Other[Music]evening to all of you we are really happy to have Mish here as we've shared his annual report with all of you this morning you know this what you can see on the screen is the letter that Warren Buffett has written to him it's a very unique thing about what he's achieved in what he does at lsh Foundation I mean I'm just assuming that all you guys are from the field of investing so I don't want to talk too much about all his achievements on the markets whether in India or in the US ever since he had that lunch with Warren Buffett he's become famous and all of us know a lot about what he does and what he says however things that I think are not known about monish and his achievement like I was just mentioning to him and when we when I was trying to get him here he said that he comes here once in a year to the daksha Valley now for all
Othera year to the daksha Valley now for alla year to the daksha Valley now for all of you who don't know about daksh Valleyof you who don't know about daksh Valleyof you who don't know about daksh Valley I will say that it is a must go placeI will say that it is a must go placeI will say that it is a must go place it's just 2 hours from here it's ait's just 2 hours from here it's ait's just 2 hours from here it's a phenomenal achievement of what they dophenomenal achievement of what they dophenomenal achievement of what they do there two of his colleagues are herethere two of his colleagues are herethere two of his colleagues are here right in front of us who are on aright in front of us who are on aright in front of us who are on a day-to-day basis running the place andday-to-day basis running the place andday-to-day basis running the place and Mish has the ability to delegate andMish has the ability to delegate andMish has the ability to delegate and monitor so well that if you read themonitor so well that if you read themonitor so well that if you read the annual report which I have email to allannual report which I have email to allannual report which I have email to all of you this morning you'll see theof you this morning you'll see theof you this morning you'll see the achievement I think the you know weachievement I think the you know weachievement I think the you know we always say that we can blame thealways say that we can blame thealways say that we can blame the government of India for the psus and thegovernment of India for the psus and thegovernment of India for the psus and the Roc and all of that but the the best RocRoc and all of that but the the best RocRoc and all of that but the the best Roc they've got is from IIT and IMs I thinkthey've got is from IIT and IMs I thinkthey've got is from IIT and IMs I think even mish's performance on D is fareven mish's performance on D is fareven mish's performance on D is far better than anything he does in thebetter than anything he does in thebetter than anything he does in the markets I would say that any of you whomarkets I would say that any of you whomarkets I would say that any of you who have not read the report should read ithave not read the report should read ithave not read the report should read it and all of you who can take theand all of you who can take theand all of you who can take the opportunity to visit the place it is a
Otheropportunity to visit the place it is a phenomenal place and I think it is one of the best institutions that are run for education for the underprivileged in India so with that I would now talk about his achievements in India and in the markets when he talks about certain companies I'm quite surprised at the depth of his knowledge about Indian companies and when you see the YouTube videos and he shows you around his office and all of that you wonder how does he find time to manage all the things that he does he's promised us today that he's making a presentation on something that he's not talked about before so I don't want to keep you all waiting from that presentation and we'd like to leave as much time for question and answers about what he's presenting about D about Indian markets about us markets about China and most importantly about Charlie manger his
Questionerimportantly about Charlie manger his friend whom I believe he plays he used to play bridge with thank you Manish thanks again for being here
Otherand thank you durgesh P actually durgesh P has been a great supporter of Daka for many years one of his classmates used to be our chief operating officer charmila and you went were in college together I think good to have that connection but he'd been telling me for many years to come to Flame and I hardly make it to Pune I was trying to do that and I I didn't think it would work come year on December 25th but he said yeah no that it will work so I said okay that's that works works well we were able to do that and I had a wonderful tour of the campus that I'm sure all of you have had and this is a surreal Place hard to believe that place like this exists true labor of love I think it's amazing it's really quite unbelievable to see something like
Otherquite unbelievable to see something like this come alive and to come alive in the manner that it's exactly what the vision was maybe even better than what the vision was so it's great to see that I have a few slides I'll go through I'm more interested in hearing what you guys have on in your mind so we don't need to talk about what's in the slides we can talk about whatever you'd like to talk about so that's perfectly fine I'll go through the slides and then we'll kind of see where the evening takes us so thank you I thought I'd basically talk about two different companies and maybe that would might serve as a backdrop Dr they're both great companies truly exceptional businesses actually and one is based in India warun bages which I'm sure most of you are familiar with and the other one Coca-Cola ISAC is based in Turkey but
QuestionerCoca-Cola ISAC is based in Turkey but they do bottling in about a about athey do bottling in about a about athey do bottling in about a about a dozen countries I was taking a look atdozen countries I was taking a look atdozen countries I was taking a look at Von Beverages and basically looking atVon Beverages and basically looking atVon Beverages and basically looking at some of the the numbers and so on yousome of the the numbers and so on yousome of the the numbers and so on you know about 2 billion US dollar inknow about 2 billion US dollar inknow about 2 billion US dollar in revenue and about 250 million or so inrevenue and about 250 million or so inrevenue and about 250 million or so in net income 16 billion or so marketnet income 16 billion or so marketnet income 16 billion or so market cap and you know I always like to thinkcap and you know I always like to thinkcap and you know I always like to think okay so what does this business lookokay so what does this business lookokay so what does this business look like like 10 15 years from now whatlike like 10 15 years from now whatlike like 10 15 years from now what might be themight be themight be the future of warun India has incrediblefuture of warun India has incrediblefuture of warun India has incredible Tailwinds it has one of the bestTailwinds it has one of the bestTailwinds it has one of the best demographic stories anywhere in thedemographic stories anywhere in thedemographic stories anywhere in the world you know we've got one of the rareworld you know we've got one of the rareworld you know we've got one of the rare large company countries in the worldlarge company countries in the worldlarge company countries in the world with a growingwith a growingwith a growing population expected to be about 1.6population expected to be about 1.6population expected to be about 1.6 billionbillionbillion ininin 2038 per capita income is almost a 3X is2038 per capita income is almost a 3X is2038 per capita income is almost a 3X is what they're projecting I I think thewhat they're projecting I I think thewhat they're projecting I I think the 7200 per capita in 2038 I don't think7200 per capita in 2038 I don't think7200 per capita in 2038 I don't think that's etched in stone you know and Ithat's etched in stone you know and Ithat's etched in stone you know and I think that if that actually happens thisthink that if that actually happens this
Warrenthink that if that actually happens this country will look quite different look country will look quite different look country will look quite different look amazingly different than the way we see amazingly different than the way we see amazingly different than the way we see it today so that would be quite a it today so that would be quite a it today so that would be quite a welcome change and so if you look at own welcome change and so if you look at own welcome change and so if you look at own you know they have about 900 million you know they have about 900 million you know they have about 900 million cases cases are you know 24 units of 8 cases cases are you know 24 units of 8 cases cases are you know 24 units of 8 ounces each and their recent volume ounces each and their recent volume ounces each and their recent volume growth has been about like 15% annually growth has been about like 15% annually growth has been about like 15% annually and I just kind of took a stab I said and I just kind of took a stab I said and I just kind of took a stab I said Okay so let's say they grow 15% a year Okay so let's say they grow 15% a year Okay so let's say they grow 15% a year for the next 5 years then it grows a for the next 5 years then it grows a for the next 5 years then it grows a little slower maybe 10% and then maybe little slower maybe 10% and then maybe little slower maybe 10% and then maybe 8% 8% 8% thereafter and what would the business thereafter and what would the business thereafter and what would the business look like and one of the things about look like and one of the things about look like and one of the things about the bottling business is that we have a the bottling business is that we have a the bottling business is that we have a lot of comps all over the world there's lot of comps all over the world there's lot of comps all over the world there's number of bottlers that are publicly number of bottlers that are publicly number of bottlers that are publicly traded all over the world they bottle traded all over the world they bottle traded all over the world they bottle for Coke or Pepsi the arrangements are for Coke or Pepsi the arrangements are for Coke or Pepsi the arrangements are very very very similar and there are similar and there are similar and there are commonalities amongst them even though commonalities amongst them even though commonalities amongst them even though geography are different even though some
Questionergeography are different even though some things are different so you can actually do some comparisons across different bottlers and if those were the growth numbers basically you would have about five times the volume that you have today and you would have about a one and a qu billion of after tax earnings growing at a what 8% maybe you would give it a 15 20 multiple 19 to 25 billion market cap and compared to the 15 or 16 billion today it' be about 1.3 to 3 3.2% annualized plus dividends so there's a question that comes up which is that why couldn't volumes grow faster you know why would they slow down so why why can't volumes keep growing at 15% a year so 15% volume growth with a 7% GDP growth and 65% population growth endlessly is not possible you know they would just it would just defy reality but even if you assume that kind of a
Otherof aof a situation you end up with about a 2situation you end up with about a 2situation you end up with about a 2 billion pad and 50 60 billion market capbillion pad and 50 60 billion market capbillion pad and 50 60 billion market cap from 8 to 9% annually plus dividends butfrom 8 to 9% annually plus dividends butfrom 8 to 9% annually plus dividends but this 15% we can kind of use Mungerthis 15% we can kind of use Mungerthis 15% we can kind of use Munger inversion to see how realistic it is soinversion to see how realistic it is soinversion to see how realistic it is so if you you know the ND is theif you you know the ND is theif you you know the ND is the non-alcoholic ready to drink kind ofnon-alcoholic ready to drink kind ofnon-alcoholic ready to drink kind of Acron so basically if if volumes grewAcron so basically if if volumes grewAcron so basically if if volumes grew 15% a year we would be be at about 70015% a year we would be be at about 70015% a year we would be be at about 700 servings per year per capita in Indiaservings per year per capita in Indiaservings per year per capita in India what that would mean is that everywhat that would mean is that everywhat that would mean is that every person is having two Pepsi productsperson is having two Pepsi productsperson is having two Pepsi products every day and so if Pepsi had like 50%every day and so if Pepsi had like 50%every day and so if Pepsi had like 50% market share then the country is havingmarket share then the country is havingmarket share then the country is having like four kind of products every day andlike four kind of products every day andlike four kind of products every day and the 700 servings per year we do have wethe 700 servings per year we do have wethe 700 servings per year we do have we do have comparisons around the worlddo have comparisons around the worlddo have comparisons around the world with that with that particular metricwith that with that particular metricwith that with that particular metric and so if you look at the per capitaand so if you look at the per capitaand so if you look at the per capita servings in number of differentservings in number of differentservings in number of different geographies the United States is the thegeographies the United States is the thegeographies the United States is the the highest abouthighest abouthighest about 1,4001,4001,400 servings per
Questionerservings per capita and and if if you if you look at a country like let's say Saudi Arabia Saudi Arabia is about 885 and the UK is about close to 700 and basically Saudi per capita GDP today is about 32,000 versus what India would have which would be about 7200 so we would have like a 4 to 1 Delta and it's a hotter country so hotness has correlation with consumption of coke even if you compare with China you know China's per capita GDP today is about 12,500 which would be almost double maybe 80% more and they at about 337 so the 700 servings per day just for warun seems quite unbelievable to make that assumption and then we have kokola ISAC so it's a bot based in Istanbul they have exclusive boting rights to all Coke products in Turkey Pakistan Kazakhstan Iran not Iran Iraq usbekistan various other STS and they are rumored to be getting Bangladesh po has got a
Questionerto be getting Bangladesh po has got a few problem countries where they want to change the bottler India is one of those problem countries so C wants to change the bottler in India the bottler different bottlers they have they want to change it into change it into change it in Vietnam and they want to change it in Bangladesh it's rumored because they put out a press release that basically there were Rumors in the market that they might be getting Bangladesh and they just said that we have discussions going on with the poola company on Bangladesh and Bangladesh is about 600 million cases a year waron I just said it's about about 900 and Coca-Cola iic across the other geographies is about 1.6 billion cases it's about twice the size of Von so if we look at Cocola ISAC we have about 4 billion of Revenue about 400 million net income about a 3.7 billion market cap p
Questionerincome about a 3.7 billion market cap p ratio under 10 they're growing at about like 6 to 9% plus they may get Bangladesh and it's possible at some point they might get some part of India and so on WE we'll have to see and Von is approximately half that size little more than half the income significantly higher trailing multiple and currently a higher growth rate but Coca-Cola ISC actually is it's a listed company it's 50% owned by anadu FS so the family family that owns the bottling business owns half of anadu FS 50% so there are two listed companies in Turkey one of them is Anu fs and Anu FS itself owns 50% of the C botler so if you think about the structure basically it's not exactly a holding company because it's actually got operations so the family that owns it actually their entire shareholding of Cocola ISC is sitting in anadu FS the anadu fs beer business has a
Questioneranadu fs beer business has aanadu fs beer business has a normalized market cap I not a normalizednormalized market cap I not a normalizednormalized market cap I not a normalized earnings of on the beer side of aboutearnings of on the beer side of aboutearnings of on the beer side of about 200 million but recently there was a200 million but recently there was a200 million but recently there was a transaction that took place so anfs istransaction that took place so anfs istransaction that took place so anfs is the number one beer brand in in Russiathe number one beer brand in in Russiathe number one beer brand in in Russia for example they have a number offor example they have a number offor example they have a number of countries in fact they're number one incountries in fact they're number one incountries in fact they're number one in Turkey also but their biggest businessTurkey also but their biggest businessTurkey also but their biggest business is in Russia in Russia their jointis in Russia in Russia their jointis in Russia in Russia their joint venture partner is the aneisa Bushventure partner is the aneisa Bushventure partner is the aneisa Bush People 3G Capital all of the all thosePeople 3G Capital all of the all thosePeople 3G Capital all of the all those guys and all these American companiesguys and all these American companiesguys and all these American companies areareare divesting the Russiandivesting the Russiandivesting the Russian assets so hinek sold their Russianassets so hinek sold their Russianassets so hinek sold their Russian business forbusiness forbusiness for $1 and basically an$1 and basically an$1 and basically an amev doesn't want to sell the Russianamev doesn't want to sell the Russianamev doesn't want to sell the Russian business but they have to so theybusiness but they have to so theybusiness but they have to so they recently this has been going on forrecently this has been going on forrecently this has been going on for about a year and a half with when I metabout a year and a half with when I metabout a year and a half with when I met the company they would say yeah we arethe company they would say yeah we arethe company they would say yeah we are negotiating with them trying to figurenegotiating with them trying to figurenegotiating with them trying to figure out whatout whatout what works the family thatworks the family that
Questionerworks the family that owns anadolu fs and Cocola ISAC is oneowns anadolu fs and Cocola ISAC is oneowns anadolu fs and Cocola ISAC is one of the problem probably theof the problem probably theof the problem probably the highest reputed families in Turkey for ahighest reputed families in Turkey for ahighest reputed families in Turkey for a governance point of view reputationgovernance point of view reputationgovernance point of view reputation point of view so the partners they havepoint of view so the partners they havepoint of view so the partners they have in their differentin their differentin their different businesses are truly world-classbusinesses are truly world-classbusinesses are truly world-class partners and so for example the familypartners and so for example the familypartners and so for example the family also has all the McDonald's franchisesalso has all the McDonald's franchisesalso has all the McDonald's franchises in Turkey it's a private they've notin Turkey it's a private they've notin Turkey it's a private they've not listed that just they just own that andlisted that just they just own that andlisted that just they just own that and Coke in Atlanta owns owns 20% of K ISACCoke in Atlanta owns owns 20% of K ISACCoke in Atlanta owns owns 20% of K ISAC and they sit on the board and amm ownsand they sit on the board and amm ownsand they sit on the board and amm owns 20% of fs and they sit on the board so20% of fs and they sit on the board so20% of fs and they sit on the board so they just announced recently that ammvthey just announced recently that ammvthey just announced recently that ammv decided to sell the 50% of the businessdecided to sell the 50% of the businessdecided to sell the 50% of the business that they did not own tothat they did not own tothat they did not own to fs and they did not really discuss a lotfs and they did not really discuss a lotfs and they did not really discuss a lot of things about the deal what they saidof things about the deal what they saidof things about the deal what they said is FS is paying nothing to am Bev zerois FS is paying nothing to am Bev zerois FS is paying nothing to am Bev zero and over the next few years based onand over the next few years based onand over the next few years based on earnings there will be some payments soearnings there will be some payments soearnings there will be some payments so one of the things you got to understand
