Latest / Masters in Business / Learning from Buffett and Munger: Masters in Business with Alex Morris

Transcript

Learning from Buffett and Munger: Masters in Business with Alex Morris · Masters in Business

• 0:02
  Speaker 1: Bloomberg Audio Studios, Podcasts Radio News. This week on the
• 0:08
  Speaker 1: podcast another extra special guest. Alex Morris is the author
• 0:13
  Speaker 1: of Buffett and Munger Unscripted. Fascinating story of how he
• 0:17
  Speaker 1: put this book together by reading and watching thirty one
• 0:21
  Speaker 1: years of annual shareholder meetings, thousands and thousands of questions,
• 0:27
  Speaker 1: hundreds and hundreds of hours of video distilled into a
• 0:31
  Speaker 1: fairly digestible compendium. I thought the book was fascinating and
• 0:36
  Speaker 1: the conversation was fascinating, and I think you will too.
• 0:40
  Speaker 1: With no further ado, my interview of Alex Morris.
• 0:54
  Speaker 2: I'm Barry Ridults.
• 0:55
  Speaker 1: You're listening to Masters in Business on Bloomberg Radio. My
• 0:58
  Speaker 1: extra special guest this week is Alex Morris. He is
• 1:02
  Speaker 1: the founder of TSOH Investment Research Service, launched in twenty
• 1:07
  Speaker 1: twenty one after ten years as a byside equities analyst.
• 1:12
  Speaker 1: He is the author of Buffett and Munger Unscripted, three
• 1:17
  Speaker 1: decades of investment and business insights from the Berkshire Hathaway
• 1:22
  Speaker 1: Annual Shareholder Meetings. Amazon named it one of the best
• 1:26
  Speaker 1: books of twenty twenty five.
• 1:28
  Speaker 2: It's pretty beefy.
• 1:30
  Speaker 1: I've been reading it over the past I don't know
• 1:32
  Speaker 1: eight months. It's about five hundred pages, and I have
• 1:36
  Speaker 1: really really been enjoying it. In fact, I've been enjoying
• 1:39
  Speaker 1: it so much that I reached out to Alex and said,
• 1:42
  Speaker 1: let's talk about your research and the book. He has
• 1:48
  Speaker 1: been a Berkshire Hathaway shareholder since twenty eleven, attended multiple
• 1:54
  Speaker 1: annual meetings, including the twenty twenty six meeting, the first
• 1:58
  Speaker 1: of the Greg abele ear Uh, Alex Morris, Welcome to Bloomberg.
• 2:03
  Speaker 3: Thank you for having me.
• 2:04
  Speaker 4: As I was saying to you before, Bloomberg Headquarters is
• 2:07
  Speaker 4: quite asility to me.
• 2:08
  Speaker 3: I'm gonna drop my resume on.
• 2:09
  Speaker 1: The way out, So let before we get to your resume,
• 2:13
  Speaker 1: let's let's roll back to your what led you to
• 2:16
  Speaker 1: where you are today? Both a bachelor's and an MBA
• 2:20
  Speaker 1: from University of Florida. Was finance always the career plan.
• 2:24
  Speaker 4: It was not I When I went to school, I
• 2:27
  Speaker 4: really didn't have any idea what it was going to do.
• 2:28
  Speaker 4: And my dad's a plumber, so at first hit a
• 2:30
  Speaker 4: building construction and took a couple of physics classes and
• 2:33
  Speaker 4: some other things that kind of threw me for a loop.
• 2:35
  Speaker 4: And then I got my first internship working down in
• 2:37
  Speaker 4: Miami outside all day, and fairly quickly realized, let me
• 2:41
  Speaker 4: find something a little easier, So I went to fund.
• 2:43
  Speaker 1: What were you doing working outside all day in Miami
• 2:45
  Speaker 1: over the summers, Well.
• 2:46
  Speaker 4: We're doing We were working on a high rise of
• 2:48
  Speaker 4: being built, and I spent most of the time running
• 2:50
  Speaker 4: from the rain that came every single day at noon
• 2:52
  Speaker 4: or one o'clock.
• 2:53
  Speaker 1: I spent a summer in college working with a crew
• 2:57
  Speaker 1: building decks, swinging a sledge, breaking up concrete of an
• 3:01
  Speaker 1: old pool to put in a new pool. And nothing
• 3:03
  Speaker 1: makes you want to buckle down and study more than
• 3:06
  Speaker 1: physical labor. It's like, oh my god, this is really
• 3:09
  Speaker 1: hard work. Yes, I have tremendous respect for people who
• 3:13
  Speaker 1: do that. It really forces you to see the world
• 3:16
  Speaker 1: in a different way, doesn't it.
• 3:17
  Speaker 4: Yes, it's very different work than sitting and writing a book,
• 3:20
  Speaker 4: as you and I both know.
• 3:21
  Speaker 1: So after you get your bachelor's and MBA in finance,
• 3:25
  Speaker 1: you take the CFA exam. It's a two part exam.
• 3:28
  Speaker 1: You spend a decade as a byside equities analyst. What
• 3:32
  Speaker 1: did you learn from those ten years as on the
• 3:36
  Speaker 1: buy side?
• 3:37
  Speaker 3: Yeah? A lot.
• 3:37
  Speaker 4: I cut my head down and learned as much as
• 3:39
  Speaker 4: I could every single day. The first job I started at,
• 3:41
  Speaker 4: I was brought in and basically told, hey, you're running
• 3:45
  Speaker 4: all the research for equities, but also your secretary, and
• 3:49
  Speaker 4: you're doing the trading, You're doing everything else. So I
• 3:51
  Speaker 4: got a lot of good experience there, but it was
• 3:53
  Speaker 4: a role where my boss really was like, just go
• 3:55
  Speaker 4: do what you think makes sense to do, which works
• 3:57
  Speaker 4: really well with my kind of disposition. As time went on,
• 4:01
  Speaker 4: I learned a lot from making a lot of mistakes.
• 4:03
  Speaker 4: That's a really good way to learn. A ton of reading,
• 4:05
  Speaker 4: a ton of writing online and sharing stuff with people
• 4:07
  Speaker 4: getting good feedback.
• 4:08
  Speaker 3: So yeah, just time and effort.
• 4:10
  Speaker 1: That's one of the big problems with everybody. Here's what
• 4:14
  Speaker 1: billionaire's morning routine is like. You seem to learn more,
• 4:18
  Speaker 1: all of us, learn more from our errors and mistakes
• 4:21
  Speaker 1: than we do from our victories. Do these guys have
• 4:25
  Speaker 1: anything to say about that.
• 4:26
  Speaker 4: Oh yeah, no, they say, learn all you can, particularly
• 4:29
  Speaker 4: from other people's mistakes, if you can. But that seems
• 4:31
  Speaker 4: to be hard to avoid, at least for at least
• 4:33
  Speaker 4: for me and most of us.
• 4:34
  Speaker 1: So after ten years on the by side, you launch
• 4:37
  Speaker 1: an independent research service in twenty twenty one. What made
• 4:42
  Speaker 1: you take that leap? What was that initial couple of years?
• 4:45
  Speaker 4: Like, Yeah, I've been writing online going back to college,
• 4:48
  Speaker 4: and I continue to write online under a pseudonym Science
• 4:50
  Speaker 4: of Hitting or TSH. And again, I had built a
• 4:54
  Speaker 4: network over time. I really enjoyed the process of writing.
• 4:57
  Speaker 4: I had started making some supplemental income through writing. I
• 5:00
  Speaker 4: looked around and I saw people like Ben Thompson, Extra
• 5:02
  Speaker 4: Techery and other people who had built a business online
• 5:05
  Speaker 4: sharing their research.
• 5:06
  Speaker 3: I want to call it that.
• 5:08
  Speaker 4: So when I saw substack come around and it went
• 5:11
  Speaker 4: from having to understand anything on the technical side to
• 5:14
  Speaker 4: write in word copy paste, which is more my speed
• 5:17
  Speaker 4: for technology, I decided to give it a shot. I said,
• 5:21
  Speaker 4: I give myself a year and doesn't work out, I'll
• 5:23
  Speaker 4: go find another traditional job. But I want to see
• 5:25
  Speaker 4: if I can do this. And thankfully it's worked out.
• 5:27
  Speaker 1: And the Science of Hitting was a book by Ted
• 5:30
  Speaker 1: Williams that Buffett loves to cite for the whole strike
• 5:33
  Speaker 1: zone analogy. If you google image search this, there's a
• 5:39
  Speaker 1: strike zone and Ted Williams literally figured out every position
• 5:45
  Speaker 1: a ball can be thrown.
• 5:47
  Speaker 2: Just picture twelve by.
• 5:49
  Speaker 1: Twenty however many it is, and figured out the percentage
• 5:52
  Speaker 1: hitting average of where when a ball hit that spot
• 5:56
  Speaker 1: where he was likely to hit it. Buffett loves that analogy.
• 6:01
  Speaker 1: Why did you name your research service after it?
• 6:04
  Speaker 3: Say? Partly luck? I don't know.
• 6:06
  Speaker 4: At the time, I knew it was such a such
• 6:08
  Speaker 4: an analogy that I like so much, and that would
• 6:09
  Speaker 4: be a good name to keep for the next you know,
• 6:12
  Speaker 4: coming up on fifteen years now. But it really spoke
• 6:15
  Speaker 4: to the way I think about investing in terms of
• 6:17
  Speaker 4: being patient and then also making big swings when you
• 6:20
  Speaker 4: get the chance to.
• 6:20
  Speaker 1: Waiting for your pitch and when it finally comes, don't
• 6:23
  Speaker 1: be afraid. So I'm going to assume you're not averse
• 6:27
  Speaker 1: to a concentrated portfolio.
• 6:29
  Speaker 3: I am not.
• 6:30
  Speaker 1: How many holdings do you typically have in any given.
• 6:32
  Speaker 3: Time from the range of ten to fifteen?
• 6:33
  Speaker 1: Oh really, that's very concentrated. So big big swing after
• 6:38
  Speaker 1: waiting for your pitch.
• 6:39
  Speaker 4: Yeah, I mean, and there's names Like you said, I've
• 6:41
  Speaker 4: owned Berkshire since twenty eleven. I've owned Microsoft since twenty eleven.
• 6:44
  Speaker 4: There's most of the positions I've been in there for
• 6:46
  Speaker 4: a period of year or so. You know, it tends
• 6:48
  Speaker 4: to be things that I've come to know quite well
• 6:50
  Speaker 4: and have gotten familiar and comfortable with.
• 6:53
  Speaker 1: So this raises the obvious question, when did you first
• 6:56
  Speaker 1: become an enamored of Buffett and Monger? If you've a
• 7:00
  Speaker 1: shareholder since two thousand and eleven, when did they first
• 7:02
  Speaker 1: show up on your radar?
• 7:04
  Speaker 3: Yeah?
• 7:05
  Speaker 4: Late two thousands when I was in school and I
• 7:07
  Speaker 4: stumbled across the letters, and actually a buddy and I
• 7:10
  Speaker 4: both became obsessed with it. And we were at the
• 7:11
  Speaker 4: University of Florida and we actually drove to one of
• 7:14
  Speaker 4: the annual meetings, which is.
• 7:15
  Speaker 2: You know Omaha. In Omaha, it's like a ten hours.
• 7:17
  Speaker 3: No, it's like twenty or twenty five. It's a long way.
• 7:21
  Speaker 2: Wow.
• 7:21
  Speaker 4: And we were college kids with no money, so we
• 7:23
  Speaker 4: slept in the car I think one or two nights.
• 7:25
  Speaker 3: Wow. So yeah, we we were very interested in it.
• 7:29
  Speaker 1: Wait, your college kids, you have no money, did you?
• 7:32
  Speaker 2: But and you didn't know in Berkshire.
• 7:34
  Speaker 3: A or B B.
• 7:34
  Speaker 4: I think I bought one share of B share to
• 7:36
  Speaker 4: be clear, just for the sake of getting in right.
• 7:40
  Speaker 1: It's open to anybody who was a shareholder. What was
• 7:44
  Speaker 1: that first trip as college kids to the Woodstock of
• 7:48
  Speaker 1: Capitalism in Omaha.
