Letter #254: Herbert Allen Jr. (2008)
Allen & Co. CEO, President, and Director | Williams Gaudino Dialogues
Hi there! Welcome to A Letter a Day. If you want to know more about this newsletter, see "The Archive.” At a high level, you can expect to receive a memo/essay or speech/presentation transcript from an investor, founder, or entrepreneur (IFO) each edition. More here. If you find yourself interested in any of these IFOs and wanting to learn more, shoot me a DM or email and I’m happy to point you to more or similar resources.
If you like this piece, please consider tapping the ❤️ above or subscribing below! It helps me understand which types of letters you like best and helps me choose which ones to share in the future. Thank you!
Herbert Allen Jr. was the CEO, President, and a Director of Allen & Co. He joined the family business right out of college, and was appointed President when he was just 27. He went on to advise some of the industry’s biggest dealmakers, including Rupert Murdoch on his takeover of Dow Jones and NBC Universal’s $925M purchase of Oxygen Media, serve as a Director of Convera, Coca-Cola Company, and Columbia Pictures, and oversee the launch of the Sun Valley Conference.
In this conversation, Herb shares his thoughts on the economy, the political situation, his college experience, the origins of Allen & Co. and what he admired about his father and his uncle who started it, joining the family business, becoming President at ~26, the importance of knowing nothing in investment banking, whether he made any mistakes, investing in Columbia Pictures despite his father and uncle thinking it was a bad idea, how his son is following in his footsteps, getting deals done, his nightmare deal with Liberty Equities, losing in venture capital, creating the Sun Valley Conference, the experience at the Sun Valley Conference, collecting art, people he admires, the teaching profession, before closing out with some life lessons and advice for students.
I hope you enjoy this conversation as much as I do!
(PS/ If anyone can invite me to Sun Valley, please reach out.)
[Transcript and any errors are mine.]
Related Resources:
Allen & Co.
Media Executive Compilations
Reed Hastings Compilation (22 pages)
Brian Goldner Compilation (64 pages)
Bob Iger Compilation (52 pages)
Coming About with Bob Iger: Part One (Cloud Valley Biography)
Steve Jobs Compilation (286 pages)
John Malone Compilation (108 pages)
Transcript
Host: Herbert Allen is a towering figure in the world of finance and business. He's also a paradox, a quiet and modest individual who is one of the most important dealmakers in big business today, especially in the entertainment world. In fact, a former president of Comcast Cablevision once said, When it comes to Hollywood investment banking, all roads lead through Herbert. Mr. Allen is also irreverent, goes against conventional wisdom, and is not afraid to speak his mind. He's been quoted as saying, "Over a long weekend, I can teach my dog to be an investment banker." So much for MBA programs. He attended Hackley School in Tarrytown, New York, and then Williams College, graduating in 1962, after which he joined the family business, Allen & Company, and the rest, as they say, is history. Today, he's one of the most creative individuals in the business world. Back in early 2000, Tom Brokaw of NBC News organized an effort to establish a scholarship fund at Williams in honor of Herbert Allen. Mr. Allen is a loyal supporter of the arts, and of education, and of Williams College, in particular. In fact, he was the principal donor of this very building, the '62 Center for Theater and Dance. Thus, it seems appropriate that we come together here to speak with this great man. Please join me in welcoming Mr. Herbert A. Allen. Herbert? How are you?
Herb Allen: Pleased that my dog died before she saw this investment banking debacle.
Host: Well, have you been on this stage before?
Herb Allen: No, I've never been on the stage here.
Host: Did you think for--at any time--to maybe name the building--this could have been the Herbert A. Allen Center for the Theater Arts?
Herb Allen: No, Morty was very kind about that, but it didn't really make any sense to me.
Host: Is there anything named after you?
Herb Allen: My first son.
Host: I see. You can't top that.
Herb Allen: I think that's enough.
Host: I have a lot of things I want to get to with you. But I thought, Let's start with the crass things and get that out of the way. All right? So, I want to talk about your wealth for a moment. And then we can move on. Okay?
Herb Allen: Do you want me involved? Are you going to...?
Host: Oh, no, I think I can handle it pretty well, actually, especially if you give me the checkbook. I can take care of it quite nicely. So I mean, as you know, even though you're a private figure, your financial wealth, and I don't know if it's correctly stated or not, it's always in the news, but Forbes puts you on their top--whatever--I mean, you're ranked 227 this year--richest person in the universe, or something--or in the United States. Is it weird to have that kind of thing out there? Does that bother you? Are you used to it? Is it neat? Do you like it?
Herb Allen: Just so you understand, Forbes does no research, has absolutely no basis for coming up with an estimate, and it doesn't make any difference to me. They don't know what they're talking about. But that's usually the case, I think of a lot of the media, if you know what's going on. The story is usually never too accurate.
Host: So you don't... you're not conscious of that. They'll come in one year and say you're up to 219, and you're like, Yes! I made progress.
Herb Allen: I haven't yet.
Host: I see. Do you know--I want to ask--do you know your approximate worth? Like do you keep track of that? Or it's too complicated to know?
Herb Allen: No, I know that it's easier to count today than it was a month ago.
Host: Do you think--so would you say that you took a hit of more or less than 20% over the past few months?
