Other[Music][Music][Music] foreignforeignforeign [Music][Music]investment funds a global value fundinvestment funds a global value fundinvestment funds a global value fund with the AUM up more than 700 millionwith the AUM up more than 700 millionwith the AUM up more than 700 million dollars this one that's handily beat indollars this one that's handily beat indollars this one that's handily beat in the market since its reception in 2000.the market since its reception in 2000.the market since its reception in 2000. the 2008 Mr popular made news aboutthe 2008 Mr popular made news aboutthe 2008 Mr popular made news about bidding 650 000 to spend Mr graskia forbidding 650 000 to spend Mr graskia forbidding 650 000 to spend Mr graskia for a charity lunch with Mr Warren Buffettinvestor the non-investor likeinvestor the non-investor likeinvestor the non-investor like the link for the book will be beneaththe link for the book will be beneaththe link for the book will be beneath the video for those who are interestedthe video for those who are interestedthe video for those who are interested andandand
Questioneryou know thank you for joining us todayyou know thank you for joining us todayyou know thank you for joining us today and uh I would like to welcome you toand uh I would like to welcome you toand uh I would like to welcome you to the show thank you Siddharth pleasure tothe show thank you Siddharth pleasure tothe show thank you Siddharth pleasure to be here yeah I would like to begin withbe here yeah I would like to begin withbe here yeah I would like to begin with some of the esoteric Concepts thatsome of the esoteric Concepts thatsome of the esoteric Concepts that investors have a tough time wrappinginvestors have a tough time wrappinginvestors have a tough time wrapping their heads well and one of them istheir heads well and one of them istheir heads well and one of them is intrinsic value investors run into a lotintrinsic value investors run into a lotintrinsic value investors run into a lot of trouble when they're trying toof trouble when they're trying toof trouble when they're trying to project out cash flows you know theseproject out cash flows you know theseproject out cash flows you know these are typicallyare typicallyare typically 10-year projections maybe more sometimes10-year projections maybe more sometimes10-year projections maybe more sometimes and then they have two base the
Questionerand then they have two base theand then they have two base the intrinsic value of that production sointrinsic value of that production sointrinsic value of that production so how do you as an investor reconcile thehow do you as an investor reconcile thehow do you as an investor reconcile the uncertainty of the projections with theuncertainty of the projections with theuncertainty of the projections with the need to you know perform theseneed to you know perform theseneed to you know perform these projections and how do you approach theprojections and how do you approach theprojections and how do you approach the subject of intrinsic value job yeahsubject of intrinsic value job yeahsubject of intrinsic value job yeah
Todd CombsSiddhartha I think that's the greatSiddhartha I think that's the greatSiddhartha I think that's the great question so intrinsic value thequestion so intrinsic value thequestion so intrinsic value the definition of intrinsic value isdefinition of intrinsic value isdefinition of intrinsic value is relatively simple calculating it in mostrelatively simple calculating it in most cases is far from elementary so actuallycases is far from elementary so actuallycases is far from elementary so actually it was a John Burr Williams who came upit was a John Burr Williams who came upit was a John Burr Williams who came up with a concept of intrinsic value andwith a concept of intrinsic value andwith a concept of intrinsic value and defined it several decades ago and maybedefined it several decades ago and maybedefined it several decades ago and maybe about 100 100 years ago and he said thatabout 100 100 years ago and he said thatabout 100 100 years ago and he said that it was the sum of all the cash you couldit was the sum of all the cash you couldit was the sum of all the cash you could pull out of an Enterprise between nowpull out of an Enterprise between nowpull out of an Enterprise between now and Judgment Day and then you wouldand Judgment Day and then you wouldand Judgment Day and then you would discount it back to present value bydiscount it back to present value bydiscount it back to present value by some reason of interest rate that wouldsome reason of interest rate that wouldsome reason of interest rate that would intrinsic value of the Enterprise or aintrinsic value of the Enterprise or aintrinsic value of the Enterprise or a real estate or anything else it's
Warrenreal estate or anything else it's looking and of course when we apply that to businesses and stock market equities and so on it is uh far from elementary exercise because projecting cash flows for a bit several years out even the Insiders in the business who maybe have even been running it or 10 20 30 years may have difficulty with that exercise outside investors who don't have the same level of you know expertise or granularity about the business would be even more handicapped doing that at the same time making Investments without having a good sense of intrinsic value is a Fool's errand there are hacks and we can use hacks to get to the promised land the first hack is that we don't need to know the intrinsic value of everything and we should not even aspire to that most stocks would fall and all outside the circular competence
Todd Combsthe circular competence of a given individual investor or an of a given individual investor or an of a given individual investor or an institution so if something is not institution so if something is not institution so if something is not within circle of competence there's no within circle of competence there's no within circle of competence there's no need to try to figure out what it's need to try to figure out what it's need to try to figure out what it's worth because we're not going there so worth because we're not going there so worth because we're not going there so that becomes one and and large swaths of that becomes one and and large swaths of that becomes one and and large swaths of equities would be outside my circle of equities would be outside my circle of equities would be outside my circle of confidence so for example if I look at confidence so for example if I look at confidence so for example if I look at anything in biotech is it as I have no anything in biotech is it as I have no anything in biotech is it as I have no no Edge or anything I can bring to that no Edge or anything I can bring to that no Edge or anything I can bring to that party if if I'm looking at Industries or party if if I'm looking at Industries or party if if I'm looking at Industries or businesses with the modern technology businesses with the modern technology businesses with the modern technology that I don't understand again it's the that I don't understand again it's the that I don't understand again it's the same thing so or if it's an industry same thing so or if it's an industry same thing so or if it's an industry which I just don't understand what are which I just don't understand what are which I just don't understand what are the main factors of private lots of the main factors of private lots of the main factors of private lots of businesses go by the wayside because businesses go by the wayside because businesses go by the wayside because they fall outside of circular competence they fall outside of circular competence they fall outside of circular competence other thing that we can do to put the other thing that we can do to put the other thing that we can do to put the odds in our favor odds in our favor odds in our favor is we don't necessarily need to figure is we don't necessarily need to figure is we don't necessarily need to figure out into the cloud out into the cloud out into the cloud what what we need to figure out is it's
