Michael Bloomberg  01:11

Don’t spend a lot of time making long-term plans. Here’s a photo of me at Johns Hopkins University when I graduated. I never dreamed of going to Hopkins, but I had a job in an electronics company and my boss suggested I apply. My time at Hopkins didn’t go exactly as I planned. I wanted to be a physics major, but there was a German requirement. This was right after all of the physics had been done in German and had not been translated into English after the war. After three days in German class, I realized that I am not a linguist. I was not going to learn to speak German no matter what happened. So I switched the engineering school so it didn’t work out the way I’d thought.

01:54

Then I went to business school, thinking I would wind up managing a factory, but a friend recommended I try Wall Street even though I knew nothing about finance. The lesson there is to focus mostly on the now. You can’t predict what’s going to happen. Don’t even think about tomorrow until it comes. Spend the time where you are right now learning as much as you can and making as many friends as you can. I taught myself to be the first in and the first out.

02:23

At business school, I had to pay room, board and tuition, and so I took a job renting apartments in a real estate office. None of the other salesmen understood why every client who came in had an appointment to see me. It was really very simple. I got in first, about six in the morning, and I answered all the overnight inquiries. I always tried to be the first one there and the last one out at night. In the morning when the managing partner wanted to borrow a match to light his cigar or wanted to talk sports, I was the only one he could talk to, so we became friends. At the end of the day, the number two guy was the last one to leave. What was he going to do, refuse to share an elevator in a subway car with me? So we became friends then.

03:10

To this day, I have always believed that a lot of people are smarter than me. They can do things that I can’t do, but they cannot outwork me. I can work 24/7, and they can’t work more than that. The longer you work, the luckier you get, and the more successful you’re going to be. The more successful you are, the more you are going to want to work. Don’t let failure get you down. Take risks. You’re not going to get to the top unless you do. How did I go to work at Salomon Brothers to start a company? Simple. I got fired! When you get fired, opportunities open up. People are afraid to say, “Oh, I got fired.” I was proud of getting fired. I’d never been fired before. It was wonderful to learn what it felt like.

03:57

Now, I don’t want to do it a second time.  Since my name is on the door of my company, I don’t think that’s going to happen. Nevertheless, I love my job. The people that hired me and fired me were great people, and they all became Bloomberg customers. After leaving, I had a crazy idea and I went for it. I started my own company. If I hadn’t gotten fired, I never would have started the company, run for mayor, or been invited to speak to you today. So, always look at the bright side. Failure may be embarrassing at first, but it’s how you grow. The lesson is you’ve got to believe. You’ve got to take risks. You cannot spend your life on the bunny slopes, and you can’t read a book about skiing and go out and escape double black diamonds.

04:43

You have to learn by doing and falling down. Always hire people smarter than you because you can only do as well as your team does. The Press kept asking me, “What did you do in the first hundred days?” I said I built a team. They said, “Yeah, yeah, but what did YOU do?” I said, “No, no, I built a team,” and we went back and forth. They couldn’t understand that the team was everything. What I did is I picked them, I put them together. If they had a problem, I could adjudicate between disagreements and find ways to pay them, but they were the ones that were really doing it. So, never be afraid to hire somebody smarter than you.

05:25

They will make you look good, so give credit to them. When I say, “No, I didn’t do it. Sally did it.” Two things are true. Number one, everybody knows that I did it. Number two, they respect me more because of it, and Sally respects me. So now Sally is going to want to be part of the team for a longer time, so give credit to others. I don’t know anything we do by ourselves. Everything requires other people. When I returned to Bloomberg after City Hall, I found that much to my surprise that after all my instructions that I had left 12 years earlier, that there would not to be any private offices. People said we didn’t have any private offices. But all the 12 senior people had conference rooms right next to their desk with family pictures in them.

