Latest / The Dutch Investors / #51 | Value investing in the digital age, earnings power & tech moats | Interview w/ Adam Seessel

Transcript

#51 | Value investing in the digital age, earnings power & tech moats | Interview w/ Adam Seessel · The Dutch Investors

• 0:00
  SPEAKER_02: Welcome to the Dutch Investors Podcast.
• 0:03
  SPEAKER_02: In today's conversation, we're joined by Adam Cecil, former investigative journalist, turned successful Wall Street fund manager, and author of Where the Money Is: Value Investing in the Digital Age.
• 0:17
  SPEAKER_02: We dive deep into how value investing has evolved from Benjamin Graham to Buffett into the tech-driven 3.0 era.
• 0:24
  SPEAKER_02: Adam shares his hard-earned insights, practical frameworks like his BMP checklist, his mistakes, and we talk about what a potential value investing 4.0 looks like.
• 0:36
  SPEAKER_02: Links to his socials and books are in the episode description.
• 0:39
  SPEAKER_02: Enjoy today's conversation with Adam Cesel! How are you doing, Adam?
• 0:58
  SPEAKER_02: Nice to meet you.
• 1:00
  SPEAKER_02: How are you doing, Adam?
• 1:01
  SPEAKER_02: You speak a little bit of Dutch?
• 1:03
  SPEAKER_02: Five words.
• 1:04
  SPEAKER_02: Six words.
• 1:06
  SPEAKER_02: Five words?
• 1:07
  SPEAKER_02: Well, we'll make it uh seven after this podcast.
• 1:09
  SPEAKER_02: Alright, sounds good.
• 1:10
  SPEAKER_02: Are you from New York?
• 1:12
  SPEAKER_02: Uh is that is that right?
• 1:13
  SPEAKER_00: Well, I'm from across the river in New Jersey, but close enough.
• 1:17
  SPEAKER_02: Close enough.
• 1:18
  SPEAKER_02: And how how's life uh in New Jersey?
• 1:21
  SPEAKER_00: Oh, it's good.
• 1:22
  SPEAKER_00: I mean, I'm in New York City, but I was born and raised in in New Jersey.
• 1:26
  SPEAKER_00: So um I see.
• 1:27
  SPEAKER_00: Yeah, everything's good.
• 1:29
  SPEAKER_00: We had just had a really big heat wave, which you may have heard about.
• 1:33
  SPEAKER_02: So Yeah, definitely.
• 1:34
  SPEAKER_00: It was maybe 39 degrees uh centigrade here for several days, so it was really, really hot.
• 1:42
  SPEAKER_00: But um now everything's cool again, but uh and then we just the New York City uh voters just you know voted for a democratic socialist.
• 1:52
  SPEAKER_00: I'm sure you saw that.
• 1:54
  SPEAKER_02: So yeah, you can't escape the news, right?
• 1:58
  SPEAKER_00: But we need we need to get the Europeans over here to tell us about their experience with socialism.
• 2:04
  SPEAKER_00: We'll ask the French.
• 2:05
  SPEAKER_00: Well, and the and the English and the Germans, right?
• 2:08
  SPEAKER_02: Well, uh Adam, I'm glad you took out the time to uh to come on in your busy schedule.
• 2:14
  SPEAKER_02: Thank you so much for that.
• 2:15
  SPEAKER_00: You're welcome.
• 2:16
  SPEAKER_00: I'm happy to do it.
• 2:17
  SPEAKER_02: So if I did my um background check correctly, you were an investigative journalist uh before becoming a fund manager.
• 2:25
  SPEAKER_00: And by the way, we're we're reporting now, yeah?
• 2:29
  SPEAKER_02: Absolutely, yeah.
• 2:30
  SPEAKER_00: Okay, very good.
• 2:31
  SPEAKER_00: Yes, I was an investigative reporter in my twenties.
• 2:34
  SPEAKER_00: It was a lot of fun, you know, got a lot of people in trouble, right and wrongs, won uh national prizes, but uh when I was getting ready to be 30, I said, you know, the money is terrible, the hours are terrible.
• 2:47
  SPEAKER_00: Let me see where how I can use my research skills to make more money.
• 2:51
  SPEAKER_00: We were getting ready to have a child.
• 2:53
  SPEAKER_00: This was just about 30 years ago.
• 2:56
  SPEAKER_00: So I had friends who'd gone onto Wall Street after college when I went into journalism, and they said, Adam, you know, being a journalist and being a researcher on Wall Street are very much the same skill set.
• 3:08
  SPEAKER_00: It's uh just, you know, the you have to learn accounting and you know, you have to read financial statements, and the goal is quite different, right?
• 3:15
  SPEAKER_00: You know, in journalism, you're trying to tell the truth and write wrongs, but in money management, you're not you're not trying to write wrongs, but you are trying to arrive at the truth.
• 3:25
  SPEAKER_00: So very similar skill sets.
• 3:28
  SPEAKER_00: And I was shocked at how transferable the skills have been over the years.
• 3:32
  SPEAKER_00: We can talk more about it, but for now, suffice it to say that Warren Buffett has said if he couldn't be an investor, he would be a journalist because it's fun and it's interesting, and the skill sets of researching and reading and talking to people are almost identical.
• 3:48
  SPEAKER_02: So are those the things that translate it most to becoming a uh analyst on Wall Street, uh a fund manager now?
• 3:55
  SPEAKER_00: What's really interesting, Seam, is when you do investigative reporting, there's some reporters, reporters broadly speaking, fall into two camps.
• 4:03
  SPEAKER_00: One is the folks who only do document-based reporting.
• 4:07
  SPEAKER_00: So they'll go deep into the documents, government documents, and um, you know, they'll do a deep dive into you know an issue.
• 4:15
  SPEAKER_00: Uh and when they emerge after having read all these documents, they have a very deep understanding of the issue, but it's a very academic understanding because they haven't talked to people.
• 4:29
  SPEAKER_00: So they understand the issue from a paper perspective, but not from a necessarily a human perspective.
• 4:36
  SPEAKER_00: Then on the other side of the spectrum, and I'm speaking in generalities, but it's instructive.
• 4:42
  SPEAKER_00: On the other side of the spectrum, you have people who all they do is talk to human sources.
• 4:48
  SPEAKER_00: And so it's interesting, you know, they talk to the mayor and they talk to the city council people and they talk to people in the street, but it's very superficial because they haven't really taken the time to do a deep dive on the issue.
• 5:02
  SPEAKER_00: So it's like one side has a dry but deep understanding of the issue, and the other side has a very superficial understanding of the issue, but they have the human part.
• 5:12
  SPEAKER_00: So the human people are like the gossip columnists, and the dry people are like the academics sitting in some university.
• 5:21
  SPEAKER_00: But if you combine the two, if you combine documents with human beings, you're really cooking.
• 5:27
  SPEAKER_00: So, and that's equally true in journalism and investing.
• 5:31
  SPEAKER_00: So when I would do my investigative reporting, I would start with a deep dive into the documents, but then I would interview human beings to get the context of what I'd learned.
• 5:42
  SPEAKER_00: Because I was prepared, they would give me good answers and they would lead me to other human sources.
• 5:48
  SPEAKER_00: They would also direct me to document-based sources.
• 5:52
  SPEAKER_00: So I would read more, I would talk to more people.
• 5:55
  SPEAKER_00: My understanding, both on the human level and on the academic level, would deepen.
• 6:00
  SPEAKER_00: Then I would talk to more people and so on and so on until you were really cooking.
• 6:05
  SPEAKER_00: And so, you know, I would go to my interviews, you know, this was back before PCs, but I would go to my interviews with thick stacks of documents like this, and I would show them, like I would put it down on the table, like that, so that they knew that I had come prepared.
• 6:24
  SPEAKER_00: And so they were forced in some ways to give me honest answers and better answers because they knew I would catch them if they didn't.
• 6:31
  SPEAKER_00: And so, as you can see, I now do the same thing, but you know, here's Amazon, you know, here's uh Flutter, both of these stocks I own.
• 6:42
  SPEAKER_00: Um, here's Dollar General, which I own, Flagstar, which I don't own.
• 6:48
  SPEAKER_00: So, like that.
• 6:49
  SPEAKER_00: So the synthesis of document-based research and human-based research is is really, really, really important uh in both disciplines.
• 6:59
  SPEAKER_00: And so I'm I'm essentially a reporter now, Seam.
• 7:03
  SPEAKER_00: I'm just a reporter trying to make money as opposed to trying to tell the truth for the general public.
• 7:10
  SPEAKER_02: Fair enough.
• 7:11
  SPEAKER_02: Is that how you prefer doing your research on paper, or do you how do you do it?
• 7:17
  SPEAKER_00: Neither, both are necessary, but neither is sufficient.
• 7:21
  SPEAKER_00: So here again, if all I did was that read the 10K's, like I wouldn't understand, like flutter, uh, Flutter, I wouldn't understand how Flutter operates in the marketplace, right?
• 7:32
  SPEAKER_00: It's sports betting, right?
• 7:34
  SPEAKER_00: If all I read was Amazon's 10K, I wouldn't really understand how it goes to market in e-commerce or or cloud.
• 7:44
  SPEAKER_00: I have to talk to human beings to understand that.
• 7:47
  SPEAKER_00: Now, conversely, if I didn't read the financials and just talk to human beings about do you like Amazon and why?
• 7:55
  SPEAKER_00: Do you like FanDuel, which is the sports betting site that Flutter owns here in the United States, they would give me interesting answers, but I wouldn't have any context.
• 8:03
  SPEAKER_00: I wouldn't know their financials, I wouldn't know how much money they make, I wouldn't know their return on capital, I wouldn't know their profit margins.
• 8:10
  SPEAKER_00: So I would have no context.
• 8:12
  SPEAKER_00: So the one is surface and the other is depth, but you have to have both.
• 8:17
  SPEAKER_00: And that's where the that's where the synthesis, that's where the the that's where the magic happens when you're doing documents and human sources.
• 8:25
  SPEAKER_02: Yeah, so both hard and soft stuff is uh is important.
• 8:29
  SPEAKER_02: Yeah.
• 8:30
  SPEAKER_00: That's a good way of putting it.
• 8:31
  SPEAKER_02: So I have the book right behind me, value investment.
• 8:34
  SPEAKER_02: Great.
• 8:35
  SPEAKER_02: I don't know if you can see it.
• 8:37
  SPEAKER_00: I see it in the distance.
• 8:38
  SPEAKER_00: Yep, good.
• 8:39
  SPEAKER_00: It hasn't been translated, it's not yet been translated into Dutch, but thankfully everyone, everyone in Holland speaks almost flawless English.
