OtherDavid Clark kept notebooks filled with Warren's wisdom on investing which were meticulousand endlessly fascinating to read.Out of all of David's notebooks, my favorite was filled with many of Warren's most profoundaphorisms which were great fun to read because they had a way of really making you think.These aphorisms were akin to the teachings of a Taoist master in that the more the studentcontemplates them, the more they reveal.And the more I heard Warren speak, the more I learned, not only about investing, but aboutbusiness and life.His aphorisms have a way of staying with you.I often find myself quoting them to make a point or thinking back on them to warn myselfnot to make a mistake.David and I thought it would be fun to create the Tao of Warren Buffett, filling it withwhat we think are Warren's most enlightening aphorisms on investing, business management,choosing a career, and pursuing a successful life.These words have been true friends to us over the years as we've navigated our ways throughlife and business.All right, so that is from the introduction of the book that I read this week and theone I'm going to talk to you about today which is the Tao of Warren Buffett, Warren Buffett'swords of wisdoms, quotations, and interpretations to help guide you to billionaire wealth andenlightened business management.I don't know if that's a great subtitle or not.It was written by Mary Buffett and David Clark.Mary Buffett is Warren's former daughter-in-law.You actually might recognize the name David Clark because David also wrote the book thatI cover on Founders No. 78 which is the Tao of Charlie Munger.Ever since I read the Tao of Charlie Munger, I knew I was going to read the Tao of WarrenBuffett.I just didn't know when.This week is a good week to read it because I need to come up for air for a little bitbecause the last three weeks, I've read some of the longest books I've read for the podcast.The biography of Enzo Ferrari is the longest single book I've read for the podcast outsideof the book that contains 54 years of Warren Buffett's shareholder letters.The biography by Carroll Shelby, it's also huge.It takes hours and hours.You're talking 10 to 20 hours to read.Same thing for Snowball which was Warren Buffett's biography last week.This book is just what Mary said in the introduction.It's a short little book of aphorisms.I would like to see a lot more books written in this length.
[2:27]
QuestionerShe takes 125 of their favorite aphorisms and then expounds on them.Every single aphorism, they cover it in less than a page.I really like the idea of having a book you can sit down and read in one sitting in twohours or something like that.I would like to see more books condensed down to that.I don't know if you can do that for biographies because you're usually working with decadesand decades of somebody's life and as such, there's going to be a lot of detail.But if you have an idea that is maybe longer than a blog post and shorter than a traditionalbook, I'd love to see other people write these short little books because I think they havea lot of value.If you were to ask me the question, what is the book that you gave away most as a gift?It's actually Nassim Taleb's book of aphorisms called The Bed of Procrustes.That book sits out in my living room and I just pick it up every once in a while.You just read a bunch of aphorisms, maybe you read for two or three minutes and youjust let your brain do these computations because like what Mary was saying, you findyourself thinking deeper.There's so much interesting information contained in such short sentences that you wind up thinkingabout it many hours, even days or weeks after you put the book down.So anyways, let me go ahead and jump right into the book.I just pulled out a bunch of the aphorisms that I found that I want to remember personally.So we're going to start with how the format of the book works is I'm going to read thequote and then sometimes I'm going to read how they expound on that quote.So this is the first one.This is a quote from Warren.It says, the great personal fortunes in this country weren't built on a portfolio of 50companies.They were built by someone who identified one wonderful business.And now this is the author's expounding on that.It says, if you do a survey of the super rich families in America, you will find that almostwithout exception, their fortunes were built on one exceptional business.The Hearst family made their money in publishing, the Walton family in retailing, the Wrigleyfamily in chewing gum, the Mars family in candy, the Gates family in software, and theCoors and Bush families in brewing.The list goes on and on and almost without exception, any time they strayed from thatone wonderful business that made them so amazingly rich, they ended up losing money, as whenCoca-Cola got into the movie business.
