MONEY Master the Game: 7 Simple Steps to Financial Freedom (69 page)

—SUN TZU,
The Art of War

Four years ago, I began an amazing journey to find a way for individual investors like you to take control of your money in a system that seems rigged against you. I vowed to bring you the best possible information from the most knowledgeable and influential experts in the world. What a trip it’s been! Since then, I’ve interviewed
more than 50
self-made billionaires, Nobel Prize winners, investment titans, bestselling authors, professors, and financial legends, asking them some of the same questions you’d ask if you were in the room with me. Here’s a sampling:

“What is your competitive advantage in investing? What sets you apart? What insights have allowed you to dominate the markets decade after decade?”

“Is the game still winnable? How can individual investors thrive in the volatility of today’s economy?”

“What are the biggest challenges around the world and what are the biggest opportunities for investors today?”

And, perhaps the most important of all, “If you couldn’t leave any of your money to your children, but only a portfolio or a set of financial principles to pass on to help them thrive, what would it be?”

Their answers excited me, shocked me, sometimes made me laugh. Other times they moved me to tears. It was beyond any university education one could imagine. It was the ultimate PhD in investing, straight from the trenches. Where my “professors” were moving markets and shaping the world economy
while
they were coaching me one-on-one.

My mission has been to synthesize the best of all they’ve shared into an integrated, simple 7-step financial blueprint. One that you could use in a practical way to move from where you are now to where you truly want to be.

I wish I could bring them all to you, but their voices are all captured in these pages, whether quoted directly or not. The amount of time I’ve spent with each of them ranged from the more than 20 years I’ve counted Paul Tudor Jones as my dear friend and client, to an informal 20 minutes with Warren Buffett, whom I grabbed for a short conversation in the greenroom while we were filming a series of segments together for the
Today
show.

Most of the interviews were scheduled for an hour or less but turned into three- and four-hour sessions. Why? Because each of these financial giants was interested in going deep when he or she saw that I wasn’t there just for some shallow questions. My mission to serve you, the individual investor, moved them. They were all incredibly generous with their precious time.

—

The diversity of conversation was extraordinary. I had the privilege of bringing together some of the most brilliant financial minds in the world. One of the more interesting encounters occurred at my financial conference in Sun Valley, Idaho. I interviewed Larry Summers, formerly the US secretary of the Treasury, director of the National Economic Council, and advisor to President Obama in the midst of the world economic crisis. We talked about what was done and what
needs
to be done to turn around the US economy. Publisher and former Republican presidential candidate Steve Forbes was listening to Summers and raised his hand with a question. You can only imagine the respectful “sparks” that flew.

Another moment: when I learned that Carl Icahn had been a fan of Jack Bogle’s for years, but they had never met. I had the privilege of introducing these two titans. Between them, they have more than a century of investing experience. Jack invited me to join them for the meeting, but I was out of the country. Wouldn’t it have been amazing to be a fly on that wall when they finally met?

The crazy part is, after all the time I’ve spent with each of these experts, you’ll see only five to ten pages for each interview as opposed to the average 75-page transcript. To keep this section under 9,000 pages, I’m including
highlights from just 11 of the interviews. Well, 11 plus one bonus. Even though he’s passed away, I couldn’t leave out the interview I conducted with Sir John Templeton, one of the greatest investors of all time and an extraordinary soul.

Like all experts, the money masters you’ll be hearing from in these pages have different views of what the near-term future might hold, and they have different opinions on which investment vehicles they favor most. Some are short-term traders; some like to hold long term. Some think the index is the way to go, while others swear you can make more money in arbitrage. So even though they disagree sometimes on tactics, we can applaud how often these money masters take different paths to the same goals.

And one thing is for certain: all of them are great leaders. Take the exceptional Mary Callahan Erdoes, who leads 22,000 financial professionals, including some of the finest portfolio managers in the world, overseeing an astonishing $2.5 trillion in assets for J.P. Morgan Asset Management. Or Chuck Schwab, who transformed an industry with his obsession to serve and protect the individual investor—building a company with 8.2 million client brokerage accounts and $2.38 trillion in assets served by 300 offices around the world.

The pages ahead will show you that there are many ways to win—many ways to succeed financially and become wealthy in the world we live in today. Even though each of these financial legends has a distinct approach, I found that they share at least four common obsessions:

1. 
Don’t Lose.
All of these masters, while driven to deliver extraordinary returns, are
even more
obsessed with making sure they
don’t
lose money. Even the world’s greatest hedge fund managers, who you’d think would be comfortable taking huge risks, are actually laser focused on protecting their downside. From Ray Dalio to Kyle Bass to Paul Tudor Jones—if you don’t lose, you live to fight another day. As Paul said, “I care deeply about making money. I want to know I’m not losing it . . . The most important thing for me is that defense is ten times more important than offense . . . You have to be very focused on the downside at all times.” And this statement comes from a guy who’s made money for his clients for 28 consecutive years. It’s so simple, but I can’t emphasize it enough. Why?
If you lose 50%, it takes 100% to get back to where you started—and that takes something you can never get back:
time.

2. 
Risk a Little to Make a Lot.
While most investors are trying to find a way to make a “good” return, each of these hall of famers, without exception, looks for something completely different: home runs! They live to uncover investments where they can risk a little and make a lot. They call it asymmetric risk/reward.