• 8:47
  SPEAKER_02: So well, I appreciate it.
• 8:49
  SPEAKER_02: If I'm at a benchmark, I appreciate the compliment.
• 8:51
  SPEAKER_02: But anyway.
• 8:52
  SPEAKER_00: It is a compliment.
• 8:54
  SPEAKER_02: Um it's actually one of the it's not one of the first books I read, but it was one of the first books that actually made things click for me.
• 9:03
  SPEAKER_02: Where where you talked about most of my knowledge and uh what I was looking for was pretty surface level book, basically taught me.
• 9:13
  SPEAKER_00: You mean from your own experience?
• 9:15
  SPEAKER_02: Yeah, yeah, from my own experience, yeah.
• 9:17
  SPEAKER_02: And the book basically taught me that sometimes you need to take a step back, uh, play around with some of the figures, with some of the numbers, talk to people, have a checklist, and it was one of the first books that taught me, actually taught me some useful new insights back then.
• 9:36
  SPEAKER_02: And uh I just wanted to say a thank you for that because uh it was very influential looking back now.
• 9:43
  SPEAKER_00: Great.
• 9:43
  SPEAKER_00: Well, I'm I'm so glad it helps, Steam.
• 9:46
  SPEAKER_02: So what was it, what was the spark for you to write a book?
• 9:51
  SPEAKER_02: I mean, you've been pretty successful with uh being a fund manager, a journalist, uh, analyst on Wall Street, and now an author.
• 9:59
  SPEAKER_02: So why uh did you decide to write a book?
• 10:03
  SPEAKER_00: Well, it was in one word, it was COVID.
• 10:05
  SPEAKER_00: COVID hit, and all of a sudden I couldn't go visit my companies, right?
• 10:10
  SPEAKER_00: I, you know, I'm a reporter, so I go out and visit companies and people and interview people and see what's going on out there, not just in New York, but you know, in in the bigger, bigger parts of the United States.
• 10:24
  SPEAKER_00: So I couldn't do that.
• 10:26
  SPEAKER_00: And so, you know, I had a literary agent tell me, you know, you should write a book, because I'd been writing some for Barons and Fortune, been getting back into my first career, but writing financial stuff.
• 10:37
  SPEAKER_00: She said, You should write a book.
• 10:38
  SPEAKER_00: I said, Ah, I don't have time to write a book.
• 10:40
  SPEAKER_00: And then COVID came along, and I did have time to write a book.
• 10:44
  SPEAKER_00: I was sitting there, you know, in lockdown like everybody else.
• 10:48
  SPEAKER_00: And so I thought, you know, she's right.
• 10:50
  SPEAKER_00: It's a very good time to codify my thinking and to, you know, I did it as much for myself as I did for others because I had all these thoughts running around in my head about, you know, old value investing and the way Ben Graham and Warren Buffett used to do it, and then, you know, the rise of tech in the digital age and how value investing and tech just did not get along at all.
• 11:16
  SPEAKER_00: They just didn't, they were like oil and water.
• 11:18
  SPEAKER_00: So I thought, well, you know, it's time to time to um, you know, codify and synthesize my own thinking on this and put it down on paper.
• 11:28
  SPEAKER_00: And I'm very glad I did because it helped me a lot.
• 11:32
  SPEAKER_00: And then, you know, it's helped people like you.
• 11:34
  SPEAKER_00: So it was a win-win, as we say, in the States.
• 11:37
  SPEAKER_02: Well, let's get into that because uh, I mean, I have tons of questions uh to you about the book.
• 11:44
  SPEAKER_02: Uh it's called Value Investing in the Digital Age.
• 11:49
  SPEAKER_02: You you described the evolution from Benjamin Graham, which you call value 1.0, uh, to Buffett and uh later on to what you call value 3.0.
• 12:00
  SPEAKER_02: Yeah.
• 12:01
  SPEAKER_02: How did you come up with it?
• 12:02
  SPEAKER_02: Uh, can you walk us uh through that?
• 12:04
  SPEAKER_00: Sure.
• 12:05
  SPEAKER_00: Well, actually, the full title of the book scene is Where the Money Is, and then the subtitle is Value Investing in the Digital Age.
• 12:12
  SPEAKER_00: You know, Where the Money Is is a famous quote when they caught a bank robber in in America a hundred years ago named Willie Sutton, and they said, Why do you why did you rob so many banks, Willie?
• 12:23
  SPEAKER_00: And he said, Well, that's easy.
• 12:24
  SPEAKER_00: That's where the money is.
• 12:26
  SPEAKER_00: So he was a little bit of a wisecracker.
• 12:29
  SPEAKER_00: But anyway, it was a good it was a good line, and I used it because tech is where the money is now, right?
• 12:35
  SPEAKER_00: Well, why do I study tech?
• 12:36
  SPEAKER_00: It's not because I love tech.
• 12:38
  SPEAKER_00: I I I don't like tech.
• 12:39
  SPEAKER_00: I I resist most technological innovations.
• 12:42
  SPEAKER_00: I'm not a leading-edge early adopter tech guy.
• 12:46
  SPEAKER_00: I I I I study tech because it's where the money is for the same reason that Willie Sutton robbed banks.
• 12:52
  SPEAKER_00: So and that kind of dovetails with your question, Seam, in the sense that value investing, which I was when I went on to Wall Street 30 years ago, I was steeped in and learned at a very good firm called Sanford Bernstein.
• 13:07
  SPEAKER_00: I am a value investor.
• 13:08
  SPEAKER_00: And so I started to think that there were several different phases of value investing.
• 13:14
  SPEAKER_00: Uh, although I have to say that the express the value 1.0, value 2.0, and value 3.0 didn't come from me.
• 13:21
  SPEAKER_00: It came from my friend Chris Begg at East Coast Capital Management.
• 13:26
  SPEAKER_00: Like a good journalist, I have to, you know, give give attribution to my sources.
• 13:32
  SPEAKER_00: So that's not my invention, value 1.0, 2.0, 3.0, but it's really Chris Begg's.
• 13:38
  SPEAKER_00: But anyway, value 1.0 is 110 years ago, Ben Graham, this brilliant guy who graduated at the top of his class in Columbia and was going to be, I think he was offered three different positions at Columbia University after he graduated.
• 13:55
  SPEAKER_00: And philosophy, math, and economics, or something like that.
• 13:59
  SPEAKER_00: They wanted him to teach in three different departments.
• 14:02
  SPEAKER_00: That's how intelligent he was.
• 14:04
  SPEAKER_00: But his his father had died and he needed to make a living for his family, so he went on to Wall Street because that's where the money was.
• 14:11
  SPEAKER_00: Because he had to make a living.
• 14:13
  SPEAKER_00: And he, the Wall Street that he saw 110 years ago, was really like a casino.
• 14:18
  SPEAKER_00: One of his early jobs was keeping the books for the presidential election 1916.
• 14:24
  SPEAKER_00: You could walk into a New York stock exchange listed firm and legally place a bet on who would win the election in 1916 for the president of the United States.
• 14:35
  SPEAKER_00: We're getting there again now with crypto and stuff, but you still can't bet uh on the who would win the president on Wall Street today.
• 14:43
  SPEAKER_00: But back then you could.
• 14:44
  SPEAKER_00: It was a crazy, wide open, Wild West casino type place.
• 14:49
  SPEAKER_00: And he found this all very interesting, Ben Graham did, but he he said, I gotta make money.
• 14:54
  SPEAKER_00: You know, I can't, I can't just roll the dice and I gotta find a systematic way to make money.
• 15:01
  SPEAKER_00: So he came up with, you know, what we came, you know, what we now know is the foundation of value investing, which was essentially an attempt to systematize and codify and regulate a set of rules so that when you made an investment, you weren't just guessing, you weren't just playing a hunch, you weren't playing the market.
• 15:25
  SPEAKER_00: You know, even today people say, I don't like Wall Street, you know, I don't like playing the market.
• 15:30
  SPEAKER_00: And I say, I don't like playing the market either, because I'm a value investor and I have a system to attempt to beat the market.
• 15:38
  SPEAKER_00: So Ben Graham is the father of value investing.
• 15:41
  SPEAKER_00: Now, his school of value investing turned out to be very conservative.
• 15:47
  SPEAKER_00: So he didn't care how much a company made, he didn't care what a company did, what kind of businesses it was in, if it was a good business or a bad business.
• 15:57
  SPEAKER_00: All he cared about was the company's assets.
• 16:00
  SPEAKER_00: It was a very static, very conservative way of looking at it.
• 16:04
  SPEAKER_00: He would take a company's balance sheet and he would add up what they owned, you know, their cash and their inventory and their factories, and then he would deduct what they owed, you know, their accounts payable, their debt to the banks, and so forth.
• 16:18
  SPEAKER_00: And he would come up with a number.
• 16:20
  SPEAKER_00: And if if the stock were trading below that number, he would buy it.
• 16:27
  SPEAKER_00: It was genius at the time.
• 16:29
  SPEAKER_00: It sounds commonsensical to us now, but back then, as I said, it was a casino.
• 16:34
  SPEAKER_00: So to have a rules and and so forth to proceed to build wealth was revolutionary at the time.
• 16:42
  SPEAKER_00: So that's value 1.0.
• 16:46
  SPEAKER_00: Now, it turns out that that was a very good system for you know the early part of the 20th century because there was a lot of scams, there was a lot of the markets weren't very well regulated.
• 16:58
  SPEAKER_00: And then, of course, we had the Depression in the 20s and a lot of companies were trading below their net asset value.
• 17:06
  SPEAKER_00: So you could you could very profitably buy um a lot of different companies on the on the American stock exchange that were trading below their liquidation value.
• 17:18
  SPEAKER_00: You know, he was a very conservative investor in the sense that he didn't care what the company did.
• 17:22
  SPEAKER_00: He didn't care if the business grew.
• 17:24
  SPEAKER_00: He just wanted to know was this company worth more dead than alive?
• 17:29
  SPEAKER_00: So if a company had$100 worth of assets and$50 worth of liabilities, theoretically you could liquidate that company tomorrow for$50 a share, right?
• 17:41
  SPEAKER_00: $100 of assets, you sell the assets, you take$50 of those assets of that cash, and you pay off the liabilities, and you're left with$50 for the for the uh for the shareholders.
• 17:54
  SPEAKER_00: So if he could buy it at$30 or$35 a share, he was ecstatic because it was it was selling below its liquidation value.
• 18:03
  SPEAKER_00: And he had other metrics that were a little more sophisticated, but that's the basic idea.
• 18:08
  SPEAKER_00: So that was value 1.0, and that was the what his star pupil, class of 1950 or 1951, Columbia Business School, when Ben Graham was getting up in years, his star pupil was Warren Buffett at Columbia Business School.
