubenstein:
That's correct. And the deal you're talking about, and I refer to in the book, as I interviewed both Sam Zell and John Gray in this book. Sam Zell had built the largest office buildings in the world, and he sold it to John Gray. But John Gray, sensing maybe it was a little overpriced, sold off three quarters of the portfolio before he closed the deal. And therefore, the part he kept was the best part. Many of the people that he sold the portfolio to didn't do as well. But John Gray made a fortune for Blackstone and its investors by keeping the best part of it.
Josh King:
The book starts with an investment or a prediction that didn't go so well for you, David. Here is the result of one of them.
Jimmy Carter:
I promised you four years ago that I would never lie to you, so I can't stand here tonight and say it doesn't hurt. The people of the United States have made their choice. And, of course, I accept that decision, but I have to admit not with the same enthusiasm that I accepted the decision four years ago.
David Rubenstein:
Well, that was Jimmy Carter on the night he lost the election to Ronald Reagan famously. He made that speech before the poll had closed in California. And some people supposedly walked away when they heard the results, and they didn't vote. And therefore, some Democratic Congress people lost their seats. Jimmy Carter I thought would win reelection despite the fact we had the hostages in Iran, we had gas lines, we had economic problems. I just didn't think Reagan was conversed enough with the issues to be competitive with Carter, but I was wrong.
Josh King:
The core of the book, a collection of interviews, some from the Bloomberg Shows, others done exclusively for the project. Let's hear a cut from your episode three of that first season of the David Rubenstein Show with the Oracle of Omaha, Warren Buffett.
David Rubenstein:
And so the greatest pleasure in your life other than doing interviews like this is, what, looking at new companies, making investments, giving away the money? What gives you the most pleasure? Your grandchildren?
Warren Buffett:
All of the above. But the truth is that I regard Berkshire Hathaway like a painter regards a painting, the difference being that the canvas is unlimited. So there's no finish line at Berkshire, and it's a game that you can continue to play it.
Josh King:
The canvas is unlimited, David. What's your canvas to prepare for an interview, and how much of your side of the conversation do you like to be scripted or basically go in and bounce off of wherever they're going?
David Rubenstein:
Well, I try to do as much research as I can. And then I prepare the questions that I intend to ask, and then I kind of memorize them. And then when I do the interview, I don't use notes. People ask me about that. But my theory is that when having a conversation with somebody, it looks better when you are just conversing with them, not looking in your notes. And the notes can be distracting as much as helpful. As Oprah Winfrey told me when I interviewed her, she said, well, she's not a great interviewer, but she's a great listener. And if you're going to be a good interviewer, what you have to do is listen to what the person says and pivot, even if it's not something you anticipated you would ask somebody about.
You also, I think, when you're doing a good interview is let the interviewee talk. There's some interviewers I've noticed over the years who try to show you how smart they are by asking a convoluted question showing their intelligence and their research. There's no answer time left for the person who is the interviewee. And so let people give their answers. And also I try, as you probably know, to interject some humor from time to time and generally self-deprecating humor, which usually works if you know how to do that. So I enjoy it. And it intellectually keeps me vibrant because you have to prepare, you have to read and you're not just sitting around doing nothing. But when you're preparing for these interviews, as you have obviously done for this one, you do a lot of work, and it keeps your mind sharp.
Josh King:
It does keep your mind sharp. And throughout the book, and especially in the early parts as you're giving your rules for investments, whether it's a personal investment or an investment in fund or leading a business, a lot of what you've said over the years is that one of the keys to success in this is this basic skill that we were taught in elementary school, the ability to read. And obviously, you spent a lot of time reading. How does that fit into your routines now?
David Rubenstein:
I love reading. I came from very modest circumstances, and my parents couldn't afford to buy books. So they would take me to the library, and you could take out 12 books when you were six years old. And I would take them out. I'd read them one day, and I had to wait another six days before I could take out another 12 books. I loved reading, and I still like reading enormous amount. And I don't read everything. I'm not good at reading fiction. I do read a lot of nonfiction, and I do it in part because I have a trick, which is I'm off to interviewing the authors. And I have theory that you should read the book before you interview the author. And so I'm always juggling these books, two or three at a time, and I enjoy it. It's not work for me.
