Ken Langone Picks People to Select Stocks
Saturday June 9, 1:23 pm Eastern Time
By Brendan Intindola
<<NEW YORK (Reuters) - The plumber's son, now a billionaire director of General Electric Co. (NYSE:GE - news) and the New York Stock Exchange, says making the right investments is not a matter of stock selection, but backing the right people.
Investing to Kenneth Langone, a co-founder of Home Depot Inc. (NYSE:HD - news), goes beyond balance sheets or near-term stock moves and boils down to two rules: Measure the people running the company and, if they make the grade, give them time to make things happen.
``I am looking for a very human touch. If my investment is going to work, it is because the people I am betting on have the knack to motivate, to have people reach levels they never thought possible,'' says Langone, president of his boutique brokerage Invemed Associates LLC, founded in 1974.
Langone, 65, found the ``very human touch'' in Ross Perot, whose Electronic Data Systems (NYSE:EDS - news) he helped go public in 1968 as an investment banker with R.W. Pressprich & Co., and in Bernard Marcus, the chairman of Home Depot and fellow co-founder of the retailing giant.
Langone keeps working the phone while he holds forth on his investment philosophy -- equal parts finance, human relations, history and bootstrap -- in a corner office bright with afternoon sunlight 22 floors above Park Avenue.
He has held his investments, including 18 million shares of Home Depot, for an average of 22 years, he said. Other positions include Eli Lilly and Co. (NYSE:LLY - news) and KeyCorp (NYSE:KEY - news) as well as EDS. However, Langone's spacious, glass-walled office lacks a common piece of Wall Street hardware -- a ''machine'' for trading stocks.
``I do not have a machine on my desk. I think it is a bad, bad habit. Does it really matter what stock was going for five minutes ago? The amount of energy you waste sitting and looking at the machine is nuts,'' he says.
Langone breaks during a recent interview to put together a foursome for a round of golf at the Deep Dale Golf Club, a Long Island course just a short drive from the Wheatley Hills and North Hempstead country clubs where he caddied as a boy.
THE 'MAJOR ADVANTAGE'
As a child, Langone worked hard, hauling the woods and irons of financiers and industrialists, pumping gas and working in a chicken market. He then traveled west to Pennsylvania, to Bucknell University, several social strata above the blue-collar Roslyn Heights, N.Y., of his childhood.
``I had a major advantage, I was raised poor,'' he says. Langone, whose undergraduate career was dotted with ''gentleman's C's,'' spent his library time reading Fortune magazine.
``I then began to realize the numbers were only reporting the results of humans, and that is when I got intrigued by the whole investment process,'' he says.
He earned an MBA at New York University. These days, he is a contributor to both schools. Langone can afford it: Forbes last year ranked him as the 218th wealthiest American, with an estimated net work of $1.3 billion.
FRIEND OF JACK'S ... AND BERNIE & BOB
Langone's phone book reads like a Who's Who in business, including GE's Jack Welch, a friend and Palm Beach neighbor.
``I have become absolutely unwavering in my belief that what differentiates companies is leadership, the motivation of people who work for the leadership, and the ability to really turn people on to collectively get a job done,'' Langone says.
Langone also serves on the boards of Tricon Global Restaurants Inc. (NYSE:YUM - news), owner of the Taco Bell, KFC and Pizza Hut restaurant chains, synthetic-yarn maker Unifi Inc. (NYSE:UFI - news) and Choicepoint Inc. (NYSE:CPS - news), which provides employee background checks and risk management.
Langone played a key role in the selection of Robert Nardelli, who missed out on becoming Welch's successor at GE, as Home Depot's new chief executive this year.
``When I talked to Nardelli, we knew he was the guy,'' Marcus, Home Depot's chairman, says. ``Kenny said, 'You have to make the decision,' and Kenny was right. His instincts were right about Bob Nardelli fitting with this company.''
As a member of GE's board, Langone had grown close to Nardelli, one of the three executives vying to succeed Welch.
``I could not do anything to distort or disturb the situation at GE. So when GE made their decision about who was going to succeed Jack, I said, 'Let's get him,''' Langone said of Nardelli.
'GOLDEN HORSESHOE' LEADS TO HOME DEPOT
Langone hit on his biggest investment when Marcus was fired as chief executive of Handy Dan's, losing out in a power struggle at the California-based home improvement retailer. Langone, at the time a major investor in Handy Dan's, saw in Marcus investment-grade qualities.
``When I told him I had been fired, he told me I'd been hit ... with a golden horseshoe,'' says Marcus, who originated the idea for what would become one of the first ``category-killer'' retailers in the late 1970s.
Langone recalls the story from 25 years ago.
``Bernie called me for a job. I said, 'Sorry no job, but I'll help you start a company,''' Langone says.
Home Depot was incorporated two months later, and the first of nearly 2,000 stores opened in Atlanta in May 1979.
``Here are all these people out there in the retail business,'' Langone says. ``Home Depot shows up and obliterates them all. How did it happen? You do it by watching the chairman of the board walking into the store pushing carts, sending a signal that it is 'we' -- not 'me and you.'''
Langone's Home Depot stake is now worth almost $1 billion, and makes up a big chunk of his firm's overall holdings.
``He has had couple of long-ball hits, like Home Depot,'' said Roy Smith, a former Goldman Sachs partner who now occupies an academic chair at New York University endowed by Langone.
``He has had success in a lot of investments,'' Smith says. ''But he essentially is a totally decent guy who enjoys being very rich, flying around in his plane, enjoying the fancy house. But it is only that, just enjoying it.>>
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It is important to bet on strong leaders and their teams if you are making a long term investment. If you are trading it may not be as crucial.
Hope you are enjoying the weekend. We are having spectacular weather in chicago -- it's sunny, in the high 70s with no humidity. A couple of weeks of rain and cooler weather helps us appreciate this...=)
Best Regards,
Scott |
