Episode 34 | Best of 2015 with Carl Icahn, Dick Grasso, Ken Langone

The following program is paid for and presented by SkyBridge Media, LLC.

I'm Anthony Scaramucci. Merry Christmas, happy holidays, and welcome to a very special edition of Wall Street Week.

And I'm Gary Kaminsky. Today we bring you some of the best moments from our interviews with Carl Icahn, Ken Langone, and Dick Grasso.

This show has never been solely about investments. We've talked about anything that affected people and their money.

From Times Square in New York City, the new Wall Street Week.

Icahn, Langone, Grasso, three titans of capitalism, blue-collar backgrounds, strong work ethics, and homes filled with love are just a few of the characteristics that these distinguished gentlemen share. We begin today's show with a look back at how they got their start on Wall Street.

I didn't know what to do, and I started studying how you pick stocks, and it really hit me how great it was, you know, what you did. I met a guy that was a security analyst, and he's showing me how to pick these stocks.

Was it going back to the books? Was it reading things about the industry?

Well, no, no, I just liked it, but that wasn't really it, but when I got into Wall Street, I had 12, 15,000, which was a lot saved. I started investing it. And in '61, the market was hot. And you never really, I learned a lot from that because you'd never confuse a bull market with brains. And what I did was confuse it. And I'm buying all these stocks. I'm picking this and I'm picking that. And I had a following of people would listen to me. Oh, wow. But everybody was making money. You don't realize that. And Jack Dreyfus would tell me, he'd come over. He sort of liked me. He'd sit there with me once in a while. And he said, "You're going to lose every penny you have. I'm telling you, Carl. Before you're through," he said, "I guarantee."

I was up to about $70,000, which was huge. He says, you know what? When this is over, six months, a year, maybe less, he says, not only would you have the 70, You'll be negative. Everything you ever had. And he was right. In three days in 62, they cleaned me out. And I learned. I tell you what I learned from that experience.

You didn't learn from him just giving you the advice. You had to go through the pain.

You had to go through the pain. You have to go through it. The market is not a gambling casino. And too many people in this type of market, too many people think it is. And especially now with low interest rates. So it's really... a dangerous place today.

How'd you build yourself back up, though, after the cleaning?

Well, then I had a few bucks left, very little, and I said, "I gotta learn something." So I read a lot about puts and calls, and in those days, that was really the Wild West, the puts and calls. And you had all these option brokers, if you remember, and they were fleecing everybody. So I was the honest broker, so to speak. I'd come in and tell everybody, put out a midweek option report. And I'd stay up every night calling people that write in for my report. And I'd be calling them from here to California. And I had a big following in options. And I'd give them more than they thought they would get, which I couldn't believe. Here's a guy they don't know from New York calling this wealthy guy, and he'll sell 10 calls on this stock.

I'll do it for five grand. I'd get him six grand. The guy couldn't believe it, right? Then I'd get him more. And the call brokers couldn't believe it, because they all wanted to give your business back. They said, I know you can do it cheaper cost. And I built this thing up. By 68, I was making seven, 800 grand a year, which was like today, 10 million, 20 million.

You had this great options business. And when did you start thinking about not just being an investor, but somebody who— Well, I wasn't an investor.

I had this big following. And so I got the money. I had an uncle that had some money. And I, by that time, had saved a couple of hundred grand. You could buy a seat for 400. He loaned me 200. So I had enough without borrowing. I didn't go to borrow that. So we had 600. And the interesting thing, when we worked out the numbers, I never forget, my uncle's accountant said you're crazy to do this you're making yourself five six hundred thousand a year no matter how you do this with the income you're going to make from the commissions but you got your own seat now you got to have accountants you got to have lawyers you got to have overhead there's no way you can make a penny and he told my uncle he said to him look you want to loan him 200 you're not going to lose it he's putting up you know his 200 and the way it's structured you really won't lose and i had you know i was paying my uncle a real good return on the money plus a piece of the company

But I did it anyway. I said, "Forget it. I'm going to have my own firm."

I spent two years in the Army. When I came back, I said, "Mom, I think I should go back and finish college." My sister slammed her fist on the table and said, "Finish college? You're 21 years old. You've just spent two years in the Army. Get a job, you bum." So I took a job as a Stock Exchange stock listing clerk. And I said, "As soon as I can get out of this job, I'm going to the trading floor. That's what I want to do. That's what I love." The action was fabulous. After about two years, I fell in love with what I was doing and never left.