Herb Allen: Oh, less, probably. But I really don't know. Not the slightest idea.
Host: When do you think the economy is going to turnaround?
Herb Allen: Well, I'm not an economist. Ask Morty. He's a better economist. But I would think a long time, longer than the estimates that I'm hearing. Unemployment I think will be higher than I'm hearing. I'm not sure I'm the right one to ask these questions, but I'd be surprised if unemployment didn't hit double figures. We're in a very deep hole created by ourselves, and created by debt. And we put a lot of air in the balloon--it's gone. And it's going to be a whole new way of living for virtually everybody in the country.
Host: What do you think the institutions of higher learning should be doing to brace for that?
Herb Allen: Well, I think they're somewhat inviolate, even though they may lose 30%-35% of their theoretical net worth. I think what they should be doing is investigating their endowments to see how much they have an alternative investments and finding out who's doing the marks. In other words, who's... In the value of the investments, let's say Williams is worth a billion, two or three today--how much is in alternatives? How much is in hedge funds? Who's telling you what they're worth? And find out what they're really worth? You can't do much else. And then revise your policies, because you're gonna take a whale of a hit.
Host: Now do you think there'll be a change, we'll see an economic change with the new leadership moving into Washington in January?
Herb Allen: Well, there has to be a change. I mean, there has to be change in supervision. Not from this administration. I didn't vote for George Bush, but I don't share.... and in a campaign, a candidate is going to say that he caused all the problems. Now these are problems that started well over 20 years ago, but I think there'll be a major change in supervision, regulation, whatever that means. The rest of the changes will take care of themselves. A lot of people are gonna go broke.
Host: So you think 10 years? How long would you project? I know that you...
Herb Allen: I don't have the slightest idea. I think the country is resilient, it'll come back. I don't think there's another country on Earth that can touch us, but it's going to take a while. We don't know how deep the hole is, because we don't know how much debt is out there. I get a different figure every day I ask somebody. A lot of this stuff I don't understand. I don't understand really the derivative market--I brought some things here to give out to the audience that Al Early sent me--he was the class of '62--and it's a fairly vulgar, relatively obscene diagram of how this all came about. But I didn't bring enough copies because frankly, I thought to be about 30 or 40 people. And so if the rest of you wouldn't mind leaving, then you can read--but anyway, I'll give it out. I don't know. I mean, certainly a couple of years, and maybe maybe five or six. I think it'll be in sectors. Because I don't think all of a sudden we're all going to wake up and say everything is nice now.
Host: So we just had an election. We just elected a new president. And as with any election, there's always winners and losers. And part of the thing that I like to think about are the downside, the people that that actually lost. Now you have actually known a lot of people who've run for President and lost--some of them are your friends. Can you share some thoughts about either Walter Mondale or Hubert Humphrey?
Herb Allen: They never get over it. I don't think politicians ever get over the rejection of the American public. And so from that standpoint, it's an emotional thing. Politicians and actors have a lot in common--which is not denigrating either--except the politicians read more. But I think they understand less. But for the most part, they just never get over it. And it'll be easier for McCain because he's a little older than I am, so he doesn't have as long to worry about it.
Host: But it is hard, I mean, I don't know if you watched him make his speech that night, and I was thinking to myself, this is really difficult. He's standing in front of the world, and admitting that he lost. That's a very hard thing for anyone to do.
Herb Allen: It's like an actor failing. Politicians have the emotional consistency of actors because they have the need of the love of strangers. And when they don't get it, it's devastating to them. And I've never known one that was different from any other.
Host: Tell us some something about either Humphrey or Mondale.
Herb Allen: Well, Humphrey was a very kind man, very smart, great personality, good dancer, although I never danced with him. But he was an all round guy. He was a very regular, decent fella who loved people. Mondale more reclusive, more reflective, probably one of the responsible parties for the passage of the Civil Rights Act. If you go back the last 40 years, I think everybody would agree that that's one of the--the open housing, fair housing and the various civil rights acts were the most significant thing that's happened in this country in 40 years, legislatively. Fundamentally decent Midwest, very simple man, understood a lot but didn't understand a lot, frankly, about capitalism. Didn't really understand why people wanted to make money. And I remember driving him once across the Triborough Bridge, and having him look to the left--I picked him up at LaGuardia, and he said almost to himself, he said, "Why would anybody want to live there?" Because of my hometown he's talking about. But he--so there's a lot... he was in many ways worldly, in many ways provincial.
Host: Is that why you think he lost?
Herb Allen: No, he ran against Ronald Reagan. Nobody was going to beat Reagan. It was Reagan's time. It was Obama's--nobody was gonna beat Obama. Matter of fact, the only thing that surprised me about this election was I thought the plurality would be larger.
Host: All right, now let's talk about you. Now that we got that out of the way, I feel better now, so you don't have to worry about that. So I want to talk about you, which is a subject that I find interesting. And I know that you're not a big fan of talking about you. Is that right?
Herb Allen: Well, I'm sitting here, right?
Host: I appreciate that. And I'm appreciative that you stayed so long. I thought you'd be out by now. So you graduate from Williams in '62--do you remember those days at all, being here?
Herb Allen: I remember them because Bruce Grinnell always reminds me. He reminds me of all the things that he did and that I didn't do when I was here, but...
