#380 Four Hundred Pages of Warren Buffett and Charlie Munger In Their Own Words

0:00 I asked Charlie Munger what he thought of Jeff Bezos, and he told me that Bezos was ferociously intelligent in this book. Buffett calls Bezos a miracle worker. And something that Bezos had in common with Munger and Buffett. It's from day one, in his very first shareholder letter. Jeff Vezos emphasized the importance of having the very best team.

0:18 He wrote, Setting the bar high in our approach to hiring has been and will continue to be the single most important element of Amazon's success. Bezos' focus on talent is just like this quote from Steve Jobs that happened. In an interview that Steve gave the very same year in nineteen ninety seven, and Steve said I think that I've consistently figured out who the really smart people are to hang around with. You must find extraordinary people. The key observation is that in most things in life

0:45 The dynamic range, you'll hear me repeat that over and over again in this episode. The dynamic range between the average quality and the best quality is at most two to one. But in the field that I was interested in, I noticed the dynamic range between what an average person could accomplish and what the best person could accomplish was fifty or a hundred to one. So given that, you're well advised to go after the cream of the cream and to build a team that pursues the A plus players. And that is exactly what Ramp did. Ramp has the most talented technical team in their industry. Becoming an engineer ramp. is nearly impossible in the last twelve months.

1:21 They've hired only Point. Two three percent. Of the people that applied. This means when you use Ramp, you now have top-tier technical talent and some of the best AI engineers working on your behalf 24/7. to automate and improve all of your business's financial operations.

1:37 And they do this on a single platform. Which means the longer that you use ramp, the more efficient your company becomes. That is very important because as Sam Walton said in his autobiography You can still make a lot of different mistakes and still recover. If you run an efficient operation or you can be brilliant.

1:52 and still go out of business if you're too inefficient. Ramp helps you run. an efficient organization. In the end of that interview, Steve Jobs added one thing. He said that a small team of A plus players can run circles around a giant team of B and C players from a customer's perspective. What is having a team of A plus players sound like? It sounds like this customer review that I read, which said that ramp is like having a teammate who you never need to check in on because they have it handled.

2:20 Ramp's website is incredible. Take the time today to visit it and set up a demo and check out this product. You won't regret it. Make history's greatest entrepreneurs proud by going to ramp.com and learn how they can help your business today. That is ramp.com. One more tool that I want to tell you about is Vesto. A lot of my friends are using Vesto. to see all of their company's bank accounts in one view. Vesto helps you connect and control all of your business bank accounts. from one dashboard. I know the founder

2:47 of Vesto Ben, spent a bunch of time with him, and I've offered to help him by introducing him to other of my friends. that could benefit from using Vesto. And I actually called one of my friends. And he told me, David, I will meet with anyone that you want me to, but I have to tell you up front that we say no to over ninety percent. A week later I hear back.

3:07 And he said that Ben and Vesto are great and that they signed up. So I asked him Can you please ask your team to explain the benefit they get from Vesto in their own words. So I'm gonna read you this text message exchange. They said. It provides us the ability to view all of our bank accounts and loan accounts on one platform with a single sign on.

3:26 It makes it much easier to grant access to users in one place. as opposed to twenty different banks. So I text back. What did they do before Vesto? This is his response. We have twenty plus different bank logins across like five accountants. We literally use

3:40 twenty one banks. So every bank has an account and a loan then multiples. just to log in and see everything would take hours. And be in all different taps. So if you have multiple accounts and multiple businesses, go to Vesto.com and schedule a demo with the founder Ben.

3:58 Tell him that David sent you. That is Vesto with a V, so Vesto.com The link will also be down in the show notes. I hope you enjoy this episode. It really is just me ripping through a bunch of Munger and Buffett's best ideas very rapidly, and I had a lot of fun doing so. So the book that I want to talk to you about today is Buffett and Munger Unscripted, three decades of investment in business insights.

4:20 From the Berkshire Hathaway annual shareholder meetings, it was selected and arranged by Alex Morris and Alex was kind enough. to send me a copy before the book was released. He had a really smart idea. Since I think nineteen ninety four, all of the Berkshire meetings or Berkshire meetings.

4:36 have been broadcast. They've been recorded and broadcast. So anybody can watch them. So he went through like thirty years. uh watched every single meeting took copious amounts of notes, and then what he created for you and I really, the way I think about this is uh it's a it's a reference tool. So

4:52 he separated it not by year, but by topic. So you can pick up this book. You know, scroll through The table of contents. And say, Oh, okay, I want to learn about subject X. You go right to that page.

5:04 And it'll show, you know. This year and this time stamp, this is what they said about that. So I read the book all the way through in chronological order. And did what I always do. Which is just apt take a a copious amount. of notes and uh underlines and then

5:18 uh add context like when as I'm reading these notes and highlights. uh how it relates to the other, you know, three hundred and seventy nine episodes that you and I have gone over and the hundreds of History Squeeze founders that you and I've studied. So I wanna start out with Charlie Munger. talking about the importance of creating your own luck by following your Curiosity and your intense interest. And so Charlie says.

5:39 Warren says he was lucky to find Geiko. But not every twenty one year old was gonna go down to Washington, DC, start knocking on the doors of empty buildings to try to find something out that he was curious about. So we also made our own luck by being curious and seeking wisdom, Buffett. adds to this if you enjoy what you're doing You are likely to get a better result.

5:58 Then if you go to work with your teach Teeth. Clenched every morning. My favorite they th they say variations of the same ideas. Obviously they repeat the importance of you know repetition is persuasive. But the my favorite way that that they ever said this is Munger said intense interest

6:13 In any subject is indispensable. If you're going to excel in it. In fact There's a great quote. from this guy named Naval Ravakant that really echoes a lot of Buffett and Mungers ideas what what they're saying about here. And a especially in in the age of infinite leverage.

6:29 uh how important I think that idea only becomes more important. It's definitely something I'm betting my life and career on. But Naval said, if you're not a hundred percent into it. somebody else who is a hundred percent into it will outperform you and they won't just outperform you by a little bit. They'll outperform you by a lot because now we're operating in the domain of ideas. compound interest really applies.

6:49 and leverage really applies. So I think it's really important. Again. If you enjoy what you're doing, you're gonna get a better result than if you go to work. With your teeth clenched every morning. Uh, there's another thing that's really important. And Munger talks about having the benefit, both him and Buffett had the benefit of role models that they could emulate inside of their family.

7:08 Munger says, I think we're helped because we came from families where there were some admirable people. And we tended to identify other admirable people outside of the family. So inside the family. And there's a maximum that Buffett will repeat. And he talks about the importance of picking the right

7:23 Heroes. So inside the family you think of Buffett's relationship, the fact that he you know, he had he was very close with his father. called his father his hero. Munger was very close with his father. But he also talks about

7:33 his grandfather, Judge Munger, and one of the things that I think had a a really big impact on on the way Charlie conducted his life. Was the fact that he observed And they were told stories of uh later on the family as well. That judge Munger's sound judgment and then also financial strength.

7:51 really helped the Munger, the entire Munger clan survive the Great Depression. He was able to provide jobs. He was able to bail out uh some family members And Munger talked about just how he like I you get the sense of when he talks about his admiration for his his grandfather that that's the role that he wanted to play. inside of his own family as well. Another interesting idea. And what I obviously want to do here is because this is essentially four hundred

8:15 Almost five hundred pages. of Munger and Buffett in their own words. There's almost no other commentary or anything else. So I'm just gonna rip through ideas.'Cause it's very different from you know, I've done what, ten episodes, something like that between Uh all the biographies of Buffett and Munger.

8:30 And so what I want to do here is just rip through idea after idea after idea, because one of the I think the the really skills, the most admirable skills that Buff and Munger both have. is they may they they're able to coin phrases that make their ideas one easy to understand and two memorable. And they do they also do this by telling short little stories. And

8:52 Even though I've read almost every book that I've I've found on Munger Buffett so far. They use different ways to describe the same ideas. So th that they were actually new to me in this book. Where Later on, Charlie, you know, they they talk about the fact that you should study as much business history as possible, that you should be reading, you know, every biography you can get your hands on.

9:10 Uh, Munger's read more biographies than I have. one of the reasons they they mention this is because Munger states this in a different way, or at least a way that's new to me, where he says, You need to you should pick an extreme example. And ask what the hell happened here.

9:23 So that's something that they repeat over and over again. There's an example of this. Warren says, I owe a great deal to Charlie in terms of learning a lot about businesses. I've also spent a lifetime looking at businesses, seeing why some work and why some don't, as Yogi Barra said. You can see a lot just by observing. That's pretty much what Charlie and I've been have been doing for a very long time. They talk about the fact that greed

9:46 doesn't run the world that envy does. And the one way to one, you have to cure yourself of MV, and two You should want to have you want you should want to deserve any success that comes your way. And again, this comes from something they learned. From a family member. So Charlie Munger is

10:03 Telling us that you really should Build yourself into a pos a a person that deserves what you get. And so Charlie says, I had a great grandfather. When he died, the preacher gave the talk. And he said. None envied this man's success.

10:16 so fairly won and wisely used. That is a very simple idea. We want to have people think of us. as having won fairly and used wisely. And then here's another idea that I absolutely love. That if you're actually paying attention.

10:31 Right. You can spot opportunities in parallel industries. And so they were talking about we I cannot believe how we absolutely missed Google and why would they Like why would they even say that? Because they were using Google's ads at Geico.

