Other[Music][Music][Music]so firstso firstso first i just want to welcome everybody herei just want to welcome everybody herei just want to welcome everybody here today and say thank you very muchtoday and say thank you very muchtoday and say thank you very much for joining us this is going to be ourfor joining us this is going to be ourfor joining us this is going to be our first speaker in our speaker seriesfirst speaker in our speaker seriesfirst speaker in our speaker series monique who's going to be speaking to usmonique who's going to be speaking to usmonique who's going to be speaking to us todaytodaytoday our next speaker at the end of the monthour next speaker at the end of the monthour next speaker at the end of the month will be joe dela rosawill be joe dela rosawill be joe dela rosa on the 31st format todayon the 31st format todayon the 31st format today we'll start off with just a few kind ofwe'll start off with just a few kind ofwe'll start off with just a few kind of preset questions to go throughpreset questions to go throughpreset questions to go through with monish and then we're going to openwith monish and then we're going to openwith monish and then we're going to open it up to the audience to let you guysit up to the audience to let you guysit up to the audience to let you guys ask questionsask questionsask questions so first we'll kind of jump right inso first we'll kind of jump right inso first we'll kind of jump right in monish for has been running the hubrismonish for has been running the hubrismonish for has been running the hubris investmentsinvestmentsinvestments since about 1999 andsince about 1999 andsince about 1999 and has had some excellent returns we'vehas had some excellent returns we'vehas had some excellent returns we've also written several books and articlesalso written several books and articlesalso written several books and articles and then yeah we'll just jump right inand then yeah we'll just jump right inand then yeah we'll just jump right in would you mind telling us a little bitwould you mind telling us a little bitwould you mind telling us a little bit kind of what made you decide to get intokind of what made you decide to get intokind of what made you decide to get into running your own investment fund andrunning your own investment fund andrunning your own investment fund and kind of how it's evolved over timekind of how it's evolved over time
Questionerkind of how it's evolved over time sure well clayton pleasure to be here
Othersure well clayton pleasure to be here and uhand uhand uh wonderful to interact with the wonderful to interact with the wonderful to interact with the georgetown students georgetown students georgetown students that's great you guys it's a wonderful that's great you guys it's a wonderful that's great you guys it's a wonderful school and a wonderful location school and a wonderful location school and a wonderful location well i think for iphones actually well i think for iphones actually well i think for iphones actually started started started you could say accidentally and it really you could say accidentally and it really you could say accidentally and it really started as a hobby started as a hobby started as a hobby so i heard about warren buffett and so i heard about warren buffett and so i heard about warren buffett and charlie munger and charlie munger and charlie munger and ben graham around 1994 ben graham around 1994 ben graham around 1994 and i was really quite taken with their and i was really quite taken with their and i was really quite taken with their approach to investing approach to investing approach to investing and i have been applying their methods and i have been applying their methods and i have been applying their methods for about five years with some good for about five years with some good for about five years with some good success success success and i had a few friends i used to give and i had a few friends i used to give and i had a few friends i used to give them stock tips here and there them stock tips here and there them stock tips here and there they approached me in early 99 and they they approached me in early 99 and they they approached me in early 99 and they said that said that said that this stock tip business is very random this stock tip business is very random this stock tip business is very random you know sometimes you tell us to buy you know sometimes you tell us to buy you know sometimes you tell us to buy something then we don't see you for a something then we don't see you for a something then we don't see you for a while and then while and then while and then we don't know whether we should hold or we don't know whether we should hold or we don't know whether we should hold or sell or what we should do sell or what we should do sell or what we should do and so we'd like to
Ted Weschlerand so we'd like to systematize that so they proposed that they would collectively give me about a million dollars about a hundred thousand dollars each and they wanted me to manage that and i thought of that really as a hobby because on one million dollars you're not going to make the rent payment and uh but i also wanted to make sure that my friends did not have any kind of a negative experience with this so i set up a partnership and i cloned the the rules of the buffett partnerships in the 1950s like no management fees a six percent hurdle and so on and you know redemptions once a year and so on so for iphone started in july 99 with one million dollars from eight of my friends and i put in a hundred thousand as well and uh i would say about 15 months after that in late 2000 i thought that i was really enjoying this running the fund etc by then the assets
Questionerrunning the fund etc by then the assets were about two and a half million we had had a big run-up i think we were up 70 in the first year and so at that point i decided i should really treat it like a real business and bring in more investors and assets and so on and so then after that the funds gradually scaled and then they got up to uh several hundred million so that's how it got going
Otherokay and has the what's your fund objective the way that you're looking at stocks changed over the last five ten years compared to those first 10 years
Questioneryeah i mean i think that in this business you need to be a continuous learning build machine and i think the one thing with investing is that all knowledge is cumulative so unlike you know being a you know basketball player or a football player as you pile on the years you should be getting better and such that's wonderful and you can
Questionerand such that's wonderful and you can keep getting better into your 70s or 80s and such which is also great so yeah i mean the you know as i get to more experience i'm able to learn from especially the mistakes and also from other investors the model changes periodically i made a significant change last year in the way i run the funds and the big driver of that was that when i read the full set of letters by nick sleep he's the guy who used to run the nomad investment partnership in london and those letters i think are floating around on the internet now so if you just you know google next sleep nomad letters i think you can get the full set and i highly recommend them nick had done really well and i think him and his partner zach over the years got some very good insights and when i looked at their model and what they were doing i felt that
Todd Combsthey were doing i felt that it was vastly better than the approach i was taking and their model is really looking at these ownership stakes in businesses really as if you were the founder or the manager of the business and to think about it in the way the founding family would think about it and so that basically stretches out time horizons it's also changes the type of businesses you invest in and it's very tax efficient and actually i think more satisfying
Questionerokay no that's very interesting did that change with the way that you're valuing companies
Todd Combsbecause of the pandemic um i think no it doesn't so much change how you value businesses i think the difference is that instead of buying a business that is undervalued maybe you know 50 off or 60 off from what its intrinsic value is you focus more on long-term compounders and businesses that can grow and scale over time
Warrenover time so instead of just buying what what i've done for a long time which is discounted pies the focus changes to growing buys and growing pies you may have to sometimes pay a bit more for them because usually they're recognized as better businesses but in many cases the end result is a lot better
