Ken Langone - The American Dream - [Invest Like the Best, REPLAY]

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3:29Hello 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. If you enjoy these conversations and want to go deeper, check out Colossus Review, our quarterly publication with in-depth profiles of the people shaping business and investing. You can find Colossus Review along with all of our podcasts 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.

4:04This 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 psum.vc. 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.

4:43You'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.

5:22And 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 Height. And he and I hit it off. And 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 he said i want to shoot 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 11 30 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 saw a 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 was sitting behind a big desk he's diminutive and I'm fellas come on over here sit over here I have a little chat I all I said, we're doing fine, Mr.

6:53Perot. I said, this is Roger Green, this is Duke Glenn. So we sit down, he lists the friends that he'd met with Goldman Sachs, Merrill Lynch, Whitewell, Kidder Peabody, every one of the top friends of Wall Street was there to see him. He talks nonstop for 29, Goldman says this, Merrill says that, Kidder says that, Whitewell says that. And he says, what do you think of that? I'm looking, I got 30 seconds left. I said, well, Mr. Perot, 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. What do you mean? I wrote Jack High. He told me I had 30 minutes, and by my calculations, 30 minutes.

7:35Forget 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. That's all the talk they have about working the market, knowing the market, doing all those things.

8:10He said, well, that's interesting. He said, let's talk a little bit more. We talked until one o 'clock in the morning. 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, oh, I'm not going to throw this comedian 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 to Dallas. We finally found a place. We stayed at a hotel. He was going to make a decision by the following Friday, and he called up.

8:44He said, I'd like to get to know you a little bit batteries 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 enough 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 alone he picked me up at the airport we're driving back to his office ken have you given that i thought that would you think we're worth mr perot i said first of all i said, I haven't had the benefit of your numbers. Let's assume the numbers are great.

9:20I said, can I get some kind of relevance? He 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. And it was doubling every year. And I said to him, I knew what the business was. By now, I got a good understanding I said, based on those numbers, and if I could be made comfortable that they can continue that way for a while, I would argue your company's worth 100 times earnings. What? They said, yeah, about 100 times earnings. Are you sure?

9:56I said, well, I'm not sure of anything. I'm sure of this. Those numbers are what you say. I had no idea whether it was 5 million or 9 million. Well, it turns out it was 7 million of revenues and 3 million of pre-tax profit. It was a staggering margin. and the clear prospects that it continued with success. 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? They settled in around 30 times. Now when May called me up and he said to me, are you comfortable with what you said?

10:36I said, Ross, I'll say it again, that you can continue this progression. You just do simple math. You 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 earnings. 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. I swear to God, he has some kind of machine that created these guys. It was unbelievable. One more talented than the other.

11:14Common 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. So he said, okay, well, let me think about it. This comes into June, two weeks later, he called me up. Again, Mitch Hart and I have been talking. One of the things we expect of 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, what the? I said, Ross, I'll be on the next plane down.

11:58What are you talking about? I said I've never seen that in their life. He said I've told you that. Well I know I don't Ross, don't come down. No no don't come down. He said you know we tax teams have a good rule here. If you got a good sense of humor you're a good Texan. I said well god damn it. You guys were a pain in the ass too. Okay so anyway he gives me the deal. The rest of Wall Street is stunned. Here's this little piss here at Railroad Fondhouse. Getting the most short after piece of business probably in the last five or 10 years. And we go through the whole process. He wants to know how we're going to do it.

12:31I 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 meeting. He's sure. 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 Jerry 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-managing. So Ross called me up and said that he'd gotten this call and how do I feel about having a partner?

13:06I said, Ross, let me ask a question. I said, 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 were sitting next to each other. How are we 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, the 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 can give it to them. I'm going to be around. I'm sure we'll figure a way out for you or me to...

13:37Oh, sir, he said. You were the one that made him go from 70 to 100. You're my man. Let's go. We spent our whole summer getting the perspectives together. And the more I learned about it, the more excited I got. I 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 underriding, you 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 underriding, Elaine and I and Margo and Ross had dinner at 21.

14:13We got to know each other that summer. We really didn't go up personally well. By the way, I'll tell you, one of the great joys of my life was his friendship. And this is a aside. One 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 paper. So this is all legal stuff. I love it. So we're driving through the tunnel.