10:47 And it was the the most effective ads. that they could possibly find and then they realize hey, these ads cost Google almost nothing. So this is what Munger says. I feel like a horse's ass. For not identifying Google better.

10:59 And Warren Ads. We had some insights because we were using Google ads at Geiko. And we were seeing the results produced. We were paying ten dollars a click for something that had a marginal cost to Google of exactly zero. And we saw that the ads were working for us. We could see a geiko how well Google advertising worked. And we just sat there.

11:18 Sucking our thumbs. So when I when I thought of that Anything of Warren or Charlie or or Or Geico or Google. I remember so there's a guy named Jay Gold who I became up slightly obsessed with.

11:30 Uh, because I'm always fascinated by, you know, people that reach the top of the profession who they admire. And so Rockefeller was asked one time, like who's the greatest businessman you know. And he said without hesitation, Jay Gold Cornish Van Der Boe, when he was the richest man in America, he's in his seventies. He said

11:44 that Jay Goal, who was in his thirties at the time, was the smartest man in America. So I read a bunch of biographies Uh Jay Gold and Jay was Jay was making a ton of money in the railway industry at the time. And by paying attention to what was happening in the railroad or next to the railroads He actually spotted a massive opportunity.

12:01 And that was in the telegraph industry. So I wanna read from this transcript of this uh this episode in Jay Gold I did. So it says Jay was keenly interested in the telegraph business. Now telegraphs went hand in hand with railroading because telegraph companies strung their lines alongside the railroad tracks, the railroad tracks that he owned. And so he started looking into this monopoly, the telegraph monopoly of the day, which was Western Union. And and Jay could not believe How much money they made.

12:28 Western Union was a money machine. Jay coveted it. He said I'd rather be the president of Western Union than Then the president of the United States So I absolutely love that idea. You can spot an opportunity

12:41 in these uh industries that are running parallel to the one that you're already operating in. This is a great line. uh from Warren Buffett, but could definitely be something that Charlie Munger says over and over again. He says the world is overwhelmingly short term focused. So my friend Hon, who's the founder of Altos Ventures. He made me aware of this tweet. That he wrote, and I thought was really interesting. He was reading this book, and in the book, there's this quote by this guy named Andy Taylor. So Andy Taylor is actually one that took over Enterprise Renter Car.

13:07 And he grew it from seventy eight million In revenue. to twenty four billion. In revenue. And he was asked like what allowed you to do that.

13:16 And he replied with one word, focus. He continues, I'm not the smartest person in the room, but I have the ability to focus at a level that most people can't. And I can focus for very long periods of time. He worked on That business. For thirty eight years, he continues.

13:31 I never tired of that focus. I never tired of buying cars. I never tired of renting cars. I never tired of service. I don't get Board. Most CEOs don't have the attention span to dedicate four decades of their life to doing the same thing over and over and over again and doing it really Really.

13:50 Well. And so obviously going back to the Buffett quote. The world is overwhelmingly short term focused. Well, if you want an edge, you just do the opposite of what the world does. Now I I gonna repeat this over and over again'cause I just it's probably my favorite it is my favorite line in the book. You know, you pick an extreme example and ask what the hell happened here. So they're constantly

14:06 Because you know, Munger and Buffett both have this encyclopedic knowledge of business history in their heads. They're constantly referencing ideas they have and they explain the idea to you and I through stories and usually through the stories of an individual founder or individual company. And so here's an example of the importance of investing in and partnering if you can with talented fanatics.

14:26 This is Munger. I always cite the early history of National Cash Register. He was created by a fanatic who bought all the patents. Had the best sales force. And had the best production plans. He was a very intelligent man and passionated to the cash register business.

14:40 And it was a godsend. to retailing when cash registers were invented. Think about that. There's a time where You know? the the amount of theft, I think the the primary in in addition to like organizing your sales and keeping track of it. But I think it drastically

14:54 uh reduce the amount of theft that would happen to at the actual cash register for your employees stealing from you, in other words. If you read an annual report prepared by John Henry Patterson, who's he's describing, who was the CEO of National Cash Register, any idiot could see that this was a talented fanatic who was very favorably located and therefore The investment decision.

15:14 Was easy. We have the NCR annual report from nineteen oh four. Patterson. Not only tells you why his cash register is worth to people about twenty times what he's selling it for.

15:26 But he also tells you That you're an idiot. If you want to go into competition with him. Another idea that's explained beautifully with a story that none of this. None of this works if you cannot trust your own judgment.

15:38 So Buffett says you can't expect anybody else to do this for you. People are not gonna tell you about wonderful low investments. You have to find them yourself. When I first visited Geico in january nineteen fifty one. I w I left. And then the rest of the year I went down and

15:51 would visit leading insurance analysts. I thought I discovered this wonderful thing. So I went to see these great investment houses that specialize in insurance stocks. And I he wanted to know what what their opinion was. And they told me that I didn't know what I was talking about.

16:05 You can't look around for people to agree with you. You can't look around for people to even know what you're talking about. You have to think for yourself. An ability to detach yourself from the crowd. Is a quality that you need. another note that I left myself and really an idea that I absolutely love. There's just always

16:22 It's it's always shocking to me, and this I think I got obviously the benefit of reading biographies and studying history in general. There's just always opportunity hiding in plain sight. So think about the last like I think uh last few weeks, so Jerry Jones was the seventy sixth person. Right. Uh seventy five other people before buying the Dallas Cowboys said no.

16:40 Right, Jerry Jones was a seventy six and he said yes, he paid a hundred and forty million today, that's worth ten billion dollars, not including all the money he you know, and the opportunities. uh that came from that in the three decades that he's on the team. Uh the week before I did the the episode on Leon Hess. Uh same thing. Literally. Like Leon Hess

16:58 That family company just sold for like fifty three billion dollars and it starts with Leon Hess saying, Hey, that product that you as a refiner is throwing away, I'm going to make a business out of that. In the same way that Sam Zamur Built his

17:12 Banana Empire, right? Became the richest person in Louisiana, if I'm not mistaken. From saying, Hey, you're throwing away those bananas because you can't sell'em in two days, I'll just sell them in two days, and then obviously building a business from that, but it's Shocking. the amount of opportunity that's hiding in plain sight.

17:29 And Warren makes the point where a lot of the things that he's invested in, some of his biggest wins They were publicly available information. And so he's talking about one this is you know, he said this thirty years ago. But he goes, What is complicated about Coca-Cola? Where Three billion dollars pre tax better off than a few years ago because of Coca Cola.

17:48 There's nothing I know about the product. Its distribution system, its finances, or anything really. That hundreds of thousands or millions of people don't already know. They just didn't do anything about it.

18:01 And then another idea they think is very important. And I've seen it a few times. John Rockefeller is obviously the the first example of this. John Malone is another example of this, but there's been tons of examples that From the biographies that you and I talk about. This idea that you can if you can go and actually know more about an industry. than anybody else. And warrant's y talking about some of the due diligence and really like he went out. He wasn't just sitting in his office in Omaha, especially in his early career.

18:25 He went out and tried to dug dig for information. And I like this idea of saying hey, I'm gonna it I think there's an opportunity in this case the industry's coal. I think there's an opportunity in uh in this industry. So I'm going to learn about every single major company.

18:39 in this industry. Uh the reason I brought up Rockefeller About this is because in the early refining industry He had this thing called secret allies. And what he went, he literally the same thing, he wasn't sitting in his office in Cleveland and then later on when they moved to New York.

18:53 He went and met Every single other oil refiner. they wind up uh creating I think it's called like the refining association of America, something like that, to band together. And then he would see the books.

19:05 of every single one of his competitors. And two, they g they gave him a bunch of um advantages. Obviously one. He could figure out okay, this this guy's a serious player. He's actually running a good business. This guy sucks. He's gonna go out of business. And he obvious obviously knew which ones he wanted to buy.

19:20 uh from this. So I I think it's a really interesting idea. This is Buffett's version of that. When I was twenty three years old, I got interested in the coal business. I would go out and see the CEOs of eight or ten coal companies. I'd ask them a lot of questions. But there were two questions I'd always ask at the end.

19:35 If they had to put all of their money into any other coal company except their own. And go away for ten years. Which one would it be and why? Then the second question if they had to sell short.

19:47 In the equivalent amount. One coal company. Which would it be and why? It sounds a lot like the Rockefeller example. It's like, Oh, I see your books, I see how well you're how well this companies run, you are my most formidable competitor. Or could in in many cases, you know, turns into one of his uh like he'd buy and they'd turn into partners'cause he'd get he'd give them the uh standard oil stock. Uh so says I would know more about the coal companies from an economic standpoint than any one of those managers probably would. I'm gonna mention Rockefeller again because there's a lot of similarities between the way Buffett and Munger think.

20:20 And the way Rockefeller did, when I uh went to Charlie Mugger's house and got got to have dinner with him, he actually said that he thought fellow was the greatest entrepreneur of all time. So Buffett says we do he talks about the importance of having a fortress of cash. We do like having a lot of money to be able to operate very fast and very big. We know we won't get those opportunities frequently. Certainly in the next twenty or thirty years, there'll be two or three times When it'll be raining gold and all you have to do is go outside. So

20:46 Later in the book. Uh, at the very end Munger gives Munger and Buffett give a bunch of book recommendations and Munger heavily recommends reading Titan. the biography of Rockefeller written by Ron Trenow. And listen to this, it's very similar.

