Other[Music][Music][Music][Music] there's basically two ways when you're there's basically two ways when you're there's basically two ways when you're looking at making an investment that it looking at making an investment that it looking at making an investment that it makes no sense either pricing is so makes no sense either pricing is so makes no sense either pricing is so euphoric and so extreme bubble esque euphoric and so extreme bubble esque euphoric and so extreme bubble esque type characteristics that you kind of type characteristics that you kind of type characteristics that you kind of scratch your head and in those cases you scratch your head and in those cases you scratch your head and in those cases you can just take a pass and move on or in can just take a pass and move on or in can just take a pass and move on or in the other case the other case the other case where the pricing and where the pricing and where the pricing and valuation is so extreme in the other valuation is so extreme in the other valuation is so extreme in the other direction that it also makes no sense direction that it also makes no sense direction that it also makes no sense and because we invest in auction driven and because we invest in auction driven and because we invest in auction driven markets auction driven markets have this markets auction driven markets have this markets auction driven markets have this peculiar characteristic that they can peculiar characteristic that they can peculiar characteristic that they can swing quite extremely in both directions swing quite extremely in both directions swing quite extremely in both directions so if I so if I so if I were looking to purchase a home in were looking to purchase a home in were looking to purchase a home in Clemson or Anderson Clemson or Anderson Clemson or Anderson basically it would be an intelligent basically it would be an intelligent basically it would be an intelligent seller facing an intelligent buyer seller facing an intelligent buyer seller facing an intelligent buyer almost all of the time and you'd come up almost all of the time and you'd come up almost all of the time and you'd come up with some kind of intelligent price in a with some kind of intelligent price in a with some kind of intelligent price in a negotiated transaction it' be very negotiated transaction it' be very negotiated transaction it' be very similar if you were trying to purchase
Questionersimilar if you were trying to purchase an entire business and uh again it would be an intelligent seller facing an intelligent buyer when you have these fractions of business businesses trading on the New York Stock Exchange or NASDAQ the fraction of a business can be valued quite differently from the way the entire business would be valued in a negotiated transaction when you see those kinds of extremes and if you had a heuristic would said that that's the only time I'm going to act when I see extreme Behavior or extreme situations so I think in the 2005 annual meeting of Burkshire haway
WarrenWarren Buffett was asked a question he had made a large a relatively large investment in Petro China he had never ever invested in China before and so his first investment in China and actually it wasn't that large it was about a $400 million investment for Burkshire and so
Questionermillion investment for Burkshire and so the question came up in the meeting you know why' you invest in Petro China
Otherand Buffett said that at the time Petro China was earning about1 billion a year it's one of the largest oil companies in the world I think only maybe Exxon and BP would have higher earnings than that and it's 90% owned by the Chinese government so 10% is you know publicly traded and 90% is owned by the government and against this 12 billion of cash flow the market cap of Petro China was 35 billion US and on top of that Warren said he was grateful that their annual reports were published in English so he could actually read them and they had pretty much written black and white in the annual reports that 45% of all cash flow would be pushed out as dividends so he was buying at three times earnings
Questionerwas buying at three times earnings pretty dominant oil company and it was something like a 15% dividend yield on what he was buying so I think the the perspective he had is Bufford understands oil and gas very well he understands these large oil Majors very well and he said that yeah if if Exxon or BP or Chevron were available at those valuations he would definitely pick those because you know he would get us governance and many things that he would understand about them that maybe he might not have understood what pet China but he said that given the huge Delta inv valuations he thought it was a Nob brain or bra and he couldn't find any other oil company that was trading at those types of valuations anywhere in the world and I think very quickly the stock kind of tripled and so on they held it for a few years it was a big home run that's an
Questioneryears it was a big home run that's an example of things not making sense and so what I would say is that if we practice what I would call anomaly based investing weird things happening that make no sense and that's the only time we acted so even if we not doing a a normally based investing because we're trying to look into the future the error rate is high so even the best investment analyst or best investment manager according to John Templeton will be wrong at least one out of three times and more likely you'd be wrong at least half the time and wrong means that you know the stock could Flatline and not go anywhere or it could decline a little bit or it could go up a little bit but it doesn't do what you expected it to do and so we are in a business with a high error rate and if we focus on anomalies then those become interesting and so you need to have your radar up
Questionerand so you need to have your radar up for whenever anomalies show up and I think four years ago I was in Istanbul and one of my good friends is a value investor base there so I had told him listen I just want to visit the publicly traded companies in turkey that he actually has an investment in I said don't take me to businesses that you think are great or whatever if you don't have your own fund invested in that and so I visited in 2018 and then again visited in 2019 and he took me to a a business and when we were driving over he said the market cap was $16 million and the liquidation value was 800 million I would call that an anomaly you know something trading for 2% of liquidation value so I asked him if it was a fraud and what was going on and he said no it's a very simple business very high quality people my fund has invested