Questionerwhat what we need to figure out is it's above above above XXX where X would give us acceptable return where X would give us acceptable return where X would give us acceptable return so we may not be able to come up with a so we may not be able to come up with a so we may not be able to come up with a precise number precise number precise number but we may be able to come up with a but we may be able to come up with a but we may be able to come up with a number that you know a stock is trading number that you know a stock is trading number that you know a stock is trading at 50 the intrinsic value is over 80 at 50 the intrinsic value is over 80 at 50 the intrinsic value is over 80 example so that would give us you know example so that would give us you know example so that would give us you know some basis to proceed we can also get to some basis to proceed we can also get to some basis to proceed we can also get to the liquidation value of a business the liquidation value of a business the liquidation value of a business in most cases relatively easy sometimes in most cases relatively easy sometimes in most cases relatively easy sometimes liquidation value exceeds the stock liquidation value exceeds the stock liquidation value exceeds the stock price price price so then again it becomes a hack where so then again it becomes a hack where so then again it becomes a hack where you could say well I know the question you could say well I know the question you could say well I know the question value is more than two or three times value is more than two or three times value is more than two or three times the stock price and I know that the stock price and I know that the stock price and I know that liquidation value is not going through liquidation value is not going through liquidation value is not going through degradation or it's unlikely to go down degradation or it's unlikely to go down degradation or it's unlikely to go down so we can do that as well there are a so we can do that as well there are a so we can do that as well there are a number of different ways that that can number of different ways that that can number of different ways that that can be approached I remember I think it was be approached I remember I think it was be approached I remember I think it was 2005 or so 2005 or so 2005 or so there was a steel company it was
Questionerthere was a steel company it was headquartered in the U.S for most ofheadquartered in the U.S for most ofheadquartered in the U.S for most of their plants in Canada company calledtheir plants in Canada company calledtheir plants in Canada company called ipscoipscoipsco ipsco made tubular steel basically steelipsco made tubular steel basically steelipsco made tubular steel basically steel that was used in pipelines and they usedthat was used in pipelines and they usedthat was used in pipelines and they used to have these multi-year contractsto have these multi-year contractsto have these multi-year contracts because people are building all thesebecause people are building all thesebecause people are building all these long pipelines that they would Placelong pipelines that they would Placelong pipelines that they would Place orders with so which were firm ordersorders with so which were firm ordersorders with so which were firm orders because they wanted to make sure theybecause they wanted to make sure theybecause they wanted to make sure they were getting the pipe they neededwere getting the pipe they neededwere getting the pipe they needed many times had visibility multi-yearmany times had visibility multi-yearmany times had visibility multi-year visibility into their earnings they hadvisibility into their earnings they hadvisibility into their earnings they had announced in 2004 that for the next twoannounced in 2004 that for the next twoannounced in 2004 that for the next two yearsyearsyears they would make 15 a share in thatthey would make 15 a share in thatthey would make 15 a share in that income after tax the stock was tradingincome after tax the stock was tradingincome after tax the stock was trading at about 45 per share there was about 15at about 45 per share there was about 15at about 45 per share there was about 15 the share of cash on the balance sheetthe share of cash on the balance sheetthe share of cash on the balance sheet there was no debt and we had this youthere was no debt and we had this youthere was no debt and we had this you know next two years of fifteen dollarsknow next two years of fifteen dollarsknow next two years of fifteen dollars coming in and they had a lot of othercoming in and they had a lot of othercoming in and they had a lot of other assets planned equipment inventory Etcassets planned equipment inventory Etcassets planned equipment inventory Etc so if you excluded everything else and
Questionerso if you excluded everything else and you just held the stock for two years the cash on the balance sheet would equal to the current stock price so if scope was a very cyclical business even the Insiders probably couldn't tell you what the interesting file was but I didn't really care my take was okay let's buy the stock let's hold it for two years and let's see what the market decides the company should be valued at that point I couldn't believe that a business with 45 of cash on the balance sheet would still change dad's hands at 45 when they had all these other assets their earnings could well have gone to zero in year three or they would have followed off 70 percent or they could have stayed flat or gone up there was a very wide range of outcomes probabilistically it was a good bet and so a year later ifsco announced that they had one more year of earnings
Questionerthey had one more year of earnings visibility and they were going to make another 15 share so now I mean shortly after I bought the stock that gradually drifted up to 60. and then when they announced this one more year of visibility Etc it continued to move higher and it was trading at about 90 a share and I had held the shares for about a year and a half I was saying well well done monish it worked but since we have no further visibility and we we know this is a cyclical business maybe it's time to get off the bus and as I was running through that part in my head and thinking about you know it might be time to you know double in less than 18 months or so there was an announcement that came out that a Swedish company was and made a offer to buy ipsco at 160 a share and when I woke up that morning I think the stock was trading at 150 or 152 or
