Other[Music][Music]all right so speaker today so before theall right so speaker today so before theall right so speaker today so before the classclassclass first of all one is poke at this classfirst of all one is poke at this classfirst of all one is poke at this class years agoall right so today will speak in Englishall right so today will speak in Englishall right so today will speak in English but I see many of you already holdingbut I see many of you already holdingbut I see many of you already holding questions if you alright so this will bequestions if you alright so this will bequestions if you alright so this will be finished in two hours and then afinished in two hours and then afinished in two hours and then a reception afterwards outside so then youreception afterwards outside so then youreception afterwards outside so then you have this so what about you
Other[Applause]meowwhy speaking - way pleasure to be withwhy speaking - way pleasure to be withwhy speaking - way pleasure to be with all of you and last year I was with youall of you and last year I was with youall of you and last year I was with you through a webcam so it's better to havethrough a webcam so it's better to havethrough a webcam so it's better to have a face-to-face interaction and and Ia face-to-face interaction and and Ia face-to-face interaction and and I really enjoyed the talk last year andreally enjoyed the talk last year andreally enjoyed the talk last year and and I'm looking forward to this year asand I'm looking forward to this year asand I'm looking forward to this year as well so you know this this session is inwell so you know this this session is inwell so you know this this session is in two parts first part is my choice andtwo parts first part is my choice andtwo parts first part is my choice and second part is your choice where you cansecond part is your choice where you cansecond part is your choice where you can ask me whatever whatever you like to askask me whatever whatever you like to askask me whatever whatever you like to ask me and in the first part what I'm goingme and in the first part what I'm goingme and in the first part what I'm going to focus on is there is a quote I thinkto focus on is there is a quote I thinkto focus on is there is a quote I think it's a quote by Einstein and he saysit's a quote by Einstein and he saysit's a quote by Einstein and he says that take a simple idea and take it
Otherthat take a simple idea and take it seriously so when you study a lot of successful people who this goes beyond investing you study a lot of successful people when you break it down and get to the core you will find that the idea that made them so successful is really simple what made them successful was that they were very intense and they were very fanatical about so for example even when I was walking here I found it's all the yellow bicycles and the school started speaking you and the idea is not complicated right it's a simple idea it's it's about the execution so so it's very important that when we find simple ideas that are very powerful that we adopt those ideas in a very intense nap and when we adopt those ideas an intense manner of that's when you can have very amazing outcome so we know we're going to go back to a time almost almost 70 almost 80 years
Questionertime almost almost 70 almost 80 yearstime almost almost 70 almost 80 years ago 1941 and it was in the middle ofago 1941 and it was in the middle ofago 1941 and it was in the middle of World War 2 and the world was in theWorld War 2 and the world was in theWorld War 2 and the world was in the middle of going itself 1 while the worldmiddle of going itself 1 while the worldmiddle of going itself 1 while the world was in the middle of growing its alphawas in the middle of growing its alphawas in the middle of growing its alpha there was a Levin year old kid in Omahathere was a Levin year old kid in Omahathere was a Levin year old kid in Omaha first named Warren who checked out afirst named Warren who checked out afirst named Warren who checked out a book from the Omaha Public Library andbook from the Omaha Public Library andbook from the Omaha Public Library and can you put up the picture of the bookcan you put up the picture of the bookcan you put up the picture of the book just press next next so this is the bookjust press next next so this is the bookjust press next next so this is the book that Warren Buffett checked out when hethat Warren Buffett checked out when hethat Warren Buffett checked out when he was 11 years oldwas 11 years oldwas 11 years old 1000 ways to make a thousand dollars1000 ways to make a thousand dollars1000 ways to make a thousand dollars very corny title and the book wasvery corny title and the book wasvery corny title and the book was actually published in 1936 and if you goactually published in 1936 and if you goactually published in 1936 and if you go on Amazon or you know other websites inon Amazon or you know other websites inon Amazon or you know other websites in China you can still buy the book todayChina you can still buy the book todayChina you can still buy the book today so very easy to buy on your smartphoneso very easy to buy on your smartphoneso very easy to buy on your smartphone and and Warren Buffett when he was 11and and Warren Buffett when he was 11and and Warren Buffett when he was 11 years oldyears oldyears old read this book and after he read thisread this book and after he read thisread this book and after he read this book he thought he died and went tobook he thought he died and went tobook he thought he died and went to heaven because after he read the book atheaven because after he read the book atheaven because after he read the book at 11 years he said that by the time I am
Other11 years he said that by the time I am going to be 35 years old I'm going to be a
Otherokay so now the book is not telling you how to be in believe it's only telling you how to make a thousand dollars and a thousand dollars in 1936 today would be around 15 thousand dollars approximately I think 15 x inflation which is approximately 100,000 rmb okay so all the book is saying is how do you make a hundred thousand R&B and what Warren was doing was he was overlaying two mental models so the first model was the book showed in many ways - how to make a thousand dollars he needed some seed this was the seed camp the second was what Einstein called the eighth wonder of the world which is the power of compounding so at 11 years old even before he was 11 he had figured out the power of compound and so he knew that if he can get the thousand dollars and he
Otherhe can get the thousand dollars and he can put it on a compounding engine then by the pan he's 35 he doesn't he did the math you know a smart man he would have a million dollars and what actually happened is that when he was 35 years old in 1965 he was probably worth close to I would say eight or nine million dollars which is today probably worth about 60 maybe 60 or 70 million so he made what he said he was going to do it happened and I'm going to come back to the 11 year old kid in Omaha in a second we're going to put on the side and and what we're gonna do is we're gonna we're gonna go back about four centuries I'm sorry this is the history lesson but we're going to go back for centuries to 1626 okay so in the year 16 26 we're trying to buy an island Manhattan so New York City sits on an island that I learned is called Manhattan about probably 50 60 square
CharlieManhattan about probably 50 60 square kilometers of land and the dot wanted to buy that land and that land is on there although you know Center epicenter of Western capitalism and so on search today and the native Indians who owned that land said okay let's make a deal there were no bankers and the deal was done in 1626 for $24 so Peter Minuit was a guy representing the Dutch he gave the Indians $24 and title of that property which is now Manhattan passed to the Dutch now what people normally hear the story they say all the the Indians they got taken you know you look at Manhattan it's so valuable just $24 but let's say that the Indians had a chief investment officer and let's say they told that chief investment officer listen for the benefit of the tribe will next several generations please invest this money and we don't have high expectations please get us 7%
Otherhave high expectations please get us 7% in you we're happy if you could give us 7% you know most of the people in this room will easily do more than 7% so if if the investment officer had delivered 7% a year so there is something known as the rule of 72 most of you are probably familiar with it over 72 but I'm I'm saying the rule of 72 for the benefit of LC JC JC the rule of 72 is very important more important than what your teacher is all right so the rule of 72 in a simple way for us to calculate how long it takes money to down so if I was 7% rate of return I can do 72 divided by 7 approximately it's 10 so it takes 10 years for the money to double so if it's 16 26 I have 24 dollars it means in 1636 I have 48 dollars 16 46 I have 96 dollars and so on right now if I take ten to ten periods of 10 years each that is $10 and to the power of 10 is 1,024 I love that so 1,024
Otherof 10 is 1,024 I love that so 1,024of 10 is 1,024 I love that so 1,024 let's throw away the 24 because it makeslet's throw away the 24 because it makeslet's throw away the 24 because it makes the math hard so JC we want to focus onthe math hard so JC we want to focus onthe math hard so JC we want to focus on total power 10 is 1,000 right so if youtotal power 10 is 1,000 right so if youtotal power 10 is 1,000 right so if you take a period of 100 years we get 10take a period of 100 years we get 10take a period of 100 years we get 10 doubles whatever you start with you adddoubles whatever you start with you adddoubles whatever you start with you add three zeros so 16 26 you have 24 dollarsthree zeros so 16 26 you have 24 dollarsthree zeros so 16 26 you have 24 dollars 17:26 we have $24,000 1826 we have 2417:26 we have $24,000 1826 we have 2417:26 we have $24,000 1826 we have 24 million 1926million 1926million 1926 we have 24 billion 2026 we have 24we have 24 billion 2026 we have 24we have 24 billion 2026 we have 24 trillion what we went too far it's nottrillion what we went too far it's nottrillion what we went too far it's not yet 20 26 so we take away 10 years andyet 20 26 so we take away 10 years andyet 20 26 so we take away 10 years and we take away one down so 13 the Indianswe take away one down so 13 the Indianswe take away one down so 13 the Indians have invested the 24 dollars in 1626 inhave invested the 24 dollars in 1626 inhave invested the 24 dollars in 1626 in a manner which gave them seven percenta manner which gave them seven percenta manner which gave them seven percent compounded they would today have 13compounded they would today have 13compounded they would today have 13 okay so what is the undeveloped land theokay so what is the undeveloped land theokay so what is the undeveloped land the island of Manhattan I don't know but Iisland of Manhattan I don't know but Iisland of Manhattan I don't know but I know this the total wealth of the entireknow this the total wealth of the entireknow this the total wealth of the entire planet is four hundred trillion dollarsplanet is four hundred trillion dollarsplanet is four hundred trillion dollars the total wealth of every man woman andthe total wealth of every man woman andthe total wealth of every man woman and child in the United States is 100child in the United States is 100child in the United States is 100 trillion dollars and just land 52 square
Othertrillion dollars and just land 52 square kilometers in the United States cannot be one-eighth of that it's much less so if the Indians have gotten seven percent come out ahead what and so they don't end up having one-eighth of the wealth of the US and so this is the reason why Einstein called it the eighth wonder of the world now let's see let's massage these numbers menu okay so we we said the starting amount was $24 I'm sorry became culturally in red cells became it's $24 you start with let's say the deal was done in 1616 at $12 the outcome would be the same right or sixteen or six at six dollars same-same outcome or 1596 at $3 or 1586 at a dollar 50 or 1576 at less than $1 and you can keep going back you'll get to one cent okay so because we go back further you'll get to one cent and one cent becomes thirteen trillion right and
Othercent becomes thirteen trillion right and it became 13 trillion without using ait became 13 trillion without using ait became 13 trillion without using a high rate of compounding we use a 7%high rate of compounding we use a 7%high rate of compounding we use a 7% rate it's not a very high rate and sorate it's not a very high rate and sorate it's not a very high rate and so now the rule of 72 is interestingnow the rule of 72 is interestingnow the rule of 72 is interesting because it's actually what I lovebecause it's actually what I lovebecause it's actually what I love whether below 72 is it is what I wouldwhether below 72 is it is what I wouldwhether below 72 is it is what I would call elastic math I love elastic math socall elastic math I love elastic math socall elastic math I love elastic math so if if you get a 7% return it takes 10if if you get a 7% return it takes 10if if you get a 7% return it takes 10 years if you take 10% return we take 7years if you take 10% return we take 7years if you take 10% return we take 7 years so you can interchange the rate ofyears so you can interchange the rate ofyears so you can interchange the rate of return with the number of years and itreturn with the number of years and itreturn with the number of years and it still works and so one of the moststill works and so one of the moststill works and so one of the most important things I think one is I thinkimportant things I think one is I thinkimportant things I think one is I think compounding your are the most importantcompounding your are the most importantcompounding your are the most important ideas to be fanatical and thoughts areideas to be fanatical and thoughts areideas to be fanatical and thoughts are very important to be able to the math invery important to be able to the math invery important to be able to the math in your head with the Google of 72 so theyour head with the Google of 72 so theyour head with the Google of 72 so the 11 year old kid in Omaha let's go back11 year old kid in Omaha let's go back11 year old kid in Omaha let's go back to the kid 11 year old killed Omahato the kid 11 year old killed Omahato the kid 11 year old killed Omaha already understood before he read thealready understood before he read thealready understood before he read the book on thousand dollars whatbook on thousand dollars whatbook on thousand dollars what compounding can do for long periods he
Othercompounding can do for long periods he compounding can do for long periods he understood that just like Jays he understood that just like Jays he understood that just like Jays he understands and so he just did some understands and so he just did some understands and so he just did some numbers numbers numbers I think that if you have $1,000 and in I think that if you have $1,000 and in I think that if you have $1,000 and in his case he was going to 2015 24 years his case he was going to 2015 24 years his case he was going to 2015 24 years he wanted to go to a million dollars he wanted to go to a million dollars he wanted to go to a million dollars that we talk about is very high is that we talk about is very high is that we talk about is very high is probably closer to 30 percent but he probably closer to 30 percent but he probably closer to 30 percent but he felt I can do 30 percent I don't know felt I can do 30 percent I don't know felt I can do 30 percent I don't know what was going through with my parity to what was going through with my parity to what was going through with my parity to do that and and from the from the age of do that and and from the from the age of do that and and from the from the age of 11 he became obsessed with becoming 11 he became obsessed with becoming 11 he became obsessed with becoming incredibly wealthy I told you the incredibly wealthy I told you the incredibly wealthy I told you the wealthiest people are more successful wealthiest people are more successful wealthiest people are more successful people they become very successful people they become very successful people they become very successful around a very simple idea so a few years around a very simple idea so a few years around a very simple idea so a few years back I was at a dinner in Omaha and back I was at a dinner in Omaha and back I was at a dinner in Omaha and seated next to me was Warren Buffett's seated next to me was Warren Buffett's seated next to me was Warren Buffett's older sister so I said wow this is fun I older sister so I said wow this is fun I older sister so I said wow this is fun I can talk to her about the kid so I asked can talk to her about the kid so I asked can talk to her about the kid so I asked her birdie absolutely they did the younger her birdie absolutely they did the younger her birdie absolutely they did the younger sister from Warren birdie sister from Warren birdie sister from Warren birdie so I asked birdie hey you know can I ask
