(Forbes) - As a child of immigrants and a first-generation college graduate from the Bronx, Leon Cooperman made a fortune building Goldman Sachs’ asset management division and compounded it in 27 years running his hedge fund Omega Advisors.
He joined Goldman as an analyst the day after graduating from Columbia’s business school in 1967, rising to become a general partner at the firm and chairman and CEO of Goldman Sachs Asset Management.
Cooperman left to launch his hedge fund in 1991, which returned 12.5% annually betting on undervalued stocks, outperforming the S&P 500 Index by three percentage points, before he converted it to a family office in 2018.
Assets under management peaked at more than $10 billion but dwindled when the SEC levied insider trading charges against him in 2016 related to trades in a small energy company called Atlas Pipeline Partners. Cooperman eventually paid just $4.9 million to settle the case a year later, and neither admitted nor denied misconduct. Performance remained strong during the legal fight and he closed the fund at its high watermark.
At age 79, Forbes estimates Cooperman’s fortune at $2.5 billion, and he has signed the Giving Pledge vowing to give most of it away. He has given more than $250 million to date to organizations including the Cooperman College Scholars program that provides scholarships to high school students from Essex County, New Jersey, the Cooperman Barnabas Medical Center in Livingston, New Jersey, Columbia’s business school and his undergraduate alma mater, Hunter College.
FORBES: Tell us how you got your start in investing.
LEON COOPERMAN: People ask me what I attribute my success to, and I say hard work and luck, which are easy to understand, and intuition, so I’ll take you down the intuition path, because that’s the only one that requires explanation. Hard work and good luck do not require explanation.
I went to the City University of New York back in the mid-1960s. If you finished your major and minor in college in three years, you were allowed to count your first year of medical or dental school towards your fourth year of college and get a separate degree. So in the summer of 1963, I completed my chemistry major by going to summer school at the University of Pennsylvania, and I enrolled in the University of Pennsylvania’s dental school in August 1963. After eight days, I started to wonder if I was pushing myself in a direction that I was not fully committed to. It was a very major decision in my life because I had paid room and board and tuition for a year. My father was walking around saying my son’s a dentist; all my friends knew I was off to dental school and the only guy that understood the trauma I was going through was the dean of Hunter College who had to approve my matriculation back into undergraduate school.
He said, very courageous decision, of course you can come back. I went back and had all electives available since my major and minor were done. I took ten courses in economics, got all “A”s, found what interested me and never looked back.
The second example of intuition: when I was interviewing in 1966 for a job, I had 16 job offers–very different environment than today. I got a job offer at Goldman Sachs for $12,500, and for one of the few times in my life, I passed the deadline without responding. I got called by the guy who made me the offer and he said, “Lee, we’re disappointed we haven’t heard from you, what can we say?” I said, “Bob, to be honest with you. I have a six-month-old kid and I have student loans to repay”–they were not forgiving student loans at that time. “I have no money in the bank, and I have four job offers for more money, but I like everyone I met at Goldman. Do you think I could make $25,000 a year in five years?” I was very familiar with the compound interest tables. If you double something in five years, that was 15% compounding, which seemed reasonable, and he said to me, “If you work hard and keep your nose clean, I think you could do it.” I said, “Okay, I’m coming.” I joined the firm and nine years later, I was made a partner, so it was a good example of intuition that worked for me.
FORBES: How would you describe your investment strategy and how has it evolved?
COOPERMAN: I always have been value oriented. I was a disciple of Warren Buffett, Benjamin Graham and David Dodd, and I like to get more for my money than I pay. I’ve observed that technology is a double-edged sword. Somebody’s innovation is another’s obsolescence, so I’ve never understood paying high multiples for businesses when they could have a short run life. Look at Meta as a perfect example. TikTok seems to be taking their market away from them and their stock has collapsed. When you pay a very high multiple, it seems that you have to have confidence in a high level of earnings growth for a protracted period of time. The product cycle is getting shorter and the competition more intense, so that’s not a game I feel comfortable playing.
FORBES: Is there an investment that you consider your greatest success?
COOPERMAN: The smartest guy I ever dealt with–it wasn’t my most profitable investment, but it was very profitable–if you go back and look at Forbes in the 1960s, you guys were champions of Henry Singleton at Teledyne. He was the smartest guy I ever worked with; he was a genius, and I made a lot of money betting on him. Forbes was one of the few magazines that understood his game and wrote him up very favorably, whereas in 1982, BusinessWeek had him pictured on the cover of the magazine as Icarus, the mythical Greek god that flew close to the sun. They had no idea what they were talking about. I first invested in about 1968 and held it 25 years.
FORBES: What investment do you consider your biggest disappointment?
COOPERMAN: My biggest disappointment was in some cases betting on people. I hired a guy from Goldman, [Clayton Lewis], who turned out to be dishonest. He led the firm into a deal for the vouchers of Azerbaijan that was tainted by corruption. It created a lot of problems for me, and we lost a lot of money.
FORBES: If you could give your 20-year-old self some advice about investing, what would you tell yourself?