Ted Weschlerthe stock was trading at 150 or 152 or something one Femme to Second after that I sold all the shares and that deal actually closed and itsco became a private company part of the Swedish group and so on but you know that's an example of where there was more value there than what the market was describing sometimes the market gets confused risk and uncertainty there's a business I invested in in 2019 in Turkey which is the largest Warehouse operator in Turkey race house and their liquidation value which was relatively easy to get to because they had 12 million square feet of Class A Prime warehouses 20 refrigerated 99 least 10-year inflation indexed leases the market cap was 20 million the liquidation value was over a billion and there was about 200 million of debt so if you took out the debt you were buying something like you know three cents of
Questionersomething like you know three cents of the dollar or something two and a half the dollar or something two and a half the dollar or something two and a half three cents of a dollar again in that case you know there were cash flows and other things going on intrinsic value was probably over 800 million with a very good capital allocators my estimate by the intrinsic value might be 50 for liquid is but I didn't need to figure it out we were buying a 20 million and liquidation value of the 800 million good things were likely to happen to us so there's another company I think in 2015 rain Industries we still own it this is a very technical business with some significant volatility in earnings but they're also low cost producers so they don't really money even at the down cycle green Industries had a market cap under 200 million two billion there was a very high probability I felt that in a very high probability I felt that in the next four or five years earnings in
Warrenthe next four or five years earnings in the next four or five years earnings in a single year would exceed 200 million a single year would exceed 200 million a single year would exceed 200 million and again I just wanted to hold the and again I just wanted to hold the and again I just wanted to hold the stock to see what happened stock to see what happened stock to see what happened when that single year earnings went to when that single year earnings went to when that single year earnings went to that number and I thought that odds were that number and I thought that odds were that number and I thought that odds were high would happen within five minutes so high would happen within five minutes so high would happen within five minutes so my take was okay we don't have a my take was okay we don't have a my take was okay we don't have a downside we have a unknown upside and downside we have a unknown upside and downside we have a unknown upside and can go in we don't know what intrinsic can go in we don't know what intrinsic can go in we don't know what intrinsic value is but that's okay within three value is but that's okay within three value is but that's okay within three years their earnings hit the 200 million years their earnings hit the 200 million years their earnings hit the 200 million and the market cap got close to 2 and the market cap got close to 2 and the market cap got close to 2 billion billion billion and in my Infinite Wisdom I did not sell and in my Infinite Wisdom I did not sell and in my Infinite Wisdom I did not sell because by then I was in love with the because by then I was in love with the because by then I was in love with the business and then it went down and now I business and then it went down and now I business and then it went down and now I think it's about seven eight hundred think it's about seven eight hundred think it's about seven eight hundred million in market value so we we have a million in market value so we we have a million in market value so we we have a gain but we and I think we will get past gain but we and I think we will get past gain but we and I think we will get past the in the old 200 billion by in the the in the old 200 billion by in the the in the old 200 billion by in the fullness of time but that was another fullness of time but that was another fullness of time but that was another example where example where example where couldn't lose money you didn't have to
Questionercouldn't lose money you didn't have to figure out so I think the hacks are important because many times a straight DCF so one of the rules I use is that if you need Excel to figure out what the intrinsic value is there is a problem if you cannot do it in your head there's a problem if you look at a business like Starbucks or McDonald's like that I think the odds are very low that these businesses have lower earnings five or ten years from now those are pretty low odds the place with the the area which gets complicated is how much higher would right and so you can always take a conservative view on on these businesses and say okay well I've got a long history with these businesses I can look at the history I can look at it China's got you know 5000 stores and maybe ten thousand and five years or something all sorts of things
Todd Combssorts of things and you could make some extrapolations those types of bets can pay off extremely well the math is a little bit more I it makes a lot it requires you to make more assumptions then I need to make with very SAS or rain or if so and so on but that can work as well but the important thing I think is that because we live in a world with 50 000 listed company there are always businesses and regions and industries that are going through some kind of overhang which is making it easier to get to at least Florida and so focusing on those uh is a good way to go you know like I think off it has a port he says we like to buy great businesses when they are on the operating table and so I think a lot of great businesses go through temporary hiccups and the temporary hiccups can help us make it and make it easier to figure out
Questionermake it and make it easier to figure out intrinsicallyintrinsicallyintrinsically and get in at a price below aand get in at a price below aand get in at a price below a conservative assessment I think theconservative assessment I think theconservative assessment I think the investment process is made even moreinvestment process is made even moreinvestment process is made even more difficult by especially in the US butdifficult by especially in the US butdifficult by especially in the US but just the sheer number of wise looking atjust the sheer number of wise looking atjust the sheer number of wise looking at Securities you have more hedge fund andSecurities you have more hedge fund andSecurities you have more hedge fund and major funds now than you have at leastmajor funds now than you have at leastmajor funds now than you have at least public listed stocks in the U.S and sopublic listed stocks in the U.S and sopublic listed stocks in the U.S and so how do you screenflow ideashow do you screenflow ideashow do you screenflow ideas andandand I mean you mentioned cloning as one ofI mean you mentioned cloning as one ofI mean you mentioned cloning as one of the ways 30 naps you look at otherthe ways 30 naps you look at otherthe ways 30 naps you look at other resources and whatever you found to beresources and whatever you found to beresources and whatever you found to be the most uh effective way to do so wellthe most uh effective way to do so wellthe most uh effective way to do so well