Josh King:
Do you think you've improved or changed as an interview over the years?
David Rubenstein:
I would hope I'm getting better, but it's always hard to do that introspective look at whether you're doing better or worse at something. But people seem to like the interviews, and I'm surprised at how many people actually listen or watch the interviews. And so many people tell me how I can do this differently or why I didn't do this the right way. But generally, people seem to like the interviews.
Josh King:
Talking about your work on investment committees, does reading and thinking about the questions that you're going to ask help in the role that you play these committees?
David Rubenstein:
Yes. When I'm on investment committees, I like to ask questions that the average person might not ask. And I try to ask them with sometimes some wit. Sometimes the question is asked in a way where the person knows that I know what the answer is, but I want to hear what their view of what the answer is. But generally, I'm trying not to be cute but to learn something and be respectful of the person. I'm able to get people to sit down with me because they know that I'm not going to embarrass them.
Josh King:
A couple episodes ago, we talked to Greg Steinmetz about his recent book on Jay Gould, who operated at a time where a hostile takeover often included physical conflict with the parties involved. And today, David, there seems to be a more congenial relationship between successful investors like John Gray and Sam Zell, even though you show that their ideology and strategies are often in opposition to each other. Why do you think that is?
David Rubenstein:
Well, today, the rules of engagement are such that the courts really have the way to resolve these disputes. And people recognize that. People tend not to get in physical fights over corporate matters as much as maybe they did many years ago. The same as true on Congress. Congress people are fighting all the time intellectually, but they're not hitting each other. There's a book not long ago about what happened in during the Civil War period of time when people were hitting each other on Congress. And I think there were 60 fights on the floor of the Congress, and some people were almost killed on the floor of the Congress. We don't have that so much anymore.
Josh King:
I wonder if there's someone from Gould's era or earlier you think you could have provided an interesting perspective in the pages of How to Invest, Vanderbilt, Morgan, Astor, Carnegie, Hearst. Who would you like to have interviewed for that book, and how do the robber barons of old differ from Bezos or Zuckerberg today?
David Rubenstein:
Well, it's an interesting question. I've thought about the fact that we don't have interviews of people from more than 100 years ago. The interview concept that you and I now are engaged in was not a common currency then. So I wish we had interviews of Shakespeare or of Cleopatra or any famous other person you might mention. We don't have those. And I wish we could do it. I've thought about doing a book of people who weren't alive when interviews were done and then have an expert who would represent Shakespeare and give the Shakespearean answers for what Shakespeare's interview would've been like. So I'd love to ask Shakespeare who really wrote those plays. Or Henry VIII, why didn't you just get a prenup with your wives as opposed to chopping off their heads? Or Cleopatra, who was a better lover, Mark Anthony or Julius Caesar? These are the things that people want to know, but we are never going to find the answers to those.
Josh King:
Some of the answers that I want to know about the present day, David is, what makes Jim Simons tick? You asked me before we started talking on the air about what some of our favorite episodes have been of Inside the ICE House. One of them was Greg Zuckerman. We had him on a couple times. You talk about it the effort that it took to get Jim Simons to open up to agree to be interviewed. You talked to him, Bruce Karsh and several other tightlipped investors for this book. What's your strategy to get someone to open up to you?
David Rubenstein:
Well, generally, it takes knowing them. So Jim Simons and I were both the initial signers of The Giving Pledge. I've spent some time with him socially and philanthropically. We were in the board of the Institute for Advanced Study together, so I got to know him. And when I asked him if I could do this interview, he wasn't jumping up and down saying, "Wow, I really wanted to hit this interview with you," but he did it. And as you know, with Jim, you have to put up with some cigarette smoke because he smokes incessantly, and he doesn't wear socks. So it's a little distracting to see somebody smoking with no socks on while you were trying to interview him, but that was the way it was with Jim. Bruce Karsh's case, he was on the Duke Board with me for about a decade, and he had never done a public interview before. Bruce is a partner with Howard Marks, and Howard takes care of all the interviews and done a wonderful job at it. And Bruce just had never done an interview, but he agreed to let me interview him. And I think the interview was pretty good.