Otherone of the things you got to understand is ai is a seller agreed to sell with nothing down seller agreed to sell with nothing down seller agreed to sell with nothing down and that's part of the reason that the and that's part of the reason that the and that's part of the reason that the because the reputation of the family is because the reputation of the family is because the reputation of the family is so strong that the seller is not going so strong that the seller is not going so strong that the seller is not going to have any concerns okay I won't get my to have any concerns okay I won't get my to have any concerns okay I won't get my money or what might happen in the future money or what might happen in the future money or what might happen in the future any of that they have no concerns about any of that they have no concerns about any of that they have no concerns about that and the fs in their that and the fs in their that and the fs in their negotiations would not have squeezed negotiations would not have squeezed negotiations would not have squeezed ai m because they want a 50-year ai m because they want a 50-year ai m because they want a 50-year relationship 100e relationship with them relationship 100e relationship with them relationship 100e relationship with them so it's a good symbiotic thing but so it's a good symbiotic thing but so it's a good symbiotic thing but basically bottom line is that in that basically bottom line is that in that basically bottom line is that in that press relase the amm people said that we press relase the amm people said that we press relase the amm people said that we think our businesses our 50% of the think our businesses our 50% of the think our businesses our 50% of the business is worth about 1.3 business is worth about 1.3 business is worth about 1.3 billion and they didn't really say billion and they didn't really say billion and they didn't really say anything else beyond that that imp anything else beyond that that imp anything else beyond that that imp implying that maybe they'll get maybe implying that maybe they'll get maybe implying that maybe they'll get maybe 1.3 billion over a few years or 1.3 billion over a few years or 1.3 billion over a few years or something though FS market cap is 2 and something though FS market cap is 2 and something though FS market cap is 2 and a half billion and so they now have 100%
Questionera half billion and so they now have 100% of the beer business which should be worth at least 2 and a half billion just the just the Russia beer business they also have Ukraine which is about 1/4 the size of Russia they shut down the operations there so some point if the war ends they they had closed all their breweries but they just opened one or two of their breweries now recently they looked at the areas where they were safe to open and they've they have number one market share in Ukraine as well so they started producing there and they've got a few other countries and so if you look at the fs beer business to get in total it's 34 million Hector lers and just to give you a context India's entire Beer Market is 65 million hect lers so FS is beer business is more than 50% of all of India and UB which is much smaller than Fs in volumes has a 5 and a half billion
Questionervolumes has a 5 and a half billion market cap you know so and so FS by market cap you know so and so FS by market cap you know so and so FS by itself has a lot of value but inside FS is 50% of the coke bot and I own shares is 50% of the coke bot and I own shares is 50% of the coke bot and I own shares in fs and I own shares in Coke and I in fs and I own shares in Coke and I in fs and I own shares in Coke and I don't own shares in vun just as a don't own shares in vun just as a don't own shares in vun just as a disclosure like I said the market cap disclosure like I said the market cap disclosure like I said the market cap about 2 and a half billion Coca-Cola about 2 and a half billion Coca-Cola about 2 and a half billion Coca-Cola insect market cap under 4 insect market cap under 4 insect market cap under 4 billion and Tom billion and Tom billion and Tom Gainer is a good friend of mine some of Gainer is a good friend of mine some of Gainer is a good friend of mine some of you might have heard of Tom Gainer the you might have heard of Tom Gainer the you might have heard of Tom Gainer the CEO Marquel insurance and Tom gayner is CEO Marquel insurance and Tom gayner is CEO Marquel insurance and Tom gayner is on the board of Coke in Atlanta and I on the board of Coke in Atlanta and I on the board of Coke in Atlanta and I saw a Facebook post by Tom Tom is very saw a Facebook post by Tom Tom is very saw a Facebook post by Tom Tom is very active on Facebook where he was posting active on Facebook where he was posting active on Facebook where he was posting some pictures of him in some pictures of him in some pictures of him in Istanbul so Tom does not Venture about Istanbul so Tom does not Venture about Istanbul so Tom does not Venture about out outside the US he's very meat and out outside the US he's very meat and out outside the US he's very meat and potatoes American guy so I asked Tom potatoes American guy so I asked Tom potatoes American guy so I asked Tom is so he said we have a Coke board is so he said we have a Coke board is so he said we have a Coke board meeting in istan so I had to come to meeting in istan so I had to come to meeting in istan so I had to come to istan I understood that since Tom never istan I understood that since Tom never istan I understood that since Tom never leaves the US he can only leave for
Questionerleaves the US he can only leave for these reasons this and he explained to me that basically C has four board meetings a year two of those me meetings take place in Atlanta where there's C Coke is headquartered and the other two meetings one takes place in New York every year and the fourth one rotates it goes in a different geography in the world they just want to expose the coke board members to Coke in different countries so they have one meeting a year so this year it happened to be in Istanbul and he was telling me obviously he cannot tell me anything about what is going on in the board meetings and all of that you know so but he was telling me that he they had a presentation in Istanbul which was made by the CEO of Coca-Cola ISAC to the coke board and he said that that presentation blew him away he said he just he thought okay some bottlers CEO
Warrenjust he thought okay some bottlers CEO is making some presentation to the board whatever but he said once the guy started talking he was totally captivated so Koka ISAC has had hired a new guy as a CEO he relocated from Chicago to Istanbul he's half Turkish I met him in March I I met the coke people Coco ISC people for a few years but this year when I went in in March I met him and he blew me away I mean like literally I was just floored when I saw this guy and one of the things that was very impressive to me was that the family was even able to attract some guy like that so it's hard to explain all the different nuances about this guy but basically I came to the conclusion that whatever was happening with the Cocola ISC business before this guy came and what would happen after he came will be very different one thing about the Coca-Cola business or the
Warrenabout the Coca-Cola business or the Pepsi business is that it's it's about close to 150 years old 140 years old and it's an embryonic business so we think of coke as a mature business you know after 140 years things get matured but it's not actually there are two three things about C that I've tried to learn and understand over the years and I was telling Tom I was talking to him I said Tom I don't have any desire to serve on any boards you know I'm not a board guy you know but I said if they ever call me to serve on the coke board that would be a board I would love to be on to be able to see what's happening from that vantage point would be just unbelievable basically you know we think of coke as a 140 year old company we think of it as a mature company and we think that basically everything about it is pretty well known and well understood and all of
Questionerand well understood and all of that but that's not the case it's actually a very actually when you go into the details it's a very complex business it appears to be simple it's a very simple business to understand but when you get into the different Weeds about Brands market share growth how much you spend on marketing and different things it starts to get complicated and also you have so many different variables that you can play with so the K CEO told me when I I met him last time he said listen I don't want to meet you in the office next time office he said next time let's meet in the market and he said let's meet in the market in Eastern Turkey so basically if you think about Turkey Istanbul Western turkey that would be like New York you know go to Eastern Turkey that would be more like Iraq you know so there's a big
QuestionerIraq you know so there's a big difference even though turkey is One Market just in that market there's a lot of uh differences in the different uh situations and just to give you a little bit of a flavor for how po works is they had a bottler in usbekistan and they had a joint venture with the bottler so 50% of that botler was owned by the Coca-Cola company and 50% was owned by actually the USBC government so government is their partner there and it comes from Soviet times so usbekistan used to be part of the Soviet Union and this bottler was part of that whole Soviet apparatus so their whole way of running that business was the way the Soviet Union Ran So they are only bottling three products of coke No Coke has hundreds of products they only bottling three products they don't have any trucks so if you want Coke or Coke products in usbekistan you show up at
Otherproducts in usbekistan you show up at the factory gate you pay cash and you take the Coke and needless to say the kokola company was pissed off quite pissed off with the usbekistan situation and they kept trying to get them to sell the Stak try to get another bottler there something and they were not interested so finally one day the USBC government wakes up and tells Co we have decided to divest our St and C is thinking there is a God you know but they said we don't have an interest in selling it to you we want to sell it to the highest bidder so C said look we have Partnerships with our bottlers we don't want some random third party coming in they said no no we are just concerned about the USC citizens we want the highest price for our citizens and we will give it to the highest bidder what happens after that is your business
Questionerbusinessbusiness so C went to ca ISAC and said no matterso C went to ca ISAC and said no matterso C went to ca ISAC and said no matter what the price you have to pay buy thewhat the price you have to pay buy thewhat the price you have to pay buy the business so ISAC said that when you saybusiness so ISAC said that when you saybusiness so ISAC said that when you say no matter what the price we have ano matter what the price we have ano matter what the price we have a business to run you know we can't justbusiness to run you know we can't justbusiness to run you know we can't just pay any price they said no we ownpay any price they said no we ownpay any price they said no we own 50% we will sell our 50% to you at a50% we will sell our 50% to you at a50% we will sell our 50% to you at a very discounted price so the overallvery discounted price so the overallvery discounted price so the overall price will look okay to you just makeprice will look okay to you just makeprice will look okay to you just make sure you are the highest bidder and yousure you are the highest bidder and yousure you are the highest bidder and you take it and they went to ISAC becausetake it and they went to ISAC becausetake it and they went to ISAC because it's a trusted entity right I meanit's a trusted entity right I meanit's a trusted entity right I mean they've had a long history so when thethey've had a long history so when thethey've had a long history so when the deal finally took place I think that thedeal finally took place I think that thedeal finally took place I think that the USC side was bought at equivalent valueUSC side was bought at equivalent valueUSC side was bought at equivalent value of 430 million and then Coke sold theirof 430 million and then Coke sold theirof 430 million and then Coke sold their part of it to them at 230 million sopart of it to them at 230 million sopart of it to them at 230 million so Blended like maybe 300 odd million theyBlended like maybe 300 odd million theyBlended like maybe 300 odd million they paid for something like net incomepaid for something like net incomepaid for something like net income of around 15 million about a 20 multipleof around 15 million about a 20 multipleof around 15 million about a 20 multiple it was not growing it was a flatit was not growing it was a flatit was not growing it was a flat business so the analysts were really
Warrenbusiness so the analysts were really upset at K I said okay what are you doing this is a ridiculous multiple even with the coke discount it's very high the first year that they ran the business the net income was 80 million so I asked them how did it go from 15 million to 80 million they said we bought some trucks we painted those trucks red we put our logo on the trucks we drove into the town and we just shook everyone's hand and when we shook their hand we put one cooler in their shop that's all we did we have not increased the range of products we haven't done anything else yet so you look at a place like uzbekistan and actually the coke business there is embryonic you know so there's a lot of places like that where you have this weirdness going on so it's kind of a fun company to study and all three of these businesses they have great managements Great Value great uh Brands and terrific
OtherGreat Value great uh Brands and terrific businesses so this is a chart which shows kind of trailing pees of different countries India like more than 25 times earnings and on the extreme other end of the curve is turkey at seven times and I I started making trips to Turkey about 5 years ago I have a friend in Istanbul who is a hardcore Ben Graham disciple comes to the Burkshire meetings very nice guy I'm trying to make him AER disciple so I'm trying to convert him from Ben Graham tochar like I will explain to you the progress I'm making with it so I told Hayer that listen I want to come to Istanbul I would like to meet the companies that are in your portfolio but I don't want to meet companies that you don't have money currently invested don't take me to meet some random company that this is a great company or that's a great company if it's not not in your portfolio don't take me there
Questionerin your portfolio don't take me there
Questionerand I said let's start with the first company being the one that you have the highest position then we'll take the second one third one fourth one I went in first trip was 2018 and the first company he was taking me to so I had not really he had sent me information these are the businesses whatever I hadn't really looked into a lot of these things I said let me meet these companies then I'll do some work on them you know sort of trying to do the work in Advance I'm too lazy for that so when we were driving to the first company which was a bank I said this bank is your biggest holding he said yeah this is my biggest holding so I said why do you like it he said the p is 0.1 so know digit you know decimals you know 0.1 so I said 0.1 means one month earnings the whole Market back equal to one month's
QuestionerMarket back equal to one month's earnings so I said fraud you know like what's going on here he said no no it's a it's a perfectly normal bank but they have some hair there's some hair on it I said before we go into meeting can you tell me about the hair like what is what is causing this because now I'm like wide awake you know p.1 like we're ready to go and so it's one of the largest banks in Turkey and so he says that basically there are these un sanctions where cannot do wire transfers and different things with Iran there's a lot of restrictions in in that and the chairman of the bank was routinely doing all kinds of transactions back and forth and the US got wind of that so the CFO of the bank had gone to the us with his family for a vacation in Disneyland so he landed in New York and when he landed in New York the feds picked him up and they put him in
Otherpicked him up and they put him in Riker's prison okay locked up and then this was like you know like at that time Trump was the president erdogan is calling Trump saying Please Release this guy he's not really involved in all this for the chairman and all that this guy is a normal guy so Trump said you know I let me explain something to you US president has no powers okay said this state of New York has acted on this thing I have no control over the state of New York if I call them because they all Democrats they will make sure he will never leave the prison so he told erdogan I there's nothing I can do I'm sorry I would like to help you but I can't do anything so then haa tell me so this is the situation right now so I told haer okay so we went to the meeting I met them all perfectly honorable people good bank prudent lending and everything we came out and I
Otherlending and everything we came out and I said this is too much for me to handle I said this is too much for me to handle I said this is too much for me to handle I can't do such kind of Investments let's can't do such kind of Investments let's can't do such kind of Investments let's go to at least P of two or three so we go to at least P of two or three so we go to at least P of two or three so we can see something more normal he said no can see something more normal he said no can see something more normal he said no problem turkey we have everything for problem turkey we have everything for problem turkey we have everything for full range of things that you want to full range of things that you want to full range of things that you want to look at is is available so the following look at is is available so the following look at is is available so the following year in 2019 so I visited I think on year in 2019 so I visited I think on year in 2019 so I visited I think on that trip I must have visited like 15 that trip I must have visited like 15 that trip I must have visited like 15 businesses and then it was so much fun businesses and then it was so much fun businesses and then it was so much fun because you know in the evenings there because you know in the evenings there because you know in the evenings there was Blue Fish on the boss River nicely was Blue Fish on the boss River nicely was Blue Fish on the boss River nicely grilled olive oil just great weather grilled olive oil just great weather grilled olive oil just great weather great everything so next year I said great everything so next year I said great everything so next year I said okay hather I'm coming again let's look okay hather I'm coming again let's look okay hather I'm coming again let's look at some more businesses he said oh this at some more businesses he said oh this at some more businesses he said oh this is a lot of fun so he was driving me to is a lot of fun so he was driving me to is a lot of fun so he was driving me to one of the another company and I said one of the another company and I said one of the another company and I said tell me about this company he said the tell me about this company he said the tell me about this company he said the company this company has a market cap of company this company has a market cap of company this company has a market cap of $16 $16 $16 million 6 and liquidation value is 800
Ted Weschlermillion6 and liquidation value is 800 million so I said fraud he said no no I am invested in this company so I said what do they do he says it's a very simple business they have warehouses they are the number one Warehouse operator in turkey and they have 12 million square feet of warehouses 99% lease 10 year leases inflation indexed or they are Euro leases Amazon Ikea car 4 Mercedes Toyota these are all the tenants so it's all like AAA rated tenants so I said why is the stock sitting where it's sitting he said it's turkey just the way it is he said everything is cheap I said yeah but this is like Beyond cheap you know so I met the father and son who own and run the business I found them really smart good guys then I went and visited at least the Istanbul warehouses they have about 70 warehouses I think I went by maybe 20 of them it looked I mean everything
