Mohnish Pabrai's Presentation and Q&A at the Boston College on October 9, 2014 · Transcript · BuffettMungerGPT

Other[Music][Music][Music][Music] goes by pretty quickly and you keep looking better and better so that's good I gotta tell my wife that why don't we why don't we start with the with a slight slight presentation [Music][Music][Music]

QuestionerI would say cloning 101 and just some things I've learned over the years and some things that have actually surprised me so you know for bright funds is a cloned Bond it's it's a replica of the Buffett investment Partnerships and when I started it in 1999 it was 30 years after Buffett ended his partnership and you could probably say even but then till now it's probably one of the most successful hedge funds operations ever in the history of humanity and it was very surprising to me that when I found in 99 when I looked at I couldn't find any examples of any funds that I've replicated the unusual structure of the profit Partnerships

Ted Weschlerstructure of the profit Partnerships things like no management fees only performance fees or reporting once a year not disclosing Holdings and so forth and really focusing on investing if you will and I cloned I cloned as many of those attributes of the Buffett Partnerships when I started for dry funds and I realized only a few years later that each one of those unusual attributes gave gave a rifa funds quite a bit of competitive advantage and even now it's been about more than 15 years since I started it still tends to be true it's not zero but the number of funds or the percentage of funds that are willing to manage capital in this format is a rounding error it's less than one tenth or 100th or one percent it's a very low number I I could count on one hand or maybe two hands at the most the number of funds I know who follow that structure so it's reinforced

Otherfollow that structure so it's reinforced by belief that cloning is very powerful and such and then let's go to the next slide

Other[Music]

Otherand then if you look at the foundation which is the Family Foundation I set up about with my wife about eight years ago and dakshana is also a cloned model and basically so we cloned a guy in terms of here a model called super 30 for sending kids to IIT and we went and cloned that but beyond that what I did is almost everything about the way dakshana is run is taken from Buffett and Monger principles and if I thought that no one in the hedgecon universe was smart enough to follow the profit Partnerships I think the non-profit world is so much more I would say unwilling to clone so dakshana follows some very core principles of prophet and mangana I'll just highlight some of those because that is the way

Questionersome of those because that is the way non-profits should be run but it is not the way they are run and again the end result is that we look so good because they are compared to all these yoyos and it just makes them look that much better so one of these Buffet principles or non-profits is that non-profits ought to narrow their focus on one or two well-defined causes because you're taking on unlike making money when you're trying to kind of improve the world it's a much more difficult challenge so to have any chance of success at all you want to concentrate on your resources into at the most one or two focused directions and most non-profits aren't willing to do that back of all trades then the second is that when you have endowments within non-profits where they've got a lot of money like the Ford Foundation or Rockefeller foundation and so on then

OtherRockefeller foundation and so on then when those assets get invested monger'swhen those assets get invested monger'swhen those assets get invested monger's belief is that any and even about thatbelief is that any and even about thatbelief is that any and even about that monger's belief is that those assets inmonger's belief is that those assets inmonger's belief is that those assets in our non-profit found endowment should beour non-profit found endowment should beour non-profit found endowment should be extremely concentrated and when manyextremely concentrated and when manyextremely concentrated and when many means by extremely concentrated he saidmeans by extremely concentrated he saidmeans by extremely concentrated he said that 90 plus percent of it were in onethat 90 plus percent of it were in onethat 90 plus percent of it were in one stock that's perfectly finestock that's perfectly finestock that's perfectly fine and and there are I'm actually not awareand and there are I'm actually not awareand and there are I'm actually not aware of any non-profits other than maybe aof any non-profits other than maybe aof any non-profits other than maybe a few that were set up with Founders talkfew that were set up with Founders talkfew that were set up with Founders talk and there was some kind of mandate fromand there was some kind of mandate fromand there was some kind of mandate from the founder that they couldn't sell itthe founder that they couldn't sell itthe founder that they couldn't sell it but even they're not aware of any thatbut even they're not aware of any thatbut even they're not aware of any that have limited remained focused andhave limited remained focused andhave limited remained focused and concentrated in one or two Securitiesconcentrated in one or two Securitiesconcentrated in one or two Securities and monger's reason for saying that heand monger's reason for saying that heand monger's reason for saying that he says that first of all anyway when yousays that first of all anyway when yousays that first of all anyway when you embark on trying to change the worldembark on trying to change the worldembark on trying to change the world it is a very high risk activity with ait is a very high risk activity with ait is a very high risk activity with a high failure rate because the odds thathigh failure rate because the odds thathigh failure rate because the odds that you're going to be able to do that are

Questioneryou're going to be able to do that are

Questioneryou're going to be able to do that are low so you want to basically in effect

Questionerlow so you want to basically in effect

Questionerunlike investing you want to in the case

Questionerunlike investing you want to in the case of a non-profit swing for the fences and

Questionerof a non-profit swing for the fences and

Questionerof a non-profit swing for the fences and you want to swing for the fences in a

Questioneryou want to swing for the fences in a

Questioneryou want to swing for the fences in a very Major Way

Questionervery Major Way

Questionervery Major Way and part of The Swinging for the fences

Questionerand part of The Swinging for the fences

Questionerand part of The Swinging for the fences is one is you pick up

Questionerthe second way you swing to the fences

Questionerthe second way you swing to the fences is

Questioneris

Questioneris everything into your absolutely best

Questionereverything into your absolutely best

Questionereverything into your absolutely best investment like best investment idea

Questionerinvestment like best investment idea

Questionerinvestment like best investment idea so that you can maximize returns and so

Questionerso that you can maximize returns and so

Questionerso that you can maximize returns and so you can basically hit the ball as as far

Questioneryou can basically hit the ball as as far

Questioneryou can basically hit the ball as as far out of the park as possible and the

Questionerout of the park as possible and the

Questionerout of the park as possible and the counter to that is that if it doesn't

Questionercounter to that is that if it doesn't

Questionercounter to that is that if it doesn't work out let's say for example you put

Questionerwork out let's say for example you put

Questionerwork out let's say for example you put all one stock and that stock goes to

Questionerall one stock and that stock goes to

Questionerall one stock and that stock goes to zero the thing is let's say for example

Questionerzero the thing is let's say for example

Questionerzero the thing is let's say for example you're trying to find a

Questioneryou're trying to find a

Questioneryou're trying to find a Ebola or some virus like that that's

QuestionerEbola or some virus like that that's

QuestionerEbola or some virus like that that's swinging for the fences and that you may

Questionerswinging for the fences and that you may

Questionerswinging for the fences and that you may put tens of millions into that and it

Questionerput tens of millions into that and it

Questionerput tens of millions into that and it may go to zero as well so Buffett Buffet

Questionermay go to zero as well so Buffett Buffet

Questionermay go to zero as well so Buffett Buffet manga's perspective is that you want to

Othermanga's perspective is that you want to truly on all fronts with a non-profit to listen for the fences so pick one cause and put everything in one stock and that's what dakshana has done is we've we've identified and we obviously we've cloned someone else's model so that gave us a plenty of cover for the rest of it I've always been willing to to swing for the fences and one thing about dakshana is that because we decided we would give up like my wife and I said we'd give up two percent of our net worth every year so if you put everything in one stock and that stock went to zero all that would mean is that here we couldn't do anything more and next year again we'd have two percent of assets and then kind of get going again just the way we set up we we think we don't have a situation where it would terminate no matter what decisions we took so again what I found

Otherdecisions we took so again what I found is that they were of today there are ais that they were of today there are ais that they were of today there are a few cloners on the public fund perfect model if you will I have run into almost no cloners in fact I know of no non-profits that are embracing those prophet and manga principles in that mail and truly swinging for the fences and and they ought to but they aren't and then if you come to my latest and then if you come to my latest and then if you come to my latest Venture tando which is a holding company Venture tando which is a holding company Venture tando which is a holding company I set up for a year ago we raised about I set up for a year ago we raised about I set up for a year ago we raised about 150 million from a number of investors 150 million from a number of investors 150 million from a number of investors in the first quarter of this year and in the first quarter of this year and in the first quarter of this year and we've agreed to acquire an insurance we've agreed to acquire an insurance we've agreed to acquire an insurance company a privately have an insurance company a privately have an insurance company a privately have an insurance company and we hope to finish the company and we hope to finish the company and we hope to finish the acquisition before the end of the year acquisition before the end of the year acquisition before the end of the year and so dando is a is designed to be and and so dando is a is designed to be and and so dando is a is designed to be and eventually we'll make it public so that eventually we'll make it public so that eventually we'll make it public so that the the investors can they want to cash the the investors can they want to cash the the investors can they want to cash out they can sell stock and we end up out they can sell stock and we end up out they can sell stock and we end up with a permanent Capital vehicle because

Otherwith a permanent Capital vehicle because these companies that we intend to acquire we don't intend to ever sell them so it's not like private Equity it would be kind of buy and hold forever like Berkshire or Fairfax and such and so dando again is a cloned idea I looked at Berkshire Hathaway and I look at looked at Fairfax financial and looked at Markel and so on and I was intrigued by the idea of being able to make investments in asset classes other than stocks because all public funds can do is invest in stocks and the idea of owning entire businesses and then replicating that aspect of the Buffett model which is you buy businesses and you leave them alone delegation to the point of application I found that was again not being applied not being cloned very much and I thought that model had some legs and so I thought I'd give it a try and well it's

Questionerthought I'd give it a try and well it's dawned on me relatively recently it didn't even dawn on me when I set up it really dawned on me I would say probably three or four months ago but there are about 3 000 Casualty Company companies in the United States collectively they take in about 550 billion a year in premiums so it's a sizeable industry but the out of the 3000 companies the number of companies that follow the Berkshire Hathaway model of running an insurance company and running float and investing in equities and all of that that whole model of running an insurance company it was really surprising for me to find is replicated at all I would say once you get past the Berkshires and health and Fairfax of the world I've looked at insurance company after insurance company and what I find is that the if they are really good at insurance which

Warrenthey are really good at insurance which many of them are and many of them aren't but the ones who are really good in short they tend to have absolutely no understanding of the investment side and and in looking back I guess it makes sense because the two disciplines are so different from each other that typically the skills you need to be a great underwriter or great operator on the insurance side are not really that useful on the investment side and so typically the companies that have the great operators on the insurance side have no clue what to do on the investment side and they tend to go institutional or they tend to sit in treasuries or they just kind of sell fixed income and what you really have to do which is so hard for these companies to do is you have to take a non-institutional approach to asset management or investment management

Charlieinvestment managementinvestment management at all institutional approach means thatat all institutional approach means thatat all institutional approach means that you need to identifyyou need to identifyyou need to identify and find elusive the way Geico did andand find elusive the way Geico did andand find elusive the way Geico did and then give the entire Investmentthen give the entire Investmentthen give the entire Investment Portfolio to do something and then tellPortfolio to do something and then tellPortfolio to do something and then tell them card blocks do whatever you wantthem card blocks do whatever you wantthem card blocks do whatever you want and no one's going to look over yourand no one's going to look over yourand no one's going to look over your shoulders and so the there are two orshoulders and so the there are two orshoulders and so the there are two or three skills needed to do that one isthree skills needed to do that one isthree skills needed to do that one is the biggest stumbling block would be anthe biggest stumbling block would be anthe biggest stumbling block would be an ability to identifyability to identifyability to identify a person like Lou Simpson which would bea person like Lou Simpson which would bea person like Lou Simpson which would be very hard to do I think Warren Buffettvery hard to do I think Warren Buffettvery hard to do I think Warren Buffett is extremely good at that so most ofis extremely good at that so most ofis extremely good at that so most of these companies have no abilityand the second is that after youand the second is that after youand the second is that after you identify New Simpson you've got to takeidentify New Simpson you've got to takeidentify New Simpson you've got to take a non-institutional approach and givea non-institutional approach and givea non-institutional approach and give that person full freedomthat person full freedomthat person full freedom again that's really hard to do in a kindagain that's really hard to do in a kindagain that's really hard to do in a kind of very regulated and cut and dryof very regulated and cut and dryof very regulated and cut and dry industry like Insurance where we handsindustry like Insurance where we handsindustry like Insurance where we hands off if you willoff if you willoff if you will and and so when I formed tando I wasand and so when I formed tando I was

Otherand and so when I formed tando I was thinking that we would buy privatethinking that we would buy privatethinking that we would buy private assets or making the assets investmentsassets or making the assets investmentsassets or making the assets investments in stocksin stocksin stocks we might even invest in real estate Etcwe might even invest in real estate Etcwe might even invest in real estate Etc my thinking has actually evolved to bemy thinking has actually evolved to bemy thinking has actually evolved to be much more focused on the insurancemuch more focused on the insurancemuch more focused on the insurance industry and the reason is becauseindustry and the reason is becauseindustry and the reason is because there's such a large amountthere's such a large amountthere's such a large amount of assets and companies that have such aof assets and companies that have such aof assets and companies that have such a such a poor approach to investing thatsuch a poor approach to investing thatsuch a poor approach to investing that it truly add value when when Thunderit truly add value when when Thunderit truly add value when when Thunder acquires them because I would leave themacquires them because I would leave themacquires them because I would leave them alonealonealone on the insurance side and that they goon the insurance side and that they goon the insurance side and that they go managing the Investments and and so Imanaging the Investments and and so Imanaging the Investments and and so I just wanted to illustrate that basicallyjust wanted to illustrate that basicallyjust wanted to illustrate that basically you've got these three quite differentyou've got these three quite differentyou've got these three quite different operations all cloned in different waysoperations all cloned in different waysoperations all cloned in different ways and all cloned from Buffett and mangaand all cloned from Buffett and mangaand all cloned from Buffett and manga and I would find I would say that theand I would find I would say that theand I would find I would say that the number of people who are willing to donumber of people who are willing to donumber of people who are willing to do value investing itself is a small numbervalue investing itself is a small numbervalue investing itself is a small number very small number but it is a reallyvery small number but it is a really

