Other[Music][Music][Music][Music] monish thank you so much as always formonish thank you so much as always formonish thank you so much as always for coming I it's great to see you and Icoming I it's great to see you and Icoming I it's great to see you and I can't wait to get started so anyway gocan't wait to get started so anyway gocan't wait to get started so anyway go ahead with a brief monologue just goingahead with a brief monologue just goingahead with a brief monologue just going back to Buffett's childhood you knowback to Buffett's childhood you knowback to Buffett's childhood you know there was a there was a racetrack inthere was a there was a racetrack inthere was a there was a racetrack in Nebraska called which is NebraskaNebraska called which is NebraskaNebraska called which is Nebraska spelled backwards and uh that racetrackspelled backwards and uh that racetrackspelled backwards and uh that racetrack has been demolished and actually there'shas been demolished and actually there'shas been demolished and actually there's a incredible dimsum restaurant and a lota incredible dimsum restaurant and a lota incredible dimsum restaurant and a lot of gentrified condos and whatnot in itsof gentrified condos and whatnot in itsof gentrified condos and whatnot in its place so aaran is gone and all kinds ofplace so aaran is gone and all kinds ofplace so aaran is gone and all kinds of avant guard people moved in h anywayavant guard people moved in h anywayavant guard people moved in h anyway when when Buffett was a teenager he usedwhen when Buffett was a teenager he usedwhen when Buffett was a teenager he used to he used to go to the racetrack and heto he used to go to the racetrack and heto he used to go to the racetrack and he had several activities on the racetrackhad several activities on the racetrackhad several activities on the racetrack he had he had tips for the for the beershe had he had tips for the for the beershe had he had tips for the for the beers he had letter are called stable boyhe had letter are called stable boyhe had letter are called stable boy selections which he used to sell youselections which he used to sell youselections which he used to sell you know basically to help the people whoknow basically to help the people whoknow basically to help the people who are betting maybe maybe win or not winare betting maybe maybe win or not winare betting maybe maybe win or not win but Buffett would win because he he'd
Otherbut Buffett would win because he he'd get paid and and then after all the race were over he would gather up all the tickets that people had discarded on the ground or in the trash trash cans and so on and he would bring them all home and he would go through each one carefully to see if some drunk had discarded a winning ticket and of course you know most tickets that are discarded are going to be useless and they actually discarded for good reasons but he would find a decent number of these discarded tickets that actually were winning tickets and because he was under 18 he couldn't go to the to the window to collect on them so he would he would collect all the winning tickets and give it to his Aunt Alice his favorite aunt and Aunt Alice would go to the window and collect the money and then she'd give it to Warren and this this approach that Warren had
Questionerand this this approach that Warren had as a teenager which is a pretty dogged painstaking approach of you know you know wanting to you know kind of it it violates what the University of Chicago efficient market theorist you know two economists walking down the campus seeing a dollar bill on the ground one guy says look there's a dollar bill the other guy says no that's not a dollar bill because if it was a dollar bill it would have been it would have been gone a long time ago because markets are efficient and and so this he says we should keep walking because there's no dollar bill and so anyway when he was in his early 20s he went through through the Moody's manual and I was always curious kind of what the Moody's manual looked like because you know The Moody manuals don't quite exist so I I went on eBay and I bought like a Moody's manual
QuestionereBay and I bought like a Moody's manual you can see like kind of how thick it is like it's a big ass thing and there's like many of them that came out every year this was this is the one for transportation so it has railroads Airlines shipping bus and Truck Lines and this is from 1953 if you're so inclined before they become really expensive you could go on eBay and get yourself a copy you know just for like Nostalgia sake but if I if I look inside for example you know basically there's like multiple companies on a page and it's really like you can't probably see it it's even finer print than value line it's really really fine print and this thing is like almost, 1600 pages and so Buffett would get all of these Moody manuals maybe they were like you know six or eight of them covering all the different Industries so something like 10,000 pages and he would flip through
Questioner10,000 pages and he would flip through every page and what he was looking for was exactly what he was looking for on the racetrack which was he was looking for winning tickets and you know like I think he's mentioned in some of the MBA talks he's given like you know he Western Insurance which was a $15 million market cap and had made 25 million net profit in the previous year you know kind of extreme anomalies very thinly traded stocks but which were just so he was doing a very heavy pure quantitative screen he said that you know he didn't spend a lot of time on each company but he he was kind of skim through it and so this was when he was in his early 20s and then you know running the buffet Partnerships and all that and he went through these manuals twice you know basically looking for and he found a bunch of you know what I would call anomalies and anom are really
Ted Weschlerwould call anomalies and anom are really important in investing and this so you know we have warn as a teenagers and we have warn in the early 20s and then in 2012 2012 Buffett is now 80 2 years old actually when we met him in 2012 when guy and I met him he was 81 years old because it was just before the annual meeting and I I had had you know i' IID bid for and I'd won lunch with Warren in the charity launch auction in 2000 basically while guy and I were kind of setting up the dates for the lunch Etc we became we get we got to know Debbie bosanic reasonably well who's buff its assistant and we we had proposed to Debbie that hey you know when we're coming to Omaha if you're twiddling your thumbs would you care to go to lunch with us and she said oh Mish and guy I'd love to go to lunch with you and she said the only thing is I can't do it on
Ted Weschlersaid the only thing is I can't do it on Friday because there's all kinds of celebrities coming into town in the office of the zoo but she said if you come on Thursday we can do lunch on Thursday and the meetings on Saturday so we said oh you know we're twiddling our comes anyway so we can come on any day you know and so anyway we would we would go on a Thursday and then we'd go to lunch with Debbie so we did this in like 2009 2010 2011 and it continued for several years and actually lunch with Debbie or the lunches with Debbie were vastly Superior don't tell Warren this but they were vastly Superior to lunch with Warren because I would tell Debbie Debbie listen between us girls can we talk and she would say what do you want to know about Mish and I would ask her questions like does he have a cell phone you know and then she start laughing and she said
Otherand then she start laughing and she said yeah he has a cell phone but it's in my drawer and he really doesn't know how to use it he just knows how to flip it open when a call comes to answer it that's all he knows and he knows how to call me and that was it so this was you know Warren in 2012 or whatever and anyway in 2012 when we went to Omaha for lunch with Debbie Buffett is at the elevator when God and I come off the elevator and I thought oh maybe he's going somewhere you know and it turns out he'd come to greet us at the elevator and he says he says to us hey before you go for lunch do you want a tour of headquarters I said Warren you know you want to waste time with a couple of yoos no problem you know we can do it a tour okay and so he gives us a tour he showed us you know this is the letter I sent to long-term capital this is the first BNF BNSF stock
Questionercapital this is the first BNF BNSF stock certificate all this memorabilia for like like decades he's kind of walking us through he showed us his Fountain Coke machine that he's really proud of and all of that right so then you know he takes us into his private office okay and I noticed in the in his private office there is this bad boy the Japan company handbook okay now I knew what this Japan company handbook was because coincidentally at the same time around then I had had I had a subscription to Japan company handbook and I see it on his desk and I was really surprised I said wow okay so the Japan company handbook is basically it's in English which is helpful and it's basically value line for Japan it has it has half a page on every listed Japanese company so like here is like four Japanese compan company and again extremely small
Ted Weschlercompan company and again extremely small print I think the print is even smallerprint I think the print is even smallerprint I think the print is even smaller than the Moody's manual and basicallythan the Moody's manual and basicallythan the Moody's manual and basically it's giving you a little bit ofit's giving you a little bit ofit's giving you a little bit of quantitative data you know earningsquantitative data you know earningsquantitative data you know earnings dividends market cap Book value and adividends market cap Book value and adividends market cap Book value and a few you know things like that andfew you know things like that andfew you know things like that and whatever with some history and so on andwhatever with some history and so on andwhatever with some history and so on and some a chart and such and so as itsome a chart and such and so as itsome a chart and such and so as it turned out just coincidentally before Iturned out just coincidentally before Iturned out just coincidentally before I went to Omaha in 2012 I had been goingwent to Omaha in 2012 I had been goingwent to Omaha in 2012 I had been going through the exact same Japan companythrough the exact same Japan companythrough the exact same Japan company handbook because you know we knowhandbook because you know we knowhandbook because you know we know Japanese talks are so cheap you knowJapanese talks are so cheap you knowJapanese talks are so cheap you know they're really really cheap and I toldthey're really really cheap and I toldthey're really really cheap and I told Warren hey Warren you know I can makeWarren hey Warren you know I can makeWarren hey Warren you know I can make this faster for you okay I said Ithis faster for you okay I said Ithis faster for you okay I said I already went through it you're probablyalready went through it you're probablyalready went through it you're probably just starting why don't I Doge ear thejust starting why don't I Doge ear thejust starting why don't I Doge ear the pages that are of most interest andpages that are of most interest andpages that are of most interest and before he even responded to me Ibefore he even responded to me Ibefore he even responded to me I proceeded to mutilate his copy of theproceeded to mutilate his copy of theproceeded to mutilate his copy of the Japan company handbook by puttingJapan company handbook by puttingJapan company handbook by putting various dog ears on different companies
Questionervarious dog ears on different companies that I found interesting and Warren is just standing there you know poker face not really saying anything letting the Indian guy do his thing and guy is getting a little bit horrified that here we are you know maybe overstepping our kind of welcome and and what I what I found is that you know humans humans the way we are we are hardcoded in terms of you know our traits and personality and all that between our genetics in the first five years five or six years of our life experience we're hardcoded after that basically not much is going to change and a good example of that is exactly this with Warren with the teenager at aarbon and the the guy in the early 20s with the Moody's manual at 82 running booksh haway which can no longer do Mickey Mouse bets is still coming through the Japan company handbook when
Questionerthrough the Japan company handbook whenthrough the Japan company handbook when he should be doing other things you knowhe should be doing other things you knowhe should be doing other things you know this is not the stuff he should be doingthis is not the stuff he should be doingthis is not the stuff he should be doing but he can't help himself he's still gotbut he can't help himself he's still gotbut he can't help himself he's still got the kid in him who wants to hunt for thethe kid in him who wants to hunt for thethe kid in him who wants to hunt for the treasures that everyone else hastreasures that everyone else hastreasures that everyone else has overlooked okay and then we then weoverlooked okay and then we then weoverlooked okay and then we then we see that insee that insee that in 2020 there's a filing I mean there's2020 there's a filing I mean there's2020 there's a filing I mean there's several filings by Burkshire whereseveral filings by Burkshire whereseveral filings by Burkshire where they've taken a 5% they've gone over 5%they've taken a 5% they've gone over 5%they've taken a 5% they've gone over 5% on five Japanese trading companies okayon five Japanese trading companies okayon five Japanese trading companies okay now the lunches with Debbie stopped andnow the lunches with Debbie stopped andnow the lunches with Debbie stopped and the lunch everything stopped after a fewthe lunch everything stopped after a fewthe lunch everything stopped after a few years and I have not had a chance toyears and I have not had a chance toyears and I have not had a chance to talk to Warren but if I had a chance totalk to Warren but if I had a chance totalk to Warren but if I had a chance to talk to Warren I would ask him heytalk to Warren I would ask him heytalk to Warren I would ask him hey Warren I'm almost sure that those fiveWarren I'm almost sure that those fiveWarren I'm almost sure that those five ideas came out of that Japan companyideas came out of that Japan companyideas came out of that Japan company handbook you know that's really wherehandbook you know that's really wherehandbook you know that's really where you first saw them and if you really ifyou first saw them and if you really ifyou first saw them and if you really if you go back and look at these fiveyou go back and look at these fiveyou go back and look at these five companies you know mitsui and Mitsubishi
Questionercompanies you know mitsui and Mitsubishi and so on and you look at their stock prices in August 2020 they were hitting multi-year lows in fact the filing came out on his birthday on August 30th 2020 is when the filing came out I think it was Warren's we are celebrating his birthday and they it came out like basically all of them had gone just over 5% so he must have been accumulating and gotten all to 4.9 99% on August 29th and then he bought a few shares and the filing was made on August 30th you know just kind of keep the all the you know Symmetry and all that and now he did a couple of interesting things with this Japanese bet first he didn't put up any Capital so so he he invested I believe about 5 billion and he borrowed the entire 5 billion in yen in Japan at a half a percent interest per year fixed and these five uh trading companies had a 8% dividend
Questioneruh trading companies had a 8% dividend
Questioneruh trading companies had a 8% dividend yield okay so
Questioneryield okay so
Questioneryield okay so basically he was going to be paying on 5
Questionerbasically he was going to be paying on 5
Questionerbasically he was going to be paying on 5 billion you know about 25 million a year
Questionerbillion you know about 25 million a year
Questionerbillion you know about 25 million a year in interest and he was going to be
Questionerin interest and he was going to be
Questionerin interest and he was going to be collecting about 400 million a year in
Questionercollecting about 400 million a year in