• 7:49
  Speaker 4: I mean, it's tough to remember now. I don't know
• 7:51
  Speaker 4: how productive the trip was, but it was more just
• 7:53
  Speaker 4: in awe of seeing everything and you know, really starting
• 7:57
  Speaker 4: to learn about investing, and I didn't do much. Now
• 8:00
  Speaker 4: I go I go to a bunch of events and
• 8:01
  Speaker 4: other things and network with people. At that time, it
• 8:03
  Speaker 4: was walking around the convention center eating dilly bar or
• 8:06
  Speaker 4: something like that.
• 8:07
  Speaker 1: So you you have sort of the opposite version, the
• 8:11
  Speaker 1: inverse version of how the cell side or typical newsletters operate.
• 8:15
  Speaker 1: You disclose your buys or sells before you make the trade.
• 8:21
  Speaker 1: You tell your subscribers this is one I'm planning on doing.
• 8:25
  Speaker 1: Why run it that way? It's the inverse of the
• 8:28
  Speaker 1: typical way.
• 8:30
  Speaker 3: Yeah.
• 8:31
  Speaker 4: I think one part of one part of finance that
• 8:33
  Speaker 4: I that I didn't love was what I considered a
• 8:37
  Speaker 4: lot of talking about things that weren't really particularly meaningful,
• 8:40
  Speaker 4: and a lot of discussions about things like we like
• 8:43
  Speaker 4: Google stock, for example, but then not a discussion around
• 8:46
  Speaker 4: position sizing or when you like Google, what are you
• 8:48
  Speaker 4: going to sell to fund Google? Those kind of more
• 8:51
  Speaker 4: detailed discussions around portfolio management and decision making. So when
• 8:54
  Speaker 4: I launched TSOH, I thought, one way to differentiate this
• 8:57
  Speaker 4: is to just take every take everything away, and completely
• 9:00
  Speaker 4: transparent about all my decisions, my returns, et cetera. And
• 9:03
  Speaker 4: I thought there'd be a group of people, maybe not
• 9:06
  Speaker 4: the largest group, but a group of people who would
• 9:07
  Speaker 4: connect with that, and you know, it could build the
• 9:09
  Speaker 4: sustainable businesses.
• 9:10
  Speaker 2: Right.
• 9:10
  Speaker 1: I reallycall way back when watching some some talking heads
• 9:15
  Speaker 1: on TV and when they say we like Google or
• 9:18
  Speaker 1: whatever stock can happen to be, the immediate question was,
• 9:21
  Speaker 1: what does that mean?
• 9:22
  Speaker 3: Right?
• 9:22
  Speaker 1: Does that mean you own it? Does that mean you're
• 9:25
  Speaker 1: holding it? What?
• 9:26
  Speaker 3: Right? Like?
• 9:26
  Speaker 1: Liking a stock is very different than I have allocated
• 9:30
  Speaker 1: six percent of my portfolio to this position. Correct and
• 9:34
  Speaker 1: post analyst scandal, they used to put the disclosures on screen,
• 9:38
  Speaker 1: we seem to have moved away from that.
• 9:40
  Speaker 4: Yeah, I mean, it's it's it's it's tricky, it's it's
• 9:43
  Speaker 4: tough to get on there and kind of explain these things.
• 9:45
  Speaker 4: And it's a lot of it's not black or white,
• 9:47
  Speaker 4: it's in the gray. A lot of these decisions, and
• 9:49
  Speaker 4: there's a lot of mental accounting and decision making, and
• 9:52
  Speaker 4: I think it's just the reality of being an individual
• 9:54
  Speaker 4: and being an investor, and it is figuring out what
• 9:56
  Speaker 4: are you comfortable with and what game are you trying
• 9:58
  Speaker 4: to play? And you know, I think talking about that
• 10:01
  Speaker 4: it resonates with some people who are kind of honest
• 10:03
  Speaker 4: with themselves about what this game actually is.
• 10:05
  Speaker 1: So I like the one hundred percent transparency and the
• 10:08
  Speaker 1: disclosure prior to trading, But it raises one question. When
• 10:12
  Speaker 1: you are this public, does it make it more difficult
• 10:16
  Speaker 1: to change your minders say hey, we got this wrong
• 10:19
  Speaker 1: and we're now selling this.
• 10:20
  Speaker 3: Yeah, and that's probably fair.
• 10:22
  Speaker 4: It's it's never fun to be wrong, of course, it's
• 10:24
  Speaker 4: less it's less fun to be wrong when you're telling
• 10:27
  Speaker 4: people that you are wrong and you're dealing with the
• 10:29
  Speaker 4: pain of that.
• 10:30
  Speaker 3: You know.
• 10:31
  Speaker 4: The way I write my research, there's a lot of
• 10:33
  Speaker 4: I kind of view it as an ongoing discussion for
• 10:34
  Speaker 4: a given name, So there's a lot of opportunities to
• 10:37
  Speaker 4: link back to prior work and go, hey, this call
• 10:40
  Speaker 4: is looking good for x y Z reasons or looking
• 10:42
  Speaker 4: bad for XYZ reasons. Allows for a continuity of thought
• 10:45
  Speaker 4: and a level of honesty and transparency that I think
• 10:49
  Speaker 4: kind of makes it easier to deal with that issue.
• 10:52
  Speaker 1: The reason I asked this quote this question was due
• 10:55
  Speaker 1: to a quote right from the book, which is Charlie
• 10:58
  Speaker 1: Munger's show me the incentive and I will show you
• 11:02
  Speaker 1: the outcome. So, first of all, I think that could
• 11:05
  Speaker 1: be the most quoted line of his of all time.
• 11:09
  Speaker 1: But how do you contextualize that it is the whole
• 11:13
  Speaker 1: transparency an attempt to stay honest within the Manger framework.
• 11:19
  Speaker 4: Absolutely, and it's yeah, it's it's part of and it
• 11:23
  Speaker 4: goes back to writing when I was much younger and
• 11:25
  Speaker 4: didn't know nearly as much as I hopefully do today.
• 11:27
  Speaker 4: It's it's part of this just being continual learning process,
• 11:30
  Speaker 4: and it's it's with the subscriber, and it's also me.
• 11:32
  Speaker 3: On my own.
• 11:32
  Speaker 4: And I think we're collectively moving to a place where
• 11:35
  Speaker 4: we can become better investors, or at least more thoughtful investors.
• 11:38
  Speaker 2: So I like that.
• 11:40
  Speaker 1: Concept of becoming a better investor. I don't remember if
• 11:44
  Speaker 1: it was this is the the problem with the book
• 11:47
  Speaker 1: is is that a Buffet quote, was that a Monger quote?
• 11:49
  Speaker 1: They all kind of blur together. The compounding of knowledge
• 11:54
  Speaker 1: that you're referring to. I think that's a Manger observation
• 11:58
  Speaker 1: I forget as well, but one thing that he definitely
• 12:02
  Speaker 1: said was warm. Buffett got better after sixty five. We're
• 12:06
  Speaker 1: both both learning machines, and we spend most of the
• 12:10
  Speaker 1: day reading. Explain, these guys are running hundreds of billions
• 12:15
  Speaker 1: of dollars, or at least they were, they spend their
• 12:18
  Speaker 1: day reading.
• 12:19
  Speaker 4: Yeah, I think it's all about trying to expand your
• 12:22
  Speaker 4: circle of competence and learning as much as you can.
• 12:24
  Speaker 4: As we said, you learning from the mistakes and the
• 12:26
  Speaker 4: mistakes of others. And it's a game where you know,
• 12:29
  Speaker 4: I'm thinking, as I'm getting a little bit older and
• 12:31
  Speaker 4: go running some time, my knee hurts more and more investing,
• 12:34
  Speaker 4: I'm still quite young because in theory, I could be
• 12:36
  Speaker 4: doing this for another forty to fifty years so and
• 12:38
  Speaker 4: all I need to do is be able to sit
• 12:39
  Speaker 4: into a chair, which isn't that difficult. So Yeah, as
• 12:42
  Speaker 4: long as you put the time and the effort in
• 12:43
  Speaker 4: and remain open minded, which is a huge thing that
• 12:45
  Speaker 4: I think, especially traditional value investors, Buffett amonger fans, the
• 12:49
  Speaker 4: last fifteen years have been a good lesson in that
• 12:52
  Speaker 4: in terms of being flexible and willing to learn, and
• 12:55
  Speaker 4: the world's obviously change very significantly. Just turning your mind off,
• 13:00
  Speaker 4: I'm trying to learn about tech as an example, I
• 13:02
  Speaker 4: just don't you can't really do that anymore in today's world.
• 13:05
  Speaker 4: You have to be able to at least try to
• 13:07
  Speaker 4: learn about some of these things.
• 13:08
  Speaker 1: So I know at TSOH you cover a number of
• 13:10
  Speaker 1: individual names, things like Netflix, Microsoft, ten or fifteen names
• 13:15
  Speaker 1: is pretty tight.
• 13:16
  Speaker 2: Tell us about some of.
• 13:17
  Speaker 1: Your other names and you're sitting tight with all of these.
• 13:21
  Speaker 3: Yeah.
• 13:22
  Speaker 4: So I've owned as I said before, I've owned Microsoft
• 13:24
  Speaker 4: in Berkshire for a long time. I've owned Disney for
• 13:26
  Speaker 4: a while, which has not worked out, but thankfully it
• 13:29
  Speaker 4: taught me things about the business that then led to
• 13:31
  Speaker 4: a decent Netflix investment back in twenty two.
• 13:34
  Speaker 2: So what is that? I was curious why you think
• 13:37
  Speaker 2: it didn't work out?
• 13:38
  Speaker 1: Was it was it Netflix as a threat or was
• 13:42
  Speaker 1: it something.
• 13:42
  Speaker 4: Else They saw where the world was going too late
• 13:46
  Speaker 4: and their ability to truly pivot and make the investments
• 13:48
  Speaker 4: they needed to make were they were behind. I think
• 13:51
  Speaker 4: they've done better than a lot of their peers, at
• 13:53
  Speaker 4: least among the legacy media companies, but they were slow
• 13:56
  Speaker 4: to the party, and I think especially with ESPN, they've
• 13:59
  Speaker 4: struggled with what really is our strategy going forward? They
• 14:02
  Speaker 4: have their strategy and the entertainment programming side, but in
• 14:05
  Speaker 4: live programming in sports, it's still really a challenge from
• 14:08
  Speaker 4: how do we get may to be over time? And
• 14:10
  Speaker 4: obviously sports are expensive, so it's been it's been an
• 14:12
  Speaker 4: issue for them.
• 14:13
  Speaker 1: And yet go back a few decades, they were very aggressive.
• 14:17
  Speaker 1: They bought Star Wars, they bought PickStar. Yeah, those seem like, wow,
• 14:21
  Speaker 1: those four billion dollars, that seems crazy. Meanwhile it's been
• 14:25
  Speaker 1: a giant money maker for them.
• 14:26
  Speaker 3: Yeah.
• 14:27
  Speaker 1: Was it just a change of leadership at Disney? What
• 14:30
  Speaker 1: led to this failing to recognize the changing world?
• 14:36
  Speaker 3: Yeah?
• 14:36
  Speaker 4: I think the media companies got lulled into a place
• 14:39
  Speaker 4: where they thought Netflix or these other channels were incremental
• 14:43
  Speaker 4: as opposed to replacing what they were doing. And when
• 14:46
  Speaker 4: they then figured that out, you know, you got through
• 14:48
  Speaker 4: a pier where Netflix had been investing very aggressively and
• 14:51
  Speaker 4: was going global and getting scale in a way that
• 14:54
  Speaker 4: nobody else has basically able to catch up to. And
• 14:56
  Speaker 4: it changed a lot of their you know, their negotiating
• 14:59
  Speaker 4: position angst each other, and also their ability how they
• 15:02
  Speaker 4: had to price, their products, in the reach and engagement
• 15:04
  Speaker 4: of those products. It's just they're in a really tough place,
• 15:06
  Speaker 4: or have become in a really tough place relative to
• 15:08
  Speaker 4: Netflix's rise.
• 15:10
  Speaker 1: Give us one more holding that that is intriguing.
• 15:13
  Speaker 4: Yeah, one that I at one point would have probably
• 15:16
  Speaker 4: thought I'd never own. It speaks to what I said
• 15:18
  Speaker 4: before of reading about a company and writing a company
• 15:21
  Speaker 4: up and following it for a couple of years.
• 15:22
  Speaker 3: Is Peloton.
