April 9, 2024 • 48min

Ken Langone - The American Dream - [Invest Like the Best, EP.368]

Invest Like the Best with Patrick O'Shaughnessy

Ken Langone is a legendary American businessman best known for co-founding Home Depot. He is also a former director of the New York Stock Exchange and a passionate philanthropist. In this wide-ranging conversation, Langone shares wisdom gained over his long and successful career, discussing his early days on Wall Street, building Home Depot into a retail powerhouse, his investment philosophy, and his views on capitalism and leadership. Host: Patrick O'Shaughnessy (@patrick_oshag)

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Key Takeaways

Integrity and keeping your word are paramount in business and life. Ken Langone emphasizes the importance of always following through on commitments.
Loyalty is a core value that has driven Langone's success. He aims to be remembered as a loyal friend, husband, and father above all else.
Focus on people and culture when evaluating businesses and investments. Langone looks for resilient leaders who can bounce back from setbacks.
Long-term holding of quality investments can lead to tremendous compounding. Langone has held positions in companies like Lilly for over 40 years.
Empower frontline employees and create an "upside-down" organizational structure that prioritizes those closest to customers.
Leave more on the table for the other party in negotiations to build trust and long-term relationships.
Capitalism creates opportunities for people from humble backgrounds to achieve great success through hard work.
Kindness and generosity from others have played a key role in Langone's journey and success.

Introduction

Ken Langone is a legendary American businessman best known for co-founding Home Depot. He is also a former director of the New York Stock Exchange and a passionate philanthropist. In this wide-ranging conversation, Langone shares wisdom gained over his long and successful career, discussing his early days on Wall Street, building Home Depot into a retail powerhouse, his investment philosophy, and his views on capitalism and leadership.

Host: Patrick O'Shaughnessy (@patrick_oshag)

Topics Discussed

Early Career and Ross Perot Deal (3:08)

Langone recounts the story of how he won the deal to take Ross Perot's company public early in his career:

Met Jack Height at a party who mentioned his company was going public
Asked for a chance to pitch and got a 30-minute meeting with Perot
Impressed Perot with his straightforward approach, saying "This whole process is fairly simple. You're gonna pick somebody who's gonna tell you what he thinks you can sell your stock for, and your bet is can they deliver on that number?"
Won the deal by promising to price at 100x earnings and delivering at 115x

Langone says of Perot: "If anything, integrity. That's it, man. The man was moniacal about keeping his word. And the second would be loyalty if you promised to and delivered for him. He'd never forget it."

Negotiation Philosophy (14:59)

Langone discusses his approach to negotiations:

Leave more on the table for the other party than they expect
Focus on building trust rather than "winning" the negotiation
Once a deal is agreed upon, stick to it - don't try to renegotiate later

He explains: "The order of negotiating to me is to get a deal for yourself to make sure the guy you're dealing with feels he got more than he thought he was going to get."

Home Depot's Culture and Employee Focus (22:50)

Langone describes Home Depot's unique culture and focus on frontline employees:

Uses an "upside-down" organizational structure with frontline employees at the top
Empowers employees to make decisions and share ideas
Focuses on training and treating employees well
Many employees who started as cart pushers are now millionaires

He states: "The most precious thing Home Depot has are the kids on the floor with the orange apron...If that customer gets what he wants at a fair price and feels he got great service, he's never gonna go anyplace else again."

Long-Term Investment Philosophy (32:24)

Langone explains his approach to long-term investing:

Average holding period of 42 years for investments
Focuses on getting to know management teams well
Looks for quality businesses with strong leadership
Willing to hold through periods of underperformance

On why he holds so long: "I'm stupid. I'm loyal. I'm even loyal to my investment positions. What am I gonna tell you?"

Views on Capitalism (36:25)

Langone passionately defends capitalism:

Creates opportunities for people from humble backgrounds
Contrasts with failed socialist experiments in other countries
Allows people to dramatically improve their circumstances through hard work

He argues: "Look at our society. Look at every other country that moved towards socialism. Look what's happened. Venezuela, Cuba, Argentina...Look at a poor kid working his a*s off with a shot at the brass ring. He may never get it. But he's going to do a lot of good along the way, even if he didn't get it."

Importance of Resilience (38:47)

Langone emphasizes the importance of resilience in business leaders:

Looks for people who can bounce back from setbacks
Values those with "fight" who will keep trying after failures
Cites Bernie Marcus getting fired at 49 before starting Home Depot

He explains what he looks for: "I look for resilience...You want people who can bounce. You want people who can come back. They got fight. They got heart."

Turnaround of NYU Medical Center (28:42)

Langone discusses taking over as chairman of NYU Medical Center when it was struggling:

Morale was terrible after a failed merger
Applied Home Depot's culture of empowering employees
Treated highly educated doctors the same as hourly workers
Encouraged ideas from all levels of the organization

On the results: "We're number one in America. We got a culture that won't stop. We're hitting on all cylinders."

Kindness from Others (44:18)

Langone reflects on acts of kindness he's experienced:

Store owner letting him keep money from recycling boxes as a youth
Many people helping him throughout his career
Believes in God partly due to the goodness he's seen in people

He says: "There have been so many people who have been so kind to me, I can't count. People are good."

Conclusion

Ken Langone's remarkable journey from humble beginnings to co-founding Home Depot and becoming a billionaire philanthropist exemplifies the opportunity that exists in America for those willing to work hard. Throughout the conversation, Langone emphasizes core values that have guided his career - integrity, loyalty, empowering others, and focusing on people and culture. His long-term approach to investing and business building, coupled with a negotiation style that prioritizes trust over "winning," has led to tremendous success and impact. Langone's passionate defense of capitalism and gratitude for the kindness he's received provide an inspiring perspective on business and life.

Langone concludes: "Remember this most important thing in that book - I've lived an American story that only happened in America. This is the genius of America that a poor kid rough around the edges like me could do okay...Just the chance to live in this great country was all I needed."