OtherOkay Monish, we're incredibly honored to have you today. Thank you so much for being here.
OtherAnd you know, the floor is all yours. We can't wait.
OtherOkay, well Arvind, it's a pleasure and honor to uh to be with your class and I I forget what year this is, but it's it's getting on in the years that we've been doing. I think it's number 10, actually. Number 10, the 10th anniversary. All right.
OtherYou know, time flies when you're having fun.
OtherYeah, so I think we did Did we do one in in live? Was there one live and nine virtual or Yeah, that's right.
OtherSomething like that. Yeah.
OtherYeah, so we'll have to try and maybe next year just just to celebrate life do it live or something. That would be great. You know, so but anyway, it's it's always it's always been fun to interact with your class and big round of applause for Arvind for the wonderful
Warrenof applause for Arvind for the wonderful work he does. So, thank you Arvind for what you do for us and yeah, it's I always enjoy the interaction with you and your class. And usually I'm I'm clueless what I'm going to talk about and that was the same situation today, but I think I figured out a couple of things that I think might be things I haven't talked about much in the past, so that'll be fun. So, without much ado, I'll get going. Basically the same format, you know, I'll go through a monologue and then we'll open up for questions and you know, we really don't need to talk about what I talked about unless that's of interest. What was on your mind is is fine. You know, I think this was maybe five or six years ago and there's a video on YouTube. I think the title is Competition is for losers. And I think in 2015 or 2016 Peter Thiel
QuestionerAnd I think in 2015 or 2016 Peter Thiel posted that video on on YouTube and it'sposted that video on on YouTube and it'sposted that video on on YouTube and it's it's a lectureit's a lectureit's a lecture it's one of his lectures that he gave atit's one of his lectures that he gave atit's one of his lectures that he gave at Stanford Business School. And he used toStanford Business School. And he used toStanford Business School. And he used to I don't know if he still teaches there,I don't know if he still teaches there,I don't know if he still teaches there, but he used to teach there in terms ofbut he used to teach there in terms ofbut he used to teach there in terms of you know,you know,you know, things along the lines of startups andthings along the lines of startups andthings along the lines of startups and tech firms and so on. So, thistech firms and so on. So, thistech firms and so on. So, this particular this particular lectureparticular this particular lectureparticular this particular lecture became quite popular. I think it has abecame quite popular. I think it has abecame quite popular. I think it has a pretty large view count and I thinkpretty large view count and I thinkpretty large view count and I think subsequentlysubsequentlysubsequently some portions of the lecture became partsome portions of the lecture became partsome portions of the lecture became part of his book Zero to One.of his book Zero to One.of his book Zero to One. But but I think the lecture is a is aBut but I think the lecture is a is aBut but I think the lecture is a is a very good one to attend. I don't knowvery good one to attend. I don't knowvery good one to attend. I don't know whether he would really want to givewhether he would really want to givewhether he would really want to give that kind of lecture again today,that kind of lecture again today,that kind of lecture again today, especially after the Roth IRA backlashespecially after the Roth IRA backlashespecially after the Roth IRA backlash he'she'she's faced and such. So, but he hasn'tfaced and such. So, but he hasn'tfaced and such. So, but he hasn't removed it. I don't know whether he hasremoved it. I don't know whether he hasremoved it. I don't know whether he has even got the right to remove it, but buteven got the right to remove it, but buteven got the right to remove it, but but it's there and I think it's it's a good
Questionerit's there and I think it's it's a good one to to take a look at. And I'll just go through you know, a few minutes of what he's what he focuses on in that lecture, but I would would encourage everyone to go you know, see the see the video directly rather than get it from you know, second hand from me. But Peter basically describes I mean he divides the business world into two sets of businesses. He says that businesses are either businesses that are monopolies or near monopolies or there are businesses which are in very competitive spaces. And basically a very small sliver of businesses will end up in you know, these oligopoly or monopoly type situations and most most of capitalism is a doggy dog world and it's very competitive and such. And and he makes the bold assertion he's telling his students basically there is no point to wasting your time in forming a
Charlieto wasting your time in forming a business or going to work for a business that deals with serious competitive forces. And of course, you know, probably 99% of capitalism is businesses that are very competitive which have a lot of competition and so on. And maybe 1% or less is you know, these unusual modes and competitive advantages which give you uh give you some you know, breathing room if you will. And he he says that the businesses that are monopolies go through typically go through some serious lengths to try to convince you that they are not a monopoly. And because you know, they just don't want the added attention and they don't want regulatory changes or you know, just uh people don't like monopolists too much. So, they like to be under the radar and at least portray and pretend for the most part that they are not monopolies.
Othermonopolies.monopolies. And the 99% that are in hyperAnd the 99% that are in hyperAnd the 99% that are in hyper competitive spaces spend all their timecompetitive spaces spend all their timecompetitive spaces spend all their time trying to convince youtrying to convince youtrying to convince you that they actually are monopolies. Thatthat they actually are monopolies. Thatthat they actually are monopolies. That they have no competition, that they havethey have no competition, that they havethey have no competition, that they have great competitive advantages. And look,great competitive advantages. And look,great competitive advantages. And look, here's my list of advantages that nobodyhere's my list of advantages that nobodyhere's my list of advantages that nobody can touch me on.can touch me on.can touch me on. So, the basically what the businessesSo, the basically what the businessesSo, the basically what the businesses are presenting for the most part isare presenting for the most part isare presenting for the most part is backwards. The monopolist just want tobackwards. The monopolist just want tobackwards. The monopolist just want to tell you, oh poor me, I'm not atell you, oh poor me, I'm not atell you, oh poor me, I'm not a monopoly. I'm just one of manymonopoly. I'm just one of manymonopoly. I'm just one of many competitive businesses. And the onescompetitive businesses. And the onescompetitive businesses. And the ones which have the loser business modelswhich have the loser business modelswhich have the loser business models want to try to convince you that no, no,want to try to convince you that no, no,want to try to convince you that no, no, I'm a very special business and I haveI'm a very special business and I haveI'm a very special business and I have these special qualities.these special qualities.these special qualities. AndAndAnd one of the issues that comes upone of the issues that comes upone of the issues that comes up is I think I think your class is goingis I think I think your class is goingis I think I think your class is going to enjoyto enjoyto enjoy maybe in the next few weeksmaybe in the next few weeksmaybe in the next few weeks when I think maybe Nick Sleep might bewhen I think maybe Nick Sleep might bewhen I think maybe Nick Sleep might be coming to speak to them. We'll see. Icoming to speak to them. We'll see. Icoming to speak to them. We'll see. I think he
Questionerthink hethink he I think he spoke last year. I don't knowI think he spoke last year. I don't knowI think he spoke last year. I don't know if you have one on your schedule or not.if you have one on your schedule or not.if you have one on your schedule or not. ButButBut Nick and Warren and Charlie, all theseNick and Warren and Charlie, all theseNick and Warren and Charlie, all these luminaries, they read a lot.luminaries, they read a lot.luminaries, they read a lot. And Nick especially, you know, wouldAnd Nick especially, you know, wouldAnd Nick especially, you know, would just sit down in his office armchairjust sit down in his office armchairjust sit down in his office armchair and him and his partner Case would justand him and his partner Case would justand him and his partner Case would just pound through a large quantity of annualpound through a large quantity of annualpound through a large quantity of annual reports every year.reports every year.reports every year. And especially Case Zakaria didn't evenAnd especially Case Zakaria didn't evenAnd especially Case Zakaria didn't even have a desk.have a desk.have a desk. I mean, in their setupI mean, in their setupI mean, in their setup in London, he just had a veryin London, he just had a veryin London, he just had a very comfortable armchair.comfortable armchair.comfortable armchair. And most of the time he didn't even haveAnd most of the time he didn't even haveAnd most of the time he didn't even have shoes on.shoes on.shoes on. You know, heaven forbid. And his uhYou know, heaven forbid. And his uhYou know, heaven forbid. And his uh routine was to be in the office. I thinkroutine was to be in the office. I thinkroutine was to be in the office. I think Nick probably also didn't have shoes on,Nick probably also didn't have shoes on,Nick probably also didn't have shoes on, but the routine in the office was justbut the routine in the office was justbut the routine in the office was just you know, be there without any shoes andyou know, be there without any shoes andyou know, be there without any shoes and in the case of Case, not even a desk andin the case of Case, not even a desk andin the case of Case, not even a desk and you know, have this big overstuffedyou know, have this big overstuffedyou know, have this big overstuffed chair and then pound through a largechair and then pound through a largechair and then pound through a large number of annual reports. And maybe when
Questionernumber of annual reports. And maybe when when you have Nick, you can ask him when you have Nick, you can ask him when you have Nick, you can ask him about why Case felt that he didn't need about why Case felt that he didn't need about why Case felt that he didn't need to have shoes on, but you know, I to have shoes on, but you know, I to have shoes on, but you know, I digress. But anyway, so digress. But anyway, so digress. But anyway, so when the monopolists have no desire in when the monopolists have no desire in when the monopolists have no desire in telling you that they're a monopoly, telling you that they're a monopoly, telling you that they're a monopoly, then then then to some extent when you read what they to some extent when you read what they to some extent when you read what they have to say is a little bit problematic. have to say is a little bit problematic. have to say is a little bit problematic. Because there are probably two things Because there are probably two things Because there are probably two things going on for the most part. Number one, going on for the most part. Number one, going on for the most part. Number one, you know, a lot of annual reports you know, a lot of annual reports you know, a lot of annual reports they're not written by the CEO. they're not written by the CEO. they're not written by the CEO. You know, it's a PR firm or you know, You know, it's a PR firm or you know, You know, it's a PR firm or you know, their IR department, whatever it is, their IR department, whatever it is, their IR department, whatever it is, comes up with some document and comes up with some document and comes up with some document and in the letter to shareholders, whatever in the letter to shareholders, whatever in the letter to shareholders, whatever and the CEO just signs it, whatever. Or and the CEO just signs it, whatever. Or and the CEO just signs it, whatever. Or even if it is even if it is even if it is actually written by the CEO, the CEO actually written by the CEO, the CEO actually written by the CEO, the CEO doesn't really want to reveal his hand. doesn't really want to reveal his hand. doesn't really want to reveal his hand. Especially if he's a monopolist. Because Especially if he's a monopolist. Because Especially if he's a monopolist. Because you know, they just don't want the you know, they just don't want the you know, they just don't want the attention. So, if we look at let's say,
Questionerattention. So, if we look at let's say, well, let me let me start with like So, there's a there's an obscure company in in India that's been in my portfolio for uh I think about like like six more than six years. It's called Rain Industries and it's it's not really a great business. Please don't go buy the stock. But anyway, so Rain is maybe not even a good business. I don't know why I make such investments, but such is life. Rain is basically I would say maybe somewhat of an above average business. It does have a gifted capital allocator, but what it does have is it is a low cost producer. They don't really beat their chest and tell you that they are low cost producer. In fact, it hardly ever shows up anywhere in any of their writings or transcripts or anything. All you can All I can tell is that when their competitors have pneumonia
Questionertheir competitors have pneumonia they just have a mild cold.they just have a mild cold.they just have a mild cold. And so they're in this commodity spaceAnd so they're in this commodity spaceAnd so they're in this commodity space where their margins fluctuate andwhere their margins fluctuate andwhere their margins fluctuate and sometimes the industry is in bad shapesometimes the industry is in bad shapesometimes the industry is in bad shape and a lot of competitors are losingand a lot of competitors are losingand a lot of competitors are losing money. They have plants that are youmoney. They have plants that are youmoney. They have plants that are you know,know,know, bleeding bleeding red ink and so on.bleeding bleeding red ink and so on.bleeding bleeding red ink and so on. Rain doesn't get to usually red inkRain doesn't get to usually red inkRain doesn't get to usually red ink plants. Their their plants stayplants. Their their plants stayplants. Their their plants stay profitableprofitableprofitable while their competitors plants arewhile their competitors plants arewhile their competitors plants are bleeding red ink.bleeding red ink.bleeding red ink. And I've studied the business for moreAnd I've studied the business for moreAnd I've studied the business for more than 6 years.than 6 years.than 6 years. And I have met with them a few times.And I have met with them a few times.And I have met with them a few times. The CEO is aThe CEO is aThe CEO is a doesn't really like to meet investors.doesn't really like to meet investors.doesn't really like to meet investors. And so, for the first 3 years, IAnd so, for the first 3 years, IAnd so, for the first 3 years, I couldn't even get him to take a phonecouldn't even get him to take a phonecouldn't even get him to take a phone call from me. And since then I I thinkcall from me. And since then I I thinkcall from me. And since then I I think only I've only met him really likeonly I've only met him really likeonly I've only met him really like maybe twice. I think I met him twice.maybe twice. I think I met him twice.maybe twice. I think I met him twice. But in all these 6 and 1/2 years thatBut in all these 6 and 1/2 years thatBut in all these 6 and 1/2 years that I've followed the business,I've followed the business,I've followed the business, I do not I still do not understandI do not I still do not understandI do not I still do not understand why is it and what is it that gives Rain
Questionerwhy is it and what is it that gives Rain this particular low-cost advantage and this particular nuance of being better than their competitors. I also do not understand fully why their competitors cannot clone it. These are obscure to me. I I know it's there because it's there in the numbers. I also know that the numbers are not made up because I I know that the people are very high quality. And that's not the kind of games they would play. But it remains a mystery. It's there. It's very tangible and it's there. But we can't we can't really, you know, put a finger on it. And and and that is actually the nature of many monopolists. I think business like Rain Industries sees no upside in educating me because if they would educate me about exactly what their competitive advantage is, they would also be educating their competitors. And
Questioneralso be educating their competitors. And that's really not of much interest to them. So, a lot of public companies, they really don't they think that they will lose some of their edge if they openly share how their business runs and what their business model is and so on. So, this basically flies in the face of case that Charlie had been barefoot because, you know, if if these CEOs are not telling you exactly what's giving them their advantage, then all that reading gets somewhat diluted because it's like you're not really getting to the core because they're not really they don't want to really talk about it. So, you have to then in that case you have to kind of like a jigsaw puzzle. You know that their advantage is there and you just kind of have to back into try to figure out hey, how is this actually coming about and is this sustainable and and all these things.
