William GreenHi there. I'm thrilled to introduce Chris Davis, who's our special guest on today's episode of the Richer, Wiser, Happier Podcast. Chris is a very well-known and extremely insightful investor who spent most of his career at an investment firm called Davis Advisors. One thing that's unusual about him is that he belongs to a multi-generational family of exceptional investors.
William GreenHis father was a legendary fund manager named Shelby Davis, and his grandfather was a legendary private investor named Shelby Cullom Davis, who famously turned an initial investment of $100,000 into something like $800 million by the end of his career. So Chris is the third generation in this dynasty of elite investors, who've built a series of fortunes in the stock market going back to the late 1940s. As you'll hear in this conversation, he's also an unusually charming and ebullient and engaging conversationalist, so maybe it's no surprise that he's one of the best-liked and best-connected investors I know. He's friends with an amazing array of financial icons, including Warren Buffett and Charlie Munger, who've been invaluable mentors to him.
William GreenHe's also very close to renowned investors like Tom Gayner, Mason Hawkins, Bill Miller, and he was friends with the late Jack Bogle, who founded Vanguard. Chris has also spent a good deal of time in the company of a lot of hugely successful CEOs, including Jeff Bezos and Jamie Dimon. So, in many ways, I think of him as the ultimate insider, observing up close what it takes to succeed at the very highest levels of business and markets.
William GreenA couple of years ago, Chris received the ultimate seal of approval when he was appointed to Berkshire Hathaway's board of directors, where he gets to hear Buffett and Munger opine behind closed doors on whatever's on their minds. In today's conversation, Chris and I talked in some detail about what it's like to be in that inner sanctum, listening to Buffett speak at Berkshire's board meetings about subjects like risk and the profound importance of being financially resilient under any circumstances.
William GreenWe also talk in some depth about what Chris has learned from Buffett and Munger, about how to succeed by structuring your life to avoid your weaknesses, about learning from your own mistakes in an unusually honest and transparent way, and about harnessing the power of relationships built on virtues like trust and kindness and generosity of spirit.
William GreenI hope you enjoy our conversation. Thanks so much for joining us.
OtherYou're listening to the Richer, Wiser, Happier podcast, where your host, William Green, interviews the world's greatest investors and explores how to win in markets and life.
William GreenAll right. Hi, folks. I'm absolutely delighted to welcome today's guest, who's Chris Davis. And Chris is chairman of an old and renowned investment firm named Davis Advisors, which I think was founded back in 1969 and he's also a member of the board of directors of a small obscure company that some of you may have heard of, namely Berkshire Hathaway. It's lovely to see you, Chris. Thanks so much for joining us.
QuestionerOh, I'm so glad to be here. I've been looking forward to this, which I don't say about a lot of interviews but I feel like the way you approach life and the universe and everything has made me look forward to this conversation.
William GreenThank you so much, and before I forget, since we were talking about it right before we got on, talk to me about this idea of our 30,000 days, because it's such a beautiful idea, and two hours from now I'm likely to have forgotten that we talked about it, so discuss the significance of this before we get started on anything else.
QuestionerWell, I'm going to start, I'm going to go back to my days as an accountant because this is actually when I first sort of started thinking about it, I'm not much of a birthday celebrator but one of the things I'm particularly struck by is the ones that are hallmarks tend to be tied to 10, 20, 30, 40, 50, 60 and so on, not a lot of life changes around those sort of random decades.
QuestionerAnd when I was working back at State Street as an accountant, I had the worst job, which is I had to, at one part of my job was to calculate the NAV of money market and bond funds. And that meant accruing the interest by the day. And so, Lotus 1, 2, 3 had just come out and so I was using that to write a little program to make it easier to calculate bond interest and count all the days and so on.
[00:04:54] Chris Davis: And when I was testing it, I put in my own birthday and ended up, I was at the time, something like 9,500 days old. And that was sort of the genesis of this idea where I started thinking, we live about 30,000 days or generally have 30,000. Really productive days and our life divides much more naturally on the 10,000 day increments.[00:05:18] Chris Davis: So, after 10,000 days, you’re about 27 or so, 28, somewhere in there, and you often think that first 10,000 days is about going wide, experimenting, trying new things, new places, new professions, new people, new towns. It’s a time of exploration and 21 years old doesn’t capture it or 20. And by the time 30 comes around, usually you’re already into what I would call that second phase of life.[00:05:46] Chris Davis: So right around 10,000 days by then, usually on average, people have decided what they want to do, where they want to do it, who they want to do it with. And instead of going wide as they have for the first 10,000 days, it’s about going deep, just the depth of relationships that comes through marriage, through family, through your vocation, your profession, your colleagues, you sort of have 10,000 days to execute. 10,000 days to accomplish and build what in many ways will be the sort of monuments of your life, your family, your kids, your profession, and then right around 55, 56, 57, somewhere in this 50s range, but what happens, your kids are grown and beginning to leave, what you’ve achieved professionally is fairly settled.[00:06:37] Chris Davis: And in a funny way, it lifts an enormous weight off many people. I think it’s one of the reasons people actually end up growing happier as they get to their 50s, 60s, 70s. Because you’re in a time when you can, in a sense, go wide again, you have more perspective, you have less of that urgent depth of the day to day.[00:06:56] Chris Davis: So, anyway I know when we started talking, we were talking about this idea of both sort of completing the, maybe our second 10,000 days and now looking at how we think about this next 10,000. This chapter that sort of gets us from here to around in our 80s and how does this affect the way that you’re actually living?[00:07:18] Chris Davis: Like, what is this awareness of these three phases do to your view of how to behave and what to focus on and what you’re actually optimizing for at this point?
Chris DavisWell, this sort of ties in with how I think about investing is so much about it. It's about anticipation and preparation. So I think a lot of people go through unhappiness in their thirties in part because they're sort of thinking, where did my youth go? I used to be able to do all these different things and now I'm tied down and if instead you have this mindset, you really look forward to that. The privilege of being able to go so deep to concentrate and I think how it's affected me thinking about this next 10,000 days is a little bit about this idea of inverting it and thinking about what would stand in the way of this 10,000 days being a very enriching time of life. And of course, health is one of them. So it becomes, as you think about going into this next third, it becomes a time where you think a lot about taking care of yourself.
Chris DavisYou think about investing in relationships. When you're raising a family, when you're in the office every day, when You know, a lot of your life and your social life are structured for you. As you get to the next 10,000 days, people can lose touch. So I think it's also been a time when I've really invested in maintaining, invigorating, revisiting relationships, deeply getting to know my children's partners and spouses.
Chris DavisMaking sure that there are aspects of friendships as people, I, we may get to this, but I, the idea of retiring has no appeal to me. I mean, I love what I do. It always seems startling to me that we get paid so well for studying something so interesting and it should be a profession where we get better over time, provided we're not creating behavioral and psychological roadblocks.
Chris DavisAnd if that is the case, I would like to continue as long as I could, but of course, I also recognize that's not the same for many of my closest and oldest friends. And so, as they contemplate retirement and moving and going to different places, old patterns can dissipate.
Chris DavisSo, I think it's a time to really invest in being prepared for this sort of exciting chapter that's in front of us. It may not end very well but 10,000 days, it's a long time and so I think it certainly has impacted how I think about preparing for that transition.
William GreenI thought it was very interesting the Berkshire annual general meeting, which I guess that's where you and I last chatted.
William GreenActually we spoke for a couple of hours on the Sunday, I guess, after it all ended and everyone had laughed and you and I had the pleasure of sitting down with another friend of mine, Inah and chatting. I was very struck at the AGM that Buffett said a couple of times, he talked about the idea of writing your obituary, and then trying to figure out how to live up to it, and he said, look, if you want to know how to live your life, write the obituary, then reverse engineer it, go backwards, which is really not dissimilar to what Nick Sleep does with this whole idea of destination analysis, of figuring out a happy ending, and then, oh, they didn't use that phrase, And then working backwards, thinking of the inputs.
William GreenI know, sorry about that. Trigger warning here and then starting to work backwards to figure out what the inputs are to get that. And obviously, you've been close to Charlie Munger and Warren Buffett and we'll talk about this more. I'm wondering how… Seeing Warren at 92 and Charlie at 99, seeing how they've lived the sort of the final chapters, the closing chapters in this kind of remarkable way, how that's had an impact on your sense of how you want to live that third stage out of the three, however long it may be.
OtherWell, and I could expand that list. I mean, Warren and Charlie are great examples, but I had an incredibly influential grandmother. In fact her pictures on the wall here next to me who died at 106 and I had her in a kayak at 104 and had her on a motorbike at a hundred and she had a PhD in international relations.
OtherI mean, she was an incredible intellect and model, [Crosstalk] Catherine. So that was Catherine Davis.
William GreenWhat did you learn from her? What did you observe?
OtherWell, she was magnificent in every way but this is going to be a tie into Warren to Charlie to all of the people that I would put on that list is one was this idea of they kept interested, they kept so engaged with life. My mother has a very close friend who we always admired as kids because she was, that, that powerful sort of irreverent woman. But one of the things I've watched as she's gotten older is she resents the impact of technology.
OtherShe doesn't want to learn to use a cell phone. She doesn't want to do email, she doesn't. Certainly not going to do Instagram or something and the result is she is increasingly getting cut off. So this idea of keeping interested, how you stay interested in the world around you. I think the second thing is they all kept optimistic.
Chris DavisThere's a very common sort of old man disease, which is the world is going to hell and of course, we feel like that because we're no longer at the center of it. America in particular, but a lot of the world is oriented. Every marketing message is oriented towards people in their peak spending years, in their peak, family years, you're at the center of everybody depending on you.
Chris DavisAnd I think what happens is gradually, of course, the world moves on and you become less relevant, and rather than have your ego absorb that reality, people rail that the world is wrong, that if only people listen to them, so I think you get a pessimism that begins to take over, a rancor, and so I think resisting that is the next, so keeping interested, resisting that pessimistic tendency, which is really simply the extrapolation, of the approach of your own demise and projecting it onto the world, a related one to keeping interested, and I've seen this so much with Warren with Charlie, with my grandmother, other people who are octogenarians and whatever the next two decades that come after that means certainly with my father, who's 86 and still skiing.
Chris DavisIs this they keep making new friends. It is a very sobering part of life is how dramatically differently people age. I had the enormous misfortune when I was a kid and a teenager of not hitting puberty. In fact, I didn't break five feet tall until I was a senior in high school.
Chris DavisI will just say the loss of other defining milestones happen somewhat later and that made that time of life very trying and but of course, the other side of that as Charlie Munger likes to point out is one of the other than genetics. One of the strongest predictors of age is how late you hit puberty.
Chris DavisAnd so, of course you see it with friends aging at different rates, and so that idea of my grandmother very late in her life said to me that it was very difficult for her that she not only outlived all of her friends, but she also outlived many of her friends' children. And so for her, it was keeping making new friends became a very important part of it.
Chris DavisSo, what I would say when I look at all of these older people that I admire is they're interested, they're optimistic, and they're constantly meeting new people and pursuing relationships and there's not a lot of time for self-pity to one friends that only one organ recital a day, they don't need to spend a lot of time talking about what's failing.
Chris DavisSo, look, isn't it ultimately that idea of living life backwards from your obituary or from your funeral? It is a very useful way to think and it, it is keeping that perspective in the back of your mind, I think is a very useful exercise. And so yeah, I'm with you on that one.
William GreenYeah, Ray Dalio came on the podcast and was, we had a long discussion about his most recent book, Your Principles Journal. I think it's called, which is all about how to develop your own principles and there's a very bracing section of that and also of our discussion where he talks about just being brutally aware of where you are in that arc and also being brutally aware of where the people you love are. are in that arc, whether it's your parents or your kids or whatever.
William GreenAnd so you can adapt your behavior accordingly to people depending on what their needs are and one thing he said to me that had a real impact on me was he said that your job in the later stage really is to prepare the next generation to make sure that they'll be okay without you.
Chris DavisYeah, it's funny you say that. I was out actually out in Fire Island where we have a shack on stilts in a swamp.
William GreenYeah, right. I've been there. That whole area is not such a shack.
Chris DavisWell, you didn't see my house. Visited friends who have, views of an ocean and so on but I was coming back at night and it's a place where there are no cars.
Chris DavisAnd so I was riding a bike and had a little flashlight and I was coming up to the house and the lights were all on inside. So I could see in the windows and, what I saw was my three kids and their significant others and some friends of theirs and they're all sitting at our dining room table laughing and carrying on and that moment of feeling like I'd almost don't need to go in.
Chris DavisI would mark it at that particular moment. One of the happiest moments of my life, just looking in that window and seeing all that. So I do think there's a lot of truth in that idea of doing what you can to make yourself obsolete.
Chris DavisAnd yet, of course, wanting to occupy mental space in people's minds and wanting to have been a productive force in the world and within your community, within your family but, within the world in general, you don't, you don't want the world to be worse off for your existence.
William GreenSo much of what seems to become most important increasingly, the more I interview great investors, the more I realize the extent to which they're talking about relationships is the thing that determines everything. I mean, I remember asking Charlie, what can we learn from you and Warren about how to have a happy life and he immediately started talking about relationships. Same with Ed Thorp, when I asked him about the secret of a happy life, how to win the game of life, given that he's one of the great game players of all time. And he again, he starts talking about how, who you spend your time with is clearly the most important thing of all.
William GreenI wanted to talk to you about this whole idea of relationships in some depth, because I think one of the things that's distinguishing about you and your friend Tom Gayner, who's been on the podcast and who's a friend of mine as well, is your ability to have these extraordinary relationships, your You have this incredible network of remarkable friends.
William GreenIt includes people like Buffett and Munger and Bill Miller and Mason Hawkins and Tom Gayner, as we mentioned, and Brian Lawrence, a lot of remarkable investors and remarkable human beings are very high integrity, extraordinarily talented people. I wonder if you could talk about how, you've done it, and also how you observe these masters of building what Tom would call trust based relationships, how you've observed them doing it, because it seems to me an extraordinary competitive advantage in life and at the same time, obviously enormously life enriching.
OtherWell, I think going back to this peculiar subset of people that you focus on investors, obviously that's a term that covers way more people than would fit the description that you just mentioned of valuing relationships.
OtherRight? In fact, I would argue that there's an enormous subset of people that have built very substantial fortunes in one way or another, investing or speculating or trading. To quote Charlie Munger once said to me, who don't have one true friend in the world and rightly so and so I actually think it is a relatively narrow subset of investors that end up at some point in their life, highly recognizing and acknowledging the profound value of relationships.
OtherThey're playing a different game my, my brother, when we were in our teens, had a t shirt that said, whoever dies with the most wins, and there are people that live that way and I think they would pass a lie detector test saying that they're happy, I don't think it's much of a life, but it's the way that, it's the goals that they set out, and it's, What their sense of validation, that's what it comes from.
Chris DavisAnd so I actually think that's more common in investing rather than less common. I think the reason is, I think that to succeed as an investor, you have to think you're right. When, and most other people are wrong about each investment that you make. So that takes a certain amount of either arrogance.
Chris Davisor hubris or an enormous amount of discipline to be able to push through all of the social signals that make us herd animals, which have helped us succeed as a species by being very sensitive to what other people think. And recognizing that the heuristic that most of the time, most people are right in aggregate, in other words, setting price and so on the markets mostly efficient.
Chris DavisSo I think you have a series of personality traits, including Just the amount of work that you need to do it. You need to be engaged deeply in the process. So it's very hard to simultaneously, I think, build a very successful investment career and necessarily check every other box that we might associate with a good and honorable citizen in a community, making sure you're at the PTA meetings and at the meeting.