[4:52]
OtherThe key to Warren's success is that he's been able to identify exactly what the economiccharacteristics of a wonderful business are.A business that has a durable competitive advantage.Warren's company, Berkshire Hathaway, is a collection of some of the finest businessesin America, all of which are super profitable and were bought when Wall Street was ignoringthem.And this idea that Warren is telling us there is really just an echo that we've seen frompeople like Andrew Carnegie.One of his most famous quotes is, put all your eggs in one basket and watch that basket.We found out last week that Warren would read biographies of people like Carnegie,Vanderbilt, Rockefeller.He'd read them over and over again.He did this throughout his entire life, but he even started really early.He'd read these biographies of business people when he was still a kid.Okay, so let me move to the next one.This quote, he says, it is impossible to unsign a contract, so do all of your thinking beforeyou sign.Now here's how Mary and David are going to expound on that.They said, the road of good intentions is paved with what were foreseeable troubles.Thinking long and hard before you take the leap will save you from having to think longand hard about all the troubles you just signed on for.Warren forgot to put a non-complete clause in his contract with 89-year-old Rose Blumkinwhen he bought her Nebraska Furniture Mart.A few years later, Mrs. B got angry at the way things were being done at the store, soshe quit and started up a new store across the street, stealing tons of business fromNebraska Furniture Mart.After a few years of suffering the stiff competition, Warren caved in and agreed to buy her newstore for $5 million.She might be the only founder ever that Warren bought two businesses from.This is the second time around he had her sign a non-compete agreement, and it is luckyfor him that he did since she continued on in the business until she was 103 years old.This is a reminder to myself that sometimes the best use of your time is sitting downand thinking through the problem first.Happiness does not buy you money.Warren never confused being rich with happiness.When asked by college students to define success, he said it is being loved by thepeople who you hope love you.You could be the richest man in the world, but without the love of family and friends,you would also be the poorest.
[8:12]
David SenraIf you have entrepreneurial tendencies, you're going to want other people dictating how youspend your time.So if you're one of those people, I'm definitely one of those people, then you need money notto buy a bunch of useless crap, but to literally buy freedom.Freedom to how you spend your time and what you work on.Here's another one.I don't try to jump over seven-foot bars.I look around for one-foot bars that I could step over.Here's an example of this application, which I found interesting.It's also going to reference somebody I've covered on the podcast twice, and one whoI think is maybe one of the best writers I've ever come across, and that's David Ogilvie.It says in the stock market crash of 1973 to 1974, you could buy Ogilvie and Mather,one of the strongest advertising agencies in the world, for $4 a share against per shareearnings of $0.76.Ogilvie then bought a ton of it during the crash and cashed out many years later afteran annual rate of return of better than 20%.Some investments are just that simple.So he wasn't overthinking.He was just waiting.He's like, I'm not going to try to jump over a seven-foot bar.I'll just wait until the opportunity happens where it's one foot I can easily step over.He uses the example a lot in not only his writings, but he talks about what he learnedfrom Ted Williams.Ted Williams is one of the best hitters in baseball.He wrote a book.It might be The Science of Hitting.I can't remember the exact title.But what Williams would do is he would divide the pitches he would swing at into, I can'tremember the exact number, let's say 70 different one-inch squares, whatever the case is.He would identify where he was most likely to have success and only swing at those pitches,even if that meant striking out, because he understood that the more he would swingat bad pitches, and the metaphor here is the more you swing at bad opportunities, the lowerhis overall hitting percentage is going to be.Actually, you know what?I want to bring something up.I took notes.In between the time I read Snowball and I read this book, I watched this documentaryon HBO.I think it's called Becoming Warren Buffett.The reason I just thought about this is because he talks about what he learned from Ted Williamsin there, and they do this great illustration of this concept with this graphic overlayin the documentary.Actually, the documentary is really good.It's an hour and a half long, and I was surprised that a lot of things that I learned from reading
[10:43]
Questionerthe biography that I thought was important, they actually highlight in the documentary.But there's a few things, before I jump back into the book, that I just want to share withyou that he said that I thought was interesting.Just two things, actually.He talked about the lessons that his father would learn, or that his father taught him.He had a really, really good relationship with his father, had a lot of admiration forhis father, looked up to his father, learned from his father's mistakes.No doubt, he wasn't the same person as his father, but he admired them greatly.I can't say the same with his mom.His mom was really hard on him.She wasn't really a loving mom.She was really hypercritical.Now, he said something that I found surprising.At the time, Warren's reflecting back on his life, he's 14, 15, he's acting like ajuvenile delinquent, he's stealing stuff from stores, he's hitchhiking.He got in trouble.He got picked up by the police.I think he got picked up by the police.I don't remember exactly, but essentially, he did something where his father was madeaware that his son was doing things he shouldn't have done.This is now Warren talking about what he remembers from the conversation.He says, his dad saying, he says, you could do better than this.He was teaching me, but he never taught by telling me.He just taught by example, and he had unlimited confidence in me.Even when I screwed up, that takes you a long way.And then this sentence was fascinating to me.He says, the best gift I was ever given was to have the father I had when I was born.Just like the author says in the introduction, I don't think we should limit what we learnfrom Warren Buffett just to his ideas on business, even though I think his ideas on businessare some of the best in history.That is something like, I have a daughter now.I want my daughter, my future children to say that about me.I want to be worthy, I want to do the work necessary to make myself worthy so that towardsthe end of my life, or towards the end of my children's life, they say the same thingabout me.That stuck out, and I just wanted to share that with you.Another thing I thought was fascinating, he's in the middle of this discussion, they'rein the corporate headquarters at Berkshire Hathaway, and he talks about how he's buildinga business, he uses that idea, that metaphor, he's building a business that's a complete,it's like a creative exercise for him, it's like a way to express who he is.
