Ken Langone - The American Dream - [Invest Like the Best, EP.368]

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1:29Hello and welcome, everyone. I'm Patrick O'Shaughnessy, and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money. Invest Like the Best is part of the Colossus family of podcasts, and you can access all our podcasts, including edited transcripts, show notes, and other resources to keep learning at joincolossus.com. Patrick O'Shaughnessy is the CEO of Positive Sum. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Sum.

2:05This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Positive Sum may maintain positions in the securities discussed in this podcast. To learn more, visit p-s-u-m dot v-c. My guest today is Ken Langone. Ken is a legendary American businessman best known for his co-founding of Home Depot. He is also a former director of the New York Stock Exchange and a passionate philanthropist. He shares with us a lifetime worth of wisdom, building Home Depot into a powerhouse and prioritizing his employees above all else. He says he still bleeds orange to this day.

2:44You'll hear as he recounts his business endeavors, his strict belief in keeping your word and his true pride in his country, what he knows to be the land of opportunity. We discuss his work with Ross Perot, the idea of an upside-down hierarchy, and the power of loyalty. For anyone who may find it easier to follow along, we have a transcript of the episode on joincolossus.com. Please enjoy this conversation with Ken Langone. So Ken, it's hard to know where to begin a conversation with you given the number of interesting things that you've done across your life, your career. I saw when researching your history so many interesting early anecdotes with you establishing yourself, especially in your work with Ross Perot.

3:23And I always found Ross to be such an interesting character in business history. I'd love to hear the story of you taking his business public and what that represented to you at an early stage of your career and what it was like to work with him. I happened to be at a Mardi Gras ball in Washington. And at the party, I met a fellow there by the name of Jack Hype. And he and I hit an open. He was telling me that he was partners in a company that was getting ready to go public. And they had a hell of a record. And I said to him, is there any chance I can get a chance to pitch my firm to be the outrider?

4:01He said, well, let me see what I can do. We had a good time that night. Drank a little bit, raised a little hell. Monday, he called me up and he said, you got an appointment in Dallas at 1130 on Wednesday. Two things I want to tell you. don't be late you got 30 minutes when the 30 minutes are up leave and don't swear because I've been swearing like a sauce sailor at this party so I took two kids with me out of a corner I say kids I was only 33 myself and we went down to Dallas the scariest thing was exactly at 1130 I got into his office and there he was sitting behind a big desk. He's the mayor of it.

4:46And he could go, Hi fellas, come on over here, sit over here and have a little chat. How you all doing? I said, we're doing fine, Mr. Perot. I said, this is Roger Green, this is Duke Glenn. So we sit down, he lists the firms that he'd met with, Goldman Sachs, Merrill Lynch, Whitewell, Chitter, Peabody, every one of the top firms of Wall Street was there to see him. He talks nonstop for 29. Goldman says this, Merrill says that, Kitter says that, Whitewell says that. And he says, what do you think of that? I'm looking at it, I got 30 seconds left. I don't miss the proof. I think I'll just take advantage of the time I've got left to say goodbye and I hope you'll see me again sometime.

5:29What do you mean? I had a little Jack Hyde told me I had 30 minutes in it. By my calculations, 30 minutes. Forget that, tell me what you think. And I thought to myself, well, I'm going to blow the 30-minute rule. I might have to go all the way. I said, Mr. Perot, that's the biggest pile of bullshit I've never heard in my life. And he backs me his back. I said, what do you mean? I said, Mr. Perot, this whole process is fairly simple. You're going to pick somebody who's going to tell you what he thinks you can sell your stock for. And your bet is, can they deliver on that number? I said, it's that simple.

6:05That's all the talk they have about working the market, knowing the market, all those things. He said, well, that's interesting. He said, let's talk a little bit more. We talked until one o 'clock. Wow. Driving me and two guys, I was in the front seat. He had a big Baroon Lincoln and he was driving us all over Dallas. We were going to go back on a 3.30 plane in the afternoon. Now I figured, I'm not going to throw this meeting in. We were looking for a drugstore. We could buy shaving gear and toothbrush and stuff like maybe even a t-shirt because we brought nothing down. We finally found a place.