06:12

Needless to say, the next Monday when they came in, the walls were gone. Also, one of the worst things you’re going to have, they keep people from communicating. And if you want to set an example, people have to be able to see you. The more you break down the walls, the stronger your team is going to be. If you put yourself right in the middle of all the people you work with, you’ll be shocked at just how much better informed you are, how much more they will love you, and how much more you will all do together.

06:39

If you don’t back the people, they won’t take risks. If you don’t share credit, they won’t be motivated. The job of the leader is to take the heat and to stand by that people. Hold them accountable but back them up when they take well considered risks that don’t work out. If somebody on your team has an idea that doesn’t work, do what I do. I always make sure people understand that I am still supporting them.

Stig Brodersen  07:07

I’m always inspired by hearing how successful entrepreneurs rose to the top from humble beginnings, but I also want to say that one thing that always frustrated me whenever I was younger, was that it sounded too simple. I sort of had the feeling that while what they say might be true, they were also just a little luckier than I was. I think that over the years, I realized that it was more likely my jealousy talking than sensibility. I was the only one to blame for my own problems. One book that put stories like these into perspective, at least for me, was Ray Dalio’s book, Principles.

07:47

Ray Dalio defines principles as ways of successfully dealing with reality to get what you want out of life, which I think is very relevant when listening to stories like the one you just heard here from Michael Bloomberg. So one simple principle, just for example, is that if you want to grow your wealth, you need to spend less than you make. Now, we don’t all want the same out of life, so we should all apply different principles. Any correct principle is still universal, and that’s exactly what Michael Bloomberg is doing here. He’s outlined his principles for how to achieve what he defined as success in his life.

08:25

The key here is if you’re conscious about your goals, you can, through principles, achieve them. Personally, I have five business principles that I apply to my business goals, and I look at them every single day. They do not include outworking everyone else like Michael Bloomberg. I have other ambitions and goals so I use other principles, and those principles will get me different rewards. I guess my key takeaway when I listened to this clip, was to emphasize not only for myself, but also for the listener, which principles you live by, and why you chose those principles, and which rewards you expect to get from them.

Preston Pysh  09:06

Alright, Stig. I’m going to go ahead and play a question that I had picked out here. This question pertains to what Michael Bloomberg learned from his younger years, and this was his response.

Michael Bloomberg  09:19

I think you look at your parents and most of us are lucky enough to have parents. Not everybody does. One of our problems in New York City is we have a lot of kids. We have to help those who aren’t so lucky. They are raised by grandparents or other times just friends. I had two loving parents. My mother is still alive. She’s 98 years old, and lives in the house that I grew up in. I flew down this weekend in New York and went back. I hope that I’ve inherited her genes. My father was a bookkeeper for a little dairy company, and he went to work seven days a week right up until he checked himself into the hospital to die. I think you can’t help but be formed by your parents. They’re with work ethic. We talked about charity, and social obligations.

10:09

One of the things my parents did, which I had wanted to do with my daughters but didn’t quite accomplish; I urge all of you, if you have kids, do this. My mother made sure my sister and I waited at home for my father to come home for dinner. We always ate together as a family and we set the table together. There was never a pot in the history of our family that came to the table. We served everything much more formally. We went around the table and talked about what we did that day.

10:42

I remember discussing charity. We collect for some cause in the neighborhood. I was a boy scout and sold Christmas wreaths to raise money for a few things and my sister did the same kinds of things. If you look back and say who was the most influential in setting your life on the right course, it was clearly in my case, my parents. A lot of other people had something to do with it, but the great challenge we have in our society is we live in a world where parents aren’t spending the time with their children. I went to visit a charter school two weeks ago, where they have kindergarten and first grade next year. They’ll have K-1 and K-2, and then they’ll build up to K-5. They insist that the parents read half a dozen books to the children every single week. Then they ask the children to write a sentence or two about each of the books.