Questionerhigh quality people my fund has invested in it and he said it's basically a Reitin it and he said it's basically a Reitin it and he said it's basically a Reit they own warehouses they're the largestthey own warehouses they're the largestthey own warehouses they're the largest Warehouse operator inWarehouse operator inWarehouse operator in turkey and he said that if they sold allturkey and he said that if they sold allturkey and he said that if they sold all the warehouses tomorrow they would getthe warehouses tomorrow they would getthe warehouses tomorrow they would get about a billion dollars and there'sabout a billion dollars and there'sabout a billion dollars and there's about 200 million of debt and so youabout 200 million of debt and so youabout 200 million of debt and so you would end up with about 800 million andwould end up with about 800 million andwould end up with about 800 million and the market G was 16 million and so thenthe market G was 16 million and so thenthe market G was 16 million and so then I thought well you know this willI thought well you know this willI thought well you know this will probably trade By Appointment maybe notprobably trade By Appointment maybe notprobably trade By Appointment maybe not liquid or whatever but turkey is anliquid or whatever but turkey is anliquid or whatever but turkey is an interesting place where it's just ainteresting place where it's just ainteresting place where it's just a market filled with gamblers people wantmarket filled with gamblers people wantmarket filled with gamblers people want to buy at 10:00 a.m. and sell at 300to buy at 10:00 a.m. and sell at 300to buy at 10:00 a.m. and sell at 300 p.m. so the average Turkish companyp.m. so the average Turkish companyp.m. so the average Turkish company Cycles through its entire market capCycles through its entire market capCycles through its entire market cap every 9 days in the US if I look at theevery 9 days in the US if I look at theevery 9 days in the US if I look at the New York Stock Exchange it's somewhereNew York Stock Exchange it's somewhereNew York Stock Exchange it's somewhere between one and two years more than abetween one and two years more than abetween one and two years more than a year for sure which is also high butyear for sure which is also high butyear for sure which is also high but definitely a lot lower than nine daysdefinitely a lot lower than nine days
Otherdefinitely a lot lower than nine days and so I found there was a lot of trading volume and for about $8 million we ended up owning one third of the company and the Turkish Lera has collapsed since then but in dollars the market cap is not of 500 million and and that liquidation value is probably maybe close to 1 and a half billion now so so basically when things hit you over the head with a 2x4 and they make no sense that's when we need to act and if someone says you know apple is trading at 150 and it should be it's worth 180 or 200 or 250 just take a pass it's not an anomaly if someone says Apple's worth a th000 per share and it's trading at 200 per share we should take a look and take it from there so with that because we don't have much time I know that you guys have a limited schedule limited time maybe we can open up for questions and see what you guys want to talk about
Otherand see what you guys want to talk about thank you if anyone has a question I'll just bring them the microphone they can ask it
Questionerwanted to know when markets turn sideways how do you alter your investment strategy
Ted Weschleryeah so the last six months is mostly a yawn you know like I said you know we get excited when things are at 3% or 2% of 10% liquidation value it really didn't do much for me if you will I generally find that in the United States almost anything I look at I either find is fully priced or overpriced and one of the interesting things we had happen in the last you know maybe 18 months or so maybe two years is that there was a very dramatic change in interest rates uh very significant upward movement interest rates and one thing that should affect stock prices quite significantly is interest rates and so when we see a huge rise in interest
Questionerwhen we see a huge rise in interest rates like we've seen recently it should lead to a significant drop in the market caps and valuations of stocks we didn't really see that drw which is also an anomaly but it's an anomaly in the wrong direction so basically if stocks were priced to Perfection a year ago or 18 months ago they're definitely overvalued today because we have a huge change in interest rates and so I think the last six months you know for a cheap skate like me really didn't make much change to the way I spend my days and so like I said it's and the other thing is that in investing one is one is far better off not looking at macro events and not looking at you know what's the market doing and this and that focus on the individual business focus the first question when you look at a business is is it within my circle of competence so
Questioneris it within my circle of competence so focus on the businesses that you understand really well and tune everything else out we don't know what interest rates are going to do we don't know what the economy's growth rate is going to be we we don't know many things and there's no point wasting time or spending time on those types of questions and I think what we really should focus on is individual businesses that you understand really well and then specifically within that group the businesses which are anomalies in the right direction
Questionerawesome thank you very much I'll go next so obviously you live in California now but you went to college at Clemson how did uh you make the transition from South Carolina to California
QuestionerI left California about a little less than two years ago so now I'm in Austin Texas and from South Carolina I moved to
QuestionerCarolina I moved to Carolina I moved to Chicago and that's where where I had my Chicago and that's where where I had my Chicago and that's where where I had my first job in 86 and then in 2003 I moved first job in 86 and then in 2003 I moved first job in 86 and then in 2003 I moved from Chicago to California so it's been from Chicago to California so it's been from Chicago to California so it's been Clemson Chicago Southern California and Clemson Chicago Southern California and Clemson Chicago Southern California and now Austin and I moved to Chicago in ' now Austin and I moved to Chicago in ' now Austin and I moved to Chicago in ' 86 when I graduated because I was a 86 when I graduated because I was a 86 when I graduated because I was a foreign student at foreign student at foreign student at Clemson and there were hardly any Clemson and there were hardly any Clemson and there were hardly any companies and you know my my degree was companies and you know my my degree was companies and you know my my degree was in computer engineering there were very in computer engineering there were very in computer engineering there were very few companies that came on campus that few companies that came on campus that few companies that came on campus that didn't have a citizenship or permanent didn't have a citizenship or permanent didn't have a citizenship or permanent residence requirement there were a lot residence requirement there were a lot residence requirement there were a lot of Defense contractors and uh like the of Defense contractors and uh like the of Defense contractors and uh like the power company and so on they all had power company and so on they all had power company and so on they all had residency requirements so I needed a a residency requirements so I needed a a residency requirements so I needed a a company that would sponsor me for a work company that would sponsor me for a work company that would sponsor me for a work visa and eventually a green card and so visa and eventually a green card and so visa and eventually a green card and so I was I was lucky I found a very good I was I was lucky I found a very good I was I was lucky I found a very good job with a wonderful Telecom networking job with a wonderful Telecom networking job with a wonderful Telecom networking company in Chicago and I worked with company in Chicago and I worked with company in Chicago and I worked with them for about three years as an