Questionersustainable and and all these things. And so, if you look at at a business like Amazon, right? And Jeff Jeff is a gifted communicator and he's a terrific storyteller, great writer. And he has written great letters. And he's articulated reasonably well, I would say probably very well, things that he wanted to share with his with his shareholders and investors. But he also he also kept many things close to his vest. And he didn't want to share many things because he understood really well that if he were to share those things, Amazon would end up being at a disadvantage because it would just invite it would invite scrutiny and competition and so on. And we'll get to we'll get to that in a second. But one of the examples that Peter Thiel uses in his talk is he uses the example of Google. And he says that, you know, we clearly know that in search
Questionerknow that in search Google has a monopoly. Google has a monopoly. Google has a monopoly. We know that. And we also know that in We know that. And we also know that in We know that. And we also know that in digital advertising, Google and Facebook digital advertising, Google and Facebook digital advertising, Google and Facebook control large swaths control large swaths control large swaths of that world. You know, they they of that world. You know, they they of that world. You know, they they dominate and it'd be hard to argue dominate and it'd be hard to argue dominate and it'd be hard to argue that they don't have an oligopoly or that they don't have an oligopoly or that they don't have an oligopoly or monopoly type position monopoly type position monopoly type position in those markets. But when in those markets. But when in those markets. But when the people from Google talk talk to you, the people from Google talk talk to you, the people from Google talk talk to you, they say, "Oh, listen, poor me. I'm not they say, "Oh, listen, poor me. I'm not they say, "Oh, listen, poor me. I'm not really a monopoly. Look at the size of really a monopoly. Look at the size of really a monopoly. Look at the size of the global advertising market. And then the global advertising market. And then the global advertising market. And then look at me. I'm just such a small look at me. I'm just such a small look at me. I'm just such a small portion. And then look at the size of portion. And then look at the size of portion. And then look at the size of the internet industry. And then look at the internet industry. And then look at the internet industry. And then look at me. I'm just, you know, any bitty search me. I'm just, you know, any bitty search me. I'm just, you know, any bitty search in that industry. And so, you know, in that industry. And so, you know, in that industry. And so, you know, don't really focus on me being this don't really focus on me being this don't really focus on me being this be-all and end-all. I'm just like a tiny be-all and end-all. I'm just like a tiny be-all and end-all. I'm just like a tiny two-bit player in this big ecosystem." two-bit player in this big ecosystem." two-bit player in this big ecosystem." So, they want to deflect as much So, they want to deflect as much So, they want to deflect as much attention away from what is their attention away from what is their attention away from what is their massive competitive advantage. Right? I
Questionermassive competitive advantage. Right? I mean, they just really don't want to talk about it. And if we go back to Jeff at Amazon, they stumbled onto cloud. You know, they were kind of feeling their way in the dark. And, you know, Amazon's DNA is to throw a lot of stuff against the wall. And most of the stuff they throw against the wall fails. It doesn't work. And but they also don't spend much on stuff that they throw against the wall. So, they they have kind of these small bets. They are kind of controlled experiments. So, that if they fail, they're not really going to affect the company that much. And if they were, then they, you know, end up creating incredible new businesses and business models. And stumbling along in in the dark, they started to basically think about look they said, "Look, we've got this great technology for selling all these things.
Questionertechnology for selling all these things. Can we open this technology up to others on the internet to sell stuff, too?" That was the kind of the beginnings of how they were thinking about it. And there was a a lot of pushback within his management team saying, "No, you know, these are crown jewels. We really can't go to like a Barnes & Noble or someone we compete with and just give them our technology because, you know, that's you know, that's these are our crown jewels." And Jeff was visionary enough to tell those people in his company that, "Look, if Barnes & Noble has advantages in selling books at a lower price than us and making more money than us in that endeavor just because we enabled the technology end of things for them, they deserve to be the ones selling those books." So, he said, "It's perfectly fine if they cannibalize us
Questionerperfectly fine if they cannibalize us because that means that they have an advantage in an area that we don't and we can become, you know, great sellers of pickaxes in the gold rush. We don't necessarily need to be the guys with the pans on the on the river or whatever.
QuestionerAnd so, they they they started opening up different aspects. But they had to open their platform up. It required them to redo and it was very painful then for them to redo all their spaghetti code into APIs which could be then allowed for third parties to write to the APIs. And then eventually that over time led to what became AWS because they just started to find out that they could do more and they didn't really need to be competitors and it didn't really even need to be people who were selling stuff. It could be people trying to do different things in the cloud. And it just kind of incrementally they finally
Questionerjust kind of incrementally they finally got there. But many years before they came out and said that, "Hey, here's AWS. Here's a new business. Blah, blah." They had figured out that they had a golden goose. And they also figured out that they were ahead of anybody else with that golden goose. And they and Jeff also understood that the golden goose really did not give him a lot of competitive advantage, but that if he was able to keep his competitors at bay and get a time advantage and scale in stealth, it would make it very hard for the others eventually to catch up to where he is. So, they flew under the radar. And if you look at his writings, etc., they really don't talk about the cloud even though they already had customers and they already had a business and all of that. I think till like 2015 or 2016, somewhere around then, that's when they
Questionersomewhere around then, that's when they the whalethe whalethe whale finally surfaced. And the first timefinally surfaced. And the first timefinally surfaced. And the first time Amazon actually acknowledged that theyAmazon actually acknowledged that theyAmazon actually acknowledged that they had a business unit called AWS and theyhad a business unit called AWS and theyhad a business unit called AWS and they actually releasedactually releasedactually released some top-line numbers for AWS. And umsome top-line numbers for AWS. And umsome top-line numbers for AWS. And um you know, one of the quotes that Warrenyou know, one of the quotes that Warrenyou know, one of the quotes that Warren Buffett had said to me when I when I metBuffett had said to me when I when I metBuffett had said to me when I when I met him for lunch with Guy Spier,him for lunch with Guy Spier,him for lunch with Guy Spier, he and I don't know if this is thehe and I don't know if this is thehe and I don't know if this is the Buffett quote or it's a quote by someoneBuffett quote or it's a quote by someoneBuffett quote or it's a quote by someone else that he was quoting. He said to me,else that he was quoting. He said to me,else that he was quoting. He said to me, "A whale only gets harpooned"A whale only gets harpooned"A whale only gets harpooned after it surfaces." And he said that inafter it surfaces." And he said that inafter it surfaces." And he said that in the contextthe contextthe context of Ajit Jain. You know, I was talking toof Ajit Jain. You know, I was talking toof Ajit Jain. You know, I was talking to him about Ajit Jain and how Ajit is likehim about Ajit Jain and how Ajit is likehim about Ajit Jain and how Ajit is like so quiet and secretive and doesn'tso quiet and secretive and doesn'tso quiet and secretive and doesn't really talk much. And he has this, youreally talk much. And he has this, youreally talk much. And he has this, you know,know,know, monopoly business and whatever else inmonopoly business and whatever else inmonopoly business and whatever else in Berkshire. AndBerkshire. AndBerkshire. And you know, you never hear anything aboutyou know, you never hear anything aboutyou know, you never hear anything about it. It's a huge business. And thenit. It's a huge business. And thenit. It's a huge business. And then Buffett Buffett said, "Well, you know,
WarrenWell, you know, Mohnish, a whale only harpoons when it gets when it surfaces. And Ajit has no desire to ever surface. Anyway, so AWS, the whale, surfaced in 2015 or 2016. And as soon as it surfaced, two companies immediately took big notice of this. Microsoft jumped on the cloud in a very big way, and Google jumped on the cloud. And they were both actually shocked as to how much growth and scale Amazon already had. And Jeff probably realized that maybe he surfaced too soon. Or maybe he didn't have a choice. Maybe his internal people were telling him, "Listen, you can't you know, public company, you're reporting stuff, and you can't just you know, shove everything under a rug. At some point, you have to talk about what what you do for as as a business." And um but anyway, the whale surfaced, and instantly Microsoft pounced in a major
Questionerinstantly Microsoft pounced in a major way, and Alphabet Google also pounced on that in a major way. And the difference in the two players that pounced on this market is Microsoft been selling to the enterprise for like 50 years, long time, 40 years. And uh Google really didn't really have any expertise in selling to the enterprise. They were really more a company that, you know, created great technology, and then they, you know, put it forth in the world, and it just virally went forth from there. So, Google still struggles with trying to get to the enterprise. And but Microsoft Microsoft also had a second advantage is they were they had spent more than 40 years understanding how to scale by cloning. Uh they are masters at cloning. And so, they they they understood they were not In almost all their businesses, they're not the first ones, but they're really
Questionernot the first ones, but they're really good at uh copying what people have done. And what the situation we find ourselves in today is AWS still leads because of that multi-year advantage, but Microsoft has has caught up quite a bit. I mean, they're they're still a number two player, but they're significantly ahead of Google, uh which is a distant third. Uh and then pretty much in the US, we don't have any other players. Uh it's it's basically a three-horse race, and uh it's unlikely that the the positions of these three are going to change um and such. So, anyway, uh basically, what what ends up happening is that when we as investors, uh you know, sit down and read a lot, this is a handicap we run into, where we we're looking at different businesses, and they the owners of the the managers of these businesses really have no desire in
Questionerbusinesses really have no desire in spoon-feeding us uh on exactly how they make their money and such. And it takes time uh many times. I think even I think Arvin, when you did a deep dive on Costco, there were many facets of what you found and your students found, which weren't wasn't really laid out in Costco's annual reports in terms of them explaining, "Hey, look, these are these are the multiple ways in which we gain advantage." You had to kind of sift through and look at their behaviors and gradually try to understand uh how these pieces fit together and how they led to advantage. And and so on. So, I think the the thing is that many times one of the one of the tools we have to use in order to try to get to the monopolies is in most cases, it'll eventually show up in the numbers. So, a great business which has these oligopoly or monopoly type
Todd Combsoligopoly or monopoly type characteristics, they they they will not be able to mask it in terms of the reporting that they have to do. The numbers would show that. Just like in Rain Industries, I could clearly see it in the numbers. I just couldn't see it in terms of, you know, how and why. So, the how and why is not always made clear to us. And we just have to we have to try to figure it out. And recently, you know, I had looked into a number of the large Chinese tech companies. So, exam So, you know, we've had Alibaba, and we've had Tencent, we have Baidu. And then, you know, so there these, you know, a few large Chinese tech players. And then, you know, we have a a few large US tech players. We have Amazon and Alphabet, Microsoft, Facebook. So, we have, you know, maybe seven or 10 companies uh across both of these across the US and China.
Questionerboth of these across the US and China. And all of these Apple, for example. And all of these uh companies, it is very clear that they have strong competitive advantages, regardless of what they tell us in their writings or quarterly uh reporting, it is clear they have those advantages from the either from the net income numbers that they produce or the top-line numbers that they produce. Or in some cases, you know, we are consumers. We we use search all the time. We use Amazon all the time. We use Apple products all the time. And and if you're in China, you're using WeChat all the time, and you're using Alipay and all of that. So, you know, as consumers, we have uh we can clearly see that there are monopoly characteristics to these uh businesses. And they we can also in many cases see that the economics are very favorable. And I found Tencent a really
Questionerfavorable. And I found Tencent a really interesting uh case study out of all of these companies. So, I think someone like Jack Ma at Alibaba at least used to love to talk. Not anymore, but there was a time when he liked to talk. But we don't hear much from him. And actually, he would pretty clearly and openly describe the Alibaba business models and how he thought about it, and you know, what and how they got their competitive advantage. He was pretty open about it. And I I remember that one time I was listening to one of the Jack Ma videos, and uh you know, someone was asking him about the differences between Alibaba and Amazon. And Jack went to great lengths to try to explain that his business was very different from Amazon. And he also went on to say that the Amazon core business model what they started with made no sense to him.
