Stories From a Multibillionaire

An attention-grabbing day… War in the Middle East considerations… A monthly jobs report on tap… Stories from a multibillionaire… Passing on Facebook and Amazon… What you must do in the investing world…

An eye-catching day in the markets…

While the major U.S. indexes closed lower today, U.S. and global oil prices were up for a fourth straight day and an eye-catching 5% in the past 24 hours.

The benchmark S&P 500 Index finished 0.2% lower and the equal-weight S&P 500 was down 0.4%. Energy stocks were nearly 2% higher.

It appears traders are getting more concerned about the potential fallout for energy supply if warring in the Middle East escalates (again).

Long-term Treasury yields moved higher again, too. The CBOE Volatility Index (“VIX”), a measure of options activity on the S&P 500, rose to around 20. Volatility has been trending higher since July.

Meanwhile, today’s initial jobless claims report for the week ending September 28 “only” increased by 6,000 claims. As we reported yesterday, the monthly private payrolls report from ADP covering September showed 143,000 jobs being added.

Tomorrow, Mr. Market’s eyes will be on Uncle Sam’s monthly jobs report…

The “nonfarm payrolls” report will include an updated unemployment rate, which – rightly or wrongly – many investors and Federal Reserve officials will be obsessing over until further notice.

The unemployment rate was 4.2% in August, down from 4.3% in July. But it was part of a general uptrend since a low of 3.4% in April 2023.

Based on other employment reports published for September – including initial jobless claims trending lower last month compared with August (and the entire summer) – I (Corey McLaughlin) don’t expect the unemployment rate to rise, at least not by much.

But we’ll repeat what we said yesterday… Other data in recent months has suggested that hiring is slowing down in the U.S. economy and there’s prerecession behavior in the market.

Wall Street expectations are that the U.S. added around 140,000 jobs last month. Anything less than 100,000 would boost the rate back to 4.3%, which would get folks’ attention and likely stoke volatility, since growth expectations for the economy could get a trim. On the other hand, numbers at or close to expectations could be bullish.

However, any jobs numbers could be a wash depending on developments in the Middle East. The idea of more conflict between Iran and Israel has been the prevailing driver of market action this week. And we haven’t forgotten about the war between Russia and Ukraine, either. We’ll be keeping an eye out for how the market responds.

Now, about that multibillionaire…

I spent part of this week listening to David Rubenstein tell a few investing stories.

Rubenstein is the co-founder of private-equity firm the Carlyle Group and (among many other things) is the relatively new owner of the Baltimore Orioles. He purchased the baseball team with partners earlier this year for $1.7 billion.

Rubenstein has a net worth estimated at more than $3 billion. His list of accomplishments seems endless, and he has donated hundreds of millions of dollars to various causes. He even owns a rare copy of the Magna Carta. So you may think every decision he has made in his investing career has been perfect. But it hasn’t.

“We don’t have enough time to go through all the mistakes,” he said.

Rubenstein, who was born here in Baltimore but has spent much of his adult life in the Washington, D.C. elite circles, was in town this week to watch his team play – and, unfortunately, get eliminated from the MLB playoffs last night.

He also spoke at an event hosted by a local nonprofit digital news organization, The Baltimore Banner, and fielded a variety of questions about his business and investing career – like if he’d made any mistakes or had regrets in his professional life.

Well, yes…

Rubenstein’s now son-in-law was a high school classmate of Mark Zuckerberg. When Zuckerberg was planning on dropping out of Harvard to launch Facebook (now Meta Platforms), Rubenstein’s son-in-law asked if he wanted to meet with the young founder about an early investment. He passed…

I said, “This is a dating service. There are so many dating services out there, I don’t think this is going anywhere.” Obviously, I was wrong.

He said the same to Jeff Bezos in the early days of Amazon when it was “just” a digital bookseller. As Rubenstein said…

I told him I didn’t think this company would get anywhere. He couldn’t possibly beat Barnes & Noble. Obviously, I was wrong.

I found these admissions reassuring. Rubenstein has gotten a lot right – like pioneering leveraged buyouts decades ago through his connections to become wealthy. But he values humility, and he admits that he hasn’t gotten every decision right, nor should you expect to. As he said…

Today, in the investment world, if you don’t make mistakes, you’re not really in the investment world. Nobody’s perfect.

I won’t mention the company’s name, but recently I made an investment in a restaurant company. I went there, I tasted the food several times, I didn’t like the food… Somebody persuaded me to invest in it. It went public and I said this food is not that great… I sold my stock. It’s now up 6 times…

I suspect Rubenstein was talking about Cava (CAVA), a Mediterranean fast-casual restaurant chain. The company went public in June 2023 at around $22 per share and trades today around $124. Of course, a multibillionaire can handle missed gains easier than almost every other person in the world today.

Risk-taking is part of the deal…

Whether it’s a decision to buy or sell shares of a publicly traded company… starting, investing in, or running your own venture… or simply managing your own portfolio, risk-taking is part of the deal. As Rubenstein said…

Like with life, if you try to do everything perfectly and you’re not going to make any mistakes, you’re not going to improve very much. You’ve got to take a gamble; you’ve got to take a risk. You’ve got to do things that people tell you you shouldn’t do.