Chris Davischild conferences and at the weddings and the baptisms and so on. So you add that recipe together of, generally a very driven work ethic, often an ability to disregard what others think about you or What you're doing often, a desire for money, right? Of course. The, there's an aspect of some people are attracted to investing, or certainly most people appreciate the fact that it can be a lucrative profession.
Chris DavisWell, you add that all together, you're not going to get a recipe of, well-adjusted, philanthropically minded, civic oriented people in on average right now, if you swung that. That, that cast that same net into nursing, you'd probably find a lot more people that you would feel are going to be deeply human and have deep connections and so on.
Chris DavisSo, I think you described a tiny, narrow subset and that subset who I think of as value investors and not in the sense of any particular investment discipline. But in the sense of thinking that over a long period of time, things that create value get recognized for doing so. And then it can take a long period of time and it can be lonely and so on.
Chris DavisAll of these things, I think you do begin to get into that subset of people. And then I would say when you get right down to the relationship part, I think ultimately for long term investors. So I'll now distinguish between the value investors that might be doing trade convergence or something.
Chris DavisBut over a long period of time, you come to recognize what an incredible difference individuals can make and they can, what they can, the difference they can make in the world, the difference they can make to their companies. the difference that they can make in any given situation. It is incredible and so you gain almost sort of a reverence and an admiration for what people can achieve.
Chris DavisAnd so I think you end up with a higher view of humanity because you've taken a time horizon that you've extended over a long period of time and you've sort of seen that impact and yet you've combined it with a value system that is willing to think independently and be held accountable. And so I like that subset you described.
Chris DavisI just don't think if you swung that same net around Wall Street that would be the, that would be the way it would shake out the most. And of course, in some ways we've all selected each other. As Bill Miller said to me once, it's nice to see people who approach the world the way you do well.
Chris DavisAnd so you want to help each other and so of course, we seek each other out. I have a picture in our conference room from the depths of the financial crisis and it was with Warren. Who else was in there? Will Danoff was in that picture and Mason, Bill as I said, Warren, I think there were a couple of others but the caption, somebody had scrolled on the bottom was, value investor support group and it was just all trying to get through that dark period.
Chris DavisSo, it's I think it is unusual in Wall Street on average, but I think that the key determinants are what I'll call the value system with a capital V and then the time horizon. And those two things, I think, is part of what creates that convergence.
Chris DavisI certainly think there's some kind of competitive advantage here that I was slow to realize that we're often taught that you have to have sharp elbows to get by in any profession.
Chris DavisI think that was the case in journalism, that it's pretty brutal, and also it was a sort of slowly sinking ship, which doesn't bring out the best in people. And in investing as well, very cutthroat, very intense, very competitive. And so it took me a while to realize that there's a different way of playing the game that was more Well, less of a zero sum approach where one person has to suffer in order for someone else to do well.
Chris DavisAnd so I sort of had this sense when I was thinking about people like Charlie, for example, that it was a different way of operating. And so I remember Charlie sort of saying, look, we have this simple system to have a good partner, be a good partner, or to have a good spouse, deserve one. Or Tom Gayner saying, you need to extend trust first and then see if people reciprocate it.
Chris DavisAnd so I do, I think there's something going on here that's deeper that these very wise people have figured out a different operating system. Am I deluding myself or is there something going on where they're behaving in a kind of relatively exemplary way, despite being flawed human beings like all of us and they're attracting extraordinary people into their ecosystem as a result?
William GreenYeah, the only trouble is you're discussing a correlated group. In other words, they aren't, it's not a random distribution of people that have succeeded. They're people that have been enormously influenced primarily by Warren and Charlie.
Chris DavisAnd that and that relationship, the waves of that have sort of persisted out. You could say Thorp is sort of a non-correlated in some ways, although there were obviously those historic overlaps and he's not somebody I know personally but I would say that, and for Tom and for me, the influence of Warren and Charlie is so dramatic.
Chris DavisIt's not a coincidence that we have shaped decisions that we've made in our own lives and our own careers based on our admiration of. Not just what they've achieved, but the way they've achieved it. And I would put Bill Ruane in that category too, Bill used to say that, I know Warren's got 70 IQ points on me, but knowing that, that's helped me make good decisions because I don't kid myself and I was able, as Bill did, to delegate an enormous amount of his return in essence to Warren.
Chris DavisSo I do think that there's sort of correlated in that sense but well I may have lost my thread on where you started there but [Crosstalk]
William GreenI just, I think there's a different system at play. It reminds me of Nick Sleep saying to me. He said at one point, look, I don't know whether or not I believe in God.
William GreenI think he probably does, but he said I believe in good and I believe that good things grow. And I think there's something. There's something kind of life affirming when you see these people behaving decently and honorably and it kind of works out, but who knows, maybe it is just because they're so damn smart anyway that they could succeed anyway.
Chris DavisWell, that's probably true in some but I do agree that we were marooned on a desert island, sooner or later, everybody would be killing one another and there's really no evidence for that. The evidence is the opposite and the more you study. Evolutionary biology at the species level rather than at the individual, survival of the fittest is one of the most grossly misrepresentative articulations of a profound truth that there is, of course, humans are in no way the fittest in almost any dimension.
Chris DavisThe superpower is not at the individual level. It's at the cooperation level. It's at language. It's really at trust. If we were not able to cooperate, we would still be floating around the middle of the food chain as we were for most of all of human existence cooperation and trust and the feedback loop that comes from that.
Chris DavisNow, if you want a wonderful way to quantify that, I love the idea of not just cryptocurrency and blockchain generally, because to me, one of the most interesting tenants of blockchain in general and I'll use Bitcoin in particular, is what did they call them? Trust lists networks. So you have a, you're creating using technology, a means of exchange that does not require trust.
Chris DavisNow, an interesting thought, experiment is to say, wow, how much energy needs to be consumed to duplicate trust. And therefore, sort of conclude, well, that must be, in a sense, the efficiency of trust is requires this much energy to sub, as a substitute. So, you've got to burn a lot of carbon and burn a lot of electricity generate a lot of electricity to generate a substitute for trust. Now, think of the other side. You think about this idea of operating in a web of earned trust, and we talk about it on a moral plane that this is good, the right way to behave. That you have to have some metaphysical belief in the power of good, but you could be entirely mercenary and simply say, trust is an incredible source of efficiency in particularly in business.
Chris DavisI would also say in life and that ironically, Bitcoin is a demonstration of how much energy has to be consumed to replace trust. So we have traders that have been in the business a long period of time, and they're on the phone, sort of generalize here, but they're putting in trades that may involve, billions of dollars.
Chris DavisAnd there are cases every year where there has been a mistake made somewhere, and I don't mean an investment mistake. I mean, somebody, inadvertently, put a zero in the wrong place or, misspoke or misheard. And it is amazing how much is undone because the person on the other side says, oh yeah, we'll figure that out. it's not a survival of the fittest. It's this view that we are in a system where I trust you and you trust me. And so watching the way that operates and watching it as scale at a company like Berkshire. It's staggering the efficiency and how much you would need to do.
Chris DavisJust think of a due diligence on a transaction. Think of what the investment bankers charge and the consultants just to do due diligence on a transaction. You can view that as like with the crypto. That is what people are paying because they don't have trust. So they pay all that and then do they get a better outcome?
Chris DavisI don't think so. I mean, I think Berkshire is an example that all of the foregone due diligence trips and investment banking and auditors and so on would not have produced an outcome that would have raised returns or avoided fraud. In a way, trust ended up being a superpower on it. So I think it's the right way to live but I think, even if I didn't think about that, it would be a strange thing for somebody to fail to recognize what enormous power there is in having a strange thing certainly in a business context, operating in a web of trust it is, and as I say, it's certainly a more fun way to go through life. I wouldn't want to substitute it.
William GreenSo, it's also interesting if you invert it, right? And you go back to what Charlie was saying at the annual general meeting where he was talking about avoiding toxic people. And he said, look, get toxic people out of your life and do it fast. And there was a wonderful moment where Warren said, we'll do it tactfully if possible.
William GreenAnd Charlie was like, yeah, I don't mind a little tact, but just get them out of your life. And so it's, in a way it gets back to Tom's comment that you want to extend trust first, but if people don't reciprocate, boy, do you get away from them quickly.
Chris DavisWell, for me, it felt, for example, one of the things I love about stocks is it's not a negotiated transaction and if I look over my whole career at the private deals I've done personally, as a firm, we've done some with great success, but when I look at the ones that I've done personally, it's a pretty poor record and it's particularly poor because I can't imagine looking somebody in the eye and lying. And so, when you're in a negotiated transaction with a seller.
Chris DavisI am terrible at that. I would not. What I love about stocks is the price is set. I'm not negotiating with the other person. That is, I view that as a weakness in me not a strength, but I've been able to structure my life. So my inability to be a hardnosed negotiator has not hurt me, in other words, to be a little naive and, except it, it doesn't help me when I, buy an apartment or something. And I learned subsequently that people were lying through their teeth about whether a fireplace works or something, then I feel like a sucker.
Chris DavisOh, I shouldn't, I should have had an inspection on that element or so on, but. For me, stocks are wonderful because I don't have to have, I don't have to have that negotiated transaction. The I think the idea of when somebody has lied to you, it's one of the reasons I think short selling would be such a terrible way to live.
Chris DavisYou have to You know, that toxic person, you can't get them out of your life. You've got to, you've got to spend every waking hour studying that toxic person, trying to elucidate all the ways that they're toxic and deceitful and lying and stealing. Well, that's a. That's a tough way to go through life immersed in toxic people.
Chris DavisSo I like Charlie's and Warren's philosophy a lot more. And as I say, there are people where I think where stocks sort of create the perfect venue where you don't need that individual on the other side, you don't need to come to terms with the seller. And whatever, for me, the behavior biases I have that would make that very difficult, instead, I have a set price and I can figure out what to do with that price.
Chris DavisSo, it's what I would say is that all of the people have in common a Tiger Woods trick, which I really love, which is I, whenever I talk about sports, you have to footnote that I don't know anything about almost any sports. But I like sports because I find it metaphorically rich. And so, Tiger Woods, I think it was his first British Open, as I understand it.
Chris DavisThe weakest part of Tiger Woods game at that point was his coming out of the sand trap. He was not very good at that, relative to the people that were the best at it, and they were playing the British Open at a course that was renowned for these bunkers that looked like they were created by a piece of artillery, and, the deep, nasty bunkers, and so the press was really pushing Tiger on, have you been working on your sand game?
Chris DavisAnd they were watching him in the practice rounds. And he said, no, I'm working on my drives and my low irons. And they said, why? And he said, because I don't want to go in the sands and he played the entire British open and didn't go into a bunker once, which is an incredible sort of mental model to have.
Chris DavisWhich is, and if you can identify your weaknesses, yes, trying to reduce how severe they are, you don't want weaknesses that are going to take you down, but then trying to architect your life. So you avoid them is the best of all. And I would say something that Warren and Charlie and many of the people you mentioned have done well as they've structured their lives.
Chris DavisSo whatever their weaknesses are it hasn't been taken them down. And so you mentioned Charlie's bluntness. I don't think that would have served Charlie as the CEO of a Fortune 500 company. It wouldn't have served him as a manager of a lot of people. It wouldn't serve him to have to, when you go from a platoon to a company to a brigade, all those, Roman, there's a turning point where all of a sudden you can no longer communicate directly.
Chris DavisYou have to begin to communicate. with stories and you have to allow yourself to become a, some sort of, some sort of an out of who you are and that I think would have been, I mean, I'm speculating, but I think it would have been very difficult for Charlie and so Charlie structured his life in a way where that, those personality traits of his didn't set him back.
Chris DavisWarren is an incredible communicator and exudes this sort of warmth and people. But he has a very hard time, as he says, describes, making those really hard decisions to fire somebody or to replace them. So he's structured, here he is as a CEO of a Fortune 500 company, where over time he's had to make very few of those decisions.
Chris DavisSo he's structured his life to minimize those weaknesses and so on. So I think there's. A very powerful lesson for people to carry out is not to necessarily obsess on your weaknesses, but to do your best to structure your life so that you can avoid a lot of them.
William GreenYou made a fascinating observation about the difference between Charlie and Warren's approach to human interactions back when we were talking in May in Omaha, where I was pointing out someone, I'll try not to be too specific, but someone asked a really stupid question.
William GreenAnd I was mentioning that Charlie just dismissed it instantly, like he didn't pretend that it was anything but a stupid question. And Warren replied in such an incredibly deft way, where he didn't insult the person who'd answered, who'd asked the stupid question. He turned it into a useful teaching lesson about something else.
William GreenSo that people in the audience got something out of it, and it was so emollient, it was so charming, and so deft, and I mentioned this to you, like, his brilliant diplomacy, and you were saying, the funny thing is, actually, in some ways, Charlie is the soft hearted guy, even though it doesn't seem it Warren Is this sort of brilliant machine who studied Dale Carnegie and how to win friends and influence people and he has, as you put it, super high processing speed so he's able to tick all of these boxes and know how to behave in a way that's going to be kind and thoughtful and I just thought it was such a fascinating observation. Can you talk a little bit more about that? I don't know if I'm doing justice to your observation.
Chris DavisWell, you know what I'd say, Warren shows any visitor that comes to see him, his Dale Carnegie certificate. hanging in his office. And he talks about how important that was. And people don't read much Dale Carnegie anymore.
Chris DavisIt's really worth reading. It's enormously useful. And it is a very practical guide. It's the subtitle is how to make friends and influence people. And we hear that in our modern ear now, and that sounds very disingenuous or manipulative or somehow lacking integrity. I actually totally disagree.
Chris DavisI think it was, it is a way, as John Wooden famously said, you, you haven't taught unless they've learned. I think it is a way to, to do your best to make sure that somehow you aren't communicating something you don't wish to communicate or don't intend to communicate. And so, I think Warren was an incredible student of that mindset, and so you're absolutely right, and by the way, Ben Franklin was too I have written down, I should have brought it in, I, a book of things that I've jotted down, mostly quotes from books or poems, since I was in college, And one of them is about Ben Franklin talking about how he knew people that were very effective at winning arguments, but they never win one influence or goodwill, and that would have served them better.
Chris DavisAnd the reason they didn't is they, on the course of their winning the argument, they tended to humiliate. The other person. And in so doing they impressed people with their intelligence, but they also gained an enemy and ultimately that set them back. So, and Charlie would hold up Ben Franklin as his Dale Carnegie.
Chris DavisSo, I mean, both of them have enormous, have learned ways Charlie once told me he, he wears suits. In part because he said I'm so unconventional in other ways that if I at least wear a suit, people immediately assume I'm conventional in some ways and that, that's probably helpful. But he, that it was purely a practical matter.
Chris DavisBut I do think that I think Warren is. is so, his father, of course, was a congressman, so I think he grew up with this sort of understanding of this sort of political sensibility in the best sense of the word, in other words, how to create goodwill, how to have people rooting for your success.
Chris DavisImagine the record that he's achieved with almost no enemies. Can you name another fortune that was built where there wasn't a significant consensus or a significant view in the world that somehow that person gets vilified. I mean, I think about watching the changing narratives around Jeff Bezos or Bill Gates or Sam Walton and Walmart.
Chris DavisAnd there are very few you can point to, certainly John D. Rockefeller and Carnegie and all of them but there tends to be Howard Schultz. There's a cottage industry vilifying Howard Schultz. I don't get it. It seems, crazy, but it just seems it sort of goes with the territory.
Chris DavisSo it's an amazing thing for Warren to have built this fortune and still have so much of the world viewing him as this sort of kind, gentle presence and patient. And but I think you're right. I think in, in, in many ways it is a Well, we don't have to speculate whether it's good. It's like honesty, whether it's good policy or whether it's ethically right.