Questionerstarted with made no sense to him. And uh what he was basically saying is that, "Look, if I were to do all the logistics and take ownership of the inventory and own all these warehouses and own all these trucks and own all these airplanes, I would need 10 million employees to do what Amazon does." And he says that I at that time, I think Alibaba had like 25,000 employees. He says, "You know, we have 25,000 people, and that's a significant amount to manage and handle. Uh we don't even know how we would possibly handle 10 million people." And if you look at Amazon on the other side, I think just during the pandemic, they hired more than a million people. And uh I think they're approaching 2 million or maybe gone even beyond 2 million employees. So, it's pretty uh it's a very large footprint and uh operationally very intensive. And so,
Questionerso,so, uh Jack basically took the approachuh Jack basically took the approachuh Jack basically took the approach saying, "Look, we help people get andsaying, "Look, we help people get andsaying, "Look, we help people get and buy things that they want and need andbuy things that they want and need andbuy things that they want and need and so on and so forth. We just do it in aso on and so forth. We just do it in aso on and so forth. We just do it in a different waydifferent waydifferent way than Amazon does." So, he's he's done itthan Amazon does." So, he's he's done itthan Amazon does." So, he's he's done it more with partners, and uh historically,more with partners, and uh historically,more with partners, and uh historically, more of a digital control over themore of a digital control over themore of a digital control over the digital platforms and enabling a lot ofdigital platforms and enabling a lot ofdigital platforms and enabling a lot of partners and service providers in thepartners and service providers in thepartners and service providers in the ecosystem to get to the finish line,ecosystem to get to the finish line,ecosystem to get to the finish line, which is different from the way Amazonwhich is different from the way Amazonwhich is different from the way Amazon did their core business. They do some ofdid their core business. They do some ofdid their core business. They do some of that with marketplace and so on and withthat with marketplace and so on and withthat with marketplace and so on and with their advertising businesses and such.their advertising businesses and such.their advertising businesses and such. But then when I when I looked atBut then when I when I looked atBut then when I when I looked at Tencent,Tencent,Tencent, and I went through 20 yearsand I went through 20 yearsand I went through 20 years of Tencent transcripts. You know,of Tencent transcripts. You know,of Tencent transcripts. You know, they've been public sincethey've been public sincethey've been public since I thinkI thinkI think 2001 I think when they went public. I2001 I think when they went public. I2001 I think when they went public. I think 2001 or 2003, I don't remember.think 2001 or 2003, I don't remember.think 2001 or 2003, I don't remember. Maybe 2001.Maybe 2001.Maybe 2001. And uh so, you know,And uh so, you know,And uh so, you know, right from the time they went public
Questionerright from the time they went publicright from the time they went public till now,till now,till now, I looked at every everything that theI looked at every everything that theI looked at every everything that the management team and Pony Mamanagement team and Pony Mamanagement team and Pony Ma ever said about their business.ever said about their business.ever said about their business. And in 18 or 20 years,And in 18 or 20 years,And in 18 or 20 years, basically, Pony Ma has said nothing.basically, Pony Ma has said nothing.basically, Pony Ma has said nothing. You know, if I look at everything heYou know, if I look at everything heYou know, if I look at everything he said. And then I went to the Tencentsaid. And then I went to the Tencentsaid. And then I went to the Tencent annual reports. And in the annualannual reports. And in the annualannual reports. And in the annual reports, the letter from Pony Ma alsoreports, the letter from Pony Ma alsoreports, the letter from Pony Ma also says nothing.says nothing.says nothing. So, in 18 years, there's nothing Like,So, in 18 years, there's nothing Like,So, in 18 years, there's nothing Like, for example, this is what they wouldfor example, this is what they wouldfor example, this is what they would say. WeChat now has uh 300 millionsay. WeChat now has uh 300 millionsay. WeChat now has uh 300 million users. Last year, it had 200 millionusers. Last year, it had 200 millionusers. Last year, it had 200 million users. It grew by 33%. Okay? They wouldusers. It grew by 33%. Okay? They wouldusers. It grew by 33%. Okay? They would report that fact with no other datareport that fact with no other datareport that fact with no other data behind that. And then next year, they'dbehind that. And then next year, they'dbehind that. And then next year, they'd say, "Oh, WeChat is 420 million users,say, "Oh, WeChat is 420 million users,say, "Oh, WeChat is 420 million users, and last year it was 300 million." Andand last year it was 300 million." Andand last year it was 300 million." And that's it. Nothing. And then, you know,that's it. Nothing. And then, you know,that's it. Nothing. And then, you know, WeChat would keep growing, and theyWeChat would keep growing, and theyWeChat would keep growing, and they would just keep reporting that thewould just keep reporting that thewould just keep reporting that the numbers are growing till now it's over a
Questionernumbers are growing till now it's over a billion. But there was no there was no talk anytime, anywhere in 18 years, "Hey, listen, guys. WeChat is kick-ass. It's a great monopoly. We have great economics and we make a lot of money and we control payments and we control this whole ecosystem and blah blah blah. That's never been talked about. Okay? And so, actually, I don't think most people who look at Tencent understand Tencent because then when I was looking at Tencent, I looked at this South African company called Naspers, which, you know, I think they they used to own like 31% of Tencent before when Tencent went public. And they've held that position for the most part. I think that I think now Naspers, which is spun out of company called Prosus, Prosus owns like 29% of uh of Tencent. So, uh Koos Bekker at Naspers, I went through
QuestionerBekker at Naspers, I went through because I was really curious. So, just because I was really curious. So, just because I was really curious. So, just to digress a little bit, I think we have to digress a little bit, I think we have to digress a little bit, I think we have we have some time, so I'll just digress we have some time, so I'll just digress we have some time, so I'll just digress a little bit and then I'll come back to a little bit and then I'll come back to a little bit and then I'll come back to uh the point I'm trying to make. So, we uh the point I'm trying to make. So, we uh the point I'm trying to make. So, we have this hundred plus year old have this hundred plus year old have this hundred plus year old newspaper publishing company in South newspaper publishing company in South newspaper publishing company in South Africa called Naspers. It's It's a uh Africa called Naspers. It's It's a uh Africa called Naspers. It's It's a uh public company, you know, family public company, you know, family public company, you know, family controlled, controlled, controlled, uh kind of a boring little business, uh kind of a boring little business, uh kind of a boring little business, maybe uh maybe uh maybe uh market cap of like 100 or 200 million. market cap of like 100 or 200 million. market cap of like 100 or 200 million. And uh in 1998, And uh in 1998, And uh in 1998, they appoint a hired gun CEO. I think they appoint a hired gun CEO. I think they appoint a hired gun CEO. I think that's for the first time ever. It was that's for the first time ever. It was that's for the first time ever. It was not a family member uh who was going to not a family member uh who was going to not a family member uh who was going to run the business. And they appointed run the business. And they appointed run the business. And they appointed Koos Bekker, Koos Bekker, Koos Bekker, a Afrikaner, as the CEO. And Koos Bekker a Afrikaner, as the CEO. And Koos Bekker a Afrikaner, as the CEO. And Koos Bekker said to the family, "Listen, said to the family, "Listen, said to the family, "Listen, I don't want you to give me a base I don't want you to give me a base I don't want you to give me a base salary. salary. salary. Please make my base salary zero. Please make my base salary zero. Please make my base salary zero. And I don't want you to give me an And I don't want you to give me an And I don't want you to give me an annual bonus. Please make my annual
Warrenannual bonus. Please make my annual bonus zero. And I don't want any employment contract. Anytime you want me to leave, you can let me go with no severance. And all I ask for is that whatever value I create, 3% of that accrues to me.
WarrenSo, the family said, "Where do we sign?" You know, and uh you know, they said, "Hallelujah. Someone wants to work for free and take 3% of the upside. Let's go." And uh so, Koos Bekker came on board and um he took that business from under 200 million to valuation of uh probably if you looked at the assets inside the business, more than 200 billion. And it went from less than 200 million to two 200 It's like a thousand X. Is that Is that correct? Like a thousand X, yeah. Uh in about 20 years, okay? And and the amazing what I found most amazing about that is here you have this, you know, itty-bitty newspaper
Questionerthis, you know, itty-bitty newspaper publishing company in South Africa and you get this outsider who comes in and he makes a bunch of crazy dot-com bets in '99, '98, and a lot of them blow up. Uh they go to zero, but he makes one bet with 32 million dollars. And for that 32 million dollars, he gets almost half of Tencent. And this was I think I think the bet was made in Yeah, I think the bet was made in 2001. And I think then or maybe earlier than that around that I'm a little fuzzy on the exact dates. And then I think Tencent went public in a couple of years later. But the interesting thing was that when Tencent went public, that stake was worth already worth in the hundreds of millions, if not in the billions. And they never sold a single share. So, very soon, the their Tencent stake would have been 90% of the total asset value in the
Questionerof the total asset value in the business. And then in a few years, it became 95%. And then it became 97%. And through all of that, a hired gun CEO basically decides, "I'm not selling a single share." And I said, "How does somebody So, I would say that Koos Bekker is Nick Sleep on steroids. Okay? So, in the case of Nick Sleep, Nick Sleep made bets on Amazon and and Berkshire and Costco. These were large holdings. And the Amazon position became quite large. I think I'm guessing it was probably maybe 1/3 or more of the pie that he was he was running. And I'm just reading between the lines from his letters that he was facing regulatory pressure for the, you know, non-diversified and large stakes, etc. And I think one of the drivers that maybe case and he had was that, "Look, we are independently wealthy. We have more money than we ever thought we'd have. Why do we need to,
Questionerthought we'd have. Why do we need to, thought we'd have. Why do we need to, you know, sit here and keep writing you know, sit here and keep writing you know, sit here and keep writing letters to all these people? We can letters to all these people? We can letters to all these people? We can just, you know, wrap up shop and we can just, you know, wrap up shop and we can just, you know, wrap up shop and we can have as large a stake of Amazon as we have as large a stake of Amazon as we have as large a stake of Amazon as we want individually and no one's going to want individually and no one's going to want individually and no one's going to tell us anything." So, you know, he hung tell us anything." So, you know, he hung tell us anything." So, you know, he hung up his boots a long time back. And up his boots a long time back. And up his boots a long time back. And they've outperformed everyone since then they've outperformed everyone since then they've outperformed everyone since then because they just kept those stakes in because they just kept those stakes in because they just kept those stakes in those businesses. And if you just kept those businesses. And if you just kept those businesses. And if you just kept Amazon at 1/3 of your portfolio in 2013 Amazon at 1/3 of your portfolio in 2013 Amazon at 1/3 of your portfolio in 2013 or something and you didn't touch it, or something and you didn't touch it, or something and you didn't touch it, you pretty much outperformed everybody you pretty much outperformed everybody you pretty much outperformed everybody without doing much real work, if you without doing much real work, if you without doing much real work, if you will, uh from then. So, I found that in will, uh from then. So, I found that in will, uh from then. So, I found that in the case of Koos Bekker, he didn't like the case of Koos Bekker, he didn't like the case of Koos Bekker, he didn't like do a victory lap when Tencent was a 10 do a victory lap when Tencent was a 10 do a victory lap when Tencent was a 10 billion dollar position and say, "Okay, billion dollar position and say, "Okay, billion dollar position and say, "Okay, look, we invested 32 million. It's now look, we invested 32 million. It's now look, we invested 32 million. It's now worth 10 billion. It's now worth 98% of worth 10 billion. It's now worth 98% of worth 10 billion. It's now worth 98% of our total assets. It's been a great
Questionerour total assets. It's been a great ride. Let's take some chips off the table or let's take all chips off the table." He took no chips off the table. Right? I mean, he's a hired gun. He took no chips off the table. And he took no chips off the table until 2018. 2018 was the first time Naspers sold any Tencent shares. And in fact, what they did with the proceeds is they bought back their own stock. That was part of the reason they sold because there was a value gap. And if you own shares of Naspers, so you look through shares of Tencent that you own for each share of Naspers, it has actually not gone down from 2001 till today. It's actually gone up because they've done buybacks, which have given you So, basically, in effect, from an outside shareholder perspective, Koos Bekker has not diluted or sold Tencent in 20 years. So, it's it's very very strange. Some
Charlieit's it's very very strange. Some obscure South African company owns 29% of one of the largest, most successful Chinese not just tech, any Chinese business ever in the history of China. And it just sits there and doesn't do anything. So, I said, "Okay, Pony Ma is no fun. He doesn't talk. He doesn't say anything. He's like a government bureaucrat. If you were to hear him talk, you'd think that some guy who's a member of the CCP is talking to you. It's not some entrepreneur talking to you." So, I then went and read everything Koos Bekker had to say because I said, "This guy is interesting because for 20 years, he doesn't sell this thing." And Koos Bekker talked about Pony Ma. I said, "Okay, this is good because now I can finally understand because Naspers has had a stake in Tencent and they've had a They were two board seats for a very long
Questionerwere two board seats for a very longwere two board seats for a very long time. I mean, right from the time theytime. I mean, right from the time theytime. I mean, right from the time they went public, I think maybe after that.went public, I think maybe after that.went public, I think maybe after that. And so, Koos Bekker's been on the boardAnd so, Koos Bekker's been on the boardAnd so, Koos Bekker's been on the board for a long time. And if somebody knowsfor a long time. And if somebody knowsfor a long time. And if somebody knows Pony Ma,Pony Ma,Pony Ma, who waswho waswho was an outside shareholder, it's Koosan outside shareholder, it's Koosan outside shareholder, it's Koos Bekker.Bekker.Bekker. And in the Naspers letters and theAnd in the Naspers letters and theAnd in the Naspers letters and the Naspers transcripts, which I wentNaspers transcripts, which I wentNaspers transcripts, which I went through about, you know, 18 years ofthrough about, you know, 18 years ofthrough about, you know, 18 years of those,those,those, there is a lot of commentarythere is a lot of commentarythere is a lot of commentary on Tencent and on Pony Ma.on Tencent and on Pony Ma.on Tencent and on Pony Ma. And what Koos Bekker said, he said,And what Koos Bekker said, he said,And what Koos Bekker said, he said, "Look,"Look,"Look, there is no management team on thethere is no management team on thethere is no management team on the planet in any tech or non-tech businessplanet in any tech or non-tech businessplanet in any tech or non-tech business anywhere in the worldanywhere in the worldanywhere in the world that is better than Tencent."that is better than Tencent."that is better than Tencent." Okay? This These are his And he didn'tOkay? This These are his And he didn'tOkay? This These are his And he didn't say this once. He said he said thissay this once. He said he said thissay this once. He said he said this multiple times. I said, "Whoa, that's amultiple times. I said, "Whoa, that's amultiple times. I said, "Whoa, that's a pretty pretty bold statement to makepretty pretty bold statement to makepretty pretty bold statement to make that, you know, here's this companythat, you know, here's this companythat, you know, here's this company which is the best management team." Andwhich is the best management team." Andwhich is the best management team." And now, if you look at the numbers for
Charlienow, if you look at the numbers for Tencent, you would not argue with that Tencent, you would not argue with that Tencent, you would not argue with that statement. statement. statement. Okay? I mean, Tencent went from nothing Okay? I mean, Tencent went from nothing Okay? I mean, Tencent went from nothing to becoming one of the largest market to becoming one of the largest market to becoming one of the largest market cap companies anywhere in the world. And cap companies anywhere in the world. And cap companies anywhere in the world. And it has dominated the businesses that it has dominated the businesses that it has dominated the businesses that they're in. They dominate in messaging they're in. They dominate in messaging they're in. They dominate in messaging and payments and video games and so on. and payments and video games and so on. and payments and video games and so on. They dominate a number of categories They dominate a number of categories They dominate a number of categories throughout. And so then I said, "Why throughout. And so then I said, "Why throughout. And so then I said, "Why does Koos Bekker think does Koos Bekker think does Koos Bekker think that of all the businesses around, that of all the businesses around, that of all the businesses around, Tencent is the best?" I said, "Is he Tencent is the best?" I said, "Is he Tencent is the best?" I said, "Is he biased? biased? biased? Is he that like he's drinking the Is he that like he's drinking the Is he that like he's drinking the Kool-Aid? You know, because after 18 Kool-Aid? You know, because after 18 Kool-Aid? You know, because after 18 years of uh 65% years of uh 65% years of uh 65% annualized return or something like that annualized return or something like that annualized return or something like that on your on your investment, you would on your on your investment, you would on your on your investment, you would have drunk a lot of Kool-Aid. have drunk a lot of Kool-Aid. have drunk a lot of Kool-Aid. Okay, and you would say, you know, of Okay, and you would say, you know, of Okay, and you would say, you know, of course you would you would create a big course you would you would create a big course you would you would create a big shrine to Pony Ma, and you would worship shrine to Pony Ma, and you would worship shrine to Pony Ma, and you would worship at that shrine every day. Why wouldn't at that shrine every day. Why wouldn't
Otherat that shrine every day. Why wouldn't you do that?you do that?you do that? But I said, what if he's actuallyBut I said, what if he's actuallyBut I said, what if he's actually rational and logicalrational and logicalrational and logical in making that statement? It's not justin making that statement? It's not justin making that statement? It's not just some statement he's making. So then Isome statement he's making. So then Isome statement he's making. So then I try to understand, why does Koos Bekkertry to understand, why does Koos Bekkertry to understand, why does Koos Bekker thinkthinkthink that Pony Ma is better than Jeff Bezos?that Pony Ma is better than Jeff Bezos?that Pony Ma is better than Jeff Bezos? Or Pony Ma is better than Jack Ma?Or Pony Ma is better than Jack Ma?Or Pony Ma is better than Jack Ma? Or Pony Ma is better than any techOr Pony Ma is better than any techOr Pony Ma is better than any tech business, better than the Netflix CEO,business, better than the Netflix CEO,business, better than the Netflix CEO, or anyone else? Why do they think that?or anyone else? Why do they think that?or anyone else? Why do they think that? And I kept thinking about this question.And I kept thinking about this question.And I kept thinking about this question. And then finally it dawned on meAnd then finally it dawned on meAnd then finally it dawned on me why he says that. And I had a ahawhy he says that. And I had a ahawhy he says that. And I had a aha moment. I said, "Whoa, I think I figuredmoment. I said, "Whoa, I think I figuredmoment. I said, "Whoa, I think I figured this out." And what I figured out I Andthis out." And what I figured out I Andthis out." And what I figured out I And now And then I understood whynow And then I understood whynow And then I understood why Pony MaPony MaPony Ma doesn't want to talk to anyonedoesn't want to talk to anyonedoesn't want to talk to anyone about anything.about anything.about anything. He just wants to be kind of buried deepHe just wants to be kind of buried deepHe just wants to be kind of buried deep somewhere executing his models. So whatsomewhere executing his models. So whatsomewhere executing his models. So what I realized is, if you look at theseI realized is, if you look at theseI realized is, if you look at these seven or eight companies, you know, theseven or eight companies, you know, theseven or eight companies, you know, the three or four in China and, you know,