Questionercollecting about 400 million a year in dividends okay and and and of course
Questionerdividends okay and and and of course
Questionerdividends okay and and and of course they were you know they were like a very
Questionerthey were you know they were like a very
Questionerthey were you know they were like a very low single digit pce and all that and
Questionerlow single digit pce and all that and
Questionerlow single digit pce and all that and very long histories these companies have
Questionervery long histories these companies have
Questionervery long histories these companies have been around for you know decades and
Questionerbeen around for you know decades and
Questionerbeen around for you know decades and decades and and of course he visited
Questionerdecades and and of course he visited
Questionerdecades and and of course he visited with Greg AEL I think last year maybe
Questionerwith Greg AEL I think last year maybe
Questionerwith Greg AEL I think last year maybe earlier this year I'm I'm fuzzy on that
Questionerearlier this year I'm I'm fuzzy on that
Questionerearlier this year I'm I'm fuzzy on that I think he went earlier this year to
QuestionerI think he went earlier this year to
QuestionerI think he went earlier this year to Japan and he met all the five companies
QuestionerJapan and he met all the five companies
QuestionerJapan and he met all the five companies and he's bumped up the positions now
Questionerand he's bumped up the positions now
Questionerand he's bumped up the positions now they're about 8% or so each and what has
Questionerthey're about 8% or so each and what has
Questionerthey're about 8% or so each and what has happened in the last three years since
Questionerhappened in the last three years since
Questionerhappened in the last three years since that filing is all of these stocks have
Questionerthat filing is all of these stocks have
Questionerthat filing is all of these stocks have doubled or
Questionerdoubled or
Questionerdoubled or quadrupled okay so they've gone up 2x to
Questionerquadrupled okay so they've gone up 2x to
Questionerquadrupled okay so they've gone up 2x to 4X all of them have doubled their
Questioner4X all of them have doubled their
Questioner4X all of them have doubled their dividend so the 400 million dividend is
Questionerdividend so the 400 million dividend is now 800 million and the five billion is now 800 million and the five billion is now 800 million and the five billion is like you know maybe 12 billion something like you know maybe 12 billion something like you know maybe 12 billion something okay and the return on equity on that okay and the return on equity on that okay and the return on equity on that bet is bet is bet is infinite because basically there was no infinite because basically there was no infinite because basically there was no Equity put up you know and and if you if you look at so you know if you look at you look at so you know if you look at the the the 2022 letter that Buffett wrote which 2022 letter that Buffett wrote which 2022 letter that Buffett wrote which came out this year he said that you know came out this year he said that you know came out this year he said that you know in in 58 years of running in in 58 years of running in in 58 years of running Burkshire there have been like 12 ideas Burkshire there have been like 12 ideas Burkshire there have been like 12 ideas or 12 things that he has done that have or 12 things that he has done that have or 12 things that he has done that have moved the needle these 12 uh decisions moved the needle these 12 uh decisions moved the needle these 12 uh decisions have created with the Burkshire that we have created with the Burkshire that we have created with the Burkshire that we know and it wasn't like he made 12 know and it wasn't like he made 12 know and it wasn't like he made 12 decisions he made hundreds of decisions decisions he made hundreds of decisions decisions he made hundreds of decisions he bought hundreds of stocks and one of he bought hundreds of stocks and one of he bought hundreds of stocks and one of these 12 decisions I think is for these 12 decisions I think is for these 12 decisions I think is for example hiring a g chain and the other example hiring a g chain and the other example hiring a g chain and the other 11 are either marketable Securities like 11 are either marketable Securities like 11 are either marketable Securities like Washington Post or AMX or coch or their Washington Post or AMX or coch or their Washington Post or AMX or coch or their wholly owned subsidiaries like you know
Questionerwholly owned subsidiaries like you know Mid American and Burlington Northern and National andem and so on Seas candy and such and so anyway basically he says there was a good idea basically on average once every five years okay now if we look at the last several years for Buffett the two ideas that really stand out in terms of what he's done have been apple and the Japanese BS those have been you know if I if I say if I go back over the last 10 years for example I say okay you know in the last 10 years what are the two best things that Warren has done it's probably these two now the Japanese bets are not that big because in the broad scheme of things berer it's it's small but it's he's tried to bump the bets up and and and so basically there are some lessons I think there's some important lessons here one is that while we
Questionerthat while we you know when we run investment funds oryou know when we run investment funds oryou know when we run investment funds or running some pool of capital or whateverrunning some pool of capital or whateverrunning some pool of capital or whatever we'rewe'rewe're doing we're sifting through you know adoing we're sifting through you know adoing we're sifting through you know a lot of we're looking at a lot of under alot of we're looking at a lot of under alot of we're looking at a lot of under a lot of rocks to find an anomalies orlot of rocks to find an anomalies orlot of rocks to find an anomalies or whateverwhateverwhatever else they are extremelyelse they are extremelyelse they are extremely rare okay to so what I'm saying is thatrare okay to so what I'm saying is thatrare okay to so what I'm saying is that you know the average stuff that youyou know the average stuff that youyou know the average stuff that you might find looking around you know somemight find looking around you know somemight find looking around you know some something is worth $20 and it's tradingsomething is worth $20 and it's tradingsomething is worth $20 and it's trading at 14 and it might goow grow at 5 or 10%at 14 and it might goow grow at 5 or 10%at 14 and it might goow grow at 5 or 10% a year or something you know those mighta year or something you know those mighta year or something you know those might be the best things you find you know butbe the best things you find you know butbe the best things you find you know but those are not what what is going to movethose are not what what is going to movethose are not what what is going to move thethethe needle what is going to move the needleneedle what is going to move the needleneedle what is going to move the needle are the anomalies andare the anomalies andare the anomalies and so investing investing is hard becauseso investing investing is hard becauseso investing investing is hard because like you know Monger says you know takelike you know Monger says you know takelike you know Monger says you know take a good idea and take it seriously thesea good idea and take it seriously thesea good idea and take it seriously these ideas pop up at very random times inideas pop up at very random times inideas pop up at very random times in very random places in a veryvery random places in a veryvery random places in a very unpredictable way and our job is to be
Questionerunpredictable way and our job is to be vigilant to know when we are when we have something amazing in front of us I I remember that in after the crash in I think in 2001 2002 level three not level three but but Peter K and Sons which was a construction company in in in Omaha had spun out you know Broadband carrier level three which was doing a lot of fiber buildout and level three was flying really high when the whole internet Mania was going on and and then what happened is the music stopped in you know all these companies went bankrupt and level three was actually upside down they didn't have enough Revenue versus the amount of debt they had servicing the debt and that balance sheet was upside down they had too much leverage a lot of issues going on and I had made an investment at that time in level three and interestingly even though you know I didn't know waren
Questionereven though you know I didn't know waren then but he made made the same bet for the same reasons okay and so level three had issued convertible debt in the you know Heyday of the.com boom and this these bonds these convertible bonds were trading at about 20 cents on the dollar I mean 20 cents on the dollar is basically a bond is that's going to default you know 40 cents of the dollar or 50 cents is going to default you know so cense for sure is going to default but the bond has a had a 6% coupon and when you looked at their balance sheet they were solvent enough to pay the interest for at least the next three years and level three was trying to buy these bonds they were trying to themselves buy off as many of these bonds themselves to basically Wipe Out the obligation rather than paying the but but the thing is that I was able to
Questionerbut but the thing is that I was able to and I was managing very little money atand I was managing very little money atand I was managing very little money at that time but I was able to get a 10%that time but I was able to get a 10%that time but I was able to get a 10% position in my fund my fund must haveposition in my fund my fund must haveposition in my fund my fund must have been maybe I think at that time maybe 10been maybe I think at that time maybe 10been maybe I think at that time maybe 10 million or something or less so maybe amillion or something or less so maybe amillion or something or less so maybe a million dollars were invested in inmillion dollars were invested in inmillion dollars were invested in in these level three bonds and my thesisthese level three bonds and my thesisthese level three bonds and my thesis was very simple at that time I said thatwas very simple at that time I said thatwas very simple at that time I said that Walter Scott Jr who's on berkshire'sWalter Scott Jr who's on berkshire'sWalter Scott Jr who's on berkshire's board is one of the highest Integrityboard is one of the highest Integrityboard is one of the highest Integrity people you can ever run into I said Ipeople you can ever run into I said Ipeople you can ever run into I said I don't think Walter Scott Jdon't think Walter Scott Jdon't think Walter Scott J signed up to drag level three throughsigned up to drag level three throughsigned up to drag level three through bankruptcy they're going to trybankruptcy they're going to trybankruptcy they're going to try everything under the sun to avoideverything under the sun to avoideverything under the sun to avoid bankruptcy but I said even if they endbankruptcy but I said even if they endbankruptcy but I said even if they end up in bankruptcyup in bankruptcyup in bankruptcy eventually I would have collected threeeventually I would have collected threeeventually I would have collected three years of coupons I would have collectedyears of coupons I would have collectedyears of coupons I would have collected all the money I've invested basicallyall the money I've invested basicallyall the money I've invested basically and then I have 100 cents on the dollarand then I have 100 cents on the dollarand then I have 100 cents on the dollar claim on the assets so even if it goesclaim on the assets so even if it goesclaim on the assets so even if it goes into bankruptcy what do I care I said
Otherinto bankruptcy what do I care I said
Otherlet's see I've I've got my principal back so the BET was you know there was
Otherand this is one of the principles I think that I have found really one of the mental models I have found very useful sometimes we get to situations where the risk is low but the uncertainty is high and when you see a situation where risk is low and uncertainty is high Wall Street usually gets confused between risk and uncertainty and it'll punish the stock usually because Wall Street hates uncertainty so if I compare two companies okay let's say I compare ADP to Exxon for example let's take these two companies let's say Exxon is a oil and gas producer which has no Hedges completely unhedged you know future oil production to be sold at prices that are unknown because they don't know and I don't know and you don't know what price they're
Todd Combsand you don't know what price they're going to get ADP on the other hand does payroll processing they've been doing payroll processing for like more than 60 years and if you look at like their revenues and earnings and all of that it's one of the most consistent charts you can ever see of any company what ADP is going to earn in 23 and 24 and 25 20 analysts would get within 5% of that number because there is the variance is so low and Wall Street loves that so do we have an interest in ADP no we have no interest in ADP even though it's a great business because it's not under distress everyone loves it it's priced to Perfection all those things now Exxon on the other hand has the Wall Street has a problem what is the intrinsic value of xon well the intrinsic value of Exon is the sum of future cash will produced to Kingdom Come discounted to present value
QuestionerKingdom Come discounted to present value
Otherwell what is that number we have no idea
Otherwell what is that number we have no idea
Otherwell what is that number we have no idea okay even the CEO of Exxon has no idea
Otherokay even the CEO of Exxon has no idea
Otherokay even the CEO of Exxon has no idea no one has any idea right so now that is a situation where we've got high uncertainty now if you had some kind of an edge on on the oil business which went something like this where you said okay look I can look at Cost curves I can look at some forecast for what oil demand might be and I can look at some floors and I don't think for example in the next three years on average oil would trade below $60 a B for example you come up with some Theory like that okay now you have a basis to make a floor valuation of cash flows if you if you have a high degree of conviction you can have a floor valuation and you can look at that flow valuation and compare it to the stock price and you can say okay is it really undervalued if this $60 holds and you
Questionerundervalued if this $60 holds and you know we might have periods in the future where the oil price is 160 instead of 60 so you would have some upside because it wouldn't always stay at 60 because you know there's always turmoil and things happening in the world and then you could get to supernormal profits and so one of the things to look at is to look for these businesses where the predictability of earnings is low but you have some mental model in a very small sliver of them which is giving you some comfort on some range of cash flows or some floors of cash flows or something which tells you the intrinsic value cannot be below this number and if that number is let's say for Exxon 500 billion and the market cap is 200 M billion or 100 billion you have a basis to do something and and so that can work so I think this and I think in in
Questionerso I think this and I think in in Buffett's case with Japan and those five trading companies he was looking at I mean the Nik you know peaked at 40,000 in 1990 it's now been like 33 years it has not seen that level since then it's I think at 70 or 75% of that level even now now so it was such a massive Bubble at that time that it had but but probably a couple of generations of Japanese citizens have grown up having been told do not ever invest in equities they just go straight down and so I think the reason Warren was kind of picking through Japan company handbook is because probably it's fertile hunting ground now Japan has issues right it has issues with declining population and it has issues with Japanese companies that think that the cash is for the benefit of the employees you know lifetime employment and all that and it doesn't really belong to the
