“To be successful in business and investing, you’ve got to have skin in the game, a stake in the company.” — Warren Buffett
“Performance comes and goes. Fees never do.” — Warren Buffett
Note: I have a special announcement below about my new position, the Doti-Spogli Endowed Chair of Free Enterprise.
What is the most profitable business on Wall Street? Is it brokerage firms, investment banking, insurance companies, mutual funds, exchange-traded funds (ETFs) or hedge funds?
In truth, there is one success that has overwhelmingly beaten all the rest since the mid-1980s: private equity!
Private equity funds started out in the 1980s when leveraged buyouts were popular. They are famous for acquiring businesses, usually with borrowed money, holding them for the long term as they add value and improve their profitability, and then take monstrous profits.
Private equity firms now control over $3.3 trillion in assets. They now control an estimated 37% of all mergers & acquisitions in the world, compared to 7% in 2009.
For this service, they charge a 2% annual administration fee and 20% of the profits — “Two and Twenty,” to use the title of a new book on the subject.
Their clients are institutional investors, pension funds, endowments and wealthy investors. But average investors have also profited by investing in publicly traded private equity firms like Blackstone (NYSE: BX), Carlyle Group (NASDAQ: CG), Apollo Global (NYSE: APO) and KKR (NYSE: KKR).
Their stocks have increased ten-fold over the past 10 years, when you include dividends. From time to time, I’ve recommended them in my newsletter and trading services, although I prefer low-cost mutual funds and ETFs.
Some of the wealthiest people in the Forbes 400 Richest People list run private equity firms: Blackstone’s Stephen A. Schwarzman; Carlyle’s David Rubenstein; Apollo’s Leon Black and KKR’s Henry Kravis. Others, like Bain Capital, are privately owned.
Blackstone has been the most successful private equity firm, with a market cap of $119 billion. It has outperformed all the competition.
Despite criticism over the years, the performance of private equity firms, on net balance, has been positive, resulting in better products and services and a more efficient, productive business world. Government could learn a thing or two from private equity.
Private equity firms are not normally like hedge funds, which engage in alternative speculations and short-term trading, including shorting the market from time to time. Private equity takes a long-term approach. I believe they are a valued institution that is here to stay.
Freeman Spogli & Co.
I’ve been especially impressed with Freeman Spogli & Co., the private equity firm based in Los Angeles and founded by Bradford Freeman and Ron Spogli in 1983.
It is famous for its successful leveraged investments in Advanced Auto Parts, Boot Barn, PETCO and Piggly Wiggly.
I recently met with Ron Spogli, who is a major supporter of Chapman University, where I teach. A graduate of Stanford University and Harvard Business School, he is the former ambassador to Italy and is a firm believer in donating to good causes, such as the prestigious Freeman Spogli Institute for International Affairs at Stanford University.
My Four-Point Plan to Promote Free Enterprise
For the past year, Ambassador Spogli has been working with former Chapman University president Jim Doti to create the Doti-Spogli Endowed Chair of Free Enterprise at Chapman. It is named after Jim Doti and Ambassador Ron Spogli. Jim is a Ph.D. economist from University of Chicago, where he studied under Milton Friedman, and put Chapman University on the map as president.
When Ambassador Spogli asked President Doti who should be the first holder of the chair, he said, “I have the ideal candidate!”
This story gives some background of my new position.
This week, I met up with Jim Doti and Ron Spogli at Chapman, where we discussed my role as their new chair of free enterprise.
Meeting with Ambassador Ron Spogli and President Emeritus Jim Doti in front of the Adam Smith statue at Chapman University.
As part of my new position, I will be engaged in four assignments:
1. Teach several courses on free enterprise at Chapman.
2. Arrange to give a major financial award to a faculty member and a student at Chapman who do the best job of promoting free enterprise.
3. Give lectures to colleges and universities around the country on free-market capitalism.
Indiana University has asked me to address its student body on Oct. 26. If you would like me to come to your local college or university, email me at email@example.com.
Spread the Word!
4. Last but not least, I will continue to promote my free-market textbooks, including “Economic Logic,” a no-nonsense guide to free-market economics, now in its fifth edition, and “The Making of Modern Economics,” now in its fourth edition, which offers devastating arguments against Keynesianism, Marxism and socialism.
Steve Forbes has endorsed both my books, writing, “Mark Skousen is a highly accomplished economist and in a normal, non-political environment, he and a handful of others would have already won the Nobel Prize for economics. He is a superb and highly original scholar. Just look at his textbook ‘Economic Logic,’ now in its 5th edition, which demonstrates Mark’s ability to look at the whole economy, the real world and real people. He began this book with a profit-loss income statement to demonstrate the dynamics of the real-world economy. No other textbook does that. He gets it.”
Similarly, Forbes said the following about “The Making of Modern Economics”:
“Mark is unique with his fascination with history, with flesh and blood individuals. Read his concise and incisive sketches of numerous economists in ‘The Making of Modern Economics.’ He brings history to life. People are interested in people. He recognizes that stories are highly instructive.”
To read more about my books on economics and finance, go here.
I’ve discounted the price of my books to encourage their wide circulation. They make great gifts to students. As the late William F. Buckley Jr. wrote, “I champion Skousen’s book to everyone. It’s an absolute ideal gift for college students.”
To order these books at a substantial discount, go to www.skousenbooks.com.
Good investing, AEIOU,
You Blew It!
Teachers are Brainwashing Their Students With Extreme Environmentalism
“There is no obstacle to learning than to be the prisoner of totally invalid but dogmatic theories.” — Peter Drucker (“Maxims of Wall Street,” p. 143. See www.skousenbooks.com)
My wife, Jo Ann, and I are running the first “Economics of Life” student seminar here at Chapman University, sponsored by Ron Simon. We are teaching our students the basics of sound economics so that they will be able to inoculate themselves from the socialistic nonsense so prevalent on colleges campuses these days.
Today, our discussion was on environmentalism and global warming. I started off by asking the 50 students, “By a show of hands, how many of you think that pollution has gotten worse in Los Angeles since 1960?”
Most of the students come from Southern California and would know the answer.
A full 70% raised their hand and said yes, pollution has gotten worse!
Then, I showed them this chart:
As the chart shows, there’s been a dramatic rise in the number of automobiles in Los Angeles since 1960, and but air pollution has dropped by 90%!
These are bright students, but it demonstrates how even they have become victims of environmental alarmists.