Other[Music][Music][Music][Music] so today we are very honored to have so today we are very honored to have so today we are very honored to have Mones poy with that he managed multi- Mones poy with that he managed multi- Mones poy with that he managed multi- billion dollar hash fund billion dollar hash fund billion dollar hash fund and the growth rate of uh of the P and the growth rate of uh of the P and the growth rate of uh of the P investment fund grow be the market every investment fund grow be the market every investment fund grow be the market every year uh the SP 500 grow rate is about 7% year uh the SP 500 grow rate is about 7% year uh the SP 500 grow rate is about 7% and the annualized gain of bage piz fund and the annualized gain of bage piz fund and the annualized gain of bage piz fund is more than 12% so mon has been is more than 12% so mon has been is more than 12% so mon has been featured by Wall Street Journal F CN has featured by Wall Street Journal F CN has featured by Wall Street Journal F CN has DC Bloomberg uh TV all over so if you DC Bloomberg uh TV all over so if you DC Bloomberg uh TV all over so if you just Google his name you will see all just Google his name you will see all just Google his name you will see all those uh you know news articles talking those uh you know news articles talking those uh you know news articles talking about his success in the investment about his success in the investment about his success in the investment world so Mones and I we met at the world so Mones and I we met at the world so Mones and I we met at the booksh heway meeting and since then we booksh heway meeting and since then we booksh heway meeting and since then we had this um connection and Mones is very had this um connection and Mones is very had this um connection and Mones is very generous giving us seminars at CBA in generous giving us seminars at CBA in generous giving us seminars at CBA in the past years and we continue doing the past years and we continue doing the past years and we continue doing this so today he's giving us a c a this so today he's giving us a c a this so today he's giving us a c a lecture so mes has given gu a lecture in lecture so mes has given gu a lecture in lecture so mes has given gu a lecture in Columbia of the University Cambridge all Columbia of the University Cambridge all Columbia of the University Cambridge all the prestigious universities so we are the prestigious universities so we are
Otherthe prestigious universities so we are very lucky to have monish here with us
Othertoday so yeah so let's give a well welcome to mes yeah thank you thank you
OtherProfessor Lou it's a pleasure it's always fun to be in your class and also to the live session in May in Omaha is always wonderful as well so shall we get started Let's Get It Started yeah okay
Otherall right we can go to the next slide so you know Charlie Monger he passed away last year and he was a director of Costco for uh many decades and Charlie truly loved Costco and I used to meet Charlie for dinner at his place maybe three four times a year and I used to play bridge with him sometimes on Fridays the LA Country Club and almost every time I met him for dinner at least 20 30 minutes was on Costco he always had a number of things to say about Costco and different nuances Charlie referred to Costco as
Questionernuances Charlie referred to Costco as the ultimate win-win-win business modelthe ultimate win-win-win business modelthe ultimate win-win-win business model so it is a business that does anso it is a business that does anso it is a business that does an exceptionally good job for all itsexceptionally good job for all itsexceptionally good job for all its customers it is a business that does acustomers it is a business that does acustomers it is a business that does a very good job for its shareholders it isvery good job for its shareholders it isvery good job for its shareholders it is a business that does a really good joba business that does a really good joba business that does a really good job for its employees it's a business thatfor its employees it's a business thatfor its employees it's a business that does a very good job for its vendorsdoes a very good job for its vendorsdoes a very good job for its vendors just the entire ecosystem benefits andjust the entire ecosystem benefits andjust the entire ecosystem benefits and you know like for example there are manyyou know like for example there are manyyou know like for example there are many business models which you could call asbusiness models which you could call asbusiness models which you could call as win lose so for example there's awin lose so for example there's awin lose so for example there's a company that stretches out the paymentscompany that stretches out the paymentscompany that stretches out the payments they have to make to their suppliers youthey have to make to their suppliers youthey have to make to their suppliers you know maybe they take 60 days or 90 daysknow maybe they take 60 days or 90 daysknow maybe they take 60 days or 90 days pay their suppliers and they use thatpay their suppliers and they use thatpay their suppliers and they use that float to improve their financials wellfloat to improve their financials wellfloat to improve their financials well that works well for the company but notthat works well for the company but notthat works well for the company but not so well for the supplier right so that'sso well for the supplier right so that'sso well for the supplier right so that's kind of an example of a win- losekind of an example of a win- losekind of an example of a win- lose business Mark so Munger always broughtbusiness Mark so Munger always broughtbusiness Mark so Munger always brought up how Costco was amazingly win-win
Todd Combsup how Costco was amazingly win-win across the board in fact there's a qut by him recently I think he 2022 was saying that just imagine how good a country the US would be if everybody followed the Costco model and even if you look at something like employee compensation at Costco you know there are a lot of hourly workers it's a retail operation Costco's hourly rates are 50% more than Walmart for example their employee turnover is much lower than all other retailers they heavily promote from within in fact the present CEO of Costco started as a forklift operator and he moved all the way up to to now CEO of this large company so it's definitely a win-win for the employees if you go to the food court in Costco you can get a hot dog and a Coke or soda for a $150 and that $150 price has not changed in several decades and you know we've had a lot of inflation last few
Todd Combswe've had a lot of inflation last few years and Beyond they've kept that price the same I mean I mean you can have a full meal at Costco for under $2 you know you can't do that even at McDonald's they've always tried to keep prices low they do not Mark things up more than 15% that's the maximum markup they have and Costco could raise prices by 5% or more tomorrow across the board and their profits would go up and their sales would not change at least not in the short term but they don't do that because they're not really retailer they're like a buying agent so Charlie always loved the Costco model the these win-win business models are very rare and these win-win business models tend to do extremely well for investors so one of the things to look for when you're when you're looking at different businesses is try to look at is it win-win is it win- lose
Questionerto look at is it win-win is it win-lose and this whole notion of win-win win-lose is very complicated it appears to be simple but it is not let's go to the next slide at the 2005 Berkshire Hathaway annual meeting there was a question someone asked I'm not going to go through the whole answer but Warren had answered part of the question and then Charlie said I think he's asking in part are there some businesses we won't have as subsidiaries in Berkshire even though they are wonderful businesses so are we rejecting some businesses some business opportunities on moral grounds and
WarrenWarren Buffett says yeah well we've referred in past meetings to one we did on that basis we will own stocks of companies where we wouldn't want to own the whole business I'm not sure that the logic is perfect on that but we would not have trouble owning stock in a
Warrennot have trouble owning stock in a cigarette company we wouldn't want to manufacture cigarette you know we might own a retail company that sells cigarettes I mean there are all kinds of gradations but we do not there are things we do not want to own and be responsible for their businesses where we have no problem owning their stocks or bombs and some years back Charlie and I went down to where Memphis and let's go to the next slide and then Buffett says yeah we looked at we were invited down and we looked at a company that made a product that perfectly legal probably one of the best businesses I've ever seen in terms of the economics of it and then Charlie manger says absolutely then Buffett says still doing well we met in the room with we went to a hotel we met in the room with the people that had the business and the people were perfectly decent people and
