• Let’s start this meeting over, Mr. Schwarzman. You say, ‘Mr. Putnam, you’re the treasurer of Harvard University, and I’m starting the largest—what will be the largest—student loan lending business in the United States, and I’ve got you down for $20 million.’ Now, say that.” I said it. “That’s a great idea, Mr. Schwarzman,” he said. “I’m in for twenty.” He had read up on the company before I walked into the room and would not be convinced by me one way or the other on its merits. He just wanted my help in making a quick decision on how much to invest. “Now what you do is take your book, get on the train, go to New Haven, and see Mr. So and So at Yale, and say, ‘Mr. So and So, I’m raising money for the Student Loan Marketing Association, which is going to be the biggest lender to students in the United States. I’ve got Yale down for $15 million.’ Try that. See what happens. After that, get back on the train, go to Princeton. Ask them for $10 million.” By the end of my university pitches, I had raised the better part of the $100 million, the money that founded Sallie Mae. Putnam gave me a lesson in raising money that would stay with me throughout my career as I raised fund after fund at Blackstone. Investors are always looking for great investments. The easier you make it for them, the better for everyone

  • Another trick I had learned for managing stress was to take a moment to slow myself down. People were always happy to let me have that extra moment. It even seemed to reassure them. They would be even more eager to hear what I had to say once I was ready. So I took a moment and then began

  • I had reached an important conclusion about starting any business: it’s as hard to start and run a small business as it is to start a big one. You will suffer the same toll financially and psychologically as you bludgeon it into existence. It’s hard to raise the money and to find the right people. So if you’re going to dedicate your life to a business, which is the only way it will ever work, you should choose one with the potential to be huge

  • The success of any investment depends in large part on where you are in the cycle when you make it. Cycles can have a major impact on the growth trajectory of a business, the valuation, and, of course, the potential rate of return. We routinely discuss cycles as part of our investment process. Here are my simple rules for identifying market tops and bottoms:
    • Market tops are relatively easy to recognize. Buyers generally become overconfident and almost always believe “this time is different.” It’s usually not
    • There’s always a surplus of relatively cheap debt capital to finance acquisitions and investments in a hot market. In some cases, lenders won’t even charge cash interest, and they often relax or suspend typical loan restrictions as well. Leverage levels escalate compared to historical averages, with borrowing sometimes reaching as high as ten times or more compared to equity. Buyers will start accepting overoptimistic accounting adjustments and financial forecasts to justify taking on high levels of debt. Unfortunately most of these forecasts tend not to materialize once the economy starts decelerating or declining
    • Another indicator that a market is peaking is the number of people you know who start getting rich. The number of investors claiming outperformance grows with the market. Loose credit conditions and a rising tide can make it easy for individuals without any particular strategy or process to make money “accidentally.” But making money in strong markets can be short-lived. Smart investors perform well through a combination of self-discipline and sound risk assessment, even when market conditions reverse
  • All investors will tell you that markets are cyclical. Yet many behave as if they don’t know this. In my career, I have seen seven major market declines or recessions: 1973, 1975, 1982, 1987, 1990–1992, 2001, and 2008–2010. Recessions happen. Market bottoms can be difficult to detect as markets are declining and the economy weakens. Most public and private investors buy too early and underestimate the severity of recessions. It’s important not to react too quickly. Most investors don’t have the confidence or discipline to wait until a cycle fully plays out. These investors suffer by not maximizing the profit they would have otherwise made from executing the same idea at a later point

  • Timing the bottom of a cycle isn’t easy, and it’s often a bad idea to try in any case. The reason is that it typically takes a year or two for an economy to really emerge from a recession. Even when a market starts turning around, it still takes time for asset values to recover. This means you could be investing at the bottom with no return for some period of time. This happened to investors who started purchasing Houston office buildings in 1983 after oil prices collapsed and the market hit bottom. Ten years later, in 1993, these investors were still waiting for prices to recover

  • The way to avoid this type of situation is to invest only when values have recovered at least 10 percent from their lows. Asset values tend to increase as economies gain momentum. It’s better to give up the first 10 to 15 percent of a market recovery to ensure that you are buying at the right time

  • While most investors say they are interested in making money, they are actually interested in psychological comfort. They would rather be part of the herd, even when the herd is losing money, than make the hard decisions that yield the greatest rewards. Doing what everyone else is doing seems like a way to avoid blame. These investors tend not to invest aggressively near market bottoms, but instead do it at market tops, where it makes little sense. They like the comfort and reassurance of watching assets go up. The higher prices go, the more investors convince themselves that they will continue appreciating. This same phenomenon explains why it’s almost impossible to bring an IPO to market near the bottom of a cycle. But as a cycle grows riper, the number, size, and valuations of IPOs explode

