Full transcript is available here – https://www.angelinvestboston.com/ep-29/#ep-29-transcript
Howard Stevenson, Founder, Angel & Scholar of Entrepreneurship – “Wealth & Families” Ep. 29
He’s the ST in Baupost Group. While he was president at Baupost they had about 17-18% returns and His four main criteria for investing are (1) Are they Honest? Will they tell you what is happening (2) Are they nice? Will they lookout for people other than themselves? (3)Are they curious? Will they keep trying to understand more and solve the problems? (4) Are they smart?
Stay out of the velvet lined rut.
But, part of the motivation of leaving was that I saw a lot of people in this “Velvet-lined Rut’. That it’s very easy when you’re successful, to keep doing what you’re already doing. But, in fact, the only way you can get from doing the wrong thing to the right thing, is probably doing the right thing poorly. And, so you have to learn, and I watch people who run the top of the little hill, who didn’t want to go down in the valley to try something new.
Favorite question to ask VCs
“Tell me about the sharpest deal you ever did?”
And, it’s amazing what people will tell you. One guy told me how he cheated the IRS. And you say, “Well if they can send you to jail, and I can’t, and you’re still willing to do it, I think I know something about your value system.”
It’s very important to learn from other mistakes and quite cost-effective.
HOWARD STEVENSON: I have a sign in my office at home that says, “It’s great to learn from other people’s mistakes, and you’ve been a real blessing to me.”
SAL DAHER: Yeah. The ability to learn from other people’s experience. It’s a lot cheaper than learning from your own experience.
HOWARD STEVENSON: That’s what you try and do as a teacher is … But, you also have to say there is no one right way. The business plan, no I’ve never had a business plan that worked out the way it was written.
Planning helps you think about things better but might not be that helpful overall.
In your book, I think you quote Eisenhower saying, “Planning is everything. Plans are nothing.”
HOWARD STEVENSON: That was my doctoral dissertation. Had a lot to the defining strengths and weaknesses. Didn’t matter what you wrote down at the end. It was, you were asking the question, “How do we compare to the other people trying to accomplish the same thing we are?”
SAL DAHER: So, going through the process of planning, you develop understanding. Even though things don’t work out as you expect, at least you know a little bit about the lay of the land. So that when things change, you can regroup and do an informed approach.
On hiring Seth Klarman and how Baupost started
HOWARD STEVENSON: I’ll start with a recent search that I was working on for a not for profit. The people said, “We need to hire somebody like, X.” And I said, “No you’re going to be hiring someone like X was 30 years ago.”
SAL DAHER: Yeah.
HOWARD STEVENSON: That was true of Seth. Here you had an extremely bright young man, who loved two things.
1. He liked stocks.
2. He liked betting.
SAL DAHER: But what is it that you saw in Seth, that set him apart?
HOWARD STEVENSON: The same things that I talked about earlier. He was honest. He’d worked for honest people.
SAL DAHER: Mm-hmm (affirmative)
HOWARD STEVENSON: I wouldn’t hire somebody from, you can name the firm.
SAL DAHER: Absolutely, yeah.
HOWARD STEVENSON: He doesn’t even need to work there, I don’t want to work for me. He certainly understood the charitable notions that I think the other founders had. I think they were all deeply committed to other people, and that was attractive to him.
SAL DAHER: Mm-hmm (affirmative)
HOWARD STEVENSON: It wasn’t, they were trying to make the most money, and so you saw the niceness come through there. Clearly curious, you don’t work the pink sheets if you’re not curious.
Younger people seem to work less today. I don’t know if this is necessarily true?
Yeah, so they’re highly incented to do that. And, it’s consonant also with your idea of having the children be brought in early on wealth, brought in early on responsibility for money, and so forth. Which unfortunately nowadays, children really don’t have much of a sense of that, of responsibility with money, and so forth. They don’t work, they don’t make their own money. At least in my experience, children in America work a lot less, than they used to 20, 30 years ago.
And a few good quotes to close off the post.
HOWARD STEVENSON: Because, as my grandmother would say, “Your actions speak so loudly, I cannot hear a word you say.”
HOWARD STEVENSON: What I say is, “the first million dollars is really hard, and the second million is a matter of time.”
HOWARD STEVENSON: I’ll probably do quite well over time, because even if you buy something at 10 times earnings, and it’s got 5% growth, you’ve got a 15% yield.
SAL DAHER: Because serving your customer well is what assures continued growth, continued profitability over the long term, and not just the short bursts in the first few years.
HOWARD STEVENSON: He said, “Sometimes the best investment is going to the beach.” As you might know from Baupost’s history. Many times, we have 45% cash. 30% cash. In our case, now we do things that structure deals. I’m not expecting to shoot the moon. We’ve structured some preferred stocks like Warren Buffett does. He just did a deal with an 8% preferred.