Transcripts For BLOOMBERG The David Rubenstein Show Peer To

Recognize me. Just leave it this way . All right. I dont consider myself a journalist. And nobody else would consider myself a journalist. I began to take on the life of being an interviewer even though i have a day job running a private equity firm. How do you define leadership . What is it that makes somebody tick . So you have been doing Value Investing for 36 years. What is a Value Investor . John somebody looking for bargains. We are trying to find stocks selling at 40 discount, want to make sure it has a low ratio, a strong Balance Sheet and has the ability to really withstand the inevitable storms that happen in the stock market. David is Warren Buffett a Value Investor . John he is the greatest Value Investor of all time. Some people talk about whether Michael Jordan is better than lebron james. There is no question warren is the best ever. David Value Investing is easier done when the markets are down. When the markets are high, there are not as many bargains. What have you been doing the last 10 years because the market have been high . John we were able to buy terrific bargains around march 2009 when the market was bottoming and we got great brands, royal caribbean, cbs. True bargains. As the markets recovered, some sectors have stayed really cheap. In particular, media. We Love Companies like viacom, Madison Square Garden Network, those stocks are really cheap. Financial Service Companies that you know well like kkr. There are some sectors that seem to be totally neglected even as the markets recovered. David the United States economy was in a recession that ended june 2009. For 10 years, we have been in a growth cycle. It is one of the longest in the countrys history. But there has not been a lot of depressed stock prices for this time, so are you kind of hoping that at some point there is a recession so we can get lower stock prices . You can buy more things at lower value prices . John we like to buy bargains but we dont want to see a recession. All of the turmoil that happens, the impact on our society and citizens, recession is not great for america. Say i lets suppose i watched you and you are a good Value Investor. I will give you some money. What kind of rate of return can i expect from your products . John over 36 years, we have been able to compound money at roughly 11 per year. That is something we are proud of. The ariel fund have been around since 1936. It is number one in its category. We are one of those rare firms that has the 36year record with the same Portfolio Manager in charge. I have been fishing in the same fishing pond of not only value stocks the entire timeframe. We have a great team of people who have been with me, some of them close to 30 years, some 20 years, some 15 years, so we are a team of grizzled veterans. We think we can replicate our performance in the future. David what is your best single deal . John over time, one of the best companies we have bought was royal caribbean. We were able to buy that at the height of the financial crisis when people thought no one would cruise again. The stock has gone up 15 times. We still think it is an extraordinary bargain today. A favorite of ours, we find and think the media stocks that are really cheap, we are sort of optimistic Madison Square Garden Network will do well. When the knicks finally come back and start winning championships again, it will be great for new york city and great for that stock. David lets talk about how you got started. You grew up in chicago, your parents were prominent people. Your father was in the tuskegee air corps. What is that for those who may not know . John it was the group of Fighter Pilots that were part of world war ii, the first group of africanamerican Fighter Pilots that had a chance to really participate in the war. Before then, people didnt think African Americans were qualified to fly in major wars. My dad was in the first group that went overseas and fought in world war ii. David when your father came back after world war ii, what did he do . John he went to university of Chicago Law School, went to the best and thought it was the best. At first, they did not accept him because he had not taken all of the appropriate tests. And there were not many africanamerican students at the law school at the time. He asked if he could take a test. They allowed him. He showed up in his captains uniform and the two things together, showing what a patriot he was and how good he did, what a great result on the tests, he was able to talk his way into the law school. David and your mother . John he met my mother the first day. David she was the first female africanamerican at the university of Chicago Law School . John she was. She graduated in 1946 and my dad in 1948. David he built a law practice and she did . John they had their independent ones because you could not work in a big downtown law practice. My mom worked on divorces and my dad did mostly real estate and bankruptcy. David you were the only child . John i was. David like myself. The advantage of being an only child is your parents put a lot of time and attention into you. Was that a good thing for you . John it was. They focused everything on me. They got divorced when i was three years old, so i had different lifestyles. My dad lived in a studio apartment not far from downtown and my mom lived in one large house in hyde park. They were different political persuasions. My mom was republican, my dad was a democrat. I learned to navigate different worlds each and every week. David you went to the university of chicago famous lab school known for its k12 . John i got there in ninth grade. It is a terrific place. David in addition to academic pursuits, you were a basketball player. John i was. David you went to princeton and played basketball . John i was fortunate to play for the hall of fame coach pete carrill. He was a legend