Questionerso I asked birdie hey you know can I ask you about born as a kid she said yeah yeah sure I said you know he was doing a lot of different business ventures and different things as a kid and I'll tell you what some of the ventures and so she said yeah yeah yeah he was always busy he's always doing things and he said that she said that he had a drawer and in this drawer he kept all his money so he newspaper hobby is making money he would get golf balls from the bottom of the lake and resell those all these different things he was doing and whatever money he would make small more money he kept in his drawer and when he said that or touch that that's it we we would our parents would be behind us he'll be behind that we knew you couldn't do anything don't touch the okay use that intense he said that he could do anything more than acceptable okay so there was a there was
Questioneracceptable okay so there was a there was a person warned off it went to ice cream this so when he was a teenager about 15 years old his father was a congressman in in Washington DC so the family moved to Washington DC and he was going to school in DC and he was very close friends with another person in their high school called Don Danny Don Dan he became the valedictorian of the high school he was a talker he's very smart guy and on denly after that went on to work for NASA on the space program and he worked on the Apollo missions to put the man on the moon okay very smart guy and he put the man on the moon okay so this was warned best friend in high school and many years ago you know I've been going to Omaha since 98 every year I've been going since 98 and 2002 I said oh my god yes don't angry so I said dawn can we talk about Warren as a teenager
Questionercan we talk about Warren as a teenager
Otherhe said sure what do you want to talk about so I said you know there was a there was a so don't and leave he was really good at fixing things really so Warren you should see that there'd be some old beat-up car and don't you buy it for nothing and then he'd go in there and fix it and then we run into this father and one day Warren goes to his dog at his house and he sees in the garage dawned on me is fixed water machine you know you pay people and he saw that I'm working on fixing the pinhole machine so in a few hours the pinball machine is working so one asked him how much you buy this machine for he said the audience of what I'm not working ten fifteen twenty dollars you can buy it because people just want to get rid of thing of space and and orange and you can fix the me though they are TVs and most of these things not much
QuestionerTVs and most of these things not much wrong with that so Warren has an idea he says to Dan don't Dan leader listen we're gonna form a company and the name of the company is operating machine company okay and what we gonna do is we're gonna go to barber shops in Washington DC and we're gonna tell them tell the barbers listen Don and I the 15 year old 10 kids we work for mr. Wilson okay mr. Wilson does not exist fictitious character we work for mr. Wilson mr. Wilson told us to give you a great deal okay he said you should put this pinball machine in your barber shop for free and then whatever money comes in the pinball machine people are playing pinball once a week we gotta come you can take the machine half is yours and half is mr. Wilson so do we have a deal so the barber said yeah put it in the corner okay no no I had no expense just put it in
Questionerno no I had no expense just put it in the corner and so they went to first barber shop they put the pinball machine that went to second power he said yes so then Warren found a beat-up pinball machine down there it's not fixing it okay they went to third power and soon they had about 25 dollars 25 pinball machines down was busy all weekend put up in all the barber shops and then after one week of the first barber shop Buffett goes to the first barber opens the machine there's five dollars okay he gives two and a half dollars to the barber and the other two and a half dollars then he sees that he thinks he died and went to him because he's thinking I only spent fifteen dollars on this machine Don and I have total cost is $15 in six weeks I'll get the money back so I can tell you this there's almost no businesses on the planet that
Otheralmost no businesses on the planet that have a higher return of capital than thehave a higher return of capital than thehave a higher return of capital than the Wilson coin offering company that theseWilson coin offering company that theseWilson coin offering company that these two 15 year olds create almost notwo 15 year olds create almost notwo 15 year olds create almost no company if you look at 10,000 companiescompany if you look at 10,000 companiescompany if you look at 10,000 companies maybe one maybe better than that no buymaybe one maybe better than that no buymaybe one maybe better than that no buy do or $0.10 of oval or one of thosedo or $0.10 of oval or one of thosedo or $0.10 of oval or one of those companies almost no other company cancompanies almost no other company cancompanies almost no other company can have that type of return on capital it'shave that type of return on capital it'shave that type of return on capital it's very hot and the 15 year old kid alreadyvery hot and the 15 year old kid alreadyvery hot and the 15 year old kid already at 11 he read the book and already heat 11 he read the book and already heat 11 he read the book and already he knows he has to create money now he'sknows he has to create money now he'sknows he has to create money now he's thinking this is it okay we just want tothinking this is it okay we just want tothinking this is it okay we just want to become the the mughals of pinballbecome the the mughals of pinballbecome the the mughals of pinball machines and Bigelow you know every weekmachines and Bigelow you know every weekmachines and Bigelow you know every week keep collecting right and then anotherkeep collecting right and then anotherkeep collecting right and then another venture they had and so dawn Daniel goesventure they had and so dawn Daniel goesventure they had and so dawn Daniel goes you should tell me the stories he passedyou should tell me the stories he passedyou should tell me the stories he passed away a few years ago he had cancer ataway a few years ago he had cancer ataway a few years ago he had cancer at 4:24 great guy so you selling mean that4:24 great guy so you selling mean that4:24 great guy so you selling mean that one time warrants our ad in the paperone time warrants our ad in the paperone time warrants our ad in the paper for a old beat-up Rolls Royce right andfor a old beat-up Rolls Royce right and
Otherfor a old beat-up Rolls Royce right and this Rolls Royce did not run without this Rolls Royce did not run without this Rolls Royce did not run without move around you know the whale boat for move around you know the whale boat for move around you know the whale boat for sale for $200 not working so Warren sale for $200 not working so Warren sale for $200 not working so Warren asked the guy who's gonna put the man on asked the guy who's gonna put the man on asked the guy who's gonna put the man on the move can you fix the roads the move can you fix the roads the move can you fix the roads no problem if you can put a man on the no problem if you can put a man on the no problem if you can put a man on the moon okay so they bought the rules okay and I okay so they bought the rules okay and I okay so they bought the rules okay and I think another two are dollars in parts every weekend they rent it for weddings every weekend they rent it for weddings every weekend they rent it for weddings hundred dollars a weekend for weekends hundred dollars a weekend for weekends hundred dollars a weekend for weekends they got the money back even better than they got the money back even better than they got the money back even better than the pinball machine business is the the pinball machine business is the the pinball machine business is the rolls-royce rental business okay rolls-royce rental business okay rolls-royce rental business okay pinball machine all the money coming in pinball machine all the money coming in pinball machine all the money coming in in the drawer can't touch it in the drawer can't touch it in the drawer can't touch it okay and his father his father was a okay and his father his father was a okay and his father his father was a stockbroker before he became a stockbroker before he became a stockbroker before he became a congressman so Warren used to be around congressman so Warren used to be around congressman so Warren used to be around the office looking at all the stock the office looking at all the stock the office looking at all the stock charts and all he didn't know exactly charts and all he didn't know exactly charts and all he didn't know exactly how you can make money with stocks but how you can make money with stocks but how you can make money with stocks but he knew the prices moved and they he knew the prices moved and they he knew the prices moved and they changed so much the Delta is there so
Questionerchanged so much the Delta is there so he's trying to figure out he was first trying to technical analysis and different things and by the time he was I think 17 16 or 17 he had about nine thousand dollars saved up and he told his father listen I'm gonna pay my own way through college give all the money to my sisters I don't need the money I got my job and and so he then you know obviously you know the rest of the story at 20 he heard what Ben Graham and and then he went to Columbia and then learned all over value investing or then he got the thinning of the framework but till 20 from 11 to 20 main thing that he did was he collected the seed cap right so the nine thousand dollars in today's money would be around maybe seventy thousand right and that seventy thousand is where industry became the richest person on the planet right and so so
Questionerperson on the planet right and so so when I when I first heard about Warren Buffett I was thirty years old much older juda manager anyone else in the classroom what's the average age of the classroom
Questionerright so one of the one of the problems is that you are you know some runway you know it's very sad but you lost some runway but it's not lost the good news is you live for longer than me or professor J I'm probably my guess is most of you will probably live past 90 maybe past 100 you know we don't know what medicine now the next 50 years so you have if you take 90 as the age most of you will stop compounding so we have about 65 65 years
Questionerso in compounding there are three variables right one variable starting capital right second variable main root term third variable make the runway right now you know your length of runway right I told you already you have a 65 euro okay now starting capital
Questionereuro okay now starting capital unfortunately you didn't start a Wilson point operating company at 50 and you didn't start the votes watch rental business at 60 so and and you're still in school at 25 that's unfortunate but very soon you're going to leave professor G and you're going to leave professor G and start the engine so when you start the compounding engine very important don't spend the money don't buy the testing outside our to the cost in China the castle more or less
Questionerokay so maybe around like $100,000 it's not 120 times the person who bought that Tesla shall be calculate what it cost them so at at 15% for 50 years is hundred million buy Starbucks Starbucks
Warrenyou know I think I can assure you like I bought the heavy armor worn behind the area you know someone comes to Warren and offers him some wine in a party
Questionermr. Buffett we have some wine
Warrenif he's walking down the street and he sees a penny on the graphic familiar he goes for the pen because you're gonna
Othergoes for the pen because you're gonna start start start cranking it out so so the thing is that people are these three variables right so we know rod length of runway starting capital and how much you earn also you can figure out the one that you don't know about is the compounding rate right but that's the reason you're in this class the whole reason for being in this class is to maximize the compounding rate right so make sure you learn well because all that matters is that is the one variable that you have control over but you don't know is that he want is the other two variables we don't have so much control over so when I when I first first heard of Buffett I was thirty years old nineteen ninety-four module and what when I when I in 94 when I read about him and I was lucky the first two biographies on him and just come out
Questionerbiographies on him and just come out Lowenstein and a couple others so when I read about him and I understood what was going on with this kid with compounding and all these things going on I said oh my god this guy is destined to be the wealthiest person on the planet because he's just going on a path right and and what I noticed was there from 1950 which is when he started compounding at the age of 20 when he had the $10,000 to 1994 he had compounded at north of 30% a year very strong about in rate for 35 years not only that he he got other people's money OPM OPM can be good for you not hope you and so he ran the puffit partnerships from 1956 to 1969 where the returns over 1/4 came to him and so he got money because the money he made for others and and then you know he was coming run that at the end result is what we see today where if he was not giving his money away which
Questionerhe was not giving his money away which he's been giving for several years he'd be at the top he'd come here to be at the top we've given away so many tens of millions and so at that time in in 94 I was running a technology coming an IT company IT services and I had just I just sold a portion of the company and I got after taxes everything I got 1 billion dollars and I was very happy first time ever in my life I had money in the bank I was always running the company on credit cards and so on so we paid off all the credit cards man actually and so I thought what Buffett and I said you know I didn't start at 15 but 30 is ok it's not too old we can still start today and I had the 1 million so starting capital is better than the Indians at $24 and and so I said let's let's try to start a compounding engine and I decided I would try to play a game and our play a game
try to play a game and our play a gametry to play a game and our play a game for 30 years and I said look we have 1for 30 years and I said look we have 1for 30 years and I said look we have 1 million dollars and if I can double itmillion dollars and if I can double itmillion dollars and if I can double it every three years which is the high rateevery three years which is the high rateevery three years which is the high rate about 26 percent a yearabout 26 percent a yearabout 26 percent a year then in 30 years it's 2 to power ten onethen in 30 years it's 2 to power ten onethen in 30 years it's 2 to power ten one thousand twenty four thousand times athousand twenty four thousand times athousand twenty four thousand times a million becomes a billion why don't wemillion becomes a billion why don't wemillion becomes a billion why don't we try to go for the billion so what I didtry to go for the billion so what I didtry to go for the billion so what I did isa few years after that I came up with aa few years after that I came up with aa few years after that I came up with a license plate state of California likelicense plate state of California likelicense plate state of California like allowing us to pick pick our licenseallowing us to pick pick our licenseallowing us to pick pick our license plate so this is the plate on my carplate so this is the plate on my carplate so this is the plate on my car which my daughter took away so now it'swhich my daughter took away so now it'swhich my daughter took away so now it's not late not minenot late not minenot late not mine get past the next generation so what wasget past the next generation so what wasget past the next generation so what was the license plate me Martin read yourthe license plate me Martin read yourthe license plate me Martin read your hand yeah you know compound 26 okay andhand yeah you know compound 26 okay andhand yeah you know compound 26 okay and so to make sure I don't forget what isso to make sure I don't forget what isso to make sure I don't forget what is the mission I put it on the and and whatthe mission I put it on the and and whatthe mission I put it on the and and what what ended up happening is that I gotwhat ended up happening is that I gotwhat ended up happening is that I got lucky I think 95 to 99lucky I think 95 to 99lucky I think 95 to 99 he was compounding and more than 70% ofhe was compounding and more than 70% of