• 18:25
  SPEAKER_00: Only guy that ever got an A from Ben Graham.
• 18:28
  SPEAKER_00: So Buffett learned Value 1.0, and he he worshipped Ben Graham as a hero.
• 18:37
  SPEAKER_00: He worships him now to this day.
• 18:39
  SPEAKER_00: He's 94 years old.
• 18:41
  SPEAKER_00: But Buffett, as time went on, understood that the world had changed after Ben Graham.
• 18:48
  SPEAKER_00: That, you know, companies were interesting not so much for their liquidation value, they were interesting because they could make money.
• 18:56
  SPEAKER_00: And they could make money over a long period of time.
• 19:00
  SPEAKER_00: So Buffett began in the 50s and 60s to study things like television broadcasters, which, you know, were sort of there were only three national broadcasters in the 50s, uh, which was sort of a license to print money.
• 19:14
  SPEAKER_00: He would study Walt Disney, which had the theme parks and the movies.
• 19:19
  SPEAKER_00: He started to see that these companies were worth a lot more alive than dead, and that looking at them with recourse only to asset value was a short-sighted and his partner Charlie Munger would say foolish way to value a company.
• 19:38
  SPEAKER_00: You know, the value of a company, as Buffett said, was, you know, its future cash flows discounted back to the present.
• 19:46
  SPEAKER_00: So if you had a company that had a long and prosperous future, like a television broadcaster or like a consumer products company or Disney, you know, that company was worth a lot of money.
• 19:58
  SPEAKER_00: Now you can't predict the future.
• 20:00
  SPEAKER_00: Nothing is a given or inevitable.
• 20:02
  SPEAKER_00: But, you know, back in the 50s and 60s, it was a fair bet to say that television broadcasters and consumer products companies and, you know, content companies like Disney had a long and prosperous future ahead of them.
• 20:15
  SPEAKER_00: So that was value 2.0.
• 20:17
  SPEAKER_00: Basically paying a higher price, not as conservative a valuation framework as value 1.0, but but gravitating toward better businesses and focusing not on the asset liquidation value, but on the long duration of cash flow that was likely to accrue from these businesses.
• 20:38
  SPEAKER_00: So that was Value 2.0 with Buffett, and he increasingly adopted this strategy with enormous success.
• 20:45
  SPEAKER_00: We all know his success.
• 20:46
  SPEAKER_00: He's one of the richest persons in the world just because by dint of investing.
• 20:52
  SPEAKER_00: But I thought that the world had changed enough in the early first century that we needed a value 3.0 because I thought that Buffett was missing a few important things.
• 21:06
  SPEAKER_00: So he was missing one that the digital age was upon us and is upon us.
• 21:12
  SPEAKER_00: Two, digital companies act in radically different ways, both consumer-facing and also their unit economics are radically different and radically better than even his best companies.
• 21:25
  SPEAKER_00: You know, Coca-Cola was another of his great investments.
• 21:30
  SPEAKER_00: But even Coke has ingredients, right?
• 21:33
  SPEAKER_00: They have sugar, they have water, and they have they have to make this bottle or this can.
• 21:39
  SPEAKER_00: They have to have a whole bottling infrastructure to put the sugar water in the can.
• 21:45
  SPEAKER_00: They have to have trucks to get it around to people, they have to have vending machines to keep it cold.
• 21:51
  SPEAKER_00: Google, Facebook, Microsoft, they don't have any of that stuff.
• 21:56
  SPEAKER_00: You know, they're their product has.
• 22:00
  SPEAKER_00: No cost of goods.
• 22:01
  SPEAKER_00: It's zeros and ones.
• 22:04
  SPEAKER_00: It's almost a costless thing.
• 22:06
  SPEAKER_00: And then, you know, if you thought Coca-Cola had a dominant market share, Coca-Cola has nowhere near as dominant a market share as Google and search or Facebook and social media or Microsoft and Office Productivity Tools.
• 22:19
  SPEAKER_00: Go down the list, right?
• 22:21
  SPEAKER_00: Adobe and Creative Tools.
• 22:23
  SPEAKER_00: So the list goes on and on.
• 22:25
  SPEAKER_00: So these are much better companies operating in radically different ways.
• 22:29
  SPEAKER_00: And Buffett really never got digital companies.
• 22:34
  SPEAKER_00: Part of the reason he never got them is they were very ambitious in investing for the future.
• 22:39
  SPEAKER_00: So when Buffett came of age in value 2.0 world, he wanted all the cash.
• 22:45
  SPEAKER_00: Coca-Cola, you know, he wanted Coca-Cola to give them shareholders back all the cash because otherwise they would do stupid stuff like it with it.
• 22:55
  SPEAKER_00: Like he remembered when Coca-Cola tried to buy a movie studio.
• 23:00
  SPEAKER_00: Like, what business does Coke have buying a movie studio?
• 23:04
  SPEAKER_00: Like what synergy is in that business?
• 23:06
  SPEAKER_02: Well, I can see one.
• 23:08
  SPEAKER_00: Product placement?
• 23:09
  SPEAKER_02: Yeah, selling Coke during the movie.
• 23:11
  SPEAKER_00: You can pay for that.
• 23:12
  SPEAKER_00: You pay for that.
• 23:14
  SPEAKER_00: You don't have to buy the whole business.
• 23:15
  SPEAKER_00: You just pay for that.
• 23:17
  SPEAKER_00: You don't have to buy the whole thing.
• 23:19
  SPEAKER_00: That's way too far, way too much.
• 23:22
  SPEAKER_02: I see, yeah.
• 23:23
  SPEAKER_00: So he learned that companies could do a lot of harm by by buying stuff with their excess cash.
• 23:32
  SPEAKER_00: But like Amazon and Facebook and Google and these kind of companies, they add tremendous value by reinvesting in new technology.
• 23:42
  SPEAKER_00: So you see that with Amazon and cloud, right?
• 23:44
  SPEAKER_00: They essentially invented an industry.
• 23:47
  SPEAKER_00: And now you see that with artificial intelligence.
• 23:50
  SPEAKER_00: They're spending billions to build out their artificial intelligence capabilities.
• 23:56
  SPEAKER_00: So it's a different world than Buffett inhabited in the latter part of the 20th century.
• 24:02
  SPEAKER_00: Early part of the 21st century is materially different, different enough to where I thought we needed to have what my friend Chris Begg calls a value 3.0 framework for investing.
• 24:13
  SPEAKER_02: Pretty crazy, right?
• 24:14
  SPEAKER_02: That Benjamin Graham realized Buffett's excellence so early on, giving him the only A plus he's ever given.
• 24:20
  SPEAKER_02: And seeing what Buffett turned out to be now is such a cool story, if you think about it.
• 24:25
  SPEAKER_00: I mean, yeah, to Graham, he was, you know, he was it was pretty obvious to Graham that he was a prodigy.
• 24:32
  SPEAKER_00: I mean, and like all prodigies, he had talent, he was incredibly numerate, and also he was incredibly curious about the world, which is why he wanted to be a journalist, right?
• 24:43
  SPEAKER_00: If he couldn't be an investor.
• 24:44
  SPEAKER_00: So yeah, he he could do the research, he could talk to people, and then he worked like hell.
• 24:50
  SPEAKER_00: Like he he talks about how, you know, when other when other young men were at home looking at Playboy magazine, he was reading, you know, the Moody's stock manual.
• 25:00
  SPEAKER_02: He was just as exciting, right?
• 25:03
  SPEAKER_00: For him.
• 25:04
  SPEAKER_00: Yeah.
• 25:05
  SPEAKER_00: Not for most people, but for him.
• 25:08
  SPEAKER_02: I see what you're saying, yeah.
• 25:09
  SPEAKER_02: In the uh the value 2.0 chapter, you wrote, and uh I'm quoting the book here.
• 25:16
  SPEAKER_02: Value 2.0 companies were capturing where the money was, not where the money is.
• 25:21
  SPEAKER_02: I I really like that, but that does bring me to a question regarding AI, which you just mentioned.
• 25:28
  SPEAKER_02: It kind of looks like we're heading towards this new time, this new era, with Google search for for the first time declining, changing more to large language models.
• 25:38
  SPEAKER_02: We have self-driving cars, we have the cloud, perhaps even AGI eventually.
• 25:44
  SPEAKER_02: Are we going or are we heading to a value 4.0 moment with AI?
• 25:50
  SPEAKER_02: What's your view here?
• 25:52
  SPEAKER_00: Well, I conclude the book by saying at some point we will need value 4.0.
• 25:57
  SPEAKER_00: I mean, I'd be I'd be foolish to not say that.
• 26:00
  SPEAKER_00: Like we've evolved twice in 100 years, but that's the end.
• 26:05
  SPEAKER_00: Like that's you know, that wouldn't be a very supple mind on my part.
• 26:10
  SPEAKER_00: So we definitely will need value 4.0 at some point.
• 26:15
  SPEAKER_00: Um, when we get there, hard to say.
• 26:18
  SPEAKER_00: Right now, I think AI is an extension of the digital age, it's an extension of value 3.0.
• 26:28
  SPEAKER_00: You know, there's so much hyperbole and so much hype about AI, people forget that it's been around for 15, 20 years already.
• 26:40
  SPEAKER_00: You know, I mean, it's not like two or three years ago when Microsoft invested in open AI, it's not like they discovered artificial intelligence.
• 26:50
  SPEAKER_00: It's an evolution, you know.
• 26:53
  SPEAKER_00: So I personally don't believe that it's it's bigger than fire, for example.
• 26:58
  SPEAKER_00: I don't believe that.
• 26:59
  SPEAKER_00: And so people ask me, Seam, whether I have an AI strategy, and I say basically my AI strategy is to continue to invest in the megacap tech companies because they're the ones who have the resources to exploit AI and commercialize AI at scale.
• 27:19
  SPEAKER_00: So, and when I say resources, I mean two things.
• 27:23
  SPEAKER_00: I mean financial resources, money, and then engineers, engineering talent.
• 27:29
  SPEAKER_00: So, you know, like there's a reason.
• 27:33
  SPEAKER_00: OpenAI, what's open AI's valuation?
• 27:36
  SPEAKER_00: 300 billion, something like that?
• 27:38
  SPEAKER_02: Yeah, close to it.
• 27:39
  SPEAKER_00: Something like that.
• 27:40
  SPEAKER_00: What's Microsoft's valuation?
• 27:43
  SPEAKER_02: Three trillion?
• 27:44
  SPEAKER_00: Right.
• 27:44
  SPEAKER_00: So open AI's valuation is a tenth of Microsoft's.