Otherwe wait for something to hit me like awe wait for something to hit me like awe wait for something to hit me like a two by four on my headtwo by four on my headtwo by four on my head and when something hits me like a two byand when something hits me like a two byand when something hits me like a two by four I held and jolts me then that youfour I held and jolts me then that youfour I held and jolts me then that you means I should do take further Etc so ifmeans I should do take further Etc so ifmeans I should do take further Etc so if I can find two investments in a yearI can find two investments in a yearI can find two investments in a year that we can make I think we're doingthat we can make I think we're doingthat we can make I think we're doing well I think through the first eightwell I think through the first eightwell I think through the first eight months of 2022 I found one investment
Todd Combsmonths of 2022 I found one investment and just recently a second one and just recently a second one I think this one working so it's a good year it's a wonderful year and who knows what 2023 brings or what 2024 brings it could be zero or it could be four we don't know so on the on the one hand you have the 50 000 stocks on the other hand we only need a couple of ideas a year maybe less and so with that larger universe sifting through things and being you know just asking basic questions like is a certain circular competent what is this Earth and that sort of thing it will get rid of a lot of companies and we can use hacks to reduce the data set one hack you could use is for example if you limit yourself to only buying businesses that have a write-up on value investors club for example because that's a very well curated site it's difficult to become a member you have to keep
Questionerbecome a member you have to keep submitting a couple of ideas a year that are decent to keep your membership Etc so the average idea on value investors Club is better than throwing darts at a board and picking an average talk to research so if you use the value investors Club as a starting point to doing research it trims down the data set quite a bit and the write-ups are pretty good so if you just went through and just read the write-ups and then just left with the ones that you think are businesses understand or thesis that agree with then that becomes a basis to do more work and see if any of those jive with so that can be a good source data Roma which gives the 13f filings a whole bunch of great extras that can another great source you know Barons could be a source there's a number of sources through that mix of things trim them
Ted Weschlerthrough that mix of things trim them down you know I I made my first trip to Turkey in 2018 because the currency was very unstable everyone and their brother was leaving the country in mass and the markets optically looked really cheap so I had a good friend in turkey and I just said listen can we joke just go and visit every business in your portfolio I didn't want to visit every listed company in Turkey I wanted to visit the ones that had already gone through this filter he had actually put money into it and so on and that that was a great trip you know found a few things that look interesting and then the following year I made another visit in 2019 that's when we visited resource you know three percent liquidation value and so on so I think that there can be a number of different ways in which you can create the the research list if you will could be value universes Club
Questionerwill could be value universes Club other Publications Barons or might say okay you know particular geography might hold some promise and let me dig further and so on so there can be a number of different ways in which things can enter the funnel since the output from the funnel should ideally be pretty small because I think most of us probably cannot find more sense and uh that's a good way to go so and when you look at your investment process are you working at multiple ideas at once are you just working on one investment at a time and do you read industry journals transcripts analog books you know all of those a cardigo about aggregating data I guess and then attacking these Investments is one at a time or something well like for example this is a good good time right now because a lot of my energy is focused on one particular company right
Todd Combsfocused on one particular company right that I'm drilling down on at the same time you know I'm reading several newspapers every day value line shows up once a week and you know my assistant is PDF of like for example all the ideas posted value investors love in the last month or something and and so that's so it's a mix I would say that at this point probably 80 90 percent of available false Powers being directed to one business and I'm still looking at a bunch of other things most of those get discarded pretty quickly if something shows up on the radar that looks interesting then I will relatively quickly try to figure out which of the two businesses that I now have are the one which of the two should be given more priority and then we take it from there basically to try to do a comparison try to see which one a risk adjusted is a better
Questionerwhich one a risk adjusted is a better do you believe in having some other intelligent investors your partner similar to Mr Buffett and Mr mongan and if so how do you avoid maybe confirmation bias or group think in that case
Todd Combsyeah Charlie had told me a long time ago and it's like within what's the second meeting I had with in 2009 he's he told me monishes are really important to have someone to talk to about your Investments so I told him Oh you mean like a Warren Buffett so he said well it wasn't always worn but I've always had someone to talk to I actually Incorporated that had not done I know I hadn't thought about it that way till then and I made it a deliberate attempt after that to seek out other opinions sometimes people the company I'll sometimes people differing opinion on the company and and such yeah I mean you know John Templeton says that the best of us will
QuestionerTempleton says that the best of us will be wrong one or three times so if I make you know six bets in three years even after even though we're making two bets a year according to John two out of those six pets at least might be that's a minimum it would be actually three out of the six paths don't do what you expect them to do they do far worse than what you expect to do now my hope is we don't have permanent loss of capital you know that if it doesn't work you get your money back but many times you're not that lucky you know so you may you may suffer some loss of capital as well and so that's that's just par for the course even even when I look at Warren Buffett's Investments and if you were to look at like his let's say 70 or 80 acquisitions that he's did at Berkshire easily more than a third of those that not worked so and this is Warren Buffett with Charlie
Otherand this is Warren Buffett with Charlie Bunger with a lot of you know the best of the best and the good news is that Warren has been that the larger ones in general have worked and so if you tolerate it he's had a very high success rate but if you equal weight every one of those 70 beds it would be a terrible rifle relative to what we've seen Hathaway like they made a large number of investment in Furniture retailers I think every single one of them except Nebraska Furniture Mart never worked lots of investments in jewelry retailers and every single one X abortions did not work in fact most of the businesses during the financial crisis would have just gone under I think the only state are alive because they had the support of the parent so they would have basically been zero in the number of cases I think that yeah it's it's important anything that you can do