Otherthem for about three years as anthem for about three years as an engineer and then I moved to uhengineer and then I moved to uhengineer and then I moved to uh International marketing with them so IInternational marketing with them so IInternational marketing with them so I spent about five years with them andspent about five years with them andspent about five years with them and they they got me my green card which wasthey they got me my green card which wasthey they got me my green card which was great and then I basically started mygreat and then I basically started mygreat and then I basically started my own company was an it Services Systemown company was an it Services Systemown company was an it Services System imigration business and so I quit whenimigration business and so I quit whenimigration business and so I quit when that business had a little bit ofthat business had a little bit ofthat business had a little bit of traction and then I worked on that fortraction and then I worked on that fortraction and then I worked on that for about 10 years and that did well andabout 10 years and that did well andabout 10 years and that did well and then in the middle of all that I heardthen in the middle of all that I heardthen in the middle of all that I heard about Warren Buffett and and then Iabout Warren Buffett and and then Iabout Warren Buffett and and then I think inthink inthink in 2003 my wife basically said that this is2003 my wife basically said that this is2003 my wife basically said that this is not a place for humans it's too cold andnot a place for humans it's too cold andnot a place for humans it's too cold and I am moving to California whether youI am moving to California whether youI am moving to California whether you are or not and so I said oh well I'llare or not and so I said oh well I'llare or not and so I said oh well I'll come along as well and uh so we movecome along as well and uh so we movecome along as well and uh so we move moved in 2003 which was a good time themoved in 2003 which was a good time themoved in 2003 which was a good time the kids were young and and then I thinkkids were young and and then I thinkkids were young and and then I think Austin just made sense California hasAustin just made sense California hasAustin just made sense California has the kind of the highest tax rate amongstthe kind of the highest tax rate amongst
Otherthe kind of the highest tax rate amongst the highest probably the highest taxthe highest probably the highest taxthe highest probably the highest tax rate in the country headed even higherrate in the country headed even higherrate in the country headed even higher and most of my income comes as long-termand most of my income comes as long-termand most of my income comes as long-term gains and it was like the state incomegains and it was like the state incomegains and it was like the state income tax was like more than a third of thetax was like more than a third of thetax was like more than a third of the entire tax bill I was paying so I saidentire tax bill I was paying so I saidentire tax bill I was paying so I said if the oneir goes to zero with what Iif the oneir goes to zero with what Iif the oneir goes to zero with what I think is an improvement in quality ofthink is an improvement in quality ofthink is an improvement in quality of life it's like a win you know it's alsolife it's like a win you know it's alsolife it's like a win you know it's also an anomaly so we focused on that anomalyan anomaly so we focused on that anomalyan anomaly so we focused on that anomaly and moved to Austin and there are someand moved to Austin and there are someand moved to Austin and there are some really good chefs here and I love thereally good chefs here and I love thereally good chefs here and I love the place it's great and you know UT Austinplace it's great and you know UT Austinplace it's great and you know UT Austin with the LGH horns it helps a little bitwith the LGH horns it helps a little bitwith the LGH horns it helps a little bit because they're not orange but they'rebecause they're not orange but they'rebecause they're not orange but they're burnt orange so it's close it's not tooburnt orange so it's close it's not tooburnt orange so it's close it's not too bad and they don't have a tiger but theybad and they don't have a tiger but theybad and they don't have a tiger but they have a longhorn so you know we got tohave a longhorn so you know we got tohave a longhorn so you know we got to live with that but that's okaylive with that but that's okaylive with that but that's okay
QuestionerI was curious on what um indicators youI was curious on what um indicators youI was curious on what um indicators you look for when trying to find an anomalylook for when trying to find an anomaly
Questionerlook for when trying to find an anomaly yeah that's a great question so
Todd Combsyeah that's a great question so basically the job description is reading and thinking and so I'm you know I'm always reading I'm always looking at different things and I'm always trying to just make sure that if I encounter something that doesn't make sense that then I you know take a pause and and you know at least look at what is going on so and you know these anomalies show up in all kinds of places I mean it's hard to come up with a particular pattern but sometimes you can be proactive to cause an anomaly to show up so in 2018 I just noticed that turkey was screening extremely cheap as a country just the you know P ratios and Price to Book and all of those so the entire Market was screening really cheap and actually had a good friend in Turkey who I knew was a hardcore Ben Graham disciple I'm trying to move him to