• 27:49
  SPEAKER_00: And who gave OpenAI that valuation?
• 27:52
  SPEAKER_00: Microsoft, right?
• 27:54
  SPEAKER_00: They invested.
• 27:56
  SPEAKER_00: So if if AI is so huge, why would OpenAI take Microsoft's money at a tenth of the market cap of Microsoft?
• 28:07
  SPEAKER_00: So there's only two answers.
• 28:09
  SPEAKER_00: It's a rhetorical question, but but really you can answer it.
• 28:11
  SPEAKER_00: There's only two answers.
• 28:12
  SPEAKER_00: One, they're stupid, and they left a lot of money on the table by selling out at 300 billion, whereas really they're worth 10 trillion, right?
• 28:22
  SPEAKER_00: Why would they sell for a$300 billion valuation if they're worth more than Microsoft, right?
• 28:30
  SPEAKER_00: Doesn't make any sense.
• 28:32
  SPEAKER_00: But the other answer, which I think is the correct answer, is they need Microsoft.
• 28:36
  SPEAKER_00: They need Microsoft's cash and they need Microsoft's resources to get to the next level.
• 28:44
  SPEAKER_00: So I feel very comfortable investing in the mega cap guys who are investing in the next level down, in the open AIs and the anthropics, you know, in the perplexities.
• 28:56
  SPEAKER_00: These guys, these next level companies, need the big guys to realize their dreams.
• 29:02
  SPEAKER_00: So now look, with alphabet and search, you raise a good point.
• 29:06
  SPEAKER_00: And um, you know, I own a lot of alphabet, and I'm thinking hard about whether AI is going to disrupt search.
• 29:16
  SPEAKER_00: You know, I'd be here again, I would be foolish not to entertain that as a possibility.
• 29:22
  SPEAKER_00: I see my own habits, I see my colleagues' habits changing.
• 29:27
  SPEAKER_00: So this is part of interviewing human beings, right?
• 29:30
  SPEAKER_00: Being in the real world and knowing what's going on.
• 29:34
  SPEAKER_00: So I'd be foolish not to say that it's plausible that search's best days are behind them, and they're going to go the way of Coca-Cola, for example, where per capita consumption of Coca-Cola has been going down in the United States for 30, 40 years, something like that.
• 29:50
  SPEAKER_00: People just, it's a mature business, Coke.
• 29:53
  SPEAKER_00: So, sure, could Google search go that way?
• 29:57
  SPEAKER_00: Yes.
• 29:57
  SPEAKER_00: And I'm thinking about it, I'm reading about it, I'm talking to people, I'm doing my research, right?
• 30:02
  SPEAKER_00: Reading documents, talking to people, reading documents, talking to people.
• 30:06
  SPEAKER_00: And, you know, unfortunately, or fortunately, I mean, the reason my job is interesting is it's never clear, it's never easy, because, you know, on the plus side, Google has a lot of distribution, right?
• 30:19
  SPEAKER_00: They got a lot of eyeballs, and they have a lot of money and a lot of resources engineering talent to throw at their own AI effort.
• 30:27
  SPEAKER_00: And so sometimes I think that people are making the classic error of thinking that it's a static pie, right?
• 30:34
  SPEAKER_00: That here's the pie of search, and Google has 90% of it.
• 30:40
  SPEAKER_00: So there's this little sliver that they don't have.
• 30:43
  SPEAKER_00: And if we just redefine search as, you know, queries, including AI, the bare case against Google is that the 10% is going to go to 20 and 30%, and Google will wither.
• 30:55
  SPEAKER_00: But what people forget in that analysis is that the pie is growing, that queries are growing.
• 31:04
  SPEAKER_00: So you could posit a scenario where Google loses 15 points of search and is still bigger than it is today because the explosion of demand for knowledge is is so huge.
• 31:20
  SPEAKER_00: So these are the things that I'm exploring, and this is what makes my job, depending on the day, exciting or maddening.
• 31:28
  SPEAKER_02: Yeah, absolutely.
• 31:30
  SPEAKER_02: My question was more pointed towards um.
• 31:35
  SPEAKER_02: I see what you're saying, right?
• 31:37
  SPEAKER_02: And uh and I agree.
• 31:39
  SPEAKER_02: If you could have seen this shift from 1.0 to 2.0 or from 2.0 to 3.0, you could have spotted this shift and profited from uh from it.
• 31:50
  SPEAKER_02: In the Netherlands, we have a saying, afterwards you look a cow in the ass.
• 31:54
  SPEAKER_02: Uh it just means that everything becomes clear in hindsight.
• 31:58
  SPEAKER_02: So so do you think that what you did laying out the the value 1.0 to 3, the frameworks, can it only be done in hindsight, or are there signs or ways that investors can potentially spot the next 4.0?
• 32:15
  SPEAKER_02: Uh and what's that going to look like if it's not AI?
• 32:19
  SPEAKER_00: Well, it's a fair question.
• 32:21
  SPEAKER_00: Of course you can spot it.
• 32:23
  SPEAKER_00: And the way to spot it is the economics become different.
• 32:27
  SPEAKER_00: So coke, great business, high profit margins, branded, big market share, economies of scale, right, global distribution, but still has you know ingredients, right?
• 32:41
  SPEAKER_00: Still has sugar and water, still has aluminum, still has a bottling network.
• 32:48
  SPEAKER_00: Contrast that with the software companies, which we already did, right?
• 32:52
  SPEAKER_00: No cost of goods, no physical presence to speak of, right?
• 32:57
  SPEAKER_00: Winner-take all dynamics, right?
• 32:59
  SPEAKER_00: When when someone standardizes on social media, everybody standardizes on social media, right?
• 33:06
  SPEAKER_00: Facebook.
• 33:06
  SPEAKER_00: So radically different economics.
• 33:09
  SPEAKER_00: So that's what you're going to look for with value 4.0.
• 33:14
  SPEAKER_00: So far, artificial intelligence is just digital economics.
• 33:18
  SPEAKER_00: In fact, it's probably worse economics than the software companies because it's highly expensive to train these models, and it's highly expensive to get the answers, get the inferences back from all the questions.
• 33:34
  SPEAKER_00: So that's that's number one.
• 33:37
  SPEAKER_00: That's the first knock against investing in an AI company.
• 33:40
  SPEAKER_00: It's it's unclear whether they can make money.
• 33:44
  SPEAKER_00: Second, no one's standardized on an AI company yet, right?
• 33:49
  SPEAKER_00: It's now who's gonna win?
• 33:51
  SPEAKER_00: Chat GPT or Gemini or Perplexity or Anthropic, right?
• 33:57
  SPEAKER_00: It's uh it's a bit of a gold rush to see who's gonna win.
• 34:00
  SPEAKER_00: But nothing I can see, seem in my analysis of artificial intelligence tells me that this is radically new economics that's gonna necessitate an entirely new framework.
• 34:13
  SPEAKER_00: Um, it's it's an evolution or an iteration of the digital businesses that I'm familiar with.
• 34:20
  SPEAKER_02: I see.
• 34:20
  SPEAKER_02: Yeah.
• 34:21
  SPEAKER_00: I could be wrong, and I'm and I'm happy to change my mind, but that's where I am now.
• 34:25
  SPEAKER_02: Yeah.
• 34:27
  SPEAKER_02: So another part of the book that really helps me, it still helps me today, but especially looking back, was the BMP checklist, business management price checklist.
• 34:38
  SPEAKER_02: Can you take us through it?
• 34:39
  SPEAKER_02: And um, how did you how did you come up with it?
• 34:42
  SPEAKER_00: Well, look, I mean, I came up with it as a way of dealing with my own frustration, which you have probably felt, and any investor who's has felt in trying to, you know, go into the stock market and say, well, what the heck do I buy?
• 34:58
  SPEAKER_00: Like, how do I do this?
• 34:59
  SPEAKER_00: It's like a forest out there, you know.
• 35:01
  SPEAKER_00: So you need a compass, you need a map, you need a set of tools to navigate.
• 35:08
  SPEAKER_00: So, you know, Graham had his liquidation analysis.
• 35:11
  SPEAKER_00: I have my, as you say, BMP checklist.
• 35:14
  SPEAKER_00: So B for business, M for management, and P for price.
• 35:19
  SPEAKER_00: So you just, it's just a way to say, okay, this is really confusing.
• 35:25
  SPEAKER_00: There are a lot of businesses out there.
• 35:27
  SPEAKER_00: Let me just sort of systematically go through each one and say, well, is this a good business, right?
• 35:32
  SPEAKER_00: Is it a good business?
• 35:34
  SPEAKER_00: And you know, these are common sense things.
• 35:37
  SPEAKER_00: You know, if it's a consumer-facing business, do consumers like it, right?
• 35:41
  SPEAKER_00: Is there a lot of growth on the cum, right?
• 35:44
  SPEAKER_00: Is it hard to compete against?
• 35:46
  SPEAKER_00: These are common sense questions that a sixth grader, a 12-year-old, could answer, right?
• 35:52
  SPEAKER_00: So Amazon, for example, like, is Amazon's e-commerce business a good business?
• 35:58
  SPEAKER_00: Well, let's see.
• 35:59
  SPEAKER_00: In the States, they have a 50% share of e-commerce.
• 36:02
  SPEAKER_00: You know, they have a network of distribution facilities that is, I think they have a thousand.
• 36:07
  SPEAKER_00: Very hard for any competitor to replicate a thousand distribution facilities.
• 36:13
  SPEAKER_00: Every year they do more and more goods next day or same-day service.
• 36:17
  SPEAKER_00: They have the best selection, the best speeds, and the prices aren't always the lowest, but the prices are generally good.
• 36:26
  SPEAKER_00: So that's an extremely hard business to compete against.
• 36:30
  SPEAKER_00: If you and I got together, you know, we'd say, all right, let's see, how many billions of dollars do we need to start a network of a thousand distribution centers, and then we have to buy millions of SKUs, you know, every day and have them in stock in the warehouse and then get them to customers at a reasonable price.
• 36:52
  SPEAKER_00: So I could do, I could do what that exercise, like we just did with a 12-year-old.
• 36:58
  SPEAKER_00: So that's the business exercise.
• 37:00
  SPEAKER_00: Then the management is, you know, as Buffett likes to say, you know, I want a business so good that an idiot could run it, because one day an idiot will.
• 37:10
  SPEAKER_00: So I've already told you about Coke.
• 37:13
  SPEAKER_00: You know, Koch's management at one point thought it was a good idea to buy a movie studio.
• 37:18
  SPEAKER_00: So, you know, are these people running the business, do they know what they have?
• 37:24
  SPEAKER_00: Do they know that they have a good business?
