Other[Music][Music][Music][Music] hello everyone our very good afternoon
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Otherhello everyone our very good afternoon thank you for taking the time out and
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Otherthank you for taking the time out and joining us on a Friday afternoon
Otherjoining us on a Friday afternoon
Otherjoining us on a Friday afternoon I am renal Shah one of the portfolio
OtherI am renal Shah one of the portfolio
OtherI am renal Shah one of the portfolio managers at the rotman student
Othermanagers at the rotman student
Othermanagers at the rotman student investment fund
Otherinvestment fund
Otherinvestment fund before we start a few housekeeping rules
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Otheruh until you have a question
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Otheruntil you have a question this session is going to be interactive
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Otherthis session is going to be interactive please post your questions in the chat
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Otherplease post your questions in the chat and we will moderate them
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Otherlast but not the least we would like to see your pretty faces it will be nice if
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Otherokay let's get started uh we add this
Otherokay let's get started uh we add this Rodman student investment team is very
OtherRodman student investment team is very
OtherRodman student investment team is very excited to have Mr monish with us today
Otherexcited to have Mr monish with us today
Otherexcited to have Mr monish with us today monish is the managing partner of pubri
Othermonish is the managing partner of pubri
Othermonish is the managing partner of pubri investment funds which he founded in
Otherinvestment funds which he founded in
Otherinvestment funds which he founded in 1999
Other1999
Other1999 Mr popular is an Ardent disciple of
OtherMr popular is an Ardent disciple of
OtherMr popular is an Ardent disciple of Warren Buffett and closely follows
OtherWarren Buffett and closely follows Buffett's principles on value investing and capital allocation I am personally very excited about this talk because my first interaction with monish dates back to the early days Days of the pandemic and I was truly inspired by his wealth of experience and knowledge we have a bunch of aspiring value investors amongst us today I am sure and I hope that all of you will feel the same after his talk today a very warm welcome monish thank you for taking the time out of your busy schedule and speaking with us today I would now like to invite Sean Swift who is one of the founding members of Asif to give the opening remarks after which the current CIO of the fund promolo rabana will be moderating the questions along with McCoy Jackson who is also one of the portfolio managers at rsf over to you Sean can everybody hear
Otherrsf over to you Sean can everybody hear me okay
Otherme okay
Otherme okay yes good okay thanks for now and Manish
Otheryes good okay thanks for now and Manish
Otheryes good okay thanks for now and Manish thank you for taking the time I can't say how excited I was when renal brought this idea to the team and you know we had reached out to people at the Columbia business school before like Tom Russo and stuff but uh I definitely did not think we would get an investor of your caliber at some point presenting so we really appreciate the time um and so for the students on the line I mean really what you want to do today is focus on uh generating questions to learn more about an investment process so uh at rsf obviously we're focused on doing high quality deep fundamental research and so I think Manish is one of the leading worlds experts in in the field and so take this opportunity to really dig in on how you can become a better analyst and add value to the
Questionerbetter analyst and add value to the street once you get there so Manish maystreet once you get there so Manish maystreet once you get there so Manish may be starting off I mean I'm curious andbe starting off I mean I'm curious andbe starting off I mean I'm curious and I'm sure people read up on this butI'm sure people read up on this butI'm sure people read up on this but maybe if you could just give a littlemaybe if you could just give a littlemaybe if you could just give a little bit of background andbit of background andbit of background and um maybe go into the story on the lunchum maybe go into the story on the lunchum maybe go into the story on the lunch that you bid on with Warren Buffett andthat you bid on with Warren Buffett andthat you bid on with Warren Buffett and and subsequently how that kind ofand subsequently how that kind ofand subsequently how that kind of conversation unfolded or how thatconversation unfolded or how thatconversation unfolded or how that interaction went and first for referenceinteraction went and first for referenceinteraction went and first for reference studentsstudentsstudents um the Oracle of Omaha himself hasum the Oracle of Omaha himself hasum the Oracle of Omaha himself has frequently noted money should be one offrequently noted money should be one offrequently noted money should be one of the best investors he's ever seen so Ithe best investors he's ever seen so Ithe best investors he's ever seen so I know Manish will be humble but you knowknow Manish will be humble but you knowknow Manish will be humble but you know I think it's a two-way street here thankI think it's a two-way street here thankI think it's a two-way street here thank you Sean yeah so you knowyou Sean yeah so you knowyou Sean yeah so you know
Otherif we if we lived if we lived in theif we if we lived if we lived in theif we if we lived if we lived in the time of Newton or Einstein or Gandhi andtime of Newton or Einstein or Gandhi andtime of Newton or Einstein or Gandhi and you know we had a chance to break breadyou know we had a chance to break breadyou know we had a chance to break bread bread with them at some point many of usbread with them at some point many of usbread with them at some point many of us would be would be excited to do thatwould be would be excited to do thatwould be would be excited to do that and uh I and I I had noticed thatand uh I and I I had noticed that
Questionerand uh I and I I had noticed that Buffett was willingly taking bribes to have lunch once a year with whoever paid the highest bribe and uh the bribe used to be relatively small they used to run a charity lunch auction or the Glide foundation in San Francisco and they used to do it at the Glide annual Gala so it was not online and I think the the late 90s the lunches used to go for like 25 000 or something and then Buffett had the smart idea to tell them to move the lunch online to eBay and then it immediately jumped to like a quarter million and and I think the last year I think 22 was the last year that he auctioned off lunch and I think it went for I think north of 17 17 or 19 million I forget so anyway I mean I you know I've plagiarized and you know copied everything of my investment Philosophy from Warren and I think most of my net worth comes
Ted Weschlerand I think most of my net worth comes from that all that cloning so in 2007 I think my my net worth at that time was the north of like 80 million and most of it was because of you know cloning Buffett and so I said you know why don't I try to bid for the lunch and why don't you know maybe two percent of that amount is a good tuition fee to pay so like you know 1.6 million or something would be perfectly fine and and I I decided I was going to bid for the lunch I had bid for the lunch a couple of years before that but I had said like upper limit of like you know 200 000 or whatever and I would always lose out so in 2007 I decided okay you know we're gonna kind of amp it up a bit and and then my friend guy spear I asked him he was the only guy I asked because you can bring seven people to the lunch so I asked him if he wanted to join me
Questionerso I asked him if he wanted to join me on on bidding for the lunch and he saidon on bidding for the lunch and he saidon on bidding for the lunch and he said yeah you knowyeah you knowyeah you know he was fine but he wasn't fine with thehe was fine but he wasn't fine with thehe was fine but he wasn't fine with the 2 million so he said he was good up to2 million so he said he was good up to2 million so he said he was good up to what a million so I said okay you knowwhat a million so I said okay you knowwhat a million so I said okay you know we'll cap you at a quarter million andwe'll cap you at a quarter million andwe'll cap you at a quarter million and I'll take care of the rest and and soI'll take care of the rest and and soI'll take care of the rest and and so actually we we won the lunch for like Iactually we we won the lunch for like Iactually we we won the lunch for like I think about about 650 000. and it's youthink about about 650 000. and it's youthink about about 650 000. and it's you know most people thought it was a littleknow most people thought it was a littleknow most people thought it was a little ridiculous butridiculous butridiculous but now when I look back it was like younow when I look back it was like younow when I look back it was like you know kind of I think kind of like buyknow kind of I think kind of like buyknow kind of I think kind of like buy one get infinite free so a lunch led toone get infinite free so a lunch led toone get infinite free so a lunch led to a very nice friendship with Warren hea very nice friendship with Warren hea very nice friendship with Warren he introduced me to Charlie Mungerintroduced me to Charlie Mungerintroduced me to Charlie Munger and then we met Charlie Munger for lunchand then we met Charlie Munger for lunchand then we met Charlie Munger for lunch and then that led to a nice friendshipand then that led to a nice friendshipand then that led to a nice friendship with Charliewith Charliewith Charlie and I usually meet Charlie probably fourand I usually meet Charlie probably fourand I usually meet Charlie probably four or five times a year for dinneror five times a year for dinneror five times a year for dinner at his place and I used to play bridgeat his place and I used to play bridgeat his place and I used to play bridge with him on Friday afternoons at the LAwith him on Friday afternoons at the LAwith him on Friday afternoons at the LA Country Club he doesn't do that anymore
Ted WeschlerCountry Club he doesn't do that anymore but that for several years whenever they were short one player or something they would call me so that was also a lot of fun where we would meet for lunch on a Friday and then four or five hours playing bridge so yeah so the lunch was terrific I I just had a very simple objective in waiting for the lunch I really just wanted to look worn in the eye and thank him I didn't have any other agenda because I just felt so grateful for all the learnings and teachings that I had gotten from him and the huge impact he had had on my life and so everything else that happened was just gravy and so the lunch with Warren the first lunch with Warren went on for about I think about three hours and covered probably like you know I don't know they were like 54 questions or something so it covered a very wide range of
Ted Weschlerso it covered a very wide range of things in setting up the lunch I had some interaction with Warren's assistant Debbie bozanek who's a wonderful lady and after the lunch for a few years guy and I used to go to Omaha day before the Berkshire meeting and we would meet Debbie for lunch and so we had lunches with Debbie for a few years and I thought I thought the lunches were Debbie were better than the lunches with Warren and and actually the the first lunch with Charlie I also thought was a lot better than lunch with Warren even though Warren is a tremendous lunch companion we had a great time so yeah I mean I think there was a a lot of take-home value with all of that but just you know it it spilled over you know into all these other relationships and meals and games and whatnot so it worked out wonderful
Questionerthat's great I'm sure there's a million
