Other[Music][Music][Music][Music] it is such a great pleasure to have withit is such a great pleasure to have withit is such a great pleasure to have with us uh the one and only monish pabai whous uh the one and only monish pabai whous uh the one and only monish pabai who truly needs no introduction to the Mitruly needs no introduction to the Mitruly needs no introduction to the Mi Global Community very excited Mish thatGlobal Community very excited Mish thatGlobal Community very excited Mish that you are joining us after I believe twoyou are joining us after I believe twoyou are joining us after I believe two years uh we do this on a two-year cycleyears uh we do this on a two-year cycleyears uh we do this on a two-year cycle uh there's a lot to discuss we got a tonuh there's a lot to discuss we got a tonuh there's a lot to discuss we got a ton of questions in from bothi Members asof questions in from bothi Members asof questions in from bothi Members as well as uh the broader investmentwell as uh the broader investmentwell as uh the broader investment Community via X and so why don't we uhCommunity via X and so why don't we uhCommunity via X and so why don't we uh Jump Right In I I think the mostJump Right In I I think the mostJump Right In I I think the most questions um we actually around the coalquestions um we actually around the coalquestions um we actually around the coal industry believe it or not so um to theindustry believe it or not so um to theindustry believe it or not so um to the extent that you're willing to discussextent that you're willing to discussextent that you're willing to discuss would love to hear um your your thesiswould love to hear um your your thesiswould love to hear um your your thesis and feel free to go as far back as youand feel free to go as far back as youand feel free to go as far back as you like um to to sort of uh lay thelike um to to sort of uh lay thelike um to to sort of uh lay the foundation for how you became interestedfoundation for how you became interestedfoundation for how you became interested
QuestionerI mean you know we are still buyers inI mean you know we are still buyers inI mean you know we are still buyers in the space so we don't need morethe space so we don't need morethe space so we don't need more competition in terms of you know morecompetition in terms of you know morecompetition in terms of you know more people quailing Etc but I can make some
Ted Weschlerpeople quailing Etc but I can make some general comments from a more from a general comments from a more from a general comments from a more from a mental model and education perspective mental model and education perspective mental model and education perspective and I think maybe your listeners may and I think maybe your listeners may and I think maybe your listeners may find this useful so just taking a step find this useful so just taking a step find this useful so just taking a step back a long time ago I think this must back a long time ago I think this must back a long time ago I think this must be close to 25 years ago maybe 24 25 be close to 25 years ago maybe 24 25 be close to 25 years ago maybe 24 25 years ago Warren Buffett had auctioned years ago Warren Buffett had auctioned years ago Warren Buffett had auctioned off his wallet and he had done it for off his wallet and he had done it for off his wallet and he had done it for charity I think it was at boy toown or charity I think it was at boy toown or charity I think it was at boy toown or something in Omaha and he had put a something in Omaha and he had put a something in Omaha and he had put a stock tip in the wallet and you know stock tip in the wallet and you know stock tip in the wallet and you know that went for quite a bit of money I that went for quite a bit of money I that went for quite a bit of money I don't remember how much but it turned don't remember how much but it turned don't remember how much but it turned out the stock tip was a company called out the stock tip was a company called out the stock tip was a company called first industrial which used to be a Reit first industrial which used to be a Reit first industrial which used to be a Reit an industrial Reit in Chicago and I was an industrial Reit in Chicago and I was an industrial Reit in Chicago and I was friends with the CEO of First industrial friends with the CEO of First industrial friends with the CEO of First industrial we were both in Chicago so we knew each we were both in Chicago so we knew each we were both in Chicago so we knew each other and I told him that hey by the way other and I told him that hey by the way other and I told him that hey by the way you know do you know that apparently you know do you know that apparently you know do you know that apparently Warren must be a shareholder because he Warren must be a shareholder because he
QuestionerWarren must be a shareholder because he recommended your stock and one of the things about tws in general is that Burkshire hathway doesn't buy them because the tax treatment is not friendly for corporations to own greets so that was this was a case where he was probably buying it personally and there was no conflict with Burkshire because Burkshire couldn't buy it even if it wanted to because just uh doesn't work very well so I told him it's probably likely that Warren personally owns his shares so he was intrigued by that and he reached out to Warren and just said you know how humbled and grateful he was that Warren would even have spent any time looking at his small business and Warren responded to him saying that if you're ever in Omaha and don't call me I will be quite upset so then my friend basically told him you know what a coincidence I'm going to be in Omaha day
Questionercoincidence I'm going to be in Omaha day after tomorrow so he went to Omaha he and Warren had lunch Etc but one of the things that John had told me at around that time I used to own first industrial stock as well is that he had mentioned that they mostly invested in industrial real estate kind of warehouses and factories and that type of stuff and he said that the the gestation period to uh build a warehouse usually is less than a year and he said the uh the gestation period to build an office tower is maybe 3 to 5 years more like closer to 5 years with all the permissions and all of that he said that in industrial real estate we don't get big cycles of booms and busts because if there is tightness in the market and a lot of people go out and build a bunch of warehouses that space is going to hit the market in 12 months or 18 months and they may be you know
Otheror 18 months and they may be you know some temporary weakness but basically it would immediately if there was overbuilding it would reduce the propensity to to build more warehouses and as the economy grew that excess capacity would kind of get absorbed and things would get to a kind of Baseline and again when things got tight people would build again but he said that in in office Towers because of the kind of five-year period when office vacancies become very tight and rents go quite High everyone and their brother starts building Towers at the same time and because of the 3 to 5e gestation period all these towers hit the market at around the same time and the boom and bus Cycles are much more pronounced because of this lengthened period because basically for example if in 2020 we have a tightness in office Towers you know the the first ones are going to get
Otherknow the the first ones are going to get delivered in 2025 so people will still be starting new office tower constructions in 21 22 23 and even 24 because they haven't seen the impact of all the inventory that's about to hit and you know real estate guys are eternally optimistic till they get eternally pessimistic and of course once that inventory hits you've got more inventory coming for another four or five years because of all the stuff that start so basically you would have a five-year boom followed by a 5 to 10 year bust and then the cycle would repeat so he says that the boom and bus Cycles get kind of aggravated in the case of office towers and in fact in Austin where I live right now we are seeing that play out right now with tall residential Towers kind of luxury residential Towers I mean uh Austin was going through so much growth you know 3
Questionergoing through so much growth you know 3 years ago that real estate was very tight and difficult to get a space and all that and pretty much everyone started building and now these big towers are being completed some of them are going to be completed in the next one or two years and there's a huge glut and such so it's not just office Towers we see that even in residential Towers because the same kind of phenomena but this particular notion of the gestation period and boom and bust how pronounced it is what I found since that time when I spoke to John about this is that it comes up in many other sectors and I noticed the same thing around I would say like 22 years ago in the oil shipping business you know the very large crude carriers and again this was a situation I think in maybe 2001 or so when there about these 400 of these VLC