Otherhe was compounding and more than 70% of you a very high rate then when theyou a very high rate then when theyou a very high rate then when the friends asked me to create a partnershipfriends asked me to create a partnershipfriends asked me to create a partnership they could invest so I thought it mustthey could invest so I thought it mustthey could invest so I thought it must be a hobby for me and my friends and sobe a hobby for me and my friends and sobe a hobby for me and my friends and so probably fund actually started in 99 andprobably fund actually started in 99 andprobably fund actually started in 99 and then from 99 2007 I think we had donethen from 99 2007 I think we had donethen from 99 2007 I think we had done mid 30s for your before fees and then Imid 30s for your before fees and then Imid 30s for your before fees and then I think after he knows high 20s and thenthink after he knows high 20s and thenthink after he knows high 20s and then from 2007 to 2009 the financial crisisfrom 2007 to 2009 the financial crisisfrom 2007 to 2009 the financial crisis went down a lot we went down almost 70%went down a lot we went down almost 70%went down a lot we went down almost 70% two-thirds so the compounding went intwo-thirds so the compounding went intwo-thirds so the compounding went in Reverse which is not good and and thenReverse which is not good and and thenReverse which is not good and and then from 2009 onwards it got back on trackfrom 2009 onwards it got back on trackfrom 2009 onwards it got back on track and so we are right on track from whereand so we are right on track from whereand so we are right on track from where we started to now exactly where I needwe started to now exactly where I needwe started to now exactly where I need to be but the thing about the way theto be but the thing about the way theto be but the thing about the way the compounding workscompounding workscompounding works so if you look at something like Warrenso if you look at something like Warrenso if you look at something like Warren Buffett if you if you look at WarrenBuffett if you if you look at WarrenBuffett if you if you look at Warren Buffett when he was 50 years old and youBuffett when he was 50 years old and youBuffett when he was 50 years old and you look at his Network today if you're notlook at his Network today if you're notlook at his Network today if you're not given any money away to charity his
Othergiven any money away to charity his network when he was 50 was one third of one percent of the network today and 87 so 99% and two-thirds of his wealth has come after the age of 50 so just make you some of the Indians $24 after a hundred years twenty four thousand dollars after two hundred years right so you know as the time goes on it's geometric and one of the things about our human brains is we're not used to keep thinking geometrically we're used to thinking of method it's not your metric so you know to train yourself to think geometrically and so in my compounding journey for example it has now been you know there are seven years left 23 years amazingly 23 years went by a bleak mind along with all my head and so 7 years left but most of the money comes in the end because the way the compounding works and I decided why stop
Othercompounding works and I decided why stop at 60 this is so much fun we can keep going maybe I'll get to 80 maybe 85 you'll see let's keep going as long as we can and have as much fun as you can along the way and so that's kind of where I'm at but what what happened with me was that I read a book in 94 and I could have said after reading the book oh that's I didn't do that I took that book and turned my life I'm gonna focus on this and so that's the important thing is that when you attend a lecture what you're attending today there are two ways you can cannot process it one way you can process a oh there was an interesting lecture and for the next lecture all the second way you could say wait I need to make some changes Starbucks is this okay I'm going to make make it a different way to make it happen and and I'm gonna focus on so Warren Buffett did not understand when
QuestionerWarren Buffett did not understand when he when he understood compounding he did he when he understood compounding he did he when he understood compounding he did not understand how to come back he just not understand how to come back he just not understand how to come back he just understood compounding but eleven years understood compounding but eleven years understood compounding but eleven years old he understood compounding but not old he understood compounding but not old he understood compounding but not how the compound he understood how to how the compound he understood how to how the compound he understood how to compound and even how to compound he compound and even how to compound he compound and even how to compound he understood at twenty but that method understood at twenty but that method understood at twenty but that method needed to go through change when he met needed to go through change when he met needed to go through change when he met Charlie Munger you know it's from buying Charlie Munger you know it's from buying Charlie Munger you know it's from buying a fair business and a good price a fair business and a good price a fair business and a good price you're better off buying goodness in a you're better off buying goodness in a you're better off buying goodness in a fair price so that change of going from fair price so that change of going from fair price so that change of going from fair businesses to good businesses took fair businesses to good businesses took fair businesses to good businesses took place almost when he was passed it was place almost when he was passed it was place almost when he was passed it was passed fifty with almost 55 close to 60 passed fifty with almost 55 close to 60 passed fifty with almost 55 close to 60 years old when that change took place so years old when that change took place so years old when that change took place so he had a model at twenty and that model he had a model at twenty and that model he had a model at twenty and that model served him well but at fifty fifty-five served him well but at fifty fifty-five served him well but at fifty fifty-five he had to change that one and the good he had to change that one and the good he had to change that one and the good thing about a guy like Warren is he's thing about a guy like Warren is he's thing about a guy like Warren is he's continuously looking to how can I
Othercontinuously looking to how can I improve and how can I change and and but he always keeps her focus on the compound always focus on the compound and so that's that's what I really wanted to to talk about today is that compounding truly is what what Einstein said it wonder of the world because you saw that how it can be transformational and if you if you can put it put it to work for yourself at a young age for a long time it can have a huge impact on the other hand if you are spending more than you make and then you have credit card and all of that then it works in Reverse you know then you're compounding downward and that can have a downward spiral so you have to be very careful that you make compounding work for you and not work against and so with that maybe we'll open up for questions and see what you guys have in mind
Otheryou guys have in mind
Other[Applause][Applause][Applause] [Music]
Questioneryeah the company's not yet so it's going to be sold soon I hope the buyer doesn't see the video and decide not to buy it but it took it's a good company good people and it does well but but the industry itself is a difficult industry so for example what happens in insurance is anytime someone is buying a policy they don't believe they find a clue they think an insurance policy premium is like a tax so let's say you buy a car and the government says you have to have insurance you think it's like a tax and so you try to find the cheapest which what you can so in insurance your dumbest competitor set your price so you don't have pricing power right because everybody and the second is it's a very strange business because it's one of the only businesses where you sell a product but you don't know the cost
Otherbut you don't know the cost the product for five or ten years sothe product for five or ten years sothe product for five or ten years so just imagine that you know I give youjust imagine that you know I give youjust imagine that you know I give you this model of heavier and I sell it tothis model of heavier and I sell it tothis model of heavier and I sell it to you if I don't know what the cost is howyou if I don't know what the cost is howyou if I don't know what the cost is how do i price it and so they're makingdo i price it and so they're makingdo i price it and so they're making guesses mathematical guesses about theguesses mathematical guesses about theguesses mathematical guesses about the pricing but the real number will comepricing but the real number will comepricing but the real number will come out later you know yesterday I visited aout later you know yesterday I visited aout later you know yesterday I visited a company a mountain right now that is acompany a mountain right now that is acompany a mountain right now that is a company where the X factory price of onecompany where the X factory price of onecompany where the X factory price of one model is the cost okay so it's a licensemodel is the cost okay so it's a licensemodel is the cost okay so it's a license to print moneyto print moneyto print money what a beautiful business right wherewhat a beautiful business right wherewhat a beautiful business right where everyone is fighting to get the policyeveryone is fighting to get the policyeveryone is fighting to get the policy everyone is dropping the price to geteveryone is dropping the price to geteveryone is dropping the price to get the premium without concern for whatthe premium without concern for whatthe premium without concern for what happens when the claim comes and what ishappens when the claim comes and what ishappens when the claim comes and what is the end so we don't know so let's say wethe end so we don't know so let's say wethe end so we don't know so let's say we have a lot of inflation in the futurehave a lot of inflation in the futurehave a lot of inflation in the future then the claim to be high well so youthen the claim to be high well so youthen the claim to be high well so you collected today's dollars but you playcollected today's dollars but you playcollected today's dollars but you play in future dollars so there are a number
Questionerin future dollars so there are a number of structural issues with the business I used to think insurance for the great business because of Buffett very intuitive so well I think you know because Buffett was an incredible manager that he was able to make even a difficult business the insurance works so well but most of the people in the industry have had difficulty and so the good news is I had three years of experience owning an insurance company and I learned a lot I don't stay away from the okay that's a good question yeah so I think we know management fees is a very important thing because it gives you a competitive advantage very few companies can offer so the the point business when I started my fund it have no expenses it was in my house I was working on at time one completely have okay so there's no expense so if you if you don't charge a fee all that
Questioneryou if you don't charge a fee all that means is that you don't have an income so so my my my think is that if you are going to manage money for others you should have first managed money for yourself and you should have done well to earn the right to manage money father if you have done well for yourself there should be some money which maybe is not much but there should be some money because it's compounding it's uh great and the other thing is that you don't need to be full-time manager portfolio first five years which were the best years of my entire history as investor I was part-time 95 to 2000 I was running another company so I was only maybe 10 15 hours a week and the return for the best of the entire period so it is not necessary in my opinion to be full-time so you can take care of the expenses of your family and living by some other method and
Questionerand living by some other method andand living by some other method and still have the zero fee and and again ifstill have the zero fee and and again ifstill have the zero fee and and again if you are if you're compounding at a goodyou are if you're compounding at a goodyou are if you're compounding at a good rate then even a small son will startrate then even a small son will startrate then even a small son will start adding up so I think it's important toadding up so I think it's important toadding up so I think it's important to make sure if you have no money to have amake sure if you have no money to have amake sure if you have no money to have a good job so the money is coming in andgood job so the money is coming in andgood job so the money is coming in and then you can start putting it togetherworking if you have already bye-bye-byeworking if you have already bye-bye-byeworking if you have already bye-bye-bye
Questionerinvestment is if the Oasis is notinvestment is if the Oasis is notinvestment is if the Oasis is not diverse so what you what's your what'sdiverse so what you what's your what'sdiverse so what you what's your what's your portion or will you be mr. in inyour portion or will you be mr. in inyour portion or will you be mr. in in ChinaChinaChina
Questioneryeah hello I know that for sure he's inyeah hello I know that for sure he's inyeah hello I know that for sure he's in India China and the sweeper string is IIndia China and the sweeper string is IIndia China and the sweeper string is I with her almost every spirit you wonderwith her almost every spirit you wonderwith her almost every spirit you wonder I don't know his namewhat's the relationship
Otherlet me take your questions in Reverse
Questionerguy and I are just good friendsguy and I are just good friendsguy and I are just good friends sometimes you meet someone like Warrensometimes you meet someone like Warrensometimes you meet someone like Warren Buffett and on dandling Warren BuffettBuffett and on dandling Warren BuffettBuffett and on dandling Warren Buffett Charlie Munger you mean someone I meanCharlie Munger you mean someone I meanCharlie Munger you mean someone I mean when you're making investment decisionsa lot of time we will talk sometimes wea lot of time we will talk sometimes wea lot of time we will talk sometimes we don't agree but we try to what I finddon't agree but we try to what I find