Otherthree or four in China and, you know, the four or five in the US, there are actually only two of them that understand capital allocation well. The two large tech businesses in the world that understand capital allocation well, according to me, are Amazon and Tencent. I don't think the others understand it, but I don't think they can execute. I'll explain why I say that. So if you look at the balance sheets of these large seven or eight players, they are all drowning in cash. Except for two companies. Tencent has no cash. It has net debt. And for the most part Amazon has no cash. It may not be net debt, but basically has almost no cash. But if you look at their competitors, so if you look at Microsoft, you know, massive dividends and buybacks and, you know, tens of billions, you know. I haven't even looked at how much cash
CharlieI haven't even looked at how much cash Microsoft has, but I I have to imagine it's, you know, up there. 50, 100, 150 billion, whatever. Amazon Apple up there, Google up there, Alibaba up there. Massive amounts of cash. And Tencent, no cash. And Amazon, no cash. So then I said, "Why do Tencent and Amazon have no cash when they have businesses Some businesses uh of Amazon are are gushing a lot of cash." Uh well, the reason is that in the case of Amazon, they keep throwing stuff against the wall. And they still throw stuff against the wall at such a furious rate in addition to investing in their existing core businesses that they've never been in a situation where there's 30 billion sitting on the balance sheet. It's never happened, and it's unlikely to happen in the future. If you look at a business like Apple, it generates so much cash, but they have no use for the cash. So
Questionerbut they have no use for the cash. So they invest what they can in their core business, and then beyond that the only really meaningful thing they're able to do is buy back shares. And even after all the buybacks, they still end up with, you know, 100 plus billion uh just sitting on the balance sheet, and it's gushing massive amounts of cash every quarter. And then when I looked at Tencent, I find that the cash balance is negative, you know? And it's been negative for a while. And I realized that basically Pony Ma has a very simple business model. And I don't think he's ever going to describe that business model to anyone. So here I am, the Indian guy, has to describe the business model because he won't. Okay? And uh we had to do that in Arvin's class, you know? So the business model is really simple. He has two businesses. One business that he has is his army of
QuestionerOne business that he has is his army of software engineers. I don't know how many engineers he has, maybe 25,000, maybe might be 50,000 now, but it's a large army of software engineers. And these This army of software engineers The The way the software business works is that the productivity difference between an incredible engineer and just a good engineer could be a thousand to one. So you you would be willing as a company like Tencent to even pay 50 million dollars a year to a truly, truly incredible software engineer. And the run-of-the-mill mill ones you might want to pay 100,000 something like that. So there's a you know, he just has this massive variance. And Pony Ma is massive variance. And Pony Ma understands that really well. And he's really good at sifting through, you know, which are the rock star you know, which are the rock star superstars. And he made sure that those guys are well taken care of, etc. So he's got
Otherwell taken care of, etc. So he's got this army of engineers. It's got this army of engineers. It's got this army of engineers. It's basically a massive bazooka that he has with this army of engineers, and he decides where and how he wants to fire the bazooka. And they they the way they fire the bazooka is for the most part, even if they have some misses, they end up with this total dominance. So for example, they have total dominance on video games, okay? And I realized that it really doesn't matter what the CCP or the Chinese government does regarding video games. It is like a pimple on a camel's butt from Tencent's perspective. Uh they have almost no profits or revenues from within China in video games. It's for less than 5% of their video game top line and bottom line that's coming from China. So as soon as the Chinese Communist Party started making noise that this is not such a great
Othernoise that this is not such a great thing to have all these people playingthing to have all these people playingthing to have all these people playing all these video games, within aall these video games, within aall these video games, within a femtosecond that bazooka got completelyfemtosecond that bazooka got completelyfemtosecond that bazooka got completely pointed outside China. So he just tookpointed outside China. So he just tookpointed outside China. So he just took his army and said, "Okay, ignore China.his army and said, "Okay, ignore China.his army and said, "Okay, ignore China. Let's focus on the rest of the world."Let's focus on the rest of the world."Let's focus on the rest of the world." And in fact, I would I would go even aAnd in fact, I would I would go even aAnd in fact, I would I would go even a step further and say,step further and say,step further and say, you could ban video games globally,you could ban video games globally,you could ban video games globally, and Tencent would still continue toand Tencent would still continue toand Tencent would still continue to prosperprosperprosper because they would still have the army.because they would still have the army.because they would still have the army. And the army would just get redirected.And the army would just get redirected.And the army would just get redirected. Yes, there is a portion of the army isYes, there is a portion of the army isYes, there is a portion of the army is very specialized on video games, butvery specialized on video games, butvery specialized on video games, but they would they would eventually be ablethey would they would eventually be ablethey would they would eventually be able to convert that into something else. Soto convert that into something else. Soto convert that into something else. So So he's got basically this army whichSo he's got basically this army whichSo he's got basically this army which can do a lot of digital stuff in acan do a lot of digital stuff in acan do a lot of digital stuff in a variety of fields. And uh they're reallyvariety of fields. And uh they're reallyvariety of fields. And uh they're really good at it. So when when Tencent makes,good at it. So when when Tencent makes,good at it. So when when Tencent makes, like for example, they made 15 billionlike for example, they made 15 billionlike for example, they made 15 billion dollarsdollars
Otherdollars cash flow last year,cash flow last year,cash flow last year, Pony Ma goes to hisPony Ma goes to hisPony Ma goes to his digital armydigital armydigital army and says,and says,and says, "What do you need?"What do you need?"What do you need? How many more engineers would you like?"How many more engineers would you like?"How many more engineers would you like?" And the math is really simple.And the math is really simple.And the math is really simple. Every billion dollars you spendEvery billion dollars you spendEvery billion dollars you spend gets you at least 5,000 great engineers.gets you at least 5,000 great engineers.gets you at least 5,000 great engineers. So if you take a average engineer,So if you take a average engineer,So if you take a average engineer, 200,000, 5,000 engineers would be 1200,000, 5,000 engineers would be 1200,000, 5,000 engineers would be 1 billion dollars a year of expenditure.billion dollars a year of expenditure.billion dollars a year of expenditure. Okay? So they tell Pony Ma,Okay? So they tell Pony Ma,Okay? So they tell Pony Ma, "Pony,"Pony,"Pony, give me a billion."give me a billion."give me a billion." So Pony says, "Yeah, that's okay. Here'sSo Pony says, "Yeah, that's okay. Here'sSo Pony says, "Yeah, that's okay. Here's your billion." But that's not enough.your billion." But that's not enough.your billion." But that's not enough. "Can you take 5 billion?""Can you take 5 billion?""Can you take 5 billion?" And they say, "No, we can't handle that.And they say, "No, we can't handle that.And they say, "No, we can't handle that. It's hard for us to hire 5 or 10,000It's hard for us to hire 5 or 10,000It's hard for us to hire 5 or 10,000 engineers. I cannot hire 25,000 greatengineers. I cannot hire 25,000 greatengineers. I cannot hire 25,000 great engineers. I just I don't know what Iengineers. I just I don't know what Iengineers. I just I don't know what I would do with them and how I wouldwould do with them and how I wouldwould do with them and how I would deploy them. So I cannot take more thandeploy them. So I cannot take more thandeploy them. So I cannot take more than a billion."a billion."a billion." So Pony says, "It's so sad, but it'sSo Pony says, "It's so sad, but it'sSo Pony says, "It's so sad, but it's okay. Here's your billion." Now Pony hasokay. Here's your billion." Now Pony hasokay. Here's your billion." Now Pony has 14 billion left. So then he goes to his
Questioner14 billion left. So then he goes to his business number two. His business number two is he's got 30 digital Warren Buffets. Okay? And he says, "You know, these losers in business number one, they can't use my money. So here's 14 billion. Have fun." And then they go and they invest that in uh Some of it will be whole acquisitions, but most of it is small minority stakes in a number of businesses. Okay? And that digital Warren Buffet, which is not one guy, maybe, you know, 20, 30 guys, put that 14, 15 billion to work. And just to make sure that all the money is used, Pony makes sure that they spend a little more than the cash he generates because it bothers Tony. It doesn't bother Sundar that 70 billion earns less than 1%. And it doesn't bother Apple that 100 or 150 billion earns less than 1%. And it doesn't bother Satya that, you know, 80,
Otherdoesn't bother Satya that, you know, 80, 100, 150 billion earns less than 1%. It bothers Pony Ma. And so Pony Ma doesn't even leave 100,000 dollars with him himself. If he makes 15 billion, he spends 15.5 billion. Because he wants to borrow at 1%. He doesn't want some checking or savings account giving him 1%. So he makes sure that when bazooka number cannot use the money, he puts it into bazooka number two. And when he Once he's fired both those bazookas, he's got no money left and he's very happy. Okay, then the following year, maybe he makes 20 billion. Again, he goes to his bazooka number one and they say, "Pony, you know, you come to us every year and you want to force-feed us 50,000 engineers. We can't do it. Okay, I can take 6,000 and that's it. I can't take any more." So, he gives them the billion, too, and then again, he goes to the other team and says, "My loser team
Otherthe other team and says, "My loser team number one cannot use any more. You go to number two." So, now, here's the economics for the last 20 years, which Pony Ma will never tell you. I have to tell you, the Indian guy in the wonderful blue kurta. Okay, model number one, bazooka number one, earns 65% annualized return on capital invested. Okay, day in and day out. Any billion he puts in, historically, he'll make 65% a year. Model number two makes 35% a year. What a terrible business. Okay, so, he's just got these two models. One has been pounding out 65% a year and the second one has been pounding out 35% a year. Okay, the DNA. So, I told you there were only two companies, two large companies that knew how to do this with using all the cash. What Tencent does actually runs circles around Amazon. Because Pony Ma is never going to hire
OtherBecause Pony Ma is never going to hire a drivera drivera driver or a warehouse operatoror a warehouse operatoror a warehouse operator or some, you know, freighter aircraftor some, you know, freighter aircraftor some, you know, freighter aircraft pilotpilotpilot and put them on his payroll.and put them on his payroll.and put them on his payroll. He's just not interested. He's onlyHe's just not interested. He's onlyHe's just not interested. He's only going to hire software engineers.going to hire software engineers.going to hire software engineers. Okay, that's what he wants to do.Okay, that's what he wants to do.Okay, that's what he wants to do. And so, when some business needs driversAnd so, when some business needs driversAnd so, when some business needs drivers and warehouses and all that, Pony Ma isand warehouses and all that, Pony Ma isand warehouses and all that, Pony Ma is going to have a minority investment ingoing to have a minority investment ingoing to have a minority investment in that businessthat businessthat business through his bazooka number two.through his bazooka number two.through his bazooka number two. So, he has a stake in PDD and jd.com andSo, he has a stake in PDD and jd.com andSo, he has a stake in PDD and jd.com and Meituan and all these companies that doMeituan and all these companies that doMeituan and all these companies that do all thisall thisall this crazy heavy lifting.crazy heavy lifting.crazy heavy lifting. He still gets the upside on those, butHe still gets the upside on those, butHe still gets the upside on those, but they're not on his payroll.they're not on his payroll.they're not on his payroll. Okay, it's a it's an investment. JeffOkay, it's a it's an investment. JeffOkay, it's a it's an investment. Jeff loves to have those people on hisloves to have those people on hisloves to have those people on his payroll.payroll.payroll. And I think it's somewhat inferior atAnd I think it's somewhat inferior atAnd I think it's somewhat inferior at the end of the day tothe end of the day tothe end of the day to Now, it gives you more of an of a linkNow, it gives you more of an of a linkNow, it gives you more of an of a link with the customer.with the customer.with the customer. The the relationship is tighter and theThe the relationship is tighter and theThe the relationship is tighter and the the service levels could be probably be
Charliethe service levels could be probably be better, but I would bet that given the superiority of the Tencent model, it would not surprise me that if we look 10 years or 15 years from now, that it's the most valuable business on the planet. And to a large extent, I feel that they may even be able to transcend a bunch of stuff that the CCP is throwing at them and continues to throw at them. So, I think what they would like, if the Chinese Communist Communist Party would listen, is listen, guys, just tell me all the rules right now. Don't dribble it out every few weeks. Just tell me all the rules that you want me to play with. And if you tell me those rules, I will reprogram my two engines to still do well based on those rules. And so, in the absence of clarity from the CCP telling them, "These are the rules." I think what Pony Ma has done, he's just
WarrenI think what Pony Ma has done, he's just said, "Okay, let's fire both bazookas as much as possible outside China." And that's I think what they've done. They've taken that digital and almost instantly moved them completely out of China. They've already been doing non-Chinese investments forever. They're really good at I mean, they've they've dominated in the way they've invested around the world. And even anyway, the video games and all that were already outside China. So, in both cases, he's doing that. And so, what I just to just to come full circle, basically, what I realized when I went through all of this is that if I had taken my shoes off like Case Zacharias and I had read 20 years of Tencent annual reports, I would be clueless. It was only because I got kind of CliffNotes from Koos Bekker I had to go to a different source,
Questionerto a different source, which started to enlighten me a little bit about what was going on here. And I think I was speaking to the IR guys at Naspers a few months ago. And one of the junior guys made a comment and I found that comment very very very stunning. They've publicly said that for the next 3 years, they won't sell any Tencent stock. They made a public statement on on that front. This guy says, "We will never sell Tencent." Okay, so I said, "Okay, we have this Koos Bekker saying that Pony Ma be-all end-all great management team." And then this guy says, "They will never tell it." What's in the water? You know, what's going on? So, these statements compelled me to dig in. Like, why would you make a statement like that that you would never sell something? And then I realized when I figured out that these two bazookas is going on,
Otherthat these two bazookas is going on, then yeah, why would I sell?then yeah, why would I sell?then yeah, why would I sell? They're two great bazookas. It's got aThey're two great bazookas. It's got aThey're two great bazookas. It's got a great engine. It's firing.great engine. It's firing.great engine. It's firing. Let it rip. And so, the market,Let it rip. And so, the market,Let it rip. And so, the market, basically, if you look at it, businessbasically, if you look at it, businessbasically, if you look at it, business like Tencent. Now, I don't want you tolike Tencent. Now, I don't want you tolike Tencent. Now, I don't want you to think of it as a stock tip. Okay, pleasethink of it as a stock tip. Okay, pleasethink of it as a stock tip. Okay, please don't think of these as stock tips.don't think of these as stock tips.don't think of these as stock tips. Don't go buy Rain or Tencent or any ofDon't go buy Rain or Tencent or any ofDon't go buy Rain or Tencent or any of these things just becausethese things just becausethese things just because me and the kurta is telling you that.me and the kurta is telling you that.me and the kurta is telling you that. I'm not telling you to go buy anything.I'm not telling you to go buy anything.I'm not telling you to go buy anything. All I'm trying to say is that I thinkAll I'm trying to say is that I thinkAll I'm trying to say is that I think thatthatthat the odds are high that the way thatthe odds are high that the way thatthe odds are high that the way that business is configured,business is configured,business is configured, that it's going to dominate for a longthat it's going to dominate for a longthat it's going to dominate for a long time. And uh it was kind of fun to Andtime. And uh it was kind of fun to Andtime. And uh it was kind of fun to And And the other thing I just want TheAnd the other thing I just want TheAnd the other thing I just want The bigger lesson I want you to all takebigger lesson I want you to all takebigger lesson I want you to all take home is you can get a sense that ahome is you can get a sense that ahome is you can get a sense that a business has an advantage from eitherbusiness has an advantage from eitherbusiness has an advantage from either being a customer or looking at theirbeing a customer or looking at theirbeing a customer or looking at their numbers or different things. It can givenumbers or different things. It can give
Othernumbers or different things. It can give you a sense that there is an advantage.you a sense that there is an advantage.you a sense that there is an advantage. It may take a lot of diggingIt may take a lot of diggingIt may take a lot of digging and it may take a lot of workand it may take a lot of workand it may take a lot of work to actually understand what thatto actually understand what thatto actually understand what that advantage is. And that can be a bigadvantage is. And that can be a bigadvantage is. And that can be a big edge. Once you can figure that out, thenedge. Once you can figure that out, thenedge. Once you can figure that out, then because a lot of people won't spend thebecause a lot of people won't spend thebecause a lot of people won't spend the time or the effort to do that. And thentime or the effort to do that. And thentime or the effort to do that. And then that can also give you very strongthat can also give you very strongthat can also give you very strong convictionconvictionconviction to hold on when they have, you know,to hold on when they have, you know,to hold on when they have, you know, temporary headwinds or something.temporary headwinds or something.temporary headwinds or something. And so, Arvin, that's pretty much theAnd so, Arvin, that's pretty much theAnd so, Arvin, that's pretty much the song and dance for this year.song and dance for this year.song and dance for this year. We can now go to questions. Thank you.We can now go to questions. Thank you.We can now go to questions. Thank you.
