OtherIn the annals of investing, Warren Buffett stands alone.Starting from scratch simply by picking stocks and companies for investment,Buffett amassed one of the greatest fortunes of the 20th century.Over decades, Buffett outperformed the stock market by a stunning marginand without taking undue risks of suffering a single losing year.This is a feat long proclaimed to be impossible.By virtue of this steady, superior compounding,Buffett acquired a net worth of billions.Buffett's career unfolded as a sort of public tutorial on investingand on American business.Buffett was aware of his role from the very beginningand he nurtured a curious habit of chronicling his escapadeseven as he lived them.Where finance was so forbiddingly complex,Buffett could explain it like a general store clerk discussing the weather.His talent sprang from his unrivaled independence of mindand ability to focus on his work and shut out the world.Yet those same qualities exacted a toll.Like other prodigies, he paid a price.Having been raised in a home with more than its share of demons,he lived within an emotional fortress.The few people who shared his office had no knowledge of the inner man,even after decades.Even his children could scarcely recall a timewhen he broke through his surface calm and showed some feeling.His consuming passion and pleasure is his work,or as he calls it, his canvas.It is there that he revealed the secrets of his tradeand left a self-portrait.That is an excerpt from the introduction of the bookthat I'm going to talk about today,which is Buffett, The Making of an American Capitalist,and it was written by Roger Lowenstein.Okay, so I want to jump right into Warren's early life.Jeff Bezos has this great quote where he says,you don't choose your passions, they choose you.And we see that this is the case in the life of Warren Buffett as well.First, his family, there's like a tragedy that happens in his family.They wind up losing all their money.And it says, on August 13, 1931, two weeks shy of Warren's first birthday,his father returned from work with the news that his bank had closed.It was the defining faith-shattering scene of the Great Depression.His job was gone and his savings were lost.And the author talks about what effect this had on Warren.He says, this seemed to deeply affect Warren.He emerged from those first hard years with an absolute driveto become very, very rich.
[2:32]
OtherHe thought about it before he was five years old.And from that time on, he scarcely stopped thinking about it.So it talks about even when he was seven,he had some kind of mysterious illness.They removed his appendix, thinking maybe that was the source of the problem.But he was still sick for a while afterwards.They weren't sure if he was going to make it.So he's in the hospital.And this is a seven-year-old Warren Buffett.And he says, he took a pencil and filled a page with numbers.These, he told his nurse, represented his future capital.I don't have much money now, Warren said cheerfully,but someday I will and I'll have my picture in the paper.And one of the main assets that I would say Buffett had in his early lifeis the fact that he had a really good father.He considered his father his best friend.And the author talks a little bit about their relationship here.It says, Howard Buffett was determinedthat Warren would never repeat his own experience of hardship.He resolved that as a parent,he would never follow the example of Ernest and demean his sons.Let me pause right in the middle of this paragraph.Ernest is Warren's grandfather.He's the one that ran the Buffett grocery store.Charlie Munger, not only did Warren work there when he was younger,so did Charlie Munger.Charlie Munger compared working for Ernest Buffettas like, I think something like an indentured servitude or almost like slavery.He was such a hard nosed boss.And obviously fathers is why his own son Howard is like,okay, I'm learning what not to do for my father.And he says he unfailingly, now back to Howard and Warren,he unfailingly expressed confidence in Warrenand supported him in whatever he did.Howard also stressed a principle that was more enduringthan any of his political opinions.The habit of developing independent thought.With his children at his side,Howard would recite a favorite maxim from Emerson.And this is a quote from Emerson here.The great man is he who in the middle of the crowdkeeps with perfect sweetness the independence of solitude.And Howard Buffett also conveyed one of the greatest ideas I've come across.I learned this idea when I read another biography on Buffett called The Snowball.It's all the way back on Founders 100.It's about the idea between an inner scorecard and outer scorecard.I've never forgotten it since I've heard him describe it.I'll get to that more in a minute.
[4:44]
OtherFirst, I want to tell you about the first time Warren starts investing in the stock market.He's 11 years old at the time.And it says he took the plunge and bought three shares of Citi Services.He paid $38 a share.Citi Services plunged down to 27.He sweated it out and the stock recovered to 40,whereupon Warren sold, netting after commission, his first $5 profit in the market.Directly after he sold, Citi Services climbed to 200.So 5X where he sold it from.He says it was his first lesson in patience.Okay, so let's get to the dark side.The author in the introduction mentioned that he was raised in a house with demons.A lot of that comes from the mental instability of his mother, Lila.And it says she would turn on Warren and his sisters with the wrath of God.Without warning, the good-humored woman would become furious beyond wordsand rage at her children with an unrelenting meanness,sometimes not letting up for hours.She scolded and degraded her children.Nothing they had done measured up.She compared, criticized, and dredged up every imaginable failing.No transgression, however slight, was too small for one of her vicious rebukes.Even when they had committed no crime, her imagination supplied one.And we see in this next anecdote that she continued to do this even later in lifebecause she's doing it with Warren's kids, with her grandkids.Once, one of Warren's sons was home from college and called Lila to say hello.She suddenly lit into him with all her fury.She called him a terrible person for not calling more oftenand detailed his supposedly innumerable failings of characterand went on for two entire hours.I would have hung up on her after two minutes.When Warren's son put down the phone, he was in tears.Warren said softly,this is just a hell of a statement, listen to this,now you know how I felt every day of my life.Later, Warren's son, Peter, would wonder if his father's success was driven in partby the urge to get, this is why I'm reading this whole section to you,in part by the urge to get out of the house.The question is unanswerable, but he had the urge from somewhere.Warren would tell his friends that he would be rich before he was 35.He never came across as being a braggart.He just had this conviction about himself.And so let me go back to that idea I referenced earlier,which I think is one of the most important ideas to remember,and that's Howard Buffett's idea of having an inner scorecard versus an outer scorecard.
[7:13]
OtherHe had an inner scorecard, his wife had an outer scorecard.So an inner scorecard means that you make decisions based on what you feel is bestand then you live with them.An outer scorecard is you're making decisions based on what other people will think.So Lila Buffett was constantly worried about what will her,in terms of not only her behavior but the behavior of her children,what would the neighbors think, what would the friends think,what will other people think if I do X or Y, whatever the case is.Whereas her husband was capable of independent thought,like okay, this is what I want my life to be, this is the decision,this is what's important to me, and I'm willing to deal with the consequences,both negative and positive, from the decision I'm making.And so Howard made sure to take the time to explain the difference to his son.I don't know if he ever compared and contrasted the way he makes his decisionversus the way Warren's mother did, but that's something Warren,and it's talked about a lot in this book, the fact that he liked being different.He figured out who he was, what he wanted to do in his life,and then he went after that, and I think that's a huge lesson for all of us to internalize.And so he knew right from the very early age, okay, this is what I'm going to do,I'm going to be an investor, I want to accumulate and be as rich as possible I can.On this page, he's finding motivation and insights from reading,something he does his entire life, and then another reminder that passion is infectious.He would bury himself in his favorite book, he's still a kid at this time,1000 Ways to Make $1,000.He seized on the book's advice to begin, begin, whatever schemes one might,but by all means, don't wait.He talked up his financial exploits with a contagious passion,and when Warren Buffett talked, his friends perked up their ears.He didn't persuade his friends to join him so much as he attracted them.This is how his father describes it, a fireball, as his father said, drawing moss,which is really interesting.He's, I think, what, 12, maybe he's a teenager at this point.And think about this idea, he's talking about financial exploits, he's teaching,he's breaking down complex subject matter and making it easier to understand,and then he's attracting a bunch of people to go and listen and talk.I mean, what is the Berkshire Hathaway annual meeting?Thousands, maybe tens, no, tens of thousands of people travel from all over the world
[9:23]
Otherto do exactly, now you're hearing a more advanced version of what essentiallyWarren was doing when he was a teenager.And then let's go back to this idea that you just find a lot of insightsand inspiration and good ideas from reading.There's a quote from Warren Buffett in the book Poor Charlie's Almanac,and he says, I read everything, annual reports, 10Ks, 10Qs, biographies, histories,five newspapers a day, on airplanes, I read the instructions on the back of the seats.Reading is key.Reading has made me rich over time.And we see this resolve to be extremely wealthy and to have the independencethat wealth brings is something he talks about constantly.He talked about constantly in his childhood.Before I get there, I just want to read one sentence from Charlie Munger,and Charlie's talking about Warren's grandfather and what it was like workingin the store.He says, nobody ever loafed.You were just goddamn busy from the first hour of morning to night.So both Warren and Charlie hated working for Ernest.So this is still, we're still in Warren's childhood.He's talking to his dad's business partner's wife.She made him, he's staying with them at this time.I think his dad's probably in Washington.And he said, he declared that he would be a millionaire by age 30.And if not, I'm going to jump off the tallest building in Omaha.And so she's asking him, she's like,why do you have this drive to make so much money?And I thought his reply was really interesting.And I'll tell you what it made me think of.It's not that I want money.It's the fun of making money and watching it grow.And the note I left myself is if you, if your work is fun,you'll do it more often.And the more you do something, the better you get at it.There's a quote that I love from the founder of AngelList, Naval Ravikant.And it's something I try to internalize myself.He says, find work that feels like play.What feels like play to you, but looks like work to others.So remember that quote,because there's a couple other excerpts from this book where that's exactlywhat Warren did.Everybody's like, this is so boring.You're reading, you know, thousands of annual reports.You're reading 10 Ks.You're going through all this stuff.And there's nothing else that he'd rather be doing.For him, it wasn't work.It was fun.And it's just extremely hard to compete with somebody like that.And this is an example of Warren being a misfit with an inner scorecard.
