Other[Music][Music]all right welcome good morning great to
Questionerall right welcome good morning great to be here Sean yeah we um you know there's a bunch of different places I could start I guess I want to are here you are a great investor but you started as a businessman I'm a businessman trying to become a great investor uh how do those two relate
Questionerwell I mean I think in our brains we actually use the exact same part of the brain in both activities so Warren Buffett has a great quote he says I'm a better investor because I'm a businessman and I'm a better businessman because I'm an investor and in his case a lot of people don't know but Warren had done a lot of different businesses in different areas before he was 17 starting when he was I think five or six years old his very first business was buying cokes from his grandfather's store at nickel a piece and then selling them at a dime a piece right buy
Questionerthem at a dime a piece right buy wholesale sell retail yeah so that was one of his first ones and one of the things that a lot of people don't understand about the way our brains work is the human brain actually when we are born it is the most underdeveloped organ when we're born because the birth canal is not wide enough so we're born with a very minimally functional brain which is why it takes you know humans of a long infancy so for the first 5 years of life the brain is the fastest growing organ that we have as humans the neuron connections are growing at a exponential rate from the age of about 11 to about 20 that window is when the brain is set up to specialize and the neuron connections get cut so they actually go down quite a bit but the brain allocates areas to hone in and specialize so you know if you think of someone like
Questionersomeone like Michelangelo or Bill Gates or even a Warren Buffett these guys started specializing at 10 and if you start writing code at the 101 and if you start writing code at the 101 and if you start writing code at the age of 10 or 11 for example like like Bill Gates did by the time time he was 20 the expertise that he had someone 20 the expertise that he had someone 20 the expertise that he had someone else starting at 20 would not be able to else starting at 20 would not be able to else starting at 20 would not be able to match him even at 50 so that tenure match him even at 50 so that tenure match him even at 50 so that tenure window is a very critical window in window is a very critical window in window is a very critical window in human development and unfortunately our human development and unfortunately our human development and unfortunately our education system doesn't recognize that education system doesn't recognize that education system doesn't recognize that and unfortunately I'm 35 so it's too and unfortunately I'm 35 so it's too and unfortunately I'm 35 so it's too late we hope there are some 11y olds late we hope there are some 11y olds late we hope there are some 11y olds listening or we hope when you have kids listening or we hope when you have kids listening or we hope when you have kids tell your kids yeah you it's not all the tell your kids yeah you it's not all the tell your kids yeah you it's not all the the the Cake's not fully baked yet so I the the Cake's not fully baked yet so I the the Cake's not fully baked yet so I think the thing with Warren was that I think the thing with Warren was that I think the thing with Warren was that I think when he was about 10 or 11 years think when he was about 10 or 11 years think when he was about 10 or 11 years old he was running a bunch of very old he was running a bunch of very old he was running a bunch of very interesting businesses what was he doing interesting businesses what was he doing interesting businesses what was he doing I've never heard these so uh yeah like I I've never heard these so uh yeah like I
QuestionerI've never heard these so uh yeah like I didn't know this backstory one one of his first businesses was he used to go to this racetrack in Omaha called aaran which is Nebraska spelled backwards and he used to publish kind of racing tips called stable boy selections basically telling you what horses to bet on and then also what he would do is when all the races had been run he'd collect all the discarded tickets on the ground and he'd go home and go through each one carefully to see if some drunk had thrown out a winning ticket and and he'd find a few he'd find a few but he was too young to go to the window to collect because under 18 so he would give them to his Aunt Alice who would go and collect for him but then you know when he was in high school his dad was a congressman so he was in Washington DC and around the age of 14 or 15 he had a very good friend in high school called
Questionervery good friend in high school called Don Danley was really smart Don Danley was really smart Don Danley was really smart he eventually was a valedictorian of the high school and Warren and Don became really good friends Danley was a tinkerer he was like very mechanically inclined and he was just a like an engineer yeah like he was just a smart guy and so one time I think Warren went to his home and he saw that Dawn's working on a pinball machine in his garage he asked Don what he's doing he said oh I just bought this pinball machine that wasn't working they gave it away I paid like 15 bucks for it and I think I can get it working and Warren asked him how much is it going to cost he said it's going to cost like $3 in parts and maybe a couple hours to get it working and then Warren says can you find more machines like this which don't work he oh yeah there's a lot of machines you can buy which people people
Othermachines you can buy which people people don't want them because they don't work don't want them because they don't work don't want them because they don't work etc so Dawn and him formed a company in etc so Dawn and him formed a company in etc so Dawn and him formed a company in their minds they never actually their minds they never actually their minds they never actually Incorporated anything they called it the Incorporated anything they called it the Incorporated anything they called it the Wilson coin operated Amusement Company Wilson coin operated Amusement Company Wilson coin operated Amusement Company and uh they went to barber shops in DC and uh they went to barber shops in DC and uh they went to barber shops in DC and these two boys you know kind of you and these two boys you know kind of you and these two boys you know kind of you know nerdy looking 15y olds they went to know nerdy looking 15y olds they went to know nerdy looking 15y olds they went to the barber and said look we work for Mr the barber and said look we work for Mr the barber and said look we work for Mr Wilson and Mr Wilson did not exist a Wilson and Mr Wilson did not exist a Wilson and Mr Wilson did not exist a fictitious character we work for Mr fictitious character we work for Mr fictitious character we work for Mr Wilson and Mr Milson has asked us to Wilson and Mr Milson has asked us to Wilson and Mr Milson has asked us to present you with a proposition that we present you with a proposition that we present you with a proposition that we can put a pinball machine in the barber can put a pinball machine in the barber can put a pinball machine in the barber shop and we'll come by once a week and shop and we'll come by once a week and shop and we'll come by once a week and whatever coins are in there we'll split whatever coins are in there we'll split whatever coins are in there we'll split it 50/50 with you half for you and half it 50/50 with you half for you and half it 50/50 with you half for you and half for Mr Wilson so the barber said yeah for Mr Wilson so the barber said yeah for Mr Wilson so the barber said yeah put it in the corner right and so Warren put it in the corner right and so Warren put it in the corner right and so Warren got danle busy fixing pinball machines got danle busy fixing pinball machines got danle busy fixing pinball machines and the two of them would go on weekends
Questionerand the two of them would go on weekends and you know get barber shops every week they're making some money and so I think he had eventually something like 40 barber shop with these machines and Warren said that the first week he went back to the first barber shop he thought he died and went to heaven so there was like5 or $6 in there and so their take was about like you know $3 on $18 of capital in one week right and he just told Don go as fast as you can Danley what are you doing right now exactly and so basically you know and Warren had all these different businesses that he was a senior partner and whoever he was working was a junior partner uh one time Danley showed him an ad for a Rolls-Royce for sale for $300 but it didn't run it was a old beat up rolls and you know people is giving away like like junk right and he thought he could
Otherlike junk right and he thought he could fix the rolls so they bought the rollsfix the rolls so they bought the rollsfix the rolls so they bought the rolls for 300 maybe another 50 bucks in partsfor 300 maybe another 50 bucks in partsfor 300 maybe another 50 bucks in parts and Danley had it running and then theyand Danley had it running and then theyand Danley had it running and then they you know spruced it up and they wouldyou know spruced it up and they wouldyou know spruced it up and they would rent it on weekends for $100 to weddingsrent it on weekends for $100 to weddingsrent it on weekends for $100 to weddings and then on the weekday the two of themand then on the weekday the two of themand then on the weekday the two of them would go to school the high school inwould go to school the high school inwould go to school the high school in the roles you know so what happened isthe roles you know so what happened isthe roles you know so what happened is Warren didn't know this but he wasWarren didn't know this but he wasWarren didn't know this but he was specializing and figuring out businessspecializing and figuring out businessspecializing and figuring out business in that window of time the 11 to 20in that window of time the 11 to 20in that window of time the 11 to 20 right and so by the time he was 19 18 orright and so by the time he was 19 18 orright and so by the time he was 19 18 or 19 I think he went to college when he19 I think he went to college when he19 I think he went to college when he was 17 by the time he was 17 when wentwas 17 by the time he was 17 when wentwas 17 by the time he was 17 when went to college he hadto college he hadto college he had $155,000 and he told his dad I'm going$155,000 and he told his dad I'm going$155,000 and he told his dad I'm going to pay for my college myselfto pay for my college myselfto pay for my college myself and he also told his dad I don't need anand he also told his dad I don't need anand he also told his dad I don't need an inheritance whatever money there isinheritance whatever money there isinheritance whatever money there is you're leaving leave it to my twoyou're leaving leave it to my twoyou're leaving leave it to my two sisters I'm good 15,000 back then is asisters I'm good 15,000 back then is asisters I'm good 15,000 back then is a lot you know dollar it's about 10 to onelot you know dollar it's about 10 to one
Questionerlot you know dollar it's about 10 to one so 150 grand 17y old yeah think aboutso 150 grand 17y old yeah think aboutso 150 grand 17y old yeah think about 17y old 15K right and at that time17y old 15K right and at that time17y old 15K right and at that time College was cheap you know and the otherCollege was cheap you know and the otherCollege was cheap you know and the other thing is that he got interested inthing is that he got interested inthing is that he got interested in investing his dad was a stock broker soinvesting his dad was a stock broker soinvesting his dad was a stock broker so he used to go to the dad's office in thehe used to go to the dad's office in thehe used to go to the dad's office in the weekends and he says that at the age ofweekends and he says that at the age ofweekends and he says that at the age of 11 he bought his first stock and he said11 he bought his first stock and he said11 he bought his first stock and he said I was wasting my time till then youI was wasting my time till then youI was wasting my time till then you know and but you know he didn't reallyknow and but you know he didn't reallyknow and but you know he didn't really have a philosophy he didn't havehave a philosophy he didn't havehave a philosophy he didn't have investing philosophy at 19 he read theinvesting philosophy at 19 he read theinvesting philosophy at 19 he read the intelligent investor by Ben Graham andintelligent investor by Ben Graham andintelligent investor by Ben Graham and that was transformational and he thoughtthat was transformational and he thoughtthat was transformational and he thought Ben Graham was this guy who you knowBen Graham was this guy who you knowBen Graham was this guy who you know died and passed away but then hedied and passed away but then hedied and passed away but then he discovered that Ben Graham was teachingdiscovered that Ben Graham was teachingdiscovered that Ben Graham was teaching at Colombia he was a professor atat Colombia he was a professor atat Colombia he was a professor at Colombia so when he finished hisColombia so when he finished hisColombia so when he finished his undergrad he applied to columb IA to goundergrad he applied to columb IA to goundergrad he applied to columb IA to go to business school there so he couldto business school there so he couldto business school there so he could learn directly from Eng Graham and he
Questionerlearn directly from Eng Graham and he joined Columbia's NBA program must have been 20 or something and then of course after that Graham hired him and isn't there some story where he tells Graham like I'll work for you for free and Ben Graham says uh your price is too high
Questionerthat's correct yeah but he still ended up convincing him somehow so actually Graham at that time Jews were very heavily discriminated against there was a lot of anti-Semitism on Wall Street so Ben Graham who was Jewish wanted to give the few jobs that he had to Jewish kids and young Jewish people because they just weren't many opportunities so he basically told Warren look I got to take care of the community but then Warren went back to Omaha and about a few months after that Graham called him and said if you want to come to New York I got something for you and Warren never
Questionergot something for you and Warren never asked him what the salary was what the position was he just took the next train into New York with his wife and they went from there and so basically you know his experience as a businessman he was very lucky it got seared in in that window of time both Warren and Charlie they can crack businesses and business models really fast and so he already had the business model down now on the investing side so when we start a business we will spend maybe three or four or 5% of our time on figuring out the strategy you know what's going to be the product Service maret pricing yeah all the how we going to make it work and all the different plans right and then 95 96 97% is all the blocking and tackling to make it happen right it's Danley fixing machines yeah exactly and so in the case of investing we use the same brain cells
Otherof investing we use the same brain cellsof investing we use the same brain cells that we use in that 3 to 5% of time andthat we use in that 3 to 5% of time andthat we use in that 3 to 5% of time and basically one of the things thatbasically one of the things thatbasically one of the things that attracted me to investing was thatattracted me to investing was thatattracted me to investing was that basically that 3% becomesbasically that 3% becomesbasically that 3% becomes 80% because we don't need a Danley we've80% because we don't need a Danley we've80% because we don't need a Danley we've got public companies and all of that andgot public companies and all of that andgot public companies and all of that and we just have to pickwe just have to pickwe just have to pick which businesses we want to ownwhich businesses we want to ownwhich businesses we want to own partially and which ones we want to ridepartially and which ones we want to ridepartially and which ones we want to ride and so on and so I think that I alwaysand so on and so I think that I alwaysand so on and so I think that I always find it strange if I run into investorsfind it strange if I run into investorsfind it strange if I run into investors who haven't been entrepreneurs because Iwho haven't been entrepreneurs because Iwho haven't been entrepreneurs because I think they're missing very key partthink they're missing very key partthink they're missing very key part right and on the other hand I find thatright and on the other hand I find thatright and on the other hand I find that entrepreneurs are very naturally alreadyentrepreneurs are very naturally alreadyentrepreneurs are very naturally already set up to be great investors if theyset up to be great investors if theyset up to be great investors if they make a couple of tweaks what what endsmake a couple of tweaks what what endsmake a couple of tweaks what what ends up happening is that we don't see a lotup happening is that we don't see a lotup happening is that we don't see a lot of entrepreneurs becoming invest s andof entrepreneurs becoming invest s andof entrepreneurs becoming invest s and we see a lot of investors who haven'twe see a lot of investors who haven'twe see a lot of investors who haven't built businesses met payroll and so bothbuilt businesses met payroll and so bothbuilt businesses met payroll and so both have flaws so if you had the Good
Questionerhave flaws so if you had the Good Fortune of having the entrepreneural experience then I think looking at the buffet Munga Frameworks it's a very easy transition right it's probably also easier to go business to investor than investor for a long time than suddenly go try to be an entrepreneur well investor to business the problem is the windows closed right so you'd be you'd be a disadvantage to start with but yeah the earlier you start on both Endeavors right the better off you are there's a great uh I don't know if you've seen this but I didn't know like I always heard okay Warren and Charlie great investors I read the shareholder letters and the shareholder letters are often um they're amazing but they're very like they're high level and they're philosophical in a way then you have um I saw this letter of Warren writing a letter to this I think the CEO
Questionerwriting a letter to this I think the CEO of C's candy I don't know if you've seen this but it's a it's a letter and it's I expected it to be very again philosophical amusing instead he's like brass tax right away he's like I went to the store and I have a few ideas for you is a very operational tactical I noticed this price point I noticed this and I was like oh he's he's a businessman like he's just like today we only think of him as one bucket but actually he's got both gears yeah actually C's is a wonderful business it taught them a lot it taught them more than they ever thought they'd learn from a stupid candy business right but one of the things Warren did when he first bought C's is he told the CEO listen you got free reain run the business like you've been running and so on so forth but on December 26th I'm going to set the