Chris DavisYou can do it for either reason. The effect is the same. Tom Gayner loves to talk about the Quakers. Came to do good and did well, it's the same idea that it ends up that, that approach both serves him enormously well and is a very ethical way to treat people even when they ask asinine questions, but, Charlie dismissing somebody and saying that's an asinine question Warren, as you say, he invests dignity into the question, even if it wasn't there or if it wasn't intended by the asker.
William GreenYeah, I would definitely reiterate that people should go back and read that book, How to Win Friends and Influence People, because of the title, it sounds very cynical, but I started re reading it again last year, because I was talking to my daughter about it, and I was like, yeah, I was saying to her, look, there are really important skills And I was struck when I reread it not only by how skillfully written it is, but how actually I think unconsciously it's influenced an entire generation of our most successful writers.
William GreenAnd so, I actually suspect that in, in the same way that you can show that there's this lineage that comes out of Ben Graham through, Warren and Charlie and many others, including yourself. You can actually, you could plot a kind of lineage coming out of Dale Carnegie, where you could actually show that the techniques that people like Malcolm Gladwell use, and that I use in Rich or Wiser Happier, consciously or unconsciously actually stem from Carnegie, that he would interview these people, and then he would tell these people Really elegant stories and come up with great quotes and sayings.
William GreenIt was very practical. I don't know. I suspect if you looked at all these guys like Daniel Pink now or David Epstein, all these really good nonfiction writers, you'd find that a hell of a lot of us actually consciously or unconsciously owe this huge debt to Dale Carnegie.
Chris DavisI think you're right and I think that the cynicism about it is a real something that's very deeply troubling.
Chris DavisAnd the reason is it sort of gets at this idea of the mutability of human nature, right? If right now there's this sort of obsession with, identity, what is, who are you? How malleable is it? How fixed is it? And so on. And that manifests in all different ways. Almost 3, 000 years ago, Aristotle said virtue is a habit.
Chris DavisIt is what we do. So there was implicit in that, this idea that you could become virtuous. You could make yourself more virtuous. There is something in the zeitgeist at the moment that really views that cynically, as if somehow, it's inauthentic, that who you are is you're screwed. Like whoever you are, that's it.
Chris DavisAnd I think that there was part of the 1950s America, which is, it's a period, the post war U. S. is a time in history that I admire so profoundly, you think of the Marshall Plan, you think about rebuilding Japan, rebuilding Germany, creating almost a hundred years of peace and not just peace, enormous goodwill, right?
Chris DavisThese are our strongest allies. That mindset, which of course came with this sort of optimism that, that in this sort of we can do attitude, but I think that went to the individual, this idea that I will, and by the way, it didn't just start then it was a real characteristic of the late 19th century and the emerging middle class and the creation of [Inaudible] and this idea that as we Achieve means we should work on self-improvement.
Chris DavisAnd this idea of self-improvement, it's a very American mindset. There was a wonderful scene in Chariots of Fire. I don't know if any people even remember that movie now, but with the old English school masters. Sort of chastising young Abrams, the runner because they viewed his training methods as a bit commercial, a little bit not quite in the spirit of things.
Chris DavisRemember the man that they fancy would, practice hurtling by putting glasses of champagne on each hurdle. And here was Abrams, employing scientific methods and a professional coach. So they were sort of chastising him and. And he said, you relish my achievements, but you would have me achieve with the effortlessness of God's.
Chris DavisAnd that was very much the British mindset. I lived in the UK for five years. I love the UK. But. I always was struck by the fact that it's a little bit rude to ask somebody what they do, right? That's an American question. It's actually one of the first questions. I always ask people when I meet them.
Chris DavisWhat do you do? Why do you do it? This idea of vocation and being good at something and or how you spend your waking hours but in, in Europe, in general, and I'll say in the UK, there's an idea, well, you're presuming I need to work, and that alone, it could be a little insulting. I'm not a tradesman.
Chris DavisSo, anyway, that's a little bit of a point. Political tangent. But what I would say is this idea of self-improvement as something that you get started on just the way a value investor where Warren used to say you start at the as in the stock index, you start with, how do you improve yourself?
Chris DavisYou make a list, you put up pictures around you of people that you admire, you have role models, Ben Franklin wrote about it, Aristotle wrote about it, Warren writes about it, Dale Carnegie wrote about it, but somehow there is a cynicism about that I find really discouraging.
William GreenYeah, and unhelpful actually. I mean, when I read when I read Marcus Aurelius' Meditations, which was written not for publication, I think, it was his own notes written a couple of thousand years ago. I read the first chapter and I was like, wait a second, he's naming at the very start, something like 17 people whose qualities he essentially wants to clone and I'm like, here's one of the great thinkers and he's consciously cloning and it was such a fascinating example for me of how these, even someone like he was figuring out how do I improve myself by following this trait of my father in law or this trait of this the guy who adopted me.
William GreenSo yeah, in some ways I think having grown up in England, we think it's a little bit tawdry to admit that we want to improve ourselves. And so, I mean, I remember buying, when I first moved to New York in my early twenties, I was at 21. I was very anxious for some reason. I think it's quite a stressful time in your life where you don't really know what you're going to do and if you're going to find your way in the world.
William GreenI was having terrible trouble sleeping. And I remember getting Dale Carnegie's book the other one, the one about anxiety, that was something like how to stop worrying and start living. And I was like, this book is really good. It's really well written. And I had just got an English Literature degree from Oxford.
William GreenI was like the ultimate intellectual snob, right? And I literally I'm ashamed to say. I not only marked it out very heavily, but I hid it behind other books on the bookshelf because it looked tawdry. It had a tawdry title. It was a mass market paperback. It was on terrible paper, but it was so helpful to me.
William GreenAnd I remember it had these amazing quotes from people like Lincoln, where Lincoln had this sign on his desk that just said today, That was him just reminding himself that he could just focus on that one day and there was an extraordinary poem by Kalidasa, this written in Sanskrit, like two, 3000 years ago that I memorized because it was so helpful.
William GreenAnd so I feel like he had, he'd synthesized this incredible worldly wisdom. And yet somehow it was sort of embarrassing. So I'm mentioning it because I think someone in our audience is going to now buy that book on how to stop worrying, and it's actually going to really help them. And so I hope you'll benefit from my admission of my own shame and in, in hiding, hiding that book.
Chris DavisI absolutely share your shame. It's so true. And it is a peculiar. It's a peculiar regression as a civilization, and I think that it speaks to this idea that I do think is very much the currency of the moment, which is that your destiny is determined by circumstances that are outside of your control.
Chris DavisAnd it could be. Identity and gender, politics, race it could be that, no, the system is rigged so that people achieve, and by the way, I think that and so it feeds this idea that there is no true agency. That in a way, the people that succeeded because the system was rigged, the people that failed because the system undermined their opportunities, and this is outside of the, My, my world.
Chris DavisAnd, but I do think that there is something about removing that agency and that sense of agency that I think is very destructive. I don't think it's permanent. I think these things sort of wash through in waves but the idea that, you could read a book and make a series of decisions that improved your life relative to where you have been, if you hadn't read that idea of agency and a certain amount of mobility. And, I was born on third base, so it's, I'm a very dangerous person to even begin to talk in that way because, I really started with every possible advantage. So, but I will say that I look at, the, I look at my own research team, I'd say, 80 percent of our research team are first generation immigrants or, children of immigrants or themselves, immigrants, I really do believe that there is still an enormous amount of mobility that is possible and that it starts with this idea of self-improvement and that the more we create a cynical environment where that is considered inauthentic or manipulative the more it is dismissed the more we give up on the sort of feedback loops that you described from reading that book, how it helped you and or how Dale Carnegie helped Warren and what that means for the greater civilization.
William GreenYeah and I actually, I remember writing out on a couple of cards various quotes from that book much more the one on how to stop worrying than how to influence people and there was one from Thoreau if I remember I mean it's 35 years since I did this but there's one from Thoreau where I think he talked about exactly that where he said something along the lines of I know no more encouraging fact than our ability to transform ourselves through an act of conscious misquoting it but I'm that was incredibly heartening for me.
William GreenAnd when I look back, I had this fear that there were certain things that were just kind of kind of like your set points where, maybe you had a slightly melancholy nature, or maybe you were just always going to be anxious. And one of the most encouraging things I've found now at 55, looking back, is how, not completely, but very significantly, I've actually managed to change my wiring.
William GreenAnd that's a really, that's an incredible gift, and just to know that, to know, there's a great sage, Rav Ashayek, who said that It's a spiritual law that there's no negative characteristic that you have that can't be changed. And when you see something like that, you're like, ah, wait, so there are these sorts of forms of negativity that you have all these bad characteristics. So you're like, no, actually you can change that too. I find that incredibly heartening.
Chris DavisOf course it is. And you would almost say that even if it wasn't true, it would be good for people to believe it, but it is true. And it's not surprising in that, one of my when I was in seminary, there was a bishop that I loved who was a bishop of Newark, New Jersey, and his name was Jack Spong.
Chris DavisAnd he was a, incredible character and very controversial. But he was a great teacher and mentor to me in many ways and ways, way more than he would even have realized. But he once asked me what is the opposite of faith? And I said, doubt. And he said, Oh no. He says, faith requires doubt.
Chris DavisYou can't have faith without doubt. The opposite of faith is certainty. If you have certainty, you don't need faith. He said, it's very much like, like courage, courage is not the absence of fear. It's the very real presence of fear and then being able to master that fear. But the fear needs is part of what it is to be courageous doubt is part of what it is to be faithful and this idea and the sort of pathologizing of behavior as something that is immutably thrust on you as a condition.
Chris DavisLiterally as a condition and I tease my children often when they say things like, well I have real, I have anxiety about such and such. I was like, how about if you say I'm nervous about that? Just the change in the language. If you say or if you say I'm really worried about this.
Chris DavisWhat if you try saying I'm excited about this? Because both can be true. and excitement and nervousness and worry, you imagine, I mean, I'm sure, if you've ever get on, I have to give a speech, that, that nervousness can be part of what it is. It can all be, but once it becomes a condition, then it becomes sort of immutable or it needs to be treated, but the treatment comes from outside. The condition comes from outside and there we surrender agency. And I just, I'm so lucky, not just from where I started in life, but I'm lucky to have a profession where I'm constantly studying excellence. And I'm studying a group of people now you could say some of them were born to it.
Chris DavisThey, inherited a business or something, but most of them did not come. From a circumstance where you would say their achievement was obvious. And it's funny. We look at athletes with deep admiration because nobody thinks, well, I'm going to segue a little bit to inequality in the, in a strange way but nobody looks at the NBA and thinks it's a problem that LeBron is paid a greater multiple of the lowest paid player in the NBA than would have been the case 20 years ago. In other words, inequality in the NBA has gotten much, much greater, but we don't think it's a problem, and we don't think it's a problem for two reasons, and reason one is that the poorest player in the NBA, the lowest compensated player, still well compensated.
Chris DavisSo there's a sense that you don't have poverty in the face of this immense wealth. You don't have players that are afraid that if I get injured, I'm going to be kicked out of my house and I'm going to lose my coverage. And there's a sense that even the lowest paid player in the NBA is treated well.
Chris DavisAnd then second, there's a view that. LeBron James has a demonstrable talent that is unarguable. It's measured in the statistics and therefore it was fairly achieved. Right? So that nobody is saying that it's unfair. I would argue that Jeff Bezos is LeBron James of capitalism. He achieved what he did through immense talent, incredible commitment, and you could say, well, he went to Princeton and you could say, well, LeBron was born. I don't know how tall he is. Very tall, particularly more athletically inclined than I am. He had just enormous. advantages, physical advantages relative to me, and then he had enormous character advantages.
Chris DavisAnd those conspired together to produce somebody that is an absolute virtuoso and one of the great talents at what they do and I think one of the hard things for me about watching the state of capitalism at the moment is two things. One, we seem to vilify or imagine that success is achieved because the playing field isn't fair.
Chris DavisAnd I don't think that's the case. It is a vicious competitive playing field, the world of capitalism. But I think where there is plenty of blame to go around is the blame that we've somehow achieved a society that has enormous wealth in the face of enormous poverty. So it's not the inequality itself.
Chris DavisIt's that there are people living in fear and people living in poverty in the face of that wealth. And so that would be the area that I would wish for capitalism to do a little better job. Taking care of because I think that if we only focus on inequality rather than focus on poverty which is the real issue, because as I said, there's lots of inequality in the NBA.
Chris DavisIt's not a problem. Poverty is the problem. And that by focusing on inequality, we end up vilifying the talent. And I stand in awe of what the CEOs of so many companies have achieved, not just the founders, but even the leaders. And I was speaking today with the leader of Coca Cola, James Quincy. I mean, he is an incredible leader with incredible commitment, great values.
Chris DavisAnd to say that, oh, well, playing field was tilted for somebody like that to, to rise anyway, that's a little bit of a wild divergence, but I think this going all the way back to Dale Carnegie. This sort of undermining of the degree to which, the combination of luck with enormous talent, with incredible hard work, with incredible ability can manifest in our system.
Chris DavisI wish we could celebrate them the way we celebrate our athletes. They deserve it. And you could argue that what the athletes do for the creating sort of the goodwill and the diversion and the entertainment and the admiration you could argue that there are people that have succeeded in business.
Chris DavisIn a way that has done so much good for our country and for the world, and I would wish that that this tendency towards vilification would end because it's tied, it takes away those people as potential role models, which they shouldn't be.
William GreenIn many ways, Berkshire is a kind of iconic, emblematic teaching institution, right? It's there to show us capitalism done right in many ways. I mean, not that it's flawless necessarily, and sometimes there are controversies, but it's extraordinary. It's an extraordinary culture, and you're in this unique position of having been named by Warren as a director of Berkshire back in, I think, 2021, and just to give our listeners some context, the other directors are Warren himself and Charlie and Greg Abel the likely successor to Warren, Ajit Jain, who runs the insurance operations, Buffett's son and daughter Howard and Susan, Ron Olson, I think, who co-founded Charlie's old law firm, Ken Chenault who was CEO of American Express.
William GreenSo, in some ways, it's kind of the ultimate club, and it's given you this insider's view of capitalism done well, and what makes Warren and Charlie extraordinary, what makes the culture extraordinary. And I wonder if we could get a sense from you of what the experience has been like so far, what you've learned about culture.
William GreenAnd one thing I would mention, I remember talking to our mutual friend Brian Lawrence about this and he was pointing out that there are some really great money managers who would never dream of going on the board of Berkshire because the requirements are really difficult, like whether formally or informally, I think One of them is that you, you have to own a significant amount of the stock.
William GreenAnd I was looking at the ownership statements. And I think you own something like 20 million worth of the stock personally, and you don't get any stock options. And I looked at the compensation structure. and was stunned to see that you received the princely sum of 7, 000 a year to serve on the board.
William GreenAnd I think Brian told me that there's no insurance protection either for the director. So, so you're sort of personally exposed, not enriched, and you have to put up your own money. So can you talk about that unique culture and what you've seen about it and why you would even want to do it and what you've learned from it? And apologies for that long winded question.
QuestionerOh, no, it's a great question. That's the reason 7, 000 sounds high. I think it's 700 a meeting, but I could be wrong on that.
William GreenYou're the highest paid, I think. I think that most people get 3,000 and unless I misread it, which is eminently possible, I think you get 7,000.
QuestionerWe'd have to review that and figure out that but yeah, I believe Berkshire is incredibly important as, well, as an exemplar, but as an icon of how capitalism should work. Right? In other words, a company that hasn't taken shortcuts that in almost every dimension tries in every industry and every subsidiary has this goal of, as Charlie would say, getting what you deserve, trying to earn success, no shortcuts, they want to have the reputation with the regulators, with customers for their dealing and, you mentioned Tom Gayner. Of course, Markel aspires and has delivered in the same way. And by the way, there are other companies that do, but Berkshire is absolutely in a sense, the LeBron James of that, right? They, there is the sheer scale of the success the time horizon over which it's been done in every manner.