[11:27]
OtherThis is one of his classmates.I think he's in high school at this point.Most of us, she's describing Warren.Most of us are trying to be like everyone else.I think he liked being different.He was what he was and he never tried to be anything else.So that's probably the best description of what an inner scorecard means.He was what he was and he never tried to be anything else.So when he was a teenager, not only was he investing in stocks,but he also was studying all these like small little side businesses.And this led him to believe it.I don't want to go to college.And the only reason he ever went to college is because his dad told him heshould.So it says his dad wants him to go to the Wharton School of Finance.And it says Warren, Warren replied that college would be a waste.He had delivered almost 6,000 or 600,000 newspapers.And in the process, it earned over $5,000.Not only was he delivering newspapers,but then he starts hiring other like building a network of other newspaperdelivery boys.Money was coming in from newspapers from Wilson coin operating.This is like a,you put a bunch of coin operated games and machines and barbershops and otherplaces.And, and then he, he went to buying a, a farm.I think it was like 14 or 16 years old.It's in Nebraska.And he does a deal with a farmer where they split like the profits orsomething like that.And he says, so it's coming in.He's got a newspaper business,the coin operating business and a Nebraska tenant farmer.What's more, he had read at least 100 books on business.What else did he have?Excuse me.What in short did he have to learn?And this is the funniest part about everything I just told you.Warren was still too much size of shy of his 17th birthday.And he just had amazing levels of confidence,but he does wind up listening to his father.His father, he considers again,his father's the biggest influence on his life and his best friend this timethough, Howard had been wrong.Despite Wharton's fine reputation,its curriculum was lacking.Warren disgustedly reported that he knew more than his professors,his dissatisfaction,a forerunner of his general dis disaffection for business school.Something he talks about over and over again in shareholder letters was rootedin their mushy overbroad approach.That's such a great sentence.Overbroad mushy,overbroad approach.His professor, his professors had fancy theories,but were ignorant of the practical details of making a profit that Warren
[13:39]
David Senracraved.When I read that section,it reminded me back on founders number one 40.I read the biography of Bill Gates.It's called hard drive.It covers, if you haven't read it,I highly recommend that book.It covers the first 35 years of,of Bill Gates life and the creation of Microsoft all the way up until the IPO.But he said something in that book that was hilarious.And he says that he went to Harvard to learn from people smarter than him andleft disappointed.So he's going to stay at Wharton for a while.He's going to give it a shot.And then he's like,forget this.He's not after prestige.And then when I read the section,well,let me read the section to you and I'll tell you my note.Uh,Warren came to the conclusion that there wasn't anything Wharton could teachhim.And he was right.I didn't feel that I was learning that much.Warren explained Nebraska called and Wharton repelled.And the problem was Warren's is moving at a much faster pace than thecurriculum.He's reading on his own.He's doing,uh,he's doing research for his investments.And it really,there's a line in the song that I always,uh,that I always think about.And I think it applies to what Warren was doing where he realizes,okay,wait a minute.I can move way faster and I could teach myself faster than,than the,this supposedly one of the best business schools in the country.And it's really,all you need is a will to work hard and a library card,and no one can stop you.And in his day,it's a library card.In our day,it's the internet books and everything else,but there is no speed limit.You can go as fast or as slow and learn as much or as little as you want.Nobody's stopping you.Okay.So he's back in Nebraska and he finds the writings of what's going to be hisfirst hero,his first blueprint.And that's going to be Ben Graham.And I would say Ben is one of the three most influential people he evercrossed into life.I would say his father,Ben Graham and Charlie Munger.So let's get into Ben Graham a little bit.So it's Graham's writings did not explain in full the hold he had on hisdisciples.It was almost like the people that follow him,which there's like this cult-like adherence and like attraction to Ben Graham.Unlike other wall street practitioners,Graham was open with his thoughts and freely shared his ideas.Wall street interested in him merely as an abstraction.This is a very unique individual.I'm going to read something to you that in one paragraph,
[15:43]
Otherthat's going to illustrate that when I'm done with this section.In a field that was filled with narrow minds,Graham was also a classical scholar,a student of Latin and Greek,a translator of Spanish poetry and the author of a Broadway play.Oddly for one who revolutionized investing,he spent much of his time working on quirky avocations and inventions.And so they describe him like he's just kind of a weird little funny littleguy. They say he's kind of short of, he's kind of ugly.But as one associate said, this is a fantastic description.Check this out. As an associate said, he was possessed of a spark.So Graham's magnum opus is going to be this book called security analysis.And this blew my mind. Okay. So let me read this to you.When security analysis appeared in 1934,it's 40 year old author had gone five straight years without being paid.It was a great maximum. It's often darkest before the dawn.And think about how crazy that was. He wasn't making money for five years.He winds up writing a book that is going to influence generations ofinvestors. And one of those is obviously Buffett to Buffett.These ideas were the Rosetta stone.Here was an approach to investing that required only the sweet independencethat he had learned from his father.Buffett experienced it as a revelation like Paul on the road to Damascus.Quite simply, he had found his idol.And so now we get into the class that Graham was teaching at Columbia and theone Buffett's taking and really his teaching styles.Just a reminder, there's no one right way.There's always other, there's always other ways to solve the same problem.Graham would rarely say yes or no to Buffett's answer.He wouldn't wrap the universe in a ball. It was more like, that's interesting.What line of thought brought you to that conclusion?But he didn't do it in a merely theoretical way.Graham lectured about live stocks.He was quite indifferent to the fact that students were profiting from his ideas.And then one of the people in the class said, Graham was giving you ideas.That class paid for my degree.And so one of these ideas was his interest in Geico.And so this is a famous story that I've repeated on past Buffett podcasts,but I think it's fantastic.So Buffett goes down to Geico's headquarters on a Saturday.This guy was not short of initiative.And he finds a security guard.He's like, is anybody here working?He's like, yeah, there's a guy up on the sixth floor.
[18:12]
OtherLet me go take you there.And this guy named Lorimer, Lorimer?That's a hell of a name.