Questionerthat and it doesn't really belong to the shareholders it belongs to the employees you know employees first and then the others come after that and I think Buffett is very aware of these but when you look at these five trading companies their footprint is very large outside Japan their fortunes are not so much tied to Japan they really are Multinational Global players doing things and deals all over the world and a declining Japan Japanese population is quite frankly irrelevant to all of them the second is that they are pumping the cash out so the dividends were there they they pushing a large amount of dividends out so it clearly tells you that the company is not being run in a manner where they're holding Capital they've been pretty smart about the capital allocation so I think he looked at these things and said okay the baby's being thrown out of the bath water and
Questionerbeing thrown out of the bath water and being thrown out of the bath water and you know we can we can do something you know we can we can do something you know we can we can do something about that and you know these so I think about that and you know these so I think about that and you know these so I think what I what I've realized after all what I what I've realized after all what I what I've realized after all these years of these years of these years of investing is really the name of the game investing is really the name of the game investing is really the name of the game is these is these is these anomalies and the issue with the anomalies and the issue with the anomalies and the issue with the anomalies is they don't come along that anomalies is they don't come along that anomalies is they don't come along that often but they do come along at a decent often but they do come along at a decent often but they do come along at a decent at a decent clip you know like level at a decent clip you know like level at a decent clip you know like level three Bond suddenly showed up and I three Bond suddenly showed up and I three Bond suddenly showed up and I could and actually what happened with could and actually what happened with could and actually what happened with the level three bonds by the way was the level three bonds by the way was the level three bonds by the way was they never filed for they never filed for they never filed for bankruptcy and those bonds eventually bankruptcy and those bonds eventually bankruptcy and those bonds eventually paid off at par and it was a huge home paid off at par and it was a huge home paid off at par and it was a huge home run investment because you had a 5x on run investment because you had a 5x on run investment because you had a 5x on and you in three years you got your and you in three years you got your and you in three years you got your Capital back and then you had a 5x Capital back and then you had a 5x Capital back and then you had a 5x eventually and they did exchanges and eventually and they did exchanges and eventually and they did exchanges and whatever else and so on so it and that whatever else and so on so it and that whatever else and so on so it and that was a bet that the quality of the people was a bet that the quality of the people was a bet that the quality of the people and the network of those people was so and the network of those people was so
Questionerand the network of those people was so rich and deep that they continue to kind of pull rabbits out of the Hat continue to find sources of capital and continue to keep kicking the can down the road in a manner that nobody thought was possible in 2002 and but that's what happened and then you know there's a stock investment I made in 2004 and Arin still doesn't believe that made the stock investment and it's this company called ipco ipsco was this Canadian steel producer they made tubular steel you know stuff that goes into pipelines and stuff and I ran into ipsco in I think 2004 and the anomaly there was that this was a company with no debt normally when these pipelines are being built they want certainty of delivery of the steel and the and the pipes and so they sign long-term contracts with people like ipsco so ipsco had given guidance that for the next two years we
Questionerguidance that for the next two years we will have $15 a share in cash flow after capex after everything after taxes and the company had $15 a share of cash on their balance sheet so if you add the next two years of $15 a share plus the 15 on the balance sheet it was $45 the stock was like at 42 and and now year three because this is a cyclical business those cash flows could go to zero those cash flows could even go negative and so Wall Street again looking at the very high uncertainty of this business kind of didn't know how to price it and it priced it at 42 so I said okay here's what we're going to do Mish we're just going to buy if score I have no idea what the earnings are going to mean year three year four year five I just want to own the stock for two years and see what the stock price is in two years and so that was the only thinking
Questioneryears and so that was the only thinking I did I said we're going to have $45 a share in cash on the balance sheet I cannot lose money at that point now I could lose if I continued owning the shares forever and they started losing money like crazy for a few years but I said let's just go for two years and see what happens right that was all the thinking I did nothing more than that now one more year goes by 2005 and the company announces that we're going to have one more year of $15 a share of cash flow and I said Hallelujah life is great and well done monish well done and the stock has now been kind of inching up from like the low 40s it went to the 60s and then when they made this announcement it's now in the low 90s and I'm like thinking you know we have a double in like 15 months and who knows what's going to happen to this business you know so I said I think I should just
Questioneryou know so I said I think I should just take the double and move on right and while I was you know thinking about these things I wake up one morning and the ipsco stock price is at 155 and I'm pleasantly surprised and I noticed that some Swedish company has made a unsolicited offer to buy them for cash $160 a share now I didn't even wait to digest the news of realities of that deal I just sold everything okay and I didn't want to do the Arbitrage of the 155 or 160 I said we're done here okay and then the bizarre thing about the way the world works is this Swedish company that bought them could have approached them 18 months ago and made an offer for $60 a share and they'd be forced to consider it because it's at a premium to the current stock price but they show up like after it's already bumped up and then I think they do a negotiation with
Questionerthen I think they do a negotiation with the company and the company rightfully says that 90 is not an appropriate price you need to give a much higher offer otherwise we will basically the board is going to turn this down and I didn't know any of that and you know uh it worked out and again it was basically the model was the low risk in the high uncertainty right and so the level three bonds and ipsco kind of look very similar in in terms of so I think that's that's just a good model to keep in mind in in in 2015 there was a company Indian company someone sent me a write up on some Canadian guy Indian guy in Canada sent me a write up on a company called rain Industries and Rain had a $200 million market cap at that time and it had a it had 2 billion in revenue and they had bought something like 1.8 billion of Revenue in almost like a
Questionerbillion of Revenue in almost like a public lbo almost all with debt two two very large Acquisitions one in 2008 and another one in 2012 so when I was looking at the company in 2015 but these two Acquisitions were done in an interesting way in the sense that the debt was completely non-recourse it was high debt but in the event that they were not able to service it the only recourse the bond holders had was to take the asset that they had helped to purchase so they had a core asset in India which would remain so even if kind of things went to hell and what happened is that these two businesses that they bought one in the US One in Europe pretty large business with several plants and so on basically in 2015 were not producing any cash so the market was pricing rain as if those assets did not exist and just the Indian Assets in India with one tenth of
OtherAssets in India with one tenth of Revenue was the only thing that existed but I looked at it and I saw that this is a cyclical low and these assets are going to turn at some point it's a very well-run company and all of that and I can't see a way in which the lenders have recourse I studied that part really carefully and again it was low risk and high high uncertainty you know are they going to make money on this are they not going to make money who knows and but there's no downside right because the we're at a floor and within three years the market cap of rain was two billion from 200 million and it went up 10x because you know suddenly the the business they were in was going through a kind of a very spectacular boom and they went through kind of a supern normal earning cycle which completely changed and so basically those those are
Questionerchanged and so basically those those are some of the comments and things I wanted to share with you you know five years ago I made my first trip to Turkey and I ago I made my first trip to Turkey and I really made my that trip just on on just a whim not really much thought I knew a guy and I like this guy he's a you know hardcore Ben Graham disciple comes to Omaha nice guy he had been to some of my annual meetings and I liked him and I said he was running a small fund at the time in in Istanbul and I noticed that the Istanbul stocks were Tre were kind of screening really really cheap I mean everyone and their brother had exited the currency was very unstable so I asked haer I said Hayer would you mind if I came to Istanbul and we just visit the companies that are in your portfolio I said I don't want to visit companies that you like or you think I should see if you don't have your own cash or your funds
Questionerdon't have your own cash or your funds cash in the business at the time please don't take me there so he said oh it' be a pleasure monish be it be fun to hang out and so on so I made that trip and I think I maybe probably met around 12 or 14 companies and they were like spectacularly cheap you know and then this literally you could see that all the foreign investors were exiting and then I started making those trips every year and the next year he took me to this company which was a $16 million market cap with A600 to $800 million liquidation value complete anomaly more anomaly than it's anomaly to the power of anomaly and so I asked hather you know is this a fraud like what's going on here he said no I I own the stock and it's a very good management team and all of that and I actually looked at it was a really simple business to figure out the
Questionersimple business to figure out the liquidation value was real the people were very good and then I thought you know what stock am I going to get this is going to be some thinly traded trade By Appointment kind of thing and in Turkey the trading volumes are so high because everyone invests for one or two days uh so the average holding period And when I told this to local Turks they thought it was too high the entire float you know if I take out the found of the founders promoters insiders and foreign investors the companies basically cycle through the entire float in nine days and so it's very high trading volumes and you know Buffett has a quote that the stock market is a mechanism to transfer wealth from the active to the inactive I said okay you know if these people don't want to do you know fundamental research and they're buying
Questionerfundamental research and they're buying at 10:00 and selling at 3:00 there's chances of mispricing you know in that situation and so the volumes are really high and we ended up owning a third of the business for probably like $8 million or something 24 million market cap the market cap moved a little bit as we were buying but not much and now now the market cap is about 600 million us the currency collapsed since I invested in 2019 but didn't matter in in L our return would be infinite I haven't even calculated that you know in in dollars it's near infinite but in L it would be infinite and again you know kind of extreme anomaly you know and and we that was the only one we found in turkey that was so extremely off we found other stuff which was also cheap but nothing like this you know I think we have have some other Investments but which I think
Questionersome other Investments but which I think will do well and have done well but butwill do well and have done well but butwill do well and have done well but but you don't need that M you know you don'tyou don't need that M you know you don'tyou don't need that M you know you don't need that many anomalies and so thatneed that many anomalies and so thatneed that many anomalies and so that works out so those were some of theworks out so those were some of theworks out so those were some of the ideas I wanted to share and you know theideas I wanted to share and you know theideas I wanted to share and you know the Japan company handbook that I showed youJapan company handbook that I showed youJapan company handbook that I showed you this one I hadn't been going through thethis one I hadn't been going through thethis one I hadn't been going through the Japan company handbook in a long timeJapan company handbook in a long timeJapan company handbook in a long time and so I said okay let me get a new copyand so I said okay let me get a new copyand so I said okay let me get a new copy of this and let me just relive Buffett'sof this and let me just relive Buffett'sof this and let me just relive Buffett's youth you know and now actually you canyouth you know and now actually you canyouth you know and now actually you can buy it on Amazon Japan so I justbuy it on Amazon Japan so I justbuy it on Amazon Japan so I just basically Googled and I went on thebasically Googled and I went on thebasically Googled and I went on the website and I saw a link to Amazon and Iwebsite and I saw a link to Amazon and Iwebsite and I saw a link to Amazon and I think I paid like $150 or less includingthink I paid like $150 or less includingthink I paid like $150 or less including shipping and in about 10 days it showedshipping and in about 10 days it showedshipping and in about 10 days it showed up and I already found a couple of Juicyup and I already found a couple of Juicyup and I already found a couple of Juicy things and I think I found one thingthings and I think I found one thingthings and I think I found one thing that I want to dig into it's a PE ofthat I want to dig into it's a PE ofthat I want to dig into it's a PE of 1.2 you know P 1.2 is exciting and like1.2 you know P 1.2 is exciting and like1.2 you know P 1.2 is exciting and like a I don't know 12% dividend or somethinga I don't know 12% dividend or somethinga I don't know 12% dividend or something
QuestionerI don't know 12% dividend or something so we'll poke around in some of these and there's like four or five of these like that that I saw in there so you know when I'm twiddling my thumbs that's what I'm going to do you know just figure out what's going on with this with these companies and maybe take a trip to Tokyo you know I don't know if you guys have seen the movie Jiro Dreams of Sushi which is a great movie and a few years back I went to Japan and I ate airos it was I think it was about a 10hour trip to Japan that I made where I went I ate at Jos and I flew out but what I could do now if I find you know some businesses like that I could spend a a week or two eating some great sushi and you know seeing what the bargains look like and so with that Arvin we'll turn it over to see what you guys want to talk about thank you
Otherthank you Mones that was great so with
Otherthank you Mones that was great so with
Otherthat we will open it up to questions please use the raiseed hand tool and I'll call your name maybe monish before before I take the first question here from Doug we can we can talk a little bit about guy's approach which is different from yours a guy kind of sits on Ferrari and MasterCard and so on so forth one of my very deep regrets in life is the sale of Ferrari and you know that was another anomaly that showed up in 2012 and I invested in Fiat Chrysler and I didn't even pay that much attention to Ferrari inside Fiat Chrysler they they owned 80% of Ferrari inside fat Chrysler at the time and the entire market cap of fat Chrysler was under six billion and their revenues were 135 billion and the entire Jeep franchise the entire Ram franchise now that I'm in Texas I have a ram Long Horn and I used to have a Ferrari I sold