You’ll note how Sir John Templeton’s path to great gains with the least risk was
not
by buying the market but by waiting until—as the 18th-century English nobleman Baron Rothschild put it—there is “blood in the streets,” and everybody is desperate to sell. That’s when you pick up the best bargains. Paul Tudor Jones, on the other hand, follows trends in the market. But, as he says in his interview, he doesn’t make an investment until he can potentially get a return of at least $5 for every $1 he risks. And that, he says, is a $100,000 MBA in a nutshell! In Kyle Bass’s interview, you’ll learn how he figured out how to risk just 3% to make 100% returns. And how he parlayed that victory into more than a 600% return!

3. 
Anticipate and Diversify.
The best of the best anticipate; they find the opportunity for asymmetric risk/reward. They really do their homework until they know in their gut that they are right—unless they’re not! And to protect themselves, they anticipate failure by diversifying. Because in the end, all great investors have to make decisions with limited information. When I interviewed Kyle Bass’s former partner Mark Hart, he told me,
“A lot of brilliant people are terrible investors. The reason is that they don’t have the ability to make decisions with limited information. By the time you get all the information, everyone else knows it, and you no longer have the edge.”
T. Boone Pickens says it this way: “Most people say, ‘Ready? Aim! Aim! . . .’ But they never fire.”

4. 
You’re Never Done.
Contrary to what most people would expect, this group of achievers is never done! They’re never done learning, they’re never done earning, they’re never done growing, they’re never done giving! No matter how well they’ve done or how well they’ve continued to do, they never lose their hunger—the force that unleashes human genius. Most people would think, “If I had all this money, I would just stop. Why keep working?”
Because each believes, somewhere in his or her soul, that “to whom much is given, much is expected.” Their labor is their love.

Just like these money masters invest in different ways, they give back in different ways. They share their time, they share their money, they create foundations, they invest in others. Each of them has come to realize that true meaning in life comes from giving. They feel a responsibility to use their gifts to serve others. As Winston Churchill said, “We make a living by what we get. We make a life by what we give.” What unites them is the ultimate truth that life is about
more
than what you have. It’s really about what you have to give.

So how will the Billionaire’s Playbook serve you as an investor? It means that you can sit by my side as I ask 12 of the greatest minds in finance how you can uncover your own path to financial freedom. You’ll gain insight into how they became the titleholders in the field of finance, and how you too have to stay alert and be ready for anything that happens.
You’ll learn investment strategies that will prepare you for all seasons, for times of inflation and deflation, of war and peace, and, as Jack Bogle puts it, “times of sorrow and joy.”

CHAPTER 6.1

CARL ICAHN: MASTER OF THE UNIVERSE

The Most Feared Man on Wall Street

Question: When is a single tweet worth $17 billion?

Answer: When Carl Icahn says Apple is undervalued and announces he’s buying the stock.

Within an hour of Icahn’s tweet in the summer of 2013, Apple stock had jumped 19 points. The market got the message: whenever the billionaire businessman takes an interest in a company, it’s time to buy. Four months later,
Time
magazine put his face on the cover with the headline “Master
of the Universe.” It went on to say that he’s “the most important investor in America.” That’s right. In the past four decades, Icahn’s ventures have earned 50% more than that other investment icon, Warren Buffett. A recent analysis by
Kiplinger’s Personal Finance
shows that while most people think of Buffett as providing the greatest returns through time, if you’d invested with Icahn in 1968, in 2013 you would have had a compounded return of 31% versus Berkshire Hathaway—Buffett’s company—with “only” a 20% return.

Icahn’s business skills have made him one of the richest men in the world—at last check of the
Forbes
list, he was 27th, with a net worth of more than $23 billion—and he’s made billions more for ordinary shareholders who invest in his diversified holding company, Icahn Enterprises LP (NASDAQ: IEP), or own stock in the companies he targets. The secret to his success? Even his critics will tell you
Carl Icahn doesn’t just look for opportunities in business—he makes them.

But most outsiders still think of him as a Wall Street caricature, a ruthless vulture capitalist who pillages companies for personal gain. When you Google the term
corporate raider,
Icahn’s name autofills in the search bar.

But Carl Icahn is challenging that creaky old stereotype. Icahn thinks of himself as a “shareholder activist.” What does that mean? “We go in and shine a light on public companies that are not giving shareholders the value they deserve,” he told me. His obsession, he says, is to stop the abuse of stockholders by improving corporate governance and accountability—which makes American companies stronger and therefore the American economy stronger.

The
New York Times
describes him this way: “By rattling corporate boards, mounting takeover efforts and loudly jostling for change at companies, he has built a multibillion-dollar fortune, inspiring fear among chief executives and admiration among his fellow investors in the process.”

Icahn buys up shares of top-heavy or underperforming companies and then puts them on notice that it’s time to step up their game—or face a proxy fight for control of the board.

He sees himself in a battle with those who use the coffers of public companies to enrich themselves at the expense of the shareholders. “Tony, people have no idea how they’re getting screwed,” he said, adding that average
investors aren’t aware of the abuses that go on behind the closed doors of boardrooms. But part of the problem is that shareholders don’t believe they have the power to change things because they don’t think like owners. Icahn, however, knows the power of leverage—and he’s not afraid to use it.