Questionervery small number but it is a really huge number compared to the number of insurance companies that have embarked on the Berkshire model all the number of non-profits that have taken a queue for Buffett and manga and so what I found is that as I've gone if you will deeper into the cloning on Buffett and Munger I found that the field is completely open it's I still find even on the investing side is completely open but you still at least have a sliver of intelligent life and I would say in these other areas there's hardly everything in non-profit World close to zero intelligent life and on even on the thando side we haven't released run into real competitors on that front in terms of people who are truly willing to leave managements alone to run the investment Insurance business and then run the Investments and so on just wanted to share that and then want

Questionerjust wanted to share that and then want to switch gears a little bit and a little bit about Farmland in Iowa and I think arvind's wife is from from these parts in rural Illinois or was she from Iowa Illinois close enough this is close to what within 10 miles of our house looks like so anyway if you look at the average price per acre of Iowa farmland and this is not inflation adjusted or anything from 1950 to 2013. you see a big jump that's actually not in one year it was about five thousand an acre 2010 and it's about 8 700 an acre in 2013. and you can see long periods of hardly any movement between let's say 1980 and 2000 we were approximately a 10 drop in land prices and even from 1950 to 1970 you don't see much of a rise these are these are the prices per year of the value per acre and again you can see the 2010 is five thousand an acre in 2013 with 8700 we

Questionerthousand an acre in 2013 with 8700 we can see how it's evolved from 1980 and if you look at these are rents so if you owned a farm and you wanted to rent it out so I just wanted to focus on the left hand side which is the cropland cropland rent per acre and you can see like in 2014 it's 260 an acre and in 2013 it's 255 an acre and so on and then you can see there's one column which is three two columns over which is rent as a percentage of value and you can see that in 2014 it's about three percent and in 2010 it's four percent so it's moved between three percent and at the most six and a half percent of the value of the of the land and the reason I'm showing you all this is that if someone were to buy or rent buy or rent Iowa Farmland they're only doing it mainly for one reason and that is that they intend to farm that land they intend to farm that land and they intend to grow either corn or

Warrenand they intend to grow either corn or soybeans and sell that corner so and the soybeans and sell that corner so and the soybeans and sell that corner so and the corner soybean Market is a commodity market and so the buyers know what market and so the buyers know what market and so the buyers know what present prices of corn and soybean are present prices of corn and soybean are present prices of corn and soybean are they know what the historical prices are they know what the historical prices are they know what the historical prices are they know what the inputs are in terms they know what the inputs are in terms they know what the inputs are in terms of land fertilizer labor Capital of land fertilizer labor Capital of land fertilizer labor Capital machinery and so on and you've also got machinery and so on and you've also got machinery and so on and you've also got variables that you don't control you variables that you don't control you variables that you don't control you don't control weather which can go all don't control weather which can go all don't control weather which can go all over the place we also don't control over the place we also don't control over the place we also don't control supply and demand the selling price of supply and demand the selling price of supply and demand the selling price of the crops can change you also don't the crops can change you also don't the crops can change you also don't fully control the price of fertilizer fully control the price of fertilizer fully control the price of fertilizer and even that can that can move around and even that can that can move around and even that can that can move around so when these transactions take place so when these transactions take place so when these transactions take place when people buy Iowa farmland or when when people buy Iowa farmland or when when people buy Iowa farmland or when they rent Iowa farmland they rent Iowa farmland they rent Iowa farmland these are negotiated transactions these are negotiated transactions these are negotiated transactions between an intelligent buyer and an between an intelligent buyer and an between an intelligent buyer and an intelligent salary intelligent salary intelligent salary and because you have a negotiated and because you have a negotiated and because you have a negotiated transaction between the intelligent

Warrentransaction between the intelligent buyer and seller and your underlying asset is a productive asset so these are not Rembrandt these are not Ferrari these are productive assets being traded between an intelligent buyer an intelligent seller there the buyer has to do an analysis over the next some Viewpoint over the next 10 20 30 years what top prices are going to be like and what kind of profits you can he or she can make from the land and then based on all of that they'll make an offer and then if they buy and sell a degree then you have a deal and then you end up with these prices so this is quite different from the way stock markets work look at these the rents that are being charged you don't see much movement from year to year you can see 2007 it's 150 an acre that goes to 170 which is like about what 12 to 13 then it hardly moves

Otherabout what 12 to 13 then it hardly moves about three percent to 175 and and so onabout three percent to 175 and and so onabout three percent to 175 and and so on and so those movements are and evenand so those movements are and evenand so those movements are and even though I'm not showing monthly prices orthough I'm not showing monthly prices orthough I'm not showing monthly prices or daily prices if you want to chart evendaily prices if you want to chart evendaily prices if you want to chart even the monthly or daily you will not seethe monthly or daily you will not seethe monthly or daily you will not see much gyration there'll be a fairlymuch gyration there'll be a fairlymuch gyration there'll be a fairly smooth curve in terms of how thesesmooth curve in terms of how thesesmooth curve in terms of how these prices move and when we get to stockprices move and when we get to stockprices move and when we get to stock markets then stock markets don't operatemarkets then stock markets don't operatemarkets then stock markets don't operate this way because those are those arethis way because those are those arethis way because those are those are auction driven marketsauction driven marketsauction driven markets foreigna spreadsheet which has about 13 ora spreadsheet which has about 13 ora spreadsheet which has about 13 or thousand ticker symbols one tickerthousand ticker symbols one tickerthousand ticker symbols one ticker symbol per row of the spreadsheet andsymbol per row of the spreadsheet andsymbol per row of the spreadsheet and then he's going to go to a websitethen he's going to go to a websitethen he's going to go to a website called random.orgcalled random.orgcalled random.org

Other[Music][Music][Music] so what we areso what we areso what we are [Music][Music][Music] stocks I'm not I don't even know whatstocks I'm not I don't even know whatstocks I'm not I don't even know what stock is going to be no idea and we'restock is going to be no idea and we'restock is going to be no idea and we're just going to look at kind of what thejust going to look at kind of what thejust going to look at kind of what the price movement on that stocks been andprice movement on that stocks been andprice movement on that stocks been and this could be a stock in any part of thethis could be a stock in any part of thethis could be a stock in any part of the world so this stock is in the U.S it's

Questionerworld so this stock is in the U.S it's particular yeah ticker pke he is in Paul K is in King he is an elephant and it's the company name is Park electrochemical Corp okay I've never heard of this company maybe arvind has maybe owns in his portfolio all right so basically if we look at let's say that I'm just looking at I pulled up Google Finance so you can pull up whatever website you want which you prefer arvind which has we'll use the same as you okay I'm just looking at Google Finance and you can see that the 52-week range on this stock is like from 19 to 32 okay and maybe if one of you has a calculator if you take the bottom to the top how much more than the top is the more is the top from the bottom is it is like 50 55 68 okay so you know basically if you bought at the bottom somehow you knew that at the bottom with this random company and you sold at the

Otherthis random company and you sold at the top within 12 months you'd have 68 then if I look at five years I'm looking at the five-year chart on this thing and the lowest price seems to be around twenty dollars it probably is that 19 price and the highest price any seems to be what 34 so we have about 70 or so movement and if you see that chart I'm gonna see the chart for all years from the beginning yeah so if you if you see the chart from this is going from 1978 onwards you can see really from kind of 93 or 94 onwards it's fairly choppy it just goes up and down all over the place and and then you can see actually in probably in doing that.com boom this thing went from 15 bucks to 50 bucks in a few months and such so anyway let's pull up another symbol arvind let's run the generator again sounds great mirror on the wall

Otherthat translates into

Otherthat translates into a company called Premier gold mines Limited in Toronto ticker PG dot po okay so here we see a one-year range between a dollar 28 and 3.52 cents and what is how high is that what is the percentage that the high is high above the low so it's a 226 it's almost 200 percent over the thing and if you look at so again you've got massive swing within a year and then if you look at a five-year range on this thing it's all the way home eight dollars to a dollar forty five so again this is not anything like Iowa farmland and you're seeing all these wide swings and one of the big reasons you see these swings of course they are probably Gold Miner and they're probably tied to the gold price and whatever people think is happening but again another part of this whole thing is that it's not negotiated transaction it's auction driven markets so let's

Otherit's auction driven markets so let's pick another one

Other[Music]that translates into a company in Singapore called communication design International Limited s h t s i

Otheroh excuse me I think that's a five so five HT okay this is also a nano cap or something but let's see what's going on here

Otherall right I think one year what's the one year range on this

Otherright market cap of 34 million yeah so it's now here you've got some three cents to 15 cents so you know 5x Delta in a year and if you look at five years it's gone up to it looks very close to an all-time high here

Other14 cents to like two two cents to 14 cents

Otheraccording to Google it's it's at eight times p it might be a great buy

Other[Laughter]

Othermaybe you can buy it for your fund maybe and then if you look at the all-time range from 2006 you can see from two cents to 45 cents or something and so anyway I think we could do this for a

Questioneranyway I think we could do this for a long time but the bottom line is that these picks aren't value picks they're random pick and what tends to happen when you're doing value investing is you'll tend to buy things when they are in general cheap and you might even be getting them closer to the bottom of the 52-week range because you've been looking if you've been looking at for a while it may be that finally gets the point that it's cheap and one of the one of the advantages you get with value investing is that just because of this natural wider swing in this asset class you can so if you were an investor and you were limited to only buying Iowa farmland and that was the only asset class you could buy and sell or do options whatever else you basically would be screwed because you saw what that chart looked like and you

Warrensaw what that chart looked like and you can do fine if you're a farmer and such though people are buying today that our Farmland may not do so well or might be good to rent today because you're getting it pretty cheap if you rent it so basically these these stock market based assets that you're buying are really completely and uniquely different from any other asset they're very different from buying whole businesses they're very different from buying cars they're very different from buying real estate they're very different from pretty much any other asset class you can do and it's because you're not dealing with face to face with face to face when you do intelligent buyer facing intelligence seller you will tend to get more more times than not pretty rational pricing sometimes you can get Distortion like in 2008 2008 early 2009 even private assets

Questioner2008 2008 early 2009 even private assets would get undervalued because people are would get undervalued because people are would get undervalued because people are just freaked out or need cash or just freaked out or need cash or just freaked out or need cash or something but in most circumstances you something but in most circumstances you something but in most circumstances you won't get that with negotiated won't get that with negotiated won't get that with negotiated transactions but you can always almost transactions but you can always almost transactions but you can always almost always find that in equity markets always find that in equity markets always find that in equity markets because of these swings that are going because of these swings that are going because of these swings that are going on companies are going through all sorts on companies are going through all sorts on companies are going through all sorts of things like today the today I think I of things like today the today I think I of things like today the today I think I didn't check but how much was the DOW didn't check but how much was the DOW didn't check but how much was the DOW down today I went okay yeah so the over 300 points and so okay yeah so the over 300 points and so okay yeah so the over 300 points and so all kinds of businesses got marked down all kinds of businesses got marked down all kinds of businesses got marked down and they used to give the example in and they used to give the example in and they used to give the example in fact I'll take a look here there's a fact I'll take a look here there's a fact I'll take a look here there's a company called the Service Corp the man company called the Service Corp the man company called the Service Corp the man can see that Service Corp with Arvin can see that Service Corp with Arvin can see that Service Corp with Arvin pulls it up it's got it dropped two pulls it up it's got it dropped two pulls it up it's got it dropped two percent in price today and this is the percent in price today and this is the percent in price today and this is the company that varies dead people company that varies dead people company that varies dead people and they're in the funeral services and they're in the funeral services and they're in the funeral services business whatever caused the market to business whatever caused the market to business whatever caused the market to go down Urban what caused the market to

Questionergo down Urban what caused the market to go down

QuestionerI have no idea

Warrengo down I have no idea

Warrenanyone else want to take a crack on what happened that caused the market to go down today

Warrenyou know how these commentators have a one sentence answer like I heard earlier today on CNBC that and maybe I don't know if this was the reason why I just caught a sound bite where they were concerned about draghi Mario draghi and they said that people are concerned that the emperor has no clothes maybe they're questioning his ability to actually do things in Europe so I don't know what what happened but something George at the market I have no idea what happened but whatever jolted the market it did not increase

Warrennot increase

Warrenhuman life expectancy did it increase human life expectancy today

Warrenany of you can answer did we have any change in the way humans take care of their dead today

