Interview with Kyle Bass
Kyle Bass is an investor.
Memoirs & Mentorship
Contents
Max Raskin: I want to start with the Fontainebleau Hotel. You grew up hanging out there?
Kyle Bass: I was born in Hollywood (Florida) and my father was the general manager of the hotel when it was privately owned. He was there from '66 until 1980 then it was sold to Hilton we moved to Dallas. So, for the first 10 years of my life, I was there. We went to the hotel every weekend.
This was the place where the gangsters, Hollywood, and finance would all hang out together in some symbiotic normalcy. And I've read a lot about it now, and I've seen all the photos that we had, and the answer is yes, but no. If I was there from 10 to 20, I would've really been able to answer yes. But I have fond memories of catching tadpoles by the pool and jumping off the diving platforms as a kid.
MR: Did your dad know these guys? Did he know Sinatra? The gangsters?
KB: Yes. My dad has photos with everyone. When President Ford was the president, he officed in my dad's office at the Fontainebleau whenever he traveled to Miami. My dad had the hotline in his room that went to the White House. I got to meet so many fascinating people…I was too young to appreciate it.
Six Flags (Except Four)
MR: Just speaking of offices, what are those flags behind you?
KB: One is the American flag. One is the Texas Rangers, the police force, not the baseball team. And the other two were flags that flew over the state — one is the official state flag and the other is one that flew over the state long ago.
I love collecting flags. Texan and American flags are just fun to collect. And it's important to remember the blood, sweat, the tears, the lives that have been lost to get us here. As I get older, I respect that more and more and more.
MR: Did you ever think about joining the military?
KB: It's my biggest regret in life that I didn't.
MR: Do you collect anything else other than flags?
KB: Rare books.
MR: What's your favorite book that you own?
KB: If you have 100 kids, you're asking me which one's my favorite kid.
MR: Which is the first one that comes to mind right now?
KB: Adam Smith's The Wealth of Nations. Ever book that I collect is a first edition. I literally have it right here.
MR: It’s not in some sealed box?
KB: They're all in shells. When you open the shell, the actual first runs are in here.
I have Galileo's Dialogo, which is the first time that a scientist said maybe just maybe the entire world and its operations might possibly be caused by something other than the gods.
MR: Eppur si muove…the thing still moves. That's what he allegedly said.
KB: Yes. And as you know, he was referring specifically to the tidal movements.
MR: Oh, I didn't know that.
MR: Do you collect books of writers you don't agree with?
KB: Oh, absolutely. I have Das Kapital. You have to read everything. I read the things these crazy communists and fascists and insane people wrote because you have to understand where their head space was. So I believe in know thy enemy.
MR: What’s that gun behind you?
KB: So that's an original Colt .45 made in Colt's factory here in America.
MR: And the eagle?
KB: This is a bronze from one of my good friends who passed away, Boone Pickens. It’s something to remind me of Boone and his intense desire to support our country and the freedoms in our country. I thought, where else am I going to put that other than right next to me?
The Big Short (from the Bathtub)
MR: I see that you're drinking Diet Coke. Do you snack and eat during the day?
KB: I'm glad this is going to make it in there. This is really going to help me in my pursuits with my loved ones…
My poison is Diet Coke. I never drank a drop of alcohol. Never did a drug. I've never smoked a cigarette in my life. And that all held true through high school.
I, of course, had my first alcohol in college and went overboard and didn't like it very much. I have a very healthy respect and relationship with social drinking. I still drink with friends every now and then. I definitely don't drink every day.
But Diet Coke is a problem.
MR: How many Diet Cokes will you go through a day?
KB: Some days, just one. Some days, three.
MR: Do you take naps?
KB: The answer is no. Sleep is my biggest issue as I've gotten older.
I was just with General Milley all weekend at my ranch and he said that he had a colonel that was close to him who would always say sleep is a weapon. And I believe that to be true.
MR: The nature of investing is that you don't need a lot of good ideas throughout your career to be very successful. You need a couple ideas that you have a high conviction in that you can execute on. Do you remember where you were when any of those ideas came to you? Like the subprime short.