Host: What was your major?
Herb Allen: American History and Literature.
Host: And did you have any idea while you were here, not after you left, while you were here, what your plan was? What you're gonna do after you graduated, what you were thinking about?
Herb Allen: Survival, for the most part, just to get through the school. Matter of fact, Fred Rudolph almost ruined my reputation here because there was one time--C- was absolute perfection in my eyes. And matter of fact, it was higher than most of my grades. But Fred once gave me an A, and I said, "Oh, God, this guy's ruined my reputation." Because what if they think I have a half a brain? The others will realize I've just been slacking off for four years. And I think Fred will remember, I had to go up to him and ask him to lower the grade, which he wouldn't do. So I remember that. And...
Host: Did you deliberately...? So I heard something about you--tell me if this is true. I heard that you tried to have the lowest GPA from the graduates of the Class of '62. Is that true or false?
Herb Allen: No, I achieved that naturally.
Host: I see. That required no effort. What was it? I mean, was it just you were not inspired to do it, or you were doing other things? Were you trying to be a rebel?
Herb Allen: I don't think--no, I wasn't trying to be a rebel. I think you just do what you do. And I was young and immature and lazy and had no interest in going to college. And probably, if my parents had been strict, they probably would have put me in the Marine Corps or something.
Host: So if it were up to you, you wouldn't have gone to college?
Herb Allen: That's right.
Host: What would you have wanted to have done instead?
Herb Allen: Nothing. That's basically what I was doing all the time. You're 18 years old, what does anybody want to do?
Host: All right, settle down. Okay, now you have an uncle Charles. And your father is also named Herbert. And they started in the 20s, this company.
Herb Allen: They started in 1922. They're both dead, so the tense is a little wrong.
Host: They founded this company, though, in '22. And so tell me about them a little bit.
Herb Allen: Well, they were two boys from the West Side of New York. And when poverty was defined as not having shelter, clothing or food, they were poor. And my uncle started his Allen & Company in 1922--and I don't think he had $50. I don't know, you probably couldn't--well, maybe you could do it. A couple of years ago, you could have, today you couldn't. But he was a brilliant, reclusive--he was probably a genius. My father was not a genius, but he was extremely smart, very good with people, a great trader. And in the 30s, they went broke. And my father kept the place alive trading while my uncle was waiting, basically, until the 40s when he hit on a couple of big deals. As a matter of fact--and I don't know if their story is true, because from that generation, there are a lot of stories you never know what's true. But my father called my uncle the day the market broke in October and told them how great he had done because he was short the stocks, and my uncle said, "Well, that's unfortunate, because I was long the same stocks." And I think it's probably true. But anyway, they were broke. And then they did very well in the 40s and started investing in things for their own account. Aways a small firm. As it is today--we only have 172 people.
Host: What did you admire about those guys?
Herb Allen: Just as people. I didn't care about the business much. Because I didn't know anything about business. But they were just very decent people and treated everybody very well, and they were fun to be around.
Host: So you graduate in '62, and then you basically immediately joined the family business. And was that something that you wanted to do or you just had to do something and...?
Herb Allen: No, I'd still maintained the same status as when I was 18. I didn't really want to do much of anything. But in those days we had a draft, and I thought I was either gonna be drafted or go into some form of the military. And so my father said, "Well, you got to do something. So come down, sit on a trading desk for a while." And so I did. And then it was sort of like the man who came to dinner. I was married, and then I had children, but you go through the whole thing. I had asthma, so I was 4F, luckily. And they weren't pressed too much for soldiers in that era--it was before Vietnam. And I just stayed.
Host: At that period, was your dad saying, "Gee whiz, this guy is not doing anything. We got to put him behind a desk." Or was he saying, "Oh, no, this is good. You're young. It's okay."
Herb Allen: We never talked about it. I don't know.
Host: So then a few years later, they basically say, You're gonna start the investment bank, the Allen & Company--
Herb Allen: No, not really. What happened was--
Host: You became President of that at like 26.
Herb Allen: I was 26, but I was President nothing. They created a corporation that--
Host: They gave you like, $1mn. Didn't they do that?
Herb Allen: No, no, we put up... I'll get to that. What we did was, they found that underwriting created unlimited liability, and having come from nothing, they were not interested in going back to the same neighborhood. And so they created a corporation, which if we ever did underwriting, which we didn't do anyway, that that became the Allen & Company incorporated, that I became the President. They looked around, they said, somebody's got to be the president. And it was a little like, Mickey Rooney Judy Garland movie, I can't remember which one it was, but they said, You be the director, I'll be the producer. That guy said, well, he's sitting over there doing nothing, make him the President. And it grew from that. We hit a bull market, we were lucky. And...
Host: But did you know--I mean, so what did you do? I mean, you didn't know anything.
Herb Allen: Not much.
Host: So what were you doing? You're President of...
Herb Allen: Well, knowing nothing in investment banking is not a drawback. It's really only bad when you export your ignorance to other people, which is really what's happened recently. But I started trading, I was okay with that, and institutional trading, and then I started doing some underwriting. Just it sort of grew step by step.
Host: Did you make any really big mistakes early on that you said, Oh, geez, that was...?