[13:15]
OtherThey're going around the office, and you see the stuff that's important to Warren based on what he has out, but I found something he said was fascinating. He's like, listen, if you go to my office, you're not going to see the degrees that I have from University of Nebraska, or the one I got from Columbia Business School. He's like, you're going to see the successful certificate of completion for the course I took from Dale Carnegie. Dale Carnegie, of course, is the person that wrote How to Win Friends and Influence People, but what Warren's talking about there is that he was terrified of public speaking, which was really shocking to me to know that, because he gives interviews, he fills up arenas of people that travel all over the world just to hear him speak, and he just seems, I've watched a bunch of these videos, take notes on them, he just seems completely relaxed in his element, and to know that he couldn't even, when he was younger, he couldn't even give a presentation in front of a small group of classmates without wanting to throw up. So I just found that fascinating, and I wanted to let you know if you want to learn more about Warren, I'd watch the documentary if you have access to HBO, it's worth the 90 minutes. Okay, let's go back to the book. This is something that I've heard, I thought Charlie Munger said it, but they have it in the Warren Buffett book, and something I want to remind myself too, it says, the chains of habit are too light to be felt until they are too heavy to be broken, and it says, this is Warren quoting the English philosopher Bertrand Russell, because his words so aptly describe the insidious nature of bad business habits that don't become apparent until it's too late, such as cost-cutting after your business is in trouble, which should have been done long before you even got to the doorsteps of danger. The business that becomes bloated with unnecessary expenses in times of plenty is the business that will sink when things turn for the worse. So you see this example, I'm going to keep reading, I'm not done in this section, but I just want to stop here for a second, because over and over again, when you get around people that don't understand the magic of compounding, so the magic of compounding investments works in your favor, and it's amazing, it's literally the shrine in which the career of Warren Buffett is dedicated to, right? For some reason, most people don't realize that expenses compound too, and it works against
[15:29]
Questioneryou in the same exact, the opposite but the same mechanism as compounding just works for you, right? So I saw this week where, who was it, I think it might be the LA Times, they published, they published all the houses in Los Angeles County, I think, that are paying more than a million dollars a year in property taxes, right? And one of those happened to be Jay-Z and Beyonce, and I just read through quickly some of the responses, like, oh, he's got it, it doesn't matter, that's nothing to him, and you see the variations of that same thing, that doesn't matter, it's insignificant, and it's just like, no, it's not insignificant, because yeah, you could be wealthy now, but getting rich and staying rich are two different skills, and if you let your expenses compound, it doesn't matter how much money you have, eventually you will run out of money, and again, that's just something, people don't think like that at all, they're like, oh, he's rich, he could spend money like that, no, because anybody that's rich and spends money like that eventually goes broke, it's so bizarre, if you understand that, to have conversations with people that don't, you are sensibly looking at the exact same thing, but seeing two completely different things, like, it's okay to waste money, it's not okay to waste money. All right, so it says, it is best to consciously check where all your habits are taking you long before you get there. If you don't like the direction in which you are headed, the time to change course is before you find your ship sinking in a sea of troubles. This is what happened to Warren with the Benjamin Grant inspired investment strategy of buying bargain stocks that were selling below book value regardless of the nature of the company's long-term economics. This was something Warren was able to do with great success during the 1950s and early 1960s, but he stayed with this approach long after it wasn't viable anymore. The chains of habit were too light to be felt. When he finally woke up in the late 1970s to the fact that the grand bargain ride was over, he shifted over to a strategy of buying exceptional businesses at reasonable prices and then holding them for long periods, thereby letting the business grow in value. Another way to say this is letting the business compound. With the old strategy, he made millions, but with the new one, he made billions. So going back to this, to that documentary I just said, again, I think one of the main
[17:43]
David Senracore thesis behind this podcast is like, okay, let's find the people we admire and let'sfind those people who they admired because everybody learns from somebody.
