I think I got that wrong - looks like 7 preferred yields 1.25 Pioneer shares.
FWIW, here's Rainwater 4/2 on Rukeyser:
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Guest Interview (Part I)
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RUKEYSER: Now, before we meet tonight's special guest, let's see how he has conquered empires ranging from oil rigs to real estate investment trusts, to hospitals to health spas, as he built the Reign of Rainwater.
It all began with two friends at Stanford Business School in the
late Sixties: Richard Rainwater, who had grown up in Fort Worth's
small, but tight-knit, Lebanese community, though his last name
reflects another part of his ancestry, Cherokee Indian, and Sid Bass,
one of the heirs to a Fort Worth family oil fortune that then totaled
about $50 million.
With Rainwater as an investment advisor, the family's wealth
reportedly increased by an amazing 80 times before Rainwater went out
on his own just over a decade ago.
He amassed profitable investments in such firms as Ensco
International, the world's largest offshore oil-drilling company;
Crescent Real Estate, a real-estate investment trust whose holdings
range from office buildings to the plush Canyon Ranch resorts; and
Columbia/HCA Healthcare.
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As his personal fortune soared toward a billion dollars,
Rainwater was back in the headlines last year, ousting T. Boone
Pickens from the helm of his natural-gas firm, Mesa Incorporated,
thereby turning the tables on a man whose own reputation in the
Eighties was as a corporate raider and advocate of shareholders'
rights.
What's next for this famously quick-deciding tycoon? And can a
little of his success spill over into our accounts?
For some thoughts on that, let's go over now and meet tonight's
special guest, Richard E. Rainwater.
Richard Rainwater is quick to acknowledge that he hasn't always
hit home runs. He admits that after the first few years of investing
a $20 million stake for the Bass Brothers, they had actually lost
three of the 20 million.
But he sought advice from some of the great investors of the
day, and developed his winning philosophy: an effort to capitalize on
what he calls "major one-time transformations in an industry or
company."
It seems to be working. Over the past 10 years, this super-
investor says, his personal assets have been compounding at an annual
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rate of 26 percent.
Richard, in fine old Texas style, when you bet, you bet big; 85
percent of your assets are invested in just six companies. Whatever
happened to the textbook advice to diversify?
RAINWATER: Well, I think that textbook advice is good if you want
to stay rich. But if you ever want to get rich, you have to be very
concentrated. It's one of the things that I realized when I began
investing. Most of the great fortunes were made by people who were
invested generally in only one thing. And in the case of who is the
richest man in the world today, or the richest man in America, he
clearly has only one stock.
RUKEYSER: Bill Gates.
RAINWATER: Bill Gates.
RUKEYSER: Of Microsoft.
RAINWATER: Right.
RUKEYSER: You think that diversification would have been bad
advice for Bill.
RAINWATER: Well, it wouldn't have been bad advice for Bill in the
sense that, you know, Bill probably is smart enough to have figured
out if he had done ten things they would have all worked out. But
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when I started out investing, I needed to basically do something
other than just maintain a family fortune, because they really wanted
to grow it and they wanted to grow it nicely, and I was given that
responsibility. And after those first few years of making mistakes,
I focussed on things that really worked. And a concentrated effort
to look for these systemic changes turned out to really work.
RUKEYSER: You're a demonstrably brilliant judge of value. Is
this overall stock market overvalued?
RAINWATER: I don't think it's overvalued from a capitalist point
of view. From an investor's point of view that has to invest money
on a quarter-to-quarter basis, you know, you may be able to
statistically say that it's overvalued at any one quarter. But from
a capitalist point of view, we've turned loose an extra two to three
billion people to play unfettered capitalism, and that world is
producing unbelievable opportunities for American companies. And we
clearly are at the zenith of that opportunity with American
corporations, and they're taking advantage of it.
RUKEYSER: Are you still able to find values in your own search?
RAINWATER: Well, you know, I really don't look for values as much
as I look for systemic changes; big, major changes that are occurring
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in an industry.
RUKEYSER: Give us one example of how you've done this.
RAINWATER: Well, I can just run through a couple. I mean the
advent of the VCR and cable put tremendous demands on software in the
entertainment business. The advent of the cellular telephone created
a brand new major industry. Hurricane Andrew wiped out the
catastrophic reinsurance business. DRGs (Diagnostic Related Groups)
changed the way health care and the hospital costs would be done.
The upheaval in the real estate business created great opportunities
to create for the first time an industry out of real estate versus
more like a cottage business that it had been up until that time.
There are these changes, and right now what I think is the biggest
change that's going on, a major systemic change, is something which
is kind of unseen, but the world is slowly growing into its resource
base that it has over-provided for during the Eighties. And I
believe all the people that are now playing unfettered capitalism are
going to ultimately have dramatic impacts upon the entire world's
resource base.
RUKEYSER: Two of your big areas of investment, oil and real
estate, have been traditionally tied to inflation. Is an inflation
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forecast part of your investment there?