QuestionerDecember 26th I'm going to set the prices for the next year okay okay so he would sit down with the entire See's would sit down with the entire See's would sit down with the entire See's price list and he would bump all the price list and he would bump all the price list and he would bump all the prices by 10 or 15% and inflation might prices by 10 or 15% and inflation might prices by 10 or 15% and inflation might have been 3% right and so he would raise have been 3% right and so he would raise have been 3% right and so he would raise prices significantly above inflation prices significantly above inflation prices significantly above inflation and what he would observe is volumes and what he would observe is volumes and what he would observe is volumes went up and then the year after that went up and then the year after that went up and then the year after that he'd again bump it by another 10 12% and he'd again bump it by another 10 12% and he'd again bump it by another 10 12% and volume still went up and so both him and volume still went up and so both him and volume still went up and so both him and Charlie were amazed that you could have Charlie were amazed that you could have Charlie were amazed that you could have a business where you're continuously a business where you're continuously a business where you're continuously raising prices significantly above the raising prices significantly above the raising prices significantly above the rate of inflation and there's no rate of inflation and there's no rate of inflation and there's no resistance there's no resistance from resistance there's no resistance from resistance there's no resistance from the from the customer base to accepting the from the customer base to accepting the from the customer base to accepting those prices and that's what gave them a those prices and that's what gave them a those prices and that's what gave them a huge lesson in huge lesson in huge lesson in Brands and you know he was gued in the Brands and you know he was gued in the Brands and you know he was gued in the wool hardcore deep value investor it was wool hardcore deep value investor it was wool hardcore deep value investor it was really hard for them they paid three really hard for them they paid three really hard for them they paid three times Book value for See's they were times Book value for See's they were
Questionertimes Book value for C's they were choking almost when they paid thatchoking almost when they paid thatchoking almost when they paid that amount so I think the B sees for like 25amount so I think the B sees for like 25amount so I think the B sees for like 25 million looking back they could havemillion looking back they could havemillion looking back they could have paid 200 million and it would been stillpaid 200 million and it would been stillpaid 200 million and it would been still would have been a good deal yeah and cizwould have been a good deal yeah and cizwould have been a good deal yeah and ciz has sent dividends to Burkshire in thehas sent dividends to Burkshire in thehas sent dividends to Burkshire in the billions I mean it's been about 50 yearsbillions I mean it's been about 50 yearsbillions I mean it's been about 50 years since the purchase and billions ofsince the purchase and billions ofsince the purchase and billions of dollars have flown from Seas to burdollars have flown from Seas to burdollars have flown from Seas to bur which has then been used to buy a wholewhich has then been used to buy a wholewhich has then been used to buy a whole plethora of other businesses and if youplethora of other businesses and if youplethora of other businesses and if you look at their purchase of coke forlook at their purchase of coke forlook at their purchase of coke for example they put a quarter of the entireexample they put a quarter of the entireexample they put a quarter of the entire book value of bushire haway into Coke inbook value of bushire haway into Coke inbook value of bushire haway into Coke in 1988 if they had not bought se's they1988 if they had not bought se's they1988 if they had not bought se's they would have never bought Coke right sowould have never bought Coke right sowould have never bought Coke right so the lessons that they learned learnthe lessons that they learned learnthe lessons that they learned learn about branding and the power of Brandsabout branding and the power of Brandsabout branding and the power of Brands is what led to the coke investment whichis what led to the coke investment whichis what led to the coke investment which was a much bigger home run and they'vewas a much bigger home run and they'vewas a much bigger home run and they've made many more brand Investments sincemade many more brand Investments sincemade many more brand Investments since then half the portfolio is an apple
Questionerthen half the portfolio is an apple right now right yeah one of Best Brands in the world I think Warren understood this notion of consumer behavior and how powerful Brands can be and uh how powerful habits can be and then he went from there so yeah absolutely and uh one of the interesting things about ciz is that CES wasn't this fast grower it wasn't uh they bought it and then it sales exploded but what I think the the beauty of seas if I remember correctly is that it was just no additional Capital had to go in so everything was just free cash flow coming out so C's is very much a California story right I mean it was founded in California almost all the sales were in California if you look at C's from the time they bought it till today about 50 years the unit volume has gone up on average 2% a year okay California GDP probably at least in the ' 70s ' 80s
Questionerprobably at least in the ' 70s ' 80s
Otherprobably at least in the ' 70s ' 80s '90s was going up about at least four or'90s was going up about at least four or'90s was going up about at least four or 5% a year so they were actually part of5% a year so they were actually part of5% a year so they were actually part of that might have been the the pricethat might have been the the pricethat might have been the the price increases okay but even with those heavyincreases okay but even with those heavyincreases okay but even with those heavy price increases they still got theprice increases they still got theprice increases they still got the volume going up slightly yeah but whenvolume going up slightly yeah but whenvolume going up slightly yeah but when you overlay that you know you do 50you overlay that you know you do 50you overlay that you know you do 50 years of 10% that's that's a very bigyears of 10% that's that's a very bigyears of 10% that's that's a very big number right and so C's is not cheapnumber right and so C's is not cheapnumber right and so C's is not cheap today right and now what was verytoday right and now what was verytoday right and now what was very excited about being the candy mugle ofexcited about being the candy mugle ofexcited about being the candy mugle of the world so they tried really hard tothe world so they tried really hard tothe world so they tried really hard to send Seas everywhere right I mean theysend Seas everywhere right I mean theysend Seas everywhere right I mean they would open a store in Chicago and thenwould open a store in Chicago and thenwould open a store in Chicago and then fall flat on their face then they'd openfall flat on their face then they'd openfall flat on their face then they'd open in Arizona and they fall flat in placein Arizona and they fall flat in placein Arizona and they fall flat in place they repeatedly tried over and over andthey repeatedly tried over and over andthey repeatedly tried over and over and over again to broaden seas and expand itover again to broaden seas and expand itover again to broaden seas and expand it and by and large those efforts did notand by and large those efforts did notand by and large those efforts did not work even today the bulk of the volumeswork even today the bulk of the volumeswork even today the bulk of the volumes of seas is in California right and soof seas is in California right and so
Questionerof seas is in California right and so when the coke investment came about theywhen the coke investment came about theywhen the coke investment came about they found something very different than Seasfound something very different than Seasfound something very different than Seas is they knew Seas doesn't travel wellis they knew Seas doesn't travel wellis they knew Seas doesn't travel well but they could look at more than a 100ebut they could look at more than a 100ebut they could look at more than a 100e history of coke and they knew Cokehistory of coke and they knew Cokehistory of coke and they knew Coke travels really well there are twotravels really well there are twotravels really well there are two countries in the world where you can'tcountries in the world where you can'tcountries in the world where you can't get Coke North Korea and Cuba okay ifget Coke North Korea and Cuba okay ifget Coke North Korea and Cuba okay if they opened up to Coke in either ofthey opened up to Coke in either ofthey opened up to Coke in either of those two countries and Coke did notthose two countries and Coke did notthose two countries and Coke did not advertise at all sales would take offadvertise at all sales would take offadvertise at all sales would take off it's so embedded in the pop culture soit's so embedded in the pop culture soit's so embedded in the pop culture so even in countries and places whereeven in countries and places whereeven in countries and places where they've never done any branding beforethey've never done any branding beforethey've never done any branding before you know people in Pakistan or India oryou know people in Pakistan or India oryou know people in Pakistan or India or Bangladesh they're having Indian foodBangladesh they're having Indian foodBangladesh they're having Indian food with a Coke right right so it'swith a Coke right right so it'swith a Coke right right so it's ubiquitous and that did not exist withubiquitous and that did not exist withubiquitous and that did not exist with Seas candy it wasn't ubiquity and WarrenSeas candy it wasn't ubiquity and WarrenSeas candy it wasn't ubiquity and Warren understood you can't consume infiniteunderstood you can't consume infiniteunderstood you can't consume infinite amounts of candy you know there's anamounts of candy you know there's anamounts of candy you know there's an aftertaste and all that coke you can
Questioneraftertaste and all that coke you can actually consume a lot of right there's no uh what does he call it taste memory there's no aftertaste yeah yeah that's right so so I think like I said I think they move from being hardcore quantitative deep value guys to actually understanding a lot of nuances of Brands and consumer Behavior which was very fundamental to how and why bua did so well so you talked about specializing kind of that 11 to 20 years old oldish window today you've done phenomenally well you manag I don't know almost a billion dollars or maybe more who knows uh a lot of money uh and and done incredibly well investing uh did you did you do that when you were 11 to 20 or or were you a late bloomer so no actually it was just dumb luck a lot of things in my life have been dumb luck so my dad my life have been dumb luck so my dad was quintessential entrepreneur and he
Otherwas quintessential entrepreneur and he was really good so you know a great was really good so you know a great was really good so you know a great entrepreneur or one of the first traits entrepreneur or one of the first traits entrepreneur or one of the first traits you need is you need to be able to you need is you need to be able to you need is you need to be able to identify offering gaps some product or identify offering gaps some product or identify offering gaps some product or service that ought to exist but doesn't service that ought to exist but doesn't service that ought to exist but doesn't like Starbucks before Starbucks or like Starbucks before Starbucks or like Starbucks before Starbucks or McDonald's before McDonald's and so on McDonald's before McDonald's and so on McDonald's before McDonald's and so on right and so my dad was really good at right and so my dad was really good at right and so my dad was really good at figuring out that oh this product should figuring out that oh this product should figuring out that oh this product should be there but isn't and he was really be there but isn't and he was really be there but isn't and he was really good at identifying these offering gaps good at identifying these offering gaps good at identifying these offering gaps he was also really good at starting he was also really good at starting he was also really good at starting businesses from scratch and and putting businesses from scratch and and putting businesses from scratch and and putting things around them getting them going things around them getting them going things around them getting them going getting teams teams of great people getting teams teams of great people getting teams teams of great people working with them and so on but his working with them and so on but his working with them and so on but his downfall was that he was always very downfall was that he was always very downfall was that he was always very aggressive and he was always over aggressive and he was always over aggressive and he was always over levered so when the businesses were levered so when the businesses were levered so when the businesses were going he was literally taking every last going he was literally taking every last going he was literally taking every last dime of profit coming in and everything dime of profit coming in and everything dime of profit coming in and everything that he could borrow and just pounding
Otherthat he could borrow and just pounding into the growth as aggressively as possible and the the negative was that when the first headwind showed up the businesses had no staying power and so they would run into trouble India didn't really have a venture capital culture the banks were difficult so trying to get something distressed out of distress was hard and uh so my brother and I I think after we were like maybe 9 or 10 years old we were like his board of directors okay and I remember like when I'm I 10 or 11 years old my dad my brother and me would sit down in the evening and we had to figure out how to make the business survive for one more day so all the walls were caving in there were everything going bad and there were lot of moving parts and we put our heads together and we try to figure out how to make it last right and then we'd make it pass the one day and
Questionerthen we'd make it pass the one day andthen we'd make it pass the one day and the next night the same thing over rightthe next night the same thing over rightthe next night the same thing over right and so I finished many mbas before I wasand so I finished many mbas before I wasand so I finished many mbas before I was by 12 by and and I think at 15 or 16 Iby 12 by and and I think at 15 or 16 Iby 12 by and and I think at 15 or 16 I don't know why my dad did it but I'mdon't know why my dad did it but I'mdon't know why my dad did it but I'm really grateful he did he used to takereally grateful he did he used to takereally grateful he did he used to take me on sales calls and you know who takesme on sales calls and you know who takesme on sales calls and you know who takes 15 year on a sales call you it just15 year on a sales call you it just15 year on a sales call you it just doesn't fit but my dad didn't care anddoesn't fit but my dad didn't care anddoesn't fit but my dad didn't care and that was just incredible for me becausethat was just incredible for me becausethat was just incredible for me because I was getting to see I finished highI was getting to see I finished highI was getting to see I finished high school in Dubai so I was in Dubai fromschool in Dubai so I was in Dubai fromschool in Dubai so I was in Dubai from the age of 16 to actually 19 and in thatthe age of 16 to actually 19 and in thatthe age of 16 to actually 19 and in that window of time my dad had a gold jewelrywindow of time my dad had a gold jewelrywindow of time my dad had a gold jewelry business so we used to go I used to gobusiness so we used to go I used to gobusiness so we used to go I used to go with him he was manufacturing goldwith him he was manufacturing goldwith him he was manufacturing gold jewelry and he was selling it to thesejewelry and he was selling it to thesejewelry and he was selling it to these uh retail Merchants right and so he'suh retail Merchants right and so he'suh retail Merchants right and so he's going into coal calling right and I'mgoing into coal calling right and I'mgoing into coal calling right and I'm observing him going into a jewelry storeobserving him going into a jewelry storeobserving him going into a jewelry store he doesn't know them were you a silenthe doesn't know them were you a silenthe doesn't know them were you a silent Shadow or did you have a role in no no I
QuestionerShadow or did you have a role in no no I
OtherI was very silent but I was I was soaking it in and sometimes when he was traveling my brother and I would run the business so they were like all these goldsmiths and all that and we'd manage giving them the gold and taking the jewelry and all that so basically I didn't I didn't realize it then but when when I went to col I studied engineering and then I joined a telecom networking company as an as a R&D engineer and when we were working on these products I'd asked my boss so what are we going to sell this for and who's the customer and what kind of like what are you going to make on it and my boss would tell me those are all questions for marketing and sales we don't need to care about that just design the product right he didn't know the answers yeah he didn't know the answers he didn't care
Otherdidn't know the answers he didn't care right and I found that all the people I worked with the engineers didn't care I said how stupid can you be you know you you don't have the big picture the big picture interesting and exciting if you know the big picture you can change the big picture right and so what I did after 2 and a half years with the Nerds is I switched to International marketing and that was such a breath of fresh air it was so great and I my learning again Skyrocket and and I had a big Advantage because I had a very strong engineering background but I also Al had all the background for my teen years and so what I found is that I was able to connect with customers and figure out kind of what they wanted and how to really get the order much better than guys 20 years more experienced than me because they hadn't had all these experiences and
Questionerhadn't had all these experiences and they didn't think like an entrepreneurthey didn't think like an entrepreneurthey didn't think like an entrepreneur right it was just a small subset andright it was just a small subset andright it was just a small subset and later in life when I heard about Buffettlater in life when I heard about Buffettlater in life when I heard about Buffett for the first time I found a lot offor the first time I found a lot offor the first time I found a lot of commonality right I mean he had a he hadcommonality right I mean he had a he hadcommonality right I mean he had a he had a very different experience in the sensea very different experience in the sensea very different experience in the sense that he was his own entrepreneur rightthat he was his own entrepreneur rightthat he was his own entrepreneur right but one of the things that's reallybut one of the things that's reallybut one of the things that's really important is that when I look at a CEO Iimportant is that when I look at a CEO Iimportant is that when I look at a CEO I always try to find out did they run aalways try to find out did they run aalways try to find out did they run a lemonade stand when they were 12 becauselemonade stand when they were 12 becauselemonade stand when they were 12 because if they didn't run the r lemon standif they didn't run the r lemon standif they didn't run the r lemon stand they were when they were 12 they're notthey were when they were 12 they're notthey were when they were 12 they're not going to be that great at business at 30going to be that great at business at 30going to be that great at business at 30 okay the little ID Lemonade Stand has aokay the little ID Lemonade Stand has aokay the little ID Lemonade Stand has a lot of lessons and so I think when welot of lessons and so I think when welot of lessons and so I think when we have kids I think it's really importanthave kids I think it's really importanthave kids I think it's really important in that window they don't need to runin that window they don't need to runin that window they don't need to run lemonade stands but they really need tolemonade stands but they really need tolemonade stands but they really need to be doing what's going to be theirbe doing what's going to be theirbe doing what's going to be their calling right and I think that's whatcalling right and I think that's what