It both hurt and helped. It obviously hurt when there were great positions available at the stock exchange, opportunities to move up. Realize, I started as an $81 a week clerk on the time clock. I was a union member and I would get there 7.30 in the morning, punch in, they wouldn't pay until nine o'clock. But I would punch out promptly at five Because if I ran from 11 Wall Street to a newly organizing subsidiary of the Stock Exchange, which ultimately became the depository trust company, biggest trust company in the world. If you got there by 5.14, they paid you from five o'clock. If you got there at 5.16, they didn't pay you until 5.30. So I ran like hell and I would work usually until 11, 12 o'clock at night because in the summers of 68 and 69, the volume on the stock exchange exploded.

to 10 million shares a day. Wow. Couldn't be handled. What are we trading today? God, you trade in total close to $7 billion in total. But the interesting thing was when I got my first paycheck, you ask what it was like. I looked at it, and it was a double paycheck for both the night job and the day job. I said to myself, these people have got to be crazy. They've just paid me more in one week than I earned in one month as a sergeant in the Army.

How did you get involved in investing in the first place?

My dear late father-in-law was kind enough to introduce me to some people at the Equitable Life in their investment department. I think we mutually agreed that I had some potential, but they had put a condition in that they were only hiring MBAs, and I didn't have an MBA. NYU had a night program, only a night program for MBAs, and I agreed that if they gave me the job, that I'd go to NYU at night and get an MBA. And that's what happened. Along the way, I became a father, and then along the way, I got called back into the Army. I was in the Army once under a reserve obligation, and then I got called back when they built the wall around Berlin. When I got back from that tour of duty in Fort Bragg, North Carolina, Wall Street had just had the major crash since '29 in May of '62.

Everybody was leaving Wall Street, and I just said, this is the time to go in.

So what were the early lessons that fortified you over the years?

Well, I worked for a man who taught me a lot, Jack Cullen, R.W. Pressprich. This man I worked for was maniacal that the customer never have doubts about what you were telling them. And he would always insist that if he and I were going to go see a client on an investment idea, that the first thing we tell the client are all the things that are wrong with the idea. And then you say, okay, this is everything that could possibly go bad, and this is why I still think you ought to own the stock or the bond. And when we left our first meeting, I said, Jack, why did we do that? He said, look, he said, that client is gonna pick up the phone, he's gonna make a lot of calls, and if all we did was tell him all the good things, and then he found out there were these other possibilities, he's gonna assume we were holding back.

You've been doing that your whole life, though, haven't you? Well, that's how to sell.

I mean, I think, look, nothing is perfect and nothing is certain. But I think as long as with grown-ups, you say, hey, look, here's the reward and here's the risk, and we think the risk is more than offset by the potential reward. And I learned that, and I also learned know what you're talking about. If you're going to go in with an idea, anticipate every question the client could have. You're not going to be able to answer them all, but the more that you can be conversant with on a given idea, the more likely it is they're going to say he knows what he's talking about.

I'm Carl Icahn. I'm Ben Bernanke. Barry Rosenstein. Larry Summers. Jeffrey Gundlach. Dick Grasso.

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Making a company great is about more than balance sheets and earnings reports. For Ken Langone and Carl Icahn, a great company is all about the people, be it the young people in the stockroom or the senior executives in the C-suite. When did you start thinking about not just being an investor—how you define activism?

Yeah. You look at a company, and we looked at the beginning, and you'd study it. And again, you know, I'd spend five hours a night to 2 in the morning looking for companies. And you look at them and say, this company is amazingly cheap. It's got great assets. It was easy to do with that. Great assets, but they're not making any money. And then you look and say, why don't you make money? And you'd start talking to guys that understood the company better than I did. He said, the reason a call is that it's not that it's not great and it doesn't have a great name, great this, it's the guy that runs it's an idiot. He just shouldn't be there. So I said, why can't we get rid of him? So they said, well, nobody, how are you gonna get rid of him?

There's no accountability in that company.

There's been this criticism. Larry Fink over at BlackRock put this letter to a lot of these CEOs a couple weeks back, and he said that this type of thinking is too short-term in nature. But I think you disagree with that because it's not short-term in nature, is it?

No, but I don't disagree with him fully. But I get into what I think where I disagree with Larry Fink. I agree that there are activists that really aren't what I call a true activist. These are guys that do pump and dump. Go back to the definition of activism. Isn't that okay?

I really think that the guys like us call it activism, that we go into a company and we do well for every shareholder. Correct. We make money for all the shareholders by cleaning the company up and getting on the board for whatever reason and saying, "You've got to do this, this, and this." And if you're a smart guy, even the guys on the board sort of know what they should be doing. But hey, you've got a guy in there—and I wouldn't go into my metaphor for how these guys get there. There are some very, very good, I'd say, CEOs. You've done a great job over the years explaining how those boards work. How those boards work. Yes, yes. But I want to make it clear for this program or anywhere that there are very good CEOs I respect greatly.

I mean, Tim Cook's a great CEO.

The people that are not defining activism the way you are, the people that are going into the companies for the short term, what are they?