OtherYeah, thanks, Monish. That wasYeah, thanks, Monish. That wasYeah, thanks, Monish. That was That was really interesting andThat was really interesting andThat was really interesting and you know, I think that Zach and Nick andyou know, I think that Zach and Nick andyou know, I think that Zach and Nick and that entire ethos clearly had a lot ofthat entire ethos clearly had a lot ofthat entire ethos clearly had a lot of insights into companies for over veryinsights into companies for over veryinsights into companies for over very long periods of time. So, you know, withlong periods of time. So, you know, withlong periods of time. So, you know, with that, I I'll open it up to my studentsthat, I I'll open it up to my studentsthat, I I'll open it up to my students to jump in with with questions. So,to jump in with with questions. So,to jump in with with questions. So, please feel free to to raise your hands
Otherplease feel free to to raise your hands and let's get started. Yeah, Rishi. Uhand let's get started. Yeah, Rishi. Uhand let's get started. Yeah, Rishi. Uh hey, Monish. Thank you for taking thehey, Monish. Thank you for taking thehey, Monish. Thank you for taking the time to speak to our class today.time to speak to our class today.time to speak to our class today.
QuestionerUh I just have a quick question.Uh I just have a quick question.Uh I just have a quick question. How did you get like initiallyHow did you get like initiallyHow did you get like initially interested in the financial markets andinterested in the financial markets andinterested in the financial markets and at what point in your career did youat what point in your career did youat what point in your career did you like say to yourself, "I want to becomelike say to yourself, "I want to becomelike say to yourself, "I want to become an investor and that's really what Ian investor and that's really what Ian investor and that's really what I want to do"?want to do"?want to do"?
OtherYeah,Yeah,Yeah, uh Rishi, that's a that's a greatuh Rishi, that's a that's a greatuh Rishi, that's a that's a great question.question.question. So,So,So, I think it wasI think it wasI think it was um it was about 27 years agoum it was about 27 years agoum it was about 27 years ago and uh my 90 94, my wife and I wereand uh my 90 94, my wife and I wereand uh my 90 94, my wife and I were vacationing in London,vacationing in London,vacationing in London, um I think just before our kids wereum I think just before our kids wereum I think just before our kids were born.born.born. And I was looking for something to readAnd I was looking for something to readAnd I was looking for something to read at theat theat the on the plane back. And I was an engineeron the plane back. And I was an engineeron the plane back. And I was an engineer running a IT services company at therunning a IT services company at therunning a IT services company at the time.time.time. And I picked up one of Peter Lynch'sAnd I picked up one of Peter Lynch'sAnd I picked up one of Peter Lynch's booksbooksbooks to read on the flight. I think One Up Onto read on the flight. I think One Up Onto read on the flight. I think One Up On Wall Street. And I really enjoyed theWall Street. And I really enjoyed theWall Street. And I really enjoyed the book. I said, "Wow, this is really
Questionerbook. I said, "Wow, this is really really interesting." I hadn't really I don't think I ever bought a stock or anything. I might have dabbled a bit here and there, but I didn't really understand much about investing or markets or anything. And I enjoyed that book a lot and I said, "Okay, this kind of makes a lot of sense." And I said, "Let me read some more." There was another Peter Lynch book. I read that and then I was out of Peter Lynch books and I said, "What am I going to do now? I want to kind of know more." And in the second book, he was talking in reverential terms about Warren Buffett and I hadn't heard about Buffett before. And I said, "Well, who's this Buffett guy? What's he talking about? Why does he think this guy is so good?" And I was lucky the first couple of biographies were out on Buffett at in '92 '93. So, I read those
QuestionerBuffett at in '92 '93. So, I read those and then that led me to the Berkshire letters and so on and and it opened up a huge world for me. And I realized something which was um really compelling for me. So, what I realized when I read read about how Warren invested, I found that it it dovetails very closely with the way I would look at figuring out, you know, the strategy and direction of my company. So, I was running this IT company and every two or three years I had to reinvent the company because otherwise we would get obsolete and so on. And I try to figure out, you know, where to go into, which areas, this and that. And that would take like two or three percent of my time. And then 97% of the time would be the blocking and tackling, the heavy lifting to try to make it happen. Right? And I enjoyed both aspects, the strategy as well as the execution,
Otherstrategy as well as the execution, but I enjoyed the strategy a lot more than the execution. And what I realized when I read about Buffett is that the part of the brain you use to figure out which companies are good investments, etc., is the same part of the brain I would use to figure out which area to focus on in my business and such. It's the same It's almost the same. But the difference was in the way he did it, 80% of his time was spent in areas that would be 3% of my time. And I said, "I want to be like that guy. I don't want to be doing this for 3% of my time. I want to do this for 80%." So, I said, "You know, I really want to spend more time on figuring out businesses and business models and less time on herding a bunch of cats at work. The cat-herding business was not that much fun." And so, I had sold a small portion of the company. I had about a million in
Ted Weschlerthe company. I had about a million in the company. I had about a million in cash after taxes in '94, '95, and then I started to invest that money in the equity markets using Buffett's approach, that you're not buying a stock, you're buying a business, you know, you're looking at the valuations and intrinsic value, and you're trying to figure out the competitive advantage of the business, and then if when it had all these great characteristics, then you went in. So, that's how I got going with this 27 years ago, and that's how it goes today. And like what I just talked about with Tencent and, you know, Naspers, this was so much fun to figure out. And I don't have to go run Tencent, which would be so complicated for me. Long live Pony Ma. Please keep running it. Okay? I just want to be passively on the sidelines, you know, when I find businesses and and such. So, that's how
Questionerbusinesses and and such. So, that's how I got going on this on this journey.
QuestionerCharlie, thank you very much for sharing, and I have one question. Will be worried about the political risk associated with investing Chinese tech giant because you just mentioned you a lot about tension and Alibaba. In recently, you know, the in Chinese education industry, the value of the leading company just dropped seriously because of a government announcement. So, how do you see about this? I'll I'll give you a little longer answer. I hope you don't mind.
CharlieSo, let me just just go quickly into the the education tech, the education businesses in China. I am completely in agreement with what the CCP did with that useless industry and took it out. So, I run a non-profit foundation in uh with the lot of the activities are in India, where we take a bunch of underprivileged
Otherwhere we take a bunch of underprivileged kids and try to get them into elite institutions, so then they are out of poverty and so on. And we've been doing I've been doing that now for about 15 years. So, I've had a lot of of front-row seat observing many Indian for-profit education companies. And I have a friend of mine, Guy Spier, who invested in a bunch of for-profit education companies in Singapore and the US and so on. And so, I've had a lot of interactions and understanding of that space. So, at the highest level, just to just to just quickly go through this, there would be two kinds of private education companies in any place. There would be one type of company which increases the number of seats available for people to get educated, you know, like open a private university or open a private school, where you actually have increased the
Otherwhere you actually have increased the opportunities available for people to get educated. The second type of company would be one which helps to get people give people an unfair advantage on getting one of the limited seats in existing elite institutions. So, for example, in India, we have the IITs, the Indian Institute of Technology. They have maybe 15,000 seats available every year incoming freshmen. And there are more than 1 million kids who want to get a seat at IIT. So, the top of the funnel is 1 million, and only 15,000 can get a seat. And so, there's been a very large industry that has come about in India, which basically helps you, preps you, coaches you to try to get one of those 15,000 seats. So, you pay them money, and you go through a lot of intense preparation, and then you end up if one basically one and a half percent of the people who are
Otherand a half percent of the people who are attempting to get these seats get these seats. The second engine does not increase the number of people who are getting seats in those elite institutions. It simply decides who gets those seats. Okay? And so, what what happened in China, which is which I've seen happen in India, and it's a very unfortunate situation, is there are not enough seats. And because there are not enough seats, capitalists have propped up and created businesses, which basically help filter who gets a seat. And the filtering process is not a completely objective, fair process. Money makes a difference, and other factors make a difference on who gets a seat. So, I think it's a problem. It's a problem in India as well. The bigger issue is that that 15,000 seats needs to really be 100,000 seats. Okay? That's the bigger issue.
Todd CombsOkay? That's the bigger issue. But in India, what happens is more money is spent by the million people trying to get these 15,000 seats than what the government spends on those 15,000 seats. It's kind of a backward system. So, anyway, from my point of view, I was I I did not like that business model because I had seen It's not a win-win, you know? If you look at a business like Costco, everybody wins in that ecosystem. The consumer gets a better product. The manufacturer doesn't have to worry too much about sales, and they get large volumes. And the employees get paid more than other competitors that try to pay them, and the shareholders do well as well. So, everybody in that ecosystem benefits from Costco. In the case of the Chinese education companies, 95% of the people who are paying these companies end up disappointed. They don't get a seat that they want.
OtherThey don't get a seat that they want. They work very hard, but they don't get what they want. And in the meantime, in India, we've had issues with suicides and depression. It creates other issues. So, there are no easy answers. That funnel is problematic. I don't know what the answer to that funnel is, but from my point of view, I don't want to invest in that area because it's a win-lose situation. So, that's my take on the education company. So, I actually I'm on the same page as the CCP on that front. As far as the investing in China, etc., you are absolutely right, you know, things can change, and someone can come up with rules like they did with the education companies, and it can change the dynamics or economics of the businesses. That is why we don't have only one bet. You know, I don't know whether Tencent will
OtherI don't know whether Tencent will do really well in the future. I think probabilistically it may be a decent bet, but it's there's nothing like a sure bet in investing. Capitalism is just hard.
QuestionerRight. All right. Thanks for coming on. I really appreciate it.
QuestionerUh so, my question is um how has your investment strategy changed from when you first wrote The Dhando Investor, and have you added any additional elements to the Dhando framework?
OtherYeah, I mean, I think this is one of the fun things about about investing is that number one, you know, if if you are even if you are Tom Brady, eventually you would go into decline. I know that Tom Brady doesn't believe he'll ever decline, but you know, between us girls, we know that eventually he will decline. Uh but in investing, one of the good things is that as the years go by and as Tom Brady declines, we keep getting better.