Questionercalling right and I think that's what the biggest responsibility of parents is the biggest responsibility of parents is the biggest responsibility of parents is they need to expose them to more of what they need to expose them to more of what they need to expose them to more of what they think their passion is you know they think their passion is you know they think their passion is you know I've done like maybe 500 plus episodes I've done like maybe 500 plus episodes I've done like maybe 500 plus episodes now of this and the podcast is name my now of this and the podcast is name my now of this and the podcast is name my first million because when we first first million because when we first first million because when we first started I would just say I was started I would just say I was started I would just say I was fascinated by the many different ways fascinated by the many different ways fascinated by the many different ways people became millionaires I thought people became millionaires I thought people became millionaires I thought that's it's cool to hear the stories so that's it's cool to hear the stories so that's it's cool to hear the stories so that's how the podcast started and along that's how the podcast started and along that's how the podcast started and along the way I noticed three common things of the way I noticed three common things of the way I noticed three common things of what you were doing in your teens what you were doing in your teens what you were doing in your teens because I used to ask this question I because I used to ask this question I because I used to ask this question I was like you know you're amazing now if was like you know you're amazing now if was like you know you're amazing now if I met you when you were 14 what were you I met you when you were 14 what were you I met you when you were 14 what were you doing and would I have known that you doing and would I have known that you doing and would I have known that you were going to go on to do things and were going to go on to do things and were going to go on to do things and most people are very humbled they're most people are very humbled they're most people are very humbled they're like oh you wouldn't have known but then like oh you wouldn't have known but then like oh you wouldn't have known but then when I say what were you doing it's when I say what were you doing it's when I say what were you doing it's always something that no other 13 or 14
Questioneralways something that no other 13 or 14y old is doing it's like oh yeah I used to go to the shop and I found these uh you know these CDs Rosetta Stone that I could go sell for 3x on eBay and I made an ebay account or I you know I started buying shoes and flipping them so it was always like eBay flipping or sneaker flipping is like a a super common one another one was competitive video games because a lot of the strategy you know communication collaboration um you know just extreme competitiveness gets built in there and um and there's a couple others but another one is like a Mormon Mission so Mormons who go and have to sell you know Jesus to to a bunch of people get rejected a, times in two years they become incredible salespeople and so you you you see these backgrounds where oh you were kind of forged at an early age to to do this well we have a
Questionerearly age to to do this well we have a common friend you know s baly right and you you interviewed him for your podcast and S was an entrepreneur at the age of eight or nine you know maybe even earlier than that he was selling uh greeting cards he was making and selling on street corners right you know and then by the time he was 11 or 12 I think he was uh riding code and make a website you know and uh went from there right you know yeah and so you uh how did you make your money so you um you know people want to be investor but you know there's sort of this well don't I need to have a lot of money before I do this talk to me about kind of your give me the highlights of your progression in terms of your own ability to to generate money and then start to invest it well
Otherso I actually never ever wanted to be an entrepreneur I never wanted to start a
Questionerentrepreneur I never wanted to start a business because I had seen so much turmoil in my childhood right and I remember I was like 24 or 25 years old and my dad was visiting me I was living in Chicago and he tells me it's time to quit and start your own business so I said you know have you forgotten have you forgotten my childhood and you know all the ups and downs he so my dad just said oh that's what makes life great right but he said look the company you're you're in my the business I work for at 2,000 people he said you're such a tiny Co Cog in a such a big wheel you could drop dead tomorrow they won't even miss you okay you don't matter and what you really want to to be doing is figure out something where there's an offering Gap and go for it right and I was actually getting a little bit frustrated at work because the company had been growing it was
Questionerthe company had been growing it was getting more and more bureaucratic and so I actually started to think about what might be possible and I didn't have any money you know basically I was 24 25 so what I did is I came up with some IT services offerings that I thought would be pretty unique because that time client server Computing was just getting going early '90s so I had about $330,000 in my 401k and I said okay we'll worry about retirement later and we'll pay the penalty I pulled that out nice and I applied for every credit card I could get my hands on so I had seven ,000 available to me in different credit limits in credit cards and so I said okay we've got up to 100,000 that we can play with and the third thing that I did is I basically did both I was going to my job and I had started my company at the same time because basically what I
Questionerthe same time because basically what I would do is like from like 6:00 to 9:00 in the morning I'd work on my business and then from 6:00 p.m. till midnight I work on my business again and weekend right but somebody was paying the rent I still had a paycheck and all that and I said okay once we have enough Revenue clients profit I can quit right and and I always tell people that basically if you think about it there's 168 hours in a week your employer needs you for 40 right and if you live close to work or work remote the commute time is not that much and even if you take out time for eating sleeping everything else else you have at least another 4050 hours that you can engage on something other than work right and I used to always get great reviews when I was starting my business I said okay look the plan is to not get fired the plan is not to be
Othernot get fired the plan is not to be employee of the year okay right I don't need to overshoot so I said I'm going to give them just enough so I'm just above firing level you know where it's not so bad that they call me and terminate me I need to be above that okay and I did this for about 9 months and then I had clients revenue and all that and I went into my boss and his boss and I resigned right and uh they they said you know Mish we really couldn't figure out last N9 months like you checked out I said exactly I said my my goal was to just do enough so I didn't get fired but he said she said yeah we saw a big drop in the old moish and the new moish and we talked about it and we actually said it's not so bad that we would fire him but there's something off we could we couldn't figure it out right and then so I explained to them I was going into a
QuestionerI explained to them I was going into a business my own business was not comparative with theirs and so they said look when your business fails not if your business fails when your business fails you can come back we're going to give you more money we're going to promote you and you're going to do great so I said you know my plan was that if I failed when I was going to my business if I failed I said look I got my degree I can look for a job I can apply for personal bankruptcy clean everything off and start over right I said this is even better I don't have to look for a job right I get more money right and so I actually felt like the you know people think there's a people have a a false mental model people think entrepreneurs take risk entrepreneurs do not take risk they do everything in their power to minimize risk if you think about
Questionerminimize risk if you think about Buffet's pinball machine business whatBuffet's pinball machine business whatBuffet's pinball machine business what was the risk those two 14y olds San 14was the risk those two 14y olds San 14was the risk those two 14y olds San 14 year olds took nothing okay is $15 in ayear olds took nothing okay is $15 in ayear olds took nothing okay is $15 in a pinball machine which they could usepinball machine which they could usepinball machine which they could use themselves worst Cas scenario $3 $3 inthemselves worst Cas scenario $3 $3 inthemselves worst Cas scenario $3 $3 in parts so the second pinball machine willparts so the second pinball machine willparts so the second pinball machine will only get bought when the first one'sonly get bought when the first one'sonly get bought when the first one's already producing cash right and thealready producing cash right and thealready producing cash right and the third third one after the second one sothird third one after the second one sothird third one after the second one so basically there's no risk right if itbasically there's no risk right if itbasically there's no risk right if it fails they sell those machines for morefails they sell those machines for morefails they sell those machines for more than they bought them entrepreneurs arethan they bought them entrepreneurs arethan they bought them entrepreneurs are actually great risk reducers they startactually great risk reducers they startactually great risk reducers they start with something that seems risky but sowith something that seems risky but sowith something that seems risky but so that's the other thing that is athat's the other thing that is athat's the other thing that is a commonality between entrepreneurs andcommonality between entrepreneurs andcommonality between entrepreneurs and value investors which is why the samevalue investors which is why the samevalue investors which is why the same brain cells get used both are trying tobrain cells get used both are trying tobrain cells get used both are trying to minimize risk you know we as valueminimize risk you know we as valueminimize risk you know we as value investors want to go lowrisk high returninvestors want to go lowrisk high returninvestors want to go lowrisk high return and great entrepreneurs that's exactlyand great entrepreneurs that's exactlyand great entrepreneurs that's exactly what they doing they're going lowrisk
Otherwhat they doing they're going lowriskwhat they doing they're going lowrisk high return nobody is doing highriskhigh return nobody is doing highriskhigh return nobody is doing highrisk High return so if you look at the UnitedHigh return so if you look at the UnitedHigh return so if you look at the United States probably around a millionStates probably around a millionStates probably around a million businesses more than a millionbusinesses more than a millionbusinesses more than a million businesses a year get formed in thebusinesses a year get formed in thebusinesses a year get formed in the United States venture-backed businessesUnited States venture-backed businessesUnited States venture-backed businesses are less than much less than even 1% ofare less than much less than even 1% ofare less than much less than even 1% of that Pi might be in most years less thanthat Pi might be in most years less thanthat Pi might be in most years less than one tenth of 1% right so if there was noone tenth of 1% right so if there was noone tenth of 1% right so if there was no venture capital and no Venture backventure capital and no Venture backventure capital and no Venture back businesses it would make no differencebusinesses it would make no differencebusinesses it would make no difference to the landscape okay we still have theto the landscape okay we still have theto the landscape okay we still have the million businesses being formed Venturemillion businesses being formed Venturemillion businesses being formed Venture back businesses are a different animalback businesses are a different animalback businesses are a different animal because they are high risk High returnbecause they are high risk High returnbecause they are high risk High return right the what the VC wants you to doright the what the VC wants you to doright the what the VC wants you to do the VC's got 10 bets he doesn't carethe VC's got 10 bets he doesn't carethe VC's got 10 bets he doesn't care whether your bet works or not he justwhether your bet works or not he justwhether your bet works or not he just wants one of those 10 to work yeah so hewants one of those 10 to work yeah so hewants one of those 10 to work yeah so he wants you to step on the gas aswants you to step on the gas aswants you to step on the gas as aggressively as possible if you blow upaggressively as possible if you blow upaggressively as possible if you blow up you blow up right when you're an
Questioneryou blow up right when you're an entrepreneur who's not Venture backed that is not how you go you don't put on the gas are very careful about downside protection so what happened even some of the big uh big entrepreneurs who Richard Branson oh I think is the people see him as this free you know risk taker Reckless sort of guy but you you've pointed out that that's not true about Richard Branson in this case if you think about one of the stories I love about Branson is when he had the idea to start Virgin Atlantic Airline right the minimum that you need to start transatlantic service is a Boeing 747 okay couple hundred million dollars right and Branson got Virgin Atlantic off the ground with no money so what he did is he calls directory assistance in the United States 5551 1212 in Seattle 206 5551 1212 ask for the number for boing okay gets the number for Boeing
Otherboing okay gets the number for Boeing calls the main switchboard and says um calls the main switchboard and says um calls the main switchboard and says um I'd like to lease a 747 that you guys I'd like to lease a 747 that you guys I'd like to lease a 747 that you guys might have hanging around that you're might have hanging around that you're might have hanging around that you're not using they hang up on him right okay not using they hang up on him right okay not using they hang up on him right okay keeps calling them and finally the lady keeps calling them and finally the lady keeps calling them and finally the lady of switchboard says let me transfer you of switchboard says let me transfer you of switchboard says let me transfer you to someone who can get rid of you to someone who can get rid of you to someone who can get rid of you properly right so she transer him to properly right so she transer him to properly right so she transer him to someone who's head of like commercial someone who's head of like commercial someone who's head of like commercial sales and so this guy tells him listen sales and so this guy tells him listen sales and so this guy tells him listen Mr Mr Mr Branson in every country we have one Branson in every country we have one Branson in every country we have one customer and you are not the customer in customer and you are not the customer in customer and you are not the customer in the UK it's British Airways and so the UK it's British Airways and so the UK it's British Airways and so therefore there's nothing to talk about therefore there's nothing to talk about therefore there's nothing to talk about so Richard tells them listen I agree so Richard tells them listen I agree so Richard tells them listen I agree with you that's fine but just humor me with you that's fine but just humor me with you that's fine but just humor me for a second do you have a old Boeing for a second do you have a old Boeing for a second do you have a old Boeing 747 lying around that you're not using 747 lying around that you're not using 747 lying around that you're not using and he says yeah actually we do and if and he says yeah actually we do and if and he says yeah actually we do and if one of your customers like the one in one of your customers like the one in one of your customers like the one in the UK called you like British IIs the UK called you like British IIs
Warrenthe UK called you like British IIs called you and they wanted a plane whatcalled you and they wanted a plane whatcalled you and they wanted a plane what would you lease it for so he says well Iwould you lease it for so he says well Iwould you lease it for so he says well I really don't need to have thisreally don't need to have thisreally don't need to have this conversation but we would lease it forconversation but we would lease it forconversation but we would lease it for about 200,000 a month okay 2 or 300,000about 200,000 a month okay 2 or 300,000about 200,000 a month okay 2 or 300,000 a month and Branson was able to convincea month and Branson was able to convincea month and Branson was able to convince Boeing to lease him that 747 because heBoeing to lease him that 747 because heBoeing to lease him that 747 because he was sitting and doing nothing then whenwas sitting and doing nothing then whenwas sitting and doing nothing then when he set up Virgin Atlantic he said youhe set up Virgin Atlantic he said youhe set up Virgin Atlantic he said you get paid for all the future flights inget paid for all the future flights inget paid for all the future flights in advance because people buy tickets soadvance because people buy tickets soadvance because people buy tickets so the plane's going to fly in April peoplethe plane's going to fly in April peoplethe plane's going to fly in April people already bought tickets in February rightalready bought tickets in February rightalready bought tickets in February right so you say I got cash coming in 2 monthsso you say I got cash coming in 2 monthsso you say I got cash coming in 2 months 3 months before the pl plan's going to3 months before the pl plan's going to3 months before the pl plan's going to fly and I'm going to pay for the fuel 30fly and I'm going to pay for the fuel 30fly and I'm going to pay for the fuel 30 days after that plane lands okay so hedays after that plane lands okay so hedays after that plane lands okay so he had negative working capital and thehad negative working capital and thehad negative working capital and the lease payment is also in areas right solease payment is also in areas right solease payment is also in areas right so basically he was able to get Virginbasically he was able to get Virginbasically he was able to get Virgin Atlantic off the ground with zero EquityAtlantic off the ground with zero Equity
OtherAtlantic off the ground with zero Equity right now the way I look at it is thatright now the way I look at it is thatright now the way I look at it is that if if you can start an airline with noif if you can start an airline with noif if you can start an airline with no money you can start any business with nomoney you can start any business with nomoney you can start any business with no money right okay you you just have tomoney right okay you you just have tomoney right okay you you just have to replace Capital with creative thinkingreplace Capital with creative thinkingreplace Capital with creative thinking right and so I think that when we lookright and so I think that when we lookright and so I think that when we look at the non-venture back businesses youat the non-venture back businesses youat the non-venture back businesses you know the Chinese restaurant the lrat theknow the Chinese restaurant the lrat theknow the Chinese restaurant the lrat the pinball machine business all of thesepinball machine business all of thesepinball machine business all of these right the common theme is that theyright the common theme is that theyright the common theme is that they really don't take risk and they havereally don't take risk and they havereally don't take risk and they have upside even when you know Michael Dellupside even when you know Michael Dellupside even when you know Michael Dell is here in Austin you know when he wasis here in Austin you know when he wasis here in Austin you know when he was going to UT Austin as a freshman hisgoing to UT Austin as a freshman hisgoing to UT Austin as a freshman his parents were driving him to UT Austin heparents were driving him to UT Austin heparents were driving him to UT Austin he had three computers in the back seat andhad three computers in the back seat andhad three computers in the back seat and he was you know he was fiddling withhe was you know he was fiddling withhe was you know he was fiddling with computers and making them and sellingcomputers and making them and sellingcomputers and making them and selling them and that's what he started doing inthem and that's what he started doing inthem and that's what he started doing in his dorm room and we have now Dellhis dorm room and we have now Dellhis dorm room and we have now Dell computers you know so that's just acomputers you know so that's just acomputers you know so that's just a story that got repeated over and over