Questionerthat's great I'm sure there's a million follow-up questions everybody would like to ask but uh maybe we can get to those later um um last question for me really and you know I'm I'm borrowing from from the the book that you wrote the dando investor and that the thing that we've tried to instill in the students consistently is a repeatable investment process and so if I can distill my interpretation of the book it's buying quality businesses at the right price and so you've mentioned things like emote or businesses with low competition or an experienced business and then a margin of safety maybe if you could just highlight to the students a very simple breakdown of that investment thesis or philosophy and how you think about it and maybe if that's changed over time so changing market conditions maybe we start there yeah
Othersure so I think I'll maybe I'll try to
Questionersure so I think I'll maybe I'll try to slice it a little bit differently Buffett's letter of its letter came out recently last weekend some of you may have may have read it if you haven't I have may have read it if you haven't I think it's a great read it's one of his better letters and it's it's pretty short I'll just read two or three sentences from what he said which I think you might find interesting so he says that over the years I have made many mistakes consequently our extensive collection of businesses consists of of a few Enterprises that have truly extraordinary economics many that enjoy very good economic characteristics and a very large group and not not I'm not a very large group just and a large group that are marginal and and then you know little further down he says at this point a report card on me is appropriate in 58 years of Berkshire management most of my Capital allocation decisions have
Questionerof my Capital allocation decisions have been no better than so so I'll just re-read that question that sentence again because this is you know the greatest investing mind in the history of humanity you know in 58 years of Berkshire management most of my Capital allocation decisions have been no better than so-so then he goes on to say our satisfactory results have been the product of about a dozen truly good decisions that would be about one every five years and and then he goes on from there you know so basically if you if you look at Berkshire Hathaway talking about the 58-year history they bought around 80 80 odd businesses as complete Acquisitions over that 58-year period and and I would guess that over a 58-year period he's probably invested in maybe north of 100 stocks it might be 120 maybe you could take two a year maybe 120. so if you take you know to
Othermaybe 120. so if you take you know to make it kind of poetic and even you have 120 stocks and 80 businesses so you have 200 decisions basically that took place over us almost 60-year period and he points to 12 that really are responsible for most of the outcome and I think it's a lot more than 12 that were good decisions but he also points out that they own a very large group of marginal businesses so if we look at the ad companies that he's bought so you know one of the things that Buffett doesn't like to do is he doesn't like to criticize specifically because I think like so for example if he said that Helzberg Diamonds was a terrible investment Jordan Furniture was a terrible investment it would really dissuade those managers to like make them feel bad and you know what what is already a business that's struggling would probably have even more headwinds
Questionerwould probably have even more headwinds thrown up so he would not be helping those businesses by highlighting that they were useless decisions but actually we look at the list of businesses which I think the list in the annual report it's not a difficult exercise to go through and figure out which businesses are kind of mediocre or poor or useless and which are great or exceptional I think in general in investing it is not that difficult to understand what is a great business and what is a not not so great business I think that usually if you look at the history of a business what you'll find is that usually a great business it'll be visible in the numbers you'll have high returns and Equity without the use of Leverage you'll have long runways where they have the ability to reinvest Capital at high rates and and you would obviously recognize just from looking at
Questionerobviously recognize just from looking at the names that this is a great business so you know if you look at a business like Coca-Cola or if you look at a business like Visa or Mastercard or American Express or like you know flight safety Geico and so on we we can run into many many great businesses pretty obvious so one of the one of the things before I kind of go a little further on answering your question is maybe you can just help me because that might help tailor the conversation is in your student investment fund what is the what other investing rules so what is the amount of money that you have to invest and what are the rules that you have to follow
Questioneryeah absolutely formula maybe if you want to take over from here as the chief investment officer
Othersure thank you thank you very much for your time first of all Manish um at the smoking time we just started the fund so
Questionersmoking time we just started the fund so we've got a hundred thousand dollars Canadian dollars to invest we're gonna get 150 000 more to invest and our position sizes which is slightly different to I guess how you manage your money is limited to five percent initial investment so that's the key thing and then we're looking for companies which are compounding all the time because we're looking for five to 45 year holding period so those are the key sort of companies we're looking for looking for modest language as well businesses which are easy to understand and which we do expect to be able to grow the value over time so the five percent maximum bet size means that you would have at least 20 positions and the students who are managing the fund are they involved in the decisions on managing the fund while they are students
Questionerstudents yes that is correct um it is the five eyes that is correct um it is the five eyes that is correct um it is the five executive team at this point in time we have a team of two into one analysts and they're the ones who are involved in terms of um looking for the stock pictures and we actually have the final Stockbridge coming up next month I started late on this month and they're gonna test five or seven ideas and then from those seven ideas we're gonna pick the top five videos okay and then what happens to the positions after everyone graduates yeah so I can take that so the the idea there is generally so we're following the five by five model from Tom Russell at Columbia business school but the idea is the portfolio managers are responsible each year for taking over prior research committed on stocks within the fund the 21 analysts are responsible for pitching either new ideas supporting a current
Othereither new ideas supporting a current idea and so you know formula Renown
Otheridea and so you know formula Renown McCoy Harris uh and team are responsible
OtherMcCoy Harris uh and team are responsible for saying of the five we bought last year are there any that maybe we want to buy or sell or buy more of or sell okay
Otherbuy or sell or buy more of or sell okay so that means each each group picks five
Otherso that means each each group picks five is that correct
Otheris that correct give or take yeah okay all right okay
Othergive or take yeah okay all right okay that's pretty good and now you limited
Otherthat's pretty good and now you limited geographically all North America at this point in time that's so sad
Othergeographically all North America at this point in time that's so sad yeah The Regulators in the school
Otheryeah The Regulators in the school actually asked us for the first three years before we build a full track record that we keep it in developed
Otheractually asked us for the first three years before we build a full track record that we keep it in developed North America Over time however the plan
OtherNorth America Over time however the plan is to definitely kind of unleash the
Otheris to definitely kind of unleash the student Powers internationally because
Otherstudent Powers internationally because Robin's actually a fairly International
OtherRobin's actually a fairly International School it's just I think it's a strength
OtherSchool it's just I think it's a strength I think that you know when I when I read
OtherI think that you know when I when I read this year's letter from Buffett
Questionerthis year's letter from Buffett and I thought about you know his 12 great decisions out of the 200 I would I would say out of the 200 just outright mistakes where he lost a lot of capital would be very small but a lot of people a lot of businesses which either flatlined or had some loss of capital was would be a fairly large number so one of the one of the important lessons that comes up from Buffett and his letter and his approach is what I would call you know the circle the wagons approach to investing so basically Buffett has a incredible record in the sense that he has you know he has compounded at 19.8 percent annually or 58 years which is two times the rate of the s p which is at 9.9 percent and the 9.9 compounded for the s p has led to a 24 700 percent increase in value but the 19.8 percent for Buffett has led to a 3.8 million percent
Questionerto a 3.8 million percent increase in value so it's just not even in the same zip code so even though he says that you know my most of my decisions are so so and you know when we look at those 200 decisions we would not we'd be scratching our heads over many of them and many of them we would obviously say well I would have never bought it you know and and such even with all of those warts and everything else thrown in the overall results are incredible and the reason the overall results are incredible is because the flowers were never cut and the weeds were never watered and and so that's a really important lesson here so what I what I mean what I mean by that and I and I think somewhere in the letter he brings up something about the flowers and weeds I don't know if I can find it on the fly over here but I'll see if I can find it later because yes there's
Questionercan find it later because yes there's some quote about about about that so basically if I just switch gears a little bit in the in the early 1970s there was this concept of investing called the Nifty 50. where the idea was that you bought these 50 tremendous businesses equal weights two percent in each and you kind of set it and forget it and you made a lot of money and the idea of the nifty 50 was that you really didn't care how expensive the business it was a great business you bought it and and so for example you know McDonald's was in there and Procter Gamble's in there you know Xerox and Kodak and all these you know different businesses that were really kind of strong and powerful IBM and so on at that time and the nifty 50 became so popular that those businesses businesses went into stratospheric valuations and then in 73-74 when we had the big
Questionerand then in 73-74 when we had the big huge downturn in equity markets though nifty 50 got taken out back and shot and very little was left off that portfolio it was decimate there is some con there's some controversy about whether Walmart was part of the nifty 50 or not there's one group of people who think that Walmart was part of the 50. there's another group of people who think it wasn't but let's go with the side that thinks that Walmart was part of the Nifty Fifty so if you bought the nifty 50 and whatever ridiculous valuations it was trading at in the early 70s and you went through the whole 73 74 downturn and never touched those 50 positions and you assume that 49 of those 50 positions went to zero except Walmart you ended up trouncing the s p from 1970 to Now by some significant margin like you know you'd be about like four
Otheryou know you'd be about like four percentage points over the s p
Otherso I'm taking a hundred dollars I'm lighting fire to 98 of those hundred dollars and taking those to zero I'm left with my two dollars in Walmart and my two dollars in Walmart beats the pants off the s p
Otherand and so that that kind of data is somewhat in sync with Buffett's record