Otherdon't agree but we try to what I find with guy is that his life experience is with guy is that his life experience is with guy is that his life experience is different than mine different than mine different than mine and he tends to look at things and he tends to look at things and he tends to look at things differently than the way I was so many differently than the way I was so many differently than the way I was so many times when I bring up something less times when I bring up something less times when I bring up something less than right here to him he will come up than right here to him he will come up than right here to him he will come up with some things that I may not think with some things that I may not think with some things that I may not think about it and so it is always an about it and so it is always an about it and so it is always an advantage to have someone to talk about advantage to have someone to talk about advantage to have someone to talk about your investments I think it's always an your investments I think it's always an your investments I think it's always an advantage especially if someone is going advantage especially if someone is going advantage especially if someone is going to look at it independently and such so to look at it independently and such so to look at it independently and such so I think that's and and we get along and I think that's and and we get along and I think that's and and we get along and we have fun together and I told him I we have fun together and I told him I we have fun together and I told him I was coming to China he said no one come was coming to China he said no one come was coming to China he said no one come to yes so so that's that's a to yes so so that's that's a to yes so so that's that's a relationship regarding regarding the relationship regarding regarding the relationship regarding regarding the lack of money invested in the US for lack of money invested in the US for lack of money invested in the US for most of the time have been an investor most of the time have been an investor most of the time have been an investor most of the assets have been invested in most of the assets have been invested in most of the assets have been invested in the US and I've been in the market for a the US and I've been in the market for a the US and I've been in the market for a long time but I found the last two or long time but I found the last two or
Questionerlong time but I found the last two or three years I'm not able to find hardlythree years I'm not able to find hardlythree years I'm not able to find hardly anything I've been able to find and andanything I've been able to find and andanything I've been able to find and and one of the one of the reasons isone of the one of the reasons isone of the one of the reasons is obviously the US markets have gone up aobviously the US markets have gone up aobviously the US markets have gone up a lot a lot of markets inaudible of the USlot a lot of markets inaudible of the USlot a lot of markets inaudible of the US the second thing that has happenedthe second thing that has happenedthe second thing that has happened special specifically the US if you gospecial specifically the US if you gospecial specifically the US if you go back and let's say 20 or 30 years thereback and let's say 20 or 30 years thereback and let's say 20 or 30 years there used to be about 8,000 public companiesused to be about 8,000 public companiesused to be about 8,000 public companies in the US now there are less than 3,700in the US now there are less than 3,700in the US now there are less than 3,700 so the number of public companies hasso the number of public companies hasso the number of public companies has gone down a lot and it continues to gogone down a lot and it continues to gogone down a lot and it continues to go down at the same time the number ofdown at the same time the number ofdown at the same time the number of brain cells enjoyed look at thesebrain cells enjoyed look at thesebrain cells enjoyed look at these companies has gone Skyler right so a lotcompanies has gone Skyler right so a lotcompanies has gone Skyler right so a lot of smart who studied physics or you knowof smart who studied physics or you knowof smart who studied physics or you know you know yeah exactly so going to NASAyou know yeah exactly so going to NASAyou know yeah exactly so going to NASA they join a hedge fund it's not sendingthey join a hedge fund it's not sendingthey join a hedge fund it's not sending a man to Mars and trying to figure outa man to Mars and trying to figure outa man to Mars and trying to figure out the next trade right it's so sad so sothe next trade right it's so sad so sothe next trade right it's so sad so so the second thing is be able brain powerthe second thing is be able brain powerthe second thing is be able brain power focus on these 3700 struggles too much
Questionerfocus on these 3700 struggles too much brainpower in my opinion and so mispricing becomes less in that so I was just finding that I'm finding much so I started to look in India and I found that in India the number of public companies is more than the u.s. 5,000 public companies in India and probably 4,000 of them I have nobody following them because they're too small and because the economy is growing at a good rate it's growing at a faster rate and than the US a lot of companies have a huge table because lot of things don't exist in your just like in China or things didn't exist two decades right in fact I noticed that this time I came to China in 2017 the last time I came was in 2008 and I just see such a huge difference just looking around between 2008 what I saw and maybe then the economy was doing well at 2017 it almost looks to me that almost the standard of
Questionerlooks to me that almost the standard of living is close to a double and that will happen you know we know that 7% 10 years right and if the economy is going five six percent for that long you want to see you and I didn't even see it here I went to multi and I was looking around there even there the development is incredible and in such which is amazing to see all the infrastructure so so India basically I think over the next two or three or four decades has more room to grow and one of the things that's important in investing is to fish where the fish are so I don't think the fish is much fish in the u.s. I think there is a lot more fish in India and I think there's a lot more fish in China the problem I have in China is it outside circle of competence so I am almost sure that if I focus on China I will okay because I don't understand a
Questionerwill okay because I don't understand a lot of things about the culture aboutlot of things about the culture aboutlot of things about the culture about the nuances of the company about whetherthe nuances of the company about whetherthe nuances of the company about whether the company is honest or not there arethe company is honest or not there arethe company is honest or not there are things that we know so the mostthings that we know so the mostthings that we know so the most important thing in investing is mostimportant thing in investing is mostimportant thing in investing is most important is patience but second mostimportant is patience but second mostimportant is patience but second most important is circle of competence haveimportant is circle of competence haveimportant is circle of competence have to stick to companies that are withinto stick to companies that are withinto stick to companies that are within yourself um so I in public funds thatyourself um so I in public funds thatyourself um so I in public funds that manage about 870 millionmanage about 870 millionmanage about 870 million I have only one investment in China afew years back thank you but I have nofew years back thank you but I have nofew years back thank you but I have no aspirations to do because I don't thinkaspirations to do because I don't thinkaspirations to do because I don't think every second comes Chinese company isevery second comes Chinese company isevery second comes Chinese company is mouth there's only one not okay in themouth there's only one not okay in themouth there's only one not okay in the whole world the only one mountain and sowhole world the only one mountain and sowhole world the only one mountain and so I was lucky that I was able to invest inI was lucky that I was able to invest inI was lucky that I was able to invest in 100 percent hit red one for one one is100 percent hit red one for one one is100 percent hit red one for one one is good but I don't have a second idea ingood but I don't have a second idea ingood but I don't have a second idea in China that IChina that IChina that I I'm excited about maybe if if you canI'm excited about maybe if if you canI'm excited about maybe if if you can educate then we can do no mask so pleaseeducate then we can do no mask so pleaseeducate then we can do no mask so please please send me your best Chinese ideasMP - please send them to me okay I'm
OtherMP - please send them to me okay I'm anxious to increase Chinese exposure okay so if you have great ideas I'm all yours know them and then your third question about berkshire hathaway so what should have to me basically there are two classes of stock Class A and Class B they're both the same the class a stock sells for 300,000 the Class B the what two hundred thousand approximately or two are all so you can definitely buy the B shares each one is about less than 1400 RMB if you want to do that and Berkshire has done well in the past it will do well in the future but it will not do as well as it's big you know the problem is that the numbers get large it's difficult to compounded high rates I could compound at 70% because there was only one milling right it's hard for me to seventy percent a year and a penny that's much harder so so Berkshire Hathaway is a
Questionerharder so so Berkshire Hathaway is a good choice but there are many choices so including the indices and such but I would say that I think for most of you the Chinese market is one that you are probably very familiar with and one that you can understand well and probably one way they are still lots of opportunities because there's a lot of growth ahead there's a lot of great entrepreneurs and as long as you can identify the right companies right entrepreneurs kind of right tailwind
Otherokay yeah that's a good question so actually what I used to do before 2008 was if I'm in an investment it would be ten percent of assets so I was trying to run what I would call a ten by ten for food in 10 stocks ten percent each what I realized in the financial crisis is that there were a couple of things going on at that time one is I was finding whole sectors when
Questionerone is I was finding whole sectors when there was no opportunity like I found the whole commodity sector its collapse and it was hard for me to tell which one is the best one so what I did is I did a basket approach so I put 2% into a number of companies in the commodity space and actually we have no loser all of them made money they all did well so I changed from just ten percent to three numbers either two percent of 5% or 10% three dollars right and even now I prefer I prefer to invest ten percent if I can because you don't want to have to detox most stocks you have the less well you can know them and so so my preference is to put ten percent sometimes if I have a basket available or I'm concerned about some risk reward parameters let me take it low and and and such so so like for example when I when I made the investment in mouth I it looked very good to me but there were a lot of
good to me but there were a lot ofgood to me but there were a lot of things about about the company culturethings about about the company culturethings about about the company culture and including me never having tried theand including me never having tried theand including me never having tried the product that gave me pause so I only putproduct that gave me pause so I only putproduct that gave me pause so I only put I think at the time about three percentI think at the time about three percentI think at the time about three percent three or four percent of the of thethree or four percent of the of thethree or four percent of the of the assets into into grew a lot so now it'sassets into into grew a lot so now it'sassets into into grew a lot so now it's about ten percent of the pie so myabout ten percent of the pie so myabout ten percent of the pie so my preference is to ten percent and thenmost of my family money is in the fundsmost of my family money is in the fundsmost of my family money is in the funds some money is outside the funds but knowsome money is outside the funds but knowsome money is outside the funds but know historically have been the largesthistorically have been the largesthistorically have been the largest investor in rifles and and even if theinvestor in rifles and and even if theinvestor in rifles and and even if the money is outside of rifle it is investedmoney is outside of rifle it is investedmoney is outside of rifle it is invested very similar so I'm eating my own cookievery similar so I'm eating my own cookievery similar so I'm eating my own cookie you know in the sense that I'm notyou know in the sense that I'm notyou know in the sense that I'm not trying totrying totrying to in fact I avoided giving the money toin fact I avoided giving the money toin fact I avoided giving the money to other managers like guy or anyone elseother managers like guy or anyone elseother managers like guy or anyone else because that is a my investors withbecause that is a my investors withbecause that is a my investors with question while you're doing that youquestion while you're doing that youquestion while you're doing that you know if something else the better placeknow if something else the better placeknow if something else the better place with money mutation for the money therewith money mutation for the money therewith money mutation for the money there too so I try to maximize the money in in
Questionertoo so I try to maximize the money in intoo so I try to maximize the money in in our funds and actually now you know forour funds and actually now you know forour funds and actually now you know for a US citizen investing in India asa US citizen investing in India asa US citizen investing in India as possible but it's complicated and so itpossible but it's complicated and so itpossible but it's complicated and so it took me a long time to gettook me a long time to gettook me a long time to get - setup to invest in India I personally- setup to invest in India I personally- setup to invest in India I personally have not set up to invested in here sohave not set up to invested in here sohave not set up to invested in here so if I want exposure to India which I do Iif I want exposure to India which I do Iif I want exposure to India which I do I have to be in for my funds and so sohave to be in for my funds and so sohave to be in for my funds and so so more incentive to be more into the rifleI'm not a fixed income investor so whatI'm not a fixed income investor so whatI'm not a fixed income investor so what I have done with my my life is numberI have done with my my life is numberI have done with my my life is number oneoneone I have no leverage in money so our homeI have no leverage in money so our homeI have no leverage in money so our home there's no mortgage my office which wethere's no mortgage my office which wethere's no mortgage my office which we own there's no mortgage any assets Iown there's no mortgage any assets Iown there's no mortgage any assets I have which are appreciating assetshave which are appreciating assetshave which are appreciating assets there's no debt or if I buy a car it isthere's no debt or if I buy a car it isthere's no debt or if I buy a car it is fine most so depreciating assetsfine most so depreciating assetsfine most so depreciating assets I find it because otherwise you know theI find it because otherwise you know theI find it because otherwise you know the cars will be like the Tesla cost me toocars will be like the Tesla cost me toocars will be like the Tesla cost me too much so better go back to people andmuch so better go back to people andmuch so better go back to people and then beyond that the idea is yeah I meanthen beyond that the idea is yeah I meanthen beyond that the idea is yeah I mean we may not be 100% invested all the time
Questionerwe may not be 100% invested all the time but we're looking to invest in it
Otherin China I am hoping yeah yeah so I
Questionerin China I am hoping yeah yeah so I think my problem is that I would not be able to figure out who are the future winners
Othermouth I might add some help someone help
QuestionerI need I need I cannot do it without the help so I need your help please okay
Otheryeah so that's a very good question so few years back I went to Warren Buffett's private office he was giving me a tour me and I were both there and on his desk there's a box and the box says too hard and he says that 98 or 99 percent of companies or ideas that run to him so he cannot figure it out okay and so when I went to his office I saw the box then I thought you said everything just go in the box is too hard these are all let me fill it up you took a bunch of people okay but the amazing thing is that this kid and I think Morin is still a kid I stood when I see him I think I'm meeting