Questionerimportant anything that you can do to bring the error rate down so talking to other people who don't have an ax don't have any biases or you know a reason to agree with you and such and I'm more objective that can be a great a great asset Mr bopper describes a great business as one which has a wide mode around it and I think what I believe he's always been focused on is identifying molds in a big addressable Market how do you personally approach a business which you believe has a more do you is it something that comes to you naturally over a period of time some collection of a bunch of insights or do you actually go about it in a more intentional manner
Otherhe's really trying to identify what is the mode of this particular business even when it's not obvious a business that is within your circle of competence the mode will be very apparent to you when you just think
Todd Combsvery apparent to you when you just think about the business and then it would get ratified when you look at the numbers so generally speaking a great business is going to be generating High Returns on Equity without much use of average over a long period of time so that's going to give you the you know the proof of the pudding if you will but I think before that so for example you know even before I look at the the numbers for Starbucks I know it's a great business I mean I know for a fact that when they open a store in the U.S they get all their money back in two years so Starbucks doesn't franchise at all all company-owned stores except the ones at the airport so don't have a choice when they open stores overseas like in China exactly they get their money back much faster like 15 to 18 months so the payback is even faster I mean that is a business that is
Todd CombsI mean that is a business that is generating something like 36 percent unleveled return on Equity with a massive run ahead you know if you just think about the number of Starbucks stores that might exist in the world eventually and at which point they kind of stop growing or grow very little that day could be pretty far away they have a huge Runway they've already done so much for so many decades still keep ranking you know when you look at a business like that and you know we encounter Starbucks with those customers and a lot of modes should be apparent to you so first of all if you just looked at all the products and services that you as an individual consume you would be surprised how many of them have deep most because in general for a random business to convince you that they deserve a share of your wallet is a pretty high bar you know
Questionerpretty high bar you know pretty high bar you know all tend to want to get all tend to want to get all tend to want to get good value and you know good value and you know good value and you know products and services that enhance our products and services that enhance our products and services that enhance our lives and especially if we have deep lives and especially if we have deep lives and especially if we have deep loyalty towards those Brands and such so loyalty towards those Brands and such so loyalty towards those Brands and such so you know you know you know the brand of Razer you you kind of the brand of Razer you you kind of the brand of Razer you you kind of shaving and creamy shaving and creamy shaving and creamy the brand of toothpaste to use the time the brand of toothpaste to use the time the brand of toothpaste to use the time you wake up your soap your shampoo your you wake up your soap your shampoo your you wake up your soap your shampoo your breakfast brands breakfast brands breakfast brands and you know the clothes you're buying and you know the clothes you're buying and you know the clothes you're buying and uh you know the cars you buy just it and uh you know the cars you buy just it and uh you know the cars you buy just it just goes on and on WE encounter a lot just goes on and on WE encounter a lot just goes on and on WE encounter a lot of Brands and we are using a lot of of Brands and we are using a lot of of Brands and we are using a lot of Brands and a lot of products and Brands and a lot of products and Brands and a lot of products and services and when I bought my home services and when I bought my home services and when I bought my home the insurance company the insurance company the insurance company required me to have kind of a alarm required me to have kind of a alarm required me to have kind of a alarm service like ADT before they would write service like ADT before they would write service like ADT before they would write the policy and you know the policy and you know the policy and you know adts them out other companies are adts them out other companies are adts them out other companies are requesting requesting requesting me to you know get their service uh if me to you know get their service uh if me to you know get their service uh if you are a cooperation issuing a bond you you are a cooperation issuing a bond you you are a cooperation issuing a bond you can't get it out unless you're rated by
Othercan't get it out unless you're rated by Moody's in s p and what is the lesson be have a mode because it's written into the covenants and such and uh and so on so I think that knowing what is a great business is not a difficult exercise then the next piece which is is it a great investment that's a much more difficult question so Mr Buffett used to do Scott or speaking to suppliers and competitors and you know ex-employees and people will work from that industry so a particular how much do you believe in Scuttle but now since we have so much public information on all these companies available and do you personally find it useful and do you use it on a recurring basis or is it just something maybe you want to know what Bill Fisher was the big advocate of scuttlebutton originally wrote about it I think it's a really good thing to do I
Todd CombsI think it's a really good thing to do I should do more than I do on schedule but I do try to think about who I can call who I can talk to who might be uh um either user of the product or service and uh and or myself be a user of the product or service and and that sort of thing might have might have insights as a competitor or customer supplier and so on I do try to think through those I think I could do a better job than I've done in the past but it's a it's a wonderful add-on to the research absolutely an extension to that question would be do you believe in meeting the management team because um we've spoken to a number of management deals anywhere they're very different sometimes we get some strategic views from the management team that you that may not be obvious from the financials sometimes we just get the transcripts pretty much right out to you
Questionertranscripts pretty much right out to you almost so when all the information is public do you find it useful still to speak to management teams and if so then what are the few things are you looking for
Warrenyeah I used to almost never meet or interact with management of course when I first started the capital base was so small that no one would be interested in meeting me anyway so that was uh you know not even a choice I think Ben Graham was always kind of opposed to the idea of meeting management teams he wanted methods that could be used by retail investors that were applicable and so on in general one of the dangers of meeting management teams is that the guy at the top typically has great sales and got the job because of his skills and we'll be talking to a Salesman about business that he understands a lot better than you ever will and so your ability to his ability to