OtherI don't know

Otherabout fewer people died

Otheryou think fewer people died Urban do we

Otherhave Ebola on the screen or not on the

OtherTV nowadays

Otherokay so basically you look at something

Otherlike Service Corp so whenever there you

Otherhave these big up and downs and the Dao

Othera Service Corp or a private business and

Otherthey were negotiating some of the

Otherbusiness and they have been negotiating

Otherand yesterday they agreed to some price

Otherand then today the buyer comes and said

Otherlisten the Dow dropped 300 points so I

Otherneed to drop your pop your price by two

Otherpercent so the seller would tell them go

Othertake a hike they're not concerned with

Otherall that and so you can see that you

Otherhave these swings taking place and today

Otheris a good example where everything gets

Othermarked down

Otherand service copy is just an example an

Otherextreme example of a company which is

Otherjust bearing dead people or cremating

Questionerjust bearing dead people or cremating dead people and what a wonderful business to be in and why should they have any impact whatsoever on their on their business valuation because of today but it did and in fact even if you look at service call I'll just pull up the like the one year one year range on the this thing so if you look at the one-year range on this it's like from 17 to 23 dollars again that's a fairly large range for a company that is doing something as benign as bearing dead people and if you look at it 10 years over 10 years this thing has gone from I don't know like two two dollars or three dollars all the way up to 20. 23 and their business in fact the funny thing is it went down a lot during the financial crisis you see that chart during the financial crisis in 2008 yeah okay did people stop dying then did they have more heart attacks at that

Otherdid they have more heart attacks at that time or less heart attacks like the time or less heart attacks like the time or less heart attacks like the human mortality change at that time what happened there nothing happened and neither did they have margins or anything else so you can see what's happening and this would not be the chart if we had a chart of private transactions of buying and selling of funeral homes this would not be the chart that would show up that'd be a completely different charge so those are my kind of remarks I wanted to make and we can talk about anything you have in mind now

Otheryeah I think that's a good question I think that I had exit interviewed everyone who was at that lunch after the lunch we didn't have any recording devices and none of us took any notes while we were at the lunch and I wanted to capture as much of it as I could and I made some notes after talking to everyone we actually covered

Questionertalking to everyone we actually covered about 54 different topics a wide range of topics over three hours and with Warren there isn't much that's not in the public domain and I don't think he he told us much that we couldn't have found somewhere else but what the lunch did for me it helped me calibrate and understand better what is really important to him and this kind of way he thinks about it and a few things that kind of stood out is is one is this discussion that we had with him about the inner score card versus Auto scorecard and he even he mentioned at the lunch that it wasn't out then but it was about to be released and Alice showed us biography so if you read her biography you can find a bit of a write-up on that front and he said would you like to be the greatest lover in the world but known as the worst or the worst lover in the

Otherthe worst or the worst lover in thethe worst or the worst lover in the world and one of the greatest and heworld and one of the greatest and heworld and one of the greatest and he said if you know how to answer thatsaid if you know how to answer thatsaid if you know how to answer that question you've got it made so what whatquestion you've got it made so what whatquestion you've got it made so what what became clear is that Warren clearlybecame clear is that Warren clearlybecame clear is that Warren clearly marches to his own drummer and to a verymarches to his own drummer and to a verymarches to his own drummer and to a very large extent he does not care what thelarge extent he does not care what thelarge extent he does not care what the world thinks and so he is he is veryworld thinks and so he is he is veryworld thinks and so he is he is very willing to take a stand which iswilling to take a stand which iswilling to take a stand which is unconventional which is even unpopularunconventional which is even unpopularunconventional which is even unpopular and he doesn't really care about theand he doesn't really care about theand he doesn't really care about the impacts are and just one example wouldimpacts are and just one example wouldimpacts are and just one example would be you know the way you know he's a guybe you know the way you know he's a guybe you know the way you know he's a guy in the midwest but he has a wife and ain the midwest but he has a wife and ain the midwest but he has a wife and a mistress for decades and and he's in themistress for decades and and he's in themistress for decades and and he's in the public eye and it's an irrelevant datapublic eye and it's an irrelevant datapublic eye and it's an irrelevant data point for him as to what people wouldpoint for him as to what people wouldpoint for him as to what people would think of it or make of it so that is thethink of it or make of it so that is thethink of it or make of it so that is the person whose inner scorecard and I thinkperson whose inner scorecard and I thinkperson whose inner scorecard and I think in investing that is very importantin investing that is very importantin investing that is very important because you want to have independence ofbecause you want to have independence ofbecause you want to have independence of thought so typically when you're makingthought so typically when you're making

Questionerthought so typically when you're making Investments they will tend to be theInvestments they will tend to be theInvestments they will tend to be the value investor they tend to achievevalue investor they tend to achievevalue investor they tend to achieve usually they tend to achieve for ausually they tend to achieve for ausually they tend to achieve for a particular reason and that reason isparticular reason and that reason isparticular reason and that reason is probably believed by lots of people andprobably believed by lots of people andprobably believed by lots of people and so you're in effect taking a contrarianso you're in effect taking a contrarianso you're in effect taking a contrarian View and so you need to have convictionView and so you need to have convictionView and so you need to have conviction in thosein thosein those so that was that was one thing theso that was that was one thing theso that was that was one thing the second is that when we when we talk tosecond is that when we when we talk tosecond is that when we when we talk to him about I asked him I asked him ahim about I asked him I asked him ahim about I asked him I asked him a question about Rick Goran because atquestion about Rick Goran because atquestion about Rick Goran because at that timethat timethat time I hadn't heard about Rick Curren inI hadn't heard about Rick Curren inI hadn't heard about Rick Curren in several decades after the 70s and I knewseveral decades after the 70s and I knewseveral decades after the 70s and I knew that he offered and worn and brick werethat he offered and worn and brick werethat he offered and worn and brick were close and there was only the two of themclose and there was only the two of themclose and there was only the two of them who were Partners so I just asked Warrenwho were Partners so I just asked Warrenwho were Partners so I just asked Warren hey what happened to Rick Warren and hehey what happened to Rick Warren and hehey what happened to Rick Warren and he converted almost any question into aconverted almost any question into aconverted almost any question into a learning opportunity and he the way helearning opportunity and he the way helearning opportunity and he the way he answered the question was I explainedanswered the question was I explainedanswered the question was I explained how Rick was levered going into the bighow Rick was levered going into the big

Otherhow Rick was levered going into the big downturn in stock prices in 7374 anddownturn in stock prices in 7374 anddownturn in stock prices in 7374 and because he was levered he got modernbecause he was levered he got modernbecause he was levered he got modern calls and such and he got squeezed andcalls and such and he got squeezed andcalls and such and he got squeezed and he actually was forced to sell his Bluehe actually was forced to sell his Bluehe actually was forced to sell his Blue Chip stamp and Berkshire shares do likeChip stamp and Berkshire shares do likeChip stamp and Berkshire shares do like Sequoia front and Buffett at the priceSequoia front and Buffett at the priceSequoia front and Buffett at the price at that time which were nothing I thinkat that time which were nothing I thinkat that time which were nothing I think he sold Berkshire stock at forty dollarshe sold Berkshire stock at forty dollarshe sold Berkshire stock at forty dollars a share to work or something like thata share to work or something like thata share to work or something like that and and then Warren went one stepand and then Warren went one stepand and then Warren went one step further he said that you Charlie and Ifurther he said that you Charlie and Ifurther he said that you Charlie and I always knew that we were going to getalways knew that we were going to getalways knew that we were going to get very rich but we weren't in a hurryvery rich but we weren't in a hurryvery rich but we weren't in a hurry and Rick was in a hurryand Rick was in a hurryand Rick was in a hurry and then he went even one step furtherand then he went even one step furtherand then he went even one step further than that he said that if you are even athan that he said that if you are even athan that he said that if you are even a slightly above average investorslightly above average investorslightly above average investor and you spend less than you are youand you spend less than you are youand you spend less than you are you cannot help but get wealthy over acannot help but get wealthy over acannot help but get wealthy over a lifetime and you can clearly see thatlifetime and you can clearly see thatlifetime and you can clearly see that this is front and center very importantthis is front and center very importantthis is front and center very important award so Warren is not interested inaward so Warren is not interested in

Questioneraward so Warren is not interested in swinging for the fences on the investingswinging for the fences on the investingswinging for the fences on the investing side he wants to make sure the downsideside he wants to make sure the downsideside he wants to make sure the downside is well protected he definitely does notis well protected he definitely does notis well protected he definitely does not want to use a lot of debt and such andwant to use a lot of debt and such andwant to use a lot of debt and such and and we know that all those things areand we know that all those things areand we know that all those things are worn from the public domain but what itworn from the public domain but what itworn from the public domain but what it seared it in for me that he could haveseared it in for me that he could haveseared it in for me that he could have run Berkshire in a mannerrun Berkshire in a mannerrun Berkshire in a manner that would havethat would havethat would have ended up with a stock price even two orended up with a stock price even two orended up with a stock price even two or three times where it is todaythree times where it is todaythree times where it is today but that isn't the important thing forbut that isn't the important thing forbut that isn't the important thing for him the important thing for him is to tohim the important thing for him is to tohim the important thing for him is to to finish first you have to first finishfinish first you have to first finishfinish first you have to first finish and and so he he took the patientand and so he he took the patientand and so he he took the patient Teddy route and that's a very importantTeddy route and that's a very importantTeddy route and that's a very important lesson for investors is is to take alesson for investors is is to take alesson for investors is is to take a very patient and steady route and I justvery patient and steady route and I justvery patient and steady route and I just wanted to highlight that in the conceptwanted to highlight that in the conceptwanted to highlight that in the concept context of something I ran into recentlycontext of something I ran into recentlycontext of something I ran into recently and arvind we know this but Fidelityand arvind we know this but Fidelityand arvind we know this but Fidelity recentlyrecentlyrecently did a study of which brokerage accountsdid a study of which brokerage accounts

Questionerdid a study of which brokerage accounts at Fidelity performed the best and maybeat Fidelity performed the best and maybeat Fidelity performed the best and maybe arvind has more color and they theyarvind has more color and they theyarvind has more color and they they studied a little bit of brokeragestudied a little bit of brokeragestudied a little bit of brokerage accounts and there were these two peopleaccounts and there were these two peopleaccounts and there were these two people who were talking about the Jameswho were talking about the Jameswho were talking about the James and another guy and then the other guyand another guy and then the other guyand another guy and then the other guy was joking yeah it was the people whowas joking yeah it was the people whowas joking yeah it was the people who were dead whose accounts were found thewere dead whose accounts were found thewere dead whose accounts were found the best and then James was talking as hebest and then James was talking as hebest and then James was talking as he said no that's close it was the peoplesaid no that's close it was the peoplesaid no that's close it was the people who had forgotten that they had accountswho had forgotten that they had accountswho had forgotten that they had accounts of fidelity so when they looked at theof fidelity so when they looked at theof fidelity so when they looked at the performance of these different brokerageperformance of these different brokerageperformance of these different brokerage accounts that had stocks in them theaccounts that had stocks in them theaccounts that had stocks in them the ones that performed the best were theones that performed the best were theones that performed the best were the ones that had absolutely no activity forones that had absolutely no activity forones that had absolutely no activity for a very long period of time which meansa very long period of time which meansa very long period of time which means they were people had picked a few stocksthey were people had picked a few stocksthey were people had picked a few stocks and then these guys just forgot theyand then these guys just forgot theyand then these guys just forgot they even had that account and in the endeven had that account and in the endeven had that account and in the end those accounts performed the best thatthose accounts performed the best thatthose accounts performed the best that just shows you how much how good brain

Questionerjust shows you how much how good brain power does for you in investing and so there's a tremendous lesson in what Buffett is saying into the tremendous lesson in that Fidelity study though the number one skill that you can bring to bear in investing is patience extreme patience and you even if you go back and look at stocks you bought five years ago or ten years ago and you may have sold them just look at how they've done and many of them would have done vastly better than you would have thought and they've probably done well even after you've sold them and so on so those are some of the the lessons that stand out

Other[Music]

Questionerthank you

QuestionerI mean I think that on investing first of all every company is different so you can't use the same kind of yardstick for different companies but in general I I would say that once once I make an investment

Todd CombsI usually have some thesis around what that company is worth and likely to be worth in the next few years and why it's likely to be there and then you know probably every few months I'll just look at what's happening in terms of what's transpired maybe every six months or a year or so and see how it lines up with the the original thesis and such and and then you then you take it from there so like when we when I invested in the money center Banks they were trading well below tangible Book value and tangible Book value is a value of a bank which is liquidated the book value is real that they could shut their doors and return the capital and that's what you ought to get back and no solvent bank with correct reserves and so on to trade below Book value and in fact it should trade at some premium to book

