The Old Bulls, Part 1: Kirk Kerkorian

Recent news about Kirk Kerkorian maintaining his offer to bolster Ford Motor Corporation (F) gave us an idea. Why not write a series on some of the old bulls of Wall Street and how investors can use their strategies for their own accounts. Warren Buffett, Carl Icahn, and George Soros come to mind. But the oldest of the bunch, is Kirk Kerkorian. It seems appropriate to begin the series with him. Kerkor “Kirk” Kerkorian was born in 1917 to Armenian immigrants. During the Great Depression, it was not uncommon for young men to drop out of school to help with family obligations. However, young Kirk left after 8th grade for other non-domestic aspirations. He wanted to be a boxer. Sparring at the same time as Jim Braddock, Kerkorian never achieved the same success as the Cinderella Man in the ring. Instead he landed in a cockpit seat during World War II. Conducting almost-suicidal missions for the British Royal Air Force, Kerkorian earned a reputation for bold aerobatic accomplishments. He also earned a handsome $1000/flight for each death-defying mission.

After the war, Kerkorian marshaled his flying expertise into a side business. Buying up salvage planes, he sold them to the highest bidder across the globe, often delivering the goods, himself. Earnings from the business propelled him into a small charter airline. Kirk then used his flight service to ferry people to-and-from a new casino oasis in Southern Nevada. The business grew to such an extent that he sold it for $104 million in 1968, while remaining majority shareholder status.

At the same time, Kerkorian began investing in Las Vegas real estate. Seeing opportunity in this formerly desert wasteland, he bought up acres on The Strip. He became the Father of the Mega-Resort, behind developments like Caesar’s Palace, The Flamingo, and the International Hotel. The latter’s Showroom Internationale was made famous by Elvis Presley where he broke all sorts of attendance records during 30 straight days of performances. In 1973 Kerkorian purchased the MGM movie studio, later opening up the MGM Grand Hotel and Casino. At the time, it was the largest hotel in the world.

Kerkorian’s later business exploits have been dominated by investor activism in the automobile industry. Ironically, Kerkorian, himself, drives around modestly-priced vehicles like Pontiac Firebird, Jeep Cherokee, etc. But that didn’t stop Kerkorian’s Tracinda Corporation from acquiring a near 10% stake in GM. His reforms ultimately failed, but he didn’t give up. Last year, he jockeyed his Auto interest into Daimler Chrysler, which was eventually bought by Cerberus Capital Management. His third foray into the industry will be with Ford — a sort of ‘3rd time’s the charm’ / ‘last hurrah’ effort in Detroit. Time will tell if the stake will work out for Tracinda.

Several observations come to mind when considering Kerkorian’s investment success. For one, Kerkorian built upon his successes. Instead of contenting himself with $1,000/flight wages, he saved the money and reinvested them into a salvage business, and later a airline. This one decision eventually netted Kerkorian a $100 million payday – worth over $640 million in today’s dollars. Delayed gratification is a common thread in the Old Bulls. This is an important trait for successful investors.

Second, Kerkorian invested in his passion. Buying into the post-war airline industry, he bought before an explosion of commercial air travel. He was rewarded not only for his business acumen, but also his passionate interest in an industry. Lesson for investors: if you don’t care about the things you’re investing in, then you could become cannon fodder for the pirates on Wall Street, either through careless neglect or woeful ignorance.

Finally, Kerkorian took advantage of opportunities at his disposal. Sure, he was interested in flying, but the high wage was a nice bonus. Likewise, many people saw a deserted landscape in Las Vegas in the early 1960’s. Kerkorian saw modern-day palaces rising out of the sand. His vision came to pass, to the detriment of prevailing morals. At 90 years old, Kerkorian has visions of a revitalized American automobile industry. Kerkorian may see his dream come to pass as he has seen others, though he seems like a lonely voice at present. Keep in mind, Crude oil traded as low as $11 barrel not so long ago — Ford closed at $6.78 today. Kerkorian sees opportunity, where others see demise. Time will tell who is right.

Have a great weekend.