Herb Allen: Not the first three or four years. And I remember driving up the West Side Highway thinking I'm not learning anything. That was 1969. And then the market broke. And then I remember driving up the highway thinking I'm learning too much. And because it was... from '69 to about '76 or '77, there was nothing. I'd gotten involved in a few things that paid off later on, but those were not great years.
Host: So the famous story is, I guess around 1973 or so, the great producer, Ray Stark, came to you and had this idea, which was that Columbia Pictures wasn't doing very well at the time--the stock was around $2 a share, and he had a lot of faith in the company, and he kind of captured your imagination to buy a bunch of stock. And you did. But your uncle and father didn't think this was a great idea.
Herb Allen: Well, they didn't invest in it. We never really discussed it because we always had separate businesses. And I think the reason we got along was because we have separate businesses. But Ray was a brilliant producer, and a very demanding fellow. And if he was on you for something, you did it over time. I remember a Sydney Pollack thing--Sydney Pollack did a movie with him called The Way We Were, and Sydney threw him--threw Ray off his own picture, he disliked him so much. They got in a fight. And Sydney came up to me after the picture, and he said, "I know he's your friend, but I'll never talked to this so and so again, I'll never deal with him again." One year later, they did a picture called The Electric Horseman. And I said, "Isn't he the guy who told me you'd never do business with again?" He said, "Yeah. Well, if Ray wants something enough, you might as well give in, because he's gonna get it." And Ray wanted him. And he wanted me in the company. He was a general creditor, he owned backend pieces of movies, and Columbia was broke. And he thought that we could... the Allen & Company I had then, I could do something. And at least make it solvent. And it worked.
Host: What were one of the concerns, though, that your father and uncle had?
Herb Allen: I don't know.
Host: So you bought this thing, you bought it at like, what 7%? You had 7%...
Herb Allen: I think they probably made a reasonable judgment. If this fellow's in it, we really shouldn't follow him because he has no particular record--speaking of me. So, I think that was it.
Host: So the fact that you were enthusiastic about it made them say...
Herb Allen: I really don't know. I never discussed it with them.
Host: So you got it. And then of course, this was one of the great investments of all time, right?
Herb Allen: Turned out well.
Host: Can you tell us a little bit about how well that came out for you?
Herb Allen: Well, actually Williams College had a lot to do with it. Because in the long run, Bob Stone from here who was one of the great executives we had Fay Vincent, who ran the company, who did very well. Dick Gallup, who's dead, but who was invaluable to us. And Ray Stark and a fellow named David Begelman, who actually got himself in a lot of trouble faking three checks, and had basically a mental breakdown. But he's the one who turned it around. If one person turned around, it was Begelman. But he did it by making good pictures and good television shows that made money--very basic things. And the stock--I can't really remember the numbers--I think Coca Cola came along and bought it from us in 1981, '82, which is a little bit like being touched by God, if God had the money. But Coke then took off on its own, so a shareholder who bought in with us, let's say at $2 or $3 a share ended up, I guess, a couple of thousand dollars of value in Coke stock. The dividends today on Coke are probably five times the cost of the stock then. But it's mostly luck. How would you know? I didn't know anything when I got involved. I didn't know anything about the business. And thank God we had Bob, and we had Fay, and the other people who really knew how to run a business.
Host: Do you think of yourself as a creative person?
Herb Allen: Not particularly.
Host: Tell us about how you run your business. It's very small, you--
Herb Allen: Well, my son now runs the business. And he's created his own corporation. Pretty much the same model--I don't like the word model, but let's use it, where he has his own corporation. What I have left now is the portfolio of the old Corporation. And so the way that I did run it was we had 8 or 10 top people. They weren't paid more than--they weren't even paid a living wage. But they got paid a percentage of what they produced, or what deals they worked on, that were successful. And they shared in losses, which I think wouldn't be a bad thing if we had it back today. Today Wall Street--they make the profits, they don't have any of the losses, and everybody in this room puts up the money and pays on their bonuses. That's a very peculiar system to me. But it was very simple. And you had 8 or 10 very talented people. And I trusted them. And frankly, I may have organized it, but they led the way.
Host: But I mean, it is a creative operation. You do things a very different way than most other companies. I mean, for example, you have no analysts that work for you, right?
Herb Allen: Right.
Host: So tell me you're thinking about that. That's a little strange to have an investment company and you have no one there to analyze things.
Herb Allen: Well, I like to have people around me who are at risk. And what does an analyst have to lose if she or he is wrong? Plus the fact that I don't remember an analyst who ever told me anything that was interesting. I'm not saying they're bad people, but in terms of the business, I have no use for them.
Host: And you just make a distinction between a buyer and a seller. And you say that what your company basically is, is a bunch of buyers.
Herb Allen: Well, what the people do, who are in deals in the firm that I had was they put up their own money. They'd come into my office--they're all well-trained, they all certainly know a lot more than I did. And they'd recommend a situation--not Colombia, actually, none of them wanted that. But they recommend a situation, and I'm still relatively lazy and don't want to do an awful lot of work, so I asked them how much of it they want. And I know their net worth, and I know their habits, and I know their expertise, and if they tell me they want a significant piece of it, then I'll say Okay, we'll do it. Because they're on the line. And I believe very strongly in personal risk--and reward. I believe not at all in what's going on today?