Chris DavisAnd so, I think Berkshire, for the good of the entire system, Berkshire is worth cherishing and protecting. It is this virtually sort of unsullied example. And, of course, the maintenance of that is something that is very easy so long as Warren and Charlie are there. But the laws of inertia in business and are, are such that the, there are a few records of that persisting and one of the extraordinary characteristics of Warren and Charlie is how much every year every decision they do with the goal of having it persist.
Chris Davisof making their successors jobs easier, trying to lay out a framework. So I think the responsibility of the directors will never be to be in any way involved in the business. It will be in a sense, protecting this culture that really is a culture that is stands out for its independence. It's rejection of all of the conventional ways that people begin to take shortcuts or begin to fall prey to all of the institutional biases that can cause something that's so excellent in its virtue.
Chris DavisSo little things like not paying the directors or paying them very little. Bye. And that is a symbol that is trying to reinforce a culture. And so if you have a criteria that says directors have to own a lot of stock personally, and they have to be willing to serve for no compensation. Well, why are they doing it?
Chris DavisThey're doing it because they care about the place. That's an incredible alignment. I don't, there is no other company that has that sort of criteria. So I think Berkshire is important. for the reminder that it is of how things ought to be. And it's a great sort of benchmark against which other companies can get something that they can look towards.
Chris DavisSo anyway I think the reason to do it. Is because it is so precious as an example. And I think it's good for the system as a reminder that when there's an ethos that says, corporate greed, CEOs, bad capitalism, bad companies get rich. Shareholders get rich. At the expense of other constituencies.
Chris DavisIt's a zero sum gain. So if shareholders grow, they must have somehow profited at the expense of another constituency, employees, communities, the environment, customers. And Berkshire and other companies that they aren't alone in this, but they, as I say, are the most extreme, they achieved not at the expense of any other constituency.
Chris DavisThey built themselves by creating value in the world. and then doing so in a transparent way. So it wasn't just the business. It was also the governance. It was also the communication, the education. So I think it is really worth fighting for. And I think it will be much, much, much harder when Warren and Charlie aren't here.
Chris DavisAnd so that's my one thing that I don't like about it and you and I've talked about this, but you know, I'm from a family of, work before play. That was my expression of my father's that it's in our family. It's just, we say it all the time. And it's granny's rule, eat your broccoli, then you get dessert.
Chris DavisAnd Berkshire is serving Berkshire right now is the opposite. You get your dessert first. You get the play first. You get to listen to Warren and Charlie. You get to go to each board meeting absolutely secure in the conviction that anything that is being done that they know about is being done in an absolutely the highest to the highest ethical standards and with deep transparency and advocacy for shareholders and
William GreenWhat's it like actually being at a board meeting? I mean, for those of us who will never have this experience of being on the inside and actually watching up close, like what's actually, I mean, not in terms of state secrets, but in terms of actually the dynamic and the energy of it, what's actually, what's that experience like?
Chris DavisIf you're a long time shareholder and you've attended annual meetings as you have, in one way I would say, not that different because the tone is completely candid. The only difference is at the annual meeting, I think the mindset that I experienced as a shareholder going to 30 years' worth of annual meetings was Warren saying, what's on your mind? You're the shareholders. I'll answer your questions. And I think in the boardroom, the orientation is, I want you to know what I think is important if our seats were reversed.
Chris DavisNow, I think Warren does that through the annual report for shareholders, and I think the only difference is within the boardroom. I think he has a view that he needs to make sure if there's, an issue and, subsidiary ABC. that he is surfacing it and communicating what he's thinking is going on in the world but the direction is exactly the same. I would say the depth and the fact that, to me, the great gift is twofold. One, Warren tells you what he. is focused on and he thinks in this moment, at this meeting, these are the issues that he thinks are very important for Berkshire. He obviously takes questions as, as long as anybody has them.
Chris DavisBut I think the second thing that I would say is different, not different, but it just was an incredible surprise is too strong a word. But You would know from the outside that there is no CEO in America that thinks about risk in a more profoundly broad way than Warren and Charlie. I mean, Warren thinks about the capital markets shutting down, he thinks about nuclear weapons and bioterrorism and in annual meetings, there are glimpses of that.
Chris DavisI think the one thing I would say I've seen sitting there listening. is how profoundly he structures and wants the enterprise structured to make sure it's resilient to, to, in scenarios that are so, far outside of the thinking of a normal CEO or a normal investor. He is really building something that he wants to last through almost any conceivable scenario.
Chris DavisAnd it is an incredible privilege to just see that mind at work in that way. So everything is directionally laid out, just sitting, reading the end report and sitting in a shareholders meeting. Everything is the same. It's just more of it. And as I say, the risk part in particular is something that I've been, was just, I've been incredibly struck by that sense of profound stewardship for this enterprise.
William GreenIt was very striking in the annual meeting, I always take a lot of notes in my phone, I'm sort of sitting there madly taking notes, and one of the things I wrote down was when he said, we'll never make a decision that kills us, and he said we'll, we keep ourselves in better shape than anybody else, so I think that sense of the obsession with resilience is hugely valuable for all of us.
William GreenI mean, we can't clone his brilliance, but that focus on resilience on surviving anything seems to me hugely important for any regular investor. And then the other thing that came across massively for me when he was talking about the culture of the company at the AGM, he said we feel no pressure from Wall Street.
William GreenWe don't do investor calls. We're working for the people in this room, not people who care about quarterly estimates. And then he was talking about how if the company does good for America, I don't see any reason why it can't survive and do fine. And there was a moment, I think, where he said we'll, we will look at our shareholders as partners, not seeking an edge on them.
William GreenAnd Charlie said something along the lines of he, he started treating everyone else the way he treated his relatives and that to me was such a profound idea. Just that culture of not wanting to get an edge over your shareholders. Can you talk about that? Cause that seems to me to be the absolute essence of the thing, like running it, with not even trying to optimize because you know that a lot of your shareholders have so much of their net worth in the stock for example.
Chris DavisWell, I think you're absolutely right that they run it assuming that Berkshire is the only asset of the shareholders because in many ways it really was.
Chris DavisAnd so that partnership ethos of the family and the doctors and the people that, that had faith, the, obviously A significant amount of the stock is owned by indexes now, when it was added to the S& P 500 and so on. I think the, there have been times when Warren and Charlie have said, we would not buy the stock at these levels.
Chris DavisAnd by the way, you could argue in hindsight, they were wrong. You should always have bought the stock and there are times when they say, at, we are buying stock at this level. So, I think that they want shareholders to have the information to make their own decisions. So, I think that that remains true.
Chris DavisI think that I think that the, that culture, I think of viewing it as the only asset of the end owners. I think that will persist for a long time. I think you've heard me sort of say that I doubt either one of us could name this third CEO of Standard Oil. I used to say nobody could name the second CEO, except it was also a Rockefeller.
Chris DavisBut the third or the fourth. And yet Standard Oil was, the most valuable company in America for something like 11 decades or certainly one of the top three. And I think that's the right mindset. for thinking about Berkshire, how it's built, what Warren is trying to do. We, you couldn't name the third CEO, but what John D. Rockefeller left was a collection of assets that had very long lives and would produce cash for a long period of time. That was the first thing that he left, built and then left. The second thing was a culture that said Wall Street plays their games. famously at Exxon, governments come and go, but we're Exxon.
Chris DavisThat may be too strong for sure, certainly but in this idea that we make our own decisions and we make them based on the combination and the confluence. of engineering and economics. So there is no, it's not politics, it's not perception, it's not trends, it's, these are how we, it was a rigorous engineering culture.
Chris DavisSo I think the combination of this, I won't call it insular culture because that makes it sound like they have their head in the sand, but it was a culture that was resistant To the vagaries of outside influences, many of whom are sort of have ulterior motives and different agendas and that combination meant that If you had Standard Oil in 1900, if you had it in 1950, if you had it in 1990, or if you had it today in 2023, you were well served by those two characteristics that were laid in place by John D. Rockefeller. And John D. Rockefeller was a bigger, larger than life influence, and Chernow's biography is one everybody should read. But you didn't need another one after that. What you needed was people that were protective of the assets and the culture. And I think that is how I think of Berkshire, and how I think of the board's job and the management's job.
William GreenOne thing that's very distinctive, obviously, about the culture of Berkshire that I guess comes a lot from Charlie is this habit of rubbing their nose in their mistakes of admitting when they've where they've gone wrong. And the first time I met you, I think was when I interviewed you for Richer, Wiser, Happier for the book in your office at the Rockefeller center back in, I think, 2017, and I was very struck when you were giving me a guided tour of your office that you had set up, I think what you called a wall of mistakes.
William GreenThat was a wall of shame that was inspired I guess by Charlie and his effort to reduce standard stupidities by rubbing his nose in his mistakes. I think it's really fascinating as an idea relate, well, this whole idea of how you can structure your physical environment actually to tilt the odds in favor of making wiser decisions and I wondered if you could talk about that wall of shame, the wall of errors, the wall of mistakes, how you think about it, how it came about, why it's really helpful for you.
Chris DavisWell, it goes, I mean, it goes so much back to what we were talking about immutability and this relationship between how we can improve ourselves.
Chris DavisAnd as you said, you changed your wiring and of course, our wiring is got this plastic nature and is capable of, it is not at the extremes. I mean, right. We all know. I mean, what clinical depression is something very serious but this idea of, the connection of our physical environment, our physical bodies to our mental state.
Chris DavisOf course, those things are related. C. S. Lewis wrote an interesting essay I read a long time ago about praying. And he said, people have this view. I can pray any time I don't need to be on my knees. And he made a very strong case that you should be on your knees because the connection between our brains and our bodies is strong enough that position, which is, of course, a position of incredible submissiveness affects our wiring.
Chris DavisIn a much more modern interpretation, there was a in the early days of the idea of internet video, it was streaming, there was, at that time, laptops wasn't really the thing, it was just desktops, and this skeptic said to me, well, nobody's ever going to watch a movie on their computer screen, because when you're on your computer, you're leaning forward three degrees, and when you're watching a movie, you're leaning backwards three degrees, and you're different people.
Chris DavisWhen you're leaning forward, when you're leaning back, you have different expectations, your sensory apparatus is working differently. Well, of course that's true. Right now, it was wrong because then you can put your laptop in bed and lean back and read all sorts of things. But so I do think Charlie very early told me to put pictures in my office of people that I wouldn't want to disappoint.
Chris DavisSo that if I was on the cusp of making a decision that was in that gray zone, I might look around. And I might feel a little less comfortable making it I don't think he expected that I would have a bronze bust of him in my office, which I in fact do, but you know, in my grandfather, I had Warren, Charlie, people that I admired and I wouldn't want to disappoint.
Chris DavisAnd then Charlie said to me, when you create directors, you run a mutual fund that the relationship between you and your end investors is very tenuous. Not like Berkshire, where Warren sat at a table and knew his original investors. We work with financial advisors and, and he said, so have a board of directors that you're proud and you're proud of them and you don't want to disappoint them and you certainly don't want to mislead them.
Chris DavisBecause they're the face of your shareholders. And that's how we ended up with people like Tom Gayner and serving in that capacity. Who do you want to report to? But you're absolutely right. The symbolism, when we visit companies, we're always looking for symbols. Is there an executive cafeteria or do the executives eat, are there reserved parking spaces? Are there, the Palazzo's and we're always looking for those sorts of subtle cues. And so, of course, we've tried to internalize that ourselves. So you mentioned the wall of shame, and that's probably a very good and tangible example. So we bring the stock certificates of our biggest mistakes and we put the transferable lessons because and we lead these mistake reviews as a team, Danton, my partner, and I lead those because I worked at other firms and I saw.
Chris DavisThe success having a thousand fathers and failure being an orphan. And I worked for one individual that he just, it was always somebody else's fault. And it was so clear that this man who was an incredible analyst was going to fail as a portfolio manager and as a businessman. Because, as a portfolio manager, he had a hard time revisiting his work.
Chris DavisAnd then as a business, he created a culture where people were afraid to admit their mistakes and had to pin the blame. And it was always the company lied to us or, somebody else's fault. So, I think it's a really useful thing
William GreenAnd you looked at something like AIG, for example, which I remember you telling me once was definitely your most painful and expensive mistake, where You know, this had gone from being one of the world's biggest financial companies and great insurance companies to almost collapsing and having an 85 billion bailout from the government and during the financial crisis and you obviously were a big shareholder and an expert in financial companies. So particularly painful. Like what, when you came out of that and you went back and you did your postmortems, was there something where you actually changed the way you invested or the way that you looked for disconfirming evidence?
William GreenLike, was that process of. of really rubbing your nose in your mistakes, practically helpful to you and making you a better investor.
Chris DavisYeah, I mean, the goal, each plaque that's written on the bottom is not what happened, right? It's what was the transferable lesson learned from what happened, right?
Chris DavisIn other words, our goal is to earn a return on those mistakes, on the money that was lost. By the way, there wasn't money lost on all of them. There's one on that wall where we made. I don't know, six or seven folds on our investment. It was just trying to recognize that we had gotten lucky. So, obviously the mistake wall, the wall of shame is focused on process, not on outcome.
Chris DavisSo Warren, and you, I don't, I'm sure he wouldn't mind my saying this once, I was asking him about this idea of having a significant loss on an investment. He said, oh, you shouldn't be afraid of having a loss. It's, going back to, you were talking about Thorpe and you think of the Kelly criteria of how much to bet, he said to me, I'll bet you a billion dollars on a coin toss if you give me two to one odds, and so I'm willing to take a 50 percent chance of losing a billion dollars because the odds are so much in my favor.
Chris DavisBut I wouldn't bet you 10. So I have to size the bet right. I have to make sure I know the odds. So if he took that bet and the coin came my way, it wouldn't go on a mistake wall for him. I mean, I'm speculating, so I'll say it from my point of view. If we took that bet with 2 to 1 odds, and it didn't come out, and we had a loss, we wouldn't say there was a transferable lesson to learn from that unless the coin was rigged or something like that.
Chris DavisSo we're thinking very much about what is the transferable lesson learned. So you're right. AIG was the biggest one. Probably the one that we've earned the highest return on was Lucent, interestingly, because Lucent was one where our own processes worked, but we kept overriding them. And the reason we did is because Lucent was, it's hard to bear this in mind, Lucent was the most admired company in America.
Chris DavisNumber one, fortune ranked, most admired. Had a blue chip board. I mean, the most unbelievable board, absolute dominance in telecom equipment and always a very expensive stock. So we followed it from a distance. People admired Bell labs. We, all our visits to Silicon Valley, people talk about Bell labs and everything that came out of there.
Chris DavisAnd so they missed a product cycle and the stock went down a lot and we said, this could be a real opportunity for us because when, at that time, it was a real momentum market a little bit like it's been in recent years and so missing a quarter, a stock could really overreact.
Chris DavisWe bought 17 million shares of Costco in a single day when the stock closed at 42 and opened at 26 because they missed a quarter, but we were ready. So, that was sort of in our mind and we thought, hey, here's our chance, let's really look. And there was this anomaly that was so strange in Lucent's cash flow statement is they were reporting a lot of income but if you looked at cash from operations, it was negative.
Chris DavisAnd now when you think of a manufacturing company, so the first line on the cash flow statement is net income. Then you have a big ad back for depreciation. They're a manufacturing company, so that's a big ad back. To go from net income plus depreciation being a huge number to a number less than zero for cash from operations is very strange.