So who does Steve Jobs learn from?
Who did Warren Buffett learn from?
Well, who did Warren Buffett learn from in that documentary and in his writings?
He talks about Charlie Munger had a huge influence on my thinking is what he says.
This is the greatest example of that.
He credits Charlie Munger with the person that gently and consistently pushed him awayfrom Graham and to this idea, it's like let's just buy exceptional businesses at fair pricesinstead of the cigar butt business that you're doing.
Warren says in the documentary, he also says in the writing, that one insight that Charliehad and slowly convinced Warren to adopt is the reason that Berkshire was able to scale.
He says, without that insight, without Charlie teaching me that, Berkshire would have neverscaled.
It's also why I have a little bit of, it's pretty obvious, I have a big crush on Munger.
That I just like his wise-ass attitude.
What I love about Warren, he talks about, I hope to remember it as a teacher more thanan investor.
Charlie says the same thing.
He's like, I want to be remembered as a teacher, but I'm pretty sure I'm going to be rememberedas a wise-ass.
All right.
What is this?
I leave notes for myself and I don't remember a lesson from the proto-Buffett.
Oh, okay.
All right.
So let me read the quote first.
My idea of a group decision is to look in the mirror.
So it says, Warren is not one to seek affirmation of his own ideas from others because so manyof his ideas are the opposite of what the herd is thinking.
You have to learn to think independently.
To think independently, you need to be comfortable standing alone and what I'd add there is youneed to do the work necessary to trust your own judgment.
So the note I left myself was a lesson for proto-Buffett.
If you've been listening to all the podcasts I've been making, you know who proto-Buffettis.
It's Henry Singleton.
A lot of the ideas that we credit, that everybody quotes is like, this is Buffett's idea.
Their ideas, Buffett learned from Henry Singleton and so one lesson I learned from the proto-Buffettfrom Henry Singleton is like, he did the work necessary to trust his own judgment, right?
And so when he needed, not that you don't have, you know, you don't learn from otherpeople, you don't have mentors, you don't have people to help you, but he would ignore
[20:03]
Othermost advice.He would purposely isolate himself so he'd give himself his brain time to work and figureout what the actual correct idea was.In fact, there's a quote, the last interview he gave, Henry gave before he died, he talksabout, I think it was on the issue of shared buybacks, I can't recall, but essentiallythe person interviewing him was saying, hey, all these companies are doing X and Singleton'sresponse even, he's probably close to 80 years old at the time, 70 years old, whatever itwas, but he's like, oh, so if everybody's doing X, it must be wrong.So that's like the lesson, one of the lessons he learned from, you know, six decades ofhaving these life experiences and he's got a crazy life experience.If you haven't listened to that podcast, I'd definitely go back and listen to it.Warren says he has the single best record in American business history, maybe I guesswhat you would say Warren does now, but he didn't start his first company until he waslike 46 or 44 years old, something like that.He was like a seed investor in Apple.The guy's just had a crazy, crazy life.And so anyways, there's another thing.I learn a lot from, and I've referenced this many times on the podcast, but I try to learnfrom every single, I think there's knowledge everywhere.And one of the places I found a lot of actually knowledge that I think most people kind ofchuckle at is like, I've listened to hip hop for like ever.And this whole idea, Warren says, my idea of a group decision is to look in the mirror.I want to quote from Kanye West and it's one of his, it's not like the Kanye of today.This is like when he was making some of his best music, it was like 15 years ago, buthe says, he has a quote, this is Kanye sounding like Warren Buffett.He says, I'm going to look in the mirror if I need some help.And so Kanye and Warren are essentially saying the same thing.They've done the work necessary to trust their own judgment.And maybe at the time, Kanye's talking about making music.Now I'm not condoning other stuff the guy says, but when it comes to making music, yeah,he's an undeniable genius at making music.Just like Warren Buffett, I feel is an undeniable genius at investing in entrepreneurship.All right, moving on.When management with a reputation, this is so good.When management with a reputation for brilliance tackles a business with a reputation for poorfundamental economics, it is the reputation of the business that remains intact.