Host: Well, isn't it true that sometimes clients or people that you've helped or collaborated with would want to actually pay you some kind of fee and you would say no?
Herb Allen: A couple of times.
Host: Right? There's a QVC story, right?
Herb Allen: Well, that was a winner take all. And I was like, We didn't win.
Host: Right. But the fellow still wanted to pay you a few million dollars. And you kept saying no. Tell the story. So this fellow sent Herbert... May I call you Herbert?
Herb Allen: Well, let's wait till we get to know each other a little bit. Sure, go ahead.
Host: Sent Mr. Allen a check. They were trying to--so you know QVC, the television station where you can buy like Joan Rivers jewelry. But it's huge. I mean, it's huge, it's really huge. I mean, it's a huge thing. And they were trying to buy some things, and so Mr. Allen was helping. And then it apparently didn't go well, they didn't close the deal. But the President still wanted to pay Herbert for his services and sent you a check for like a million dollars or something, and you sent it back. And then he sent it again, and you sent it back. That's an interesting way of doing business. Except that I have a bit of a postscript is that you ended up getting about like $15mn from him instead of the $1mn, which is actually a very clever way of doing business, if you think about it. So I mean, this is creativity, whether you want to admit it or not.
Herb Allen: Well, we sent it back 15 times. No. I think that was on a different deal. No, I think in that deal, we said that if we don't win, we don't get paid. And we didn't win. So it was fairly simple. I think the other one you might be referring to was where Sumner Redstone sent over--but we didn't do anything for him.
Host: So you sent it right back?
Herb Allen: Yes.
Host: Now like you mentioned already that your son Herb is now running the thing. Is that weird to give up the reins of power? Are you proud? Do you think of him like your father thought of you?
Herb Allen: I have no idea. But I think pride is always a peculiar word when you talk about a child, because you really have so little to do with the creation of their good things. And I think that he does well. So I'm pleased--if he stopped tomorrow and wasn't in the business tomorrow it wouldn't make any difference to me.
Host: So, we have a mutual friend, Fay Vincent, who we talked with a few months ago. And he said that I should ask you, because I love talking about failure, and he said that I should ask you about the Liberty Equities story, and what you learned from that. Now I don't even know what that means. Can you tell us what that is?
Herb Allen: Liberty Equities... we did an underwriting, a private placement of $20mn of bonds around 1969. And it turned out to be a fraud. They were convertible bonds. Actually, I thought it was a great deal for everybody who bought it. And about four weeks later, Bob Warble, who lives in this town, called and said, "What do you think of the Liberty loss?" I said, "What loss?" Anyway, it was a fraud. And the fella was keeping phony books, and he paid off the auditors. And Fay ended up being the lawyer for the other side. So we became reacquainted after not seeing each other for eight years. But you only learn from losing. I don't think you'll learned from winning--I'm sure somebody does, but I never did. And it was a fascinating experience. Not the least of which was going to Geneva to tell Bernie Kornfeld that he lost all his money when I didn't realize he was so coked up he couldn't hear a word I was saying. I kept thinking it was just the fit of his pants, I couldn't understand what was going on.
Host: Were you scared? I mean, did that scare you?
Herb Allen: Yes, that did. Yeah, because I figured I'd lost everything. Because I thought we'd had to pay the money back. And it was such a stupid deal to do, so remarkably stupid.
Host: What kind of level are we talking? Was it hundreds of millions of dollars?
Herb Allen: No, no, it was about $20mn. In those days, that was hundreds of millions of dollars.
Host: What year was this?
Herb Allen: '69.
Host: Oh, okay. This was a while ago. And so what did you learn from that? What was the lesson for you?
Herb Allen: Well, first of all, to check things out more thoroughly, obviously. The fellow had a great reputation in Washington. His name was Wyatt Dickerson. I don't know if you remember Nancy Dickerson used to be on NBC News. He had a beautiful house on the Potomac. Everything looked good, but there was nothing underneath it. But I think, basically learn to... If I didn't have the capacity or capability to check something out, which I usually don't, find somebody who does. And there are plenty of people who can. So that was the primary lesson.
Host: Were you ever stung again after that?
Herb Allen: Oh, sure. I think when you're in the venture capital business, you're going to lose most of the time.
Host: Is that right?
Herb Allen: Well I don't know anybody who wins most of the time, and our records no worse than anybody else's. So I would say that's the way it is. That's the reason why I say today, when you have these hedge funds and everybody else telling you they're doing nothing but winning, you better check their books, because they can't.
Host: All right, now. You say you're not creative. Now, about 30 or so years ago, you started this thing at Sun Valley. And I want you to talk a little bit about this. So this is an annual event where you bring some of the biggest leaders in business and entertainment and so forth for a retreat. And one of, I think, the inspired ideas that you had was to not just bring these leaders, but to also include their families so that they actually stay for an actual amount of time, not just for a day and fly out. And they come for about a week or so. And then you guys caucus or do business or whatever. So tell us... give us the inside scoop on that because we're not invited. Especially me, by the way. I'm not invited.
Herb Allen: Well, if you play your cards right, let's see how the rest of this goes.
Host: I'm not invited, trust me.