• 15:25
  Speaker 4: They brought on when they brought Barry McCarthy on, a
• 15:27
  Speaker 4: CEO who used to be at Spotify. That's where my
• 15:29
  Speaker 4: interest came from. The company went through a transition process
• 15:33
  Speaker 4: that still continues to this day. He has since left.
• 15:36
  Speaker 4: But the stock got to a point where, well, it
• 15:39
  Speaker 4: appeared to be very cheap, and.
• 15:40
  Speaker 3: I think pandemic post pandemic. Yeah, this has a.
• 15:43
  Speaker 1: Crazy run up when everyone was stuck at home and
• 15:45
  Speaker 1: couldn't get to the gym. Yeah, obviously, as did others
• 15:48
  Speaker 1: in that space. But they was a poster child.
• 15:50
  Speaker 4: Right Yeah, I mean I think it was one hundred
• 15:52
  Speaker 4: and fifty dollars stock at one point and recently a
• 15:54
  Speaker 4: traded below four dollars.
• 15:56
  Speaker 3: So it's quite a draw down. Twenty yeah, yeah, it's
• 16:00
  Speaker 3: pretty good.
• 16:01
  Speaker 4: I think there's this question of what are they dealing
• 16:03
  Speaker 4: with that cyclical versus structural, and I think people have
• 16:06
  Speaker 4: a certain view on it that is kind of informed
• 16:09
  Speaker 4: by their anecdotal experience. But you look at there's other
• 16:12
  Speaker 4: industries like mattresses, for example, where volumes are still meaningfully
• 16:15
  Speaker 4: below what they were during the pandemic. I think most
• 16:17
  Speaker 4: people would argue that's probably not structural. People still need mattresses,
• 16:20
  Speaker 4: but this supply demand got out of whack, and in
• 16:23
  Speaker 4: Peloton's case, they went from five hundred thousand paid customers
• 16:26
  Speaker 4: at three million in thirty six months.
• 16:28
  Speaker 3: Now they blayed a monthly subscription yeah on top of it. Yeah,
• 16:31
  Speaker 3: so it's a little.
• 16:32
  Speaker 2: Bit of a razor blade model.
• 16:33
  Speaker 3: Yeah.
• 16:34
  Speaker 4: Now they've bled off half a million, so they're at
• 16:35
  Speaker 4: two and a half. But you know, if you step
• 16:37
  Speaker 4: back in the fullness of time and went, hey, you
• 16:39
  Speaker 4: guys are going to go from five hundred and nineteen
• 16:41
  Speaker 4: to two point five and twenty six, everybody'd say that's great.
• 16:45
  Speaker 4: Their strategy got out of line, their cost structure got
• 16:47
  Speaker 4: out of line. I think to rectifying that now and again,
• 16:51
  Speaker 4: you got to stock in my mind was incredibly cheap.
• 16:54
  Speaker 4: So when from something that I again probably didn't think
• 16:57
  Speaker 4: I would have ever owned a couple of years ago
• 16:59
  Speaker 4: to it has been my largest position lately.
• 17:01
  Speaker 2: Oh ye, give us one more.
• 17:05
  Speaker 4: Another one that I bought recently or relatively recently is
• 17:07
  Speaker 4: dollar Tree. I think it's a really interesting retail concept
• 17:10
  Speaker 4: that is kind of on its own in the retail landscape.
• 17:13
  Speaker 4: I mean, everybody competes with everybody in retail, but their
• 17:16
  Speaker 4: their position and who they serve and what they sell
• 17:18
  Speaker 4: to them is unique.
• 17:20
  Speaker 1: No threat from the Internet at dollar.
• 17:22
  Speaker 3: Tree, No, No, there's not.
• 17:24
  Speaker 1: What about from Amazon or places like that?
• 17:27
  Speaker 3: No?
• 17:28
  Speaker 1: Or Target where you know, I can't remember the last
• 17:30
  Speaker 1: time I stepped into a Target, but I get Target
• 17:33
  Speaker 1: deliveries every couple of months on a regular It's so
• 17:37
  Speaker 1: delightful not to have to spend a couple of hours.
• 17:41
  Speaker 3: Yeah yeah.
• 17:42
  Speaker 4: Dollar Tree sells product at a price point obviously is
• 17:44
  Speaker 4: very low. The average ticket's really small. The immediacy of
• 17:47
  Speaker 4: the purchase is a tight window. The ability to cost
• 17:50
  Speaker 4: effectively do it with delivery is uh. It's challenging, to
• 17:53
  Speaker 4: say the least. They own family Dollar for a long time,
• 17:56
  Speaker 4: which is a dollar general competitor, they try to turn
• 18:00
  Speaker 4: it around and it didn't work. So I was watching
• 18:02
  Speaker 4: from the sidelines for a long time. As they got
• 18:04
  Speaker 4: that resolved, then they change a strategy to basically replicate
• 18:08
  Speaker 4: what a company called doll Rama's already done in Canada.
• 18:11
  Speaker 4: And if you look at that stock's been a great
• 18:12
  Speaker 4: performer and the business has done particularly well, then there's
• 18:15
  Speaker 4: a lot of sense the strategic evolution that they're making.
• 18:18
  Speaker 4: And the stock got pretty cheap. I think I bought
• 18:21
  Speaker 4: in second half of twenty four, So yeah, it's a
• 18:24
  Speaker 4: business that I think is retail again. Obviously is intensely competitive,
• 18:28
  Speaker 4: but there's little niches that people play in that I
• 18:30
  Speaker 4: think can be attractive, and Dollar Tree is one of
• 18:32
  Speaker 4: those one of those niches.
• 18:33
  Speaker 1: Really interesting. Coming up, we continue our conversation with Alex Mars,
• 18:38
  Speaker 1: author of Buffin and Mungler Unscripted, discussing how he plowed
• 18:43
  Speaker 1: through hundreds of hours and thirty one years worth of material.
• 18:48
  Speaker 2: To write this book. I'm very rid Halts. You're listening
• 18:51
  Speaker 2: to Masters in Business on Bloomberg Radio. I'm very ridd Halts.
• 18:56
  Speaker 1: You're listening to Masters in Business on Bloomberg Radios for
• 19:00
  Speaker 1: special guests this week is Alec Mars. He is the
• 19:03
  Speaker 1: author of Buffett and Munger Unscripted, Three decades of investment
• 19:07
  Speaker 1: and business insight from the Berkshire Hathaway Annual Shareholders Meetings.
• 19:13
  Speaker 1: So I found the book fascinating, but before we delve
• 19:17
  Speaker 1: into the content, I have to discuss your process. So
• 19:21
  Speaker 1: back in twenty eighteen, Berkshire releases the full archive of
• 19:27
  Speaker 1: every Berkshire Hathaway Annual meeting from nineteen ninety four forward,
• 19:34
  Speaker 1: at thirty one year's worth of stuff. And you watch
• 19:39
  Speaker 1: all of it, hundreds of hours, maybe even thousands of hours,
• 19:43
  Speaker 1: seventeen hundred questions.
• 19:46
  Speaker 2: What the hell happened? How do you start?
• 19:49
  Speaker 1: Where do you begin with an archive that immens.
• 19:55
  Speaker 3: Yeah, slowly and somewhat unwillingly at first.
• 19:58
  Speaker 1: Did you just go back to ninety four and start
• 20:00
  Speaker 1: plowing through? Was there a method to the madness?
• 20:04
  Speaker 3: Originally?
• 20:05
  Speaker 4: I well, first of all, when I was in when
• 20:07
  Speaker 4: I was in college and got interested in investing, one
• 20:09
  Speaker 4: of the books that really resonated with me was The
• 20:11
  Speaker 4: Essays of a Warm Buffett, which Cunningham, Which.
• 20:13
  Speaker 3: Cunningham I went to school with him.
• 20:16
  Speaker 4: Yeah, the Decades of Shareholder Letters, which you could just
• 20:18
  Speaker 4: sit and plow through if you want, or he compiled
• 20:21
  Speaker 4: it in a way where you could look at what
• 20:22
  Speaker 4: about capital returns of shareholders and look by topic.
• 20:25
  Speaker 1: He had a much easier task because the letters are
• 20:28
  Speaker 1: a couple of pages, yeah, in twenty pages each, and
• 20:32
  Speaker 1: they're already.
• 20:33
  Speaker 2: In print format.
• 20:34
  Speaker 1: You had to fight your way through hundreds and hundreds
• 20:37
  Speaker 1: of hours of video.
• 20:40
  Speaker 2: How did you organize that material?
• 20:42
  Speaker 3: Well?
• 20:42
  Speaker 4: And originally it was only on CNBC's website with the
• 20:44
  Speaker 4: web player, where you couldn't speed up the time, and
• 20:47
  Speaker 4: and one of those when you try to fast forward
• 20:49
  Speaker 4: twenty seconds and it goes fifteen minutes and you can't
• 20:51
  Speaker 4: get back to your original spot. So that made it
• 20:53
  Speaker 4: a little bit tough. When they eventually got on YouTube,
• 20:55
  Speaker 4: that helped a ton. I originally went through it for
• 20:58
  Speaker 4: the sake of learning and using it for writing material
• 21:01
  Speaker 4: for TSOH. And as time went on, well, first I
• 21:06
  Speaker 4: thought somebody else would do this so I wouldn't have
• 21:08
  Speaker 4: to do it, and then I didn't see anybody doing it.
• 21:10
  Speaker 4: At one point, Harriman House reached out to me about
• 21:13
  Speaker 4: writing a book, and I actually was working on something. Basically,
• 21:16
  Speaker 4: the concept was for people like my parents or my
• 21:19
  Speaker 4: grandparents who had asked me questions about working with the
• 21:21
  Speaker 4: financial advisor and managing their own finances. I was trying
• 21:24
  Speaker 4: to write a book about how do you navigate that
• 21:26
  Speaker 4: relationship with the financial advisor and talking about active and
• 21:29
  Speaker 4: passive and asset allocation. And then I started writing it,
• 21:32
  Speaker 4: and as I got into I thought, well, one I'm
• 21:34
  Speaker 4: not hugely interested in this, and two I don't have
• 21:37
  Speaker 4: the depth of knowledge on things like trusts or estates
• 21:40
  Speaker 4: or a lot of financial planning stuff. That's really important
• 21:42
  Speaker 4: part of that discussion is don't really have the depth
• 21:45
  Speaker 4: of knowledge there. I shouldn't be the person writing this.
• 21:48
  Speaker 4: So when Harriman House reached out, I first said, you know,
• 21:50
  Speaker 4: I have this book, but I think I'm going to
• 21:52
  Speaker 4: kind of drop it and I don't really have anything else.
• 21:54
  Speaker 4: And then a week or two later I wrote back
• 21:56
  Speaker 4: to them and said, I think actually I might have
• 21:58
  Speaker 4: something with the Berkshire meetings that I could explore a
• 22:02
  Speaker 4: little more, but I can't do it unless I reach
• 22:04
  Speaker 4: out to Berkshire and at least not approval but not
• 22:08
  Speaker 4: disapproval from them. Yes, So I put together a sample
• 22:13
  Speaker 4: chapter and and sent it to Warren's assistant, Debbie Or
• 22:17
  Speaker 4: at the time, and asked, can I please do this?
• 22:20
  Speaker 4: I promise that I'm a massive fan of Warren and Charlie,
• 22:24
  Speaker 4: and I'll do a good job and I'll give away
• 22:26
  Speaker 4: half the proceeds to Glide, which is a charity that
• 22:28
  Speaker 4: the Warrens supported through the lunch auctions. So I got
• 22:32
  Speaker 4: a response a couple of days later saying, as long
• 22:35
  Speaker 4: as you're saying he didn't approve this, you're okay to
• 22:36
  Speaker 4: go with it. So at that point I was like, Okay,
• 22:39
  Speaker 4: now I have to actually do this. And the process
• 22:43
  Speaker 4: at first was not particularly well thought out. I remember
• 22:46
  Speaker 4: I got through two or three or four meetings and
• 22:48
  Speaker 4: I realized I wasn't I wasn't getting into a I
• 22:51
  Speaker 4: wasn't getting to a place where I wasn't have to
• 22:53
  Speaker 4: repeat that process again. So I went back to the start.
• 22:56
  Speaker 4: Create an Excel file where I time stamped everything had
• 22:59
  Speaker 4: like primary topic and secondary topic and then very simple green, yellow, red,
• 23:04
  Speaker 4: is this going to be in or maybe be in?