Questionerand so your ability to his ability to and so your ability to his ability to sway you distort reality is pretty sway you distort reality is pretty sway you distort reality is pretty strong strong strong a better approach to counter some of a better approach to counter some of a better approach to counter some of that is to look at the track record that is to look at the track record that is to look at the track record so I think it's more important to look so I think it's more important to look so I think it's more important to look at the track record of the management at the track record of the management at the track record of the management team has done which we can tangibly look team has done which we can tangibly look team has done which we can tangibly look at rather than rely on forecasts that at rather than rely on forecasts that at rather than rely on forecasts that they're making so it's not that they're they're making so it's not that they're they're making so it's not that they're deceitful the other trait a lot of deceitful the other trait a lot of deceitful the other trait a lot of management teams share management teams share management teams share see your share is their Optimus and they see your share is their Optimus and they see your share is their Optimus and they could not lead if they were not could not lead if they were not could not lead if they were not optimists and so if you are in the optimists and so if you are in the optimists and so if you are in the presence of an optimist so the great presence of an optimist so the great presence of an optimist so the great sales person who was subject called sales person who was subject called sales person who was subject called loves his business and so on you may get loves his business and so on you may get loves his business and so on you may get a distortion that is not going to be a distortion that is not going to be a distortion that is not going to be positive for your long-term Returns on positive for your long-term Returns on positive for your long-term Returns on the other hand if you 've got most of the other hand if you 've got most of the other hand if you 've got most of your data from the historic record and your data from the historic record and your data from the historic record and extrapolating conservatively based on extrapolating conservatively based on extrapolating conservatively based on that record that's a better basis
Todd Combsthat record that's a better basis sometimes just meeting the management teams can help you you might see some issue which is bothering you and that may not have been visible if you didn't eat them so that can be helpful they can also actually be pretty helpful in helping you see if you've gotten the right models most businesses are run by leaders who know that you know two or three variables of five eighty percent of the outcome as investors it's very important for us to be honed in on the same building and it may not be with you may not always get to the same variables sometimes meeting the management teams and understanding how they look at the business and how they run the business and what are the metrics they care about and then if you just make sure that it who have gotten to the right the four variables that will drive most of the
Questionervariables that will drive most of the outcome and you are able to handicap those variables then you can get a basis I think that's the other piece that will be helpful in meeting them wonderful and to Segway and we had Mr gaspier on the show a couple weeks ago and this is a question I asked him and he accompanied you to do lunch with Mr Buffett I think he was in New York that you know I asked what his takeaways were and how his relationship has evolved over the years with Mr Buffett and uh you've also developed a friendship with Mr Munger through the lunch so could you maybe speak clear about that a little bit
Ted Weschlerwell I mean I I think the the lunch with Warren blew away both of our expectations but quite a mile more I had very low expectations going into the lunch the driver to bid for the lunch and pay the amount we did I just wanted to thank Mr Buffett in person I
Questionerwanted to thank Mr Buffett in person I wanted to thank Mr Buffett in person I felt like I had used his intellectual felt like I had used his intellectual felt like I had used his intellectual property or everything I'd pretty much property or everything I'd pretty much property or everything I'd pretty much make my livelihood on is based on his IP make my livelihood on is based on his IP make my livelihood on is based on his IP that he's made public domain that he's made public domain that he's made public domain and I just wanted to look him in the eye and I just wanted to look him in the eye and I just wanted to look him in the eye and just say thank you I didn't really and just say thank you I didn't really and just say thank you I didn't really have any expectation beyond that what have any expectation beyond that what have any expectation beyond that what was really surprising to me is that when was really surprising to me is that when was really surprising to me is that when Buffett comes to these lunches he has a Buffett comes to these lunches he has a Buffett comes to these lunches he has a different mindset his mindset is different mindset his mindset is different mindset his mindset is he wants to make sure that the he wants to make sure that the he wants to make sure that the person who won the ranch whatever amount person who won the ranch whatever amount person who won the ranch whatever amount they paid they paid they paid at the end of the lunch they feel they at the end of the lunch they feel they at the end of the lunch they feel they got a big bargain got a big bargain got a big bargain so his his focus is to make sure that so his his focus is to make sure that so his his focus is to make sure that people think they've got their money as people think they've got their money as people think they've got their money as well my focus was just you know I wasn't well my focus was just you know I wasn't well my focus was just you know I wasn't looking to get my money as well I just looking to get my money as well I just looking to get my money as well I just wanted to thank him and so the thing is wanted to thank him and so the thing is wanted to thank him and so the thing is that the lunch went on for almost three that the lunch went on for almost three that the lunch went on for almost three hours it could have gone longer he had hours it could have gone longer he had hours it could have gone longer he had pretty much told us he's got the whole
Ted Weschlerpretty much told us he's got the whole day he was with us for as long as we wanted to have him I think later when I made a list of questions I could remember different past there were like 54 different questions and such that I was able to remember yeah I mean I think the lunch had a number of well I mean I think in hindsight he delivered you know unbelievable amounts of value to us basically every question he would answer it in a manner that tried to add value to us you know like I asked him an interesting question about hey you know you when Charlie had a third partner ignorant we haven't heard from Rick over in several decades and are you in touch with them how's he doing and uh Lauren said yeah I'm I'm very much in touch to Drake and in fact I got a card from it they Bridge with him periodically and so on he said Rick is doing great and then