Herb Allen: It started as a small thing. We were doing nothing. We were in a dead time. It was 1982. I had seen a showdown at Coca Cola when they took us over where they brought their bottlers together. And for some reason I thought maybe we can do something--their act was a little bit different, a little more grand, so I didn't... so I thought it was probably smarter if they brought their families. And so they brought their families, and little by little, other people came. It drew a crowd that drew a crowd. I don't think we did anything that was so spectacular. But if you're in Sun Valley in the summer, and you're paying for breakfast, lunch and dinner, you're gonna get--you get a few people no matter what. And...
Host: How many folks now, like this coming year or last year, what's the volume of people?
Herb Allen: About 400-450 adults and about 130 children under the age of 15.
Host: And what goes on at the adult level? Are the people on panels? Are there lectures?
Herb Allen: Yes, there are panels--not corporate presentations. We don't do those anymore because I think everybody on Wall Street has a conference now. But we have... what I like best now are panels of general interest where there's also something connecting to the business interests. But it's one of those things where it's very interesting to be involved in anything that becomes accepted, because you never really understand why. But you recognize that it's happened. And people like to come to it now, so it's pretty easy now to get speakers. We had a really interesting speech last year--the King of Jordan's a nice fella. And if I were Barack Obama, I'd spent a lot of time with him. I'd probably get rid of my whole State Department and spend a lot of time with him. But I'd get rid of my whole state department no matter what.
Host: Would you invite Barack Obama to this thing?
Herb Allen: No. Not because Barack Obama--I couldn't care less about that. But you can't handle a President. Presidents don't travel with six or--this is a very small conference in a small town in the mountains. And the President, if we were honored and wanted to come, it'd be a real pain in the neck. I mean, I don't care who it is. Presidents travel with 2000-3000 people everywhere they go. That's bigger than the town.
Host: I see. Do you speak at the--do you say a few words or...?
Herb Allen: No, just at the closing dinner, I thank the people and then that's it. There are plenty of people who can speak pretty well.
Host: Now see, from my point of view, so you're down at a Coca Cola plant in 1980 or something, and you see they bring the bottlers together, and they have this thing, whatever this thing was, and you say, Hey, I can do this with the people that I interact with. To me, I see that as being very creative. And you don't see that as being creative? You're taking two different ideas and kind of putting them together and seeing that they can be connected.
Herb Allen: No, I don't think of it that way, but--
Host: What would you call that?
Herb Allen: Well, I think it's luck. That it worked, because it could have ended at the end of the first year.
Host: Yeah, but that doesn't mean it wasn't creative. It just means it wasn't successful.
Herb Allen: All right, it was creative.
Host: Thank you.
Herb Allen: Or we'll never get to the next question, otherwise.
Host: So, interesting people are there--Jimmy Buffett, I mean, not Jimmy Buffett--Warren Buffett. Has Jimmy Buffett been there by the way?
Herb Allen: You're not that far off. I think they're cousins, and Jimmy did want to come two years ago.
Host: See? Okay, so I... but Warren goes a lot, right? He's a good friend of yours. Tell us a little bit about him. And he's talking to people in Washington.
Herb Allen: Warren is a genius and can do better sitting on a stage by himself answering questions from an audience than anybody I've ever met. And seven years ago, basically, predicted the market that we're in today--almost exactly. And if you read his annual report a few years ago, he talked about these derivatives as weapons of mass destruction, I think. He's just a flat out statistical genius. Like all geniuses, he probably wouldn't make a great baseball manager, but in his field, he's probably the greatest mind that's ever been. And he's fun, and very funny. And has a--if he doesn't have a photographic memory, it's very close to it.
Host: How often do you guys see each other?
Herb Allen: Not often. I see Warren, if he comes to town, once a year, he may want to have dinner. He likes to have people come through Omaha, but he also likes to go to really bad restaurants. And so I'd rather wait till he comes to New York.
Host: But he shows up every year.
Herb Allen: We actually went up this August. We went up to see the tar sands up in Athabasca, which is not something that I would ordinarily look forward to. But it was interesting being with him.
Host: And Bill Gates is a regular.
Herb Allen: And Gates was there that day too.
Host: Tell us a few other people that we might have heard of that join the retreat.
Herb Allen: Well, 400 people, we've been doing it 27 years.
Host: Well don't list them all. Just list like two other names, besides Buffett and Gates.
Herb Allen: Well, what kind of... what do you want?
Host: Like Rupert Murdoch, right?
Herb Allen: All right, keep going. You've almost covered--
Host: Well, I mean, I'm hoping that... I really don't need you, Herbert. I can just do this myself apparently. You want to join me and get a piece of this, I would appreciate it.
Herb Allen: You're the third person who said that to me today.
Host: Is that right?
Herb Allen: Well, Rupert is there. I don't know what kind of names you want. But there are an awful lot of different people from--virtually anybody from the entertainment business, a lot of--and lately political. It was the most interesting political, frankly, in the last 10 years. Well, Tony Blair, he did a nice job. But Sam Nunn was probably the most interesting and perceptive of the political people.
Host: And what did he say or what made him--
Herb Allen: He talked about both the functioning of government, about foreign policy, about defense policy. He's just an extremely knowledgeable man. And very high--probably the highest quality senator that I've met, in terms of his field, the depth and breadth of his knowledge.