  • Cycles are ultimately powered by all types of supply and demand characteristics. By understanding and quantifying them, you can be well positioned to identify how close you are to a market top or bottom. In real estate, for example, building booms are stimulated when existing buildings are being valued at significantly more than replacement cost because developers understand that they can build a new building and sell it for more than they paid. This is a brilliant strategy if only one building is being constructed. But almost every developer can see the same opportunity to make what they think will be easy money. If a large number of them start building at the same time, you can easily predict that supply will overwhelm demand and the value of buildings in that market will decline, most likely precipitously

  • This is how we do Investments: The concept of an investment committee is commonplace across Wall Street and other industries. A handful or more senior leaders from a given firm invite deal teams to present a new opportunity that has usually already been summarized for them in the form of a memorandum. The deal team will try to sell a potential investment to the committee, listing all the reasons a deal is great and quantifying the potential for profits. If the committee members like what they hear, they bless the deal, and the presenting team is relieved to know they can proceed. If not, it feels like a loss, and the deal team usually skulks out of the room feeling defeated, memos in hand and perhaps muttering to themselves. Not at Blackstone. We structure our investment process to democratize decision making and encourage intellectual engagement by everyone involved—the deal team and committee members. There is no “us” and “them,” no seeking of approval from a group of elders. Instead, there is only a collective sense of responsibility for identifying the critical drivers of a deal and analyzing the extent to which those drivers could affect the financial performance of an investment in various scenarios. Everyone around the table, from the most junior to the most senior person, is expected to have an opinion and participate. No one person, or subset of people, dominates the conversation or holds the power for approval. It’s team ball. Everyone must debate and agree on the variables and decide the range of possible outcomes. In some cases, the variables are obvious, and in others, it takes a few rounds of rigorous debate and discussion to determine what they are. But we don’t move forward without agreement. It’s a subtle point, but this approach removes a lot of the noise and emotion that often affects investors’ ability to make sound decisions. It also eliminates individual risk and the pressure for a deal team to be “right” on the ultimate outcome. In instances when we talk about investing billions of dollars, this pressure can be psychologically intense and overwhelming if concentrated on just a few people. You could ruin the firm or your reputation with one bad investment. At Blackstone, investment committees are about discussion and discovery, not about getting a deal approved. Because the decision to move forward or not is made together, no one feels pressured to sell a deal just because he or she brought the idea. Similarly, there is no pressure to approve a suboptimal deal as consolation for a deal team’s hard work in sourcing and analyzing the investment in question. If we make an investment and it goes wrong, we all got it wrong, and we are all responsible for fixing it. And when we are right, which is more often the case, we reap the rewards together

  • Our process forces every person, no matter anyone’s seniority, to act like an owner of the firm, as if our LP’s capital was their own. This arrangement results in an extremely powerful alignment of incentives, and it also turns every deal evaluation into a teaching moment. The success of our process speaks for itself

  • We formulated a clear set of expectations, which I laid out in a welcome speech to our new analysts. It boiled down to two words: excellence and integrity. If we delivered excellent performance for our investors and maintained a pristine reputation, we would have the opportunity to grow and pursue ever more interesting and rewarding work. If we invested poorly or compromised our integrity, we would fail. To ensure my message got through, I defined excellence in narrow, practical terms: It meant 100 percent on everything. No mistakes. That is different from school or college, where you can get an A with 95 percent. At Blackstone, that 5 percent of underperformance can mean a massive loss for our investors

  • It is a lot of pressure, but I suggested two ways to relieve it.
    • The first was focus. If you ever felt overwhelmed by work, I said, pass on some of your work to others. It might not feel natural. High achievers tend to want to volunteer for more responsibility, not give up some of what they have taken on. But all that anyone higher up in the firm cares about is that the work is done well. There is nothing heroic or commendable about taking on too much and then screwing it up. Far better to focus on what you can do, do it well, and share the rest
    • The second way to maximize your chances of achieving excellence was to ask for help when needed. Blackstone is full of people who have worked on a lot of deals. If you are spending all night trying to solve a problem, chances are there is someone a few offices away with more experience who could solve it in far less time. Don’t waste your time trying to reinvent the wheel, I advised. There were plenty of wheels all around you, ready-made, just waiting for you to spin them faster, further, and in new directions
    • As for integrity, the easiest way I could explain it was in terms of reputation. To earn a great reputation, you think long term. I had been building my reputation since growing up in suburban Philadelphia, true to those middle-class values of honesty, hard work, respect for others, and always doing what you say you will. If those values sound simple, it is because they are. Anything more complicated can get lost amid the traps and temptations of our work. So my message to our new analysts was simple: stick to our values and never risk our reputation
  • When Phil Knight was building Nike, he hired other distance runners to work with him because he knew that whatever they lacked in terms of business knowledge, they made up for in stamina. They would never give up. They would take the pain and make it to the end of the race despite the difficulties. When you start a company, you are usually happy to find anyone of quality willing to go on the journey with you. But as you grow, you realize that some people are like wide receivers in football with hands of stone. You throw to them, and the ball just bounces off them. Others have hands like glue. As a decent person you think your role is to coax the bad ones along, to find workarounds. As employees, these are 6s and 7s out of 10. If you keep them, you will end up with a dysfunctional company, where you do all the work, staying up all night with the few people who can make it happen. You have two options: either run a middling company going nowhere or clear out the mediocrity you created so you can grow. If you are ambitious, you have to fill your company with 9s and 10s, and give them the difficult tasks to do. Finally, to succeed as an entrepreneur, you have to be paranoid. You always have to believe your company, regardless of size, is a little company. The moment you start to become big and successful, challengers will appear and do their best to take your customers and defeat your business. You are never more vulnerable than at the moment you think you have succeeded

