Investing Lessons From Richard Rainwater ~ market folly

Thursday, April 5, 2012

Investing Lessons From Richard Rainwater

Eddie Lampert, founder of hedge fund ESL Investments/RBS Partners was on CNBC along with David Bonderman of TPG and Barry Sternlicht of Starwood Capital to talk about investment lessons they've learned from legendary dealmaker Richard Rainwater.

Rainwater helped run investments for the Bass Family in Fort Worth, Texas and eventually grew the fortune into $5 billion by taking a qualitative approach to investing.

Lampert on Greatest Investment Lessons Learned

Eddie Lampert says that, "You have to have a point of view, you have to have a belief that something's possible. And that you can see something that other people don't. And a lot of times, when you see something that other people don't, there's nothing there. But there are times where there are things there. And the question is 'is it worth it to invest your money and is it worth it to invest your time?' "

Another lesson Lampert said was important from Richard is to "invest in what you're familiar with, invest in what you're comfortable with. He'd go to the opportunities ... he'll be looking for where there's disruption, but something that he feels comfortable with. He understood his capabilities ... He wanted to get into business with great people and I think that was a great lesson as to how important people are to making businesses work."

Referencing a specific Rainwater investment, Lampert says that, "Sometimes you make investments and they if don't work out, what you learn are applicable to other situations."

Lampert also went on to say that "Investing can be very lonely, especially if you're contrarian." Barry Sternlicht highlighted how this applies to Eddie, saying that "you make very few, very large, concentrated bets and you've been very patient."

Bonderman on What He's Learned

David Bonderman, founding partner of Texas Pacific Group (TPG), talked about Richard Rainwater's "courage of convictions," a trait he admires.

He also talked about Rainwater's ability to focus on the obvious and to invest in things that simply made sense to him. Bonderman said of Rainwater's approach: "if you couldn't pencil it out on the back of an envelope, it wasn't worth doing... it wasn't obvious enough. If it took spreadsheets and computer programs, you shouldn't do it."

Embedded below is the video of lessons learned from Richard Rainwater:

You can view more of Eddie Lampert's rare interview here.

Stanford MBA Classmates on What They Learned From Rainwater

In a separate video compilation, many of Richard Rainwater's MBA classmates also chimed in on what they've learned from him and provided nuggets of investing wisdom.

One mentioned Rainwater's propensity to essentially quote Warren Buffett by saying that rule number one in investing is not to lose money, and rule number two is to pay attention to the first rule.

Classmates also touched on Rainwater's approach to examining potential outcomes. He would examine scenarios A through Z whereas most people will only look at probable outcomes. He would say you've got to focus on 'friggin Z' which could have the most profitable outcome.

Another classmate mentioned that Rainwater would say 'Whenever there is chaos, there is opportunity. When everyone is running away, there's opportunity - there's got to be a nugget in there somewhere."

Embedded below is the video of further lessons from Richard Rainwater:

For more investing wisdom, head to lessons Dan Loeb has learned as an investor.

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