Questionershould trade at some premium to book value because it's a going concernvalue because it's a going concernvalue because it's a going concern and What premium depends on kind of whatand What premium depends on kind of whatand What premium depends on kind of what they make on assets and so on and whatthey make on assets and so on and whatthey make on assets and so on and what their spreads and all that uh interesttheir spreads and all that uh interesttheir spreads and all that uh interest rates and so on and I would say when yourates and so on and I would say when yourates and so on and I would say when you look at something Money Center Bankslook at something Money Center Bankslook at something Money Center Banks probably the most optimistic scenarioprobably the most optimistic scenarioprobably the most optimistic scenario might be that at some point two timesmight be that at some point two timesmight be that at some point two times your value would be called the extremeyour value would be called the extremeyour value would be called the extreme end of what it might be worth if you'reend of what it might be worth if you'reend of what it might be worth if you're drinking all the Kool-Aid and everythingdrinking all the Kool-Aid and everythingdrinking all the Kool-Aid and everything but one time Book value is probablybut one time Book value is probablybut one time Book value is probably understating it and probably realityunderstating it and probably realityunderstating it and probably reality guys somewhere in betweenguys somewhere in betweenguys somewhere in between and so that like that we look atand so that like that we look atand so that like that we look at different different metrics and you lookdifferent different metrics and you lookdifferent different metrics and you look at it based on what you think isat it based on what you think isat it based on what you think is appropriate not based on what price theappropriate not based on what price theappropriate not based on what price the market is setting for the securitymarket is setting for the securitymarket is setting for the security and in other facets of life I think thatand in other facets of life I think thatand in other facets of life I think that there's a big there's a big influencethere's a big there's a big influencethere's a big there's a big influence another book I read a long time back atanother book I read a long time back at

Questioneranother book I read a long time back at Florida red is 15 16 years ago calledFlorida red is 15 16 years ago calledFlorida red is 15 16 years ago called power versus Force it's written by a guypower versus Force it's written by a guypower versus Force it's written by a guy named David Hawkins and he has a kind ofnamed David Hawkins and he has a kind ofnamed David Hawkins and he has a kind of a controversial controversial approacha controversial controversial approacha controversial controversial approach but the thesis of his book is that if Ibut the thesis of his book is that if Ibut the thesis of his book is that if I lie to youlie to youlie to you and in your conscious State you don'tand in your conscious State you don'tand in your conscious State you don't know I'm lying to you in yourknow I'm lying to you in yourknow I'm lying to you in your subconscious state you dosubconscious state you dosubconscious state you do and for most humansand for most humansand for most humans the height between the subconscious andthe height between the subconscious andthe height between the subconscious and the conscious is mostly clocked but it'sthe conscious is mostly clocked but it'sthe conscious is mostly clocked but it's not fully clogged so what will happen isnot fully clogged so what will happen isnot fully clogged so what will happen is that if I'm lying to you you'll get athat if I'm lying to you you'll get athat if I'm lying to you you'll get a feeling that you don't have a lot offeeling that you don't have a lot offeeling that you don't have a lot of interest in being around meinterest in being around meinterest in being around me but you won't be able to tell why thatbut you won't be able to tell why thatbut you won't be able to tell why that is and a good example is if you're youis and a good example is if you're youis and a good example is if you're you know use if you're talking to a used carknow use if you're talking to a used carknow use if you're talking to a used car dealer and he's giving you his pitch ondealer and he's giving you his pitch ondealer and he's giving you his pitch on why that Ford Pinto is such a great carwhy that Ford Pinto is such a great carwhy that Ford Pinto is such a great car you may not realize or understand whatyou may not realize or understand whatyou may not realize or understand what part of what he's telling youpart of what he's telling youpart of what he's telling you

Otherpart of what he's telling you is a lie but you generally get the feeling that you want to get as far away from him as quickly as possible and that's because you can tell that there's some things that he's saying that are probably not not true whereas if you're hanging around with the Dalai Lama and he's talking you probably want to increase that type of interaction as much as you can and so this this the thesis of the book is basically humans don't particularly care how bad the truth is but what they care about is that you're telling the truth so to give you an example let's say my wife and I are about to go out to see a movie and have dinner and so on and let's say she gets dressed and she asked me how the dress looks and let's say I have a perspective that the dress doesn't look that great and so since I read the book I changed my answers and I encouraged to

OtherI changed my answers and I encouraged to try this out that when I'm asked by her how the dress look like this and that I give an absolutely candid answer even though I know that in the near term it may lead to us missing the movie or the game getting canceled or various other negative effects but the long-term impact of that is that she has a very high degree of trust that when I'm saying something to her it is the truth and that long term has huge positive impacts of the relationship so I would say that in 2008 for example our funds were down like 67 percent and Library candidly communicate with my investors obviously first of all they got the numbers which showed them what is going on but I also clearly told them that it wasn't just the financial crisis that was causing these issues that they were we took zero we took zeros on some

Questionerwere we took zero we took zeros on some Investments and and those zeros were notInvestments and and those zeros were notInvestments and and those zeros were not entirely because they were the financialentirely because they were the financialentirely because they were the financial crisis though they were partiallycrisis though they were partiallycrisis though they were partially because that but a lot of it was my ownbecause that but a lot of it was my ownbecause that but a lot of it was my own mistakes and and quite frankly they aremistakes and and quite frankly they aremistakes and and quite frankly they are withdrawals and redemptions were prettywithdrawals and redemptions were prettywithdrawals and redemptions were pretty benign at that period and investorsbenign at that period and investorsbenign at that period and investors basically had trust and so I think thatbasically had trust and so I think thatbasically had trust and so I think that it takes a lifetime to build that trustit takes a lifetime to build that trustit takes a lifetime to build that trust it takes a lifetime to always say theit takes a lifetime to always say theit takes a lifetime to always say the truth but I would say that's a verytruth but I would say that's a verytruth but I would say that's a very important thingimportant thingimportant thing not to say the small lies because thenot to say the small lies because thenot to say the small lies because the small lies add up and they erode trustsmall lies add up and they erode trustsmall lies add up and they erode trust so as you go through your life when youso as you go through your life when youso as you go through your life when you run into situations where you have arun into situations where you have arun into situations where you have a choice between truthchoice between truthchoice between truth and diplomacyand diplomacyand diplomacy you should choose a truth even ifyou should choose a truth even ifyou should choose a truth even if there's near-term pain and if youthere's near-term pain and if youthere's near-term pain and if you repeatedly choose the truth then longrepeatedly choose the truth then longrepeatedly choose the truth then long term the paybacks are exponential and toterm the paybacks are exponential and toterm the paybacks are exponential and to some extent I think that is exactly tosome extent I think that is exactly to

Questionersome extent I think that is exactly to some extent that is exactly what Buffettsome extent that is exactly what Buffettsome extent that is exactly what Buffett does Buffett is all about candordoes Buffett is all about candordoes Buffett is all about candor and he always starts with annual reportsand he always starts with annual reportsand he always starts with annual reports with the mistakes and with the net withwith the mistakes and with the net withwith the mistakes and with the net with the bad news and he always tells histhe bad news and he always tells histhe bad news and he always tells his managers give me the bad news first andmanagers give me the bad news first andmanagers give me the bad news first and I think that's what that's the way youI think that's what that's the way youI think that's what that's the way you want to live your life is you want towant to live your life is you want towant to live your life is you want to give people the bad news first and yougive people the bad news first and yougive people the bad news first and you want to be candid about the bad newswant to be candid about the bad newswant to be candid about the bad news

Questioner[Music][Music][Music] I'm trying to be like those FidelityI'm trying to be like those FidelityI'm trying to be like those Fidelity account holders who've forgotten theyaccount holders who've forgotten theyaccount holders who've forgotten they have an account because I actually thinkhave an account because I actually thinkhave an account because I actually think I'm not patient enough I actually lookI'm not patient enough I actually lookI'm not patient enough I actually look at my portfolio and I truly think thatat my portfolio and I truly think thatat my portfolio and I truly think that if I just went away for 10 years andif I just went away for 10 years andif I just went away for 10 years and took no actions on any of it I thinktook no actions on any of it I thinktook no actions on any of it I think we'd be just doing incredibly well and Iwe'd be just doing incredibly well and Iwe'd be just doing incredibly well and I think one of the negatives in me is thatthink one of the negatives in me is thatthink one of the negatives in me is that unfortunately over the next 10 years Iunfortunately over the next 10 years Iunfortunately over the next 10 years I know I will sell stuff that I should not

Otherknow I will sell stuff that I should not sell and I know I will buy stuff that Isell and I know I will buy stuff that Isell and I know I will buy stuff that I should not have bought so the very bestshould not have bought so the very bestshould not have bought so the very best thing I could do is just take athing I could do is just take athing I could do is just take a sabbatical and go bike riding with guyssabbatical and go bike riding with guyssabbatical and go bike riding with guys fear for the next 10 yearsfear for the next 10 yearsfear for the next 10 years and then just forget about the fund andand then just forget about the fund andand then just forget about the fund and everything and take it from there soeverything and take it from there soeverything and take it from there so actually I think the problem is theactually I think the problem is theactually I think the problem is the other way around I think I'm trying toother way around I think I'm trying toother way around I think I'm trying to become better at the patience game Ibecome better at the patience game Ibecome better at the patience game I think Warren is really good at it thethink Warren is really good at it thethink Warren is really good at it the biggest big issue and big problem in thebiggest big issue and big problem in thebiggest big issue and big problem in the investing world is if you turn on CNBCinvesting world is if you turn on CNBCinvesting world is if you turn on CNBC and you see all those sticker symbolsand you see all those sticker symbolsand you see all those sticker symbols flashing by or if you open a Bloombergflashing by or if you open a Bloombergflashing by or if you open a Bloomberg term now and you see all the red andterm now and you see all the red andterm now and you see all the red and green lights and all that all of that isgreen lights and all that all of that isgreen lights and all that all of that is telling youtelling youtelling you you need to act now the world is passingyou need to act now the world is passingyou need to act now the world is passing you byyou byyou by nownownow and the reality is that real businessand the reality is that real businessand the reality is that real business change it happens over years and yearschange it happens over years and yearschange it happens over years and years it doesn't happen over days or weeks orit doesn't happen over days or weeks or

Todd Combsit doesn't happen over days or weeks or even months it takes several years for that business change and business Evolution to happen and so you really have to give just to tell you how impatient I am I think there's only one stock in my portfolio that is more than three years old to me that does not sound like Ultra patient Behavior you think that's patient the response I see people shaking their heads they don't think you're patient yeah exactly so basically I I think the lesson I'm trying to get better and better at is one of being more patient and one thing I actually like about tando especially when you buy these wholly owned businesses is we'll never sell them and I think that's probably the best thing you could possibly do is now so I have businesses in my portfolio that it would not surprise me that in 10 years they're trading at eight times ten

Warrenyears they're trading at eight times ten times where they're trading today and I hope I'm smart enough not to sell them before that time but I don't I don't have the confidence that I'm that smart

Questioneryeah I think the I think guys way of taking care of patience is from an office point of view is just never going to the office when's the last time he was in the office he's been on a little bit of a book tour yeah he's always on some tour that's probably the best thing you can do for his portfolio is just it's like I told him when I sent him that article article Fidelity study I said I'm hesitating to send this to you because what little time you spend the office is going to go very soon go to zero and his response was that he's just installed a very high-end espresso machine and so he's going to be going in for that and so so that should be fine I think that

Questionerso so that should be fine I think that it's a challenge but the way I've tried to set up the environment is first of all things have to be at a total no-brainer level for me to take the action of making a change so when I go into the office I don't go in with any interest or prospect that I'm going to make changes are we doing okay Arvest we're doing great okay so basically I don't go in with the idea that we're going to buy some stocks today or sell some stocks or any of that I just don't have that in fact normally when I'm putting trades and I put them in after hours so that the markets being open has great little impact and then the second is that I have many other activities that I'm involved in outside of buying and selling stocks I don't run the foundation but I do have some time that the foundation takes thirdly thando takes some time I spend

Questionerthirdly thando takes some time I spend about four or five hours a week playing bridge which is also I think a great activity that I strongly recommend and then I play racquetball and go biking and so on I I like to read and I read all kinds of things which are nothing to do with investing and so basically there's I would say that the I enjoy learning about businesses and I enjoy understanding what they're worth and so on so forth but the thing is that to get to the point of making Investments usually they have to be a picture between the eyes total no-brainer because I have to then sell something to make room and so on that's generally how I manage it as the other way to I would say to manage the environment is to not have a team so if you are in a structure where there are other partners or analysts or Associates they're not going to come to work with

Todd Combsthey're not going to come to work with the idea that we're going to do something today and we're going to change the world today and all those things and I think that would be a negative I don't have a blue book terminal I just try to keep the environment as much away from getting you to be active I don't I don't talk about the positions much there's not much frequent communication with the investors when I'm when I am Community communicating with investors I do not talk about what we presently own or presently buying because again if I got questions on those then I'd start defending why I bought them and then that leads to a commitment and consistency bias which means that even if I'm wrong I'll say oh I told them all these things so I can't sell it because then they'll think I'm stupid or something and again then that starts violating in a scorecard it starts

Otherviolating in a scorecard it starts violating Powers Force and and so on so you have to do things in a manner which make you in alignment and also make it easy to do what you're trying to do and that's the way to do it