• 23:07
  Speaker 4: As time went on, I had a lot of overlapping things.
• 23:09
  Speaker 4: I had to figure out which answer is better, which
• 23:11
  Speaker 4: one should I keep. But as I got through ten
• 23:13
  Speaker 4: or fifteen years became I knew what I was doing
• 23:16
  Speaker 4: at that point, So.
• 23:18
  Speaker 1: Did it reveal itself to you as you were working?
• 23:21
  Speaker 1: By the way, full disclosure, Harmanhouse is my publisher. But
• 23:24
  Speaker 1: one of the things I found fascinating about the writing
• 23:27
  Speaker 1: process is when you happen onto a good framework, it
• 23:32
  Speaker 1: sort of opens itself up to it reveals itself and like, oh,
• 23:37
  Speaker 1: I see how to what this should look like? Did
• 23:41
  Speaker 1: you have a I would imagine you might have had
• 23:43
  Speaker 1: a similar experience year after year. They the same themes,
• 23:47
  Speaker 1: the same ideas, although they must evolve over time somewhat.
• 23:51
  Speaker 4: Somewhat, And I got to a point where, well, one, yes,
• 23:54
  Speaker 4: the meetings definitely have their place, and time is kind
• 23:57
  Speaker 4: of real. I mean especially I think of like the
• 23:58
  Speaker 4: late nineties, or you get to the finance crisis, the
• 24:01
  Speaker 4: discussions that are had there. The part of it that
• 24:03
  Speaker 4: I found so useful that I thought would resonate with
• 24:06
  Speaker 4: people was, you know, the letters are are edited, and
• 24:10
  Speaker 4: Warren's very specific about what he says, and when someone
• 24:13
  Speaker 4: is very descripted when they're off the cuff, and Charlie
• 24:16
  Speaker 4: a lot of time pushes more in the directions that
• 24:17
  Speaker 4: he may not want to go. The answers would be
• 24:20
  Speaker 4: really revealing. And again, like a period like the late
• 24:22
  Speaker 4: nineties when people were really pressing you on why aren't
• 24:24
  Speaker 4: you investing in tech companies?
• 24:26
  Speaker 3: You know there's a level of.
• 24:28
  Speaker 4: As they're pushing them, they get a little bit more
• 24:30
  Speaker 4: honest and say things in a slightly different way than
• 24:32
  Speaker 4: if they had written them. So anyways, as I work
• 24:34
  Speaker 4: through it, and it's got to a point where I
• 24:37
  Speaker 4: can imagine myself the college kid reading this book and
• 24:40
  Speaker 4: getting a lot of value out of it. But I
• 24:42
  Speaker 4: also could see myself the person today was a lot
• 24:45
  Speaker 4: more experience reading it and still getting value. So I thought,
• 24:47
  Speaker 4: this is going to be This is going to be
• 24:48
  Speaker 4: a worthwhile book for a wide range of people, so
• 24:51
  Speaker 4: it hopefully it can be a good project.
• 24:53
  Speaker 1: So a recurring theme of all of the meetings and
• 24:57
  Speaker 1: therefore of the book, investing success Us is a temperament problem,
• 25:03
  Speaker 1: not an IQ problem. Emotional stability patients and independence from crowd.
• 25:08
  Speaker 2: Opinion do the compounding.
• 25:11
  Speaker 1: Again, I don't remember who I'm which of them I'm
• 25:14
  Speaker 1: taking the quote from, but we've heard that over and
• 25:16
  Speaker 1: over again. Yes, what give us give us a little
• 25:20
  Speaker 1: color on temperament versus IQ.
• 25:24
  Speaker 4: Yeah, I mean, I think your book title sums it
• 25:26
  Speaker 4: up well. Not to invest is what mistakes are you
• 25:29
  Speaker 4: looking to avoid? Is a great place for starting to
• 25:31
  Speaker 4: figure out where you're trying to go. And I think
• 25:33
  Speaker 4: that's what they've done their entire career. And it's funny
• 25:37
  Speaker 4: how then that mindset of don't be stupid can still
• 25:41
  Speaker 4: be connected to really big swings at points in time,
• 25:44
  Speaker 4: because that seems like an aggressive act and kind of
• 25:46
  Speaker 4: a risky thing. But I think when you actually pair
• 25:48
  Speaker 4: them together, they can work well.
• 25:51
  Speaker 1: So the flip side of the Manger quote, be less
• 25:53
  Speaker 1: stupid is a buffet quote. If you have an IQ
• 25:58
  Speaker 1: of one sixty, well you can sell thirty points. They're
• 26:01
  Speaker 1: not needed in investing. I love that that goat flies
• 26:06
  Speaker 1: against everything we've ever heard about, you know, the genius
• 26:10
  Speaker 1: hedge fund manager, the plants, the math whizz is how
• 26:16
  Speaker 1: and clearly both Charlie and Warren not dumb guys, right,
• 26:20
  Speaker 1: they were more than less stupid. But how sincere is that, Hey,
• 26:25
  Speaker 1: you don't need one sixty and it's probably gonna get
• 26:27
  Speaker 1: in your way anyway.
• 26:28
  Speaker 3: I definitely think the latter part is true.
• 26:30
  Speaker 4: It's very easy to get over confident in your abilities
• 26:33
  Speaker 4: and to make mistakes that can be particularly when you
• 26:35
  Speaker 4: start doing things with options or leverage. You can make
• 26:38
  Speaker 4: mistakes that are truly devastating, And if you just avoid
• 26:42
  Speaker 4: those things, it's much easier to at a minimum, stay
• 26:44
  Speaker 4: in the game and to get to a decent places. Also,
• 26:47
  Speaker 4: I don't think overly difficult as a starting point.
• 26:51
  Speaker 1: So over the three decades that the book covers, there
• 26:55
  Speaker 1: have been wildly different environments where there was those examples
• 27:00
  Speaker 1: of people who should have been less stupid. So you
• 27:03
  Speaker 1: had long term capital management blow up and was that
• 27:06
  Speaker 1: ninety eight? The dot com implosion, the financial crisis, the
• 27:12
  Speaker 1: zero interest rate policy of the twenty tens, then COVID.
• 27:18
  Speaker 1: How do the same principles that are espoused by Buffett
• 27:23
  Speaker 1: and Munger apply to all these wildly different environments.
• 27:28
  Speaker 4: Yeah, I think it's being consistently levelheaded and not letting
• 27:31
  Speaker 4: things get away from you, and having a long term
• 27:34
  Speaker 4: view and staying within your circle. Which I think that's
• 27:36
  Speaker 4: one of the biggest lessons I've had as an investor,
• 27:38
  Speaker 4: is learning what game you're playing and why you're playing
• 27:42
  Speaker 4: that game, and your answer may be different from mine,
• 27:44
  Speaker 4: and I think a funny example is someone asked in
• 27:47
  Speaker 4: one of the meetings about Peter Lynch and Warren buff
• 27:50
  Speaker 4: was talking about and say, his approach works well for him,
• 27:52
  Speaker 4: and mine works well for me, and I think if
• 27:54
  Speaker 4: he tried to adopt my approach it would not work
• 27:56
  Speaker 4: as well, and vice versa. And there's more than one
• 27:59
  Speaker 4: way to get to heaven in this game. And as
• 28:01
  Speaker 4: long as you understand that, I think you're in at
• 28:03
  Speaker 4: least a good starting point.
• 28:04
  Speaker 1: Another quote that I can't remember which of them, said,
• 28:08
  Speaker 1: volatility is the friend of the investor who knows values.
• 28:11
  Speaker 2: And the enemy of the one who doesn't explain that.
• 28:15
  Speaker 4: Yeah, well, sometimes in real life it feels a little
• 28:17
  Speaker 4: different than that when you're seeing a lot of volatility
• 28:19
  Speaker 4: in your portfolio. But I think the idea is a
• 28:22
  Speaker 4: sensible one, which is you don't want your decisions to
• 28:25
  Speaker 4: be led by the market. You want to be making
• 28:27
  Speaker 4: decisions that are someone independent of what the market's telling you.
• 28:30
  Speaker 4: There's a fine line there between just being stubborn and
• 28:33
  Speaker 4: overconfident that I think, especially when you're younger, a lot
• 28:36
  Speaker 4: of quote like that, you know this is true of
• 28:38
  Speaker 4: a lot of quotes from Warren and Charlie, A little
• 28:40
  Speaker 4: bit of experience helps you understand what they're actually saying
• 28:43
  Speaker 4: versus maybe a more novice interpretation that can get you
• 28:46
  Speaker 4: in trouble. So I think to completely disregard what the
• 28:49
  Speaker 4: market saying is something that you should do cautiously. But
• 28:52
  Speaker 4: the idea of acting based on what the facts tell
• 28:55
  Speaker 4: you as opposed to, you know, short term waying machine
• 28:57
  Speaker 4: is the right mindset to have an investing.
• 28:59
  Speaker 1: So there are so many quotes of theirs that are
• 29:02
  Speaker 1: just become so famous and repeated over and over again.
• 29:05
  Speaker 1: What sort of bary gems did you find in there
• 29:08
  Speaker 1: that people don't really talk about? What stands out as
• 29:12
  Speaker 1: how is this not a more famous line?
• 29:15
  Speaker 4: I mean, I think some of the discussions on again,
• 29:18
  Speaker 4: things like stock option accounting in the late nineties, where
• 29:20
  Speaker 4: they're really I mean, I think they say in the
• 29:22
  Speaker 4: book there was five hundred companies and two of them
• 29:27
  Speaker 4: had adopted quote unquote the right stock option accounting rules.
• 29:30
  Speaker 4: Everybody else is playing this kind of game, And they
• 29:33
  Speaker 4: talk about things like that so clearly in a way
• 29:35
  Speaker 4: that's that anybody can understand that. It's just so so
• 29:38
  Speaker 4: useful to hear those things trying to think of other
• 29:41
  Speaker 4: examples throughout the book that stand out. One example they
• 29:45
  Speaker 4: give in terms of like their business is National Indemnitied
• 29:47
  Speaker 4: Insurance Company. They talk about this idea of there was
• 29:51
  Speaker 4: a period of time where the volumes and that insurance
• 29:53
  Speaker 4: business went up I believe five x. Then over a
• 29:56
  Speaker 4: period of fifteen years contracted eighty five percent.
• 29:59
  Speaker 1: Well, and then it's back back below the original starting line.
• 30:03
  Speaker 4: You could imagine running a business and how painful that is,
• 30:05
  Speaker 4: and they use it to teach a lesson in terms
• 30:07
  Speaker 4: of it applies differently in different businesses, but how in
• 30:10
  Speaker 4: the insurance business the only thing that matters is writing
• 30:13
  Speaker 4: good business and you have to you have to get
• 30:16
  Speaker 4: to a place where all the stakeholders, particularly employees, realize
• 30:19
  Speaker 4: that writing bad business is not the decision to make,
• 30:22
  Speaker 4: and you have to help them appreciate that they can
• 30:24
  Speaker 4: keep their job too as you go through this. So
• 30:26
  Speaker 4: it's just an example of them laying out something that
• 30:29
  Speaker 4: when they explain it is so sensible and logical. But
• 30:33
  Speaker 4: you have to have that long term mindset. And again,
• 30:35
  Speaker 4: when you compare something like that to how a lot
• 30:36
  Speaker 4: of public companies act, you start to notice things that
• 30:40
  Speaker 4: you may want to avoid.
• 30:41
  Speaker 1: That's very much a science of hitting philosophy. You're better
• 30:46
  Speaker 1: off not writing bad business, not writing any business, yeah,
• 30:49
  Speaker 1: than writing bad business. I think the modern Berkshire is
• 30:55
  Speaker 1: underappreciated for the importance of the various insurance So there's Geico,
• 31:01
  Speaker 1: there's Berkshire, Read, there's there's a few insurance companies which
• 31:05
  Speaker 1: essentially gave one a giant pool of capital and patient
• 31:10
  Speaker 1: capital to work with. Talk about the significance of insurance
• 31:15
  Speaker 1: to the success of Berkshire.
• 31:17
  Speaker 4: Hathaway, Yeah, it's been. I mean it's been hugely important.