6:40We stayed at a hotel. He was going to make a decision by the following Friday. And he called up. He said, I'd like to get to know you a little bit better. He said, come on back down. So I went back down and we talked and we talked and we talked. I had not seen one number on how much his sales were, what his earnings were, nothing. So he invited me back down. You get a chance, come on back down. I talked to you. I said, sure. So the third time I went down, I went down along. He picked me up at the airport. We're driving back to his office. Ken, have you given that thought to what you think we're worth?

7:13Mr. Perot, I said, first of all, I said, I haven't had the benefit of your numbers. Let's assume the numbers are great. I said, can I get some kind of relevance? We got into his office and he had a closet and on the inside of the closet door, he had a graph, a chart. I didn't know what the numbers were. All it was was a chart of the percentage growth of the earnings and of the sales. It was doubling every year. I said to him, I knew what the business was. By now, I got a good understanding. I said, based on those numbers, that if I could be made comfortable that they can continue that way for a while.

7:50I would argue your company's worth a hundred times earnings." What? They said, yeah, about a hundred times earnings. Are you sure? I said, well, Ross, I'm not sure of anything. I'm sure of this. Those numbers are what you say. I had no idea whether it was five million or nine million. Well, it turns out it was seven million of revenues and three million of pre-tax profit. It was a staggering March and the clear prospects that it continued its ascent. So he thought, I want to think about it. I left about two weeks later. What he had done was he was calling all the other firms up and said, okay, what do you think I'm worth?

8:28They settled in around 30 times. Now when May called me up and he said to me, are you comfortable with what you said? I said, Ross, I'll say it again, that you can continue this progression. You just do simple math. You've got to cut the multiple every year by two. So it's not going to take long to get this thing down to 25 times during. But I said, I won't be able to tell you that until I can get a better fix on the business. So he said, well, come on down, bring some guys down. Let's get to know each other better and talk about how we do things. He brought in a bunch of guys, one after the other.

9:05I swear to God, he has some kind of machine that created these guys. It was unbelievable. One more talented than the other. Common sense, plain spoken gentleman. Don't forget, he had a dress code, white shirts, no tassel loafers, wingtip shoes, highly shine, no facial hair military style haircuts and the more I got exposed the more excited I got it so he saw okay well let me think about it this comes into June two weeks later he called me up again Mitch Hart and I've been talking one of the things we expect the people you know we're optimistic people and very frankly he said Mitch and I are a little worried that you don't show much enthusiasm i'm going with that oh i said ross i'll be on the next plane down what are you talking about i said i've never seen that in their life you said i've told you that well i know i don't ross i'm coming down no no don't come down he's you know we taxing's have a good rule here we think if you got a good sense of humor you're a good dex and i will god damn it you guys were paying me yes too okay so anyway he gives me the deal the rest of wall street is stunned here's this little piss here, railroad bond house, getting the most short after piece of business probably in the last five or 10 years.

10:29And we go through the whole process. He wants to know how we're going to do it. I go, Ross, I'm going to make you one promise I didn't tell you before. I'm personally going to be on every meeting with every investor. I said, I intend to build a very short. Oh, I know. He calls me up at the very end and decided he's going to give me the business. One of the friends who wanted it was G.H. Walker. there was a guy there by the cherry lodge who he knew and who he liked when lodge heard that we were going to do the deal at a harder time journey she said ross we'll go to a harder time journey and we'll be co-mashing so ross called me up and said that he'd gotten this call and how do i feel about having a partner i said ross let me ask a question and then you and i are in a high racing speed car going 200 miles an hour i got the steering wheel and you got the brakes we're sitting next to each other.