Questionerwhen there about these 400 of these VLC CCS very large crude carriers that ICCS very large crude carriers that ICCS very large crude carriers that I used to carry large amounts of crude around the world and there was a big around the world and there was a big around the world and there was a big glut I mean basically oil demand went glut I mean basically oil demand went glut I mean basically oil demand went down and there were too many tankers and down and there were too many tankers and down and there were too many tankers and because there were too many tankers because there were too many tankers because there were too many tankers rental rates collapsed and these tankers rental rates collapsed and these tankers rental rates collapsed and these tankers were being rented out below they were were being rented out below they were were being rented out below they were rented at a loss basically because it rented at a loss basically because it rented at a loss basically because it was better than making zero you know if was better than making zero you know if was better than making zero you know if you got if your cost was $ 15 or $20,000 you got if your cost was $ 15 or $20,000 you got if your cost was $ 15 or $20,000 a day from one of these vccs the rates a day from one of these vccs the rates a day from one of these vccs the rates went down as low low as 7 or 8,000 and went down as low low as 7 or 8,000 and went down as low low as 7 or 8,000 and what happened at that time was that what happened at that time was that what happened at that time was that there was a lot of scrapping because you there was a lot of scrapping because you there was a lot of scrapping because you know these owners were so distressed the know these owners were so distressed the know these owners were so distressed the global Fleet went from like 400 to 360 global Fleet went from like 400 to 360 global Fleet went from like 400 to 360 or 350 with a lot of scrapping because or 350 with a lot of scrapping because or 350 with a lot of scrapping because these owners wanted to get some cash and these owners wanted to get some cash and these owners wanted to get some cash and then the market tightened oil demand then the market tightened oil demand then the market tightened oil demand came back but the tankers have the exact came back but the tankers have the exact
Questionercame back but the tankers have the exact same situation as the office Towers theysame situation as the office Towers theysame situation as the office Towers they take again 3 4 years to get deliveredtake again 3 4 years to get deliveredtake again 3 4 years to get delivered after you place an order with the Koreanafter you place an order with the Koreanafter you place an order with the Korean shipping yards and also the second thingshipping yards and also the second thingshipping yards and also the second thing that happens is that when there's a boomthat happens is that when there's a boomthat happens is that when there's a boom so what happened is these oil tankerso what happened is these oil tankerso what happened is these oil tanker rates went to like 7,000 a day they wentrates went to like 7,000 a day they wentrates went to like 7,000 a day they went all the way to a quarter million dollarsall the way to a quarter million dollarsall the way to a quarter million dollars a day I mean they went to the Othera day I mean they went to the Othera day I mean they went to the Other Extreme it was just extreme obsceneExtreme it was just extreme obsceneExtreme it was just extreme obscene profitability for these tanker companiesprofitability for these tanker companiesprofitability for these tanker companies and everyone and their brother at thatand everyone and their brother at thatand everyone and their brother at that time went to the Korean shipyards andtime went to the Korean shipyards andtime went to the Korean shipyards and placed orders and of course the Koreansplaced orders and of course the Koreansplaced orders and of course the Koreans are not stupid they know that they areare not stupid they know that they areare not stupid they know that they are the toll bridge that everyone has tothe toll bridge that everyone has tothe toll bridge that everyone has to pass through to get their tanker sopass through to get their tanker sopass through to get their tanker so prices for new built tankers wentprices for new built tankers wentprices for new built tankers went through the roof like what what used tothrough the roof like what what used tothrough the roof like what what used to be $70 million ship might be quoted atbe $70 million ship might be quoted atbe $70 million ship might be quoted at 120 million 130 million 150 million120 million 130 million 150 million120 million 130 million 150 million because what are you going to do you
Otherbecause what are you going to do you want a ship you pay what the guy wants to charge you and of course the problem is that when those ships got delivered again they all hit at the same time and then you know the same cycle so what I've noticed in the last two and a half decades is this mental model which applies to office towers as actually applies to many different classes of Investments and actually understanding that mental model can give you a big Edge and one of the things in the cold space especially the metallurgical coal space which is coal that's used to make Iron and Steel is that coal is now a four-lettered word so I remember I was talking to one of the coold CEOs in the Appalachians and this is not a met Coal Company this is a thermal coal company I think a console Energy which now just merged with Arch and it's become core
Questionermerged with Arch and it's become core natural resources and console is a 150ynatural resources and console is a 150ynatural resources and console is a 150y old thermal coal company very very highold thermal coal company very very highold thermal coal company very very high quality thermal coal extremely lowcostquality thermal coal extremely lowcostquality thermal coal extremely lowcost operation in a 150 years of operatingoperation in a 150 years of operatingoperation in a 150 years of operating because of their strong product qualitybecause of their strong product qualitybecause of their strong product quality and low prices they've never hadand low prices they've never hadand low prices they've never had financial distress they've never gonefinancial distress they've never gonefinancial distress they've never gone bankrupt which is almost an anomaly inbankrupt which is almost an anomaly inbankrupt which is almost an anomaly in mining in 150 years console never had tomining in 150 years console never had tomining in 150 years console never had to restructure never went bankrupt nothingrestructure never went bankrupt nothingrestructure never went bankrupt nothing because they were always at the bottombecause they were always at the bottombecause they were always at the bottom of the end of the cost curve and theyof the end of the cost curve and theyof the end of the cost curve and they always had the highest quality coal andalways had the highest quality coal andalways had the highest quality coal and so they always made money literally theyso they always made money literally theyso they always made money literally they would be the last mines to shut down andwould be the last mines to shut down andwould be the last mines to shut down and the console in management was telling methe console in management was telling methe console in management was telling me that they've had banking relationshipthat they've had banking relationshipthat they've had banking relationship with JP Morgan Chase for maybe severalwith JP Morgan Chase for maybe severalwith JP Morgan Chase for maybe several decades might be 50 60 70 years and JPdecades might be 50 60 70 years and JPdecades might be 50 60 70 years and JP Morgan told them that they can no longerMorgan told them that they can no longerMorgan told them that they can no longer have them as a client now console is nothave them as a client now console is not
Questionerhave them as a client now console is not borrowing any money they have 20 or 3 billion in revenue and so if you're a Commercial Bank Banker of someone like console with all their letters of credit and all the you know cash flowing through their account it's a highly highly profitable account for a JP Morgan to come and tell them that they couldn't have them as a client because they were a pretty much a ideal client was just because of ESG pressures and these ESG pressures have gotten really irrational so console for example has difficulty getting workers comp insurance now the company is very willing and does self-insure for millions of dollars per incident or per worker so they actually don't need the insurance they're effectively self-insured they just need insurance to satisfy the statutory requirement that they have workers comp insurance and so
Questionerthey have workers comp insurance and so the insurance company is never going to see a claim but again the same thing because of ESG pressures they have a lot of difficulty getting quotes they have a lot of difficulty getting shorty companies to give them quotes so literally all the kind of factors of production that they need to run their business treat them like a pariah and especially historically mining companies they needed to raise debt in addition to equity whenever they were going to have some kind of capex or growth or whatever if a JP Morgan is not allow you know interested in having you as as a banking client who's never borrowing money they're definitely not going to have you as a client that they're going to lend money to and so these Co companies basically had two things happen to them which were very unusual for the mining business the first is because of the
Questionerbusiness the first is because of the Ukraine war and the supern normal pricing for coal in 2022 all of them were debt free they paid off every last bit of debt which was never the case you know coal companies mining companies always always had debt and that's what would usually get them into trouble is because the prices would go down there'd be a down cycle they couldn't service the debt they would go bankrupt and then the cycle would repeat and so on but we had this situation starting in 22 and 23 where a lot of the co coal businesses were net cash which they never been net cash and not only were they net cash the cash and not only were they net cash the second issue is the same boom and bust mental model applies here as well so let's say for example example there's a downturn in the metallurgical coal Market where prices are too low everyone's losing money or barely making