Questionerstood when I see him I think I'm meeting another okay okay so he is fanatic about compounding right one of the most important things to compound well is circle of competence have to speak within your circle of confidence so she said okay Chinese China have Cara do well you know what happened in migraine when she said that idiot what do you know what Chinese healthcare bullish I do want to invest in Chinese okay no now if she says a 20-page right on a company which explains why it makes sense maybe I can do something please okay then I can't do it so so we have to do strange things that show up once in a while so we have to be like scanning the horizon and doing that once in a while something will show up it makes a lot of sense and then you act so I give you a I'll give you an example a few years back I was someone sent me a write-up on a steel
Questionersomeone sent me a write-up on a steel company in the okay and the kind of the economics of this company was that the stock price was I think around $40 a share for $45 a share and they had $15 a share in cash no debt and next two years they have contracts where the earnings are $15 a shake to the next few years so between the cash and the next two years of earnings you you are getting you're paying 45 you get the four five back in two years but you still have the company or the plants and everything else so after two years there's no visibility into what's gonna happen but all you know is and it's a cyclical business so I said okay we're going to make the investment we're going to keep it for two years and see what happens because I take it the cash and at that point I got all the cash back so I bought I bought the company for forty
Questionerbought I bought the company for forty five one year goes by and they sayfive one year goes by and they sayfive one year goes by and they say another two years is $15 a so oneanother two years is $15 a so oneanother two years is $15 a so one more year is set the stock is now at 70more year is set the stock is now at 70more year is set the stock is now at 70 okay okay now it's $60 for 15 plus threeokay okay now it's $60 for 15 plus threeokay okay now it's $60 for 15 plus three three yearsthree yearsthree years $60 I say let's meet because we are now$60 I say let's meet because we are now$60 I say let's meet because we are now above our cost then they announced oneabove our cost then they announced oneabove our cost then they announced one more year $15 okay and then it's now themore year $15 okay and then it's now themore year $15 okay and then it's now the stock is at 90 right it's doubled andstock is at 90 right it's doubled andstock is at 90 right it's doubled and then I'm thinking I should sell andthen I'm thinking I should sell andthen I'm thinking I should sell and whatnot then they announce someone iswhatnot then they announce someone iswhatnot then they announce someone is buying them $450 I don't even wait forbuying them $450 I don't even wait forbuying them $450 I don't even wait for the yieldthe yieldthe yield the stock goes to 150 I said it okay sothe stock goes to 150 I said it okay sothe stock goes to 150 I said it okay so I don't need a lot of horsepower toI don't need a lot of horsepower toI don't need a lot of horsepower to figure that out it was easy to figurefigure that out it was easy to figurefigure that out it was easy to figure out but it doesn't happen every day soout but it doesn't happen every day soout but it doesn't happen every day so the important thing is that you knowthe important thing is that you knowthe important thing is that you know Charlie Munger says there's a friend ofCharlie Munger says there's a friend ofCharlie Munger says there's a friend of his you know billionaire he lives inhis you know billionaire he lives inhis you know billionaire he lives in your Stanford Universityyour Stanford Universityyour Stanford University Johnny Vega and Johnny Vega only investsJohnny Vega and Johnny Vega only investsJohnny Vega and Johnny Vega only invests in real estatein real estatein real estate within one mile from having no money
Charliewithin one mile from having no money forty years ago he's a villain and all he did was he never put on a lot of debt and when things went down he bought and when everyone got euphoric be sold that's all so what is Johnny Vega circular confidence is it realistic is it California real estate Northern California real estate no being a real real estate no only real estate around Stanford the circle of competence is this small he knows nothing of in fact if I talked to John on the steel company in and out you won't do anything he's not going to listen to me and drink some coffee and say okay next I'm not interested in that because it's not in his circle right so we don't need the good thing about getting wealthy is we don't need to understand what of things so how many companies in China will go up hundred times in value in next ten
Questionerup hundred times in value in next ten years a lot of companies probably more
Otheryears a lot of companies probably more
Questionerthan 50 companies am I going to be
Otherinvested in any of them probably not
Questioneram i sad about it do I look sad okay so
Otherso the good thing about the investing
Questionergame is like Buffett says there are no
Othercore strengths in baseball
Questionerthree-strikes-you're-out
Otherin investing you let a thousand balls go
Questionerback right so the key is I come to China
OtherI come to fit in you I meet all of you
Questionerand yesterday went to Maotai we make I
Otherdon't know four hundred percent of
Questionersomething on the investment okay thank
Otheryou and and I don't know what will come
Questionerout of this trip I just enjoy being with
Otheryou guys but maybe someone send me an
Questioneremail something happen if something
Othercomes out that's good if something
Questionerdoesn't come out that's also good either
Otherway I'm happy
Questionerno problem now today tune up to tonight
OtherI'm going to India okay and I'm going to
QuestionerI'm going to India okay and I'm going to meet with about six companies that I know nothing about it's like a MBA class I sit down with them Drake the Indian Child hey tell me about the business I don't care that investment I just know I enjoy right and if I keep doing these meetings sometime there will be like this field industry something like I was at one meeting a few months ago the market cap of the company is less than hundred million earnings in three years fifty million a year I said excuse me please repeat I made up repeat three times okay just to make sure I got it correctly we didn't need to do a whole operation study the company it's obviously there it's all the numbers are there we can make sense of it the market at that time was not interested in an industry they hate the industry so that's what you want things that are hated and unloved
Charliewant things that are hated and unloved that's where I look for water people not lies so a few years back mouth high price went down because of the corruption happy divide because I just see long term what happens not what's happening in here and so that's it so that's the important thing
Charliecircular confidence stick to what you know and the good thing with all of you is when you start out in life just like with Warren Buffett you know nothing you know very little about any industry but if you want to theory a student you will learn you know I'm going to beat company in India which specializes in housing finance okay there are a lot of things about housing finance I don't understand it and even so I have long lists of questions for me my purpose is just to educate myself my purpose is not to invest I just want to understand so by my objective for my India trip is when I
Questionermy objective for my India trip is when I leave the country I understand things a little better then when I went that's it
Questionerand Charlie Munger says is everyday if you sleep a little bit wiser when you woke up that's it so the main thing you have to be is you have to be a student who takes in knowledge just learning all the time
Questionerfurious the bike company the yellow bikes how does it make money does it make money these are the good business or how did they expand what is the quality of routine who are the guys who run it what is what is important what is ethos what are their principles I'm curious about all these things I have no idea about these things but I'm curious about these things
Questionerso these that's all you're gonna happen to have a curiosity to keep taking in data and then once in a while when you take in the data suddenly things will
Othertake in the data suddenly things will fit and then when they fit yourfit and then when they fit yourfit and then when they fit your stop-lossokay that's a great question I have aokay that's a great question I have aokay that's a great question I have a interview on Indian TV in 3-4 days whereinterview on Indian TV in 3-4 days whereinterview on Indian TV in 3-4 days where I told them the subject of the stupidityI told them the subject of the stupidityI told them the subject of the stupidity of the whole enemy is about that subjectof the whole enemy is about that subjectof the whole enemy is about that subject because what I found very strange is ifbecause what I found very strange is ifbecause what I found very strange is if I turn on the stock channel in the u.s.I turn on the stock channel in the u.s.I turn on the stock channel in the u.s. like CNBC aware and somebody is makinglike CNBC aware and somebody is makinglike CNBC aware and somebody is making some recommendation they will just saysome recommendation they will just saysome recommendation they will just say the stocks had $10 it should be worth 30the stocks had $10 it should be worth 30the stocks had $10 it should be worth 30 something like that they don't talksomething like that they don't talksomething like that they don't talk about stop stop loss okay in India whenabout stop stop loss okay in India whenabout stop stop loss okay in India when I turn on the TV also there were tooI turn on the TV also there were tooI turn on the TV also there were too many channels for stocks okay but I'dmany channels for stocks okay but I'dmany channels for stocks okay but I'd turn on the stock channel every singleturn on the stock channel every singleturn on the stock channel every single pundit who comes has a stoploss and apundit who comes has a stoploss and apundit who comes has a stoploss and a target okaytarget okaytarget okay they say okay the stocks at 10 target isthey say okay the stocks at 10 target isthey say okay the stocks at 10 target is 12 stop losses now I look at that I say12 stop losses now I look at that I say12 stop losses now I look at that I say oh my god this is so stupidoh my god this is so stupidoh my god this is so stupid so let me explain my student okaymarkets stock markets are auction drivenmarkets stock markets are auction drivenmarkets stock markets are auction driven entities people come in and buy and sell
Questionerentities people come in and buy and sell and the buying and selling creates a clearing price wait and that curing price may or may not have anything to do with the underlying value of the company for example let's say Amazon is a company selling for twelve hundred dollars a share for example okay what is the value of Amazon well the value Amazon is all the cash they will produce from now till the date the company doesn't exist and then you discount that back to present value that's the value of Amazon okay so we have to know what the cash flow is in 2018 2019 2020 2021 and we have to know when the company doesn't exist okay first question when does a bazaar not exist on planet Earth I have no idea in fact if I go to Jeff Bezos and ask him the same question he has no idea hey Jeff listen buddy can you tell me whether your company not
Otheryou tell me whether your company not gonna existing he's not gonna hit me andgonna existing he's not gonna hit me andgonna existing he's not gonna hit me and then they have no ideathen they have no ideathen they have no idea so then second question will Jeff Bezosso then second question will Jeff Bezosso then second question will Jeff Bezos hit yeah you know everything what I washit yeah you know everything what I washit yeah you know everything what I was can you tell me what the cash flows acan you tell me what the cash flows acan you tell me what the cash flows a 20-1820-1820-18 tell me or the cash flows in 2019 2020tell me or the cash flows in 2019 2020tell me or the cash flows in 2019 2020 2021 except what he has no idea that2021 except what he has no idea that2021 except what he has no idea that person in the company running theperson in the company running theperson in the company running the company has no idea but the market hascompany has no idea but the market hascompany has no idea but the market has given a precise number for the value ofgiven a precise number for the value ofgiven a precise number for the value of Amazon precise number to the sent thisAmazon precise number to the sent thisAmazon precise number to the sent this is the value comes right to the cent andis the value comes right to the cent andis the value comes right to the cent and so what the market is saying is me theso what the market is saying is me theso what the market is saying is me the market knows everything all the futuremarket knows everything all the futuremarket knows everything all the future cash flow Amazon is $100 pushing presentcash flow Amazon is $100 pushing presentcash flow Amazon is $100 pushing present value okay so the reality is the marketvalue okay so the reality is the marketvalue okay so the reality is the market also doesn't know that 1200 could be toalso doesn't know that 1200 could be toalso doesn't know that 1200 could be to know what could be too hardknow what could be too hardknow what could be too hard but the odds that it is correct is verybut the odds that it is correct is verybut the odds that it is correct is very low it could be too low or too long andlow it could be too low or too long andlow it could be too low or too long and so if I buy Amazon and I someone tellsso if I buy Amazon and I someone tellsso if I buy Amazon and I someone tells me listen to one word all the share
Otherme listen to one word all the shareme listen to one word all the share $1,100 stop-loss $14 target that would$1,100 stop-loss $14 target that would$1,100 stop-loss $14 target that would be a very stupid thing to do because forbe a very stupid thing to do because forbe a very stupid thing to do because for example let's say when I was buying nowexample let's say when I was buying nowexample let's say when I was buying now time three or four years ago I think thetime three or four years ago I think thetime three or four years ago I think the stock price was like at 170 rmv rightstock price was like at 170 rmv rightstock price was like at 170 rmv right and I looked at the company and lookedand I looked at the company and lookedand I looked at the company and looked at everything and look cheap to me so Iat everything and look cheap to me so Iat everything and look cheap to me so I bought right after I finished buying youbought right after I finished buying youbought right after I finished buying you went to 150 hours okay so if I put a subwent to 150 hours okay so if I put a subwent to 150 hours okay so if I put a sub H stop-loss in them they all becauseH stop-loss in them they all becauseH stop-loss in them they all because today I would have no money so let's saytoday I would have no money so let's saytoday I would have no money so let's say about 170 155 stop-loss and 300 on theabout 170 155 stop-loss and 300 on theabout 170 155 stop-loss and 300 on the target it will go to 150 you can't taketarget it will go to 150 you can't taketarget it will go to 150 you can't take it out gone so the nature we cannot haveit out gone so the nature we cannot haveit out gone so the nature we cannot have our investments taken away from usour investments taken away from usour investments taken away from us just because they flock to it so forjust because they flock to it so forjust because they flock to it so for example let me take another exampleexample let me take another exampleexample let me take another example let's say there is a house in Beijinglet's say there is a house in Beijinglet's say there is a house in Beijing let's say the value of the house is 5let's say the value of the house is 5let's say the value of the house is 5 million RMB okay let's say the house ismillion RMB okay let's say the house ismillion RMB okay let's say the house is listed on the stock exchange only thing