Questionerdisciple I'm trying to move him to become more of a Charlie Monger disciple and so he's a work in progress there but he was he definitely used to come to the Berkshire meetings and all of that and so I I said okay you know a good way to kind of just poke around and turkey would be to just go there and look at the businesses he's invested in and you know the food is great the blue fish that they get from the boss for us is awesome grilled right in front of you so I said you know the dinners are going to be great the lunches are going to be great and in between that you know we'll get to learn about a few businesses and I had no plans to invest or anything I just said it's a one week you know just great dining and some learning from these different meetings and that's it and then when I walked around we found a few things that made no sense
Questionerfew things that made no sense and so so that's how that happened and and so so that's how that happened and and so so that's how that happened and sometimes they show up like you know sometimes they show up like you know sometimes they show up like you know every week and I think probably Koopa every week and I think probably Koopa every week and I think probably Koopa Library you have this is every week I I Library you have this is every week I I Library you have this is every week I I have a subscription to Value line and have a subscription to Value line and have a subscription to Value line and I'm sure Koopa library has a I'm sure Koopa library has a I'm sure Koopa library has a subscription to Value line as well and subscription to Value line as well and subscription to Value line as well and basically value line publishes every basically value line publishes every basically value line publishes every week you know this little list they have week you know this little list they have week you know this little list they have like the stocks with the lowest pees like the stocks with the lowest pees like the stocks with the lowest pees stocks that have lost the most value in stocks that have lost the most value in stocks that have lost the most value in 13 weeks 13 weeks 13 weeks stocks with the widest discount from stocks with the widest discount from stocks with the widest discount from Price to Book they've got a few stocks Price to Book they've got a few stocks Price to Book they've got a few stocks with the highest dividend yields so I with the highest dividend yields so I with the highest dividend yields so I just look at those lists every week and just look at those lists every week and just look at those lists every week and it doesn't take much time probably less it doesn't take much time probably less it doesn't take much time probably less than five minutes a week or than five minutes a week or than five minutes a week or something just to see if there's something just to see if there's something just to see if there's anything there that pops out and I anything there that pops out and I anything there that pops out and I remember many years ago this might be remember many years ago this might be remember many years ago this might be more than 20 years ago I noticed that more than 20 years ago I noticed that more than 20 years ago I noticed that there were uh two funeral services
Questionerthere were uh two funeral servicesthere were uh two funeral services companies that were showing a PE ofcompanies that were showing a PE ofcompanies that were showing a PE of two and I had read an article along longtwo and I had read an article along longtwo and I had read an article along long time before that which had said that thetime before that which had said that thetime before that which had said that the the gist of that article was that thethe gist of that article was that thethe gist of that article was that the lowest rate of business failure of anylowest rate of business failure of anylowest rate of business failure of any SIC code was funeral homes so if youSIC code was funeral homes so if youSIC code was funeral homes so if you wanted to go into business with a highwanted to go into business with a highwanted to go into business with a high rate of business failure you would openrate of business failure you would openrate of business failure you would open a bar to compete with with Tiger Towna bar to compete with with Tiger Towna bar to compete with with Tiger Town okay I don't know if Tiger Town stillokay I don't know if Tiger Town stillokay I don't know if Tiger Town still exists maybe you can raise your hand andexists maybe you can raise your hand andexists maybe you can raise your hand and tell me if Tiger Town still exists is ittell me if Tiger Town still exists is ittell me if Tiger Town still exists is it going strong all right that's good so ifgoing strong all right that's good so ifgoing strong all right that's good so if you open up next to Tiger toown youyou open up next to Tiger toown youyou open up next to Tiger toown you might not do so well you might be in andmight not do so well you might be in andmight not do so well you might be in and out of business in six months if youout of business in six months if youout of business in six months if you open up a funeral home or you buy aopen up a funeral home or you buy aopen up a funeral home or you buy a funeral home the odds that you would befuneral home the odds that you would befuneral home the odds that you would be in business even 50 years after that arein business even 50 years after that arein business even 50 years after that are really high and the reasons are thatreally high and the reasons are thatreally high and the reasons are that nobody wants to go in the funeralnobody wants to go in the funeral
Warrennobody wants to go in the funeral business you know they want to go compete with Tiger Woods but nobody wants to open a funeral home and basically it's in a way recurring Revenue right so if you have a funeral home in a community generally families will want to go to the same place and the other thing is that when your favorite uncle has passed away you don't call six places trying to get the cheapest price on a casket you know that's not how you treat your uncle your favorite uncle you pretty much called the one place that you know is you know close and good and you accept pricing the way it is you know there's really no bargaining that goes on if you will and so that those are all characteristics of a great business so I said okay you know I know that funeral homes are a great business why are they selling at two times earnings because you know it's so
Todd Combstimes earnings because you know it's so stable I mean I don't know who is going to dry in Poria Illinois next year but I know how many are going to die right so it's a very stable business with very predictable cash flows and it turned out so I said okay we're going to dig into funeral homes to find out what's going on and I looked into these two that was trading at two times earning and basically they had done a big roll up they had a lot of debt even after looking at all of that that two times earnings made no sense and so after doing the work I bought the stock and I was buying at $2 a share and about a year later it was $10 a share you know and we were in and out in about a year or 18 months so in that case it showed up from value line you know so sometimes we find things in value line and sometimes we find things another place