Otherof them it looked I mean everything looked great to me and basically it was like it was really simple because those warehouses have a value any realtor will tell you what they are worth so warehouses when you added up it was about a billion dollars and there was about 200 million of debt there was the 16 million market cap and one of the things that was happening at that time is that turkey even then and today though it's improved now is the currency is very unstable very high inflation rate and all the foreign investors were exiting so I thought 16 million market cap who knows what you can get what liquidity there is what is there but I tried to buy the stock and I found that there is tremendous liquidity and for $8 million I got oneir of the company and basically there's a company I met in Turkey which is like kind of like Tata
WarrenTurkey which is like kind of like Tata thethethe CFO was talking to me he said you know ICFO was talking to me he said you know ICFO was talking to me he said you know I want to explain turkey to you you don'twant to explain turkey to you you don'twant to explain turkey to you you don't understand turkey let me explain turkeyunderstand turkey let me explain turkeyunderstand turkey let me explain turkey I said yeah pleaseI said yeah pleaseI said yeah please I'm Forest Gump you can explain it to meI'm Forest Gump you can explain it to meI'm Forest Gump you can explain it to me no problem so he said you know everyno problem so he said you know everyno problem so he said you know every country has a national game a nationalcountry has a national game a nationalcountry has a national game a national sport a national game like he said insport a national game like he said insport a national game like he said in the US it is poker in China it is bakarathe US it is poker in China it is bakarathe US it is poker in China it is bakara Russia it is chess he said do you knowRussia it is chess he said do you knowRussia it is chess he said do you know what the national game in Turkey is Iwhat the national game in Turkey is Iwhat the national game in Turkey is I said no I don't know what the nationalsaid no I don't know what the nationalsaid no I don't know what the national game in Turkey is he says it's B gam sogame in Turkey is he says it's B gam sogame in Turkey is he says it's B gam so turkey has all these different kind ofturkey has all these different kind ofturkey has all these different kind of little B gaming rooms these men come andlittle B gaming rooms these men come andlittle B gaming rooms these men come and play there so he said look if you lookplay there so he said look if you lookplay there so he said look if you look at poker it's a mix of skill and luck ifat poker it's a mix of skill and luck ifat poker it's a mix of skill and luck if you look at chess it's all skill youyou look at chess it's all skill youyou look at chess it's all skill you look at bakara all luck and he said backlook at bakara all luck and he said backlook at bakara all luck and he said back gam is pure gambling there is no skillgam is pure gambling there is no skillgam is pure gambling there is no skill it's all all all luck based so he saidit's all all all luck based so he saidit's all all all luck based so he said Turks are
OtherTurks are addicted to back gam and the way they treat the stock market is the way they treat the game back so turkey is unusual place in the sense that if you take out what the foreign invest investors own and you take out what the promoters own the float after you take these two entity out for most companies the average time to cycle through the entire float is nine trading deals so when I told my Turkish friend that this guy is saying it's nine trading days he said I'm surprised it is nine days he said the normal Motors of Brandy for all the Turks is they want to invest at 10:00 they want to close the position at 3:00 and they want to make 10% and that's their model make 10% and again go next day make another 10% and good luck with that you know and so when I was buying this stock I'm seeing massive volumes of Brokers offering he saying 1 million
WarrenBrokers offering he saying 1 million shares 5 million shares and I said okay yeah take keep taking no problem you know the people are willing to give it to me and then there a block that came which was a 5% block and the broker said look the rumor is that Templeton funds is selling I just want to let you know that there's a good Fund in New York that is selling just in case you know you want to rethink whether you want to buy I said please take the take the million 5% position so some guy in New York in Templeton issued an order exit turkey didn't care what they own right so Ras was a o holding some poor Templeton analyst did some research on this company bought the stock his boss and boss's boss overed him and it ends up with the Indian guy no problem so very quickly I own one third of the company now you fast forward four years
Questionercompany now you fast forward four years when I was buying the stock Turkish lader was five L to the dollar it is now 29 l to the dollar the L is collapsed in dollars our market cap has gone from 16 million to 500 million in the last four years but those guys are extremely good operators the business is probably worth at least a billion and a half it may be worth more I mean I think my billion and a half number is at least 6 or8 months old it may be worth more now might be by few months it might be 2 billion we'll see you know I mean the way I look at it is that we just have to sit there and then you know my friend haa who took me to this this company he owned the shares when the market cap hit 40 million he told me he has completely sold the shares so I said hather you told me the liquidation value is 800 million he said yes I'm a one bagger guy he said I have
Otheryes I'm a one bagger guy he said I have a simple rule anything doubles I sell it a simple rule anything doubles I sell it a simple rule anything doubles I sell it so that at that point I understood that a major intervention is needed you know a major intervention is needed you know a major intervention is needed you know just talking is not enough so I sent him just talking is not enough so I sent him just talking is not enough so I sent him a bust of Charlie Monger with my a bust of Charlie Monger with my a bust of Charlie Monger with my compliments for free I said road before you start your work just go road before you start your work just go road before you start your work just go to the bus learn say two three Munger to the bus learn say two three Munger to the bus learn say two three Munger qutes then go sit in your chair he said qutes then go sit in your chair he said qutes then go sit in your chair he said I'll do that and I'll do that and I'll do that and I talk to him he has made some progress I talk to him he has made some progress I talk to him he has made some progress but it will take some time I don't think but it will take some time I don't think but it will take some time I don't think I've got him out out of the so I told I I've got him out out of the so I told I I've got him out out of the so I told I told hather listen I visited with you told hather listen I visited with you told hather listen I visited with you about 60 Turkish companies so far and about 60 Turkish companies so far and about 60 Turkish companies so far and what I decided in Turkey was that in all what I decided in Turkey was that in all what I decided in Turkey was that in all other other other markets I have to make a markets I have to make a markets I have to make a compromise like in India for example if compromise like in India for example if compromise like in India for example if I look at a truly great business with I look at a truly great business with I look at a truly great business with truly exceptional man management with truly exceptional man management with truly exceptional man management with great corporate governance the PE for great corporate governance the PE for great corporate governance the PE for sure will be nose bleed you know if I sure will be nose bleed you know if I sure will be nose bleed you know if I get all those three things I have to pay
Questionerget all those three things I have to pay a lot right and if I want to pay and I'ma lot right and if I want to pay and I'ma lot right and if I want to pay and I'm just telling you from an outsider youjust telling you from an outsider youjust telling you from an outsider you guys have far more experience here if Iguys have far more experience here if Iguys have far more experience here if I want to pay something resembling awant to pay something resembling awant to pay something resembling a normal multiple then I have tonormal multiple then I have tonormal multiple then I have to compromise I have to compromise eithercompromise I have to compromise eithercompromise I have to compromise either on business quality or managementon business quality or managementon business quality or management quality or governance quality some thingquality or governance quality some thingquality or governance quality some thing or the other I have to kind of play withor the other I have to kind of play withor the other I have to kind of play with to try to make the numbers work rightto try to make the numbers work rightto try to make the numbers work right but in Turkey because there's all thisbut in Turkey because there's all thisbut in Turkey because there's all this madness going on I said I'm just goingmadness going on I said I'm just goingmadness going on I said I'm just going to do one very simple filter which isto do one very simple filter which isto do one very simple filter which is the highest quality business and thethe highest quality business and thethe highest quality business and the highest quality management whatever thehighest quality management whatever thehighest quality management whatever the price is I'll buy it because sale so Iprice is I'll buy it because sale so Iprice is I'll buy it because sale so I don't need to go and I tried to telldon't need to go and I tried to telldon't need to go and I tried to tell hither this I said look hather if youhither this I said look hather if youhither this I said look hather if you see a business of PE of three and yousee a business of PE of three and yousee a business of PE of three and you see see a business of P of two and the Psee see a business of P of two and the Psee see a business of P of two and the P of3 business has better management goof3 business has better management go
Questionerof3 business has better management go for the business of P of three in thefor the business of P of three in thefor the business of P of three in the end he still goes for the two and so I'mend he still goes for the two and so I'mend he still goes for the two and so I'm still working on him now he's willing tostill working on him now he's willing tostill working on him now he's willing to go to 2.5 so we're getting therego to 2.5 so we're getting therego to 2.5 so we're getting there eventually we'll get there yeah so Ieventually we'll get there yeah so Ieventually we'll get there yeah so I found I found turkey thefound I found turkey thefound I found turkey the fs and CCI and the quality of the thefs and CCI and the quality of the thefs and CCI and the quality of the the governance and thegovernance and thegovernance and the management and when you have a bottlingmanagement and when you have a bottlingmanagement and when you have a bottling business with Coke or Pepsi as a bottlerbusiness with Coke or Pepsi as a bottlerbusiness with Coke or Pepsi as a bottler as a partner clearly the Coke and Pepsias a partner clearly the Coke and Pepsias a partner clearly the Coke and Pepsi business is vastly superior you knowbusiness is vastly superior you knowbusiness is vastly superior you know much higher Returns on Capital but themuch higher Returns on Capital but themuch higher Returns on Capital but the bottlingbottlingbottling business can be a really good businessbusiness can be a really good businessbusiness can be a really good business because basically both these companiesbecause basically both these companiesbecause basically both these companies want the bottlers to do well and theywant the bottlers to do well and theywant the bottlers to do well and they set up the bottlers to do well so likeset up the bottlers to do well so likeset up the bottlers to do well so like for example infor example infor example in Pakistan the case volume 50 years agoPakistan the case volume 50 years agoPakistan the case volume 50 years ago the unit case volume that Koka ISAC hadthe unit case volume that Koka ISAC hadthe unit case volume that Koka ISAC had was about 40 million cases a year 15was about 40 million cases a year 15was about 40 million cases a year 15 years ago now it is 400 millionyears ago now it is 400 millionyears ago now it is 400 million cases and it's 400 million cases in a
Questionercases and it's 400 million cases in a basket case country with a lot of problems like right now their issue is just getting Foreign Exchange in and out is difficult because Pakistan has no foreign exchange so somehow they are trying to make that work and with all of that stuff it's still a 400 million cases Market but in in that in the Pakistan market for example Coke set up coch Studio you know they have it in India too but they have coch Studio Pakistan and that has been enormously successful and so coch Studio Pakistan for example is completely paid for by the Coca-Cola Company it's not paid by the B so all that branding is done by the ca company for the benefit of the botler which also benefits the C company so it's a symbiotic relationship so I just wanted to share some of these thoughts where you know I look at I look at India and I see a lot of positives
Questionerat India and I see a lot of positives versus Turkey right I we have a stable currency we have proper leadership we have amazing growth a lot of great demographics going on but we also have not cheap valuations my my vantage point and so I say okay you know we can just stick to where it appears more of a no-brainer to me we see this play out so for example if you look at Microsoft in 99 you know was 22 billion Revenue 8 9 billion of net income and the market cap was 600 billion and trailing fee was like more than 70 and 16 years after that they had a lot more revenue revenue had gone more than four times s net income had not changed much but it was still higher and market cap was 1 half of where it was and if you look at the you look at the Microsoft chart from 99 to 2015 including all the reinvested dividends the return was zero and it's a great business it's it's been
Questionerand it's a great business it's it's been a great business throughout that time you know but it was just too expensive and if you look at kokola itself you know in 998 19 billion Revenue 3 and a half billion net income and like I said trailing P 62 2011 business had more than doubled net income has more than doubled and PE has shrunk and market cap has shrunk it went again from 98 to 2011 like 13 years with zero returns even though that's another great business you know Buffett quote you know you pay a very high price in the stock market for a cheery consensus this is my Pi up truck in Texas you know once when I moved to Texas I bought a pickup truck and we can put whatever license plate we want on it so I put FS as a license plate and I'm trying to make my neighbors rich but they don't seem to be interested so that's okay so those were some of the
Questionerthat's okay so those were some of the thoughts I wanted to share with you thank you so we can talk about whatever you'd like to talk about one month B Bank you talking about yeah yeah1 P yeah
Questioneryeah so what changed in that bank you said the the True Values areed to 1 billion 1.5 billion and he said the active the investors started respecting the performance understanding the performance or better investors came into the company what changed talking about the warehouse company not the bank right the warehouse company sorry Warehouse yeah yeah yeah
Warrenwell I mean I think I think what changed is exactly what Ben Graham says that in the long run the stock market is a weighing machine I mean it just it made no sense to have a valuation like that and you know I talked to the promoters at the time it was 16 million and I told them at that point I said why don't you
Questionerthem at that point I said why don't you buy back the shares and the they're not Financial guys they're operators and any for most management teams BuyBacks make no sense because basically what happens is the cash leaves the company and you see nothing right the cash is gone and the stock price may not change immediately and so management teams always look at this and say if I give a dividend somebody got the money right but if I give a I do a buyback where did the money go it disappeared somewhere it didn't go back to my shareholders they don't say they got money they got no money to me the bigger question was how could it sit at that value at that price in such a market and and even now actually one of the things that has not changed is that the local Turkish ownership in that business has only gone down so local tur Turks have still not
Warrendown so local tur Turks have still not it's foreign investors who have bought it's foreign investors who have bought it's foreign investors who have bought the stock but it hasn't been uh local the stock but it hasn't been uh local the stock but it hasn't been uh local Turkish investors and I have not been I Turkish investors and I have not been I Turkish investors and I have not been I have not participated at all I mean I have not participated at all I mean I have not participated at all I mean I have we have zero trading activity in have we have zero trading activity in have we have zero trading activity in that stock for four years and so some that stock for four years and so some that stock for four years and so some things are things are things are Mysteries but and that's exactly what Mysteries but and that's exactly what Mysteries but and that's exactly what Ben Graham said to Senator Fulbright Ben Graham said to Senator Fulbright Ben Graham said to Senator Fulbright when he was called he said that Senator when he was called he said that Senator when he was called he said that Senator fbde told him he said look a stock is fbde told him he said look a stock is fbde told him he said look a stock is trading at trading at trading at $10 you think it's worth $20 what are $10 you think it's worth $20 what are $10 you think it's worth $20 what are the market forces or what are the forces the market forces or what are the forces the market forces or what are the forces that make it go from 10 to 20 and Ben that make it go from 10 to 20 and Ben that make it go from 10 to 20 and Ben gr's response was that this is one of gr's response was that this is one of gr's response was that this is one of those Mysteries that we don't know the those Mysteries that we don't know the those Mysteries that we don't know the answer to but what we do know is that in answer to but what we do know is that in answer to but what we do know is that in the long run if it's worth 20 it'll get the long run if it's worth 20 it'll get the long run if it's worth 20 it'll get be he'll get to trade Trader 20 and so be he'll get to trade Trader 20 and so be he'll get to trade Trader 20 and so even for myself when I invested in Ras I even for myself when I invested in Ras I even for myself when I invested in Ras I knew that the currency is a major knew that the currency is a major knew that the currency is a major problem but the assets are really in
Questionerproblem but the assets are really in land and steel and cement and concrete that's what a warehouse is and all of those are inflation indexed right basically so my take was if the currency goes crazy or whatever goes happens we have those Prime Assets in a major city they should be able to retain their value because all of these things will increase in price and that's exactly what happened the the the value to build a warehouse kept going higher and higher and therefore their warehouses the rents kept going higher and it canot work that way sir hello sir my name is nikunj and I have two questions one on Daka and one on the investing side so we've heard you saying that uh uh you know you don't have analysts because you don't like to dismiss ideas that they'll keep bouncing all the time and some place we've heard that now where you live sometimes you
Questionerthat now where you live sometimes you wake up even after the markets are on so just wanted to understand your process the team the structure and the thought process behind it for the Pai fund per se I'm sure there is an intention behind it so if you can talk about how you operate how you structure routine yeah I
Questionermean I so I never worked in the industry you know basically when I when I started for Bri funds it was my first really my first job or anything you can say in the industry right I never worked in any other place all of my kind of thoughts and perspectives on how to structure things basically came from waren enchantment so one of the things I looked at was that neither of them had any help they didn't have help then and or not even today right so I said Burkshire can easily afford to have a whole Army of analysts that they want