Warrenpeople were perfectly decent people and they described the business to us and we went down in the lobby and I remember we sat down in the lobby and just decided that we did not want to be in that business and you know the lines are not perfect on this sort of thing I mean I'm sure there are there may be ads in the Buffalo news that are selling some investment advice or something that I would cringe at if I knew the people involved or what they were selling next slide if you own a big retail establishment a retailer general merchandise you know you're probably going to be selling cigarettes when you don't think you should smoke yourself or that your children should smoke and it's they're not perfect but we have turned down some the most dramatic being that one because we went took us a trip of 1,000 miles or so to finally face face up to the fact
Warrenso to finally face face up to the fact that we didn't want to own it Charlie
Warrenthat we didn't want to own it Charlie
Warrenthat we didn't want to own it Charlie you have anything anything to add on it
Warrenyou have anything anything to add on it
Warrenyou have anything anything to add on it so Charlie says no but that was
Warrenso Charlie says no but that was
Warrenso Charlie says no but that was interesting because you know we were
Warreninteresting because you know we were
Warreninteresting because you know we were poor we were young and poor then by
Warrenpoor we were young and poor then by
Warrenpoor we were young and poor then by modern
Warrenmodern
Warrenmodern standards and you know we very human and
Warrenstandards and you know we very human and
Warrenstandards and you know we very human and we could see it was just like putting $1
Warrenwe could see it was just like putting $1
Warrenwe could see it was just like putting $1 100 million dollars in a bushel basket
Warren100 million dollars in a bushel basket
Warren100 million dollars in a bushel basket and setting it on fire as we walked away
Warrenand setting it on fire as we walked away
Warrenand setting it on fire as we walked away nextslide so Charlie you said in your almond
Warrennextslide so Charlie you said in your almond
Warrennextslide so Charlie you said in your almond this is one of the best you ever ENC the
Warrenthis is one of the best you ever ENC the
Warrenthis is one of the best you ever ENC the one that grows with manufacturer yeah
Warrenone that grows with manufacturer yeah
Warrenone that grows with manufacturer yeah can you uh a bit
Warrencan you uh a bit
Warrencan you uh a bit more that was
CharlieConwood it's an addictive product people
CharlieConwood it's an addictive product people
CharlieConwood it's an addictive product people are totally hooked they're the number
Charlieare totally hooked they're the number
Charlieare totally hooked they're the number two person in the
Charlietwo person in the
Charlietwo person in the market they all believe in their product
Charliemarket they all believe in their product
Charliemarket they all believe in their product every damn one of them shw tobacco
Charlieevery damn one of them shw tobacco
Charlieevery damn one of them shw tobacco and and the Figures were just
Charlieand and the Figures were just
Charlieand and the Figures were just unbelievable
Charlieunbelievable
Charlieunbelievable that was virtually an open anist you're
Charliethat was virtually an open anist you're
Charliethat was virtually an open anist you're going to know nothing but
Charliegoing to know nothing but
Charliegoing to know nothing but money and the cancer caused
Charliemoney and the cancer caused
Warrenmoney and the cancer caused by that mouth tobacco is maybe 5% of the by that mouth tobacco is maybe 5% of the by that mouth tobacco is maybe 5% of the cancer you get from cancer you get from cancer you get from cigarettes but it's not cigarettes but it's not cigarettes but it's not Sil you definitely are going to Sil you definitely are going to Sil you definitely are going to get kill people with that product have get kill people with that product have get kill people with that product have no reason to die so best deal we ever saw we couldn't die so best deal we ever saw we couldn't die so best deal we ever saw we couldn't lose money doing lose money doing lose money doing it we it we it we passed they didn't play out J passed they didn't play out J passed they didn't play out J pritzer who was then head of pritzer who was then head of pritzer who was then head of the trustees or something at the UN SCH the trustees or something at the UN SCH the trustees or something at the UN SCH Medical School pritzkers are big in Medical School pritzkers are big in Medical School pritzkers are big in Chicago he just snapped it up so fast Chicago he just snapped it up so fast Chicago he just snapped it up so fast the biters made2 or three billion the biters made2 or three billion the biters made2 or three billion dollars out of dollars out of dollars out of that but do we miss the 2 or three that but do we miss the 2 or three that but do we miss the 2 or three billion we would easily have had not an billion we would easily have had not an billion we would easily have had not an iow if we had a moment's regret not an iow if we had a moment's regret not an iow if we had a moment's regret not an Iota we are way better off not making a Iota we are way better off not making a Iota we are way better off not making a killing out of a product we knew going killing out of a product we knew going killing out of a product we knew going in was a killing product why should we in was a killing product why should we in was a killing product why should we do do do that on the other hand if it was just a that on the other hand if it was just a that on the other hand if it was just a marketable security we wouldn't feel marketable security we wouldn't feel marketable security we wouldn't feel that the morality oh it was ours but that the morality oh it was ours but that the morality oh it was ours but it's going to be our subsidiary and it's going to be our subsidiary and
Otherit's going to be our subsidiary and we're going to be paying the people that are advertising on Tobacco that's that's just too much for us we not basically like he was saying that the company that they passed on was a cornwood chewing tobacco and the odds of getting cancer by chewing tobacco versus smoking cigarettes is like 120th it's 5% of the odds of getting cancer by smoking cigarettes so it's much lower than cigarettes but it's not zero and they passed on the business and let's go to the next slide these are the Salient Financial numbers for Conwood so the Conwood deal came to Buffett and Munger in 1986 and you see the numbers for 1985 those were the numbers that they were looking at it was offered to them for $400 million and you can see that the operating profit in 85 was around 22% pre tax and then you know if you fast forward to 2005 or so which is about 20
Questionerforward to 2005 or so which is about 20 years after they passed on the deal you can see that sales had gone up they had a little bit more than doubled but profits had gone up a lot more they had gone up like more than 5x the pre-tax margin on the business was around 55% was much better than even what it was 20 years before that and the net profit net operating margin was 36% the riters bought the business for 400 million in 86 like Charlie said J pritsker snapped it up so fast because it was just so easy to see this was going to just mint money and the pritsker sold it 20 years later for 3 and a half billion so they had you know close to like a 9x or something 8 or 9x and the business kept going after that if you go another 10 years forward to 2016 you can see that sales have doubled profits have gone up even higher than sales and so now the
Questionereven higher than sales and so now the after tax margin is almost 40% I mean this is an unbelievable business and like we see over here Munger said in '86 when they saw this it was the most no-brainer business that they were looking at and he said we could see it was just like putting a 100 million in a bushel basket and setting it on fire as we walked away then Buffett had said probably one one of the best businesses I've ever seen in terms of the economics of it so in 1980 the stock price of Burkshire Hathaway was around $400 a share okay what is now about you know 7 close to 700 $700,000 a share was almost 1200th of that price in 1980 in 1986 I'm guessing the price may have been somewhere between 1,000 and 2,000 per share around there and the market cap of Burkshire which is now hovering around a trillion would have been around
Otheraround a trillion would have been around you know well under a billion you knowyou know well under a billion you knowyou know well under a billion you know maybe 500 4 500 million or so so thismaybe 500 4 500 million or so so thismaybe 500 4 500 million or so so this particular deal was a very meaningfulparticular deal was a very meaningfulparticular deal was a very meaningful deal for them you know in terms of ifdeal for them you know in terms of ifdeal for them you know in terms of if they had done this deal it would havethey had done this deal it would havethey had done this deal it would have been a very sizable part of bsh haway atbeen a very sizable part of bsh haway atbeen a very sizable part of bsh haway at that time and it would it would havethat time and it would it would havethat time and it would it would have driven some incredible results for themdriven some incredible results for themdriven some incredible results for them but they took a pass on it let's go tobut they took a pass on it let's go tobut they took a pass on it let's go to the next slide so I already told youthe next slide so I already told youthe next slide so I already told you that basically kept compounding andthat basically kept compounding andthat basically kept compounding and let's go to the next slide so this islet's go to the next slide so this islet's go to the next slide so this is Valiant pharmaceutical some of you mayValiant pharmaceutical some of you mayValiant pharmaceutical some of you may be familiar with Valiant or maybe yoube familiar with Valiant or maybe yoube familiar with Valiant or maybe you were too young when Valiant waswere too young when Valiant waswere too young when Valiant was imploding about 8 or nine years yearsimploding about 8 or nine years yearsimploding about 8 or nine years years ago but Valiant went through was was aago but Valiant went through was was aago but Valiant went through was was a darling of a lot of investors tilldarling of a lot of investors tilldarling of a lot of investors till around the middle of 2015 and then itaround the middle of 2015 and then itaround the middle of 2015 and then it began a very precipitous decline let'sbegan a very precipitous decline let'sbegan a very precipitous decline let's go to the next slide in June 2015 seoago to the next slide in June 2015 seoago to the next slide in June 2015 seoa fund you know ruin kif Kar which was