[22:24]
OtherMeaning, like it doesn't matter how great you are, if you're trying to turn around abusiness or if you're managing a business that has poor fundamental economics, yourreputation is going to be destroyed because that business is going to win.
There are mediocre businesses with poor underlying economics that are impossible to save regardlessof the brilliance of managers.
A great business is usually awash in cash, carries little or no debt, and is in a greatposition to ride out any downturn in the economy.
No matter how brilliantly a mediocre business is run, its poor inherent economics will keepit forever anchored to poor results.
Here's another quote from Warren, managing your career is like investing.
The degree of difficulty does not count, so you can save yourself money and pain by gettingon the right train.
OtherOkay, this is going to be very weird.
I don't know why, when I read this, I thought of squatty potty.
You know what squatty potty is?
Squatty potty is like a stool that you put in your bathroom that makes it easier to bein a more natural position to defecate.
The reason I thought about that is because the degree of difficulty doesn't count.
Everybody in the developed world has a toilet, and none of them seem to be designed for optimalusage.
I listened to this podcast a long time ago and I took notes on it.
Squatty potty is just a stool that fixes that.
This is a quote from the podcast, with $35,000, we started a business that does over $30 milliona year.
That is hilarious to me.
That's not a super challenging business, it's just making people aware of the problem andthen convincing them that you've solved that problem for them, and realizing that onceyou solve that problem, the market is huge.
The idea that you could start, and that's the magic of entrepreneurship too, I don'tknow if it's him and his friend or him and his mother, I can't remember who, there'slike two people in the business, I listened to this a long time ago, but anyways, theidea that you could start a business for $35,000 and it can make $30 million a year at healthyprofit margins, that's amazing.
I think that to me is, you don't need to try to solve a huge problem, it's just a problemthat a lot of people have that are willing to hand money over to, and that can make youfabulously wealthy.
I don't know, I thought that was humorous too.
There's two quotes here, so first is, there's a huge difference between the business that
[25:00]
Othergrows and requires a lot of capital to do so, and the business that grows and doesn'trequire capital, and then number two, in a difficult business, no sooner is one problemsolved than another surfaces, never is there just one cockroach in the kitchen.
So I think those two quotes are kind of related, and it reminded me of this quote I heard thisweek, it comes from Andy Ratchliff, I think is how you pronounce his name, he's the co-founderof Wealthfront and the co-founder of Benchmark Capital, and he talked about that there's,let me actually read it to you, why am I going to butcher the quote when I just have it here,let me just pull it up real quick.
So in the quote, he's talking about how companies can fool themselves into having product marketfit and then they have to keep reinvesting money into growth because they don't actuallyhave a product that people, let me just read it to you, I'm running over the quote, peoplekid themselves into thinking they have product market fit because they bought it.
The only way to know that you have product market fit is if you have word of mouth growth.
The only way you can get exponential organic growth is through word of mouth.
So what he was talking about there is there's a lot of, especially technology companiesnowadays that are spending a ton of money on finding new customers, whether it's throughadvertising, through sales, through whatever the case is, and what Andy's point is echoingthere is if you have word of mouth, that is essentially a sign that one, you built a productso good that other people tell their friends about it, and over time that growth is goingto compound, so that's what he's talking about, you get this organic and exponential growth.
That also leads to what Warren is saying here is there's a huge difference between the businessthat grows and requires lots of capital to do so, meaning you need money to fund thatgrowth, and the business that grows and doesn't require capital, so he wants to invest inthe first one.