Othereveryone's losing money or barely making money well what would happen is that themoney well what would happen is that themoney well what would happen is that the high cost mines eventually would shuthigh cost mines eventually would shuthigh cost mines eventually would shut down because you know they would try todown because you know they would try todown because you know they would try to run them for some time even at a lossrun them for some time even at a lossrun them for some time even at a loss because they'd be hoping for a turn butbecause they'd be hoping for a turn butbecause they'd be hoping for a turn but at some point if this persisted longat some point if this persisted longat some point if this persisted long enough they would shut down and in factenough they would shut down and in factenough they would shut down and in fact we have we currently have weak pricingwe have we currently have weak pricingwe have we currently have weak pricing for metallurgical coal and and a numberfor metallurgical coal and and a numberfor metallurgical coal and and a number of Appalachian mines and mines aroundof Appalachian mines and mines aroundof Appalachian mines and mines around the world have have shut down and nowthe world have have shut down and nowthe world have have shut down and now when these mines shut down restart iswhen these mines shut down restart iswhen these mines shut down restart is very complicated so let's say forvery complicated so let's say forvery complicated so let's say for example you know metallurgical coal myexample you know metallurgical coal myexample you know metallurgical coal my coal prices right now plv the Australiancoal prices right now plv the Australiancoal prices right now plv the Australian index let's say It's 190 or 200 per tonindex let's say It's 190 or 200 per tonindex let's say It's 190 or 200 per ton currently which is quite low and a lotcurrently which is quite low and a lotcurrently which is quite low and a lot of producers would have difficultyof producers would have difficultyof producers would have difficulty making ends meet at thatmaking ends meet at thatmaking ends meet at that price let's say for example the priceprice let's say for example the priceprice let's say for example the price when intowhen intowhen into 300 250 or 300 well that would make it300 250 or 300 well that would make it300 250 or 300 well that would make it very profitable for a lot of a lot of
Questionervery profitable for a lot of a lot of Mines including the mines that have recently shut down but if those same companies or individuals tried to restart those mines they would face a lot of difficulty so typically when you shut down a coal mine what happens is that you lay off all the miners and you sell off all the equipment you pull all the equipment out and you sell it off because what are you going to do with it I mean you want to raise as much money as you can and you know Salvage whatever you can so the equipment is gone the workers are gone and sometimes the mining permit is gone because you got to keep paying royalties and you know different taxes Etc so the permits may be gone as well now when you want to do a restart the first issue you're going to face is there's no financing available so any restarts would need to be kind of all Equity restarts which is
Otherbe kind of all Equity restarts which is unusual in mining even if you could arrange the money on a pure Equity basis the difficulty with raising money on a pure Equity basis to start a mine where C prices are high is there's no Assurance of what the co price is going to be 6 months one year two years or three years from now so what type of risk capital is willing to would be willing to come in equity or debt when the future is unknown you know the the $300 price might last for three weeks or three years we don't know and so first is the financing debt or Equity would be problematic if that hurdle were crossed when the index prices go high there are no miners available and it takes years and years and years to build those skills so it's not like you can go place an ad and hire miners so when you've gotten rid of your Miners and they've
Questionergotten rid of your Miners and they've gone taken other jobs or gone to othergone taken other jobs or gone to othergone taken other jobs or gone to other Industries or whatever else trying toIndustries or whatever else trying toIndustries or whatever else trying to get miners back or get higher miners inget miners back or get higher miners inget miners back or get higher miners in a threea threea three per ton environment would be veryper ton environment would be veryper ton environment would be very challenging so that'd be the secondchallenging so that'd be the secondchallenging so that'd be the second barrier to entry the third barrier tobarrier to entry the third barrier tobarrier to entry the third barrier to entry would be that when you try toentry would be that when you try toentry would be that when you try to procure the equipment just like theprocure the equipment just like theprocure the equipment just like the KoreanKoreanKorean shipyards the equipment is going to beshipyards the equipment is going to beshipyards the equipment is going to be two to four year backlogs two three fourtwo to four year backlogs two three fourtwo to four year backlogs two three four year backlogs and just like the Koreanyear backlogs and just like the Koreanyear backlogs and just like the Korean shipyards you would be paying very highshipyards you would be paying very highshipyards you would be paying very high prices for those equipment because theprices for those equipment because theprices for those equipment because the equipment manufacturers are in theequipment manufacturers are in theequipment manufacturers are in the driver's seat so you would face adriver's seat so you would face adriver's seat so you would face a multi-year period to get the equipment amulti-year period to get the equipment amulti-year period to get the equipment a lot of challenges to get the labor a lotlot of challenges to get the labor a lotlot of challenges to get the labor a lot of challenges to get the capital andof challenges to get the capital andof challenges to get the capital and then even the permits may becomethen even the permits may becomethen even the permits may become difficult depending on the geographiesdifficult depending on the geographiesdifficult depending on the geographiesand such because coal is a four-letteredand such because coal is a four-letteredand such because coal is a four-lettered word so unlike office Towers where
Questionerword so unlike office Towers where there's some predictability and such that you know you your main kind of gating Factor would be is someone willing to lend to you and if rents a High there may be Banks willing to do that there may even be people willing to sign leases with you in the future Etc so Cole has this situation I think with the boom and bust that is I think more intense now than with a lot of the other situations we see this boom and bust situation not just in office Towers or residential Towers or coal we see it in many many places so for example if we were to look today at offshore oil drilling rigs which went through a period of severe distress a few years ago and again they have the same situation three to four for four years to build a rig and these rigs cost a billion billion and a half and again uh currently there is an over Supply so
Otheruh currently there is an over Supply souh currently there is an over Supply so no one's going to build a rig whenno one's going to build a rig whenno one's going to build a rig when there's an no Supply but you know whenthere's an no Supply but you know whenthere's an no Supply but you know when it gets tight again you've got ait gets tight again you've got ait gets tight again you've got a 3 four 5 year period I think from3 four 5 year period I think from3 four 5 year period I think from education perspective for thei Globaleducation perspective for thei Globaleducation perspective for thei Global community and your listeners at large Icommunity and your listeners at large Icommunity and your listeners at large I think that I have found in my investingthink that I have found in my investingthink that I have found in my investing career a focus on this mental model tocareer a focus on this mental model tocareer a focus on this mental model to be very lucrative and once yoube very lucrative and once yoube very lucrative and once you understand this mentalunderstand this mentalunderstand this mental model and you're able to go long in onemodel and you're able to go long in onemodel and you're able to go long in one of these areas at the right timeof these areas at the right timeof these areas at the right time in the cycle what can happen on thein the cycle what can happen on thein the cycle what can happen on the other end can challenge your wildestother end can challenge your wildestother end can challenge your wildest imagination so the the booms can be veryimagination so the the booms can be veryimagination so the the booms can be very spectacular so what I find with some ofspectacular so what I find with some ofspectacular so what I find with some of our cold bets is they have no debtour cold bets is they have no debtour cold bets is they have no debt they've got a very good position on thethey've got a very good position on thethey've got a very good position on the cost curve and you know we kind of breakcost curve and you know we kind of breakcost curve and you know we kind of break even or maybe lose a little bit of moneyeven or maybe lose a little bit of moneyeven or maybe lose a little bit of money at the low end but then we've got superat the low end but then we've got superat the low end but then we've got super normal profits coming at the other end
Questionernormal profits coming at the other end so that's a good equation for my perspective well thank you so much Mish that really is um very educational and can be applied as you say to many different Industries at different points in time um it sounds like Capital Cycle Theory on steroids right now for coal and maybe for offshore um Drillers as well um or some even say um you know if you take copper miners it takes like a decade or something like that to to bring a new copper mine uh online um and uh in something like copper you have the long-term Tailwind also of um greater electricity and so forth um maybe wondering um you know if that's the thesis um why why not um also expose yourself to a few other Industries uh that have that same thesis um as kind of a risk um management tool
