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People came into his office with a legal pad and wrote their thesis on a single page. Then they told him what percentage of their net worth they would put into the deal. From the page and the percentage, he said yes or no.
Few people work that way, because it makes things much harder. A compelling thesis is hard to fit on one page and far easier to bury in a 400 page slide deck. And nobody wants to admit they are putting in only a small slice of their net worth.
The method strips an investment to the case for it and how much of their own money the person will stand behind. Much of investing, meanwhile, rewards the look of cleverness: complexity for its own sake, and ideas dressed up to feel differentiated when they amount to being long Elon Musk or long Bitcoin.
Why does putting your own money in matter?
Fund managers who invest their own money alongside clients are said to have skin in the game, a phrase popularized by author Nassim Taleb. The idea is that someone who shares the downside pays attention differently from someone who only collects fees. Many funds disclose how much of the manager's money sits in the fund for this reason. The figure is usually a small share of a fund's total assets.
How did Rainwater build his reputation?
Richard Rainwater started out managing money for the Bass family of Fort Worth, Texas, in the 1970s. He steered the family's holdings into stakes in companies including Disney in the 1980s. He later founded his own investment firm, Rainwater Inc. He died in 2015.
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