OtherLorimer Davidson was taken aback to see a youngest student hovering over his deskand was stunned when he started peppering Davidson with questions.But the two of them talked for four hours.This is Davidson remembering this.After we talked for 15 minutes, I knew I was talking to an extraordinary man.He asked searching and highly intelligent questions.What was Geico?What was its method of doing business?Its outlook?Its growth potential?He asked the type of questions that a good security analyst would ask.I was financial vice president.He was trying to figure out what I knew.And so Buffett soaks up everything he can from Graham.But what's interesting is even he idolized him,even if he thought this was the blueprint,he still maintained that inner scorecard,that capacity for independent thought that is so important.And this is a reminder that sometimes it's hard to take our own advice.Oddly, when Buffett graduated in 1951,both Graham and his father advised him not to go into stocks.Buffett's father, I don't know if I told you,if I missed this part, he's a stockbroker.So they're both the two most important people in his life up until this pointare telling him don't do this.Each had the post-depression mentality of fearing a second visitation.Graham pointed out that the Dow had traded below 200 at some point in every year,save for the present one.Why not postpone going to Wall Street until after the next crash?His heroes counseled.And meanwhile, get a safe job with someone like Procter & Gamble.It was awful advice,violating Graham's tenet of not trying to forecast markets.That was so interesting to me.The Dow, in fact, never went under 200 again.Buffett said, if I'd taken their advice, I'd probably have around $10,000.So if you ever read Warren's shareholder letters, if you hear him talk,he's pretty ruthless in the way he describes the overall investment industry.He's not a big fan of it.And part of that is because that's what he started out.He started out as a stock salesman.He's like, this is just not going to work out for me.So he has an important realization.The first stock he sold was a tough sale, a little-known security named Geico.But Buffett was over his own self-doubt and put $10,000,which was most of his savings into it,and pushed it on his customers all over Omaha.What was most unusual about the young salesman was his appetite for research.
[20:28]
OtherSearching for ideas, he read Moody's manuals page after pagewith the zest of a small boy reading comics.
And he found gems.
And then he's finding all these, they call them cigar butts,these value investment stocks that Graham preaches.
I'm going to skip over all that.
But the important realization is that nobody, you have to think for yourself,nobody is going to give you a formula.
Nobody is going to do the work for you.
And he couldn't understand why no one else is investingin what looked like amazing opportunities to him.
It seemed too good to be true.
If the stocks are so cheap, Buffett figured somebody ought to be buying them.
But slowly it dawned on him that somebody was him.
Nobody was going to tell you that Western Insurance, as one example, was a steal.
You had to get there on your own.
And so while he's becoming, or while he is a stock salesman,he does something that's really smart.
And he takes this Dale Carnegie course.
And really to think about Warren, he's really a teacher disguised as an investor.
Okay.
So it says Buffett was taking Dale Carnegie's course on public speaking.
Buffett was terrified of public speaking,but he desperately wanted to master his fear.
The interesting question is why?
Why would a 21-year-old stockbroker have wanted to learn that skill?
What did Buffett aspire to, aside from being a stock picker,that prompted him to try?
And that was the role of teacher.
He winds up actually being a teacher.
He's teaching a night class on investing.
He's 21 years old.
After the Carnegie course, Buffett polished his skills by teaching a night classcalled Investment Principles at the University of Omaha.
Oh, I just realized.
I never finished my thought on the uniqueness of Ben Graham.
I have this note saved in my phone.
It's a description of him.
It says Ben Graham finished college at age 20.
He published a paper on integrals in American Mathematical Monthly at 23.
He was fluent in ancient Greek and Latin, wrote a Broadway play,patented an improvised slide rule,and taught himself Spanish to translate a Uruguayan novel.
So definitely not a typical person that you're going to run across.
Very rare set of skills and interests that he had.
This was very fascinating.
Warren's insistence that he starts from zero.
This is very admirable.
Buffett felt this is he realized I'm not going to be a stockbroker.
I'm going to start investing my own money and investing money for other people.
This is his job before he does Berkshire Hathaway.
[22:51]
OtherBuffett felt very confident right from the start.His father offered to give him or lend him some money.He said no.He wanted to make a record starting from zero.And just one sentence on this page I want to bring to your attention.Buffett knew more about stocks than anyone.Maybe my favorite talk that I've ever seen.It's on YouTube.You can see it for free.It's by this investor named Bill Gurley.It's called Running Down a Dream, How to Succeed and Thrive in a Career You Love.I think he's talking to University of Texas MBA students.But the hour long talk is about Bill studying the lives and careers of three greats.It was Bobby Knight, the basketball coach.Bob Dylan, the musician.And Danny Meyer, the entrepreneur and restaurateur, the founder of Shake Shack.And he talks about they all, even though they were in different domains,they didn't know each other, they approached their craft in a very similar way.And we see that Buffett does the same thing here.And there's just one quote that Bill is telling these students that I never forgot.And he says, listen, you should strive to know more than anyone else about your particular craft.He's talking about this is not the difference between having innate talent or being smarter than anybody else.It's literally just collecting more information.And this is what we see Buffett doing here.He says strive to know more than anyone else about your particular craft.You should be the most knowledgeable person.It is possible to gather more information than someone else.And so Bobby Knight did that in basketball.Bob Dylan did that in music.And Danny Meyer did that in restaurants.Warren Buffett did it in stocks.So this is the beginning of the Buffett partnerships.Buffett now had three tiny partnerships, which he ran from his bedroom.And he had begun to envision that this family pool might become something more,such as friends, family, local people in Omaha.This is he gets some customers because Ben Graham shuts down his partnership.And I just thought this was hilarious.They all meet the people that follow Graham and Newman.And they're, you know, they're essentially eulogizing the end of the Graham partnership.An investor named Lou Green offered an ironic eulogy.Green was the head of a Manhattan brokerage, a veer that Graham had made one big mistake,that of failing to develop talent.Green elaborated.Graham Newman can't continue because the only guy they have to run it is this kid named Warren Buffett.
[25:15]
OtherAnd who would want to ride with him?
OtherAnd so we see that at the beginning of the Buffett partnership,Warren Buffett has Kanye West levels of self-belief.
OtherIt's the note I left myself.
OtherWith the partnerships up and running, Buffett was troubled by seemingly bizarre concern.
OtherHe was afraid that his estate would eventually be so big that the money might spoil his children.
OtherLet me read you his quote here.
OtherThis is no problem now, but viewing things optimistically, it may become one.
OtherAnd my thinking produces no results.
OtherI'm sure I don't want to leave a barrel of money to my kids unless I do it at an elderly age,when I have time to see what the tree has produced.
OtherHowever, how much to leave them and what to do with the balance bothers me considerably.
OtherBuffett was 26 years old when he wrote that.
OtherAnd so why is he talking about this?
OtherBecause he knew, he knew that he would be rich.
OtherNot just successful, but rich enough to have trouble figuring out what to do with it all.
OtherAt a time when his accomplishments were modest,Buffett's awesome self-confidence was the thing that propelled him.
OtherHe had no record as an independent operator.
OtherHe had nothing on paper to indicate that he was worthy of people's trust.
OtherAnd he did not want mere discretion.
OtherSo he's talking about these are all the requirements that he would put on people wanting,his customers, people wanting Buffett to invest their money.
OtherHe did not want mere discretion over people's money.
OtherHe wanted absolute control over it.
OtherHe wanted to answer to no one for his decisions on stocks.
OtherBy now, Buffett was familiar with virtually every stock and bond in existence.
OtherThat is a crazy sentence.
OtherIt echoes that Bill Gurley quote.
OtherIt is possible for you to know more.
OtherLine for line, he had soaked up the financial pages day after day.
OtherHe had built up a mental portrait of Wall Street.
OtherHe could measure each stone against the skyline.
OtherAnd there was no one else whose analysis he trusted better than his own.
OtherAnd so I would say it's relatively easy for Buffett to raise money because when you meet with him,it's very clear from hearing him speak.