Chris DavisAnd it had to do with this vendor financing and so we thought, well, this doesn't make sense. But we were so disposed to want to own it that we sort of met with the CFO and we, and we asked the question and they did this kabuki of giving us an answer that made no sense, but it sort of played on our behavioral biases and.
Chris DavisIt ended up being a terrible investment, we overrode our own red flags, and so learning that mistake, to have confidence in your discipline, to recognize how behavior can unwind it, that saved us from [Inaudible], it saved us. Oh, global crisis. It saved us from so many things that have been incredibly admired businesses, GE, but that have, but where we couldn't make the math work.
Chris DavisSo that was a high return. AIG was, so painful because we just passed 9 11 and I still look at the downtown skyline and I can still see the silhouette even, what, more than 20 years later, it was just, they were so much a part of my existence for, most of my life. And to me, AIG vaporizing was like that.
Chris DavisEvery lesson that I learned didn't apply. Insurance companies go broke before they go illiquid. Insurance companies never go illiquid because they've got the money, right? They get paid up front. So they've got, AIG had a trillion dollars' worth of liquid assets, a trillion, a hundred billion dollars of equity, 80 billion of tangible equity.
Chris DavisSo it was so hard to see. So our lesson written on the wall is in some ways very technical. But I think the most important one was simply about the view that we knew when Hank was gone, there was nobody that could understand that complex enterprise. the way he could. So we knew whatever risk was there went up dramatically.
Chris DavisAnd the fact that there was so much growth in things like financial products in his absence should have been a very, now we have other things on that plaque but I would say that shapes us as we think about banks. But some of those mistakes are mistakes of omission, things we should have done that we failed to do.
Chris DavisA number of them are things that we sold, they were a little ahead of themselves, but ended up being fantastic. So, it is a big part of the culture it, and just continually trying to learn from all of those different types of mistakes, not just buying something that goes down, but things you should have been looking at things and it makes it more fun to work here.
Chris DavisI think the young people feel like. We love hearing about how our bosses did stupid things and it makes us feel more comfortable saying, well, I'm afraid I've really changed my mind. Everything I told you three months ago, I think I'm wrong.
William GreenIt was interesting to me also that you had all these images that you'd bought on eBay, I think, and framed with quotes and I was looking at a video I'd taken in your office of those videos and quotes, and I sort of wrote them out by hand. And it was striking to me how many of them were related to behavioral biases that you were trying to remind yourself of. And so, one of them very, obviously a kind of famous thinker on this subject, Richard Feynman, who said if you're doing an experiment, you should report everything that you think might make it invalid, not only what you think is right about it.
William GreenThat was interesting to me, you had a couple of quotes from him, but there was also a really interesting quote. One, feel free to comment on either of these. One was from Max Perutz, who I hadn't heard of until you mentioned him to me, who ran the Cavendish I think, one of the most innovative research institutions in the world and he was asked if there were simple guidelines on how to organize research so that it's still highly creative. And you had this great quote from him where it said, No politics, no committers, no reports, no referees, no interviews, just gifted, highly motivated people picked by a few men of good judgment and I wondered if you could talk about that idea of how to run an organization that isn't saddled with terrible bureaucracy and the like.
OtherYeah, I love that Max Perutz quote, and you're right, it's, I studied a lot of organizations that breed excellence when the participants could work anywhere else, right?
OtherIn other words, why, you mentioned Munger Tolls and Ron Olson, how does Munger Tolls rank literally as, I believe in one ranking I just read recently, the best law firm in the country? Right. It's like, what is it? And by the way, you could say the same about Wachtell Lipton. And what's interesting is they have totally different compensation practices, totally different.
OtherSo it's not just compensation but certainly in both cases, it is about culture. And so I'll use that and in the Cavendish lab to sort of draw them all together, which is that my experience is if that, of course, you have to pay people fairly, right? People, it's, it would be a crazy thing to tell people that, over the arc of your lifetime, I'm asking you to earn well below what you could earn elsewhere.
Chris DavisSo you have to pay people fairly. Within a very broad band of what FAIR is and what the appropriate time horizon is, I find if people are great at their craft, then what they really care about is being in an environment where they can be absolutely the best that they can be at that craft. And so what is it that takes somebody who's really gifted in analyzing businesses and selecting securities?
Chris DavisWhat sort of environment is it? where they can be the best at what they do, or alternatively, what are the sorts of things that would interfere with that? So, for example if you have to spend a lot of time meeting with clients, that's very destructive. Because, of course, clients want to face on focus on what Bob Kirby, who is a great mentor at Capital Group used to call tell me where the three W's, what went wrong, you'll spend 95 percent of the meeting on 5 percent of the portfolio.
Chris DavisIt's always what's gone down. If you go back to that same client a year later, and it's down more, you're going to have a hard time defending it in the third year. You're going to sell it before the meeting. So you don't have to and those are all terrible decision, waste, wasteful meetings, sitting in meetings, there's one of the quotes on that wall.
Chris DavisI thought you were going to quote was a baseball player because see how much I know about sports, a guy named Bill Lee. He was a pitcher for the Red Sox. I don't know anything about him. I don't even know what decade he pitched in, but yeah. But the quote of his that I had read that I liked so much is he was asked, what happens at team meetings?
Chris DavisAnd he said, oh, at team meetings, you sit on your ass, chew tobacco and nod at dumb things. And so of course I, I worked at other places. I saw that culture of like, why am I wasting my time? I've got work to do. So that's another criteria. You don't waste their time. You don't put them in surround them with people that are going to make them worse at what they do in terms of what are the external pressures.
Chris DavisHow do you minimize the external pressures that allows them to be the craftsperson they are? How do you make sure that they admire the people they work with? People don't, they say they don't quit their job. They quit their boss. But they also quit their colleagues. So if you really admire the people you work with, you like coming to work, you like their value system, you like their expertise, you admire what they do.
Chris DavisThey help you get better at what you do. So, there are a few others. We want a compensation system that's reasonable, and we want to remind people that what they're doing makes a difference in real people's lives. And I have nothing against hedge funds, except I'm jealous of the fees, of course.
Chris DavisBut what we do is very direct, right? Our average client might have 25, 000 invested with us, and it may well be their life savings. And so, it really determines whether a kid goes to college or whether they get to retire in the circumstances that they want, and they're having conviction in what we do, and what we do mattering is a very central part of what we do, so, we've tended to skew towards people where they prefer that.
Chris DavisThey like the idea that, what we do sort of matters versus if we're charging 2 and 20 and managing the Yale endowment. That's terrific. And they wouldn't hire us anyway. But we like, we like that we're offering a good value to the end client in terms of we have low fees, and we try to keep it that way.
Chris DavisSo all of those come from that Max Perutz quote, like how do you create an environment where talented people Enjoy coming to work, and they aren't trying to optimize just their income. They're trying to practice their craft in the best way possible. And, by the way, a small team is also part of that. It would be very hard to run the Cavendish Laff with 600 scientists.
Chris DavisAnd so, a small, talented team. Tom Murphy, I liked, used to say at Cap Cities that, He got to be a low cost provider by paying people that were twice as good and 50 percent more. And there is something about that too. We love having fewer, better people. And yet we have people that are in their twenties, in their thirties, in their forties, in their fifties, and in their sixties.
Chris DavisAnd this is on a team of 10, so it's not that, and yet on average, we've been together 20 years, just sort of incredible. Maybe it's 17 years. I get you the actual numbers, but it's something like that. I think on average, the team has been together an average of 17 years, and yet we have been peopling that have been here for less than five, less than 10, less than 15, 20, and people in every decade.
Chris DavisSo I love that going all the way back to where we started. about my grandmother and keeping interested and keeping making new friends. I do think investment organizations can also get a winning team and they age out and you end up with sort of a huge gap. And I think it can create a very brittle investment culture because of And it's harder for them to be challenged, and, I think about how much we had invested in newspapers in the nineties and when Danton, my partner now joined me in the nineties, I gave him newspapers as his first industry.
Chris DavisAnd I said, look, he had banking experience. He's an amazing just a human being I admire in every dimension. And in the beginning, I said, well, I'm going to give you newspapers because we own three or four of them. We own Gannett, we own Tribune, we own Dow Jones. I feel I'm leaving one out, but anyway, I said, these are old business models.
Chris DavisThey're very, in a way, predictable. They're regional monopolies, capital allocation matters, blah, blah, blah and a year and a half later, he came back and he said, have you heard of this internet thing because I don't think you understand how powerful it is, not as a source of news, but as a source of where to buy an apartment or how to find a job.
Chris DavisAnd when you recognize that Help wanted real estate listings and, miscellaneous class, classified, car, essentially responsible for 100 percent of the profits of the newspapers on average that we owned, and that it sucks looking for a job in the classified. You used to read through them and you'd circle the ones that applied.
Chris DavisYou couldn't search. And so anyway That I don't know where I would have been without Danson joining and we sort of carried that through with the younger ones. So, that, that's been all part of, and you're so amazing that you remember that Max Perutz's quote. I keep that one a little in a different place. That's right, you're probably in my office.
William GreenThat was a beautiful quote. I also, there was an amazing quote also from JP Morgan that I wrote down that I love where he talked about how our mistakes have been errors of judgment and not of principle and that also seems to me, Yeah, he said, since we have no more power of knowing the future than any other men, we have made many mistakes, but our mistakes have been errors of judgment and not of principle, and that seemed to me a really interesting thing from back in, and it was accompanied with a photo of J. P. Morgan, so this was from 1933 when he talked about the importance of doing first class business in a first class way, and so in a way it's, it is, it's consistent with the Buffett Munger approach to capitalism as well, right?
Chris DavisYeah, it absolutely is. And I think you know my, my grandfather had one of those quotes where I think in today's era, I would've said, shh. I think you need to stop saying that and his quote was, making the first million is the hardest. The second million is just a double. The third is just 50%, the fourth is 33, the fifth is 25. Like each one the threshold for making a million bucks in K gets it, gets to where you can make it on interest.
Chris DavisBut the first one is hard. And so what I would say is, it is, it's Ben Franklin going back to, I think the most, for me, the most important book that I read wasn't Dale Carnegie. It was Ben Franklin's autobiography, which is only 80 pages or 85 pages. And it had checklists, It had ways to improve your character, it had ways to deal with negotiations, it had great techniques for winning influence, I mean, it, a lot there, there's an enormous amount in that book that is useful, but one of course, his famous sayings was, it's hard for an empty sack to stand upright.
Chris DavisAnd so, I used to say that when I was starting, I, I used to buy shoes in New York City for work and then I would have them shipped to my brother who lived in Hoboken. And that way I would avoid New York City sales tax and do I think that is an ethical way to live? No I think the world can understand a kid making 18, 000 a year, sending shoes to his brother's apartment to save sales tax.
Chris DavisNow, when Dennis Kozlowski is sending Monet paintings to New Hampshire, it's a different standard. So one of the quotes in that wall of Charlie Munger's is. is he says, I think as you rise in life, more is expected of you. He then somewhat colorfully says, if you're beer swilling sand shoveler, you can go to a strip club.
Chris DavisBut if you're the Bishop of Boston, you probably shouldn't. So wrong on all levels. But I think this idea that I'm not I don't want to ever have a sort of a holier than mindset, but I do think there is. A point that people sometimes push out too late in their career and the earlier you move it in, better the longer term consequences of saying just what you say.
Chris DavisWe want to do first class business in a first class way. I'll give you a good this. This may be helpful for your listeners, but it's a piece of advice. I recently gave my kids where, as I said, I'm not sure I've quite got the ages right, but one thing I said is before you're 40, and maybe the number's 30 but before, let's split it and say 35, before you're 35, never do business with friends, after you're 35, only do business with friends, there is a turning point there where as you, so you accrue so much insight, wisdom, data, In that in some period of your early career that as you get to your later career, you start realizing that's the coalescence that you started in talking about these networks of people, they weren't relationships. I was going to have it 22 because we were all trying to figure it out. But over time you start realizing, and the sooner you can shift that, the better.
William GreenI wanted to ask you before I let you go about Cardinal John Henry Newman, because when we were in Omaha, you told me about this great quote of his, that I looked up, it's from an 1852 lecture that he gave in Ireland, where he said, it is almost a definition of a gentleman to say that he is one who never inflicts pain.
William GreenAnd I think you told me that you had it in, that you keep it in your phone and it's a central teaching for you and our listeners probably won't know that Colonel Newman was this great English theologian and scholar and priest and he was actually made a saint by Pope Francis, I think in 2019.
William GreenAnd most important of all, he was a fellow of Oriole College, Oxford, which is my college at Oxford and so he may be the only great person to have been a fellow of Oriole College, Oxford, or to have come through Oriole. Can you talk about this idea of a gentleman being someone who never inflicts pain, because it's a beautiful insight, but it's also one that obviously has deep resonance for you.
OtherWell, I mean, one of the interesting things about that is it was given to me by my tutor and my favorite professor in university, and it was a professor named James White, and he subsequently became the moderator of the Church of Scotland, and I have to say, you have to admire any church where the head of it is called the moderator.
OtherIsn't that a great title? Yeah. So he was the moderator, and he gave it to me in a way the way maybe Charlie would have given me, if I had known Charlie then, he might have given me the Ben Franklin quote about these argumentative people may, they win the arguments, but they don't win friends and influence, which would serve them better.
OtherHe gave it to me because I think he appreciated my very deep engagement in the work that we're doing and in my degree. And but I think he also felt that well. I recently had a very sore throat after spending a couple of days at a conference and a man I admire greatly funny. I said, I think I'm losing my voice.
OtherHe said, yeah, you usually don't get that from listening too much. So I would not have been accused of listening too much in those tutorials and in the seminars at university. So he hand wrote out Cardinal Newman's talk because, there, I don't think he had a computer printer and so he hand wrote it out and he, he gave it to me the beginning of my last semester with him and he said he thought it would serve me and so the not inflicting pain as a, as an important part of it.
Chris DavisSo was the idea of the gentleman will seem to be receiving when he's in fact conferring. It's… There's a line in there I love where it talks about, he's, compassionate with the pain, he's patient with the absurd, it's this, he has his eyes on the whole table trying to put people at their ease.
William GreenYeah, it's beautiful, it says he has his eyes on all his company. He is tender towards the bashful, gentle towards the distant, and merciful towards the absurd.
Chris DavisExactly. So, I, my, my grandmother used to quote Harold and Maude that wonderful movie. And there's a line in it where Maude says, yeah. Harold says to [Inaudible] you really love people, don't you? And she says, of course I do. They're my species and I really love people. I love the complexity of life. You can sit on a subway and look at all of those faces and every one of them has a story. And being curious about that to me is a source of so much risk richness.
Chris DavisAnd I think, back then at age 19 or 20 or whatever it was when he handed me that, I think I was much more impatient and aggressive and insecure and there was something about wanting to aspire to that and my gratitude to him for seeing that as potential and going all the way back to mutability, of course, you can become a better investor by learning, of course, you can become a better parent by reading and working at it.
Chris DavisOf course, you can become a better lover and a better spouse or husband. Why if you could become a better cook of course you can become a better person, of course. And this idea that people are defined by their worst moment and reviled and identified by their worst moment. I mean, if you're a Hitler, you deserve it.
Chris DavisBut if you were somebody that worked hard to live a good life and you really screwed up, I was reading about a figure in the Hudson Valley who. Had led the well, it was a complicated redefinition of his legacy where there was unarguably wonderful things that he had done. So, I just think that idea of the beauty of it, of course, it's one of the things I love about investing is it's always changing.