Otherlisted on the stock exchange only thing in the stock is this house okay now in the stock is this house okay now in the stock is this house okay now let's say I have a friend who is a real estate agent who knows talk the price of the house is very well I tell this the house is very well I tell this the house is very well I tell this friend listen friend listen friend listen come and have coffee with me everything and every Nabal to come down coffee with and every Nabal to come down coffee with and every Nabal to come down coffee with me please tell me the price of the house me please tell me the price of the house me please tell me the price of the house okay so i buy the house for 5 million okay so i buy the house for 5 million okay so i buy the house for 5 million RMB next year on my friend what is the RMB next year on my friend what is the RMB next year on my friend what is the price per house price per house price per house it's a listen idiot still five million it's a listen idiot still five million it's a listen idiot still five million irony they change two days still five irony they change two days still five irony they change two days still five million RB every day he's getting upset million RB every day he's getting upset million RB every day he's getting upset that he called you call him and here's that he called you call him and here's that he called you call him and here's to give you the same information that no to give you the same information that no to give you the same information that no change then after two months ago change then after two months ago change then after two months ago oh listen there's some change a move oh listen there's some change a move oh listen there's some change a move half percent okay it's gone up half half percent okay it's gone up half half percent okay it's gone up half percent percent percent you feel very happy the same house on you feel very happy the same house on you feel very happy the same house on the stock exchange is doing this every the stock exchange is doing this every the stock exchange is doing this every every six seconds five million RB four
Otherevery six seconds five million RB four point eight million for army five or twopoint eight million for army five or twopoint eight million for army five or two million RB four point seven million RBmillion RB four point seven million RBmillion RB four point seven million RB that stock price is moving everywherethat stock price is moving everywherethat stock price is moving everywhere without consideration for the underlyingwithout consideration for the underlyingwithout consideration for the underlying asset because buyers and sellers areasset because buyers and sellers areasset because buyers and sellers are creating the stock price whereas in thecreating the stock price whereas in thecreating the stock price whereas in the house it is one intelligent buyer onehouse it is one intelligent buyer onehouse it is one intelligent buyer one thousand seven we look at the price andthousand seven we look at the price andthousand seven we look at the price and set the price so the price to be reasonset the price so the price to be reasonset the price so the price to be reason why puff it became a billionaire iswhy puff it became a billionaire iswhy puff it became a billionaire is because of auction driven marketsbecause of auction driven marketsbecause of auction driven markets auction different markets createauction different markets createauction different markets create opportunity they undervalue companiesopportunity they undervalue companiesopportunity they undervalue companies and they own all the time so a stop lossand they own all the time so a stop lossand they own all the time so a stop loss makes no sense so I'm never going to buymakes no sense so I'm never going to buymakes no sense so I'm never going to buy a company unless it is worth at leasta company unless it is worth at leasta company unless it is worth at least double or what I think it should be Idouble or what I think it should be Idouble or what I think it should be I never buy anything in at least a cup Inever buy anything in at least a cup Inever buy anything in at least a cup I want to be set up right so if I buywant to be set up right so if I buywant to be set up right so if I buy something for Maotai a new values moresomething for Maotai a new values moresomething for Maotai a new values more than done right so if I'm buying for athan done right so if I'm buying for athan done right so if I'm buying for a double I what are the things I have to
Otherdouble I what are the things I have to
Otherdouble I what are the things I have to reason I have no debt and no leverage is
Otherreason I have no debt and no leverage is because everything I buy goes down in
Otherbecause everything I buy goes down in price I don't know what happens to you
Otherprice I don't know what happens to you but what happens to me everything goes
Otherbut what happens to me everything goes down in price after I buy it it knows
Otherdown in price after I buy it it knows mounish spots
Otherso if you only take one thing from the
Otherso if you only take one thing from the class without compounding take away this
Otherclass without compounding take away this forget about stopping if you're doing
Otherforget about stopping if you're doing value investing stops makes no sense
Otherthere are many worse investment with a
Otherthere are many worse investment with a vendor to you so you can't do more than
Othervendor to you so you can't do more than zero so we have had a number of zeros
Otherzero so we have had a number of zeros how many of them do you want me to talk
Otherokay so for example sensibly kind of
Otherokay so for example sensibly kind of strange bad practices but what happened
Otherstrange bad practices but what happened is that they had these warehouse lines
Otheris that they had these warehouse lines of credit when they will issue mortgages
Otherof credit when they will issue mortgages to a bunch of people take on the
Otherto a bunch of people take on the mortgage of the balance sheet then they
Othermortgage of the balance sheet then they would securitize it get the money back
Otherwould securitize it get the money back buy more mortgages that was their
Otherbuy more mortgages that was their business right so the financial crisis
Questionerbusiness right so the financial crisis what happened is the civilizationwhat happened is the civilizationwhat happened is the civilization stopped froze so they were stuck withstopped froze so they were stuck withstopped froze so they were stuck with these mortgages and then they violatedthese mortgages and then they violatedthese mortgages and then they violated the lending covenants and they didn'tthe lending covenants and they didn'tthe lending covenants and they didn't have much equity so in all of that ithave much equity so in all of that ithave much equity so in all of that it collapse to zero and one of the thingscollapse to zero and one of the thingscollapse to zero and one of the things that came out of that was a painful wethat came out of that was a painful wethat came out of that was a painful we lost seventy million dollars seventylost seventy million dollars seventylost seventy million dollars seventy million going to zero not good and somillion going to zero not good and somillion going to zero not good and so one of the things that came out of thatone of the things that came out of thatone of the things that came out of that was I created the checklist and one ofwas I created the checklist and one ofwas I created the checklist and one of the things I learned from the checklistthe things I learned from the checklistthe things I learned from the checklist you know the singers single number oneyou know the singers single number oneyou know the singers single number one reason why investments don't work isreason why investments don't work isreason why investments don't work is leverageleverageleverage so that's why I'm very skeptical aboutso that's why I'm very skeptical aboutso that's why I'm very skeptical about banks financial institution like I'mbanks financial institution like I'mbanks financial institution like I'm going to meet this housing financegoing to meet this housing financegoing to meet this housing finance company in Indiathey make a lot of moneythey make a lot of moneythey make a lot of money it all works really well when the systemit all works really well when the systemit all works really well when the system is workingis workingis working what when the system doesn't work so thewhat when the system doesn't work so thewhat when the system doesn't work so the good news is when I meet this housinggood news is when I meet this housing
Othergood news is when I meet this housing finance company I only learned otherfinance company I only learned otherfinance company I only learned other things in 2008 because I lost moneythings in 2008 because I lost moneythings in 2008 because I lost money right so this time when I meet theseright so this time when I meet theseright so this time when I meet these people I have a long list of questionspeople I have a long list of questionspeople I have a long list of questions for that maybe questions they themselvesfor that maybe questions they themselvesfor that maybe questions they themselves are never thought about because what canare never thought about because what canare never thought about because what can happen in leverage situations is youhappen in leverage situations is youhappen in leverage situations is you could have extreme events so extreme socould have extreme events so extreme socould have extreme events so extreme so you know we talked about stock lossyou know we talked about stock lossyou know we talked about stock loss right because I have no leverage in myright because I have no leverage in myright because I have no leverage in my portfolio I don't care how gold pricesportfolio I don't care how gold pricesportfolio I don't care how gold prices go so for example let's say the Thaigo so for example let's say the Thaigo so for example let's say the Thai North Korea launches a bunch of missilesNorth Korea launches a bunch of missilesNorth Korea launches a bunch of missiles what do you think the stock market'swhat do you think the stock market'swhat do you think the stock market's ability when they open straight no flowability when they open straight no flowability when they open straight no flow just falling straight down we may bejust falling straight down we may bejust falling straight down we may be down 50% I mean if we actually launch itdown 50% I mean if we actually launch itdown 50% I mean if we actually launch it and gets a hit most of major city willand gets a hit most of major city willand gets a hit most of major city will be down 50 60 70 % we don't know right Ibe down 50 60 70 % we don't know right Ibe down 50 60 70 % we don't know right I don't have leverage so 10% is mouth timedon't have leverage so 10% is mouth timedon't have leverage so 10% is mouth time what is the impact on water nothingwhat is the impact on water nothingwhat is the impact on water nothing after maybe for few days people will
Questionerafter maybe for few days people will bring but but after that the conduction will but but after that the conduction will but but after that the conduction will go back to normal okay but the stock price will go down for but the stock price will go down for but the stock price will go down for sure and I don't want it sold I want a sure and I don't want it sold I want a sure and I don't want it sold I want a stoploss or anything I want it sold stoploss or anything I want it sold stoploss or anything I want it sold since I want to own it so we have to since I want to own it so we have to since I want to own it so we have to have the ability in our portfolio to have the ability in our portfolio to have the ability in our portfolio to have so most businesses will not be have so most businesses will not be have so most businesses will not be affected long term by a missile launch affected long term by a missile launch affected long term by a missile launch but this price will go down what is the but this price will go down what is the but this price will go down what is the impact on real estate around Stanford impact on real estate around Stanford impact on real estate around Stanford unless the missile comes in there no unless the missile comes in there no unless the missile comes in there no impact right long term is be the same impact right long term is be the same impact right long term is be the same but instantaneously prices will go down but instantaneously prices will go down but instantaneously prices will go down so we have to have the ability to take so we have to have the ability to take so we have to have the ability to take advantage of such events won't even advantage of such events won't even advantage of such events won't even better not hope it never happens but we better not hope it never happens but we better not hope it never happens but we definitely don't want to be in a definitely don't want to be in a definitely don't want to be in a situation where when the event happens situation where when the event happens situation where when the event happens we go to zero any number multiplied by we go to zero any number multiplied by we go to zero any number multiplied by zero is zero that's the problem you zero is zero that's the problem you zero is zero that's the problem you cannot go to zero you cannot have
Othercannot go to zero you cannot have leverage so one of the things I learned is that not to have leverage in my personal life and to be careful for companies which have leverage to make money the best companies the best companies make money from leverage so Google no leverage makes a lot of money I'm out I'm no level it makes a lot of money so that's what you want to look for is great businesses then just crank out cash and they don't need any
Questionerare you applying for the job
Otherso actually I have no analyst I have no Cologne and I think it is
Other[Music]
Othernegative to have a team because in general that will cause it will cause activity because if I hire someone for sure the person will be very smart right and if I hire someone really smart the brain is working so they come to me with some idea and they're so confident the myself different so they come into idea next day another idea not after one
next day another idea not after one month all every idea they came up with Imonth all every idea they came up with Imonth all every idea they came up with I feel bad ok let's take the idea not okfeel bad ok let's take the idea not okfeel bad ok let's take the idea not ok so I don't want to have a situationso I don't want to have a situationso I don't want to have a situation wherewherewhere so when when people send me ideas whichso when when people send me ideas whichso when when people send me ideas which I hope all of you I have no obligationI hope all of you I have no obligationI hope all of you I have no obligation to even tell you what happened right noto even tell you what happened right noto even tell you what happened right no obligation at all and you probablyobligation at all and you probablyobligation at all and you probably hopefully don't feel bad if I won't buyhopefully don't feel bad if I won't buyhopefully don't feel bad if I won't buy the idea so that's also good and there'sthe idea so that's also good and there'sthe idea so that's also good and there's a lot of wisdom in crowds a lot of isa lot of wisdom in crowds a lot of isa lot of wisdom in crowds a lot of is really problem so two and a half yearsreally problem so two and a half yearsreally problem so two and a half years ago person I don't know in a sense theago person I don't know in a sense theago person I don't know in a sense the idea for a stock in India invested veryhigh quality I was blown awayhigh quality I was blown awayhigh quality I was blown away I never met this person ever met theI never met this person ever met theI never met this person ever met the person and I don't know the person and Iperson and I don't know the person and Iperson and I don't know the person and I read the writer and after I read theread the writer and after I read theread the writer and after I read the write-up I said this is beautiful so allwrite-up I said this is beautiful so allwrite-up I said this is beautiful so all I need to do is just check on the maxI need to do is just check on the maxI need to do is just check on the max and I spent about two hours justand I spent about two hours justand I spent about two hours just checking if he says the dentist so muchchecking if he says the dentist so muchchecking if he says the dentist so much a chat the debtor so much that isa chat the debtor so much that is