Questionerwhole Army of analysts that they want and they have zero so I said if that's the way they are doing it then I'll just copy that and and I felt that basically the issue we have in investing anyway is that the data set is too large so even if you have a team of 10 analysts how many stocks can they cover or go through in a year it's just a handful you know really kind of tearing apart a company might take a few months right might take few weeks few months so one guy can maybe do 5 10 15 companies the most and if you have 10 people maybe you can do 100 companies in a year there are 50,000 companies globally so even if you do 100 companies you know you're like not even 1% of the data set so basically the issue is that the data I always felt the data set is too large that you're not really going to be able to have any way of being able to look at
Questionerto have any way of being able to look at the entire 50,000 and figure out wherethe entire 50,000 and figure out wherethe entire 50,000 and figure out where the opportunity is and whatever El in mythe opportunity is and whatever El in mythe opportunity is and whatever El in my opinion you have to have some kind ofopinion you have to have some kind ofopinion you have to have some kind of hacks or some kind of shortcuts and sohacks or some kind of shortcuts and sohacks or some kind of shortcuts and so it's not it may not be much of ait's not it may not be much of ait's not it may not be much of a handicap to have a small team versus ahandicap to have a small team versus ahandicap to have a small team versus a big team if the small team is employingbig team if the small team is employingbig team if the small team is employing some hacks which get them to a smallersome hacks which get them to a smallersome hacks which get them to a smaller data set which the big stee may not getdata set which the big stee may not getdata set which the big stee may not get to they may be going through a biggerto they may be going through a biggerto they may be going through a bigger data set so my thinking was thatdata set so my thinking was thatdata set so my thinking was that you know thereyou know thereyou know there are there are places like valueare there are places like valueare there are places like value investors Club in the US or some zeroinvestors Club in the US or some zeroinvestors Club in the US or some zero data Roma different places where you candata Roma different places where you candata Roma different places where you can basically start trimming the data setbasically start trimming the data setbasically start trimming the data set right if I if I say that I'm only goingright if I if I say that I'm only goingright if I if I say that I'm only going tototo buy top two or three Holdings of 20buy top two or three Holdings of 20buy top two or three Holdings of 20 investors Iinvestors Iinvestors I admire that trims the data set a lotadmire that trims the data set a lotadmire that trims the data set a lot right that would basically make myright that would basically make myright that would basically make my universe to look into about 60 companiesuniverse to look into about 60 companiesuniverse to look into about 60 companies and the first thing i' do with the 60and the first thing i' do with the 60
Ted Weschlerand the first thing i' do with the 60 companies they say which ones outside circular competence that might throw away 40 50 of them right so now the data set is only 10 12 companies you don't need a big team for 10 12 companies you can get to that pretty much on your own so for Bri funds I think for most of the time I operated just myself I had started another business and I had hired a couple of guys for that business was in the insurance business we it was a mistake we sold the company and we moved on but I like the guys so I kept them so they they help me now two of them are they're really good but they don't generate ideas and I told them please don't generate ideas I can tell you what to do and it's actually the very good compliment because they are really good at the Deep Dives and they're really good at ident identifying what might be blind spots
Questioneridentifying what might be blind spots for me and so it actually works pretty well so it's been a been a good mix but basically I don't I don't really think you need teams for doing this I don't think this is a team sport I I'm K here so when you saw turkeys being so cheap and abundance of Supply as well as pricing and good quality companies and you had a view how did you size up the position and how did you execute and how did you did the how did you execute the whole thing and and what was the consideration in position sizing how many companies you took up and can you just give some clavor of
Questioneryeah so my my sizing is really simple that if I I'm going to take a bet I ideally want to make it a 10% position I don't want to have 50 stocks in my portfolio I I will not be able to come up with 50 ideas that I'm excited about and so basically
Ted Weschlerthat I'm excited about and so basically it's for practical purposes it's a 10 x it's for practical purposes it's a 10 x it's for practical purposes it's a 10 x 10 portfolio so if I'm going to make a 10 portfolio so if I'm going to make a 10 portfolio so if I'm going to make a bet I would like to make a 10% bet now bet I would like to make a 10% bet now bet I would like to make a 10% bet now in the case of Ras I was in the case of Ras I was in the case of Ras I was managing about 700 million and our bet managing about 700 million and our bet managing about 700 million and our bet size was 8 million it was little more size was 8 million it was little more size was 8 million it was little more than 1% but I had no choice you know I than 1% but I had no choice you know I than 1% but I had no choice you know I mean that's just I couldn't put more mean that's just I couldn't put more mean that's just I couldn't put more into it you know that was the max in into it you know that was the max in into it you know that was the max in that particular case I would have loved that particular case I would have loved that particular case I would have loved to have a 10% allocation to RAR but the to have a 10% allocation to RAR but the to have a 10% allocation to RAR but the market cap is 16 million so you can't do market cap is 16 million so you can't do market cap is 16 million so you can't do much FS I could take a full 10% position much FS I could take a full 10% position much FS I could take a full 10% position no problem we only have three beds in no problem we only have three beds in no problem we only have three beds in Turkey we have another company which is Turkey we have another company which is Turkey we have another company which is tab airports they run airports in about tab airports they run airports in about tab airports they run airports in about a dozen countries just incredible a dozen countries just incredible a dozen countries just incredible management I like the like the team and management I like the like the team and management I like the like the team and I like their assets a lot so basically I like their assets a lot so basically I like their assets a lot so basically basically those two businesses were basically those two businesses were basically those two businesses were large enough where I could put 10% of large enough where I could put 10% of large enough where I could put 10% of assets into them and on the other side
Otherassets into them and on the other side if it becomes a large position position if it becomes a large position position if it becomes a large position position I will not trim because it's I will not trim because it's I will not trim because it's large so basically one of the issues large so basically one of the issues large so basically one of the issues that came up was that came up was that came up was that I have three different funds in the that I have three different funds in the that I have three different funds in the US and reason I have three different US and reason I have three different US and reason I have three different funds is that the regulations require me funds is that the regulations require me funds is that the regulations require me to separate the investors into different to separate the investors into different to separate the investors into different buckets so one of our funds is a buckets so one of our funds is a buckets so one of our funds is a offshore fund that's for non- us offshore fund that's for non- us offshore fund that's for non- us investors and for like endowments and investors and for like endowments and investors and for like endowments and Foundations and so on so as it turned Foundations and so on so as it turned Foundations and so on so as it turned out when we were making the bet in RAS a out when we were making the bet in RAS a out when we were making the bet in RAS a lot of the money came from one of the lot of the money came from one of the lot of the money came from one of the funds So 20% of Ras the warehouse funds So 20% of Ras the warehouse funds So 20% of Ras the warehouse company is inside One Fund which has company is inside One Fund which has company is inside One Fund which has about now it has about about now it has about about now it has about 270 million or something in 270 million or something in 270 million or something in assets and the RAS position in that fund assets and the RAS position in that fund assets and the RAS position in that fund is about 100 is about 100 is about 100 million so it was a very small million so it was a very small million so it was a very small investment but it's gone up a lot so investment but it's gone up a lot so investment but it's gone up a lot so basically its value in the fund is like basically its value in the fund is like basically its value in the fund is like maybe close to 40% so I basically just
Othermaybe close to 40% so I basically just every quarter I remind all my investors that we have a concentration situation here and I'm not planning to trim the position and if you are uncomfortable you can exit but basically because we are still sitting undervalued I mean the business is sitting at probably one third of it should be sitting and they will increase the value they're very smart and I think that that company may be worth four five billion in 5 10 years or something so we just want to escape that and I think most investors they are very comfortable they've understood what it is I don't have a large portion of their assets so I think they're kind of okay with it so but basically that's how we've we've tried to allocate it basically make a 10% beted becomes more inv value then that's works out fine just to digress a little bit just kind of some interesting things
Otherbit just kind of some interesting things that take place outside India just to give you a little bit of a flavor the airport business is not such a great business and the reason it's not such a great business is that it's a negotiated transaction you know they are bot models right so basically what happens is that the government entity or whoever is basically giving you the deal number one it is comparative when the bidding is taking place it's comparative and there are animal spirits involved and usually those auctions will end up above intrinsic value price because these assets come up for sale so rarely that if you have Bangalore airport if you have you know Mumbai airport or something come up a lot of people have an interest in those assets so generally speaking you don't tend to get great deals on them the business is interesting it's actually a complex
Questionerinteresting it's actually a complex business because parts of the business are regulated and parts of the business are not regulated so for example if you have dutyfree dutyfree is not regulated so you have an airport you have space for dutyfree pretty much most of the deals around will let you charge whatever you want and do whatever you want with the dutyfree area and just to give you a little bit of a flavor of what happens in dutyfree which might help you in your dutyfree shopping a little bit if you are looking at some $100 bottle of liquor in a dutyfree shop the factory gate price of that liquor is about $25 to $30 just FYI so at the at the factory gate it's about $25 $30 the airport operator charges 40% of the selling price as his rent one of the only places where no one is telling him what he can do so he's saying this is the place to
Questionerdo so he's saying this is the place to make money so he So when you buy the $100 bottle of liquor $40 goes to gmr or whoever is running that airport and then the liquor the duty-free operator has to have staff and inventory and all of that they have some costs and so they'll make $5 $10 and then the rest is the expenses to run the place so that's just the economics of how the dutyfree works but what happened in tab Airport there actually two Harvard case studies on Tab airport which drew me in there's an airport in almati in Kazakhstan which basically the guy who owned it wanted to get rid of it some oligarch owned that airport he had a lot of oil assets and airports are very management intensive to run so he just wanted to get rid of it it was too much of a headache for him and that airport basically was not not a b aort it was an outright purchase which
Otherb aort it was an outright purchase which means that whoever bought it just owns it forever there is no negotiation about anything after that charge whatever you want do whatever you want it's free for all Tav had negotiated to buy that airport in 2019 and they were going to close the deal in 2020 and then covid happened and air traffic went to zero so Tav told the seller that listen Force Major because all of their airports Revenue has gone to zero basically so they're facing their own issues and they said Force Major basically we don't want to do the deal and the guy who owned the airport said I will drop the price let's do the deal so they talked about it and I think in that deal closed in 21 at a discount price and it was 80% financed 4% interest for 25 years so it was only 20% Equity so basically and they had agreed to build a new terminal so basically the
Questionerto build a new terminal so basically the economics of the whole thing was they put in about 100 million of equity and that airport probably in the next couple of years will be making about 200 million a year after tax and after all interest payments and so on and that 200 million is going up about 10% a year for as far as the I can see because Kazakhstan is a rich country it's got lot of growth happening it's a landlock count actually the size is bigger than Europe so air travel is the best way to go and so the air travel is going up like crazy and so Tav was interesting to me because the market cap was 800 million just the Alm Marti airport I think if it came on the market today would probably go for like 5 million or something maybe more they'll never sell that but they have you know 12 other airports and they have the 40% duty free
Questionerairports and they have the 40% duty free and all of that going on so it works okay but and that airport is just like I mean the interesting thing is most of their revenue all of their revenue in all the airports including turkey are all in Euros the contracts are all in Euros there nothing to do with L and but because it trades in estanbul it is being handled by the gamblers like B gambl which makes my life life very easily so that's where we end up just your thoughts on China there's a fire sale sort of fire sale going on there I'm sorry China any views on China
Questioneryeah I mean I I I I find China a lot harder I think it's we' we've had some Investments that have not worked in China we've had some Investments that have worked extremely well and one of the things that happened is that I had to I was forced to make changes in the way I was operating during covid
Todd Combsin the way I was operating during covid because I couldn't travel we couldn't go to China we couldn't go to a lot of places so I took it off the radar and there are basically there are limited bullets in the gun you know I have only so many hours in a day and so many things to do so something showed up actually on the radar which were in the US that looked really good so most of my time I think in 23 I spent on us markets which was I think was a good place to be for the things we were looking at but I have not I have not spent much time on China in a while but I I I think that one of the things that comes up I think from my vantage point is there's a significant headwind if you go into a country where the population is declining you have to look at the business you have to look at businesses where they're more export oriented so like Japan for example Japan always
Questionerso like Japan for example Japan always trades very cheap but it's at a very pretty intense drop in population taking place and aging Workforce not that much interest in Immigration and all of that and so Japan can work if I think you look at businesses which are their fortunes are tied to things outside Japan I think like Buffett's bets work really well because those five companies a lot of their assets are outside Japan so I I there are not that many places in the world where you have a rising population so India has that big trump card that it has a rising population and it has significantly Rising per capita GDP so those are those are very good ingredients so we haven't we haven't spent a lot of time in China lately my question is when does one sell a stock in your opinion say vun beverages if I had bought or somebody has bought at $2 billion $3 billion
Questionerhas bought at $2 billion $3 billionhas bought at $2 billion $3 billion company is delivering abovecompany is delivering abovecompany is delivering above expectation and they are trying to addexpectation and they are trying to addexpectation and they are trying to add more livers for growth now what does onemore livers for growth now what does onemore livers for growth now what does one do at 67 billion it became verydo at 67 billion it became verydo at 67 billion it became very expensive but what in your opinion howexpensive but what in your opinion howexpensive but what in your opinion how should one think
WarrenI think selling is ashould one think I think selling is ashould one think I think selling is a lot harder than buying you know buyinglot harder than buying you know buyinglot harder than buying you know buying is easy selling becomes hardis easy selling becomes hardis easy selling becomes hard and something like vun becomes very hardand something like vun becomes very hardand something like vun becomes very hard if you have a big gainif you have a big gainif you have a big gain usually it is a mistake to sell a greatusually it is a mistake to sell a greatusually it is a mistake to sell a great business because of valuation I wouldbusiness because of valuation I wouldbusiness because of valuation I would say that if I were a owner of Von and Isay that if I were a owner of Von and Isay that if I were a owner of Von and I was sitting on a 5x gain or something Iwas sitting on a 5x gain or something Iwas sitting on a 5x gain or something I would give it a lot of rope you know itwould give it a lot of rope you know itwould give it a lot of rope you know it it might be a mistake you know to giveit might be a mistake you know to giveit might be a mistake you know to give it a lot of rope but I think that a lotit a lot of rope but I think that a lotit a lot of rope but I think that a lot of mistakes I made have been where a lotof mistakes I made have been where a lotof mistakes I made have been where a lot of money was left on the table becauseof money was left on the table becauseof money was left on the table because something looked optically expensive sosomething looked optically expensive sosomething looked optically expensive so Von has Tailwinds in the sense thatVon has Tailwinds in the sense thatVon has Tailwinds in the sense that Pepsi lovesPepsi lovesPepsi loves them Pepsi will give them
Questionerthem Pepsi will give them more and depending on where those geographies are and what the economics of those deals are it could work extremely well and I may be wrong about the NDS of India you know I'm it just looks like something like 700 looks really high to me for a country like India it's less than 100 today maybe 100 120 so to go up 7x that's a lot and so but I would just say that basically if you are in the happy position of owning a great business you should give it a lot of grow that's what I learned is I I regret a lot of sales that I made of really good businesses because they looked what I considered overvalued and and it turned out I was wrong uh good
Otherevening when you made these investments in Turkey was dividends a part of the consideration like there's cash flow generation but what how does it come back to you yeah I haven't I usually