Chris DavisWonderful companies become absolute bureaucratic nightmares, terrible companies reform. I mean, you think about going back to JP Morgan. Think about Jamie Dimon going into JP Morgan. If you want to know what kind of leader he is, and I met him very early when he was still at Primerica, or actually Commercial Credit, which is where he started with Sandy, and his first annual report at Bank, when he became CEO of Bank One.
OtherChris Davis is just required reading. Everybody should read it. Because he had never led anything, so we had no idea. Would he be a good CEO? Would he be too abrasive? Would he be… And he wrote a shareholder letter of accountability, of how to be measured, of fairness, of aspirate. And, J. P. Morgan had certainly, and Bank One, both, had become very mediocre institutions and the drive and the commitment and the value system and the legacy is an incredible transformation. So that, that constant changing that can come I love that in all aspects of life.
William GreenThere's also something in that Cardinal Newman letter that I thought was very beautiful and weirdly resonant and apposite for investors as well, where he just was so on undogmatic.
William GreenI wrote down this paragraph where he was talking about non-believers, and obviously he was a man of deep faith, but he said, if he be an unbeliever, he will be too profound and large minded to ridicule religion or to act against it. He is too wise to be a dogmatist or fanatic in his infidelity.
William GreenHe respects piety and devotion. He even supports institutions as venerable, beautiful, or useful, to which he does not assent. He honors the ministers of religion, and it contents him to decline its mysteries without assailing or denouncing them. He is a friend of religious toleration. And I thought that was really lovely that he's able to say, well, Yeah, you can disagree, but disagree agreeably, and be large minded enough not to ridicule what you disagree with, and not to be a dogmatist, and not to be a fanatic.
William GreenIn a way, again, it's something that's beautiful about Warren and Charlie's relationship, right? That you can have a Democrat and a Republican, and they're willing to change their views, and be open to others' views. What do you think?
OtherWell, I think, yeah, I think the sort of the litmus test of what allows you to dismiss somebody completely from your regard has become so, so narrow and so tightly defined, and it's You know, there's so much of the internet that is a gift to the world and I think people that rail against it are making a mistake, but, I actually spent the weekend Saturday in the small town that I'm in, there was a big public hearing where there was a controversial issue in the town, and people, if you were to read what had been written on the internet, the vitriol was despicable.
Chris DavisAnd so the supervisor called this meeting and everybody came together to interestingly held in a church because the town hall was under construction. And maybe that made people behave a little better. But there was so much decency in that room at the end. People really listened. They sat together.
Chris DavisYou drive differently in a small village if you live there. You're a much more courteous human being. Not you specifically, one is. There's a chance that you know the person in the car in front of you. You're less likely to honk very aggressively when the light turns green. And it is, I think that underlying, sort of tolerance for different views it is.
Chris DavisI think, I don't know where the blame starts in the political sphere, but I'm, it is amazing how many people think life is going pretty well in their neighborhood and in their community, but somehow thinks the world is going to hell in a handbasket. And I'm fundamentally more optimistic.
Chris DavisAnd I think like Warren and Charlie, I think there are many people that maintain very close relationships and friendships with people that have differing political views on a personal level. And then as they get out into the broader context, then they're back to the anonymity of just sending in the hate mail.
William GreenYeah and one of my favorite moments, I think from the annual general meeting back in May was when Buffett strays off into non investing topics, which I always find much richer in some ways than the pure investing topics that they discuss, and he said, I've never known anybody that was basically kind that died without friends, and then he said, I've known plenty of people with money who died without friends, and then he talked about Tom Murphy, who you mentioned before, and he said, I never saw him do an unkind act in 50 years, he didn't see any need, And so I think in some ways that message that maybe this is one reason why in sort of David Hawkins kind of terminology Berkshire makes us go strong is it embodies not just being fair to shareholders and the like and being transparent about mistakes, but trying to be honorable and decent and generous, like the way Warren tries to avoid criticizing people by name.
William GreenAnd there's also, there's a kind of, you see the kindness, I think, between him and Charlie and you see the kindness that they show towards Ajit and Greg Abel. There's a sort of sense of decency. And so I don't know, I think that's in a way one of the most valuable things that we can clone and it's relatively easy to clone.
Chris DavisYeah, and if a good framework for thinking about Berkshire as an example is just to think of a phrase of Charlie's that I've always liked is that investing is a subset of worldly wisdom. So everything that they say about investing is if you think about it in a sense, metaphorically, or as a subset of a broader worldview the fact that it works in this subset.
Chris Davisis generalizable. And it, and I think that is true. I just think by and large, that's one of my sort of queries about the basic premise of some aspects of this formalized ESG movement is that it rests on this premise that somehow capitalism succeeds by exploiting another constituency.
Chris DavisAnd that was something that Keynes wrote about and Adam Smith wrote about, going all the way back, that's not the way it works at all. It's not a zero sum game that, the person who's good at fishing and the good person that's good at making hooks can both do those things and both end up better off.
Chris DavisIt's not that one's getting the better deal than the other, and I think that you're absolutely right on that mindset that's there, and thinking of it as a subset of worldly wisdom helps sort of move from one scale to another scale.
William GreenYeah, and well, as Charlie would say, it's all one damn relatedness after another, right? Everything is related. And once you start to have this sort of simple framework for how you think about the way they're behaving, you're like, oh, they're doing it that way that's what I should do. So, I was very struck, for example, when Warren was talking about Ben Graham, and he said, Ben did all kinds of, Thing for me that where he just never expected anything in return and you hear that and you're like, Oh, okay, so here are these people operating in a way where they're kind of generous in sharing their wisdom.
William GreenThey're not expecting anything in return. You're like, oh, it's a different system. Where there's enough wisdom, enough knowledge, enough money to go around, you don't need to kind of hoard it all.
Chris DavisWell, and the elimination of that friction, the elimination of that friction is a source of huge efficiency and in both in this metaphor, in this subset of investing in worldly wisdom, but also in life. It goes back to what we were saying about the amount of energy that needs to be consumed if there isn't trust, all of this friction is created and you need an enormous amount of energy to push through that.
Chris DavisAnd so that sort of effortlessness of the way it falls back and forth it'll probably work out at the end. I have a partner at work, not Danton who runs our client side, who was, probably my oldest friend. We were baptized together as infants and been godparents of each other's children.
Chris DavisAnd we've worked together for 30 or more years. And we go out for coffee or we walk to work together or we walk home from work together, at least two or three times a week. And it is amazing how, whoever gets their phone out quicker to tap to pay for the coffee, but it's, we've had such a, it's on my mind because we were talking last night and this sort of view that over time, we both are convinced.
Chris Davisthat we got way more from the other than we contributed. And it is going back to that Harvard study on happiness, of course, gratitude is a huge shaper of life. And this idea of not keeping score. And the analogy I sometimes use with my kids is if you're running downstairs and you try to place your feet on each stair, you're going to and you're going to go very slowly.
Chris DavisSomehow you lift your head. And you just float down the stairs and this scorekeeping in who did what for whom it, it destroys relationships and this contractually legislating, not just kindness, but also, helping out one another professionally. It is amazing. The gift that I feel, how much I've received.
Chris DavisFrom all of the mentors that you mentioned, and as a result, how much I feel I owe the rest of the world. It's a hell of a great way to live. And it works. I'm not one to speak totally on this front, but I think it works as well. I'll say in friendships, because I'm good at that. It works as well.
Chris DavisAs well in friendships as it does in business, I, one last point, but I just, because we were interviewing some younger kids about internships here and they were all interested in remote work. That was a big that was a source of interest to them. And I talked to them about why, and they said, well, because they have all, they want to have work life balance and so on.
Chris DavisAnd I said, so I'm curious because you just graduated from. College. You were in college during COVID. What was remote class like? And everyone, one of them says they hated it. And you say, why? And they said, well, I didn't learn a lot because I was obviously multitasking. I didn't create great relationships and everybody cheated.
Chris DavisEverybody cheated and I think, well, why would work be any different? Like if you view work as something you do in order to then have a life outside of work. That is a totally different mindset than the idea that work is where you go to become excellent at something, to learn, to have deep relationships and friendships, to admire people that you get to work with every day, to serve a customer, to serve a client to create value, to get better at what it is you do, and by the way, I know there's a, there are a lot of shitty jobs out there, I know that, but I also know that there are far more people That are in those same jobs who somehow find it rewarding and those people are the people that, smile when they help you at checkout.
Chris DavisAnd, then you deal with whether you're calling Comcast to deal with your cable, or whether they're helping you fix a pipe, or whether they're building, installing cabinets. Every are moving. Everybody knows what it is to deal with somebody that is taking pride and pleasure in what they do and somebody that is just trying to get paid and get the hell out the door.
Chris DavisAnd sometimes the vocations overlap. The only difference is what they the orientation that they bring to them and. I feel like with remote work, to me, it's a cancer because it's creating this future alienation from what you really are spending 40 hours a week doing, which is a lot of time to feel like my goal is to do the minimum I can to get paid the most versus it's a way just like school to build relationships, learn, and for God's sakes, not to cheat.
William GreenI don't know. I like working at home, but I've done it for so many years and I love remote working because it meant that my wife started to work at home as well. So suddenly
Chris DavisAnd also your work is entirely cerebral, although I would say the way I do it, I would feel differently doing this with you if we hadn't drunk wine together, out on Fire Island, if we hadn't if you hadn't been through the office and we hadn't sat here talking about walls and culture and sipping coffee. And so this is an extension of our relationship. But if this is all I knew of you, it would be a totally different experience for me.
Chris DavisThat's true. By the way, my father was a remote worker too. So I can see how it works for people that aren't, that are in a sense, self-learning but if you're part of a team or part of an environment, I think it's a totally different experience.
William GreenWell, Next time, Chris, I definitely hope we'll do it in your office. I'll be more efficient about arranging a cameraman and the like and we'll come do it in person.
Chris DavisEspecially one that can airbrush in the illusion of an upper body.
William GreenHa, but this has really been such a pleasure. I've really enjoyed it and it's always a delight chatting with you and also as a longtime shareholder in Berkshire, I'm happy that you'll be helping to safeguard the culture down the road. So, I'm fully in support of that mission.
Chris DavisAll right. Well, thank you so much. I'm so glad for what you've done, I think really to me, celebrate what's special about the number of people that I admire and, in a profession, I think that gets misunderstood and I'm just grateful that you've put that out in the world.
William GreenAh, thank you so much. All right. Take care.
William GreenAll right, folks. Thanks so much for tuning into this conversation with Chris Davis. As I'm sure you could tell, I always find it tremendously enjoyable chatting with Chris, not least because he's full of thought provoking insights and unexpected opinions.
William GreenA few years ago, when I was interviewing him for my book, Richer, Wiser, Happier, I remember visiting him at his office in the Rockefeller Center in New York, and we chatted about his view that great investors tend to have relatively low emotional intelligence. As Chris explained it to me, one reason why they're so successful is that they're not overly influenced by what other people think and, as he put it, the easiest way not to be overly influenced by what other people think is not to be that aware of what they think, or, for that matter, simply not to care what they think.
William GreenSo as Chris saw it, having low emotional intelligence helps them as investors. But also tends to be a problem in other areas of their life, because often, yeah, they're able to go against the crowd and think for themselves, but their lack of emotional intelligence makes it pretty hard for them to bond with people and form close attachments, whether it's with relatives or friends, which may explain why so many of the greatest investors end up getting divorced.
William GreenIn any case, it's a fascinating insight and it gives you a sense of why it's always a blast to chat with Chris, who's a really interesting and thoughtful observer of business and investing and life. I'll be back very soon with some more terrific guests, including a conversation with Laura Geritz, whom I wrote about at some length in my book. I'll also be interviewing another legendary investor who oversees more than two trillion dollars.
William GreenIn the meantime, please feel free to follow me on Twitter @WilliamGreen72 and if the spirit moves you, do let me know how you're enjoying the podcast. I'm always really happy to hear from you. It makes it a lot of fun doing the podcast, knowing that it's resonating with a lot of you. So thank you truly for your messages. I really appreciate it. Until next time, take good care and stay well.
OtherThank you for listening to TIP. Make sure to subscribe to We Study Billionaires by The Investor's Podcast Network. Every Wednesday we teach you about Bitcoin, and every Saturday we study billionaires and the financial markets.
OtherTo access our show notes, transcripts, or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision consult a professional. This show is copyrighted by The Investor's Podcast Network. Written permission must be granted before syndication or rebroadcasting.Help us reach new listeners by leaving us a rating and review on Apple Podcasts ! It takes less than 30 seconds, and really helps our show grow, which allows us to bring on even better guests for you all! Thank you – we really appreciate it!Disclosure: The Investor's Podcast Network is an Amazon Associate. We may earn commission from qualifying purchases made through our affiliate links.In this episode, William Green talks with Chris Davis, a renowned investor at Davis Advisors who also serves on Berkshire Hathaway's board of directors. Here, Chris shares powerful lessons he's learned from his mentors—Warren Buffett & Charlie Munger—about building financial resilience, learning from our mistakes, avoiding our weaknesses, harnessing trust, & flourishing as we age.Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.
William GreenHi there. I'm thrilled to introduce Chris Davis, who's our special guest on today's episode of the Richer, Wiser, Happier Podcast. Chris is a very well-known and extremely insightful investor who spent most of his career at an investment firm called Davis Advisors. One thing that's unusual about him is that he belongs to a multi-generational family of exceptional investors.
William GreenHis father was a legendary fund manager named Shelby Davis, and his grandfather was a legendary private investor named Shelby Cullom Davis, who famously turned an initial investment of $100,000 into something like $800 million by the end of his career. So Chris is the third generation in this dynasty of elite investors, who've built a series of fortunes in the stock market going back to the late 1940s. As you'll hear in this conversation, he's also an unusually charming and ebullient and engaging conversationalist, so maybe it's no surprise that he's one of the best-liked and best-connected investors I know. He's friends with an amazing array of financial icons, including Warren Buffett and Charlie Munger, who've been invaluable mentors to him.
William GreenHe's also very close to renowned investors like Tom Gayner, Mason Hawkins, Bill Miller, and he was friends with the late Jack Bogle, who founded Vanguard. Chris has also spent a good deal of time in the company of a lot of hugely successful CEOs, including Jeff Bezos and Jamie Dimon. So, in many ways, I think of him as the ultimate insider, observing up close what it takes to succeed at the very highest levels of business and markets.
William GreenA couple of years ago, Chris received the ultimate seal of approval when he was appointed to Berkshire Hathaway's board of directors, where he gets to hear Buffett and Munger opine behind closed doors on whatever's on their minds. In today's conversation, Chris and I talked in some detail about what it's like to be in that inner sanctum, listening to Buffett speak at Berkshire's board meetings about subjects like risk and the profound importance of being financially resilient under any circumstances.
William GreenWe also talk in some depth about what Chris has learned from Buffett and Munger, about how to succeed by structuring your life to avoid your weaknesses, about learning from your own mistakes in an unusually honest and transparent way, and about harnessing the power of relationships built on virtues like trust and kindness and generosity of spirit.
William GreenI hope you enjoy our conversation. Thanks so much for joining us.
OtherYou're listening to the Richer, Wiser, Happier podcast, where your host, William Green, interviews the world's greatest investors and explores how to win in markets and life.
William GreenAll right. Hi, folks. I'm absolutely delighted to welcome today's guest, who's Chris Davis. And Chris is chairman of an old and renowned investment firm named Davis Advisors, which I think was founded back in 1969 and he's also a member of the board of directors of a small obscure company that some of you may have heard of, namely Berkshire Hathaway. It's lovely to see you, Chris. Thanks so much for joining us.
OtherOh, I'm so glad to be here. I've been looking forward to this, which I don't say about a lot of interviews but I feel like the way you approach life and the universe and everything has made me look forward to this conversation.