Othera chat the debtor so much that is non-recourse I check it's non-recoursenon-recourse I check it's non-recoursenon-recourse I check it's non-recourse every single thing the person said isevery single thing the person said isevery single thing the person said is correct and finding and so the stock iscorrect and finding and so the stock iscorrect and finding and so the stock is trading at 1/10 1/10 and so after threetrading at 1/10 1/10 and so after threetrading at 1/10 1/10 and so after three hours I say pull the triggers right andhours I say pull the triggers right andhours I say pull the triggers right and so the the only problem is the stock inso the the only problem is the stock inso the the only problem is the stock in India it's a market cap or I think lessIndia it's a market cap or I think lessIndia it's a market cap or I think less than 200 million so I can only put 20than 200 million so I can only put 20than 200 million so I can only put 20 million so 20 million so I said fine Imillion so 20 million so I said fine Imillion so 20 million so I said fine I would like to put 70 million but we canwould like to put 70 million but we canwould like to put 70 million but we can only put 20 milliononly put 20 milliononly put 20 million and I thought that in five yearsand I thought that in five yearsand I thought that in five years worst case would being at least fiveworst case would being at least fiveworst case would being at least five times and probably make ten times fivetimes and probably make ten times fivetimes and probably make ten times five years right two and a half years theyears right two and a half years theyears right two and a half years the stock is gone up $10 right
Questionerthank you Perry thank you very muchthank you Perry thank you very muchthank you Perry thank you very much keep them keep them calm okay so so thekeep them keep them calm okay so so thekeep them keep them calm okay so so the thing is there's a lot of wisdom in thething is there's a lot of wisdom in thething is there's a lot of wisdom in the crackers it's not the experts who havecrackers it's not the experts who havecrackers it's not the experts who have the ideas individual investors lookingthe ideas individual investors lookingthe ideas individual investors looking around in different areas I'm going toaround in different areas I'm going toaround in different areas I'm going to find things that I may not find I would
Otherfind things that I may not find I would find things that I may not find I would never have found they're coming in and never have found they're coming in and never have found they're coming in and without that writer without that writer without that writer I could not invest as complicated I could not invest as complicated I could not invest as complicated company if the person is easy and that company if the person is easy and that company if the person is easy and that writer was on the internet for anyone to writer was on the internet for anyone to writer was on the internet for anyone to look at one year before he said to do look at one year before he said to do look at one year before he said to do and nobody did anything about and and and nobody did anything about and and and nobody did anything about and and what I find since I bought the company what I find since I bought the company what I find since I bought the company and learn what's our more we are not and learn what's our more we are not and learn what's our more we are not done yet done yet done yet I think it may go for even more so we I think it may go for even more so we I think it may go for even more so we sit up like not to sit on and so I sit up like not to sit on and so I sit up like not to sit on and so I cannot hire an analyst as good as that cannot hire an analyst as good as that cannot hire an analyst as good as that guy so what I want is 10,000 analyst guy so what I want is 10,000 analyst guy so what I want is 10,000 analyst know what is 1 million analysts so all know what is 1 million analysts so all know what is 1 million analysts so all of you are analysts for Popeye Fox MPA of you are analysts for Popeye Fox MPA of you are analysts for Popeye Fox MPA for iPhones calm keep them coming for iPhones calm keep them coming for iPhones calm keep them coming look please nothing doesn't matter okay look please nothing doesn't matter okay look please nothing doesn't matter okay don't send me something this is a DRM be don't send me something this is a DRM be don't send me something this is a DRM be it's going to be worth 110 no sorry not it's going to be worth 110 no sorry not it's going to be worth 110 no sorry not interested ADR be worth 200 good 300 interested ADR be worth 200 good 300 interested ADR be worth 200 good 300 that's good okay at least enough because that's good okay at least enough because that's good okay at least enough because otherwise you know can't support the
Otherotherwise you know can't support the lifestyle can't compose we need high component compound 26 you know when you have compounded high rates so that's what any any question to find partners in last yeah foreigners can invest in India stocks it's just complicated and I think many of you will find it similar I think I find many face of land in China and India need to be a lot of bureaucracy so in India for example when we were trying to get for I fun set up to invest in India my hand started painting with the number of times I signed my name I musta signed my name I don't think less than six hundred times I don't even know what I saw maybe I gave them my firstborn no idea whatever guy is trying to get set up with India guy how many times did you sign your name so so it's possible you just have to be patient and go through the process and so the simple way to do
Otherthe process and so the simple way to do it is identify the broker in India we've got a trade and then the broker can hold your hand and get you through the process and we work with a couple of floors in India we work with a very good form codify he's not a good broker good form actually and then another one we work with is UBS which is in and they've got a branch in India so these are the two brokers we work with but there are many many good programs you do but the process takes a while but what I find is after we uh set up it's very quick very smooth very quick no problems I think I've been investing Pulaski half years no issues and and the best thing about investing in India is the long-term capital gains is zero so if you hold us talk for more than a year you won't pay taxes in India at all you only pay taxes based on the jurisdiction of the country you're investing from so
Questionerof the country you're investing from soof the country you're investing from so I never sell anything in India less thanI never sell anything in India less thanI never sell anything in India less than a year so all the profits we make ina year so all the profits we make ina year so all the profits we make in India we don't pay any tax in if we payIndia we don't pay any tax in if we payIndia we don't pay any tax in if we pay tax in the US but nothing in India sotax in the US but nothing in India sotax in the US but nothing in India so that's great yeahgood practice well I think goodgood practice well I think goodgood practice well I think good characteristics of value investor ischaracteristics of value investor ischaracteristics of value investor is number one to be very patient you knownumber one to be very patient you knownumber one to be very patient you know if you are a person who likes to watchif you are a person who likes to watchif you are a person who likes to watch paint dry then this is the professionpaint dry then this is the professionpaint dry then this is the profession for you you know after a wall is paintedfor you you know after a wall is paintedfor you you know after a wall is painted you sit and watch it dry and if you loveyou sit and watch it dry and if you loveyou sit and watch it dry and if you love doing thatdoing thatdoing that it's a great profession for you and andit's a great profession for you and andit's a great profession for you and and the second days of extreme patiencethe second days of extreme patiencethe second days of extreme patience rightrightright and the second is circle of competenceand the second is circle of competenceand the second is circle of competence we talked about that right so you havewe talked about that right so you havewe talked about that right so you have to it's very tempting when your neighborto it's very tempting when your neighborto it's very tempting when your neighbor comes to you and say I buy I bought thiscomes to you and say I buy I bought thiscomes to you and say I buy I bought this talk it went up five times okaytalk it went up five times okaytalk it went up five times okay you have to maintain the integrity ofyou have to maintain the integrity ofyou have to maintain the integrity of not of not impress me if it's notnot of not impress me if it's notnot of not impress me if it's not confidence and one the first question
Questionerconfidence and one the first question you have to ask yourself do I understand this most important question why understand the business really well and and if you cannot answer that question just take a pass so the good news of the investing is you know you were asking what rusty in India etc like I said with Johnny Vega the only nurse and stands with real estate did so well if you only you know there's a there's a fund in the US I think all the mayors and powers fund the charter of that front wall they could only buy stocks of companies based in Minnesota one state in the US okay feet in the market they are only allowed to buy companies based in Minnesota they can't find any of the other 49 they come by outside the US they beat the market so actually less is more you know lesson for having a lot of things to look at is not an advantage I think
Charlieto look at is not an advantage I think Johnny Vega the manager you look at but who knows Stanford real estate better than January no okay on the whole planet there's nobody who knows it better than him because that's what he saw there's a huge advantage you gain by specialization so one should not be trying to figure everything out one should try to become really good at a few things if you become really good at a few things and then just wait for those opportunities to show up you will do well and so that's what that's what I really look for is is there something that is very obvious the world is afraid and there's no opportunity and then we can do that and I'm not not concerned about if we go three months or six months or one year or make no investments no problem we want to make sure that we invest we invest the things that we we understand so you know
Questionerthat we we understand so you know figuring out figuring out the future of figuring out figuring out the future of figuring out figuring out the future of one business it's very hard if I just one business it's very hard if I just one business it's very hard if I just told you to figure out for me then told you to figure out for me then told you to figure out for me then yellow bicycle company where's that yellow bicycle company where's that yellow bicycle company where's that business in five years right sorry the investor reaction right sorry the investor reaction right sorry the investor reaction relationship Oh investor relations you relationship Oh investor relations you relationship Oh investor relations you know I didn't have I didn't have much know I didn't have I didn't have much know I didn't have I didn't have much issue you are from a fund went down long issue you are from a fund went down long issue you are from a fund went down long but I was just honest with investors I but I was just honest with investors I but I was just honest with investors I was honestly the most important thing was honestly the most important thing was honestly the most important thing you have to be is a few others that I you have to be is a few others that I you have to be is a few others that I make some mistakes the market is down make some mistakes the market is down make some mistakes the market is down and we've got our opportunities and so and we've got our opportunities and so and we've got our opportunities and so if people take the money away that's if people take the money away that's if people take the money away that's their choice I've never been concerned their choice I've never been concerned their choice I've never been concerned about people take money away so in any about people take money away so in any about people take money away so in any case you know if you go back to the 20 case you know if you go back to the 20 case you know if you go back to the 20 year old kid in Omaha with $10,000 he year old kid in Omaha with $10,000 he year old kid in Omaha with $10,000 he did not plan to manage other people's did not plan to manage other people's did not plan to manage other people's money at that time he was just thinking money at that time he was just thinking money at that time he was just thinking of managing his own money right and this of managing his own money right and this
Questionerof managing his own money right and this is a business where you can do reallyis a business where you can do reallyis a business where you can do really well without having any clients justwell without having any clients justwell without having any clients just managing your own money I have so manymanaging your own money I have so manymanaging your own money I have so many friends who are really good investorsfriends who are really good investorsfriends who are really good investors they don't manage money just a won moneythey don't manage money just a won moneythey don't manage money just a won money and they've done really well and soand they've done really well and soand they've done really well and so redemptions are not a issue or investorredemptions are not a issue or investorredemptions are not a issue or investor relations is not an issue just be honestrelations is not an issue just be honestrelations is not an issue just be honest and it's a privilege to manage someoneand it's a privilege to manage someoneand it's a privilege to manage someone else's body it's their right to take itelse's body it's their right to take itelse's body it's their right to take it away from you and that's fine so theyaway from you and that's fine so theyaway from you and that's fine so they won't take it away that's probably okaywon't take it away that's probably okaywon't take it away that's probably okay no problem other questions
OtherOh
Questionerif you are when you know the company
Questionerabsolutely no doubt so the test to useabsolutely no doubt so the test to useabsolutely no doubt so the test to use in just ask yourself if you if you feelin just ask yourself if you if you feelin just ask yourself if you if you feel yourself asking the question the answeryourself asking the question the answeryourself asking the question the answer is you know understand I'm waitin sois you know understand I'm waitin sois you know understand I'm waitin so that's the way you I mean it has to be athat's the way you I mean it has to be athat's the way you I mean it has to be a complete no-brainer it has to be wherecomplete no-brainer it has to be wherecomplete no-brainer it has to be where it's absolutely clear good you ask goodit's absolutely clear good you ask goodit's absolutely clear good you ask good understanding of the business CEO that'sunderstanding of the business CEO that'sunderstanding of the business CEO that's how it has to be and and so if you're
Otherhow it has to be and and so if you're not there either you pass put it into two one five or study it more but you study it till the point you get to the point where there is no doubt I can I can almost tell you that you have to that's why Warren Buffett says so warm up in smaller stuff very smart 99% of stuff 19900 businesses that come to him he doesn't understand throws them in the too hot 100 right one day I was lunch with Warren I told Warren you are such a good judge of people he said no Moorish I am NOT a good judge of people he said if you and I just meet them all all I can tell you is about four people are really good and four people are really bad and the other 92 I have no opinion so he said what I'm going to do is take 96 people only the four that are very good right so he said that 92 people who are quote unquote unknown he's going to