Questionerstory that got repeated over and over well one of the best ones you've told is well one of the best ones you've told is well one of the best ones you've told is uh answers the following question how is uh answers the following question how is uh answers the following question how is it possible that 0.1% of the population it possible that 0.1% of the population it possible that 0.1% of the population owns almost 70% of all the motels in owns almost 70% of all the motels in owns almost 70% of all the motels in America I think this is an incredible America I think this is an incredible America I think this is an incredible story can you explain how is that story can you explain how is that story can you explain how is that possible
Questioneryeah so you know when we look at East Africa and there's a country at East Africa and there's a country at East Africa and there's a country called Uganda in East Africa and in the called Uganda in East Africa and in the called Uganda in East Africa and in the early ' 70s a dictator came to power in early ' 70s a dictator came to power in early ' 70s a dictator came to power in Uganda iam in and iam in noticed that in Uganda iam in and iam in noticed that in Uganda iam in and iam in noticed that in Uganda most of the businesses were Uganda most of the businesses were Uganda most of the businesses were controlled by East Asians Indians patels controlled by East Asians Indians patels controlled by East Asians Indians patels they control like 80% of the economy and they control like 80% of the economy and they control like 80% of the economy and these patels had come to Uganda they these patels had come to Uganda they these patels had come to Uganda they were brought to Uganda about 100 years were brought to Uganda about 100 years were brought to Uganda about 100 years ago to work on the ra Road almost as ago to work on the ra Road almost as ago to work on the ra Road almost as slaves right but because they're natural slaves right but because they're natural slaves right but because they're natural entrepreneurs they they went from entrepreneurs they they went from entrepreneurs they they went from railroad Builders to eventually owning railroad Builders to eventually owning railroad Builders to eventually owning and controlling his own economy and he and controlling his own economy and he and controlling his own economy and he
Questionerand controlling his own economy and he was pissed so ID Amin said Africa is for Africans and you guys are not Africans and these patels had been in Uganda for three or four generations that was their home they were ugandans citizens you know born and raised right and what he did is he nationalized all their businesses and he threw through out of the country which just means took their businesses right he just took them yeah yeah he basically confiscated all not their businesses homes everything confiscated all the assets and he told them you got 90 days to leave the country so these these patels in Uganda were stateless okay you you're being thrown out you know you're citizen of a country the country is throwing you out right they lost all their money so they were able to convert a very little small sliver of their assets into gold and the United States took some patels as
QuestionerUnited States took some patels asUnited States took some patels as refugees the UK took them Canada tookrefugees the UK took them Canada tookrefugees the UK took them Canada took them India surprisingly refused to takethem India surprisingly refused to takethem India surprisingly refused to take the Patel refused to recognize thethe Patel refused to recognize thethe Patel refused to recognize the patels had any right to return to Indiapatels had any right to return to Indiapatels had any right to return to India because they said you haven't been herebecause they said you haven't been herebecause they said you haven't been here for 100 years and India was at that timefor 100 years and India was at that timefor 100 years and India was at that time dealing with the Bangladesh Refugeedealing with the Bangladesh Refugeedealing with the Bangladesh Refugee crisis so it couldn't deal with anythingcrisis so it couldn't deal with anythingcrisis so it couldn't deal with anything more a small number ofmore a small number ofmore a small number of a few thousand of them came into thea few thousand of them came into thea few thousand of them came into the United States in the early '70s theUnited States in the early '70s theUnited States in the early '70s the refugees they didn't have skills thererefugees they didn't have skills thererefugees they didn't have skills there where they could get great jobs theywhere they could get great jobs theywhere they could get great jobs they didn't have they spoke English with adidn't have they spoke English with adidn't have they spoke English with a funny accent and um they realized thatfunny accent and um they realized thatfunny accent and um they realized that look if we buy a really small motel 10look if we buy a really small motel 10look if we buy a really small motel 10 12 14 room Motel the family can live in12 14 room Motel the family can live in12 14 room Motel the family can live in one or two rooms motels are laborone or two rooms motels are laborone or two rooms motels are labor intensive the family can do all the workintensive the family can do all the workintensive the family can do all the work you know it's a job and a house togetheryou know it's a job and a house togetheryou know it's a job and a house together yeah so basically cooking cleaning frontyeah so basically cooking cleaning frontyeah so basically cooking cleaning front desk laundry what they started doing is
Questionerdesk laundry what they started doing is they would buy these motels and basically fire all the staff and move in into two of the rooms and because they had no costs they were able to charge nightly rates that were lower that all the neighboring motels so what would happen is that the pel owned Motel would be running 100% occupancy the other motels couldn't match that rate because they lose money right right because they they had staff workers comp and staff and all that stuff right and what the Patel started to do and they Patel were very frugal they basically were vegetarians uh at that time in the US if you were vegetarian you really host you couldn't really eat out anywhere so by uh they were forced to just cook themselves which was cheap right so there wasn't much of a grocery bill and what they started doing is as their nephew came of age for example
Questionertheir nephew came of age for example they would help him out to buy his own Motel right and then the nephew would get it going and then the next one the next one and you run this for 50 years and you end up with 70% of the motels in the country under Patel ownership not only that they've actually gone up market now so a lot of the Hilton Marriotts westerns if you really look you'll find it's under Patel ownership right same math they always are very good operators and then they went into 7-Eleven lro mats Dunkin Donuts all of it you name it and um but bottom line was that these were entrepreneurs that were lowcost producers right lowcost producers have an inherent advantage and I remember when I first met Charlie he had read my book and we were discussing the patels he says yeah you know I got some friends in the motel business I just tell them
Questionerin the motel business I just tell them don't ever ever try to compete with a Patel if you ever find yourself in competition with the Patel Just find another game to play just move on it's not worth it so you said you met Charlie um that's got to be kind of a surreal thing for you uh to have met and become friends with Charlie Munger and Warren Buffett uh how does that happen how does that come about it shouldn't happen you know I was this squatty kid who grew up in the suburbs of Mumbai and I accidentally heard a Warren Buffett in the mid90s and it was a big aha moment for me at that time I was lucky the first couple of biographies on him had come out and what I realized is when I read about how Warren was investing I said all these models are the same models that an entrepreneur uses it's the same exactly what I was saying that you know better a
Questionerwhat I was saying that you know better a businessman because I'm an entrepreneur and vice versa so I said you know but the big Advantage he seems to have is that 4% of time of strategy is 80% time for him and even in the business I had created the it business which had grown and scaled I always enjoyed the 4% more I was strategy the figur I was happy doing sales calls and you know building teams and all that that was that was great do it once but I what I really enjoyed was and because the business was moving so fast I had to literally read do our Direction every two or 3 years because everything would change right and I really enjoyed the time that I was figuring things out I said wow if I go into investing it would be 80% of my time because there's no blocking and tackling someone else is doing that and so me that for me that was a big aha
Questionerso me that for me that was a big aha moment that I should switch and so I did make the I was lucky in in the mid90s just when I was getting my arms around the Buffett model and all that that someone bought a small portion of my business after taxes after everything I got a million dollars and I for the first time had money in the bank right and I didn't really need the million right so I said okay what we're going to do is we're going to take this million we're going to invest in the public markets and we're going to find out if we can actually do this you know this you know an idea is like an everyone has one okay ideas don't mean anything right so you really have to execute it's really execution on the idea that has value you know entrepreneurs get kind of hung up on oh I need to get a patent and all that one of the things you have to understand is
Otherof the things you have to understand is you can go to your most direct competitors you can tell them all your Trade Secrets they will listen to you really carefully and they will not change Behavior okay so you don't need patents for anything you don't the ideas don't mean anything it's really the execution so basically I said okay let's take the million let's start investing it let's figure out what happens and I was surprised we did really well I think that from like 95 to 2000 5year period that million became about 13 million and I said wow well done Mish and uh so I got 70% a year compounded yeah and um so I was doing investing part-time while I was running my it business I was much more interested in the investing side losing interest on the business side till that point when in 1999 I didn't even feel like going into work I I said this is I I just want to
Otherwork I I said this is I I just want to just focus on investing I made a couple of big changes then I looked for and found a CEO to run my company and basically 134 million I felt was enough to retire do nothing you know I could do investing full-time right and so my plan was okay someone can run the business whatever value is there is is there it doesn't matter I I can go off and just now do investing full-time and I had a few friends I used to just give them stock tips you know in the mid99s i' find some company and make the investment after that I didn't care who bought the stock right I mean I already bought it right and so I tell my friends hey you know I found this company you want to uh see if you want to take a take a flyer on it and buy it and so on and they did really well on the stock tips right but you know some guys worth
Questionertips right but you know some guys worth like 5 million like 5 million like 5 million they would put 10,000 into what I told them right and they would triple their them right and they would triple their them right and they would triple their money wouldn't make any difference right money wouldn't make any difference right money wouldn't make any difference right so a bunch of these friends came to me so a bunch of these friends came to me so a bunch of these friends came to me and said look we don't like this and said look we don't like this and said look we don't like this randomness of these stock tips we don't randomness of these stock tips we don't randomness of these stock tips we don't see you sometimes and you may have sold see you sometimes and you may have sold see you sometimes and you may have sold we don't know we want you to manage some we don't know we want you to manage some we don't know we want you to manage some money for us and so they were proposing money for us and so they were proposing money for us and so they were proposing giving me $100,000 each and it would be giving me $100,000 each and it would be giving me $100,000 each and it would be a million dollars in all right and I a million dollars in all right and I a million dollars in all right and I said okay I'll do it I thought of it as said okay I'll do it I thought of it as said okay I'll do it I thought of it as a hobby I didn't even think about a fund a hobby I didn't even think about a fund a hobby I didn't even think about a fund but I want to do it in a format that but I want to do it in a format that but I want to do it in a format that works for me so I love the buffet works for me so I love the buffet works for me so I love the buffet Partnerships where he didn't charge Partnerships where he didn't charge Partnerships where he didn't charge management fees he only charge management fees he only charge management fees he only charge performance fees so so what's a normal performance fees so so what's a normal performance fees so so what's a normal structure and then what did Warren do so structure and then what did Warren do so structure and then what did Warren do so a normal hedge fund would be a 2 and 20 a normal hedge fund would be a 2 and 20 a normal hedge fund would be a 2 and 20 structure they would take 2% of assets structure they would take 2% of assets
Questionerstructure they would take 2% of assets as a management fee for breathing everyas a management fee for breathing everyas a management fee for breathing every year every year yeah and then uh 20% ofyear every year yeah and then uh 20% ofyear every year yeah and then uh 20% of the profits right so if a if a hedgethe profits right so if a if a hedgethe profits right so if a if a hedge fund for example let's say has a billionfund for example let's say has a billionfund for example let's say has a billion billion dollars under management rightbillion dollars under management rightbillion dollars under management right the general Partners would take $20the general Partners would take $20the general Partners would take $20 million a year for breathing formillion a year for breathing formillion a year for breathing for breathing and then if if it went up 10%breathing and then if if it went up 10%breathing and then if if it went up 10% so they would make 100 million forso they would make 100 million forso they would make 100 million for example on the billion they'd takeexample on the billion they'd takeexample on the billion they'd take another 20 million on that so basicallyanother 20 million on that so basicallyanother 20 million on that so basically what would happen is the investor whowhat would happen is the investor whowhat would happen is the investor who put up the money on a 10% return gets aput up the money on a 10% return gets aput up the money on a 10% return gets a 6% return right below the S&P right6% return right below the S&P right6% return right below the S&P right right because of all these frictionalright because of all these frictionalright because of all these frictional costs so Buffett had run his partnershipcosts so Buffett had run his partnershipcosts so Buffett had run his partnership by saying that there's no management feeby saying that there's no management feeby saying that there's no management fee the first 6% returns go to you and abovethe first 6% returns go to you and abovethe first 6% returns go to you and above that I'll take 1/4 and you take 34 so inthat I'll take 1/4 and you take 34 so inthat I'll take 1/4 and you take 34 so in the same situation if the fund is upthe same situation if the fund is upthe same situation if the fund is up 10% in Buffett's case the first 6010% in Buffett's case the first 6010% in Buffett's case the first 60 million goes to the investors and the
Othermillion goes to the investors and the remaining 40 million is split so it becomes 10 million to him and 30 million to the investors right so it's a it's a better it's a half the fee basically and you're you're paying for performance if he's not up that much you don't pay anything so like that structure and so I told them I want to set up a fund so it's all legal and we will do it with that structure this they really didn't care what structure it was and so PAB funds really started in 99 as a hobby with me and my buddies and I had 13 million on the side which was my main focus and I said yeah the there's another million here it's okay if I find something I can buy for both it makes no difference right and about a year after that there was about 2 and a half million we were up like 70% the first year and some more money had come in and
Otheryear and some more money had come in and I said you know why do I treat the fund
OtherI said you know why do I treat the fund
OtherI said you know why do I treat the fund like a stepchild why don't I think of it
Otherlike a stepchild why don't I think of it
Otherlike a stepchild why don't I think of it like a real business and why don't I
Otherlike a real business and why don't I
Otherlike a real business and why don't I basically grow and scale it like a real
Otherbasically grow and scale it like a real
Otherbasically grow and scale it like a real business I started to do that and P
Otherbusiness I started to do that and P
Otherbusiness I started to do that and P funds we had a very good run for the
Otherfunds we had a very good run for the
Otherfunds we had a very good run for the first eight or nine years I think we
Otherfirst eight or nine years I think we
Otherfirst eight or nine years I think we were doing like mid-30s a year on
Otherwere doing like mid-30s a year on
Otherwere doing like mid-30s a year on average no down years and the assets
Otheraverage no down years and the assets
Otheraverage no down years and the assets grew we were at about I think in 200 7
Othergrew we were at about I think in 200 7
Othergrew we were at about I think in 200 7 we were at about 600 million in assets
Otherwe were at about 600 million in assets
Otherwe were at about 600 million in assets under management and I had made a lot of
Otherunder management and I had made a lot of
Otherunder management and I had made a lot of money uh you know the fees and the
Othermoney uh you know the fees and the
Othermoney uh you know the fees and the compounding and all of that so in like a
Othercompounding and all of that so in like a
Othercompounding and all of that so in like a 10-year period you turned the million
Other10-year period you turned the million
Other10-year period you turned the million dollars of managed money into about 600
Otherdollars of managed money into about 600
Otherdollars of managed money into about 600 million of assets and management
Othermillion of assets and management
Othermillion of assets and management including new money yeah yeah it wasn't
Otherincluding new money yeah yeah it wasn't
Otherincluding new money yeah yeah it wasn't all it wasn't just organic but the
Otherall it wasn't just organic but the
Otherall it wasn't just organic but the original Money had almost tripled right
Otheroriginal Money had almost tripled right
Otheroriginal Money had almost tripled right you know tripled or drup in that period
Otheryou know tripled or drup in that period
Otheryou know tripled or drup in that period I had asked you yesterday when we were
QuestionerI had asked you yesterday when we were hanging out I said uh you know there's really two questions when you hear the story number one how the hell were you getting these returns so what what what did you know about invest what was that part but the second part is how' you what' you do on the fundraising side how'd you get so many so much more money to come through the door and You' had a great line about that uh about how you get more money to come through the door because you didn't strike me as a a guy who wanted to be out there fundraising and knocking on doors and trying to raise funds so how does it happen