21:00 to what Warren was just saying, you know, two or three times it'll be raining gold and all you have to do is go outside. says it is this is now I'm reading from Titan. It is impossible to copreh to comprehend Rockefeller's breathtaking assent without realizing that he was always that he always moved into battle. Backed by abundant Cash.

21:18 Whether writing out downturns. Are coasting on booms he kept plentiful reserves. and won many bidding contests. Simply because his war chest Was deeper.

21:29 Keeping a fortress of cash is how he kept buying out. His competitors and other refiners. And then he's another observation that it's not the the speed at which you get the information, it's actually the quality. Like are you actually getting the the your top priority should be the quality of the information that you get. He's saying this in nineteen ninety four. Imagine like the I mean the the the the vast difference between Yeah, the world.

21:49 When when he's making this comment, th this problem is so much more pronounced now. And again, I my my own personal opinion on this is that uh attention spans just keep getting shorter and shorter and shorter. So if you do have the ability to focus on something for a very long time, I think that advantage just keeps getting more and more value in the future. But Warren says the speed of information really doesn't make any difference to us. It's the processing and finally coming to some judgment that has some utility.

22:11 And none of that involves anything to do with quick information. It involves getting good information. Another idea that I absolutely love is the importance of building a business that is natural to you. I have um I read both of Michael Dell's Autobiographies. They're excellent. I'm gonna make episodes on them soon.

22:28 And in the second autobiography, one of my favorite ideas that he had was, you know, this idea of Dell was completely natural to to how he wanted to spend his time. And he actually got energy. So where other people And his organization would burn out. Michael Dell was able to Keep going'cause like this I'm I designed a business that

22:45 is completely natural to how I want to spend my time. And so Warren Buffett is talking about, you know, there's there's a different bunch of different ways to run your business. Uh, he was talking about there's a bunch of different ways to invest. He was d he was comparing and contrasting the way he wants to invest. With Peter Lynch.

22:59 And I I'll skip over m m uh most of the parts, but I just want to get to the the punchline. He says, I've said on in on investing, there's more than one way to get to heaven. I would not do as well if I tried to do it the way Peter does it. And he probably would not do as well if he tried to do it exactly the way I do it. So that idea of building a business is completely natural to you and how you want to spend your time. And how you wanna actually organize, like what is your actual company building philosophy?

23:23 What do you want to do? uh I think is something you should, you know, I spend a lot of time thinking about and then of course refining over A long period of time. Munger, one of my favorite one of my favorite things about this book is there's just great, you know, stories that Munger tells that really are self explanatory and memorable.

23:41 And here's one Berkshire has a substantial shareholder whose father accumulated the original position. And when he died, he left a very large state. Practically all of it was in two securities. Berkshire and one other outstanding company. A bank was a co trustee.

23:56 And the bank officer said You've got to diversify this. It was a very large estate. And the young man said, Well You know, if my father believed the way you do.

24:06 He might have been a trust officer in a bank. Instead of leaving. This large state. And this goes with their recurring theme. The advice they have is like you really should should be trying to find a wonderful business or build a wonderful business. And if you do that you'll you'll have your entire family for generations will be wealthy.

24:23 And so they said, if you look at how the fortures were built in this country, they were built by someone who identified a wonderful business. Coca-Cola is a great example. There aren't fifty Coca-Cola's. A really wonderful business is very well protected against the vicitudes by of the economy over time and competition. We're talking about businesses That are resistant to effective competition. So

24:42 When they're like, Hey, if you look at how the fortunes in this country were built That Yeah. That popped out into my mind, right? And then the second thought second thing, we're like, Hey, we're talking about businesses that are really resistant.

24:53 So those two things in coming one after another in short order, I thought of Michael Bloomberg, right? How many people have said I I started a Bloomberg killer? And the guy fifty years later is just still printing cash. And what was fascinating is um Bloomberg's autobiography. I think it's episode two twenty eight of Founders somewhere in there.

25:11 Uh, it's one of my favorite books I've ever read. Because, you know, he's unapologetically extreme. What was fascinating is you know, he had this huge windfall. And He's on Wall Street and he's like, Okay, well, what am I gonna do? Like, what's my next act here? Um and he decides there's actually a line where he's talking uh the reader through his decision making process.

25:30 figuring out, you know, what's the next thing gonna do, which obviously is the next thing he's gonna do is Bloomberg. And he realized like actually most of like The great great wealth in the the country was not Through just pure investing. It's the entrepreneurs.

25:42 You know, I love that line from Nick's Sleep. One of my favorite lines ever. It's like the greatest investors aren't investors at all. They're entrepreneurs who never sold. You know, Bloomberg still owns all of his company. Uh so Bloomberg writes in his his autobiography, although few of the great fortunes have been made

25:57 In investing. Uh, so from John D Rockefeller to Sam Walton to Bill Gates, great financial success comes from starting businesses. With concrete products in the real world. Building jobs, creating value, and helping people. And so I think Bloomberg's a perfect example of what Buff and Mugger saying here. If you look at how fortunes were built in this country, they were built by someone who identified a wonderful business.

26:18 Something Charlie Munger repeats over and over again. And this is an idea. That I think of all the time. And I try to make all my decisions through this just because I learned from Charlie. In fact I was a on a phone Uh with a friend of mine. And he was trying to make decisions too. And I was like you just gotta think of like your alternatives. Like you should be running every single f uh decision.

26:35 through opportunity costs. Munger says all intelligent people Should think primarily in terms of opportunity costs. There's a great book. I think it's episode two eighty six of Founders. It's called All I Wanna Know Is Where I'm Going to Die, so I'll Never Go There. I think it's uh Buffett Munger.

26:50 uncommon common sense, something like that. I forgot the actual subtitle, but it's one it's one of my favorite episodes I've ever done. If you could only read one book on Buff and Munger, that's the book I would read. And I want to pull a line out of that book that Munger says, Decisions in life are all about opportunity costs. And wise people think in terms of personal opportunity costs, in other words. It's your alternatives that matter.

27:10 That is how we make all of our decisions. So this idea of using opportunity costs as a filter to make decisions, I think is one of the most powerful ideas. This next page. This is real to me, this is related to opportunity costs. Charlie Munger.

27:24 We ordinarily don't like small positions. Buffett. We like to go in heavy. If we want to invest in a business through the stock market, we want to put a lot of money in. We do not believe in a little of this and a little of that. Buffett continues. If we find an idea that we want to put five hundred million dollars in.

27:40 We probably would be even happier if we could put three or four billion in. Good ideas are too scarce to be Parsimonious with once you find them. And Munger perfectly summarizes this entire section in one sentence, as he is prone to do. The whole secret of investment

27:57 Is to find places where it's safe and wise to not diversify. A few pages later they continue this. Charlie and I, when we read about one business, we're always thinking of it against a screen of dozens of other businesses. It just happens automatically. But it's just like a scout in baseball thinking about one baseball player against an alternative. It you only have a given number on the squad.

28:18 One guy may be a little faster, one guy can maybe hit a little better, that sort of thing. But always in your mind, you are prioritizing and selecting in some manner. My own feeling about the best way to apply that. is to just read everything in sight again, so they have this historical business knowledge in their head. The way I would put it. I I love this, um is

28:38 Charlie Munger's description. He's ninety five when he says what I'm about to read to you. And this is Charlie Munger on Lee Lou. And Munger says Lilu is not normal. He is the Chinese Warren Buffett. He is very talented in 95 years. I have given Munger family money to an outsider to run once.

28:56 Once in ninety five years. And that is Li Lu. And he is hit it out of the park. It is pretty picky. But once I have Li Lu

29:06 If I'm comparing to him, remember using opportunity cost as a filter. Who else am I gonna pick? By the way, that is a good way to make decisions, and that is what we do. If we've got one thing. We can do more of the We are not interested in anything.

29:21 That is not better than that. That simplifies life a great deal. And so one way to refine your ability to to make decisions throughout chain costs. They're constantly talking about you know, the importance and the value of reading history.

29:34 If you've never watched a baseball game and you've never seen a statistic on it. You wouldn't know whether a three hundred hitter was a good hitter or not. You have to have some kind of mosaic there that you're thinking is implanted against You'll have a pretty good idea of what happened over time in America in American business if you do so.

29:51 He says, I like to have that material going all the way back. I'll go back and read Fortune. uh articles from the nineteen thirties on a specific company. I like a lot of historical background on things. just to get it in my head how the business has evolved over time. And I don't know if you can hear that, but I keep flipping pages and they keep saying the same stuff. When deciding whether to do something, compare it with the best opportunity you have.

30:16 Next page. Everything we do. comes back to opportunity costs. There's a bunch of great lines. I don't think most of these even need Explanation.

30:25 We love working with people who are just plain nuts. About their business. The best thing to do is learn from the other guy's mistakes. George Patton used to say, It's an honor to die for your country. Make sure the other guy gets the honor.

30:39 One thing they're constantly preaching to protect yourself against they saw so many people go broke. Because they abuse leverage So avoiding the self destruction is obviously very important. big thing you want is to protect yourself against the insanity and market prices and volatility. wiping you out and the way they

30:56 teach this in my opinion the best way to teach us is these stories. So Munger says, One of my children knew a man who had a two point five million dollar house. And five million dollars worth of securities. But he couldn't live as comfortably as he liked on the income from his securities. So he got in the habit of picking up easy money. He kept selling naked puts secured by his account.