Questionerokay all right so georgetown is very international focused and we had a lot of students really wanted to hear kind of your thoughts on investing in multiple countries i know that's something that you have a lot of experience in
Warrenyeah so uh i mean i think one of the issues i was facing in the last few years is i was finding it difficult to find businesses to invest in the united states thing work and we may now be entering a period of uneuphoria which is fine but things seem to be priced to perfection or even overpriced etc in the case of
Questioneror even overpriced etc in the case of some good businesses and some not sosome good businesses and some not sosome good businesses and some not so good businesses andgood businesses andgood businesses and so i wanted toso i wanted toso i wanted to broaden out uh what i was looking at andbroaden out uh what i was looking at andbroaden out uh what i was looking at and i could telli could telli could tell that there were some countries wherethat there were some countries wherethat there were some countries where just thejust thejust the entire market was cheap and these areentire market was cheap and these areentire market was cheap and these are places that people are not interested inplaces that people are not interested inplaces that people are not interested in investing in equities things like placesinvesting in equities things like placesinvesting in equities things like places like japanlike japanlike japan korea turkey and so on and uhkorea turkey and so on and uhkorea turkey and so on and uh over the years you know i've hadover the years you know i've hadover the years you know i've had interaction withinteraction withinteraction with investors and fund managers all over theinvestors and fund managers all over theinvestors and fund managers all over the world andworld andworld and for example i have a good friend infor example i have a good friend infor example i have a good friend in seoulseoulseoul who's a very good fund manager he's verywho's a very good fund manager he's verywho's a very good fund manager he's very well trainedwell trainedwell trained in the methods of buffett monger andin the methods of buffett monger andin the methods of buffett monger and grahamgrahamgraham and so naturally if i were toand so naturally if i were toand so naturally if i were to look at the things that he's investinglook at the things that he's investinglook at the things that he's investing in many of those things would be ofin many of those things would be ofin many of those things would be of interest to me so iinterest to me so iinterest to me so i i asked him if i could uh visit seouli asked him if i could uh visit seouli asked him if i could uh visit seoul and if we could justand if we could justand if we could just go and visit all the companies in hisgo and visit all the companies in hisgo and visit all the companies in his portfolio andportfolio andportfolio and uh he said oh that would be such a blast
Questioneruh he said oh that would be such a blast
Questionerso i made a few trips in the last few years to korea usually their week-long trips and they we usually end up seeing about 15 or 20 businesses and there have been incredible learning opportunities and because i i had a a trusted friend who knew the the landscape and in you know i think uh like for example in in this case i was looking at you know whether i should clone things the day of that cloning is very powerful model because it's already been through one set of filters and and such and similarly in turkey there's a there's a very good friend of mine who is a a smart investor he's more grand than munger and i'm trying to transition him from ram to manga it's the same in korea because these markets are so cheap it becomes very tempting to just look at you know things are trading at three times earnings and such and not
Otherat three times earnings and such and not really focus on the better businesses that may be at eight or nine times earnings so these last few years i made several trips in uh in these countries and i met dozens of businesses and we've we've got investments in turkey and in korea now and we like those investments and uh so that's uh that's been helpful i was going to go last year to china but then that trip got cancelled because of covid and uh so that's uh hopefully once we get past all the lockdowns and such then uh that'll be one of my first trips as well to china uh related to specifically looking at businesses okay and is there anything that changes whenever you're evaluating it from one country to the next well i think you have to uh yeah there are some cultural nuances i think you should be sensitive to i i think uh it's helpful to understand uh how the
Questionerit's helpful to understand uh how the managers and owners uh think about these businesses and it's important to understand the cultural aspects of some of these some of these countries as an overlay on top of the business analysis but for the most part it's not that that different you know a business of the business and you know we want to look at the future cash flows and then we want to discount those back so most of those things are pretty standard across the board
Questionerall right and would you mind walking us through maybe some of your thoughts on some past investments either what made you decide to get in or get out of them
Questionerwell there's a large list of past investments would you like losers or winners
Questioneri guess the one that you think is the most interesting
Questionerwell i think the the best lessons come from the losers we don't really learn much
Todd Combslearn much from the winners we do make some money from the winners we do make some money from the winners we do make some money and we pat ourselves on the back so i and we pat ourselves on the back so i and we pat ourselves on the back so i think the think the think the when we lose money that those lessons when we lose money that those lessons when we lose money that those lessons get seared in and i had get seared in and i had get seared in and i had created a checklist maybe around created a checklist maybe around created a checklist maybe around 13 years ago and it's a pre-investment 13 years ago and it's a pre-investment 13 years ago and it's a pre-investment checklist checklist checklist and it goes through evolution over time and it goes through evolution over time and it goes through evolution over time you keep adding more questions you keep adding more questions you keep adding more questions but what i found in that checklist is but what i found in that checklist is but what i found in that checklist is that the that the that the and it was created looking at all the and it was created looking at all the and it was created looking at all the mistakes mistakes mistakes great investors have made where great investors have made where great investors have made where there was enough data before the there was enough data before the there was enough data before the investment was made investment was made investment was made that should have given the investor some that should have given the investor some that should have given the investor some pause but they went ahead anyway pause but they went ahead anyway pause but they went ahead anyway so there was something that was visible so there was something that was visible so there was something that was visible as a in the armor if you will as a in the armor if you will as a in the armor if you will and so what i found is i looked at these and so what i found is i looked at these and so what i found is i looked at these investments that these great investors investments that these great investors investments that these great investors made made made and they didn't work out they fell into and they didn't work out they fell into and they didn't work out they fell into what four or five categories what four or five categories what four or five categories the largest category the one with the the largest category the one with the the largest category the one with the biggest number of mistakes