Todd Combsdeclines, we keep getting better. And so Michael Jordan, you know, already had the last dance. You know, so I think that the kind of investor I was when I was, you know, 35 years old versus what I know and can do when I'm 45 or 55 or 65, all knowledge is cumulative. And especially as we make investing mistakes and we lose money and we try to learn from those mistakes, we keep getting better. Right? I mean, like like I just had this discussion about for-profit education. I don't have much interest in that area. Right? And because of I've I've had some experience in Now, there could be some companies that could do really well in the future. But that's the other thing about this business is there's no called strikes. So you can let a lot of good businesses go and you still do okay. So the frameworks keep changing and improving hopefully because
Todd Combschanging and improving hopefully because we learn more and such. One of the things that I've had a lot of learning in the last maybe 18 months or so, maybe because of COVID. So maybe I should be thankful for COVID. Gave me more time to contemplate my navel. And usually contemplating your navel is a good exercise. And when when we're in a non-COVID world, we don't get enough time to look at our navel, which is a problem. So what I found is that I used to be, when I started in the '90s, a guy who was looking for great businesses and great business models, kind of set it and forget it kind of thing. And then when when we got to '99 and 2000, we had the massive tech bubble, dot-com bubble, I saw things get so crazy that I retreated into the safety of Ben Graham and basically shifted from buying great businesses that were going to grow a lot
Warrenbusinesses that were going to grow a lot to businesses that were undervalued.to businesses that were undervalued.to businesses that were undervalued. So, you know, buy a dollar bill for 50So, you know, buy a dollar bill for 50So, you know, buy a dollar bill for 50 cents, 40 cents, and it doesn't mattercents, 40 cents, and it doesn't mattercents, 40 cents, and it doesn't matter if it doesn't grow much. And thatif it doesn't grow much. And thatif it doesn't grow much. And that actually, I think in hindsight,actually, I think in hindsight,actually, I think in hindsight, worked extremely wellworked extremely wellworked extremely well till maybe 2012 or '13 or '14, somewheretill maybe 2012 or '13 or '14, somewheretill maybe 2012 or '13 or '14, somewhere around then.around then.around then. And what I should have done around thatAnd what I should have done around thatAnd what I should have done around that time was switched backtime was switched backtime was switched back to the great businesses, buy and hold,to the great businesses, buy and hold,to the great businesses, buy and hold, and so on.and so on.and so on. AndAndAnd I got so used to this GrahamI got so used to this GrahamI got so used to this Graham approach, got so entrenched in all theseapproach, got so entrenched in all theseapproach, got so entrenched in all these years of practicing it, that I missedyears of practicing it, that I missedyears of practicing it, that I missed that left turn. And I realized lastthat left turn. And I realized lastthat left turn. And I realized last year, especially when I was reading theyear, especially when I was reading theyear, especially when I was reading the chapter on Nick and Zak in Richer,chapter on Nick and Zak in Richer,chapter on Nick and Zak in Richer, Wiser, Happier, which is a great book toWiser, Happier, which is a great book toWiser, Happier, which is a great book to read, that basically the holy grail wasread, that basically the holy grail wasread, that basically the holy grail was tototo findfindfind great businesses that had a great futuregreat businesses that had a great futuregreat businesses that had a great future andandand not pay too much for themnot pay too much for themnot pay too much for them and not get them too late in theirand not get them too late in theirand not get them too late in their journeyjourneyjourney and ride ride them. And those become
Otherand ride ride them. And those become more It's a better way to go. And so I've been shifting away from the Graham world that I've been in for so long to the world of great compounders. So But the journey continues. It's fun.
QuestionerHello, Monish. Hello, Monish. Thank you for joining us tonight. Um you already touched on your how you transitioned from your first business into your investing career. But I was wondering, your first point, your first principle in your book is focus on buying existing businesses. So I'm wondering if your experience doing a startup and running your own firm influenced your investing framework.
OtherYeah, I mean, I think I think the the advantage with the Buffett approach is that we have a lot of track marks. When we look at existing businesses, we get to see plenty of history. We can see plenty of history. We can extrapolate that history and we can take
Otherextrapolate that history and we can take the risk down. Anytime you're doing athe risk down. Anytime you're doing athe risk down. Anytime you're doing a startup or a brand new venture, bystartup or a brand new venture, bystartup or a brand new venture, by definition, it's going to be much higherdefinition, it's going to be much higherdefinition, it's going to be much higher risk. And you know, I would I wouldrisk. And you know, I would I wouldrisk. And you know, I would I would distinguish between venture-backeddistinguish between venture-backeddistinguish between venture-backed and non-venture-backed startups. So 98%and non-venture-backed startups. So 98%and non-venture-backed startups. So 98% or 99% of startups globallyor 99% of startups globallyor 99% of startups globally are non-venture-backed.are non-venture-backed.are non-venture-backed. You know, the the laundromat that startsYou know, the the laundromat that startsYou know, the the laundromat that starts or the Chinese restaurant that startsor the Chinese restaurant that startsor the Chinese restaurant that starts or, you know,or, you know,or, you know, the neighborhood taco stand or whatever,the neighborhood taco stand or whatever,the neighborhood taco stand or whatever, these are all businesses that are notthese are all businesses that are notthese are all businesses that are not venture-backable.venture-backable.venture-backable. And they don't get venture backing. SoAnd they don't get venture backing. SoAnd they don't get venture backing. So most startupsmost startupsmost startups are not venture-backed. They'reare not venture-backed. They'reare not venture-backed. They're entrepreneur with a dream and he goes heentrepreneur with a dream and he goes heentrepreneur with a dream and he goes he or she goes at it.or she goes at it.or she goes at it. And those have high risk. So whatAnd those have high risk. So whatAnd those have high risk. So what entrepreneurs do is they do as much asentrepreneurs do is they do as much asentrepreneurs do is they do as much as they can to minimize that riskthey can to minimize that riskthey can to minimize that risk by, you know, limiting how much theyby, you know, limiting how much theyby, you know, limiting how much they could lose andcould lose andcould lose and what would happen if the business didn'twhat would happen if the business didn'twhat would happen if the business didn't work and could they go back and get a
Todd Combswork and could they go back and get a job and, you know, get their finances back on track. And and yeah, so I think that they're venture-backed startups are a little bit different because there the entrepreneur, for the most part, is not putting their own capital up. And and such, so they're getting some benefits there. So it's a different approach. I mean, I think that public equity investing, Buffett style, you get to make a number of bets, you get to spread those bets out, and that helps you reduce your downside. And so it's it's a different framework.
QuestionerWow. Hey, um great. Thanks for coming to our class today. Really appreciate it. So your discussion on kind of identifying, you know, potential monopolists and competitive edge and stuff was really interesting. I was wondering how you kind of balance when you're looking at at, you know,
Questionerwhen you're looking at at, you know, companies betweencompanies betweencompanies between having fewer disclosures and being likehaving fewer disclosures and being likehaving fewer disclosures and being like kind of competitivelykind of competitivelykind of competitively coy to like maintain like a long-termcoy to like maintain like a long-termcoy to like maintain like a long-term advantage and potentially kind ofadvantage and potentially kind ofadvantage and potentially kind of under-disclosingunder-disclosingunder-disclosing because, you know, the the numbersbecause, you know, the the numbersbecause, you know, the the numbers aren't as as good as they appear to bearen't as as good as they appear to bearen't as as good as they appear to be or there might be some sort of weaknessor there might be some sort of weaknessor there might be some sort of weakness under the hood. Like how do you kind ofunder the hood. Like how do you kind ofunder the hood. Like how do you kind of evaluate that when you're looking atevaluate that when you're looking atevaluate that when you're looking at different companies and investmentdifferent companies and investmentdifferent companies and investment opportunities?
QuestionerYeah, so I think that ifopportunities? Yeah, so I think that ifopportunities? Yeah, so I think that if you look at it in a different way. Soyou look at it in a different way. Soyou look at it in a different way. So let's say let's say you had a portfoliolet's say let's say you had a portfoliolet's say let's say you had a portfolio and, you know, you made 10 bets, forand, you know, you made 10 bets, forand, you know, you made 10 bets, for example. I mean, the goal and objectiveexample. I mean, the goal and objectiveexample. I mean, the goal and objective should beshould beshould be that one or more of them gets you to thethat one or more of them gets you to thethat one or more of them gets you to the promised land.promised land.promised land. You know, kind of like Koos BekkerYou know, kind of like Koos BekkerYou know, kind of like Koos Bekker style, where you basically identify astyle, where you basically identify astyle, where you basically identify a business which has a very long runway,business which has a very long runway,business which has a very long runway, where you have figured it out. Took awhere you have figured it out. Took awhere you have figured it out. Took a lot of work, but you figured it out.
Questionerlot of work, but you figured it out. But the rest of humanity has not. And if you can even if you found one of those in a year, that's plenty because on the flip side, if you got a 100 bagger out of one of your portfolio investments, it pretty much doesn't matter what happened to the other nine. You know, the the most of the return would come from the 100 bagger. And so I think the the model should be that all of you in this class, you all have horsepower. Very significant horsepower. And if you can direct that horsepower towards finding these enduring competitive advantage monopolists, which most of the rest of the world has not yet figured out or doesn't fully understand. They may not be in their valuations and such. That gives you an advantage. And so I think that's that should be the game is that the willingness to dive deep
Questionerwillingness to dive deep tototo figure out the jigsaw puzzlefigure out the jigsaw puzzlefigure out the jigsaw puzzle when the companies are not helping you.when the companies are not helping you.when the companies are not helping you.
QuestionerSure. Hi, Monish. Um thank you forSure. Hi, Monish. Um thank you forSure. Hi, Monish. Um thank you for coming to the class.coming to the class.coming to the class.
QuestionerUm actually, I we also following AlibabaUm actually, I we also following AlibabaUm actually, I we also following Alibaba for several years and I'm really gladfor several years and I'm really gladfor several years and I'm really glad you also listened thatyou also listened thatyou also listened that interview. So I have some like ainterview. So I have some like ainterview. So I have some like a question about what you think aboutquestion about what you think aboutquestion about what you think about Alibaba.Alibaba.Alibaba.
QuestionerBased on myBased on myBased on my There are several consideration I wantThere are several consideration I wantThere are several consideration I want to share with you and would you mindto share with you and would you mindto share with you and would you mind share some of your thought to see thinkshare some of your thought to see thinkshare some of your thought to see think to share about whether my considerationto share about whether my considerationto share about whether my consideration could be a like a turning point orcould be a like a turning point orcould be a like a turning point or pretty much I want to share what mypretty much I want to share what mypretty much I want to share what my thought and um would you mind discussthought and um would you mind discussthought and um would you mind discuss like how that kind of be Oh my god, I'mlike how that kind of be Oh my god, I'mlike how that kind of be Oh my god, I'm sososo nervous.
OtherThat sounds great. Uh it'sNervous. That sounds great. Uh it'sNervous. That sounds great. Uh it's okay. No, I think I think Alibabaokay. No, I think I think Alibabaokay. No, I think I think Alibaba clearly had some stumbles with differentclearly had some stumbles with differentclearly had some stumbles with different actions that were takenactions that were takenactions that were taken against the company.against the company.against the company. Uh many of those actionsUh many of those actionsUh many of those actions might be justified
Othermight be justified because many of the ways that the company did business would might be illegal in the US, for example, you know, in the way they kind of restricted things and so on. But I think that at the end of the day, it has a very talented management team and it has a very dominant footprint in the minds of its consumers. It's I think the business will do fine. And they they're they're pretty smart about the way they go about it.
OtherI don't think they are I don't think the model is as good, in my opinion, as a Tencent. But they But they both both can do very well.
OtherYeah, the same thing I realized the model things when I heard the same interview. Like that model actually it sounds to me like I I believe that host compare with Alibaba with Amazon is kind of like a misunderstanding. Like China have another company called Jingdong,
Questionerhave another company called Jingdong, which the stock ticker, I think, is JD.which the stock ticker, I think, is JD.which the stock ticker, I think, is JD. JD is They're pretty much copy whatJD is They're pretty much copy whatJD is They're pretty much copy what Amazon is doing. Like they are havingAmazon is doing. Like they are havingAmazon is doing. Like they are having all the supply chain system buildingall the supply chain system buildingall the supply chain system building higher tons of employers built somethinghigher tons of employers built somethinghigher tons of employers built something like Amazon. So pretty much for Alibabalike Amazon. So pretty much for Alibabalike Amazon. So pretty much for Alibaba like they are just like a digitallike they are just like a digitallike they are just like a digital platform. And why they are so on digitalplatform. And why they are so on digitalplatform. And why they are so on digital platform is not something brand new inplatform is not something brand new inplatform is not something brand new in this world. It's It's just why they arethis world. It's It's just why they arethis world. It's It's just why they are so successful. This Why this businessso successful. This Why this businessso successful. This Why this business model is so successful in China. Imodel is so successful in China. Imodel is so successful in China. I personally felt it's just because theypersonally felt it's just because theypersonally felt it's just because they built from zero to is into certainbuilt from zero to is into certainbuilt from zero to is into certain stage. They're in fast growing juststage. They're in fast growing juststage. They're in fast growing just because China don't have this.because China don't have this.because China don't have this. But right now, if you look at it in thisBut right now, if you look at it in thisBut right now, if you look at it in this Now, like China have already built theNow, like China have already built theNow, like China have already built the is their business model though is reallyis their business model though is reallyis their business model though is really easy to copy. Like, you know, the PDDeasy to copy. Like, you know, the PDDeasy to copy. Like, you know, the PDD like they're starting growing. So prettylike they're starting growing. So prettylike they're starting growing. So pretty much they don't have this competitive
Othermuch they don't have this competitive advantage. And why they are successful just because they they are At that time China have nothing this kind of digital platform. And right now I remember before the selling point for this business model is just because you know, people are not going for Alibaba for buying certain products like Amazon, but they're buying for surprise or something they haven't expected. They may be a good things when the economy is going well, but think about the timing the micro economic especially under post pandemic people are starts to you know, try to spend money more wisely. So seems like this kind of the selling point for buying for lifestyle is no longer popular under this circumstances. So this could be a it this could be a worse sign for its future growth at least some limitation. And also there's some aspect
Questionerlimitation. And also there's some aspect of the management style like you justof the management style like you justof the management style like you just compare with Pony Ma and Jack Ma. One iscompare with Pony Ma and Jack Ma. One iscompare with Pony Ma and Jack Ma. One is really like to give the speech in frontreally like to give the speech in frontreally like to give the speech in front of public like try to be a teacher notof public like try to be a teacher notof public like try to be a teacher not just for common investors, but comingjust for common investors, but comingjust for common investors, but coming for everybody.for everybody.for everybody. One is just be quiet which is veryOne is just be quiet which is veryOne is just be quiet which is very Chinese style like be quiet and justChinese style like be quiet and justChinese style like be quiet and just generate cash cash flow. That's alsogenerate cash cash flow. That's alsogenerate cash cash flow. That's also going to be a be a really risky thinggoing to be a be a really risky thinggoing to be a be a really risky thing you know, for future growth and also youyou know, for future growth and also youyou know, for future growth and also you can see people are very sensitive ifcan see people are very sensitive ifcan see people are very sensitive if Jack Ma is appearJack Ma is appearJack Ma is appear to either speak in the public or meetto either speak in the public or meetto either speak in the public or meet somebody. So you can see it's reallysomebody. So you can see it's reallysomebody. So you can see it's really affect Alibaba stock price ex-fluctuaryaffect Alibaba stock price ex-fluctuaryaffect Alibaba stock price ex-fluctuary like a speculative stock. I can see youlike a speculative stock. I can see youlike a speculative stock. I can see you cancancan SoSoSo Yeah, I would I would say that betterYeah, I would I would say that betterYeah, I would I would say that better than Tencent or Alibaba because thesethan Tencent or Alibaba because thesethan Tencent or Alibaba because these are very large, you know, market caps.are very large, you know, market caps.are very large, you know, market caps. ProbablyProbablyProbably businesses that will will do a lotbusinesses that will will do a lotbusinesses that will will do a lot better in Chinabetter in Chinabetter in China are businesses today that may be private
Questionerare businesses today that may be private or businesses that may you know, be or businesses that may you know, be or businesses that may you know, be worth less than a billion dollars or worth less than a billion dollars or worth less than a billion dollars or less than 100 million less than 100 million less than 100 million where their runways are huge and they've where their runways are huge and they've where their runways are huge and they've got competitive advantage and they can got competitive advantage and they can got competitive advantage and they can grow grow grow 100x 100x 100x from here. And so I think that if if I from here. And so I think that if if I from here. And so I think that if if I were you, I would focus I have a were you, I would focus I have a were you, I would focus I have a handicap. I can't do that. But it'll be handicap. I can't do that. But it'll be handicap. I can't do that. But it'll be so much outside my circle of competence. so much outside my circle of competence. so much outside my circle of competence. But I think that if if someone can But I think that if if someone can But I think that if if someone can really figure out a bunch of smaller really figure out a bunch of smaller really figure out a bunch of smaller businesses in China that have great businesses in China that have great businesses in China that have great management and great models and teams, management and great models and teams, management and great models and teams, then then then that is where a lot of wealth will get that is where a lot of wealth will get that is where a lot of wealth will get created in the next 10 or 20 years. I created in the next 10 or 20 years. I created in the next 10 or 20 years. I mean, what I'm saying is that no matter mean, what I'm saying is that no matter mean, what I'm saying is that no matter how well Tencent or Alibaba does, how well Tencent or Alibaba does, how well Tencent or Alibaba does, it's hard to see them get it's hard to see them get it's hard to see them get to valuations more than 10 times to valuations more than 10 times to valuations more than 10 times where they are today in some reasonable where they are today in some reasonable where they are today in some reasonable number of years if everything goes well, number of years if everything goes well, number of years if everything goes well, you know, so I think I think you're
Otheryou know, so I think I think you're better off rolling up your sleeves and digging deeper into the Tencent and Alibaba's of tomorrow. Chalean Um thank you so much for taking the time to speak with us. I wanted to ask I've read that you won't invest in a company just because it looks like it's going to do well in the future. There are a lot of IT and energy energy industry companies. Some of them are trading at 10 times more than the their revenue. I was wondering if you think those and other well-performing companies and industries are overvalued.