OtherHorn and I used to have a Ferrari I sold the Ferrari and I bought the LGH horn the Ferrari and I bought the LGH horn the Ferrari and I bought the LGH horn and don't tell John El can this but I and don't tell John El can this but I and don't tell John El can this but I actually like the longhorn better and actually like the longhorn better and actually like the longhorn better and anyway Ferrari was inside that whole mix anyway Ferrari was inside that whole mix anyway Ferrari was inside that whole mix in that six billion a lot of things were in that six billion a lot of things were in that six billion a lot of things were inside that six billion there were a inside that six billion there were a inside that six billion there were a bunch of Auto Parts companies they sold bunch of Auto Parts companies they sold bunch of Auto Parts companies they sold for a few billion after that and at that for a few billion after that and at that for a few billion after that and at that time you know Ferrari was making about time you know Ferrari was making about time you know Ferrari was making about 250 million a year and you know I said 250 million a year and you know I said 250 million a year and you know I said okay you know this thing is worth okay you know this thing is worth okay you know this thing is worth whatever you know three four five whatever you know three four five whatever you know three four five billion or something whatever you know billion or something whatever you know billion or something whatever you know it's it's a piece but the thing that I it's it's a piece but the thing that I it's it's a piece but the thing that I was really focused on at that time with was really focused on at that time with was really focused on at that time with f chryler was that the ram Fran f chryler was that the ram Fran f chryler was that the ram Fran franchise was capable of producing at franchise was capable of producing at franchise was capable of producing at least five billion a year in cash flows least five billion a year in cash flows least five billion a year in cash flows and the Jeep franchise was able to was and the Jeep franchise was able to was and the Jeep franchise was able to was also able to capable of producing also able to capable of producing also able to capable of producing another five billion and then minivan another five billion and then minivan another five billion and then minivan franchise could make at least a couple
Questionerfranchise could make at least a couple of billion so they had like two or three of billion so they had like two or three of billion so they had like two or three franchises and I'm not even calculating what Maserati and alfha Romeo and all these other things were worth and they had you know magnetti melli the auto parts there were like a lot of different pieces in there but I thought if Ram and Jeep are making 10 billion a year the market cap shouldn't be six billion you know and that was the the but anyway they they took Ferrari public at about $45 a share and you know it looked fully pric to me you know what do I know about Ferrari at that time and I had decided that to get to know the company better I should own a Ferrari so I'd gotten to know John elcan the chairman and I told him hey John you know I'm thinking of getting a Ferrari and he says to me look Mish I can help you with delivery I cannot help you with price we don't
Othercannot help you with price we don't discount to anyone I said I'm not looking for any discounts I made plenty of money on F Chrysler so it's okay he said yeah I'll I'll put you at the front of the queue and my Ferrari got delivered in like three months instead of like two years and and unfortunately by the time the Ferrari got delivered and I really started to understand the mo once I actually went to the dealership and bought the car and and after that I'd already sold the stock because it looked so overpriced and one of the great traits that guy spear has so guy got the Fe chrysle idea from me like a lot of his great ideas come from me you know between us girls but but he he actually unlike me understood what a great business Ferrari was and he sold some but he's kept it and it's one of the largest positions in his fund it would be one of the largest
Questionerhis fund it would be one of the largest positions in my fund I mean just to give you an idea you know we had invested about 70 million or so in fear Christ uh effectively we got Ferrari at about $16 a share we had about a approximately about 70 million about 20 million was in effectively for Ferrari and that $16 a share is today at 310 it's a 20x almost so the my Ferrari position would have been 400 million I mean p funds total is like 750 mil you know it's so stupid anyway we made money but we didn't make as much money as we should have and we should have kept it forever that's the other mental model is that when you find yourself in the happy position of owning a great business do not sell it so one of the things I do appreciate about guy is guy is very lethargic you know he's it's very painful for him to sell things like I always test him on this you know like
Questioneralways test him on this you know like I'll tell him guy look we have this great idea can we please finally sell Nestle I said Nestle is like ADP it's got no variance everything is priced in you know can we please sell Nestle he will go to his grave with that Nestle stock and I beg and implore him and everything about all these things but like I was trying to tell him get him to buy Ras in Turkey you know and I was trying to tell him this is the you know buying at 2% of liquidation value or 3% of liquidation value and I was trying to tell him listen you can let Nestle go and you can buy racas and ride off into the sunset and he immediately went into his bomb shelter and said I'm never buying anything in turkey and and basically he's never bought anything and last actually earlier this year I dragged him Kicking and Screaming to
OtherKicking and Screaming to Istanbul and I took him to some meetings with me and I thought he might find that this is orgasmic but nesle still is in the portfolio so guy will do reasonably well because he has a portfolio full of great businesses and the good things about these great businesses is that they may possibly keep up with the S&P or maybe around them you know they you know if you own Ferrari and AMX and you know MasterCard and so on it's not ENT entirely a tragedy you know it's not the moish way and I hope it's not the Doug way but you know we'll uh we'll we just have to leave it at that you know so what can I say sounds good
Questioneryeah great Doug uh thank you this has been really these anomalies you know had the opportunity to invest in I you you invest across Emerging Markets develop markets across the whole Capital stack in debt and
Questionerthe whole Capital stack in debt and Equity can you talk at all about how youEquity can you talk at all about how youEquity can you talk at all about how you narrow your Universe of things you wantnarrow your Universe of things you wantnarrow your Universe of things you want to pay attention to like are thereto pay attention to like are thereto pay attention to like are there different quantitative filters ordifferent quantitative filters ordifferent quantitative filters or qualitative filters that you apply ofqualitative filters that you apply ofqualitative filters that you apply of saying I can't look at everything thissaying I can't look at everything thissaying I can't look at everything this is what I want to focusis what I want to focusis what I want to focus on
Todd Combsyeah there's no real I would sayon yeah there's no real I would sayon yeah there's no real I would say there's no I would I don't think there athere's no I would I don't think there athere's no I would I don't think there a systematic approach it's verysystematic approach it's verysystematic approach it's very opportunistic like for example you knowopportunistic like for example you knowopportunistic like for example you know I found that I was twiddling my thumbsI found that I was twiddling my thumbsI found that I was twiddling my thumbs recently so I said you know where isrecently so I said you know where isrecently so I said you know where is theretherethere opportunity and then I said is thereopportunity and then I said is thereopportunity and then I said is there opportunity in those five stocks thatopportunity in those five stocks thatopportunity in those five stocks that Buffett bought because he said he'sBuffett bought because he said he'sBuffett bought because he said he's never selling them you know so I saidnever selling them you know so I saidnever selling them you know so I said okay if he's not selling them and he'sokay if he's not selling them and he'sokay if he's not selling them and he's still buying they're still cheap maybe Istill buying they're still cheap maybe Istill buying they're still cheap maybe I can you know ride his coattails and so Ican you know ride his coattails and so Ican you know ride his coattails and so I said well Warren can't buy the Mickeysaid well Warren can't buy the Mickeysaid well Warren can't buy the Mickey Mouse really small stuff in Japan and IMouse really small stuff in Japan and I
Todd CombsMouse really small stuff in Japan and I was aware that Japan has these issues with the demographics and all of that and these governance issues and all of that but I said you know this companies like Shimano that trade in Japan they're not that cheap but you know they are tied to the global market they're not tried with the Japanese Market there's lots and lots of Japanese companies that whose fortunes are tried to what's happening outside Japan not inside Japan and so I said okay maybe I'll spend some time poking around you know and I don't have an expectation that anything will come out of it but it's basically like you know you read The Wall Street Journal now you know I was I also read value line every week and I notice it just happened this week you know Ben Graham when he used to teach his class he used to give just live stock tips to all these people who would like you know
Otherall these people who would like you know come to the class and then they would have so much fun so I'm going to give you some live tips now the problem is they're not fully developed okay these are very raw ideas so you need to figure out whether there's some meat on the bone or not but I would appreciate you know my email address is MP PAB funds.com if you figure out that some of these things have actual meat on the bone send me a condensed two page write up to make my life simple you know and that'll be much appreciated and so you know I'm I'm yesterday actually I was going through value line one of the things I like to look at is this they have these lists like you know stocks with the lowest pees and I found some interesting things there historically they have another list which is stocks that have lost the most value in 13 weeks okay you know and I
Questionervalue in 13 weeks okay you know and I noticed that jet blue was at like $4 and change per share and you know I've always admired gentl and you know I love the way they've entered the European market and they are disruptor and just the I mean just the founder and it's just a very well-run good company just like I like Southwest I like JetBlue I think they've got a very good proposition now you know we know that Airlines have problems you know but we also know like Buffett had invested in Airlines a few years ago and of course the financial prices when made things Topsy Turvy so he reversed those bets at that time because the whole world was shutting down but bottom line is that you know the industry is very is Consolidated very heavily most flights I'm on are just jam-packed you know they've got pricing power and quite frankly if you're running the asset well
Questionerfrankly if you're running the asset well you know like the way Southwest runs it you know like the way Southwest runs it you know like the way Southwest runs it asset well and Jet flu has a lot of asset well and Jet flu has a lot of asset well and Jet flu has a lot of similarities to Southwest then you can I similarities to Southwest then you can I similarities to Southwest then you can I mean one difference is they're doing mean one difference is they're doing mean one difference is they're doing more long hauls where you don't get as more long hauls where you don't get as more long hauls where you don't get as much bang bang for the buck in the rapid much bang bang for the buck in the rapid much bang bang for the buck in the rapid turnarounds the rapid turnarounds help turnarounds the rapid turnarounds help turnarounds the rapid turnarounds help you a lot more in the short Halls you a lot more in the short Halls you a lot more in the short Halls because you get more flights in you know because you get more flights in you know because you get more flights in you know in a in a day versus the long hauls but in a in a day versus the long hauls but in a in a day versus the long hauls but so I was going to you know look at these so I was going to you know look at these so I was going to you know look at these some of these Japanese things I was some of these Japanese things I was some of these Japanese things I was going to look at Jet Blue and I was going to look at Jet Blue and I was going to look at Jet Blue and I was going to you know so basically it's like going to you know so basically it's like going to you know so basically it's like go anywhere you know we don't have to go anywhere you know we don't have to go anywhere you know we don't have to have an agenda you know we just go fish have an agenda you know we just go fish have an agenda you know we just go fish anywhere and now the bar would be pretty anywhere and now the bar would be pretty anywhere and now the bar would be pretty high you know I mean I I I think what I high you know I mean I I I think what I high you know I mean I I I think what I noticed with JetBlue is that the market noticed with JetBlue is that the market noticed with JetBlue is that the market cap is very low I got to dig into the cap is very low I got to dig into the cap is very low I got to dig into the whole Spirit thing what's going on there
Questionerwhole Spirit thing what's going on there and of course you know I I have some theories on why they're buying Spirit you know spirit and JetBlue are such different cultures but also it's really hard to get airplanes nowadays I mean Boeing's having trouble all of all of these Airlines their ability to get planes is really squished and so you know if if we in that Mark in that type of situation for a long time then that gives you a lot of pricing power so anyway the thing is these are very early thoughts we will we will dig into JetBlue and we'll see if there's meat on the bone take it from there Anthony hi thank you thanks for taking the time today my question was I was listening an interview with Morning Star where you're going over the Ten Commandments of investing and I was really surprised by the do not use Excel that's kind of like the main tool of
Questionerthat's kind of like the main tool of everyone in finance studying Finance so what do you recommend using instead
Otheryou know I've tried so hard to tell Arin not to use Excel and I've tried so hard to tell Arin not to tell his students to use Excel but nobody listens to me you know I tell them not to I tell them not oh you tell them not to use Excel well I in in Practical reality I tell them not to but you know for class projects and the like they have to there's a there's a monger quot people calculate too much and think too little so basically you know we don't need Excel so when the level three bonds are at 20 cents and the coupon is 6% what is XEL going to do for me you know it's going to do nothing I mean the the thing that I have to figure out is are they going to pay me the next three coupons or not that's what matters and nothing else matters beyond that really
Othernothing else matters beyond that really because after that we just have a claim and then it becomes uncertain so Excel is not really going to be helpful you can build some Hocus Pocus model but that's all it is it's Hocus Pocus you know what can I say in fact I don't know if is Pak going to speak to the class this year has he already spoken Arvin
Questioneryeah he spoke two weeks ago all right he