Questionersometimes we find things another place where some of these things show up is 13 F filings so you know there's professional investors who have over 100 million invested in US markets have to every quarter disclose what they own and so you could look at the Burkshire hathway 13f or you could look at bill amman's 13f or whatever investors you admire you can look at the 13f and you can try to Reen reverse engineer why did they buy that stock right so why does Bill Amman like Chipotle or why does he like the railroads and I mean it's in in many ways it's investigative journalism which is a lot of fun so basically you go down a rabbit hole told to try to figure out what was the reason so sometimes when I see things on 13fs I'm not really interested in buying or selling or anything I just want to understand why that particular individual did that and when I figure
Questionerindividual did that and when I figure out the reason why that person did that then I can make a decision well do I agree with that or disagree with that is it enough of an anomaly what's going on and then take it from there so like for example if you looked at Value line or even if you look at some of the 13f filings you will find that some National car dealerships in the United States trade at extremely low multiples currently you know in overv valued market car dealerships trade very cheap and you know companies like auton Nation Asbury Lithia and so on and some of them are furiously buying back their shares like AutoNation has no dividend it just buys back a lot of shares same with asbery and a car dealership is relatively easy to understand some of you might have have even visited a car dealership or two and uh if you seen the movie Fargo you know
Questioneruh if you seen the movie Fargo you knowuh if you seen the movie Fargo you know raise your hand if you've seen the movieraise your hand if you've seen the movieraise your hand if you've seen the movie Fargo all right we've got at least oneFargo all right we've got at least oneFargo all right we've got at least one human who's seen Fargo please see Fargohuman who's seen Fargo please see Fargohuman who's seen Fargo please see Fargo it's a great movie one of the bestit's a great movie one of the bestit's a great movie one of the best movies ever and with a kind of I thinkmovies ever and with a kind of I thinkmovies ever and with a kind of I think it's kind of like a dark comedy is theit's kind of like a dark comedy is theit's kind of like a dark comedy is the best way I would describe it but anywaybest way I would describe it but anywaybest way I would describe it but anyway there's a scene in Fargo where this guythere's a scene in Fargo where this guythere's a scene in Fargo where this guy goes into a car dealership Ed cargoes into a car dealership Ed cargoes into a car dealership Ed car dealership and you know he's trying todealership and you know he's trying todealership and you know he's trying to buy a car and you know how the sales guybuy a car and you know how the sales guybuy a car and you know how the sales guy says when you try to negotiate he saidsays when you try to negotiate he saidsays when you try to negotiate he said oh you know I got to go talk to myoh you know I got to go talk to myoh you know I got to go talk to my manager and then he disappears to talkmanager and then he disappears to talkmanager and then he disappears to talk to the manager and in Fargo what happento the manager and in Fargo what happento the manager and in Fargo what happen happens is he goes over to the otherhappens is he goes over to the otherhappens is he goes over to the other office and they're discussing footballoffice and they're discussing footballoffice and they're discussing football scores or what happened that weekend andscores or what happened that weekend andscores or what happened that weekend and then he comes back after five minutesthen he comes back after five minutesthen he comes back after five minutes there's no discussion about any uhthere's no discussion about any uhthere's no discussion about any uh things and you know the back and forththings and you know the back and forth
Questionerthings and you know the back and forth is all a charade so anyway if you look at a car dealership basically it's three or four businesses in one right so there's the new car business new cars are extremely easy to comparison shop for and we have many websites like true car and so on which will help you understand the invoice price Etc car dealerships make almost no money on new cars because it's so competitive people will know what they want to pay know what options they want Etc you know it might be like they might not even make $500 on a new car so that business is like a loss leader you know but when you go buy the new car they'll almost always get involved in financing it either as a referral or whatever and they do make more money on financing and insurance and so on and warranties and all of that used cars especially you know certified
Questionerknow certified pre-driven that has significant margins because you cannot do an Apples to Apples comparison right I mean there's a you know red Honda Civic which is you know with 2 years old at 10,000 miles you really don't have another one that's exactly like that and so on and especially if the dealer is a Honda dealer and giving you a Honda warranty on a used Honda Etc you know so so used cars have better margins and then the best margins are parts and service right and so if you look at a car dealership parts and service is something like maybe 10 or 15% of the revenue but it's almost 40% of the overall profits it's extremely profitable because when you going to go they know they got you they know that you got them when you come to buy a new car but everything else they got you and in the US the franchise laws are such
Questionerin the US the franchise laws are such that the carthat the carthat the car manufacturers uh are not allowed to sellmanufacturers uh are not allowed to sellmanufacturers uh are not allowed to sell cars directly and also they really can'tcars directly and also they really can'tcars directly and also they really can't really shut you down or anything soreally shut you down or anything soreally shut you down or anything so these are almost monopolies like if Ithese are almost monopolies like if Ithese are almost monopolies like if I have a BMW dealership in a certain areahave a BMW dealership in a certain areahave a BMW dealership in a certain area BMW not going to put three dealershipsBMW not going to put three dealershipsBMW not going to put three dealerships within three miles you know they're justwithin three miles you know they're justwithin three miles you know they're just not going to do that so in thatnot going to do that so in thatnot going to do that so in that geography you got like a monopoly so yougeography you got like a monopoly so yougeography you got like a monopoly so you know car dealerships are a greatknow car dealerships are a greatknow car dealerships