Josh King:
One of your other interviewees, Warren Buffett, famously said that the reason most people don't follow his investment path is "because no one wants to get rich slowly." But is there a way to create sustainable wealth without going slow? And what are the universal traits that you found all successful investors have?
David Rubenstein:
Successful investors basically come from reasonably good backgrounds. They're not generally poverty stricken. They come from, I would say, upper-middle blue collar or middle class backgrounds. They tend to be good with numbers. They tend to do reasonably well in school, though some exceptions. Some weren't great students, but they generally are good in math and are generally good in school. They tend to be people who can make quick decisions. They tend to be people that like to be in charge. They also are willing to go against the conventional wisdom, which is the most important thing. They're willing to say, if everybody's going this way, I'm going to try something different. I'm going to go a different way, and that has usually worked out for them. So there are a lot of things in common that they have.
Josh King:
There's a great quote in the interview that you did with Paula Valente. She quotes Leonardo DaVinci saying, "Great is the student that exceeds the master." Are you bullish on the upcoming generation of investors who seem equal parts inspired by the people you interview in the book on your own shows but grow up embedded in technology that's transforming the world, like Sam?
David Rubenstein:
Well, she gave that quote because that quote had been given to her by David Swenson for whom she worked. And David Swenson found out that she had actually exceeded over the last 10 years his investment returns at Yale when she was running the endowment at Boden. And she actually did better than the master, which was something that he was willing to concede. Generally, I'd say investors have many different ways of doing what they do, and there's no one common way to do it. And you can't say, go do A, B and C, and you're going to become a great investor. Everybody has their own story. Paula Valente, for example, was an art conservator. She was starting a little business of art conservation, and people said, well, you should run a business. You should go to a business going learn something about a business. She went to Yale School of Management, hooked up with somebody who was in the investment [inaudible 00:27:49] David Swenson. And then she ultimately worked there for a while and then ultimately got the Boden job. Now she runs the Rockefeller University Endowment and is one of the best investors in the country.
Josh King:
After the break, David Rubenstein, and I will continue our conversation on some of the surprising lessons contained in his new book, How to Invest: Masters on the Craft, out now from Simon and Schuster. That's coming up right after this.
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Josh King:
Welcome back. Before the break, I was talking to David Rubenstein about his writing process, his interviewing process as it relates to investing. David, about investing in talent, just as a bit of a digression before we get into the second part of the show, the talent that comes out of Carlyle have gone on to great things. One of our competitors, Adena Friedman, runs NASDAQ. She had a long career at Carlyle before she left. One of your co-CEOs Glenn Youngkin, ran a very impressive campaign in Virginia and is now the governor of Virginia. Speculated about a future presidential candidate of all things from a guy coming out of Carlyle. You used to just have presidential staffers. Now you have potential presidents. And also Carlyle being in the news over the last few weeks, the stepping down of Kewsong Lee. What about investing in talent is a trait of Carlyle and investments that go great in investments that don't?
David Rubenstein:
Well, I've tried over the years to bring in people that are talented, and we hired a lot of prominent former government people. Some people who went on to government power and fame. I take some pride in being able to figure out whether people are good or not and whether they're going to fit in or not. And some people are really talented. Some people are less talented than they turn out than I thought they would be. Jay Powell I always thought was a very smart person. But did I think he'd be chairman of the federal reserve? Not when he left the firm. But that I think Glenn Youngkin would get elected governor? I didn't think he would get elected governor of the first try. Do I think he might be president? Who knows? But George W. Bush was on one of our boards, and he later stepped down from the board and got elected president of the United States. So who am I to say?
Josh King:
How to Invest begins very interestingly with your own advice on investing. Did you end up writing that before or after putting together the rest of the book?