I think the second quote is just really interesting, it's a symbol like you might have a worsebusiness than you might think because the problems never stop, like you solve one problem,another one surfaces, there's never just one cockroach in the kitchen.
Okay I look for another quote from Warren, I look for businesses in which I think I canpredict what they're going to look like in 10 to 15 years time.
[27:07]
QuestionerTake Wrigley's chewing gum, I don't think the internet is going to change how people chew gum. It's just a, now that, when I read that I immediately thought of one of my favorite Jeff Bezos quotes, which he talks about that you should be investing, your long term investments in your business and what you're focused on should be investing in things that don't change, so let me go ahead and read this whole quote. This is Jeff talking, he says, I very frequently get the question, what's going to change in the next 10 years? And that is a very interesting question, it's a very common one, but I almost never get the, I almost never get the question, what's not going to change in the next 10 years? And I submit to you that the second question is actually more important than, more important of the two, because you can build a business strategy around the things that are stable in time. In our retail business, we know what customers want, we know that customers want low prices and I know that's going to be true 10 years from now. They want fast delivery, they want vast selection, it is impossible to imagine a future 10 years from now where a customer comes up and says, Jeff, I love Amazon, I just wish the prices were a little higher, or, I love Amazon, I just wish you delivered things a little more slowly, impossible. And so the effort we put into those things, spinning those two things up, we know the energy we put into it today will be, will still be paying off dividends for our customers 10 years from now. When you have something that you know is true, even over the long term, you can afford to put a lot of energy into it. I think that's one of the most important things I've ever heard Jeff say. And I think Warren is obviously, they're of like minds on that issue. Another one. You want to learn from experience, but you want to learn from other people's experiences when you can. And again, I think that's just a reminder, both Warren Buffett and Charlie Munger talk a lot about why they read, Charlie calls himself a biography nut, he wants to do that because he wants to learn not only from the best ideas of people's lives, but also what mistakes they've made so he can avoid them. Another one from Warren Buffett. The really good business manager doesn't wake up in the morning and say, this is the day that I'm going to cut costs, any more than he wakes up and decides to practice breathing. That's a hell of a quote.
[29:27]
QuestionerWhat is he really telling us there?
OtherHe's saying that that should be your default mode of operation permanently.
Just like you want to breathe all the time, you should be always cutting costs.
And why is he telling that?
Because he understands that cost compound.
So this is the explanation from the authors.
You keep costs low from the start, which creates more profits.
This is not, I was going to say brain science, it's not rocket science.
If you read that a company is instigating a cost-cutting program, then you know that
management has been slacking and keeping costs low from the start.
Another quote from Warren.
He says, a public opinion poll is no substitute for thought.
I love this.
I read that quote, immediately thought of another quote that comes from an interview
with Steve Jobs.
He's around 29 years old at the time.
This happened in 1985.
Let me read this to you.
And he's talking about the Macintosh.
We didn't build a Mac for anybody else.
We built it for ourselves.
We were the group of people who were going to judge whether it was great or not.
We weren't going to go out and do market research.
So he's using the words market research, Warren's using the word public opinion poll.
We just wanted to build the best thing we could build.
When you're a carpenter making a beautiful chest of drawers, you're not going to use
a piece of plywood on the back.
Even though it faces the wall and nobody will ever see it.
You know it's there, so you're going to use a beautiful piece of wood on the back.
For you to sleep well at night, the aesthetic, the quality has to be carried all the way
through.
So he's describing this.
And so the person interviewing was like, he's saying, are you saying that the people who
made the PCjr didn't have that kind of pride in the product?
So he's talking about first, what's the source of the product, or the source of the pride
in the product?
The fact that I wanted to build the best thing possible in the most beautiful way.
And now he's going to compare and contrast to the people that build products by taking
public opinion polls or market research.
So he says, are you saying that people who made the PCjr don't have that kind of pride
in the product?
This is Steve at his sharpest tongue here.
If they did, they wouldn't have turned out the PCjr.
It seems clear to me that they were designing that on the basis of market research for a
specific market segment for a specific demographic type of customer.