Questionerfund you know ruin kif Kar which was actually a fund that actually started in Omaha it was the fund that Burkshire that Buffett's original Partners in the Buffett partnership were recommended by Warren to invest in when he was shutting down his partnership in 1970 so in many ways Warren says he feels like he's the father of the seoa fund or Ruan KF anyway Ruan KF at that time in the middle of 2015 had more than onethird of its portfolio inv Valiant so about 7 and a half billion invalent out of a $21 billion portfolio Bill amman's puring Square had about 30% inv Valiant so about four more than four billion out of a 14 billion portfolio and some of you might know Jeff uin at Value act capital he had about 3.3 billion invalent out of $20 billion portfolio all three of them suffered huge declines and huge losses when Valiant imploded puffett was
Otherlosses when Valiant imploded puffett was really upset at the whole Valiant Sagareally upset at the whole Valiant Sagareally upset at the whole Valiant Saga at the way ruin kif invested in it madeat the way ruin kif invested in it madeat the way ruin kif invested in it made it its largest position as we will seeit its largest position as we will seeit its largest position as we will see it was not a win-win business model soit was not a win-win business model soit was not a win-win business model so Charlie Munger called Valiant SCCharlie Munger called Valiant SCCharlie Munger called Valiant SC strategy and this and he said thisstrategy and this and he said thisstrategy and this and he said this before the decline in the stock price hebefore the decline in the stock price hebefore the decline in the stock price he called valiant's core strategy of buyingcalled valiant's core strategy of buyingcalled valiant's core strategy of buying smaller drug companies and then raisingsmaller drug companies and then raisingsmaller drug companies and then raising prices deeply immoral he said sewer wasprices deeply immoral he said sewer wasprices deeply immoral he said sewer was too light a word for Valiant and buffertoo light a word for Valiant and buffertoo light a word for Valiant and buffer and Munger made these comments whileand Munger made these comments whileand Munger made these comments while Valiant was still flying high and deeplyValiant was still flying high and deeplyValiant was still flying high and deeply loved by Amman uben and Ruan KF let's goloved by Amman uben and Ruan KF let's goloved by Amman uben and Ruan KF let's go to the next slide actually let's go backto the next slide actually let's go backto the next slide actually let's go back to the previous slideto the previous slideto the previous slide basically what was the problem withbasically what was the problem withbasically what was the problem with Valiant so there was a guy who was theValiant so there was a guy who was theValiant so there was a guy who was the CEO of valiant who was a formerCEO of valiant who was a formerCEO of valiant who was a former consultant at McKenzie and he had anconsultant at McKenzie and he had anconsultant at McKenzie and he had an Insight that basically pharmaceuticalInsight that basically pharmaceuticalInsight that basically pharmaceutical companies had a lot of inefficiency in
Questionercompanies had a lot of inefficiency in the way they spent money on R&D so he had analyzed and found that a lot of farmer companies really do not kind of do a holistic analysis of how efficient or effective their R&D is so he came up with a business model where Valiant would acquire smaller drug companies it would gut their r& departments basically almost wiped them out and they would look at the portfolio of the of drugs that the company was selling and they would increase the hell out of the prices on those drugs so many of these drugs were under patent many of these were life-saving drugs that that really didn't bother them they basically rais prices to as high as they could get away with and of course when you do the combination of those two things the earnings go up a lot and then they were basically running almost like what
Questionerbasically running almost like what Warren called a chain lad where they would continuously buy these drug companies continuously gut their R&S continuously raise prices dramatically and just kept going and Bill Amman is a really smart investor I'm I'm going to talk about some investors here I'm not trying to beat up on them I respect a lot of these investers but I'm just telling you how easy it is for our brains to miss something obvious so these are really smart investors ruen kff is a very good shop Bing square is a very good shop value at Capital is very good Sho they missed something very basic what they missed was that the business model was win lose and a lot of investors don't pay enough attention to the win lose nature of business model it's really important to that when you run businesses through that lens you can say no know very
Questionerthat lens you can say no know very quickly to a lot of businesses without spending a lot of time on them let's go to the next slide
Questionerso Credit Acceptance is a company that makes auto loans and they make auto loans to people who have the worst possible credit so these are people who have repeatedly not paid back their loans in the past people who have defaulted on their credit cards who have had maybe foreclosures on their homes they have never been responsible about credit they are the people they lend to but they have a very unusual business model so what Credit Acceptance does is because they are lending to people with extremely low FICO scores and very high risk of default the interest rates are extremely high 30% 40% 50% interest rate the second thing that they do is that the car dealership that is selling the car is made to have skin in the game so let's say for
Questionerskin in the game so let's say for example there's a car being sold for 10,000 and let's say for example that the car dealer is going to make $2,000 on that sale their cost of the car is like $8,000 they're going to sell it for $10,000 and let's say that credit acceptance is going to finance $9,000 of that car loan what they will do is they will tell the car dealership to finance 3,000 okay so 3,000 is coming from their car dealership and 6,000 is coming from credit acceptance and the borrower gets 9,000 at a very high interest rate now they do this so that the car dealer who is the one who's meeting the borrower is making some assessment of whether this is going to work or not because if it doesn't work the car dealer is going to be upside down they had a $2,000 profit but they' put 3,000 into the deal so they they would be upside down if the loan doesn't
Questionerwould be upside down if the loan doesn't get paid when the car is is finance there is a device put in the car in most of the deals where once the payment is 24 hours delayed from where so let's say it's due on April 15th and it's April 16th and Credit Acceptance has not received a payment the car will not start so they will remotely disable the car from starting so the person goes to get in the car it doesn't start and then they call Credit Acceptance and Credit Acceptance says we haven't got your payment please send your payment your car will start again okay so this is a way and after about maybe four or five days or a week of no payment being being received one day the person will go outside and see there's no car it's been repossessed so they have a very good ecosystem of repossessions and non-starting Cars one of the interesting thing about car
Questionerof the interesting thing about car financing is people are more willing to default on their mortgages versus car payments the reason is that if you default on your mortgage it's going to take 12 to 18 months for the bank to get you out of your house but if you default on your car payment even if it's not Credit Acceptance even if it's Chase or somebody they will start working on repossessing your car in a few weeks so you won't be able to go to work whereas if you don't pay your mortgage you can still go to work every so generally speaking auto financing is a pretty good place uh to be because of these nuances now let's go to the next slide as you can see from the previous slide Credit Acceptance has not imploded like the way Valiant imploded it's doing fine it's actually extremely well regarded by investors and if you look at the previous slide they've delivered