11:17How long people are going to hit the wall? Because we're going to hit the wall. I said, Ross, if I'm going to go 200 miles an hour, I got control in the clutch, steering wheel, shift, everything, or I ain't getting in that car. I understand. I said, Ross, you want to give them the deal. If you're more comfortable with them, you give it to them. I'm going to be around. I'm sure we'll figure a way out for you and me. Don't, sir, he said. You were the one that made him go from 70 to 100. You're my man. Let's go. We spent a whole summer of getting the perspectives together. And the more I learned about it, the more excited I got.

11:49I had a whole month here. Now, back then, New York State had a stock transfer tax. When you sold stock, it was the tax. And the way you'd get around it with an underwriting, you'd go through the tunnel after midnight on the day of the deal, sign all the papers in Jersey, and drive back in. So the deal was done in Jersey. It was legal. The night before the underwriting, Elaine and I and Margo and Ross had dinner at 21. We got to know each other that summer. We really didn't know it personally well. By the way, I'll tell you, one of the great joys of my life was his friendship. And this is an aside.

12:25One of the great honors of my life was when I got the call from the family, Ross Jr. They'd like me to deliver a eulogy at his funeral. Wow. Me. So anyway, we're driving through the tunnel. Elaine went home because our kids had to go to school. The next day we had three kids. So we're in a limousine. By the way, the limousine driver was always a witness signing the bank. So this was all legal stuff. I love it. They were driving through the tunnel. It was a back seat where you had two seats looking at each other. Lago and Ross are looking ahead. I'm sitting with my back to the front looking at them.

13:03Well, each of them, all the other guys on Wall Street told me now he's going to back away from what he said he's going to do. What are you talking about, Russ? Well, I'm told, Ken, this is when you guys say sorry, Russ, I miscalculated I can't do it at the 100 times earnings. I got to do it at a lower number. What are you talking about? He goes, well, I suppose this is when you're going to tell me I'm not getting the 100 times earnings. I said, how'd you know that? See, Mando? See, Mando? I said, how'd you know that? What do you mean? I said, I'm not going to do it at the 100 times earnings. I'm sorry.

13:34See, Mando? There you are. There are a lot light up here they get us country boys up here they pick us clean i said wait a minute wait a minute does a hundred time journeys mean that much to you damn right he says that's just you put your hand out your words you bought it means a lot to me not just the number but the fact you kept your word i said russ look the last thing i wanted to know happy client we'll do it at a hundred time journey. Am I, you will?" I said, okay. So Margo, I winked at Margo while he was a little bit of a tizzy. She says to me, God bless Margo, she's short. She goes, Ken, what were you going to do with that?

14:12I thought I was going to do it at 115 times journey, but it's the only once 100 times journey that's okay with me. We did it at 115 times journeys. And by the way, it went from 16 to 24 on the first day. So it was a very successful deal. And that deal, for lack of a better way to describe it, pulled me on the map. The most important thing of all was he was a man who when you delivered to him and you kept your word, he never forgot it. So he became perhaps my storages that I was a young kid, 33. I never got an underwriting. That friendship has lasted all through his life and now with his family as well.

14:52What about his style do you feel is most lacking in the world of leadership today, if anything? Integrity. That's it. The man was maniacal about keeping his word. And the second thing would be loyalty. If you promised to and delivered for, he'd never forget it. And this is bad. One of my favorite ideas of yours is this notion of leaving more on the table for the other guy than you think the other guy thinks he deserves. Did that come from Ross? No. Let me tell you where that came from. That came from my experiences as a poor kid when I realized if somebody expected this from me, I gave him that plus something.

15:40And to me, the art of negotiating is not see who best who. The art of negotiating to me is to get a deal for yourself and make sure the guy you're dealing with feels he got more than he thought he was going to get or he shouldn't get. A hundred times earnings to 115 times earnings. I can't think of a deal I've done where I couldn't have got more than I got. That's okay because the The element of trust is the most precious thing in living. If I trust my doctor that he's gonna do the right thing for me, there's a better chance he's gonna be more candid with me and more willing to try and help me whatever my condition is or a friendship or a marriage.