Ted Weschlerbiggest number of mistakes was related to leverage so leverage was a big part of why investments didn't work out another big part was misunderstanding of the mode and the competitive advantage of somehow not not fully grasping the realities of the moat or the lack thereof and then the third big beat was the piece was management and ownership just kind of issues related to them i have had a lot of difficulty over the last couple of decades with companies with leverage and i've had multiple zeros which is a hundred percent loss of the invested capital because of leverage and uh so i'm a lot more leery about going into situations where there's a great amount of debt although we do have in businesses we do have in businesses in our portfolio currently which have significant debt but there was a lot of work i did on making sure it was ring-fenced and it couldn't really hurt you if you
Questionerand it couldn't really hurt you if you will so a big one was in i think in 2008 2007 late 2000 in the financial crisis we owned a mortgage company delta financial and delta financial basically used to they were actually a sensible underwriter of mortgages but so they would they would issue a bunch of mortgages they had these various lines of credit and then they would package those securitize those and get those off their balance sheet make their money and then go buy some more so that was their business which is you know write the mortgages and put them on the warehouse lines and then bundle them and sell them to investors and then release the money and keep going and it was a very profitable business because they didn't need much equity and so on but they got caught with a significant amount of mortgages in their warehouse lines
Questionerin their warehouse lines and the music stopped on the securitizations so they couldn't get them out and then they started tripping covenants and eventually uh with these housing prices started declining and such it eventually took them out they went bankrupt and we had a pretty significant loss i think around 50 60 million that we lost on delta financial so that's an example of you know we're not going to be doing any mortgage companies in the near future we haven't done any since then either so
Questionerthat's quite understandable and you mentioned a minute ago uh looking for competitive advantages and looking for compounders what are your thoughts on looking for that competitive advantage in businesses
Questionerwell usually it will show up in the numbers so if the business has a strong moat and strong advantages then you will see over a long period of time it's showing
Todd Combsover a long period of time it's showing up in the revenueup in the revenueup in the revenue and the growth and the cash flows youand the growth and the cash flows youand the growth and the cash flows you know like if you look at a company likeknow like if you look at a company likeknow like if you look at a company like mastercardmastercardmastercard you can just look at numbers and seeyou can just look at numbers and seeyou can just look at numbers and see that it's a great businessthat it's a great businessthat it's a great business and so motes generally willand so motes generally willand so motes generally will make themselves quite visible most ofmake themselves quite visible most ofmake themselves quite visible most of the timethe timethe time and so i think it's not that hard toand so i think it's not that hard toand so i think it's not that hard to sift through businesses and separatesift through businesses and separatesift through businesses and separate them intothem intothem into which ones are great which ones are notwhich ones are great which ones are notwhich ones are great which ones are not so greatso greatso great the issue that comes in is that usuallythe issue that comes in is that usuallythe issue that comes in is that usually the businesses that are greatthe businesses that are greatthe businesses that are great are usually well recognized as such andare usually well recognized as such andare usually well recognized as such and are usually trading at either full priceare usually trading at either full priceare usually trading at either full price ororor overpriced and so it's a combination ofoverpriced and so it's a combination ofoverpriced and so it's a combination of findingfindingfinding a great business and maybe eithera great business and maybe eithera great business and maybe either misunderstood or facing some temporarymisunderstood or facing some temporarymisunderstood or facing some temporary headwindsheadwindsheadwinds which has decimated the pricewhich has decimated the pricewhich has decimated the price and then that in that circumstance youand then that in that circumstance youand then that in that circumstance you would step inwould step inwould step in and do quite well
Questionerokay well thank you for that so we'reokay well thank you for that so we'reokay well thank you for that so we're about to turn it over to let theabout to turn it over to let the
Questionerabout to turn it over to let the audience ask questions but before we do that do you want to say anything about your foundation that you've started
Otherwell uh yeah so uh my wife and i had started the dakshina foundation in 2006. it was becoming clearer around then 2006 2007 that we would end up with significantly more assets than we could consume in our lifetime and so when you find yourself in that circumstance there are really only two things you can do you could either give it to your gene pool or you could in some way recycle it back to society and um giving it to your gene pool you know i think uh buffett has a quote he's saying if you're jesse owens son you're not really going to become a great sprinter by starting at the 40 meter line you know when everyone's starting at the zero meter line if you start at the 40 meter line
Othermeter line that's not going to make you into athat's not going to make you into athat's not going to make you into a great sprinter and sogreat sprinter and sogreat sprinter and so large inheritances actually are alarge inheritances actually are alarge inheritances actually are a disservicedisservicedisservice to the futureto the futureto the future members of your gene pool because youmembers of your gene pool because youmembers of your gene pool because you know the funknow the funknow the fun for us was making it you knowfor us was making it you knowfor us was making it you know figuring it out and having a productivefiguring it out and having a productivefiguring it out and having a productive lifelifelife if you're on a iv drip throughout yourif you're on a iv drip throughout yourif you're on a iv drip throughout your lifelifelife you know that's probably is just likeyou know that's probably is just likeyou know that's probably is just like having an ivhaving an ivhaving an iv drip in the hospital you know doesn'tdrip in the hospital you know doesn'tdrip in the hospital you know doesn't sound so interestingsound so interestingsound so interesting so i think uh basically if you eliminateso i think uh basically if you eliminateso i think uh basically if you eliminate the pro possibilities of just giving itthe pro possibilities of just giving itthe pro possibilities of just giving it to your gene poolto your gene poolto your gene pool and it's okay to give something to yourand it's okay to give something to yourand it's okay to give something to your gene poolgene poolgene pool like i think you could put jesse ovenlike i think you could put jesse ovenlike i think you could put jesse oven son at the 5 meter lineson at the 5 meter lineson at the 5 meter line not the 40 meter line that's probablynot the 40 meter line that's probablynot the 40 meter line that's probably okay then the only choice left is tookay then the only choice left is tookay then the only choice left is to give it back to society and what igive it back to society and what igive it back to society and what i wanted to do so i knew we were going towanted to do so i knew we were going towanted to do so i knew we were going to recycle backrecycle backrecycle back i wanted to do iti wanted to do iti wanted to do it similar to the way we do investing wesimilar to the way we do investing wesimilar to the way we do investing we just look for
Otherjust look for high social return on invested capital and so i didn't want to just have you know some building named after me or something uh that has no appeal to me but uh i wanted to see if these uh resources could be used in a efficient way for the benefit of society and actually it's worked out really well akshana basically helps very poor underprivileged kids who are very bright in india and we prep them and get them accepted at the top elite schools in india and these elite schools in india are pretty cheap to attend but they're very hard to get into so the prep is very expensive and so because we provide the prep for free it's a level it takes away the advantage the rich or upper middle class kids have and it's worked out really well we've had several thousand kids uh get into the iits and the top medical schools and so on and so