David Rubenstein:
In the middle. As I was doing some of the interviews, I thought I should describe my own views on investing. And I distilled them, and then I tore it up a couple times. And I patched it back up, and then I went to the editor and he said, "It's not as bad as you think. And it actually has some things that are useful." I showed it to some people, and they thought it was good. So I edited it over seven or eight times and tried to give my own views on investing. And I don't claim to be a great investor. I claim to be somebody that's hung around a lot of great investors, but I don't claim to be a great investor. But I distilled what I've learned over the years, not because I'm a great investor, but hanging around good investors. And I hope that people will find it useful.
Josh King:
I mentioned some of them in the introduction, timing, due diligence, but if you could summarize the 10 pages as you thought about it, as you reflect on having the book done, what do you think are the takeaways for being a good investor?
David Rubenstein:
Well, if different things, if you are not a professional investor, you're an average person, and you don't know much about investing, you should get people that do know something about it and give them the money. So invest in funds that other people do the management. How do you know what the funds are that are appropriate? Well, look at the track record of the fund, look at how much money the people running the fund are put into it. Who else is investing alongside you? Can you understand the fees? Can you understand current valuations? What's your access to getting current information? Things like that are important, but most important thing is learn about what you're doing. Read about it. Read in about the investment. Keep up with it. And then also, don't put any more money into investment than you can afford to lose. Diversification is probably the most important principle of all, but don't put all your money in one area because it might not work out.
Josh King:
Two dozen interviewees in the book. How did you go about curating that list and deciding who was going to be in and who wasn't?
David Rubenstein:
It's a challenge. You never know if somebody you're seeking to have an interview will say yes, and then sometimes they do. But when you ask people for interviews, then let's say you get more people saying yes than you thought. What do you do? You don't call them back and say, well, now I don't want you, so you do the interviews and then see how they go. But I didn't get to put in all the book all the people who I did interview for the book. And so I didn't how to go back and tell people, your interview was good, but the publisher said I don't have enough space. So for some of those people, I actually put them in the audio version of the book. The audio version, actually, you have the actual tapes of the interviews. And so there are about five people who I didn't put in the published version of the book but are in the audio version of the book. And I hope that people don't feel it's second class participation in the book.
Josh King:
Of those that are published in the paper pages of the book that I read over the weekend anyway, 25% of the voices in the book are female. When we spoke the last time on the show, you talked about how finance lagged other sectors in promoting women. Have you seen the change in the industry?
David Rubenstein:
It's changing but slowly. And obviously, at the entry levels, there's more and more women coming out of college going into finance. It's better at the lower levels, but there are very few people running big hedge funds that are female, relatively speaking. And there are very few people running big private equity funds that are women, relatively speaking. But I did find a number of women who are very talented investors, and they are in the book. Paula Valente is a good example. Kim Lew is another example. And then, of course, the person running George Soros' money today is female. And there are a lot of really talented female investors today, and I tried to highlight some of those.
Josh King:
One of those that you just didn't mention is Sandra Horbach, who's a partner and co-head of US buyout and growth at Carlyle Group. As you talked to her, did you learn anything about the company that you started?
David Rubenstein:
Well, Sandra is somebody that I helped to recruit to Carlyle many years ago. She had been a Teddy Forstman's firm, and she was an early person in the buyout world and one of the fierce women in the buyout world. And I put her in the book, even though I said at the beginning I could have had many different people from Carlyle in the book. But I wanted her because she was the most senior female in the entire private equity world today. She's a very talented person. She actually intended to be a Chinese, I think, scholar and studied Chinese and then ultimately didn't find anything in the foreign policy or career area for her. So she went to business school ultimately at Stanford, but she's done a really good job at Carlyle. She's now the co-head of our US buyout effort.
Josh King:
As I mentioned in the introduction, the book is divided into three sections, mainstream investments, alternative investments and cutting edge investments. Can you explain how you divided the investors, and did anyone object to the bucket they were placed in?