OtherOkay, this guy's got a gifted mind.
OtherSo he's meeting with this couple called the Davises.
OtherIt says Buffett and he's telling him all this stuff.
OtherBuffett would be open for business only one day a year.
OtherOn December 31st, the Davises could add or withdraw capital.
OtherOtherwise, the money would be Buffett's to play with and his alone.
OtherHe presented this evenly without an edge, but the message is clear.
[27:36]
OtherAs badly as Buffett wanted the Davises capital, he didn't want it on any terms but his. And so they agreed to invest with him. And he also can tell them with a straight face that I have skin in the game. Like I'm going to if I make a bad decision, I'm going to be harmed more than you. Buffett was not asking the Davises to gamble alone. Buffett's money would be on the same horse. If his results were mediocre or worse, Buffett would get zilch. No salary, no fee, nada. He was working virtually all the time and loving every minute because his work feels like play. To go back to that Neval Ravikant quote. Buffett insisted on not disclosing his stocks because this is something we see over and over again. That when you have something good going, it goes against human nature to tell people about it. But it's a smarter move. Just be quiet. Buffett insisted on not disclosing his stocks because he was afraid that someone would copy him. Thus making it more expensive if he wanted to buy more. And in other words, if you can't keep your mouth closed, you invite unwanted competition. He wouldn't talk to anyone. His talent, and this last sentence made me jump out of my chair. His talent lay not in his range, which was narrowly focused on investment, but in his intensity. His entire soul was focused on that one outlet. And we see more contrast with the way everybody else does things, the way Buffett does it. If you read his shareholder letters, he's constantly saying, okay, this is how most CEOs or capital allocators think. This is why they think that way, and this is why I think they're wrong, and this is how I think. Again, it is just a gigantic lesson on the history of American business. If you read the shareholder letters, they're remarkable. And really, just think of Warren Buffett's difference for the sake of it. Virtually every other stock person in the country chatted up ideas with nary a second thought. The author just got done telling us. He's not telling anybody anything. He won't even tell the people he's investing their money, much less outsiders. He just kept it. He's like, I have an underscore card. I know what I'm doing. And he winds up being proven obviously correct about this. So I don't need to tell anybody. But Buffett was different. He was possessive. I'm running over my own point here. He was possessive about stocks, like an artist with an unfinished canvas. He would tell his stories of his coups in the market only after they wrapped up.
[29:50]
OtherMore on how he was working at this point.
OtherI would say he continues this trade for still doing it to this day.
OtherHe did not draw the usual line between work and other activities.
OtherOne of my favorite quotes ever.
OtherI'm going to read it to you here.
OtherThis is the quote.
OtherI thought of this quote when I read that line.
OtherA master in the art of living draws no sharp distinction between his work and his play, his labor and his leisure, his mind and his body, his education and his recreation.
OtherHe simply pursues his vision of excellence through whatever he is doing and leaves to others to determine whether he is working or playing.
OtherThat's a great description of Warren Buffett and his approach to his work.
OtherOr like he says, his art, his canvas.
OtherGo back to this idea that it's possible for you to know more.
OtherThe good ones know more is a quote that I learned from David Ogilvie.
OtherBill Gurley, again, I'm just going to use that quote again.
OtherIt is possible to gather more information than someone else.
OtherThis made me laugh.
OtherSo there's this guy comes in.
OtherLet me actually I'm not going to run my point.
OtherLet me read to you.
OtherThere was this guy named David Strassler.
OtherHe was a New Yorker whose family was in the business of fixing distressed companies.
OtherStrassler flew into Omaha to look into buying some windmill company.
OtherI think that Buffett had had an investment in.
OtherBuffett picked him up at the airport.
OtherNow here's Strassler describing this experience with Buffett.
OtherI had the typical attitude of a New York guy meeting a hayseed.
OtherI had gone to Harvard and I'd studied at MIT.
OtherI had just finished working out some deals.
OtherI was feeling pretty good.
OtherAfter we've been driving a little bit, he started asking me questions about a company in which my family had a majority interest.
OtherOnly about two percent of it was public.
OtherI'm still not sure how he knew about it.
OtherThen he started me asking.
OtherThen he started asking me questions about the balance sheet.
OtherHe knew the balance sheet better than I did.
OtherThat stopped me totally cold.
OtherStrassler invested on the spot.
OtherAnd around this time in his life, he starts to become friends with Charlie Munger.
OtherSo just a little bit about Munger, who I think is probably the single wisest person as far as like living a good life.
OtherI think Charlie just has a lot of wisdom in his speeches, his writings, the books that are written about him.
OtherThey're just they're they're worth the invested investment of time that it requires.
OtherHe's just a really fascinating mind that he has.
[32:14]
OtherThey're describing, though, Munger's was something of a snob and highly judgmental, but he had a deep sense of ethics.His smarts were matched by a Churchillian.So Winston Churchill, self-assurance and an exuberant enjoyment of life.This is hilarious. Asked once if he could play the piano.Munger replied, I don't know.I've never tried. Buffett saw in him a kindred intellect and blistering independence.Buffett said that he and Munger thought so much like it was spooky.But unlike so many of Buffett's friends, and this was probably this was part of the attraction.Munger was not in awe of him.And Buffett was so enamored of Munger that he urged him to adopt his own line of work.Munger's an attorney at the time. He kept telling him that practicing law was a waste of his talent.And Munger did not disagree in a quote from Munger here.Like Warren, I had a considerable passion to get rich, not because I wanted Ferraris.I wanted the independence. I desperately wanted it.OK, so I want to bring your attention to something that Warren does here that's extremely smart.And he's thinking about investing in Amex, American Express.And they're they're one of they're in a crisis at the moment. Right.And I'm going to skip over. They wind up doing this guy.Amex is doing business with this guy named DeAngelis.He winds up borrowing money, betting the house on vegetable oil futures and losing.And they're on the hook for like tens of millions, I don't know, maybe one hundred fifty million dollars.And so there's a from the outside, it looks like Amex might be going out of business.And Warren's like, but but to him, he thought the opposite.He's like, well, I think I can make some money here because I understand that this panic was temporary.So says American Express, which had not missed a dividend payment in 94 years, was suddenly was said to be at risk of insolvency.So Buffett goes to places in Omaha that that use American Express.He goes to his favorite steakhouse, says he positioned himself behind the cashier.He chatted with the owner and he watched what Buffett observed was that was that scandal or no scandal.The patrons were continuing to use the American Express card to pay for their dinner.From this, he deduced that the same would be true in steakhouses in St.Louis, Chicago, Birmingham and other cities.Then he went to the banks and travel agencies in Omaha and found that they were doing their usual business and traveler checks,
[34:33]
David Senrawhich is a big part of American Express's business.He went to supermarkets and drugstores that sold American Express money orders.His sleuthing sleuthing led to two conclusions.But and this is the important the most important part of this entire section led him to two conclusions, both at odds with the prevailing wisdom.Number one, American Express was not going down the tubes.Number two, its name was one of the great franchises in the world.And again, we see how Buffett is able to maintain his independence of mind, says Wall Street's chorus.All reading the same lyrics was chanting sell.Buffett decided to buy. He put close to one quarter of his assets on that single stock.So let's go back to what we learned at the beginning from Father Buffett.Bless his heart. What do we tell his children down and read them the maxim?The great man is he who, in the midst of the crowd, keeps with perfect sweetness the independence of solitude.Or you could say the independence of mind.The great man is he who, in the midst of the crowd, keeps with the perfect sweetness the independence of solitude.And that's exactly what Buffett's doing 20 years later with this investment in American Express.And so Buffett's going to talk over and over again about this idea that we're infected with groupthink.We're just we're not thinking we're actually copying people.He's not a fan of committees. He's not a fan of large groups.This is something we've seen over and over again, the biographies that we've studied for this podcast.And this section really is a trait that we can all copy.And that's intense focus on our own development.Nobody's going to develop for us. We have to do it ourselves.Buffett blamed the committee process and groupthink that was prevalent, prevalent on Wall Street.Quote from him. My perhaps jaundiced view is that it is close to impossible for outstanding investment management to come from a group of any size.Excellence comes from formidable individuals.Is the note that I left myself that this whole section reminds me of the Apple design design process that we learned about without Steve Jobs.And Joanie, Joanie, I said it again. His name's Johnny.Johnny, I've book 179. Maybe it was a couple weeks ago.It's right there in your pockets there. But he talks about this.If you haven't listened to a podcast, go back and listen to it. The book's also fantastic, too.But he talks about the difference, the night and day difference between Apple design process when it was led by a formidable individual like Steve Jobs, as opposed to when it was led by just a committee after committee of just useless people.