OtherI'm always open I like that model but I think that it's not
Otherthat model but I think that it's not enough to just understand that a particular industry has the booms and bus you also have to have some other ingredients in place you know the right management team the right capital structure typically you would be coming into these industries at times when things may not be I mean they will not be at a boom they may not be at the absolute bottom but they may be somewhere between the bottom and the boom and so you typically would be entering at a time of murkiness and so being able to uh for the for the entity to have the resilience to live to see the boom and fully capitalize on it uh will vary from a business to business bus so one one one would need to evaluate that but yeah absolutely it applies in many different context and so um it sounds like that is another um kind of pattern or where where pattern recognition comes in um
Questionerwhere pattern recognition comes in umwhere pattern recognition comes in um comes with experience also as you saidcomes with experience also as you saidcomes with experience also as you said with the uh tankers I remember probablywith the uh tankers I remember probablywith the uh tankers I remember probably a couple decades ago or more uh when youa couple decades ago or more uh when youa couple decades ago or more uh when you um invested in those um when they wereum invested in those um when they wereum invested in those um when they were trading for less thantrading for less thantrading for less than scrap so how do you kind of take thatscrap so how do you kind of take thatscrap so how do you kind of take that and also um the other side which isand also um the other side which isand also um the other side which is investing in great businesses for theinvesting in great businesses for theinvesting in great businesses for the long term I know you do both how do youlong term I know you do both how do youlong term I know you do both how do you trade one off versus the other thetrade one off versus the other thetrade one off versus the other the
Othertanker bet was quite profitable but ittanker bet was quite profitable but ittanker bet was quite profitable but it was extremely painful and I just want towas extremely painful and I just want towas extremely painful and I just want to explain that a little bit before Iexplain that a little bit before Iexplain that a little bit before I answer the rest of your questionanswer the rest of your questionanswer the rest of your question basically I had done at that time onlybasically I had done at that time onlybasically I had done at that time only first order thinking I had not donefirst order thinking I had not donefirst order thinking I had not done second order thinking with the tanker sosecond order thinking with the tanker sosecond order thinking with the tanker so it was very clear to me when I made theit was very clear to me when I made theit was very clear to me when I made the investment in Frontline tankers of vccsinvestment in Frontline tankers of vccsinvestment in Frontline tankers of vccs that all their debt was non recourse thethat all their debt was non recourse thethat all their debt was non recourse the debt was at the individual tanker leveldebt was at the individual tanker leveldebt was at the individual tanker level and the parent had almost no debt and
Questionerand the parent had almost no debt and there was a ready market for these tankers to be traded there's a market for them to be scrapped Etc and when you looked at the market cap and the debt and you looked at the just kind of liquidation value of the portfolio there was no way you could lose money I mean the the market cap was so much below liquidation value and so I didn't even pay a lot of attention to the upside I just knew that from a downside perspective it was very protected and it was a relatively easy you know 50 70 80% return in maybe not that much time and in fact I think in less than a year maybe even less than 6 months we had like 70 80% return and I sold our position and I paded myself on the back saying well done monish and then completely missed what happened after that so I think if I had held on to front line for the next few years
Todd Combsto front line for the next few years because you know things went to stable you know the rental rates went to 20 25,000 a day which means they were profitable the stock moved up and then it went all the way to $250 300,000 a day and at that point I mean it's ungodly cash flows coming into the business because their entire fleet was on the spot market and what I did not appreciate then is John Frederickson who was the chairman and CEO was a gifted capital allocator I mean just an incredible operator and uh so it would have been I think when I calculated in about four or five years a 70 bagger investment for us instead it wasn't even a double and that was terrible and so it it got seared into me that and so one of the things to understand is these things don't go into nice buckets where you can say that Google is a great business and the oil
QuestionerGoogle is a great business and the oil tankers are just a special situation
Otherthat's not quite true exactly I mean I think that oil tanker business was one could have just done some second order thinking and understood that there were some possibilities some nonzero possibilities that there were some spectacular result possibilities if one just hung hung on for a little bit so I think in investing flexibility is important I think I always like to say that Warren Buffett has a kind of a Swiss army knife in his pocket when he when he goes about doing his Investments and for example when work made their investment in the Japanese trading companies I mean they borrowed almost the entire amount this is a company that has is drowning in cash you know 100 billion plus in cash and he still borrows the amount for the entire investment in Yen because mathematically
Questionerinvestment in Yen because mathematically it was the right thing to do I mean itit was the right thing to do I mean itit was the right thing to do I mean it was just a infinite return on Equitywas just a infinite return on Equitywas just a infinite return on Equity that he got on that investment is trulythat he got on that investment is trulythat he got on that investment is truly spectacular so I think in investingspectacular so I think in investingspectacular so I think in investing obviously the best place to be is theobviously the best place to be is theobviously the best place to be is the Great great businesses that are boughtGreat great businesses that are boughtGreat great businesses that are bought at great prices that are going toat great prices that are going toat great prices that are going to execute well for a very long time andexecute well for a very long time andexecute well for a very long time and you're going to end up with you know 10you're going to end up with you know 10you're going to end up with you know 10 20 30 50 100 times your money in some 1020 30 50 100 times your money in some 1020 30 50 100 times your money in some 10 20 years or whatever so that's that's20 years or whatever so that's that's20 years or whatever so that's that's ideal but some of these other thingsideal but some of these other thingsideal but some of these other things that are you know which might bethat are you know which might bethat are you know which might be categorized as special situations cancategorized as special situations cancategorized as special situations can also be you know the lines are blurredalso be you know the lines are blurredalso be you know the lines are blurred it's not very clear red line or blackit's not very clear red line or blackit's not very clear red line or black line that one's on one side one's on theline that one's on one side one's on theline that one's on one side one's on the other so flexibility is important andother so flexibility is important andother so flexibility is important and being open is important and I believe umbeing open is important and I believe umbeing open is important and I believe um there was a little bit also the thesisthere was a little bit also the thesisthere was a little bit also the thesis with Micron when you first came acrosswith Micron when you first came acrosswith Micron when you first came across it because that industry had been a
Questionerit because that industry had been a basically a bad commoditized industry for a long time and you saw that that was changing so would you say that was also a little bit uh along those lines
Todd Combsyeah I mean Micron was an oligopoly the three players the barriers to entry are extremely high I mean it's almost impossible for any even if you gave somebody a $100 billion dollars to enter the memory business I think it's in fact uh I think the CFO I think the onetime CFO of Micron had told me once that there is so much black magic involved in the production of memory chips that he said that if one of their Fabs burnt down and they've got all the patterns and they've got everything they aren't sure that they can get a replacement Fab up and running even though theoretically they know how to make memory because there is so much kind of black magic type stuff in the in