31:16 And in due time. He didn't have the five million dollars of securities. And he didn't have the house. And he now Works in a restaurant.

31:24 Two things that th that that Buffett and Munger both repeat. Is These mistakes that that tend to be hidden hidden. Which is not buying when you know you have a great opportunity. And then selling too early.

31:35 So Munger says the mistakes that have been the most extreme in our history Are mistakes of omission. They do not show up in our figures. They show up in our opportunity costs. In other words We have an opportunity and we almost do it, but they don't. And so he gives us an example of this that cost him two hundred million dollars personally.

31:53 When I was younger, I was offered three hundred shares. Of Bell Ridge Oil. Any idiots. Could have told you there's no possibility of losing money and a large possibility of making money. So I bought it.

32:03 The guy calls me back three days later and offered me fifteen hundred more shares. But this time Because limited on money. I had to sell something to buy the damn Bell Rich. That mistake of not buy more shares has cost me two hundred million dollars.

32:19 Another idea told in a funny way. Uh it's this idea that you know, they prioritise having Essentially like a lean headquarters, low cost structure, really deliberately understaffed. And so Munger says somebody once subpoenaed our staffing papers On some acquisition.

32:33 Not only did we not have any staffing papers We didn't have any staff. And so That reminded me Steve Jobs. when he came back to Apple was going through some kind of lawsuit.

32:42 Probably like with Google. Might have been with Microsoft. But They subpoenaed. All of like the the

32:49 Employee records. And uh one of the employees is talking with one of Apple's lawyers and they're like, Where's your employee file file? And so he opens a file. It's like one piece of paper. And so the guy goes to Steve and he's just like Where's our annual reviews? Like where's all this stuff? He's like, I don't b like why would I

33:05 give you an annual review. It's ridiculous. I give you feedback all the time. And so this idea is like really question the decisions. Like, do you need this process? Do you need this person? Do we actually need to be doing this? Steve Steve thought annual reviews was the dumbest thing ever,'cause like I'm giving you feedback constantly. Why would I wait for twelve w you know, once a year? uh to give you feedback. It didn't make any sense, but I love this idea. It's like we didn't have any staffing papers and we didn't have any staff.

33:28 Just again, like I just love the the simplicity to all this. Buffett says when we bought the Scott and Felter company. In nineteen eighty six. It had been shot by First Boston to more than thirty partners. I read about in the paper. So I sent a letter

33:42 To Ralph Shay. I had never met or talked to the guy. But I figured I'd gamble twenty one cents. Or whatever a s a first class stamp cost. And I said. We'll pay sixty dollars a share. If you like this idea.

33:56 I'll meet you in Chicago on Sunday. And if you don't like the idea. Tear up this letter. Ralph met me. And we made the deal.

34:05 And we paid sixty dollars per share. So there's actually a guy named Jim Clayton. I read his Biography a long time ago. And uh Warren actually buys his company.

34:15 And in Jim Clayton's autobiography, he talks about what it was like to negotiate with Warren Buffett. And by this time Jim Clayton had let his son Kevin become the CO of Clayton Homes. So it says Buffett told Clayton, the CO of Clayton Holmes He wanted to buy the company and would pay

34:31 twelve dollars and fifty cents a share. Kevin said that his board would give consideration to an offer of seventeen dollars per share. Buffer response. twelve dollars and fifty cents.

34:42 Kevin replied the board was interested in considering fifteen dollars per share. Buffer responded with Twelve dollars and fifty cents. Kevin said. The board will accept

34:52 thirteen dollars and fifty cents per share. Buffett responded With twelve dollars and fifty cents. And then he hit'em. With this closer. He says even if all this is buffing now.

35:03 Even if all the capital and stock market shut down. You can still bank. on my twelve dollars and fifty cents. Price. And that is the price that Buffett bought the company for.

35:15 And then Buffett talks about the importance of being able to trust your own judgment and really shouldn't really be asking other people's opinion or being paying attention to people when they're buying or selling your stock or If you want to make an investment or buy a company or do something with your company and other people disagree, says every day somebody sells a few shares of Berkshire and somebody buys a few shares. And they're probably coming to differing opinions on the valuation. It really doesn't make any difference to us. We don't pay any attention to what people say. You really should not make decisions based on what other people think. So

35:43 There's a great comment about uh from Jeff Bezos. About He knew the fundamentals of Amazon, even when his stock was dropping like a rock. And so this is what he said. I watched the stock fall from a hundred and thirteen dollars to six. But I was also watching all of our internal business metrics.

35:59 Numbers of customers. Profit per unit. Every single thing about the business was getting better and fast, even as the stock was dropping. It's a fixed cost business. And so what I could see is that from the internal metrics

36:11 It is that at a certain volume level that we would cover our fixed costs and the company would be Profitable. And then a bunch of lines on the importance of keeping things as simple as possible and really just keeping the main thing the main thing. We have no human relations department, no legal department, no investor relations, no public relations. We don't have any of that.

36:29 We've got a bunch of all stars out there running businesses. We just asked them to mail the money to Omaha. Another thing, the important thing we do with managers generally is to find the four hundred hitters and then not tell them how to swing. And then this is my favorite one. It reminds me of uh Novak Djokovic. We have a number of people working for us that have no financial need to work at all, and they probably outwork ninety-five percent or more of the people in the world.

36:53 And they do it. Because they just love smacking the ball. Now I don't watch Tennis. But I do love excellence in every form. And there is a two thousand eighteen interview.

37:05 Інфінаншо Таймс. with Novak Jokovic. And I went back and w I read the interview. But'cause he says I can carry on playing at this level because I like hitting the tennis ball. It's as simple as I'm gonna keep doing this and keep playing this because I love it.

37:20 The simple act of hitting the tennis ball, which is the main thing. Right. I kept the main thing, the main thing. I actually love it. The interesting part is that the the person interviewing with the Financial Times follows up. Are there tennis players who don't? And Djokovic says.

37:34 Oh yes. There are people out there who don't have the right motivation. I can see it, but I don't judge. And so you go back and you can see. How many majors did he have you know, in two thousand eighteen, he was like, I don't know, let's say fifth or sixth or something like that.

37:48 In total majors. in all of tennis history. And then you fast forward, you know, a decade or l even less, what, half a decade. And he's number one. I can carry on. playing at this level because I like hitting the tennis ball.

38:01 This next quote is really a combination of two ideas. The importance of designing a business that's natural to you and Making yourself easy to interface with. So Buffett says before I ran this, I had a partnership. I had a great group of partners. And essentially I like to be left alone to do what I did. I like to be judge on the scorecard at the end of the year.

38:19 rather than on every stroke and not second guessed in a way that was inappropriate. I like to have people who understood the environment. in which I was operating in. And one of the most important things is Buffett told his partners what he liked to do, how he wanted to spend his time, how he wanted to run his business. They do this over and over again. And then you can decide, hey, do I want to do wanna want to be a shareholder, do I want to partner with these guys?

38:41 And like one thing that they bring up over and over again is in their wholly businesses, unless it's gonna completely drain a bunch of money. They're not gonna sell them. uh even if you know they could say, Oh, we're we used to make fifteen percent, now we make five, let's sell it, and then we take that money and we can make fifteen percent. They're like, this is just the quirk of us, how we run our how we want to run our businesses. But I think Telling people that, making yourself easy to interface with about what's important to you, what you actually like to do.

39:06 uh is very I think very, very important. Another great idea that they repeat. is that good news takes care of itself. So just tell me the bad news. I don't need to know the good news. That'll take And make sure you don't let problems Faster.

39:20 Uh, you ought to jump on everything. Charlie has pushed me all my life to make sure that I attack unpleasant problems that surface. And that's sometimes not easy to do when everything else is going fine. When I procrastinate Charlie has been the one that jabs me into action. He's performed a lot of services that you don't know about. They're constantly talking about the importance of working with the best people you possibly can.

39:44 Again, the way I think about this is never ever ever forget the dynamic range of humans. Uh, so in in many cases, like you want to overpay for talent because if they're truly talented, it's almost impossible to overpay for talent. My gr the f the greatest example of this is When Apple buys next, you can think of that as hey, they spent half a billion dollars to rehire Steve Jobs. And they got the deal of a century. They say large sums don't bother me. I do not mind paying a lot for performance.

40:09 In the end, if you get a great manager, you want to pay him very well. You want a big carrot out there. for them if they achieve the results that you've set out. And a few pages later picks up on you have to be very careful how you design Like you wanna reward great people in your business, but you d be careful how you design this incentive structure.

40:26 He says you don't want to award profits alone. So he's talk about the fact that Geiko spends like in this number's probably even higher tight. They spend like, you know, eight hundred million a year on advertising or something like that. And so it's like well Yeah, people working in Geico. If we say

40:41 You're your individual composition is just tied to, you know, short term profits. What's the be best way short term? to increase our profits. It's like we're just gonna pull back on advertising. And he says it'd be the dumbest thing you could do. You don't want to award on profits alone. You just quit advertising.

40:55 And then you'll start shrinking the business a little. And so there's two actually ideas. that popped in my mind about this section. That that are you know, I don't hear repeat it very much. And so David Ogie He talked about that.

41:06 Advertising is actually a production cost. This is what he says. I've come to regard advertising as part of the product. To be treated as a production cost, not a selling cost. It follows that it should not be cut back when times are hard anymore. Then you would stint on any other essential ingredient in your product, assuming that you need to advertise to sell your product, right? So if that's the case, then advertising is actually a production cost. Now

41:28 Izzy Sharp had the best application to this. Izzy Sharp was the founder of Four Seasons. And he talked about the fact that One of the benefits uh in his business is that His other competitors building hotel brands. They all did the same shit.