Todd Combsthe previous slide they've delivered incredible returns to the shareholders and the present and past shareholders of Credit Acceptance include Ruan KF Seth claran Fran rosan you know he comes to Omaha every year run the great Fund in from Montreal Rob venal in in Europe and Francis Chu and Maverick capital and so on now I had studied Credit Acceptance a few years back and I was really impressed by their business model I said wow this is a really good business this this company's you know helping people who would not have the ability to get a car and while I was studying the business and I was kind of interested and excited about it I had a dinner with Charlie and I brought up as a dinner with Charlie this must have been like you know maybe 3 4 years back and I said Charlie have you heard of a company called Credit Acceptance he said no so I said uh let
Todd CombsAcceptance he said no so I said uh let me describe the business to you and I must have spent less than a minute talking to Charlie about Credit Acceptance explaining the business exactly the way I explained it to you and he interrupted me he said we're not interested in that kind of business and that was really surprising to me so I asked him he said we don't want to do predatory lending we don't want win-lose business models so you know it was interesting to me because till I spoke to Charlie it had never really dawned on me that credit acceptance for the win-lose model to me it seemed like they were helping a demographic that would not have wheels would not have a car and helping them becoming responsible but Charlie's kind of standards are we can make a lot of money by taking the high road so he immediately rejected pred acceptance
Warrenimmediately rejected pred acceptance when he brought up the win- lose nature to me I immediately stopped looking at Credit Acceptance thank God for Munger as a friend I didn't make that investment okay and but of course a number of these people that I have on this list still have an investment in Credit Acceptance and they love it they talk in glowing terms about let's go to the next slide so trans dime if you look at this company it's up 173 X in the last 18 years 33% annualized unbelievable and let's go to the next slide so you can just see that their revenues have gone up a lot the earnings have grown up a lot and let's go to the next slide these are the present and past shareholders of transfer Wally whites is based in Omaha some of you might know Wally whites he's on the Burkshire board he runs the whites mutual funds Chuck ay Maverick Capital
Questionermutual funds Chuck ay Maverick Capital Steve Mandel Daniel lobe Brian LaSteve Mandel Daniel lobe Brian LaSteve Mandel Daniel lobe Brian La Lawrence David Abrams very good set ofLawrence David Abrams very good set ofLawrence David Abrams very good set of investors have either currently or ininvestors have either currently or ininvestors have either currently or in the past own own trans time right andthe past own own trans time right andthe past own own trans time right and then let's go to the next slide and inthen let's go to the next slide and inthen let's go to the next slide and in one of his last public comments beforeone of his last public comments beforeone of his last public comments before hehehe died this is probablydied this is probablydied this is probably maybe 8 to 12 weeks before Charliemaybe 8 to 12 weeks before Charliemaybe 8 to 12 weeks before Charlie Banger passed away he was asked aboutBanger passed away he was asked aboutBanger passed away he was asked about Trans diim in a podcast he his lastTrans diim in a podcast he his lastTrans diim in a podcast he his last podcast and he said I don't like thatpodcast and he said I don't like thatpodcast and he said I don't like that way of making money it's too brutal theyway of making money it's too brutal theyway of making money it's too brutal they figured out something that has a littlefigured out something that has a littlefigured out something that has a little Monopoly due to the defense departmentMonopoly due to the defense departmentMonopoly due to the defense department regulations and they raised the price 10regulations and they raised the price 10regulations and they raised the price 10 times and they're famous for it I regardtimes and they're famous for it I regardtimes and they're famous for it I regard that is immoral so what is the transthat is immoral so what is the transthat is immoral so what is the trans time business model trans time is in thetime business model trans time is in thetime business model trans time is in the Aerospace parts manufacturing businessAerospace parts manufacturing businessAerospace parts manufacturing business what they dowhat they dowhat they do is they buy the smaller Aerospace Partsis they buy the smaller Aerospace Partsis they buy the smaller Aerospace Parts manufacturers now if you have somethingmanufacturers now if you have somethingmanufacturers now if you have something like the Boeing 737 airplane for example
Questionerlike the Boeing 737 airplane for example almost none of those parts are made by Bo Boeing is basically an assembly right so the fuse ludge comes from Spirit Aeros systems and all the different pieces the engines come from G Etc so and it takes a lot to get a part qualified and approved by the FAA to go into an airplane this is why air travel is so safe and typically these parts that go into the Boeing 737 or Airbus Etc do not have more than a couple of Manufacturers sometimes they might just be one manufacturer of a particular part and they may never be more than two or three because it's not that you manufacture the part you you have to have that part approved by the FAA and the fa FAA is not going to approve a part unless they're 5,000% sure about the quality and nature of the manufacturer and all of that so what trans time does is when
Questionerof that so what trans time does is when they buy these companies theythey buy these companies theythey buy these companies they dramatically jack up the price a lot anddramatically jack up the price a lot anddramatically jack up the price a lot and you know to whatever the market willyou know to whatever the market willyou know to whatever the market will bear and the market can bear a lotbear and the market can bear a lotbear and the market can bear a lot becausebecausebecause there are not 10 different manufacturersthere are not 10 different manufacturersthere are not 10 different manufacturers you can go to for that part so Mongeryou can go to for that part so Mongeryou can go to for that part so Monger immediately saw that as winimmediately saw that as winimmediately saw that as win lose right and he's very familiar withlose right and he's very familiar withlose right and he's very familiar with trans time he's very familiar with thetrans time he's very familiar with thetrans time he's very familiar with the money they're making and basically burmoney they're making and basically burmoney they're making and basically bur has never made an investment in it andhas never made an investment in it andhas never made an investment in it and there people onthere people onthere people on burk'sburk'sburk's board like Wally whites for example whoboard like Wally whites for example whoboard like Wally whites for example who have had these Investments and fact ifhave had these Investments and fact ifhave had these Investments and fact if you look at that list of investors it'syou look at that list of investors it'syou look at that list of investors it's it's a who's who list so these win loseit's a who's who list so these win loseit's a who's who list so these win lose type scenarios are not easy to figuretype scenarios are not easy to figuretype scenarios are not easy to figure out all the time sometimes it's obviousout all the time sometimes it's obviousout all the time sometimes it's obvious but many times it's not I mean you canbut many times it's not I mean you canbut many times it's not I mean you can look at a cigarette company and say yeahlook at a cigarette company and say yeahlook at a cigarette company and say yeah this doesn't work or you can look at athis doesn't work or you can look at athis doesn't work or you can look at a casino and say it's win lose Etc but
Questionercasino and say it's win lose Etc but sometimes you get to models like trans dive which appear to be great so I thought a lot to myself about how does Charlie do it or how did he how did he do it and how was he so fast because I saw his brain it blew my mind to watch his BL brain in action on Credit Acceptance a company he does never he's never heard of and in less than 60 seconds he's dismissed it and I realized that the model that he's using is the model of inversion so Charlie always said invert always invert a lot of problems can be solved d by using inversion and so the question he asks himself anytime he en encounters any investment is not why should I make this investment he's looking for the flimsiest reason to take a pass so his mind is immediately running on why is this a bad investment not why is this a good investment and when he keeps hammering
Questionerinvestment and when he keeps hammering on it and cannot come up with a reason like Costco then he falls in love with the investment and then actually those win-win investments will end up having such tremendous returns for investors because of the extreme loyalties and Goodwill so if you think of customer of trans time a customer of trans time or a customer Valiant is a pissed off customer they are being for forced into a corner and they're forced to pay a high price a customer of Credit Acceptance even if he's a deadbeat thinks the 50% interest rate he's paying is gouging even though he's defaulted on every loan he's taken in the past and so in capitalism because there's 50,000 stocks we can be extremely selective we can say no to almost everything and Warren's biggest complaint with Charlie was he was what he call The Abominable