• 31:19
  Speaker 4: That float has I don't know what the number is now,
• 31:21
  Speaker 4: but it's grown very significantly over a long period of time,
• 31:25
  Speaker 4: and it has allowed them to make the investments that have,
• 31:28
  Speaker 4: you know, got Berkshire to where it is today. One
• 31:30
  Speaker 4: example that I come back to a lot and from
• 31:32
  Speaker 4: one of those investments is Coca Cola, which everybody knows
• 31:35
  Speaker 4: that Berkshire owns Coca Cola. I think the part that
• 31:37
  Speaker 4: people sometimes don't know is that Warren started buying and
• 31:40
  Speaker 4: I believe was eighty eight or eighty nine. He bought
• 31:42
  Speaker 4: his last share in ninety four, and he hasn't bought
• 31:45
  Speaker 4: or sold a single share since then, which is at
• 31:47
  Speaker 4: a point, at a point in time, it was more
• 31:49
  Speaker 4: than thirty percent of Berkshi's equity portfolio. It's not like
• 31:52
  Speaker 4: it was, you know, two percent of their portfolio that
• 31:54
  Speaker 4: they're not touching. It was a hugely important position and
• 31:56
  Speaker 4: he hasn't touched it for more than thirty years. Which
• 31:58
  Speaker 4: is you know when someone's really good at investing like
• 32:01
  Speaker 4: they are, and they do something like that and you
• 32:03
  Speaker 4: look around you see, well, nobody else is really acting
• 32:06
  Speaker 4: in this way. It's just it's something that stands out
• 32:08
  Speaker 4: and I think is noteworthy.
• 32:10
  Speaker 1: So I love the concept of imagine you only get
• 32:13
  Speaker 1: twenty investment decisions for a lifetime. When you look at
• 32:19
  Speaker 1: Berkshire's returns, it's a handful of decisions in decades of
• 32:24
  Speaker 1: sitting still that have been driving it.
• 32:26
  Speaker 2: What is that thesis, Hey.
• 32:28
  Speaker 1: You're only going to make twenty meaningful investment decisions. What
• 32:31
  Speaker 1: does that do to selectivity?
• 32:34
  Speaker 4: Yeah, it raises your bar a lot. A lot of
• 32:36
  Speaker 4: the things that you're willing to compromise are on. Will
• 32:39
  Speaker 4: you know if you need to find one hundred things,
• 32:41
  Speaker 4: don't you got to make a lot of compromises if
• 32:43
  Speaker 4: you can own ten things, you can make less compromises.
• 32:45
  Speaker 4: And if you can own one thing, you can get
• 32:46
  Speaker 4: even more selective. So I think that idea of knowing
• 32:50
  Speaker 4: what you're looking for, being patient, and then these two
• 32:53
  Speaker 4: are connected. If you're gonna act in that way, you
• 32:55
  Speaker 4: have to swing big to some extent.
• 32:57
  Speaker 1: So they repeat a lot of the same principles over
• 33:00
  Speaker 1: and over over the years. I'm curious not only how
• 33:04
  Speaker 1: things evolved, but did What are some examples of them
• 33:08
  Speaker 1: reaching a conclusion, Hey, maybe we haven't really thought this
• 33:12
  Speaker 1: through when we want to pivot or attack away from
• 33:14
  Speaker 1: a previous belief. What what where did they really change
• 33:18
  Speaker 1: their minds?
• 33:19
  Speaker 4: Yeah, two really prominent examples are one in an in
• 33:22
  Speaker 4: an owned business in Geico. They they basically missed the
• 33:26
  Speaker 4: move in telematox, which is like the data measurement in
• 33:29
  Speaker 4: the car and Progressive was really early there and and
• 33:31
  Speaker 4: Warren publicly at the meetings kind of said, we don't
• 33:33
  Speaker 4: think this is going to be important to the to
• 33:35
  Speaker 4: the rate making decision, and they were wrong, and and
• 33:38
  Speaker 4: they were year.
• 33:38
  Speaker 1: Basically, what telematis does for an insurer.
• 33:41
  Speaker 4: Yeah, basically it gives you actual data from how someone drives.
• 33:44
  Speaker 4: Which is it turns out is very important for determining
• 33:47
  Speaker 4: how they drive and setting their rate and the riskiness,
• 33:49
  Speaker 4: et cetera. So Geico was or the way Warren talked
• 33:53
  Speaker 4: about it, they were convinced.
• 33:54
  Speaker 2: That built into the car.
• 33:55
  Speaker 1: He asked, concerned, or is it something that you have
• 33:59
  Speaker 1: to get of permission to you?
• 34:01
  Speaker 4: You have to you have to get it. You had
• 34:02
  Speaker 4: to get a device at one point. I believe you
• 34:04
  Speaker 4: can do it with your phone now, but they would and.
• 34:07
  Speaker 2: You get a discount.
• 34:08
  Speaker 3: You can get a discount for using it.
• 34:10
  Speaker 4: And they've changed over time what they're willing to do
• 34:12
  Speaker 4: with your rates, But early on you could just get
• 34:14
  Speaker 4: a discount from it. You wouldn't get a rate increase.
• 34:16
  Speaker 4: So yeah, Berkshire or Geico kind of missed that early
• 34:20
  Speaker 4: and they've kind of been playing ketchup since then. And
• 34:22
  Speaker 4: Progressive went from uh millions of policy holders less than
• 34:27
  Speaker 4: guycos and now being quite a bit larger than Guycod.
• 34:29
  Speaker 2: They're one of the bigger.
• 34:32
  Speaker 1: This is a huge, huge, gross story and change for
• 34:35
  Speaker 1: them over the years is the telematic strategy what drove them.
• 34:40
  Speaker 3: Yeah, it's a huge part of it.
• 34:42
  Speaker 1: And then and then the other issue that comes up
• 34:44
  Speaker 1: is the Buffett has been notoriously tech of Verse and
• 34:48
  Speaker 1: then becomes one of the biggest shareholders of Apple.
• 34:51
  Speaker 2: H How did he explain that?
• 34:53
  Speaker 1: How did he wrap his head around that that major pivot.
• 34:58
  Speaker 3: That's the other example.
• 34:59
  Speaker 4: I was going to say that they you go through
• 35:01
  Speaker 4: a period of I believe it's twenty eleven, twenty twelve,
• 35:03
  Speaker 4: twenty thirteen. Some select quotes are that when they owned IBM,
• 35:08
  Speaker 4: they basically said, we'll never have the confidence in the
• 35:10
  Speaker 4: person asking the questions, specifically asked about Apple and Google,
• 35:13
  Speaker 4: which in hindsight's kind of funny because they're the two
• 35:15
  Speaker 4: companies that they've now invested in. They basically said, we'll
• 35:19
  Speaker 4: never have the confidence on those two companies that we
• 35:20
  Speaker 4: have in IBM, which was not a good investment. And
• 35:24
  Speaker 4: then I think late at the next meeting, Charlie even
• 35:27
  Speaker 4: more forcefully said, basically, Apple's too hard for us, We'll
• 35:30
  Speaker 4: never own it. Fast forward a few years and it
• 35:33
  Speaker 4: was a I think at one point it's almost a
• 35:35
  Speaker 4: two hundred million dollar position, and it's one of the
• 35:37
  Speaker 4: greatest investments of all time, and I think it just
• 35:39
  Speaker 4: speaks to a willingness to continue learning, and you know,
• 35:42
  Speaker 4: Warren specifically talked about on CNBC when they bought. He
• 35:45
  Speaker 4: spoke about, how, you know, at the Nebraska Front Tromar,
• 35:48
  Speaker 4: which is a retailer that they own, people come in
• 35:50
  Speaker 4: and buy a TV and they know they're looking at
• 35:52
  Speaker 4: the number of pixels or the quality of the screen,
• 35:55
  Speaker 4: They're comparing the prices, et cetera. And then when it
• 35:57
  Speaker 4: comes to an iPhone versus an Android, doesn't matter if
• 36:00
  Speaker 4: an Android phone is sixty percent cheaper. Some people were
• 36:03
  Speaker 4: just absolutely going to buy the iPhone no matter what.
• 36:06
  Speaker 4: So he noticed that in terms of, you know, that
• 36:08
  Speaker 4: differentiation between a technology question versus a consumer brand kind
• 36:12
  Speaker 4: of question. I think he also recognized early the value
• 36:16
  Speaker 4: of the screen and the services strategy that Apple and
• 36:19
  Speaker 4: in the mid twenty tens really got underway. And also
• 36:21
  Speaker 4: the valuation was attractive, and then they had capital returns policy.
• 36:24
  Speaker 4: That's one of the things that really jumps out in
• 36:26
  Speaker 4: terms of his investment approach is how much he, particularly
• 36:30
  Speaker 4: in publicly traded companies, how much he valued the combination
• 36:34
  Speaker 4: of the valuation and very clear capital return strategy. You
• 36:38
  Speaker 4: see that at Apple, you see that at Petro China
• 36:40
  Speaker 4: in the early two thousands. It's a very prominent part
• 36:42
  Speaker 4: of what he seemed to be looking for.
• 36:45
  Speaker 1: So I see how their ideas have changed over time.
• 36:50
  Speaker 1: I'm curious the process of going through the whole book
• 36:53
  Speaker 1: and all of the various meetings and videos you ended
• 36:57
  Speaker 1: up watching thing change the way you invest personally, Any
• 37:03
  Speaker 1: ideas you're still wrestling with trying to put into practice.
• 37:07
  Speaker 4: Yeah, I think this idea of again, I think I
• 37:10
  Speaker 4: mentioned this before, kind of traditional value investors, This idea
• 37:12
  Speaker 4: of change being a bad thing and trying to avoid it.
• 37:16
  Speaker 4: It's just, I mean, it's it's borderline impossible in today's
• 37:19
  Speaker 4: I mean, if you could give me a list of
• 37:21
  Speaker 4: five companies that haven't meaningfully changed in the last ten
• 37:24
  Speaker 4: or fifteen years, it kind of be tough to do.
• 37:26
  Speaker 4: Every industry is changing and you have to be I
• 37:30
  Speaker 4: just you can't just avoid it. I don't think you
• 37:32
  Speaker 4: have to. Doesn't mean it to run into it, but
• 37:33
  Speaker 4: you have to be really thoughtful about how every business
• 37:36
  Speaker 4: is changing. And you think the prominent examples that they
• 37:38
  Speaker 4: gave over time of you know, the greatest businesses are
• 37:41
  Speaker 4: newspapers and other things that are either greatly changed or gone.
• 37:45
  Speaker 4: So you have to end retailers as an exam die, Yes,
• 37:49
  Speaker 4: adapt to die. And I think that's the reality of
• 37:51
  Speaker 4: being a business manager. It's reality of being an investor,
• 37:54
  Speaker 4: and you have to you have to be willing to,
• 37:56
  Speaker 4: you know, lean into that.
• 37:57
  Speaker 2: Huh, really really interesting.
• 37:59
  Speaker 1: Coming up, we can continue our conversation with Alex Morris,
• 38:02
  Speaker 1: author of Buffett and Munger Unscripted, discussing Berkshire Hathaway after
• 38:09
  Speaker 1: Warren Buffett.
• 38:10
  Speaker 2: I'm Barry Ridhults.
• 38:11
  Speaker 1: You're listening to Masters in Business on Bloomberg Radio.
• 38:16
  Speaker 2: I'm Barry rid Halts.
• 38:17
  Speaker 1: You're listening to Masters in Business on Bloomberg Radio. Alex
• 38:21
  Speaker 1: Morris is my extra special guest this week. He is
• 38:24
  Speaker 1: the author of Buffett and Munger Unscripted, Three Decades of
• 38:28
  Speaker 1: Investment and Business Insights from the Berkshire Hathaway Annual Shareholder Meeting.
• 38:34
  Speaker 1: He is also the founder of TSOH Research. So let's
• 38:40
  Speaker 1: talk a little bit about their relationship before we get
• 38:44
  Speaker 1: to the post Buffet and we're already in the post
• 38:47
  Speaker 1: Munger era. What did Munger contribute to Buffett's thinking that
• 38:53
  Speaker 1: Buffett probably wouldn't have developed on his own.
• 38:56
  Speaker 2: They really had kind of a unique partnership.