Otheryou know the thing is that the some of these Investments he made are like holding Walmart for 50 years they like that you know they just they just had such powerful economics there was a very good investor in India who passed away recently he had a lot of health problems he didn't live that long he passed away when he was 62 years old and Rakesh jhunjanwala and he basically never managed outside capital he didn't have any money when he started he actually borrowed about I think about ten thousand dollars from someone to buy
Questionerten thousand dollars from someone to buy a few stocks at 18 a year or something he was being that person and and you didn't have any collateral and and you didn't have any collateral and and you didn't have any collateral when he was borrowing the ten thousands when he was borrowing the ten thousands when he was borrowing the ten thousands of person said how do I know I'm going of person said how do I know I'm going of person said how do I know I'm going to get get this money back he said I'll to get get this money back he said I'll to get get this money back he said I'll put the stocks in your name so that you put the stocks in your name so that you put the stocks in your name so that you know you know that you have those and know you know that you have those and know you know that you have those and you know I have the economic ownership you know I have the economic ownership you know I have the economic ownership but if you know things go to hell I but if you know things go to hell I but if you know things go to hell I can't pay you you have ownership of the can't pay you you have ownership of the can't pay you you have ownership of the stocks and of course he was able to pay stocks and of course he was able to pay stocks and of course he was able to pay him but when Rakesh passed away so he him but when Rakesh passed away so he him but when Rakesh passed away so he never managed outside money never never managed outside money never never managed outside money never started a business or anything like that started a business or anything like that started a business or anything like that when he passed away last year when he passed away last year when he passed away last year at the age of 62 he was worth about at the age of 62 he was worth about at the age of 62 he was worth about seven billion dollars seven billion dollars seven billion dollars and half of that 7 billion about three and half of that 7 billion about three and half of that 7 billion about three and a half billion and a half billion and a half billion was one position it was a company in was one position it was a company in was one position it was a company in India called Titan Industries which is a India called Titan Industries which is a India called Titan Industries which is a jewelry retailer and manufacturer
Questionerjewelry retailer and manufacturer and about 25 or 27 years ago Rakesh had put four percent of his net worth at that time into Titan Industries and he was a hyperactive Trader where he'd sit you know with three screens and be in and out of all these positions all the time but there were three or four positions he had that he never touched he just kept them forever and Titan was one of those positions so if you do the same thing with rakesh's portfolio where you torch 96 of the portfolio in the mid 90s when he bought Titan he still ends up with three and a half billion and and so that's very similar to the Nifty 50. so the lesson I think the lesson in investing is that it is a very forgiving business I mean if you look at the nifty 50 you could have been wrong 98 of the time a 49 out of 50 times and you still did okay now you wouldn't have done okay if
Warrenokay now you wouldn't have done okay if you danced in and out of Walmart stock you danced in and out of Walmart stock you danced in and out of Walmart stock wouldn't have worked and in the last 50 years years years nobody held Walmart stock nobody held Walmart stock nobody held Walmart stock nobody held Walmart stock for the entire nobody held Walmart stock for the entire nobody held Walmart stock for the entire 50 years except the Walton family 50 years except the Walton family 50 years except the Walton family and and so here was a great business it and and so here was a great business it and and so here was a great business it was obvious it was a great business it was obvious it was a great business it was obvious it was a great business it was doing well it was embryonic it was was doing well it was embryonic it was was doing well it was embryonic it was going like crazy going like crazy going like crazy and people didn't hold on to it and people didn't hold on to it and people didn't hold on to it and and so and and so and so the the key with investing the the key with investing the the key with investing in my opinion in my opinion in my opinion is not so much is not so much is not so much that we won't make mistakes we are that we won't make mistakes we are that we won't make mistakes we are destined to make a ton of mistakes it's destined to make a ton of mistakes it's destined to make a ton of mistakes it's just a nature of investing John just a nature of investing John just a nature of investing John Templeton said the best investment Templeton said the best investment Templeton said the best investment manager will be wrong two out of one out manager will be wrong two out of one out manager will be wrong two out of one out of three times of three times of three times probably more likely would be wrong half probably more likely would be wrong half probably more likely would be wrong half the time if you look at the 200 deaths the time if you look at the 200 deaths the time if you look at the 200 deaths Berkshire made Berkshire made Berkshire made I would say probably a good hundred I would say probably a good hundred I would say probably a good hundred would be mediocre or poor would be mediocre or poor would be mediocre or poor and still didn't matter and still didn't matter and still didn't matter but the concept that matters a lot
Warrenbut the concept that matters a lot is the concept of circling your wagons so you don't really know a business till you invest in it and it really takes you a few years of ownership to really understand the business you may have some ideas about the business before um it's when it drops 40 in price after you buy it that's when you get a real education over the business is actually all about and what it's worth and everything else your analysis will be extremely good at that point it won't be so good before you buy the business it would be really really good when it drops 40 you'll be amazing at it so the important thing is that all of us will find ourselves in the happy situation every so often of holding a small interest in a great business and when that happens what you need to think about the portfolio you need to think about the
Otherportfolio you need to think about the portfolio in the form of a few concentric circuits okay so at the very center of the circle with a bunch of wagons circling around if you go back to Rakesh children is Titan Industries and the next round of positions with a bunch of wagons around it would be that's that he has less conviction on he might have like three or four others that he feels pretty good about but not as good as Titan so he puts you know they're in the next Circle and then you might put the next set of positions in the next Circle so one of the things I would encourage you to do is that the portfolio you're inheriting try to see if you could put them in those different circles and so we want to make sure that the business or the businesses that we have that are just tremendous go at the center and the center actually needs to be a very
Questionerneeds to be a very rarefied space so it's not enough for the business to be great for the business to be great you know like I said it's very easy to tell I mean if I look at the SMB 500 probably 200 of those 500 businesses are great business you know they wouldn't be in the S P 500 if they won't create businesses so for me to look at the S P 500 and pick out you know which are the best businesses and in fact even to even just rank them best to worst is a very trivial exercise it doesn't take much to do that that'd be pretty easy to do what would be a much harder exercise is which of the businesses will do the well do the best for an investor um today onwards because when when a business is great and the markets recognize it as being great then a lot of those future prospects are discounted in and so when you become the 204th first analyst to buy that business
Warrento buy that business you know what are you bringing to the party you know it's possible you have some insight that the rest of the world missed but if these are you know widely followed well understood businesses those become difficult and rare so for the innermost circle with the most Precious Cargo being circled by the you know tightly formed wagons we need we need two or three things we need a tremendous business we need a tremendous business which has a tremendous growth one way which has very high Returns on Equity without using leverage which has the ability to reinvest Capital at very high rates and which has a very modest price the last one is the deal killer and the most difficult because everything else we can find relatively easily and and and the last one is why you know Monger says we need to go fishing where the fish are
Questionergo fishing where the fish arego fishing where the fish are and he also I think a few weeks backand he also I think a few weeks backand he also I think a few weeks back there was a Daily Journalthere was a Daily Journalthere was a Daily Journal annual meeting I think about two weeksannual meeting I think about two weeksannual meeting I think about two weeks ago and he was talking aboutago and he was talking aboutago and he was talking about you know the I think he would ask theyou know the I think he would ask theyou know the I think he would ask the question about the singlequestion about the singlequestion about the single biggest flaw a lot of humans have andbiggest flaw a lot of humans have andbiggest flaw a lot of humans have and the biggest flaw humans have is denial athe biggest flaw humans have is denial athe biggest flaw humans have is denial a lot of investment managers have deniallot of investment managers have deniallot of investment managers have denial you know where they are they areyou know where they are they areyou know where they are they are going up I mean if I if I am given agoing up I mean if I if I am given agoing up I mean if I if I am given a mandate tomandate tomandate to only buy S P 500 namesonly buy S P 500 namesonly buy S P 500 names and beat the s p by five percentageand beat the s p by five percentageand beat the s p by five percentage points a yearpoints a yearpoints a year and I decide to you know and I need toand I decide to you know and I need toand I decide to you know and I need to have at least 20 names in the portfoliohave at least 20 names in the portfoliohave at least 20 names in the portfolio you know I shouldn't even try that wouldyou know I shouldn't even try that wouldyou know I shouldn't even try that would be really hard to do but a lot of otherbe really hard to do but a lot of otherbe really hard to do but a lot of other managers will try that and that's whatmanagers will try that and that's whatmanagers will try that and that's what Munger means by denial soMunger means by denial soMunger means by denial so with that maybe we'll see what else youwith that maybe we'll see what else youwith that maybe we'll see what else you guys want to talk aboutguys want to talk aboutguys want to talk about so thank you very much um just goingso thank you very much um just goingso thank you very much um just going back to Great businesses