David Rubenstein:
I didn't ask them whether they liked the buckets or not. I came up with the buckets because I had to find some defining organizational principle. So the traditional ones, the mainstream ones, would be stocks and bonds and traditional real estate. Then alternatives is that what we now know as buyouts or venture capital or distressed debt or things like that. The cutting edge ones are the ones that you could say they're alternative, but they're relatively new. So for example, cryptocurrencies or SPACs or infrastructure investing. I call that cutting edge. Obviously, you could have a debate on whether these categories are appropriate. But when you're writing a book, you have to have some organizational principle, and that's the one I came up with.
Josh King:
I want to spend a little time on this third section because cutting edge does cut across a lot of different spaces from crypto to infrastructure, airports and runways. And you don't think so much of that as cutting edge, but through the pages of your book, it certainly comes out that way. Given when you learned from Mike Novogratz and now Sam in the interview that we'll watch tonight, how has your own thinking evolved around crypto?
David Rubenstein:
Well, in crypto, I used to say that it's like gambling in Las Vegas. If you know you're going to lose money in Las Vegas, fine. If you enjoy the pleasure of losing money and gambling, fine. But don't lose more than you're can afford to lose, and put 1% or 2% or 3% into this. I used to say that. Now I feel that crypto is not going away. It's not going down to zero, even though some people in the book, like John Paulson, think it's going to zero. I think in the end, the young people around the world seem to like this as a way of not being dependent on government for currency. And I think they like the secrecy of it. And I think they like the frequency of the trading operation of currency that crypto also has. But I think crypto will be around for a while.
Blockchain, obviously, will stay with us for quite some time, forever maybe. But crypto is something that isn't going away, and it's not going to be overly regulated, I think, in this country because I think a lot of people who care about crypto tend to be very libertarian, tend to be very, I'd say, Republican. And they have lobbied members of Congress to not kill this through excessive regulation or legislation. So I think there's a fair amount of support for keeping the crypto world that we currently have like we currently have it. There might be some more regulation but on not undo regulation that will kill it.
Josh King:
You noted in the introductory notes of your interview with Betsy Cohen, who's the chairman of FinTech Masala. But how, if at all, do you think Betsy would revise her thinking on SPACs given the way the market has evolved since you interviewed her almost exactly one year ago today, September 2nd, 2021?
David Rubenstein:
Well, she would say those people that really know what they're doing in this SPAC world and have specialized, and she specialized in financial service SPACs, have done reasonably well. Obviously, 90% of the SPACs that are still public are underwater or something like that. She would say that the SPAC world has its ups and downs. If you're going to do a spec, do it where somebody really knows what they're doing, like her and her company. But today, there's no doubt that the SPAC world is really totally dormant, and nobody's getting specs off the ground today.
Josh King:
I mentioned that cutting edge and crypto are an obvious pairing in the final section, but you include this conversation with Adebayo Ogunlesi about infrastructure in the same section. If you look around this library, if you and I walk down in the hall to our bond room, you see the NYC's been trading bonds and stocks related to infrastructure for 230 years, not so cutting edge. What's happening that puts it on the cutting edge?
David Rubenstein:
Well, I said it was cutting edge because it wasn't until Macquarie Bank in Australia started buying some airports in Australia, and they had very high rates of return. And then they began doing this in the United States and Europe. And all of a sudden, pension fund investors and people like Carlyle and Blackstone and others, said, wait a second, this is a new asset category. People hadn't thought it was a great asset category because the returns are relatively modest compared to private equity and you have to hold on for a very long time. It turns out a lot of pension fund investors are willing to hold on for 10 or 15 or 20 years if the rate of return is reasonably good and reasonably predictable. So yes, infrastructure investing's been around for a long time, hundreds of years, but it's relatively new in the sense that major private equity firms and major public pension funds are now adding this as a separate asset category, where they didn't have it 20 years ago.