• 39:00
  Speaker 4: They did, and they'll Charlie will say don't have as
• 39:02
  Speaker 4: much of an impact as Warren says he did. So
• 39:04
  Speaker 4: I guess you got to took which one you want
• 39:06
  Speaker 4: to agree with or believe, you know. I think Warren's
• 39:09
  Speaker 4: strategy that he ran up into the point in time
• 39:12
  Speaker 4: where where they became, you know, friends with each other
• 39:15
  Speaker 4: in decades after it was a cigar butt strategy and
• 39:18
  Speaker 4: traditional value investing strategy. The main constraint was going to
• 39:21
  Speaker 4: run into over time with size, and that's problem they
• 39:25
  Speaker 4: have now even as they've adjusted the strategy. And I
• 39:27
  Speaker 4: think Charlie changed his mindset a little bit towards buying
• 39:30
  Speaker 4: businesses that they were going to own as opposed to
• 39:31
  Speaker 4: things they are gonna be liquidated or sold whatever it
• 39:33
  Speaker 4: may be.
• 39:34
  Speaker 1: When you say buying businesses completely like a full takeover,
• 39:38
  Speaker 1: not just we don't want ten percent of Geico, we
• 39:41
  Speaker 1: want all Geico.
• 39:42
  Speaker 3: Yeah.
• 39:43
  Speaker 4: I think one of the prominent early ones was Seized Candies,
• 39:45
  Speaker 4: where they you know, they were getting a little bit
• 39:47
  Speaker 4: they're getting a little touchy on the price, and I
• 39:49
  Speaker 4: think they had someone who worked with them who said,
• 39:51
  Speaker 4: if you guys, don't buy this because the price is
• 39:53
  Speaker 4: ten percent higher than what you wanted you're idiots basically really, Yeah.
• 39:57
  Speaker 2: He says, that's a one.
• 39:58
  Speaker 4: I think it was. I think it was Charlie Munger's part.
• 40:01
  Speaker 4: I want to say Ira Marshall for some reason, but
• 40:03
  Speaker 4: I could be incorrect. Anyways, they told him, if you
• 40:05
  Speaker 4: don't buy this business because it's ten percent higher than
• 40:07
  Speaker 4: what you want to pay, you're not being very intelligent,
• 40:10
  Speaker 4: because this is a really good brand and it's going
• 40:12
  Speaker 4: to be a really good business over time.
• 40:14
  Speaker 3: And thankfully they listened.
• 40:16
  Speaker 1: You know, I have a buddy, Jonathan Miller, who's not
• 40:20
  Speaker 1: only a data junkie with the back end of real
• 40:22
  Speaker 1: estate and an appraiser, but he was saying, if you're
• 40:26
  Speaker 1: buying a house that you're going to live in for
• 40:28
  Speaker 1: twenty five years, this is the house if you paid
• 40:31
  Speaker 1: ten or fifteen percent over.
• 40:33
  Speaker 2: Who cares.
• 40:34
  Speaker 1: Yeah, just look at it from houses sold twenty five
• 40:39
  Speaker 1: years ago. What would have happened if you paid ten
• 40:42
  Speaker 1: percent more for that? It's meaningless. Mark and Dreesen said
• 40:46
  Speaker 1: the same thing about Facebook. All right, it was a
• 40:49
  Speaker 1: forty x or a fifty X. Imagine if we paid
• 40:52
  Speaker 1: twenty five percent over, it wouldn't have made any different.
• 40:55
  Speaker 1: And yet this is coming from people with a value background,
• 40:59
  Speaker 1: do you reconcile that?
• 41:01
  Speaker 4: Yeah, Personally, my personal experience taught me to or in
• 41:05
  Speaker 4: some ways taught me to just to get past that
• 41:07
  Speaker 4: way of thinking. And again I said, before I bought
• 41:09
  Speaker 4: Microsoft in twenty eleven, it was a very traditional value
• 41:12
  Speaker 4: investment X cash. It was trading at high single digit
• 41:15
  Speaker 4: PE and again.
• 41:16
  Speaker 3: Very traditional value investment.
• 41:18
  Speaker 4: You get forward to twenty fifteen or twenty sixteen in
• 41:20
  Speaker 4: that period, and now the PE as opposed to being
• 41:23
  Speaker 4: in the high single digits is you know, call it
• 41:25
  Speaker 4: mid teens. And I can remember that point in time,
• 41:28
  Speaker 4: a lot of the again more traditional value investors, they
• 41:30
  Speaker 4: were at a point where they go, Okay, we've had
• 41:32
  Speaker 4: our run here, it's time to sell. It's a situation
• 41:35
  Speaker 4: where I looked and saw I saw what Sashinadella, who
• 41:38
  Speaker 4: was recently named the CEO at that time, the strategy
• 41:41
  Speaker 4: they had in the cloud business. And not that I
• 41:42
  Speaker 4: have any great technical knowledge on this, but the way
• 41:45
  Speaker 4: they explained where they were going and what the opportunity
• 41:48
  Speaker 4: was just seemed clear to me that to sell it
• 41:51
  Speaker 4: simply because the PE was a couple turns higher than
• 41:54
  Speaker 4: you know what the quote unquote fair price was for
• 41:56
  Speaker 4: it just didn't make a ton of sense. If you
• 41:58
  Speaker 4: found a business that has a really long runway with
• 42:01
  Speaker 4: a person running it that you think is the right
• 42:02
  Speaker 4: person for that job, to let that go easily is
• 42:06
  Speaker 4: a mistake. And you know, it's funny to look back now.
• 42:08
  Speaker 4: I didn't know this because I was updating on Microsoft
• 42:10
  Speaker 4: the other day. Over the last decade, the stocks compound
• 42:13
  Speaker 4: at a mid twenties annualized return, which this happens all
• 42:17
  Speaker 4: the time with companies like this, where people will if
• 42:19
  Speaker 4: they become too focus on the valuation, they go this,
• 42:21
  Speaker 4: can't you know, this isn't going to generate more than
• 42:23
  Speaker 4: twelve percent a year over the next decade or whatever.
• 42:25
  Speaker 1: But what's aligned price is what you pay. Value is
• 42:28
  Speaker 1: what you get exactly. So clearly, even at an elevated price,
• 42:32
  Speaker 1: Microsoft turned out to be a good value.
• 42:34
  Speaker 4: You have to consider both at all times. If you've
• 42:36
  Speaker 4: become overly focused on price as the driver of your
• 42:38
  Speaker 4: decision making, I think that's I think that's kind of
• 42:41
  Speaker 4: a flawed way to do things. And the same goes
• 42:43
  Speaker 4: for you know, theoretically, you have a let's say of
• 42:45
  Speaker 4: a portfolio, and theoretically you could rerank it every single
• 42:49
  Speaker 4: day on expected five year returns, whatever it may be,
• 42:52
  Speaker 4: and the answer is going to change based on what
• 42:54
  Speaker 4: those positions did they before. Obviously, I think that mindset,
• 42:58
  Speaker 4: while it makes sense theoretically, it guarantees you're never going
• 43:01
  Speaker 4: to own anything, particularly in size. You're going to be
• 43:04
  Speaker 4: trimming it as it goes up. Twenty thirty fifty.
• 43:06
  Speaker 2: P certainly it's fully valued.
• 43:08
  Speaker 4: The IRR is three points lower than it was six
• 43:10
  Speaker 4: months ago. And I just think if you look back
• 43:13
  Speaker 4: and again, like the last fifteen twenty years, and you
• 43:16
  Speaker 4: know your example of Facebook, you selling it because the
• 43:19
  Speaker 4: IRR was down slightly was a mistake understanding what the
• 43:22
  Speaker 4: business was in some sense, what the opportunity was. Again,
• 43:25
  Speaker 4: you can deal with this through position sizing, but to
• 43:27
  Speaker 4: be really thoughtful about selling businesses that you actually think
• 43:29
  Speaker 4: are worth owning, you.
• 43:31
  Speaker 1: Know, that makes a lot of sense. Both Buffin and
• 43:33
  Speaker 1: Munger have emphasized staying within one circle of competence. How
• 43:39
  Speaker 1: can an investor expand that circle? And how do you
• 43:42
  Speaker 1: avoid fooling yourself into thinking you have some competence when
• 43:47
  Speaker 1: you don't. This is classic Dunning Kruger.
• 43:51
  Speaker 4: Yeah, I think it's time. It's a willingness to learn,
• 43:54
  Speaker 4: it's a willingness to feel around, and not always you know,
• 43:57
  Speaker 4: have the answers right away. I mean, for example, what TSOH.
• 44:00
  Speaker 4: A lot of my initiations on company, they very rarely
• 44:03
  Speaker 4: end with you know, this is my price target or
• 44:05
  Speaker 4: this is a bye today. That's very uncommon for me.
• 44:08
  Speaker 4: The conclusion is almost always, here's what I think is
• 44:10
  Speaker 4: interesting about this company. These are the questions we kind
• 44:13
  Speaker 4: of need to explore and get a better, better feel
• 44:15
  Speaker 4: for over time. And it's just that continual learning process
• 44:18
  Speaker 4: where sometimes you get you know, three, four, five years
• 44:20
  Speaker 4: down the road from there, and you still don't have
• 44:22
  Speaker 4: the answers. Other times you get a couple of years
• 44:25
  Speaker 4: down the road and things happen in a certain way
• 44:26
  Speaker 4: and you go, wait a second, I think I'm seeing
• 44:28
  Speaker 4: I'm seeing this now in a way that I didn't originally.
• 44:31
  Speaker 4: And you find enough examples like that and you can
• 44:33
  Speaker 4: have a portfolio really interesting.
• 44:37
  Speaker 1: What do you think of all the principles that Buffing
• 44:40
  Speaker 1: Andmonger enumerated over the years, often quoted but really infrequently
• 44:46
  Speaker 1: practiced or by professionals, or just difficult to put into
• 44:50
  Speaker 1: effect by mom and pop investors.
• 44:54
  Speaker 4: Yeah, they've had things like you know, permanent capital, which
• 44:57
  Speaker 4: you look at an example like Terry Smith at Fundsmith
• 44:59
  Speaker 4: right now, and you know, when things go against you
• 45:02
  Speaker 4: for a relatively short period of time, but your assets
• 45:05
  Speaker 4: start going away, that's a huge problem. So things like
• 45:08
  Speaker 4: that is a prominent example of how thoughtfully they've constructed
• 45:12
  Speaker 4: everything and what that then allows them in terms of
• 45:14
  Speaker 4: their flexibility of you know, being really patient or taking
• 45:18
  Speaker 4: big swings, et cetera.
• 45:19
  Speaker 1: What about avoid difficult decisions? Is that realistic today?
• 45:24
  Speaker 3: Again?
• 45:25
  Speaker 4: I think it's more difficult over time, but I think
• 45:27
  Speaker 4: if you're patient you can again, as you learn more
• 45:30
  Speaker 4: and more, decisions that may appear difficult might be might
• 45:32
  Speaker 4: be less.
• 45:33
  Speaker 3: So for you.
• 45:34
  Speaker 1: I really like Buffett's comment about market forecasts. They tell
• 45:38
  Speaker 1: you nothing about the market, but a great deal about
• 45:41
  Speaker 1: the forecaster. They claim to have never made a Berkshire
• 45:46
  Speaker 1: decision based on a macro prediction.
• 45:49
  Speaker 2: How true is that?
• 45:52
  Speaker 4: Well, I think you look at their cash position currently
• 45:54
  Speaker 4: and wonder how much of that is you know, maybe
• 45:57
  Speaker 4: not a macro forecaster. There has to be some belief
• 46:00
  Speaker 4: markets or prices generally. I guess you could look at
• 46:03
  Speaker 4: at a micro level and say we can't find anything,
• 46:05
  Speaker 4: and collectively all the micro is the macro, right, you know,
• 46:09
  Speaker 4: I think it's I think the bigger point, and it's
• 46:11
  Speaker 4: something that we've all seen over the past fifteen years.
• 46:13
  Speaker 4: I mean, I'm sure you can remember, well, twenty eleven,
• 46:16
  Speaker 4: twenty twelve, people are like, Okay, we're back to another bubble.
• 46:18
  Speaker 4: We got past the GFC and now we're here. We
• 46:21
  Speaker 4: are again and stocks aren't going to go anywhere for
• 46:23
  Speaker 4: the next decade. And good call. People who overdosed on
• 46:26
  Speaker 4: that have paid a very significant price.
• 46:28
  Speaker 2: So you know, it's funny you bring that up.