Otherthe top medical schools and so on and so it's been very satisfying and it's uhit's been very satisfying and it's uhit's been very satisfying and it's uh done far better than i would havedone far better than i would havedone far better than i would have thought so it's worked out greatthought so it's worked out greatthought so it's worked out great
Questionerwell good good that's great to hear andwell good good that's great to hear andwell good good that's great to hear and it looks likeit looks likeit looks like chris has his hand uphere thank you very much uh claytonhere thank you very much uh claytonhere thank you very much uh clayton great job for uhgreat job for uhgreat job for uh organizing this and thank you all fororganizing this and thank you all fororganizing this and thank you all for coming when you say umcoming when you say umcoming when you say um as a part of our graduate investmentas a part of our graduate investmentas a part of our graduate investment point of care we invest we're a longpoint of care we invest we're a longpoint of care we invest we're a long equity fundequity fundequity fund uh we invest in just different publicuh we invest in just different publicuh we invest in just different public securities essentially and we'resecurities essentially and we'resecurities essentially and we're benchmarked to the mscibenchmarked to the mscibenchmarked to the msci acqui uh all country world index is ouracqui uh all country world index is ouracqui uh all country world index is our as our benchmark indexas our benchmark indexas our benchmark index um we want to share so and we know yourum we want to share so and we know yourum we want to share so and we know your specialty as you you were mentioning isspecialty as you you were mentioning isspecialty as you you were mentioning is value investing so our portfoliovalue investing so our portfoliovalue investing so our portfolio uh over the last several years has beenuh over the last several years has beenuh over the last several years has been uh actually traditionally moreuh actually traditionally moreuh actually traditionally more high growth stocks that have performedhigh growth stocks that have performedhigh growth stocks that have performed quite well in the tax space uhquite well in the tax space uhquite well in the tax space uh particularly our uhparticularly our uhparticularly our uh ford pe is about 23 for our entire
Questionerford pe is about 23 for our entire portfolio versus the msci equity which is around 18 which has done well over the last two years but this year it's starting to hurt us as we see you know with with the the yield curve increasing and steepening and that's hurting uh some of the very expensive names in our portfolio and we're looking to add more value and kind of uh would love to get your your opinion and advice as to some things we should be looking at to to incorporate more value uh for the market trends this year
Warrenwell i mean i think that i wouldn't look at the trends and i also wouldn't uh be particularly concerned about forward pe of 23 versus market at 18 or whatever i think that the pe is a you know it's an inadequate metric to help us too much so i think what really matters is the businesses that you own in the portfolio
Questionerwhat are their prospects in the next five or ten years and what what kind of revenues and cash flows to generate over that period and so if they are growing at you know if you're paying 23 times forward earnings but if these businesses are growing at 20 30 a year and that growth would continue for you know five or ten years those are not expensive businesses and i would ignore whatever noise there is with temporary you know drawdowns and so on
Questionerand uh so i think it's it's really a matter of i i never focus on what is happening in markets and uh you know macro events and all of that i i think at the end of the day what matters is how does a particular business do over a long period of time and so i think that one of the things i learned last year from nick sleep so you know nick sleep said that you know walmart went public in
Questionerwalmart went public in 1970 and it's now 51 years and the only investors who have held the stock for 51 years is the walton family and other investors did not hold it for 50 years or 40 years or even 30 years and nick sleep makes the point that for a large portion of walmart's history like in the 70s and maybe even into the 80s you could have paid 100 times earnings for walmart and you would have still had a home run and you would have still beaten the market so walmart is a business that has shown us that the post-public runway because they were private before that which they also did very long but just as a public company that runway has lasted for over half a century and it doesn't look like it's running out of steam anytime soon they're still cranking i think the important thing in investing is can i tell what a business looks like five years or
Todd Combswhat a business looks like five years or ten years from now, what are their cash flows likely to be and i think the important thing that i learned from nick sleeve is if you find yourself in the position of having ownership in a great business which has great growth prospects for a long time the best thing to do is do nothing, just and we might have drawdowns and different things going on, uh because you know when the index goes down everything goes down but what we should focus on is the underlying business app
Otherthank you very much thank you and let's hear
Questionerjesus want to ask your question
Questioneryes thank you very much moniz i am a long time ago follower of you guys here and i was in omaha two two years ago but i didn't see you and i have a couple of questions but i just limit to one what advice would you give to us as younger investors in case we wanted to start
Questionerin case we wanted to start our own investment vehicles you have been advocated a lot for the zero twenty five structure fee but i don't see that it's official at least in the at the beginning and which advice would you give to us uh to if we want to start with our own thing with our own vehicle so i'm sorry you you said it's not feasible at the beginning i don't know that's my question yeah so
Questioneri think that uh yeah so i would recommend the 0625 structure and i would recommend that structure right from the beginning you know if i were to maybe tell the story of lilu who is the money manager for charlie munger munger gave him money to manage because lilu came as a penniless student from china you know studying at colombia on student loans and there was a float between the time he got the loan and the time the money was spent or the tuition
Questionertime the money was spent or the tuition was paidwas paidwas paid and in that float periodand in that float periodand in that float period he invested the money and by the time hehe invested the money and by the time hehe invested the money and by the time he graduatedgraduatedgraduated he had over a million dollarshe had over a million dollarshe had over a million dollars just from the float of the student loansjust from the float of the student loansjust from the float of the student loans and then heand then heand then he uh continued to invest anduh continued to invest anduh continued to invest and his net worth continued to go up sohis net worth continued to go up sohis net worth continued to go up so charlie munger's perspective is thatcharlie munger's perspective is thatcharlie munger's perspective is that if he were going to give a money managerif he were going to give a money managerif he were going to give a money manager money to manage themoney to manage themoney to manage the first basic criteria he would look forfirst basic criteria he would look forfirst basic criteria he would look for is is the guy financially independentis is the guy financially independentis is the guy financially independent because if you are a gifted moneybecause if you are a gifted moneybecause if you are a gifted money managermanagermanager even if you start with small sums andeven if you start with small sums andeven if you start with small sums and you're beating the market by someyou're beating the market by someyou're beating the market by some healthy marginhealthy marginhealthy margin probably by the time you're 35 or 40probably by the time you're 35 or 40probably by the time you're 35 or 40 uh you should be independently wealthyuh you should be independently wealthyuh you should be independently wealthy andandand if that is not the case then charlieif that is not the case then charlieif that is not the case then charlie would say well you don't deserve towould say well you don't deserve towould say well you don't deserve to get money from him to be to be managingget money from him to be to be managingget money from him to be to be managing so the the first question i would askso the the first question i would askso the the first question i would ask any money manager isany money manager isany money manager is what has been your wealth accumulationwhat has been your wealth accumulation