Questioneron he said Rick is doing great and then you know he proceeded to highlight how Rick got margin calls in the 73-74 collapse and how Warren bought his books or shares at like forty dollars a share ten thousand times or more about today he said look if you're even a slightly above average investor you spend less than you earn and you don't use leverage you can cannot help with that page over a long time a question about hey how's Rick doing got converted into a lesson on leverage and compounding and modest lifestyle and so on and then of course I didn't expect him to produce us to Charlie and I didn't expect the Charlie meeting to go anywhere on one lunch so they've been it's the gift that keeps on giving so it's been uh you know one of those most no-brainer things that I could have done I didn't do it from the perspective of getting any
Questionerfrom the perspective of getting any anything out of it but it turned out to be like an amazing set of things that happened Mr manga certainly will I think the most incredible book I've read on investing was which is we're Charlie's Almanac I mean half of it is he likes advice and half of it as investing and uh that brings me to the next question which would be what resources have been flown as an investor to be the most helpful in your attribution as an investor maybe when you were still learning about the art of investing yeah
QuestionerI mean I think virtualid Almanac is a wonderful book and I try to read every year because every year I read stuff that I can swear I never read before you know so even though I've gone to the book several times so it's like a Bible you know got a lot of take-home value and especially the the talks at the back and especially like the psychology of the
Questionerespecially like the psychology of the human misjudgment talk there was a book written by Thomas Phelps 50 years ago called 100 to one in the stock market it's an exceptionally well written book not that popular but I think that book can be really helpful in setting your Frameworks and he was a journalist and I think a job writing that book I think that book can be useful The Berkshire letters obviously are great and then they've posted all the Berkshire annual meetings on buffett.cnbc.com going back to the 90s I listened to all of those in the shower or about six months twice and I've been to every meeting since 98 so it's going for a while 20 24 25 years so it's been a while yeah so I think these are these are some good resources and these probably get you other jumping off points as well people are very interested in production of
Questionerare very interested in production of foundation and the work it does it's the way unique non-profit organization and first of all how can people contribute to the foundation and could you maybe give us a little bit of detail as to how attractional goes about educating young impoverished children really adding a lot of value to their lives
Othersaying yeah well we welcome any support dakshana is a public charity so it started as a private foundation in an interview transfer to the public channel so you can just go to dakshana.org be welcome and support so that's wonderful I started about 15 years ago and I was in my early 40s of time it seemed to me that it was ideally likely that because we had a fairly modest lifestyle and compounding work so well and you're getting you know fees on other people's money and so on so forth we were going to end up with meaningful sums well
Questionerto end up with meaningful sums well beyond what we needed it's generally a bad idea to have large Inhibitors they turn into more harm than good so it's okay to give some head start to your gene pool but to put them on an IV drip for the rest of their line it was probably counterproductive so if you're not going to give the money to your gene pool the other option you have is to give it to society and when I started to think about okay you know what organization should I be thinking about when when I get to the point and I want to generate all the money I really do a blank line and the reason I do blank is that most charities are run and set up by people who have great Hearts but not so great heads and to actually run a non-profit values combination of a balance between a great husband dead and I found that soleliness I I thought that people who run Charities
Questionerthought that people who run Charities need to have good Capital allocation skills those are usually quite rare amongst typical people are drawn towards running or managing Charities so we end up with a result where there's a lot of well-meaning people in charitable institutions trying to do well-meaning work but because they are not capitalized it's very sub-optimal if I were to ask most of them okay so you know you spend 50 million last year on various programs what was the impact and they are not able to quantify the impact in a format that would make sense in terms of well how do we increase the impact so we had X impact of 50 last year can we get 30 percent more than x next year or ten percent five percent more they just have no calibration or ability to do that but they just do what feels good and what feels good or what leads to great pictures in annual
Otherleads to great pictures in annual reports is not going to be typically it's just a great investment great Investments are not the ones that are touted all the time in cmpvc or something I had a notion that some idiot like me who didn't know anything about Charities might be able to better better than these guys because at least I have a framework of what I'm looking for so one of the issues with charity is that it's really important to measure outcomes and most charitable Endeavors don't lend themselves to easily outcome measurement so for example if you had a program which gave free needles to the homeless you know that's a very worthwhile thing how would you compare that to a program that tries to get homeless people into temporary housing and then we try to get there some Mental Health Resources other things and get them off the street