RAINWATER: Not really. You know, I would make those investments
without an inflation forecast. If inflation happens to come along, I
would also make those investments. So, as far as I'm concerned, it's
a win-win. You have, in both of those cases, commodities. Oil and
gas is a commodity. Real estate's really a commodity. And you have
them both on what I consider to be a major change unexperienced in my
entire business lifetime, what's gone on in those two industries,
what is going on and what will be going on in those two industries
over the next ten to fifteen years.
RUKEYSER: It seems to be very positive at this point.
RAINWATER: Very positive. I have half of my net worth basically
in those two industries, and that was a shift that I made out of a
whole group of industries, which included technology companies and a
lot of other things. And I feel very comfortable that I'm kind of
set for the next, hopefully, ten years.
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Guest Interview (Part II)
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RUKEYSER: Let's turn to our panel, starting with our
undiversified, don't be so sure, Jim Grant.
GRANT: Richard, people have looked at the price of oil go
from $26 a barrel to $19 a barrel, and they're wondering whether it's
going to go to $14 a barrel. Is this a new age for oil in that it's
no longer going to be so cyclical? Or why can you be so bullish for
ten years of something and it's had such volatility?
RAINWATER: Well, I hope it goes to 14 or even lower, because that
will give us more opportunities hopefully to continue to expand our
businesses at low prices. But let me just give you a real quick 30-
second look at the world. We've gone from a world that had 30
percent of the world production shut-in in 1998 to a world that at
the end of 1997 should have five or six percent of the production
shut-in. By 1999, it's my belief that ultimately all of the shut-in
production will be on stream, and the countries that have control of
the market then will change dramatically from what they've been in
the past. In the past it's always been Saudi Arabia, Kuwait, friends
of the U.S., friends of the West. I believe we're getting ready to
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have an environment where friends as well as enemies of the West will
have as much power in pricing that commodity. Now, in the meantime,
while you get there, you'll still have, I mean you'll still have
prices go up and down. And the price did get down to $9, $8 or $9, I
guess, in the summer of '86. You know, it's been saw-toothing its
way up ever since then. And I believe a world that, once again, all
these are calometric models, need to have available hydrocarbons for
all of these worlds to play this game. And I believe we're right at
the verge of finding out that we will have some limits to growth.
And those limits will be very real, and I have a feeling that
hydrocarbons are going to be one of them.
ROGERS: Richard, once you identify a sector, an industry or a
field going through major change, are there one or two
characteristics you look for to help you identify how to play one of
those trends?
RAINWATER: I wouldn't say there are one or two characteristics,
Brian, because different businesses and different systemic changes
make for a different kind of equation each time. When Hurricane
Andrew came and wiped out the catastrophic reinsurance business,
that's certainly something that's different than when you have
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something along the lines of a health care industry that has the
government starting to try to reduce costs and the implications of
that. And so you have to take, and what I do is I take a tremendous
amount of time and effort to study each individual industry
separately. Now, the common characteristic of it all is I try to
build in the midst of that change the biggest and the best company of
its time. And I've done it. I've been very fortunate. I mean I
think a person's very fortunate to experience that once in their
life. I've been able to do it now seven, eight, nine times. And it
doesn't come with any set formula.
DATER: Richard, in terms of your thesis about natural
resources, I'm really intrigued with this, what are some of the areas
that a builder or a re-builder of businesses such as yourself might
be attracted to because of its demand factors?
RAINWATER: Well, I want to have domestic resources. I actually
believe that we're going into a world where the countries that have
most of the natural resources will start to husband those resources
and even maybe hold those resources off the market. I also believe
we're going to go into a world where U.S. based or foreign countries
operating in some of these other places may in fact find themselves
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in the same situation that they found themselves before, where the
countries simply take the resources away. Give them a check, tell
them that's what it is. So I want domestic resources. I want long-
life resources that are domestic resources, and I want them in the
hands of aggressive, entrepreneurial-oriented managers that want to
take advantage of what Jim pointed out, these swings. And as these
swings come along, the opportunities to buy other companies and buy
other assets at attractive prices are there. And I want the kind of
management that, once again, thrives and thirsts for the opportunity
to take advantage of those things. And fortunately in Pioneer
(Natural Resources Co.), which is a combination of Mesa and Parker &
Parsley, we had that type of management.
RUKEYSER: Richard, we have time really for only one more
question. You're not an investment advisor. You're not a money
manager. You invest for your own account. What's the most important
thing that the average investor could learn from your success?
RAINWATER: Well, probably the most important thing is that
capitalism is the only game. It's the best game. We pioneered it in
this country. There's more information about capitalism in this
country than the rest of the world put together. The great asset
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allocators that run mutual funds are available to you. It's a very
easy and simple thing to basically play that game, and you ought to
be doing it.
RUKEYSER: Thanks very much, Richard Rainwater. Thanks for our
panel.
I hope you'll be back with us again next week when I'll be
talking with a mutual-fund manager who has achieved notable success
by putting all his eggs in just a few baskets and then watching those
baskets very carefully.
He's James Oelschlager, who runs one of the few large-company
funds that have beaten the averages over the past three years. Let's
find out how and whether he can keep it up.
Meanwhile, this has been "Wall Street Week." I'm Louis Rukeyser.
Good night. |