Questionerwas he was what he call The Abominable
Questionerno man okay like Warren knew that
Questioneranytime I call Charlie he's going to tell me how stupid I am and how bad the idea is okay so
QuestionerWarren knew even before he called Charlie that almost anything is going to bring to Charlie's attention Charlie is going to reject okay and I remember for example that when they bought Genry which was the largest acquisition Berkshire had done I think they did the deal in what 96 or 97 or somewhere around around then and jry turned out to be a huge problem investment for Burkshire they had to work very hard because the culture had eroded and they had not realized that and they had paid a big price for it so Munger was asked about the Genry investment it was a $20 billion acquisition for Burkshire at the time I think the market cap was only like 60 70 billion at the time maybe
Questionerlike 60 70 billion at the time maybe less and he said oh I didn't know about this deal until it was almost done so it's interesting a 20 billion dollar deal is not bought brought to the board of Burkshire it's not brought to the lifetime partner of Warren Buffett Warren looks at the deal and proceeds on his own and probably one of the reasons he didn't bring it up to Charlie is because he got probably sick and tired of the nose and said oh this one I I know insurance I'm going to go do this so Charlie's huge value to Burkshire I wish we had a list of every investment that Warren wanted to make and Charlie said no that would be a great list to look at because it went through one great mind and then the second great mind stopped it and it's because of the Second Great mind I think is why burshire has a record it has is because so many of the deals that Warren would
Questionerso many of the deals that Warren would have done didn't happen so these are just some thoughts I wanted to share with you guys in terms of win lose so when you look at Investments I think it's a very good filter to always begin with in your head with what is wrong with this why won't this work why should I not make the investment thank you yeah
Otherthank you m so now it's time to ask a questions so I know many of you guys are interested in finance investment I know we have an expert here and yeah so you can ask anything anything related to the lecture or anything about you know investment in general I think otherwise yeah it's a great opportunity do you think anyone could replace Charlie Munger
Warrenthere was and always will be just one Charlie M so I was you know I have to pinch myself I got to see Charlie up close and personal and but we don't need
Warrenclose and personal and but we don't need to see him up close and personal I think to see him up close and personal I think to see him up close and personal I think that if you look at the body of work that if you look at the body of work that if you look at the body of work that Charlie has put together I think that Charlie has put together I think that Charlie has put together I think that that that we have not had a mind like that amongst we have not had a mind like that amongst we have not had a mind like that amongst humans in at least 2,000 years and we humans in at least 2,000 years and we humans in at least 2,000 years and we are unlikely to see a mind like that so are unlikely to see a mind like that so are unlikely to see a mind like that so I think Charlie is one of her kind you I think Charlie is one of her kind you I think Charlie is one of her kind you know in my last meeting with Charlie know in my last meeting with Charlie know in my last meeting with Charlie which was exactly one month before he which was exactly one month before he which was exactly one month before he passed away I I never in my I think my passed away I I never in my I think my passed away I I never in my I think my friendship with Charlie was about four friendship with Charlie was about four friendship with Charlie was about four 13 14 years in 13 or 14 years I never 13 14 years in 13 or 14 years I never 13 14 years in 13 or 14 years I never asked him to meet me because I always asked him to meet me because I always asked him to meet me because I always like he's got a lot of Demands on his like he's got a lot of Demands on his like he's got a lot of Demands on his time and I don't want to be like you time and I don't want to be like you time and I don't want to be like you know making requests Etc so whenever I know making requests Etc so whenever I know making requests Etc so whenever I met for bridge or dinner or whatever it met for bridge or dinner or whatever it met for bridge or dinner or whatever it was on on monger's initiative right so was on on monger's initiative right so was on on monger's initiative right so he's the one who said let's meet he's the one who said let's meet he's the one who said let's meet whatever in the summer of 2023 I felt whatever in the summer of 2023 I felt whatever in the summer of 2023 I felt like I wanted to meet Charlie so for the like I wanted to meet Charlie so for the like I wanted to meet Charlie so for the first time ever I actually approached
Questionerfirst time ever I actually approached his assistant and said you know can you please see if Mr Munger is available for dinner sometime and I'd like to meet him and he immediately said yes and I met him and it turned out that that dinner was exactly 30 days before he died and I didn't know at that time that that would be the last time I would see him or that would be the last and it was just me and him there were just two of us for that dinner and his mind was still really sharp and everything and I asked him a question you know he's got eight kids and he's got I don't know infinite grandkids and many great grandkids and I said Charlie you know in your jean poo who stands out and his answer to me was no one okay so so I said what do you mean Charlie I know I know so many of your kids and grandkids they've gone to all these Elite schools
Warrenthey've gone to all these Elite schools and they've done so well he said oh yeahand they've done so well he said oh yeahand they've done so well he said oh yeah he's saying they're smart they've donehe's saying they're smart they've donehe's saying they're smart they've done well in school and they they've donewell in school and they they've donewell in school and they they've done well in life and all of that but they'rewell in life and all of that but they'rewell in life and all of that but they're not he said I know the question you'renot he said I know the question you'renot he said I know the question you're asking Mish and they are not at thatasking Mish and they are not at thatasking Mish and they are not at that level so there was no one there rightlevel so there was no one there rightlevel so there was no one there right and that was his gene pool but I sayand that was his gene pool but I sayand that was his gene pool but I say that my view is that you go outside thethat my view is that you go outside thethat my view is that you go outside the gene pool to 8 billion humans that aregene pool to 8 billion humans that aregene pool to 8 billion humans that are currently alive and there's no one likecurrently alive and there's no one likecurrently alive and there's no one like Charlie and I think if you go back inCharlie and I think if you go back inCharlie and I think if you go back in 2,000 years in history there's no one2,000 years in history there's no one2,000 years in history there's no one like Charlie so you know people drawlike Charlie so you know people drawlike Charlie so you know people draw analogies with Ben Franklin I think Benanalogies with Ben Franklin I think Benanalogies with Ben Franklin I think Ben Ben Franklin's one of a kind I mean IBen Franklin's one of a kind I mean IBen Franklin's one of a kind I mean I think he's very unusual and Charlie hasthink he's very unusual and Charlie hasthink he's very unusual and Charlie has a lot of common trates with Ben Franklina lot of common trates with Ben Franklina lot of common trates with Ben Franklin but there are things about Charlie thatbut there are things about Charlie thatbut there are things about Charlie that were not part of Ben Franklin manywere not part of Ben Franklin manywere not part of Ben Franklin many things about Franklin are not part ofthings about Franklin are not part ofthings about Franklin are not part of Charlie so I think that the amazing
QuestionerCharlie so I think that the amazing thing about Charlie is that there's an incredible body of work he left for us so we have poor Charlie Almanac we have all the Burkshire meetings which are archived on buffett. cnbc.com we have all the Daily Journal transcripts and all of that so we have a lot of resources and things that Munger said available to us and I think that studying those can only help us become better like I mean like today's talk was a very small you know less than one10 or 1% of Charlie which is this whole idea of when lose and you know why should I not make the investment right it's a small part of what he does but yeah I don't think we'll there's no other Charlie M and I don't think we'll ever see one one day when there's no warrant Buffet do you think that bur is going to be the same company with the same values
Questionerbe the same company with the same values or is it going to be something different
Questioneror is it going to be something different
Questioneror is it going to be something different so it's a different skill set to keep
Questionerso it's a different skill set to keep
Questionerso it's a different skill set to keep Berkshire going