OtherI would say the the investment business you're talking about for Bry funds yes yeah yeah so I would say the investment business is a little bit different than typical operating business it does have some elements of that but it's on a simpler and smaller scale I don't have large-scale HR issues large-scale capex issues you have some elements of running business I think that when I ran my my IT services company I probably learned a lot more about running businesses from that than I did from running from iPhone I think for iPhones I think what I'm proud of in the terms in terms of where it's run is how efficiently it's run I the entire

Questionerhow efficiently it's run I the entire Workforce excluding me is part-timeWorkforce excluding me is part-timeWorkforce excluding me is part-time stay-at-home momsstay-at-home momsstay-at-home moms and basically the world Miss prices andand basically the world Miss prices andand basically the world Miss prices and misjudges the talent capabilitymisjudges the talent capabilitymisjudges the talent capability of stay-at-home moms and they're not inof stay-at-home moms and they're not inof stay-at-home moms and they're not in a position or interested in taking upa position or interested in taking upa position or interested in taking up full-time careers but think that all offull-time careers but think that all offull-time careers but think that all of them can only lick stamps is ridiculousthem can only lick stamps is ridiculousthem can only lick stamps is ridiculous but that's what the world does is thatbut that's what the world does is thatbut that's what the world does is that they think that all they can do is do athey think that all they can do is do athey think that all they can do is do a 10 an hour part-time job or something10 an hour part-time job or something10 an hour part-time job or something and so what I found is that theand so what I found is that theand so what I found is that the stay-at-home moms I have people in thestay-at-home moms I have people in thestay-at-home moms I have people in the office who are very high flying careersoffice who are very high flying careersoffice who are very high flying careers in different areas and now we are ablein different areas and now we are ablein different areas and now we are able to give them lots of challenging workto give them lots of challenging workto give them lots of challenging work and they're pretty much running theand they're pretty much running theand they're pretty much running the operation on all facets of it includingoperation on all facets of it includingoperation on all facets of it including SEC compliance and so on so forth and weSEC compliance and so on so forth and weSEC compliance and so on so forth and we do it on a payroll that would shock mostdo it on a payroll that would shock mostdo it on a payroll that would shock most people and I think that it's the publicpeople and I think that it's the publicpeople and I think that it's the public funds part of it probably runs it underfunds part of it probably runs it under

Todd Combsfunds part of it probably runs it under a hundred thousand dollars a year in payroll excluding me on assets of 700 million so yeah you can run off you can learn a few things on running a business from a fund running a fund but I think you can learn a little bit more if you have the experience in operating business which is a little more size but I think it all applies I think that if you ran a lemonade stand when you were a teenager and had a paper out or any of those things all of those things help and add up but if you get a little more size and scale to what you're doing then that's even more helpful and yeah definitely it's very helpful to then understand how CEOs of large companies might be running the businesses and what they keep front and center in front of them and what's likely the important factors to focus

Other[Music]

Todd Combsyeah the thing is my my steady state

Otheryeah the thing is my my steady state assumption is that I am a Gentleman of Leisure and if I was surprised but someone asked my daughters one of my daughters recently what does your dad do and her response was he sleeps and and he's on Facebook and that's it that was her definition of what I did sleeping and being on Facebook and I do take afternoon naps which are really good in fact I had a nice nap just before we got started today thank you Arvin for starting at a time which allowed to my nap that was good my pleasure oh sure thank you the 7 PM in east coast and 4 pm here works out well I assume I'm a general Leisure I'll tend to read whatever I enjoy I probably have probably at least 50 books sitting here which I have not read yet and many of them are not worth reading and I'll find that out soon so I may read 10 20 pages and decide this is

Ted Weschlerread 10 20 pages and decide this is useless and give up on them but but I'll pick up different books different depending on my my my interest at the time and I was telling arvind that there's a there's a stock that's shown up on the radar that looks quite interesting and so recently I pushed all the books aside and recently I've been reading and chewing on the business and just trying to get an understanding of whether I'm not even sure it's within my circle of competence or not but it looks interesting and I'm enjoying the research so far and so that's what I'm doing but basically it's there's no strategic plan it's just go the way the wind blows the steady state just keep reading I'm I have the subscriptions to free newspapers a day so I read those I have subscriptions to a number of different magazine co-ops Fortune business weekend

QuestionerFortune business weekendFortune business weekend economists and so on I read those and Ieconomists and so on I read those and Ieconomists and so on I read those and I have Manual of ideas subscription andhave Manual of ideas subscription andhave Manual of ideas subscription and value line subscription and differentvalue line subscription and differentvalue line subscription and different subscriptions so I read those and thumbsubscriptions so I read those and thumbsubscriptions so I read those and thumb message boards and I look at what'smessage boards and I look at what'smessage boards and I look at what's happening I'll go to Value investorshappening I'll go to Value investorshappening I'll go to Value investors Club once in a while and then obviouslyClub once in a while and then obviouslyClub once in a while and then obviously like the website data Roma which does alike the website data Roma which does alike the website data Roma which does a nice job of condensing what the new 13fnice job of condensing what the new 13fnice job of condensing what the new 13f data is on different investorsdata is on different investorsdata is on different investors and I look at that too so between all ofand I look at that too so between all ofand I look at that too so between all of that I can usually find enough things tothat I can usually find enough things tothat I can usually find enough things to keep me busy on a reading perspectivekeep me busy on a reading perspectivekeep me busy on a reading perspective

Questionerthat's kind of a little difficultthat's kind of a little difficultthat's kind of a little difficult question to answer becausequestion to answer becausequestion to answer because some things are being processedsome things are being processedsome things are being processed almost at a subconscious level in thealmost at a subconscious level in thealmost at a subconscious level in the sense that I may not myself evensense that I may not myself evensense that I may not myself even articulate clearly to myselfarticulate clearly to myselfarticulate clearly to myself but in general you know I'm looking at abut in general you know I'm looking at abut in general you know I'm looking at a stock I'm looking for a reason to say nostock I'm looking for a reason to say nostock I'm looking for a reason to say no not a reason to say yesnot a reason to say yes

Warrennot a reason to say yes and I'm looking for a reason to say no and I'm looking for a reason to say no as soon as possible so that I can go as soon as possible so that I can go as soon as possible so that I can go back to other things of more interest back to other things of more interest back to other things of more interest and when people bring up a staff to me and when people bring up a staff to me and when people bring up a staff to me or when I look at a 13 app or something or when I look at a 13 app or something or when I look at a 13 app or something or do you know something I'm I'll ask or do you know something I'm I'll ask or do you know something I'm I'll ask myself okay first of all is it present myself okay first of all is it present myself okay first of all is it present circle of confidence and if it's clearly circle of confidence and if it's clearly circle of confidence and if it's clearly out then you know good I'm done with it out then you know good I'm done with it out then you know good I'm done with it so that's done then if it's within so that's done then if it's within so that's done then if it's within circle of confidence then I ask myself circle of confidence then I ask myself circle of confidence then I ask myself the second question is it super cheap the second question is it super cheap the second question is it super cheap and nowadays with the way the U.S and nowadays with the way the U.S and nowadays with the way the U.S markets are I don't think markets are markets are I don't think markets are markets are I don't think markets are overvalued but I don't think they're overvalued but I don't think they're overvalued but I don't think they're nothing like 2009 and so there's no in nothing like 2009 and so there's no in nothing like 2009 and so there's no in fact I found a couple of things to do fact I found a couple of things to do fact I found a couple of things to do which are in the US it's very low which are in the US it's very low which are in the US it's very low liquidity and volume so I'm just liquidity and volume so I'm just liquidity and volume so I'm just nibbling every day as much as we can get nibbling every day as much as we can get nibbling every day as much as we can get but for the most part we haven't found but for the most part we haven't found but for the most part we haven't found anything in the US for a while and even

Ted Weschleranything in the US for a while and even the idea I'm looking at now it's interesting is outside the U.S the models are those the first two models competence and valuation and that pretty much blows out large portions of it and then if it looks like something within circle of confidence and then it looks like it's cheap now spend Maybe half an hour or something excuse me and and again it's the idea is to find something that is going to be a showstopper which is telling me aha I got why I would not want to be interested in buying this and then if I don't find it in half hour then I'll invest some more time might take a hour or two again digging a little deeper and again with the ideas always to find a reason to to stop looking and moving on and if I am if I'm continuing to look then that means that there are a fuel aspects of the business

Questionerthere are a fuel aspects of the business that I'm finding very attractivethat I'm finding very attractivethat I'm finding very attractive and at least till that point I've notand at least till that point I've notand at least till that point I've not found anything which is telling me tofound anything which is telling me tofound anything which is telling me to stop lookingstop lookingstop looking so I don't know if that helps on theso I don't know if that helps on theso I don't know if that helps on the model sidemodel sidemodel side so one of the things in investing isso one of the things in investing isso one of the things in investing is that the data set is too large and likethat the data set is too large and likethat the data set is too large and like that spreadsheet has sent Arvin I don'tthat spreadsheet has sent Arvin I don'tthat spreadsheet has sent Arvin I don't know 14 000 stocks and that's not evenknow 14 000 stocks and that's not evenknow 14 000 stocks and that's not even all the stocks in the world all theall the stocks in the world all theall the stocks in the world all the stocks in the world maybe 50 000 orstocks in the world maybe 50 000 orstocks in the world maybe 50 000 or something or 25 to 50 000 something insomething or 25 to 50 000 something insomething or 25 to 50 000 something in that rangethat rangethat range and just looking at one business couldand just looking at one business couldand just looking at one business could take you two three weeks and so you knowtake you two three weeks and so you knowtake you two three weeks and so you know if you spend even a week on a businessif you spend even a week on a businessif you spend even a week on a business you couldn't look at more than 50you couldn't look at more than 50you couldn't look at more than 50 businesses in a yearbusinesses in a yearbusinesses in a year and in the US that'd be like one percentand in the US that'd be like one percentand in the US that'd be like one percent or something of the public companiesor something of the public companiesor something of the public companies and so the key is that you have to takeand so the key is that you have to takeand so the key is that you have to take shortcuts which help you eliminateshortcuts which help you eliminateshortcuts which help you eliminate large portions of the universelarge portions of the universelarge portions of the universe in a very short period of time so it

Otherin a very short period of time so it leaves a wide open portion of time for the things that do look it's a promising kind of data set approach is more art than science but you've got to have a way and so if you for example did cloning and did 13 F's that's a great way to call the data set so if you just said okay I'm only going to look at what other great investors have bought then you might be down to maybe less than 100 stocks a year that you look at and and then within the 100 and you again look at which one the cheap by your definition and within circular competence by your definition then again that 100 is going to go down quite dramatically so you you may not you may not need to look at that many stocks in a year and then the number becomes quite manageable just just on that in the Google Talk they discussed ipsco and the female Services business how you thought

Questionerfemale Services business how you thought about different ideas at the moment in time when you made the investment could you discuss similar ideas that you had made that you've since exited that were successful Investments and how you thought about it at that moment in time

Questionerfor us let me think about uh some that try to think about the last names might be worth thinking about you can come back to the question if you want I can ask another one

Otheryeah I haven't had I haven't had exits many exits for a few years and the idea it could be it could be very old it's more about yeah I was there was a one I I think this was probably the first investment the fund made and it was in a it was in a company called Silicon Valley Bank and the Silicon Valley Bank was a is a is an interesting Bank I think they're still around I don't know if someone bought them or not but

Questionerknow if someone bought them or not but they basically were headquartered in Silicon Valley and they're pretty well run Bank what they would do is they basically focus on venture-backed startups which means they already had a bunch of money in the bank and so on and then they'd focus on conservative lending use it usually asset-based lending and so on to these companies but they'd also what they'd also do was when they'd make the loans they'd also take warrants from these private companies in addition to what they were getting on the regular loan term in 99 middle of 99 the funds started the.com boom was more and more fuel was being added to that fire and it was raging and the Silicon Valley Bank was sitting on this very large number of you could say a basket of warrants of a bunch of these.com venture-backed startups but when I looked at the valuation of Bank it was

Questionerlooked at the valuation of Bank it waslooked at the valuation of Bank it was very modest it was just a small premiumvery modest it was just a small premiumvery modest it was just a small premium overbook and so theseoverbook and so theseoverbook and so these there wasn't a lot of disclosure onthere wasn't a lot of disclosure onthere wasn't a lot of disclosure on these warrants in the filings but youthese warrants in the filings but youthese warrants in the filings but you knew that they would talk about a littleknew that they would talk about a littleknew that they would talk about a little bit saying that this basket of warrantsbit saying that this basket of warrantsbit saying that this basket of warrants and you could look at theand you could look at theand you could look at the companies that they were doing businesscompanies that they were doing businesscompanies that they were doing business withwithwith and so my take was that I actuallyand so my take was that I actuallyand so my take was that I actually believed at the time that the internetbelieved at the time that the internetbelieved at the time that the internet would be transformational I just wasn'twould be transformational I just wasn'twould be transformational I just wasn't willing to pay a hundred times earningswilling to pay a hundred times earningswilling to pay a hundred times earnings for pets.com right and so my take wasfor pets.com right and so my take wasfor pets.com right and so my take was that if I bought stock in the bankthat if I bought stock in the bankthat if I bought stock in the bank then you know I have downside protectionthen you know I have downside protectionthen you know I have downside protection because it's a sensibly run place butbecause it's a sensibly run place butbecause it's a sensibly run place but it's got a moon shot built in if thoseit's got a moon shot built in if thoseit's got a moon shot built in if those warrant come in and if this madnesswarrant come in and if this madnesswarrant come in and if this madness continued and and I think in a verycontinued and and I think in a verycontinued and and I think in a very short period of time we had a double onshort period of time we had a double onshort period of time we had a double on the stock and other people started tothe stock and other people started tothe stock and other people started to realize that these words have value and