• 37:26
  SPEAKER_00: Do they get off the track and do stuff like buy movie studios?
• 37:31
  SPEAKER_00: Do they self-deal?
• 37:32
  SPEAKER_00: Do they pay themselves too much money and not care about the shareholders?
• 37:36
  SPEAKER_00: Are they in it for the long term?
• 37:38
  SPEAKER_00: Or are they just trying to, you know, cook up short-term stuff so that they can uh profit in the short run?
• 37:45
  SPEAKER_00: And then when they retire, they end up handing an empty shell of a company to their successor.
• 37:50
  SPEAKER_00: So here again, these are common sense questions.
• 37:53
  SPEAKER_00: But is the management on your side?
• 37:55
  SPEAKER_00: Are they on the side of you as a long-term-oriented shareholder?
• 38:00
  SPEAKER_00: Or are they either stupid or in it for themselves?
• 38:04
  SPEAKER_00: Right?
• 38:05
  SPEAKER_00: So that's the management question.
• 38:07
  SPEAKER_00: And then the price question is in many ways the most technical, but um, you know, you gotta get it for a decent price.
• 38:14
  SPEAKER_00: You could have the best business in the world, run by the best manager in the world, but it still could be overpriced.
• 38:21
  SPEAKER_00: I mean, in the book I say if you go up here to Park Avenue in uptown New York City and you see this penthouse apartment, and it's beautiful, and the views are stunning, and there's you know 10,000 square feet, it's huge.
• 38:33
  SPEAKER_00: You say, wow, how much is it?
• 38:35
  SPEAKER_00: And they say,$5 billion, I'll pass, you know.
• 38:39
  SPEAKER_00: Might be worth$50 million, but it's not worth$5 billion, right?
• 38:43
  SPEAKER_00: So you have to be disciplined on what you pay, even if you have a a wonderful asset.
• 38:49
  SPEAKER_00: So that's the framework, and it's all very common sense.
• 38:52
  SPEAKER_00: And as you say, I lay it out in the book, and you know, I could probably do it with a 12-year-old.
• 38:57
  SPEAKER_02: Yeah, it's about you you really simplified the process, and uh the quality remains, but you're just asking common sense questions that just afterwards you're like, I could have come up with this myself, right?
• 39:10
  SPEAKER_00: But uh I didn't.
• 39:13
  SPEAKER_00: Well, remember, this is you know, after me hitting my head against the wall or you know, wandering around the forest of the stock exchange for 25 years trying to figure all this out, and then you know, having a period of enforced um solitude with COVID where I could just sort of sit down and put everything down on paper.
• 39:36
  SPEAKER_00: So so it was you know 25 years of confusion and then two years of putting it down on paper.
• 39:45
  SPEAKER_00: So um yeah, so I'm happy I did because now life's a lot easier for me, and I'm I'm glad it's a bit easier for you.
• 39:52
  SPEAKER_02: So I uh up obviously I don't know exactly how how you manage or run the fund and who makes the buy and sell decisions.
• 39:59
  SPEAKER_02: But does every company I do, that's easy.
• 40:02
  SPEAKER_02: Okay.
• 40:03
  SPEAKER_02: So does every company you buy or sell, well buy in this case, go through this checklist nowadays?
• 40:09
  SPEAKER_00: No, sometimes I just wing it.
• 40:12
  SPEAKER_00: Of course.
• 40:14
  SPEAKER_02: Okay, I just think I practice what you preach, I'm just asking.
• 40:17
  SPEAKER_00: Sometimes I just throw something in there because it sounds interesting.
• 40:20
  SPEAKER_02: Yeah, yeah, yeah, exactly.
• 40:22
  SPEAKER_00: I bought a bunch of crypto the other day because I was wondering.
• 40:25
  SPEAKER_00: I think it's gonna go up.
• 40:29
  SPEAKER_00: Of course, Seam.
• 40:31
  SPEAKER_00: Of course.
• 40:31
  SPEAKER_00: I I wasn't just I wasn't just writing it down for for for fun.
• 40:37
  SPEAKER_00: I yes, I I I do this myself.
• 40:41
  SPEAKER_02: Well, it's uh it's just um I know there's many people out there that that say they do certain things, but in practice they they don't, so I'm just um that's true.
• 40:54
  SPEAKER_00: That's true.
• 40:55
  SPEAKER_00: Well, my wife is from North Carolina, a state in the southern United States, and they have one of the best mottos of any government I've ever heard.
• 41:03
  SPEAKER_00: And it's in Latin.
• 41:05
  SPEAKER_00: I don't speak Latin, but I know the translation.
• 41:07
  SPEAKER_00: So it's essay quam vedere, and translated into English, you can translate it into Dutch if you like, is to be rather than to seem.
• 41:19
  SPEAKER_00: So be, don't appear to be, be, be substantive, don't be window dressing.
• 41:27
  SPEAKER_00: So yeah, I I try to live by that motto.
• 41:29
  SPEAKER_02: That's a that's a good one.
• 41:31
  SPEAKER_02: One to remember, definitely.
• 41:33
  SPEAKER_02: So earnings power, Adam, it's uh one of the the main key words in the book.
• 41:40
  SPEAKER_02: Yeah.
• 41:41
  SPEAKER_02: What is earnings power?
• 41:43
  SPEAKER_00: So earnings power is a really a value 3.0 construct because in value 2.0, in Buffett's world, earnings were earnings, right?
• 41:55
  SPEAKER_00: Whatever Koch reported their earnings, that was a legitimate proxy for how much they could generate for shareholders in that year.
• 42:05
  SPEAKER_00: Because the business was mature, right?
• 42:08
  SPEAKER_00: Koch's business was mature, and you know, Buffett made sure that they weren't doing anything stupid with the money.
• 42:16
  SPEAKER_00: In tech, in value 3.0, it's different because you know, Amazon will reinvest billions of dollars.
• 42:26
  SPEAKER_00: They're they're investing in um, I think they're investing ten billion dollars in this uh Project Koiper, named after, I think, a Dutch astronomer, to try to do, you know, to try to rival Elon Musk's Earthlink, you know, Internet for All, satellite-based Earthling.
• 42:43
  SPEAKER_00: It it's$10 billion, and they might lose it all.
• 42:48
  SPEAKER_00: So Buffett hates that.
• 42:50
  SPEAKER_00: You know, he hates those so-called moonshots.
• 42:53
  SPEAKER_00: But in a value 3.0 world, you know, those are those are worth taking those moonshots, because one of those moonshots was Amazon Web Services, was the cloud, which is now worth hundreds of billions, if not a trillion dollars.
• 43:11
  SPEAKER_00: So in the digital age, which we're still at the beginning at, it pays to take these and make these investments because every now and then you're gonna hit a big one.
• 43:21
  SPEAKER_00: Now you don't you have to check the management and make sure they have a good track record.
• 43:25
  SPEAKER_00: You're not just gonna say, oh, they're investing a lot of money in moonshots, they must be good.
• 43:30
  SPEAKER_00: No, you have to have someone like Bezos and Andy Jassy driving the investment decisions.
• 43:38
  SPEAKER_00: But if that's the case, you know, then what they report is earnings is not necessarily what they could report as earnings, right?
• 43:47
  SPEAKER_00: So I say in the book that you know their e commerce profitability in the financial statements is like 2% profit margins.
• 43:56
  SPEAKER_00: And just to compare that, Walmart's isn't closer to.
• 44:00
  SPEAKER_00: Six or eight percent profits margins.
• 44:03
  SPEAKER_00: So if you believe the financial statements, then you believe that Walmart's inherent profitability as a business is three or four times greater than Amazon's e-commerce profitability, right?
• 44:16
  SPEAKER_00: That's what the financials would have you believe.
• 44:18
  SPEAKER_00: That's absurd, right?
• 44:19
  SPEAKER_00: It's absurd that an e-commerce site doing business with, you know, no employees, no retail employees, right?
• 44:29
  SPEAKER_00: No stores to walk into, right?
• 44:32
  SPEAKER_00: No depreciation of those stores, no shoplifting, right?
• 44:36
  SPEAKER_00: All of which Walmart has.
• 44:38
  SPEAKER_00: It's absurd to think that a digitally run e-commerce site would be a third or a fourth as profitable as a traditional brick and mortar retailer.
• 44:49
  SPEAKER_00: But that's what the financials have to have you believe.
• 44:52
  SPEAKER_00: So in the book, I go through like, well, here's how what I think the earnings would look like if they were run as a mature company, right?
• 45:01
  SPEAKER_00: And that's the earnings power.
• 45:03
  SPEAKER_00: That's the earnings power.
• 45:04
  SPEAKER_00: I mean, Amazon, because it has 50% of all the traffic for e-commerce in America, has the third largest advertising business, digital advertising business in the world.
• 45:17
  SPEAKER_00: So it's Google, Facebook, and Amazon.
• 45:22
  SPEAKER_00: Because they get all the eyeballs on Amazon website, they now sell the ability to be in a prominent position on the website.
• 45:31
  SPEAKER_00: So I think it's like$90 billion worth of advertising now that they're generating a year.
• 45:38
  SPEAKER_00: But they only put they report like$20 or$30 billion of profitability in their e-commerce site.
• 45:45
  SPEAKER_00: But what is the cost associated with the advertising business?
• 45:49
  SPEAKER_00: It's pure profit.
• 45:50
  SPEAKER_00: So the numbers are absurd.
• 45:52
  SPEAKER_00: So you have to recast them to get to what this business could generate if it were run as a like a company we're more familiar with, like a Coca-Cola or a Walmart.
• 46:04
  SPEAKER_00: And it doesn't always have to be just in tech.
• 46:06
  SPEAKER_00: I'll give you an example of a company and industry that I won't tell you the name of the company or the industry because I'm still doing work, but very interesting industry, very good industry, industrial manufacturing business.
• 46:20
  SPEAKER_00: But this one company is a disruptor in the industry and tries to build better products than its competition.
• 46:28
  SPEAKER_00: And because of that, it spends much more as a percentage of their sales on RD and on their factories.
• 46:37
  SPEAKER_00: So everyone's margins in the industry are close to 20% operating margins.
• 46:42
  SPEAKER_00: But these guys spend maybe five percentage points more on RD and on their plant.
• 46:51
  SPEAKER_00: So their reported earnings is on a 20% margin.
• 46:55
  SPEAKER_00: But if you really wanted to compare them to their competition, you would adjust their earnings because they're spending more on RD and plant.
• 47:05
  SPEAKER_00: So they're inherently more profitable, but they're just choosing to spend more money today because they know or have a high degree of conviction that it will generate more money in the future.
