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February 13 - February 16, 2020
Monsanto, which made Agent Orange, both used to kill or maim people in Vietnam.
For a business to succeed, each part has to work on its own and with all the other parts. It’s a closed, integrated system, organized by managers. If you are making cars, you have to have good research so you’ll know what people want to buy; good design, engineering, and manufacturing so you can produce a good product; effective programs to recruit and train your labor force; good marketing so you can create desire for what you are making; and good salespeople who know how to close deals. If any parts in the system break and you can’t fix them quickly, you risk losing money and going out of
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investment banks did two things. First, sales and trading, which meant buying and selling securities such as bonds, stocks, options, Treasury bills, financial futures, commercial paper, and certificates of deposit. Second, they advised corporations on financial alternatives, capital structures, or mergers and acquisitions.
When I started in finance, I was ill prepared for the stress of the work. Every point in every negotiation was a fight, with a winner and a loser. People in this business weren’t interested in carving up the pie so everyone got a slice. They wanted the whole pie for themselves.
it’s as hard to start and run a small business as it is to start a big one. You will suffer the same toll financially and psychologically as you bludgeon it into existence. It’s hard to raise the money and to find the right people. So if you’re going to dedicate your life to a business, which is the only way it will ever work, you should choose one with the potential to be huge.
“Financial institutions go broke in a day,” he told me. “It can take years for an industrial company to lose its market position and go bankrupt.”
Businesses often succeed and fail based on timing.
two-round sealed-bid auction.
“If you don’t want the cash, I’m going to substitute a private issue, PIK [payment in kind, i.e., not cash] preferred stock with no maturity date.”
By paying attention to Nikko’s needs rather than ours, a possible solution had materialized for both of us.
USX started as U.S. Steel, the company created in 1901 by J. P. Morgan when he bought Carnegie Steel from Andrew Carnegie and his partners, including Henry Clay Frick, in what was then the biggest leveraged buyout in history.
Safety also demanded diversification.
As the business got healthier, the company would seem less risky to lenders, and the interest rate we paid would change to reflect that.
mortgage-backed securities.
Taking on debt, assuming you can pay it back, can substantially increase your return on equity.
the chief investment officer of Presidential Life, which had invested in our fund. He wanted to see me. I took a cab to his office in Nyack, on the Hudson above New York. He asked me to sit down and started screaming at me.
Finance is full of people with charm and flip charts who talk so well and present so quickly you can’t keep up.
Ellen and I divorced in 1991,
my number one rule for investing: Don’t. Lose. Money.
You could ruin the firm or your reputation with one bad investment.
Under the terms of my departure from Lehman, we could not hire our former colleagues.
100 percent on everything.
I had seen people compromise their integrity with disastrous consequences for themselves, their firms, and their families.
When you enter a market, you send signals with every choice you make, from the people you hire to the offices you rent. They are an important piece of your brand.
the best way to get what you want is to figure out what’s on the mind of the person who can give it to you.
The argument against us has always been that private equity is no more than financial engineering practiced by a small bunch of people far removed from the factories, shops, buildings, and labs where the real work is done. That is not us. We step into markets when we see a dislocation. A great company hits a rough patch and needs financing and operating intervention to help it through. An infrastructure project needs capital. A corporation wants to sell a division and invest its capital elsewhere. A terrific entrepreneur wants to expand or acquire rivals, but banks won’t lend to him or her. We
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all the steps a start-up must take, from hiring people and raising money to developing a product and going to market.
If you are going to start a business, I told them, I believe it has to pass three basic tests. First, your idea has to be big enough to justify devoting your life to it. Make sure it has the potential to be huge. Second, it should be unique. When people see what you are offering, they should say to themselves, “My gosh, I need this. I’ve been waiting for this. This really appeals to me.” Without that “aha!” you are wasting your time. Third, your timing must be right. The world actually doesn’t like pioneers, so if you are too early, your risk of failure is high. The market you are targeting
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finding the right people is the most important thing you can do.
Finally, to succeed as an entrepreneur, you have to be paranoid. You always have to believe your company, regardless of size, is a little company.
All my life, I have been looking and listening for patterns.
the tech bubble in 2001 and owned through a robust recovery. These were cyclical companies whose fortunes rose and fell based on the health of the overall economy.
So tech is a luxury?
Another common practice we found in real estate was retrading.
collateralized mortgage-backed securities (CMBS)
We couldn’t get a sum that large from just one bank, so we had gone to several, as is standard practice, committing them exclusively to our bid and tying up their resources.
My grandfather died in his forties, and I often thought I’d go early. As a teenager, I was in two near-fatal accidents in cars. In 1992, I got tuberculosis on a trip to the Middle East. Without modern medicine, it would have been fatal. In 1995, I developed phlebitis, which had killed my grandfather. In 2001, I had a 95 percent blocked artery in my heart, which was solved by inserting two stents to relieve the blockage.
By going public in the Netherlands, they had also avoided some of the reporting required in the United States.
We shouldn’t simply try to raise money for an investment fund. We should offer stock in Blackstone itself,
We could reward our teams with stock in the firm rather than provide bonuses
As a private firm, we had fiduciary duties to our limited partners—the people who gave us their money to invest. These were sophisticated investors with clear strategies and long time horizons. But as a public firm, we would have an added duty to our shareholders.
I wanted to retain 100 percent control.
To resolve the two issues of control, they found we could remain a limited partnership while issuing publicly traded units,
We would need to appoint independent outside directors for the audit committee.
The SEC then chimed in themselves, saying that they were changing the accounting rules so our restructuring to go public would look more like we were buying a new company. That would lead to substantial new costs.
Land-based power
IPO was oversubscribed by fifteen times.
The source of our profit was the rising price of electricity, which regulators had pegged to the price of natural gas. Texas Genco produced electricity mostly from much cheaper sources, coal and nuclear,
Pollute your way to profit!
The combination of irresponsible subprime lending and FAS 157 was leading to the market’s hysteria and driving the banks to insolvency.
If Dick had been able to create two separate securities—one for real estate, one for the rest of Lehman—he could have saved the firm.
You’ve got a financial system that won’t be able to survive this level of mistrust.
walk-on-water entrepreneur,