Questionerrealize that these words have value and such and then we exited and so that wasn't a holding week hell for very long but the thesis was okay we've got this basket there which is giving us a kind of a unknown upside without downside and unknown upside without downside is a really good mental model in general in general markets are very bad at pricing uncertainty properly so there was no way for the equity markets to properly price that unknown basket Awards if they had done a disclosure which said okay look here's the 200 companies that we have warrants on and here's the number of warrants and here's the strike price and all that then you could you could take 10 of them or 20 of them or something which were the most where most of the value was and ascribes a value to them which is probably the way it was where probably a lot of the

Questionerway it was where probably a lot of the value was sitting in a few of thevalue was sitting in a few of thevalue was sitting in a few of the companies that they had so that thatcompanies that they had so that thatcompanies that they had so that that model mental model that was usedmodel mental model that was usedmodel mental model that was used make that investmentmake that investmentmake that investment was completely different than the modelwas completely different than the modelwas completely different than the model I might have used let's say to make theI might have used let's say to make theI might have used let's say to make the F square plusF square plusF square plus right so different and and you basicallyright so different and and you basicallyright so different and and you basically look at you look at different situationslook at you look at different situationslook at you look at different situations and you can come up with differentand you can come up with differentand you can come up with different perspectives if you look at the 3G guysperspectives if you look at the 3G guysperspectives if you look at the 3G guys for example the ones profits partneredfor example the ones profits partneredfor example the ones profits partnered withwithwith and you look at what they've done atand you look at what they've done atand you look at what they've done at Burger KingBurger KingBurger King and at am in Bev and probably whatand at am in Bev and probably whatand at am in Bev and probably what they're likely to do at craft and nowthey're likely to do at craft and nowthey're likely to do at craft and now with this Tim Hortons acquisition thesewith this Tim Hortons acquisition thesewith this Tim Hortons acquisition these guys can squeeze blood out of a rock andguys can squeeze blood out of a rock andguys can squeeze blood out of a rock and so if someone were to make an investmentso if someone were to make an investmentso if someone were to make an investment in one of the things that they are intoin one of the things that they are intoin one of the things that they are into you can probably assume that historicyou can probably assume that historicyou can probably assume that historic margins they were they'll probablymargins they were they'll probablymargins they were they'll probably figure out a way to get some more out offigure out a way to get some more out of

Questionerfigure out a way to get some more out of it and if the top line is stagnant orit and if the top line is stagnant orit and if the top line is stagnant or growing a little bit they probably get agrowing a little bit they probably get agrowing a little bit they probably get a little more juice out of it and so iflittle more juice out of it and so iflittle more juice out of it and so if you understood that about the manageryou understood that about the manageryou understood that about the manager then you could say okay if somethingthen you could say okay if somethingthen you could say okay if something that looks fully priced may not actuallythat looks fully priced may not actuallythat looks fully priced may not actually be fully priced because you're notbe fully priced because you're notbe fully priced because you're not taking into account the new managementtaking into account the new managementtaking into account the new management so those areso those areso those are different examples of models you can usedifferent examples of models you can usedifferent examples of models you can use that's great and so Silicon Valley Bankthat's great and so Silicon Valley Bankthat's great and so Silicon Valley Bank how did you stumble across that idea howhow did you stumble across that idea howhow did you stumble across that idea how does one screen for something like thatdoes one screen for something like thatdoes one screen for something like that or you can't really so what triggeredor you can't really so what triggeredor you can't really so what triggered your initial interest to take a look atyour initial interest to take a look atyour initial interest to take a look at that one

Todd CombsI'm not sure exactly how itthat one I'm not sure exactly how itthat one I'm not sure exactly how it crossed my radar it may have it may havecrossed my radar it may have it may havecrossed my radar it may have it may have been on a list of some companies orbeen on a list of some companies orbeen on a list of some companies or something that sometimes they put upsomething that sometimes they put upsomething that sometimes they put up these lists of I'm not exactly sure howthese lists of I'm not exactly sure howthese lists of I'm not exactly sure how it came up on the radar but the thing isit came up on the radar but the thing isit came up on the radar but the thing is I was at the time I had made another

Ted WeschlerI was at the time I had made another investment in 95 which is about five years before the fund on another.com type stock which is called cmgi and eventually it went past actually there the offices in Massachusetts and cmgi had investments in like 100 plus internet companies and when I originally invested in them it was very modestly priced it was priced that just a small premium to cash so again it was like Silicon Valley Bank in the sense that they had all these different Investments but you weren't really paying a lot and this was in 95 so it was many years before the market went crazy and we made 100x on cmgi so this is before the funds and such and so I and I was lucky I got most of it out before things crashed and burned but and in hindsight that was a mistake because I should have sold that even at five x I

OtherI should have sold that even at five x I should have sold because at that pointshould have sold because at that pointshould have sold because at that point it was already asked if you will but Iit was already asked if you will but Iit was already asked if you will but I at the at the time in 99 I was lookingat the at the time in 99 I was lookingat the at the time in 99 I was looking to find Vehicles like that but I wantedto find Vehicles like that but I wantedto find Vehicles like that but I wanted to get more safety I wanted to downsideto get more safety I wanted to downsideto get more safety I wanted to downside protected and I think that's why whenprotected and I think that's why whenprotected and I think that's why when Silicon Valley came up on the radar andSilicon Valley came up on the radar andSilicon Valley came up on the radar and I looked at it I kicked the tires quiteI looked at it I kicked the tires quiteI looked at it I kicked the tires quite a bit on that on because I was alwaysa bit on that on because I was alwaysa bit on that on because I was always concerned about lending activity toconcerned about lending activity toconcerned about lending activity to these tech companies because you knowthese tech companies because you knowthese tech companies because you know how do you how do you get your money outhow do you how do you get your money outhow do you how do you get your money out because they don't have much intangiblebecause they don't have much intangiblebecause they don't have much intangible aspectaspectaspect but on that front what they did is theybut on that front what they did is theybut on that front what they did is they only stuck to venture back startupsonly stuck to venture back startupsonly stuck to venture back startups which were already pretty high qualitywhich were already pretty high qualitywhich were already pretty high quality and then they made sure that enoughand then they made sure that enoughand then they made sure that enough protection on hard assets and such soprotection on hard assets and such soprotection on hard assets and such so I think that worked out pretty good butI think that worked out pretty good butI think that worked out pretty good but I would love to find something like thatI would love to find something like thatI would love to find something like that nowand moonshots always good if you can getand moonshots always good if you can get

Otherand moonshots always good if you can get them with no downsidethem with no downsidethem with no downside

Otherjust ignore the bookjust ignore the bookjust ignore the book because the book is stupid what you wantbecause the book is stupid what you wantbecause the book is stupid what you want is very simple you want as close to 100is very simple you want as close to 100is very simple you want as close to 100 probabilityprobabilityprobability of at least two acts in two years asof at least two acts in two years asof at least two acts in two years as close to a zero probability of anythingclose to a zero probability of anythingclose to a zero probability of anything else or if it's a 90 probability over 2Xelse or if it's a 90 probability over 2Xelse or if it's a 90 probability over 2X in two years then the other ten percentin two years then the other ten percentin two years then the other ten percent could becould becould be above a 1Xabove a 1Xabove a 1X which means you don't lose moneywhich means you don't lose moneywhich means you don't lose money and losing moneyand losing moneyand losing money should be very infinitesimal so itshould be very infinitesimal so itshould be very infinitesimal so it should be when you look at it you shouldshould be when you look at it you shouldshould be when you look at it you should have confidence thathave confidence thathave confidence that the odds that you would actually end upthe odds that you would actually end upthe odds that you would actually end up with a permanent loss of capital r aswith a permanent loss of capital r aswith a permanent loss of capital r as close to zero as you can get so I wouldclose to zero as you can get so I wouldclose to zero as you can get so I would say that if you're looking atsay that if you're looking atsay that if you're looking at probabilities then the curve should lookprobabilities then the curve should lookprobabilities then the curve should look like something likelike something likelike something like one percent of or lower probability ofone percent of or lower probability ofone percent of or lower probability of decline permanent decline or more thandecline permanent decline or more thandecline permanent decline or more than or less than let's say 20 let's sayor less than let's say 20 let's sayor less than let's say 20 let's say losing between zero and thirty percent

Otherlosing between zero and thirty percentlosing between zero and thirty percent should be under one percent losing moreshould be under one percent losing moreshould be under one percent losing more than 30 should approach zerothan 30 should approach zerothan 30 should approach zero and then less than a double between 1Xand then less than a double between 1Xand then less than a double between 1X and 2x maybe isand 2x maybe isand 2x maybe is under 10 percentunder 10 percentunder 10 percent and above 2x is the rest of itand above 2x is the rest of itand above 2x is the rest of it those probabilities sound good to methose probabilities sound good to methose probabilities sound good to me

Otherto ask the question is to answer it ifto ask the question is to answer it ifto ask the question is to answer it if you are questioning whether somethingyou are questioning whether somethingyou are questioning whether something something is in your circle ofsomething is in your circle ofsomething is in your circle of competence trust me it is not in yourcompetence trust me it is not in yourcompetence trust me it is not in your circle of confidence because whatcircle of confidence because whatcircle of confidence because what Buffett says is thatBuffett says is thatBuffett says is that the most important thing is to operatethe most important thing is to operatethe most important thing is to operate within your circular competence andwithin your circular competence andwithin your circular competence and ideally you don't want to operate nearideally you don't want to operate nearideally you don't want to operate near the edges you want to operate deadthe edges you want to operate deadthe edges you want to operate dead center and socenter and socenter and so it should be obvious that somethingit should be obvious that somethingit should be obvious that something is within that Circleis within that Circleis within that Circle I gave the example in that Google talkI gave the example in that Google talkI gave the example in that Google talk about that billionaire John Arriaga thatabout that billionaire John Arriaga thatabout that billionaire John Arriaga that only buys real estate within two milesonly buys real estate within two milesonly buys real estate within two miles of Stanford I think anytime he looks atof Stanford I think anytime he looks atof Stanford I think anytime he looks at something in about three seconds he's

Othersomething in about three seconds he's answered the question of whether it's in circle of confidence he gets five miles from the center he knows he's outside the circle

Questioneryeah that's a good question and I would say that the in fact the idea I'm researching now that's a question that's twirling in my head in the sense that there are some aspects of the business that I understand and some aspects I'm trying to understand and there's enough there I would say that I would not make the investment if I cannot within three sentences nail down exactly what the bottom line is you know what's going to happen here and what type of money we're likely to make a timeframe and so on I think I think the good news of the circular competence is that unlike being a basketball player or something where you know after 30 or something you're going to start declining you're in investing you're going to keep

Questioneryou're in investing you're going to keep improving over your whole lifetime and over your whole lifetime that Circle is gradually going to increase in size just by default because and it'll especially increase in size each time you lose money because that'll really teach you a whole bunch of stuff and the key is not to focus on trying to increase the size of the circle the key is to that will happen by osmosis but the key is to work very hard to always stay within them

Questioneryeah I actually ignore currencies because I don't really have a view on it and hedging and such can become expensive sure so I don't mess around with trying to hedge currencies or any of that I just assume that I mean if the business ideas work out even if we have some currency movement against us it should still be found sure and the currencies may move in our

Questionersure and the currencies may move in our favor we don't know thatfavor we don't know thatfavor we don't know that all that soall that soall that so what was your second part of thewhat was your second part of thewhat was your second part of the question was about yeah I think whatquestion was about yeah I think whatquestion was about yeah I think what

Todd Combsdifferent parts of the world I'mdifferent parts of the world I'mdifferent parts of the world I'm learning more and more about differentlearning more and more about differentlearning more and more about different parts of the world and I definitely feelparts of the world and I definitely feelparts of the world and I definitely feel that The Closer you are to home the morethat The Closer you are to home the morethat The Closer you are to home the more you understand and the better off youyou understand and the better off youyou understand and the better off you are I definitely feel it takes it takesare I definitely feel it takes it takesare I definitely feel it takes it takes more effort and even then you may missmore effort and even then you may missmore effort and even then you may miss some obvious things which may be obvioussome obvious things which may be obvioussome obvious things which may be obvious to local so clearly there are risksto local so clearly there are risksto local so clearly there are risks involved when you go Global but at theinvolved when you go Global but at theinvolved when you go Global but at the same time again ifsame time again ifsame time again if in spite of those risks if things arein spite of those risks if things arein spite of those risks if things are looking like no-brainerslooking like no-brainerslooking like no-brainers thenthenthen you can look at thatyou can look at thatyou can look at that