QuestionerBerkshire going
QuestionerBerkshire going than what was required to create it you
Questionerthan what was required to create it you
Questionerthan what was required to create it you know the creation of Apple needed Steve
Questionerknow the creation of Apple needed Steve
Questionerknow the creation of Apple needed Steve Jobs but Tim Cook couldn't have created
QuestionerJobs but Tim Cook couldn't have created
QuestionerJobs but Tim Cook couldn't have created Apple but he's proven to be a great
QuestionerApple but he's proven to be a great
QuestionerApple but he's proven to be a great leader in managing and running apple and
Questionerleader in managing and running apple and
Questionerleader in managing and running apple and so the the skill set needed at Burkshire
Questionerso the the skill set needed at Burkshire
Questionerso the the skill set needed at Burkshire to take it forward from here is not the
Questionerto take it forward from here is not the
Questionerto take it forward from here is not the skill set that Warren and Charlie had
Questionerskill set that Warren and Charlie had
Questionerskill set that Warren and Charlie had led to the creation of Burkshire so
Questionerled to the creation of Burkshire so
Questionerled to the creation of Burkshire so keeping it
Questionerkeeping it
Questionerkeeping it going is a lot simpler than the creation
Questionergoing is a lot simpler than the creation
Questionergoing is a lot simpler than the creation Now having said that the Big Challenge B
QuestionerNow having said that the Big Challenge B
QuestionerNow having said that the Big Challenge B hat away is size and it size is a
Questionerhat away is size and it size is a
Questionerhat away is size and it size is a problem even if Warren and Charlie lived
Questionerproblem even if Warren and Charlie lived
Questionerproblem even if Warren and Charlie lived forever so it's not so much a successor
Questionerforever so it's not so much a successor
Questionerforever so it's not so much a successor issue it's an issue that would be an
Questionerissue it's an issue that would be an
Questionerissue it's an issue that would be an issue no matter who's running it so I
Questionerissue no matter who's running it so I
Questionerissue no matter who's running it so I think Greg Abel will be a very good
Questionerthink Greg Abel will be a very good
Questionerthink Greg Abel will be a very good leader I think he's very capable guy
Questionerleader I think he's very capable guy
Questionerleader I think he's very capable guy very smart and I think he understands
Greg Abelvery smart and I think he understands the Burkshire culture and Burkshire is got a lot of Tailwinds going for it has a great reputation and so if we have a crisis which you know humans have a good record of creating crisis every 10 15 years or so if we have a crisis bursh show will shine it's got a lot of liquidity and it can go on the offense and such so I think the worksh show of The Future Has a good future say you're 19 years old and you don't have what you have now and you're doing it all over again how would you start should I assume you're 19 good yes okay well it's a very big advantage to be 19 Warren always says that when he asks this kind of question that he would happily trade places with he would give you everything he had you know make you 94 years old and then he would be 19 and go from there so he would be happy to trade places with you
Questionerwould be happy to trade places with you
QuestionerI think that if you at 19 if you have a very good understanding
Otherso it depends what your objectives in life are if your objective in life is to compound assets and be successful and be wealthy and so on it's a relatively simple game if you just do a few things and one of the most important things is you're already asking me the question when you're too old so I wish you asked me this question when you were 7 years old because we lost 12 years man we lost 12 years that we cannot bring back but it's it's better than asking me this question when you're 30 years old so it's not too bad 19 is not a bad age one of the things to keep in mind is that the laws for individual retirement accounts IRAs are that you could be six months old and you can have an IRA there's no minimum age to have an IRA the requirement is
Ted Weschlerage to have an IRA the requirement is that the money that you put into an IRA has to be wages earned by okay so for example if you were 15 years old and you know you did some odd jobs and worked at a McDonald's whatever and you made let's say $110,000 in a year for example you could put five or 6,000 of that I don't know what the exact number is I think it's 6 and a half thousand into an individual retirement account you could put up to 100% of those earnings into an individual retirement account and they would be tax sheltered they would not be taxed until they withdrawn and if you did in a Roth IRA there tax up front but never tax later so having fluency in the US tax code is important being able to compound money in a tax-free manner is important so the when my daughter was 19 actually she was 18 when when my daughter was 18
Othershe was 18 when when my daughter was 18 she she just finished high school andshe she just finished high school andshe she just finished high school and she got a summer job and she made Ishe got a summer job and she made Ishe got a summer job and she made I think five or $6,000 that summer and shethink five or $6,000 that summer and shethink five or $6,000 that summer and she was living at home and didn't have anywas living at home and didn't have anywas living at home and didn't have any expenses Etc so the 56,000 was justexpenses Etc so the 56,000 was justexpenses Etc so the 56,000 was just sitting there you know basically wasn'tsitting there you know basically wasn'tsitting there you know basically wasn't used and I had told her listen if youused and I had told her listen if youused and I had told her listen if you want to take my advice I would just putwant to take my advice I would just putwant to take my advice I would just put this money into an IRA and if you trustthis money into an IRA and if you trustthis money into an IRA and if you trust me you can give me part of attorney andme you can give me part of attorney andme you can give me part of attorney and I can manage that app so she did thatI can manage that app so she did thatI can manage that app so she did that she opened an IRA and one time she sheshe opened an IRA and one time she sheshe opened an IRA and one time she she went to school at NYU and one time wewent to school at NYU and one time wewent to school at NYU and one time we were living in California then and Iwere living in California then and Iwere living in California then and I used to pick her up at 2:00 or 3: in theused to pick her up at 2:00 or 3: in theused to pick her up at 2:00 or 3: in the morning at LAX when she' come home andmorning at LAX when she' come home andmorning at LAX when she' come home and so one time we had a long drive likeso one time we had a long drive likeso one time we had a long drive like more than an hour it was like 2:00 or 3:more than an hour it was like 2:00 or 3:more than an hour it was like 2:00 or 3: in the morning and we were driving backin the morning and we were driving backin the morning and we were driving back so I said this is a good time to talkso I said this is a good time to talkso I said this is a good time to talk about the power of compounding with herabout the power of compounding with herabout the power of compounding with her
Ted Weschlerabout the power of compounding with her and so I said look you know you knowand so I said look you know you knowand so I said look you know you know that $5,000 you put in your IRA so let'sthat $5,000 you put in your IRA so let'sthat $5,000 you put in your IRA so let's say for example because I'm only goingsay for example because I'm only goingsay for example because I'm only going to put it in one or two stocksto put it in one or two stocksto put it in one or two stocks concentrate the hell out of it let's sayconcentrate the hell out of it let's sayconcentrate the hell out of it let's say it grows at 15% a year so I asked herit grows at 15% a year so I asked herit grows at 15% a year so I asked her what would that amount be when shewhat would that amount be when shewhat would that amount be when she turned 68 which was 50 years from now soturned 68 which was 50 years from now soturned 68 which was 50 years from now so if you know the rule of 72 which you canif you know the rule of 72 which you canif you know the rule of 72 which you can Google if you don't know that 72 dividGoogle if you don't know that 72 dividGoogle if you don't know that 72 divid by 15 is five basically 15% compoundedby 15 is five basically 15% compoundedby 15 is five basically 15% compounded will double every five 5,000 is going towill double every five 5,000 is going towill double every five 5,000 is going to become 10,000 in 5 years it's going tobecome 10,000 in 5 years it's going tobecome 10,000 in 5 years it's going to become 20,000 and 10 years 40,000 15become 20,000 and 10 years 40,000 15become 20,000 and 10 years 40,000 15 years so on 50 years is 10 5year periodsyears so on 50 years is 10 5year periodsyears so on 50 years is 10 5year periods that's 2 to the^ of 10 2 ^ 10 is24 let'sthat's 2 to the^ of 10 2 ^ 10 is24 let'sthat's 2 to the^ of 10 2 ^ 10 is24 let's throw away the 24 because I like easythrow away the 24 because I like easythrow away the 24 because I like easy math so 5,000 * 1,000 is 5math so 5,000 * 1,000 is 5math so 5,000 * 1,000 is 5 million so the 5,000 that she made at 18million so the 5,000 that she made at 18million so the 5,000 that she made at 18 at the age of 68 15% annualizedat the age of 68 15% annualizedat the age of 68 15% annualized compounded is $5 million and then I toldcompounded is $5 million and then I toldcompounded is $5 million and then I told her at 19 you might do another