William GreenThank you so much, and before I forget, since we were talking about it right before we got on, talk to me about this idea of our 30,000 days, because it's such a beautiful idea, and two hours from now I'm likely to have forgotten that we talked about it, so discuss the significance of this before we get started on anything else.
Chris DavisWell, I'm going to start, I'm going to go back to my days as an accountant because this is actually when I first sort of started thinking about it, I'm not much of a birthday celebrator but one of the things I'm particularly struck by is the ones that are hallmarks tend to be tied to 10, 20, 30, 40, 50, 60 and so on, not a lot of life changes around those sort of random decades.
Chris DavisAnd when I was working back at State Street as an accountant, I had the worst job, which is I had to, at one part of my job was to calculate the NAV of money market and bond funds. And that meant accruing the interest by the day. And so, Lotus 1, 2, 3 had just come out and so I was using that to write a little program to make it easier to calculate bond interest and count all the days and so on.
Chris DavisAnd when I was testing it, I put in my own birthday and ended up, I was at the time, something like 9,500 days old. And that was sort of the genesis of this idea where I started thinking, we live about 30,000 days or generally have 30,000. Really productive days and our life divides much more naturally on the 10,000 day increments.
Chris DavisSo, after 10,000 days, you're about 27 or so, 28, somewhere in there, and you often think that first 10,000 days is about going wide, experimenting, trying new things, new places, new professions, new people, new towns. It's a time of exploration and 21 years old doesn't capture it or 20. And by the time 30 comes around, usually you're already into what I would call that second phase of life.
Chris DavisSo right around 10,000 days by then, usually on average, people have decided what they want to do, where they want to do it, who they want to do it with. And instead of going wide as they have for the first 10,000 days, it's about going deep, just the depth of relationships that comes through marriage, through family, through your vocation, your profession, your colleagues, you sort of have 10,000 days to execute. 10,000 days to accomplish and build what in many ways will be the sort of monuments of your life, your family, your kids, your profession, and then right around 55, 56, 57, somewhere in this 50s range, but what happens, your kids are grown and beginning to leave, what you've achieved professionally is fairly settled.
Chris DavisAnd in a funny way, it lifts an enormous weight off many people. I think it's one of the reasons people actually end up growing happier as they get to their 50s, 60s, 70s. Because you're in a time when you can, in a sense, go wide again, you have more perspective, you have less of that urgent depth of the day to day.
QuestionerSo, anyway I know when we started talking, we were talking about this idea of both sort of completing the, maybe our second 10,000 days and now looking at how we think about this next 10,000. This chapter that sort of gets us from here to around in our 80s and how does this affect the way that you're actually living?
QuestionerLike, what is this awareness of these three phases do to your view of how to behave and what to focus on and what you're actually optimizing for at this point?
QuestionerWell, this sort of ties in with how I think about investing is so much about it. It's about anticipation and preparation. So I think a lot of people go through unhappiness in their thirties in part because they're sort of thinking, where did my youth go? I used to be able to do all these different things and now I'm tied down and if instead you have this mindset, you really look forward to that. The privilege of being able to go so deep to concentrate and I think how it's affected me thinking about this next 10,000 days is a little bit about this idea of inverting it and thinking about what would stand in the way of this 10,000 days being a very enriching time of life. And of course, health is one of them. So it becomes, as you think about going into this next third, it becomes a time where you think a lot about taking care of yourself.
QuestionerYou think about investing in relationships. When you're raising a family, when you're in the office every day, when You know, a lot of your life and your social life are structured for you. As you get to the next 10,000 days, people can lose touch. So I think it's also been a time when I've really invested in maintaining, invigorating, revisiting relationships, deeply getting to know my children's partners and spouses.
QuestionerMaking sure that there are aspects of friendships as people, I, we may get to this, but I, the idea of retiring has no appeal to me. I mean, I love what I do. It always seems startling to me that we get paid so well for studying something so interesting and it should be a profession where we get better over time, provided we're not creating behavioral and psychological roadblocks.
QuestionerAnd if that is the case, I would like to continue as long as I could, but of course, I also recognize that's not the same for many of my closest and oldest friends. And so, as they contemplate retirement and moving and going to different places, old patterns can dissipate.
Chris DavisSo, I think it's a time to really invest in being prepared for this sort of exciting chapter that's in front of us. It may not end very well but 10,000 days, it's a long time and so I think it certainly has impacted how I think about preparing for that transition.
William GreenI thought it was very interesting the Berkshire annual general meeting, which I guess that's where you and I last chatted.
William GreenActually we spoke for a couple of hours on the Sunday, I guess, after it all ended and everyone had laughed and you and I had the pleasure of sitting down with another friend of mine, Inah and chatting. I was very struck at the AGM that Buffett said a couple of times, he talked about the idea of writing your obituary, and then trying to figure out how to live up to it, and he said, look, if you want to know how to live your life, write the obituary, then reverse engineer it, go backwards, which is really not dissimilar to what Nick Sleep does with this whole idea of destination analysis, of figuring out a happy ending, and then, oh, they didn't use that phrase, And then working backwards, thinking of the inputs.
William GreenI know, sorry about that. Trigger warning here and then starting to work backwards to figure out what the inputs are to get that. And obviously, you've been close to Charlie Munger and Warren Buffett and we'll talk about this more. I'm wondering how… Seeing Warren at 92 and Charlie at 99, seeing how they've lived the sort of the final chapters, the closing chapters in this kind of remarkable way, how that's had an impact on your sense of how you want to live that third stage out of the three, however long it may be.
Chris DavisWell, and I could expand that list. I mean, Warren and Charlie are great examples, but I had an incredibly influential grandmother. In fact her pictures on the wall here next to me who died at 106 and I had her in a kayak at 104 and had her on a motorbike at a hundred and she had a PhD in international relations.
Chris DavisI mean, she was an incredible intellect and model, [Crosstalk] Catherine. So that was Catherine Davis.
William GreenWhat did you learn from her? What did you observe?
Chris DavisWell, she was magnificent in every way but this is going to be a tie into Warren to Charlie to all of the people that I would put on that list is one was this idea of they kept interested, they kept so engaged with life. My mother has a very close friend who we always admired as kids because she was, that, that powerful sort of irreverent woman. But one of the things I've watched as she's gotten older is she resents the impact of technology.
Chris DavisShe doesn't want to learn to use a cell phone. She doesn't want to do email, she doesn't. Certainly not going to do Instagram or something and the result is she is increasingly getting cut off. So this idea of keeping interested, how you stay interested in the world around you. I think the second thing is they all kept optimistic.
Chris DavisThere's a very common sort of old man disease, which is the world is going to hell and of course, we feel like that because we're no longer at the center of it. America in particular, but a lot of the world is oriented. Every marketing message is oriented towards people in their peak spending years, in their peak, family years, you're at the center of everybody depending on you.
Chris DavisAnd I think what happens is gradually, of course, the world moves on and you become less relevant, and rather than have your ego absorb that reality, people rail that the world is wrong, that if only people listen to them, so I think you get a pessimism that begins to take over, a rancor, and so I think resisting that is the next, so keeping interested, resisting that pessimistic tendency, which is really simply the extrapolation, of the approach of your own demise and projecting it onto the world, a related one to keeping interested, and I've seen this so much with Warren with Charlie, with my grandmother, other people who are octogenarians and whatever the next two decades that come after that means certainly with my father, who's 86 and still skiing.
Chris DavisIs this they keep making new friends. It is a very sobering part of life is how dramatically differently people age. I had the enormous misfortune when I was a kid and a teenager of not hitting puberty. In fact, I didn't break five feet tall until I was a senior in high school.
Chris DavisI will just say the loss of other defining milestones happen somewhat later and that made that time of life very trying and but of course, the other side of that as Charlie Munger likes to point out is one of the other than genetics. One of the strongest predictors of age is how late you hit puberty.
Chris DavisAnd so, of course you see it with friends aging at different rates, and so that idea of my grandmother very late in her life said to me that it was very difficult for her that she not only outlived all of her friends, but she also outlived many of her friends' children. And so for her, it was keeping making new friends became a very important part of it.
Chris DavisSo, what I would say when I look at all of these older people that I admire is they're interested, they're optimistic, and they're constantly meeting new people and pursuing relationships and there's not a lot of time for self-pity to one friends that only one organ recital a day, they don't need to spend a lot of time talking about what's failing.
Chris DavisSo, look, isn't it ultimately that idea of living life backwards from your obituary or from your funeral? It is a very useful way to think and it, it is keeping that perspective in the back of your mind, I think is a very useful exercise. And so yeah, I'm with you on that one.
William GreenYeah, Ray Dalio came on the podcast and was, we had a long discussion about his most recent book, Your Principles Journal. I think it's called, which is all about how to develop your own principles and there's a very bracing section of that and also of our discussion where he talks about just being brutally aware of where you are in that arc and also being brutally aware of where the people you love are. are in that arc, whether it's your parents or your kids or whatever.
William GreenAnd so you can adapt your behavior accordingly to people depending on what their needs are and one thing he said to me that had a real impact on me was he said that your job in the later stage really is to prepare the next generation to make sure that they'll be okay without you.
Chris DavisYeah, it's funny you say that. I was out actually out in Fire Island where we have a shack on stilts in a swamp.
William GreenYeah, right. I've been there. That whole area is not such a shack.
Chris DavisWell, you didn't see my house. Visited friends who have, views of an ocean and so on but I was coming back at night and it's a place where there are no cars.
Chris DavisAnd so I was riding a bike and had a little flashlight and I was coming up to the house and the lights were all on inside. So I could see in the windows and, what I saw was my three kids and their significant others and some friends of theirs and they're all sitting at our dining room table laughing and carrying on and that moment of feeling like I'd almost don't need to go in.
Chris DavisI would mark it at that particular moment. One of the happiest moments of my life, just looking in that window and seeing all that. So I do think there's a lot of truth in that idea of doing what you can to make yourself obsolete.
Chris DavisAnd yet, of course, wanting to occupy mental space in people's minds and wanting to have been a productive force in the world and within your community, within your family but, within the world in general, you don't, you don't want the world to be worse off for your existence.
William GreenSo much of what seems to become most important increasingly, the more I interview great investors, the more I realize the extent to which they're talking about relationships is the thing that determines everything. I mean, I remember asking Charlie, what can we learn from you and Warren about how to have a happy life and he immediately started talking about relationships. Same with Ed Thorp, when I asked him about the secret of a happy life, how to win the game of life, given that he's one of the great game players of all time. And he again, he starts talking about how, who you spend your time with is clearly the most important thing of all.
William GreenI wanted to talk to you about this whole idea of relationships in some depth, because I think one of the things that's distinguishing about you and your friend Tom Gayner, who's been on the podcast and who's a friend of mine as well, is your ability to have these extraordinary relationships, your You have this incredible network of remarkable friends.
William GreenIt includes people like Buffett and Munger and Bill Miller and Mason Hawkins and Tom Gayner, as we mentioned, and Brian Lawrence, a lot of remarkable investors and remarkable human beings are very high integrity, extraordinarily talented people. I wonder if you could talk about how, you've done it, and also how you observe these masters of building what Tom would call trust based relationships, how you've observed them doing it, because it seems to me an extraordinary competitive advantage in life and at the same time, obviously enormously life enriching.
Chris DavisWell, I think going back to this peculiar subset of people that you focus on investors, obviously that's a term that covers way more people than would fit the description that you just mentioned of valuing relationships.
Chris DavisRight? In fact, I would argue that there's an enormous subset of people that have built very substantial fortunes in one way or another, investing or speculating or trading. To quote Charlie Munger once said to me, who don't have one true friend in the world and rightly so and so I actually think it is a relatively narrow subset of investors that end up at some point in their life, highly recognizing and acknowledging the profound value of relationships.
Chris DavisThey're playing a different game my, my brother, when we were in our teens, had a t shirt that said, whoever dies with the most wins, and there are people that live that way and I think they would pass a lie detector test saying that they're happy, I don't think it's much of a life, but it's the way that, it's the goals that they set out, and it's, What their sense of validation, that's what it comes from.
Chris DavisAnd so I actually think that's more common in investing rather than less common. I think the reason is, I think that to succeed as an investor, you have to think you're right. When, and most other people are wrong about each investment that you make. So that takes a certain amount of either arrogance.
Chris Davisor hubris or an enormous amount of discipline to be able to push through all of the social signals that make us herd animals, which have helped us succeed as a species by being very sensitive to what other people think. And recognizing that the heuristic that most of the time, most people are right in aggregate, in other words, setting price and so on the markets mostly efficient.
Chris DavisSo I think you have a series of personality traits, including Just the amount of work that you need to do it. You need to be engaged deeply in the process. So it's very hard to simultaneously, I think, build a very successful investment career and necessarily check every other box that we might associate with a good and honorable citizen in a community, making sure you're at the PTA meetings and at the meeting.
Chris Davischild conferences and at the weddings and the baptisms and so on. So you add that recipe together of, generally a very driven work ethic, often an ability to disregard what others think about you or What you're doing often, a desire for money, right? Of course. The, there's an aspect of some people are attracted to investing, or certainly most people appreciate the fact that it can be a lucrative profession.
Chris DavisWell, you add that all together, you're not going to get a recipe of, well-adjusted, philanthropically minded, civic oriented people in on average right now, if you swung that. That, that cast that same net into nursing, you'd probably find a lot more people that you would feel are going to be deeply human and have deep connections and so on.
Chris DavisSo, I think you described a tiny, narrow subset and that subset who I think of as value investors and not in the sense of any particular investment discipline. But in the sense of thinking that over a long period of time, things that create value get recognized for doing so. And then it can take a long period of time and it can be lonely and so on.
Chris DavisAll of these things, I think you do begin to get into that subset of people. And then I would say when you get right down to the relationship part, I think ultimately for long term investors. So I'll now distinguish between the value investors that might be doing trade convergence or something.
Chris DavisBut over a long period of time, you come to recognize what an incredible difference individuals can make and they can, what they can, the difference they can make in the world, the difference they can make to their companies. the difference that they can make in any given situation. It is incredible and so you gain almost sort of a reverence and an admiration for what people can achieve.
Chris DavisAnd so I think you end up with a higher view of humanity because you've taken a time horizon that you've extended over a long period of time and you've sort of seen that impact and yet you've combined it with a value system that is willing to think independently and be held accountable. And so I like that subset you described.
Chris DavisI just don't think if you swung that same net around Wall Street that would be the, that would be the way it would shake out the most. And of course, in some ways we've all selected each other. As Bill Miller said to me once, it's nice to see people who approach the world the way you do well.
Chris DavisAnd so you want to help each other and so of course, we seek each other out. I have a picture in our conference room from the depths of the financial crisis and it was with Warren. Who else was in there? Will Danoff was in that picture and Mason, Bill as I said, Warren, I think there were a couple of others but the caption, somebody had scrolled on the bottom was, value investor support group and it was just all trying to get through that dark period.
Chris DavisSo, it's I think it is unusual in Wall Street on average, but I think that the key determinants are what I'll call the value system with a capital V and then the time horizon. And those two things, I think, is part of what creates that convergence.
Chris DavisI certainly think there's some kind of competitive advantage here that I was slow to realize that we're often taught that you have to have sharp elbows to get by in any profession.
Chris DavisI think that was the case in journalism, that it's pretty brutal, and also it was a sort of slowly sinking ship, which doesn't bring out the best in people. And in investing as well, very cutthroat, very intense, very competitive. And so it took me a while to realize that there's a different way of playing the game that was more Well, less of a zero sum approach where one person has to suffer in order for someone else to do well.
Chris DavisAnd so I sort of had this sense when I was thinking about people like Charlie, for example, that it was a different way of operating. And so I remember Charlie sort of saying, look, we have this simple system to have a good partner, be a good partner, or to have a good spouse, deserve one. Or Tom Gayner saying, you need to extend trust first and then see if people reciprocate it.