Todd Combskind of black magic type stuff in the in the production of memory the the yields and all that so it's it's a difficult it's a very difficult business and yeah so yeah if You' got three players and they're rational actors and they're likely to be rational actors and that will likely work out well and I think our Micron bet worked okay I mean in the sense that I think what happened is I think we had a double in a few years but then other stuff showed up on the radar that looked just far more interesting and so I made the switch and moved on and but yeah Micron especially now when we see everything that's happening with AI and all that I mean the memory guys are a good place to be and another um thing another example I believe a couple of years ago you looked at meta and said that it was an easy double which it has been even even more than that um and
Questionerbeen even even more than that um and there's a compounder that got really cheap so um given how many great ideas you find um how do you think about portfolio concentration and how many ideas to own at any given time because it seems like some of these ideas could be owned in parallel um instead of focusing on one or the other
Todd Combsyeah I think meta was a good case it looked cheap it's a good business you know a number of the businesses inside meta are products that we all use on a daily basis so a lot of people would have competence and understanding of what Met's business is I actually never invested in mea even though I saw that and probably one of my flaws and mental blocks is I have difficulty with the mega caps you know just kind of the law of large numbers is something's really big well how much more bigger can it get like you know I mean if you make an
Questionerlike you know I mean if you make an investment in Nvidia or Microsoft or apple you know multi- trillion dollar market caps you know where is it 10 or 20 years from from now and someone like me would be skeptical and sometimes you'd be I'd be I'd be wrong about that so for whatever reason at that time I didn't go for meta because of this concern and probably because there were other names on the radar that looked interesting I don't know whether they performed as well or not but that's just the way it rolls what I try to do in portfolios typically is a 10x1 where if I'm making a bet I'd make it 10% of the portfolio now what ends up happening is that if you get a very big winner in one of those bets then the portfolio will start to get skewed and I see different degrees of skewing in some of the different portfolios I run so for
Otherdifferent portfolios I run so for example we have a an offshore fund andexample we have a an offshore fund andexample we have a an offshore fund and an offshore hedge fund and it it has youan offshore hedge fund and it it has youan offshore hedge fund and it it has you know 400 odd million in assets and thatknow 400 odd million in assets and thatknow 400 odd million in assets and that fund alone owns 20% of a business thatfund alone owns 20% of a business thatfund alone owns 20% of a business that we found extremely cheap in Turkey youwe found extremely cheap in Turkey youwe found extremely cheap in Turkey you know Real Estate Investment Trust Ras soknow Real Estate Investment Trust Ras soknow Real Estate Investment Trust Ras so I mean I think when I first visited RasI mean I think when I first visited RasI mean I think when I first visited Ras in 2019 the first time I ever heard ofin 2019 the first time I ever heard ofin 2019 the first time I ever heard of them the market cap was $ 16 million andthem the market cap was $ 16 million andthem the market cap was $ 16 million and now it's over a billion in the last fivenow it's over a billion in the last fivenow it's over a billion in the last five and a half years or so and I think Rasand a half years or so and I think Rasand a half years or so and I think Ras is north of 60% of that offshore fundis north of 60% of that offshore fundis north of 60% of that offshore fund and by the time we are getting to ourand by the time we are getting to ourand by the time we are getting to our fourth position in that fund it's 100%fourth position in that fund it's 100%fourth position in that fund it's 100% so that that fund only has like I thinkso that that fund only has like I thinkso that that fund only has like I think five stocks in it and because whatfive stocks in it and because whatfive stocks in it and because what happened over the years is that we kepthappened over the years is that we kepthappened over the years is that we kept the ideas that we had the greatestthe ideas that we had the greatestthe ideas that we had the greatest conviction on and whenever there wereconviction on and whenever there wereconviction on and whenever there were redemptions or things going on the loowredemptions or things going on the loowredemptions or things going on the loow conviction ideas were the ones that wereconviction ideas were the ones that were
Otherconviction ideas were the ones that were candidates to be sold and that's a normal situation that should be happening in portfolios but I warned by investors that we are not cutting position size for the sake of diversification they should cut exposure to the fund if it's a large portion of their net worth Etc and some of my investors did that which is great and so basically I just told them that we are going to run this fund concentrated because that on a risk reward basis seems to be the best way to go about it so a 10 stock portfolio in that particular case is now a five stock portfolio with very extreme concentration uh the other funds are not so concentrated but they also by the time you get to the fourth position or something fourth or fifth position you might be at 80 80 90% of assets and again that's I think that's a natural outcome when some winners get going and
Questioneroutcome when some winners get going and uh we take it from there and mish how do uh we take it from there and mish how do uh we take it from there and mish how do you think about which countries are are you think about which countries are are you think about which countries are are investable or uninvestable at any given investable or uninvestable at any given investable or uninvestable at any given time um for example there's a lot of um time um for example there's a lot of um time um for example there's a lot of um cheap equities in Hong Kong and China at cheap equities in Hong Kong and China at cheap equities in Hong Kong and China at the moment do you have a view that it's the moment do you have a view that it's the moment do you have a view that it's simply the down there is a downside simply the down there is a downside simply the down there is a downside scenario where that's a zero due to scenario where that's a zero due to scenario where that's a zero due to geopolitics uh
Otherno I think that would that would generally be a mistake if that would generally be a mistake if that would generally be a mistake if investors take a kind of a you know wide investors take a kind of a you know wide investors take a kind of a you know wide paint brush and do that with different paint brush and do that with different paint brush and do that with different countries I think they'd be missing a countries I think they'd be missing a countries I think they'd be missing a lot of opport Unity so the thing is a lot of opport Unity so the thing is a lot of opport Unity so the thing is a devil in this business is in the details devil in this business is in the details devil in this business is in the details when we invested in Turkey in 2018 when we invested in Turkey in 2018 when we invested in Turkey in 2018 onwards then and even now the currency onwards then and even now the currency onwards then and even now the currency has been a basket case inflation has has been a basket case inflation has has been a basket case inflation has been extremely high now they've got a been extremely high now they've got a been extremely high now they've got a very good Central banker and he's taken very good Central banker and he's taken very good Central banker and he's taken some great steps and I think inflation
Othersome great steps and I think inflation is coming down quite aggressively whichis coming down quite aggressively whichis coming down quite aggressively which is great but our Focus was on businessesis great but our Focus was on businessesis great but our Focus was on businesses that were immune to these issues andthat were immune to these issues andthat were immune to these issues and were where these issues were irrelevantwere where these issues were irrelevantwere where these issues were irrelevant but where investors with kind of the thebut where investors with kind of the thebut where investors with kind of the the broad brush Strokes were just exiting sobroad brush Strokes were just exiting sobroad brush Strokes were just exiting so yeah I think in general if you look atyeah I think in general if you look atyeah I think in general if you look at places which haveplaces which haveplaces which have historically had macro issues and havehistorically had macro issues and havehistorically had macro issues and have had a mass Exodus investors like let'shad a mass Exodus investors like let'shad a mass Exodus investors like let's say for example places like Argentina orsay for example places like Argentina orsay for example places like Argentina or Brazil you know Argentina is goingBrazil you know Argentina is goingBrazil you know Argentina is going through a big change right now therethrough a big change right now therethrough a big change right now there aren't very many listed companiesaren't very many listed companiesaren't very many listed companies unfortunately in Argentina Brazil is aunfortunately in Argentina Brazil is aunfortunately in Argentina Brazil is a little bit more interesting from thatlittle bit more interesting from thatlittle bit more interesting from that perspective because there are moreperspective because there are moreperspective because there are more listed companies there so I would saylisted companies there so I would saylisted companies there so I would say you know like Charlie used to say you goyou know like Charlie used to say you goyou know like Charlie used to say you go fishing where the fish are these areasfishing where the fish are these areasfishing where the fish are these areas where there is obvious distress andwhere there is obvious distress andwhere there is obvious distress and obvious exits taking place the focus has