OtherBuffett has a great great quote he says that if you are in a rowboat in the middle of the Atlantic they will swim to you in shock and infested waters to invest with you if you have beaten the market right they will find you he says
Questionermarket right they will find you he says you could be a leper and they will invest with you that's what happened and also one of the things that was very difficult for me was that the SEC has a lot of rules and laws around hedge funds one of those is you cannot solicit the general public right so when I was running my it business I could call on any CIO and say Hey you know would you like to use our services Etc I could literally call anyone out of the phone book when you're running a fund you can't just get a list of dentists in North Carolina and pound them that's not legal you can't do that so the SEC said you can only talk to people you know okay I said the people I know I'm going to run out of my rodex in like five minutes you know there's very few people I know so what I did is I started to meet my investors once a year uh for an annual meeting where I would give them
Otherannual meeting where I would give themannual meeting where I would give them their results and take their questionstheir results and take their questionstheir results and take their questions and all of that and I told told themand all of that and I told told themand all of that and I told told them listen there was one reason and onelisten there was one reason and onelisten there was one reason and one reason alone you were put on planetreason alone you were put on planetreason alone you were put on planet Earth and that is to bring assets to PEarth and that is to bring assets to PEarth and that is to bring assets to P Bri funds okay humans are always lookingBri funds okay humans are always lookingBri funds okay humans are always looking for a calling they are looking for somefor a calling they are looking for somefor a calling they are looking for some cult leader to follow and be part ofcult leader to follow and be part ofcult leader to follow and be part of cult okay so you gave them one so yeahcult okay so you gave them one so yeahcult okay so you gave them one so yeah you know they were they were wanderingyou know they were they were wanderingyou know they were they were wandering in the wilderness they needed purposein the wilderness they needed purposein the wilderness they needed purpose okay so I said here's what you need tookay so I said here's what you need tookay so I said here's what you need to do you need to go talk to your friendsdo you need to go talk to your friendsdo you need to go talk to your friendsand family because I can't talk to themand family because I can't talk to themand family because I can't talk to them the SEC won't let me talk to them youthe SEC won't let me talk to them youthe SEC won't let me talk to them you can talk to them okay you talk to themcan talk to them okay you talk to themcan talk to them okay you talk to them you tell them about me you tell them toyou tell them about me you tell them toyou tell them about me you tell them to contact me once they contact me I cancontact me once they contact me I cancontact me once they contact me I can engage with them okay so go out andengage with them okay so go out andengage with them okay so go out and spread the word okay and send me more ofspread the word okay and send me more ofspread the word okay and send me more of your assets too okay so basically whatyour assets too okay so basically what
Questioneryour assets too okay so basically what like I said I started with a million alike I said I started with a million alike I said I started with a million a year later it's two and a half million 2year later it's two and a half million 2year later it's two and a half million 2 years later it's 10 million and it'syears later it's 10 million and it'syears later it's 10 million and it's growing and part of it was that thegrowing and part of it was that thegrowing and part of it was that the annual returns are adding but part of itannual returns are adding but part of itannual returns are adding but part of it was that so I had eight investors when Iwas that so I had eight investors when Iwas that so I had eight investors when I started a year later there were 17 andstarted a year later there were 17 andstarted a year later there were 17 and two years later they were 25 so now Itwo years later they were 25 so now Itwo years later they were 25 so now I had an audience of 25 to prze and spreadhad an audience of 25 to prze and spreadhad an audience of 25 to prze and spread the word you know and of course thethe word you know and of course thethe word you know and of course the results now the other thing that wasresults now the other thing that wasresults now the other thing that was happening is that when I started thehappening is that when I started thehappening is that when I started the funds infunds infunds in 1999 we were 9 months away from the1999 we were 9 months away from the1999 we were 9 months away from the biggest bubble about to burst that hadbiggest bubble about to burst that hadbiggest bubble about to burst that had happened in decades the bubble right andhappened in decades the bubble right andhappened in decades the bubble right and I was able to see the bubble not veryI was able to see the bubble not veryI was able to see the bubble not very much in advance of the rest of the worldmuch in advance of the rest of the worldmuch in advance of the rest of the world maybe just two or 3 months ahead I knewmaybe just two or 3 months ahead I knewmaybe just two or 3 months ahead I knew the internet wasthe internet wasthe internet was transformational but I also knew thattransformational but I also knew thattransformational but I also knew that the Euphoria was too much you know wethe Euphoria was too much you know wethe Euphoria was too much you know we had pets.com trading at multi-billion
Questionerhad pets.com trading at multi-billion Dollar valuations with no revenues right
QuestionerI mean there was just common to have a lot of companies people were counting eyeballs then not counting dollars and they're not looking at net income they're not even looking at Revenue they're just looking at eyeballs right
Questionerso I said okay this is bad news it will blow at some point it's going to the bubble's going to burst I didn't know when so I had always been a tech investor from like the mid90s and I had done really well Tech had had a great run from 95 to 2000 it had just done really well and I ridden that coat tail but what I did in 99 when the fund started and also with my own capital is I did a 180 I switched completely to Classic Ben Graham deep value you know what Buffett had started doing in the 50s and one of the things that was happening in the equity markets at that
Questionerhappening in the equity markets at that time was the day the NASDAQ peaked I think March 8th or March 9th 2000 was the day that Burkshire hit a multi-year low and literally people were pulling money out of their Burkshire stock and buying pets.com right and then then that goes to Z eventually and so I said okay basically there's a lot of basic businesses that had become really cheap because nobody was interested so I was buying Funeral Homes at two times earnings and buying steel companies at three times earnings and so a lot of basic businesses which are very predictable and doing well trading really cheap and so PAB funds did really well in fact the NASDAQ imploded basically it hit 5,000 in March 2000 by the time it bottomed out the next 2 or 3 years it was at 1,200 75% drop you know and the Dow and the S&P didn't go down as much but they also went down a lot it
Ted Weschleras much but they also went down a lot it was a traumatic period for investors it was a traumatic period for investors it was a traumatic period for investors it was a great period for me and so it was was a great period for me and so it was was a great period for me and so it was very easy for me to talk to my investors very easy for me to talk to my investors very easy for me to talk to my investors because I was the only guy making money because I was the only guy making money because I was the only guy making money for them okay if they had like five for them okay if they had like five for them okay if they had like five accounts they just moved it all to me accounts they just moved it all to me accounts they just moved it all to me because everything else was going down because everything else was going down because everything else was going down everything else was red so that's how we everything else was red so that's how we everything else was red so that's how we we got going so in 2007 I think my net we got going so in 2007 I think my net we got going so in 2007 I think my net worth at that time was like 84 million worth at that time was like 84 million worth at that time was like 84 million and Warren had been running these and Warren had been running these and Warren had been running these charity lunch auctions where once a year charity lunch auctions where once a year charity lunch auctions where once a year you could bid on eBay to have lunch with you could bid on eBay to have lunch with you could bid on eBay to have lunch with Warren Buffett and the money would go to Warren Buffett and the money would go to Warren Buffett and the money would go to the Glide Foundation which was doing you the Glide Foundation which was doing you the Glide Foundation which was doing you know feeding the homeless and all that know feeding the homeless and all that know feeding the homeless and all that in San Francisco so I said you know I am in San Francisco so I said you know I am in San Francisco so I said you know I am using this guy's intellectual property using this guy's intellectual property using this guy's intellectual property and making all this money off him I and making all this money off him I and making all this money off him I really have a big tuition bill I need to really have a big tuition bill I need to really have a big tuition bill I need to pay so I said the lunch is a great way
Ted Weschlerpay so I said the lunch is a great way to do that I said I can bid for the lunch and I'll meet Warren I'll be able to thank him in person and it goes to a cause that he supports so I thought about it okay 84 million what's an appropriate tuition bill I said 2 million is he is good I think if I if I gave him 2 million I'd feel good about that right so I I said okay I decided in 2007 I was going to bid for that lunch and I I decided I would go up to $2 million and you can bring up to seven other people to that lunch so I was going to take my family but there still were a couple of seats empty so I contacted my friend gra gpar he lived in Zurich I said hey guy I'm going to bid on this lunch blah blah blah and I said do you want to come in with me and I said if you and your wife want to join us because they'll be four of us and two of you you can pay one3 and I'm willing
Ted Weschlerof you you can pay one3 and I'm willing to go up to 2 million so guy says W that's it's too rich for me I can't pay 1/3 of 2 million he says I'm good for quarter million so I said okay whatever the bid ends up at you're capped at a quarter million right so I bid for it settled at 650,000 much less than what I was willing to pay and then onethird of that got paid by guy my only agenda in meeting Warren was to just say thank you Warren right I didn't have and of course a big Fanboy and you know meeting him and all that Warren's agenda when he has these lunches is really different his his agenda is he wants the people who won that lunch to feel like they got a great bargain so he would take all our what I would call our lemonade lemon questions and turn them into lemonade so he's always exactly what he does in the booksh show meetings is he's a great
Questionerbooksh show meetings is he's a great teacher and so he was trying to give as much value as he could in that life lunch and like he told us when we met him he said look I got nothing going on all afternoon right so when you guys are sick and tired of me you just let me know and I'll leave right we kept asking him questions for 3 hours and then we were exhausted and so we said waren we just don't have anything else to ask you you know he said okay I'll take off no problem and uh in that lunch I told him I said look Warren my wife then Haren I said she's a huge fan of yours but her true love in life is Charlie okay and Warren got competitive he said Charlie is a very boring guy he's a very kind of pessimistic always says no to everything I'm the guy who's really interesting so he said what I'm going to do is you guys live in California in La I'm going to
Warrenlive in California in La I'm going to set you guys up to meet Charlie for lunch and then when you meet him for lunch you're going to find that he's useless and I'm the guy so I thought he was joking about that right and two days later I get an email from his assistant to Charlie's assistant copying us basically saying hey I met this wonderful couple in California and they seem to think you're more interesting I think they just don't understand so I want them to meet you so we can set the record straight right and so this is really what he was saying this is exactly what he said in the email right was he joking or was he not and then Charlie's assistant sets us up to meet Charlie for lunch now Warren you can bribe and have lunch with okay Charlie there's no bribing this this is great and so we met Charlie my wife and I we met Charlie in 2008 at the
Ted WeschlerI we met Charlie in 2008 at the California Club in La I actually found that lunch a lot better than the Buffett lunch okay was great because I think Charlie is just so direct you know and I never expected these lunches or any of this to lead to any anything you know just a one and done but it led to friendship with Charlie he started asking us to come to his place for dinner and uh I would meet him like four or five times a year for dinner and then we started playing bridge together usually on Friday he would play bridge at the LA Country Club I'd meet him about once a month or something to play bridge and that used to be lunch and then about four or five hours of bridge after that so it was a wonderful deep friendship for 15 years which was unexpected you know just never expected that let's go back to the lunch you asked him questions for three hours yeah
Questionerasked him questions for three hours yeah uh what were the interesting uh questions and answers I know you've said one that I want to hear you you explain because I didn't fully I I've heard the tidbit but I want to hear the full story which was he said something about being a harsh grader of people yes what does that mean
Questionerwell I told Warren I said Warren um you know you are both you and Charlie are such good judges of humans and human nature were you always that good at figuring people out so he says to me monish you have mistaken I am useless at figuring people out he said if you put me in a cocktail party with 100 people and you gave me five or 10 minutes to meet meet each person I could tell you three or four people exceptional and I could tell you three or four people you want nothing to do with and the remaining 92 I would have
Questionerwith and the remaining 92 I would have no opinion on because it's not enough time to figure them out but he also said that look what you do in life is those three of people who are exceptional you bring them into your inner Inner Circle and obviously the three or four people who are you know not not the great humans you're not going to have a anything to do with them but the third thing you do is you treat the 92 just like the useless humans so he says be a harsh grader so he says that when you have friendships and when you have people you work with your peers and all that he says there's a gravitational pull if you hang out with people better than you you're going to get better if you hang out with people worse than you you're going to get worse so he said that one of the things that most humans are not willing to do is loyalties get in the
Otherwilling to do is loyalties get in the way for them right so they may have away for them right so they may have away for them right so they may have a friend who's kind of weird or quirky orfriend who's kind of weird or quirky orfriend who's kind of weird or quirky or has ethical issues but they've had ahas ethical issues but they've had ahas ethical issues but they've had a long friendship so they'll keep thatlong friendship so they'll keep thatlong friendship so they'll keep that person going with them that hasperson going with them that hasperson going with them that has detrimental impacts so basically Idetrimental impacts so basically Idetrimental impacts so basically I really took that to heart and I saidreally took that to heart and I saidreally took that to heart and I said that I'm really going to try to see if Ithat I'm really going to try to see if Ithat I'm really going to try to see if I can focus on the great relationships youcan focus on the great relationships youcan focus on the great relationships you know the great people and that'sknow the great people and that'sknow the great people and that's actually been a journey I've been on nowactually been a journey I've been on nowactually been a journey I've been on now for like you know 16 17 years it's beenfor like you know 16 17 years it's beenfor like you know 16 17 years it's been tremendous it's it's great now it'stremendous it's it's great now it'stremendous it's it's great now it's unfair because you're treating theunfair because you're treating theunfair because you're treating the unknown the same as the useless peopleunknown the same as the useless peopleunknown the same as the useless people but that's the way life is I think thatbut that's the way life is I think thatbut that's the way life is I think that sometimes you have to make thesesometimes you have to make thesesometimes you have to make these difficult choices because if you don'tdifficult choices because if you don'tdifficult choices because if you don't do that then the impact of that isdo that then the impact of that isdo that then the impact of that is significantly negative and one of thesignificantly negative and one of thesignificantly negative and one of the things I realized when I started to getthings I realized when I started to getthings I realized when I started to get to knowto knowto know Charlie I got to meet Charlie's friends
WarrenCharlie I got to meet Charlie's friends so I would play bridge with his friends I'd meet his friends and what I realized is his friends were so off the charts they were so exceptional I said wow this is like a different world right and I said I'm going to take a shortcut I'm going to make Charlie's friends my friends because he's already done all the work he did the filter is you know can't get a better filter than Charlie moner right and so I worked on building relationships with Charlie's friends and some of his family and that's been beautiful I mean some just great friendships and you know I realized that there's such a huge Delta in off the charts top .1% top 1% of humans and the rest and you know we we talked about this Adam Grant wrote this wonderful book give and take right and he categorizes people in three buckets right the givers the takers and the
Questionerright the givers the takers and the matchers right now the takers you don't want have anything to do with you know they're just going to like want to extract whatever they can from you so they're just not people you want to have in your life the givers are people who are selflessly trying to help the planet not really concerned about what comes back to them right those are the ones you want to be with and then the matchers they're kind of doing math in their heads oh oh you know Sean did this for me so I'm going to do something similar for him they kind of and so even the matchers aren't that great so what you really want to do is you want to seek out the givers and more important than that is you want to be a giver right the interesting thing that he pointed out in that book is that when you're a giver the universe conspires to