Questionerback to Great businesses back to Great businesses um I read somewhere that you thank only um I read somewhere that you thank only um I read somewhere that you thank only about five percent of companies globally about five percent of companies globally about five percent of companies globally are actually great businesses are actually great businesses are actually great businesses so I just wondering whether or not how so I just wondering whether or not how so I just wondering whether or not how you define a great business might be you define a great business might be you define a great business might be different to other people and also at different to other people and also at different to other people and also at the same time perhapsible learnings that the same time perhapsible learnings that the same time perhapsible learnings that you went through your investment process you went through your investment process you went through your investment process or decisions that you did make that or decisions that you did make that or decisions that you did make that actually made you think twice about what actually made you think twice about what actually made you think twice about what actually is a great business versus what actually is a great business versus what actually is a great business versus what is not actually a great business can you is not actually a great business can you is not actually a great business can you perhaps just take us through some of the perhaps just take us through some of the perhaps just take us through some of the mental models that you use to actually mental models that you use to actually mental models that you use to actually make sure that what you are investing in make sure that what you are investing in make sure that what you are investing in is actually great business is actually great business is actually great business
Warrenyeah that's a great question so yeah that's a great question so yeah that's a great question so one of the Hallmarks of a great business one of the Hallmarks of a great business one of the Hallmarks of a great business would be durability would be durability would be durability and one of the issues with capitalism is and one of the issues with capitalism is and one of the issues with capitalism is that if you have a mouse trap that if you have a mouse trap that if you have a mouse trap that delivers High returns and Equity that delivers High returns and Equity
Questionerthat delivers High returns and Equity grows a lot does really well Etcgrows a lot does really well Etcgrows a lot does really well Etc you have a Target on your backyou have a Target on your backyou have a Target on your back andandand other capitalists will try to comeother capitalists will try to comeother capitalists will try to come andandand take market share from make the thetake market share from make the thetake market share from make the the landscape far more competitivelandscape far more competitivelandscape far more competitive reduce the profit margins and even takereduce the profit margins and even takereduce the profit margins and even take you out of businessyou out of businessyou out of business and the reality is that most of thoseand the reality is that most of thoseand the reality is that most of those marauding innovators coming to take themarauding innovators coming to take themarauding innovators coming to take the castlecastlecastle will succeedwill succeedwill succeed so if we look atso if we look atso if we look at how many businesseshow many businesseshow many businesseshow many businesseshow many businesseshow many businesses last 10 years after their fall how manylast 10 years after their fall how manylast 10 years after their fall how many businesses last a year after they arebusinesses last a year after they arebusinesses last a year after they are formed it's a very small numberformed it's a very small numberformed it's a very small number 10 years in the even smaller number 2010 years in the even smaller number 2010 years in the even smaller number 20 years even smaller each time it's goingyears even smaller each time it's goingyears even smaller each time it's going down by a whole exponential you know 30down by a whole exponential you know 30down by a whole exponential you know 30 years 40 years 50 years just keeps goingyears 40 years 50 years just keeps goingyears 40 years 50 years just keeps going downdowndown if we go look at the you know the Dowif we go look at the you know the Dowif we go look at the you know the Dow Jones Industrial Average from 100 yearsJones Industrial Average from 100 yearsJones Industrial Average from 100 years ago today I mean look at you know theago today I mean look at you know theago today I mean look at you know the you know 30 most powerful businesses 100you know 30 most powerful businesses 100you know 30 most powerful businesses 100 years backyears back
Questioneryears back it used to be only GE was the one that came through and then now GE is gone too you know taken out back and shot many times and so basically a business I mean if you look at a business like IBM IBM is a very interesting case study because they were able to morph and evolve and jump curves many times when they should have died you know when when mainframes switched to many computers switched to PCS switch to client server computing through many of those curves IBM just kept plowing through kept doing well and and now it's a shadow of its former self and and investing in IBM hasn't been a pleasant exercise or maybe a couple of decades now so so one thing we have to understand so if we go back and look at okay the oldest business in the world that I'm aware of is about 700 years old it's a very small boutique hotel in Kyoto Japan
Otherboutique hotel in Kyoto Japan which is in the 36th generation of the same family running it and so you know when we get to about three or four hundred years or 500 years you're left with you basically left with liquor companies you know liquor companies are great businesses by the way Tobacco Company human vices if you invest in the vices you do well so basically when we talk about great businesses we have to talk about them with great humility because even if we look at a business like apple today it's absolutely dominates and is so entrenched alphabet Amazon Microsoft dominant well-entrenched deep more businesses High returns and Equity just tremendous which of these will be with us 20 years from now still thriving 40 years from now still thriving 60 years from now I don't know if I would make a bet that any of them will be thriving 40 years
Questionerbe thriving 40 yearsbe thriving 40 years 40 years is a long time 10 years I don't40 years is a long time 10 years I don't40 years is a long time 10 years I don't think you can touch any of them I thinkthink you can touch any of them I thinkthink you can touch any of them I think they're all solid for 10 years 20 yearsthey're all solid for 10 years 20 yearsthey're all solid for 10 years 20 years maybe they're all still there after thatmaybe they're all still there after thatmaybe they're all still there after that who knows so one of the problems we runwho knows so one of the problems we runwho knows so one of the problems we run into in investing is on one hand I toldinto in investing is on one hand I toldinto in investing is on one hand I told you Circle the waxyou Circle the waxyou Circle the wax you know you find this great nightyou know you find this great nightyou know you find this great night you know controlling this great castleyou know controlling this great castleyou know controlling this great castle with a great mode around itwith a great mode around itwith a great mode around it just hang on to it for dear lifejust hang on to it for dear lifejust hang on to it for dear life and then on the other side we have thisand then on the other side we have thisand then on the other side we have this you know permanent you know creativeyou know permanent you know creativeyou know permanent you know creative destruction going on where even yourdestruction going on where even yourdestruction going on where even your most precious Crown Jewelmost precious Crown Jewelmost precious Crown Jewel Numero Uno bet just gets decimatedNumero Uno bet just gets decimatedNumero Uno bet just gets decimated you know taken out back so this is whyyou know taken out back so this is whyyou know taken out back so this is why you know like Charlie says why should ityou know like Charlie says why should ityou know like Charlie says why should it be easy to get richbe easy to get richbe easy to get rich you know soyou know soyou know so this is what makes it challenging sothis is what makes it challenging sothis is what makes it challenging so what what we have to do is we have towhat what we have to do is we have towhat what we have to do is we have to circle the wagons that we have to docircle the wagons that we have to docircle the wagons that we have to do because without circling the wagons you
Warrenbecause without circling the wagons you don't get to hold a Walmart for 50 years but the second thing we have to do is we have to separate signal from noise so what we have to do is these businesses will go through ups and downs nothing is straight forever and so when they go through sorry when they go through these ups and downs we have to separate normal cyclicality you know whatever's going on such as life from secular decline and we cannot be like you know Trigger Happy and when we are we can be a little sloppy on the selling so we we can see or something is declining but let me be absolutely sure not reacting to the noise so that's fine you can you can be a little bit careful on that but when you are absolutely convinced that some Castle is in permanent secular decline you then have to put the wagons around something
Questionersomething and and move from there and and thoseand and move from there and and thoseand and move from there and and those are not easy things to doare not easy things to doare not easy things to do but that's why you guys get paid the bigbut that's why you guys get paid the bigbut that's why you guys get paid the big bucksthank you for that um you mentionedthank you for that um you mentionedthank you for that um you mentioned tobacco you mentioned beverage companiestobacco you mentioned beverage companiestobacco you mentioned beverage companies or alcoholic beverage companiesor alcoholic beverage companiesor alcoholic beverage companies but when you look at a company likebut when you look at a company likebut when you look at a company like Anheuser-Busch or bti they've prettyAnheuser-Busch or bti they've prettyAnheuser-Busch or bti they've pretty much donemuch donemuch done I have they're in performed very muchI have they're in performed very muchI have they're in performed very much and I say over the past several yearsand I say over the past several yearsand I say over the past several years so even though there are greatso even though there are greatso even though there are great businesses they haven't actually beenbusinesses they haven't actually beenbusinesses they haven't actually been great Investments so what's your sort ofgreat Investments so what's your sort ofgreat Investments so what's your sort of um view of the disconnect in terms ofum view of the disconnect in terms ofum view of the disconnect in terms of them actually performingthem actually performingthem actually performing
Warrenyeah that's uh that's a great questionyeah that's uh that's a great questionyeah that's uh that's a great question especially a great question to ask aespecially a great question to ask aespecially a great question to ask a teetotaler and uh and so I'll I'll giveteetotaler and uh and so I'll I'll giveteetotaler and uh and so I'll I'll give you my best shot having never had a budyou my best shot having never had a budyou my best shot having never had a bud before basically I I I haven't reallybefore basically I I I haven't reallybefore basically I I I haven't really looked at those businesses but I would Ilooked at those businesses but I would Ilooked at those businesses but I would I would say that you know obviously we'vewould say that you know obviously we'vewould say that you know obviously we've had some change in taste you know where
Warrenhad some change in taste you know where things have moved to the hard seltzers and so on it all tastes horrible to me but you know some things taste less horrible than some some other things just to take a a little detour is I me the tea totaler had an investment in a liquor company in in China called Mao Thai and I'll just tell you the story about maotai for a second and we'll get back to Anheuser-Busch after that so Charlie Munger when I when I got to know him he insisted that Lee Lou and I should meet each other once a month for lunch so I told Charlie well you know if wants to waste his time with a yo-yo like me I'm more than happy to do that and so when I was in California now now lilu has moved to Seattle do most of you know who lilu is most people don't know who Lee Lewis I'm like barking up the wrong tree so let me go a little further back to First