[36:56]
OtherSuch decision via back to this book, such decision via consensus tended to produce a sameness from one fund to the next.We got one life to live one shot at this experience of life.Do we want to do it just so we can build a business or a career?That's the sameness from one fund to the next or one business to the next or one life to the next.No way. Back to Warren Buffett. We derive no comfort because important people, vocal people are of our great numbers of people agree with us, nor do we derive comfort if they don't.What is he saying? We think for ourselves and he just constantly he's not.I don't think he's being malicious when he says this. It is interesting to me.And he's got great wit in his writing as well, but he just constantly rails against all the way other people, whether it's business schools or Wall Street or they're teaching their craft, their method of investing.He's like, I don't. This is an example that he's like, I just don't agree with it.If you actually know what you're doing, don't diversify.Anyone owning such number of securities is following what I call the Noah School of investing.Two of everything. Such investors should be piloting arcs.So I guess a point in Warren's life where his unfortunate father passes away, his best friend leaves him.I'm going to read the paragraph to you and I'm going to read my note.Five hundred mourners attended Howard's funeral. Warren sat through it silently.When Buffett returned to his office, he hung a large size, large size likeness of his father on the wall facing his desk.But his best friend was gone. And I know I left myself as a North Star for my own life.Will your kids hang up your picture when you're gone?Back to this idea about thinking of your life's work as this giant canvas.They referred to his office as the temple. His work was a canvas, a work of art.Part of part of his work lay in or part of his success lay in Buffett's relentless focusing on his craft.So now he's going to meet another person that has the same trait.He winds up. I didn't maybe I knew this. I don't know. I knew he invested in Disney.I didn't know he actually met him, but he went to visiting Walt Disney at Disney Studios.Has Buffett visited Walt Disney himself on the Disney lot?The animator was as enthusiastic as ever.Buffett was struck by his childlike enchantment with his work.So similar to Buffett's own. Buffett bought five percent of Disney for four million dollars.
[39:27]
OtherImagine if he winds up selling it and making a profit.But imagine if he would have kept it. He bought five percent of Disney for four million dollars.Disney himself would be dead within the year.
And so when I was reading about Buffett and Walt Disney interacting, maybe think of the quote from Kobe Bryant.
I always keep around to remind myself, no matter what discipline you're in,there's a common denominator in how we approach our craft, the attention to detail, the level of commitment.
Those things are the same across the board.
That is my message. Don't look at what I did, but look at how I did it.
The how. Then you can really transfer that over to any profession and any discipline.
So I mentioned earlier Buffett's obsession with secrecy.
You could take it a little too far. And this is Buffett taking it a little too far.
In my opinion, Buffett's obsession with secrecy rose to the level of paranoia.
He even got the idea that his office was being bugged via telescopic amplification.
I don't know what that means. Buffett had hired a security firm to check it out, but they found nothing.
So Buffett's already working with Munger at this point. They start buying businesses.
He's starting to be slowly influenced by not just focusing on good businesses at a fair price,but what Munger alters, you know, the Ben Graham view of things and saying, hey,it's better to have a fair price on a great business.
And so this is we see in the businesses that he starts to buy the kind of people that Warren admires, right?
Actions express priority. The next day, Buffett called back with an offer.
When Rosner, might be Rosner, I'm going to go with Rosner.
When Rosner accepted, Buffett took Charlie Munger to New York to ink the deal.
Rosner was planning to retire. Buffett demurely asked him if he would stay on for six months to help get going.
Privately, Buffett shrewdly told Munger, that's one problem we won't have.
This guy won't be able to quit. He was the son of Austrian-Hungarian immigrants.
He had started with a single dress shop in Chicago in 1931.
He was the archetypal bootstrapper, having taken thirty two hundred dollars,having started the business thirty two hundred dollars and grew it to forty four million in annual sales.
Like other self-improvers, he was a slave to his work and a dictator to the staff.
His penny-pitching work ethic might have reminded Buffett of his grandfather.
Rosner had once counted the sheets of a roll of toilet paper to avoid being cheated.
[41:42]
OtherDefinitely Buffett's kind of guy. He flattered him profusely.And though he asked him for monthly financial reports, he stayed out of Rosner's hair.Which suited both of them.As Buffett had predicted, he soon found that he was not, in fact, in any great hurry to retireand began to squeeze the proverbial lemonade from lemons.Rosner stayed on for twenty years.Towards the end of his tenure, he told Buffett,I'll tell you why it worked. You forgot you bought the business and I forgot I sold it.So this was surprising. Buffett was reading Keynes.John Maynard Keynes is best remembered as a macroeconomist.But Buffett read him for his considerable insight into markets.Indeed, Keynes' career in some way prefigured Buffett's.I wonder what that means. My wife bought me a bunch of biographies.And one of them is of John Maynard Keynes.It's been sitting on my table for, I don't know, like six months or something.I haven't read it. But if Buffett's reading it, maybe I should.Maybe we can learn something, right?Early on, Keynes lost large sums speculating in currencies, corn, cotton, and rubber.Then he renounced his sins and became an apostle of long-term selective investing.He pursued the market with a calm. I didn't even know this about him.He pursued the market, which I guess is an indicator I have to read the biography, don't I?He pursued the market with calm, devoting to it an hour in bed in the morning,yet compiling a stellar record for his own account and for that of King College.His speeches at the annual meetings were celebrated in London of the 1930s for their impact on market prices.OK, so I'll keep that in mind. Maybe I'll read the biography and make it into a future episode.This is Buffett on crowds or why you must think for yourself.I mean, this is just what the whole book is about, right?One sees in Buffett a strongly similar suspicion of public opinion.They're still echoing the similarities between Buffett and Keynes.Buffett viewed a crowd as a potential source of a sort of intellectual contagion.It was the author of acts and feelings which, rather than being a summing up of the parts,no one individual among the crowd would have subscribed to alone.Buffett illustrated this with an allegory about an oil prospector who arrived at heaven's gatesonly to hear the distressing news that the part of heaven reserved for oilmen was full.Given permission by St. Peter to say a few words, the prospector shouted,
[44:09]
OtherOil discovered in hell, whereupon every oilman in heaven departed for the nether regions.
OtherAnd in press, St. Peter told him that now there was plenty of room.
OtherQuoting Buffett, the prospector paused.
OtherNo, he said. I think I'll go along with the rest of the boys.
OtherThere might be some truth to the rumor after all.
OtherI already mentioned this, but this is a better way to describe it.
OtherAmongers view is better to pay a fair price for a good business than a cut rate for a stinker.
OtherOh, this sentence is fantastic.
OtherThis guy's asking, like, how are you so successful?
OtherThe Buffett partnership and everything else, Jack asked, how do you do it?
OtherBuffett said he read a couple thousand financial statements a year.
OtherSo that made me think of a quote from Munger.
OtherWhat are you intensely interested in? Do that for a living.
OtherAnd then again, go back to that Naval quote.
OtherWhat feels like play to you, but looks like work to others.
OtherIt's a great way to think about the best opportunity to pursue.