Othersays the same I keep asking pulock and Arin please invite me to that class and then I'm shut out you know and then they don't make a recording and it's all private and just you guys and pulock and that's it you know but you're the only public discussion okay there you go you know trying to help Let's Help Humanity you know let's not be like a exclusive private Country Club you know we want to help Humanity so anyway the thing is it's a safe environment if if we if you
Otherit's a safe environment if if we if you look at a guy like poock and I don't know what he talked to you about but basically they have no models they have no future projections nothing you know they don't they don't think they can figure out what the earnings of cash flows of a business that they've invested in are going to be in the next few years they don't even try they just look at at the business look at the past and they've like all those pieces they make the investment you know and they've got some rules I love his rules one of his rules is no leverage now I don't fully buy that because one of the things in investing which is useful is to have a ssam knife but on the other hand what also can work well is if you have a set of very defined rules like no leverage and no models and no future projections it also works well and so so yeah I mean
Otherit also works well and so so yeah I mean it also works well and so so yeah I mean I think that I think it's very useful I think that I think it's very useful I think that I think it's very useful when you're looking at a company and when you're looking at a company and when you're looking at a company and you're trying to figure it out not to you're trying to figure it out not to you're trying to figure it out not to turn on Excel and in fact I know this is turn on Excel and in fact I know this is turn on Excel and in fact I know this is really difficult because you guys are really difficult because you guys are really difficult because you guys are alcoholics you know but you know you can alcoholics you know but you know you can alcoholics you know but you know you can always start by saying I'm Anthony and always start by saying I'm Anthony and always start by saying I'm Anthony and I'm an Exel holic and and you know then I'm an Exel holic and and you know then I'm an Exel holic and and you know then we can go from there and make some we can go from there and make some we can go from there and make some progress and get to the 10-step program progress and get to the 10-step program progress and get to the 10-step program and all that and and and so on 12 steps and all that and and and so on 12 steps and all that and and and so on 12 steps whatever it is so yeah I I think Excel whatever it is so yeah I I think Excel whatever it is so yeah I I think Excel is is completely not needed I think what is is completely not needed I think what is is completely not needed I think what I try to do you know one of the I try to do you know one of the I try to do you know one of the interesting thing about investing is interesting thing about investing is interesting thing about investing is that it's a jigsaw puzzle when you look that it's a jigsaw puzzle when you look that it's a jigsaw puzzle when you look at a company like let's say I look at a at a company like let's say I look at a at a company like let's say I look at a company like Jet right it's a jigsaw company like Jet right it's a jigsaw company like Jet right it's a jigsaw puzzle there's all these different puzzle there's all these different puzzle there's all these different moving Parts you know there's what moving Parts you know there's what moving Parts you know there's what factors are important not important all factors are important not important all
Charliefactors are important not important all these different things in a sliver of cases small sliver of cases we can figure out the jig so I don't know whether Jet Blue will lend itself to being figured out or not but let's say it can be figured out if it can be figured out what's going to happen is in my head I'm going to have a model of JetBlue which I can give to a 10-year-old in about five or six sentences and explain to the 10-year-old why this company is going to do well and why it's worth investing in them right I mean how many sentences do I need to explain ipsco how many sentences do I need to explain level three how many sentences do I need to explain Ras in Turkey none of these need models or Excel or anything you know it's just so what starts off as being something complicated if the job is done right and if you've actually latched onto the
Otherif you've actually latched onto theif you've actually latched onto the right things the complexity will giveright things the complexity will giveright things the complexity will give way toway toway to Simplicity and then and it's verySimplicity and then and it's verySimplicity and then and it's very important when you make a before youimportant when you make a before youimportant when you make a before you make an investment that the model inmake an investment that the model inmake an investment that the model in your head is an extremely simple modelyour head is an extremely simple modelyour head is an extremely simple model because what will happen after you makebecause what will happen after you makebecause what will happen after you make thethethe investment is incredible amounts ofinvestment is incredible amounts ofinvestment is incredible amounts of noise is going to be coming atnoise is going to be coming atnoise is going to be coming at you and when that noise comes atyou and when that noise comes atyou and when that noise comes at you you will have ayou you will have ayou you will have a notar which will tell you what data tonotar which will tell you what data tonotar which will tell you what data to really pay attention to and what data toreally pay attention to and what data toreally pay attention to and what data to ignore and and it becomes really simpleignore and and it becomes really simpleignore and and it becomes really simple because you've taken the complexity downbecause you've taken the complexity downbecause you've taken the complexity down to to something simple and you reallyto to something simple and you reallyto to something simple and you really understand it well and uh so I thinkunderstand it well and uh so I thinkunderstand it well and uh so I think that's what I would suggest is just wethat's what I would suggest is just wethat's what I would suggest is just we don't need Excel thank you for spendingdon't need Excel thank you for spendingdon't need Excel thank you for spending some time with us monish you yousome time with us monish you yousome time with us monish you you actually kind of just answered thisactually kind of just answered thisactually kind of just answered this question I was goingon to ask you aboutquestion I was goingon to ask you aboutquestion I was goingon to ask you about your mental model and how you know kind
Questioneryour mental model and how you know kind of when you spent enough time on something or when you need to spend more time in order to make a decision but it kind of sounds like uh you know you distill down complicated material until you really have no other solution and maybe it varies on the investment so I appreciate your time I'm sorry well
Othermonish maybe you can talk about how long on average that process takes
Otheryeah I mean that's that's a variable U amount of time I would say that like when I was studying Fiat Chrysler in 2012 my starting point was that I hated the auto business you know look at what's happening right now with the UAW you know just terrible you know and so one of the things you know as you know I'm the Shameless cloner you know and what had happened in 2012 is that I noticed you know I was looking at data Roma and I noticed that Burkshire had
QuestionerRoma and I noticed that Burkshire had taken a position in General Motors and I noticed that David Einhorn had taken a position in General Motors I said you know and from the size of the position it was either Todd or Ted it wasn't War and my guess was it was Ted and later actually I had a conversation with him and it was Ted actually who had made the GM bet and I said you know Ted's a smart guy David's a smart guy the auto business sucks why would these smart people go into a business like that why would they invest in a business like that so I said you know what I'm going to study this a little bit just so I can answer that question my my purpose for studying Motors was that I wanted to just prove to myself that these were actually really bad businesses like GM was a bad business I just had nothing else going on I said let's just poke around and and
Questioneron I said let's just poke around and andon I said let's just poke around and and what happened is when I started studyingwhat happened is when I started studyingwhat happened is when I started studying it I discovered thatit I discovered thatit I discovered that actually it was no longer a bad businessactually it was no longer a bad businessactually it was no longer a bad business that what was a horrible business inthat what was a horrible business inthat what was a horrible business in 2007 had become an exceptional business2007 had become an exceptional business2007 had become an exceptional business by 2010by 2010by 2010 and what had happened is that GM andand what had happened is that GM andand what had happened is that GM and Chrysler board went throughChrysler board went throughChrysler board went through bankruptcy and when they went throughbankruptcy and when they went throughbankruptcy and when they went through bankruptcy they got cleansed of a lot ofbankruptcy they got cleansed of a lot ofbankruptcy they got cleansed of a lot of their legacy liabilities and the mosttheir legacy liabilities and the mosttheir legacy liabilities and the most important thing that happened besidesimportant thing that happened besidesimportant thing that happened besides that was they had to get a bailout fromthat was they had to get a bailout fromthat was they had to get a bailout from the US government and the auto taskthe US government and the auto taskthe US government and the auto task force which was headed by Steve Ratner Iforce which was headed by Steve Ratner Iforce which was headed by Steve Ratner I remember that reading that Steveremember that reading that Steveremember that reading that Steve Ratner and his co-workers flew toRatner and his co-workers flew toRatner and his co-workers flew to Detroit one day because they had a bunchDetroit one day because they had a bunchDetroit one day because they had a bunch of meetings with the auto exacts andof meetings with the auto exacts andof meetings with the auto exacts and their last meeting was with the UAW andtheir last meeting was with the UAW andtheir last meeting was with the UAW and they were meeting the UAW at 4:00 andthey were meeting the UAW at 4:00 andthey were meeting the UAW at 4:00 and then they were going to leave Detroit atthen they were going to leave Detroit atthen they were going to leave Detroit at 5:00 so when they met the UAW at 4:00
Questioner5:00 so when they met the UAW at 4:00 Steve Ratner said to the head of the UAW leadership that we have a new contract for you we looked at your old contract we made some changes and here is a new contract and we need you to sign this contract before we get on our plane at 5:00 and the UAW looked at him and said that look we don't know what plan at your form and I don't think you understand how this works we will take your contract we will study it we can tell you just looking at page one that there's a lot of stuff we're not going to agree with and we're going to come back to you with what we would recommend and suggest and then we'll go through a process and Steve Ratner told told them that my plane leaves at 5 and if by 445 this contract is not signed without so much as a comma changed I shut down the city of Detroit tomorrow he said you're not negotiating
Questionertomorrow he said you're not negotiating with General Motors who is concerned about solvency and profits and all that he said the US government is not going to put a dime into the auto business unless it gets this contract and when I was studying GM I read that contract the new contract that the UAW signed 15 minutes after that without a single comma being changed which never ever happened in the history of the UAW and definitely not happening in 2023 it was an orgasmic experience to read that contract and when I read that contract it dawned on me that Detroit had gone from being one of the worst places to build a car to probably one of the best places to build a car and and if you go back into the history of Detroit so the US is accidentally very gifted because it has the most number of navigable navigable waterways of any continent on planet Earth the ability to
Questionercontinent on planet Earth the ability to move Goods across so if you use water to move Goods across so if you use water to move Goods across so if you use water to move Goods is the cheapest way to move Goods we've got waterways going north to south across the country and we have the great lakes and the Great Lakes I mean there's right from the St Lawrence Seaway all the way to like Minnesota you can just go by water and as it turned out there were large iron or deposits around the Great Lakes there were large metallurgical coal deposits around the great lakes and when Henry Ford set up the River Rouge Plant in Detroit all his factors of production everything that he needed was right around the Great Lakes he could could ship product in really cheaply and he could ship it out really cheaply and and there was a large amount of available immigrants coming into the US who wanted to work etc so Detroit basically grew for really good reasons
Charliebasically grew for really good reasons it was a great place to build cars no it was a great place to build cars no it was a great place to build cars no other place had these advantages it got other place had these advantages it got other place had these advantages it got diluted away and destroyed because of these crazy you know Union contracts and these crazy you know Union contracts and these crazy you know Union contracts and so on so anyway when I was studying it I so on so anyway when I was studying it I so on so anyway when I was studying it I went from hatred to love and then when I went from hatred to love and then when I went from hatred to love and then when I was studying it I was studying all the was studying it I was studying all the was studying it I was studying all the players you know Ford and Fiat Chrysler players you know Ford and Fiat Chrysler players you know Ford and Fiat Chrysler and so on and I realized Fiat Chrysler and so on and I realized Fiat Chrysler and so on and I realized Fiat Chrysler had hired a rockstar manager Sergio had hired a rockstar manager Sergio had hired a rockstar manager Sergio Maron and when I read about Serio Maroni Maron and when I read about Serio Maroni Maron and when I read about Serio Maroni it just floored me I said and it just floored me I said and it just floored me I said and Sergio had given a five year forecast he' Sergio had given a five year forecast he' Sergio had given a five year forecast he' given five year guidance of what cash given five year guidance of what cash given five year guidance of what cash flows were going to be so this was a $5 flows were going to be so this was a $5 flows were going to be so this was a $5 billion market cap and he was saying in billion market cap and he was saying in billion market cap and he was saying in 5 years my cash flows will exceed 5 5 years my cash flows will exceed 5 5 years my cash flows will exceed 5 billion and the market didn't care no billion and the market didn't care no billion and the market didn't care no one believed him I believed him but one believed him I believed him but one believed him I believed him but nobody else believed him and so it nobody else believed him and so it nobody else believed him and so it became a no-brainer so what I'm saying became a no-brainer so what I'm saying