The conventional wisdom is almost always wrong. The great entrepreneurs ignore the conventional wisdom. Bill Gates was told he was too young to start a software company. Steve Jobs was told personal computers aren’t going to work. Mark Zuckerberg was told by people like me, “That’s not going to go anywhere,” same with Jeff Bezos.

Great entrepreneurs and business leaders are always told, “You can’t do this.” By definition, [they’re told] if it’s so great, somebody would have done it already… and they are often proven to be right when they pursue these things that other people think are not so great ideas.

I’d say Rubenstein’s advice applies to investing and life. You need to do your research and find guides that you trust. Be willing to take risks and remain humble. (If only the U.S. government would adopt some humility and admit its mistakes… like that the answer to everything isn’t to print more money and make everything more expensive. But I digress…)

Finally, Rubenstein has also shown a determination to “keep going” with an investing plan or trading process over the longer run. This is a familiar theme we’ve heard from many successful long-term investors and short-term traders, including a few “Market Wizards” that we’ve interviewed on the Stansberry Investor Hour.

It’s also reflected in our Stansberry Research editors’ recommendations, which often include a framework of how much to allocate to each recommendation as part of a diversified portfolio. If you want to become a successful long-term investor, I’d follow their lead.

New 52-week highs (as of 10/2/24): Automatic Data Processing (ADP), Alpha Architect 1-3 Month Box Fund (BOXX), BWX Technologies (BWXT), CF Industries (CF), Ciena (CIEN), Western Asset Emerging Markets Debt Fund (EMD), Comfort Systems USA (FIX), Generac (GNRC), Home Depot (HD), iShares U.S. Aerospace & Defense Fund (ITA), Kinder Morgan (KMI), Lumentum (LITE), NYLI CBRE Global Infrastructure Megatrends Term Fund (MEGI), Pembina Pipeline (PBA), RenaissanceRe (RNR), TransDigm (TDG), Vistra (VST), Utilities Select Sector SPDR Fund (XLU), and ProShares Ultra FTSE China 50 (XPP).

In today’s mailbag, more of your thoughts on the subject of financial literacy, which was the focus of Tuesday’s edition… Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

“In [Tuesday’s] Digest I read with much interest your piece on how people are illiterate about debt and how to handle it. This is a subject that, in a different way, has influenced my financial career a lot and which I’ve been discussing often with my wife.

“I used to be an independent financial advisor in Belgium, Europe. Since the financial crisis in 2008-2009 a lot has changed in the financial landscape in Europe. The EU has initiated numerous rules to protect the private investor from disastrous investments like they were lured into by several financial institutions, read banks, over here. Obviously, people lost lots of money.

“One of the new rules was that the financial profile was elaborated a lot. So, when I met an interested prospect investor for the first time, I had to go through a questionnaire with him. In it there were themes like what is your total net worth, how prepared are you to take risk, and, most important, what is your knowledge about investing and your experience. If the result was that the person in front of me had no knowledge and no experience at all, I had to finish the conversation and was not allowed to advise him on anything.

“And that’s the point where my wife always asks me how they are ever supposed to learn how to invest when someone experienced is not allowed to teach them. Well, until today I have not been able to answer that question.” – Subscriber Ludo G.

“[On] teaching how to live on what you’ve got, our middle school aged kids wanted cell phones ‘like all of their friends.’ I took one month’s worth of my paychecks and had it cashed into one-dollar bills. Then I laid them out on the floor. The kids said, ‘we’re rich!’ Then I took away dollars for mortgage, gas, utilities, car insurance and loan payments, food, taxes, health insurance… The spread on the floor became very small. ‘That’s why you are not getting cell phones. If you want phones go cut grass, babysit or whatever it takes to earn it yourself.’

“My kids are in their 30s now and still remember that. It changed how they value and appreciate money management.” – Subscriber Dennis L.

“I really enjoyed your recent article on learning about finance and how money works. To put this reply in context, I am now 92 years old. When I was in 3rd grade (I was 9 years old then) my teacher introduced the class to savings accounts and every Tuesday we had banking day. The teacher passed around envelopes with a deposit slip so each student could put in some money for their savings account. My great savings were always less than $1. The envelopes were collected and, in a few days, back came a deposit receipt. I still have that bank deposit book with my savings record.

“Unfortunately, the school system discontinued this program the next year, but the lesson was learned – MONEY ADDS UP! I have over my years built up an estate that will sustain my daughter, granddaughter, and my great granddaughter born just [earlier] this year. Downside is some close friends call me a skinflint, but I understand. A program like this is impossible these days, so children probably have a hard time learning about money as reflected in your article.” – Subscriber Louis L.

Corey McLaughlin comment: Thanks for all your notes. I love hearing your stories and I suspect others do, too. Keep them coming. Ludo, it’s heartening to hear you may now have an answer for those that government policy prevents you from helping.

Louis, you bring up a great point I hadn’t mentioned: It doesn’t take much time to learn powerful information about money, which can compound dramatically in real-money value and in what you’re able to learn down the road the earlier you start.

All the best,

Corey McLaughlin
Baltimore, Maryland
October 3, 2024