OtherOh, my goodness. What is going on here?
OtherI have a ton of notes on this page.
OtherBuffett is 34. We are already seeing his blueprint.
OtherA lot of thinking on this page. Let me read it first.
OtherI have no idea what's going on here. All right.
OtherNor is Buffett interested in total profit as an isolated number.
OtherOK, so we're seeing this blueprint.
OtherWhat counted was the profit as a percentage of the capital invested.
OtherThat was the yardstick by which Buffett would grade grade would grade his performance.
OtherThis is a manager, one of the businesses he bought.
OtherThis guy had been reared like most managers to think of growth as an absolute good.
OtherBuffett's idea was new, but he grasped that it was pivotal to to Buffett's capitalist credo.
OtherBuffett put it in terms that he could understand.
OtherI'd rather have a ten million dollar business making 15 percent than a hundred million dollar business making five percent.
OtherBuffett said. Why would you say that?
OtherBecause the absolute dollars is more on five percent.
OtherGreater than 15 percent on 10, because I have other places I can put the money.
OtherHe leaned on the manager to keep the inventory and overhead as low as possible.
OtherBuffett also followed through with his promise of autonomy.
OtherHe told him not to bother with quarterly projections and other time wasters.
OtherBuffett sculpted the relationship to get the most out of it with a minimum of personal contact.
OtherBuffett didn't linger on the phone.
OtherAgain, this is the manager.
OtherI'd give the results and Buffett would remember them forever.
[46:30]
OtherThe manager's freedom had one boundary.Only Buffett could allocate capital.
QuestionerOK, so here's my summary.Now I can read all these notes to you.It says optimization of profit per dollar invested, a fundamental understanding of opportunity costs.And we see that where he says, I have other places to put the money.Gentlemen, watch your costs.I think that's either Henry Clay Frick or Andrew Carnegie.They're working together at the time, but they both talk about it.So I guess that could be any of them.I think it might be Frick.No work, just no work about work, just work.And that's the section where Buffett's like, hey, don't give me these quarterly projections.You're wasting your time.We saw this with Elon Musk in the early days of SpaceX.Shotwell, his right hand woman and the president of I think she's the president of SpaceX right now, was hired.And she starts doing these sales reports and sales projections.It's like, no, no, no, just just sell.I don't want your projections.No work about work.Just work.Know your business from A to Z.So we see that because this guy is saying, hey, I give Buffett the results and he remembers them forever.Know your business from A to Z.That's from Sams Murray, founder number 37.And only Warren decides where the money will go.So this is the early days of Berkshire Hathaway.Starts out as a textile company.Then he realizes, hey, I can't make any money textile.I'm going to diversify into other areas.And really, the main point of this paragraph is, let your company be misunderstood by outsiders.We just learned this on the podcast I just did with Jeff Bezos when he was working at D.E.Shaw and Company.It was a hedge fund.What everybody else thought was a hedge fund in New York City.They thought of it as a as a way to to apply science and math and quantitative analysis to any line, any business line.Finance was just one where they first started.They wind up incubating a bunch of other companies.Anyway, says the parent riddle was why a new Bedford fabric mill would want to acquire an Omaha insurance company.But this is what I mean about let your company be misunderstood by outsiders.But Buffett did not think of Berkshire as it as necessarily a textile company, but as a corporation whose capital ought to be deployed in the greenest possible pastures.That's exactly the way D.E.Shaw or David Shaw thought about D.E.Shaw and Company.And I know I'm repeating this, but reputation is persuasive and it just pops up in the book over and over again.
[48:47]
OtherIt's obviously very important.What looks like work to others, but play to you.This guy named Ralph Rigby works for a textile salesman.He visits Omaha.He found Buffett in a state of ecstasy.A lot of guys study baseball stats, but comparing Buffy's, a lot of guys study baseball steps.He just had a hobby that made him money.That was relaxation to him.Buffett would work all day his office and he'd go home and read a stack of annual reports for anyone else.It would have been work for Buffett.It was a night on the town.He did not merely do this from nine to five.If he was awake, the wheels were turning.So this is where Buffett starts buying large chunks of the Washington Post.And really, the summary of this entire section is that making decisions based on what other people thought or what other people might do is nonsensical.As the price fell further, so the stock price of Washington Post is dropping, everybody's running, Buffett runs in, right?Buffett continued buying.Unknown to the public, Berkshire was the largest outside investor in the Washington Post.This was the dominant media property that he craved.The Post was run by Catherine Graham.I think that's founder number 152.I read her autobiography, which is fantastic.Also owned, so the Post owns four television stations, Newsweek magazine and newsprint mills.Such assets often traded in private sales and were not hard to value.Buffett figured that they were worth $400 million.That's just side businesses, right?Or I guess the other businesses besides the newspaper.But the stock market was valuing the entire company at $100 million.And this is where we see Buffett comparing the way he thinks about this the way other people are thinking about it.The people selling, professional fund managers, would not have disputed those numbers.Why then were they selling?Quite simply, they were afraid that the shares would drop further.They were afraid that other people might sell.And so this is what Buffett says.It's a lot different going out there and telling whoever owns the television station that because the Dow is down 20 points that day, he ought to sell the station to a lot cheaper.But in stocks, he's saying you wouldn't do that in real life, right?But in stocks, everyone is thinking about relative price.When we bought 8 or 9 percent of the Washington Post in one month, not one person who was selling to us was thinking that he was selling us $400 million for $80 million.
[51:07]
QuestionerThey were selling to us because communication stocks were going down or other people were selling or whatever reason.They had nonsensical reasons.So right around this time, he also starts investing in advertising agencies.It's because I read Buffett's shareholder letters that I was introduced to David Ogilvie, who I've been obsessed with since then because he started buying Ogilvie and Mather, and he talks about, hey, this David guy is a genius.And so I was like, all right, well, if Warren says he's a genius, I should investigate, discover he was accurate.But the point of this section I'm reading to is because sometimes the real right answer is the opposite of the perceived right answer.So he's talking about why he likes these businesses.To Buffett, the lack of assets because you're buying an advertising agency, they don't have physical plants or anything else.To Buffett, the lack of assets was a plus because the profits flowed directly to the owners.The Wall Street wisdom was directly the opposite.There was no there there, just some English majors fiddling with slogans.Theoretically, this is what Wall Street thinks.Theoretically, anybody could do this.So there's a quote in here from this guy.There's a huge bear market and the market collapsed in 1972, 1984.And in a bear market, people just keep selling and they're scared it's going to go worse.So they're kind of like self-fulfilling prophecies that keep selling.And he talks about, you know, this is this is the time to get out is what this this Wall Street insider saying.And the author is like it was it needs repeating the ideal time to be a hero.And the note I left myself is a summary of what's happening on this page.This is something the author does a lot in this book.He will quote someone, say, listen to what they're saying, then point out the truth is exactly the opposite of what they're saying.And so during this this bear market, Warren's constantly exposed to all these people saying, you know, this is the worst time ever.You know, sell, sell, sell. And this is just really great writing.And a reminder that the outside world is just largely an outside distraction.And Warren chose to mute the world.He could not size up how the country's problems would influence the shares of The Washington Post.His genius was in not trying. Civilization is too varied.Its dynamics far too rich for for one to foresee its tides, let alone the waves that affect security prices.