Who are they? Let me say where I do agree with Larry Fink. That today, and it gets me angry, there are guys that go in and say, "We're activists," and they got some money, they raise a little hell, they go out in the newspapers, you know, the good, you know, the guys that, charismatic guys that talk on some of these programs. "Oh, X, Y, Z. We're there, and we want to see that company sold, and we ain't going to rest until it's sold." Stock jumps five points. They sell the stock. Pump it up. And that's, to me, despicable. And by the way, then they do worse. To me, worse. Then they say, "Icahn's buying it," which I'm never even in it.

I never got close. Yes, yes.

"Icahn's buying it." And I hate telling, they call me up for one of these programs and say, "Are you buying it? We hear you're buying it." And I don't like to say what I own, but now I say it. I like to think of things, Tony, like a no-brainers. When you really... Get involved in the market. Market's an art, not a science. And you build certain instincts, I think.

You can find certain deals where it hits you over the head.

And you do those. And by the way, you do them, and part of it is that you know that if you can get, I mean, it sounds funny, but the company you buy, well, in the old days, you knew that it had a certain asset. You know what the asset was? The CEO, because if you got rid of them, the stock is going to go much higher.

You talked about the business. You named three things. Talk about management for a second. What are three or four things you like in management? You have an unbelievable eye for talent.

They listen. If I have an open mind, I've got 380,000 pairs of eyes, 380,000 brains, 380,000 people, hopefully with common sense, that see and understand what the customer needs and wants. And they're going to be the advocate for the customer. You need to also be fair. You need to reward people for a job well done. As you know, I'm known as a serial over-payer, and I plead guilty. I plead guilty for one reason. Great companies really mean great people.

You always pay up for quality.

Absolutely. You want to go buy a Maserati? You want to go buy a Bentley?

Yeah, well, Maserati, okay, or a Ferrari, even better. So, Ken, taking what has worked so great at Home Depot, if you had to talk about the three things that make that a great company that would apply to any company, what are they?

Your people, number one. That is top of the list. Right. Your customer. Are you giving the customer real value? Are you giving the customer real value, enough to know that if the customer wants their money back, they get it back, no questions asked? It's a bond, okay? And everything you do, everything you do, is this great for the associates, and is this great for the customer? So combining number one and two.

But number one, number one is the associate. Yep, and then the customer, and then making sure that they're working. Sounds like a lot of stuff you learned from your mom and dad, though.

Of course. Look, look, it's simple, it's basic. Businesses are people. Here's an example. Sam Walton had four five-and-dime stores in Arkansas, Ben Franklin. Kmart opened their first Kmart, Kresge opened their first Kmart in Troy, Michigan, I believe. Sam spent more time in that store, that's the first Kmart store, Harry Cunningham, who was the CEO and the guy that made the decision to go on the, Harry Cunningham told me, he was my neighbor in Florida, that Sam spent more time in that store than he did or anybody else in Kmart. Kmart went bankrupt. Walmart is the biggest company in the world today. What was the difference? People. Eastman Kodak, bankrupt. Why? Because the management and the board concluded, we don't want to bring this digital.

They had the digital photography. We don't want to do that because that'll cannibalize our film. Guess what? Somebody else cannibalized them, and Kodak's broke today. It's culture, though, too. I mean, that's the standard that you see. But culture, the culture's the same thing. If I'm kind to my associate, and if my associate knows he's going to be treated fair, my associate knows that if he does a good job, there's a process in place that allows him to be rewarded and will recognize his effort.

It's contagious. You know, when you read, I'm listening to you and I'm thinking about this. You read these analyst reports who write up, and they all do good work. They write about companies. They talk about the margins. They talk about the opportunities. They talk about the cash flow. Very little work is done on Wall Street actually meeting the people and analyzing the people. And it sounds to me like you think the greatest long-term investments are getting behind the visionaries who see it. In a sense, you can forget the numbers. You can forget the numbers and just focus on the people.

I think Buffett says this about companies he buys. Look, there's no exotic science to this. This is pretty simple stuff. Does a guy love what he's doing? Does a guy tell the truth? Does he know how to reach his customer? And most importantly, is he going to take good care of his people? People will walk through a wall for you if they know you're going to treat them with respect. That's the first thing. You're going to reward them properly, okay? And they know that they're going to do their best and you're going to do your best and together you both win. Like us on Facebook.

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I've just been saving a little every month. I can't seem to save anything. Well, what about all this? What about the money you're spending? What money? It's gone before I can get my hands on it. I got a pizza for Todd. Hey, can somebody spot me?

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Wall Street can be a dog-eat-dog kind of world, so it's rare to see two leaders develop a warm and true friendship. Dick Grasso and Ken Langone have had this kind of relationship for almost 35 years.

Let's talk about Kenny Langone, who is a huge favorite of ours. He's in the Wall Street Hall of Fame, was on your board at the New York Stock Exchange, and you have a personal friendship with him. So tell us about your relationship with Kenny.