41:41 when there was a pullback in the economy, they would automatically pull back Their advertising budget. He would either maintain or if he could extend and spend more on advertising. So he went up picking up a bunch of market shares. In

41:54 Financial downturns. Because his His competitors. wind up cutting back their advertising costs when he realized it's the ex he needed to do the exact opposite. And I think a few pages later, Munger didn't have Izzy Sharp in mind, but really if you think of if you analyze what Izzy Sharp is doing by making decisions like that. Uh

42:10 That's that's how you know he was a great manager. So Munger says, I think almost all good businesses have occasions where their managers are willing to make today's results look a little worse. than they would otherwise To help Tomorrow. And again, the the importance of this is like you can really see in the behavior

42:26 uh the fact that most businesses are actually poorly run and even You would think they taught they talk about in in this example. Mm. Th the even the variants, like think about the Fortune five hundred COs. the variance of performance even in that subset.

42:40 Right? There's an enormous difference, frankly, in the talent of American business managers. The CEOs of the Fortune five hundred are not selected. Like the members of the Olympic track and field team. You do not have the uniformity of top quality that you get with the American Olympic team. You get some very, very terrific people

42:58 But you also get a lot of mediocrity. And I think that's why Munger's always saying, listen, find great people and stick with them. Really U Buffett has his own version of this, right? He's not talking about himself. But but but Munger uses Buffett as an example. where Buffett says really outstanding managers are invaluable.

43:15 And I love What uh what Munger says here. He goes, You should not be looking for other warrants on the theory that they're under every bush. Other warrants.

43:26 Um and then they give you some some advice. I I love this. They talk about uh you know when they're picking managers uh to run their businesses. We don't like banjo hitters who suddenly proclaim that they could become power hitters. So my friend Brent Bishore.

43:41 Uh runs a a company very similar to In some ways. To Berkshire, he's he spent time with both uh Buffett and Munger. Brent buys a bunch of private companies, keeps them forever. And sometimes he has to find new CEOs for these companies.

43:54 And so one time he was having dinner with Charlie Munger and he was just asking, like, how do I solve this problem? And it's one of my favorite stories'cause it's just like the simplicity of Mungers thinking. And you know, Brent was like, Well how do you hire great COs? And Munger's response to Brent was something like We find somebody that did a good job before and ask them to do the same job for us.

44:12 And uh the follow up question, Brett's follow up question was something like, Yeah, but what about, you know, hiring for potential or youth and Mongols like we we don't do that. Just like it couldn't be any more simple. You We found somebody who was a great CO.

44:26 It's like great. Become a gr come over here and be a great CO for us. Uh, but I just love that idea. It's like okay, or you could say, I'm a ban you know, try to take the chance on the banjo hitter, and maybe the banjo hitter can transform into the power hitter. Uh, but most times they don't. And so I just love Mongers again, beautiful simplicity on that.

44:44 And then again, I think this is the perfect illustration of how do you communicate ideas so they're memorable, right? And you could say, Hey, you know, you really should be organizing your life and your business in a way That you know, they can withstand that they will actually survive, or you can say, hey, you don't want to drive yourself into a vat of beer. at one point in your life. So what does that mean?

45:05 Saying that if you're a shareholder in Berkshire, your returns in ninety-nine years out of a hundred will probably be penalized by us being excessively. Conservative. And one year out of a hundred will survive when other people don't. When I set up my office in nineteen sixty two. I put seven items on the wall.

45:22 I went down to the library. Right, and I made photocopies of pages from financial history. One. was a story that happened in May nineteen oh one when the Northern Pacific corner occurred. Harriman was trying to get control of the Northern Pacific Railroad, and James J. Hill was the largest stockholder. was trying to retain control.

45:41 Uh and in that paper in nineteen oh one The whole rest of the market was totally collapsing'cause Northern Pacific went from one hundred and seventy dollars a share to to a thousand dollars a share in one day Trading for Cast. Cash because the shorts needed it.

45:57 And there was a little item. At the top of that paper. Which I still have hanging up in my office. Where a beer brewer in New York Committed suicide.

46:07 By driving into a vat of hot beer Because he received a margin call. He probably knew how impossible it was That in one day a stock could go from a hundred and seventy dollars

46:18 to a thousand. to cause a margin call. But He ended up in a vat of hot beer. And I've never wanted to end up.

46:26 In a vat. of hot beer. There is something interesting when I had dinner or uh with with Mugger. One of the most fascinating is he said it was so odd. He thought it was very unusual to be so wealthy and love that that goes against human nature.

46:40 The fact that him and Buffett, everybody obviously knows they were super rich. But they were also really beloved. And my own theory of this And I didn't think about this to ask him at the time, but it popped my mind like why would that be the case? And I actually think it's because There's the benefits of teaching. You know, it's not like they they hoarded the knowledge.

46:57 that they uh of their six or seven decade career. They wrote about the shareholders, they talked about the AGM, they you know, people wrote books on it. You could just pick it up and be like, Oh, you know, Munger Buffett found some really good ideas. I should probably take them. Uh and use them. And

47:12 There's also uh Other benefits as well. Where by doing this this is u multiple times, actually read a book called What I learned before I sold to Warren Buffett. I think that's the title of the book.

47:24 Uh it's the guy that uh third generation of Helsberg Diamonds. And you know, he had a very prosperous, privately held family business. And when the he realized it's probably the right time to sell the business. He had one person in mind. Buffett. Why do you have a'cause he went to the meetings. He read the shareholder letters. I'm pretty sure he was a shareholder.

47:41 It's like I I I benefited so much. From all the teaching and So they're actually talking mum it starts out with Munger and then and then Buffett chimes in. About the fact that They have all this opportunity

47:52 by the fact that they built this following and I think they built the following through the best way. It's just like hey I'm gonna sit there and learn all this stuff through my day to day job. I'm gonna turn around and like share it with you and you can hopefully benefit as well. So Munger says we get offered things by people who would not sell to anyone else. That is really peculiar.

48:09 And it has happened a lot. Buffett chimes in. It's happened and on important ones. When I heard From Iskar. Uh, that's the metal cutting tools company.

48:18 I had never heard of Iskar or its founder. Uh his name's Eaton Worthenheimer, I think is how you pronounce it. He basically told me That he wanted to sell to Berkshire. And or he didn't want to sell to anybody else.

48:29 We met and we made a deal. Another thing they repeat is the fact that they are individual opportunity driven. In fact there's great line in Napoleon. That is related to this. But they're talking about, you know, when they when they started, it was like we didn't know what we were building, right? We just had a lousy textile mill. It isn't like Charlie and I sat down and worked out some plan. We'll run this dumb textile business for twenty years and then we'll finally have to fold it.

48:51 And then we'll do this, that, and everything. We just kept putting One fit one foot in front of the other. Napoleon approached his life the same way. He says I had very few really definitive ideas. And the reason for this was that instead of

49:05 Obstinately seeking to control circumstances, I obeyed them. And they forced me to change my mind all the time. Most of the time I had no definitive plans, only projects. Buffett continues. Our partnerships Was the same way.

49:19 We sat down with people and in my case I handed them a little sheet of paper. It laid the ground rules. I wanted to be sure that we were on the same page. You don't have to read the partnership agreement. There's no way in the world I would take advantage of you.

49:33 You shouldn't be here if you think I would. But I do want you to be on the same page and be measuring me. By the same yardsticks. that I measure myself. So I already repeated this. I love that idea. Because it it combines.

49:47 Really a number of things, but really being easy to interface with, right? Making yourself easy to interface with by just telling people what's important to you. And then working with people where you'd be comfortable with just a handshake agreement. And then in case you were doubting the importance of never, ever, ever forgetting the dynamic range of humans. Well if it is asked. What's the best investment he ever made?

50:06 Listen to his response. The best investment was getting Charlie To be my partner. Another great idea, maximize the amount of time that your company spends on making magic. for your customers. and minimize or eliminate overheader processes that get in their way. We really free up our managers of our business.

50:23 To spend a hundred percent of the time Thinking about what is good for their business. ideally what he wants the managers of the Berkshire businesses to be doing. Spending all their time focus on what counts for the business and eliminates the distractions that often come in with come with running a business.

50:38 He says, I would guess that COs of most public companies waste a third of their time at least. on all kinds of things that really don't add a thing to the business. And in many cases, subtract from the business. We allow them to spend a hundred percent of their time. Focused on what counts, and that is a rare occurrence. in American businesses.

51:00 It'd be very fasting if you have a tool. That can actually T calculate like what percent Of your company's time. Is actually focused.

51:08 on making magic or improving things for your customers. as opposed to, you know, all this overhead, these processes, these things that actually don't matter to the customer. I've never heard of or seen anybody tracking that as a metric, but I should think that's a really good idea. Wanna go back to this idea where he says, you know, there's these low hanging fruit Maybe not low hanging fruit,'cause you have to know how to analyze it, but They

51:26 you know, there's a bunch of public information that if you have good judgment and you have like you can interpret differently. And you can profit from that. So He winds up investing four hundred million, I think, in Petro China. In the early two thousands. He's gonna sell this for a few years later for a three point five billion dollar profit, but I just wanna pull out some the way he was thinking about this.

