A hot August morning, 1999. We stand in Washington National Airport and wait to board a plane to New York City.
Roll call: David Gardner, suit and tie; Charity Taylor, our Rule Breaker intern, slacks and blouse; me, crumpled suit and tie; Dale Wettlaufer, Fool analyst at the time, not yet present. We look at the clock. "He has time." Soon, Dale appears in the terminal dressed in his best East Coast attire. "Ready to go?" he grins.
We board. Charity, a sophomore from the University of North Carolina, sits between David and me. Charity has never flown on a plane, never been to New York City, and has never met Donald Trump in his penthouse office to hear him defend his business to a few Fools. Today, she'll experience all three.
The plane is pushed back, positions itself, speeds its engines to full, and we accelerate down the runway along the Potomac River. "You know," David leans forward and looks at Charity to say, "more than 90% of all airplane disasters happen in the first 60 seconds of flight."
Charity, all of 20 and nervous on her first flight, smiles wanly and deadpans, "Great."
David responds, "No, no -- I meant that to comfort you!"
"But David," I interject, "you should have waited until we were at least 60 seconds into the flight."
The wheels leave the ground and below us scrolls the Pentagon, the gray Potomac, the Washington Monument... and then we leave the nation's capital. Our next stop: the country's long-ago capital, and the home base of our host.
During the flight, we ponder the fate that awaits us at the hands of Trump and his company's then-CEO, Nicholas Ribis. We're entering their lair as publicly short their stock. We shorted Trump Hotels and Casino Resorts (NYSE: DJT) in April 1997, citing the company's high long-term debt and stalled business. Since then, David had taken to calling Donald Trump "Tiny" in his columns, in accordance with Trump's tiny company market value, which today is just $63 million. Not to be outdone, Dale had essentially called Trump an "ass" in a Dueling Fools. I don't recall what exactly I'd written about Trump since 1997, but it wasn't nice.
So, Charity is the only one in the clear. The rest of us might -- just might -- return home with broken legs.
Anticipation
New York City. By chance, we hop a ride with a cabbie who claims to be the longest-working cab driver in the city, and he has a biographic news article taped to the seat to prove it. He has driven Frank Sinatra, and he tells us about it. He has driven Jacqueline Kennedy Onassis. We tell our driver we're going to meet Donald Trump right now. David asks him, "When you think of Donald Trump, what do you think of? What's your first thought?" The cabbie glances back at us. "Nice guy. Good guy." He shrugs. "I've driven him a few times."
New to big cities, let alone New York, Charity must be thinking that large cities can actually seem pretty small.
We slide out of the cab at Trump Tower and look up. Impressive. It glares in the sun. We look down. Our watches tell us we have 30 minutes before our high-noon appointment. We look around. A Warner Brothers toy store is nearby (now owned by our own AOL Time Warner (NYSE: AOL)). We go there. It's a maze of eight floors, and once you start your way up, the only way to get out, it appears, is to go all the way up, thereby forcing you to circle every floor and see all the products. Brilliant. When we reach the outdoors again, time is short, so we hustle to Trump's tower.
In the marble lobby, we're stopped at the elevator by a guard wearing a headset. We inform him that we have an appointment with, well, naturally, Trump. He mumbles in his microphone and finally allows us in the elevator. David presses the button for the top floor and we begin our ascent. Within minutes, we'll be eye-to-eye with the man David called Tiny.
Promises aren't currency
"I give you my word," Trump said, looking us straight in the eye. "We are totally focused on reducing the debt, paying off the debt, and increasing cash flow."
That's what David wrote on Sept. 9, 1999, when he originally told the tale of our meeting with Trump. Read that classic column for the blow-by-blow.
We left our meeting liking Trump, probably in part because he's an excellent salesperson and a master deal maker. He had a deal to make: Make us close our short position on Trump Hotels. That was his goal, and he won. We closed our short at $4 7/8 per share soon after we met Trump. The stock is $2 7/8 today. We should have stayed short.
We closed our short because Trump and his CEO at the time looked us in the eye and made convincing promises -- promises that haven't been met.
(As an amusing aside, and one that shows the type of company we're dealing with, when you return to David's column from 1999, you find this sentence: "Donald is about six-foot-one, and basically looked like the pictures we all see of him (note the fellow to the right in that picture is Nicholas Ribis...)." Well, if you click that link now, you'll find that Nicholas Ribis no longer exists in the picture -- except for his shoulder. His shoulder is still there. The rest of Nicholas was excised from the picture when he was fired last year.)
At the meeting, Trump and his "good friend" Ribis assured us that, in 2000, they would refinance much of the company's long-term debt -- one of our largest concerns -- at much lower interest rates than the current 14%. They also said they would lower the firm's $1.8 billion in debt by steadily buying it back and paying it off. Today, 17 months later, the debt still stands above $1.8 billion and the interest payment is still $54 million a quarter, just as it was. I can't find any refinancing in the company's SEC documents, and the interest expense tells us that there hasn't been. Maybe that's partly why Ribis was fired.
The lesson that I'm drawing from shorting Trump, whether he meant to keep his promises or not, is this: We should have waited to see improved performance -- one refinancing deal, for example -- rather than simply taking his word and covering the short. That's not to bad-mouth Trump's reliability, it's just smart investing logic. We had strong reasons for our short. We should have stood by those reasons until Trump's company started to disprove them through action.
We've been reminded that promises aren't currency. As investors, when you listen to conference calls, read press statements, or meet company executives, remember that promises spoken aren't always met. In fact, more often than not, promises prove unattainable. That's why only 10% of the companies listed on the stock market represent a full 90% of the market's value. Most companies fail to reach the promise that they had when going public.
Our meeting with Trump ended with Dale Wettlaufer explaining the attractive economics of the auto-racing business. Trump listened, nodded, and answered with interest. I left Trump Tower believing that Donald Trump just might jump into the auto-racing business. If he ever does, there was a Motley Fool behind the idea.
Jeff Fischer still owns an Intel 286 computer with 8 megs of RAM and he actually had to use it last week to find an old file on a floppy disk. To see the stocks that he owns, view his profile. The Motley Fool is investors writing for investors.