Todd Combsbecame a no-brainer so what I'm saying is that process with f Chrysler probably took like four months of of reading and studying and all of that there were Harvard case studies on on Sergio and there were some books on him and so on so it was great so sometimes you know things can take a while I think I remember when I met with Ras I was buying the shares less than a week later very short time because it was so simple that was a very simple thesis to come up with so sometimes it becomes really obvious really quickly and you can move and sometimes it takes a while but one thing that you have to be is you have to be like the salmon fisherman standing with a the spear by the stream you never know when a juicy salmon is going to come by it might be you're standing there for 12 hours and nothing exciting happens and then a juicy salmon comes so you have to
Warrenthen a juicy salmon comes so you have to be prepared to have long periods of dry spells with nothing interesting and something suddenly shows up and it only takes two days of work and you're ready to go or sometimes something showed up that takes four months of work and you're ready to go and all of that is okay
Patrick OshaughnessyPatrick I was hoping you could talk a little bit more about how you identify distressed Industries I feel like it's probably pretty easy to confuse a distressed industry with a industry that's you know in long-term Decline and I'm kind of thinking about how you know Buffett's investment in that newspaper company that didn't work out because you know the newspaper industry was in a secular decline so how do you yeah how do you kind of distinguish between an industry that is just temporarily distressed and one that's not going to turn
Questionerturn around well I would say that most of the around well I would say that most of the around well I would say that most of the time the market gets it right so when time the market gets it right so when time the market gets it right so when things are trading really cheap usually things are trading really cheap usually things are trading really cheap usually they're trading really cheap for really they're trading really cheap for really they're trading really cheap for really good reasons you know so I mean good reasons you know so I mean good reasons you know so I mean capitalism is brutal very few things capitalism is brutal very few things capitalism is brutal very few things will last for a long will last for a long will last for a long time everything almost everything will time everything almost everything will time everything almost everything will go into a decline go into a decline go into a decline eventually and it's this creative eventually and it's this creative eventually and it's this creative discuss destruction that goes on discuss destruction that goes on discuss destruction that goes on so even even when we look at a business so even even when we look at a business so even even when we look at a business like apple which people would not say is like apple which people would not say is like apple which people would not say is distressed you distressed you distressed you know I don't think that the Apple know I don't think that the Apple know I don't think that the Apple franchise has any issues for 10 years I franchise has any issues for 10 years I franchise has any issues for 10 years I think it's probably bulletproof but I think it's probably bulletproof but I think it's probably bulletproof but I don't know if I can make that statement don't know if I can make that statement don't know if I can make that statement about 20 about 20 about 20 years you know I mean a lot can happen years you know I mean a lot can happen years you know I mean a lot can happen between year 10 and your 20 we've seen between year 10 and your 20 we've seen between year 10 and your 20 we've seen in technology so many changes happen in technology so many changes happen in technology so many changes happen it's possible apple is still doing well it's possible apple is still doing well it's possible apple is still doing well 20 years from now but that's not a bet 20 years from now but that's not a bet 20 years from now but that's not a bet I'd be willing to make you know I think
QuestionerI'd be willing to make you know I think I'd be willing to make you know I think it'd be to me my little brain way of it'd be to me my little brain way of it'd be to me my little brain way of thinking about it it kind of becomes a thinking about it it kind of becomes a thinking about it it kind of becomes a hard problem to try to figure out what hard problem to try to figure out what hard problem to try to figure out what happens 11 year year 11 to L year at happens 11 year year 11 to L year at happens 11 year year 11 to L year at Apple for example so I I think that like the example I gave on the auto business the example I gave on the auto business the example I gave on the auto business you know I thought there was a done you know I thought there was a done you know I thought there was a done business done industry done business and business done industry done business and business done industry done business and it turned out that there was a massive it turned out that there was a massive it turned out that there was a massive ve of opportunity at that time I mean ve of opportunity at that time I mean ve of opportunity at that time I mean eventually the 60 70 million that we had eventually the 60 70 million that we had eventually the 60 70 million that we had invested if we had kept Ferrari that invested if we had kept Ferrari that invested if we had kept Ferrari that becomes about 400 million and then fat becomes about 400 million and then fat becomes about 400 million and then fat Chrysler becomes another 300 million or Chrysler becomes another 300 million or Chrysler becomes another 300 million or so you know it's a 10x in 10 years kind so you know it's a 10x in 10 years kind so you know it's a 10x in 10 years kind of thing out of the stupid auto business of thing out of the stupid auto business of thing out of the stupid auto business and so I think it's the way to look at and so I think it's the way to look at and so I think it's the way to look at it is that I think we will not it is that I think we will not it is that I think we will not have some kind of a high conviction have some kind of a high conviction have some kind of a high conviction view on most things that are view on most things that are view on most things that are distressed you know we will usually not distressed you know we will usually not distressed you know we will usually not have but sometimes you know you want to
Todd Combshave but sometimes you know you want to have but sometimes you know you want to take a flyer on something and just spend take a flyer on something and just spend take a flyer on something and just spend some time digging it not with the idea some time digging it not with the idea some time digging it not with the idea that you think you're going to find some that you think you're going to find some that you think you're going to find some You Know Rich way of opportunity just You Know Rich way of opportunity just You Know Rich way of opportunity just from the perspective of learning you from the perspective of learning you from the perspective of learning you know initially my my work on GM was know initially my my work on GM was know initially my my work on GM was simply focused on learning I wasn't simply focused on learning I wasn't simply focused on learning I wasn't actually wanting to make an investment I actually wanting to make an investment I actually wanting to make an investment I just wanted to prove that Ted and David just wanted to prove that Ted and David just wanted to prove that Ted and David were being stupid and it turned out they were being stupid and it turned out they were being stupid and it turned out they weren't being stupid you know so weren't being stupid you know so weren't being stupid you know so sometimes when you see disconfirming sometimes when you see disconfirming sometimes when you see disconfirming evidence it's really good to dig in when evidence it's really good to dig in when evidence it's really good to dig in when you see disconfirming evidence because you see disconfirming evidence because you see disconfirming evidence because that will probably be a learning that will probably be a learning that will probably be a learning opportunity for you and and yeah so I opportunity for you and and yeah so I opportunity for you and and yeah so I think when things are hated and think when things are hated and think when things are hated and unloved there's a decent chance there's unloved there's a decent chance there's unloved there's a decent chance there's mispricing if the hate and if the hatred mispricing if the hate and if the hatred mispricing if the hate and if the hatred is not justified and I think you have to is not justified and I think you have to is not justified and I think you have to do the work if you do the work you may do the work if you do the work you may
Questionerdo the work if you do the work you may get to a point where you say I can see this differently than the way the market sees it and I have a very high degree of confidence in that the way I'm seeing it is the correct way and even then you know you might still be wrong half the time and you'll still do okay even with 50% error rate so that'll be okay too maybe you can talk a little bit about how you know you're wrong for example you know what at what point you decide that it's a permanent loss of capital such that it is a mistake and that you were wrong and there's an there's learning there
Warrenwell so first of all I think we know that we're going to be wrong half or more you know so mistakes are going to be very common in the investig yes absolutely and the second is that time will make it very apparent to you so basically you know once you've held a
Todd Combsbasically you know once you've held a stock for two or three years you wouldstock for two or three years you wouldstock for two or three years you would have seen a lot of data come at you youhave seen a lot of data come at you youhave seen a lot of data come at you you would have seen what the valuation is iswould have seen what the valuation is iswould have seen what the valuation is is you would had some internal perspectivesyou would had some internal perspectivesyou would had some internal perspectives on what you think this business is worthon what you think this business is worthon what you think this business is worth and I think it become it would beand I think it become it would beand I think it become it would be usually obvious either that you'veusually obvious either that you'veusually obvious either that you've missed something or you were wrong aboutmissed something or you were wrong aboutmissed something or you were wrong about something and kind of went from there sosomething and kind of went from there sosomething and kind of went from there so usually I don't think there's muchusually I don't think there's muchusually I don't think there's much debate I think when we when we knowdebate I think when we when we knowdebate I think when we when we know we're wrong we'll know sometimes itwe're wrong we'll know sometimes itwe're wrong we'll know sometimes it takes a while because you know we maytakes a while because you know we maytakes a while because you know we may just not be seeing but but at the end ofjust not be seeing but but at the end ofjust not be seeing but but at the end of the day the numbers will tell you youthe day the numbers will tell you youthe day the numbers will tell you you know I mean a stock has to get toknow I mean a stock has to get toknow I mean a stock has to get to intrinsic value at some point that's aintrinsic value at some point that's aintrinsic value at some point that's a Bedrock of Ben Benjamin Graham right soBedrock of Ben Benjamin Graham right soBedrock of Ben Benjamin Graham right so if you've given some time two yearsif you've given some time two yearsif you've given some time two years three years five years that's sufficientthree years five years that's sufficientthree years five years that's sufficient time for markets to get back to Sanitytime for markets to get back to Sanitytime for markets to get back to Sanity on what the business is worth and so if
Questioneron what the business is worth and so if you're sitting there after you know 5 years or 3 years and you're like you know down 30% I think the odds are pretty high that something is off in in your situation okay so you use kind of three to five years as a well it I I think sometimes it can be it can be clear in three months yes if the facts change for sure but yeah I mean I when you make an investment and you I mean the one thing about the investing business is that you really start to understand the business after you invest as much as you might try to in know before you invest but after you go drill dollars you're paying attention and there's more and more data coming at you and you're getting a richer and richer understanding of the business and you may find at some point that some of your assumptions that you had made are just flat out wrong hi thanks for
Questionerjust flat out wrong hi thanks for speaking with us I saw in a video online that you decided to sell your company Trans Tech because you lost interest in it I guess like two questions why did you like lose interest in that and not investing and how did starting a company influence your approach to investing because obviously not everyone will start a successful company or company general
Questioneryeah actually those are those are great questions and frte was a IT Services System integration company that I started when I was 25 years old and it was extremely exciting for me when I started the business it was a very bootstrap operation because I had no money at the time I I took about 70,000 in credit cards and about 30,000 were 401k to get the company going and it started in my home and then eventually we got an office and went from there and
Questionerwe got an office and went from there and added people so I like to play math games you know in fact one of the common themes across my life is that I like to play math games and one of the math games that I really enjoy playing is this game with the sales funnel suspect Prospect qualified lead and close and I didn't have I didn't have any money really there was no money to do any marketing so it was really bootstrap and I didn't I knew I had to get customers and I had no Rolodex or anything like that so what I used to do at that time was I used to send out 200 letters a week when I I started to I I got this list of cios Chief Information officers of every company more than a 100 million in Revenue in the entire Midwest like there were like what 10 10 12 States I was in Chicago at the time so it had the name of the CIO it has his address and the phone number Etc so I
Questioneraddress and the phone number Etc so I couldn't I didn't have any budget for anything so I just sent them a letter and I had to make sure that the letter I sent them got past the gatekeeper you know got past their assistant whoever was going to open the letter so I made the letter appear where the gatekeeper would get confused about whether I knew the person or not so for example let's say the person's name is James Smith okay I would address the letter dear Jim okay and then throughout the letter I'm referring to Jim and then I put a post at note on the letter which said dear Jim let's let's connect and talk about this when you get a chance monish okay so there was this letter it was hand signed it's talking to Jim and bringing up the name Jim Jim several times it goes to an assistant the assistant cannot be sure that it's junk mail it
Othercannot be sure that it's junk mail it doesn't look like junk mail right it'sdoesn't look like junk mail right it'sdoesn't look like junk mail right it's hand signed and all that so and thenhand signed and all that so and thenhand signed and all that so and then what I what I would do is after sendingwhat I what I would do is after sendingwhat I what I would do is after sending these 200 the reason I sent 200 lettersthese 200 the reason I sent 200 lettersthese 200 the reason I sent 200 letters is that if you sent 200 letters firstis that if you sent 200 letters firstis that if you sent 200 letters first class mail the post office gave you aclass mail the post office gave you aclass mail the post office gave you a break on the postage if you sorted itbreak on the postage if you sorted itbreak on the postage if you sorted it with by by ZIP code so it was like 14 orwith by by ZIP code so it was like 14 orwith by by ZIP code so it was like 14 or 15 cents per letter instead of 22 cents15 cents per letter instead of 22 cents15 cents per letter instead of 22 cents at that time for the postage so the sixat that time for the postage so the sixat that time for the postage so the six cents made a big difference to mecents made a big difference to mecents made a big difference to me because I had no money and so I send upbecause I had no money and so I send upbecause I had no money and so I send up 200 letters a week and then what I would200 letters a week and then what I would200 letters a week and then what I would do is I would make 200 calls to all ofdo is I would make 200 calls to all ofdo is I would make 200 calls to all of them after a week or 10 days and then Ithem after a week or 10 days and then Ithem after a week or 10 days and then I had all the previous letters that hadhad all the previous letters that hadhad all the previous letters that had gone on so I would make the first callgone on so I would make the first callgone on so I would make the first call after 7 Days second call after 21 daysafter 7 Days second call after 21 daysafter 7 Days second call after 21 days third call after 45 days right I'd keepthird call after 45 days right I'd keepthird call after 45 days right I'd keep extending the time but nothing would getextending the time but nothing would getextending the time but nothing would get dropped out of that funnel till the