Well, interestingly, you know, there was a professional relationship with Kenny going all the way back to the listing of the Home Depot. You know, I refer to him lovingly as the Abe Lincoln of capitalism, okay? I think Kenny... Why do you use Abe Lincoln? He, in my mind, was a standard-bearer of truth and strength. The strength to tell the truth about what was wrong with slavery, what was wrong in America in that period. And he wanted to change it. And there were a lot of people around him who didn't want that to happen. But he stood like a beacon. So how has Kenny done that for capitalism? Oh, if you look at, let's put Home Depot aside, okay? You look at the hundreds if not thousands of kids that march into Kenny's office over the past 40 years, that he points in a particular direction and says, that's where you want to go.

Or you want to be an investment banker? I don't think you have the talent to be an investment banker. That kind of love and truth.

Honesty, integrity.

He defines all of the great values that Lincoln brought to the leadership of this country.

How about Dick Grasso? The best. Elaborate a little bit, because he's one of my favorite people.

Dick Grasso got the worst screwing a human being could get. Dick Grasso kept the New York Stock—look at the exchange today. It's gone. Now, Dick can argue it wouldn't have happened. I would push back a little bit on that. Dick Grasso understood that listings were critical. Dick spent his life on the road getting listings. Listings went, when Dick was—1,200 when he took over—to 2,800 when he was fired.

And on the 17th of September, 2001, he got the exchange open at a time when America needed it.

That morning. Absolutely. That Monday morning. And not a glitch. And by the way, the other thing, Y2K, everybody was terrified we were going to blow up. He had dry run after dry run after dry run. And guess what? The morning we opened up, the new day, the first day of the new year, the new millennium, boom.

No issues and a big market rally.

Amen.

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Carl Icahn, Ken Langone, and Dick Grasso have had long and distinguished careers.

The list of their professional accomplishments and philanthropic endeavors is unmatched. Here's how they would like to be remembered.

What's up next for Dick Grasso? You know, it's a great question, Anthony. You know, I've flirted with the idea. We didn't tell him. He's going to be co-host of Wall Street Week. Well, I hope so. We hope so because your two hairlines make mine look fantastic. That's only, only in the event Anthony becomes the next mayor of the city of New York.

There he goes.

So let's talk about that. You want to be mayor? I'm not sure. I flirted with it in '13. My hope was that Ray Kelly was going to run. I think he would have been a fabulous mayor. Agreed. Come '17. And Ray has a great book out right now. Fabulous. I was at his book party last night. 300 people. I mean, nothing but adoration for Ray Kelly. I mean, when you think about the 12 years that Mike Bloomberg was mayor, and he did a fabulous job. A lot of that would have not been possible without a great police commissioner and a great police force. And that's what Ray Kelly brought to the city of New York.

You two are the most recognized names on the potential opposition to somebody like Mayor de Blasio. So what do you think happens here today?

I would love to see Ray run. I would love to see him run. If Ray decides that he's not going to do that, and there are people who would support me and would like to see me run, I'll give it strong consideration.

Well, Charlie Gasparino, the author of The King of the Club, he wants to be your campaign manager.

That's what I've heard. Well, Charlie has a vested interest. I've promised Charlie, somewhat tongue-in-cheek, that if I were to become mayor, he would become sanitation commissioner.

And you, with a great head of hair, would be a great mayor.

Talk about your legacy. How do you see things?

I would certainly hope that my kids would say my old man was a good guy. I hope, I hope that when it's all over, they can say he made an effort and he left it a little better than he found it. That's all.

Let's talk about legacy.

You know, I'd like to be able to do something to change this dysfunctional system we have, but I never quite get around to really putting the time into it because I'm too busy running the company. There's a great problem in our country. It's a great country. I tell you, I love the country a lot more than a lot of the people on Wall Street, for sure.

Well, we love it. We're in your camp. We grow up the same way.

So you love the country, but I think... When I talk about mendacity, there is so much mendacity on Wall Street. There are a lot of good guys. But there's so much of this almost self-righteousness. And the system that we have in corporate America, it's dysfunctional because you have no accountability. You can't get rid of half of these CEOs. You just can't get rid of them. Now, they're not all bad. I want to make it real clear. A lot of these guys are great. And I really like them. And we think we have a lot of good CEOs running our companies. The way it is is so ridiculous, and it's good when, when this market does come down, which it will, I believe it—it will, maybe three—maybe three days and maybe three years, but it's gonna really come down, and then you're gonna need real good people running these assets, and you don't have them.

That's it for today.

You can check in with us all week at wallstreetweek.com. From our Wall Street Week family to yours, Merry Christmas, Happy Holidays, and the best wishes for a prosperous New Year.

The preceding program was paid for and presented by SkyBridge Media, LLC.