[53:20]
OtherWars would be won and lost. Prosperity would be hailed as everlasting and bemoaned as never recurring.As would politics, hemlines and the weather enjoy their seasons.Analyzing them was Wall Street's great game and its great distraction.In its floating salon, everything was interesting and nothing was certain.The president, the economy, the effect of OPEC on sales of Pepsi Cola.None of these would substitute for critically evaluating an individual stock.When you purchase a share of Washington Post stock, ultimately you would not be rewarded on the basis of whether war broke out in the Middle East.You were buying nothing more, nothing less than a share of the business.A claim on the future profits of its publishing and television assets.Yet, if you knew what the Post or any one business was worth, it rang with the clarity of a single note.That was the sound Buffett strained for.Nothing else mattered.Least of all, the thousands of voices debating the future.Going back to Munger, Grandpa Charlie as I like to call him, Warren's oldest son thought his father was the second most intelligent man he knew.The smartest, by his estimation, was Charlie Munger.This quirky thinker was Buffett's soundboard sounding board.Munger and only Munger he let into his tent.Munger was deeply skeptical of his fellow man that Buffett dubbed him the the abominable no man.This provided a clue to Munger's unique talent as Buffett's consigliere.His approach to life was to ask what could go wrong?He liked to quote the algebraist Carl Jacobi.Invert, always invert.At a high school commencement address, Munger gave a sermon not on the qualities that would lead to happiness, but on those that would guarantee a miserable life.Always invert.More on Munger's unusual personality.He had come as a man of honor, confident that between two such men, no problem was irresolvable.He did not understand Munger's appeal to morality in the midst of a routine business transaction.Yet it went to the core of what distinguished Munger, which was an adherence to old school ethics.He never tired of quoting Benjamin Franklin, whose aphorism he judged more useful than most of what was taught in business school.In and out of business, Munger subscribed to the gentleman's code.He was headstrong about getting his way, but indifferent to assessing blame or credit for the results.Charlie is very funny, but very pompous.He believes in the aristocratic point of view, that there is a select group of accomplished, talented people in the world, and that he's one of them.
[56:10]
QuestionerSo he's got a giant ego.And in the book, there's a bunch of transcripts from this.They're involved in this lawsuit with the SEC and all this other stuff.And we see how their testimony is very interesting.So this is just a good idea.I'm going to pull out one of this quote from Munger.He's asked my question.He's like, listen, as I stated earlier, 98% of our attention was devoted to the task at hand.We are believers in Carlisle's prescription that the job a man is to do is the job at hand and not see what lies dimly in the distance.This is more on Warren Buffett's exit strategy, which is not an exit strategy.It's death and a reminder to make your life's work a work of art.As Buffett explained, Berkshire was something he never intended to sell.I just like it.Berkshire is something that it would be in the rest of my life.It is public, but it's almost like the like a family business now, not long term, but the rest of his life, his career.This book was published over almost 20 years ago, like 95.So he's obviously he'd been practicing for multiple decades at this point.But even now, he's continued this his career.In a sense, his life was subsumed in that one company.Everything he did, each investment would add a stroke to that never to be finished canvas.And no one could seize the brush from him.This is Buffett giving us another way to think about opportunity costs and how to think carefully.It is. I think it might be probably obvious to you at this point.I just find it really joyous reading not only the words of Warren Buffett, but reading about him.So if you're looking, if you haven't read a biography of Warren Buffett, this is a great place to start.It was just a fantastic book.I just think at the very back, it says the bonus of this fine, fine biography is that it could turn you into an investor if you're not one already or a better one if you are.I think that his lessons applied a lot more than just investing.So it's just a blurb on the back. And I definitely think it's true.It's just it was very, very pleasurable is what I'm telling you.One time, Buffett said an investor should approach the stock market as if he had a lifetime punch card.Every time he bought a stock, he punched a hole when the card had 20 holes.He was done. No more investing for life.Obviously, the investor would filter out every idea, but the best filter out every idea.Lou Simpson, who was managing Geico's portfolio, said this parable had a profound impact on him.
[58:29]
QuestionerSo it's like a simple one paragraph.But like it sits in your mind and then your own mind turns over it, thinks about it, thinks of different ways you can apply it.Like it's just he's a very gifted communicator.So every time he bought a stock, he punched a hole when that card when the card had 20 holes.He was done. No more investing for life.Obviously, the investor would filter out every idea, but the best.And if you're not working on your best idea, you're doing it wrong.So let's go back to the idea of comparing and contrasting.We Buffett approaches things the way like the media does.This is a piece that was written in 1979.It's called the death of equities. Right.And I'm going to tell you, this reminds me of a gale man amnesia effect, which I'll read to you as well.That shares were cheap was a was distinctive proof that the market was not merely down but dead.This is what Business Week is saying.OK, quote, for better or worse, the U.S. economy probably has to regard the death of equities as a near permanent condition.That was written in 1979. This is ridiculous.Buffett could not have disagreed more.The same week he penned an essay for Forbes attacking the herd instincts of pension fund managers and their age old rationalization.Quote from Buffett here. The future is never clear.You pay a very high price in the stock market for a cheery consensus.Uncertainty, uncertainty, uncertainty actually is the friend of the buyer of long term value.So he's saying it's the exact opposite of what you're writing about.Now, great quote. One of my favorite ideas, gale man amnesia effect written and succinctly described by Michael Crichton.I think it's how you pronounce them. So it says briefly stated the gale man amnesia effect is as follows.You open the newspaper to an article on some subject, you know, well, in Murray's case, physics in mine show business.You read the article and see the journalist has absolutely no understanding of either the facts or the issues.Often the article. Now, check this out. The sentence is exactly what we just saw with Buffett.How crazy is this? Watch this. Often the article is so wrong.It actually presents the story backward, reversing cause and effect.I call these wet streets cause rain stories and the newspaper is full of them in any case.And here's why this is such a pervasive effect. Why are you just better off ignoring these sources?In any case, you read with exasperation or amusement the multiple errors in a story and then turn the page to national or international affairs and read it as if the rest of the newspaper was somehow more accurate than the baloney you just read.
[1:01:02]
QuestionerYou turn the page and you forget what you know. This is more on Buffett shareholder letters.You can buy the Kindle version for two dollars and ninety nine cents and you can.It's I have the hard copy, like the big book, the one that's like the size of a textbook.But I said the Kindle version, too, because it's like just having to be able to search for any terms you want in the Kindle version.And I do that just on the Kindle app, the iPhone app on the phone on my phone.I think it's, you know, no brainer to 99, but this is a talks about, you know, they're weird.Like the uniqueness is part of what makes them so attractive in his letters.He found his stage. He would seize on an aspect of Berkshire, a wrinkle in its accounting, a problem in insurance and veer off into a topical essay.In respect, the letters were corporate oddities.They were replete with sardonic observations on sex, greed, human fallibility and himself.The syllabus was that of the Harvard Business School, but in the spirit of Benjamin Franklin's poor Richard's almanac.Jack Byrne, who knew Buffett, had the sensation as he read the letters of the scales falling from his eyes.Richard Azar, a young entrepreneur from Trinidad who did not know him, experienced an epiphany when he was 19.Azar wrote, God sent a blessed gift to me that came in the form of Berkshire Hathaway's annual report.One explanation is these tours to American capitalism and the exploits of Berkshire had no parallel.Tycoons there had been and also men of letters.But here in one package was J.P. Morgan writing with the irreverence of Will Rogers.What set the essays apart was his knack for unbuttoning a complex subject and clearly explaining it.And it's through these letters that we have to we understand his philosophy, which I think everybody should have their own personal philosophy on how they approach their craft.This section, I'm going to read a paragraph to find your tribe, find the people who share your mission.Mission. This paragraph got me fired up. Most CEOs do not have such a philosophy, nor it is a nor is it a matter to which they give much thought.But Buffett. Why would you not think about this? It's one third of your life. Come on.But Buffett had thought about it quite a bit.He was consciously trying to assemble a tribe of like minded shareholders who would focus, as he did on long term value.If people bought for reasons that had nothing to do with value, such as a stock split.
[1:03:20]
OtherSo, too, would they one day sell as much as possible?
OtherBuffett wanted to dissuade such infidels from becoming his partners.
OtherThis suggests the depth of Buffett's commitment to Berkshire.
OtherIt was a job to him in the sense that England was a job to Churchill.
OtherThat's fantastic writing.
OtherSo now I got to tell you about Rose Blumpkin.
OtherNote, I left myself a simple.