Questionergo a little further back to First explain Lee Lou and then we'll get to the Chinese liquor and then we'll get to Anheuser-Busch and hopefully all that will happen before it's all pumpkins and mice but going back going back a little further because there are some lessons in each of this
Questionerso Charlie Munger said that he read barons for nearly 50 years you know I think all of you know what Barons is and so Baron would show up every week at his home and he'd read it and each issue of barons probably has at least you know five or ten stock ideas probably at least 10 different stock ideas they have different write-ups and people you know talking about different businesses and all that and so if you take each Baron's issue having 10 ideas and you have 50 issues in a year you have 500 ideas in a year and then if you go 50 years it's 25 000 ideas so Charlie says that for 50
Questioner000 ideas so Charlie says that for 50000 ideas so Charlie says that for 50 years he read Barons he read all theseyears he read Barons he read all theseyears he read Barons he read all these 25 000 ideas and he never acted on them25 000 ideas and he never acted on them25 000 ideas and he never acted on them okay and then in 2003okay and then in 2003okay and then in 2003 after 50 years of reading Barons heafter 50 years of reading Barons heafter 50 years of reading Barons he reads one idea in Barons that reallyreads one idea in Barons that reallyreads one idea in Barons that really excites him but suddenly Charlie isexcites him but suddenly Charlie isexcites him but suddenly Charlie is seeing something in this write-up butseeing something in this write-up butseeing something in this write-up but she could not see in the previous 25 000she could not see in the previous 25 000she could not see in the previous 25 000 write-upswrite-upswrite-ups and he had about 10 million dollars ofand he had about 10 million dollars ofand he had about 10 million dollars of change lying around and he put the 10change lying around and he put the 10change lying around and he put the 10 million into this company that the worldmillion into this company that the worldmillion into this company that the world thought was going to go bankrupt it wasthought was going to go bankrupt it wasthought was going to go bankrupt it was tentacle Auto Parts Companytentacle Auto Parts Companytentacle Auto Parts Company so the bonds already distressed theso the bonds already distressed theso the bonds already distressed the bonds were down to like 20 cents on thebonds were down to like 20 cents on thebonds were down to like 20 cents on the dollar and the stock was very distresseddollar and the stock was very distresseddollar and the stock was very distressed and the whole thing was very distressedand the whole thing was very distressedand the whole thing was very distressed but Charlie somehow was super excitedbut Charlie somehow was super excitedbut Charlie somehow was super excited about it and he put 10 million intoabout it and he put 10 million intoabout it and he put 10 million into tentacotentacotentaco and then about three years later the 10and then about three years later the 10and then about three years later the 10 million had turned into 80 millionmillion had turned into 80 millionmillion had turned into 80 million okay
Questionerokayokay well done Charlie well done okaywell done Charlie well done okaywell done Charlie well done okay and then Charlie decides to take the 80and then Charlie decides to take the 80and then Charlie decides to take the 80 millionmillionmillion give it to this Chinese guy that he'sgive it to this Chinese guy that he'sgive it to this Chinese guy that he's met once to manage for him and themet once to manage for him and themet once to manage for him and the Chinese guy who's met onceChinese guy who's met onceChinese guy who's met once is lilu okay so I asked Charlie I saidis lilu okay so I asked Charlie I saidis lilu okay so I asked Charlie I said hey Charliehey Charliehey Charlie you meet this guy from Chinayou meet this guy from Chinayou meet this guy from China one time okayone time okayone time okay and you take the 80 million which isand you take the 80 million which isand you take the 80 million which is little more than Loose Change now andlittle more than Loose Change now andlittle more than Loose Change now and just give it all to him why would you dojust give it all to him why would you dojust give it all to him why would you do thatthatthat so he said well monishso he said well monishso he said well monish it was a no-brainerit was a no-brainerit was a no-brainer I said why was it a no-brainer he saidI said why was it a no-brainer he saidI said why was it a no-brainer he said because I just looked at the guy's trackbecause I just looked at the guy's trackbecause I just looked at the guy's track record sorecord sorecord so lilu was a student leader in Tiananmenlilu was a student leader in Tiananmenlilu was a student leader in Tiananmen SquareSquareSquare and he was one of the main instigatorsand he was one of the main instigatorsand he was one of the main instigators of Tiananmen Square and the Chineseof Tiananmen Square and the Chineseof Tiananmen Square and the Chinese government basically wanted to hang himgovernment basically wanted to hang himgovernment basically wanted to hang him at High Noon and be done with him and soat High Noon and be done with him and soat High Noon and be done with him and so somehow he managed to escape to Hongsomehow he managed to escape to Hongsomehow he managed to escape to Hong KongKongKong and then a bunch of you know Chinese youand then a bunch of you know Chinese youand then a bunch of you know Chinese you know dissidents in Hong Kong helped him
Otherknow dissidents in Hong Kong helped him know dissidents in Hong Kong helped him come to the U.S come to the U.S come to the U.S and he got admitted to Columbia and he got admitted to Columbia and he got admitted to Columbia University University University and Colombia and Colombia and Colombia admitted him into three programs at the admitted him into three programs at the admitted him into three programs at the same time same time same time so he did three simultaneous degrees at so he did three simultaneous degrees at so he did three simultaneous degrees at Columbia he did an undergraduate degree Columbia he did an undergraduate degree Columbia he did an undergraduate degree in physics in physics in physics at the same time he did a MBA at at the same time he did a MBA at at the same time he did a MBA at Columbia and at the same time he did a Columbia and at the same time he did a Columbia and at the same time he did a law degree at Columbia law degree at Columbia law degree at Columbia and when he entered Colombia and spoke and when he entered Colombia and spoke and when he entered Colombia and spoke no English no English no English and the university basically gave him a and the university basically gave him a and the university basically gave him a free ride because he came with no money free ride because he came with no money free ride because he came with no money so you know they said okay you know so you know they said okay you know so you know they said okay you know we'll fund you and we'll fund you and we'll fund you and and so what they used to do is like and so what they used to do is like and so what they used to do is like let's say there was you know let's say there was you know let's say there was you know twenty thousand dollars of expenses for twenty thousand dollars of expenses for twenty thousand dollars of expenses for the semester they would give him the the semester they would give him the the semester they would give him the twenty thousand then he'd pay the fees twenty thousand then he'd pay the fees twenty thousand then he'd pay the fees and you know have money for his living and you know have money for his living and you know have money for his living and all that the float on that on the and all that the float on that on the and all that the float on that on the money they get giving him every quarter money they get giving him every quarter money they get giving him every quarter or every semester
Questioneror every semesteror every semester he started to invest that so like forhe started to invest that so like forhe started to invest that so like for example he's got money in January and itexample he's got money in January and itexample he's got money in January and it doesn't need to be paid to the landlorddoesn't need to be paid to the landlorddoesn't need to be paid to the landlord till March you know we got two months oftill March you know we got two months oftill March you know we got two months of slow that's a long time okay so heslow that's a long time okay so heslow that's a long time okay so he invested that two month upload so by theinvested that two month upload so by theinvested that two month upload so by the time Lulu finished at Columbiatime Lulu finished at Columbiatime Lulu finished at Columbia with near the top of his class and allwith near the top of his class and allwith near the top of his class and all three degrees he had converted thatthree degrees he had converted thatthree degrees he had converted that float money into a million dollarsfloat money into a million dollarsfloat money into a million dollars okay so and and and and and and thenokay so and and and and and and thenokay so and and and and and and then Charlie said I just looked at what theCharlie said I just looked at what theCharlie said I just looked at what the guy was doingguy was doingguy was doing and to me it was a no-brainer so he gaveand to me it was a no-brainer so he gaveand to me it was a no-brainer so he gave 80 million to lead Lou which very80 million to lead Lou which very80 million to lead Lou which very quickly turned into 800 millionquickly turned into 800 millionquickly turned into 800 million and I think now that money that Charlieand I think now that money that Charlieand I think now that money that Charlie gave to Lee do might be sitting at likegave to Lee do might be sitting at likegave to Lee do might be sitting at like 1.2 or 1.30 1.4 billion or something so1.2 or 1.30 1.4 billion or something so1.2 or 1.30 1.4 billion or something so now that we know what lilu lilu is andnow that we know what lilu lilu is andnow that we know what lilu lilu is and when Charlie says Monash you should havewhen Charlie says Monash you should havewhen Charlie says Monash you should have lunch with Lilo I told Charlie if helunch with Lilo I told Charlie if helunch with Lilo I told Charlie if he wants to meet the yo-yo for lunch the
Charliewants to meet the yo-yo for lunch the wants to meet the yo-yo for lunch the yo-yo is very ready to meet him and so I yo-yo is very ready to meet him and so I yo-yo is very ready to meet him and so I used to meet lilu once a month for lunch used to meet lilu once a month for lunch used to meet lilu once a month for lunch okay and I told lilu look so whenever I okay and I told lilu look so whenever I okay and I told lilu look so whenever I meet somebody for lunch meet somebody for lunch meet somebody for lunch I don't drink alcohol and I don't smoke I don't drink alcohol and I don't smoke I don't drink alcohol and I don't smoke but I do like great food so I said lilu but I do like great food so I said lilu but I do like great food so I said lilu listen near your home is Din Tai Fung listen near your home is Din Tai Fung listen near your home is Din Tai Fung have any of you heard of Din Tai Fung have any of you heard of Din Tai Fung have any of you heard of Din Tai Fung a few nods that's awesome we have a few a few nods that's awesome we have a few a few nods that's awesome we have a few knots it hasn't come to Toronto yet but knots it hasn't come to Toronto yet but knots it hasn't come to Toronto yet but it'll come soon in the meanwhile it'll come soon in the meanwhile it'll come soon in the meanwhile whenever you go to other cities you can whenever you go to other cities you can whenever you go to other cities you can have Din Tai Farm anyway there was a have Din Tai Farm anyway there was a have Din Tai Farm anyway there was a great it's a Taiwanese dumpling place great it's a Taiwanese dumpling place great it's a Taiwanese dumpling place so I said listen while we are having so I said listen while we are having so I said listen while we are having great conversation we'll meet at Din Tai great conversation we'll meet at Din Tai great conversation we'll meet at Din Tai Fung once a month he said yeah that's Fung once a month he said yeah that's Fung once a month he said yeah that's fine fine fine so I immediately one time so I immediately one time so I immediately one time and he's telling me about this obscure and he's telling me about this obscure and he's telling me about this obscure Korean company Korean company Korean company called Amor Pacific okay and and he's called Amor Pacific okay and and he's called Amor Pacific okay and and he's trying to explain there like the trying to explain there like the