Questioneryou're a giver the universe conspires to help you and I found it magical how andhelp you and I found it magical how andhelp you and I found it magical how and Warren and Charlie are great examples ofWarren and Charlie are great examples ofWarren and Charlie are great examples of givers everyone's trying to help them ingivers everyone's trying to help them ingivers everyone's trying to help them in any way they can and so that's the theany way they can and so that's the theany way they can and so that's the the funny thing is that the matchers who arefunny thing is that the matchers who arefunny thing is that the matchers who are trying to do this you know Equalizationtrying to do this you know Equalizationtrying to do this you know Equalization they end up losing the best way to getthey end up losing the best way to getthey end up losing the best way to get the most is not ask for anything it'llthe most is not ask for anything it'llthe most is not ask for anything it'll all come to you right so these areall come to you right so these areall come to you right so these are wonderful models to incorporate yeahwonderful models to incorporate yeahwonderful models to incorporate yeah there's even some Game Theory with thatthere's even some Game Theory with thatthere's even some Game Theory with that which is the cost of excluding somebodywhich is the cost of excluding somebodywhich is the cost of excluding somebody who might be good or might be great iswho might be good or might be great iswho might be good or might be great is actually quite low to you but the costactually quite low to you but the costactually quite low to you but the cost of accidentally including somebodyof accidentally including somebodyof accidentally including somebody who might be have some toxicity or it'swho might be have some toxicity or it'swho might be have some toxicity or it's quite costly to you and so uh you know Iquite costly to you and so uh you know Iquite costly to you and so uh you know I think even in Investments he has the thethink even in Investments he has the thethink even in Investments he has the the good pile and then the the two hard pilegood pile and then the the two hard pilegood pile and then the the two hard pile Warren has a lot of baseball analogiesWarren has a lot of baseball analogiesWarren has a lot of baseball analogies he says that in investing there are no
Questionerhe says that in investing there are no called strikes right so in baseball you're at the pitch three strikes you're out right he says I can let a thousand balls go by thousand stalks go by and not swing right right I only need to swing when eight moons line up right and so the fat pck right the fat pitch right and so the thing is that we live in a world with infinite humans if there are infinite humans it also implies that there are infinite number of good humans so basically excluding a good human from your circle because you can't figure them out there's no penalty for that right because there's a infinite Supply right just to put it mathematical way mathematically but when you bring in a substandard person there's so many drains it's just negative I want to hit you with some of your big investing philosophies and give me the kind of the
Questionerphilosophies and give me the kind of the The Punchy version of like what is that what does the phrase mean and how you use it so um let's do one heads I win tails I don't lose much well I mean I
Questionerthink this is classically comes from the patels right the it's the dando philosophy this is how we want to do all our Bets with people with stocks with everything asymmetric yeah basically where we always want to look for things where the the odds are so heavily in our favor so in investing we do get these anomalies where you you take what's one that you've benefited from or what's an example in your portfolio or your career investing where you felt like you you you recognized asymmetric upside your downside was cap but your upside was high well I mean I think that if I look at my first business for example right I mean I'm taking 30,000 for my 401k which
Questionermean I'm taking 30,000 for my 401k which I can make up and and at that time theI can make up and and at that time theI can make up and and at that time the credit card laws were very differentcredit card laws were very differentcredit card laws were very different where if you declared personalwhere if you declared personalwhere if you declared personal bankruptcy you got a clean slate andbankruptcy you got a clean slate andbankruptcy you got a clean slate and actually didn't affect your creditactually didn't affect your creditactually didn't affect your credit because you couldn't file again forbecause you couldn't file again forbecause you couldn't file again for seven more years so everyone would giveseven more years so everyone would giveseven more years so everyone would give you money after you filed okay soyou money after you filed okay soyou money after you filed okay so actually they've changed the laws nowactually they've changed the laws nowactually they've changed the laws now but at that time I realized thatbut at that time I realized thatbut at that time I realized that starting a business has high rates ofstarting a business has high rates ofstarting a business has high rates of failure right and so I said how do Ifailure right and so I said how do Ifailure right and so I said how do I minimize the risk on that and this isminimize the risk on that and this isminimize the risk on that and this is what all entrepreneurs do and I saidwhat all entrepreneurs do and I saidwhat all entrepreneurs do and I said okay so basically if this thing blows upokay so basically if this thing blows upokay so basically if this thing blows up which there's some probability thatwhich there's some probability thatwhich there's some probability that could happen I got my job already theycould happen I got my job already theycould happen I got my job already they want to take me back and I'd also driskwant to take me back and I'd also driskwant to take me back and I'd also drisk it because the company was already cashit because the company was already cashit because the company was already cash flow positive by the time I quit my jobflow positive by the time I quit my jobflow positive by the time I quit my job right and so there was already aright and so there was already aright and so there was already a pipeline and such and so repeatedly what
Questionerpipeline and such and so repeatedly what I've what I found is even in investing II've what I found is even in investing II've what I found is even in investing I mean I'll give you an example like formean I'll give you an example like formean I'll give you an example like for example I think in 2003 or 2004 thereexample I think in 2003 or 2004 thereexample I think in 2003 or 2004 there was a steel company in Canada ipco and Iwas a steel company in Canada ipco and Iwas a steel company in Canada ipco and I noticed that they were Trad trading fornoticed that they were Trad trading fornoticed that they were Trad trading for three times earnings right the stock wasthree times earnings right the stock wasthree times earnings right the stock was at $45 they had $15 a share of cash onat $45 they had $15 a share of cash onat $45 they had $15 a share of cash on their balance sheet they had no debt andtheir balance sheet they had no debt andtheir balance sheet they had no debt and they had contracts over the next couplethey had contracts over the next couplethey had contracts over the next couple of years where they had said ourof years where they had said ourof years where they had said our earnings for the next two years areearnings for the next two years areearnings for the next two years are going to be $15 a share each year thesegoing to be $15 a share each year thesegoing to be $15 a share each year these were not forecast these were hardwere not forecast these were hardwere not forecast these were hard contracts right so I said okay so thecontracts right so I said okay so thecontracts right so I said okay so the stocks at 45 if I just buy the stock andstocks at 45 if I just buy the stock andstocks at 45 if I just buy the stock and hold it for two years I got $45 cash inhold it for two years I got $45 cash inhold it for two years I got $45 cash in the company now it was cyclical businessthe company now it was cyclical businessthe company now it was cyclical business third year could be zero could bethird year could be zero could bethird year could be zero could be negative but I said I own all the plantnegative but I said I own all the plantnegative but I said I own all the plant equipment everything for free right so Iequipment everything for free right so Iequipment everything for free right so I made the investment I put 10% of assetsmade the investment I put 10% of assets
Questionermade the investment I put 10% of assets into ipsco and I said all I want to do is I want to see what Mr Market does with this stock in two years just going to hang out and see what happens we make the investment and then a year later the company announces that we're going to have one more year of $15 okay so now you're going to have 60 versus 45 right and by now the stock has kind of gone up and it's sitting at about $90 double in one year so I said okay uh it's still very cyclical business maybe we should take our chips off the table and while I'm thinking about all that one day I wake up and the stocks at 155 some Swedish company came and offered 160 to buy them 5 minutes later I sold the company and moved on right so what what I'm saying is that that's what we're looking for right we and in the equity markets because these are auction driven markets when you look in areas
Questionerdriven markets when you look in areas which are hated and unloved you will find these anomalies last year for example I spent about seven or eight months studying the coal industry four-lettered word hated and unloved more than anything else yeah I mean a lot of endowments and funds are not even allowed to invest in the coal industry it's so much hatred for it so you got excited the math the math was like this if there's a business that is going to exist for 50 years on average it's going to produce a billion a year in cash flow that's going to be distributed to shareholders available to buy for less than 2 billion where do I sign okay that was the coal industry okay and so it's like you you in auction D Market you repeatedly run into these things where things you know there's companies emerging from bankruptcy there's things that people just don't like there's
Questionerthat people just don't like there's different reasons why things get mispriced right you talked about like um private markets versus public auctions and why you think public auctions present more of these dislocations more of these opportunities
Questionerwell I think I think that let me put it this way let's say this home of mine was a publicly traded company okay listen listed on the NYSC right every day its price would change right it would be wiggling here and there and if I look at the average public company on the New York Stock Exchange the 12-month range of the stock might be 70 to 140 in 12 months if I just throw a dart at any company in the New York Stock Exchange and I just look at the 52e range on that stock price it's going to be 60 to 100 70 to 130 so like a 50% swing it's a big swing right my home which maybe might go up 4%
Warrenright my home which maybe might go up 4% in a year or in a good year maybe three 3% would be vacillating in value it would be sometimes trading 20 30% more than it's worth and sometimes trading 20 30% less than it's worth and if I had a realtor friend and I said to him listen can I call you every day and just tell me what my house is worth the guy would think I was stupid but I would call him on Monday and say hey what's my house he said it's worth 2 million I said oh thank you I call him the next day he said still worth 2 million okay third day he said listen idiot it's 2 million okay and after a month he would tell me oh it's moved to 2 million 30,000 okay and then again he would be at 230,000 for a while okay it wouldn't move because it's an intelligent buyer facing an intelligent seller and so you're not typically going to get a company like ipco available as the whole
Questionercompany like ipco available as the whole company for the price you can buy some shares right because the whole company there's an intelligent guy the Swedish company paid four times that price to buy the company right and so that's just the nature of so reason I like the I've always liked public markets is because there is so much irrationality and if you're just willing to be patient uh you know in a year in a year if I can make two good Investments it's a good year okay so we don't need a lot of activity right we just need to be patient and wait for the times when something weird is causing a mispricing right so um let me ask you a few questions so number one in your opinion should somebody just buy the index uh lowcost Index Fund or actively invest the index is a really good way to go the index is too dumb to know that it owns
Warrenknow that it owns Nvidia and it's even more dumb it's even more dumb that it won't it'll never sell Nvidia okay or its own Apple the last 10 years and never sold it for example so I would say for the overwhelming majority of humans probably more than 99% of humans you're best off just buying an index and I think that us equity markets and the US Financial uh Services industry is so efficient that the frictional cost for horning owning an index through an ETF is you know single digigit basis points you know less than one tenth of 1% less than 05% or 1% or so on so it's very small and so I think it's very smart to go with indexing absolutely yeah for for the vast majority of people yeah for almost everyone and for whom who shouldn't do that well if you have the talent and the patience to figure out what a business is worth and then you know have the
Questioneris worth and then you know have the ability to buy those businesses well below what they're worth and patiently hold them those sver of humans that can do that I would be better off just doing it that way if I said what's the number one trait that makes a great investor what comes to mind
Warrenpatience if you are a guy who loves to watch paint dry you know you paint a wall and just sit there and watch it dry you will do very well did you ever watch Seinfeld uh some episodes not not religiously the thing is that elain is on a flight with her boyfriend okay I forget the name of the boyfriend and the and I think if you pull up Google you can probably find this clip the boyfriend is just staring at the seat back in front of him okay and so Elaine says to him would you like something to read he he keeps looking at the seat back and says no do you want to talk
Otherback and says no do you want to talk
Otherback and says no do you want to talk about something and he says no he just
Otherabout something and he says no he just he's just doing nothing just looking at
Otherthe seat back in front of him right by
Otherthe end of the flight she's broken up with him
Otheryeah he would have made a great investor that's what you need if you can be happy or like you know Pascal Pascal had a great quote he says that all man's miseries stem from his inability to quietly in a home in a room alone and do nothing right right and so if you have this ability to watch paint dry watch the back of an airplane seat for a few hours and just be in a nirwana state this is the this is the work you need to be doing I don't know if you know this but you have a fans in a subreddit on Reddit I don't know if you ever have you ever been on I haven't done done much on Reddit no so I went when I was doing my research for this I'm seeing what do people think about
QuestionerI'm seeing what do people think about you what questions do people have about you what questions do people have and I go and one of the best comments I thought was a great compliment they go the day I knew that this is my guy I want to follow he's on CNBC he's on a TV show and they're asking for stock picks so give me a stock pick and they go around the corn and everybody gives their stock it's going to be this it's going to go up and they go to you and you go I don't really give public stock tips like this um and they're like well you got you're on TV you got to do something and they're like the comment was he refused to just like randomly name a pick or tell people to go buy something and the TV hosts were like why are you on TV and he was like that's not what I do and then he just stayed steadfast and I thought it was such a great compliment but also so so
Questionersuch a great compliment but also so so big of a contrast from you go watch Kramer or these guys and it's like you go on and it's like over stimulation telling you you got to do something right now the opposite of patients basically uh is that should people avoid that
Questioneryeah I think that it's a big red flag if you're taking stock tips from some guy on TV I think that's just not going to end well you know the guy on TV is not going to be there when it's down 30% right he's he's off somewhere not available have you seen the reverse Kramer index it's not just people just whatever he said do the exact opposite and you're up like you're crushing the market if you just did the exact opposite of this guy yeah so I mean I think like I said I think indexing is a great way to go for most people I mean so you know I wish in high school so even Middle School compounding was part
Questionereven Middle School compounding was part of the curriculum from an investing point of view and you know just it's really simple but you know the people don't pay attention to the math you know there are three variables that matter with compounding right I mean one is the starting Capital you have the second is the annualized rate of return you get and the third is the length of the runway right now there's something known as a rule of 72 which is a kind of mathematical just a very helpful rule explain it it's I learned this luckily one teacher in college she used to be a student she came back to teach because she's like I wish we actually taught things that were relevant in the real world so she took it on herself became a teacher to come back and teach personal finance and the one thing she did was she's like you know compounding is the eighth wonder of
Otherknow compounding is the eighth wonder of the world and let me just tell you the rule of 72 very simple math exp so the rule of 72 is just a mathematical Quirk that happens to work so for example if I'm getting 7% return a year and I want to know how long is it going to take for this money to double I can take 72 divide by 7 it's approximately 10 years take 10 years right now if I have a 10% interest rate that I'm getting and again if I do 72 divide by 10 it's seven years so you can you can switch between the years or the interest rate and it tells you the other one right and this is the most important thing in life is how long does something take to double okay because that basically leads to everything else so for example if you look at someone like Warren Buffett he started his compounding Journey when he was like 10 or 11 years old I
Questionerwhen he was like 10 or 11 years old I think he's he would say it's when he wasthink he's he would say it's when he wasthink he's he would say it's when he was 7 years old he's going to be 94 this7 years old he's going to be 94 this7 years old he's going to be 94 this year okay that's a 87-year Runway so faryear okay that's a 87-year Runway so faryear okay that's a 87-year Runway so far right uh now the thing is that if youright uh now the thing is that if youright uh now the thing is that if you have a really longhave a really longhave a really long Runway then a low rate of compoundingRunway then a low rate of compoundingRunway then a low rate of compounding would still get you a big number or ifwould still get you a big number or ifwould still get you a big number or if you have shorter Runway and a higheryou have shorter Runway and a higheryou have shorter Runway and a higher rate would again get you the same resultrate would again get you the same resultrate would again get you the same result sososo it's very important in life and that'sit's very important in life and that'sit's very important in life and that's why I think that I wish they do this inwhy I think that I wish they do this inwhy I think that I wish they do this in high school is to start that enginehigh school is to start that enginehigh school is to start that engine early so for example let's take aearly so for example let's take aearly so for example let's take a situation of someone who's just finishedsituation of someone who's just finishedsituation of someone who's just finished college right at 22 years old they gotcollege right at 22 years old they gotcollege right at 22 years old they got some job maybe like making you know 70some job maybe like making you know 70some job maybe like making you know 70 80,000 a year or something and they put80,000 a year or something and they put80,000 a year or something and they put away $110,000 in their 401K rightaway $110,000 in their 401K rightaway $110,000 in their 401K right they're 22 years old an index right thatthey're 22 years old an index right thatthey're 22 years old an index right that index has done 10% a year now what thatindex has done 10% a year now what thatindex has done 10% a year now what that means is the 10% a year means that thatmeans is the 10% a year means that thatmeans is the 10% a year means that that 10,000 will double every 7 years so