11:45

They call the parents every single week and ask, “Did you read?” and if the parents didn’t have time, they say, “You know what, you’re going to have to remove your kid from school unless you start doing it.” This society that we live in, where everybody’s got so many things to do and families are much more fluid than they’ve ever been before. How we get to have the parents to really spend time, one on one with their children, is one of our greatest challenges. I think that’s the challenge in our school system as well. We talk about numbers; we talk about methods of teaching. In the end, education, particularly at the lower level, is a teacher looking a single student in the eye, dialoguing, understanding what that student needs. Answering questions, and there’s just too little of that in our competitive fund society.

Preston Pysh  11:52

I know our show is about investing, but I just really liked this comment about the influence of parents and the importance of parents spending time with their kids eating together. The reason I want to talk about this a little bit is because I read a book, probably a year ago, maybe two years ago, and the book is called The Light Switch. It’s a fairly popular book. The subtitle on the book is an ex-FBI agent’s guide to influencing, attracting and winning people.

12:42

One of the things that I really found fascinating in this book is that he talked about the authors. There are two authors, and they talked about this idea of being close to another person and interacting with another person in order to kind of bring them into your sphere of influence. When you look at a family that sits down and eats together, like Michael Bloomberg was talking about, and the family dynamic that he grew up in, you can see that the relationship he had with his parents was close, and that he was looking to them as role models.

13:43

I know that the eating is just one aspect of that. Maybe a very small aspect of that, but I think it’s really important for people to understand that the people that they have day to day interactions with; the people that you’re sitting down and having a meal with on an everyday basis is going to drastically impact who they become, what they’re going to become, what they’re learning. I just think it’s so important for parents out there to invest in their children and their time. I just wanted to play that quick audio sound clip, because I just really enjoyed it.

Stig Brodersen  14:20

For the next question that we’re going to play here, Michael Bloomberg was asked, “What is your advice to young entrepreneurs?” and this is what my he said.

Michael Bloomberg  14:29

There’s an awful lot of good ideas out there. There aren’t very many companies that succeed, and you have to ask yourself, “What’s the disconnect between the two?” I think because people don’t understand that when they start a business, is that you have to have a good idea; but the execution of building a business, of attracting the right people, of getting them to work together, of finding financing if needed, of going and selling the product, of maintaining the product and being able to recognize what the competitors are doing. Those are skill sets that most entrepreneurs don’t have. They tend to be young people straight out of school.

15:09

It’s amazing to me the ideas that they come up with, but they have never had the experience of the real world. It’s not easy to look somebody in the eye and say, “I’m sorry, you’re not going to work here tomorrow.” It’s not easy to get to people, both of whom you have to keep, both of whom you really need, who aren’t getting along, to adjudicate between them and to get them to cooperate. You deal with social problems, you deal with government problems, you deal with tax problems, you deal with legal problems. And I think it’s the maturity of the management of these companies that is failing them because they just don’t have it. They’re starting young people.

15:48

That’s something I suppose venture capitalists can bring to the party. They can give them the understanding of the real world and provide some stability. The bad news for venture capitalists is they have a short-term perspective and they want to get their money out. They want to own a big chunk of the company, and the entrepreneurs give away the whole company because that’s the only way that they can get going. It sounds good, but why bother? You will be better off maybe starting slower, attracting a few older people to work with you who have some experience.

16:25

What I’ve noticed is older people don’t have a problem at attracting, hiring, and working with younger people. Why? Because that’s the way the world is, as you get older, you have to bring in new employees. They’re just out of school so they are younger, but younger people are always afraid of bringing in older people. They just, for some reason or another, are scared of them. They don’t recognize the talents that come with experience and with having been there before and done things.

16:59

When I started my business, I was in my mid 30s, and I’d had some experience. But most of the entrepreneurs I meet here are straight out of school. They’re 24 or 25 years old, and they’ve never had to go through this, and they don’t understand things. They think things are going to be easy, and if things don’t work out, they never quite understand why. But if somebody had been there before and done that, they could have explained to them, not saying you can’t do it but here are the difficulties we’re going to have to address.