Questionerback to you yeah I haven't I usually never paid that much attention to dividends because I just I view it as if the company keeps it and uses it prudently that's fine if they are returning it so in the case of FS the the family basically only gets paid through dividends so because they have a joint venture partner with two different International companies Coke and am and Bev I don't think they can change their ownership because I think that they've kind of agreed to okay I'm at 50% you're at 20% and we're not going to change that ratio so even if the stock goes really low they will not buy shares or any of that so basically what the family is doing is they're saying okay what does the business need to run let the business keep that and the rest it can be pushed out to the family which is fine I mean if that's what they want to do that's okay with me I just wanted
Questionerto do that's okay with me I just wanted to go back on the ISAC example so if you look at the balance sheet for example right I think the net debt to is6 so there's some leverage on the balance sheet so given the volatility of earnings if you take 2038 as your terminal value how do you assess predictability of cash flows when you look at interest expense on the de side as well as Revenue versus cost of good sold mismatch for Forex so when you look at 10 years forward in such a volatile currency how much value do you assign to like predictability of cash flows
Questionerso in the case of fs and in is6 case in both cases net debt is close to zero so they hold a lot of cash and they have debt and they try to kind of balance those things with their the the different currencies they're dealing with so I don't think in the at the end of the day I think that falls in a noise category I
QuestionerI think that falls in a noise category I don't think it it really matters that much because they really if they just paid off the debt right they would have very little debt left so if you really look at it on a adjusted basis it should be okay the business actually is basically inflation indexed so what a Coke sells for will adjust with inflation and so you know if if I mean they will face they may face some issues because one of the things that happens with the high inflation economy like turkey is the wage earner gets screwed so wages are not going up at the rate of inflation that's actually a real issue in Turkey which means that the population is getting impoverished and which means that their buying power for products like Coke is going down but Coke I don't think would have a problem raising prices they may have some issues
Todd Combsraising prices they may have some issues with volumes but what we've seen in the last few years has been that basically volumes are growing or they've been very stable and their earnings have been stable and the other thing is that because they're in so many different countries turkey is only I think it's less than 40% maybe 35% of their total volume is coming from Turkey so the other countries and it's a mix of countries so basically for the most part you're basically dealing with a basket of currencies and in effect I think with a product like C you are ending up with a margin independent of the currency so would love to hear your thoughts on how you evaluate other
Questioneryeah I I would say that a country like India with 5,000 listed companies there should be a lot of opportunity even with those elevated PES and all that because basically if you're looking at the small cap midcap
Questioneryou're looking at the small cap midcap space and you're digging in to those businesses you may be able to identify businesses where you can see around the corner and the market can't see around the corner right so you can see that this business May triple in a few years and the market doesn't understand that and so optically it may appear expensive but when you adjust for what might happen in the future it doesn't appear expensive so I think that if you are a kind of Hardcore value analyst and if you're limited to India then you roll up your sleeves and do the work and I'm sure you would find plenty of opportunities because the growth is there so they'll always be mispriced Bargains and such but if you're someone like me who's lazy and doesn't want to do the work I mean for me it's really hard for me to justify really spending a lot of time on
Questionerjustify really spending a lot of time on Indian equities when there are these low hanging fruit other places right so I I feel like I want to like I'm going to make another trip to Turkey in a few months and I just want to make sure that I think I pretty much met with every company that is worth meeting with but I'll just do one more pass on each one just to make sure that I haven't missed something or what is probably possible is that some business actually is truly great but I don't I didn't understand it the first time and so I'll just leave it that and and if I do run into things that drop into my lab which are based in India where there's some Nuance which is causing the thing with I would say with inv investment analysis is there are so many things taking place inside each business and if you have a really good understanding of the
Questionerunderstanding of theunderstanding of the companies you may be able to see thingscompanies you may be able to see thingscompanies you may be able to see things that others can't see because you arethat others can't see because you arethat others can't see because you are you've just got the depth of knowledgeyou've just got the depth of knowledgeyou've just got the depth of knowledge and then that can give you an edge so Iand then that can give you an edge so Iand then that can give you an edge so I think that's very possible inthink that's very possible inthink that's very possible in India but it's much harder for someoneIndia but it's much harder for someoneIndia but it's much harder for someone like me not being here right I mean I'mlike me not being here right I mean I'mlike me not being here right I mean I'm I'm not spending all my time looking atI'm not spending all my time looking atI'm not spending all my time looking at Indian equities I'm not meeting withIndian equities I'm not meeting withIndian equities I'm not meeting with them I'm not like kicking the tires allthem I'm not like kicking the tires allthem I'm not like kicking the tires all the cuttle but a lot of things are muchthe cuttle but a lot of things are muchthe cuttle but a lot of things are much more removed and so it makes it a littlemore removed and so it makes it a littlemore removed and so it makes it a little bit harder and and such so I think it'sbit harder and and such so I think it'sbit harder and and such so I think it's it's a perfectly good Market but I wouldit's a perfectly good Market but I wouldit's a perfectly good Market but I would also say that if you are a investor andalso say that if you are a investor andalso say that if you are a investor and now you know India has the rules thatnow you know India has the rules thatnow you know India has the rules that you can send a quarter million a yearyou can send a quarter million a yearyou can send a quarter million a year out for a family member and so on that Iout for a family member and so on that Iout for a family member and so on that I think some of you should look atthink some of you should look atthink some of you should look at equities outside India especially Iequities outside India especially Iequities outside India especially I think at this time I think that it's notthink at this time I think that it's notthink at this time I think that it's not the greatest place to be looking you may
Questionerthe greatest place to be looking you may have a better view than I do because I'm looking from the outside looking in so I think it's worth looking at you don't need to go to Turkey but I think it's worth looking at other markets and one of the things I was trying to do with the waron example was trying to show a similar business in another geography with very similar characteristics and actually we didn't talk about this but Coke is a much stronger brand so in Europe I was surprised the coke volumes are five times five or six times the Pepsi volumes it's a huge Delta in India it's the reverse right which is probably why Coke is upset because basically Coke does not expect any country where they have lower Market sh than Pepsi in the US it's about 3 to1 and Pakistan used to be Pepsi majority but now it's 50/50 they're both neck to neck so ISC has
Questionerthey're both neck to neck so ISC has done a good job of kind of bringing that up to par so I think as a investor in Indian equities it's worth looking at things outside sometimes from a comparison point of view and to the extent that you have Capital that can go into some of those ideas it may be worth looking at those is expected to be puten by government of India and you've uh mentioned over there that it could take 10 to 15 years before we see some success or some growth so how how do you approach you know the Milestone over a 15year period when you're looking at that
Questioneryeah I mean I think that anytime you have a school I mean you know so we we get the kids after 10th standard so if the government opens a new school and EMR School these are schools for tribals and the government is putting a they've done a big step function in terms of amount
Othera big step function in terms of amount of money they're putting into the tribal school which is really wonderful to see basically if they open a new school it's going to take three or four years to open the school you know you'll buy the land or you get the land and you create the infrastructure spend the money and create a school and then you'll take the first batch in sixth standard and after 5 years or six years that batch will come to 10th standard which is when dakna can deal with them so basically I'm already at 9 or 10 years from today before I see that first batch show up and now it's a new school they have no history they've hired new teachers the quality will be not that great right so that will also take time so it may really be 20 years it could be even 25 years before we are able to see the real and it really depends very
Questionerthe real and it really depends very heavily on quality of the people so you know now problem here is that you're talking about government employees principal of a government School administrators of a tribal belt School in a rural area in some tribal area just for them to get quality teachers even if they had the best management would be extremely challenging right so whether they can actually make this money work with all the best intentions we don't know that you know so there's I think there's a lot of challenges we are basically at dakna I mean I think one of the things that Buffett says about charity and investing which is so different from each other is that in in investing we do everything to minimize risk in charity in baseball terms he says that you should swing for the fences so if you really want to make a difference in charity you have to go
Otherdifference in charity you have to go highrisk high return you cannot take ahighrisk high return you cannot take ahighrisk high return you cannot take a lowrisk high return approach that welowrisk high return approach that welowrisk high return approach that we take in investing so it's a completelytake in investing so it's a completelytake in investing so it's a completely different mindset where we should bedifferent mindset where we should bedifferent mindset where we should be very willing to lose the money andvery willing to lose the money andvery willing to lose the money and that's what we are doing so right now wethat's what we are doing so right now wethat's what we are doing so right now we have just started a partnership with EMShave just started a partnership with EMShave just started a partnership with EMS and two of the guys who are running theand two of the guys who are running theand two of the guys who are running the here and they were telling me you knowhere and they were telling me you knowhere and they were telling me you know we've had a long partnership with thewe've had a long partnership with thewe've had a long partnership with the naod vial school system for 17 yearsnaod vial school system for 17 yearsnaod vial school system for 17 years we've 16 years had a partnership withwe've 16 years had a partnership withwe've 16 years had a partnership with them and they were saying that you knowthem and they were saying that you knowthem and they were saying that you know on a 1 to 10on a 1 to 10on a 1 to 10 scale if the na their management is ascale if the na their management is ascale if the na their management is a seven out of 10 and I have a lot ofseven out of 10 and I have a lot ofseven out of 10 and I have a lot of problems with no their management youproblems with no their management youproblems with no their management you know there a lot of issues we run intoknow there a lot of issues we run intoknow there a lot of issues we run into with them which we roll our eyeswith them which we roll our eyeswith them which we roll our eyes about they said the emrs manoneabout they said the emrs manoneabout they said the emrs manone management is a the four out of 10 somanagement is a the four out of 10 somanagement is a the four out of 10 so that's athat's athat's a alarming alarming statistic right therealarming alarming statistic right there
Otheralarming alarming statistic right there but at the same time the thing is thatbut at the same time the thing is thatbut at the same time the thing is that the scheduled tribe population of Indiathe scheduled tribe population of Indiathe scheduled tribe population of India is more than 100 million and theis more than 100 million and theis more than 100 million and the scheduled cast population of India hasscheduled cast population of India hasscheduled cast population of India has actually been helped a lot by all theactually been helped a lot by all theactually been helped a lot by all the affir affirmative action program in factaffir affirmative action program in factaffir affirmative action program in fact I think they can almost get rid of theI think they can almost get rid of theI think they can almost get rid of the it will not work politically but I thinkit will not work politically but I thinkit will not work politically but I think they can get rid of the SE things forthey can get rid of the SE things forthey can get rid of the SE things for they can reduce that schedule by 80% nothey can reduce that schedule by 80% nothey can reduce that schedule by 80% no problem won't happen but they couldproblem won't happen but they couldproblem won't happen but they could reduce it if they really chose to butreduce it if they really chose to butreduce it if they really chose to but the tribes there's been no real progressthe tribes there's been no real progressthe tribes there's been no real progress in their perin their perin their per capita Health Care different metrics forcapita Health Care different metrics forcapita Health Care different metrics for 70 years even with all the different70 years even with all the different70 years even with all the different reservations everything that havereservations everything that havereservations everything that have happened so I think the tribal situationhappened so I think the tribal situationhappened so I think the tribal situation is pretty bleak I was really happy tois pretty bleak I was really happy tois pretty bleak I was really happy to see that Modi government is at leastsee that Modi government is at leastsee that Modi government is at least putting money behind it but it will takeputting money behind it but it will takeputting money behind it but it will take more than money I think it's verymore than money I think it's very
Othermore than money I think it's very challenging so at dakna we said okay we this will be probably like 5 10% of our spending and yeah we can we can take a chance at 5% no problem I apologize I've just been a little under the with I'm
QuestionerHari I'm a student at flame so my question is about Coca-Cola and Pepsi a can of Coke as a product so you mentioned India has a lot of these tail winds growing population glowing economy but we Indians have a lot of diabetes as well so 10% of India has diabetes 23% if you include pre-diabetics as well and the number is 2x if you're looking at Urban Indian population and what that does is for a can of Coke it takes it from being a compliment good to my dinner to a substitute substitute good essentially when you I have to think whether I eat that extra batura or have that kind of so in that sense how do you how do you look at this Dynamic playing
Questionerhow do you look at this Dynamic playing out in the project projections that we make for these CLS yeah so they actually got they've had this Tailwind for a while but they actually got a big Tailwind when they came out with Coke Zero and Pepsi came out with Pepsi Zero because the taste differential was relatively minor and you wiped out the sugar and in fact the funny thing which I didn't think about but the bottlers were telling me is sugar is a big portion of their total cost so they say they actually their margins are higher on the zero product than the regular Coke product because the sugar is gone it's like a 3 4% better margins on so the product is healthier and they make more money and they they charge the same you know there's no price differential so I think that the other thing to keep in mind about both these companies is that they
Questionerabout both these companies is that they have about about 200 Brands and it's a pretty diverse portfolio of things beyond the basically the regular Coke product so basically these companies are offering Alternatives which would allow you to sidestep those issues and so it's should be okay I mean they these these concerns about sugar and diabetes and so on they've been around for a while but it has not impacted the businesses so the businesses are continue to do fine and part part of it is because Diet Coke took off a lot and then Coke Zero is taken off a lot and some of these other products have taken off a lot so that's worked out is there any sign of their taking off in India as well you're talking about Coke Zero yeah
OtherZer you need to tell me I'll have a look have you have you is Coke is Pepsi Z have you have you is Coke is Pepsi Z have you have you is Coke is Pepsi Z doing well in India Coke Zero Pepsi Z doing well in India Coke Zero Pepsi Z doing well in India Coke Zero Pepsi Z how are they doing in India
Questionerhow are they doing in India
Otherpardon
Questioneryeah but he has a concern that it's killing everyone
Otherno no just I I
Questionerit's killing everyone no no just I I just wanted to because that wipes out 20% but what I'm saying is that I don't know what the ratios in India are of Pepsi Z versus Pepsi I it's not something I've studied but it's probably something worth looking at two questions a can you tell us about some mistakes that you made and how how that happened and two when you look at like you said you look at Turkey not talking from any data but headlines doesn't it scare you that you're going into a country which many think I mean you know the kind the kind of move that you saw in the currency from 5 to 29 to a dollar do you see that happening do you see that stabilized do you have a view on that have you looked at it like that or you don't care
Otherwell I mean let me take your uh second question
Questioneryour uh second question
Questionerfirst I assumed when I was investing in 2018 2019 that the currency would get decimated I assume that would happen in one of the businesses which was the airport business all their revenue is in Euros so it's based in Turkey but they have no exposure in fact they have a Tailwind because their staff is paid in Turkish ler so actually their earnings have been going up as the ler has been collapsing because the wages have not gone up at the same rate so they in their case actually the Turkish inflation helped them in the second case of the coke bottler there were two issues one is that 60 70% of the business was outside turkey and even the business inside turkey it's hard to imagine Coke not being able to make money because they would they would adjust the price and if the volume adjust then they basically what we have seen happen is we
