How to Invest | David M. Rubenstein

Summary of: How to Invest: Masters on the Craft
By: David M. Rubenstein

Introduction

Welcome to the summary of ‘How to Invest: Masters on the Craft’ by David M. Rubenstein. This book provides insights from some of the most successful investors in various fields, such as real estate, venture capital, and hedge funds. Through their experiences and valuable lessons, the book explores key topics like the impact of technology on investing, the role of patience in managing portfolios, and the importance of recognizing market anomalies. You’ll gain a deeper understanding of the strategies and mindsets employed by these investing maestros, helping you further develop your own investing expertise.

Building BlackRock

Larry Fink’s success story with BlackRock – a company that now manages more than $9.6 trillion in assets – shows that wealth wasn’t his primary focus. Fink started BlackRock after feeling disillusioned as a trader at First Boston after his trading group hit a rough patch causing the company to lose $100 million. Instead of being supported, they were scapegoated. So he decided to build his own viable firm with an ambition to improve the industry. BlackRock’s rise to success mainly stems from the growth of its iShares exchange-traded funds. In 2009, Fink purchased Barclays Global Investors and its iShares ETF unit. At the time, iShares held client assets totaling $340 billion, but by 2022, that number increased to $3 trillion. However, Fink believes there is still room to grow as BlackRock holds less than 2% of all global assets while banks can hold up to 10% to 12% of all deposits in a given state.

The Triumphs of Real Estate Mogul Jon Gray

Jon Gray, the President and COO of Blackstone, played a key role in the acquisition of Equity Office Properties Portfolio for $39 billion. Gray’s shrewd strategy involved flipping less promising office buildings to protect the company from downside risk. The purchase of Hilton Hotels also yielded a profit of $14 billion. Gray believes the current real estate market does not pose the same risk as the Great Recession as the post-COVID economy has neither loose lending nor overbuilding. With moderate leverage and tight supply of properties, values remain under control, and inflationary pressures create a tailwind for real estate investors.

Sam Zell: From Small Beginnings to Real Estate Tycoon

Sam Zell is a legendary real estate investor who sold his office buildings portfolio for $39 billion. He started with a small investment of $19,500 after attending the University of Michigan Law School. Zell knew he could make money in real estate by leveraging mortgages, which don’t come with personal recourse for the investor. In 1981, he diversified half of his portfolio into other asset classes, such as logistics, health care, manufacturing, and agriculture. Zell’s strategy in turning around troubled companies earned him the nickname “Grave Dancer” in the 1990s. Although he admits to making mistakes, he expects to be right about 60-70% of the time. Zell bought a newspaper company that included the Chicago Tribune, expecting revenues to shrink by 6% per year, instead they plummeted 30%, causing his investment assumptions to fail. However, Zell remains undeterred by failures and expects to be wrong about one-third of the time.

The Art of Growing an Endowment

Sarah Volent’s success story at Bowdoin College is a testament to her expertise in asset allocation and manager selection. When Volent took charge of the college’s investment portfolio, it was worth $465 million. However, by the time she left in 2021, the endowment had grown to $2.7 billion, surpassing many other university endowments. She achieved this by avoiding fixed-income investments and cash, and by venturing into private equity and venture capital. Volent was meticulous with her asset allocation strategy, favoring equities and building a “farm team” of promising managers. Additionally, she was not afraid to stand by managers who experienced difficult periods. Volent’s strong communication and understanding of the portfolios she invested in enabled her to find success in private real estate and venture capital, even when they had little exposure in these areas previously. Her journey provides us with invaluable insights into effective portfolio management and growth.

The Genius Behind Medallion

Meet Jim Simons, the founder of Renaissance Technologies and the mastermind behind the incredible success of the Medallion Fund. With a doctorate in mathematics, Simons believed in computers’ superior ability to make investment decisions and surrounded himself with mathematicians, scientists, physicists, and astronomers to develop new trading strategies. His dedication to finding market anomalies proved to be the key to Medallion’s astounding returns of over 40% for more than three decades. Simons eventually closed the fund to outsiders, fearing its size would hinder its nimbleness, and continued to make brilliant trades with his extraordinary mathematical skills.

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