CharlieWell, I want to invest in companies that'll do well in the future. I hope that's what I'm trying to do. But you know, the nature the nature of investing is that very few things will be within the circle of competence of each of us. Most things will fall outside that circle. Just the nature of
Todd Combsoutside that circle. Just the nature of the world is a complicated place and we can't figure everything out. And so if I can figure out a business and if I think it's within my circle of competence and I I think it's going to do well and if it's trading well below you know, underlying intrinsic value, I'd be very interested. And pretty much everything else I would just take a pass on. So I I think there's entire industries that I would take a pass on just because I don't think I have I have any edge in those areas. So we are trying to get to unfair edges in a legal way and edges where the competence understanding can lead to you know, conviction to hold a business for a for a while. So that's that's fine.
QuestionerWhen when? All right. Hi. It's really happy to have you here and thanks for your sharing. I have two questions and the first one is you know, under this
Questionerthe first one is you know, under this circumstances like COVID is there any change in your investment strategy? And the second one is that could you please talk about some sectors you are currently focusing on and to find some value stocks? Thank you.
WarrenYeah, actually everything about the way COVID unfolded was the exact opposite of what I thought would happen. So when in March 2000 the world was shutting down, I would have never imagined that in October of 2021 indices would be hitting all-time highs. I also did not imagine at that time that 18 months later COVID is still with us in a major way. And I also did not imagine that there would be these significant permanent changes in human behavior. So many things that have happened with COVID have changed things forever. So for example, I don't think business travel is going to come back the way it was for a long
Otherto come back the way it was for a long time. I think that the footprint the world has for business hotels is too large. It will take a while to grow into that footprint because you know, people used to travel all the time. They needed those Marriott's and all of that. I think that leisure travel will take over some of that, but I don't know how much it will. The same with business class and first class in air travel. You know, a lot of that will get reconfigured. So I think there's a our lives have become a lot more digital. So for example, all these delivery companies DoorDash etc. They got massive tailwinds. They have changed a lot of behavior in terms of how we So you know, business like DoorDash will not really eventually be a a food delivery business. It'll be a business which whatever you need within an hour or within 30 minutes. You know, so
Otheror within 30 minutes. You know, so there's a set of things you need within 30 to 60 minutes and there's a set of things you need in a day or two and there's some things you need in a you know, one week or one month. So there'll be a set of providers which will you know, hone in on those pieces. So I think COVID has led to a lot of reconfiguration which has significant changes. So the space requirements for residential people has gone up. You know, someone who had a one bedroom wants a one and a half bedroom or two bedroom or one and two and a half because you need a kind of some more space because you're spending more time at home. So which is why housing prices have gone up so much is that suddenly the entire country or the entire world wants more living space and you cannot create that much living space instantaneously. So the only thing
Todd Combsspace instantaneously. So the only thing that happens is price goes up. So we are going to have more needs and different needs for housing, different needs for office space, different needs for shopping, entertainment. So you know, we got so used to not going to the movie theater, you know, and I think there's a number of changes that COVID has brought about that are very secular and long-term. And it's important to try to understand those changes and see if there are you know, things that can lead to investment opportunities and such from that. I think the follow-on Manish was around sectors that may be interesting in areas of value. Well, you know, I'm like bottoms up. You know, I'm not really I don't start off saying I want to invest in large tech and let me find the best large tech. That's not how my brain works. I just kind of you know, I'm
Ted Weschlerjust kind of you know, I'm opportunistically sifting through stuff that shows up on the radar or someone sends me something and just seeing if it makes sense and then you know, go from there. So I never I never I mean, I think in 2009 I think commodities really collapsed in a big way and I made a bunch of basket bets in that space and they all worked. That only happens when world the world goes to extremes. Most of the time we find ourselves in situations where there are so many investors and so many so much capital that good businesses tend to get fully priced or overpriced. And so you really have to find some edge where you have an understanding of a business which is really different from how the world understands them and that can give you a valuation difference. Then you could maybe play there. Makes sense. Brian. Hey, thank you for thank you for coming to speak
Questioneryou for thank you for coming to speak with us today. So so my question was, you know, I I guess going back to something you said earlier around, you know, cloning and and cloners, businesses like that and you used the the AWS example. So I guess my question is like how do you judge whether a company's going to be like whether they're good at cloning like, you know, Microsoft with Azure or whether they're not going to be as successful a Google with GCP.
OtherYeah, I mean I think cloning is a is a very powerful mental model to understand and I've been you can say I've been a student of cloning now for I would say more than um 33 34 years 35 years maybe. It's been a long time. And I still don't fully understand. So humans the majority of humans, overwhelming majority of humans and overwhelming majority of companies look down on cloning. They think it's
Otherlook down on cloning. They think it's beneath them. And they also think that oh, they they look at a Starbucks and say oh, this was a great idea but someone already done it. And so that opportunity is gone. And what they don't understand is that you could actually have three different players in the coffee space and all three could do well. You know, you can't have 30 but you could have two or three that could do well. I mean you it isn't just McDonald's, Burger King can do well as well. And and so the companies that understand cloning well and are good at cloning have a huge advantage. So if you look at a business like Microsoft, they spend all these billions of dollars on R&D and whatever else and most of that has just been money that's been burned with no return. There almost all of their success has come from cloning. And so Microsoft
Otherhas come from cloning. And so Microsoft I consider it isn't even that great aI consider it isn't even that great aI consider it isn't even that great a cloner like, you know, look at how longcloner like, you know, look at how longcloner like, you know, look at how long it took Windows to get to the point thatit took Windows to get to the point thatit took Windows to get to the point that the Mac was at, you know. We probablythe Mac was at, you know. We probablythe Mac was at, you know. We probably got to like the 15th version of Windowsgot to like the 15th version of Windowsgot to like the 15th version of Windows before it was you know, approaching whatbefore it was you know, approaching whatbefore it was you know, approaching what what the Mac could do in the secondwhat the Mac could do in the secondwhat the Mac could do in the second version for example. Andversion for example. Andversion for example. And but you know, they being copied Googlebut you know, they being copied Googlebut you know, they being copied Google and didn't go very far and that's fine.and didn't go very far and that's fine.and didn't go very far and that's fine. So a lot of the stuff doesn't work butSo a lot of the stuff doesn't work butSo a lot of the stuff doesn't work but plenty worked. I mean Azure worked,plenty worked. I mean Azure worked,plenty worked. I mean Azure worked, Microsoft Word was a copy fromMicrosoft Word was a copy fromMicrosoft Word was a copy from WordPerfect, Excel was a copy fromWordPerfect, Excel was a copy fromWordPerfect, Excel was a copy from Lotus, Access copied other relationalLotus, Access copied other relationalLotus, Access copied other relational databases and so on. So a large amountdatabases and so on. So a large amountdatabases and so on. So a large amount of the Microsoft ecosystemof the Microsoft ecosystemof the Microsoft ecosystem has come from cloning. Andhas come from cloning. Andhas come from cloning. And and even if you if you look at aand even if you if you look at aand even if you if you look at a business like Burger King for example,business like Burger King for example,business like Burger King for example, you know, McDonald's used to have thisyou know, McDonald's used to have thisyou know, McDonald's used to have this huge army of people trying to figure outhuge army of people trying to figure outhuge army of people trying to figure out locations, which locations made sense
Questionerlocations, which locations made sense because that's it's a in in retail and in restaurant that's a big deal. Burger King had like two guys and all they would do is put put Burger King's where McDonald's put McDonald's. So they would just look at where did McDonald's open a new McDonald's and look at oh, let's open across the street from there. And so that's a great model because somebody else is doing the heavy lifting. And so the the Jim Sinegal at Costco, you know, a lot of the Costco business model came from Price Club Sol Price and eventually Costco acquired Price Club. And so Jim Sinegal was asked one time, you know, what have you learned from Sol Price? And there's a there's a biography in Sol Price, it's worth reading that. He said it's a wrong question. He said there's nothing that I know that wasn't taught to me by Sol Price.
Otherwasn't taught to me by Sol Price. And Costco pretty much cloned everything from the the Price Club model and eventually the cloner became better than the original business that they cloned and they became much larger and they actually acquired the company that taught them how to do it. So cloning is a very powerful model. Walmart, almost everything about Walmart was cloned from Sears and Kmart and they he learned everything from his competitors. Sam Walton was a great cloner. So I think businesses that have the cloning DNA which is a small sliver of businesses have a huge advantage.
QuestionerLakshmi. Hello Monish, yeah, thanks for coming in today and sharing your wealth of information. My question for you is in one of your YouTube videos you have mentioned that you don't use analyst at all and you do everything by yourself. So what sources do you delve
Questioneryourself. So what sources do you delve into to pick your stocks and invest?into to pick your stocks and invest?into to pick your stocks and invest? You've already partially answered it byYou've already partially answered it byYou've already partially answered it by saying, you know, read a lot, try tosaying, you know, read a lot, try tosaying, you know, read a lot, try to listen to the top management what theylisten to the top management what theylisten to the top management what they say and stuff. Other than these,say and stuff. Other than these,say and stuff. Other than these, what you know, what sources do you delvewhat you know, what sources do you delvewhat you know, what sources do you delve delve into? Also do you attenddelve into? Also do you attenddelve into? Also do you attend conferences and what type of conferencesconferences and what type of conferencesconferences and what type of conferences that you try to you know, network andthat you try to you know, network andthat you try to you know, network and get the information and things likeget the information and things likeget the information and things like that? Can you share some of those?
OtherYeah, I don't I don't think I get a lot ofI don't I don't think I get a lot ofI don't I don't think I get a lot of ideas from talking to other humans andideas from talking to other humans andideas from talking to other humans and that works well for me because I don'tthat works well for me because I don'tthat works well for me because I don't like to talk to many humans. Just thelike to talk to many humans. Just thelike to talk to many humans. Just the humans in Arvin's class are great. Andhumans in Arvin's class are great. Andhumans in Arvin's class are great. And yeah, so for most of the time that Iyeah, so for most of the time that Iyeah, so for most of the time that I practice value investingpractice value investingpractice value investing I did it aloneI did it aloneI did it alone and that worked well. Now I have twoand that worked well. Now I have twoand that worked well. Now I have two guys who work with me and I think it'sguys who work with me and I think it'sguys who work with me and I think it's worked really well. I think I've alwaysworked really well. I think I've alwaysworked really well. I think I've always been against
Todd Combsbeen against teams doing investing because, you know, if you're paying someone as an analyst etc., they're going to constantly be coming up with ideas. And it gets frustrating for them because you'll keep saying no to almost everything. I mean, in a year I might make two investments, you know. So or one investment. And and so but I think that the structure I have with the two guys on my team and I really really love them a lot is they don't come up with new ideas. And so they help me with the deep dives that we do on businesses we're looking at and I think that that model works well. It also worked very well when I had nobody. So I would say that there are some resources on the internet that are really great. I always liked Value Investors Club. And and there's a lot of horsepower amongst the members of Value Investors Club. It takes quite a bit to become a
Todd CombsClub. It takes quite a bit to become a member and so the write-ups that go on that website tend to be quite thoughtful and well-written. And so, you know, the price is free. You don't pay anything, it's zero. So it works well. I also have a subscription to SumZero. There you actually have to pay for it. So maybe I don't 10 15,000 a year or something. Value Line also is a subscription, that's fine. But I think that there's a lot of stuff that is I think if someone were to just focus for example on Value Line and just make, you know, one or two investments a year when things lined up very heavily, use that as a starting point of your research into businesses, I think one can do really well. So you don't need much more than that. And you don't attend conferences or anything like that, right? Um Lakshmi, second part of the question.
Questionerthe question. I haven't been able to leave home for 18 months. But I think yeah, historically I don't think I've you know, if I go to, you know, like I go to the Berkshire meeting every year. I I I used to go to the Fairfax meeting every year. I'd like to kind of resume that. And so I think, you know, we we meet our fellow brothers and sisters of our tribe which is great. And but yeah, I mean I think that I'm not I can't imagine what conference I'd go to. I think right. One is I'm so introverted, okay? I have a huge loss of energy if I am with a lot of people for a long time, okay? With which is probably the case with you and most of the people in your class. So we would not thrive in a world where we have to constantly interact with people.
OtherAdam. Hi Monish. Thanks for coming to speak today.
QuestionerOne of my questions was about the
QuestionerOne of my questions was about the application of NLP with regards to reading like investment annual reports. You mentioned in one of your lectures online that Warren Buffett used to read about every single company publicly listed and it would take him about a year and it seems like that's pretty tedious in these types of days where NLP is readily available. So I was wondering if you see any application for that in the investment world and what you do.