are a great business but then you know there's thisbusiness but then you know there's thisbusiness but then you know there's this looming threat of EVS you know wherelooming threat of EVS you know wherelooming threat of EVS you know where people think that there'll be a lot ofpeople think that there'll be a lot ofpeople think that there'll be a lot of EVS which may not need a lot of partsEVS which may not need a lot of partsEVS which may not need a lot of parts and service but the EV stuff is a littleand service but the EV stuff is a littleand service but the EV stuff is a little far out and I think now given what thefar out and I think now given what thefar out and I think now given what the three oems are doing it might be eventhree oems are doing it might be eventhree oems are doing it might be even further out and actually between us girlfurther out and actually between us girlfurther out and actually between us girl basically if Tesla makes a 10% marginbasically if Tesla makes a 10% marginbasically if Tesla makes a 10% margin then all the GM Ford and stellantis willthen all the GM Ford and stellantis willthen all the GM Ford and stellantis will never make a dime on any EVS you knownever make a dime on any EVS you know
Othernever make a dime on any EVS you know because their costs are going to be much more than 10% more than Teslas so they will want to delay and they are delaying the transitions as long as possible in fact if they were smart they would just run the business and runoff which is not invest in eeve um here's one of the anomalies to pay attention to we have an anomaly called Elon Musk and when you encounter someone like Elon Musk there are a few things you do the first thing you do is do not compete with Elon it's not good for your health or your wealth you know so we have a anomaly there and so if I was GM or Ford or stantis I was just take my ball and go home I would not play that game and but what they're going to do is they're all going to play the game they'll all lose a lot of money and in the end they will all cease to exist and you heard it first here at Clemson so
Questioneryou heard it first here at Clemson so that's just the way it is but in the meantime the car manufacturing is a terrible business car dealerships are a great business and I think the market doesn't get it so that's an you know a little bit of an anomaly so that's kind of how we go about it
Questionerso you were talking about some of the anomalies for Success on like the other hand are there any like strong indicators throughout your career on like what to look for to like when to not buy like a stock for a company and like kind of your way to know when to avoid going in a certain industry or company on its own
Warrenyeah well I mean you know there's 50,000 or so stocks around the world 99 plus per of them are either ones that you cannot understand or are too expensive they're not anomalies in the right direction so our main job is to just say no and just say no to
Ted Weschlerjob is to just say no and just say no to everything except every once in a while something shows up that you should look at and then maybe at after doing the work if it makes sense you say yes and if I can find you know if I can find two stocks a year that I can say yes to life is awesome that's all I'm trying to do even one stalk a year would be just fine if I can find one a year I'm doing good and so I focus on talking to the wonderful students at Clemson and avoiding saying yes to stocks to buy because most things just don't make sense to buy
QuestionerMr pad this is Carrie McMillan with Wall Street South and we you always send me great notes and I think the students would like to hear your association with Warren Buffett in BurkshireBurkshire Hathaway
Ted Weschlerwell I don't have any official affiliation with Burkshire or Warren both Warren and Charlie are
Questionerboth Warren and Charlie are friends and it's kind of weird that you know the Indian guy who was a foreign student at Clemson is friends with Warren and Charlie but you know weird things happen in this world you know that's another anomaly and yeah I mean I think we live in kind of interesting times because we live in the time of Warren Buffett and Charlie Monger so I I found that interesting that they were alive and they are alive while I'm alive and then I discovered about like I think 16 17 years ago that Warren Buffett would meet meet you for lunch if you gave him a bribe you know and I said oh this is great I can try to bribe him and then I can and you know I learned everything you know when I was at Clemson I got my degree in computer engineering I tried to take as many classes as I could in the business school you know I spent a lot of time in
Otherschool you know I spent a lot of time in Serene Hall but now those Business Schools move to where Clemson house used to be and I don't know if Clemson house is still there it might be gone it is gone all right good to know but anyway I spent a year living in Clemson house which was pretty nice but anyway Serene Hall was where I used to take my classes and I really enjoyed it at that time I took a few investment classes then but really almost everything I learned from reading about Burkshire Hathaway and Warren and Charlie and all their writings and annual meetings and all of that and so I felt like you know I think in 2007 my net worth was I think 84 million very large portion of that was because of using the intellectual property of Warren and Charlie without paying them for it you know like so I felt like there was a huge tuition Bild du then I
Otherthere was a huge tuition Bild du then Ithere was a huge tuition Bild du then I see that he's willing to take bribes andsee that he's willing to take bribes andsee that he's willing to take bribes and then I thought to myself well you knowthen I thought to myself well you knowthen I thought to myself well you know if someone makes you these you know tensif someone makes you these you know tensif someone makes you these you know tens of millions of dollars and you know youof millions of dollars and you know youof millions of dollars and you know you want to say thank you to them how muchwant to say thank you to them how muchwant to say thank you to them how much should you be willing to pay them forshould you be willing to pay them forshould you be willing to pay them for tuition and I thought at that time 2tuition and I thought at that time 2tuition and I thought at that time 2 million was an appropriate number youmillion was an appropriate number youmillion was an appropriate number you know I said you know if someone makesknow I said you know if someone makesknow I said you know if someone makes you like 80 million you can give themyou like 80 million you can give themyou like 80 million you can give them two million it's okay you know that'stwo million it's okay you know that'stwo million it's okay you know that's probably a good cheap deal two and aprobably a good cheap deal two and aprobably a good cheap deal two and a half% or something so I said okay I'mhalf% or something so I said okay I'mhalf% or something so I said okay I'm going to bid for the Burkshire you knowgoing to bid for the Burkshire you knowgoing to bid for the Burkshire you know buffets annual lunch you can bring sevenbuffets annual lunch you can bring sevenbuffets annual lunch you can bring seven people to the lunch and I was going topeople to the lunch and I was going topeople to the lunch and I was going to go with my family so they were stillgo with my family so they were stillgo with my family so they were still going to be like three seats empty so Igoing to be like three seats empty so Igoing to be like three seats empty so I talked to my friend gu Spear and I saidtalked to my friend gu Spear and I saidtalked to my friend gu Spear and I said hey you know I'm going to bid for thishey you know I'm going to bid for thishey you know I'm going to bid for this lunch and do you want to come with your