51:45 It was right there in black and white in a report that anybody could get. We just sit in office and read those things and we were able to put four hundred million out. That now's worth one point two billion. So again, he gets like three point five billion when he when he winds up selling the stock. The Petro Chino annual report came out and I read it.

52:00 That's the only thing I ever did. I never contacted management, read a brokerage report, or asked for anybody's opinion. I came to the conclusion that it was worth a hundred billion dollars and it was selling for thirty five billion dollars. What is the sense of talking to management? Any further refining of analysis would be a waste of time. When what I should be doing is buying the stock. It is like somebody that walked in a door and they weighed somewhere between three hundred and three hundred and fifty pounds.

52:25 I might not know how much they weigh. But I would know that they were fat. That's all I'm looking for. Something that is financially fat. There's a line that Munger says. It's not in this book. He's actually got a funny way to say it.

52:38 In this book I'm read to you. But It's something I think of constantly. And he says in business we often find that the winning system goes almost ridiculously far. in maximizing and or minimizing one or few variables. He has a great line in this book. He says I think it's a great strategy for the great mass of humanity is to specialize

52:55 Nobody wants to go to a doctor. who's half proctologist and half dentist. And so they quote the former CEO. and chairman of IBM Thomas Watson.

53:06 Where he says, I'm no genius, I'm just smart in spots and I stay around. So they're talking about uh circle competence really the way I think about it is like they're they're talking about the the multiplication of effects of extreme, extreme focus. I talk about one of my favorite entrepreneurs in America. People are surprised when I say this because I just think it's hilarious. And he's only done like one interview, and I think the interview's like two or three old years old.

53:29 Guy named Todd Graves, okay. Todd Graves. is the founder Of This place called Raising Kings.

53:36 Todd Graves. Cells. Chicken fingers. That is all he does, he just happens to do it better than anybody else in the world. And he is

53:43 Done that for twenty five years with extreme levels of focus. And he's worth ten billion dollars. And he sells fucking chicken fingers. And one of the things I absolutely love When if I ever sold chicken fingers and I'm not going to

53:57 uh based on what he said in this one interview I heard with him. It's like that's exactly the way I would do it. I loved everything about his mentality, the way he thought about his business. It is Unbelievably similar. To countless of You know, history's good founders uh that I've read biographies of and that you and I have just uh have talked about on this podcast, it's crazy.

54:15 It just he applied it to chicken fingers. And so he said one thing in that interview I actually love. He goes I believe In doing one thing, And doing it better. Than anyone.

54:25 Else. I run into people all the time. And sometimes it's people I read about, sometimes it's people I actually meet. That They invest and build in only one industry. And they do that for a long time that if you track every great company or every great person in that industry somehow.

54:41 They're in that deal. And I think that's a sign of wisdom. There's a great line where um I think it's Buffett that says If you have doubts about something being in your circle of competence, it isn't. And I think it takes discipline. And you know, wisdom and self control over a long period of time. In that interview that Todd Graves did, they're taking like all these phone calls from people, like they're calling in.

54:59 uh are making videos and they're asking questions. This is like I love what you do. It this happens over and over again. It's it's remarkable part of human nature. I love what you do. I love it's like I I get this myself. It's like I love what you do X. Have you ever thought about doing why?

55:11 And I'm like If I do Y, that means I do I spend less time on X. And you just said you love that I do X. And so he kept going, he's like, I love what you do. Why don't you do, you know, add dessert to the menu or make it spicy or do all this other stuff. And Todd he was very likeable, comes off very likable in the the interview. She's like No, I like

55:28 The menu is the way it is today. That was exactly how it was. The day I opened. And he talks about the benefits of extreme focus, and it goes down to even how fast he's able to turn cars over in the drive thru. And that may mean make. May make a tiny difference.

55:42 When you got five locations. But he's got like six hundred or eight hundred. It makes a massive difference. And in a business that's working, that difference only expands over time. Again, I believe in doing one thing and doing it better. than anyone else. I actually had a friend of mine

55:57 uh who's really good at um new business creation heavily focused on technology and AI. And he met with a guy who was like the grandson of like a shipping magnet. And the guy's like, Oh, I wanna do what you wanna do. And he's just like, Why would you think that's possible?

56:11 Like do you see me trying to go buy oil tankers? Like What is going on here? If I jumped in your game, you would kick my ass. Why do you think this the reverse is not true? has a very fascinating quirk to human nature to me. It's like we I don't know if we can see it in ourselves. Maybe other people have to tell us where the case is.

56:27 I don't know, I just and maybe it's also like prone to my personality. It's why the these lines jump out in the books. It's just like I just like doing one thing and doing it over and over and over again. Uh just speaks to my soul. So Oh this is very interesting. You see their take on the internet. over time and and really technology. And this isn't what I'm about to reach you is not really about the internet.

56:44 I don't think that for our purposes, like how we should be thinking about this. So They say this in two thousand and they're talking and it was obvious to them. Like oh shit, we got some businesses here. That we own.

56:56 That are gonna get wrecked. By the internet. And so For us For for me and you, I I think like when we're when we're I'm gonna read this to you, but

57:06 Not th don't think about like you know, encyclopedias or the newspaper or internet. It's like really What we wanna know is like what is All technology is is a better way to do something. And usually it's better and cheaper. So What is it what is happening now? What are the businesses that are happening now?

57:21 What which ones will decline as a result of the new technology that is created Today. And I think the proper response to this is to be like Billy Durant, the founder of General Motors. And I'll I'll explain to you what I mean by that. So this is from the 2000 meeting. Buffett says.

57:38 Fifteen years ago, print encyclopedias We're the best tool for educating not only young children. Or for educating me or Charlie when we wanted to look something up on a subject. That was nineteen eighty five. Worked fabulously, right?

57:49 And they owned the world book encyclopedias. It was a marvelous product. But it requires this is again why you think of technology as All technology is is a better way to do something. So for me to learn back the you know in eighty five

58:02 I'm picking up the world book encyclopedia. What does it cost? Like How did that get to me? Uh the World Book Encyclopedia requires chopping down trees, operating paper mills, binding and printing, and delivery of a seventy f uh seventy pound UPS package. It was to put together in a way that for four or five hundred years was the best technique for taking that information and moving it. From those who assembled it to those who wanted to use it.

58:26 Then the internet came. We pay and then they talk about okay, so The internet's gonna destroy that, obviously. You know, in Wikipedia, it's free. You can use it any time you want. And that's just like the the tip of the spear there.

58:38 Then they talk about the fact that they were at one point uh in the book they talk about, you know, the just from owning a single newspaper, which is the Buffalo News. They were making like forty million a year in profit that they could not pro uh reinvest in the business. So it's just shooting off 40 million a year in cash flow that they were then taken by other businesses. We pay a significant percentage of our circulation revenue at the Buffalo News to our carriers. And we pay additional money to district managers. And then we pay for trucks to deliver the product out. And we pay for huge printing presses and all that sort of thing.

59:05 And people chop down trees in order to give us the raw material to transmit information in Buffalo. About what the Buffalo Bills did on Sunday. Now you have the internet. That has virtually no incremental unit cost. and could deliver the information instantaneously.

59:21 It is incredibly low cost. compared to most of the other methods of conveying entertainment and information now. They're saying this in the year two thousand. We were asked if we're afraid the internet would hurt some of our businesses. The answer is yes. So even if famously, you know, Buffett and Munger are not great technology investors, I guess, you know, the Apple investment not notwithstanding.

59:40 Yeah. Th even if they they didn't make a lot of money in all these internet stocks. They clearly saw What which one like They saw it very clearly, like the internet is going to destroy our newspaper business and our world book.

59:52 Encyclopedia business. But again. What is the the the point here is it's like okay What is like this today? And then if you've identified that maybe you're in you're in a business like that now.

1:00:01 What is the proper response? And the reason the the proper response, in my opinion, is to be like Dily Billy Durant. So what do I mean? If you go back and you actually think about the American automobile industry, I I would argue the two most important founders. In the history of this industry that that, you know, changed

1:00:17 Or geography, for God's sake. Uh was Henry Ford and Billy Durant. Billy Durant was the founder of General Motors. Now what was interesting To me.

1:00:24 Is what Billy Durant was doing before he founded General Motors. He created One of the most successful Horse carriage. Manufacturing companies.

1:00:35 And Yeah. As soon as he realised the car was coming and this is at a time this is before wait this is a decade and a half before Ford actually uh solve the problem of how to mass produce cars, right? So he saw this early.

1:00:46 Right. He's like, Wait a minute. The car, even I think there's like a couple hundred on the road in Detroit. And most of them all of them were handmade, most of them didn't get go very far. He immediately switched He's like the car, they're gonna improve the car.

1:00:58 They're gonna figure this out. I'm getting out of the horse carriage business. Because this new technology has come around and he immediately jumped into D

1:01:08 automobile business. That's why I said if you can if you are in a business or you're identifying one or maybe you're in one. Where technology is going to do what you're doing today better and cheaper. the move is to do what Billy R Durant would do, which is to jump into that oncoming phenomenon that was impossible it was impossible for any one person. To stop the phenomenon.

1:01:27 of the automobile. And I would guess there's a ton of industries and businesses. That are going to be severely diminished as a result of all the new technology that's coming out right now. One thing that Buffin and Munger taught me is that learning is not memorizing information, learning is changing your behavior.