Questionerwhat has been your wealth accumulation with your own money before you're looking for other people to give you money to manage in my in my case for example i had sold a portion of my business for about a million dollars in 94 and i think by 1999 i wasn't even asking people to give me money they had come to request me to take their money by 1993 that that was north of 10 million so in about five years it had gone up more than 10x
Otherand buffett says that if you are a manager who has delivered and maybe in the future is likely to deliver significantly above market returns then you could be a leper on a rowboat in the middle of the atlantic and they will swim through shark-infested waters to give you money to manage so there's nothing you need to do other than you know do your work and they will find they will find you trust me and they will want to put money to
Questionerand they will want to put money to manage with you somanage with you somanage with you so if someone is start starting a fund myif someone is start starting a fund myif someone is start starting a fund my advice to themadvice to themadvice to them number one i would say what have younumber one i would say what have younumber one i would say what have you donedonedone in the past for yourself and becausein the past for yourself and becausein the past for yourself and because that is i think the basic proof that youthat is i think the basic proof that youthat is i think the basic proof that you areareare a good manager is if you have actuallya good manager is if you have actuallya good manager is if you have actually accumulated some wealthaccumulated some wealthaccumulated some wealth if that is true that you haveif that is true that you haveif that is true that you have accumulated some wealthaccumulated some wealthaccumulated some wealth i think then the second piece becomesi think then the second piece becomesi think then the second piece becomes relatively easyrelatively easyrelatively easy people will look at that and bepeople will look at that and bepeople will look at that and be interested ininterested ininterested in giving you money to manage but if thatgiving you money to manage but if thatgiving you money to manage but if that is not the caseis not the caseis not the case then you focus on friends familythen you focus on friends familythen you focus on friends family and foods and amongst the three theand foods and amongst the three theand foods and amongst the three the foods are the most importantfoods are the most importantfoods are the most important so i would go with the zero six twentyso i would go with the zero six twentyso i would go with the zero six twenty five and the zero six twenty five shouldfive and the zero six twenty five shouldfive and the zero six twenty five should not be a problem if you arenot be a problem if you arenot be a problem if you are independently wealthyindependently wealthyindependently wealthy and it gives you a competitive advantageand it gives you a competitive advantageand it gives you a competitive advantage because a lot of my investors will notbecause a lot of my investors will notbecause a lot of my investors will not put money with managersput money with managersput money with managers who charge you know one or two percent
Questionerwho charge you know one or two percent management fees because they like that alignment of interest so that's that's what i would recommend thanks a lot sure thanks a lot thank you and if you want to go next i hope i'm pronouncing that correct hi manish um i wanted to ask during your first couple of years running propriety funds you had i imagine investors who thought a lot like you or who believed in your frame of uh investing how about the next 10 to 20 years how did you find um you know a choir that sang to your team i'm sorry uh can you just repeat that so the first yeah so so the first couple of years your first early investors in propriety funds they the investors probably thought a lot like you and believed in your value investing framework yeah how did you get more investors who thought in the same way uh what that journey yeah i think i think that's relatively
Questioneryeah i think i think that's relatively yeah i think i think that's relatively straightforward so straightforward so straightforward so if you are if you own a mcdonald's if you are if you own a mcdonald's if you are if you own a mcdonald's and you put a sign of mcdonald's outside and you put a sign of mcdonald's outside and you put a sign of mcdonald's outside and when you go in this restaurant you and when you go in this restaurant you and when you go in this restaurant you serve serve serve fine french food you're going to have a fine french food you're going to have a fine french food you're going to have a very confused very confused very confused customer base who may not come back customer base who may not come back customer base who may not come back because they wouldn't understand what's because they wouldn't understand what's because they wouldn't understand what's going on going on going on and if you have a fine french restaurant and if you have a fine french restaurant and if you have a fine french restaurant and inside is and inside is and inside is you're serving mcdonald's hamburgers you're serving mcdonald's hamburgers you're serving mcdonald's hamburgers your customers again get confused your customers again get confused your customers again get confused so i would say that what my experience so i would say that what my experience so i would say that what my experience has been has been has been is that the behavior and the way you is that the behavior and the way you is that the behavior and the way you interact with the investors interact with the investors interact with the investors will drive who comes to the restaurant will drive who comes to the restaurant will drive who comes to the restaurant and what ends up happening is that if if and what ends up happening is that if if and what ends up happening is that if if you have the right you have the right you have the right kind of you know rules and behavior kind of you know rules and behavior kind of you know rules and behavior you will naturally attract the right you will naturally attract the right you will naturally attract the right kind of investor kind of investor kind of investor so i am a weird guy so i am a weird guy so i am a weird guy if you got to know me better you would if you got to know me better you would if you got to know me better you would know that i'm quite weird know that i'm quite weird know that i'm quite weird so one of the things i decided
Otherso one of the things i decided when i was independently wealthy is i just want to do things my way you know what's the point of being independently wealthy if you can't do things your way so i don't like a lot of human contact generally human contact is not that exciting and i don't like to have a lot of conversations with potential investors or even current investors etc i just like to be in a room by myself that's quite exciting for me so i set up some rules okay my rules were if you wanted to invest in paprika funds i was not available to talk to you and i wasn't available to really interact with you there was a lot of information on our website you could read that and if you were excited about what you read we could send you subscription documents and you could join the funds and if you wanted to meet the fund manager or have conversations