Othertrying to explain there like the Cosmetics business this and that whatever and I finished at lunch I went back I tried to look everything's in Korean and then I found some places in California which carried their products and I went to those stores I could not make out head or tail of his business okay way outside circular competence so I said okay whatever aim or whatever and then after about 18 months or two years of meeting he tells me yeah so so did you invest in Amor a more Pacific I said I couldn't make headers he said it's gone up 600x okay so then then Lilo tells me you know monish you should buy Mao Thai I said lilu you know I'm done with these backhoe names so here's what we're gonna do don't tell me go buy this and go buy that please spoon feed me everything I need to know because when I leave this lunch everything in maota is going to be
Otherlunch everything in maota is going to be in Chinese and then I won't be able to
Otherin Chinese and then I won't be able to
Otherin Chinese and then I won't be able to do anything and then I want to meet you
Otherdo anything and then I want to meet you
Otherdo anything and then I want to meet you after two years and it's gone up 100x
Otherafter two years and it's gone up 100x
Otherafter two years and it's gone up 100x and I'm again the idiot who did nothing
Otherand I'm again the idiot who did nothing
Otherand I'm again the idiot who did nothing with it so he said well you could have
Otherwith it so he said well you could have
Otherwith it so he said well you could have asked me that about whatever I explained
Otherasked me that about whatever I explained
Otherasked me that about whatever I explained it to you I said well now I'm asking
Otherit to you I said well now I'm asking
Otherit to you I said well now I'm asking please explain spoon feed me Mao Thai so
Otherplease explain spoon feed me Mao Thai so
Otherplease explain spoon feed me Mao Thai so maotai is the most now it is the most
Othermaotai is the most now it is the most
Othermaotai is the most now it is the most valued liquor company in the world
Othervalued liquor company in the world
Othervalued liquor company in the world it's above every other liquor company it
Otherit's above every other liquor company it
Otherit's above every other liquor company it only has one product okay the product
Otheronly has one product okay the product
Otheronly has one product okay the product costs about
Othercosts about
Othercosts about a dollar fifty less than two dollars per
Othera dollar fifty less than two dollars per
Othera dollar fifty less than two dollars per bottle to make and the last time I
Otherbottle to make and the last time I
Otherbottle to make and the last time I checked it was about fourteen hundred
Otherchecked it was about fourteen hundred
Otherchecked it was about fourteen hundred dollars per bottle that they sell it for
Otherdollars per bottle that they sell it for
Otherdollars per bottle that they sell it for so like a 99.9
Otherso like a 99.9
Otherso like a 99.9 like operating margin and so
Otherlike operating margin and so
Otherlike operating margin and so I
OtherI
OtherI asked him a bunch of questions about Mao
Otherasked him a bunch of questions about Mao
Otherasked him a bunch of questions about Mao Thai
OtherThai
OtherThai it was very obvious this was a
Otherit was very obvious this was a
Otherit was very obvious this was a remarkable business and it actually had
Otherremarkable business and it actually had
Otherremarkable business and it actually had gone down in price for temporary reasons
Li Lugone down in price for temporary reasons and I made an investment in Mao Thai and then and maotai instantly started elevating and moving up in price life is good and and I told lilu if you want to take the lunches to twice a month two in fact if you want to meet me every day for lunch that's also okay he said we'll keep it to once a month I said okay that's fine you know and and so a few years after that I decided that the mountain had become such a big part of the portfolio that maybe I should go visit the company so I I made a chip trip to China and Mao ties in the middle very obscure remote area of China which nobody would ever go to and my friend guy Speer came with me and my daughter came with me and we went to Mountain headquarters and because leave was a big shareholder and he helped set this up they had arranged a great banquet for us
Warrenthey had arranged a great banquet for us at The Mao Thai Museum you know and so at the banquet guy Spears with me and my daughters with me so guy spear tells the host we don't want you to get offended but my friend monashear does not drink alcohol and is it possible to get him a Coke so they said within this Hallowed Ground of this restaurant there are only two liquids that are served it's water and mouth High and we would be offended if he did not consume Mount High so you know it's if you ever get a chance to have Mao Thai you know tiny serving like this small you have it neat it's like diesel going straight in it's like concentrated diesel it's all I can describe it as and I didn't want to offend the horse so I took one Sip and then my insides were burning for the next three days so that was my experience my one and only experience with with liquor but anyway
Questionerexperience with with liquor but anyway coming back to Anheuser-Busch so I think the thing with Anheuser-Busch is what we'd have to know is we have these kind of changes in human tastes and Trends is that noise or is that signal it still has a dominant position it's still a great business in many different ways we have to look at the valuation we've got to have some idea what it might do in the future and then if all of that becomes at the point of being a no-brainer like tanako was for Charlie then we pulled the trigger otherwise we move on so that's all I can say about liquor
Othercool thank you very much um I guess just to follow up when you're actually meeting management teams for instance um how do you go about assessing it doesn't mean a good management team and a bad management team and I say that because usually when things are going well for a
Questionerusually when things are going well for a company everyone's says this is a fantastic management team that said they do fantastic work XYZ they're futuristic they're thinking forward but when sunny things do turn for that management team people start calling them naive they're not really focused and what's the most important thing for a company so I want to know how you actually go about differentiating with you what actually makes a good management team versus a bad management team
WarrenWarren has given us the framework on that so that's pretty straightforward we simply look at the track record so all management teams have one thing in common especially all CEOs they got to be CEO because they're great sales okay and so if you go meet a great salesman and he talks to you about a subject on which he knows everything or nothing and you rely on that information to make
Questionerand you rely on that information to make decisions decisions decisions you will not get to Nirvana you will not get to Nirvana you will not get to Nirvana you will get to the poor house you will get to the poor house you will get to the poor house so basically the average public company CEO CEO CEO you know being male and thereabouts you know being male and thereabouts you know being male and thereabouts would be someone you'd be happy to have your daughter man they are high quality your daughter man they are high quality your daughter man they are high quality high integrity people high integrity people high integrity people but they are optimists and if they but they are optimists and if they but they are optimists and if they weren't optimists they couldn't lead so weren't optimists they couldn't lead so weren't optimists they couldn't lead so it's not like they're trying to mislead it's not like they're trying to mislead it's not like they're trying to mislead you they actually believe the Kool-Aid you they actually believe the Kool-Aid you they actually believe the Kool-Aid that they're trying to sell you that they're trying to sell you that they're trying to sell you it's just that the Kool-Aid may or may it's just that the Kool-Aid may or may it's just that the Kool-Aid may or may not be real Kool-Aid so the way to look not be real Kool-Aid so the way to look not be real Kool-Aid so the way to look at a business and look at a management at a business and look at a management at a business and look at a management team is to look at what they've done in team is to look at what they've done in team is to look at what they've done in the past the past the past and if you if you go back and look at and if you if you go back and look at and if you if you go back and look at what they've done in the past then it what they've done in the past then it what they've done in the past then it becomes very obvious becomes very obvious becomes very obvious and also and also and also sometimes you might be confused sometimes you might be confused sometimes you might be confused was the past great because the business was the past great because the business was the past great because the business was great or was the past great because
Warrenwas great or was the past great because the manager was good the manager was good the manager was good and you know and you know and you know the American General patent the American General patent the American General patent Patton used to always say that he didn't Patton used to always say that he didn't Patton used to always say that he didn't want want want his the officers no it was Napoleon his the officers no it was Napoleon his the officers no it was Napoleon sorry Napoleon said sorry Napoleon said sorry Napoleon said he was not looking for his generals he was not looking for his generals he was not looking for his generals to be great to be great to be great he just wanted his generals to be lucky he just wanted his generals to be lucky he just wanted his generals to be lucky he said I want the most lucky generals I he said I want the most lucky generals I he said I want the most lucky generals I don't want the great generals okay so don't want the great generals okay so don't want the great generals okay so when we look at the past history of a when we look at the past history of a when we look at the past history of a business under a given manager business under a given manager business under a given manager did the business do well because the did the business do well because the did the business do well because the manager was great or did the business manager was great or did the business manager was great or did the business too well because the business was great too well because the business was great too well because the business was great like if you look at a business like like if you look at a business like like if you look at a business like Coca-Cola for example we know for a fact Coca-Cola for example we know for a fact Coca-Cola for example we know for a fact that for about 35 years or 40 years it that for about 35 years or 40 years it that for about 35 years or 40 years it was managed by idiot managers was managed by idiot managers was managed by idiot managers and the business still did well and the business still did well and the business still did well in spite of the idiots trying everything in spite of the idiots trying everything in spite of the idiots trying everything under the sun you know they bought under the sun you know they bought under the sun you know they bought Paramount Pictures they bought shrimp