1:01:43 And so there's multiple examples where they identify a supremely talented person. And they sell way too early. So two examples of this that pop to mind is Buffett knew Bob Noyce. Founder of Intel.

1:01:56 And Matt Wall Disney. And knew without a doubt how talented these people were. So they were sitting uh there there's a um college in Iowa called Grinnell. And both Bob and Warren Buffett were sitting on the board of this uh the the chairman of the board of trustees of Grinnell College.

1:02:11 And the investment decisions of that endowment were made by the board of trustees, s specifically Buffett and Grinnell actually buys ten percent of the private placement. That was the initial funding of Intel. Uh and he says we bought ten percent. of the original issue at Grinnell.

1:02:28 The G this is Buffett talking now. The genius who ran that investment committee, which was him. Managed to sell it a few years later. He says I won't give you his name, which is him. And there's no prize for anybody who calculates the value of those shares now. What is also fascinating. So again, learning is not memorizing information.

1:02:45 learning is actually changing your behavior. You knew how Talented noise was. How much you respected him. And you sold too early. He also did this and again they're they're they they talk about the importance of rubbing your nose in your own mistakes so you avoid doing that in p in the future because

1:03:00 the the amount of gains they gave up. You know, the oil Belvridge oil company, he said it was two hundred million. If you if you think about, you know, missing out on Google when even though the ads are working. the the increase in intel even though you knew Bob Noyce. And then maybe the most egregious of all.

1:03:14 Is Disney. Uh, you know, you're talking I don't know, maybe hundreds of billions of dollars, depending on how much money they had and they could have put into it at that time. But The reason I bring this up is'cause Buffett bought stock. After meeting what is he in nineteen sixty six?

1:03:28 He paid thirty one cents a share. And uh sold. Uh when the stock went to forty eight cents a share. Another person identified as a talented fanatic. as somebody's ferociously intelligent was they loved Jeff Bezos.

1:03:41 And you know, they talk about the fact that It's remarkable what he's done. They So how talented he was relatively early on, obviously maybe not at the IPO or before that.

1:03:51 And they never acted on it. They never bought a single share. Buffett loves Vazos, so I just want to read a couple of things that he was he said about'em. Uh, it's really remarkable one person who built an extraordinary economic machine in two really different industries almost simultaneously. From a standing start at zero. While facing competitors with lots of capital and everything else.

1:04:10 to do it in retailing and to do it in the cloud like Jeff Bezos has done at Amazon. It's really incredible. The truth is that I watched Amazon from the start. And I think what Jeff Bezos has done is something close to a miracle. I had a very, very, very I'm not stuttering. He said it three times, or he wrote it three times or said it three times.

1:04:29 I had a very Very, very high opinion of Jeff's ability when I first met him and I underestimated. And I love the way they think about or describe, you know, this this the constant, ever changing nature of technology. And I think one of the things that Walt Disney did Spectacularly.

1:04:44 is you just stay in the game long enough to get lucky. Someone else can actually invent a technology that will drastically increase uh the market for your products, the value of your company. They were talking about and Buffett knows this, he he was saying somewhere Way back somebody invented television. And then they invented cable. So a baseball player

1:05:01 Who could bat four oh six in nineteen forty one was worth twenty thousand dollars a year. Now a baseball player Even a marginal big leaguer. will make vastly greater sums because in effect these inventions of these two technologies. Uh the stadium size was increased from forty thousand

1:05:18 to the entire country or in many cases even the entire world. And so one thing I think about this, and this comes up a bunch in the books, to stay in the game long enough to get lucky. Someone else can invent a technology that drastically increases your market. Walt Disney. Blew up. A partnership.

1:05:33 Okay, I think this was the United Artists. And one of the founders of United Artists was Charlie Chaplin, which was One of Walt Disney's heroes. He blew up a partnership because he refused to sell them. The rights

1:05:45 The d the Disney's rights To television. And he did that at a time when there was only a few thousand TVs. In existence. So again, stay in the game long enough.

1:05:56 To get lucky, someone else will invent a technology that can drastically increase The value of your business, market, right? Munger and Buffett talk about, you know, the fact that Coke Banded Coca Cola. uh benefited

1:06:07 Incredibly. Because somebody else that did not work at Coca-Cola invented Refrigeration. There's a great line. Um There's a great line in Rockefeller's autobiography. You know, he writes that he's a much older man. He's probably in his eighties at the time, if I'm not mistaken.

1:06:22 And he's talking about the fact that Oh, this this guy that I absolutely love, this young this young fellow Uh Henry Ford came to visit today and I just love spending time with him. I was like, Yeah, I bet you do. 'Cause Rockefeller made more money in retirement. From his oil stocks.

1:06:37 Because Henry Ford invented the model T, invented the mass production of automobiles, which then what does that do? Drastically increase the demand for Rockefeller's product. Yeah, I bet you love spending time with him too. Uh, so I just I just love that idea. Again, like stay in the game long enough to get lucky. Wha w what would have been the difference in Rockefeller's wealth, you know? He what if he decided to retire? And sold his stock.

1:07:02 before the invention of the automobile. It's an interesting question to to think about. Another interesting question to think about is how many people do I actually need? They talk about it over time. in industries that are working, you actually see to become more efficient on a per person basis. So one example they give is the oil companies are a classic example. If you look at employment relative to barrels produced, refined, and marketed,

1:07:22 It's gone down dramatically over twenty years, Munger continues. If you put it in reverse. You say name a business. That has been ruined. Because it was over downsized.

1:07:34 I cannot think of a single one. But if you ask me to name businesses that were half ruined or ruined by bloat I could rattle off name after name after name. It has gotten fashionable. To assume downsizing is wrong.

1:07:47 Well, it may have been wrong to let the business get so fat that it eventually had to be downsized. Goes back to being almost deliberately understaffed. There's a great example. in um in Sam Walton's autobiography where they're interviewing other people around them. And he's constantly questioning. He gets annoyed at like any level any extra l level of layer. Any extra level of process.

1:08:08 And you know, he he says over and over again in in his autobiography, like if you you either serve customers or you support the people that do, or we don't need you. And you know, there was this one example where They were having a problem. Uh when when inventory comes into the Walmart stores of actually putting the right prices on there, so they had to add another layer of these guys that would go around and it would like

1:08:27 have these like handheld devices and they would scan every single thing to make sure that the price that the computer says it should be is actually the price that the customer sees. And their their mere presence. would annoy Sam. He kept asking why do we have this extra layer? Like why don't we just do it right the first time? And I think implied in there is his his his correct instincts that you have to be very careful being bloated.

1:08:46 of jumping immediately that the solution to the problem is more people. Then there is an interesting uh comment here where they're like we really don't want to clutter uh clutter up our minds. And so we try to focus on what is important and what is knowable. And so when um I I was lucky enough to have a two hour lunch with Sam Zell before he died. And we we talked about this because anybody that knows Sam Zell says the same thing.

1:09:08 So what they say about Sam is what Sam said about Jay Pritzker. So Jay Pritzker was his his mentor when Sam was a very young man. I think he was still in his twenties when he met Pritzker. And he said that Pritzker was the the greatest financial mind of anybody he ever met. And that you know, Sam would bring him a deal or they would talk about buying a business or whatever, and it's like, Okay, here's like a list of eight things or seven things that that we need to worry about and put it just like bullshit. It's like that's the one thing.

1:09:31 There's only one variable and if you solve for that variable The deal will work out. And so they're talking about You know If you went back

1:09:39 in nineteen nineteen, you could have bought a share of Coca-Cola for forty bucks and in between that bunch of times it it it dropped by fifty percent. There was World War Two, there were pandemics, there was a venture of atomic bomb. And really the only important thing was How many servings of Coca-Cola were gonna be served?

1:09:58 Every day. you know, many years into the future. So you think about it's like what is the most important factor That's what Jay that's what Sam Zell or Jay Pritzer taught Sam Zell. That's what Sam Zell taught other people. And that's what they're saying here. It's like You know,

1:10:10 War war be damned. uh economic financial crisis would be damned. Like if I'm buying the stock for the long term and I forgot how long they may have been holding this for three decades. Are they gonna be serving more of Coke on a daily basis, you know, in the future? And all that mattered was by nineteen ninety eight. They were selling one billion servings a day.

1:10:30 And Buffy makes the point here. The person that can make people a little happier A billion times a day around the globe. Ought to make a few bucks doing it. If you developed a view on any other subject.

1:10:42 in any other way that forestalled you on acting on that Which is most important. the specific narrow view about the future of the company You would've missed a great Right.

1:10:54 And then I love this part'cause they're talking about an ideal asset or an ideal business. They're talking about during inflation, but really I think it obviously applies. Dur during times of low inflation as well. The ideal asset is a royalty on somebody else's sales. Where all you do is get a royalty check every month and it's based on their sales volume. You came up with a product originally, licensed it to them, and you never have Another bit of capital investment. You have no receivables, no inventory, and no fixed assets. And there's actually I've come across some of these crazy deals.

1:11:21 Where people have become very wealthy. As a result of that. So I did this episode on Jimmy Buffett. And what's fascinating If you go and look at like there's lists of like the top ten wealthiest musicians of all time. They're all like kinda make sense. You know, they had huge hits, they're very well known. And you have like this the the the one outlier on that is Jimmy Buffett, you know, had like two hits.

1:11:40 They weren't even that big. Um, you know, they were like twenty years apart and yet this guy, you know had a multiple billion dollar net worth. Uh when he passed away. Not including all the money he was taking out of the business. I forgot I forgot what it was on the podcast, but he was making something like seventy million dollars a year.