Questionerobvious exits taking place the focus has to be on the highest quality businesses in those places with the highest quality management teams where the macro situation that is causing the distress is irrelevant to those businesses like for example in Turkey if you were to invest with there's a listed company that is is the got the exclusive right to franchise Burger in Turkey for example you know they've they just been growing like crazy last several years and doing very well and so that business is going to transcend a lot of the kind of macro noise and that's what we did in Turkey we looked at businesses where the currency was not relevant and the inflation was not relevant mish how would you say your investment process has changed or evolved since you started investing about three decades ago well the big change that takes place for all
Ted Weschlerthe big change that takes place for all investors is we keep learning moreinvestors is we keep learning moreinvestors is we keep learning more things and our understandings andthings and our understandings andthings and our understandings and different mental models get moredifferent mental models get moredifferent mental models get more resilient and get stronger like forresilient and get stronger like forresilient and get stronger like for example the the boom and bust mentalexample the the boom and bust mentalexample the the boom and bust mental model which you know I encountered maybemodel which you know I encountered maybemodel which you know I encountered maybe 20 plus years ago but it took this20 plus years ago but it took this20 plus years ago but it took this period of time to really appreciate kindperiod of time to really appreciate kindperiod of time to really appreciate kind of all the nuances associated with thatof all the nuances associated with thatof all the nuances associated with that and uh so yeah we get expertise inand uh so yeah we get expertise inand uh so yeah we get expertise in different Industries over time that wedifferent Industries over time that wedifferent Industries over time that we didn't have we get expertise indidn't have we get expertise indidn't have we get expertise in different ways of looking at thingsdifferent ways of looking at thingsdifferent ways of looking at things maybe different geographies and culturesmaybe different geographies and culturesmaybe different geographies and cultures and so all of that is going to help atand so all of that is going to help atand so all of that is going to help at the same time the second big changethe same time the second big changethe same time the second big change that's taken place in the last threethat's taken place in the last threethat's taken place in the last three decades is that I used to manage like adecades is that I used to manage like adecades is that I used to manage like a million dollars for myself you know inmillion dollars for myself you know inmillion dollars for myself you know in 1995 and now it's over a billion dollars1995 and now it's over a billion dollars1995 and now it's over a billion dollars so obviously that change changes theso obviously that change changes theso obviously that change changes the universe of what you look at souniverse of what you look at so
Questioneruniverse of what you look at so competence growcompetence growcompetence grow if you're doing well the assets willif you're doing well the assets willif you're doing well the assets will grow and all of that will naturallygrow and all of that will naturallygrow and all of that will naturally Drive some tweaks and changes to kind ofDrive some tweaks and changes to kind ofDrive some tweaks and changes to kind of what you're doing and where you'rewhat you're doing and where you'rewhat you're doing and where you're looking and uh when it comes to umlooking and uh when it comes to umlooking and uh when it comes to um evaluating management teams I believe umevaluating management teams I believe umevaluating management teams I believe um you basically didn't really um talk toyou basically didn't really um talk toyou basically didn't really um talk to managements as part of your process hasmanagements as part of your process hasmanagements as part of your process has that uh changed
Questioneryeah I realized that Ithat uh changed yeah I realized that Ithat uh changed yeah I realized that I was doing my investor thewas doing my investor thewas doing my investor the disservice I mean I mean the negative ofdisservice I mean I mean the negative ofdisservice I mean I mean the negative of interacting with management which isinteracting with management which isinteracting with management which is what i' taken from Ben Graham is thatwhat i' taken from Ben Graham is thatwhat i' taken from Ben Graham is that they're great salese that's what got thethey're great salese that's what got thethey're great salese that's what got the CEOs into their jobs to begin with andCEOs into their jobs to begin with andCEOs into their jobs to begin with and so if you're talking to a great salesmanso if you're talking to a great salesmanso if you're talking to a great salesman about a subject he knows everythingabout a subject he knows everythingabout a subject he knows everything about and you know nothing you're likelyabout and you know nothing you're likelyabout and you know nothing you're likely to get swayed and I think that stillto get swayed and I think that stillto get swayed and I think that still happens to me I still get swayed but Ihappens to me I still get swayed but Ihappens to me I still get swayed but I think that many times the interactionsthink that many times the interactionsthink that many times the interactions with management can help you understand
Questionerwith management can help you understand the nature of management and how they think about you know capital and things and how they think about uh you know their business and kind of the the different decisions they're making and so on so I think it can help long term to have a better sense of what they are all about and what these people are and how they think and so on so if I have the choice today I would spend more time with Senior Management and the CEO and such if it's if it's available to me and sometimes that's not a choice and that's okay we can kind of roll with that as as well because we're not none of this is related to anything that they can tell you which is going to help you next quarter or anything like that I mean you know we looking 5 10 years out and like for example when I'm meeting the management teams and I you know went
Greg Abelthe management teams and I you know went into the minds of the different coalinto the minds of the different coalinto the minds of the different coal companies the single greatest driver ofcompanies the single greatest driver ofcompanies the single greatest driver of how well we do long-term with coal ishow well we do long-term with coal ishow well we do long-term with coal is the price of coal and none of them canthe price of coal and none of them canthe price of coal and none of them can really help you with that you know theyreally help you with that you know theyreally help you with that you know they just don't have any crystal ball that'sjust don't have any crystal ball that'sjust don't have any crystal ball that's better than your crystal ball so that'sbetter than your crystal ball so that'sbetter than your crystal ball so that's the 800 pound gorilla in that case butthe 800 pound gorilla in that case butthe 800 pound gorilla in that case but you can understand from the interactionsyou can understand from the interactionsyou can understand from the interactions you know who would be the best companiesyou know who would be the best companiesyou know who would be the best companies and the best teams and you know the bestand the best teams and you know the bestand the best teams and you know the best culture and then you know can kind ofculture and then you know can kind ofculture and then you know can kind of take it from there and it sounds liketake it from there and it sounds liketake it from there and it sounds like it's a it's a combination uh speaking ofit's a it's a combination uh speaking ofit's a it's a combination uh speaking of coal specifically um of good Capitalcoal specifically um of good Capitalcoal specifically um of good Capital allocation meaning buying back your ownallocation meaning buying back your ownallocation meaning buying back your own shares when they're undervalued so itshares when they're undervalued so itshares when they're undervalued so it sounds like you can have a high degreesounds like you can have a high degreesounds like you can have a high degree of confidence that the management isn'tof confidence that the management isn'tof confidence that the management isn't going to um misallocate Capital theregoing to um misallocate Capital theregoing to um misallocate Capital there
Questionerwell I mean I think that some of thesewell I mean I think that some of these
Questionerwell I mean I think that some of these Co plays you know their reserves go out for 50 plus years and it is quite plausible and even I would say more than a 50% probability that these mines may be running and these companies may be running till all the coal is gone they'd be running for 50 years or more because you know the processes to make Iron and Steel I mean those are those are difficult to change and some of those the capex that goes in you know to build blast furnaces Etc you know the brand new blast furnaces being built even right now to produce Iron and steel in Asia and India for example that will last for 30 40 50 years and so that capital is going in with the expectation that those plants are going to run for three or four decades so you know if you have a situation where a company has a market cap of let's say $2 billion you think they