Warrenher at 19 you might do another internship we might make a little bit more money but let's say you save another 5,000 at 69 that's going to be another $5 million and at some point you're going to graduate I told her 22 or something and you'll make make maybe 100,000 a year and you might save 10 20,000 and you might be able to put that away because you can now do a 401k and an IRA and so on so I asked her by now she's wide awake you know she was falling asleep but she's wide awake so I said you keep doing this and after 10 15 years your income might be a quarter million or something and it keeps going and you keep saving so how much money do you have in your 70 and she said I don't know it's too big a number there weren't a lot of heroics required to do that now you can take that 15% compounding rate down to even 8 or 9% and even then the number will be very
Questioner9% and even then the number will be very large the key is from the age of 19 I cannot do anything about what happened in the past in life because you never came and talked to me when you were seven it's terrible but that's okay okay but at least we've talked today so from here on out you can stop making the mistakes you made in the past and so spend less than you earn always put the money to the max if you can in a retirement account and let it compound one ofer's best quotes is do not interrupt compounding unnecessarily so we're not going to go on vacation of you know empty the 401K or empty the IRA or go to Hawaii or something or buy a fancy car and all of that we're going to live a happy life and a happy life doesn't need a lot of money and like for example once a week my partner and I have dinner at Costco okay both of us have hot dogs the drinks are free and I
Todd Combshave hot dogs the drinks are free and I have hot dogs the drinks are free and I might sometimes get a slice of pizza might sometimes get a slice of pizza might sometimes get a slice of pizza it's like six bucks it's a great date it's like six bucks it's a great date it's like six bucks it's a great date night and I get to spend an hour in the night and I get to spend an hour in the night and I get to spend an hour in the most orgasmic place on it you know most orgasmic place on it you know most orgasmic place on it you know Costco I just watch the Swarms of Costco I just watch the Swarms of Costco I just watch the Swarms of humanity so happy with their loaded humanity so happy with their loaded humanity so happy with their loaded carts as they leave as they leave Costco carts as they leave as they leave Costco carts as they leave as they leave Costco it's a great date you know and the price it's a great date you know and the price it's a great date you know and the price is right and then the next night we go is right and then the next night we go is right and then the next night we go for dinner at some fancy place it's like for dinner at some fancy place it's like for dinner at some fancy place it's like 200 bucks and it wasn't even as good so 200 bucks and it wasn't even as good so 200 bucks and it wasn't even as good so I'd say just do all your dates at Costco I'd say just do all your dates at Costco I'd say just do all your dates at Costco then that means you met the right person then that means you met the right person then that means you met the right person and basically you keep compounding and and basically you keep compounding and and basically you keep compounding and you're done you know you live a good you're done you know you live a good you're done you know you live a good life you put some away and then you're life you put some away and then you're life you put some away and then you're you know you wake up one day you look to you know you wake up one day you look to you know you wake up one day you look to your left and look to your right and your left and look to your right and your left and look to your right and those people who are your peers they way those people who are your peers they way those people who are your peers they way back from where you are and you can't back from where you are and you can't back from where you are and you can't even see where them where from from
Questionereven see where them where from fromeven see where them where from from where you are and that's it how do youwhere you are and that's it how do youwhere you are and that's it how do you feel about Blackstone investment firmfeel about Blackstone investment firmfeel about Blackstone investment firm
WarrenBlackstone is a wonderful Company SteveBlackstone is a wonderful Company SteveBlackstone is a wonderful Company Steve schwarzman built tremendous Company Youschwarzman built tremendous Company Youschwarzman built tremendous Company You Know The Sovereign wealth funds haveKnow The Sovereign wealth funds haveKnow The Sovereign wealth funds have huge amounts of money to put to work andhuge amounts of money to put to work andhuge amounts of money to put to work and they have very few places where they canthey have very few places where they canthey have very few places where they can give that money to be put to work sogive that money to be put to work sogive that money to be put to work so there are like three or four tollthere are like three or four tollthere are like three or four toll bridges like Blackstone and Apollo andbridges like Blackstone and Apollo andbridges like Blackstone and Apollo and Brookfield and the abudabi investmentBrookfield and the abudabi investmentBrookfield and the abudabi investment Authority or the Qatar Sovereign rentAuthority or the Qatar Sovereign rentAuthority or the Qatar Sovereign rent fund or Singapore's wealth fund thesefund or Singapore's wealth fund thesefund or Singapore's wealth fund these are the places they have to give theare the places they have to give theare the places they have to give the money to and they've been really good atmoney to and they've been really good atmoney to and they've been really good at how they've deployed at scale so I thinkhow they've deployed at scale so I thinkhow they've deployed at scale so I think it's a very good business if you thinkit's a very good business if you thinkit's a very good business if you think of it from a win-win win- lose point ofof it from a win-win win- lose point ofof it from a win-win win- lose point of view lose part of it possibly could beview lose part of it possibly could beview lose part of it possibly could be leverage you know Leverage is always aleverage you know Leverage is always aleverage you know Leverage is always a negative but you know almost all theirnegative but you know almost all their
Questionernegative but you know almost all their Leverage is non- recourse and they're usually quite prudent about the way they do that so yeah it's a good business serving a demographic that needs their product sure you want to St so motion start soes when did you start your first investment you know I didn't know a lot about investing I accidentally read a book about Warren Buffett when I was about 30 years old and the light bulb went off so you know at 19 you have a huge head start on me you know I didn't know what investing or stocks or compounding or anything else was till I was 30 so 1994 was when I first started to invest
Questioneryeah tell us more about your story think the students very interested you know how did you become successful still successful even you started late was the secret with the recipe well the the thing is that for all of us in different
Questionerthing is that for all of us in different fields or different interests that we have we are going to sometimes have an aha moment and the important thing when you have that aha moment is to seize the moment and to go all in so one of the things that I realized when I was reading when I was reading Warren buff one of his biographies of War Buffett when I was 30 and the big aha moment that hit me was that Buffett has a quote he says I'm a better investor because I'm a businessman and I'm a better in businessman because I'm an investor there's an interplay between running a business and being a good investor and what I realized when I was looking at the way he was doing different Investments is that I had been an entrepreneur since my mid-20s 2425 and I was spending maybe three or 4% of my time figuring out the strategy and direction of the business I had and
Questionerand direction of the business I had and then about 95 96% of the time on the blocking and tackling to actually execute on that strategy so most of the time went on you know executing on it what I realized when I read about Buffett is that he was using the same part of the brain I was using to figure out my strategy for my business to figure out his Investments and except that it was 80% of his time and not three or 4% like I was so because he was con because he was not running something he had a lot of time available to invest and I always found the 4% time on strategy to be a lot more interesting than the 96% hurting cats and making things happen I mean it was fun but the 4% was the most fun you know figuring out what's going to be a strategy what's going to be a Direction all of that and I realized that if I spent more time as an investor that 4% time would