Stig Brodersen  17:27

I don’t think you hear a lot of these discussions. You see these tech publications or whatnot and are rife with stories of crazy successful 22-year-old, just out of school, founders who become billionaires, which is kind of interesting than listening to Bloomberg’s perspective. I can say from personal experience. I’ve had two startups. The first I started when I was 26 and I hired multiple people, but I never, ever had anyone who are significantly older than me. I’m sort of embarrassed to say that I’ve not been doing that for the exact same reasons as we played here in the clip.

18:06

Bloomberg is very likely right and I’m wrong. Those are the reasons why not, and I really like his response and the way he’s thinking about this. Because if you do say something, like tech, or if you’re talking about young entrepreneurs right out of school, it might be a new technology. So why would you need more experienced people for doing something that’s, you know, not even invented yet. But at the end of the day, a business is a business. Meaning, the human aspect and experience in handling people is really key to the success.

18:40

Perhaps is this is a bit anecdotal but where would Mark Zuckerberg and Facebook be today if Zuckerberg didn’t persuade Sheryl Sandberg to leave Google in 2008. This was a point in time where Zuckerberg was 23, and Sandberg was 38. And this was not a point in time where it would make a lot of sense to go from Google to a new startup called Facebook. I think my last comment is whenever I was looking through a magazine here the other day about success in the tech business, one thing really stood out to me. The average age of leaders of high growth startups, successful that is, is actually 45 years old. I think it’s really a testament to what Michael Bloomberg is talking about here. A business is at the end of the day, all about handling people more than the idea itself.

Preston Pysh  19:30

Alright, Stig. So the next question that I’m going to play here is a question that is really simple, but I just kind of find interesting. Bloomberg was asked, “How did you start Bloomberg? and this is his response.

Michael Bloomberg  19:43

Well, I got fired from my job, and I was too proud to go look for another one. So, I said, “Well, I better work for myself.” Seriously, part of that is true. I was fired from my job. It’s the best thing that ever happened to me. If you get fired, you should say, “Thank God.” I had an idea, and I was lucky enough to have the wherewithal to finance it myself. I was able to attract three people that had been working for me at the company I got fired from, and they joined me. First day, it was just me. Second day, we were four people, and we just had an idea and we developed it.

20:27

It took us three years, I think, from the start of the business until we delivered our first product. The first year, you know it’s going to work. You just have all that enthusiasm. In the last year, you can see that it’s going to work so you don’t have to worry about it. It’s that middle of the year. That’s always the tricky one, but I went out and I spent three years to sell the product. You just have to have the confidence that if you keep going and knocking on doors, you will eventually find a buyer.

20:55

I’ve always thought about whether it’s in government or in business, that you have to lead. What I would argue is in business, we all talk about listening to our customers and I think that’s okay. But I would say that what you should do is hear your customers out. If you build what your customer wants, by the time you get it there, they’ve moved on to something else. So, what you have to do is build what they’re going to need down the road, and then convince them when you have the product that it is in their interest to buy and use it.

21:32

In government, that would be leading from the front. Nobody elects a government official, to ask them in a poll what they want and then deliver it. They should be electing government officials to come up with ideas for the future, and then convince them why it’s okay and why they should fund it and live under that kind of an environment and go on. So, if you have to have an idea, you have to figure out who to sell it to.

21:58

You have to go out and sell, and selling is a very key part of every bit of innovation. Whether you’re selling yourself to somebody to fund it, or you’re selling the product to somebody, or you’re just selling. Your family does bear with you while you go through this adventure. Successful entrepreneurs, my way of thinking, are always good salesman. Some may not be polished, but they’re very effective in terms of convincing people that they’ve got an idea and it’s worth listening to or investing in or buying.

