Using leverage and hunting down value made The Donald a billionaire...
IT WON'T matter much whether Donald Trump wins the presidency or not, writes Chris Mayer in Bill Bonner's Diary of a Rogue Economist.
As Bill has been warning, the Deep State is in charge.
But Trump can teach us a thing or two about investing.
I just finished his first memoir, The Art of the Deal. And it's a fun read. Trump tells great stories. He's funny. And he certainly knows how to make a deal.
"Deals are my art form," Trump writes. "Other people paint beautifully on canvas or write wonderful poetry. I like making deals, preferably big deals."
Many people write-off Trump's success because his father, Fred Trump, was already a wealthy real estate developer. They say Trump Sr. gave his son a leg up. But there were five Trump children... and only Donald became a billionaire.
His first big deal was the Commodore Hotel at Grand Central Station. The owner of the hotel, Penn Central, was in financial trouble.
Trump knew that unless "the city literally died," the location of the Commodore could make the hotel a hit. He struck a deal with Penn Central, once again using little of his own money. (His father helped with a debt guarantee, a fact Trump conveniently omits in his book.)
Today, the Commodore (Grand Hyatt) is a four-star hotel. Trump sold his interest for $140 million in 1996 – about 14 times his purchase price.
Throughout the book, Trump repeats this strategy. He gets the property cheap enough to cover his downside risk... and he buys it with leverage.
Sometimes, the strategy didn't pan out. But using leverage allowed Trump to magnify his wins. It's a secret of many great investors, including Warren Buffett.
Trump's early success boils down to this: Buy cheap. And use other people's money.
With the downside covered, the upside can be enormous.