Invest Like the Best with Patrick O'Shaughnessy
· Ken Langone
[00:00:00] S1: Because I'm stupid. I'm loyal. I mean I'm loyal to my investment positions. What am I going to tell you? You're loyal, you're loyal. Look, I got my Lilly stock two years before Home Depot was founded, a little medical device company that we bought. I got to know the manager. I liked him. They were solid Midwestern people. The guy that I negotiated the deal with was a tough son of a bitch by the name of Gene Step, but I had such admiration and respect for Gene. I had no doubt that Lilly would turn out to be a great company. Now it didn't hurt that if I had sold the stock, I would have had a hell of a tax because by cost basis, the little device company I took over in a proxy fight ready -- had a market cap of $1.5 million. Okay? Had a market cap $1.5 million. Lilly gave us $50 million. That was a proxy fight at May of '72. Lilly gave us 1.5 million shares of Lilly stock, worth $37.50 a share of our stock, per share, roughly that. And Lilly paid a dividend. So the dividend was a nice thing, a little bit of income. Lilly stock has split over all those years from '77 to now 16 to 1. So the million and a half million shares, is 24 million shares. Okay? You ready now? 18 billion, 360 million dollars. Now catch this. Lilly's stock from '77 to '02 went from $37 and got to as high as $109. From '02 to '18, the stock did nothing. It was $109 in '02 and it was $109 in '18. However, going back to '77 November 30, '77 until last August, counting the dividend, including the 16 years of nothing, it compounded at 15% a year. You're a home run. Every stock I owned compounded at 15%. I spend a lot of time with companies. I get to know the managements. My first and my major and my principal concern is people. I bet on people. We've got a Home Depot position now, and I got Lilly 47 years. People. I got 46 years, JPMorgan, I bought the warrants, but I bought them way back. I got my JPMorgan stock today 16 years. I got my Parker-Hannifin 16 years. They're puppies still. They're still babies. I've got a new position called Option Care Holdings. I bought it six years ago, and I'll be there with them as long as the management stays quality people, and as long as the prospects of the business are bright. It's like my wife. These guys that are getting married three and four times. How do they remember what to call them, what name to use? I mean can you imagine?
· Ken Langone, Patrick O'Shaughnessy
Jane, Mary, Barbara, Pat! Life is simple. And holding on to these situations -- the food I ate as a kid is still my favorite food. Peasant food. [00:00:00] S0: What's your death row meal? [00:00:00] S1: Pasta e fagioli. [00:00:00] S0: What's your last pasta e fagioli? [00:00:00] S1: It's got all, meat, beans, parmigiano, fried peppers and potato. Oh, God, they put fried peppers and potatoes. And I -- God, my mother, God, she was such a cook. But those are my favorite foods. I go to a little dive in Port Washington, DiMaggio's. Great pizza. Bowl of pasta e fagioli or a bowl of escarole and beans. Man, it's like dying and going to heaven. [00:00:00] S0: What do you love most about capitalism? I love that title of your book. If you had to sum it up, what do you love most?
· Ken Langone
[00:00:00] S1: If you're good, you can get it. Good at this -- look at our society. Look at every other country that moved towards socialism. Look what's happened. Venezuela, Cuba, Argentina, look at them. Brazil, look at them. Look where they are. Honey, look, a poor kid working his ass off with a shot at the brass ring. He may never get it, but he's going to do a lot of good along the way even though he didn't get it. Well, I'll give you a for instance, we got a call one day from a kid. We opened our first chain in Long Island in the late '80s. I walked the store. He was working at one of our first stores on the island. Man came in and says to the boss, I've gotta come to see you today. Okay. And I have a rule. Home Depot employees can call me. And it was another call from the kid. I say, fellows, I'll call you back. I got to talk to this kid. So the kid comes in at the same day. I say, Hi, Mark, what's up? Hey, I just want to let you know. I thought you should know. He said, this morning, I got a call from my Merrill Lynch broker. My Home Depot stock is now worth $1 million. I'm a millionaire. That sounds -- hey, let me think of something else. He said, "I paid my parents' mortgage loan before. I paid my mortgage off. My two kids are in college, and I'm a millionaire." Do you know the impact that had on that kid and all those people in the store? He did it. I can do it. They got to work hard. You're going to have deals that don't always work. You might -- if you got six months, it'll tell you what might be good deals. Everything isn't a home run. Hell, I'd be happy if they were breakeven. But you're going to get up to the plate and take a swing. You aren't going to hit the ball every time. You're going to have a few strikeouts. That's life. But what does capitalism do? I think it helps as flourish. Me, me, a plumber's son, a cafeteria working son, not a very good student. I was a bad student. Look at what capitalism allowed to. You can't take that quietly. That's heavy-duty stuff.
· Patrick O'Shaughnessy, Ken Langone
[00:00:00] S0: What did you see most commonly in the opportunity around Home Depot or other stuff that you've got involved with early on beyond the people? Like I know you were optimizing for amazing people. Was it just that? [00:00:00] S1: That's 95%. [00:00:00] S0: You weren't doing store fragmentation calculation for...
· Patrick O'Shaughnessy, Ken Langone
[00:00:00] S0: You weren't doing store fragmentation calculation for... [00:00:00] S1: No, no. You get into a bad idea with a great guy, the great guy's going to tell you it's a bad idea, we made a mistake. They move on. Not everything is going to harm you. I haven't got a crystal ball. But that's the key. Jesse Haddock was a golf coach at Wake Forest. One time I asked Jesse, what do you look for in a high school kid? He goes, the one thing I never do is I don't mess with his swing. If what they had going and their results of their play gives them my attention, I give him my attention because he's got a great record. I leave him alone. I go, what do you look for, Jesse? He said, "I look for the kid that gets a 9 on a par 3." And then on the next hole, goes back and birdies. I look for resilience, and that's about it. I look for a management guy. Bernie Marcus, fired at 49 years old, no money, a mortgage, no health insurance. All right. Let's go. Let's do it. Let's start it. Arthur, same thing. Pat Farrah, same thing. He just took bankruptcy. You want people who can bounce. You want people who can come back. They got fight in them. They've got hey, okay, that didn't work, but I'm going to give it a shot again. Home Depot, look at it. You realize Home Depot today did a market cap of approximately $400 billion. $400 billion, shit, that's a lot of money. [00:00:00] S0: Not bad. What bad deal most stands out in your memory? We don't have 6 months sadly, but we've got a few minutes. What bad deal is most memorable?
· Patrick O'Shaughnessy, Ken Langone
[00:00:00] S0: Not bad. What bad deal most stands out in your memory? We don't have 6 months sadly, but we've got a few minutes. What bad deal is most memorable? [00:00:00] S1: I did a deal that I got by virtue. There was an article in Fortune magazine after the Perot deal. The title of the article, The Fastest Richest Texan Ever, Ross Perot. And in that article, he was incredibly generous in describing me. And the guy called me up from Avon, New York outside of Rochester. They were building modular homes in a factory. I went out to see it, and it blew my mind. I got so caught up in the moment, in what they were doing. I failed myself just to take a step back and talk about the people. And I didn't. But because I had a hot hand, there was nothing I could do that people weren't going to jump on. Those guys all ended up going to jail. Fortunately, I didn't know anything about it. They left me after we did the deal for them. 1970, it was a bad year. They left me and they went to Merrill Lynch. It's all about reputation. Always is and always will be. Nothing matters to me more than if I were to manage to keep my word. [00:00:00] S0: Curious how the hospital thing resolved. It was a mess when you showed up, and you oversaw it for a long time, and it's one of the best ever.