Josh King:
Bayo was talking about, and a lot of people say this, President Trump said this, you fly from Zurich, Switzerland or in countries, far less developed in Switzerland, and you land in the United States at Kennedy Airport. And it seems like you've gone from the developed world to the less developed world. Do you as an investor with the funds at Carlyle expect that we are going to see, as Bayo talked about, the takeover of the British railroads after Margaret Thatcher, that people are going to kind of get the program better in the United States and fix some of our infrastructure here?
David Rubenstein:
Well, everybody loves infrastructure. It used to be called pork barrel legislation in Washington. When they renamed it infrastructure, it got to be more popular. But we pass an infrastructure bill under President Biden, and that money will go into the economy over a 10 year period of time. So over 10 years from now, or over 10 year period of time I should say, you'll see more and better airports. We haven't built a really new airport in this country since Denver was built about 25 years ago or so. And so it's sad. When you land in JFK, as you suggest, you think you're in a third world country sometimes. And it's amazing how bad it is. But when you go to Hong Kong or Singapore or other countries or Abu Dhabi, the airports are wonderful.
Josh King:
Bayo talks about this too. What is it about the United States where the states and cities and municipalities want to own the infrastructure themselves rather than privatize and let the private sector take it?
David Rubenstein:
Well, one of the reasons is that they are heavily unionized, and there has been a feeling, rightly or wrongly, by many of those unions that if you let private equity people come in or other private sector people, they will reduce the number of jobs. They'll make it "more efficient," and they will not be as good employers as the municipalities or other government entities are. Whether that's fair or not, that's the perspective. So it's very difficult to privatize things in the United States. You see much more privatization occurring in Europe. But for example, the New Jersey Turnpike has been talked about being privatized for years but not been privatized. The Pennsylvania Turnpike, many times the union workers there just are afraid, maybe rightly, maybe wrongly, that their jobs will be diminished or if not eliminated by the private sector people coming along. So it's very difficult to do this.
Josh King:
As we wrap up, David, one of the topics that we talked about on your first appearance a little over four years ago was the national debt. And you predicted it would reach $30 trillion in the next five years. And at the time of this recording, it's hovering around $31 trillion. Are you concerned about the debt today as you were a couple of years ago?
David Rubenstein:
I'm more concerned because a couple years ago we were paying very low interest rates on this debt. Now we're paying much higher interest rates, and it's going to go higher as the interest rates go up. And under President Biden's budget, he points out, if you actually read the whole budget, that, I think, by the year 2050, 50% of our budget, if we don't make changes will be paying interest on the national debt. Now, obviously, that's not sustainable, but right now, about 10% or more of the budget is paying interest. And we just can't afford to do that and afford all the other things we want. So it's a big challenge, and there's no easy way out of it. Probably the only way we're going to get out of it is inflation. We're going to inflate our way out of it. We're not really going to default on the debt, and we're not likely to cut spending or increase taxes efficiently to really deal with a problem.
Josh King:
Final question. Based on the pattern that you've established over the last six years of book writing, the next book title is going to start with the American something. Are you planning on writing another book and what will it be about?
David Rubenstein:
I am. I'm working now on a book on great American entrepreneurs and what it took to build their companies. And then I'm also working on a book on Abraham Lincoln and his unique characteristics as president of the United States.
Josh King:
Will you come back and talk to us about it?
David Rubenstein:
I'll be delighted if you invite me.
Josh King:
Thanks so much.
David Rubenstein:
My pleasure. Thank you.
Josh King:
That's our conversation for this week. Our guest was co-founder and non-executive chairman of the Carlyle Group, David Rubenstein, whose book now is How to Invest: Masters of the Craft available from Simon and Schuster. If you like what you heard, please rate us on iTunes so other folks know where to find us. And if you've got a comment or a question you'd like one of our experts to tackle on a future show, email us a [email protected] or tweet at us at #icehousepodcast. Our show is produced by Pete Ash with engineering from Ken Abel and Ian Wolf. The director of programming and production of the New York Stock Exchange and ICE is Marina Stanley. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.
Speaker 1:
Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties, expressed or implied, as to the accuracy or completeness of the information and do not sponsor, approve or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing here in constitution offers to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purposes of length or clarity.