Otherthe fund manager or have conversations or have a quarterly call or any of those things well that just wasn't going to happen so i opened a mcdonald's i put up a sign which said mcdonald's and when you went in they were just great big bags that you could have so what happened is that under these rules under these weird rules certain things happen and i i actually i can only say that because now i have the experience of seeing who walked into the mcdonald's i've seen for 20 years who walked in and who just looked at the sign and the rules and just walked on right so the people who walked in to the restaurant were almost all principles they were almost no agents right so first of all when people are coming to invest is the people who have their own money and their their agents were so for example a university endowment it's run by agents it's not their money
Otherit's run by agents it's not their money and so when a university endowment would look at forbiddens they would call and say can we have a conversation you know we have n billion under management and my assistant would just give them the website link and id and password and say wow and very quickly they would move on because they're not getting what they need right and so so what ended up happening is because of so the way you set up your rules and what you put on the outside of this restaurant the signage is important i ended up with an investor base which is principles it's their own money and the second aspect of the demographic i have is most of them are first-generation entrepreneurs so most of them are not you know third generation wealth coming down these are individuals who basically for the most part created their own business created some
Questionercreated their own business created some wealth and the other thing because i was not willing to have conversations these were people who were willing to do research on their own so they were willing to go into a website look at it i mean i have investors in new zealand who i have never met we have never had a phone call and they've wired several million dollars to us after going to our website the good news is i'm not a fraud and that money is actually there and everything's fine no problem and to my investors in new zealand thank you very much i love having you and uh we have an annual meeting once a year and people show up people show up from all over the world for the annual meeting it's great and uh usually i'm meeting uh some of the investors for the first time there are lots and lots of investors i have lots of families i have that i have
Questionerlots of families i have that i have never met and i have never had a phone call but i still love them i want to let them know that i do love them so i think that whatever rules you set up and whatever your signage is is going to naturally drive who enters your funds and i really like the cast of characters uh we have around like you know i know 350 or 400 families in paper ifans i love these guys i love these families they're wonderful and i'm happy that we've been able to do something so it's worked out very well and
Otherdavid if you'd like to go hi and thank you again so much for meeting with us particularly given how exclusive it is to be able to meet with you i feel very much more lucky to be able to meet with you and you must have one of the best websites in the whole wide world um so thank you very much my question though is more about stock
Questionermy question though is more about stock picking the way that our club operates is we have sector heads and the sector heads have their analysts who help them who support them and then after they come up with an idea for a stock that idea is pitched to the club and we vote on it and a majority through a majority vote it goes into the fund my question though is there is a universe with hundreds of thousands of publicly traded securities out there what suggestions would you have for young people like us to just put our finger up there and say this is a good area to invest in or this is a good stock to invest in how do you sort of get your head around that universe of publicly traded securities available
Warrenyeah well that's a that's a good question i mean i think the first thing is that you don't need to have an opinion on most of these securities in fact i would say you don't need to
Questionerin fact i would say you don't need to have an opinion on 99 of them so the first thing i would do is try to figure out what are the parts of the world that i understand what's my circle of competence do i understand you know the banking sector really well or do i understand apple really well what do i understand really well if you understand something really well by definition you would know what that business is worth and then then you know what it's worth and you know what it's being priced at and you can see whether there's a delta between the two so i would not focus on you know looking at this whole great big white world i would just look at you know things that you know about things that you understand products that you use just things around you that make sense you read the newspaper something intrigues you about something and
Questionerand you dive in and dig in and then take it from there so that's how i would go about it i would not really try to complicate it more than that and as a follow-up after you've identified a company that you think is interesting how do you decide if it's worth pulling the trigger and executing on that particular company
Questionerwell i think it should get to a point where you should be able to explain to a nine-year-old in about five sentences why you're gonna be drowning in wealth after investing in that business and why there's no chance you would lose any money and so if you can explain to it to eight or nine year old in a paragraph of this then i think you got it
Otherthank you all right perfect thank you
Questionerand jesus uh you had another question yeah if i may and we have time i i see it also covered it this year has changed a lot of things the way we do the way we buy the way we interact with
Questionerthe way we buy the way we interact withthe way we buy the way we interact with other peopleother peopleother people we connect we do businesswe connect we do businesswe connect we do business one of the things that are reallyone of the things that are reallyone of the things that are really strugglingstrugglingstruggling is the how we purchase thingsis the how we purchase thingsis the how we purchase things you know and it it surprised meyou know and it it surprised meyou know and it it surprised me that it appears that you opened recentlythat it appears that you opened recentlythat it appears that you opened recently a position in certain age growtha position in certain age growtha position in certain age growth propertiespropertiesproperties specializing commercial property whatspecializing commercial property whatspecializing commercial property what are you seeing there that otherare you seeing there that otherare you seeing there that other investorsinvestorsinvestors don't see i see other investors runningdon't see i see other investors runningdon't see i see other investors running away from commercialaway from commercialaway from commercial retail rate and commercialretail rate and commercialretail rate and commercial properties and you are goingproperties and you are goingproperties and you are going into that sector is there anything elseinto that sector is there anything elseinto that sector is there anything else despite the pricedespite the pricedespite the price
Warrenwell i'll mostly doubt your question butwell i'll mostly doubt your question butwell i'll mostly doubt your question but i would say thisi would say thisi would say this that the stock market is like athat the stock market is like athat the stock market is like a theater andtheater andtheater and in the theater the rule is thatin the theater the rule is thatin the theater the rule is that every seat has to be occupiedevery seat has to be occupiedevery seat has to be occupied or in other words if there is aor in other words if there is aor in other words if there is a business and it hasbusiness and it hasbusiness and it has 10 million shares outstanding every one10 million shares outstanding every one10 million shares outstanding every one of those sharesof those sharesof those shares has to be owned by somebody there's nohas to be owned by somebody there's nohas to be owned by somebody there's no shares just sitting there with nobody
Othershares just sitting there with nobody
