A Book with Legs: Wilbur Ross - Risks and Returns

In the November 4, 2024 episode of "A Book with Legs," hosted by Cole Smead and Bill Smead of Smead Capital Management, the conversation delves deep into Wilbur Ross’s recently published book, "Risks and Returns in Business and Life." The episode offers a comprehensive exploration of Ross's personal journey, professional experiences, and his insights on broader economic and societal issues. Below is a detailed summary capturing the essence of their discussion.

1. Introduction to Wilbur Ross and His Motivation for Writing

Cole Smead opens the discussion by highlighting Wilbur Ross's impressive background. Ross served as the 39th U.S. Secretary of Commerce from 2017 to 2021 and was the Chairman and CEO of W.L. Ross & Co. from 2000 to 2017. Prior to these roles, he led bankruptcy restructuring at Rothschild & Co.

Wilbur Ross explains his impetus for writing the book:

[01:50] Wilbur Ross: "Having left government in 2021, I was thinking about what I should do next... I have lots of material and it's factual material. So it seemed like there was a lot of stuff there and it might make sense to try to do something with it that could actually be useful to other people."

Ross aimed to share amusing anecdotes and valuable lessons from his life to impact others' careers and decision-making processes.

2. Patriotism and Generational Shifts in America

A significant portion of the conversation revolves around Ross's reflections on patriotism and societal changes.

[03:22] Cole Smead: "I think that's a real forte your book."

Ross reminisces about the vehement patriotism during VE and VJ Day and contrasts it with the current sentiments among younger generations.

[04:20] Wilbur Ross: "The woke thing is distorting the attitudes, particularly of young people. It's making them question whether they should even be proud to be an American..."

He attributes the shift to factors like the educational system's shortcomings, increasing technological reliance, and a fragile personality culture among youth. Ross fears that these changes erode the traditional American spirit of hard work and risk-taking.

3. Early Life and Formative Experiences

Ross shares vivid anecdotes from his youth, illustrating the development of his business acumen and ethical perspectives.

First Encounter with Corporate Ethics

[06:32] Wilbur Ross: "If you've damaged the guy's car, you must distract him... Louie said, 'let me tell you kids how this is going to work.'"

As a young car parker, Ross was taught dubious tactics to fleece customers, highlighting early exposure to questionable business practices.

College Capers: The Certified Check Incident

[08:51] Wilbur Ross: "So my roommate came up with the brilliant solution... he had me write out the check for the $100 and at the bottom of it he put 'personally certified.'"

Caught after playing soccer on a doctor's lawn, Ross recounts how he and his roommate ingeniously circumvented the need for a certified check, marking his first foray into creative problem-solving.

4. Academic Influences and Mentorship

Ross reflects on his time at Yale and Harvard Business School, emphasizing the impact of mentors like George Dariet.

[30:19] Wilbur Ross: "Durio... was a remarkable man... He had a whole bunch of philosophical ideas ranging from fairly trivial things like your shoes should always be shined to more substantive ones."

Lessons from Dariet included the importance of inquisitiveness and thorough due diligence, principles Ross has adhered to throughout his career.

5. Navigating the Business World: Drexel Burnham and Bankruptcy

A pivotal moment in Ross's career was his involvement with Drexel Burnham during its bankruptcy.

[44:17] Wilbur Ross: "It became clear what we had to do was set up some sort of parallel entity with new disassociated top management to take the assets out of the bankruptcy..."

Ross details the complexities of Drexel's collapse and his strategic approach alongside Carl Icahn to maximize recovery for unsecured creditors. This experience solidified Ross's risk-averse investment discipline.

6. Interactions with Donald Trump and Vladimir Putin

Ross provides candid insights into his dealings with prominent figures like Donald Trump and Vladimir Putin.

Donald Trump: From Business to Politics

[44:54] Wilbur Ross: "We concluded that there was some really good substance to him. And that's why both Carl and I were very early endorsers of Trump in the 2016 campaign."

Despite initial conflicts during the Taj Mahal bankruptcy, Ross recognized Trump's underlying strengths, leading to early support in his presidential bid.

Vladimir Putin: A Menacing Encounter

[47:20] Wilbur Ross: "He was the single most terrifying appearance of anybody I have ever met... He could be the villain in any James Bond movie."

Ross's meeting with Putin left a lasting impression of his intimidating presence and strategic prowess, underscoring the complexities of international relations.

7. The Rise of Artificial Intelligence and Technological Change

Ross shares his experiment with AI, demonstrating its rapid learning capabilities.

[23:56] Wilbur Ross: "In a space of 15 minutes the phenomenon had taught itself to go from probably not having any idea what a poem even was to something that you wouldn't be that embarrassed using."