Preston Pysh  22:33

I like this response. I guess the reason I like the response is because it’s not easy. It’s extremely difficult to do what he did, especially when you look at the magnitude of what he did. To get out there and to be a salesperson, to be the numbers person on the finance side, to be the person who’s running the day to day operations, the person who’s coming up with the market research to know what product or service you’re going to build that the customer is going to need in the future. Like all these stuff, it’s not simple.

23:08

I think it’s so important for people that before they quit their job and say, “Hey, I’m going to do this,” that they just understand the grind in the journey that’s ahead. They’ve got to be looking forward to that grind. They’ve got to be looking forward to that struggle and that challenge because if you’re not looking forward to that challenge, and you think you’re just going to quit your job, start whatever and it’s just going to kind of happen and everything’s going to fall into place. It’s not so simple and I think a lot of people don’t necessarily have the personality or the skill set to be able to handle so many different facets and be good at so many different facets in order to run a business from the ground up. That was just a little taste of Michael Bloomberg’s perspective on founding Bloomberg, and I think it’s really valuable for people to hear.

Stig Brodersen  24:05

Alright guys, so at this point in time on the show, we will play a question from the audience. This question comes from Tam.

Tam  24:13

Hey, Preston and Stig. First of all, I want to say thank you so much for all that you guys do. The amount of information that you guys provide are super valuable. I was listening to an old episode and the guest that was on said that he wants to come up with mortgage with a really high interest rate. Something in the 10% and his mom was freaking out about it, but then he told her that because inflation was really high, say 8%, the real interest rate that he paid, turned out to be really low. So, my question is, how is inflation factored into this, would he still pay the bank 10% interest, or does he have to pay the bank only 2% interest? Thank you so much.

Stig Brodersen  24:52

Great question, Tam. So, we have to define three different terms here. The nominal interest rate, which in your example is 10%. Inflation, which you mentioned to be 8%, and then the so-called real interest rate, which is the difference between the nominal interest rate and inflation. So, when you ask how much should you pay to the bank? Well, that is 10% in interest. So, if your mortgage is $100,000, your interest payment is $10,000.

25:25

Now, we also have inflation, which is vitally important because inflation ensures that the nominal value of money goes down over time. Think about it like this, what you can buy for $100,000 today, you need $108,000 to buy a year from now. This is great if you borrow money. Imagine that you own a small store or perhaps just get a regular paycheck, because goods or services are normally getting more expensive with inflation, what happens is that your annual nominal income will also go up, and you will therefore be able to pay back your mortgage with future dollars. While what you see in your bank statement is $10,000 in interest rate payment, it will because of the effect of inflation, feel like you’re only paying 2%, which is the so-called real interest rate.

26:20

You pay back with future dollars that had lost 8% in value. So that’s really why. We call this the real interest rate, because that is the actual cost to us. We’re sort of getting 8% for free, more or less as due to inflation. Then we just have to pay the actual real interest rate of 2% to the bank. I know there were quite a few numbers to keep track of there, but I really hope that this simplified explanation makes it clear what’s the nominal interest rate, what’s inflation, and what is the real interest rate.

Preston Pysh  26:57

Tam, I don’t think I can add any extra value beyond what Stig just said, so I’m just going to leave it right there. We really appreciate your question. We have an online course called our Intrinsic Value Course that we’re going to give you completely for free. Additionally, we have a filtering and momentum tool, which we call TIP Finance. We’re going to give you a year-long subscription to TIP Finance completely for free. Leave us a question at asktheinvestors.com, that’s asktheinvestors.com. If you’re interested in these tools, simply go to our website, theinvestorspodcast.com and you can see right there in our top-level navigation, there are links to TIP Finance and also the TIP Academy where you’d find the Intrinsic Value Course.

Stig Brodersen  27:39

Alright guys, that was all that Preston and I have for this week’s episode of The Investor’s Podcast. We’ll see each other again next week. Thanks for listening to TIP.

Outro 27:49

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