KB: Yes. It's really just through open dialectic. It is a function of doing what you're doing now — how you dig in and dig deep into people and situations. And the subprime situation happened when I happened to be on the phone.
It’s actually a great remembrance of mine. I was on the line with one of my good friends named Alan Fournier. When Tepper started Appaloosa, his right-hand man, number one analyst, was a guy named Alan Fournier. Alan Fournier left Tepper and started his own firm called Pennant Capital. I had worked with Alan when I was on the sell side.
When I went to the buy side, Alan and I were friends and we were on the phone. When China ascended to the WTO in 2002, in first three or four years, we lost at least a million and a half jobs. They were exported from the upper Mississippi River Delta to China. Our manufacturing base, our Rust Belt began to really rust.
We were trying to isolate mortgage securitizations where job losses were already prevalent. So we were digging in and we were trying to have shorts in our portfolio. We were long a bunch of things. We were trying to find shorts in our portfolio that were concentrated in the Rust Belt because, historically, wherever there were job losses, there were housing declines, there were problems with mortgages, there were problems with loan repayments. We were just trying to go through the motions of figuring out where the best place to isolate the Rust Belt was. And we were on the line with a mortgage credit analyst at Royal Bank of Scotland and it was the head of all mortgage analysis for RBS.
We were saying, "Well, if 8% of this mortgage pool is in the Rust Belt, what losses will trickle down to the pool as we bet along?" It came in that conversation where he said, "Well, you don't even really need home prices to go down. I mean, if home prices just go flat, you realize the bottom three tranches of this entire pool get wiped out.”
And that was the eureka moment or the Sputnik moment where you think that can't possibly be true. If home prices just stay flat for a few years, this thing's going to lose 9% and wipe out the bottom tranches?
When the analyst dropped off the line, I said, "Alan, did you actually hear what he just said?" It turns out that we had that call where we had an epiphany and that did it.
And then I just started printing out these mortgage securitizations. You asked, where does this happen? It’s where my phone doesn't ring and I just check out of the world: I sit in the bathtub. Greenspan sat in the bathtub, but you know what? Everyone leaves me alone in the bathtub.
My phone's definitely not going to be in there with me. It's a great place to just isolate and think.
MR: Why do you think we don’t do more of that? Do you have a lot of unstructured time in your day?
KB: No.
MR: Why do you think not?
KB: Right before this, I sat with my chief of staff in my firm and my schedule looks like blackout bingo. I say no to 99% of everything, and yet it still looks like blackout bingo.
So I tried to force unstructured time into my schedule. I tried to take Fridays and say nothing will be scheduled on a Friday and it just doesn't work. And, by the way, it is a deficiency of mine. I should be able to force it to work.
You Versus Yourself
MR: Do you still dive?
KB: Yes. I cliff dive and I free dive.
MR: That's so dangerous. Don't do that.
KB: I dive underwater. I dive above the water. I paid for college with a diving scholarship and an academic scholarship, and I love it.
Those are two very different vocations — one is holding your breath and going underwater, and the other is challenging yourself above water. They're both equally dangerous and it's you versus yourself. You have to be thoughtful, you have to be disciplined. You also have to have a sense of risk management, and you can't push yourself either way or things might go poorly.
MR: Someone like you, what's the upside?
KB: For me it is just pure adrenaline, euphoria, joy. I just love flying through the air.
MR: And can't you do that in a pool?
KB: No, no.
MR: There isn’t a pool that's the same height as some of these cliffs?
KB: Yes, but let's say a 10-meter platform is the highest platform there is. That’s properly high — meaning you can get a lot of things done up in the air before you hit the water. Some of the cliffs I find in Southern France or The Bahamas are actually lower than 33 feet. So you actually have to hurry things up to get them done. That's a challenge. If you find things higher than 33 feet, you actually have to slow down what you're doing to do it just right. It’s all a mental challenge. It's all incredibly exciting and fun, and my kids aren't even divers, and yet they have amazing tales with me because I've taught them how to dive off cliffs.