COOPERMAN: Be long term. Be tax efficient. Know what you own. The most important advice I give the youngsters is that the only way to be successful is to do what you love and love what you do. I work 80-hour workweeks, but I never looked at it as work. I enjoyed what I did. I’m motivated by two things. I want to make money for two reasons. Number one, if I make money in the market—and I was up in 2022 when most people were down—it basically means I was right. And I have an ego like everybody else, I want to be right. Secondly, I’ve taken two giving pledges and I’m giving away 100% of my money. The more money you have, the more you can give away.
FORBES: Who were your investing mentors and what did you learn from them?
COOPERMAN: I learned a lot from studying Henry Singleton. He graduated number one in his class at the Naval Academy and got a Ph.D. in electrical engineering at MIT. He was a senior executive at Litton Industries, and in 1958 Tex Norton, the founder of Litton, promoted Roy Ash into the position of CEO and Singleton left to start Teledyne. From 1958 to 1968, he did 130 acquisitions doing a rollup strategy. He would take his high-multiple conglomerate stock and buy lower-multiple businesses. In 1968, I had lunch with him, and he told me the acquisition game for Teledyne is over. It makes no sense to take undervalued public market stock and pay a private-market value to buy businesses. We’re going to spend our time studying the environment and see what makes sense.
At that time, Harold Geneen at ITT and George Scharffenberger at City Investing kept on pumping out stock to do deals, and they were giving out undervalued stock and paying full value to buy businesses. Singleton understood the fragility of that. Beginning in 1972 and ending in 1984, he had eight self-tender offers and retired 90% of his stock.
He acquired intelligently, he retired his stock brilliantly and in the 1972-73 bear market, when most money managers were selling stocks to buy bonds, he told me that in his view, the high-risk asset in the economy was bonds, not stocks. He went out and bought 28% of Litton Industries, where he was passed over for presidency, 30% of Broadway Glass and 20% of Reiko Chemical—very large, concentrated equity positions that made a fortune for his shareholders—and interest rates went up and he avoided capital losses. Warren Buffett said he was truly brilliant and one of a kind.
FORBES: When you look at the environment today, which stocks or themes would you recommend?
COOPERMAN: I have two I like a lot. I believe in the old line that when something seems too good to be true, it’s not true, but my favorite investment will make about 300% in the next year, and the only way I lose is if the government tries to take what they have for no compensation. The company is called Ligado Networks, and what’s gone on is an absolute disgrace. Ligado owns about 40 megahertz of 5G spectrum–extremely valuable. About 10 years ago, the Department of Defense inappropriately said the spectrum interfered with their needs, and the FCC, which is responsible for setting spectrum policy in the country, spent five years studying the allegations. After five years, they concluded with a 5-0 bipartisan vote that the objections had no merit, and they approved the use of spectrum.
The Department of Defense now changed its story. They said we want the spectrum for national security reasons. I have no problem with that, but they have to pay for it. I’ve spoken to people who are experts in constitutional law, and they say that nothing is impossible, but it would be highly unusual for them to take it in peacetime. The assets are worth about $16 billion to $30 billion depending on who you talk to.
I love and have a big position in the first lien Ligado bonds. It’s a 15.5% PIK [pay-in-kind] bond trading at 30 cents on the dollar that matures November 1. So in less than a year, if I’m right, it goes from 30 to par, plus you have 15.5 points of interest, so you get $115.50 for a $30 investment. I can’t wait for the year to go by, even though I don’t want to get older any quicker than I am. So that’s my best idea, and the only way I lose money is if the government can take the spectrum for nothing. I don’t think that can happen in this country. If it does, it’s a big problem. You would question investing in this country in the future.
Second, I have a very big position in the energy industry. I think the oil stocks as a group are undervalued. My favorite ideas are two Canadian companies. One is Paramount Resources (PRMRF) and the other is Tourmaline Oil (TOU.TO).
FORBES: What’s the biggest risk you think investors still face in the current environment?
COOPERMAN: I think the biggest risk is that the system is all screwed up. From 2017 to 2022, we’ve gone from $20 trillion of debt to $32 trillion of debt. We have no fiscal discipline and the problems we’re having now were created by the Fed by being excessively stimulant for too long. I worry about the debt buildup, and I think we’ve borrowed from the future. The best example of that is I had lunch with a money manager who bought a house in Boca Raton for $1 million, the house is now worth $2 million, and he can’t afford to move because he locked in a 30-year mortgage at 3%, because of the zero-interest rate policy the Fed was pursuing. Now that mortgage rates are 6% or 7%, if he moves it’s doubling or tripling his mortgage payment, so he ain’t going anywhere.
So I think we have a lot of problems. A lot of that’s reflected in the market. The only bullish thing I can think of personally is that most people are pessimistic and we’ve been in a bear market, so there are a lot of cheap stocks around.
FORBES: Are there any books that you recommend every investor should read?
COOPERMAN: The seminal text in the industry is Graham and Dodd’s Security Analysis, and then Ben Graham’s The Intelligent Investor.
The conversation has been edited and condensed for clarity.
Excerpted from the January issue of Forbes Billionaire Investor, where you can invest alongside the world’s smartest billionaire investors.
By Hank Tucker - Forbes Staff
January 13, 2023
I'm a reporter on Forbes' money team covering investing trends and Wall Street's difference-makers. I've reported on the world's billionaires for Forbes' wealth team and was previously an assistant editor covering money and markets. I graduated from Duke University in 2019, where I majored in math and was the sports editor for our student newspaper, The Chronicle.