QuestionerParamount Pictures they bought shrimp farms in China they bought all thesefarms in China they bought all thesefarms in China they bought all these stupid businesses which when the nextstupid businesses which when the nextstupid businesses which when the next team came in they sold everythingteam came in they sold everythingteam came in they sold everything okay they did all these stupid thingsokay they did all these stupid thingsokay they did all these stupid things they couldn't kill the business Okay sothey couldn't kill the business Okay sothey couldn't kill the business Okay so when we look back and we see greatwhen we look back and we see greatwhen we look back and we see great performanceit now doesn't matter what we think ofit now doesn't matter what we think ofit now doesn't matter what we think of the manager because more than likelythe manager because more than likelythe manager because more than likely that great performance is mostlythat great performance is mostlythat great performance is mostly different due to the quality of thedifferent due to the quality of thedifferent due to the quality of the business versus the quality of thebusiness versus the quality of thebusiness versus the quality of the manager and so just like Napoleon wemanager and so just like Napoleon wemanager and so just like Napoleon we want lucky generals and so forget whatwant lucky generals and so forget whatwant lucky generals and so forget what the manager is saying forget what he'sthe manager is saying forget what he'sthe manager is saying forget what he's forecasting forget what mumbo jumboforecasting forget what mumbo jumboforecasting forget what mumbo jumbo Tails they are spinning for you that'sTails they are spinning for you that'sTails they are spinning for you that's all Hocus Pocus all we care about isall Hocus Pocus all we care about isall Hocus Pocus all we care about is what's happened in the past and what'swhat's happened in the past and what'swhat's happened in the past and what's happened in the past is not subject tohappened in the past is not subject tohappened in the past is not subject to debate is very obvious so it becomesdebate is very obvious so it becomesdebate is very obvious so it becomes pretty simple and straightforwardthank youthank youthank you quickquickquick so thanks manage to turn into a fewso thanks manage to turn into a fewso thanks manage to turn into a few questions from the chat uh from the
Otherquestions from the chat uh from the students and other participants uh so this one is a bit of a segue into what you mentioned about um finding great businesses so the question is after you've identified a great business what's your approach to valuation valuation valuation um I know you hate Excel models and uh fine-tuning those models so what sort of mental models do you use about your companies and the second question from the chat is on one of your Commandments um to look for the hidden PE within your companies what's your approach to to that um and then how do you go about as a related question how do you go about assessing the normalized earning power of companies you're looking to invest in
Ted Weschleryeah so what we want to do is we don't want to use a lot of brain cells because we have limited brain sets so we want what I would call no-brainers and and like you know I started making
Questionerand and like you know I started making trips to Turkey about five years ago and in about two weeks I'm going to Istanbul for about two weeks and it should be quite the orgasmic visit but but basically I started going to Istanbul about five years ago just out of curiosity because it was screening as probably the cheapest Market I was I'd ever looked at and turkey has very crazy economic policies 80 inflation everyone and their brother has exited you know and local investors are gamblers their average holding period is like you know six hours and so I started meeting with I have a good friend in Turkey I told him to just if he would be just take me to the businesses that he already invested in which he was very happy to do and in my second trip to Turkey I ran into this company that he was taking me to where the market cap was 16 million
Questionerto where the market cap was 16 million dollars and my friend was telling me the dollars and my friend was telling me the dollars and my friend was telling me the liquidation value is like 700 or 800 liquidation value is like 700 or 800 liquidation value is like 700 or 800 million million million so I asked him if it was a fraud he said so I asked him if it was a fraud he said so I asked him if it was a fraud he said no I own part of the business and it's a no I own part of the business and it's a no I own part of the business and it's a perfectly normal business and I looked perfectly normal business and I looked perfectly normal business and I looked at the business and I really couldn't at the business and I really couldn't at the business and I really couldn't find anything wrong with it I liked the find anything wrong with it I liked the find anything wrong with it I liked the people running it and I really was kind people running it and I really was kind people running it and I really was kind of scratching my head about the of scratching my head about the of scratching my head about the valuation valuation valuation and then I thought it's such a nano cap and then I thought it's such a nano cap and then I thought it's such a nano cap what am I going to be able to get for what am I going to be able to get for what am I going to be able to get for this but for about seven or eight this but for about seven or eight this but for about seven or eight million dollars I got one third of the million dollars I got one third of the million dollars I got one third of the company now that market cap is about company now that market cap is about company now that market cap is about 350 million 350 million 350 million and liquidation value is around maybe and liquidation value is around maybe and liquidation value is around maybe one and a half billion it's one and a half billion it's one and a half billion it's it's a company which what was exciting it's a company which what was exciting it's a company which what was exciting to me about that business was that it to me about that business was that it to me about that business was that it was trading at less than three percent was trading at less than three percent was trading at less than three percent of liquidation value which is very good of liquidation value which is very good of liquidation value which is very good for your health because that's a for your health because that's a
Otherfor your health because that's a straight 30X if liquidation value never increases and but they were reinvesting Capital at such high rates 25 35 a year in dollars that I knew that that liquidation value was going to go you know asymptotic and so I I try to buy as much as I could and then I said we need to circle the wagons so I put it at the absolute epicenter that when everything else is sold you would still hold on to so I was only able to invest one percent a little over one percent maybe one and a half percent of my assets under management into race us because it was such a small you know eight million dollars or whatever and now it's approaching like 25 30 of the portfolio something like that and so there was no need for Excel we could look at it was like you know 12 million square feet of warehouses 80 bucks a square foot kind of replacement value that gives you about
Questionerreplacement value that gives you about 960 million two or a million of debt at the time that's 760 million and uh 16 to 20 million dollar market cap you don't need to do much more math than that if the warehouses are there and least and inflation index leases and Amazon is a tenant and car for the tenant and Ikea is a tenant and Toyota as a tenant and Mercedes is a tenant and Dupont is a tenant and none of those tenants are going to default on their rents or try to bail out of the leases or anything like that so what we now something like race us you know I know God loves me but I know he only loves me enough to give me one of these in my lifetime one and done you know so it's not like he's going to make me you know he also showed my tremendous love the tremendous love for me by putting me in front of lilu for lunch and then he also made lilu tell me about
Li Luand then he also made lilu tell me about Amor Pacific but then what God did was it took me he took the horse to the water expecting the stupid horse to drink and the stupid horse was too dumb to drink the first time and so what we want to do which is difficult for you to do in your fund is we want to do what I would call anomaly based investing we want to do invest in things which make no sense if it makes sense don't invest in it so like Mark Twain says you know truth is Stranger Than Fiction because fiction has to make sense we want to invest in things that don't make sense and when they don't make sense that's when we've got a shot at greatness and definitely Excel is not going to help you make sense of something that doesn't make sense it's hard to break away from the Excel models so I have another one you know you know the thing is that there's a AAA program
Otherthe thing is that there's a AAA program for people who have an Excel addiction you start by going to the meetings and say um McCoy and I'm addicted to excel then we'll all say welcome McCoy and then the healing will start I might sign up
Otherso I have another one here from from the chat and this one is around um buffets I guess famous approach of your circle of competence so the questionnaire is aren't you concerned about things outside of your competence great Investments that you might be missing because you're sticking to that Circle that you understand
Otheryeah so it is really important to not stray outside your circular comfort so the size of the circle is not relevant you don't need to understand very many things you know I hate the defense sector I don't like companies where there's only one client and the client of the government okay I hate the healthcare sector because in
Questionerhate the healthcare sector because inhate the healthcare sector because in the U.S it doesn't operate with Marketthe U.S it doesn't operate with Marketthe U.S it doesn't operate with Market forces there could be great investmentsforces there could be great investmentsforces there could be great investments in the you know defense sector greatin the you know defense sector greatin the you know defense sector great investments in the healthcare sector youinvestments in the healthcare sector youinvestments in the healthcare sector you know moderna might be a great home runknow moderna might be a great home runknow moderna might be a great home run etc etc but they don't fall within myetc etc but they don't fall within myetc etc but they don't fall within my circular competence that's perfectlycircular competence that's perfectlycircular competence that's perfectly fine so don't have Envy or I should dofine so don't have Envy or I should dofine so don't have Envy or I should do this or someone else understands this orthis or someone else understands this orthis or someone else understands this or my idiot neighbor is becoming reallymy idiot neighbor is becoming reallymy idiot neighbor is becoming really wealthy because he bought you knowwealthy because he bought you knowwealthy because he bought you know Salesforce or whatever I thinkSalesforce or whatever I thinkSalesforce or whatever I think you really have toyou really have toyou really have to the problem is if you invest withoutthe problem is if you invest withoutthe problem is if you invest without convictionconvictionconviction you will not be able to hold the companyyou will not be able to hold the companyyou will not be able to hold the company and you will also not be able toand you will also not be able toand you will also not be able to separate the signal from the noiseseparate the signal from the noiseseparate the signal from the noise so really important that you understandso really important that you understandso really important that you understand the business well because understandingthe business well because understandingthe business well because understanding the business well will help you decidethe business well will help you decidethe business well will help you decide is this something that I need to holdis this something that I need to holdis this something that I need to hold forever or is this something that I