OtherI missed it. What were you saying is readily available? Natural language processing. Okay, so what you're what approach are you suggesting? Like I was just wondering NLP can be used to track emotions in people's like sentiments online through analyzing historical data. So I was wondering if you could use that to analyze investment reports or letters to shareholders or stuff like that to
Otherto shareholders or stuff like that to cut down on the work that you have to do. I mean I think it's possible. I haven't gone down that route so I can't really give you any intelligent answer on this front. I can give you an anecdote that I think I found interesting. So, you know, Buffett went through and maybe this might become a little longer answer but you might find it interesting. So humans, the way we are is hard-coded Um by the time we're 5 years old. So, between our genetics and the first 5 or 6 years of our life experience, who we are as people is not going to change from the age of 6 to 96. It's pretty much set. Our tendencies, traits, etc. get set. I mean, like, you know, I'm going to have like my high school reunion and I haven't interacted with these people in some cases for like, you know, 30 35 37 years. They're the same. You know, there's nothing changed. You
CharlieYou know, there's nothing changed. You know, all the weirdness they had at 17 is still there at 57. You know, so such is life.
CharlieAnyway, so so the thing is we are hard-coded. When Buffett was, I think, maybe 9 or 10 years old, he used to go to this racetrack in Omaha called Ak-Sar-Ben. It's Nebraska spelled backwards.
CharlieAnd he used to go there after the races were over, pick up all the tickets these people had discarded because a lot of people were drunk at those races. And then he'd look at each ticket that he picked up to see if some drunk had discarded a winning ticket. So, he'd pick up all these, you know, hundreds and hundreds of tickets and process each one and then he would find some which were actually winning tickets that people didn't understand or threw away. He would give those to his aunt Alice because he couldn't go to the window as
Questionerbecause he couldn't go to the window as an 11-year-old. And then she would go to the window and cash in those tickets. And then when he was in his early 20s, maybe mid-20s when he started investing, started his Buffett Partnerships, he used to go through these Moody's manuals and I bought some I bought one or two of them on eBay. You can go on eBay and look at them. They're these really thick manuals which had, you know, maybe four or five stocks on a page, very fine print, giving you a little bit of data on each company. And he went through those I mean, that's a lot of work. He went through those manuals multiple times. And he went through thousands of businesses. This was purely quantitative analysis with no technology tools of any kind, one, you know, reading at a time. And he found some businesses that were just weirdly off. Like, you know, market cap is 25 million
QuestionerLike, you know, market cap is 25 million and earnings last year were 40 million, things like that. And he made those investments, he did really well. And then when I was visiting his office, so the kid at 26 and the kid at 11 were the same. The the exercise of going to Ak-Sar-Ben and exercise of going to the Moody's manuals is exactly the same. They're both treasure hunts. And I was I was visiting Berkshire headquarters. I was going to have lunch with his assistant and then happened to Warren wanted to show us around when Guy and I went there. And I noticed that on his desk was the Japan Company Handbook. And the Japan Company Handbook is got two businesses per page in English, which is describing the financials. So, it's like the Moody's manual, but it's for Japanese companies. And this is, you know, with Berkshire has 100 billion
Ted Weschlerknow, with Berkshire has 100 billion plus in cash, I mean, you can't even put 50 million into a business. They're so obscure. But the the kid who enjoyed the treasure hunt still enjoyed it. And when I saw the Japan Company Handbook, I actually had that handbook. And I told Warren about some of the companies I found in the handbook and I, you know, was kind of marking them for him and I think he might have gotten horrified because I was dog-earing, you know, some pages in his copy. So, I don't know what he thought about that, but you know, I said, you know, some of these com- things were towards the back of the book. He said, "All the good stuff is always at the back of the book." You know, and and then, you know, Capital IQ basically allows you to do exactly what Japan Company Handbook does, but it allows you to do it a lot faster. You know, because all the data that's in
QuestionerYou know, because all the data that's in the handbook is on the Capital IQ servers and you can, you know, slice and dice it and you can get there. So, I told him that, "Look, Warren, you can actually do this a lot faster with with Capital IQ." And his assistant at the time, Tracy Britt, told me he's never going to do that. So, I said, "Tracy, what if I showed you how to do it and then you can do it for him, okay?" And so, I I spent a little bit of time explaining and showing her how it works on Capital IQ. And she told me he would never spend the 10 or 15,000 or whatever it would cost. He said, "Just that would just never happen." You know, he spends 150 bucks on the Japan Company Handbook and that's about it. So, so Warren is very set in his ways. He ended up becoming the richest guy. So, if I were you, my without knowing much about NLP,
Othermuch about NLP, what I would say is that it's not so much dicing the information quickly, it's more about the analytics that you put on the information. And so, I don't know how much of an edge you will get with NLP. I think the edge comes from how you look at the data. And I don't know whether NLP will help you with that. It may. I mean, I haven't gone in that area. But I would say that the Buffett has done better than a lot of people with a lot more technology. He has no computer on his desk. You know, he's got nothing. He's just sitting there reading a bunch of stuff. And that's been enough to make him the wealthiest guy for a long time. So, that's where I think the game's at.
QuestionerChad? Yes, thank you. Um this has been great. I know you've mentioned a lot of people, obviously Warren Buffett and Charlie Munger and others, but are there
QuestionerCharlie Munger and others, but are there anyanyany up-and-comers or silent warriors in theup-and-comers or silent warriors in theup-and-comers or silent warriors in the investment space that we should payinvestment space that we should payinvestment space that we should pay attention to? Because clearly yourattention to? Because clearly yourattention to? Because clearly your success in part has been due tosuccess in part has been due tosuccess in part has been due to following really great minds in thefollowing really great minds in thefollowing really great minds in the space and obviously we'll continue tospace and obviously we'll continue tospace and obviously we'll continue to follow you um because you're clearly afollow you um because you're clearly afollow you um because you're clearly a fantastic person in the space. But umfantastic person in the space. But umfantastic person in the space. But um are there any others that you haven'tare there any others that you haven'tare there any others that you haven't mentioned that we should keep an eye onmentioned that we should keep an eye onmentioned that we should keep an eye on or is Warren Buffett the the one andor is Warren Buffett the the one andor is Warren Buffett the the one and only?
CharlieThe the other you should keep ononly? The the other you should keep ononly? The the other you should keep on is theis theis the list of people that Arvin is going tolist of people that Arvin is going tolist of people that Arvin is going to have speak to you this semester.have speak to you this semester.have speak to you this semester. He knows them all.He knows them all.He knows them all. He is the real rock star and he bringsHe is the real rock star and he bringsHe is the real rock star and he brings in all these rock stars.in all these rock stars.in all these rock stars. So, he's gotSo, he's gotSo, he's got some new names for yousome new names for yousome new names for you of some guys who are really good. Andof some guys who are really good. Andof some guys who are really good. And so, I think uhso, I think uhso, I think uh yeah, I mean, I think uhyeah, I mean, I think uhyeah, I mean, I think uh we you know, the one thing that I thinkwe you know, the one thing that I thinkwe you know, the one thing that I think Joel Greenblatt mentioned this. He saidJoel Greenblatt mentioned this. He saidJoel Greenblatt mentioned this. He said that in investing what happens is when
Questionerthat in investing what happens is when you have very little capital and you're looking in these obscure areas because, you know, you can go into these areas because you could put $10,000 into them and it would make a difference for you, but Warren Buffett can't. So, what happens is that the people who are really good at this stuff, they get wealthier and they have to move up the chain. They have no choice but to move up the chain. And so, constantly, you know, Buffett starts with the Ak-Sar-Ben tickets and then he goes to the Moody's manual and then he goes from there further up the chain. The bottom continuously gets emptied out. Right? So, the people who were really good at finding the investments of less than 10,000 to put to work, less than 100,000 to work, if they're really good, they move up. I cannot look at businesses and make
OtherI cannot look at businesses and make investments where I I would be able to put 50,000 to work. It's not not worth it. Not going to work. Doing nothing for me. And so, constantly that space at the bottom is getting emptied out and it's available. It's always available. So, that's the beautiful thing about investing. And Arvin, are we at the end of the road here?
OtherYes, we're we're nearing it. Um so, Sean, why don't why don't you ask a question and um then I'll I'll end with a couple of last questions if that's okay.
QuestionerHi Monish. Um I was wondering if there was anything that you look for specifically when assessing the quality of management. And I guess um in particular with regards to sort of understanding sort of core competencies of the business and then strategic vision also.
OtherWell, I think I think, you know, Buffett says that when you look at like, you
Questionersays that when you look at like, you know, baseball hitters, some kind of,know, baseball hitters, some kind of,know, baseball hitters, some kind of, you know, stand low, some stand tall.you know, stand low, some stand tall.you know, stand low, some stand tall. They all have different ways they, youThey all have different ways they, youThey all have different ways they, you know, swing the bat and so on.know, swing the bat and so on.know, swing the bat and so on. And there's multiple ways to Nirvana.And there's multiple ways to Nirvana.And there's multiple ways to Nirvana. So, I think the same thing withSo, I think the same thing withSo, I think the same thing with managements is that you will encounter,managements is that you will encounter,managements is that you will encounter, just with humans,just with humans,just with humans, a variety of different types of people.a variety of different types of people.a variety of different types of people. And I don't think a particular templateAnd I don't think a particular templateAnd I don't think a particular template may be the way to go. I think they canmay be the way to go. I think they canmay be the way to go. I think they can be I mean, if I look at someone like,be I mean, if I look at someone like,be I mean, if I look at someone like, you know, Reed Hastings at Netflix. Heyou know, Reed Hastings at Netflix. Heyou know, Reed Hastings at Netflix. He doesn't have an office.doesn't have an office.doesn't have an office. Okay? He says that he he goes to workOkay? He says that he he goes to workOkay? He says that he he goes to work and he just kind of wanders around.and he just kind of wanders around.and he just kind of wanders around. Okay? And he picks up conversationsOkay? And he picks up conversationsOkay? And he picks up conversations with random people and starts talking towith random people and starts talking towith random people and starts talking to them. Okay?them. Okay?them. Okay? And thenAnd thenAnd then one time I was listening to him give aone time I was listening to him give aone time I was listening to him give a TED Talk and he was saying that it'sTED Talk and he was saying that it'sTED Talk and he was saying that it's been 3 months since he made anybeen 3 months since he made anybeen 3 months since he made any decisions at Netflix.decisions at Netflix.decisions at Netflix. And he said that's good. He said, "The
QuestionerAnd he said that's good. He said, "The longer I can go where I don't make decisions." So, it's a really different way to manage. Okay, and that management approach produces the Squid Game. Okay, and here we are. You know, so and and you know, I I saw a tweet by Jeff Bezos the other day congratulating them on the Squid Game. I mean, this is a direct competitor. Very competitive guy telling his competitor, you guys hit it out of the park. And Jeff doesn't do that very often. But I can never run anything like that. That'd be too weird for me. Okay? So, I think that there are people like, you know, Michael Bloomberg who worked both in the city and at Bloomberg in the middle of a bullpen. You know, he didn't want a private office. He was in the middle of his team with all his team around him. I would find that really hard to I mean, I would get so distracted. And Bruce
QuestionerI would get so distracted. And Bruce Flatt at Brookfield works like that, too. So, I think that I don't think Buffett or Munger could work like that in the middle of a bullpen. And you know, Andy Grove came up with this, you know, management by walking around. So, I think there are many different ways to Nirvana, but different people come up with different approaches that kind of fit there. The glove fits different ways. And so, I don't think we can come up with a template. So, Monish, just a couple of questions. Just in terms of book recommendations, have you read any great books over the last 18 months that excite you, that you love to share with my students?
OtherWell, one book I really I think he rambles a lot, but I did learn a few things from it was it's called The Antisocial Network. And as Rich, you know, he wrote Bringing Down the House,
Questionerknow, he wrote Bringing Down the House, you know, with the MIT blackjack team and such. So, I think Ben wrote that book more from the vantage point that it becomes a movie. It feels more like a movie screenplay to me than a book. So, so you can skim. I think it's a it's a skimming book. It's not a sit down and read every word and make notes kind of book. And but I think there were some interesting, you know, the whole I would say the whole, you know, Robinhood and AMC and all this this whole saga with GameStop and all that. I think this is a unusual sort of things that happened and are continuing to happen. So, it was a interesting kind of I learned a few things from that book. Any others or that's that's the one you'd highlight?
QuestionerUh that's a recent one I liked. I think another one that was autobiography done by the Bear Stearns former chairman, you know, Ace
Questionerformer chairman, you know, Ace Greenberg.
OtherCharlie recommended that, and I think that was a good book, and it was good to learn from failure. And so, I think well, he's passed away. Ace Greenberg passed away, and the book came out a few years ago. And I don't think he was completely honest in his assessment of I mean, part of it was kind of brandishing his legacy, but but I think you can sift through all that in the book, and it gives some good data on human nature and different things. So, I think that was a good good read. And just, you know, in you know, kind of the always the final question that I have is sort of in this room, in this virtual room, in this COVID world, we have students from you know, 21 years old to MBA students. What advice would you leave them with professionally and or personally? Yeah, actually one more book. Just let me let
Otheractually one more book. Just let me let me give you one more book, and then Sure. That'd be great. Uh the other book which I read was Red Roulette. One of my friends uh who had talked to Charlie Charlie never gave me that recommendation directly. But he told him about that book, and I I read the book. I I think that that author has a number of issues. Let's put it that way. Uh but I think I still think it was a a good read, and I think that So, that that was a also some interesting data points there. But I I think I think I think for your for your class, I mean, I think uh you guys are in a great place. I think you've gotten some great skills from being in a class like Arvin's class. And I think that uh if you're interested in in investing, I think investing is to me to me, it's really interesting because it's one of the broadest disciplines.
Otherit's one of the broadest disciplines. It's, you know, it touches so many different areas to try to figure out what makes a company great is it goes into so many different areas and competencies that you develop. So, I think it's it's continuously challenging. It's kind of like bridge, you know, you can never master it. In your whole lifetime, you could never master it. But you could learn the game in 20 minutes. And so, investing is like that. It's, you know, people who get it in terms of value investing and such, they get it pretty quickly. But then the journey to continuously learn and grow and understand is a lifelong journey. It's a fun journey. So, it's great.
QuestionerI would echo that. Well, Monish, thank you so much. This has been a fantastic conversation as always, and I look forward to next year. We'll celebrate in style.
OtherYeah, the only sad part, Arvin, is that I have to now somehow find a way to pass the time for the next 365 days. Yeah.
OtherWell, you have my number, so I look forward to
OtherAll right. Well, thank you very much. I enjoyed the interaction, and I think it was fun. And I hadn't really talked much about the stuff that we talked about today, so it was you guys were kind of guinea pigs on this. I think it went reasonably well. So, thank you for allowing me that. Thank you.
OtherIt was great. Thanks, Monish.
OtherOkay. Okay. Cheers.