• 46:31
  Speaker 1: I remember, I don't remember if it was laid awaight
• 46:33
  Speaker 1: or early nine, but Buffett wrote an op ed. I
• 46:37
  Speaker 1: think it was the Times by America, and that felt
• 46:41
  Speaker 1: very much like a combination of a everything has gotten cheaper,
• 46:46
  Speaker 1: so there's a valuation issue. And we weren't quite down
• 46:49
  Speaker 1: fifty six percent, but we were on the way. Maybe
• 46:52
  Speaker 1: we were down a third by that time, but it
• 46:55
  Speaker 1: felt like a macro. Hey, this is a temporary crisis
• 46:59
  Speaker 1: and we'll get passed it. Or was it strictly a
• 47:03
  Speaker 1: valuation decision?
• 47:04
  Speaker 4: Yeah, I think it was a little bit of both.
• 47:06
  Speaker 4: I mean as he as he said later on. You know,
• 47:08
  Speaker 4: I wrote that in I think he said October of eight.
• 47:10
  Speaker 4: And to your point, people are like, wow, this's a
• 47:12
  Speaker 4: great call. It's like, well it was down another another
• 47:15
  Speaker 4: thirty percent six months later or whatever it was. So
• 47:18
  Speaker 4: my timing wasn't particularly great. You know, I think the
• 47:21
  Speaker 4: bigger takeaway for particularly individual investors is, in my mind,
• 47:25
  Speaker 4: is understanding something like a structural asset allocation and having
• 47:30
  Speaker 4: clarity on what you're trying to achieve and again coming
• 47:32
  Speaker 4: back to this idea over and over of what your
• 47:33
  Speaker 4: the mistakes you're trying to avoid. And you know, we
• 47:36
  Speaker 4: saw over the past fifteen years people big swings in
• 47:40
  Speaker 4: and out of cash R and out of the markets.
• 47:42
  Speaker 4: I think you're just making the game more difficult than
• 47:43
  Speaker 4: it needs to be, and when you're wrong, it really hurts.
• 47:47
  Speaker 1: So, having studied every answer Bufert ever gave about succession
• 47:52
  Speaker 1: over thirty one years, what does the record tell us
• 47:56
  Speaker 1: about how he set up his succession and what did
• 48:00
  Speaker 1: his Thanksgiving letter last year at.
• 48:04
  Speaker 3: That's kind of funny.
• 48:05
  Speaker 4: Starting with the starting with the ninety four meeting, they
• 48:08
  Speaker 4: were asked every single year about succession.
• 48:11
  Speaker 1: And he's my age back then, in his early sixties.
• 48:15
  Speaker 4: It turns out he had another three decades to go.
• 48:18
  Speaker 4: You know, I think they've they've said over time that
• 48:22
  Speaker 4: there's nobody who cares about the answer to this question
• 48:24
  Speaker 4: more than we do. And you know, a lot of
• 48:26
  Speaker 4: the businesses that BNSF, the railroad, Warren's not really involved
• 48:30
  Speaker 4: in the decision making there, same a Geico, same that
• 48:33
  Speaker 4: a lot of other businesses, a lot of the equity positions,
• 48:35
  Speaker 4: like I said, Coca Cola, AMX, like the other ones,
• 48:39
  Speaker 4: they're just in there and they're they're almost certainly not
• 48:41
  Speaker 4: going to be sold by Warren or anybody else. So
• 48:43
  Speaker 4: I think I think a lot of the pieces are
• 48:45
  Speaker 4: in place. The biggest challenges Berkshire has, as I mentioned,
• 48:48
  Speaker 4: there's some operational issues at businesses like Geico that had
• 48:51
  Speaker 4: to be fixed, and the massive, you know, massive cash
• 48:55
  Speaker 4: pile is another challenge. Those challenges existed two years ago
• 48:59
  Speaker 4: with Warren, and you know, they still exist today and
• 49:02
  Speaker 4: solutions are difficult. But it seems like greg Abel is
• 49:05
  Speaker 4: starting to move in the direction of trying to trying
• 49:08
  Speaker 4: to resolve those issues.
• 49:09
  Speaker 1: So let's talk a little bit about greg Abel. He
• 49:11
  Speaker 1: took over as CEO of Berkshire on January first of
• 49:15
  Speaker 1: this year, twenty twenty sixth. You were at the meeting
• 49:19
  Speaker 1: in Omaha, his first annual meeting, Buffett just sitting in
• 49:23
  Speaker 1: the audience like any other Berkshire shareholder, well maybe not
• 49:27
  Speaker 1: like any other Berkshire, but not on stage.
• 49:30
  Speaker 2: What was that like? How was Abel?
• 49:33
  Speaker 1: Are you confident that this was the right choice in
• 49:36
  Speaker 1: Berkshire was in the right hands.
• 49:38
  Speaker 4: Yeah, And this is also informed by writing the book
• 49:41
  Speaker 4: the questions over time. In the early days, the questions
• 49:45
  Speaker 4: were really focused on Berkshire and investing, and I think
• 49:47
  Speaker 4: as time went on they became a lot more about
• 49:50
  Speaker 4: life advice and other things that, while still interesting, are
• 49:53
  Speaker 4: not really Berkshire specific. And when you got the things
• 49:57
  Speaker 4: like like I was saying with Geico and Telemaddix or
• 50:00
  Speaker 4: at BNSF where their results were lagging some of the
• 50:02
  Speaker 4: other class one rails, I think Warren had a tendency
• 50:05
  Speaker 4: to not want to point fingers at the managers and
• 50:08
  Speaker 4: he wouldn't really talk specifically about the issues there, which is,
• 50:12
  Speaker 4: you know, for the people who are kind of the
• 50:13
  Speaker 4: die hard Berkshire shareholders, we want to hear those things.
• 50:17
  Speaker 4: Greg took those questions head on, which was really refreshing
• 50:21
  Speaker 4: to hear. And I think everything we've seen so far
• 50:24
  Speaker 4: would suggest that, you know, as Warren and Charlie said,
• 50:26
  Speaker 4: we thought about this more than anyone else, and I
• 50:28
  Speaker 4: think that's probably reflecting their decision.
• 50:30
  Speaker 1: So you mentioned the huge cash pile, a couple hundred
• 50:33
  Speaker 1: billion dollars just lying around.
• 50:36
  Speaker 2: I know that's walking around money.
• 50:37
  Speaker 1: Yeah, what does capital allocation look like under Greg Abel?
• 50:42
  Speaker 1: Is he going to emphasize buybacks or going out elephant hunting,
• 50:47
  Speaker 1: finding some big acquisition or something else entirely?
• 50:50
  Speaker 4: I think your purchases will surely be a big part
• 50:52
  Speaker 4: of the strategy.
• 50:55
  Speaker 1: I think, And by the way, Munger and Buffett have
• 50:58
  Speaker 1: both been very explicit about buybacks. Hey, when you're below
• 51:03
  Speaker 1: your true value, when fair value.
• 51:07
  Speaker 2: It's a deal.
• 51:08
  Speaker 1: Absolutely do buybacks. But if you're fully richly priced, it's
• 51:12
  Speaker 1: a disaster waiting to happen. They made no bones about it,
• 51:15
  Speaker 1: and then they acted on that. Where do you think
• 51:18
  Speaker 1: Greg falls on that?
• 51:20
  Speaker 3: Yeah?
• 51:20
  Speaker 4: I think Berkshire started buying shares more significantly in the
• 51:23
  Speaker 4: last I think they started in twenty nineteen.
• 51:25
  Speaker 3: The pace has slowed down.
• 51:26
  Speaker 1: Lately, implying they're close to fully valued.
• 51:30
  Speaker 3: Yeah, I believe that.
• 51:31
  Speaker 4: I believe that they have views about the market or
• 51:34
  Speaker 4: the opportunity set. More broadly, I think would be fair
• 51:36
  Speaker 4: to say, based on how they've been acting for some
• 51:38
  Speaker 4: time now, you know, it'd have been helpfulf they started
• 51:41
  Speaker 4: re purchasing shares earlier.
• 51:42
  Speaker 3: I don't think. I don't think Warren was particularly interested
• 51:44
  Speaker 3: in doing.
• 51:45
  Speaker 4: That for a good amount of time, and it got
• 51:48
  Speaker 4: to a point where they basically either had to or
• 51:51
  Speaker 4: have to pay a large special dividend, whatever it may be.
• 51:53
  Speaker 4: I think Greg will be a lot more more open
• 51:56
  Speaker 4: to leaning into these things. And as they said many times,
• 51:58
  Speaker 4: I mean, obviously we haven't had huge shakeouts outside of
• 52:01
  Speaker 4: maybe a brief period and during the pandemic. But if
• 52:04
  Speaker 4: we get a period where equities really trade trade off
• 52:07
  Speaker 4: meaningfully and they can put a decent amount of dollars
• 52:09
  Speaker 4: to work, they're willing to spend tens and tens of
• 52:12
  Speaker 4: billions of dollars or potentially even over one hundred billion
• 52:14
  Speaker 4: dollars if the right opportunities there.
• 52:15
  Speaker 1: So what's the cash holdings right now?
• 52:18
  Speaker 3: I think it's three three.
• 52:20
  Speaker 2: Yeah, it's pretty crazy number.
• 52:21
  Speaker 1: Yeah, that sounds to me like a war chest waiting
• 52:24
  Speaker 1: for a disaster to happen.
• 52:26
  Speaker 3: Yeah.
• 52:26
  Speaker 4: I think the thing is you got to find a
• 52:28
  Speaker 4: willing seller, which is, if you're going to buy a
• 52:29
  Speaker 4: whole business.
• 52:30
  Speaker 2: Do you do you have to find a willing seller?
• 52:32
  Speaker 1: Can you wait for an era of distress where everybody's
• 52:37
  Speaker 1: a seller and you're the you know you're That's what
• 52:40
  Speaker 1: I meant by war chest waiting for disaster to strike.
• 52:44
  Speaker 4: Well, that would be that'd be a nice way to
• 52:46
  Speaker 4: deal with this issue. And we haven't seen it yet,
• 52:48
  Speaker 4: but I'm sure the day will come where things look
• 52:50
  Speaker 4: really ugly, and I'm sure they'll be ready to act
• 52:52
  Speaker 4: and we'll act.
• 52:53
  Speaker 1: So the whole idea of the annual meaning taking place
• 52:57
  Speaker 1: in Omaha was really built around these two men, Warm
• 53:01
  Speaker 1: Buffing and Charlie Munger, one of whom is no longer
• 53:05
  Speaker 1: with us and the other one is now sitting in
• 53:08
  Speaker 1: the audience. So the question that comes to mind is
• 53:11
  Speaker 1: does Omaha still matter today? What's it going to look like,
• 53:15
  Speaker 1: you know, a decade from now.
• 53:17
  Speaker 4: Yeah, it's funny, I think, and I said my experience
• 53:20
  Speaker 4: here and from people I know who are also Berkshire shareholders,
• 53:22
  Speaker 4: it sounds like their experience has been similar. Is it's
• 53:25
  Speaker 4: become an event where, you know, people go there and
• 53:28
  Speaker 4: there's so many events around the meeting now that aren't
• 53:30
  Speaker 4: the meeting, and it's people coming together, you know, who
• 53:33
  Speaker 4: are hosting their own meetings of one variety or another,
• 53:35
  Speaker 4: having investor conferences, And yeah, I think that's become a
• 53:38
  Speaker 4: really important part of this trip for a lot of people.
• 53:41
  Speaker 4: So I sense, for I mean, the size of the
• 53:44
  Speaker 4: audience will get smaller, as it has already, I believe.
• 53:47
  Speaker 2: Oh is that true?
• 53:47
  Speaker 4: Yeah, I think it was. It was smaller this year
• 53:49
  Speaker 4: than it's been in the past. But for these these
• 53:51
  Speaker 4: core group of you know, the die hard value investors,
• 53:53
  Speaker 4: I think they'll continue to show up for a while
• 53:55
  Speaker 4: as long as those events keep going on.
• 53:57
  Speaker 1: Do you have any insight into who the average Berkshire
• 54:01
  Speaker 1: shareholder is. Is this primarily main street or is this
• 54:05
  Speaker 1: more professional investors or some obvious some combination.
• 54:09
  Speaker 4: Yeah, I think it's combo of the two. Yeah, it
• 54:12
  Speaker 4: feels like a combo the two. It feels a little
• 54:13
  Speaker 4: bit more. They definitely attract a more mainstreat audience than
• 54:16
  Speaker 4: I think just investors do generally, or investment managers especially.
• 54:20
  Speaker 1: And I've never made it out to Omaha. I'm curious
• 54:23
  Speaker 1: who goes to these.