1:11:55 And when you write about how he did that is because he had all these license agreements that were using like the the Buffett name and And Margaretaville and Jimmy Buff and Warren Buffett were actually friends. So also when we say pot. Part of my mind. But then you also look at some of the craziest deals in history, like Michael Jordan's uh

1:12:12 Royalty. He gets five percent of all the uh The sales of The Jordan brand. think he made like three hundred million last year doing that, maybe like a hundred and fifty million the year before and it's like keeps growing. Uh Coco Chanel.

1:12:23 became the richest woman in the world when she was alive. Based on the deal where she got either two percent Think two percent. Of all sales of Chanel. And in the contract said that

1:12:34 the her former partners had to pay every single one of her living expenses. Which is very fascinating. There's one that came up recently, uh, Steven Spielberg for for quite a while. has gotten two percent on all of Universal Studios ticket sales, and I think it's at every single

1:12:49 Universal Studios throughout the world. In fact, because it's a public company. They uh he's been making anywhere from uh I've read different reports from like thirty million to like seventy million a year for a while. And they had this disclosure. in um in their in universal disclosure but they're

1:13:05 They estimated to buy him out of the deal would cost like another like one point five or one point seven billion dollars. So this idea it's like, Well, you're just getting a check every month, it's based on the sales volume. uh, you know, you don't have to invest any other capital to the business. It's just just you have no receivables, no inventory, and no fixed assets. Very interesting. Now uh we talked about earlier that you can sometimes spot an image you spot an opportunity based on this like this parallel or related industry to the one you're working in. There's actually

1:13:33 An example of this. That's it's it's kind of similar to this where you have a deeper understanding that only happens through experience. There's two things that they mentioned C's candy. over and over again forever. It's probably the most commonly mentioned business. In this book.

1:13:46 Maybe Coca Cola is uh up there as well. But One of the most the only part I really want to pull out about Cs Is That it

1:13:54 Taught them. Yeah there's two benefits. One, all the money coming out of it. I think They've pulled at least two billion of cash out of it. I think the number's gotta be higher now. And I think they were still doing like a hundred million a year in cash flow that they can then obviously reinvest into other businesses. But I thought

1:14:09 Well that that's fascinating. Obviously they only paid twenty five million for the the company, right? But what was fascinating is They didn't understand the power of brand, like the magic that is a brand until they actually own A a business that was a brand and you have these benefits that seem undeserved. But are directly related to the fact that you have a brand.

1:14:28 that is beloved in the consumer's eyes, and when you have that, a lot of weird things happen. C's not only provided us with earnings used to buy other businesses, But beyond the earning, it also opened my eyes to the power of brands. You could say that we made a lot of money in Coca-Cola partly because we bought Cs. I understood to some degree.

1:14:48 But there's nothing like owning one and seeing the possibilities to educate yourself. about things you might do in the future. If we had not owned C's, I would not be surprised if we would have never owned Coca-Cola later on. And so that's related to the fact that Buffett really loves mind share. Like having mind share in a consumer's mind, like Candy does for a you know, much smaller group of people.

1:15:12 Coca-Cola does for the entire world. Talks about Walt Disney, the fact that, you know, no mom is gonna be like, I wanna go to the store and buy, you know, Paramount Pictures of a movie. It's like, no, it's Disney's the only brand. It's super, super valuable to have this mind share. And you see this with Gico and how much money

1:15:28 They spend on advertising how important it is. We'll spend And th these numbers are, you know, more than a decade old, so they probably even spend more. Now we'll spend about eight hundred million dollars a year on advertising. We were spending a little over twenty million a year when we bought control in nineteen ninety-five. So he's drastically increased. Buffett has drastically increased the amount of money he spent on a advertising. He's he's aiming for ubiquity is the way you can think about this. We want everyone in the United States to have in their mind the fact that there's a good chance they can save money by picking up the phone. are going to the website and checking it out.

1:15:55 When we get that message in people's minds. You never know when it's going to pay off later down the line. We love spending money on advertising at Geico. We want to be in everybody's mind. A brand is a promise. That's still the best description.

1:16:10 Are the best uh Yeah, the best the best definition of a brand. I've ever come across. A brand is a promise. But I just think there's just a great line to describe what you're really aiming for. You know, this mind share, this like the brand is a promise. There's something that's happening in the mind.

1:16:26 uh that just gives you these, you know, unec unexpected and like compounding benefits for a very long time. And Munger talks about Costco, you know My wife's family. They're Costco fanatics. I didn't even know what the hell Costco was before I married into this family. And I told you they've been Costco members, I don't know, twenty seven no, it's gotta be longer now. Twenty seven, twenty nine years in a row. They're never canceling that menu.

1:16:47 Or that that that membership. I don't even know if they shop anywhere else. It's it's freaking nuts. So again, I think this is just a great line. Costco has created ferocious Customer loyalty. And of course strange things happen.

1:17:00 When you do that long enough. And again, Coca Cola. has ferocious customer royalty. Disney you know, Costco, all these interesting brands have ferocious

1:17:11 Customer. Loyalty. Now I want to get to this part. that I've been quoting over and over again. It's my favorite line in the book, right? Pick one example. Pick one extreme example.

1:17:20 And uh ask. What in the hell is going on here? So they're talking about the fact that You know, well before they bought into Geiko. Uh, they knew all about the history of the US auto insurance, and there's all these other outliers that they found interesting. So they said State Farm was started in 1922.

1:17:35 by a fellow in Bloomington, Illinois. Who had no money. No capital into the business. And over time, in a huge industry, he becomes the dominant player. And at this point, this is like twenty years ago. He was like more than twice the size of the number two player, which is very interesting.

1:17:50 And incidentally, State Farm on the Fortune 500 list has the third largest net worth of any company in the United States. Number three. From Bloomington, Illinois, with a guy who had no money. How does that happen. you find you find some interesting aspects in studying how a company could become the third largest in net worth in a country with no apparent advantage going in. So this is when Munger falls on again. I love this idea.

1:18:13 Picking some extreme example and asking my favorite question, what in the hell is going on here? Is the way to wisdom in this world. When something like a state farm happens, you should try to understand it. And if you think about that, that's exactly what you and I are doing together every week. You can't have a more extreme subset of the human population than somebody that was so good at their job. That somebody decided they had to write a book about that person's life. That is the smallest percentage.

1:18:39 That you can't. There is not more of uh I don't know of many There it probably isn't another way to pick a more extreme like subset. of the human population and ask what the hell? is going on here.

1:18:51 And then interestingly enough, this book ends with a bunch of book recommendations. From Charlie and Warren over the years. So I just want to read a few to you. Some of these I've done podcasts on and some of these I bought immediately. So it says I very much enjoyed Connie, this is Charlie Munger speaking, I very much enjoyed Connie Brooks' book, Master of the Game, which is a biography of Steve Ross. who headed Warner and was later CO of Time Warner.

1:19:10 She's a very insightful writer and it's a very interesting story. I'm rereading a book I really like, which is Carl Van Doren's biography. of Ben Franklin. I had almost forgotten how good a book it was. We've never had anybody quite like Franklin in this country and never will again. Buffett says there's one chapter in the general theory by John Maynard Keynes.

1:19:29 That relates to markets. the psychology of markets and the behavior of market participants. you'll get as much wisdom From reading that as anything written in investments. Buffett also says, I read The Quotable Einstein. It's a lot of his commentary over the years, and it's a great read. I just ordered it.

1:19:48 I think it's like again, four hundred pages of just Einstein and his own words. Uh I'll have that book soon. If it's good I'll make a podcast on it. Munger says, Uh Robert Hagstrom sent me his latest book on Warren Buffett, The Buffett Portfolio. I was flabbergasted to find it not only very well written, but

1:20:03 But a considerable contribution to the synthesis of human thought. on the investment process. Munger also says another book I like very much is Titan by Ron Trenell. I I did this on episode two forty eight, if you haven't listened to it. It's obviously the biography of John D. Rockefeller. That's one of the best business biographies I've ever read, Munger said. Uh, Warren Buffett says you should read Katherine Graham's autobiography Personal History. It's a terrific book.

1:20:26 That's episode one fifty two. Uh Buffett says. Probably the most representative book on my views is the one that Larry Cunningham has put together. The Essays of Warren Buffett. I love that book too. That's episode two twenty seven. Uh because he essentially has taken my words and rearranged them and put together

1:20:44 What he put together there. best represents my view. And then Munger says he just read in the Plex by Stephen Levy about Google and he found it very interesting. I find it interesting the way people have created these engineering cultures, which are quite peculiar and different from most of what we have at Berkshire. I haven't read this book. I actually just ordered it.

1:21:01 I certainly enjoyed learning it. And if I enjoy learning it, I regard it as important. Because I think That's what you're here for, to go to bed. Every night.

1:21:11 A little wiser. Than when you got. Uh. And hopefully you feel This podcast helps you do just that, makes you a little bit wiser.

1:21:20 than you were before you listened to it. That is where I'll leave it for the full story. Highly recommend buying the book. I think it's a no brainer. Uh, again, I wouldn't read it straight through. I definitely think of it more as a reference and I would Uh jump around based on the table of contents. But if you buy the book

1:21:34 using the link in the show notes, you'll be supporting the podcast at the same time. That is three hundred. And eighty books down. One thousand ago. And I'll talk to you again soon.

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