Otherother things and get them off the street okayokayokay the free needles cost very low amountsthe free needles cost very low amountsthe free needles cost very low amounts per personper personper person and they have some impact on doing thatand they have some impact on doing thatand they have some impact on doing that the second programthe second programthe second program has a very large cost for homelesshas a very large cost for homelesshas a very large cost for homeless personpersonperson we don't know which is better I stillwe don't know which is better I stillwe don't know which is better I still don't know which is bad you know becausedon't know which is bad you know becausedon't know which is bad you know because these are hard to measure so one of thethese are hard to measure so one of thethese are hard to measure so one of the things one of the hacks I did withthings one of the hacks I did withthings one of the hacks I did with dakshana is we're not going to do thingsdakshana is we're not going to do thingsdakshana is we're not going to do things that are hard to measure or impossiblethat are hard to measure or impossiblethat are hard to measure or impossible to make we're only going to do thingsto make we're only going to do thingsto make we're only going to do things that are easy to make just like thatthat are easy to make just like thatthat are easy to make just like that forensic value we can't figure out ourforensic value we can't figure out ourforensic value we can't figure out our intrinsic value in most cases so we'llintrinsic value in most cases so we'llintrinsic value in most cases so we'll just hack it we'll only go to the onesjust hack it we'll only go to the onesjust hack it we'll only go to the ones that we can figure out and then stickthat we can figure out and then stickthat we can figure out and then stick with that universe and so that was thewith that universe and so that was thewith that universe and so that was the first hack which is focus on things thatfirst hack which is focus on things thatfirst hack which is focus on things that are easy and then once we limited in ourare easy and then once we limited in ourare easy and then once we limited in our case it was education and once we got tocase it was education and once we got tocase it was education and once we got to a program which I thought had reallya program which I thought had really
Othera program which I thought had really high Returns on invested capital and washigh Returns on invested capital and washigh Returns on invested capital and was easy to measure we identify very pooreasy to measure we identify very pooreasy to measure we identify very poor kids who are very gifted 16 to 18 yearkids who are very gifted 16 to 18 yearkids who are very gifted 16 to 18 year oldsoldsolds and then we prep them for the you knowand then we prep them for the you knowand then we prep them for the you know getting into the top end colleges ingetting into the top end colleges ingetting into the top end colleges in India the iits or medical school and soIndia the iits or medical school and soIndia the iits or medical school and so on and in India these universities areon and in India these universities areon and in India these universities are very cheap to attend so once you get invery cheap to attend so once you get invery cheap to attend so once you get in affordability is not an issue loans thataffordability is not an issue loans thataffordability is not an issue loans that are available but getting in uh isare available but getting in uh isare available but getting in uh is difficult because the entrance exactlydifficult because the entrance exactlydifficult because the entrance exactly hardhardhard can't really get in unless you'recan't really get in unless you'recan't really get in unless you're coachedcoachedcoached and the coaching is very expensive so weand the coaching is very expensive so weand the coaching is very expensive so we basically level the playing field andbasically level the playing field andbasically level the playing field and with the coaching forwith the coaching forwith the coaching for and we can measure outcomes becauseand we can measure outcomes becauseand we can measure outcomes because every year we get a report card from anevery year we get a report card from anevery year we get a report card from an independentindependentindependent entity which tells us how many of ourentity which tells us how many of ourentity which tells us how many of our kids got accepted at the IIT and Omnikids got accepted at the IIT and Omnikids got accepted at the IIT and Omni got accepted at school Etc so we can'tgot accepted at school Etc so we can'tgot accepted at school Etc so we can't my my team cannot fudge the numbers it's
Othermy my team cannot fudge the numbers it's not an internal test it's a very blacknot an internal test it's a very blacknot an internal test it's a very black and white external Benchmark and so weand white external Benchmark and so weand white external Benchmark and so we have metrics and allow us to measure wehave metrics and allow us to measure wehave metrics and allow us to measure we have metrics that tell us how much ithave metrics that tell us how much ithave metrics that tell us how much it costs us per kid we can see how manycosts us per kid we can see how manycosts us per kid we can see how many kids and families using poverty and wekids and families using poverty and wekids and families using poverty and we can even try to extrapolate lifetimecan even try to extrapolate lifetimecan even try to extrapolate lifetime benefits and such they're not getting sobenefits and such they're not getting sobenefits and such they're not getting so it's it's a very pleasurable and I thinkit's it's a very pleasurable and I thinkit's it's a very pleasurable and I think that's akshana appeals to a lot ofthat's akshana appeals to a lot ofthat's akshana appeals to a lot of people because it's very holistic in itspeople because it's very holistic in itspeople because it's very holistic in its approach you know I would like toapproach you know I would like toapproach you know I would like to conclude the interview with you knowconclude the interview with you knowconclude the interview with you know obviously it's an absolute honor to haveobviously it's an absolute honor to haveobviously it's an absolute honor to have you on the show and thank you for takingyou on the show and thank you for takingyou on the show and thank you for taking the time even after thethe time even after thethe time even after the incident so investors who are interestedincident so investors who are interestedincident so investors who are interested in Brian Weston points how can theyin Brian Weston points how can theyin Brian Weston points how can they reach out and maybe social or websitereach out and maybe social or websitereach out and maybe social or website links can we provide that allow them tolinks can we provide that allow them tolinks can we provide that allow them to do so well I mean I think in just Googledo so well I mean I think in just Googledo so well I mean I think in just Google me and top of iPhones got Google will
Questionerme and top of iPhones got Google willme and top of iPhones got Google will directly to me I have a Blog chai withdirectly to me I have a Blog chai withdirectly to me I have a Blog chai with pabri.com and that's it's got a bunch ofpabri.com and that's it's got a bunch ofpabri.com and that's it's got a bunch of free resources for investors yeah so Ifree resources for investors yeah so Ifree resources for investors yeah so I think God Google can answer all yourthink God Google can answer all yourthink God Google can answer all your questions with that I would like to endquestions with that I would like to endquestions with that I would like to end the interview and thank you for takingthe interview and thank you for takingthe interview and thank you for taking time it was an absolute honor to havetime it was an absolute honor to havetime it was an absolute honor to have you on the show
Otherthank you actually I Iyou on the show thank you actually I Iyou on the show thank you actually I I enjoyed the questions I appreciate theenjoyed the questions I appreciate theenjoyed the questions I appreciate the work you did and and Sergeant preparingwork you did and and Sergeant preparingwork you did and and Sergeant preparing but it was fun thank you thank you thankbut it was fun thank you thank you thankbut it was fun thank you thank you thank youyouyou