Ted Weschlerlunch and do you want to come with your wife for this he said oh I that'd be great so I said look there going to be two of you and four of us so you can be one of the total and I can be 2/3 and I told them that I was going to I was okay to go up to two million so with him in the picture we could go to 3 million and so he said that's too much he said I can't handle more than a quarter million I'm good for a quarter million so I told Guy okay listen your capped at a quarter million and anything above that which is I'll take care of you know if it's if the one third is more than a quarter million and so I bid for it knowing that we had this $3 million War chest and the me the bidding capped out at 650,000 what a deal you know and so guy wired me 200,000 and change and then you know we wired the money to this wonderful gu Church in San Francisco
Ted Weschlerwonderful gu Church in San Francisco Glide which takes care of the homeless and so on it's a wonderful you know the movie The Pursuit of Happiness with Will Smith was about that church and that uh homeless shelter so that's where the money went and and then you know we met Warren for lunch and I thought you know my my own objective for the lunch was that look him in the eye thank him for his wonderful intellectual property and you know you know go on my way from there and the lunch went for like about 3 hours in fact he said you know I'll stay as long as you want because I got nothing going on all afternoon and I think after three hours we were we had no more questions for we were like exhausted you know and but the what I didn't expect is the lunch led to a wonderful friendship and I never expected that and Warren introduced us
Questionerexpected that and Warren introduced us to Charlie you know I told him that myto Charlie you know I told him that myto Charlie you know I told him that my my wife Arena was a big fan of his butmy wife Arena was a big fan of his butmy wife Arena was a big fan of his but her real love in life is Charlie Monkher real love in life is Charlie Monkher real love in life is Charlie Monk and Warren kind of got competitive andand Warren kind of got competitive andand Warren kind of got competitive and said you know Charlie is an extremelysaid you know Charlie is an extremelysaid you know Charlie is an extremely boring guy uh I'm really the interestingboring guy uh I'm really the interestingboring guy uh I'm really the interesting one and so he said I'm going to arrangeone and so he said I'm going to arrangeone and so he said I'm going to arrange for you guys to meet Charlie for lunchfor you guys to meet Charlie for lunchfor you guys to meet Charlie for lunch because he's in LA and you guys are inbecause he's in LA and you guys are inbecause he's in LA and you guys are in California and then after you meetCalifornia and then after you meetCalifornia and then after you meet Charlie you will know that he's utterlyCharlie you will know that he's utterlyCharlie you will know that he's utterly and totally boring and then I'm the guyand totally boring and then I'm the guyand totally boring and then I'm the guy okay so I thought it was joking but thenokay so I thought it was joking but thenokay so I thought it was joking but then you know I got an email from hisyou know I got an email from hisyou know I got an email from his assistant and we get lunch set up withassistant and we get lunch set up withassistant and we get lunch set up with Charlie Munger and I actually enjoyedCharlie Munger and I actually enjoyedCharlie Munger and I actually enjoyed the Munger lunch way more than thethe Munger lunch way more than thethe Munger lunch way more than the Buffett lunch it was just great andBuffett lunch it was just great andBuffett lunch it was just great and Charlie you can't even bribe you know heCharlie you can't even bribe you know heCharlie you can't even bribe you know he doesn't take bribes to have lunch sodoesn't take bribes to have lunch sodoesn't take bribes to have lunch so that was great and then that led to athat was great and then that led to athat was great and then that led to a great friendship with Charlie until
Othergreat friendship with Charlie until recently I used to play bridge with him on Fridays at the LA country club and now he's too old and immobile to go there so those Bridge games came to an end but I in fact I just had dinner with Charlie I think two two weeks ago yeah I think about two weeks ago on Saturday and we had a great time actually he's he's going to be 100 years old on January 1st and is doing well and so yeah it was a accidental thing that kind of happened I didn't expect to have a friendship with them and Warren Warren H used to have this brunch every Sunday in Omaha after the birkshire meeting I've been going to the Burkshire meeting I think for like 26 years or something 26 27 years but after the lunch on Sundays he used to invite us to this brunch and this brunch was the managers of the different businesses the board of directors and
Questionerbusinesses the board of directors and some of his friends so guy and I used to feel when we'd go for this lunch that we were the only two low life in the room that everybody else was somebody and we were like nobody and then we felt like this would be like the last year we'd be invited because they finally fig would figure it out that these guys are useless but sometimes I would tell guy you know don't turn around and look but right behind us Bill Gates and Bono are having a conversation you know and so it was just a surreal experience because there'd be football players there from the NFL and there'd be Hollywood actors and actresses and then there'd be all these different celebrities and then we'd be the only yo-yos and so that was great but anyway life is peculiar life has anomalies and we end up with a weird anomaly of the Indian guy with a friendship with these
QuestionerIndian guy with a friendship with these two guys life is great there any other questions you got one in the back how do you go about thinking about like diversification versus betting a large on just a few high quality names you really believe in