Questionerbasically what we have seen happen is we basically what we have seen happen is we haven't seen any volume drop off and we haven't seen any volume drop off and we haven't seen any volume drop off and we haven't seen any margin drop off so it's haven't seen any margin drop off so it's haven't seen any margin drop off so it's been pretty benign so been pretty benign so been pretty benign so I I think in a place like turkey I I think in a place like turkey I I think in a place like turkey probably 97% or 98% of businesses are probably 97% or 98% of businesses are probably 97% or 98% of businesses are not not not invested and I took a pass on those so invested and I took a pass on those so invested and I took a pass on those so basically the first filter I used was basically the first filter I used was basically the first filter I used was that what is the impact High inflation that what is the impact High inflation that what is the impact High inflation would have on this business and the would have on this business and the would have on this business and the answer came back in 10 seconds that it answer came back in 10 seconds that it answer came back in 10 seconds that it would be would be would be horrible and so we basically I just it horrible and so we basically I just it horrible and so we basically I just it was very easy for to filter out the was very easy for to filter out the was very easy for to filter out the businesses and and that was basically businesses and and that was basically businesses and and that was basically what the play was is that the baby got what the play was is that the baby got what the play was is that the baby got thrown out of the bath water right so thrown out of the bath water right so thrown out of the bath water right so what I was going after is the babies what I was going after is the babies what I was going after is the babies that were thrown out and I didn't want that were thrown out and I didn't want that were thrown out and I didn't want to buy the bath water but I wanted to to buy the bath water but I wanted to to buy the bath water but I wanted to look at the rest and so but I would also look at the rest and so but I would also look at the rest and so but I would also say in investing you know going to say in investing you know going to say in investing you know going to mistakes and also correlating with this mistakes and also correlating with this mistakes and also correlating with this is that probably 50% a 50% error rate on
Todd Combsis that probably 50% a 50% error rate on what we buy would be par you know half the things that we invest in are unlikely to do for us what we think it should do for us and the reason is that we are trying to look into the future and by definition there's so many variables that are going to affect the future future that 50% error rate in that of activity is perfectly normal and so even when I look at my portfolio today and I look at different things that are in the portfolio and I can see that they all look okay to me I still know at the back of my mind that there are mistakes in there that I can't see that will manifest themselves over time and so if I look back at the mistakes probably the biggest area that I have had trouble with in the past has been leverage so I had in I had invested in a some subprime mortgage lender in early
Questionerlender in early 2007 and basically it went to zero so we had a 10% bet it went to zero right we had a bet on a zinc zinc producer which was basically transitioning from a old plant to a new plant and they ran into a lot of issues with the new plann and trying to get a commission and they had a lot of debt and it went to zero went to bankruptcy and went to zero another 10% loss and so I would say that I think PAB funds will be 25 years old in uh 6 months there will be a long list of mistakes we'll be here till midnight if I go through the mistakes but I would say that what I've tried to look at is what are the themes right and so for example I try to avoid the leverage businesses because I know that basically anytime a business has debt they have taken away some anti fragility Fiat Chrysler so Fiat had just taken a they took ownership of Chrysler during
Questionerthey took ownership of Chrysler duringthey took ownership of Chrysler during the and the market cap of fat Chryslerthe and the market cap of fat Chryslerthe and the market cap of fat Chrysler was about $5was about $5was about $5 billion and their revenue was about 140billion and their revenue was about 140billion and their revenue was about 140 billion and you know Chan met sirbillion and you know Chan met sirbillion and you know Chan met sir ininin Detroit and he was lighting oneDetroit and he was lighting oneDetroit and he was lighting one cigarette with the next you know that'scigarette with the next you know that'scigarette with the next you know that's what Chand was telling me that beforewhat Chand was telling me that beforewhat Chand was telling me that before one cigarette was over he was already onone cigarette was over he was already onone cigarette was over he was already on the next cigarette so anyway so Fe Fethe next cigarette so anyway so Fe Fethe next cigarette so anyway so Fe Fe Chrysler was really cheap it was 140Chrysler was really cheap it was 140Chrysler was really cheap it was 140 billion uh Revenue it was 5 billionbillion uh Revenue it was 5 billionbillion uh Revenue it was 5 billion market cap we had this Rockstar CEO thatmarket cap we had this Rockstar CEO thatmarket cap we had this Rockstar CEO that had come in Sergio Maron and he hadhad come in Sergio Maron and he hadhad come in Sergio Maron and he had issued guidance he had actually told theissued guidance he had actually told theissued guidance he had actually told the world what he would deliver in 2018 soworld what he would deliver in 2018 soworld what he would deliver in 2018 so in 2013 he was saying this will be myin 2013 he was saying this will be myin 2013 he was saying this will be my Revenue this will be my net income blahRevenue this will be my net income blahRevenue this will be my net income blah blah blah and the net income he wasblah blah and the net income he wasblah blah and the net income he was projecting was more than the market capprojecting was more than the market capprojecting was more than the market cap of the company so he was saying that inof the company so he was saying that inof the company so he was saying that in 2018 I'll produce like 7 billion and the2018 I'll produce like 7 billion and the2018 I'll produce like 7 billion and the market cap of the company is 5 billion
Questionermarket cap of the company is 5 billion so and I spent about three months studying Fe Chrysler and I came to the conclusion that this is was this was a very unusual CEO probably one of the best CEOs I'd seen and and kareim in K ISAC reminded me of Sergio and it was a big home run for us basically I had put 70 million I think we eventually collected more than 300 million 350 million on that investment so it was a good good return but what I did not appreciate is that inside Fiat Chrysler was 80% of Ferrari and at the time when um I made the investment I think Ferrari was making like 200 million profit a year so I said you know in my head I said okay it's worth 234 billion or something even if I take out you 20 multiple to it it's worth about 4 billion I thought the Fiat business is worth more than 50 billion because it just was so mispriced so I
Todd Combsbecause it just was so mispriced so I didn't really pay attention to Ferrari that much and then after a few years they they took Ferrari public at uh valuation that looked quite Rich so I said okay this management team is smart theyve actually looked at this business they getting a good price for it I think the market cap was like at that time when Ferrari was going public maybe 89 billion and they were making 3 400 million in profit at the time and so I said okay if it's going public and it's sitting at this value it doesn't look like they would do that if there was a lot of value still in the business and I actually didn't understand the business well enough in the meantime I think while I owned the owned the stock I got to know the agelli family quite well I John elcan who's the chairman of the group he became a good friend and we
Otherthe group he became a good friend and we used to take every time I would meetused to take every time I would meetused to take every time I would meet John we we used to always meet for aJohn we we used to always meet for aJohn we we used to always meet for a long walk he never wanted to meet forlong walk he never wanted to meet forlong walk he never wanted to meet for lunch or dinner or something he's likelunch or dinner or something he's likelunch or dinner or something he's like the kind of Italian royalty with thethe kind of Italian royalty with thethe kind of Italian royalty with the Ellis and all that so we would alwaysEllis and all that so we would alwaysEllis and all that so we would always have these long walks in different partshave these long walks in different partshave these long walks in different parts of the world like one time was Santaof the world like one time was Santaof the world like one time was Santa Monica beach and one time was uh CentralMonica beach and one time was uh CentralMonica beach and one time was uh Central Park Central Park was actually twice andPark Central Park was actually twice andPark Central Park was actually twice and one time was Kaba in Mumbai and I askedone time was Kaba in Mumbai and I askedone time was Kaba in Mumbai and I asked him if he was okay with he said yeahhim if he was okay with he said yeahhim if he was okay with he said yeah yeah we need all experiences in life Iyeah we need all experiences in life Iyeah we need all experiences in life I said it could be crowded for like Sundaysaid it could be crowded for like Sundaysaid it could be crowded for like Sunday or something he said yeah it's fineor something he said yeah it's fineor something he said yeah it's fine we'll walk through kavaka cway and so Iwe'll walk through kavaka cway and so Iwe'll walk through kavaka cway and so I got to know John very well over thegot to know John very well over thegot to know John very well over the years and I told John that you know Iyears and I told John that you know Iyears and I told John that you know I made so much money in Ferrari and allmade so much money in Ferrari and allmade so much money in Ferrari and all this so I think I should get the car sothis so I think I should get the car sothis so I think I should get the car so he said look I can help you withhe said look I can help you withhe said look I can help you with delivery I cannot help you with price we
Otherdelivery I cannot help you with price we don't give discounts to anyone so I said don't give discounts to anyone so I said don't give discounts to anyone so I said I'm not looking for Price discount I I'm not looking for Price discount I I'm not looking for Price discount I made enough money on the company that I made enough money on the company that I made enough money on the company that I can pay full price so he move basically can pay full price so he move basically can pay full price so he move basically Ferrari doesn't produce any cars which are not already pre-old you know they are not already pre-old you know they are not already pre-old you know they don't produce for putting in a showroom don't produce for putting in a showroom don't produce for putting in a showroom to sell and usually like two three year to sell and usually like two three year to sell and usually like two three year waiting list to get a car so he bumped waiting list to get a car so he bumped waiting list to get a car so he bumped me up so in what four months I got my me up so in what four months I got my me up so in what four months I got my Ferrari but by the time I got the car I Ferrari but by the time I got the car I Ferrari but by the time I got the car I had already sold most of the stock and I had already sold most of the stock and I had already sold most of the stock and I really understood the value of really understood the value of really understood the value of Ferrari and the value of that brand as Ferrari and the value of that brand as Ferrari and the value of that brand as after I got the car that's really when I after I got the car that's really when I after I got the car that's really when I really because when I went to pick it up really because when I went to pick it up really because when I went to pick it up so when I ordered the car I asked the so when I ordered the car I asked the so when I ordered the car I asked the car dealer do you want a deposit on the car dealer do you want a deposit on the car dealer do you want a deposit on the car he said no no we don't need a car he said no no we don't need a car he said no no we don't need a deposit you can give me $100 it's fine deposit you can give me $100 it's fine deposit you can give me $100 it's fine and then he told me your car has arrived
Questionerand then he told me your car has arrived so I went to pick it up he said look I want to just let you know that if you don't take delivery I'll give you $100,000 right now so I said can you explain to me your side of the equation like you know 100,000 he said look there are people who want Ferraris who don't want to wait for 2 years for a new one so they want a new car and if you drive it off the lot and you put 100 miles on it I can't give you that offer because they want a brand new car with zero miles right and they can't get a brand new car with 0o miles for 2 and a half years so the 100,000 is a compression of that time to 2 days from 2 and a half years and I said you are giving me 100,000 he said yeah yeah I have a heavy markup on top of it so I am taking care of don't worry but I can give you 100,000 you know so anyway I didn't take the deal I took the car but
Questionerdidn't take the deal I took the car but I really understood the kind of brand value as I was kind of going through the ownership and driv driving it and all of that we made a $70 million investment in Fiat effectively the Ferrari portion of their investment was about 16 million or so we probably made like 70 80 million on that 16 million when we sold it and if I held it till today it would be more than 500 million on the Ferrari portion uh the Fiat portion was another couple of hundred million but and that's 500 million and Counting you know we're not done because now I've understood that that brand and the value of that brand will keep growing you know so Ferrari can come out with so you know it's kind of like they have a factory which produces picassos so you have a factory that produces picassos and so they'll they'll I remember a friend of mine in
Otherremember a friend of mine in California he said to me I need to come see you monish I need to come see you right away so I said okay so he came he said you're friends with the guy the chairman of Ferrari and I need you to ask him for a favor so I said I'm not going to ask him for any favors but tell me what you're looking for so he says that I want the Ferrari Monza okay and I said Ferrari Monza so Ferrari Monza is a one-seater car not even a two-seater means you can't take a date on it okay one seater what is the point of a one seater Ferrari I can't understand what the point of that is so he said look they are producing 300 monz and they are only giving them to people who own 20 or more Ferraris each so they have gone through their list their Ferrari customer list number one on the list has 70 Ferraris number two on the list so it's by invitation so this is the funny thing
Questionerby invitation so this is the funny thing about the Monza the Monza in the United States is not street legal so you cannot actually get it registered and you cannot drive it on a public Street and so if you buy a Monza in the United States what Ferrari will do is so first of all the price of the car is 2 and a half million okay so you will give Ferrari $25 million they will not deliver the car to you they will keep possession of the car when you want to drive the car they will deliver the car to a RAC track then you will go around the racetrack alone okay get whatever Thrills you are getting from that racetrack driving you will give them back the car and they will put it in their storage and every month they're going to charge you about $1,500 for the storage of the car and every time they tell them to deliver the car and take it back another $5,000
Questionercar and take it back another $5,000car and take it back another $5,000 charge for your joy ride around thecharge for your joy ride around thecharge for your joy ride around the truck what I realized is that the richtruck what I realized is that the richtruck what I realized is that the rich are gettingare gettingare getting richer as you know the rich are gettingricher as you know the rich are gettingricher as you know the rich are getting richerricherricher and rich men have very few ways in whichand rich men have very few ways in whichand rich men have very few ways in which they can express their wealth rich womenthey can express their wealth rich womenthey can express their wealth rich women have more ways to expresshave more ways to expresshave more ways to express their but rich men have very fewways and Ferrari is one way you canways and Ferrari is one way you canways and Ferrari is one way you can express that and that's why these guysexpress that and that's why these guysexpress that and that's why these guys have these 70 Ferraris and 30 Ferrarishave these 70 Ferraris and 30 Ferrarishave these 70 Ferraris and 30 Ferraris so I went when I when I got my Ferrari Iso I went when I when I got my Ferrari Iso I went when I when I got my Ferrari I used to get these interesting emailsused to get these interesting emailsused to get these interesting emails from Ferrari and one of the emails saidfrom Ferrari and one of the emails saidfrom Ferrari and one of the emails said that we have something known as Ferrarithat we have something known as Ferrarithat we have something known as Ferrari driving school you can we are invitingdriving school you can we are invitingdriving school you can we are inviting you to come to Ferrari driving school soyou to come to Ferrari driving school soyou to come to Ferrari driving school so we can explain to you how to drive thewe can explain to you how to drive thewe can explain to you how to drive the car so I said this is a good idea I needcar so I said this is a good idea I needcar so I said this is a good idea I need some training and they said forsome training and they said forsome training and they said for $18,000 for two days we will train you$18,000 for two days we will train you$18,000 for two days we will train you on how to drive the car you know I wason how to drive the car you know I wason how to drive the car you know I was learning about the brand right so I said
Questionerlearning about the brand right so I said let's go let's go 2 days for Ferrari training school the good news was because we were want to drive it on our track and all that they said you don't need to bring your car we will have a number of Ferraris we we'll have a number of Ferrari drivers instructors very five star accommodations five star food everything so we went my partner and I we went to Thermal California Thermal California is a very interesting place I don't know I don't want to take up all your time but I'll just say quickly because you know how you have golf courses and you have homes around golf courses the thermal racetrack had homes around the racetrack and all the homes on one one side had these huge garages where you open the garages and there's parking for 30 cars and each car is several hundred thousand and then on the other side you have a
Otherand then on the other side you have a balcony which looks onto the track and each plot of land is $1 million and then people have built their homes and garages and all that so that's where the this thing was taking place was a whole new world for me I went there and there are probably maybe around 30 30 odd Ferrari owners who have come like me to learn how to drive and coils so I realized I was asking them the wrong question when I used to get these puzzle looks so I used I used to go up to some random guy and I said so which model do you have and I would get a puzzle look and then I realized it's the wrong question how many do you have is a better question so after two three of these confused looks I learned to ask the right question and then they would say oh you know I've got so many and I got this and that or whatever else all of that and many of them had the Monza you know so
Questionermany of them had the Monza you know somany of them had the Monza you know so the there were a number of Monza ownersthe there were a number of Monza ownersthe there were a number of Monza owners there and that whole world I saw there Ithere and that whole world I saw there Ithere and that whole world I saw there I didn't even know that world existed youdidn't even know that world existed youdidn't even know that world existed you know because it's a different world soknow because it's a different world soknow because it's a different world so Ferrari can keep going I mean basicallyFerrari can keep going I mean basicallyFerrari can keep going I mean basically there's no limit to what they can dothere's no limit to what they can dothere's no limit to what they can do they come up with some special editionthey come up with some special editionthey come up with some special edition 100 unit car they can price it for 5100 unit car they can price it for 5100 unit car they can price it for 5 million 85% margin 90% margin and itmillion 85% margin 90% margin and itmillion 85% margin 90% margin and it will all be sold out 5 minutes after thewill all be sold out 5 minutes after thewill all be sold out 5 minutes after the announc it so how do you value a companyannounc it so how do you value a companyannounc it so how do you value a company like that sir how do you approachlike that sir how do you approachlike that sir how do you approach International investing because IndiaInternational investing because IndiaInternational investing because India itself is so heterogeneous that you knowitself is so heterogeneous that you knowitself is so heterogeneous that you know because of familiarity we still havebecause of familiarity we still havebecause of familiarity we still have confidence but as a u how do youconfidence but as a u how do youconfidence but as a u how do you approach because every nation everyapproach because every nation everyapproach because every nation every country every company works as acountry every company works as acountry every company works as a different Dynamics us turkey India Chinadifferent Dynamics us turkey India Chinadifferent Dynamics us turkey India China so how do you approach investingso how do you approach investingso how do you approach investing International investing that Cas andInternational investing that Cas andInternational investing that Cas and second I wanted to know your thought