He acknowledges both the potential benefits ("a lot of raisins") and risks ("mixing raisins with turds") of AI, stressing the importance of understanding its transformative impact and societal implications.

[24:14] Wilbur Ross: "My biggest worry about AI is that people barely think about anything anymore... They will just become using it as a crutch and it will answer all their questions."

8. Military Service and National Security

Ross discusses the deterioration of national duty stemming from the absence of a draft.

[26:07] Wilbur Ross: "People aren’t even sure they like being Americans... Also, about 40% of draft-age people are not physically qualified for military service."

He contemplates the feasibility of reintroducing military training, citing examples from Singapore and Israel, while also pondering the evolving nature of warfare, such as drones and outer space.

9. Global Trade and the World Trade Organization (WTO)

Ross critiques the WTO’s inefficacy and bias against the United States.

[57:18] Wilbur Ross: "It's stacked 165 to 1 against us... We are the only country against which the World Trade Organization has ultimately ruled that a rule made by that country or regulation was a violation of the WTO."

He underscores the unfair advantages in global trade dynamics and the prolonged dispute resolutions, highlighting cases like Boeing vs. Airbus.

10. Partisanship and Political Incentives

The conversation shifts to the inherent flaws in U.S. politics, particularly regarding compensation structures and gerrymandering.

[64:01] Wilbur Ross: "The pay structure leads also in a strange way to the partisanship... Gerrymandered districts mean only swing districts can nominate moderates."

Ross argues that low compensation for high-ranking offices attracts lower-quality candidates, exacerbating partisanship and reducing policy effectiveness.

11. Inflation, Government Spending, and Regulation

Addressing the current economic climate, Ross shares his perspective on inflation and government intervention.

[66:56] Wilbur Ross: "The only way that we're going to get out of inflation is by changing both the amount of deficit... and deploying it to productive use."

He criticizes overregulation as inherently inflationary, citing his administration's policy of canceling regulations to foster business growth and mitigate inflationary pressures.

12. Conclusion and Final Reflections

As the episode wraps up, Ross reflects on the unexpected reception of his book and the challenges of gaining broad acceptance for certain ideological perspectives.

Bill Smead and Cole Smead commend the book for its depth and multifaceted analysis, recommending it to economic history buffs, business professionals, and curious thinkers.

[71:25] Bill Smead: "If you enjoy this podcast, go to Apple, Spotify, YouTube or wherever you listen to A Book with Legs, give us a review, tell others about the books and great authors like Wilbur Ross that we have the opportunity to understand and study the world with and through for our tribe."

Notable Quotes

1. Wilbur Ross on Patriotism:

   [04:20] Wilbur Ross: "The woke thing is distorting the attitudes, particularly of young people... work hard, take a risk once in a while, do better."

2. Wilbur Ross on Due Diligence:

   [33:41] Wilbur Ross: "There's only one stupid question. And that's the question you forgot to ask."

3. Wilbur Ross on AI Concerns:

   [24:14] Wilbur Ross: "People will just become using it as a crutch and it will answer all their questions."

4. Wilbur Ross on WTO Bias:

   [57:18] Wilbur Ross: "We are the only country against which the World Trade Organization has ultimately ruled that a rule made by that country or regulation was a violation of the WTO."

Key Takeaways

• Personal Growth Through Adversity: Ross's early experiences taught him valuable lessons in ethical decision-making and risk management.

• Patriotism and National Identity: A decline in traditional patriotism is linked to educational shortcomings and cultural shifts.

• Business Acumen: Navigating complex bankruptcies like Drexel Burnham required strategic thinking and collaborative leadership.

• Technological Advancements: While AI offers immense potential, it poses risks to critical thinking and independent problem-solving.

• Global Trade Dynamics: The WTO's bias against the U.S. reflects broader inequities in international trade agreements.

• Political System Flaws: Gerrymandering and inadequate compensation contribute to partisanship and policy inefficiencies.

• Economic Policies: Effective management of inflation hinges on strategic government spending and regulatory reforms.

Final Recommendations

Wilbur Ross’s "Risks and Returns in Business and Life" is highly recommended for those interested in economic history, investment strategies, and personal development. The book offers a blend of personal anecdotes, market insights, and philosophical reflections, making it a valuable addition to any reader's collection.

For listeners intrigued by Ross’s perspectives and eager to delve deeper into the intersections of investing, business leadership, and societal trends, this podcast episode serves as an enlightening introduction.

For more insights and discussions on value investing and influential books, subscribe to “A Book with Legs” on your preferred podcast platform.