hotels; he’d sold golf courses, tennis clubs, and ski resorts. But I saw him in action enough to know that he had much greater range. No matter what was thrown at him—a production studio, a winery in Napa, California, a shopping mall development—he always cut to the heart of the deal. He was the quickest study I knew.
He and I had been working together informally for years when Ronda reached her limit. Common sense had been telling me that I needed to diversify beyond real estate, which was the only sector I really knew. The economy was booming, new companies and industries were starting up, and the stock market was expanding like crazy. I wasn’t interested in buying and selling stocks per se or spending my time researching companies. But I knew that the overall market had appreciated in real terms more than sixfold since Jimmy Carter was elected. I wanted to tap into that growth. Paul arranged for me to buy an ownership interest in a privately held mutual fund company called Dimensional Fund Advisers, which had offices right in Santa Monica. I met the founder, David Booth, a student of my hero Milton Friedman, and Paul couldn’t say enough good things about the business.
“I’ve seen hundreds of companies, but never a group of people like this,” he told me. “They are extremely ethical, they are brilliantly intellectual, and they are good businesspeople.” Though still small and under the radar, DFA was poised to dominate a part of the index mutual fund business that the industry giant, Vanguard, didn’t serve. I jumped at the opportunity, and Dimensional quickly became one of my most valuable assets.
I’d been pushing Paul to go out on his own, and in 1997 he set up shop in my building as an independent wealth manager with exactly one initial client: me. We understood each other so well by then that I gave him just a few instructions. The first was my old motto: “Take one dollar and turn it into two.” I wanted big investments that were interesting, creative, and different. Conservative bets—the kind that would generate 4 percent a year, say— didn’t interest me. Offshore corporations and other gimmicks didn’t interest me; I was proud to pay taxes on the money I earned. The more we paid the better, in fact, because it showed I was making more money. I also wasn’t interested in the investments that often attracted Hollywood business managers, such as trendy hotels and clubs. I could tolerate big risks in exchange for big returns, and I would want to know as much as possible about what was going on. My openness to new ideas and my involvement, plus the amount of money coming in, attracted Paul. He knew there would be plenty to do.
The idea of buying a Boeing 747 snuck up on us slowly. We had an acquaintance in San Francisco, David Crane, whose investment firm had gotten into the aircraft leasing trade. Aircraft leasing is a whole industry that exists because airlines often don’t like to own their airplanes. Owning ties up a lot of capital and can be a big distraction when your real business is flying around passengers and freight. So the airlines often lease the planes from somebody else. In a lease arrangement, the airline operates and maintains the plane for, say, eight years, and then returns it to the owner, who is free to sell it or lease it out again.
David’s firm was working with Singapore Airlines, which I knew had the best reputation in the airline business. It planned to expand its route system aggressively, and to free up capital, it was selling planes and leasing them back through contracts backed by Singapore government guarantees. I did some reading about airlines and leases and let it all simmer in my mind. Then one day I woke up, and the vision was crystal clear: “I’ve got to own one of those 747s!”
As far as I could tell, the opportunity was solid. I also felt a little of the same impulse that came over me when I saw my first Humvee. The 747 was the ballsiest airliner, and the price was as big as the plane. A new one cost anywhere between $130 million and $150 million, depending on the model and on options like the cabin and seating, cargo capacity, instrumentation, and so on. Of course, you wouldn’t pay the entire amount because buying a jet for lease is a little like buying a commercial building for lease. You invest, say, $10 million, and take out bank loans to cover the rest.
We got in touch with David Crane. He was skeptical. Aircraft leasing deals are the realm of huge financial institutions like GE Capital. Individuals had never done it. “I doubt it, but I’ll check,” he said, promising to ask his clients in Singapore.
A week later, he came back to me. “It’s impossible. You can’t do it. They don’t want any individuals, only institutions.”
“Well, I can understand why,” I said. “They probably think this is some Hollywood schmuck who’s made some money overnight, and all of a sudden he thinks that he can buy a 747. But by the time they put together the deal, his movie falls through or something, and he backs out. They don’t want to deal with these Hollywood drug addicts and weirdos. I understand that. So can we get them to meet? Do they ever come to Los Angeles on business?
“Let me check it out.”
The next day, we learned that his clients had a West Coast trip planned in two weeks and were willing to come to my office. “Ah,” I thought. “As is so often the case, something that is impossible slowly becomes possible.” By the time the Singapore Airlines executives arrived, we’d done our homework, and it was easy to sell them on the idea. I spent the beginning of the meeting reviewing the deal, mainly just to show them that I understood how it worked. You could see them relax right away. After thirty minutes, we were taking pictures together and the deal in principle was done. I gave them
Now came the hard part—for Paul. Sometimes when you look at a deal and you don’t have all the knowledge or are not overly smart about what’s involved, you see less danger and you’re too willing to take the plunge. I saw just what was in front of me, and it all seemed good. Sure, it also looked and smelled risky. But the more risky things are, the more upside there is.
It was my job ultimately to say, “I like this thing.” It was Paul’s job to make sure it was really okay and that we understood the risks. The idea of owning this giant thing … You are signing documents and you think you have no liability because maintenance and safety are the responsibility of the airline—but was that totally true? Paul uncovered wrinkles that were bizarre. For example, if the plane crashed, you’d certainly have trouble sleeping at night, but at the same time, there was ample insurance to cover the loss. On the other hand, if
“That’s one way this whole thing could go south,” David Crane explained. “You’d be sitting there with a 747 nobody wants and you’d still have to make your payments to the bank.” It was true that the profitability of the investment depended heavily on this so-called residual value. And residual value could be affected by everything from the reputation of the airline, to the state of the world economy, to oil prices, to technological innovation ten years from now. But when I heard David’s worst-case scenario, I had to laugh. “Right!” I said. “That’s exactly what’s going to happen to me.” I just had faith that it wouldn’t.
Finally, we were comfortable with the deal. I was excited. “You should talk to other people in Hollywood,” I told Paul. “They might like the idea too, and you can do a little business.” He actually went and pitched it to five or six top executives and stars but came back empty-handed. “They looked at me like I had three heads,” he told me. “Mostly what I saw in their eyes was fear. Like the whole thing was just too big and too weird for them.”
The plane we ended up with cost $147 million. Before signing the papers, we went to the airport to see it. There’s a picture somewhere of me literally kicking the tires of my 747. We signed all kinds of confidentiality agreements, of course, but the banks couldn’t help themselves, and the news leaked the first day. I loved it because everybody thought I had bought the 747 to fly around in, like the sheik of Dubai. It didn’t dawn on anyone that we’d do such an outlandish deal as an investment. It paid off very handsomely in profits, in tax benefits, and in pride of ownership. I’d hear guys bragging about their new Gulfstream IV or IV-SP, and then I’d get to say, “That’s great, guys. Let me talk about my 747 …” It was a great conversation stopper.
Buying the plane was a happy adventure in an otherwise difficult time. During the filming of
The timing had been a surprise, but the problem itself wasn’t—for twenty years I’d known I had a hereditary defect that would someday need to be repaired. Way back in the 1970s, during one of my mother’s springtime visits, I’d brought her to the hospital because she was feeling dizzy and nauseous. They discovered that she had a heart murmur due to a faulty aortic valve, the main valve leading out of the heart. Eventually it would need to be replaced. Middle age is often when you detect those things, the doctor said, and she was then in her fifties. I was only thirty-one, but they checked me too and found out that I shared the defect.