[31:37]
OtherAnd they hoped that if they built this, lots of people would buy them and they'd make lotsof money.Those are different motivations.The people in the Mac group wanted to build the greatest computer that has ever been seen.Another quote from Warren.The business schools reward difficult, complex behavior more than simple behavior, but simplebehavior is more effective.And this is related to his very next quote.There seems to be some perverse human characteristic that likes to make easy things difficult.Another quote.I can't be involved in 50 or 75 things.That's a Noah's Ark way of investing.You end up with a zoo that way.I like to put meaningful amounts of money in a few things.The author's explanation.It's like being a juggler with too many balls in the air.You don't just drop one.You end up dropping them all.I think this is really them telling us that we should be focused more than we are.Another quote.If you let yourself be undisciplined on the small things, you will probably be undisciplinedon the large things as well.So I'm not going to read anything from the author's explanation.I actually think it's credited to Bruce Lee, but it's probably not.But one of my favorite quotes is where I need to check myself when I'm making a mistake.How you do one thing is how you do all things.Inevitably, when I find myself being sloppy or slipping on something, I'm like, okay,there's zero chance, David, that that's the only area in which you need to analyze everythingyou're doing.Because if you're this sloppy on this, you're inevitably sloppy on something else.Another quote from Warren.There's nothing like writing to force you to think and get your thoughts straight.That's the explanation from the author.This is why every year Warren sits down and writes a long letter to his shareholders explainingthe past year's events.This exercise has helped him immensely to fine tune his thoughts.It's also why the podcast I did on his shareholder letters is the longest founders episode thatwill probably ever be.I think it's three hours long.I don't think I'll ever do that again.Another quote.I'm going to hit a ball while it's still in the pitcher's glove.This is what I was referencing earlier about Ted Williams.It says, Warren has long been a student and fan of baseball, and he took an importantingredient for his investing strategy from a book that Ted Williams wrote entitled TheScience of Hitting.
[34:07]
David SenraTed argues that to become a great hitter, you have to keep yourself from swinging atbad pitches.What you are looking for is the perfect pitch.Warren took it as an analogy to investing.To be a great investor, he only had to wait for the right opportunity.This also applies to entrepreneurs in regards to opportunity costs.Patrick Collison, which is one of my favorite.I try to spend most of my time learning from dead entrepreneurs or close to dead entrepreneurs,but there is a handful of people that are alive today that I think are just like a fountainof good ideas.Patrick Collison is one of them.The founder of Shopify, Toby Lukey, is another one.Patrick said this on opportunity costs.He says, if something is making you happy, if something doesn't seem promising, or ifit's just not working, well, your time has relatively high opportunity costs.You don't get to start that many startups in your life.Knowing when to call it quits is valuable.Sometimes you should quit, and sometimes you should quit, and sometimes you shouldn't evenpursue, or even before you quit, don't even start.I think that's what Ted Williams, or excuse me, what Warren Buffett learned from Ted Williams.Imagine you had a car, and that was your only car you'd have for your entire lifetime.Of course you'd care for it, changing the oil more frequently than necessary, drivingmore carefully, et cetera.Now consider that you only have one mind and one body.Prepare them for life.Care for them.You can enhance your mind over time.What he's saying there, essentially knowledge compounds, so you better get busy seekingout knowledge.It's what he's telling me, essentially.A person's main asset is themselves, so preserve and enhance yourself.Way back on, I think Founders Number 35, I did the biography of George Lucas, and there'ssomething that was in that book that I think about all the time.It says, George Lucas unapologetically invested in what he believed in the most, himself.I think that's the point of, again, spending the time to learn from these people.It's not a waste of time.You're investing in what you should believe in most, yourself.Why else would you care what Warren Buffett has to say, or Charlie Munger, anybody else?It's because you're hoping that through their decades of experience, they've picked up insightsthat you can then use in your life.That's an investment in yourself.I think, again, I want that to be my standard.