• 47:18
  SPEAKER_00: And those are the companies you want to look for.
• 47:20
  SPEAKER_00: You don't want to look for companies that are milking every penny.
• 47:23
  SPEAKER_00: You want to look for companies that are reinvesting, whose margins are understated, not overstated.
• 47:29
  SPEAKER_00: And that's what earnings power tries to get at.
• 47:32
  SPEAKER_02: That's well said, yeah.
• 47:33
  SPEAKER_02: Does the company you talk about start with an H?
• 47:36
  SPEAKER_02: Uh-huh.
• 47:37
  SPEAKER_02: Does it start with an H?
• 47:40
  SPEAKER_02: No.
• 47:40
  SPEAKER_02: Okay.
• 47:41
  SPEAKER_02: Then uh I had I had Heiko in mind, but uh that's not it.
• 47:44
  SPEAKER_00: Well I would have told you about Heiko because I own Heiko.
• 47:46
  SPEAKER_00: I talk a lot about Heiko in the book.
• 47:48
  SPEAKER_00: Heiko is a wonderful company and worth a lot of study, but no, Heiko is public.
• 47:53
  SPEAKER_00: I I don't mind talking about Heiko seam.
• 47:55
  SPEAKER_00: It's this is a company that I've not spoken about.
• 47:58
  SPEAKER_02: Alright, fair enough.
• 47:59
  SPEAKER_02: Yeah, I I found the example you made in the book about Campbell, Campbell's soup company, and Intuit.
• 48:06
  SPEAKER_02: I found that one very fascinating.
• 48:07
  SPEAKER_02: Where I'll lay some groundwork for the listeners here.
• 48:11
  SPEAKER_02: Both companies generate revenue, but very differently, and they spend it differently.
• 48:16
  SPEAKER_02: In your example, Campbell traded for 20 times earnings, and Intuit traded for I think it was 43 something like that.
• 48:26
  SPEAKER_02: Yeah, but after correcting for sales and marketing and RD, Intuit just optically looked more expensive.
• 48:35
  SPEAKER_02: But if you uh if you played around with some of the margins and the the spending, they both traded at around 20 times earnings, which also explains like the exceptional stock price as well.
• 48:46
  SPEAKER_00: That was just people say, oh, it's so expensive.
• 48:49
  SPEAKER_00: Why does it keep going up?
• 48:51
  SPEAKER_00: Because its earnings power is greater than the reported earnings.
• 48:54
  SPEAKER_00: And a lot of this scene is just the accounting is outdated.
• 48:57
  SPEAKER_00: The accounting was built a hundred years ago.
• 49:00
  SPEAKER_00: Ben Graham helped build our accounting system.
• 49:04
  SPEAKER_00: That's how old it is.
• 49:05
  SPEAKER_00: It was built in the 30s.
• 49:07
  SPEAKER_00: But for example, research and development has no useful life beyond the current year.
• 49:12
  SPEAKER_00: So every dollar you spend on RD, you have to expense against your earnings this year.
• 49:20
  SPEAKER_00: Whereas if you build a factory, you get to write those costs off over 20 years.
• 49:27
  SPEAKER_00: So in the book, I say, here's a manufacturing company with$100 million of revenue, and here's a tech company with$100 million of revenue.
• 49:35
  SPEAKER_00: They build a$100 million plant, the manufacturing guys, and they get to expense it over 20 years.
• 49:41
  SPEAKER_00: So every year they write off$5 million.
• 49:44
  SPEAKER_00: So if there are no other costs, they have$100 million of revenue,$5 million of expense on their plant, on their factory, and$95 million of profit.
• 49:55
  SPEAKER_00: The tech company with$100 million of revenue, same revenue, instead of spending$100 million on a factory, they spend it on RD.
• 50:04
  SPEAKER_00: They have to expense every one of those$100 million today.
• 50:09
  SPEAKER_00: So their gap profits are zero.
• 50:13
  SPEAKER_00: Same two same companies,$100 million revenue,$100 million.
• 50:17
  SPEAKER_00: They just invested differently.
• 50:18
  SPEAKER_00: But because the accounting rules are not updated for the digital age, one company has a$95 million profit and another company has a zero profit.
• 50:28
  SPEAKER_00: It's crazy.
• 50:29
  SPEAKER_00: It's crazy, but that's, you know, that's why that's why that's why value 3.0 is necessary.
• 50:35
  SPEAKER_00: And by the way, one reason you'll know value 4.0 is necessary is when you see a company that's similarly crazy, like that you can't account for its economics in a value 3.0 framework, you have to go to a new framework.
• 50:53
  SPEAKER_00: So that's when you'll know.
• 51:08
  SPEAKER_02: Yeah, I was looking at um we we look at many businesses together, and one of them just surprises us every time.
• 51:16
  SPEAKER_02: It's it's Palantir, you probably know it.
• 51:18
  SPEAKER_00: Yeah, sure.
• 51:19
  SPEAKER_02: I mean, even if you are extremely bullish on the company and give them I don't even know.
• 51:27
  SPEAKER_02: Sometimes just these companies cannot be explained even with the value 3.0 framework, where you are just very, very bullish on a company.
• 51:37
  SPEAKER_00: No, I know I know what you mean.
• 51:38
  SPEAKER_00: Just because I like investing in tech doesn't mean I like investing in every tech company.
• 51:42
  SPEAKER_00: And there's a lot of there's a lot of BS tech out there.
• 51:46
  SPEAKER_00: I don't I don't study Palantir.
• 51:48
  SPEAKER_00: I couldn't help you there.
• 51:49
  SPEAKER_00: The reason I it always sounded like a good company to me, but the reason I never got involved or never got interested in researching it is I don't like companies whose big customer is the government.
• 52:02
  SPEAKER_02: Why is that?
• 52:03
  SPEAKER_00: Well, it's the opposite of a monopoly, right?
• 52:06
  SPEAKER_00: It's called a monosopee.
• 52:09
  SPEAKER_00: You know, if if you're my if I'm Palantir and you seem or the government, and you're my biggest customer by far, I don't know what percent of their revenues are from the federal government, the U.S.
• 52:20
  SPEAKER_00: government.
• 52:21
  SPEAKER_02: Huge.
• 52:21
  SPEAKER_00: So who's got the power, me or you?
• 52:23
  SPEAKER_02: Well, probably uh me.
• 52:25
  SPEAKER_00: Correct.
• 52:27
  SPEAKER_00: So I don't want that.
• 52:29
  SPEAKER_00: That's not a good business.
• 52:31
  SPEAKER_00: So I I can't help you with that.
• 52:33
  SPEAKER_02: I didn't think I didn't I didn't think about it that way.
• 52:35
  SPEAKER_00: Um a 12-year-old would understand that, right?
• 52:39
  SPEAKER_00: Yeah, but it's in many ways you have to simplify, simplify, simplify.
• 52:44
  SPEAKER_02: I I see, but you could also invert it and say, well, the government has unlimited amount amounts of money and it makes it more safe.
• 52:54
  SPEAKER_00: Not really.
• 52:55
  SPEAKER_00: I don't know if you're following our budget uh debate over here.
• 52:59
  SPEAKER_02: Fair enough.
• 53:00
  SPEAKER_00: But no one thinks no one thinks we have a unlimited amount of money.
• 53:04
  SPEAKER_02: Well, I mean you are the reserve currency, so apparently uh we can print money, right.
• 53:11
  SPEAKER_00: But that's different than the government has money.
• 53:14
  SPEAKER_00: That's the right, that's the Federal Reserve.
• 53:17
  SPEAKER_00: Yeah, yeah, right.
• 53:17
  SPEAKER_00: That that doesn't go into the Pentagon's coffers.
• 53:21
  SPEAKER_02: So management.
• 53:22
  SPEAKER_02: The difficulty with management is that there is no real hard data to support what you feel or see a CEO or a management team do, besides its tenure or expertise or whatever.
• 53:35
  SPEAKER_02: So, what do you look for in management besides the obvious like incentives or founder-led businesses?
• 53:41
  SPEAKER_00: There is some quantitative metrics that you can use to determine whether management is basically you're trying to determine is management on the side of me as a long-term investor, a shareholder, or are they on their own side?
• 53:55
  SPEAKER_00: And or are they stupid?
• 53:57
  SPEAKER_00: That's that's what you're trying to determine.
• 54:00
  SPEAKER_00: So the quantitative metrics that I look for are, you know, first of all, do they own a lot of stock?
• 54:08
  SPEAKER_00: I mean, like that's a huge one, right?
• 54:11
  SPEAKER_00: Skin in the game, yeah.
• 54:12
  SPEAKER_00: Like Heiko, Heiko, the family that you know essentially began Heiko, owns, I don't know, 15 or 20% of the stock.
• 54:21
  SPEAKER_00: And as Larry Mendelson told me uh for the book, he said, Yeah, I make a million dollars a year.
• 54:28
  SPEAKER_00: That's my salary.
• 54:29
  SPEAKER_00: But if the stock goes up, I make nine million dollars.
• 54:32
  SPEAKER_00: If the stock goes up a dollar, I make nine million dollars.
• 54:36
  SPEAKER_00: Which do you think I care more about?
• 54:39
  SPEAKER_00: My salary or the stock price?
• 54:41
  SPEAKER_00: I make a million dollars a year, but if the stock goes up a dollar, I make nine million.
• 54:46
  SPEAKER_00: If the stock goes up ten dollars, he makes ninety million.
• 54:50
  SPEAKER_00: It dwarfs his salary.
• 54:52
  SPEAKER_00: So he's not going to be in it for milking the business, for getting his perks, for he doesn't care about the salary and all that.
• 55:00
  SPEAKER_00: He cares about making the stock price go up.
• 55:03
  SPEAKER_00: So that's number one.
• 55:04
  SPEAKER_00: Number two is how generous are they with in granting options?
• 55:09
  SPEAKER_00: And you would not believe, I've never done an academic study, but the correlation just from reading hundreds of proxies is almost 100% that the more stock a management team owns, the less generous they are with options.
• 55:25
  SPEAKER_00: Because it's coming out of their pie, right?
• 55:29
  SPEAKER_00: If I own 20% of a company and I give away 1% of the company, I own 19%, right?
• 55:38
  SPEAKER_00: I've given away a percent of the pie.
• 55:40
  SPEAKER_00: My fractional ownership goes down.
• 55:43
  SPEAKER_00: So you want to see people that own a lot of stock and that don't give away a lot of options.
• 55:50
  SPEAKER_00: And that's one of the problems with tech companies.
• 55:52
  SPEAKER_00: You know, Buffett said that giving uh 1% of the company away is is okay.
• 55:57
  SPEAKER_00: Anything above that is a little suspect.