WORK AND LIFE RULES

  • It’s as easy to do something big as it is to do something small, so reach for a fantasy worthy of your pursuit, with rewards commensurate to your effort
  • The best executives are made, not born. They never stop learning. Study the people and organizations in your life that have had enormous success. They offer a free course from the real world to help you improve
  • Write or call the people you admire, and ask for advice or a meeting. You never know who will be willing to meet with you. You may end up learning something important or form a connection you can leverage for the rest of your life. Meeting people early in life creates an unusual bond
  • There is nothing more interesting to people than their own problems. Think about what others are dealing with, and try to come up with ideas to help them. Almost anyone, however senior or important, is receptive to new ideas provided they are thoughtful
  • Every business is a closed, integrated system with a set of distinct but interrelated parts. Great managers understand how each part works on its own and in relation to all the others
  • Information is the most important asset in business. The more you know, the more perspectives you have, and the more likely you are to spot patterns and anomalies before your competition. So always be open to new inputs, whether they are people, experiences, or knowledge
  • When you’re young, only take a job that provides you with a steep learning curve and strong training. First jobs are foundational. Don’t take a job just because it seems prestigious
  • When presenting yourself, remember that impressions matter. The whole picture has to be right. Others will be watching for all sorts of clues and cues that tell who you are. Be on time. Be authentic. Be prepared
  • No one person, however smart, can solve every problem. But an army of smart people talking openly with one another will
  • People in a tough spot often focus on their own problems, when the answer usually lies in fixing someone else’s
  • Believe in something greater than yourself and your personal needs. It can be your company, your country, or a duty for service. Any challenge you tackle that is inspired by your beliefs and core values will be worth it, regardless of whether you succeed or fail
  • Never deviate from your sense of right and wrong. Your integrity must be unquestionable. It is easy to do what’s right when you don’t have to write a check or suffer any consequences. It’s harder when you have to give something up. Always do what you say you will, and never mislead anyone for your own advantage
  • Be bold. Successful entrepreneurs, managers, and individuals have the confidence and courage to act when the moment seems right. They accept risk when others are cautious and take action when everyone else is frozen, but they do so smartly. This trait is the mark of a leader
  • Never get complacent. Nothing is forever. Whether it is an individual or a business, your competition will defeat you if you are not constantly seeking ways to reinvent and improve yourself. Organizations, especially, are more fragile than you think
  • Sales rarely get made on the first pitch. Just because you believe in something doesn’t mean everyone else will. You need to be able to sell your vision with conviction over and over again. Most people don’t like change, so you need to be able to convince them why they should accept it. Don’t be afraid to ask for what you want
  • If you see a huge, transformative opportunity, don’t worry that no one else is pursuing it. You might be seeing something others don’t. The harder the problem is, the more limited the competition, and the greater the reward for whomever can solve it
  • Success comes down to rare moments of opportunity. Be open, alert, and ready to seize them. Gather the right people and resources; then commit. If you’re not prepared to apply that kind of effort, either the opportunity isn’t as compelling as you think or you are not the right person to pursue it
  • Time wounds all deals, sometimes even fatally. Often the longer you wait, the more surprises await you. In tough negotiations especially, keep everyone at the table long enough to reach an agreement
  • Don’t lose money!!! Objectively assess the risks of every opportunity
  • Make decisions when you are ready, not under pressure. Others will always push you to make a decision for their own purposes, internal politics, or some other external need. But you can almost always say, “I need a little more time to think about this I’ll get back to you.” This tactic is very effective at defusing even the most difficult and uncomfortable situations
  • Worrying is an active, liberating activity. If channeled appropriately, it allows you to articulate the downside in any situation and drives you to take action to avoid it
  • Failure is the best teacher in an organization. Talk about failures openly and objectively. Analyze what went wrong. You will learn new rules for decision making and organizational behavior. If evaluated well, failures have the potential to change the course of any organization and make it more successful in the future
  • Hire 10s whenever you can. They are proactive about sensing problems, designing solutions, and taking a business in new directions. They also attract and hire other 10s. You can always build something around a 10
  • Be there for the people you know to be good, even when everyone else is walking away. Anyone can end up in a tough situation. A random act of kindness in someone’s time of need can change the course of a life and create an unexpected friendship or loyalty
  • Everyone has dreams. Do what you can to help others achieve theirs

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