Host: And when you sit down at Sun Valley and meet with these people like a one on one? I mean, will you have a special meeting time with Tony Blair for example... did you and Tony Blair go out and have some time alone?
Herb Allen: No, because you've got 400 guests plus 130 children plus everything else. You don't have time for that. So you're the host at your own cocktail party. You never even know how it went over afterwards. The main thing you want to do is get through it with nobody killing anybody else. But you recognize they do a good job, but they're not there for me. They're there for the crowd. And the crowd is very aggressive and gets to see them and talk to them and share ideas.
Host: There's a great quote that I found that Michael Eisner said about your thing, which he said, "Sun Valley is a cross between summer camp and an SAT exam". Does that sound--
Herb Allen: It can be heady. There's a lot of subject matter covered that requires concentration and focus. And the people speaking are generally very smart. But they're very regular. We've had no troubles with any of them. One fella once, but--I don't know, I won't tell you who it was.
Host: I was hoping you would... But I'm going to guess, I can go down the list of 400...
Herb Allen: You could, but he's not there anymore. But basically, the people are very easy to get along with, very regular group.
Host: We're running out of time a little bit, and I want to touch on one last passion of yours, which takes you away from, or maybe not, the investment world. And that's the world of art. And I know--you have someplace to be?
Herb Allen: You said we're running out of time. I didn't say--
Host: It's a quarter to, and these people have lives.
Herb Allen: It's also almost... I know some of them... Art.
Host: I want to talk a little bit about art. You are a passionate art aficionado, art collector. Tell us about that side of your life and what draws you to art and how that got started? You like American Art, is that right?
Herb Allen: I do like American art, because that's what I could buy when I first went into the galleries. And I think the reason is art was considered a gut course when I was here at Williams. And of course, I took all of those that I could. Nothing greater than the art courses, because you can just go in, they turn the lights out, and they put pictures up on the wall. And all you have to have is an adequate memory. This is Degas, and that's Renoir. It wasn't that hard.
Host: It's much better now, but... I mean, it's great now.
Herb Allen: It was great then.
Host: Okay, okay, just making sure... I want to make sure that we are making that clear. I audited it last year. Did you know that? Why would you know that? Why would you know that?
Herb Allen: Let me know when it's my turn.
Host: Yeah, go ahead.
Herb Allen: No, I've collected American art, and it's because of Stoddard and Pierson and Faison and the course that they taught. And had I not come here and not taken that course, I don't think I would... I wouldn't have known. I wouldn't have known what to buy. I wouldn't have known what I liked.
Host: So what do you like? Tell us the kind of things.
Herb Allen: I like recognizable, old fashioned paintings that are pretty, basically. Very superficial. I don't care for modernism, post modernism, so on, so on. Poor Michael Conforti, if he's here, hates my opinions on this stuff. Tod [Ayoando (ph)] bothers me. At any rate, fairly simple stuff.
Host: But Homer, Remington, you like those guys?
Herb Allen: I like Homer. I like Remington. I like Hassam. I like things that I can understand.
Host: And do you have any non-American art or no?
Herb Allen: I have one that I bought from Ray Stark's estate. I'm drawing a blank on the name, but that was just because it was over his mantle in his house, and I remember...
Host: So it had sentimental value.
Herb Allen: Yes.
Host: And how often do you frequent museums and galleries and auctions?
Herb Allen: Well, irregularly. I went to the Damien Hirst exhibit at Sotheby's in London about two months ago, which I thought was magnificent, because all my life I've been selling nothing for what I thought was a high price, and then I saw... and I realized that he was the world champ. This guy... so anyway.
Host: Is art a good investment?
Herb Allen: No. It is if you hit on a picture and you buy it cheap and it goes up, obviously. But generally speaking, art funds and things like that are ridiculous. No, no, I don't think art is a good investment. And also, if you think of what it costs you to buy a painting, insure it, sit with it for 30-40 years, I don't think it's... you can get lucky, but if you're buying it--I never bought a painting because of market value, or potential market value. Matter of fact, it's a negative. If a painting goes up an awful lot in value, start looking at it differently.
Host: Right, now before I ask...
Herb Allen: Still doesn't mean, Michael, that you're gonna get it.
Host: Alright, so let me do a little commercial here. You could take two seconds off. It's gonna be about me for just 15 seconds… Okay, so we only have a couple minutes left. Let me ask you a couple of things. Tell me some people that you admire.
Herb Allen: Oh, there are a whole load of them. I mean, it's too long a list. You could start--actually this... when we started on the issue of this Performing Arts Center, Hank Payne really understood what the needs were. Art Lafave, you remember, who used to run the gas station down there, really understood. As a matter of fact, I really wanted to put it where the parking lot is down there now because I wanted to feed business into Spring Street. And it wasn't mine to give, to determine, but I thought that was a great spot. And I think Spring Street lost a lot when it lost it. But I'm glad it's here. I'm glad Bill Rawn did the job he did. But had we put it there--and I was gonna name it, if I could have, if Morty would allow me, Arts Performing Center.
Host: Really? Is that true?
Herb Allen: Yeah.
Host: That's cool.