[36:31]
QuestionerI shouldn't say that should be your life, you do whatever you want.Let me speak for myself.I want my default, the default way I go about my life is making sure that I invest in myselfconstantly because it's the thing I believe in the most, and the one in which we havethe most control over.We really can't control the behavior of other people.We can't control our own.All right, the most important thing to do is if you find yourself in a hole, stop digging.Here's the explanation.If you find yourself in a bad investment, this kind of echoes what Patrick was justtelling us.The worst thing in the world to do is to continue to throw money at it, but more important thanmoney, it's time.What Patrick was saying, your time here on this earth is limited, you can only, therefore,you can only pursue a small set of opportunities.Because the opportunity cost is like an abstraction, and I always say humans score in the abstract,people don't think like this.They'll sit in a job they hate just because they don't know what else to do.It's like, well, that time, that decade you just did that, you'll never get back.That decade is literally priceless.So it says, though it's painful to pull out, in the end, it is far more profitable to leavethe party and cut your losses before things go to zero.In the early 80s, Warren invested heavily in the aluminum industry.It was a mistake, and when he realized it, he stopped digging and got out.Have the courage to admit you were wrong and do it before you go broke.Another quote, that which is not worth doing at all is not worth doing well.This is kind of, these quotes are all related to opportunity costs, aren't they?Many people spend years working hard for businesses with poor inherent economics, whichmeans the prospects for making money are equally poor.So why get good at something that is not going to benefit you?Why learn to be good at a business that is inherently poor economics and is never goingto make you any money?If you find yourself sailing on a business ship that is going nowhere, you should jumpship and find one that is headed to the seas of good fortune, instead of trying to becomethe captain of a slow boat to financial nowhere.This was Warren's experience with Berkshire's textile business.No matter how good it became, or how many innovations it implemented, or how much capitalwas thrown at it, the results were always the same.Its competitors could produce textiles cheaper overseas than they could in America.
[38:44]
OtherAnother quote from Warren, a good managerial record is far more of a function of what businessboat you got into, another, this is all kind of expounding on the same theme here.A good managerial record is far more of a function of what business boat you got intothan it is how effectively you row.Should you find yourself in a chronically leaking boat, energy devoted to changing vesselsis likely to be more productive than energy devoted to patching leaks.So that's the end of Warren Buffett's quote, this is the beginning of the explanation.The best jockey in the world is never going to win races riding a lame horse, but evena mediocre jockey can win races riding a champion.This reminds me of Marc Andreessen's idea, it's not just his idea, but he talks aboutlike the most single important factor in an entrepreneur's success is the market in whichthey're operating in.If you're already working in a business with great economics, be very careful if you decideto leave the fold.So that's the other side to that, right?It's the other side of you need to quit a bad opportunity, but you also don't want tomake the mistake of quitting a great opportunity.Another quote from Warren, I'm going to read this one and another one together.A pin lies in the weight for every bubble, and when the two eventually meet, a new waveof investors learn some very old lessons.This goes with, what we learn from history is that people don't learn from history.It's also probably one of the reasons he spent so much time studying history.Because what he's saying is like, the people that ignore, it's interesting, David Ogilvietalks about if you fail to study history, like he would hate people in his industry,they wouldn't study the history of the advertising industry.He called them ignorant amateurs.Think about that.I mean, that's a hell of an indictment.I think Warren and Charlie would stay the same because what Warren's saying there islike, you're acting like this bubble's new.He's like, let me go back a couple pages to that quote so I don't mess it up.He's like, a new wave of investors learn some very old lessons.This is happening today.A new wave of entrepreneurs are going to fail to learn some very old lessons.So this is the author's explanation to that.People make the same mistakes over and over again.This is an example of human nature.History doesn't repeat, human nature does.They overpay for a business in the hope of making money on the short-term price movements
[41:01]
David Senraof a company's shares.This is one example.Warren has made his career out of exploiting this inherent short-sightedness and the pricing mistakes it causes in relation to a company's long-term economic value.And the final quote, just what it means to me is that everything worthwhile takes time.This is Warren.He says, no matter how great the talent or efforts, some things just take time.You can't produce a baby in one month by getting nine women pregnant.And the explanation here is it takes time for business value to build up.It doesn't happen overnight.Just as children take time to grow into adults, businesses take time to grow in value.This was true for Geico which took 15 years for the underlying value of the business to increase Warren's initial investment of $45 million into $2.3 billion.Great businesses over time really do grow up to make their shareholders rich.It just takes a little longer than a month.So that's where I'll leave this book.It's a shorter podcast today because this is a shorter book.And if you're interested in reading the book, if you want to buy the book, please buy it using the link in the show notes that are located in your podcast player or at FoundersPodcast.com.This helps support the podcast.And I'll be back next week with another biography of an entrepreneur.