Warrenlet's say $2 billion you think they they're going to produce on average they're going to produce on average they're going to produce on average let's say a billion dollars a year for let's say a billion dollars a year for let's say a billion dollars a year for 50 years and then they disappear well 50 years and then they disappear well 50 years and then they disappear well that would to me be the definition of an that would to me be the definition of an that would to me be the definition of an exceptionally great business and I would exceptionally great business and I would exceptionally great business and I would say where do I sign and that's I think say where do I sign and that's I think say where do I sign and that's I think what things look like in 2023 when we what things look like in 2023 when we what things look like in 2023 when we looked at some of these C plays where we looked at some of these C plays where we looked at some of these C plays where we said okay we don't think the billion a said okay we don't think the billion a said okay we don't think the billion a year is going to come like clockwork I year is going to come like clockwork I year is going to come like clockwork I think there might be years when it's 100 think there might be years when it's 100 think there might be years when it's 100 million or 50 million or zero and there million or 50 million or zero and there million or 50 million or zero and there might be years when it's two or three might be years when it's two or three might be years when it's two or three billion my bet was that if I fast billion my bet was that if I fast billion my bet was that if I fast forward 50 years and averaged it out it forward 50 years and averaged it out it forward 50 years and averaged it out it might end up at a billion a year or more might end up at a billion a year or more might end up at a billion a year or more and so if those are the numbers those and so if those are the numbers those and so if those are the numbers those are fantastic bets to make absolutely are fantastic bets to make absolutely are fantastic bets to make absolutely and maybe more generally um How do you and maybe more generally um How do you and maybe more generally um How do you think about the length of that tail think about the length of that tail think about the length of that tail because some Industries um they are in because some Industries um they are in
Questionerbecause some Industries um they are in Decline um what I'm saying is that if ifDecline um what I'm saying is that if ifDecline um what I'm saying is that if if you're paying 2 billion what do you careyou're paying 2 billion what do you careyou're paying 2 billion what do you care whether it's 10 years or 20 years or 50whether it's 10 years or 20 years or 50whether it's 10 years or 20 years or 50 years do you care so one of the thingsyears do you care so one of the thingsyears do you care so one of the things about investing is a lot of comfort withabout investing is a lot of comfort withabout investing is a lot of comfort with uncertainty so let's take a situationuncertainty so let's take a situationuncertainty so let's take a situation that a company has a market cap of 2that a company has a market cap of 2that a company has a market cap of 2 billion and let's assume that it's goingbillion and let's assume that it's goingbillion and let's assume that it's going to produce on average a billion in ato produce on average a billion in ato produce on average a billion in a year so let's say it lasts for 5 yearsyear so let's say it lasts for 5 yearsyear so let's say it lasts for 5 years and disappears or lasts for 10 years andand disappears or lasts for 10 years andand disappears or lasts for 10 years and disappears or last 20 years or 50 yearsdisappears or last 20 years or 50 yearsdisappears or last 20 years or 50 years in all of those answers you make moneyin all of those answers you make moneyin all of those answers you make money so there is uncertainty on number ofso there is uncertainty on number ofso there is uncertainty on number of things the risk reward looks greatthings the risk reward looks greatthings the risk reward looks great
Otherabsolutely I think that's uh a great wayabsolutely I think that's uh a great wayabsolutely I think that's uh a great way of of putting it um Mish um wondering ifof of putting it um Mish um wondering ifof of putting it um Mish um wondering if you could talk a little bit about uhyou could talk a little bit about uhyou could talk a little bit about uh psychology investor psychology and whatpsychology investor psychology and whatpsychology investor psychology and what Tendencies um you have found that areTendencies um you have found that areTendencies um you have found that are most detrimental to investors and ifmost detrimental to investors and if
Todd Combsmost detrimental to investors and if there's anything that you think isthere's anything that you think isthere's anything that you think is especially beneficial the most importantespecially beneficial the most importantespecially beneficial the most important skill for an investor to have isskill for an investor to have isskill for an investor to have is patience I think that's the number onepatience I think that's the number onepatience I think that's the number one thing is that all businesses after youthing is that all businesses after youthing is that all businesses after you invest in them are going to surprise youinvest in them are going to surprise youinvest in them are going to surprise you in many ways many times those surprisesin many ways many times those surprisesin many ways many times those surprises are negativeare negativeare negative sometimes those surprises are positivesometimes those surprises are positivesometimes those surprises are positive but it's almost never going to be happenbut it's almost never going to be happenbut it's almost never going to be happen that what you thought is how it's goingthat what you thought is how it's goingthat what you thought is how it's going to play out is how it actually plays outto play out is how it actually plays outto play out is how it actually plays out so the first I would say the first skillso the first I would say the first skillso the first I would say the first skill set is Extreme patience the second skillset is Extreme patience the second skillset is Extreme patience the second skill skill set in many of these companies isskill set in many of these companies isskill set in many of these companies is a lot of comfort with uncertainty soa lot of comfort with uncertainty soa lot of comfort with uncertainty so I've talked about this several timesI've talked about this several timesI've talked about this several times that risk and uncertainty are twothat risk and uncertainty are twothat risk and uncertainty are two separate things and a lot of investorsseparate things and a lot of investorsseparate things and a lot of investors get confused between the two and a lotget confused between the two and a lotget confused between the two and a lot of in investors are looking forof in investors are looking forof in investors are looking for certainty and if you're looking forcertainty and if you're looking for
Warrencertainty and if you're looking for certainty like Buffett says you will pay a high price for a cheery consensus so if you have comfort with uncertainty and the greater the uncertainty with a low risk a combination of high uncertainty with low risk is likely to give you great reward if you are patient so I think that's the equation you know and that would fit coal business you know the risk is low the uncertainty is high patience is key and one should love watching paint dry great um just um coming back to the the question about investable countries and how you think about that are there any red flags where you would say I don't want to touch anything in this particular country there's a number of countries where I just don't want to go you know I don't want to go to Russia I don't want to go to Venezuela I don't want to go to Zimbabwe I mean there's a lot of
QuestionerZimbabwe I mean there's a lot of countries like that where I think that basic you know respect for property rights and basic respect for investor capital and you know Capital flows and such may be questioned the good news is that investor can have an extremely tight set of conditions that need to be met for them to be interested in going to particular geography I always talk about the example of John ARA who was Charlie monger's friend who only invested in real estate within a mile of the Stanford campus you know that's all he did and actually if you walked with him around C around Stanford every building he could tell you the history the rents kind of what has transpired who owns it whatever he knew every single building cold his knowledge was extreme and John ARA you know died a billion there very narrow circle of competence never obviously never