MR: Do your kids have any adrenaline-seeking behaviors?
KB: That's a great question. They really aren't seeking adrenaline like I do, but they do it with me because they love it and maybe it's because they love doing it with me. We free dive and spearfish as a family. So we hold our breath, we go into the ocean, we find fish to eat, and we spear them and eat them. That has been something that we've done all over the world together. It's a sense of not only adventure, but togetherness and safety. We all do it with all the proper safety protocols and we watch each other. We're diver buddies, and it is so much fun to see your kids excel in a sport like that. And we just have phenomenal memories of being in various places around the world and remembering specific fish and lobster and sharks and situations we had to deal with. And it's just been phenomenal.
MR: For someone who's never done spearfishing and has an inkling to do it, where would you recommend they try it for the first time?
KB: So you must learn how to breathe first even before you start trying to get in the water and spearfish.
There are a couple of people in Florida I would recommend. There’s Jonathan and Kelsey Dickinson — they own Florida Freedivers. Then there’s Errol Putigna and Cameron Kirkconnell.
They’re so kind and so thoughtful and they’re incredible instructors on safety protocols and breathing. Max, whatever your longest breath is today, in one hour's time, I could teach you how to double that breath hold. Double.
MR: How? What’s the main thing?
KB: You have four lobes of your lungs. When you take a big breath like this [demonstrates] most people will only fill the upper lobes? Your lower lobes are actually bigger.
MR: So how do you fill them?
KB: Breathe like you're breathing through a straw. Breath through pursed lips and consciously think about that air going into your lower lobes and you can actually direct it down there.
MR: I read about the Wim Hof breathing method and had some fun doing it for a while. I guess one idea is that carbon dioxide is actually good for you. But then I thought I didn’t want to mess around with my breathing — I thought it was a case of “if it ain’t broke don’t fix it.”
KB: No, no, no. I think you can certainly improve your breathing.
Once you learn how to breathe properly and you learn how to move away from fear — fear of either claustrophobia or being deep or holding your breath or sharks — once you get into this sense of Zen, it is a really phenomenal place to be. And counterintuitively, the deeper you get, the more calm you are because of the pressure. So, again, that's something that's a little scary If you don't know what you're doing.
MR: Did you watch that documentary about it?
KB: The Deepest Breath. I’ve read so many books about it.
MR: Do you do anything else for exercise? Do you run?
KB: I only run when chased.
For exercise, I have a pull-up bar both at home and at the ranch and I think you can get a lot done with body weight. Free diving is the second highest calorie-burning sport behind fast axe chopping.
When we go diving, we dive for eight to 10 hours a day. You burn well north of 5,000 calories a day. It doesn't matter what you eat, you're going to lose weight on diving trips.
I don't hunt. I do long-range shoot, which requires a lot of math.
MR: It’s also really psychologically intensive.
KB: I 100% agree. If you saw the movie American Sniper, it was about the life of Chris Kyle. I met Chris Kyle before he came out of SEAL Team 3. And when he came out, he lived with me.
I helped start his company with a few of my friends and he was someone that taught my kids how to shoot, taught me how to shoot. He is the best that's ever lived.
Kyle Bass’ Must-Follows
MR: I want to ask you a little bit about your information consumption. When you wake up in the morning, what are you reading? Your eyes open and then what happens?
KB: It’s funny. It's a problem. I say it's a problem because technology has enabled the curation of just the greatest data in the world. And you can curate some of the best, smartest people in the world, which it sounds like you already do, Max.
So I have a national security chat group with both current national security experts and many that are out of government. It is a very selective list and you must be invited to be in. But my gosh, when you start curating chat groups and then on X — X’s like TV for intellectuals — I view it as something that is vital to my information consumption.
MR: Is there anyone that's a must-follow for you?
KB: There are a bunch of must-follows for me. Tell me the subject matter and I'll tell you.
MR: Spearfishing.
KB: I think Cameron Kirkconnell is the best.