and somebody that really transformed my life. David you were the captain your senior year. Did you think you were going to be an nba player . John coach made it very clear i had no hope to be an nba player. He told me when i was a sophomore and i made the team, i was the last person, the 15th. He said you are legally blind and i cant teach vision. You cant dribble. But you work so hard, we will keep you around for a few more days. David you graduated in 1980. What did you want to do . John i had two role models that were stockbrokers. One across the street from campus, a guy named mike perkins. He helped show me a Firestone Library to research companies, find newsletters on the stock market. And then i had a broker in chicago named stacey adams, the first africanamerican stockbroker on lasalle street. I would sit with him and watch the tickertape go by. I thought i would become a stockbroker. I was hired by William Blair and company in chicago. The managing partner was a princeton grad who played football at princeton. Very close to don rumsfeld. He helped recruit me and give you just gave me an opportunity to start. David you stayed there 10 years before you were ready to start Something Else . John i stayed 2. 5 years. David enough time to learn the business . John i thought so. I had confidence in my strategy of investing in midsize and undervalued securities. Not many people were doing that. We were kind of pioneers in the small value space. There were a few firms like chuck royces firm, ralph wingert, but not other people focused in that area. David you started your own company at what age . John i was 24. David where did you get the money to capitalize it . John i went to friends and family. My mom gave me everything she had that was liquid. My dad gave me what he thought he could afford to lose. After that, i went to former clients, High School Buddies from the lab school, anyone that could give me 10,000. David how much capital did it take to start it . John 200,000. David that was what year . John 1983. David where did you get the name ariel from . John i love the way the name sounded. It was a favorite character on tv. I said i would name my daughter ariel. I had the company first. David to keep up with what is going on in the world, do you use computers . John i actually dont. David do you ever go on the internet . John i do have internet on my phone, but i have never actually had a computer or turned a computer on. David you use emails . John i dont. David so how do people send messages . Do they send a pigeon . David how much are you managing now . John 13. 5 billion. David you managed more before the great recession, as was the case with many companies. How much money did you go down to . How low did you go . John we got under 3 billion. David do you think you should fold up shop under 3 million 20ion after having billion . John not at all. One thing i learned from my father, we should always keep money saved for a rainy day. Sure enough, we have a hurricane of financial crisis. We saved enough capital to pay salaries and keep key people in place during that tough period. It was an important part of our approach. And then we bought our best stocks that really bargain prices during that period. People like that. We stuck to our guns and believe in what we were doing. David some people say it is impossible to beat the markets and one should buy index funds. You dont have index funds. You pick stocks. Why should somebody give money to a stock picker rather than somebody who will reflect whatever the s p 500 is . Whatever the index might be. John the reason to do that is there are talented Money Managers out there who can add value. It has been proven over time people who have that gift and creativity and vision to buy securities and outperform the markets. It is hard to find them. They are few and far between. I think it is worth the effort. It is awesome, like sports, you root for your local teams. Even though you know that half of the teams are going to lose and half of the teams are going to win, not everybody can be the world champion, but you like to be engaged, involved in the competitive pursuit of trying to find a championship or support a champion. It is the same with Money Managers. David to keep up with what is going on in the world, do you use computers . John i actually dont use a computer. David do you ever go on the internet . John i have internet on my phone but i am one of these folks, i have never had a computer, ever turned one on. David do you use emails . David how do people get messages to you . Do they send a pigeon . John they called me. David you are legendarily very loyal to your corporate boards. One of the boards you are on is mcdonalds. It is said, i dont know if it is possibly true, that you eat mcdonalds every day somewhere in the world. Wherever you are, you eat one meal at mcdonalds. John just about every day. There are exceptional times when you are traveling and cannot actually get that done, but i love eating at mcdonalds. It is my home away from home. David did you do that before you were on the mcdonalds board . John i did that as i got home from college. David do you think it is healthy for you . John it has worked out ok so far. David when you were interviewing to be on the board, i presume you interviewed, did you mention this and did they think this was unusual . Having remember breakfast with the nonexecutive chairman of mcdonalds and the ceo, it went marvelously well. They could tell how much i loved the brand. David you used to play three on three basketball. In chicago, did you ever play basketball with barack obama . John several times. David is he that good a player . John he is a very good player, he knows what he is doing. Hes a little in between size. 62. 