Questionercompetence never obviously never invested outside the US never invested invested outside the US never invested invested outside the US never invested out California never invested outside of out California never invested outside of out California never invested outside of that very tight radius around that very tight radius around that very tight radius around Stanford and worked extremely well for Stanford and worked extremely well for Stanford and worked extremely well for him so we don't need large circles of him so we don't need large circles of him so we don't need large circles of competence and we don't need to be going competence and we don't need to be going competence and we don't need to be going to you know esoteric places or countries to you know esoteric places or countries to you know esoteric places or countries we should do what we're comfortable with we should do what we're comfortable with we should do what we're comfortable with and I think that there's a lot of and I think that there's a lot of and I think that there's a lot of opportunity everywhere so it's a opportunity everywhere so it's a opportunity everywhere so it's a question of you know how well you are question of you know how well you are question of you know how well you are worsed in seeing it and acting on it if worsed in seeing it and acting on it if worsed in seeing it and acting on it if you were starting from scratch today you were starting from scratch today you were starting from scratch today let's say with a million dollars how let's say with a million dollars how let's say with a million dollars how would you do it well I think that the would you do it well I think that the would you do it well I think that the anomalies would be of deep interest so anomalies would be of deep interest so anomalies would be of deep interest so these are you know these weird special these are you know these weird special these are you know these weird special situations and such because we could go situations and such because we could go situations and such because we could go into a lot of nooks and crannies that we into a lot of nooks and crannies that we into a lot of nooks and crannies that we can't go into with the funds I could can't go into with the funds I could can't go into with the funds I could even do some some of it with long-term even do some some of it with long-term even do some some of it with long-term options and such so I think that the the
Questioneroptions and such so I think that the the focus would almost completely be on these special situation anomalies and kind of take it from there because we you know we' be putting like $100,000 to work on a given idea and if you're going to put 100,000 to work you know there's a huge Universe of opportunities to look at because almost anything is a possibility so that's what I would do so basically take advantage of the small size to do things that bigger funds cannot do yeah one of the one of the interesting things about investing is and I think Joel greenblood had pointed this out he said that if you are a really good investor and you're starting out and you have a very small amount of capital and you do very well so let's say you start with $100,000 or a million dollars well if you're exceptional at what you do what will happen is that
Otherwhat you do what will happen is that that million is going to grow to 10 million or 100 million or a billion the very tiny stuff that you were doing when you started in a few years or maybe a decade you won't be able to do it anymore because it just would make no sense for you so you would have to leave those what I would call fertile pastures to find larger not so fertile pastures which still have some good yield but what ends up happening is that you open up that white space for a new young person coming in with a $100,000 or million dollars so basically in effect what's happening is the very very low end of the market has this constant Exodus taking place of the best players so the ones who are extremely good at it have no choice but to leave that space so it's kind of an evergreen situation where you know that kind of batch graduates and then those opportunity
Questionergraduates and then those opportunity sets are available for the next batch and then that next batch graduates and it's available for the next batch after that so it's kind of Evergreen from that perspective in the sense that if you are looking in these nooks and crannies there is a lot of opportunity because the guys who are really good at it have already moved on they had no choice but to move that's that's uh a great Dynamic and I think um provides opportunity for new investors coming up absolutely I mean it just makes the business very exciting and it you know this is also interesting business where the little guy has a big advantage over the big guy the little guy has a huge Advantage yeah and I think sometimes there's a misconception around that a lot of folks think well the big firms they can move markets and they got all these resources
Questionermarkets and they got all these resources but actually there's a lot of opportunities they can't even look at because they're so big I have a friend of mine who runs a small fund and he's extremely good at options I mean he studies his businesses really well and then he finds the ones which kind of lend themselves to these different option bets and you know he's consistently been over 50% a year but his total Capital under management is small I mean it's grown a lot but it's still relatively small and he was doing this on student loan float like leelu a while back and now he's passed that and he has a small fund but the thing is that he will have to leave those pastures in the sense that you know the capital will just get too large and it won't be even that be that long it might be a year or two and he's got to go you know play somewhat
Questionerhe's got to go you know play somewhat differently but he's enjoying it now and so then those pastures will get left to the next guy well it's always good when uh you leave something for the right reason for a positive reason and uh Mish we um maybe we'll end on this we always like to ask about books that we should uh be reading learning from um is there anything that you would highlight that maybe um you haven't talked about before a lot that could be of value to our members
Othersure you know whenever I used to go to Charlie's place for dinner probably I would have dinner with you know four or five times a year there would always be all these books around you know there a few tables around where he would sit like a lot of piles of books and a lot of these were books that people had sent to him so I'd always like kind of take pictures of the different books and I'd ask him about
Todd Combsdifferent books and I'd ask him about different books and I'd ask him about which ones he's read and what he thought which ones he's read and what he thought which ones he's read and what he thought about them Etc and so on so in one of my about them Etc and so on so in one of my about them Etc and so on so in one of my last visits with him I saw this book last visits with him I saw this book last visits with him I saw this book called The the joys of Costco and called The the joys of Costco and called The the joys of Costco and someone had sent it to Charlie and I someone had sent it to Charlie and I someone had sent it to Charlie and I asked him if he had read the book he asked him if he had read the book he asked him if he had read the book he said yeah he and you know he said that said yeah he and you know he said that said yeah he and you know he said that it's not exactly Shakespeare it's not it's not exactly Shakespeare it's not it's not exactly Shakespeare it's not the highest quality literature but it's the highest quality literature but it's the highest quality literature but it's a very good effort and so I bought the a very good effort and so I bought the a very good effort and so I bought the book and I really enjoyed it it was book and I really enjoyed it it was book and I really enjoyed it it was basically a couple that are DieHard basically a couple that are DieHard basically a couple that are DieHard Costco fans and they've visited I think Costco fans and they've visited I think Costco fans and they've visited I think hundreds of Costco stores I mean they hundreds of Costco stores I mean they hundreds of Costco stores I mean they this just it's kind of their thing to do this just it's kind of their thing to do this just it's kind of their thing to do is they just keep going from one Costco is they just keep going from one Costco is they just keep going from one Costco to another and they kind of put it to another and they kind of put it to another and they kind of put it together in a in a book with all these together in a in a book with all these together in a in a book with all these kind of quirky factoids about Costco and kind of quirky factoids about Costco and kind of quirky factoids about Costco and I think they did a very good job and I think they did a very good job and I think they did a very good job and it's a colorful book and it's easy to it's a colorful book and it's easy to
Todd Combsit's a colorful book and it's easy to read and I sent that book out to people on my Christmas list uh this year and I got more comments than normal when I send books out it actually hit a nerve with a lot of people I think because a lot of people are such dear fans of Costco and actually uh taught you a few things about how to even um improve your Costco experience or get more out of it Etc so I thought that was a great and it actually shows one of the things that book did really well it just showed the incredible mode of Costco every time I'd meet Charlie at Costco every time I'd meet Charlie at least 30 minutes were on Costco somehow or the other the conversation would always go to Costco and he'd always want to spend time on some Nuance of it so I think that might be a book people might enjoy
Warrenwell I can tell you I'd love to have a cost coin Switzerland I'd probably travel the whole country it's a
Todd Combsprobably travel the whole country it's a small country but still it would be it come don't worry it'll come because say that they've got such a long list of You Know Places and stores to open so they're cranking along well you know the one good thing about having missed the stock and it being so expensive is that I'm kind of sure it'll come because there's so much growth priced in to the stock that it has to come absolutely I think the the runway for Costco is very long
Questionerwell Mish uh we will leave it on that note um very grateful to you as always for taking the time and really entertaining all the questions um it's great education for our members and the broader investment Community you've been such a great U member and mentor to all of us uh thanks once again and uh we'll be looking forward to reconvening in a couple of years if not sooner John I just want to
Warrenyears if not sooner John I just want to say that you do a tremendous service to the value investing community and I think the manual of ideas is just a terrific offering to the community so very grateful for your effort so thank you