Todd CombsI would say that patience is a big partI would say that patience is a big partI would say that patience is a big part of the equation I think that you can beof the equation I think that you can beof the equation I think that you can be right aboutright aboutright about all your analysis of stock which doesall your analysis of stock which doesall your analysis of stock which does not keep it long enoughnot keep it long enoughnot keep it long enough and stocks you can study this right likeand stocks you can study this right likeand stocks you can study this right like stocks that don't average about nine or

Questionerstocks that don't average about nine or ten percent a year but if you study the long history of stocks it's not coming in like clockwork it's very Lumpy and so you can have large movements and short periods of time and no movement for long periods of time and all of that so patience is a big part of it I think sticking within circular competence is a big part of it I think that some other things that are useful is that one of the reasons why cloning is such a good idea is because it's already made it through the filters in one brain and if you admire that brain and if things have already made it through that brain and so the important thing with cloning is that you should focus on cloning the ideas that are the biggest positions of the people who made those bets like the top three or four if you were looking at the top three or four or five

Questionerlooking at the top three or four or five bets that a person has made rather than the 30th path he's made the 30th bet is not going to help you that much but so the interesting thing about the cloning is that if you look at your top five position of David Einhorn top five position of Bill Ackman top five position of Carl icah on top five position of Warren Buffett top five position of Seth larman and so on then you know that those are that's a really good Pond to go fishing in because it's already been through one filter and so when you start looking at some things that have already been through one filter and you only look at that pool then that's a big advantage that is when you go to a bowling alley and if the objective is to get the highest score when you're bowling how many of you have bold before can you raise your hand looks like we got some boning bowling

Otherlooks like we got some boning bowling affectionatos in your class maybe you can take them bowling or winsthere you go so when you go bowling if the idea is that you have to get the best score then you know you can bowl two ways with bumpers or without bumpers so if you could bowl with purpose or without bumpers which would you choose with buffers that students are saying would anyone choose without bumpers

Otherbowling with bumpers is basically like doing cloning of 13fs because it's already been through one idea so the odds that you'll have a cutter ball just go down dramatically you may still end up with the ball going off to the side when it gets close to the pins but the odds are very low and so I think those are the important things is you you avoid leverage you be patient stick to Circular competence go away for a long time after you've made your portfolio pole with bumpers

Otherpole with bumperspole with bumpers you know those are all good things to doyou know those are all good things to doyou know those are all good things to do

Otherthat's a great question yeah so thesethat's a great question yeah so thesethat's a great question yeah so these are all negotiated transactions withare all negotiated transactions withare all negotiated transactions with people who I think are smarter than mepeople who I think are smarter than mepeople who I think are smarter than me who are focused on full price or betterwho are focused on full price or betterwho are focused on full price or better usually they want more than a full priceusually they want more than a full priceusually they want more than a full price and so I think the the interesting thingand so I think the the interesting thingand so I think the the interesting thing is that I'm actually just I'm looking atis that I'm actually just I'm looking atis that I'm actually just I'm looking at a business that unfortunately I thinka business that unfortunately I thinka business that unfortunately I think I'll only be able to get a minorityI'll only be able to get a minorityI'll only be able to get a minority position because the founders notposition because the founders notposition because the founders not looking to sell much of what he haslooking to sell much of what he haslooking to sell much of what he has and then we might put in some growthand then we might put in some growthand then we might put in some growth capital and so on and we'll pay a verycapital and so on and we'll pay a verycapital and so on and we'll pay a very full price for that if we do it butfull price for that if we do it butfull price for that if we do it but the nature of that business and such isthe nature of that business and such isthe nature of that business and such is such thatsuch thatsuch that I think that almost almost for sureI think that almost almost for sureI think that almost almost for sure we'll make five to ten times our moneywe'll make five to ten times our moneywe'll make five to ten times our money in five years or seven years and so Iin five years or seven years and so Iin five years or seven years and so I can't findcan't findcan't find one of the advantages of the theseone of the advantages of the theseone of the advantages of the these private deals is that one of these small

Questionerprivate deals is that one of these small private deals is that one of these small businesses tend not to be in the public businesses tend not to be in the public markets in general I think if you're looking at businesses with market caps less than 50 million or 25 million in the public markets one of the problems in public markets is that market cap level you've got so much overhead for being a public company and such that the economics I think don't work out and those types of businesses are zombie businesses that maybe work good businesses at one point or something but they've run into some issue which has caused the market cap to go where it's gone whereas some of the businesses I'm looking at are still growing and are not upswing but they're just small I think that the interesting thing about these these insurance companies is the one is that I can add some value with the portfolio so what can look like a full price based

Ajit Jainso what can look like a full price based on the business before than those steps on the business before than those steps on the business before than those steps it can look a little more attractive it can look a little more attractive it can look a little more attractive once we are part of the equation because once we are part of the equation because once we are part of the equation because of doing a little better job on the of doing a little better job on the of doing a little better job on the Investments and the other thing is that Investments and the other thing is that Investments and the other thing is that today actually the pricing I think of today actually the pricing I think of today actually the pricing I think of insurance companies is lower than insurance companies is lower than insurance companies is lower than historical and maybe even future because historical and maybe even future because historical and maybe even future because interest rates are so low so if I'm interest rates are so low so if I'm interest rates are so low so if I'm looking at an insurance company that has looking at an insurance company that has looking at an insurance company that has everything in fixed income let's say for everything in fixed income let's say for everything in fixed income let's say for example and there are some insurance example and there are some insurance example and there are some insurance companies like that then the Investment companies like that then the Investment companies like that then the Investment Portfolio is not doing anything Portfolio is not doing anything Portfolio is not doing anything and so then when you look at valuations and so then when you look at valuations and so then when you look at valuations and then the premium the book or and then the premium the book or and then the premium the book or multiples and different things it'll multiples and different things it'll multiples and different things it'll take that into account take that into account take that into account and if interest rates were 12 then you and if interest rates were 12 then you and if interest rates were 12 then you know those businesses will be worked know those businesses will be worked know those businesses will be worked and we sold for different prices and we sold for different prices and we sold for different prices so to some extent this is a good time to

Warrenso to some extent this is a good time to go hunting but anytime you're getting a negotiate a transactions you're facing intelligence Sellers and especially the people I'd like to buy these businesses which we are not intending to sell I definitely don't want to buy them from stupid people so I'd be disappointed if they didn't get full pricing

Questionerwell I think we've won Berkshire a few times and I think sometimes it's gotten cheaper than at other times and like for example there's a and I may not have all my facts straight on that but there's a there's an emerging young investor called Alan Meacham arvind you can have haven't speak to your class I think he's in Utah or someplace Arlington Capital management or something is the name of the fund I think they have a few hundred million Commandments and and he had a and probably still has I think

Questionerhe had a and probably still has I think a pretty large position in Berkshire Ia pretty large position in Berkshire Ia pretty large position in Berkshire I seem to recall it was more than 50seem to recall it was more than 50seem to recall it was more than 50 percentpercentpercent of the fund and what he had done isof the fund and what he had done isof the fund and what he had done is he had levered that portfolio modeledhe had levered that portfolio modeledhe had levered that portfolio modeled against him toagainst him toagainst him to the returnsthe returnsthe returns andandand he basically levered it because he inhe basically levered it because he inhe basically levered it because he in effecteffecteffect part that with Berkshire there was apart that with Berkshire there was apart that with Berkshire there was a footfootfoot where Warren had said that below 1.2where Warren had said that below 1.2where Warren had said that below 1.2 times broketimes broketimes broke he'll buy back stockhe'll buy back stockhe'll buy back stock and so in effect when before that wasand so in effect when before that wasand so in effect when before that was 1.15 1.1 and whenever Buffett said that1.15 1.1 and whenever Buffett said that1.15 1.1 and whenever Buffett said that the stock basically never went belowthe stock basically never went belowthe stock basically never went below those floorsthose floorsthose floors or if it went below the sword it justor if it went below the sword it justor if it went below the sword it just came right back up because that's thecame right back up because that's thecame right back up because that's the time when born was buying so he boughttime when born was buying so he boughttime when born was buying so he bought his position basically right at orhis position basically right at orhis position basically right at or slightly above that floor with theslightly above that floor with theslightly above that floor with the assumption that will do reasonably wellassumption that will do reasonably wellassumption that will do reasonably well over the future and then he levered itover the future and then he levered itover the future and then he levered it on top of that to juice the returns andon top of that to juice the returns andon top of that to juice the returns and he did quite well now I looked at thathe did quite well now I looked at thathe did quite well now I looked at that and to me the perspective was I

Questionerand to me the perspective was I remembered Buffett's story about Ray corner and the thing is that the prophet thought if you will there are circumstances under which profit would not exercise that point so for example if you got to 2009 type pricing rather than buying boxes talking people can buy other things and he wouldn't care Berkshire went down it's unlikely very unlikely but in those types of scenarios Allen might get margin calls and it didn't happen during the period that you owned it yeah so in general I would say the with Berkshire you would do reasonably well but I think it's just so large that I think you ought to be able to find things that will do better unless it gets close to that floor level pricing Leucadia is a different animal now because the two Founders are gone and there's another guy running it so you're not going to handicap that guy

Questioneryou're not going to handicap that guy

Questionerdoes Fairfax you know actually they have a stated objective of delivering 15 or more long-term returns to investors

Questionerso if you agree with that and they think they'll do that and that's your objective then that'd be a good stop to own for that but I think that if you're working with small amounts of capital you ought to be able to do better than any of them

Questioneryeah I'm an index guy I'm a niche and I used to work for Vanguard several years ago so I've actually got a pretty large position in the Vanguard 500

Questionerokay Vanguard index 500.

Questioneryeah I have about 40 of my portfolio due to a mathematical calculation on my part in general and Kashmir Bank in India

Questionerjamu and Kashmir Bank yeah

Questionerokay sounds good

Questioneryeah

QuestionerMosaic Corps

Questionerokay

Questioneranymore GPS

QuestionerI'm sorry PBS

Questionercan you repeat that

QuestionerI'm sorry what is that dbf

QuestionerDDS no CBS like Rite Aid oh CVS Pharmacy

Questionerokay go to cloner any others

Questioneryes a real estate company in Florida

Questionersure

QuestionerWintergreen fonts

Questioneryes

Questionerokay

Questionergood in case I'm twiddling my thumbs I have a few things to look at how much more time do we have Arwen are we out of time

Otherlast year you said we were gonna rage and then you made fun of it you can go as long as you want no problem I already had my nap oh yeah

Warrenif I were not managing it I would return the capital and I think the investors will want the capital return if there was a change along those lines and I don't really think of it as work it's actually fun it's amazing I get paid for it which is great yeah it's not any different from running my own money or own portfolio and so I don't really consider it any kind of Burden if you will so there are no plans to to make any changes there is no long-term Street plan the

Warrenthere is no long-term Street plan the long strategy strategic plan is to just avoid making stupid decisions and make as few decisions as possible

QuestionerI saw some talk I think with Todd Combs was saying that Buffett had talked at Columbia and it said that he was reading like 500 pages a day and 500 pages of the day is quite a bit of reading

WarrenI haven't ever measured how much I'm reading every day and I don't know how you would put newspaper reading or scanning into that and I don't think I'm anywhere near 500 pages a day my guess would be I'm maybe at 100 Pages a day or something I think my guess something like that sometimes when I'm reading a book I'll do more than 100 pages in a day so it might be 100 150 Pages

Questionerwell you know there was there's a guy in your group who mentioned that they own Jammu and Kashmir bank and so what's the

QuestionerJammu and Kashmir bank and so what's the p ratio of Jammu and Kashmir Bank

Questionerp ratio of Jammu and Kashmir Bank six-time learnings six times earning is

Questionerthat cheap

OtherI think so yes definitive yeah okay okay

Questionerand what should be the multiple of Jammu and Kashmir maybe closer to 10 or 12.