16:22I don't care what it is. How do you do? I'll give you a for instance. I did a deal with a guy. I bought a company. He was a tough negotiator. He negotiated a back and forth. back and i brought she gave in on every point we got done around 9 30 at night my office i said now you say oh i'm happy it couldn't be happy okay i said i'll do that let's go back and i'll drop you up in a hotel and i'll pick up in the morning we'll have breakfast we'll talk to you it's okay so the next morning i pick him up we're driving to my office he said ken can i be honest with you i said please don't he said i'm sorry he's as i reflect on this i don't think uh this is a good enough that you're familiar with our title.

17:02I said, well, let's go upstairs. And I said, okay, where do you think this thing is deficient for you? And he tells me, it's okay, you got it. What do you mean? I said, tell me what you want, you got it. I've got to tell you something else. I will never do business with you again. You bargained hard all day yesterday. You assured me at the end of the day, it was exactly what you wanted, you were fairly treated. I said, I can't think of one point I didn't concede to you. I said, I'm sorry. You got what you want on this deal, but I never wanted the business we can look at. And I feel strongly about that.

17:38And the best testimony is I never had a fear of client or a potential partner in a deal saying something bad about me because I did okay. I was going to say, I do okay. You see where I daughter in the city where I am right this minute. And it's okay to bargain for it, but when you're done, you're done. And he was shot. I thought you got your deal, you got exactly what you want. Now you got it. Frankly, I said, I thought you had a great deal last night, but obviously you thought there might be more on the table, so I won't disappoint you. By the way, that company turned out to be a home run, but you're okay.

18:19So that's the philosophy in your life. I pride myself on that. I think there's nothing more precious in my life other than my family than my work. Was there an early formative experience, like a specific experience that most taught you that lesson? How did you come to that conclusion? It sounds like at a really young age. My mother thought they were humble, uneducated, but incredibly honorable people. But just how they lived their lives, that was really where it was chiseled home to me. You know, keep your work, work as hard as you can and give it all you got. And live by the golden rule. One of the things that I feel strongly about is I'm very forthright about my job because that's where it all started.

19:07Then I had a good fortune meeting this lovely lady. She was 16 and I was 18. We got married when she was 18 and I was 20 and almost 68 years later, we're still hanging around with each other. We got pretty good. What's the key to doing that well? Have your fights, but never carry a grudge. Don't go to bed. We were two kids and truly loved each other. And the trauma and success wouldn't change us. I hope it hasn't. I urge my kids to be genuine, to be authentic, but that can be very important being authentic. Life and business is a repeat game. The story you just told about not doing the second deal with that guy.

19:44Even just the way you've created successful financial outcomes seems to have been by holding longer than anybody else. My love. Loyalty, if I would like to be remembered for one thing, only one thing. I'd like to be remembered that I was a loyal friend, a loyal husband, a loyal father, whatever you want. Loyalty is in short supply. that he answered. The world has become very transactional. My epic battle with Eliot Splitzer, which I whipped his ass, I can tell you right now. He ain't coming back for more, I can tell you right now. He ain't coming back for more. I got his ass good. And it was a fight that I loved every single second of it.

20:26But there, people were saying to me that I showed my loyalty to Dick Grass. So I said, no, in that case, by the way, it wasn't just loyalty. It was the facts. The facts were that the whole committee, all nine of us, always voted unanimously to be given these pay packages, which by the way will magnify because every previous chairman of the stock exchange never had a 10-year chart of longer than 10 years. So I know when you got these deals ready to hear five years, six years, seven years pay. Dick Grasso started that the exchange is an$82.50 a week union card. went from that all the way to the chair.

21:07Guess what? He had 37 years of service. When you put the yardstick to that, whoo, that's what you wanted. He created it that way to get people to stay. And look what he did. When he took over, they had 1 ,200 listings. When he got the bulletin, he said he had 2 ,800 listings. He made all of us. I bought seats for$72 ,000 a piece. I got$8 million for each one of them. I mean, how bad a deal is that? We had guys on the floor of the exchange going around with it. The whole key to the exchange was listings. But people say, well, that was loyalty. It was loyalty, but more importantly, it was being loyal to the truth.