Questionersecond I wanted to know your thought process what is Wes's thought process when he sells a stock so wanted to know that
Ted Weschlerwell I think on the selling of the stock I am I have a lot to learn I'm you know trying to learn forums like this help me learn so that's good I I don't think the differences are as large as you might think they are I mean I would say that if you were looking at markets like the us or the UK or Germany and so on you have a lot of things on your your side you know I can almost assume in the US that if I lose money it will not be because of fraud I mean we have had some fraud but I think it is so few and far between that every time I'm going to lose money in the US it's going to be because I made a mistake about something or missed something but not because the company financials were inaccurate or something was you know mistreated or
Questionersomething was you know mistreated or something like that in other places if you go you know Turkey or China or different places like that then yes you have to handicap for some of those things but I don't think it's that hard to do that I think you can try to kind of get your arms around it I think that in in Turkey I feel like these businesses that I've invested in I mean I've I had to make a judgment call on the people and judgment call on people you can make around the world people are people basically and so I don't think those judgment calls are wrong of I think that like I said I think it like Buffett says you know you can tell few people are exceptional few people are not so good vast majority you can't have an opinion on so sometimes you can actually look at a situation and know that the people are great and so that can also
Questionercan also transcend boundaries and borders and all of that so that can work out fine so I think if you dig in I think that some of these things will in effect reveal themselves eventually what can you tell us about charie that we already don't know
Otherokay well I mean I think the the thing with Charlie was that it was a very unlikely friendship you know I didn't I didn't ever expect I mean you know Charlie and Warren you know we had like talking of people who are like icons never expected really to have any kind of a friendship or anything with either of them and so with Charlie I think the Friendship went on for about 15 years we 14 years we met for the first time in 2009 and so I used to probably meet him maybe four or five times a year for dinner and then probably maybe on average of about once a month for bridge bridge would be basically we would meet
Otherbridge would be basically we would meet on Friday afternoon we would first have lunch at the LA Country Club and then there would be about four or five hours of bridge after that and I remember sometimes I would go to the LA Country Club and four of us would sit down for lunch and I'm sitting and across the table from me are Rick Goran and Charlie manger and I would tell them I said you know you realize that this is totally surreal that you know this Indian guy is sitting with Charlie M Rick gur and then Rick Rick passed away a few years before Charlie and I I used to ask them different questions about you know the early days of investing and so on and I think with with both manger and Buffett there is so much in the public domain and they have been so open that you really can learn everything you need to learn about them from the public record I think the
Warrenfrom the public record I think the public record is great what I learned a lot from Charlie was not so much what he said to me even though sometimes you would say just very amazing things it was really watching him and observing him in terms of how he went about his life and it was really ABS so you know he has eight kids he has many in-laws many grandkids now some great grandkids he has all these different business partners and friends and all of that I used to meet many of those people and sometimes I would meet some of his kids and the kids are on a spectrum you know in the sense that there's a range right and I used to tell Charlie sometimes I said Charlie you know so and so kid of yours and he then he would tell me I know you know I was I would bring up that there's this weirdness or unusualness about it or whatever else I was going to bring up and but I I found
Questionerwas going to bring up and but I I found that what I what I realized in his interactions was that he was able to navigate through all of that with a lot of ease there was a lot of diverse range of personalities and they were all able to I mean he they all loved him they all got along well with him and I learned a lot from the way he navigated through all of that the other thing I noticed very frequently about him was that he never looked looked back and I I learned a lot from the the never looking back so I used to bring up with him frequently that you have had this amazing life you know and you've accomplished so much and you've done so much for Burkshire and all of these different things and he would just brush it off you know he he he would say his like one time he was working on the succession of Daily Journal you know finding the next
Questionerfinding the next CEO and all of his attention was on that particular problem so when I when I would meet him it's all he wanted to talk about you know basically so it was like all his energy was focused on the problem at hand and a lot of us as humans you know we've had great lives we look back and say oh I went to a great school I had this great job I got these great promotions I built this business there's this and that all these things he had so many things to look back on and he just never looked back on any of those things things he just kind of brushed it off and said okay just the next problem so I think the kind of the exact exact words he used was that you know Soldier on you know we just have to Soldier on and a few years back I was really surprised when this happened so he had already lost sight in one eye because he had a cat rack operation that
Questionerbecause he had a cat rack operation that went bad probably like three decades ago so he was already just with one eye about probably five six years ago there was some optic nerve issue on the good eye that almost took out all the site like basically there was a period of time where he couldn't read he couldn't almost he could almost not see anything and I met him during that time so they were actually looking at some experimental treatment they were trying to figure out what to do because basically the only thing that char I think really cared about was reading the most precious thing to him was reading and I was observing that there's this guy who's probably reading 500 books a year spends all his time reading and he is facing the prospect of eyesight going away and what I saw is that I did not see any self-pity I did not see any concern I
Warrenself-pity I did not see any concern I actually saw and he was just saying I may have to learn Brave you know basically he said I I think I'm going to have to learn Braille and Braille would not have helped Charlie because basically the way he reads a book is like he's going back and forth and even an audio book would not work for him so basically it has to be like a physical book and he needs to be able to go back and forth pretty quickly so for all practical purposes it would pretty much destroy him but even when that was going to happen and possibly being going to be permanent not bothered I really kind of learned a lot from that that basically he wasn't looking at you know his his wife fell backwards down the stairs and passed away you know basically and she suffered a lot she went through a number of surgeries what 18 months and for several
Questionersurgeries what 18 months and for several months he was by her hospital bed at the Mayo Clinic and basically I mean I knew him before she passed away I knew how important she was to him I saw him after I saw no self-pity he just moved on just completely just moved on you know and sometimes he would tell me 99% of My Friends Are Dead you know so I said yeah but you know you have new ones like you're the Indian friends so it's okay he said yeah I have a lot of younger friends now which is better but basically I I just saw a guy who was very stoic who basically never felt that life had given him any Misfortune I think that whatever came to him in whatever format it came to him so you know his his family basically he had a manservant who lived with him and took care of him and his family would visit you know different kids would visit from time to time they had put a a
Warrentime they had put a a restriction on how much how much Seas candy he could have right so their rule was that basically about three times a month when there was someone who had come over for dinner Seas candy would be served as dessert right and now Charlie likes SE candy a lot I would see him attack the SE candy like you seen them at the annual meetings like a kid you know because never saw him ever uh question them and I never saw him ever any food that was put in front of him so I'm very picky about what I'm eating and what Charlie basically didn't care you could put any food in front of him he'll just eat it he doesn't care he likes SE candy it's coming he'll enjoy it it's not coming it's okay so it's like you know the guy is like he's got no kind of preferences or regrets or any of these things I think the thing is that he was so evolved that he really
Questionerthat he was so evolved that he really was focused on things that mattered you know I think a lot of us get focused on things that don't matter and so I I just all those observations with with him and then he had so many jokes you know I mean the thing is like a Encyclopedia of jokes like one time he was saying that something came up about math or something we were talking about something about math and he said that there's this Jewish couple and they had this kid who was very distracted not doing well at school getting poor grades in math and so they were very concerned and they found that there's a good Catholic School in the area and so they admitted the kid to the Catholic School hoping that better school will make him a better student and they noticed almost immediately that this kid used to come home go straight to his room and start
Otherhome go straight to his room and start working on his homeworkworking on his homeworkworking on his homework do all his homework all the mathdo all his homework all the mathdo all his homework all the math homework he used to do first so he usedhomework he used to do first so he usedhomework he used to do first so he used to and he used to never do his mathto and he used to never do his mathto and he used to never do his math homework before so they were saying thishomework before so they were saying thishomework before so they were saying this is a great school you know the guy isis a great school you know the guy isis a great school you know the guy is like the kid islike the kid islike the kid is transformed and the grades improved andtransformed and the grades improved andtransformed and the grades improved and everything was going great so they sateverything was going great so they sateverything was going great so they sat down with the kid and they said how dodown with the kid and they said how dodown with the kid and they said how do you like the school he said the schoolyou like the school he said the schoolyou like the school he said the school is good and they said you know weis good and they said you know weis good and they said you know we noticed that you are very interested innoticed that you are very interested innoticed that you are very interested in the different subjects you're doing wellthe different subjects you're doing wellthe different subjects you're doing well in school your math grades have improvedin school your math grades have improvedin school your math grades have improved you're doing all the math homework so heyou're doing all the math homework so heyou're doing all the math homework so he said look when I went to the school andsaid look when I went to the school andsaid look when I went to the school and I saw that they had pinned the guy onI saw that they had pinned the guy onI saw that they had pinned the guy on the plus sign and they had he was deadthe plus sign and they had he was deadthe plus sign and they had he was dead on the plus sign I knew that these guyson the plus sign I knew that these guyson the plus sign I knew that these guys are serious aboutare serious aboutare serious about math and I had to step up so so Charliemath and I had to step up so so Charliemath and I had to step up so so Charlie would always have the kind of the
Questionerwould always have the kind of the funniest jokes about different things you know lots of great advice over the years one time I was just about to take a flight from New York to LA and his assistant called me I was just about to board and she said Mr manger would like to talk to you and Charlie had not called me before usually she would call me and say you know are you free for dinner here or there whatever but I would I never had like a phone conversation with J so I said okay flano let's see what he wants to talk about and he he had just read one of my letters to investors where I was explaining to them the mistake I made on horse head Holdings which was a company that went to zero and he said to me that I have a concern that you're beating yourself up too much about that loss so he said that we're going to have losses we have to learn from those
Questionerlosses we have to learn from those losses we have to learn from those losses losses losses we have to make sure we don't learn too we have to make sure we don't learn too we have to make sure we don't learn too much and we have to move on and he said much and we have to move on and he said much and we have to move on and he said that I notice in your that I notice in your that I notice in your language you haven't moved on and you language you haven't moved on and you language you haven't moved on and you seem to still be beating yourself about seem to still be beating yourself about seem to still be beating yourself about it so it almost felt to me like a kind it so it almost felt to me like a kind it so it almost felt to me like a kind of a grandfather was calling me and just of a grandfather was calling me and just of a grandfather was calling me and just saying it's okay you know and he didn't saying it's okay you know and he didn't saying it's okay you know and he didn't need to make that call you know I think need to make that call you know I think need to make that call you know I think I think he just that's the kind of I think he just that's the kind of I think he just that's the kind of person he was he was very kind we we person he was he was very kind we we person he was he was very kind we we didn't see the kind Charlie at the M the didn't see the kind Charlie at the M the didn't see the kind Charlie at the M the burshire meetings Etc but behind that burshire meetings Etc but behind that burshire meetings Etc but behind that kind of hard exterior was a very kind kind of hard exterior was a very kind kind of hard exterior was a very kind and soft Soul very very nice kind and and soft Soul very very nice kind and and soft Soul very very nice kind and soft soul and waren is exactly the same soft soul and waren is exactly the same soft soul and waren is exactly the same way I think they both have a little bit way I think they both have a little bit way I think they both have a little bit of a hard exterior to protect themselves of a hard exterior to protect themselves of a hard exterior to protect themselves but if you get if they interacting with but if you get if they interacting with but if you get if they interacting with people that they are kind of in their people that they are kind of in their people that they are kind of in their Inner Circle and there's a lot of trust Inner Circle and there's a lot of trust
OtherInner Circle and there's a lot of trust then you kind of see through that layer then you kind of see through that layer then you kind of see through that layer and you see wonderful Soul really kind and you see wonderful Soul really kind and you see wonderful Soul really kind of uh trying of uh trying of uh trying to you know live a good life do a good to you know live a good life do a good to you know live a good life do a good job and be a good job and be a good job and be a good citizen and also basically you know citizen and also basically you know citizen and also basically you know which we've also seen in the workshop which we've also seen in the workshop which we've also seen in the workshop meetings you know no ego about anything meetings you know no ego about anything meetings you know no ego about anything and till the end so I I had never in all and till the end so I I had never in all and till the end so I I had never in all the 14 years that we had a friendship I the 14 years that we had a friendship I the 14 years that we had a friendship I never actually asked Charlie to meet me never actually asked Charlie to meet me never actually asked Charlie to meet me for dinner or something I never wanted for dinner or something I never wanted for dinner or something I never wanted to impose on him you know I said you to impose on him you know I said you to impose on him you know I said you know basically he's got enough going on know basically he's got enough going on know basically he's got enough going on so I would always just be in reaction so I would always just be in reaction so I would always just be in reaction mode you know like they would call me mode you know like they would call me mode you know like they would call me and say are you free at this time or but and say are you free at this time or but and say are you free at this time or but I in September of this year I actually I in September of this year I actually I in September of this year I actually felt that I want to go see him right so felt that I want to go see him right so felt that I want to go see him right so I basically reached out to the assistant I basically reached out to the assistant I basically reached out to the assistant and say you know I'd like to come and and say you know I'd like to come and and say you know I'd like to come and see see Mr manger and can can you see see see Mr manger and can can you see see see Mr manger and can can you see what date would work for him for us to
Ted Weschlerwhat date would work for him for us to have dinner and she immediately gave me like 3 four dates and I picked one and I went and it turned out that that was our last dinner it was exactly one month before he passed away and even like a month before he passed away basically he was always complaining to me that Berkshire has too much cash we're not able to find anything you know there would be like a constant complaint would come out every time and I I would always tell them you guys always find something you know you keep complaining there's no there's no ideas there's no this no that Apple will happen and Burlington Northern will happen and different things will happen so I said the phone will ring something will happen don't worry about it I was talking to him about some of my recent couple of recent stock ideas and he got very interested in those in