• 54:24
  Speaker 3: Events value weirdos?
• 54:27
  Speaker 2: Really.
• 54:28
  Speaker 3: Yeah.
• 54:28
  Speaker 4: People always like to joke that, you know, I'm a
• 54:31
  Speaker 4: contrarian and I'm sitting in here with forty thousand people
• 54:33
  Speaker 4: who think the same way.
• 54:35
  Speaker 1: It's the scene from Money Python's Life of Brian. Yes,
• 54:38
  Speaker 1: you're all individuals, don't have to follow the crowd, and
• 54:43
  Speaker 1: they just repeat in Unison, we're all individuals.
• 54:46
  Speaker 4: No, I think it's people who who want to learn.
• 54:48
  Speaker 4: And for myself it's you know, I've learned a ton
• 54:50
  Speaker 4: from Warren and Charlie about business, but I've learned a
• 54:53
  Speaker 4: lot more as well about life and other things that
• 54:56
  Speaker 4: that I think are you know, as important as part
• 54:58
  Speaker 4: of your development as an individual and as an investor.
• 55:01
  Speaker 4: And that's I wrote them. It's funny. I wrote Warren
• 55:05
  Speaker 4: in twenty ten and I said, hey, I'm not asking
• 55:09
  Speaker 4: you for a job, and I have fantastic parents who
• 55:12
  Speaker 4: are my role models, but outside of that, you've been
• 55:14
  Speaker 4: really important in my life and I just want to
• 55:16
  Speaker 4: say thank you for that. And he wrote a response
• 55:18
  Speaker 4: and it's framed in my office. It's by one material
• 55:21
  Speaker 4: possession that I care about. But I think it's people
• 55:24
  Speaker 4: with that mindset who have come to really appreciate all
• 55:27
  Speaker 4: they've taught people. And you know what, obviously, Warren, through
• 55:30
  Speaker 4: charity and other things, has done a lot for the
• 55:31
  Speaker 4: world at large as well.
• 55:32
  Speaker 1: So yeah, huh, really interesting. So I only have you
• 55:36
  Speaker 1: for so much time, and we don't have the studio
• 55:39
  Speaker 1: for so much time. Let's jump to our favorite questions
• 55:42
  Speaker 1: that I ask all of my guests, starting with and
• 55:45
  Speaker 1: I kind of have a suspicion as to the answer
• 55:48
  Speaker 1: of this, who are your mentors.
• 55:50
  Speaker 2: Who have shaped your career?
• 55:53
  Speaker 1: I know you have the letter from Buffett, so I
• 55:57
  Speaker 1: want you to address Buffett and Monk as well as
• 56:01
  Speaker 1: anybody else who might have shaped your the curve of
• 56:05
  Speaker 1: your career.
• 56:06
  Speaker 3: Yeah, well, I start was with Peter Lynch.
• 56:08
  Speaker 4: Actually, oh really, I read One Up on Wallstreet was
• 56:10
  Speaker 4: one of the first books I read, which I even
• 56:12
  Speaker 4: to this day when younger people ask me what should
• 56:14
  Speaker 4: I read. I think that's a perfect book for getting
• 56:17
  Speaker 4: a feel for what investing is and it's very approachable.
• 56:20
  Speaker 4: So I've always liked Peter Lynch. Are their investors like
• 56:24
  Speaker 4: Chuck Ackry and some of these other fund managers that
• 56:26
  Speaker 4: I don Yachman's another example. Fund managers out at least,
• 56:30
  Speaker 4: like in the early twenty tens, were names that at
• 56:33
  Speaker 4: least the world that I that I track in they were,
• 56:35
  Speaker 4: they were well known and people that I learned a
• 56:37
  Speaker 4: lot from. Obviously, Warren and Warren and Charlie are at
• 56:40
  Speaker 4: the top of that mountain for me.
• 56:43
  Speaker 1: Let's let's talk about books. What are some of your
• 56:45
  Speaker 1: favorites you? What are you reading currently?
• 56:48
  Speaker 4: Currently reading the Jeremy Grantham book, which I which I
• 56:51
  Speaker 4: thought is it's an interesting book. I'm reading a book
• 56:52
  Speaker 4: about Fairfax. What else am I reading right now about
• 56:55
  Speaker 4: fair Facts? Yeah, Fairfax Canadian Ensure. It's called The Fairfax Way.
• 57:00
  Speaker 4: It's a good book.
• 57:02
  Speaker 1: I have.
• 57:02
  Speaker 4: I have two young kids, so my reading time has
• 57:04
  Speaker 4: been been changed in for four am walks with my
• 57:07
  Speaker 4: daughter and podcasts. So I listened to a lot of
• 57:09
  Speaker 4: podcasts now as opposed to reading as many books as
• 57:12
  Speaker 4: i'd like to.
• 57:13
  Speaker 1: Well, that's my next question. What are you streaming these days?
• 57:15
  Speaker 1: Either Netflix, Amazon, Disney or or podcast? What's keeping you busy?
• 57:20
  Speaker 4: I've been listening to your podcast. I love the Haggarty's
• 57:23
  Speaker 4: episode is really good.
• 57:24
  Speaker 2: So nikiel so so interesting.
• 57:26
  Speaker 4: I mean your knowledge of cars also that helps the podcast.
• 57:31
  Speaker 2: You know.
• 57:31
  Speaker 1: I go out of my way to learn as much
• 57:35
  Speaker 1: about each guest and their business as I can before
• 57:38
  Speaker 1: the podcast.
• 57:39
  Speaker 2: But that was easy. Yeah, yeah, I didn't have all
• 57:42
  Speaker 2: that much research to do for that one.
• 57:43
  Speaker 3: You could tell you love that topic.
• 57:46
  Speaker 2: It was fun.
• 57:46
  Speaker 1: I've had a few really interesting automobile people over the year,
• 57:51
  Speaker 1: but it's still you can't You have to do the
• 57:53
  Speaker 1: deep dive because you'll find stuff that you wouldn't have
• 57:58
  Speaker 1: without doing the research, and.
• 57:59
  Speaker 2: I just think makes a better conversation.
• 58:02
  Speaker 1: What else give us some other podcasts.
• 58:04
  Speaker 4: My buddy Bill Brewster has his podcast well called The
• 58:07
  Speaker 4: Business brew That's a great podcast. I listened to a
• 58:09
  Speaker 4: ton of as part of my research. I listened to
• 58:10
  Speaker 4: a ton of old interviews and things like that that
• 58:12
  Speaker 4: I find, like I listened to read Hastings from two
• 58:15
  Speaker 4: thousand and five and listen to them talking about Netflix
• 58:17
  Speaker 4: and what their strategy is. I find those, along with
• 58:19
  Speaker 4: old articles, is so helpful in terms of getting your
• 58:22
  Speaker 4: mind too or people seeing and what were they thinking
• 58:24
  Speaker 4: at this point in time and how does that how
• 58:26
  Speaker 4: that translate from from then to now as an investor,
• 58:29
  Speaker 4: I think that's like a fascinating way to learn about
• 58:32
  Speaker 4: businesses and people.
• 58:33
  Speaker 1: So our final two questions, what sort of advice would
• 58:37
  Speaker 1: you give to a recent college grad interest in the
• 58:40
  Speaker 1: career in investing?
• 58:42
  Speaker 3: I mean, I think there.
• 58:43
  Speaker 4: I think it's become harder with Twitter and some of
• 58:46
  Speaker 4: these other tools over times in terms of getting your
• 58:48
  Speaker 4: your voice out there. But I recommend people writing is
• 58:51
  Speaker 4: the greatest thing for me that I ever that I
• 58:53
  Speaker 4: ever did in investing because it helped me to one
• 58:56
  Speaker 4: build my audience, but too it helps you to you
• 58:58
  Speaker 4: learn how to think, which might sound weird to people,
• 59:00
  Speaker 4: but when you put something on a piece of paper
• 59:03
  Speaker 4: and you read it and you go, okay, well that
• 59:05
  Speaker 4: there's no defense for that part or this doesn't even
• 59:07
  Speaker 4: really make sense. What am I trying to say here?
• 59:09
  Speaker 4: When you sit down and go through that process, I
• 59:10
  Speaker 4: think there's so much learning and to the extent that
• 59:12
  Speaker 4: you do it. And I find this as well, when
• 59:15
  Speaker 4: you reach out to people who are established in the business,
• 59:17
  Speaker 4: you say, hey, I did a one pager on XYZ.
• 59:19
  Speaker 4: I really worked my butt off on this, and I'm
• 59:21
  Speaker 4: a college grad. Almost everybody is willing to respond if
• 59:24
  Speaker 4: you're really showing the effort and you're conscious of their time.
• 59:28
  Speaker 4: So take advantage of that while you're young and people
• 59:30
  Speaker 4: are willing to talk to you.
• 59:31
  Speaker 1: And our final question, what do you know about the
• 59:34
  Speaker 1: world of investing today might have been useful fifteen twenty
• 59:38
  Speaker 1: years ago when you were really first starting up.
• 59:41
  Speaker 4: Yeah, I know that I don't know everything. I know
• 59:43
  Speaker 4: that I've learned a lot along the ways. As I
• 59:45
  Speaker 4: said before, that you know, there's different ways to play
• 59:48
  Speaker 4: the game, and I've kind of found the version of
• 59:50
  Speaker 4: this game that I want to play and that I
• 59:51
  Speaker 4: think I can do well at. And you know, just
• 59:54
  Speaker 4: continuing to try to get smarter every day.
• 59:56
  Speaker 1: That sounds like you're bringing it back to the circle
• 59:59
  Speaker 1: of competent.
• 1:00:00
  Speaker 4: Yeah, a lot of things come back to what Warren
• 1:00:01
  Speaker 4: and Charlie said. They're pretty smart. They had some good
• 1:00:03
  Speaker 4: ideas are investing in business.
• 1:00:05
  Speaker 1: Those guys are definitely onto something.
• 1:00:08
  Speaker 3: It was hard to get this to five hundred pages.
• 1:00:10
  Speaker 2: Well really, yeah, because they just repeat.
• 1:00:12
  Speaker 4: Well, I went through seventeen hundred questions and I was like, okay,
• 1:00:14
  Speaker 4: I tried to keep eleven hundred of them.
• 1:00:16
  Speaker 3: I think we got to cut this down a little
• 1:00:17
  Speaker 3: bit more.
• 1:00:18
  Speaker 1: What was the original length of this monster when at first.
• 1:00:21
  Speaker 4: Oh, it was a huge word document, I think it was.
• 1:00:24
  Speaker 4: I think I think it was seven or eight hundred pages.
• 1:00:27
  Speaker 4: But then I had to go through, Okay, whatch of
• 1:00:29
  Speaker 4: these comments on value investing do I really need to keep?
• 1:00:32
  Speaker 4: So that was one of the harder processes of writing
• 1:00:35
  Speaker 4: the book.
• 1:00:35
  Speaker 1: But I could imagine, Alex that thank you so much
• 1:00:38
  Speaker 1: for coming in. I have really been enjoyed by halfway through.
• 1:00:42
  Speaker 1: And this isn't like a book you pick up and
• 1:00:45
  Speaker 1: you know, read three.
• 1:00:46
  Speaker 2: Or four chapters.
• 1:00:48
  Speaker 1: It's just dense with knowledge and information and you really
• 1:00:53
  Speaker 1: have to chew on everything all the way through, and
• 1:00:55
  Speaker 1: I've very much been been enjoying it. We have been
• 1:00:59
  Speaker 1: speaking with Alan Morris, author of Buffett and Munger unscripted.
• 1:01:04
  Speaker 1: If you enjoy this conversation, well check out any of
• 1:01:07
  Speaker 1: the six hundred and fifty nine we've done over the
• 1:01:10
  Speaker 1: past twelve years. You can find those at iTunes, Spotify,
• 1:01:15
  Speaker 1: Bloomberg YouTube, wherever you get your favorite podcasts. I would
• 1:01:19
  Speaker 1: be remiss finding thanks the crack team that helps us
• 1:01:22
  Speaker 1: put these conversations together each week. Alexis Noriega is my
• 1:01:27
  Speaker 1: video producer. Sean Russo is my researcher. Anna Luke is
• 1:01:31
  Speaker 1: my producer. I'm Barry Retoults. You've been listening to Masters
• 1:01:36
  Speaker 1: in Business on Bloomberg Radio.