OtherI love this woman.
OtherRose Blumpkin, known to Omaha as Mrs. B, was patrolling the store in her golf cart.
OtherShe motored down the aisle, haranguing an employee and just gesturing with her arms with the vigor of a woman half her eighty nine years.
OtherBuffett reckoned that he would rather wrestle grizzlies than compete against her.
OtherAnd that's why he'd come.
OtherBuffett asked her if she'd like to sell the store.
OtherMrs. B said yes.
OtherHow much?
OtherBuffett said.
OtherSixty million, Mrs. B spat out.
OtherThey shook hands and Buffett drew up a one page agreement.
OtherBuffett's biggest acquisition by far.
OtherMrs. B, who could not write in English and could barely read it, made a mark at the bottom.
OtherMerely a few days later, Buffett presented her with a check.
OtherShe folded it without a glance and by way of concluding matters, declared Mr.
OtherBuffett, we're going to put our competitors through a meat grinder.
OtherSo well did Mrs.
OtherB incarnate Buffett's business ideal.
OtherShe seemed to have sprung from the pages of his letters as though he had invented her to illustrate the plain virtues that he most admired.
OtherMrs. B had the toughness, determination and common sense that Buffett had seen in his grandfather, in the retailer Ben Rosner and in other Buffett heroes.
OtherShe was born in the late 1800s in a village in Tsarist Russia.
OtherShe and seven brothers and sisters slept in one room on straw.
OtherShe helped in her in her in her parents.
OtherI think it's her.
OtherYeah, she helped in her parents store from the age of six.
OtherThey had no money for school.
OtherShe never saw the inside of a classroom at 13.
OtherShe talked her way into a job at a dry goods store at 16.
OtherShe was running the store in her in the desperate winter of 1917 with Europe aflame and Russia tottering.
OtherShe boarded the Trans-Siberian Railroad and at the Chinese frontier, a Russian guard stopped her.
OtherMrs. B, who did not have a passport, told him she was buying leather for the army and promised to bring him a bottle of vodka on the return.
OtherShe then crossed Manchuria into Japan, gained birth on a peanut boat and six weeks later arrived in Seattle.
OtherShe makes her way to Omaha, starts selling furniture out of her basement.
[1:05:58]
OtherAt the age of 44, she scratched together $500 and rented a storefront.Thinking big, she dubbed it Nebraska Furniture Mart.Her method was her motto, sell cheap and tell the truth.Brand name manufacturers considered her ultra low prices bad for business and refused to supply her.But Mrs. B was an adroit bootlegger.She would hop a train where retailers such as Marshall Field would sell their excess merchandise to her a little above cost.When she applied for credit, the banks would refuse her with a snicker, out of which experience Mrs.B developed an enduring hatred of big shots.What kept her going was her will.She worked seven days a week, 52 weeks a year, never a day off.In 1949, Mohawk, the carpet manufacturer, hauled her into this.
QuestionerThis is freaking crazy.Check this out.This made me laugh, too.
OtherIn 1949, Mohawk, the carpet manufacturer, hauled her into court, accusing her of violating fair trade laws.Mohawk set a minimum retail price on its carpets of $7.25 a yard.Mrs. B was charging only $4.95.This is her response.
QuestionerSo what's wrong with that?
OtherCase dismissed.The next day, the judge walked into Nebraska Furniture Mart and purchased $1,400 worth of carpet from her.Mrs. B's formula was irresistibly simple.She bought in volume, kept expenses bone trim, and passed on the savings.
QuestionerThat sounds like Costco.
OtherTypically, she sold at 10 percent above her cost, but was known for making exceptions.When a young couple came in misty-eyed at the prospect of their own convertible, Mrs.B, who had memorized the wholesale price of every item, would slash her price on the spot, and that couple would come back.
QuestionerOh, okay.I see what she was doing there.She's optimizing for return business.And this investment by Buffett winds up paying off.It says, in fact, Buffett made about as much money in 15 months in furniture that he had made in 19 years in textiles.And this next part is something that Buffett is really well known for, really quick.The fact that he doesn't have a schedule.This guy calls him saying, hey, when can I stop by?Buffett replied, come by.Come by any time.I don't have a schedule.So what he'll do is he'll refuse to say, okay, can we meet in two weeks?He's like, I don't know.Call me the day before.And if I'm not doing anything the next day, then I'll meet with you.But he optimizes for the flexibility to work on the most important thing and not just fill up his calendar with future obligations that he may not want to do at the time the obligation comes due.
[1:08:21]
OtherTalks about the early days of the Berkshire annual meetings.And there's a financial planner that was living in Jackson, Mississippi.He's having a conversation with his wife.And really, the summary of the section is never underestimate inspiration.His wife said in astonishment, you're going to spend a thousand dollars to go all the way to Nebraska to hear a man talk.And his response, Buffett energizes me.Part of Buffett's genius lies in ignoring the unimportant.This ability of Buffett to cut through the clutter suggests a certain genius.Buffett focused so exquisitely on the on his object and his simplicity was a counterpart to that genius.He recognized that layers of added executives would blur his focus.Much of the work he put in quotation marks they might accomplish would be unnecessary work.A Buffett aphorism that which is not worth doing is not worth doing well.So talks about this is in the 80s.Berkshire had the same size portfolio as a Harvard endowment.And yet it says, by contrast, Harvard, by contrast, with the person running the Berkshire portfolio, it's just him.But Warren Buffett and Bill Scott and Bill Scott's working part time.By contrast, with this one and a half man band, the Harvard University endowment, which had roughly the same size portfolio, had a staff of more than 100.This is Buffett's guide to finding stocks.Talk about Coca-Cola. Coca-Cola, as Buffett maintained, was as close to sure things he had ever seen.Buffett's guide to finding such a stock could be summarized quickly.Pay no attention to macroeconomic trends or forecasts.Focus on long term business value.Stick to stocks with within one circle of competence.Look for managers with owner like care and thoughtfulness.Study prospects and their competitors in great detail.The vast majority of stocks would not be compelling, so ignore them.When an investor had conviction, show courage and buy a ton of it.And it's in this section where he gives us a simple way to identify a great business.He could reduce Coke's virtue to a sentence.If you gave me a hundred billion dollars and said take away the soft drink leadership of Coca-Cola in the world, I'd give it back to you and say it can't be done.And this is Charlie Munger on Buffett style being learnable.Munger said the Buffett style was perfectly learnable.Quote from him. Don't misunderstand.I do not think that tens of thousands of people can perform as well as him.
[1:10:52]
David SenraBut hundreds of thousands can perform quite well, better than they otherwise might.And I'll close with this great paragraph.If we have lost the people with Emersonian inner conviction, it is because we have lost the fixed stars that formerly guided them.The modern relativism has reduced us all to being timid specialists, peeping out from cubby holes marked growth and derivative.For similar reasons, the lack of intrinsic value systems, educators waffle and jury seem unable to convict.They retreat, as it were, into ambiguity, complexity and cacophony.Where one conviction is lacking, a thousand opinions will do.Indeed, they become a necessary recourse.Our captains seem the smaller for it.Not only on Wall Street, but in industry, education, government and public life in general.Buffett, in contrast, seems the larger for his rare independence.As he expressed it, I don't have to work with people I don't like.There are few people, CEOs and statesmen included, who could say the same.We see him in his inner sanctum, without advisors or lackeys, opposite the framed and fading newspapers and the looming picture of his father, who counseled him towards just such sweet Emersonian solitude.Hours pass without interruption.The telephone scarcely rings.And the way I summarize this section, and I think the most important lesson from this biography, is that Warren Buffett created his dream job by understanding who he was and what he was good at.And that is where I'll leave it.I highly recommend reading the book.If you want to buy the book, using the link that's in the show notes on your podcast player, you'll be supporting the podcast at the same time.That is 182 books down, 1,000 to go.And I'll talk to you again soon.