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.

Richard Rainwater Bets on Oil

Taken from Fortune,

"Back in May, when oil was at $129 per barrel and rising, billionaire investor Richard Rainwater did something as prescient as it was shocking: He sold off all the energy stocks he owned.

Now he's making another bold move: He's betting on oil again.

A few weeks ago, when the price of oil tested a low near $90 per barrel for the first time in many months, Rainwater decided that he had found the right reentry point. "I reinvested back in the oil business, and it's worked out really well for me," he told me the other day. "I bought Exxon (XOM) stock under $75. I bought ConocoPhillips (COP) under $68. I bought Pioneer Natural Resources (PXD) under $50. I bought BP (BP). I bought Statoil. I made a big bet on the sector. I bought a lot of stocks back."

Considering Rainwater's incredible track record investing in the oil patch, that's big news.

Rainwater first made his reputation by greatly multiplying the Texas oil fortune of the Bass brothers of Fort Worth, with big bets on everything from the resurrection of Disney to the boom in cell phones. After going out on his own in 1986, he made bundles for himself in hospitals (by putting together HCA) and real estate (by forming Crescent Real Estate Equities). Then, in 1997, when crude was priced below $20 per barrel, he decided to make a huge bet on oil. He put $100 million into stocks and $200 million into oil futures. The wager netted him billions in profits.

As Time's Justin Fox reported in early June, Rainwater made the decision to close out his oil bet when the average price of gasoline passed $4 a gallon in the U.S. (and after he saw a reader poll on the Motley Fool Web site in which 77% of respondents said they were cutting down on gasoline consumption).

"I missed the very top by a lot," Rainwater told me. "That's okay. I'm always early. I sold after I got my first inclination that we had a problem with the demand side in America. I saw that we had a problem with the demand side and I sold out. But the stocks kept going up. And the price of oil kept going up. It went from $129 to $147 [on July 11]. But then it went from $147 back down to under $100, and that's when I bought back in."

Betting on increasing demand

Indeed, Rainwater is just as convinced as ever that oil prices are going higher in the long term. As he made clear in a Fortune story three years ago ("The Rainwater Prophecy") he believes that the world is facing a future shaped by scarce natural resources. His decision to sell out in May was based on a belief that oil prices had gone too far too fast, not that the bull market for oil - or for that matter, commodities of all kinds - has ended.

"I think we'll have a run on raw materials of all kinds because we've taught people all around the world how to play capitalism," he says, "and all those people want to live like Americans. But when you look at us being [4.5%] of the population and using 25% of the resource base, that can't go on. You can't extrapolate that out around the globe without there being price pressures on the upside. So there are price pressures in food. There are price pressures on raw materials of all kinds, including oil."

So with crude at around $100 and most of the stock market in chaos, he says oil companies look like a pretty good place for your money: "It's much more positive than the rest of the environment."

Given the volatility of the market right now, though, Rainwater is monitoring his new stock holdings closely. "I've already sold some of them," he told me. "Not all of them, but I sold some because they went way back up. I'm just playing cycles here, and the cycles are really powerful and fast moving. I bought ConocoPhillips for $68 and sold it two days later for $78. I don't think you can make that money in that short of a time unless you get lucky. And if I make that much money because I'm lucky, then I want out."

Rainwater may be lucky. But when it comes to oil, his instincts are more than good."

Source: Fortune