Herb Allen: Yeah. Well, it was a missed opportunity. But there are people--I think almost every day I run into somebody I admire, somebody who has special human qualities. I think the job you do with the students you have when I see you with the kids the way we were earlier, that's great. Mark Taylor is a fabulous teacher. Bob Jackal's of the great--I mean, the people I've seen here, wonderful teachers. And I don't think there's a more honorable profession than teaching. I'm not so sure about tenure because I think it makes people lazy, and I don't think it's a good idea to have a guaranteed anything in life. But I don't know that much about--
Host: The market goes any lower, there might not be guarantees.
Herb Allen: Right, well, I think this is inviolate.
Host: You can't get me fired, can you? Is there a special like little gesture you make to Morty and then that's it?
Herb Allen: I--No, I know when I'm being ignored by Morty, because it's always when he says, "I hear you."
Host: You mentioned... we're almost out of time, but you mentioned the location of this building. And that was a little bit controversial. That kind of got a little bit heated. Did that bother you? Or...
Herb Allen: At the time, it did. I didn't fully understand politics on a campus. And Hank was an extremely unpopular President at that time. Very good man--whether he should have been President is a whole separate subject. But he was a good man. I think that he had riled the faculty. And to a certain extent, the performing arts center became sort of like pin the tail on the donkey, it was something to tack on him. And I had asked him, when I told him I put up the amount of money I did, I said, "I don't want to hang it out to dry because you can give a large amount of money and you can go through the normal bureaucratic process of a place like this. And schools are like this. And it can be three, four years before anybody makes a decision." So I said, "Check with whoever is vital. Six or seven people, whatever it is." And he did. And then there was a big outcry that he hadn't gone through the right process. And all bureaucracies worship process. And this school is not unlike other bureaucracies. Process becomes king. And I have no respect for process, for the most part. So sure, it was... yeah, it bothered me. And it was... it was a difficult period. But it got done.
Host: And you feel good about it now. You like it?
Herb Allen: I like it. And I'd like to see it used better. And I think we have Morty to thank, because I think Morty really pulled it through at the end. But I think ultimately it'll get run right. I'd like to see more Broadway people up here and more people invited who are professionals. And I think Sandra Burton has done a great job with her dance companies, but we've got... it's got a long way to go. It can improve an awful lot.
Host: All right, so now we're at the end. I want you to share some life lessons or some advice that you can give to the students here. Things that maybe you wish you knew when you were here, or things that you've learned along the way that might be interesting.
Herb Allen: I think they're the same lessons that every parent tells every child. Do what you enjoy. Don't worry about the money. Don't ever work for money. Because it'll come your way. This country is so great that you're... if you're in most businesses, you're gonna make enough money to afford your needs plus your excesses plus probably your wretched excesses. Now we're now living in an era that went exponentially past wretched excess. And where it was... matter of fact, I think I would describe this era in the last 10 years or 15 years as sort of radical capitalism. It's not legitimate capitalism, but it is to capitalism what the terrorists are to Islam. They're not the real thing. And I think that what Wall Street has done... I'm taking this a little farther than you wanted me to, but I think what Wall Street's done is really a disgrace. And the idea that the government... so anyway, this goes back to the kids working for money--but the idea that the government should put up money to pay the bonuses of Morgan Stanley and--I'm not picking on Morgan Stanley, I know a lot of people there I like, but Goldman Sachs and other firms, which is essentially what's happening here, the $250bn they're talking about in equity is money that was taken out in the form of bonuses over the last 10 years from these firms. I think It's an outrage. And I think what the government should do, which you didn't ask me, but see, we're not going there, so I want to say it anyway, is have a rights deal in these firms at about 5% of their market value, and put much more equity up. Dilute the current shareholders, because if you're a shareholder in a badly managed company, you deserve to lose. I certainly have, many, many times. And if you took these these banks and the Wall Street firms, the present shareholders, for the most part, should be washed out. New equity should be put in both by the public and the existing shareholders. And then the government wouldn't have to put up that much. The balance between equity and debt is all wrong. I think this is a bad bailout plan. But the principle of rewarding people in Wall Street who've been a significant cause of this problem is abhorrent. That's the end of that sermon.
Host: Well, I think you're a creative guy. Herb Allen, thank you very much.
Herb Allen: Thank you. Very nice to be with you.
If you got this far and you liked this piece, please consider tapping the ❤️ above or sharing this letter! It helps me understand which types of letters you like best and helps me choose which ones to share in the future. Thank you!
Wrap-up
If you’ve got any thoughts, questions, or feedback, please drop me a line - I would love to chat! You can find me on twitter at @kevg1412 or my email at kevin@12mv2.com.
If you're a fan of business or technology in general, please check out some of my other projects!
Speedwell Research — Comprehensive research on great public companies including Constellation Software, Floor & Decor, Meta (Facebook) and interesting new frameworks like the Consumer’s Hierarchy of Preferences.
Cloud Valley — Beautifully written, in-depth biographies that explore the defining moments, investments, and life decisions of investing, business, and tech legends like Dan Loeb, Bob Iger, Steve Jurvetson, and Cyan Banister.
DJY Research — Comprehensive research on publicly-traded Asian companies like Alibaba, Tencent, Nintendo, Sea Limited (FREE SAMPLE), Coupang (FREE SAMPLE), and more.
Compilations — “An international treasure”
Memos — A selection of some of my favorite investor memos
Bookshelves — Collection of recommended booklists.