Questioner10,000 will double every 7 years so let's take a situation where the person is now 64 years old right now they started at 22 with 64 so it's 42 years 42 years is six doubles right I do this to make it easy right okay so six doubles right that's 2 the^ 6 2^ 6 is 64 so that 10,000 that the person saved at 22 is 640,000 at 64 but that's not all they have at 23 they save 11,000 that's again sitting at some big number and you keep going and you know sometimes we see these news articles there some guy who's a janitor janor of some college and he gives 4 million to the college and lived in a one-bedroom apartment whatever right why are we surprised okay if you actually run the math he actually didn't even save that much and he didn't even have that a such a great compounding engine it's not like he found Apple 20 years ago or something that's not what
Otheryears ago or something that's not what happened what happened was that there was a consistency and so actually my push back to my dad when he was telling me to start a business is I was telling him at that time I said look I got a 401k I got 30,000 in the 401K right I'm going to I'm Contin with 15% a year my employer at that time was matching the first 2% so it was becoming 177% tax free basically it's tax deferred and my income's going up over time so I was when I first started working my salary was 31,000 right so I'm saving 4500 a year right but if I was still working my my my pay would have been hundreds of thousands or more and I'm putting away a lot of money so by the time I get to retirement it's like it's game over lots of extra cash available no problem and I never missed the money because it was pre-tax right taken out so it's just
Questionerpre-tax right taken out so it's just great so I think I wish that young people understand that yeah listen you can pursue lottery tickets you can pursue entrepreneurial dreams you can do all of that that's fine but on the side keep this goal going and started early let it be boring let it be a stupid index fun Vanguard and whatever and uh and that's it the tortoise is going to win the race right you know what's the uh circle the wagons philosophy well the circle the wagons philosophy actually came out of when I was thinking about Buffett's letter last year to shareholders the 2023 letter he pointed out that in 58 years of running Burkshire there were only 12 decisions that he had made that had moved the needle for bsha now bsha has had a tremendous run they've compounded recently were compounding at 20 plus per a year for 58 years that's you know if
Othera year for 58 years that's you know ifa year for 58 years that's you know if you're 20% a year you are doubling everyyou're 20% a year you are doubling everyyou're 20% a year you are doubling every three and a half years okay and thatthree and a half years okay and thatthree and a half years okay and that means after 35 years it's a 10 doublesmeans after 35 years it's a 10 doublesmeans after 35 years it's a 10 doubles and 58 is another 23 years so you've gotand 58 is another 23 years so you've gotand 58 is another 23 years so you've got another what one six six D so 16 doublesanother what one six six D so 16 doublesanother what one six six D so 16 doubles uh 2 the^ 16 now the way to do 2 the^ 16uh 2 the^ 16 now the way to do 2 the^ 16uh 2 the^ 16 now the way to do 2 the^ 16 is 2^ 10 * 2^ 6 2^ 10 round number isis 2^ 10 * 2^ 6 2^ 10 round number isis 2^ 10 * 2^ 6 2^ 10 round number is 1,000 it's a 100000 X right and 2^ 6 is1,000 it's a 100000 X right and 2^ 6 is1,000 it's a 100000 X right and 2^ 6 is 64 it's64 it's64 it's 64,00064,00064,000 times what you started with okay if youtimes what you started with okay if youtimes what you started with okay if you started with a $100 it's 6.4 millionstarted with a $100 it's 6.4 millionstarted with a $100 it's 6.4 million okay $100 is 6.4 millionokay $100 is 6.4 millionokay $100 is 6.4 million okay so he'sokay so he'sokay so he's saying I would calculate in the last 50saying I would calculate in the last 50saying I would calculate in the last 50 years 58 years Buffett's made 3 or 400years 58 years Buffett's made 3 or 400years 58 years Buffett's made 3 or 400 at least 400 different investmentat least 400 different investmentat least 400 different investment decisions he's saying 12 are the onesdecisions he's saying 12 are the onesdecisions he's saying 12 are the ones that mattered right the god ofthat mattered right the god ofthat mattered right the god of investing has a 4% hit rate that's theinvesting has a 4% hit rate that's theinvesting has a 4% hit rate that's the god of investing that's why we shouldgod of investing that's why we shouldgod of investing that's why we should Index right what are the rest of us mereIndex right what are the rest of us mereIndex right what are the rest of us mere mortals supposed to do so now the thingmortals supposed to do so now the thingmortals supposed to do so now the thing is that I was thinking about his 12 bets
Questioneris that I was thinking about his 12 bets is that I was thinking about his 12 bets right and I thought about okay which were the 12 and I think he never mentioned that but you could guess which one C's would be one of them Koke would be another one AMX Gillette cap Cities Washington Post you know you can come up with the names you know B hadway Energy a chane hiring a chain probably the biggest bet for them with paid off huge for them what's the story with a there's something about the recruiter for him so what I realized when I thought about these 12 bets was it wasn't the buy decision the buy decision is important the important thing was they never sold C's stayed in the stable for 50 years Coke has been in the stable for 40 plus years right so it wasn't the buy decision it was the paint drying decision okay that was the important thing so when you find yourself in the
Warrenthing so when you find yourself in the happyhappyhappy position of a small ownership in a greatposition of a small ownership in a greatposition of a small ownership in a great businessbusinessbusiness just find something else to do with yourjust find something else to do with yourjust find something else to do with your time play bridge or whatever have youtime play bridge or whatever have youtime play bridge or whatever have you have you considered golf uh I have golfhave you considered golf uh I have golfhave you considered golf uh I have golf is great and and so if you ask Charlieis great and and so if you ask Charlieis great and and so if you ask Charlie he would say the single best decisionhe would say the single best decisionhe would say the single best decision best investment booksh are hathway everbest investment booksh are hathway everbest investment booksh are hathway ever made was the search fee they paid tomade was the search fee they paid tomade was the search fee they paid to hire a Jane okay now a Jane walks intohire a Jane okay now a Jane walks intohire a Jane okay now a Jane walks into their offices in 1986 1985 actuallytheir offices in 1986 1985 actuallytheir offices in 1986 1985 actually never having worked in the insurancenever having worked in the insurancenever having worked in the insurance business right from scratch without thembusiness right from scratch without thembusiness right from scratch without them putting up venture capital orputting up venture capital orputting up venture capital or anything the business he's created foranything the business he's created foranything the business he's created for them today probably has a value norththem today probably has a value norththem today probably has a value north of 100 billion okay I mean it just getsof 100 billion okay I mean it just getsof 100 billion okay I mean it just gets lost in bursh show because bursh show islost in bursh show because bursh show islost in bursh show because bursh show is so big I'll give you an example of aso big I'll give you an example of aso big I'll give you an example of a discussion I had with Charlie I thinkdiscussion I had with Charlie I thinkdiscussion I had with Charlie I think there maybe two three months before hethere maybe two three months before hethere maybe two three months before he passed away so he was telling me thatpassed away so he was telling me that
Otherpassed away so he was telling me that you know bsh bsh haway writes superyou know bsh bsh haway writes superyou know bsh bsh haway writes super catastrophe Insurance like you knowcatastrophe Insurance like you knowcatastrophe Insurance like you know insurance against hurricanes earthquakesinsurance against hurricanes earthquakesinsurance against hurricanes earthquakes and so on right and many many years whenand so on right and many many years whenand so on right and many many years when people are looking for earthquakepeople are looking for earthquakepeople are looking for earthquake insurance in Florida or hurricaneinsurance in Florida or hurricaneinsurance in Florida or hurricane insurance in Florida Ajit would look atinsurance in Florida Ajit would look atinsurance in Florida Ajit would look at the rates being offered and just take athe rates being offered and just take athe rates being offered and just take a pass okay B basically he would find ispass okay B basically he would find ispass okay B basically he would find is too competitive whatever else people nottoo competitive whatever else people nottoo competitive whatever else people not giving enough okay what he did in 2023giving enough okay what he did in 2023giving enough okay what he did in 2023 and they mentioned it at the at theand they mentioned it at the at theand they mentioned it at the at the meeting actually is that he wrotemeeting actually is that he wrotemeeting actually is that he wrote hurricane Insurance on B behalfhurricane Insurance on B behalfhurricane Insurance on B behalf reinsurance with maximum payout of $15reinsurance with maximum payout of $15reinsurance with maximum payout of $15 billion so if these hurricanes had hitbillion so if these hurricanes had hitbillion so if these hurricanes had hit now basically the math is like this Inow basically the math is like this Inow basically the math is like this I just want to explain how how ait's mindjust want to explain how how ait's mindjust want to explain how how ait's mind works Burkshire would pay out on a bigworks Burkshire would pay out on a bigworks Burkshire would pay out on a big catastrophe like in Hurricanes 3 to 5%catastrophe like in Hurricanes 3 to 5%catastrophe like in Hurricanes 3 to 5% of the total insured loss incurred soof the total insured loss incurred soof the total insured loss incurred so for them to have a 15 billion payout you
Ajit Jainfor them to have a 15 billion payout you would have to have had an event with insured losses in Florida of 300 billion it's beyond Andrew and Beyond Katrina right is beyond all of those right so it's it would be need to be a really big event to for them to have a 15 billion payout the premium he collected to write that 15 billion policy take a guess take a guess 5 billion he collected 5 billion
Questioneroh okay and I was sweating that guess no
Ajit Jainno but but he he collected that's exactly what he collected how much did he pay out in 23 zero there was one that came through my guess would be they might have paid Out 3 400 million okay you know some 300 million collect five billion and what Charlie said to me is ait's done this about six times okay where he's picked the years that he's written these policy because what was happening in most years
Questionerbecause what was happening in most years is the premium offered was 2 billion he just took a pass right right a lot of all the other insurers wrote that policy bushire took a pass right no C strikes right and and and now for example we had some unusual losses like for example that ship in Baltimore right now that's going to end up being about three 3 to five billion in losses right and it's the biggest Maritime loss in global history it's going to change premiums for ships right in the future Burkshire will probably be writing when everyone else is saying I don't want to do that you know it's like the cat who sat on a hot stove and doesn't want to sit on any hot or cold stoves ever again you know you have a thing over there I saw in your office that says it's like a placard it says trouble is opportunity absolutely that's a that's a the story of that it's a
Questionera that's a the story of that it's aa that's a the story of that it's a quote by John Templeton and I actually aquote by John Templeton and I actually aquote by John Templeton and I actually a good friend of mine PR Watsa in Canadagood friend of mine PR Watsa in Canadagood friend of mine PR Watsa in Canada they call him the bushire haway ofthey call him the bushire haway ofthey call him the bushire haway of Canada War Buffalo Canada and I had seenCanada War Buffalo Canada and I had seenCanada War Buffalo Canada and I had seen that plaque on in his on his desk andthat plaque on in his on his desk andthat plaque on in his on his desk and somebody sent it to me and so it's asomebody sent it to me and so it's asomebody sent it to me and so it's a great quote I mean I think that that'sgreat quote I mean I think that that'sgreat quote I mean I think that that's what what we're trying to do aswhat what we're trying to do aswhat what we're trying to do as investors is we want we need to beinvestors is we want we need to beinvestors is we want we need to be fearful when the world is greedy and wefearful when the world is greedy and wefearful when the world is greedy and we need to be greedy when the world isneed to be greedy when the world isneed to be greedy when the world is fearful and so basically when the worldfearful and so basically when the worldfearful and so basically when the world is running away from coal we need to runis running away from coal we need to runis running away from coal we need to run towards Cole right so I'm always lookingtowards Cole right so I'm always lookingtowards Cole right so I'm always looking at what is hated andat what is hated andat what is hated and unloved right and usually you will get aunloved right and usually you will get aunloved right and usually you will get a lot of mispricing when something islot of mispricing when something islot of mispricing when something is hatden and unloved uh tell me abouthatden and unloved uh tell me abouthatden and unloved uh tell me about Bitcoin are you a fan of uh cryptoBitcoin are you a fan of uh cryptoBitcoin are you a fan of uh crypto Bitcoin are you a Believer outside myBitcoin are you a Believer outside myBitcoin are you a Believer outside my circle of competence and I would saycircle of competence and I would saycircle of competence and I would say that if you put a gun to my head I would
Warrenthat if you put a gun to my head I would say it's going to end badly M and why is that it's in the eye of the beholder there is no intrinsic value as I understand it to Bitcoin now you can argue that there isn't an intrinsic value to the dollar but it has the full faith and credit of the US government which is then backed by the uh hardw working American people so basically I think that for me it's in the two hard pile but I think for most people I would just say take a pass right most people who have invested in Bitcoin couldn't really tell you why it's or what it's going to be worth and why it should be worth that so one of the reason I wanted to fly here is because it's fun to meet these kind of outlier investors or even just hear the stories and I've heard you tell a couple stories about guys I've never heard of that um I would love for you to to tell
Questionerthat um I would love for you to to tell the story because I think most people have never heard of these people so tell me about um Nick sleep who is Nick sleep or uh junjin Wala whichever is your favorite give me give me one of the the stories that that
Otherwell I think Nick is a wonderful guy and there's a book called Richard wiser happier that came out two three years ago and there's a chapter on him Nick is very he's a recluse he doesn't do interviews and such I was actually surprised he even talked to the author but it's worth reading the book and uh you know him he he and his partner Zach they would uh come into their office and basically just sit and read annual report after annual report till they were blue in the face you know I mean they were just they would want to see if they could understand different businesses and that exercise of reading
Questionerbusinesses and that exercise of reading those annual reports LED them to the annual report of Amazon right and for example I been a customer of Amazon known Amazon for a long time Etc familiar with business but every time I would take a cursory glance at Amazon it looked very expensive on a earnings basis a PE basis it looked really expensive and the reason it looked expensive is they were investing so far ahead of the curve on the growth what should have been categorized as capax wasn't was just categorized as expenses so the US government was really funding their growth because there was no taxes being collected now what Nick and Zach were able to do because they were just sitting in their office with no distraction reading year after year of Buffets of uh bezos's letters and the Bezos letters are worth reading I mean I think they they're very clear he clearly
Questionerthink they they're very clear he clearlythink they they're very clear he clearly laid out in thoselaid out in thoselaid out in those letters what he was up to right thatletters what he was up to right thatletters what he was up to right that he's basically that he wasn't he wasn'the's basically that he wasn't he wasn'the's basically that he wasn't he wasn't uh completely candid but he was basicuh completely candid but he was basicuh completely candid but he was basic you could tell that the business hadyou could tell that the business hadyou could tell that the business had very high Returns on Capital and he wasvery high Returns on Capital and he wasvery high Returns on Capital and he was investing he was throwing a lot ofinvesting he was throwing a lot ofinvesting he was throwing a lot of things against the wall but basicallythings against the wall but basicallythings against the wall but basically they were very lowrisk bets if anythey were very lowrisk bets if anythey were very lowrisk bets if any single bet didn't work it didn'tsingle bet didn't work it didn'tsingle bet didn't work it didn't wouldn't sync the company so for examplewouldn't sync the company so for examplewouldn't sync the company so for example one of the bets they made was AWS rightone of the bets they made was AWS rightone of the bets they made was AWS right which became a huge and they didn't knowwhich became a huge and they didn't knowwhich became a huge and they didn't know it was going to become as big as it didit was going to become as big as it didit was going to become as big as it did but but basically they also made a betbut but basically they also made a betbut but basically they also made a bet on fire Amazon Fire which didn't workon fire Amazon Fire which didn't workon fire Amazon Fire which didn't work but basically I think what what Nick andbut basically I think what what Nick andbut basically I think what what Nick and Zach realized is that here was a veryZach realized is that here was a veryZach realized is that here was a very gifted Capital allocator who understoodgifted Capital allocator who understoodgifted Capital allocator who understood all the different facet me of building aall the different facet me of building aall the different facet me of building a team going after different markets heteam going after different markets heteam going after different markets he actually disrupted multiple Industries