Questionerinvestor that 4% time would increase and I was very interested in that so in 94 when I was 30 I had about a million dollars I just sold a portion of my company and after tax I had 1 million so I said okay I'm going to start studying these public companies and I'm going to try to figure out which ones are likely to do well in the future and that whole notion of trying to figure out how what these companies were all about and how they likely to do in the future was very similar to trying to figure it out for my own comp like I said it's using the same part of the brain and that's why Buffett say I'm a better businessman because I'm an investor and so on so when I started to invest I found my life is a lot happier and more exciting because now that 4% time was increasing I was spending about maybe 10 15 20 hours a week doing investment research
Ted Weschlerhours a week doing investment research and that was really exciting for me and I got to the point about five years later when I pretty much lost interest in the company I was running so the million that I had at that time 94 had done really well I had compounded at more than like 70% a year it was sitting at about 13 or 14 million it had done extremely well I was at 35 I was independently wealthy outside of the business I had and so it enabled me to make a choice where I said I'm not going to run my business anymore so I basically started a search for a CEO so that I would leave my business and I could spend all my time on that 80% like Buffett was spending so the Genesis of all that was that when I read the Buffett biography there was an aha moment and these aha moments can come to us in all kinds of different fields and areas it
Questionerkinds of different fields and areas it can come in sports it can come incan come in sports it can come incan come in sports it can come in whatever you know you have aptitude forwhatever you know you have aptitude forwhatever you know you have aptitude for but the important thing is I think thatbut the important thing is I think thatbut the important thing is I think that you've got to take the bull by the hornsyou've got to take the bull by the hornsyou've got to take the bull by the horns at that pointat that pointat that point so you you can't just say oh that'sso you you can't just say oh that'sso you you can't just say oh that's interesting and you know kind of move oninteresting and you know kind of move oninteresting and you know kind of move on youve got to really go for it at thatyouve got to really go for it at thatyouve got to really go for it at that point when when you've got these ahapoint when when you've got these ahapoint when when you've got these aha moments so basically that's that's whatmoments so basically that's that's whatmoments so basically that's that's what I would recommend and suggest you haveI would recommend and suggest you haveI would recommend and suggest you have any books you recommend or anything toany books you recommend or anything toany books you recommend or anything to start understanding that stuff betterstart understanding that stuff betterstart understanding that stuff better
Warrenwell the the the one book which I'mwell the the the one book which I'mwell the the the one book which I'm sorry to say would be of more value thansorry to say would be of more value thansorry to say would be of more value than four years at UNO would be poor Charliefour years at UNO would be poor Charliefour years at UNO would be poor Charlie AlmanAlmanAlman you know if you were to spend about $25you know if you were to spend about $25you know if you were to spend about $25 buying poor Charlie Almanac it'sbuying poor Charlie Almanac it'sbuying poor Charlie Almanac it's slightly cheaper than the four years atslightly cheaper than the four years atslightly cheaper than the four years at Uno with I think maybe more take-homeUno with I think maybe more take-homeUno with I think maybe more take-home value other than Professor Lou's classvalue other than Professor Lou's classvalue other than Professor Lou's class and the back half of the book has about
Questionerand the back half of the book has about 11 talks that Charlie Munger has given over the years those are Priceless those have thousands of years of human wisdom in them and one of the talks you know the psych 25 causes of human misjudgment uh psychology of human misjudgment I mean I think I try to reread that talk every year that talk really does a great job explaining how humans are wired and it's it's a huge advantage in life if you understand especially the wiring defects of humans our brains are not not rational Creations our brains are a result of a very messy long history of evolution and there's ancestral parts of a brain and there's newer parts of the brain and it's a mishmash of a lot of different things and there's a lot of distortions from reality caused in our brains and that's one of the reason so for example we see all these great
Questionerfor example we see all these great investors who invested in Valiant right why did that happen well that's partly the result of this crazy wiring the brain has it's not a you know perfect rational creation it's got weirdness and so understanding that weirdness can be a big Advantage so I have a one last question so you you give killing some theice you know for this 19 18 years old students what can they do so what other advice would you you give them like at this stage of life like in life in general not just life yeah one of the one of the things Buffett talks about he says that if we hang out with people better than us we become better if we hang out with people worse than us we become worse you know that should be pretty obvious when you think about it issue that we run into as humans is we have friendships and sometimes we may have
Othermay have friends who aren't great humans and they may even pull us down one of the important things in life which is difficult to do is to be a harsh grader with your friends so you have to increase interactions and friendships with the people who are better than you and you have to let go some of the ones that aren't quite there and you know a lot of people are loyal and this flies in the face of loyalty so if your mental model is loyalty over all else then you may be hurting yourself long term so again I think in life what happens is that we have choices and many times these choices require us to take what sometimes might be difficult or unpleasant actions and those difficult and unpleasant actions may not be natural and may even be one might say inhumane or you know cold hearted if you will but I think that those are really important things to
Todd Combsthose are really important things to keep in mind when I when I became friends with Charlie I started to meet his friends and when I met his friends I was blown away the quality level of these people was truly off the charts and I know that what might what may have happened which I didn't see in the you know decades before I met Charlie was that he probably went through a pruning process where he increased interaction with some folks and decrease interaction with other folks you know so one of the easy decisions I made was I tried to make friends with Charlie's friends now a lot of them are old and some have passed away and so on but that actually was extremely wonderful because these are these people were just so off the charts and that's that same thing has been true in many ways when I come to Omaha every May when I come to Omaha you
QuestionerOmaha every May when I come to Omaha you know I've been I've been coming to Omaha know I've been I've been coming to Omaha know I've been I've been coming to Omaha every every every May May May since 1997 so it's like more than a quarter 1997 so it's like more than a quarter 1997 so it's like more than a quarter century and so many deep friendships century and so many deep friendships century and so many deep friendships have come out of Omaha and when I look have come out of Omaha and when I look have come out of Omaha and when I look at the folks I met in Omaha who are now at the folks I met in Omaha who are now at the folks I met in Omaha who are now part of my close friends they are off part of my close friends they are off part of my close friends they are off the charts so for example you know the the charts so for example you know the the charts so for example you know the the average book Shah hatway the average book Shah hatway the average book Shah hatway shareholder is an above average person shareholder is an above average person shareholder is an above average person you know he's not he or she is not the you know he's not he or she is not the you know he's not he or she is not the same as the general same as the general same as the general population and uh that Universe of population and uh that Universe of population and uh that Universe of people in people in people in Omaha is kind of self selected and self- Omaha is kind of self selected and self- Omaha is kind of self selected and self- filtered to give you a certain kind of filtered to give you a certain kind of filtered to give you a certain kind of person and in the case of Charlie's person and in the case of Charlie's person and in the case of Charlie's friends there that was an extreme friends there that was an extreme friends there that was an extreme version of that so I think that version of that so I think that version of that so I think that being a harsh being a harsh being a harsh grader and being very deliberate about grader and being very deliberate about grader and being very deliberate about who your close friends are has a huge who your close friends are has a huge who your close friends are has a huge impact long thank you so much mon