14:51It was a back seat where you had two seats looking at each other. Marlowe and Ross are looking ahead. I'm sitting with my back to the front looking at them. Well, he said, Marlowe, all the other guys on Wall Street told me now he's got to back away from what he said he's going to do. What are you talking about, Ross? Well, I'm told, Ken, this is when you guys say, sorry, Ross, I miscalculated. I can't do it at the heart of times, Ernie. I got to do it at a lower number. What are you talking about? He goes, well, I suppose this is what you're going to tell me. I'm not getting a hundred times earnings.

15:24I said, how'd you know that? See, Marno? See, Marno? I said, how'd you know that? What do you mean? I said, I'm not going to do it at a hundred times earnings. I'm sorry. See, Marno? There you are. There are a lot of lights up here. They get us country boys up here. They pick us clean. I said, wait a minute. Wait a minute. Does a hundred times earnings mean that much to you? Yeah, right. he says taxes 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 times journey yeah well you will i said okay so margot i winked at marco well he was a little bit of a tizzy she says to me god bless margo she's short she will ken what were you going to do it at?

16:11I 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 the first day. So it was a very successful deal. And that deal, for lack of a better way to describe it, put me on a map. The most important thing of all was he was a man who when you delivered it 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. What about his style do you feel is most lacking in the world of leadership today, if anything?

17:00Integrity. 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 it, 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. And 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 who's going to get or he should get.

17:53100 times earnings to 115 times earnings. I can't think of a deal I've done where I couldn't have gotten more than I got. That's okay because the element of trust is the most precious thing in living. If I trust my doctor that he's going to do the right thing for me, there's a better chance he's going to be more candid with me and more willing to try and help me whatever my condition is, or a friendship, or a marriage. I don't care what it is. Well, you know, I'll give you a first. I did a deal with a guy. I bought a company. He was a tough negotiator. He negotiated back and forth. And I heard she gave in on every point.

18:35We got done around 9.30 at night, my office. I said, no, you say, oh, I'm happy. I couldn't be happy. Okay. I said, well, I'll tell you what. Let's go back and I'll drop you off in a hotel and I'll pick up in the morning. We'll have breakfast. We'll talk to you. He said, 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. As I reflect on this, I don't think this is good enough for me as I'm entitled. I said, well, let's talk skiers. I said, okay. Where do you think this thing is deficient for you?

19:08And he tells me, it's okay, you got it. What do you mean? I said, tell me what you want. You got it. I go, I want 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 with you again. And I feel strongly about that. And 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.

19:51I'm like, oh, it's all I'm saying I do okay. You'll see where I started, 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 told him, 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 comic turned out to be a home run. We did okay. So that's the philosophy of life. I pride myself on that. I think there's nothing more precious in my life other than my family than my work.

20:28Was 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 and fuck, they were humble, uneducated, but incredibly honorable people. But just how they lived their lives, that was really where it was chisel a hole to it. Chisel a hole to me. You know, keep your word, 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. Then I had a good fortune meeting this lovely lady.

21:09She was 16 and I was 18. We got married when she was 18 and I was 20. 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. Two 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, even just the way you've created successful financial outcomes seems to have been by holding longer than anybody else.

21:51My 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. The world has become very transactional. My epic battle with Eliot Spitzer, who was shy with his ass, I can tell you right, he ain't coming back for war, I can tell you right now, he ain't coming back for war. I got his ass good. And it was a fight that I loved every single second of it. But there, people were saying to me that I showed my loyalty to Dick Grasshoest. No, in that case, by the way, it wasn't just loyalty.

22:34It was the facts. The facts were that the whole committee, all nine of us, always voted unanimously to give them 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 here five years, six years, seven years Dick Grasso started that he changed as an$82.50 a week union card, union card went from that all the way how I guess what he had 37 years of service when you put the yardstick to that whoo, hell 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.

23:23When 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, but 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. I knew the truth. The truth was every single member of that committee knew exactly. And that was a sad thing to me, that I'm with high-powered guys that withered under this guy's, oh, he is such a, bring him on, baby.

24:03I'll show you how I'm withered. Okay? Bring him on. He did. He got it. Where was that? I didn't want it to happen. When Cuomo replaced him as AG, and when the Court of appeals found in all 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. He's lost. I know. 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.

24:47And number two, you haven't got the balls to feel it. He and I became good friends, by the way. So loyalty is a 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 a senior executive. I would just love to hear the beauty of the long-term at Home Depot as you've experienced that 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.

25:39we 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 gone anyplace else again. The 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 challenge 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 are still right at the bottom without a college education.