Questioneractually disrupted multiple Industries and so they had placed a bet on Amazon and because Amazon was doing so well it was becoming a larger and larger portion of their fund and in the UK there are more regulations on hedge funds than we have in the US the UK regulator was telling them that we see this position as very high risk and you guys need to diversify so they were getting pressure and they felt that they understood the business so well so they looked at each other they were they were managing I think two or three billion uh they had made hundreds of millions in for each of them and uh they said look we are independently wealthy we never thought we'd be here we're young why do we have have to listen to some regulator right we could return all the capital to all our investors and uh what Nick said is if I return the capital I'm going to put
Questionerif I return the capital I'm going to put everything into three stocks and these are three stocks he owned maybe a dozen stocks but he was going to go into three stocks the three stocks he was going to put one3 each into was uh one3 Berkshire one3 Amazon 1/3 Costco right and so he said I'm very comfortable with these three stocks they very built to last businesses and he did that what what happened a few years after they hung up their boots is um it's really funny the uh Amazon still kept you know it's a juggernaut it still kept going and so it became 70 80% of the pie so instead of them being 1/3 each it was 80 101 for example right and Nick decided that oh maybe I should take some chips off the table here and so so he cut the Amazon position in half and bought uh another business which has not done well we went sideways and that goes
Questionerdone well we went sideways and that goes back back to Buffett's point of 12 that worked in 58 years is we are not going to if Warren Buffett has a 4% hit rate the rest of us are going to have a 2% hit rate okay so but you also need to get rich just once so I think that what worked really well for Nick and Zach was they took the Buffett lesson which is that once you have a great business just leave it alone now even after he was sloppy and he took chips off the table from 80% or whatever still done very well right and and I think one of the things that uh investors forget is that um if you look at the Walton family none of them are running Walmart Sam Walton passed away a long time ago it's been several decades since Sam Walton passed away The Waltons have for the most part kept the Walmart stock and for most of them it's almost the entire net worth in a single stock right so more
Questionerworth in a single stock right so more concentrated than even Nick sleepers right and it's not a business that they control it's not a business that they run it's not a business that they are on the board of none of them gives them sleepless nights right so for example in 2018 I started visiting turkey and I was just looking at things hated and unloved at that time and I saw that the Turkish markets were screening really cheap everyone in the brother was just exiting turkey and I have a really good friend of mine in Istanbul very good investor kind of classic Ben Graham investor and I told him hey Haider I'd love to visit Istanbul and I'd love to if we could visit all the companies in your portfolio starting with the company with the your strongest conviction biggest position to the smallest position and I said don't take me to see any companies
Questionersaid don't take me to see any companies where you don't have money in okay he said M should be a blast so I went in 2018 first time to Istanbul the Blue Fish on the Bros forus was great and all these different businesses we saw were great you know and I didn't really do much work he told me what places we were going to but I just said let me meet the companies first I went back in 2019 we're driving to this company and I like I said all these Turkish names and companies I said I will do the work on the back end I'm I'm not going to spend time so as we driving over I said hia remind me what company are we going to what's the what's the cliff notes version he said okay he says uh this company going to visit Ras has a 16 million market cap $16 million market cap and he says the liquidation value of the business if you sold it today is 800 million so I said
Questionersold it today is 800 million so I said is it a fraud he said he said no I'm invested in the company and so I said you're telling me the company is trading for two 2% of liquidation value he said yeah I said why he said it's turkey you know everything's cheap I said but this is outlier cheap okay and Ras basically is a very very simple business they uh the largest Warehouse operator in Turkey they rent out all these warehouses these are 99% leased inflation indexed and their leased to Amazon Ikea car 4 Mercedes Toyota like Blue Chip clients and all of that right so I went and met the father and son who run the company and the founders and then after that I went and visited a bunch of the warehouses and I couldn't find anything wrong with it and he was absolutely right if you just went to any realtor in turkey and said this is their 80
Questionerturkey and said this is their 80 warehouses give me a value in each one he would just look at the rent and he would tell you okay you know you're looking at about $70 $80 a square foot for each Warehouse they had 12 million square feet it was about a billion dollars and there was 200 million of debt so 800 million liquidation value and 16 million market cap okay and so then I thought okay this thing probably trades by appointment and maybe can't buy the stock but turkey has very high trading volume because they're all gamblers so I found that when I when I started buying the stock that huge volumes are available and I I spent $8 million to get a third of the company okay now the way I look at it is that you know when you look at you know Buffett's letter with the 12 positions or you look at Nick sleep with Amazon right the family that runs the business
Questionerright the family that runs the business right the family that runs the business they have maybe 40 45% ownership right they have maybe 40 45% ownership right they have maybe 40 45% ownership right I'm an outside investor at 33% you know I'm an outside investor at 33% you know I'm an outside investor at 33% you know I don't have a board seat or anything I don't have a board seat or anything I don't have a board seat or anything I'm you know passive investor but the I'm you know passive investor but the I'm you know passive investor but the way I look at RAS is the way the Walton way I look at RAS is the way the Walton way I look at RAS is the way the Walton family looks at the Walmart stock right family looks at the Walmart stock right family looks at the Walmart stock right what I've noticed since then since 2019 2019 2019 is they have increased the value of that is they have increased the value of that is they have increased the value of that business so I would say that probably business so I would say that probably business so I would say that probably today the business might be worth one today the business might be worth one today the business might be worth one and a half to two billion somewhere in and a half to two billion somewhere in and a half to two billion somewhere in that range and I think they'll I've that range and I think they'll I've that range and I think they'll I've never seen them make any decisions that never seen them make any decisions that never seen them make any decisions that were stupid they're very smart about the were stupid they're very smart about the were stupid they're very smart about the decisions it's very well-run so I say decisions it's very well-run so I say decisions it's very well-run so I say okay basically we are done we will keep okay basically we are done we will keep okay basically we are done we will keep that business I don't care about the that business I don't care about the that business I don't care about the stock price so the 16 million market cap stock price so the 16 million market cap stock price so the 16 million market cap now is about 500 million you you know in now is about 500 million you you know in now is about 500 million you you know in four years and you know the Turkish L four years and you know the Turkish L four years and you know the Turkish L which when we were investing it was five
Questionerwhich when we were investing it was five L to the dollar today it's approaching 33 L to the dollar Turkish L has collapsed in dollars we are up almost 30X right but uh the business is worth more right and so the thing is that it's exactly what what Buffett says is that basically just leave it alone and uh as long as as that family and that father and son are running the business we will just keep our stake and let it keep running so basically the idea is that I'm also going to when I look back going to find there were a few things that move the needle big time and the rest it and and the key to moving the needle is inactivity and so that's what you you got to be just you got to be very patient and be very inactive right you talked about U Bezos being a capital allocator um Buffett obviously capital allocator for Berkshire and what you
Questionerallocator for Berkshire and what you know who are the other I guess like if Iknow who are the other I guess like if Iknow who are the other I guess like if I just throw some names at you or somejust throw some names at you or somejust throw some names at you or some companies at you like I'm curious tocompanies at you like I'm curious tocompanies at you like I'm curious to hear your take on how well they allocatehear your take on how well they allocatehear your take on how well they allocate Capital because we know how maybe howCapital because we know how maybe howCapital because we know how maybe how good their brand is or their product isgood their brand is or their product isgood their brand is or their product is but uh we were talking about thisbut uh we were talking about thisbut uh we were talking about this yesterday there's a transition fromyesterday there's a transition fromyesterday there's a transition from you're a product manager where youryou're a product manager where youryou're a product manager where your focus is Building Product and you'refocus is Building Product and you'refocus is Building Product and you're people manager where you're building anpeople manager where you're building anpeople manager where you're building an organization and then you're moneyorganization and then you're moneyorganization and then you're money manager and you're now you know you'remanager and you're now you know you'remanager and you're now you know you're sitting on hundred billion dollar yousitting on hundred billion dollar yousitting on hundred billion dollar you have to figure out some way to invest ithave to figure out some way to invest ithave to figure out some way to invest it this is like you know so so tell me metathis is like you know so so tell me metathis is like you know so so tell me meta or Facebook what do you think how do youor Facebook what do you think how do youor Facebook what do you think how do you think they've done with uh Capitalthink they've done with uh Capitalthink they've done with uh Capital allocation well I think I think it wasallocation well I think I think it wasallocation well I think I think it was really surprising to see how he did areally surprising to see how he did areally surprising to see how he did a 180 I mean I think Mark basically moved180 I mean I think Mark basically moved180 I mean I think Mark basically moved from being a Spen Thrift to being a
Todd Combsfrom being a Spen Thrift to being a Patel you know he I mean literally I I just can't I think it was remarkable to see an entrepreneur or pivot that way right so uh you know meta was a country club you know they had all this spending going on in all these areas and he really tightened it up I mean I was really I mean and it showed up in the numbers Facebook is a great business you know all the different brands they have and different properties they have are tremendous it is the norm in capitalism that great businesses will be sloppy with how they execute I think normally it's very rare to find a great business which is also tightfisted and meta wasn't tightfisted but it is now and uh so that was just wonderful to see so I think yeah I think the capital allocation there is excellent now right what do you think about uh Elon Musk fellow uh
Questionerthink about uh Elon Musk fellow uh fellow Texas resident the United States this is one of the just be most beautiful things about the United States is Elon wasn't born here okay and he was than educated in his first 20 years of life over here we the United States got a finished product basically and uh he's created tremendous value tremendous jobs and disrupted multiple Industries I think I think Elon is exceptional allocator of capital yeah it's terrific actually and Tesla gets a lot of there's a lot of conversation is Tesla overvalued is it undervalued is it you know too frothy I guess what's your take on uh when you look at a business like Tesla how does your mind analyze a business like Tesla it would it goes into the two hard part I would say this I would say that Elon is not human okay he's Beyond human if you just think
Otherhe's Beyond human if you just think about all the things he's done I meanabout all the things he's done I meanabout all the things he's done I mean now that neural net and um you knownow that neural net and um you knownow that neural net and um you know boring company and uh you know what he'sboring company and uh you know what he'sboring company and uh you know what he's doing with SpaceX and all that it's uhdoing with SpaceX and all that it's uhdoing with SpaceX and all that it's uh it's just really very remarkableit's just really very remarkableit's just really very remarkable execution is off the charts I think heexecution is off the charts I think heexecution is off the charts I think he just uh unbelievable in terms of whatjust uh unbelievable in terms of whatjust uh unbelievable in terms of what he's been able to accomplish so I have ahe's been able to accomplish so I have ahe's been able to accomplish so I have a lot of respect I think I think Elonlot of respect I think I think Elonlot of respect I think I think Elon understands Capital allocation reallyunderstands Capital allocation reallyunderstands Capital allocation really well and I think all the businesses thatwell and I think all the businesses thatwell and I think all the businesses that he gets involved with or he founds theyhe gets involved with or he founds theyhe gets involved with or he founds they do so well because he gets so much outdo so well because he gets so much outdo so well because he gets so much out of the people which basically means heof the people which basically means heof the people which basically means he gets so much out of the capital right Igets so much out of the capital right Igets so much out of the capital right I mean he's his hiring is so good teamsmean he's his hiring is so good teamsmean he's his hiring is so good teams that he's building are so exceptionalthat he's building are so exceptionalthat he's building are so exceptional that I mean when you're hiring athat I mean when you're hiring athat I mean when you're hiring a software engineer there could be ansoftware engineer there could be ansoftware engineer there could be an engineer who's worth 10 B 10 million aengineer who's worth 10 B 10 million aengineer who's worth 10 B 10 million a year and there could be another guyyear and there could be another guyyear and there could be another guy worth 100,000 a year and he can tell the
Questionerworth 100,000 a year and he can tell the difference right and so he's that's that's a great skill to have yeah I love that uh we'll end with this we have Charlie uh you know here and he passed away and you were friends with him what's uh maybe your your favorite story or lesson from uh from Charlie merer
Warrenyeah I mean I I obviously I missed Charlie I think he was one of a kind I think he was just a and and I I've been thinking last several weeks several months about so many of the lessons and things but one of the things Charlie said in one of the last interviews he gave someone asked him I think uh what would you like on your gravestone and he said I tried to be useful and I think those those words I tried to be useful encapsulate Charlie really well if you look at Warren Buffett's tribute to him that he did this year in the letter um Charlie
Questionerthis year in the letter um Charlie selflessly helped waren a lot I mean without Charlie manga there's no burshire Hathaway even though you had a Warren Buffett there and I twice I went to Charlie when I was facing difficult personal situations nothing related to investing right extremely helpful to me on point I just did exactly what he told me to do and those issues disappeared right and so Charlie always was trying to see how can I help the world in all the institutions that he touched you know his memorial was at the Harvard best Lake School in California and La transformed that institution he was at the board of the Good Sam Hospital transformed the hospital bua haway transformed I met so many partners he had in different businesses always gave them the better deal and I think in every way possible I think that was just absolutely correct
Warrenthink that was just absolutely correct he selflessly tried to be useful and you know Charlie I don't think Charlie believed in God I don't think he believed in religion right and I think he didn't believe in Legacy he I think he believed that when we're gone we're gone it's ashes than dust right till one day before he passed away he was in the hospital he knew he was dying he was trying to get one last Grant done to a nonprofit no upside to him he's dying right right six days before he passed away he was buying a stock okay you know a stock we discussed you know and it s up a write up on so I'm just saying that I think Charlie extracted everything he could from his mind and his body the other thing was that he never complained lost sight in one eye uh many decades ago he was almost blind in the other eye he cared most about reading
Warrenother eye he cared most about reading right that was most important to him andright that was most important to him andright that was most important to him and I saw him one time when the second eyeI saw him one time when the second eyeI saw him one time when the second eye was giving him a very serious problemwas giving him a very serious problemwas giving him a very serious problem where he could have gone blind this waswhere he could have gone blind this waswhere he could have gone blind this was maybe 10 years ago in the second eyemaybe 10 years ago in the second eyemaybe 10 years ago in the second eye even when he was facing the prospect ofeven when he was facing the prospect ofeven when he was facing the prospect of complete blindness he was so stoic nevercomplete blindness he was so stoic nevercomplete blindness he was so stoic never said oh poor mesaid oh poor mesaid oh poor me self-pity his response to me was I'mself-pity his response to me was I'mself-pity his response to me was I'm going to have to learn Braille you knowgoing to have to learn Braille you knowgoing to have to learn Braille you know you know that's that's how he was goingyou know that's that's how he was goingyou know that's that's how he was going to deal with it I think it's this greatto deal with it I think it's this greatto deal with it I think it's this great we have such a big Rich body of workwe have such a big Rich body of workwe have such a big Rich body of work that he left po Charlie Almanac I thinkthat he left po Charlie Almanac I thinkthat he left po Charlie Almanac I think a lot to learn from him
Questionerwell thank youa lot to learn from him well thank youa lot to learn from him well thank youa lot to learn from him and uh thank you forfor sharing that and uh thank you forfor sharing that and uh thank you for doing this this is hopefully your youdoing this this is hopefully your youdoing this this is hopefully your you know process of uh of sharing some ofknow process of uh of sharing some ofknow process of uh of sharing some of your wisdom so thank you for doing thisyour wisdom so thank you for doing thisyour wisdom so thank you for doing this
Otherit's a pleasure I really enjoyed theit's a pleasure I really enjoyed theit's a pleasure I really enjoyed the session thank you