• 55:59
  SPEAKER_00: So but many of these tech companies give away four or five percent of the company a year in in stock options.
• 56:06
  SPEAKER_00: I mean, it's really crazy.
• 56:08
  SPEAKER_00: So if the company grows 15% a year and you're giving away 5% of the company, you're giving away a third of the growth, right?
• 56:18
  SPEAKER_00: So these are the quantitative things that you can look for.
• 56:22
  SPEAKER_00: You want to look for people that have skin in the game, as you say, and you want to look for people who don't give away a lot of stock options, and the and the second is often correlated with the first.
• 56:33
  SPEAKER_00: But then, Seam, you're right.
• 56:34
  SPEAKER_00: I mean, there is a lot of judgment in management.
• 56:38
  SPEAKER_00: Um, you know, anyone who talks, for example, about improving margins, improving margins, improving margins, that's great for this year and next year and maybe two years out.
• 56:48
  SPEAKER_00: But it undercuts potentially the future of the company because you're not reinvesting, right?
• 56:55
  SPEAKER_00: Whereas if you hear someone who says, well, you know, our margin is fine, but we'd rather invest money today and depress our margins because we think it's going to be worth more in the future.
• 57:08
  SPEAKER_00: That's when I really hear I have a long-term focus management team.
• 57:13
  SPEAKER_00: Like when I started covering consumer products, that was one of my first jobs on Wall Street.
• 57:19
  SPEAKER_00: I'll never forget Wrigley's company, which is the Gum Company, right?
• 57:23
  SPEAKER_00: Wrigley's Gum.
• 57:25
  SPEAKER_00: They were publicly traded.
• 57:26
  SPEAKER_00: They're not publicly traded anymore, but the Wrigley family owned, I don't know, a third of the stock.
• 57:31
  SPEAKER_00: And they would come to investors and they would say things like, We're spending$300 million next year to break Chiclet's monopoly in Mexico.
• 57:41
  SPEAKER_00: They wouldn't apologize or anything like that because they knew that that$300 million had probably a return associated with it, but it was going to tank earnings the next year.
• 57:52
  SPEAKER_00: But they didn't care because they weren't about optics.
• 57:55
  SPEAKER_00: They were, they wanted to be rather than to seem, right?
• 57:59
  SPEAKER_00: A lot of Wall Street does not follow the motto of North Carolina, right?
• 58:05
  SPEAKER_00: They they seem rather than to be.
• 58:08
  SPEAKER_00: So I'll never forget that was Wrigley's, and then I would talk to the Heinz company, which owns the ketchup, right?
• 58:15
  SPEAKER_00: The ketchup and so forth.
• 58:17
  SPEAKER_00: They would always be talking about margins and margins and cutting this to get a higher profit margin, and cutting that to get a higher profit margin, and they would cut their advertising budget, for example.
• 58:28
  SPEAKER_00: Like that's undermining your long-term brand equity.
• 58:33
  SPEAKER_00: So I would hear Wrigley talk one way, and then I would hear Heinz talk another way, and then I would see that the stock market would figure it out because Wrigley's would trade at 30 times earnings, and Heinz would trade at 12 times earnings.
• 58:47
  SPEAKER_00: See, the market understood that a dollar of Wrigley's earnings was much more valuable than a dollar of Heinz's earnings, because Wrigley's was investing for the long term, and Heinz was undercutting systematically their terminal value.
• 59:01
  SPEAKER_00: So you want to listen for people who are overinvesting in their business for the long term and not milking the business.
• 59:10
  SPEAKER_00: You know, American capitalism is great, it's the best system you know ever invented.
• 59:18
  SPEAKER_00: I heard the other day that our stock market last year appreciated more than the entire market capitalization of the German stock market.
• 59:26
  SPEAKER_00: I heard that's an incredible statistic.
• 59:31
  SPEAKER_00: But but we do have problems.
• 59:33
  SPEAKER_00: We're not perfect.
• 59:34
  SPEAKER_00: So I'm proud of our system, but we're not perfect.
• 59:36
  SPEAKER_00: And the biggest problem is our short-termism.
• 59:39
  SPEAKER_00: We are short-term.
• 59:41
  SPEAKER_00: So great industrial American companies like General Electric fell victim to just what I'm talking about.
• 59:50
  SPEAKER_00: Pumping up profits, pumping up margins, but underinvesting in the business.
• 59:54
  SPEAKER_00: And, you know, the chickens came home to roost, and GE has had a lot of problems, which is only now just recovering from.
• 1:00:01
  SPEAKER_00: And then, you know, poor Boeing, which is, you know, the dominant aircraft manufacturer, also bump up earnings, bump up earnings, cut, cut, cut, cut, cut.
• 1:00:11
  SPEAKER_00: There's a great book by a former Bloomberg reporter just detailing how systematically the financial engineers took over from the aerospace engineers.
• 1:00:21
  SPEAKER_00: And it looked good for a while.
• 1:00:22
  SPEAKER_00: The profits were good, the stock price was good, and then the bottom fell out because it's not sustainable.
• 1:00:28
  SPEAKER_00: You're not investing in a sustainable business.
• 1:00:31
  SPEAKER_00: So I own Airbus.
• 1:00:32
  SPEAKER_00: That's one of the few European stocks I own.
• 1:00:35
  SPEAKER_00: Because I knew that they were investing for the long term.
• 1:00:38
  SPEAKER_00: They're run by aerospace engineers, not financial engineers.
• 1:00:43
  SPEAKER_02: There's a great documentary you might like.
• 1:00:45
  SPEAKER_02: It's about the Boeing scandal.
• 1:00:48
  SPEAKER_00: Yeah, there's a whole bunch of them.
• 1:00:49
  SPEAKER_00: Yeah.
• 1:00:50
  SPEAKER_02: It's on Netflix, I believe.
• 1:00:52
  SPEAKER_00: Yeah, I've heard about that.
• 1:00:53
  SPEAKER_00: I read the book called Flying Blind, and uh might be similar.
• 1:00:58
  SPEAKER_00: It's uh yeah, it's it's it's not pretty.
• 1:01:01
  SPEAKER_00: So you want to look out for that kind of behavior.
• 1:01:04
  SPEAKER_02: Yeah, absolutely.
• 1:01:05
  SPEAKER_02: Yeah.
• 1:01:06
  SPEAKER_02: Do you think that I mean, we're moving to we're becoming even more tech savvy today than uh than 10 years ago, and it's only going to increase from here, I suppose.
• 1:01:17
  SPEAKER_02: Do you believe that there are still like old economic modes that will perhaps be even stronger because the technology advances so fast?
• 1:01:28
  SPEAKER_02: Maybe do you do you have a couple of non-tech technology?
• 1:01:31
  SPEAKER_00: I mean, half of my business is half of my investments are in tech, but the other half are not in tech, you know.
• 1:01:36
  SPEAKER_00: So Heiko, for example, is a is a is a wonderful example.
• 1:01:40
  SPEAKER_00: I mean, it it's the only manufacturer at scale of generic replacement parts for airplanes.
• 1:01:49
  SPEAKER_00: So General Electric, Honeywell, General Dynamics, United Technologies, they all sell their original parts into the airlines for exorbitant fees because they think, oh, the airlines have no choice because we're the only game in town for our part, where there's maybe two suppliers, and they informally collude to keep prices high.
• 1:02:16
  SPEAKER_00: So 30 years ago, here comes Heiko along saying, huh, that's interesting.
• 1:02:21
  SPEAKER_00: We can make parts that are similar quality uh as the as the original manufacturers, but we can sell them for 30, 40, sometimes 50 or 60 percent less than the original guys, and we can still make a good return.
• 1:02:36
  SPEAKER_00: So they've been doing that for 30 years, and they've never had one defective part, even though they're generic, never had one defective part.
• 1:02:48
  SPEAKER_00: The FAA loves them, they sell to all the major 20 airlines.
• 1:02:52
  SPEAKER_00: So this is an old-fashioned moat, right?
• 1:02:56
  SPEAKER_00: This is just a company that came up with a better way of doing things and cheaper, same quality, taking advantage of a price umbrella and abusing pricing power on the on the on the uh uh on the on the from the part of the GEs of the world.
• 1:03:18
  SPEAKER_00: And you know, they only have like three, four percent market share.
• 1:03:22
  SPEAKER_00: So yeah, there's a lot of old-fashioned moted businesses like that.
• 1:03:26
  SPEAKER_00: A lot.
• 1:03:27
  SPEAKER_00: And I and I own a lot of them.
• 1:03:28
  SPEAKER_00: Progressive insurance, I own.
• 1:03:30
  SPEAKER_02: Adam, I can uh I can keep talking to you for another hour.
• 1:03:33
  SPEAKER_02: I don't know uh how busy you are, but I I have a couple more uh questions and uh let's wrap it up then.
• 1:03:39
  SPEAKER_02: Sure.
• 1:03:40
  SPEAKER_02: Yeah?
• 1:03:41
  SPEAKER_02: Okay, yeah.
• 1:03:42
  SPEAKER_02: Um well what I was wondering was um you've got lots of experience in the uh in the market now.
• 1:03:52
  SPEAKER_02: Looking back, what were a couple of your biggest mistakes or lessons you've learned so far that anyone starting out today or investors listen hearing, listening to this can learn from?
• 1:04:06
  SPEAKER_00: Well, I've made about every mistake in the book, Seam.
• 1:04:09
  SPEAKER_00: So it's uh it's our business is very forgiving because I literally have made just about every mistake you can make, and I'm still surviving.
• 1:04:19
  SPEAKER_00: So you know, my biggest mistake probably is just not paying enough attention to the quality of the business, being too focused on the numbers and not on the business, you know.
• 1:04:31
  SPEAKER_00: Because the numbers are published here, we tend to think that they're real, right?
• 1:04:37
  SPEAKER_00: They're in black and white, they must be real.
• 1:04:40
  SPEAKER_00: Truth is that the the people the the quality of the business and the quality of the people that are running the business, that's what generates these numbers, right?
• 1:04:49
  SPEAKER_00: Jeff Bezos and Andy Jassy and all those people generate these numbers.
• 1:04:55
  SPEAKER_00: But we think backwards.
• 1:04:56
  SPEAKER_00: We think that the numbers sort of expire.
• 1:05:00
  SPEAKER_00: Do you see what I'm saying?
• 1:05:02
  SPEAKER_00: The business and the people drive the numbers.
• 1:05:05
  SPEAKER_00: The numbers are a consequence of the business and the people.
• 1:05:09
  SPEAKER_00: I was too focused on the numbers and too and too interested in paying a cheap price, and not interested enough in finding a high-quality business.