Otherare quote unquote unknown he's going to not even bothernot even bothernot even bother take them off so we have 50,000 publictake them off so we have 50,000 publictake them off so we have 50,000 public companies in the world 50,000 how manycompanies in the world 50,000 how manycompanies in the world 50,000 how many you need to get rich oh that's it youyou need to get rich oh that's it youyou need to get rich oh that's it you have 65 years so you don't need to dohave 65 years so you don't need to dohave 65 years so you don't need to do too many things just wait and learn andtoo many things just wait and learn andtoo many things just wait and learn and keep learning and when the opportunitykeep learning and when the opportunitykeep learning and when the opportunity comes strike and then the rest of thecomes strike and then the rest of thecomes strike and then the rest of the time like to Beijing talk to thetime like to Beijing talk to thetime like to Beijing talk to the studentsyeah a bit less thank you but justyeah a bit less thank you but justyeah a bit less thank you but just mention things that auction dreaminmention things that auction dreaminmention things that auction dreamin Marquesas that absolutelymarketokay so what we are doing doesn't reallyokay so what we are doing doesn't reallyokay so what we are doing doesn't really add it add some value to societythe only value possibly is that moneythe only value possibly is that moneythe only value possibly is that money gets channeled into companies thatgets channeled into companies thatgets channeled into companies that deserved right so for example let's saydeserved right so for example let's saydeserved right so for example let's say there's some company that's trying tothere's some company that's trying tothere's some company that's trying to raise money and I see that the stock israise money and I see that the stock israise money and I see that the stock is at the value then they are very goodat the value then they are very goodat the value then they are very good management team and they're doing a goodmanagement team and they're doing a goodmanagement team and they're doing a good job creating housing or something if Ijob creating housing or something if Ijob creating housing or something if I give them the money I'm helping Societygive them the money I'm helping Societygive them the money I'm helping Society but that's a small small fact most of
Charliebut that's a small small fact most of the time we're buying things and already ownership so you're absolutely fine if you want to improve the planet then becoming a value investor is not the way to improve the planet you can improve climber being a value investor if you give the money away so I'm trying to give the money away to try to make up for the low quality of my day-to-day endeavors so you have to be right that you should not aspire to value investing as being some high callthat if you do that yeah because we can probably do a better job giving it back to society right yes so so because I have a low calling in life I'm trying to make make up for it I have a foundation a foundation which is trying to help out so try to balance it so that's we had a question over here
Questioneryeah I knew one banker and then she just retired from Bowman party and she told
retired from Bowman party and she told me and her most of the great stuff sheme and her most of the great stuff sheme and her most of the great stuff she gives the IPO of Spencer and she didn'tgives the IPO of Spencer and she didn'tgives the IPO of Spencer and she didn't buy one share in front of me today she'sbuy one share in front of me today she'sbuy one share in front of me today she's still there really culprit of thestill there really culprit of thestill there really culprit of the chairman CEO and also Martino is herchairman CEO and also Martino is herchairman CEO and also Martino is her making when she was the associatemaking when she was the associatemaking when she was the associate so she I think she's one person newso she I think she's one person newso she I think she's one person new pencil very well and she never investedpencil very well and she never investedpencil very well and she never invested and you just buy one in Soho so doesn'tand you just buy one in Soho so doesn'tand you just buy one in Soho so doesn't matter so the thing is her experience ismatter so the thing is her experience ismatter so the thing is her experience is not uncommon our experience in thenot uncommon our experience in thenot uncommon our experience in the common experience so the thing is thatcommon experience so the thing is thatcommon experience so the thing is that you have to put conviction behind theyou have to put conviction behind theyou have to put conviction behind the ideas right so one of the firstideas right so one of the firstideas right so one of the first questions I ask is what percent of yourquestions I ask is what percent of yourquestions I ask is what percent of your network did you put in so the thingnetwork did you put in so the thingnetwork did you put in so the thing about the world is with humans is it'sabout the world is with humans is it'sabout the world is with humans is it's not enough to know how you have to go tonot enough to know how you have to go tonot enough to know how you have to go to the next step the next step is not easythe next step the next step is not easythe next step the next step is not easy because the next step required her tobecause the next step required her tobecause the next step required her to take money from her account because thattake money from her account because thattake money from her account because that is showing conviction right so shows the
Warrenis showing conviction right so shows the conviction you gotta take the money and put it and for whatever reason she had a mental block she didn't do it and she's not the only one a lot of people don't do that and many times I make investment decisions that don't work out it's a mistake but but that's the nature of the game you are not going to have a 100% batting average many investors warren buffett makes even after rejecting 99% are mistakes so mistakes are part of the equation but the end result is that I used to have 1 million dollars in 19 before and the last time I counted I have 170 million well okay so and we took 70 million little Delta financial we took so many so many zeros in the last 23 years still it's 170 X and what I started and I didn't know much I just read a book you know and I figure out compounding and that's it so I think the
Othercompounding and that's it so I think the thing is having so let me give you another example
QuestionerMalta please have a seat
OtherMountain my learned friend I speak Harvard Business okay very smart
OtherI called my I said God there is this company I think I died and went to heaven this company so amazing right I'm bouncing up and down explaining about Hydra okay and he's very excited how do you know this and say no listen to me about this okay so finally I was able to convince and what did you how much you buying guide okay so he has 160 million under management if he bought 1.1 percent give me one point six million heated by one percent heated by five percent before 0.2 percent okay and then yesterday so you know how I telling you this is it right just like the ten cent now now that let's say at that time we have made the trip three years ago four years ago to mountain scenery what would you have invested there so guy what what should
Otherinvested there so guy what what should you have invested
Otheryou know I I have another friend Yong ping Duan some of you might know him if I have the same conversation with him you probably got 25% you know just casual way of thinking about and even I even I had concerns so to give guy been put down
OtherI had never invested in China before I really liked the company one of the things is that liquor companies you can be obedient father okay even if you're redeemed even if you try to destroy it what are the surest way to make money is owning a liquor across the world okay one of the lowest rates of business failures of different classes of businesses is liquor companies especially liquor company to the brand then you take a brand which you made 1,000 years old and then you take a country which is exploding like China and you start adding all those pieces of you see that there's no competition
Otheryou see that there's no competition you see that there's no competition nothing all these things keep adding nothing all these things keep adding nothing all these things keep adding mental model for mental model on this mental model for mental model on this mental model for mental model on this thing so when I was thinking what I said thing so when I was thinking what I said thing so when I was thinking what I said okay so the company check okay compete okay so the company check okay compete okay so the company check okay compete with no no competition no second person with no no competition no second person with no no competition no second person 1/4 of the planets population or 1/5 of 1/4 of the planets population or 1/5 of 1/4 of the planets population or 1/5 of the planets population and it rises the planets population and it rises the planets population and it rises limited supply good execution just limited supply good execution just limited supply good execution just there's so many thing to check off in there's so many thing to check off in there's so many thing to check off in this thing and and so so the thing is this thing and and so so the thing is this thing and and so so the thing is that position sizing that's what you're that position sizing that's what you're that position sizing that's what you're talking about talking about talking about position sizing your friend at tens had position sizing your friend at tens had position sizing your friend at tens had decided the correct position size of decided the correct position size of decided the correct position size of zero guy was close he was pointing to zero guy was close he was pointing to zero guy was close he was pointing to okay not entirely zero but something at okay not entirely zero but something at okay not entirely zero but something at least it was a point to at least good least it was a point to at least good least it was a point to at least good thing is maokai has grown now it's not thing is maokai has grown now it's not thing is maokai has grown now it's not right now 1% 1% of the portfolio so right now 1% 1% of the portfolio so right now 1% 1% of the portfolio so that's great and and so a position that's great and and so a position that's great and and so a position sizing is a very complicated subject sizing is a very complicated subject sizing is a very complicated subject it's a very difficult subject so I was it's a very difficult subject so I was
Otherit's a very difficult subject so I was making fun of guy but it's not an easy making fun of guy but it's not an easy making fun of guy but it's not an easy subject so once we decide we're going to subject so once we decide we're going to subject so once we decide we're going to invest then the big question becomes how invest then the big question becomes how invest then the big question becomes how much of economist and that's that's not much of economist and that's that's not much of economist and that's that's not an easy question to answer sometimes an easy question to answer sometimes an easy question to answer sometimes sometimes it's it's a total no-brainer sometimes it's it's a total no-brainer sometimes it's it's a total no-brainer wait when I saw the report and I of wait when I saw the report and I of wait when I saw the report and I of Canada sent me I wanted to buy three Canada sent me I wanted to buy three Canada sent me I wanted to buy three times what I was allowed to buy but I times what I was allowed to buy but I times what I was allowed to buy but I just could do whatever I could do and just could do whatever I could do and just could do whatever I could do and from there other questions yeah maybe from there other questions yeah maybe from there other questions yeah maybe the last question well how do you decide when to buy a well how do you decide when to buy a well how do you decide when to buy a Stargate yeah so actually I did not use Stargate yeah so actually I did not use Stargate yeah so actually I did not use the lead the lead the lead I used warrant so it's a it's a little I used warrant so it's a it's a little I used warrant so it's a it's a little bit of a difference so I would not be bit of a difference so I would not be bit of a difference so I would not be interested in for iPhones in buying interested in for iPhones in buying interested in for iPhones in buying leaves but I bought the warrant and the leaves but I bought the warrant and the leaves but I bought the warrant and the reason about warrant is like a lead but reason about warrant is like a lead but reason about warrant is like a lead but it's a longer duration so when we bought it's a longer duration so when we bought it's a longer duration so when we bought the stock at the world in 2012 we had the stock at the world in 2012 we had the stock at the world in 2012 we had seven years left on the warmth the back seven years left on the warmth the back
Otherseven years left on the warmth the back so you get in the lead in the u.s. isso you get in the lead in the u.s. isso you get in the lead in the u.s. is two weeks so we had a long time and thetwo weeks so we had a long time and thetwo weeks so we had a long time and the second is that Lee had unusual featuressecond is that Lee had unusual featuressecond is that Lee had unusual features so one of the features was we could giveso one of the features was we could giveso one of the features was we could give it to the company and get stock anytimeit to the company and get stock anytimeit to the company and get stock anytime so so normally a lead you have to sellso so normally a lead you have to sellso so normally a lead you have to sell in the market or so this gave you ain the market or so this gave you ain the market or so this gave you a little bit more options so we went inlittle bit more options so we went inlittle bit more options so we went in the lead or not with the people with thethe lead or not with the people with thethe lead or not with the people with the warrant on GM because those warrantswarrant on GM because those warrantswarrant on GM because those warrants were issued at a time and GM was inwere issued at a time and GM was inwere issued at a time and GM was in trouble so the United States Treasurytrouble so the United States Treasurytrouble so the United States Treasury wrote the document for a warrant andwrote the document for a warrant andwrote the document for a warrant and they told them sign here so GM could notthey told them sign here so GM could notthey told them sign here so GM could not control the terms because at that timecontrol the terms because at that timecontrol the terms because at that time they went bankrupt so then the USthey went bankrupt so then the USthey went bankrupt so then the US government took that warrant and theygovernment took that warrant and theygovernment took that warrant and they sold it to the public so when they soldsold it to the public so when they soldsold it to the public so when they sold public we thought instrument that GMpublic we thought instrument that GMpublic we thought instrument that GM would never issue except when theywould never issue except when theywould never issue except when they wander distress so what instrument sowander distress so what instrument sowander distress so what instrument so that's why all right all right with that
Otherthat's why all right all right with that it's been a pleasure talking to everyone meeting everyone thank you very much and wish you all the best and the important thing to remember is it's about the simple ideas but it's about the intensity that you go after and so I hope you do that thank you
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Otherthis is the queen of the valley Matthew for this master simply starting is all actors by a Djinn charm which is prime the basics of Mary imagine and then I introduce lectures and then is all after the students to form the groups to study for they are in kisses and in generating the right back to and we will contact exact alright so today I think my next lecture is talk there's a wonderful for this very must impose this is the fourth operate and think about getting better and better and also getting better and better known in China so suck you uh finish and also as well it's wonderful lecture and they hope to see you in this classroom again in the future
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