Meeting a Billionaire:
In December the company I work for was acquired by a joint venture of one of the richest man in the world. Last week his JV partner paid us a visit in his private jet. Each one of us in management was looking forward to meeting the man who is a self made billionaire. Our perception of billionaires was obviously what we have seen in movies and read in media. As he was flying in his personal jet from US for meetings that lasted less than 6 hours our expectations were to meet a Mr. Hot shot straight from Robert Redford or Richard Gere Movie (Indecent Proposal, Pretty Woman etc)
When we met Mr. C (he will remain unnamed as he is very media shy) we were highly surprised at his simple down to earth nature and folksy sense of humor.
I first saw him on the office floor taking a tour with my boss, I maintained a respectful distance not knowing to say hi or do what. Suddenly our eyes met he gave week smile ( still tired from 24 hours of journey in plane) and introduced himself. I uttered my name and explained that I look after the team here on the floor. He asked some questions on the process and then thanked each one of the people with whom he interacted and left for his meetings on the next floor.
Soon I received a call from the 5th floor and was called in a meeting with him and his entourage, some of whom I have already met the previous day over lunch.
He was calmly sitting in the board room with the team and other managers from our team. My boss requested him to address the team and he started slowly by explaining why his company has taken over our and why he as no plans to make any changes in the management or the business plan that we have. He was very clear that his and his company’s role would be to allocate capital and we need to remain within our targets. As long as we are doing we will not hear from him or from his team, but whenever we are not in the range we will get an air strike. Then he went on to explain what he meant by air strike. It basically means a team of people will be flow to our offices and they will camp in our offices to figure out what is wrong and will not leave till the time everything is fixed.
Then came the question answer session and we asked him what his investment philosophy was. He had a very simple answer:
“I do not care about the accounting rules, don’t understand what is depreciation, amortization, carry forward tax assed, Credit default swaps, options etc. All I care about is cash because cash is the king and cash is real rest all is accounting jugglery that can not impress me.” Then he said something that has struck me like a bolt of lightening. “You can not go and buy a Mercedes by depreciation on your balance sheet”
This as per him is the mantra he has lived by and is responsible to a large extent for his success.
So he is very clear he looks for cash flow of the company and ignores every thing else. If the company is not generating real cash then it is not worthy of any kind of investment and we should stay away from it as far as possible, because cash is real rest everything is accounting rules which managements play often to impress the markets.
Second important thing that he said was again very simple that he does not cares about the next quarter earnings or for that matter for the quarter after that. As once a company has a robust business model and generates cash on a regular basis one or two quarters of earnings fluctuations are not the reason to get out of great companies.
Third thing that he said was that he values companies that have good management and in management he is looking for only three things that they should be:
And then he emphasized that honest comes first and if the employee is not honest the other 2 qualities were of no use.
With this he wished us good luck in our work and proceeded for his next meeting.
We were very impressed with his straightforward, practical approach and his down to earth nature. Hopefully I will be able to utilize these lessons in my life in general and investing in particular.
Thanks for reading.