Otherdropped out of that funnel till the person said don't bother me I'm not interested okay so it was just dropping things through a funnel so to me the math game was how many of these letters and calls does it take me to get a meeting with somebody and then how many meetings does it take me to get a sale okay and a sale was big because it was hundreds of thousands of dollars if they I got a sale and then what was the stats on all of that right and what happened is that I was doing all this part-time while I was working you know mornings and evenings weekends and all that eight or nine months after I started the business it had three clients and the three clients were giving enough cash flow that it exceeded my salary that I was being paid and so I was just dying to go full-time and not be doing two jobs so the early days of trte were really exciting because it was
Othertrte were really exciting because it was just moish and there was no team and then I moved into offices and as the company kept growing I added more people I added more people in sales and HR and recruiting Etc and when we fast forward about 9 years there were 170 people in the business and what happened is my job changed from math games to hurting cats in HR I was just constant just bunch of I mean I literally got to a point where I hated to go to work because I'm a game player I like those math games and there was no more Math Games i' go to work and there's politics going on and and in 99 I went through this psychological testing with these two industrial psychologists which is about nine years after I started the company and they they gave me what I call my owner's manual and they they said to me Mish we don't even know how you can function in
Otherdon't even know how you can function in that business because it's so away from where you are so they were the first people ever I was like 35 years and old when they explained it to me I was wandering in the wilderness with no owner's manual for first 35 years of my life and they said to me this is what the exact words monish you like to play games I said is that right okay they said not only do you like to play games you like to play mathematically oriented games and he says and they said that it's not any kind of mathematical games they need to be single player games so you like to play games where you control the outcome and what's happening at trte is you don't control the outcome at all you have this huge team they control the outcome and that's not who Mish is so at that time I was just already feeling unhappy going to work and all that so
Questionerunhappy going to work and all that so they were just you know know preaching to the choir and I was thinking of starting PAB funds Buffett had just told me he wasn't interested in me coming to work for him so I told him listen I'm thinking of starting this new business you know investment fund and all that they looked at it and they said monish this is perfect for you this is who you are single player and then one of them so I started P funds with a100 th with $1 million one of them gave me $100,000 so I said listen I told him Jim I don't want to lose your money okay you don't know me and you're not a friend of mine or anything and I don't know whether you want to invest you know I'd only given them $2,000 to do this work for me the guy was going to give me 100,000 he said Mish don't worry about it I cracked your brain open I looked inside I will do
Otherbrain open I looked inside I will do extremely well I said okay so and he did you know I think he had he had a great run with with that and so basically and they were absolutely right I actually read my owners's manual I try to read it every year and I try to stay true to it I try not to wander like one of the things that changed when I moved to Austin like this is my own home office the pandemic taught me that work for home work from home is more productive for me a lot more productive than going to work and even though PAB fun has a very small team I made a change when I moved to Austin where I do not go to work at all I only work from home and now we have teams and zoom and all these things that make it so easy to do all that uh and actually I probably end up at the office no more than two times a year when somebody is coming for some meeting or something and
Othercoming for some meeting or something and coming for some meeting or something and we have to meet them as a team or we have to meet them as a team or we have to meet them as a team or something like that and my quality of something like that and my quality of something like that and my quality of life and quality of work has gone up life and quality of work has gone up life and quality of work has gone up even more because I'm back to single even more because I'm back to single even more because I'm back to single player you know I don't even have like player you know I don't even have like player you know I don't even have like like like there's dakshana which is in like like there's dakshana which is in like like there's dakshana which is in India and then there's PAB PAB funds India and then there's PAB PAB funds India and then there's PAB PAB funds which is about two miles from here but which is about two miles from here but which is about two miles from here but basically I'm the the way I deal with basically I'm the the way I deal with basically I'm the the way I deal with daksha and the way I deal with the other daksha and the way I deal with the other daksha and the way I deal with the other people back office Etc and people in P people back office Etc and people in P people back office Etc and people in P funds Etc is very similar they're all funds Etc is very similar they're all funds Etc is very similar they're all remote and you know I can focus on being remote and you know I can focus on being remote and you know I can focus on being the single player and so that is why the single player and so that is why the single player and so that is why the first the first the first Venture kind of got me all crossed in Venture kind of got me all crossed in Venture kind of got me all crossed in knots in nine years and the second knots in nine years and the second knots in nine years and the second Venture is now 25 years old and I don't Venture is now 25 years old and I don't Venture is now 25 years old and I don't even know where the time went you know even know where the time went you know even know where the time went you know and I can easily I I hope I can do this and I can easily I I hope I can do this and I can easily I I hope I can do this for the rest of my life because it's too for the rest of my life because it's too for the rest of my life because it's too much fun so that's why I ended up where
Othermuch fun so that's why I ended up where I ended up hey monish thanks for coming to talk with us I have a question more about the lowrisk High uncertainty framework and thought process that you've been talking about earlier and my question is could you talk a little bit more about like how you're thinking about or what questions you're asking yourself what low risk is especially as you move into like Emerging Markets where things aren't as like you know clear to get the full picture or if you're looking at your next anomaly or even if like you're looking at Jet Blue you know what kind of things are you asking yourself to determine if an investment is low risk and high and certainty
Otheryeah so you know when when I when I went to Turkey I made several trips over the last several years and we ended up with three Investments we have three investments in Turkey I probably
Ted Weschlerthree investments in Turkey I probably met with like 60 or 70 businesses over the last several years the individuals in some of these businesses they are ivy league educated in the US they're extremely high quality High Caliber you know I met I met folks who went to Corell and went to other top end schools in in the US and then went back to Turkey Etc and I what I found is that the quality of the management teams was just so off the charts in in a few of the businesses that I was visiting so one of the decisions I made in Turkey well Ras was a little different was it extremely cheap Etc is that I focused on the highest quality businesses with the highest quality managements and the Emerging Markets risk I think the thing is that's one of the mental models where I felt like that the market had got this wrong that the market really didn't
Questionerwrong that the market really didn't understand so for example we have an investment in the Coke bottler in Turkey okay they bottle Coke in Turkey not only they bottle Coke and turkey they have exclusive bottling rights for turkey and about 12 other countries including all of Pakistan which is big and the Coca-Cola company owns 20% of the company and sits on the board the individuals I met running the place have had Global Experience they're not many of them are not Turks you know the CFO was from Ukraine and the new SE o they have now relocated from Chicago I mean just exceptional resume exceptional people and in fact the quality of the management was extremely high and you know when you're bottling Coke and if you're worried about turkey I mean first of all something like two-thirds of their volume is outside turkey and the family the family that
Questionerturkey and the family the family that owns that coke bottler is the family that has the exclusive rights to all McDonald's franchises in the country that's not a listed business is a private business owned by that family the family also has joint ventures with am imv you know the Budweiser people so all these multinationals did a lot of due diligence before they tied up with okay and all of them in very different businesses like McDonald's is a very different business on the beer business which is and then they have the largest grocery store like Walmart so I found that the family was super high quality but they were not involved in the business they had brought in professional managers the managers are significantly higher quality than I would find in a Coke botler in the United States or probably in anywhere else in the world so here I was looking at an anomaly where I was
Questionerwas looking at an anomaly where I was saying people don't want to touch this business because it's in turkey and all these things but I'm looking at a team that's exceptional I'm looking at a product that's exceptional I'm looking and and and just to give you an example of the the why the Emerging Market part of it is utter nonsense it's just it it is overweighted by people like guy and many other people and it's it's a big mistake so the Coca-Cola company had a bottler in usbekistan and the bottler was the government so you know usbekistan used to be part of the former former Soviet Union basically it was a government entity that was the botler and this government entity basically was not really a capitalist kind of maximize revenues and maximize profits the way they dealt with Coke was they sold everything at the factory gate they sold everything at the factory gate so they told people around the country
Warrenso they told people around the country okay if you want Coke products come to the factory gate pay us and take your Coke products this is this is unheard of everywhere else in the coke system distribution is really important I mean the the Coke bottlers in Cleveland are stalking the shelves inside the Kroger you know they making sure the displays are great all of that I mean it's it's last mile is extremely important so Koke was extremely frustrated with this bottling Arrangement and finally the government decided that they were going to sell the bottle and the Coca-Cola company said well you know we would love to buy it and can we can you please sell it to us and they said no we're going to do an auction and we're going to sell it to the highest bid and we're not particularly interested in selling to Coca-Cola whoever pays us the most so
OtherCoca-Cola whoever pays us the most so what Koch did Coke Koch owned 50% of thewhat Koch did Coke Koch owned 50% of thewhat Koch did Coke Koch owned 50% of the botler what Koch did is they told thebotler what Koch did is they told thebotler what Koch did is they told the TurkishTurkishTurkish bottler please bid for thisbottler please bid for thisbottler please bid for this bottler and pleasebottler and pleasebottler and please pay whatever it takes to win thispay whatever it takes to win thispay whatever it takes to win this auction pay whatever crazy multiple youauction pay whatever crazy multiple youauction pay whatever crazy multiple you have to pay to win this auctionhave to pay to win this auctionhave to pay to win this auction we will sell you our half at next towe will sell you our half at next towe will sell you our half at next to nothing to make the numbers work for younothing to make the numbers work for younothing to make the numbers work for you and the the Turkish botler did that theyand the the Turkish botler did that theyand the the Turkish botler did that they paid some very high multiple I thinkpaid some very high multiple I thinkpaid some very high multiple I think north of 20 25 times IA for the 50% ofnorth of 20 25 times IA for the 50% ofnorth of 20 25 times IA for the 50% of the business that was owned by the bythe business that was owned by the bythe business that was owned by the by the company and they won that auctionthe company and they won that auctionthe company and they won that auction and then the Coca-Cola company sold themand then the Coca-Cola company sold themand then the Coca-Cola company sold them their half for single digit iidatheir half for single digit iidatheir half for single digit iida multiple and then then what happenedmultiple and then then what happenedmultiple and then then what happened after that isafter that isafter that is the second year of ownership of thatthe second year of ownership of thatthe second year of ownership of that botler the profit Squadbotler the profit Squadbotler the profit Squad drup and I asked them I said what do youdrup and I asked them I said what do youdrup and I asked them I said what do you guys do like you you took a businessguys do like you you took a businessguys do like you you took a business that was making like you know 20 millionthat was making like you know 20 millionthat was making like you know 20 million a year and you're like approaching 100
Questionera year and you're like approaching 100 million they said all we did was we hired some drivers bought some trucks went into town said hello to a bunch of people that's all we've done so far and we haven't even turned on our Jets yet so they said we have 20% of the product line that coke has we've just introduced Coke Zero you know they don't have they don't have monster in there they don't have a lot of you know Costa Coffee and all of that so usbekistan is going to become a very different kind of cash flow machine than the way it was before right because but what Coke did is out of all the bottlers they had in the world they went to them they went to them and said do it because they knew that these guys are awesome they just sold to them the 50% of the bottling operation that coke owned in Pakistan so now the bottler in in turkey has 100%
