A lot of stock investors have jumped into the bullish market in recent years. But global inflation and recession appear as threats to investors who don't have much experience weathering economic tides.
David Rubenstein, a co-founder and co-chairman of US private equity giant The Carlyle Group, has advised investors not to panic. During his Aug. 5 interview with The Korea Economic Daily he said the markets will come back as there are a number of good companies, adding it's probably a good time to buy tech and finance stocks.
For indirect investments, investors should check out fund managers' track records and see if the managers are putting a fair amount of their own money in the fund, he said. Also, investors should research if smart or well-known investors are participating in the investing as they are good at spotting opportunities, the co-founder added.
Great investors admit their mistakes and move on to their next investments, he said. Rubenstein spoke of his own mistakes in not recognizing the value in Facebook and Amazon stocks at the onset.
The following is a transcript of KED's conversation with Rubenstein via Zoom.
▲ You’re not only a legendary investor but also a best-selling author, coming out with “How to Invest: Masters on the Craft” next month. The book covers 13 characteristics that great investors have in common. If you pick out three of the most important things, what are they?"Firstly, they would have a willingness to defy conventional wisdom, which is that they're willing to do things that other people tell them is not probably a good idea."
"Secondly, they tend to be very good at mathematics and have a very good sense of numbers. They also admit and recognize their mistakes and move on to the next thing."
"Also, I would say they tend to come from blue, middle-class families. They tend to be reasonably well-educated and were interested in doing something else in their life when they were younger, rather than only becoming an investor."
▲ You said that recognition of mistakes is a common trait of great investors. What was a mistake you made over the past 10 years that is the most difficult to admit? "If I was a great investor, I would have moved on more readily. But I’m not saying I’m a great investor – so, I’m probably not in that category."
"I've had a harder time moving on in terms of forgetting the mistakes. I would like to talk about the deals I almost did. One is Facebook. When Mark Zuckerberg was at Harvard, I heard about it through my now son-in-law. I didn't think it was going to go anywhere and turned it down."
"We also had a relationship with Amazon at the beginning, but we didn't think it would be successful and sold their stock early. Those are big mistakes that cost us a lot of money."
▲ Do you regret that decision? "I do. When I met Jeff Bezos the first time, I said he would never be able to beat Barnes and Noble. He didn't really agree with me, and he was right."
▲ You have interviewed many investors. Who did you sympathize with the most and which of their characteristics did you most admire? "Some overcame greater hurdles than others. For example, Kim Lew, a woman who is part Chinese and part African-American came from a very modest family. She managed to overcome prejudices toward her and is now the president and CEO of Columbia Investment Management Company, responsible for Columbia University’s endowment. The fact that she has overcome challenges makes me think she's very persistent and talented."
▲ You wrote about many legendary leaders in your previous book “How to Lead.” What are the differences and similarities between the people you mentioned in the previous book and the upcoming book? "There are a lot of things in common. They tend to be persistent people, have had failures in life, pick themselves up and move forward from the failures. They also tend to be very smart."
"In my previous book “How to Lead,” I was talking about people with a variety of different qualities. Some are good at leading in politics, business or other areas of human endeavor."
"We're just focused on people that are really good at one major thing, which is investing money and making a profit from it. Again, as I mentioned they have in common the fact that they have been persistent, defied conventional wisdom and overcome failures."
▲ You have chosen Warren Buffett as your most respected investor. Would you explain why?"Warren Buffett is unique in that he has been investing for a longer period of time with a higher track record than anyone. He bought Berkshire Hathaway for 7.25 cents a share 60 years ago. In the ensuing 60 years, he has averaged returns of 20%."
"Also, he is persistent in his own views and does it largely by himself. So, I would say he's probably the most admired investor by me and most people in the world."
▲ You have given various pieces of advice to individuals who invest directly. If you have to pick three of the most important things, what are they?"When you're investing directly and doing the deals yourself, I think the most important things are to know what you're doing, which is to say read everything you possibly can about the subject matter."
"You also should be prepared to lose money. So, don't put too much of your money in any one investment but diversify. Additionally, I would say having good partners is important as they can help overcome your own weaknesses and compensate for them. Unfortunately, I think most individual investors don't do enough research on their investment plans. They invest money based on very little research or reading."
▲ A lot of individual investors just started direct investment in the bullish market that continued until last year. Today, they are concerned about global inflation and fears of recession. What advice would you give to them?"The most common mistakes they make is that they get out of the market when the stock market goes down, and they get in when the stock market goes up. In other words, they're chasing higher prices and come in at too high prices."
"The most important thing that investors should know is that we've been through these kinds of cycles before. The world will continue the bottom fishing, which is to say buying things at low prices is a good way to make money. Great fortunes are made when markets are in distress and when they're low. There are a lot of opportunities now to buy things at low prices compared to a year or six months ago."
▲ Do you think it is time for individual investors to buy?"It's probably a good time to invest because prices have come down. My advice to investors is not to panic and run for the door. Don't be afraid because the stock price is going down or the assets are worth less than six months ago. Inevitably, the markets will come back."
▲ Are there any good stocks or sectors you are keeping an eye on in this backdrop?"I'd say tech companies have been beaten up in terms of their stock price. A lot of these companies are excellent, but all of a sudden the market doesn't like tech companies. Some finance companies’ stock prices have also dropped, and they're probably good buys as well."
▲ You gave 10 perspectives to investors who make indirect investments such as funds. If you have to pick three of the most important things, what are they?"One is to make sure of the fund managers’ track record because that’s a great indicator of future performance. Secondly, make sure that the fund managers are putting a fair amount of their own money in the same fund if they're legally able to do so."
"Thirdly, find out who the other investors are. Smart people know how to find good investments – if you're investing in a fund that nobody smart or well-known is investing in, that might not be a good sign."
▲ In “How to Invest,” you emphasize that the potential of successful investment could be increased through research and investigation rather than luck. While private equity investment is regarded as adventurous, your investment principles seem conservative. Please briefly explain your investment principles and why you’ve set them. "I don't think the average investors should expect that they will make 30-40% returns a year, and that’s why I'm trying to give advice that is conservative. Private equity used to be considered very adventurous, but now it's relatively well established."
"So, if you invest in private equity with people that really know what they're doing and have a long track record, I think things like cryptocurrencies are much more adventurous than private equity today."
▲You said the cryptocurrency market is adventurous and risky. What’s your view of the crypto market? "Cryptocurrencies are probably not going to go away. There are many people that really like crypto because it's an effort to own something that the government doesn't control. You can transfer it fairly readily without government interference."
"There's still a lot of interest in the market. While crypto prices are down by at least 50%, there are still some that have some value. Some of the people I interviewed in the book, like John Paulson, think that cryptos are worthless and people shouldn't buy them. But someone else like Michael Novogratz, one of my interviewees and a big investor in crypto, thinks that younger people tend to be more focused on crypto and the world is changing."
▲ Would you recommend some books to our subscribers who are interested in investing? "One of the best books I've read in recent years about investing is a book called “The Snowball: Warren Buffett and the Business of Life.” It does better than any other book I've seen in terms of explaining Buffett's investment philosophy."
▲ What’s your view on ESG management? Do you think ESG factors can play a critical role in investment decisions? "ESG is a relatively new phenomenon in the grand scheme of things. I think major firms are investing in ESG because they think it will produce higher profits. The conventional wisdom was that if you focus on ESG you won't get as high a rate of return because you're avoiding certain opportunities that otherwise would be good. Things are changing today – if you don't focus on ESG, you won't have the best employees, customers or suppliers."
Write to Young-Yeon Kang at
yykang@hankyung.comJihyun Kim edited this article.
