#125 - John Arnold: The most prolific philanthropist you may not have heard of

Aug 24, 2020

John Arnold, renowned as the greatest natural gas trader, transitioned from Wall Street to philanthropy, focusing on criminal justice, healthcare, and education reform. He discusses his strategic approach to giving away nearly half a billion dollars annually and emphasizes addressing root causes of social issues. Arnold shares insights from his time at Enron, the significance of adaptability, and the importance of collaboration in philanthropy. He highlights initiatives aimed at systemic change in K-12 education and the criminal justice system, advocating for innovative and evidence-based solutions.

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ANECDOTE

Early Business Ventures

John Arnold's first business was mowing lawns, but he found limited success.
He then transitioned to baseball card trading at age 14, capitalizing on market inefficiencies and geographic arbitrage.

INSIGHT

Arbitrage Explained

Arbitrage involves exploiting price differences with minimal risk, essentially buying low and selling high.
True arbitrage is risk-free, but in reality, there's always some level of risk involved.

ANECDOTE

Path to Enron

Inspired by books like "Liar's Poker", John Arnold aimed for a Wall Street career after graduating from Vanderbilt.
Despite initial setbacks, he landed a job at Enron in 1995, which was transforming into an energy investment bank.

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Liar's poker

Michael Lewis

Liar's Poker is a non-fiction, semi-autobiographical book that details Michael Lewis's three-year tenure at Salomon Brothers, one of Wall Street's premier investment firms in the 1980s. The book provides a behind-the-scenes look at the culture of bond traders, highlighting the frat-boy camaraderie, killer instincts, and high-stakes games of bluffing and deception. Lewis describes the creation and use of mortgage bonds, the excessive bonuses, and the ruthless competition among traders. The narrative also touches on the author's disillusionment with the industry, leading to his resignation and transition into financial journalism.

Barbarians at the gate

The Fall of RJR Nabisco

Bryan Burrough

Barbarians at the Gate is a detailed and engaging narrative about the takeover of RJR Nabisco in 1988. Written by investigative journalists Bryan Burrough and John Helyar, the book provides an unprecedented look at the financial operations and social history of the time. It centers around F. Ross Johnson's plan to buy out RJR Nabisco, which led to a bidding war involving prominent figures like Henry Kravis and Ted Forstmann. The book includes a new afterword that updates the story twenty years after the deal, tracing the subsequent success and failure of those involved and the impact of the story on the world.

Smartest Guys in the Room

McLean, Bethany, Elkind, Peter

This book provides a meticulously researched and character-driven narrative of the Enron scandal. It follows Enron's journey from obscurity to the top of the business world and its subsequent disastrous demise. The authors, Bethany McLean and Peter Elkind, draw on unique sources to reveal the roles of key figures such as Ken Lay, Jeff Skilling, and Andy Fastow. The book is a story of human weakness, hubris, and greed, and it serves as a microcosm of the flaws in American business. The tenth-anniversary edition includes a new chapter revisiting the fall of Enron and its aftermath[1][2][4].

John Arnold is widely regarded as the greatest natural gas trader of all time, but in his late 30’s he walked away from it all and turned full-time philanthropist. He and his wife have committed to strategically give away most of their vast fortune in their lifetime and are already doing so at a staggering pace of nearly a half billion dollars a year. In this episode, John explains his quest to address the most challenging social programs plaguing the country, including criminal justice, health care policy, and K-12 education. John also shares self-identified attributes that contributed to his success in natural gas trading and how those same traits have translated to his philanthropic aspirations.

We discuss:

John’s background, upbringing, and early entrepreneurial tendencies [3:50];
John’s time and rise at Enron [16:45];
Characteristics that made John an exceptional natural gas trader and how they translate to his philanthropic work [27:30];
The collapse of Enron [35:00];
The success of John’s hedge fund, and his early interest in philanthropy [40:30];
The infamous 2006 trade that brought down Amaranth Advisors [55:45];
John’s analytical prowess and emphasis on fundamentals [1:02:15];
The decision to become a full-time philanthropist and the founding of Arnold Ventures [1:09:00];
Education—John’s quest to fundamentally change K-12 education [1:18:45];
Strategic philanthropy—preventing problems by attacking root causes and creating structural change [1:24:30];
The criminal justice system—structural changes needed to address mass incarceration, policing practices, and recidivism [1:31:45];
Re-imagining prisons to reduce recidivism [1:49:00];
US health care policy—John’s focus on drug prices, and the severe consequences of not making system changes [1:56:15];
Climate change—the bipartisan role of John’s foundation [2:13:45];
Advice for young adults interested in philanthropy [2:17:45]; and
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