Other10 to 12 times maybe more exactly if you look at a if you look at a Bank in India for generally speaking what happens with and this is in India probably elsewhere too but I think probably more small through in India is a bank in India a reasonably well run Bank ought to grow at a multiple of GDP

Questionerdid you consider that in your thesis

Otheryeah I took into a council of state population growth okay so what is India's recent GDP growth about five to seven percent and that is three Modi what do you expect India's GDP growth to be let's say in the next few years

Questionerokay and typically I would say that a bank a decently run Bank in India should be growing at something like two

Othershould be growing at something like two times GDP and eight or nine may get aggressive but let's say we don't even put any anything much of a Modi factor in there it would not be surprising if something like Jammu and Kashmir Frank is growing earnings at 15 a year and here I didn't hear a yes yes okay so if we have a business that is earning let's say a hundred dollars a share a hundred dollars a year let's say it's earning 100 billion a year for example and let's say that 100 million a year is increasing at 15 a year what multiple should we put on that Facebook yes 10 or 10 to 15 times maybe a little higher okay so let's say that Jammu and Kashmir Bank let's pull some numbers out of the air okay let's say it has a market cap of 600 million and let's say they're earning 100 million are there six times earnings yeah okay so let's say they're earning

Questioneryeah okay so let's say they're earning 100 million let's say the market cap is 600 billion and some of you guys have calculators let's go five years so at a 15 increase in earnings every year what is the earnings in your your five is it 200 already approximately yeah okay it's 200. okay and if you put a 15 multiple on 200 that'd be 3 billion yeah and if you put a 20 multiple it'd be 4 billion are those numbers higher than 600 million does it matter what multiple we put on it

Otherno I'm not saying it doesn't matter if it trades in 15 times earnings or 20 times earnings in five years

Questionerno it doesn't matter what if the multiple is ten times earnings market cap so two billion three billion four billion are they all acceptable answers

Otheryes assuming that the assumptions play out the way that you expect them yeah so what I'm saying is so at least we don't need to Rack our brains on what the

Questionerneed to Rack our brains on what the multiple will be or should be or ought to be we can just say that if those numbers play out if it goes from 100 million in earnings to 200 million earnings and it goes steadily up like that the odds are very high that the market cap is between two and four bills and of course we don't know whether earnings will do that and they could be a choppier or they could be a better the thing is in the sense that it's possible Modi really kicks in and the bank is doing 20 a year so 15 for example or Modi doesn't care and the bank is doing 12 percentage so you can run those same numbers at 12 and even then you would still end up so the thing is where you would lose money is what is the book value of the bank do you know what the book value is what multiple book does it trade at come on yes

Questionerhe's saying close to one maybe so basically if their loan book is good basically if their loan book is good basically if their loan book is good if their reserves are good and in fact if their reserves are good and in fact if their reserves are good and in fact they don't even need to be that good they don't even need to be that good they don't even need to be that good basically if their future earnings can basically if their future earnings can basically if their future earnings can absorb any hiccups they have on their absorb any hiccups they have on their absorb any hiccups they have on their books if you will basically there is books if you will basically there is books if you will basically there is that that is the kind of bad that's very that that is the kind of bad that's very that that is the kind of bad that's very well making well making well making

QuestionerI'm so grateful that you brought it to my attention my attention my attention

Questionerhas better answers than me but I would has better answers than me but I would has better answers than me but I would say that first of all it's it's not a say that first of all it's it's not a say that first of all it's it's not a private bank it's it's an unusual bank private bank it's it's an unusual bank private bank it's it's an unusual bank because it's owned its majority owned by because it's owned its majority owned by because it's owned its majority owned by the state government of Jammu and the state government of Jammu and the state government of Jammu and Kashmir I think what are they I think 50 Kashmir I think what are they I think 50 Kashmir I think what are they I think 50 53 stake or something 53 stake or something 53 stake or something yeah it's about half right so it's not yeah it's about half right so it's not yeah it's about half right so it's not like htfc or ICI bank which is purely like htfc or ICI bank which is purely like htfc or ICI bank which is purely privately held this is like a public privately held this is like a public privately held this is like a public sector bank but it's actually sector bank but it's actually sector bank but it's actually interesting public sector bank because interesting public sector bank because interesting public sector bank because it it behaves like a private sector Bank it it behaves like a private sector Bank

Otherit it behaves like a private sector Bank the second is that the state of Jammuthe second is that the state of Jammuthe second is that the state of Jammu and Kashmir has been especially nowadaysand Kashmir has been especially nowadaysand Kashmir has been especially nowadays with their the two sides are lobbingwith their the two sides are lobbingwith their the two sides are lobbing grenades with each other and all of thatgrenades with each other and all of thatgrenades with each other and all of that India and Pakistan it's a very heavilyIndia and Pakistan it's a very heavilyIndia and Pakistan it's a very heavily militarized area generally speakingmilitarized area generally speakingmilitarized area generally speaking investors are a little leery of theinvestors are a little leery of theinvestors are a little leery of the prospects of a financial institutionprospects of a financial institutionprospects of a financial institution recently they were floods in veryrecently they were floods in veryrecently they were floods in very significant floods in Srinagar andsignificant floods in Srinagar andsignificant floods in Srinagar and around and I think probably a lot of thearound and I think probably a lot of thearound and I think probably a lot of the banks branches got affected and it'sbanks branches got affected and it'sbanks branches got affected and it's possible that their loan book gotpossible that their loan book gotpossible that their loan book got affected and such because there's peopleaffected and such because there's peopleaffected and such because there's people that took loans maybe in entire Statesthat took loans maybe in entire Statesthat took loans maybe in entire States and so on so they may have real painand so on so they may have real painand so on so they may have real pain from those recent floods so we'll havefrom those recent floods so we'll havefrom those recent floods so we'll have to see but in general the flip side isto see but in general the flip side isto see but in general the flip side is that India I think has issued like onethat India I think has issued like onethat India I think has issued like one or two banking licenses in 10 years Ior two banking licenses in 10 years Ior two banking licenses in 10 years I think still about 70 of assets are withthink still about 70 of assets are withthink still about 70 of assets are with these horribly run public sector

Li Luthese horribly run public sector state-owned Banks which are owned by the central government which are gradually going down in in value or in uh in percent of the pie and I think that half the country doesn't have a bank account and that is front and center for Modi he actually has that particular metric directly in his sights and he wants to in his five years dramatically change the number of people who are black account so it's possible that banking gets significant Tailwinds other questions my take would be the biggest issue would be with this jamun Kashmir Bank

Questioneris today is October 9th 2014. if you can avoid selling it till at least October 8th 2024 can you do that

Warrenyeah if you get an urge to sell before then call me collect [Laughter] I'll I'll talk you off the land

Questionerwell I mean I think the best investment you can make is a company that's very cheap and that has high good growth

Othercheap and that has high good growth prospects and generates High Returns on Capital in other words Jammu and Kashmir Bank

OtherI don't know why you didn't have him run the class arvind that's that's the second half of the semester okay all right good

OtherI might sit in on that lecture there'll be many lectures okay all right that's good

OtherI mean I think the the main thing is that you have to have a temperament which says on a daily basis that you do nothing and that you're only act when there's no spreadsheet required when it's hitting you between the eyes with a two by four and it's total no-brainer and when those things come about that's when you pull the trigger in other words Jammu and Kashmir back

Otheryeah that's a good question I think I digress for a second before I answer that but the thing is if you look at profits different Investments

Questionerprofits different Investments and you put them in different categories and you put them in different categories and you put them in different categories like Banks or media like Banks or media like Banks or media insurance companies real retailers and insurance companies real retailers and insurance companies real retailers and so on so on so on his batting average for example on his batting average for example on his batting average for example on investing in Banks investing in Banks investing in Banks is a thousand I am not aware of any is a thousand I am not aware of any is a thousand I am not aware of any banking investment that Warren has made banking investment that Warren has made banking investment that Warren has made he's been investing in Banks since 1969 he's been investing in Banks since 1969 he's been investing in Banks since 1969 and he used to own a bank completely and he used to own a bank completely and he used to own a bank completely first Rockford in Illinois and he first Rockford in Illinois and he first Rockford in Illinois and he actually used to go to Rockford Illinois actually used to go to Rockford Illinois actually used to go to Rockford Illinois once a month to look at the books and so once a month to look at the books and so once a month to look at the books and so on when he still has a subscription to on when he still has a subscription to on when he still has a subscription to American Banker which is a daily American Banker which is a daily American Banker which is a daily newspaper so I don't believe there is a newspaper so I don't believe there is a newspaper so I don't believe there is a banking analyst on the planet banking analyst on the planet banking analyst on the planet that's better than profit on banking I that's better than profit on banking I that's better than profit on banking I think the guy who is never ever been think the guy who is never ever been think the guy who is never ever been wrong on a bank but again if you take wrong on a bank but again if you take wrong on a bank but again if you take the same Warren Buffett and you look at the same Warren Buffett and you look at the same Warren Buffett and you look at his batting average on retailers it is his batting average on retailers it is his batting average on retailers it is horrible mistake after mistake most of horrible mistake after mistake most of horrible mistake after mistake most of books is retail operations

Questionerbooks is retail operations are useless he's too diplomatic to say it in the annual report because that would make the CEOs or the companies look bad but most of those jewelry operations they bought most of those footage operations I think Nebraska Furniture Mart is fine probably more Champs is fine but most of those other ones are useless they haven't delivered anywhere near in fact most of them probably have not delivered anywhere near what he spent so on but also again if you look at Buffett in media almost a thousand batting average almost always been right on people so I think first of all I think that if you are buying a business which is in sick your secular decline that has similar attributes to shorting a stock though not as bad so I would generally stay away from these businesses and I used to own Sears and I got my hair added to me and

WarrenSears and I got my hair added to me and Sears and I got my hair added to me and I learned the difficult way that so I learned the difficult way that so I learned the difficult way that so Sears basically will no matter Sears basically will no matter Sears basically will no matter how many IQ points you add to any how many IQ points you add to any how many IQ points you add to any Lampard Eddie Lampert is a third rate Lampard Eddie Lampert is a third rate Lampard Eddie Lampert is a third rate retailer he may be a first grade retailer he may be a first grade retailer he may be a first grade investor but being a great investor has investor but being a great investor has investor but being a great investor has nothing to do with running a retail nothing to do with running a retail nothing to do with running a retail operation off knowing how to run a great operation off knowing how to run a great operation off knowing how to run a great retail operation there are two retail operation there are two retail operation there are two completely different skill sets and he's completely different skill sets and he's completely different skill sets and he's his CEOs at Sears that's just a his CEOs at Sears that's just a his CEOs at Sears that's just a revolving door you just come and go and revolving door you just come and go and revolving door you just come and go and they'll keep coming and going now it's they'll keep coming and going now it's they'll keep coming and going now it's himself so I guess he won't fire himself himself so I guess he won't fire himself himself so I guess he won't fire himself so I think Sears basically so I think Sears basically so I think Sears basically how many of you shop at Sears did they not hear the question I don't did they not hear the question I don't did they not hear the question I don't see any hands how many of you shop at see any hands how many of you shop at see any hands how many of you shop at sears.com what about what about what about how about Sears your way how many of you how about Sears your way how many of you how about Sears your way how many of you have heard of Sears your way the guy who have heard of Sears your way the guy who have heard of Sears your way the guy who asked a question on Sears he must have asked a question on Sears he must have asked a question on Sears he must have heard of Sears your way because that's heard of Sears your way because that's heard of Sears your way because that's all Eddie talks about

Otherall Eddie talks aboutall Eddie talks about no even he denies having heard of itno even he denies having heard of itno even he denies having heard of it no so there's your answer the people whono so there's your answer the people whono so there's your answer the people who shop at Sears are dying every dayshop at Sears are dying every dayshop at Sears are dying every day unfortunately Service Corp is buryingunfortunately Service Corp is buryingunfortunately Service Corp is burying themthemthem and the people being born todayand the people being born todayand the people being born today will never ever shop at Sears so youwill never ever shop at Sears so youwill never ever shop at Sears so you have secular guarantee Decline and onehave secular guarantee Decline and onehave secular guarantee Decline and one thing about business is that you have tothing about business is that you have tothing about business is that you have to understand is there are businesses thatunderstand is there are businesses thatunderstand is there are businesses that are recurring Revenue recurring revenueare recurring Revenue recurring revenueare recurring Revenue recurring revenue is an amazing concept that you cannotis an amazing concept that you cannotis an amazing concept that you cannot give enough weight to when you're makinggive enough weight to when you're makinggive enough weight to when you're making the Investments going back to ourthe Investments going back to ourthe Investments going back to our favorite stock Jammu and Kashmir bagfavorite stock Jammu and Kashmir bagfavorite stock Jammu and Kashmir bag that is a recurring Revenue businessthat is a recurring Revenue businessthat is a recurring Revenue business when you get banking clients peoplewhen you get banking clients peoplewhen you get banking clients people don't switch bank accounts every threedon't switch bank accounts every threedon't switch bank accounts every three months or six months when they have amonths or six months when they have amonths or six months when they have a loan with you they're paying you for aloan with you they're paying you for aloan with you they're paying you for a while those relationships are safe whenwhile those relationships are safe whenwhile those relationships are safe when you're a retailer every time a consumeryou're a retailer every time a consumeryou're a retailer every time a consumer is going to buy something

Otheris going to buy something they have a choice as to who they buy from and you can get the stickiness like Amazon Amazon has a lot of stickiness Sears at one point had stickiness but when that stickiness is in Decline reversing that is almost impossible in fact Buffett says that he knows of no no examples of successful retailer turnarounds zero so I think that there is no way out for Mr lab

OtherManish thank you thank you once again for being so generous with your time and so forthright with your learning it really means a lot to everyone in this room and I'm sure it'll mean a lot to everyone who sees the video my pleasure and you know what we'll do arvind is when we meet every year we'll take a look at the Jammu and Kashmir stock price that's what we will do that yeah once a year and can we make sure that our Jammu and Kashmir analysts joins us

Otherour Jammu and Kashmir analysts joins us every year we can do that and it may we can do it in Omaha or in in Boston it'll be great okay that sounds great okay all right thank you very much it was a lot of fun thank you Manish okay

Otherthank you