21:49I knew the truth. The truth was every single member of that committee knew exactly. That was a sad thing to me, that under the high-powered guys, that withered under this guy's, oh, he is snitching. Bring him on, baby. I'll show you how I'm with it. Bring him on. He did. He got it. Where was that from? I didn't want it to happen. When Cuomo replaced him as AG and when the Court of Appeals found in our favor 7-0, Cuomo called me up and it was a Wednesday. That's when the decisions came out. He said to me, you know, he said, I don't know. Give me some advice. He said, I'm thinking of appealing it.

22:31He's lost. I know he's playing with my head. He says, I'm thinking of appealing it. What do you think? I said, well, there's two things I think. Number one, the most joyous thing I could hear is the fact you're going to appeal it if the game goes on, because I'm having a hell of a time in my life. And number two, you haven't got the balls to appeal it. He and I became good friends, by the way. So loyalty's in short supply of the world. The idea about loyalty rings through the Home Depot story in such an incredible way. Like so many stories of people kind of like Grasso starting as a cashier and becoming, you know, a senior executive.

23:09I would just love to hear the beauty of the long-term at Home Depot as you've experienced it as a co-founder and now incredibly long-term holder of that business. The most precious thing Home Depot has are the kids on the floor where the orange aprons are. We had what we call the most corporations have a triangle that the base and the point at the top and the point at the top is where the CEO is and the base is where the newly hired employee is. We turned it upside down. We say the most important person in the company is the person that comes in touch with the customer. If that customer gets what he wants at a fair price and feels he got great service, he's never going anyplace else again.

23:55The most precious part of that equation there, I call me kid, anybody under 88, I'm 88 years old, you're under 88, you're a kid. Don't get pissed off. Those kids really challenging jobs. They need to learn with their seller. They don't have the luxury of not being able to handle the difficult customer. They have crazy hours and most of them store right at the bottom without a college education. And those kids made this company. If there's one thing Home Depot is known for, it's our service. Big thing. We give you great prices, no question about that. We're always in stock, no question about that.

24:34We have every imaginable item you want to give in category, but you got to sort it. But the thing that holds all together is a kid that's dealing with you. I'll give you a for instance. This is a good friend of mine, customer. His faucet was dripping. He turned it off, it was still dripping, meaning that the washer had failed. So water got through with the valves, printed the nozzle of the faucet and drip, drip, drip, drip. Three o 'clock in the morning and your wife kicks you and says, go get the faucet. I can't sleep. The drip is keeping me awake. Guy gets up in the morning. He goes to the Home Depot store, says to the kid, I need a new one of these.

25:18The kid says to him, a new one of what? He said, I need a whole new stem. Leak it. He said, no, you don't, sir. You need a washer. Come on with me. We have little glassine bags of assorted size washers. Kid takes$25,$30 on who downloads that cheaper. Takes it off the peg, opens it up, gets the right size washer has a screwdriver in his apron, takes it off, unscrews the screw, takes the band washer out, takes the good truck washer, puts it in, puts the screw back in, and he says to the guy here, go home where it will drip. Guys, what are I only? He said, nothing. He said, happy you came to Home Depot.

25:56Three months later, the wife wants him to the kitchen. He said, I'm going to go to one of these food joints, kitchen and bath guys. He's on over with my friend. They went back, they found a kid. Kid brought him over to the kitchen designer where we'd sell kitchens. We got$100 ,000 kitchen order. That's the value. We make an effort to train the kids. We make an effort to treat them failing. Last year, we did a lottery. We raised wages$1 billion. Of course, the Trump, why? Because we really feel for our kids. They own stock. I guess I could say I made some money. Just a bit. I should be. I'll tell you this.