Questioneryeah that's a great question
Warrenso Charlie Monger says that if you owned the Ford dealership or you know partially or completely the Ford dealership in Poria Illinois and you owned the McDonald's franchise in Poria Illinois and you owned the best apartment building in pure Illinois and those were the only three assets you had and you had like kind of onethird in two in each of them and basically and you could have partial ownership or complete ownership either way let's say those were all listed businesses for example he would consider that a extremely well Diversified good portfolio that would likely do really
Questionerportfolio that would likely do really well for you and so if you think of a portfolio like that it's all in a single geography Fe in a small town and it's in three businesses so if you were you know going to look at a portfolio of stocks I think once you get past about 10 stocks in a portfolio there are diminishing returns you're probably going to hurt yourself more than you're going to help yourself when you buy the 11th business because the 11th business will not be as well understood by you as the number two business in that portfolio and when you go from 10 stocks to 50 stocks for example you don't gain that much with the diversification so what I have always tried to do in my funds is basically I set an upper limit from a cost point of view of 10% in a single position and but I don't trim the position if it grows so like for example
Questionerposition if it grows so like for example when we were buying the the Reit in Turkey you know we put we put the 8 million or whatever in and you know that becomes 150 million or something it hasn't been trimmed because even if it's valued by the market at 150 million it's actually worth about 4 400 450 million based on the current liquidation value of the business and if I look at intrinsic value which would be even higher than liquid liquidation value would be even higher than that so in in one of my funds for example because of this the Turkish bets we've had three Turkish bets they probably make up like 65 70% of the pie but we own the dominant Coke bottler in turkey and they bottle Coke in about 12 different countries if you own a Coke bottler or a Pepsi bottler in most geographies around the world it's a license to print money highly unlikely
Otherlicense to print money highly unlikely you would not do well with that and andyou would not do well with that and andyou would not do well with that and and we own an airport operator in Turkeywe own an airport operator in Turkeywe own an airport operator in Turkey they operate about like 15 differentthey operate about like 15 differentthey operate about like 15 different airports and that's another Monopolyairports and that's another Monopolyairports and that's another Monopoly type business does extremely well sotype business does extremely well sotype business does extremely well so basically I look at that as like thebasically I look at that as like thebasically I look at that as like the three businesses in Poria you know andthree businesses in Poria you know andthree businesses in Poria you know and and so that's kind of how we go aboutand so that's kind of how we go aboutand so that's kind of how we go about looking at things I've got one you saidlooking at things I've got one you saidlooking at things I've got one you said you used to hang out at Los Angelesyou used to hang out at Los Angelesyou used to hang out at Los Angeles Country Club what's the best golf roundCountry Club what's the best golf roundCountry Club what's the best golf round you ever had out there well when I wentyou ever had out there well when I wentyou ever had out there well when I went to the LA Country Club I wasn't a golferto the LA Country Club I wasn't a golferto the LA Country Club I wasn't a golfer we used to play bridge and I think onewe used to play bridge and I think onewe used to play bridge and I think one of the big regrets I have I I don't haveof the big regrets I have I I don't haveof the big regrets I have I I don't have very many regrets is I should havevery many regrets is I should havevery many regrets is I should have really focused on golf much earlier andreally focused on golf much earlier andreally focused on golf much earlier and I took up golf after I moved to AustinI took up golf after I moved to AustinI took up golf after I moved to Austin and I I joined an ice Club it's a 10and I I joined an ice Club it's a 10and I I joined an ice Club it's a 10 minutes from my home and I don't evenminutes from my home and I don't evenminutes from my home and I don't even know if I have a handicap at this pointknow if I have a handicap at this pointknow if I have a handicap at this point I don't think it's measurable but but I
QuestionerI don't think it's measurable but but I don't think it's measurable but but I have a good time with it I go to the driving range quite a bit maybe if we talk in a year or two I might be able to tell you that I have like a 30 handicap or something we might get there we'll see but I am enjoying it and the LA Country Club I mean it it actually hosted the PGA this year I think and it's a marvelous facility and Charlie was playing I think he was playing used to play like two times or three times a week and that would have been a lot of fun if I actually had been smart enough to Pi up golf earlier and if I was really smart I would have taken up and I at Clemson but you know we're old too soon and wise too late and that's the way life goes well I had a great time and I think I would just say that I think you guys have a wonderful jumping off point into your careers being a
Otheroff point into your careers being a Clemson and I think that it's I got a Clemson and I think that it's I got a Clemson and I think that it's I got a very fine education I actually never very fine education I actually never very fine education I actually never appreciated what what a beautiful part appreciated what what a beautiful part appreciated what what a beautiful part of the country I was in till I moved to of the country I was in till I moved to of the country I was in till I moved to the other not so beautiful parts of the the other not so beautiful parts of the the other not so beautiful parts of the country it was wonderful some lifelong country it was wonderful some lifelong country it was wonderful some lifelong friendships some of my best friends are friendships some of my best friends are friendships some of my best friends are still the folks I met at Clemson at that still the folks I met at Clemson at that still the folks I met at Clemson at that time so it's been great and I encourage time so it's been great and I encourage time so it's been great and I encourage you to make the most of it and start the you to make the most of it and start the you to make the most of it and start the golf as early as possible go from there golf as early as possible go from there golf as early as possible go from there so thank you very much