Questionernow the bottler in in turkey has 100% And there are rumors which were you know they were on the internet that Koke is about to give them Bangladesh you know these sound like Basket Case countries Bangladesh is not a basket case countries for Coke I mean Pakistan is doing 400 million units a year cases a year used to be 40 million cases 15 years ago Bangladesh is probably around 600 million cases a year that is a huge botler I mean all of turkey is 600 million cases so when when people say to me that I should look at a business like this and I should give some huge weight to the fact that so the currency okay so they're selling Coke if we have a thermonuclear Global blast in the you in the world which takes out 95% of the global population somewhere someone will restart a Coke bottling plant and people will want Coke for a certain percentage
Otherwill want Coke for a certain percentage you know certain minutes of Labor equalyou know certain minutes of Labor equalyou know certain minutes of Labor equal to one Coke okay so the currency isto one Coke okay so the currency isto one Coke okay so the currency is irrelevant people will want Coke andirrelevant people will want Coke andirrelevant people will want Coke and they will exchange some of their laborthey will exchange some of their laborthey will exchange some of their labor for Coke and so when I look at when Ifor Coke and so when I look at when Ifor Coke and so when I look at when I look at the way people processlook at the way people processlook at the way people process turkey and they do like a broad brushturkey and they do like a broad brushturkey and they do like a broad brush sweep on Turkey saying oh it's answeep on Turkey saying oh it's answeep on Turkey saying oh it's an Emerging Market oh it has high inflationEmerging Market oh it has high inflationEmerging Market oh it has high inflation well that is where you should go diggingwell that is where you should go diggingwell that is where you should go digging because you're going to find somebecause you're going to find somebecause you're going to find some overlooked gems I think maybe 90% 95%overlooked gems I think maybe 90% 95%overlooked gems I think maybe 90% 95% 97% of the Turkish market is useless97% of the Turkish market is useless97% of the Turkish market is useless that's fine what do we care we want thethat's fine what do we care we want thethat's fine what do we care we want the anomalies and we can just go invest inanomalies and we can just go invest inanomalies and we can just go invest in the anomalies you know and uhthe anomalies you know and uhthe anomalies you know and uh so when people say to me Emergingso when people say to me Emergingso when people say to me Emerging Markets what it says to me is theyMarkets what it says to me is theyMarkets what it says to me is they haven't done thehaven't done thehaven't done the workworkwork so that's fine I'll do the work so it'sso that's fine I'll do the work so it'sso that's fine I'll do the work so it's about N9 o'clock let's I'll we'll takeabout N9 o'clock let's I'll we'll takeabout N9 o'clock let's I'll we'll take the last two questions and then I'll askthe last two questions and then I'll askthe last two questions and then I'll ask an ending question and I thought we were
Questioneran ending question and I thought we were going till midnight
OtherArin maybe next year okay
Questioneryeah Jameson I I took a long nap so we could go till midnight but that's okay I'll just read on Jet Blue till I fall asleep I think you kind of touched upon this a little bit but I was just curious at this point in your career in life do you consider yourself successful and as a followup to that how would you define success on a both personal professional level
Otherone of the things that I learned from Buffett and Munger not so much because they talked about it but because I observed this and you know when you look at these guys you know they are highly successful I mean Beyond success right but what I find when I when I've interacted with Charlie is is he does not look at or dwell on the past if he if he looks at his past accomplishments it is a massive body of
Questioneraccomplishments it is a massive body of work but what I what I find even take upwork but what I what I find even take upwork but what I what I find even take up one tenth or 1% of the space in hisone tenth or 1% of the space in hisone tenth or 1% of the space in his brain what is taking up the space in hisbrain what is taking up the space in hisbrain what is taking up the space in his brain is he was struggling some somebrain is he was struggling some somebrain is he was struggling some some time back with succession at Dailytime back with succession at Dailytime back with succession at Daily Journal and he would kind of mour andJournal and he would kind of mour andJournal and he would kind of mour and groan to me about or yougroan to me about or yougroan to me about or you know someone recommended someone and heknow someone recommended someone and heknow someone recommended someone and he didn't think that person was the rightdidn't think that person was the rightdidn't think that person was the right person and this and that and he was veryperson and this and that and he was veryperson and this and that and he was very focused on that problem like he was justfocused on that problem like he was justfocused on that problem like he was just honed in and and eventually he solvedhoned in and and eventually he solvedhoned in and and eventually he solved the problem somebody gave him a referralthe problem somebody gave him a referralthe problem somebody gave him a referral and then you know he hired the personand then you know he hired the personand then you know he hired the person and what I find is that if I try toand what I find is that if I try toand what I find is that if I try to bring up with Charlie things about thebring up with Charlie things about thebring up with Charlie things about the past and like the question you asked ohpast and like the question you asked ohpast and like the question you asked oh you've been so successful and this andyou've been so successful and this andyou've been so successful and this and that he brushes it off it it justthat he brushes it off it it justthat he brushes it off it it just bounces off so I've tried to learn frombounces off so I've tried to learn frombounces off so I've tried to learn from that so the thing is that I think thethat so the thing is that I think thethat so the thing is that I think the reason why these guys keep going like
Otherreason why these guys keep going like the Energizer Bunny is because they're focused on the future and they don't uh dwell so actually it's a great mental model all of you all of you attending this class are very successful I mean just to get to irin's class you had to have a lot of success in life until now Arin doesn't deal with yo-yos do you deal with yo-yos Arin I don't think you deal with yo-yos so you know you're going to Elite institutions you're getting you know very highly sought-after degrees you're going to have a great you know career and all of that so you're all very successful but I would say that if you spend brain cells ping yourself in the back about the past that's going to take away some horsepower for the future so the way I look at it is that I I I actually had to change make a change in myself after I saw this in Charlie I said you know this
Warrensaw this in Charlie I said you know this is a good model this is a good model to adapt which is don't worry about the past you know don't say oh this is great and I did this and I did that whatever you know I say just ignore all that just look forward look at the problems at hand keep chugging forward and that will help you do better and and so that's what I try to do
Questionerhey Mish I just wanted to ask about one of the Investments that you made through your fund called Micron or Micron Technologies I'm curious what factors did you consider when you first entered like and got a stake for the company and why you left
Todd Combsyeah I think that's a good question and basically the the Micron thesis was built around the fact that it was a rational oligopoly so there three players Samsung HX and Micron Samsung and HX and in Korea I met with Samsung and hyx
QuestionerKorea I met with Samsung and hyx multiple times in inmultiple times in inmultiple times in in soul and I I had you know I I'd had asoul and I I had you know I I'd had asoul and I I had you know I I'd had a conversation withconversation withconversation with Charlie about oligopolies when I wasCharlie about oligopolies when I wasCharlie about oligopolies when I was looking at this whole situation aboutlooking at this whole situation aboutlooking at this whole situation about rational hopes and so on and Charlierational hopes and so on and Charlierational hopes and so on and Charlie brought up a very interesting uh kindbrought up a very interesting uh kindbrought up a very interesting uh kind of uh case study data he said thatof uh case study data he said thatof uh case study data he said that Buffett had St studied CokeBuffett had St studied CokeBuffett had St studied Coke bottlers in Coke and Pepsi bottlers inbottlers in Coke and Pepsi bottlers inbottlers in Coke and Pepsi bottlers in virtually every geography he couldvirtually every geography he couldvirtually every geography he could around the world and he found that inaround the world and he found that inaround the world and he found that in something like 95 or 97% ofsomething like 95 or 97% ofsomething like 95 or 97% of cases both the bottlers made a lot ofcases both the bottlers made a lot ofcases both the bottlers made a lot of money it was a great business for bothmoney it was a great business for bothmoney it was a great business for both of them but he also found in like threeof them but he also found in like threeof them but he also found in like three to 5% of cases where neither of themto 5% of cases where neither of themto 5% of cases where neither of them made any money what happened is that themade any money what happened is that themade any money what happened is that the Coke bottler or the Pepsi bottler in aCoke bottler or the Pepsi bottler in aCoke bottler or the Pepsi bottler in a part particular geographypart particular geographypart particular geography decided that they wanted to dramaticallydecided that they wanted to dramaticallydecided that they wanted to dramatically increase market share and soincrease market share and soincrease market share and so they dropped their pricing dramaticallythey dropped their pricing dramaticallythey dropped their pricing dramatically in the hopes of raising
Otherin the hopes of raising volumes and of course there was a reaction from the other party who also dropped their pricing and so they got into these bidding wars where the consumer basically ended up winning and neither of them could back off and those business so he found that there were a few geographies maybe 3% or something where Coke bottling or Pepsi Bottling was not a good business and the rest the places was good so basically the when when when I met with Samsung they were very clear that they had 50% market share they did not want more than 50% market share they said quote unquote bad things happen to us when we go over 50% and they were actually the lowcost producer when I was first making the investment so I asked him this question I said look you're the lowcost producer you can drop your prices to a point where your other two competitors will
Questionerwhere your other two competitors will actually start bleeding and you will still be making money and they said we know that and we also have this 50% rule where we don't want more than 50% market share so we are happy to have healthy competitors and you know keep it at that and when I met with HX and Samsung it was the same situation and so basically you know when you have um these oligopolies it is illegal for them to sit in a room and collude on pricing right I mean that would be you know you're going to jail if you're doing that but they do what the what the airlines do so American Airlines will drop its price on a particular route and five minutes later United will announce that they've change their pricing as well but the way they communicate with each other is through the marketplace and what I noticed when I was uh looking
Questionerand what I noticed when I was uh looking at Micron and HX and Samsung is that theat Micron and HX and Samsung is that theat Micron and HX and Samsung is that the three companies issued a lot of pressthree companies issued a lot of pressthree companies issued a lot of press releases and I was really confused whyreleases and I was really confused whyreleases and I was really confused why they issued so many press releases andthey issued so many press releases andthey issued so many press releases and then I realized they're not talking tothen I realized they're not talking tothen I realized they're not talking to me they're talking to each other andme they're talking to each other andme they're talking to each other and they're signaling to each other so theythey're signaling to each other so theythey're signaling to each other so they would always say in the press releasewould always say in the press releasewould always say in the press release that you know you know we are at suchthat you know you know we are at suchthat you know you know we are at such and such capacity and this is our capexand such capacity and this is our capexand such capacity and this is our capex budget and this is what we're expectingbudget and this is what we're expectingbudget and this is what we're expecting to do and then the next next guy afterto do and then the next next guy afterto do and then the next next guy after two days will issue a very similar presstwo days will issue a very similar presstwo days will issue a very similar press release and after two days the third guyrelease and after two days the third guyrelease and after two days the third guy releases so I was convinced that thisreleases so I was convinced that thisreleases so I was convinced that this was a rationalwas a rationalwas a rational oligopoly the memory business is a veryoligopoly the memory business is a veryoligopoly the memory business is a very complex business it's virtuallycomplex business it's virtuallycomplex business it's virtually impossible for a fourth player to enterimpossible for a fourth player to enterimpossible for a fourth player to enter the space it's really complicatedthe space it's really complicatedthe space it's really complicated technology there's just too many patentstechnology there's just too many patentstechnology there's just too many patents and you know you would have to violate
Otherand you know you would have to violate patterns left and right even if you willing to violate all the patterns the process is are complicated so the Chinese have been trying forever for example and they don't they will not have a cred credible memory business that can go up against these three guys so that was a thesis but then what happened is in late 21 and 22 Samsung got ansy and decided they wanted more market share and they wanted to increase their profits and so they went off the reservation they basically increased production reduced margin causing pain and by then actually what had happened is Micron had become the low cost producer they had actually moved up the curve they were Sanji Mar was executing really well but once that happened from my point of view that shattered the thesis because you're in in uncharted waters now and you're basically
Questionerwaters now and you're basically violating this you know of core core fundamentals of what you know what our whole thesis was on and I couldn't I couldn't see this thing working out in a good way the second things that started happening which was also unexpected was the US China trade Wars and all these intellectual property Wars and and Micron became a big casualty of that so China banned a bunch of Micron products and different things and all of that and that helped the other two players but it hurt mro so when I saw that this the US China situation which is hard to forecast and predict and I saw that these people have gone off the reservation we had you know maybe 60 70% gain on the stock over the years I thought we would get a lot more so I said okay you know we take our chips off the table the investment didn't work as well as we thought
Otheras we thought and the thesis didn't work we'll take the money and play elsewhere well monish this has been such a great conversation and I'm looking forward to next year with that why don't we give a round of applause for monish over here and have a great
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