5 or so. David he cant dunk the ball. John i dont know. I think he probably good. Could. He is a little lefthanded. He is a very good player and makes clutch shots under pressure. David there was another player in chicago, maybe better, named Michael Jordan. Did you ever play against Michael Jordan . John i did get to play against michael around chicago a lot. He would be at different clubs and i would get to be on the court with him. David think he was overrated . John the greatest player of all time. David i understand you played against him and beat him. The only person who ever beat him on a oneonone game . John very fortunate circumstance. I used to go to a fantasy camp for people 35 years and older. Every summer of the camp, he would challenge to a game of oneonone, first to three wins. Since no one had beat him in the first seven years of the camp, he was overconfident. He would let people make a basket or two before he would clamp down and shut people down. I had the advantage when i played him, he had played 15 campers before he got to me and he was tired. So i snuck up on him and the coach always said even though i was not a good passer, i was a good oneonone player. I had a couple of tricky shots. You can hear him say on the video, oh no. That was really fun. David one of the people you were playing basketball against, barack obama, told you he was going to run for president , what did you say . John i told him i thought it was a terrific idea. He came over to the office to tell me his plans. I know sometimes people wait a little bit more to get more seasoned, but i thought he was ready. I was confident in his ability to be the commanderinchief so i encouraged him to run. David did you get involved in the campaign . John i did. I got to be cochairman of the Illinois Finance Committee with a friend of yours, jim crown. We worked for penny pritzker. It was a magical thing to be involved on the ground floor. Once he was elected president , i got to be cochairman of the inauguration. That was special. And what was really special, when he first got elected, we had the temporary transition headquarters at ariel. For three days, he was there helping to form the government. I will never forget. David you helped him in his campaign, he is using your offices for the transition. Did he offer you a job and if so, why did you not take it . John we never had that conversation. I love investing and i love our business and i have a great team, as i mentioned earlier. There was never a thought i would go to washington. David are you worried about a recession in the near future . John i am not worried. Warren buffett always says last century, the dow started at 66 and ended at over 11,000. We had two world wars, a great depression, president s assassinated, it was an extraordinary 100 years, but the market always marches back. David in the philanthropic area, you are a philanthropic leader in chicago. What are the areas of interest you have . John we have been working hard on how to solve the wealth gap in our country between majority and minority communities. There is all of this data that shows how the wealth gap has gotten larger, particularly between africanamericans and white americans. We started a Small Public School over 22 years ago to teach Financial Literacy in a public school, to get young people prepared to be able to pick their own stocks and navigate their 401k plan and all the things they need to do. We created a program at the university of chicago for minority students to work during the summer in the investment offices of major endowments. David your parents were prominent leaders in the Africanamerican Community in chicago and in the chicago community. When you were growing up or now you live in chicago, do you feel discrimination or have you been able to bypass that . John when people think about supporting minority business, it is around what they call supplier diversity, instruction, catering, things that are bought through procurement. My mom had this challenge when she was building her law practice and my dad did, people didnt think about hiring minority lawyers to do their transactions. The same thing when it comes to Money Management. We were the first africanamerican Money Management company in the countrys history. We get to see people, they had never thought about hiring someone africanamerican to manage their money or have funds in the 401 k plan. David you mentioned melody hobson. She is the president of your company. You are the ceo and she is the president. She is someone who also went to princeton. You hire people that didnt go to princeton . John we do. David melanie came from a challenged at ground, you would say, but she has become very wellknown. Tell us about her. John i met her when she was a prospective princeton student. She was 17 years old. We were trying to make sure all of the local alumni were interviewing all of the prospective students. We had a special event for the admitted students. Melanie came and i could tell she was something really special. She sat next to a person, richard lisner, who convinced her not to go to harvard and go to princeton instead. She became a summer intern with us at ariel and she spent a summer at t. Rowe price in baltimore. She had a great time. She joined us when she graduated. She is the only person from her princeton class with the same phone number 29 years later. She is taking on more and more leadership at the Company Every year. She will be my successor. It is so wonderful to have a partner who is as tough and smart as she is. David you have your finger on the pulse of the economy, looking at stocks that are reflective of the economy. Are you worried about a recession in the near future . John im not. We think longterm. Our logo is a turtle. We believe patience wins. Warren buffett always says last century, the dow started at 66 and ended at 11,000. We had two world wars, a great depression, president s sassinated, and the markets always march back. David are you not worried u. S. Has 22 trillion of indebtedness and we are adding 1. 3 t