Otherso the seats in the theater are fully occupied
Otherand they always have to be fully occupied and
Othernow there is a fire in the theater or someone yells fine
Otherso when you hear the word fire you want to just get up from your seat
Otherand go to the exit
Otheryou don't want to really ask any questions whether there's a real fire or a fake fire you just say
Otheri am out of here but there's a rule in this theater
Otherwhich is different from the other theaters that
Otheryou can only leave your seat if you find somebody else to take your seat
Otherbecause that share has to be held by someone
Otherright so it's not like you can just leave the theater
Otherand the seat will be empty no the rule is
Otheryou can leave the teeth but you need to find somebody outside who will come and
Othersit inside the theater
Otherand so you know you go outside the theater and say listen
Warrentheater and say listen it's okay the movie is great there's a little bit of fire and there's some smoke but it don't really worry about it it's really probably nothing but i'm giving you my ticket which cost me ten dollars please you can have it for 50 cents do you want to take it and the guy says you know not really he says listen please take it for 25 cents okay so there is a clearing price for the ticket because you can't leave till somebody sits in your seat and so now we will answer that question on sarotaj at some point when i don't own it okay sometime in the future i will not own it i would just say that before covet cereta was trading at 35 or 40 a share and there was suddenly a fire and instantly the stock went to six to nine dollars a share so that was the price at which somebody else was willing to buy that seat me being one of them
Otherbuy that seat me being one of them and uh i own uh hand uh i own uh hand uh i own uh 1 8 little more than 1 8 of all the 1 8 little more than 1 8 of all the 1 8 little more than 1 8 of all the seats seats seats in that theater so in that theater so in that theater so i must like the movie it may be a little i must like the movie it may be a little i must like the movie it may be a little warm under my seat but the movie is warm under my seat but the movie is warm under my seat but the movie is great great great
Questioneramazing answer amazing answer thank you very much i'm sorry if i very much i'm sorry if i very much i'm sorry if i put you in a difficult oh no no i'm glad put you in a difficult oh no no i'm glad put you in a difficult oh no no i'm glad you enjoyed my answer you enjoyed my answer you enjoyed my answer and i hope i can give you a more richer and i hope i can give you a more richer and i hope i can give you a more richer answer in the future answer in the future answer in the future i will get that answer in the future yes i will get that answer in the future yes i will get that answer in the future yes absolutely absolutely absolutely great thank you and brendan you had a great thank you and brendan you had a great thank you and brendan you had a question question question
Questioneryeah manish thank you for coming today yeah manish thank you for coming today yeah manish thank you for coming today it's we've learned a lot and know the it's we've learned a lot and know the it's we've learned a lot and know the funds taken a lot from this funds taken a lot from this funds taken a lot from this to build off the last two questions to build off the last two questions to build off the last two questions talking about talking about talking about feeling the fire under this sheet when feeling the fire under this sheet when feeling the fire under this sheet when we take a position i'm having a personal we take a position i'm having a personal we take a position i'm having a personal problem with this as well as the fun problem with this as well as the fun problem with this as well as the fun could could could also work on this taking a position also work on this taking a position also work on this taking a position that's grown to a sizeable portion of that's grown to a sizeable portion of that's grown to a sizeable portion of the portfolio
Questionerthe portfolio and then learning when to pair back that position or even exit the trade um whether it's reach intrinsic value or it's just become a large part of the portfolio that's starting to adversely affect the diversification so my question is when do you realize you should start pairing back your trade and start taking some profits in a position
Todd Combswell the walton family hasn't done that for 51 years and many many founders have not done that so the question i would ask and this is i think i think you would get a lot out of next leaps letters is the question i would ask is is the business getting better so i wouldn't really focus so much on the valuation so my mindset would be that of a founder that i'm like a founder or a family that owns the business and uh i'm not particularly concerned that it's worth 100 and it's trading at 120.
Todd Combsit's worth 100 and it's trading at 120. that is i think a relevant data point for me what i'm concerned about is what is the quality of the business and is the business getting better now if the valuation is completely egregious right i mean like you know snowflake or something you know this thing is trading at 80 times sales or something well that's a different conversation okay but i wouldn't be particularly concerned if there was a good business and i think it should be worth 20 times earnings and it's trading at 30 times i don't think the factor there would be that it's i can find something at you know 12 times earnings then do that so there's tax implications for that in most accounts i used to be an investor who used to look at intrinsic value sell and go back and buy something else i think that if i own a great business that's the question i want to ask is the
Warrenthat's the question i want to ask is the business getting better and if the answer is yes and the pricing is not extremely egregious i'm just doing nothing great thank you okay and the other thing is i think that this pairing back issue is that we should be comfortable with 95 in one stock so if if you made a great investment in amazon 10 or 15 years ago and it just grew and grew and grew and it became like 80 90 portfolio and you look at amazon today is the business getting better absolutely it's getting better by the day and uh is it egregiously overvalued i don't think so you know so my answer would be if it was 95 of my portfolio and i owned it for 15 years i would just do nothing you know jeff is telling me it's day one it's still day one so we'll wait till at least day two when he says it's day two i'll look at it all right great thank you and adam you
Otherall right great thank you and adam you had a question
Questioneruh yes thank you uh clayton um thank you sir for this very interesting presentation i was just wondering if you could uh briefly talk a little bit more about you you mentioned you alluded to correlation and whether you had a view on what's a good number of stocks in a portfolio um
Warreni would say if you talk to charlie he would say that you don't need more than four or five stocks i'd say if you were running your own money probably that's a good answer you know four or five stocks is good for iphones usually i don't put more than 10 into something uh it's other people's money you know the guy in new zealand we got to take care of him so yeah i mean but i don't think one should own 30 stocks or 20 stocks i think i think you know 10 is plenty
Otherthank you great thank you and isaac you had a question uh yes uh thank