Otherforever or is this something that I could possibly replace with something better and so on so I I think there is no substitute for circular competence
OtherCharlie Munger has a billionaire friend who passed away recently John ariega and the interesting thing is John ariega's daughter is is married to Mark Andreessen so you know she's already a daughter of a billionaire and then she you know randomly chooses to date a billionaire and and then it's billion to the power of a billion and you know I've lost count of the billions now
Otherso anyway John ariega basically only invested in real estate Within two miles of the Stanford University campus and he never he never went beyond that he did not invest in Northern California real estate or Bay Area real estate or California real estate or New York real estate or Toronto real estate or any of that and if you were walking with him
Questionerthat and if you were walking with him around Stanford campus he could tell you the history of every building he could tell you what the rents were what the price was what everything was and basically when people became very pessimistic about real estate around Stanford he would load up on these come on these businesses and people became very euphoric about these things and they were bit up to crazy levels he unload them and you know he did that a few times and he ended up with you know several billion dollars and you know he knew he didn't understand anything about Anheuser-Busch he never understood anything about maotai or Amor Pacific or you know going to Turkey or anything else all irrelevant to him so I think sticking to Circular competence there's no substitute for that one of the most important things to do and all of you when we start out our
Charlieand all of you when we start out our circular competence is very narrow you know because we haven't had a lot of experience and only really understand products that we've used in the past and a small sliver of them we could probably understand the economics but that's okay over time the circle will expand naturally we don't really need to worry about it but even if it doesn't expand like it never expanded for John ariega it never really expanded for Sam Walton every entrepreneur for the most part has very narrow circle of competence you know they're uh inch wide and a mile deep and that's how they succeed by being an inch Wireless so we want to be we want to really make sure that the bets we make our businesses we really understand about
Questionersure thank you very much um we're coming close to Tom just wanted to ask you a quick question
Questionerquick question um going back to your multibagger approach where some companies you want to hold Fuji alive you've mentioned that you only want to sell it when it gets egregiously overvalued so what suggestions between egregiously overvalued and being greedy like when you know where to sort of well you would you would want to basically make that decision when it's a no-brainer decision so if you are confused about it it's not yet time to sell so it's like you couldn't you couldn't possibly justify that valuation no matter what you know no matter what kind of you know rose-colored glasses you put on you can't justify it you know I had I had made an investment this is one of the First Investments I made when I started investing in 94 almost 29 years ago and at the time I was running a IT services company in Chicago and I made this investment in this I.T
Otherand I made this investment in this I.T services company in India called satyam computers and I knew those people they used to come and meet me in in Chicago periodically so I knew it was it was a good company I knew they were growing really fast and and I looked at their valuation at that time India was very undervalued then just the real estate they owned in Hyderabad exceeded the value of the business and this was the I.T company that was growing like 70 a year and you know huge margins and everything so I I didn't put much I think I put about ten thousand dollars at that time I didn't have much money I had but a million dollars so about one percent of my portfolio really small ten thousand dollars went into this company I basically said it's one of the businesses I understand well it's got a very long Runway All these things I'm really not going to
Questionerthese things I'm really not going to look at it and in that time in India they didn't have uh dmat so I got physical share certificates sent to me which I just stuck at the bottom of my drawer and said okay we'll open this when I'm a much older man see what you want to do with it and I just didn't really follow the company much and I noticed when the.com bubble was raging in early 2000 about five six years after I bought the company that it had gone from 40 rupees a share to 7 000 rupees a share it was trading at a like a 150x including like some currency that went against me so it was 150x in dollars and I looked at it at that time I mean I knew their business was doing well but there was no way to come up with evaluation that would fit no matter how optimistic I was and so I said as much as I like this we're going to let this go
Otherlet this go
Otherand and I and I and I was also veryand and I and I and I was also veryand and I and I and I was also very skeptical about the whole process ofskeptical about the whole process ofskeptical about the whole process of sending the certificates back and Isending the certificates back and Isending the certificates back and I didn't know whether the Indiandidn't know whether the Indiandidn't know whether the Indian government would allowed would allow megovernment would allowed would allow megovernment would allowed would allow me to repatriate the money you know theyto repatriate the money you know theyto repatriate the money you know they said in theory you can take everythingsaid in theory you can take everythingsaid in theory you can take everything back but I said I only gave them tenback but I said I only gave them tenback but I said I only gave them ten thousand and I'm gonna you know pull outthousand and I'm gonna you know pull outthousand and I'm gonna you know pull out 1.5 million or something and they're1.5 million or something and they're1.5 million or something and they're gonna like choke on that and so I wasn'tgonna like choke on that and so I wasn'tgonna like choke on that and so I wasn't sure it'll all go through but it didsure it'll all go through but it didsure it'll all go through but it did everything went through and I soldeverything went through and I soldeverything went through and I sold Within ten percent of the peakWithin ten percent of the peakWithin ten percent of the peak and about nine months later it hadand about nine months later it hadand about nine months later it had dropped 85 percent still would have beendropped 85 percent still would have beendropped 85 percent still would have been a good home run but that was that was mya good home run but that was that was mya good home run but that was that was my first hundred bagger and so life wasfirst hundred bagger and so life wasfirst hundred bagger and so life was good and so fargood and so fargood and so far I've only had 200 Baggers I shouldn'tI've only had 200 Baggers I shouldn'tI've only had 200 Baggers I shouldn't say only even one is good and possiblysay only even one is good and possiblysay only even one is good and possibly with the one in Turkey we'll have awith the one in Turkey we'll have awith the one in Turkey we'll have a third one that'll be the most the most
Questionerthird one that'll be the most the mostthird one that'll be the most the most fun I think because it had the mostfun I think because it had the mostfun I think because it had the most meaningful amount of capital in it someaningful amount of capital in it someaningful amount of capital in it so basically when things get to Totalbasically when things get to Totalbasically when things get to Total no-brainer territory that it's justno-brainer territory that it's justno-brainer territory that it's just completely egregious that's when you askcompletely egregious that's when you askcompletely egregious that's when you ask there are new formula but I'll I'll takethere are new formula but I'll I'll takethere are new formula but I'll I'll take the last one from from the chat beforethe last one from from the chat beforethe last one from from the chat before we close uh this one is uhwe close uh this one is uhwe close uh this one is uh uh I guess a more Microsoft question butuh I guess a more Microsoft question butuh I guess a more Microsoft question but it is it involves your investment thesisit is it involves your investment thesisit is it involves your investment thesis or investment approach to your Chineseor investment approach to your Chineseor investment approach to your Chinese Investments as has it changed as it hasInvestments as has it changed as it hasInvestments as has it changed as it has it evolvedit evolvedit evolved um given what's happening with theum given what's happening with theum given what's happening with the fundamentals of the Chinese economyfundamentals of the Chinese economyfundamentals of the Chinese economy
Todd Combsyeah I think I think China is a for me Iyeah I think I think China is a for me Iyeah I think I think China is a for me I think it's a difficult place to invest Ithink it's a difficult place to invest Ithink it's a difficult place to invest I I think that we only have uh really oneI think that we only have uh really oneI think that we only have uh really one investment I mean we still have a tinyinvestment I mean we still have a tinyinvestment I mean we still have a tiny amount of Alibaba left which is uh whichamount of Alibaba left which is uh whichamount of Alibaba left which is uh which is a mistake but we have one investmentis a mistake but we have one investmentis a mistake but we have one investment which is in the South African company
Charliewhich is in the South African company called process but in effect it's an investment in in 10 cent I mean we still own it I think 10 tencent is a very remarkable business but there are aspects of that business which are difficult for someone like me to figure out how the Chinese government thinks of them and all of that it's also a mega cap one of the issues is there's a law of large numbers so if I want to focus only on 100 baggers and you know tenth Center the 300 400 billion dollar market cap you know to get 100x we're looking at 30 40 trillion and and there are no 30 40 trillion market cap businesses anywhere on the planet they've cap out at about five percent of that number currently so that's the other thing we we may do okay on it if I find something better I would switch it cool thank you very much for your time today I think that
Questionermuch for your time today I think that brings us to the closure of the event today um would you thoroughly appreciate you taking so much time to actually speak with us today um we've learned a lot and I've learned a lot I'm sure I understand person knows a lot we're looking forward to seeing how they put their learnings into practice in a few weeks time when they do their final stock pitch um we'll see if they have DCFS or not but we'll see how that goes and then um obviously um it says a lot about person when they take time out of the day to speak with us when they have no reason to do so so it does mean everything to us that you cannot actually take time today to speak with us um we're highly appreciative and we do look forward to continuing this relationship with you and we wish you continued success I'm looking forward to more talks and all
Warrenlooking forward to more talks and all the best for future endeavors all right well thank you very much I very much enjoyed the session and some great questions and I'm sorry for the long-winded answers and the detours but hopefully you got something out of it and I wish you all the very best thank you very much thank you thank you so much bye
Otherthank you thank you thank you [Music]