Unknownand he got very interested in those in those talks we had a discussion those talks we had a discussion those talks we had a discussion he was kind of agreeing with my thesis he was kind of agreeing with my thesis he was kind of agreeing with my thesis so I said I want you to read about this so I said I want you to read about this so I said I want you to read about this a little bit more so he said yeah yeah a little bit more so he said yeah yeah a little bit more so he said yeah yeah send it to me I want to read what what's send it to me I want to read what what's send it to me I want to read what what's going on here right and so I had to send going on here right and so I had to send going on here right and so I had to send him stuff in 24 font so the smallest him stuff in 24 font so the smallest him stuff in 24 font so the smallest size that he could read 24 font is huge size that he could read 24 font is huge size that he could read 24 font is huge you know and I was sending him about 50 you know and I was sending him about 50 you know and I was sending him about 50 pages which I think became like 600 pages which I think became like 600 pages which I think became like 600 Pages or something and so probably those Pages or something and so probably those Pages or something and so probably those were some of the last things he read but were some of the last things he read but were some of the last things he read but basically even at that time when he was basically even at that time when he was basically even at that time when he was basically blind he couldn't read because basically blind he couldn't read because basically blind he couldn't read because the books are not at that font size and the books are not at that font size and the books are not at that font size and all of that no complaints you know just all of that no complaints you know just all of that no complaints you know just kind of coasting through everything and kind of coasting through everything and kind of coasting through everything and I was asking him I actually asked him at I was asking him I actually asked him at I was asking him I actually asked him at the dinner I said you know Charlie the dinner I said you know Charlie the dinner I said you know Charlie Bridge went away golf went away going to Bridge went away golf went away going to Bridge went away golf went away going to the office went away a lot of your
Questionerthe office went away a lot of your Mobility went away what bothers you is there anything that bothers you all these things have gone away from your life right
Otherhe said the only thing I wish I had better I wish I had better eyesight you know and so but even then I it's only because I asked him that he brought it up you not complain about it and so basically I think that he truly actually embraced Ben Franklin as a hero we had a lot of discussions about Ben Franklin we had a lot of discussions about Costco Costco would always come up every every time I met him at least 20 minutes would go on Costco like a love of his life and he's always been a Costco shirt and so on so it was it was great so these are some of the some of the memories I have of charie the last one Rick gin I heard about him only when you wrote I have not heard about him so
Questioneryou wrote I have not heard about him so nothing in the public domain pardon
Othernothing in the public domain pardon
Otherthere's not much in public domain on
QuestionerRick kurin yeah Rick Rick actually was a really good guy so you know one time after I got my Ferrari I think first
Otheryou'll need to explain because some of us here also may not know enough about who Rick was
Questioneryeah
Otherso you know we know that Warren and Charlie were Partners actually in many ways there were three of them there was Warren Charlie and Rick guran Rick guran and Charlie Monger were very close friends and they used to kind of share investment ideas and you know look at different things together and so on in the in the 50s and 60s and it was riged who brought up Seas candy to Warren and Charlie and basically that's how they got introduced to the family and then they were basically able to uh you know buy and and even Blue Chip
Questionerand even Blue Chip Stamps was an idea that came through Rick so Rick was a very down to Earth simple straightforward guy in 1973 or 4 when the stock market crashed a lot he had a lot of margin loans and basically the market crash was so extreme that he got a bunch of margin calls and he was forced to sell his Berkshire Hathaway stock to Warren at basically about $40 a share you know the stock that is today at 550,000 per share was at that time $40 a share and Warren brought it up when I met him for lunch basically saying that those are the pitfalls of Leverage you know Warren was saying that you know even if you're a slightly above a average investor you cannot help that get rich over a lifetime if you never employ leverage you know you really can never get hurt basically and and then he gave the example of Roran basically saying that you know he never got to play out his
Questioneryou know he never got to play out his hand because he got these margin calls right and so so basically I think that Rick was able to recover from that bottom later him and Charlie manga together bought Daily Journal and Rick had the majority ownership in Daily Journal and so he did fine I think he was quite wealthy at the time I met him I remember that one time the three of us there were three of us sitting across from Charlie there was me and a guy named Michael a good friend of Charlie's and Charlie had just found out that I owned a Ferrari so he was he was saying listen Mish I know you spur of the moment made a mistake it's okay sell the car okay and it was the only time I never did what Charlie told me right and so I actually told him at that dinner when he was telling me I said you know Charlie I don't think I can do that and he just
Questionerdon't think I can do that and he just let it go he just never said anythinglet it go he just never said anythinglet it go he just never said anything after so then next day we were meetingafter so then next day we were meetingafter so then next day we were meeting with bridge and there three of uswith bridge and there three of uswith bridge and there three of us sitting across from here and Rick Goransitting across from here and Rick Goransitting across from here and Rick Goran had a Ferrari I had a Ferrari and thehad a Ferrari I had a Ferrari and thehad a Ferrari I had a Ferrari and the third guy Michael drove a Rolls Ro rightthird guy Michael drove a Rolls Ro rightthird guy Michael drove a Rolls Ro right and so he looked at the three of us andand so he looked at the three of us andand so he looked at the three of us and said what kind of people do I hang outsaid what kind of people do I hang outsaid what kind of people do I hang out with what kind of people you know andwith what kind of people you know andwith what kind of people you know and Rick was telling me Rick was telling meRick was telling me Rick was telling meRick was telling me Rick was telling me I told Rick listen you know Charlie isI told Rick listen you know Charlie isI told Rick listen you know Charlie is telling me to sell the Ferrari he saidtelling me to sell the Ferrari he saidtelling me to sell the Ferrari he said this ignore and then you know he wasthis ignore and then you know he wasthis ignore and then you know he was saying you know the Ferrari Ferrari andsaying you know the Ferrari Ferrari andsaying you know the Ferrari Ferrari and Rolls-Royce and he he believed heRolls-Royce and he he believed heRolls-Royce and he he believed he believed that his Hyundaibelieved that his Hyundaibelieved that his Hyundai Genesis was the equivalent of a bentryGenesis was the equivalent of a bentryGenesis was the equivalent of a bentry you know he just thought the Hyundaiyou know he just thought the Hyundaiyou know he just thought the Hyundai Genesis was so well made that basicallyGenesis was so well made that basicallyGenesis was so well made that basically it was the a Bentley at a non- Bentleyit was the a Bentley at a non- Bentleyit was the a Bentley at a non- Bentley price right so he loved his his Hyundaiprice right so he loved his his Hyundaiprice right so he loved his his Hyundai and he couldn't understand why everybody
Questionerand he couldn't understand why everybody else would just not buy a Hyundai be happy with it and but I think the interesting thing was that he he also was able to understand right he never really ever brought up the Ferrari with me again and I told him actually when I moved to Texas I actually replaced it with this with the ram because I live in the hills and the Ferrari would kind of bottom out it would hit the bottom and so I said okay we need to get rid of the Ferrari it's too low and so I switched to a Texas car which is much better and small fraction of the price and it's it's worked fine so yeah so Rick was a Rick was a very good down to earth simple guy and I think that the three of them Warren Rick and Charlie they the in my conversations with them it basically to me I think that period was kind of like what we see in Turkey today say that we didn't have
WarrenTurkey today say that we didn't have competition things were cheap nobody was really interested in all these things things are mispriced you could do the research find the deals kind of keep going he that what we have going on today he said it's completely night and day from that situation at at that time and so anyway that was some of the history with Rick Goran and Rick you know the Rick was an interesting guy because he had joined the Los Angeles sheriff's department so at 85 the age of 85 he became a sheriff carrying a gun you know having a uniform and he used to coach soccer till he was past 90 so he was really fit you know was like he was at his high school weight at 90 he was the same weight when he was 18 so very fit guy and very very nice all of them were just very nice down to work people you know no hirs about them it was just great one
Otherno hirs about them it was just great one of my problems is which I'm still in kind of I would say remedial school on it is I'm not able to pay up you know so one of the issues is that we should be willing to pay up for great businesses I have a lot of difficulty with paying them so what ends up happening is I have to find places like turkey where I don't have to pay and then it works or I have to find something where there's something the market has missed you know there's some anomaly that is causing a mispricing and then it can work so yeah I like I said I'm monish p and I'm alcoholic so we it would be I still have a lot of learning to do and one of the learnings I have yet to do is in many many cases it is worth paying up but I can't I think Ferrari for me to go pay up for it at you know four times as price has sold it at would be too painful berkshire's
Questionerit at would be too painful berkshire's market cap would be less than 1% of what it is today so actually and Charlie would not take credit for it but I think even today even today Warren struggles so Warren has you know a very smart guy he's come a long ways he's paid up for a lot of great businesses but he still has U lot of mental blocks at that front right and so for example Charlie was never able to convince him to buy Costco right and many many times I think I think like you know Buffett says that Charlie was the ultimate AB abnormal abonal no man right you'd always say no and I think his big contribution to bsh haway was that Warren would bring up some idea to him and Charlie would run it through a quality filter and so if the business was cheap and not that great whatever else and and he knew they would make money on it he would still tell War don't do it right
Questionerwould still tell War don't do it rightwould still tell War don't do it right we need to just keep the focus on thewe need to just keep the focus on thewe need to just keep the focus on the greatgreatgreat businesses and I think in the end evenbusinesses and I think in the end evenbusinesses and I think in the end even this year's letter buff Buffett saidthis year's letter buff Buffett saidthis year's letter buff Buffett said that right he said 12 12 decisions havethat right he said 12 12 decisions havethat right he said 12 12 decisions have led to most of the value creation ofled to most of the value creation ofled to most of the value creation of Berkshire in 60 years so basically oneBerkshire in 60 years so basically oneBerkshire in 60 years so basically one decision every 5 years was what happeneddecision every 5 years was what happeneddecision every 5 years was what happened and that's one of the good learnings inand that's one of the good learnings inand that's one of the good learnings in the market is that great investmentthe market is that great investmentthe market is that great investment ideas are probably not going to come upideas are probably not going to come upideas are probably not going to come up that often you know they may come upthat often you know they may come upthat often you know they may come up probably if we see them come up every 5probably if we see them come up every 5probably if we see them come up every 5 years or 7even years or something we'reyears or 7even years or something we'reyears or 7even years or something we're doing really well so no manger was notdoing really well so no manger was notdoing really well so no manger was not involved much in the Apple decision Iinvolved much in the Apple decision Iinvolved much in the Apple decision I think that was Ted Wexler who made thethink that was Ted Wexler who made thethink that was Ted Wexler who made the Apple bet initially and then BuffettApple bet initially and then BuffettApple bet initially and then Buffett looked at it and the interesting thinglooked at it and the interesting thinglooked at it and the interesting thing is Ted sold out the positionis Ted sold out the positionis Ted sold out the position and Buffett kept on with it so basicallyand Buffett kept on with it so basicallyand Buffett kept on with it so basically he had an understanding of thathe had an understanding of that
Questionerhe had an understanding of that business because I think that it's consumer Behavior yeah and so Buffett's understanding of consumer behavior is very strong so I think he was able to kind of get there on that front but yeah I mean Charlie's I think contributions B is huge there's no B without Char but he would never say that you know he would never want to take credit for that or say that or any of those things yeah so I was going through your book the dandu investor and you mentioned two three formulas to value a business but I'm sure that is a bit of the entire picture so do you have a particular do you have a particular like framework or something on how to value a business you were did you bring up the like the Kelly formula
Questionerno yeah the Kelly formula and the John B Williams formula the what the John B Williams formula yeah yeah so actually
QuestionerWilliams formula yeah yeah so actually the if I were to do another addition of the dando investor I would take out the Kell formula I think the inclusion of the Kelly formula is a mistake so the Kelly formula really does not apply to investing value investing the way we do it because we don't get the opportunity to make 1,000 BS so for example if heads is 51% and Tails is 49% and you give me 10,000 coin tosses jelly formula is going to tell you how much of your net worth you should bet on each coin toss for optimization right but in the stock market we don't get that approach we I don't get to make the same bet with those odds and I don't actually have as clear a view on those odds John B Williams I think that's just a definition of intrinsic value so that is timeless right so it's just present value all future cash that will come out of a business so that I think that is
Todd Combsof a business so that I think that is always going to be there the difficulty with that is that calculating the number is hard for a lot of businesses it's hard so one of the shortcuts we like to take is that you know calculating the future B future returns and future cash flows can be hard but if for example if a business is valued at you know a billion dollars and we know that next four five years they'll make 500 million a year we don't need to know more than that right we okay so basically the way you can get around John B Williams is that you don't need to calculate it's just so obvious like RAR case it's so obvious we don't need to calculate it in the case of tab airports we don't need to calculate it so uh in fact I think there's a good argument to be made that which even Warren and Charlie talk about that they
QuestionerWarren and Charlie talk about that they basically never run DCF You Know M says that Buffett talks about all the DCFS he's never seen him run one and so actually the correct way to do things is to never run a DCF so that's okay just one more question out of curiosity you said that you went to Turkey and you talked to different businesses so what exactly do you talk about when you
Warrenyeah so what I'm what I'm trying to do when I'm meeting a company for the first time is I'm trying to get a picture in my head of how that business works right so I always I mean if we if we have a Coke botler we know that they have to pay a royalty to cook and we know that they have capex expenses and all of that but they have a very strong brand so basically if you can get the distribution there's a pull the market will pull it and so and we have a lot of models around the world
Todd Combshave a lot of models around the world which tell us what kind of returns those businesses generate so I basically I'm always asking companies how the business Works what the business is all about how it makes money and what I'm trying to figure out in my head is is it something that's easy for me to understand and so my questions are along the lines of just trying to get a understanding of how the business works you know what what makes it take let me see if we can get the last question from someone who hasn't asked yeah please
Questioneryeah actually my question was related to something which you were just mentioning when William Green's book came out you mentioned that you were inspired by what Nick sleep mentioned in in the interview about the flywheel effect and you also wanted to kind of change your uh investment Journey according to that but it seems like
Questioneraccording to that but it seems like that's still a work in progress so well I mean I think I think the one big learning that I got from Nick sleep is that when you identify and have ownership of a great business partial ownership of a great business you're done pretty much you don't need to do anything beyond that right and if you look at Nick sleep's portfolio there are a lot of mistakes but the mistakes really don't matter because the fact that he invested in Amazon drops everything right so it doesn't matter what the rest of the portfolio does that's the nature of investing I mean you could make a 5% bet on a company and you could be wrong on the other 95% of your portfolio and the 5% could become a 100 bagger and the rest won't matter right so that's the the symmetric nature of investing makes that possible and so that's why I think
Questionerthat possible and so that's why I think that if you own a overvalued businessthat if you own a overvalued businessthat if you own a overvalued business which is a great business but appearswhich is a great business but appearswhich is a great business but appears overvalued you should give it a lot ofovervalued you should give it a lot ofovervalued you should give it a lot of room you know which like for exampleroom you know which like for exampleroom you know which like for example when I sold Ferrari Etc so I don't I Iwhen I sold Ferrari Etc so I don't I Iwhen I sold Ferrari Etc so I don't I I actually don't have a problem anymoreactually don't have a problem anymoreactually don't have a problem anymore withh holding a great business at a highwithh holding a great business at a highwithh holding a great business at a high valuation I have made some progress novaluation I have made some progress novaluation I have made some progress no problem with that the problem I have isproblem with that the problem I have isproblem with that the problem I have is paying up for a great business so I havepaying up for a great business so I havepaying up for a great business so I have have to be able forhave to be able forhave to be able for Mish the business has to come inMish the business has to come inMish the business has to come in cheap and after that we are okay but acheap and after that we are okay but acheap and after that we are okay but a lot of great investors are able to likelot of great investors are able to likelot of great investors are able to like for example you know I I talked tofor example you know I I talked tofor example you know I I talked to Charlie about Costco right so I saidCharlie about Costco right so I saidCharlie about Costco right so I said Charlie you you are so madly in loveCharlie you you are so madly in loveCharlie you you are so madly in love with Costco should I buy cost so he saidwith Costco should I buy cost so he saidwith Costco should I buy cost so he said he said if you were running a pensionhe said if you were running a pensionhe said if you were running a pension fund with a you know 40 50e life it isfund with a you know 40 50e life it isfund with a you know 40 50e life it is not a badnot a badnot a bad holding 3 4 5% of the portfolio but forholding 3 4 5% of the portfolio but forholding 3 4 5% of the portfolio but for you Mish no you don't need to buy cost
Todd Combsyou Mish no you don't need to buy cost right and because it's it's a it's a fully priced or even overpriced position and so we actually the investing business is very forgiving even though I have all these imperfections it's still works out you know what I'm saying we have so much suboptimal execution still works okay and we still have things to learn which makes it fun so we'll keep learning and moving along take it from there so
Questionerdurges hi should we move yes thank you so much thank you thank you very much