Questionerisaac you had a question uh yes uh thank you manish for coming to speak with us you manish for coming to speak with us you manish for coming to speak with us i have a question have a question have a question regarding level of uh certainty and regarding level of uh certainty and regarding level of uh certainty and how much information you need to know how much information you need to know how much information you need to know before entering a physician before entering a physician before entering a physician and if what i've found is if you and if what i've found is if you and if what i've found is if you in my own personal investing is there's in my own personal investing is there's in my own personal investing is there's a certain point between a certain point between a certain point between you know getting comfortable as a you know getting comfortable as a you know getting comfortable as a position and knowing everything when i'm position and knowing everything when i'm position and knowing everything when i'm comfortable comfortable comfortable starting to invest and i continue doing starting to invest and i continue doing starting to invest and i continue doing my research and you're never going to my research and you're never going to my research and you're never going to get to get to get to understanding 100 of a business but i understanding 100 of a business but i understanding 100 of a business but i always aim to get to a level where i'm always aim to get to a level where i'm always aim to get to a level where i'm comfortable comfortable comfortable knowing it and i'm just curious to hear knowing it and i'm just curious to hear knowing it and i'm just curious to hear your thoughts on how much your thoughts on how much your thoughts on how much information you need to understand for information you need to understand for information you need to understand for your level of conviction to be a buy your level of conviction to be a buy your level of conviction to be a buy
Otheryeah i think there's a couple of yeah i think there's a couple of yeah i think there's a couple of approaches you know i think what i approaches you know i think what i approaches you know i think what i noticed with someone like lilu noticed with someone like lilu noticed with someone like lilu or even with nick sleep is they tend to
Questioneror even with nick sleep is they tend to start these positions small and they don't seem to have a problem with buying as it goes up in price they don't have a problem paying more i think i think lilu has spoken that he believes that risk factors go down as you own the business for longer because you know more about it and uh and so even even though you're paying a higher price your amount of knowledge is just vastly superior and the other thing is what i found to be true is you really understand a business only after you own it so it has to be real you're not having real money in a portfolio that's when you really start to understand it so it could be just fine i mean i think when uh nick sleep was running his portfolio he would have 30 stocks but you know seven or eight stocks would make up 70 80 and then there was a farm team on the side which is you know a bunch of
Questioneron the side which is you know a bunch of small positions which might move up to you know the major leagues at some point or might not so you could take that approach i haven't taken that approach in my portfolio but i think that's a valid approach and that's fine so you could do a couple of different ways
Otherthank you elliot it looks like you have a question
Questioneroh yeah um i just want to ask you about like so from your own standpoint like when you come back investing particularly for those perspective investors who want to be more active within the emerging market especially for those type of companies with less disclosure capacity less regulatory disclosure and also more volatile business nature when you're going to do those big negative value investing what are the key suggestions you will give to investors especially right now they may not have
Questionerespecially right now they may not have enough like access to those information from your own standpoint when what's the risk or suggestion you will give
Questionerwell i would say that you should be willing to take a pass if you're not getting all the data you need all the data to be comfortable there's such a large range of businesses that you could invest in that if if you're looking at a company and you don't have enough information i mean i think disclosures can be low in a business but your understanding can be really good so i don't think it's a direct correlation between disclosure and understanding the key is so for example it could be there's an emerging market business where you are a consumer of the product and you understand the product really well and you also have a very good understanding of the economics of the business around that product
Otherproduct so if you understand the product and you know the vote and all of that then the disclosures the company is doing is not that relevant because i think you have a great and the other thing is to look at the track record you know it should show up in the in the historic track record and uh so i think that i would not want to invest i don't invest anything until i have great conviction and you can get great conviction even if the business is not providing a lot of detail if you really understand it well uh but if you don't get that great conviction i think you should have the discipline to move on
Questionerall right thank you so much sure all right
Otherand it looks like we have time for one last question at david
Questioneryou want to go yeah hi so i just have an additional question um what what's been worrying you these days in the market um obviously the market
Questionerin the market um obviously the market has been on a tear since since i guess june may but what what has been worrying you lately
Warrenuh you know so there's a saying if wealth is lost nothing is lost if health is lost something is lost and if character is lost everything is lost i don't think i've ever been concerned about the markets or wealth or anything so i think what is happening in the market for the most part is it relevant you know even during the financial crisis i think that uh my portfolio was down like two thirds and later uh my wife was telling me that she didn't realize that was going on because she didn't see any change in my demeanor or anything you know there was no change in fact those are good times because you get a lot of good opportunities to do things i i am never really interested or focused on the market i'm really looking at individual
Questioneri'm really looking at individual businesses businesses businesses and sometimes these individual gold and sometimes these individual gold and sometimes these individual gold businesses go on sale because of businesses go on sale because of businesses go on sale because of specific circumstances around that specific circumstances around that specific circumstances around that business some temporary hiccups business some temporary hiccups business some temporary hiccups and uh sometimes they go on sale because and uh sometimes they go on sale because and uh sometimes they go on sale because everyone's panicked and every theater is everyone's panicked and every theater is everyone's panicked and every theater is on fire on fire on fire you know it's not just one theater on you know it's not just one theater on you know it's not just one theater on fire it's like a hundred theaters on fire it's like a hundred theaters on fire it's like a hundred theaters on fire fire fire and such you know so then um then those and such you know so then um then those and such you know so then um then those tickets really get discounted tickets really get discounted tickets really get discounted
Otheryeah so i think you know it's too yeah so i think you know it's too yeah so i think you know it's too minotia to minotia to minotia to worry yourself about these things
Questionergreat thank you so that wraps up our great thank you so that wraps up our great thank you so that wraps up our time for today time for today time for today are there any last thoughts or pieces of are there any last thoughts or pieces of are there any last thoughts or pieces of advice you would like to share advice you would like to share advice you would like to share
Otherwell i really enjoyed the session you well i really enjoyed the session you well i really enjoyed the session you know it's always uh know it's always uh know it's always uh when we do these sessions it's kind of when we do these sessions it's kind of when we do these sessions it's kind of hard to tell where it goes hard to tell where it goes hard to tell where it goes i think this uh this session went well i i think this uh this session went well i i think this uh this session went well i think we think we think we covered some nice ground and some good covered some nice ground and some good covered some nice ground and some good areas areas areas it was fun for me and i hope it was fun it was fun for me and i hope it was fun it was fun for me and i hope it was fun for you for you for you it was absolutely fun for me enjoy it it was absolutely fun for me enjoy it it was absolutely fun for me enjoy it very much very much very much and thank you everybody for coming today