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SMART INVESTORS, (SOMETIMES) FOOLISH CHOICES
Quick – what do the 17th Century tulip bulb craze, the Internet, and the movie business have in common? As Perry Golkin W’74, WG’74, L’78 explained it to an overflowing crowd on April 9th they each represented business opportunities that investors rushed in to capitalize on only to lose money in the end.
Golkin returned to the Law School to deliver “Smart People Making and Losing Money: Some Recent Examples” as the Institute for Law and Economics’ Spring Law & Entrepreneurship Lecture. (Former Philadelphia Mayor and Democratic Candidate for Governor of Pennsylvania Ed Rendell delivered the program’s Fall lecture.) Golkin is a General Partner of the investment firm Kohlberg, Kravis, Roberts & Company in New York and a former partner in the corporate finance department of law firm Simpson Thacher & Bartlett.
Golkin began his lecture using the explosive growth in the movie exhibition business in the late 1990s as an example of smart people, foolish choices. “Everyone who got into this business went bankrupt,” Golkin said. “Why? Their explanations are that they didn’t look at the macroeconomics. That they overbuilt. But it’s simply not a good business – it’s a commodity. The mistake was all these smart people thought it was a business.”
In contrast, he identified the reinsurance industry as a real business. He characterized it as a “highly regulated, really boring business” that was in decline in the nine years before September 11th. Now the reinsurance business is booming.
Golkin shared with the audience three conclusions that he has reached: first, whether it’s tulip bulbs or the Internet, it’s about the businesses. Decide if you want to own the business and determine if the business has fundamental value. Second, smart people who make investments aren’t always right. And, finally, “As smart as we all are, you can’t get confused by too much analysis or too many facts. Step back and realize what’s important.”
Opening the floor to questions from the audience one student asked Golkin, who has succeeded in the exclusive financial realm of the leveraged buyout world, why should a student go to law school? In response Golkin answered, “In an enormously complex world you have to be able to put the pieces together ... at law school they teach you to think ‘What about this? What about that?’ Law school is a phenomenal way to learn how to think things through. It’s a short period of time when you look at the length of your career.”
The Law & Entrepreneurship Lecture Series is made possible through the generosity of the Ronald Rutenberg Fund