He took my kids and me on the best trip we ever took. It was to a remote island between Brazil and Africa in the middle of the Atlantic Ocean. We had to take a Royal Air Force cargo plane to get there because all that's there are two bases. It's like the Galapagos before anyone ever found the Galapagos. It's called Ascension Island. We went there for 12 days. Darwin stopped there on his trip on the Beagle.
MR: Who else is a must-follow?
KB: Here's an interesting one: I only read nonfiction and one of the best books I've ever read is called Nine Lives by a guy named Aimen Dean. Aimen Dean was al-Qaeda's number three terrorist. He has a genius level IQ, memorized the Quran when he was 14. He was an Islamic fundamentalist — not jihadist — and through that distinction he became MI6's top spy in al-Qaeda. He has saved tens of thousands of lives in New York City and London. When you read this book, you realize that this guy has an encyclopedic knowledge of Islam, of the different players in Islam and terrorism and how they think about the world. And Aimen is gifted. If you go to X and you look for Aimen Dean — he is the single best there is. He's one of those diamonds in the rough.
And then you need to follow the Counterterrorism Center at West Point. You need to follow Paul Cruickshank, who is one of his co-authors and used to run the Counterterrorism Center at West Point. X is this amazing resource that I think is massively underutilized.
Regrets
MR: If you could have made billions of dollars doing something other than finance, what would it have been?
KB: Ooh…I told you my biggest regret is never serving. If I could have served the country and built a financial platform like I have for my family, I would have done that in a nanosecond.
MR: What branch would you have joined?
KB: Boy, if I had to do it all over again, I would've loved to have tried to join the Army Rangers or the SEALs.
MR: You strike me as someone who would've been a fighter pilot.
KB: Wow. Now have you read that before or are you just saying that?
MR: No. I’m just saying it. Why?
KB: When I was seven, I got a book on the world's fighter jets. I was just fascinated by fighter jets. And so I used to go sit at the end of the Naval Air Station runway and watch F-14s take off and land. I lost 10% of my hearing as a kid because I didn’t have earmuffs on. And so I loved fighter jets so much.
In 1984, it was four years after we moved to Dallas, and my father helped bring the Republican convention to Dallas. And when it came here, Ronald Reagan was in his office and I met Reagan.
Reagan ended up appointing me to the Air Force Academy. I got in and I went there on a visit to go see their diving team and meet Colonel Micki Hogue who ran it at the time. I just remember walking through the campus and everyone's stopping to salute everyone. The freshmen have to salute everyone. And I think I saw two girls and the rest were men at the time. This is 1987. And I came home and then I went on a recruiting trip to a number of other schools and Texas Christian University, I went and had the greatest time of my life.
I changed my mind and I went to a regular college.
Your guess was spot on. That's why I asked if you had read anything about it.
MR: Are you a practicing Christian?
KB: I am not a practicing Christian. I make a joke. And I don't mean to make light of faith because I believe faith's important — but I tell people that I gave up church for lent.
MR: How did you grow up?
KB: I grew up a Methodist. We called it Christmas Christians. We would go to church. I went to a Christian school when I was in Florida, but I was the only non-Jewish person on my entire block.
On the faith side, I believe that almost all organized religion is basically a value system that is very positive for the world. So that's where I hold faith.
MR: Do you do anything like meditation? It sounds like the diving pretty much scratches that.
KB: Yes, it does scratch it a little bit. But what I think about is the simple term “virtue.” What our military says: duty, honor, courage.
MR: Do you believe in an afterlife?
KB: I believe that there is something out there. I don't believe that the afterlife is something I'm striving for. In extremis, I believe religions are a bit of a social crutch or a mental crutch.
What do you think, Max?
MR: I believe in an afterlife. I became much more observant; I didn’t grow up religious.
KB: One of my best friends is Dan Loeb. And Dan grew up not really caring about being Jewish. And now he's invested a lot in the people, the religion, the concept. So maybe he's followed the path that you followed.
MR: And then my last question: Do you floss?
KB: Yes. Almost every day.