• 1:05:19
  SPEAKER_00: Once I figured that out and inverted, that's why I say business management price, right?
• 1:05:25
  SPEAKER_00: Price is last.
• 1:05:27
  SPEAKER_00: Too many people start with price first.
• 1:05:30
  SPEAKER_00: I want to find a cheap stock.
• 1:05:31
  SPEAKER_00: I'll give you a cheap stock, but it probably is crappy, not probably crappy business.
• 1:05:36
  SPEAKER_00: It should sell.
• 1:05:37
  SPEAKER_00: It's like merchandise, right?
• 1:05:38
  SPEAKER_00: It's like, why would you go into a grocery store looking for cheap bananas?
• 1:05:43
  SPEAKER_00: Sure, look for cheap bananas, but they have to be good bananas too, right?
• 1:05:48
  SPEAKER_00: So it's much better to look for a good banana and then look at the price rather than look find a cheap banana and say, Oh my god, this banana is I can't eat this banana.
• 1:05:58
  SPEAKER_02: Unless you're making banana bread, right?
• 1:06:00
  SPEAKER_02: But uh I get what you're saying.
• 1:06:01
  SPEAKER_00: Seem that's a very good very good caveat.
• 1:06:04
  SPEAKER_00: I agree with you.
• 1:06:05
  SPEAKER_00: Then you then then then then you got it made, because you can buy all the the brown bananas you want.
• 1:06:11
  SPEAKER_02: No, but I hear what you're saying, yeah.
• 1:06:12
  SPEAKER_00: Um But that's been my biggest mistake.
• 1:06:16
  SPEAKER_02: So your best piece of advice would be that focus on the quality and let the price come last?
• 1:06:24
  SPEAKER_00: Yeah.
• 1:06:25
  SPEAKER_00: I mean, that's a little too simplistic, but you know, my biggest mistake has been paying too much attention to the price and not enough attention to the quality.
• 1:06:36
  SPEAKER_00: I don't want to over-exaggerate that because you have to pay attention to the price.
• 1:06:40
  SPEAKER_00: If you find a great banana, but someone wants to charge you a hundred euros for a bunch of bananas, you know, good luck.
• 1:06:49
  SPEAKER_00: You're you know, you're not gonna do well.
• 1:06:51
  SPEAKER_00: So you I don't want to oversimplify it.
• 1:06:54
  SPEAKER_00: You have to pay a reasonable price, but don't let price be the tyrant.
• 1:06:58
  SPEAKER_02: Yeah.
• 1:06:59
  SPEAKER_02: Well said, I guess.
• 1:07:00
  SPEAKER_02: What's your favorite um chapter of the book?
• 1:07:04
  SPEAKER_00: I thought you were gonna ask what's my favorite banana bread.
• 1:07:07
  SPEAKER_02: No, not really.
• 1:07:08
  SPEAKER_02: I I don't know any brands.
• 1:07:10
  SPEAKER_00: Do they eat banana bread?
• 1:07:11
  SPEAKER_00: Do they eat banana bread in Holland?
• 1:07:13
  SPEAKER_02: I mean, someone does.
• 1:07:15
  SPEAKER_02: I guess so, yeah.
• 1:07:16
  SPEAKER_00: Uh, what's my favorite chapter of the book?
• 1:07:18
  SPEAKER_00: I don't know.
• 1:07:18
  SPEAKER_02: You can say I have yeah, I you have no favorite.
• 1:07:22
  SPEAKER_00: I mean, I like history.
• 1:07:24
  SPEAKER_00: I like history.
• 1:07:25
  SPEAKER_00: I I enjoyed writing the history, uh, especially since the publisher said, no, no one's gonna like that.
• 1:07:30
  SPEAKER_00: And people like that a lot.
• 1:07:32
  SPEAKER_00: People like that section of the book, the early chapters of Benjamin.
• 1:07:35
  SPEAKER_02: Yeah, I liked it too.
• 1:07:36
  SPEAKER_02: Yeah.
• 1:07:36
  SPEAKER_00: Yeah, because it gives context and it's I enjoyed those.
• 1:07:40
  SPEAKER_00: I liked them all.
• 1:07:41
  SPEAKER_00: But those were fun to write, and and I found that I get a lot of positive feedback from those chapters.
• 1:07:45
  SPEAKER_02: So, since we're both shareholders of uh of Amazon, before we end this uh this this episode, please tell the listeners why they why they should get the book on Amazon, of course.
• 1:07:56
  SPEAKER_02: Just kidding.
• 1:07:57
  SPEAKER_02: Why should people uh get the book?
• 1:07:58
  SPEAKER_02: What what are good what are they going to get out of it if you had to say so?
• 1:08:03
  SPEAKER_00: Well, I mean, you know, you should you should get the book if you want to you know make sense of two things, I guess.
• 1:08:10
  SPEAKER_00: One is you know how to be an investor generally.
• 1:08:16
  SPEAKER_00: A lot of young people starting out, they understand tech, but they don't really understand the market.
• 1:08:22
  SPEAKER_00: They don't understand why Apple has gone up, I don't know, 15 times over the last 10 years or whatever it is.
• 1:08:29
  SPEAKER_00: The book tries to explain why a stock price grows.
• 1:08:34
  SPEAKER_00: A stock price grows because the business grows.
• 1:08:36
  SPEAKER_00: So the stock price is just follows the business.
• 1:08:39
  SPEAKER_00: It's not magic, it's not uh a mystery.
• 1:08:43
  SPEAKER_00: It's just the stock market is a place for weighing and assessing value.
• 1:08:49
  SPEAKER_00: So if you're interested in how the stock market works and how companies grow and create value, I would get it.
• 1:08:55
  SPEAKER_00: And then generally speaking, and then specifically, if you're interested in how tech companies create value, I think it's you know, it has a lot of interesting, fresh, innovative ideas.
• 1:09:06
  SPEAKER_00: There's a lot of classical books.
• 1:09:08
  SPEAKER_00: Uh Ben Graham has written a lot of couple classic, classic books on value investing, but none that I'm aware of tackle value investing in a discipline, I mean, tack tackle technology in a value invest in a disciplined way.
• 1:09:23
  SPEAKER_00: That's what I was trying to do.
• 1:09:24
  SPEAKER_00: I was trying to take the discipline of value investing, 100 years old from Ben Graham, great framework, but I was I was trying to marry it with the new realities of our digital age.
• 1:09:37
  SPEAKER_02: It reads very, very nice.
• 1:09:39
  SPEAKER_02: Uh, some of the the older books are very tough to get through, and I'm I'm I'm a very passionate investor, and I love reading every book there is, but some books are tough to get through.
• 1:09:48
  SPEAKER_02: Yes.
• 1:09:48
  SPEAKER_02: This this one, I'm not exaggerating here, but I think I've read it in uh in like two or three days.
• 1:09:54
  SPEAKER_02: It would just the the writing style is very, very easy to understand.
• 1:10:00
  SPEAKER_02: It's like a store, like a story you go through from the beginning to the ending.
• 1:10:04
  SPEAKER_02: To well, at the end, you're like, it's an open end.
• 1:10:07
  SPEAKER_02: You gotta stay curious, there will be a value of 4.0, and uh, I really like the book, so uh well done.
• 1:10:12
  SPEAKER_00: Well, I appreciate it very much.
• 1:10:14
  SPEAKER_00: I I worked hard at making it readable, and it helped that I was a journalist.
• 1:10:18
  SPEAKER_00: You know, journalists at their best specialize in making complex issues digestible.
• 1:10:25
  SPEAKER_00: So that was my goal, and I'm glad it with at least one reader it landed.
• 1:10:30
  SPEAKER_02: At least one.
• 1:10:31
  SPEAKER_02: Well, look, I'm looking forward to the next book, Adam.
• 1:10:34
  SPEAKER_00: Yeah, I'm starting to I'm starting to think about it.
• 1:10:37
  SPEAKER_02: Yeah, yeah, yeah, definitely.
• 1:10:39
  SPEAKER_02: We'll we'll get you back once once it's done.
• 1:10:42
  SPEAKER_02: Whether that's five or fifty years from now, we'll see.
• 1:10:44
  SPEAKER_00: No, it won't be it won't be five, it certainly won't be fifty, but maybe three.
• 1:10:48
  SPEAKER_02: The truth is always somewhere in the middle.
• 1:10:50
  SPEAKER_00: Right.
• 1:10:51
  SPEAKER_02: Thank you so much uh for coming on the show, Adam.
• 1:10:54
  SPEAKER_02: Your book has really helped me rethink how I was investing and many others as well.
• 1:10:59
  SPEAKER_02: So I really appreciate it.
• 1:11:01
  SPEAKER_02: Before we go, where can people find you?
• 1:11:03
  SPEAKER_02: Where can people uh get the book other than Amazon?
• 1:11:07
  SPEAKER_00: Well, you know, just just Google, you know, where the money is and you'll find that Amazon obviously is a good place.
• 1:11:13
  SPEAKER_00: You know, your local bookseller probably has it.
• 1:11:16
  SPEAKER_00: I I walk into bookstores and they have copies, or you can order one at your local bookstore if you want to support your local bookstore.
• 1:11:23
  SPEAKER_00: What was the other question, Seem?
• 1:11:24
  SPEAKER_02: Are you active on LinkedIn or X or somewhere?
• 1:11:28
  SPEAKER_00: I I don't do social media.
• 1:11:30
  SPEAKER_00: As I told you, I'm not a wild I'm not wild about technology uh itself.
• 1:11:35
  SPEAKER_00: I do do LinkedIn, so people can feel free to message me on LinkedIn, I'll reply.
• 1:11:40
  SPEAKER_02: All right.
• 1:11:41
  SPEAKER_02: Well, that's where you can find Adam.
• 1:11:42
  SPEAKER_02: It's by the way, LinkedIn, very profitable tech business.
• 1:11:45
  SPEAKER_00: So definitely read the book and you'll understand why LinkedIn was such a great bought by Microsoft for, if I recall,$25 billion.
• 1:11:54
  SPEAKER_02: And it's exceptional.
• 1:11:55
  SPEAKER_00: It's probably worth four or five times that now.
• 1:11:59
  SPEAKER_02: Yeah.
• 1:12:00
  SPEAKER_02: Well, once again to everyone listening, get the book, Where the Money Is Value Investing in a Digital Digital Age.
• 1:12:06
  SPEAKER_02: Thank you so much, Adam, and uh, I hope to talk to you again someday.
• 1:12:11
  SPEAKER_00: That's all I got.
• 1:12:12
  SPEAKER_02: Well, goodbye means uh go de dag.
• 1:12:16
  SPEAKER_02: Goodbye.