Chris DavisAnd so I do, I think there's something going on here that's deeper that these very wise people have figured out a different operating system. Am I deluding myself or is there something going on where they're behaving in a kind of relatively exemplary way, despite being flawed human beings like all of us and they're attracting extraordinary people into their ecosystem as a result?
QuestionerYeah, the only trouble is you're discussing a correlated group. In other words, they aren't, it's not a random distribution of people that have succeeded. They're people that have been enormously influenced primarily by Warren and Charlie.
Chris DavisAnd that and that relationship, the waves of that have sort of persisted out. You could say Thorp is sort of a non-correlated in some ways, although there were obviously those historic overlaps and he's not somebody I know personally but I would say that, and for Tom and for me, the influence of Warren and Charlie is so dramatic.
Chris DavisIt's not a coincidence that we have shaped decisions that we've made in our own lives and our own careers based on our admiration of. Not just what they've achieved, but the way they've achieved it. And I would put Bill Ruane in that category too, Bill used to say that, I know Warren's got 70 IQ points on me, but knowing that, that's helped me make good decisions because I don't kid myself and I was able, as Bill did, to delegate an enormous amount of his return in essence to Warren.
Chris DavisSo I do think that there's sort of correlated in that sense but well I may have lost my thread on where you started there but
William GreenI just, I think there's a different system at play. It reminds me of Nick Sleep saying to me. He said at one point, look, I don't know whether or not I believe in God.
William GreenI think he probably does, but he said I believe in good and I believe that good things grow. And I think there's something. There's something kind of life affirming when you see these people behaving decently and honorably and it kind of works out, but who knows, maybe it is just because they're so damn smart anyway that they could succeed anyway.
Chris DavisWell, that's probably true in some but I do agree that we were marooned on a desert island, sooner or later, everybody would be killing one another and there's really no evidence for that. The evidence is the opposite and the more you study. Evolutionary biology at the species level rather than at the individual, survival of the fittest is one of the most grossly misrepresentative articulations of a profound truth that there is, of course, humans are in no way the fittest in almost any dimension.
Chris DavisThe superpower is not at the individual level. It's at the cooperation level. It's at language. It's really at trust. If we were not able to cooperate, we would still be floating around the middle of the food chain as we were for most of all of human existence cooperation and trust and the feedback loop that comes from that.
Chris DavisNow, if you want a wonderful way to quantify that, I love the idea of not just cryptocurrency and blockchain generally, because to me, one of the most interesting tenants of blockchain in general and I'll use Bitcoin in particular, is what did they call them? Trust lists networks. So you have a, you're creating using technology, a means of exchange that does not require trust.
Chris DavisNow, an interesting thought, experiment is to say, wow, how much energy needs to be consumed to duplicate trust. And therefore, sort of conclude, well, that must be, in a sense, the efficiency of trust is requires this much energy to sub, as a substitute. So, you've got to burn a lot of carbon and burn a lot of electricity generate a lot of electricity to generate a substitute for trust. Now, think of the other side. You think about this idea of operating in a web of earned trust, and we talk about it on a moral plane that this is good, the right way to behave. That you have to have some metaphysical belief in the power of good, but you could be entirely mercenary and simply say, trust is an incredible source of efficiency in particularly in business.
Chris DavisI would also say in life and that ironically, Bitcoin is a demonstration of how much energy has to be consumed to replace trust. So we have traders that have been in the business a long period of time, and they're on the phone, sort of generalize here, but they're putting in trades that may involve, billions of dollars.
Chris DavisAnd there are cases every year where there has been a mistake made somewhere, and I don't mean an investment mistake. I mean, somebody, inadvertently, put a zero in the wrong place or, misspoke or misheard. And it is amazing how much is undone because the person on the other side says, oh yeah, we'll figure that out. it's not a survival of the fittest. It's this view that we are in a system where I trust you and you trust me. And so watching the way that operates and watching it as scale at a company like Berkshire. It's staggering the efficiency and how much you would need to do.
Chris DavisJust think of a due diligence on a transaction. Think of what the investment bankers charge and the consultants just to do due diligence on a transaction. You can view that as like with the crypto. That is what people are paying because they don't have trust. So they pay all that and then do they get a better outcome?
Chris DavisI don't think so. I mean, I think Berkshire is an example that all of the foregone due diligence trips and investment banking and auditors and so on would not have produced an outcome that would have raised returns or avoided fraud. In a way, trust ended up being a superpower on it. So I think it's the right way to live but I think, even if I didn't think about that, it would be a strange thing for somebody to fail to recognize what enormous power there is in having a strange thing certainly in a business context, operating in a web of trust it is, and as I say, it's certainly a more fun way to go through life. I wouldn't want to substitute it.
William GreenSo, it's also interesting if you invert it, right? And you go back to what Charlie was saying at the annual general meeting where he was talking about avoiding toxic people. And he said, look, get toxic people out of your life and do it fast. And there was a wonderful moment where Warren said, we'll do it tactfully if possible.
William GreenAnd Charlie was like, yeah, I don't mind a little tact, but just get them out of your life. And so it's, in a way it gets back to Tom's comment that you want to extend trust first, but if people don't reciprocate, boy, do you get away from them quickly.
Chris DavisWell, for me, it felt, for example, one of the things I love about stocks is it's not a negotiated transaction and if I look over my whole career at the private deals I've done personally, as a firm, we've done some with great success, but when I look at the ones that I've done personally, it's a pretty poor record and it's particularly poor because I can't imagine looking somebody in the eye and lying. And so, when you're in a negotiated transaction with a seller.
Chris DavisI am terrible at that. I would not. What I love about stocks is the price is set. I'm not negotiating with the other person. That is, I view that as a weakness in me not a strength, but I've been able to structure my life. So my inability to be a hardnosed negotiator has not hurt me, in other words, to be a little naive and, except it, it doesn't help me when I, buy an apartment or something. And I learned subsequently that people were lying through their teeth about whether a fireplace works or something, then I feel like a sucker.
Chris DavisOh, I shouldn't, I should have had an inspection on that element or so on, but. For me, stocks are wonderful because I don't have to have, I don't have to have that negotiated transaction. The I think the idea of when somebody has lied to you, it's one of the reasons I think short selling would be such a terrible way to live.
Chris DavisYou have to You know, that toxic person, you can't get them out of your life. You've got to, you've got to spend every waking hour studying that toxic person, trying to elucidate all the ways that they're toxic and deceitful and lying and stealing. Well, that's a. That's a tough way to go through life immersed in toxic people.
Chris DavisSo I like Charlie's and Warren's philosophy a lot more. And as I say, there are people where I think where stocks sort of create the perfect venue where you don't need that individual on the other side, you don't need to come to terms with the seller. And whatever, for me, the behavior biases I have that would make that very difficult, instead, I have a set price and I can figure out what to do with that price.
Chris DavisSo, it's what I would say is that all of the people have in common a Tiger Woods trick, which I really love, which is I, whenever I talk about sports, you have to footnote that I don't know anything about almost any sports. But I like sports because I find it metaphorically rich. And so, Tiger Woods, I think it was his first British Open, as I understand it.
Chris DavisThe weakest part of Tiger Woods game at that point was his coming out of the sand trap. He was not very good at that, relative to the people that were the best at it, and they were playing the British Open at a course that was renowned for these bunkers that looked like they were created by a piece of artillery, and, the deep, nasty bunkers, and so the press was really pushing Tiger on, have you been working on your sand game?
Chris DavisAnd they were watching him in the practice rounds. And he said, no, I'm working on my drives and my low irons. And they said, why? And he said, because I don't want to go in the sands and he played the entire British open and didn't go into a bunker once, which is an incredible sort of mental model to have.
Chris DavisWhich is, and if you can identify your weaknesses, yes, trying to reduce how severe they are, you don't want weaknesses that are going to take you down, but then trying to architect your life. So you avoid them is the best of all. And I would say something that Warren and Charlie and many of the people you mentioned have done well as they've structured their lives.
Chris DavisSo whatever their weaknesses are it hasn't been taken them down. And so you mentioned Charlie's bluntness. I don't think that would have served Charlie as the CEO of a Fortune 500 company. It wouldn't have served him as a manager of a lot of people. It wouldn't serve him to have to, when you go from a platoon to a company to a brigade, all those, Roman, there's a turning point where all of a sudden you can no longer communicate directly.
Chris DavisYou have to begin to communicate. with stories and you have to allow yourself to become a, some sort of, some sort of an out of who you are and that I think would have been, I mean, I'm speculating, but I think it would have been very difficult for Charlie and so Charlie structured his life in a way where that, those personality traits of his didn't set him back.
Chris DavisWarren is an incredible communicator and exudes this sort of warmth and people. But he has a very hard time, as he says, describes, making those really hard decisions to fire somebody or to replace them. So he's structured, here he is as a CEO of a Fortune 500 company, where over time he's had to make very few of those decisions.
Chris DavisSo he's structured his life to minimize those weaknesses and so on. So I think there's. A very powerful lesson for people to carry out is not to necessarily obsess on your weaknesses, but to do your best to structure your life so that you can avoid a lot of them.
William GreenYou made a fascinating observation about the difference between Charlie and Warren's approach to human interactions back when we were talking in May in Omaha, where I was pointing out someone, I'll try not to be too specific, but someone asked a really stupid question.
William GreenAnd I was mentioning that Charlie just dismissed it instantly, like he didn't pretend that it was anything but a stupid question. And Warren replied in such an incredibly deft way, where he didn't insult the person who'd answered, who'd asked the stupid question. He turned it into a useful teaching lesson about something else.
William GreenSo that people in the audience got something out of it, and it was so emollient, it was so charming, and so deft, and I mentioned this to you, like, his brilliant diplomacy, and you were saying, the funny thing is, actually, in some ways, Charlie is the soft hearted guy, even though it doesn't seem it Warren Is this sort of brilliant machine who studied Dale Carnegie and how to win friends and influence people and he has, as you put it, super high processing speed so he's able to tick all of these boxes and know how to behave in a way that's going to be kind and thoughtful and I just thought it was such a fascinating observation. Can you talk a little bit more about that? I don't know if I'm doing justice to your observation.
Chris DavisWell, you know what I'd say, Warren shows any visitor that comes to see him, his Dale Carnegie certificate. hanging in his office. And he talks about how important that was. And people don't read much Dale Carnegie anymore.
Chris DavisIt's really worth reading. It's enormously useful. And it is a very practical guide. It's the subtitle is how to make friends and influence people. And we hear that in our modern ear now, and that sounds very disingenuous or manipulative or somehow lacking integrity. I actually totally disagree.
Chris DavisI think it was, it is a way, as John Wooden famously said, you, you haven't taught unless they've learned. I think it is a way to, to do your best to make sure that somehow you aren't communicating something you don't wish to communicate or don't intend to communicate. And so, I think Warren was an incredible student of that mindset, and so you're absolutely right, and by the way, Ben Franklin was too I have written down, I should have brought it in, I, a book of things that I've jotted down, mostly quotes from books or poems, since I was in college, And one of them is about Ben Franklin talking about how he knew people that were very effective at winning arguments, but they never win one influence or goodwill, and that would have served them better.
Chris DavisAnd the reason they didn't is they, on the course of their winning the argument, they tended to humiliate. The other person. And in so doing they impressed people with their intelligence, but they also gained an enemy and ultimately that set them back. So, and Charlie would hold up Ben Franklin as his Dale Carnegie.
Chris DavisSo, I mean, both of them have enormous, have learned ways Charlie once told me he, he wears suits. In part because he said I'm so unconventional in other ways that if I at least wear a suit, people immediately assume I'm conventional in some ways and that, that's probably helpful. But he, that it was purely a practical matter.
Chris DavisBut I do think that I think Warren is. is so, his father, of course, was a congressman, so I think he grew up with this sort of understanding of this sort of political sensibility in the best sense of the word, in other words, how to create goodwill, how to have people rooting for your success.
Chris DavisImagine the record that he's achieved with almost no enemies. Can you name another fortune that was built where there wasn't a significant consensus or a significant view in the world that somehow that person gets vilified. I mean, I think about watching the changing narratives around Jeff Bezos or Bill Gates or Sam Walton and Walmart.
Chris DavisAnd there are very few you can point to, certainly John D. Rockefeller and Carnegie and all of them but there tends to be Howard Schultz. There's a cottage industry vilifying Howard Schultz. I don't get it. It seems, crazy, but it just seems it sort of goes with the territory.
Chris DavisSo it's an amazing thing for Warren to have built this fortune and still have so much of the world viewing him as this sort of kind, gentle presence and patient. And but I think you're right. I think in, in, in many ways it is a Well, we don't have to speculate whether it's good. It's like honesty, whether it's good policy or whether it's ethically right.
Chris DavisYou can do it for either reason. The effect is the same. Tom Gayner loves to talk about the Quakers. Came to do good and did well, it's the same idea that it ends up that, that approach both serves him enormously well and is a very ethical way to treat people even when they ask asinine questions, but, Charlie dismissing somebody and saying that's an asinine question Warren, as you say, he invests dignity into the question, even if it wasn't there or if it wasn't intended by the asker.
William GreenYeah, I would definitely reiterate that people should go back and read that book, How to Win Friends and Influence People, because of the title, it sounds very cynical, but I started re reading it again last year, because I was talking to my daughter about it, and I was like, yeah, I was saying to her, look, there are really important skills And I was struck when I reread it not only by how skillfully written it is, but how actually I think unconsciously it's influenced an entire generation of our most successful writers.
William GreenAnd so, I actually suspect that in, in the same way that you can show that there's this lineage that comes out of Ben Graham through, Warren and Charlie and many others, including yourself. You can actually, you could plot a kind of lineage coming out of Dale Carnegie, where you could actually show that the techniques that people like Malcolm Gladwell use, and that I use in Rich or Wiser Happier, consciously or unconsciously actually stem from Carnegie, that he would interview these people, and then he would tell these people Really elegant stories and come up with great quotes and sayings.
William GreenIt was very practical. I don't know. I suspect if you looked at all these guys like Daniel Pink now or David Epstein, all these really good nonfiction writers, you'd find that a hell of a lot of us actually consciously or unconsciously owe this huge debt to Dale Carnegie.
Chris DavisI think you're right and I think that the cynicism about it is a real something that's very deeply troubling.
Chris DavisAnd the reason is it sort of gets at this idea of the mutability of human nature, right? If right now there's this sort of obsession with, identity, what is, who are you? How malleable is it? How fixed is it? And so on. And that manifests in all different ways. Almost 3, 000 years ago, Aristotle said virtue is a habit.
Chris DavisIt is what we do. So there was implicit in that, this idea that you could become virtuous. You could make yourself more virtuous. There is something in the zeitgeist at the moment that really views that cynically, as if somehow, it's inauthentic, that who you are is you're screwed. Like whoever you are, that's it.
Chris DavisAnd I think that there was part of the 1950s America, which is, it's a period, the post war U. S. is a time in history that I admire so profoundly, you think of the Marshall Plan, you think about rebuilding Japan, rebuilding Germany, creating almost a hundred years of peace and not just peace, enormous goodwill, right?
Chris DavisThese are our strongest allies. That mindset, which of course came with this sort of optimism that, that in this sort of we can do attitude, but I think that went to the individual, this idea that I will, and by the way, it didn't just start then it was a real characteristic of the late 19th century and the emerging middle class and the creation of [Inaudible] and this idea that as we Achieve means we should work on self-improvement.
Chris DavisAnd this idea of self-improvement, it's a very American mindset. There was a wonderful scene in Chariots of Fire. I don't know if any people even remember that movie now, but with the old English school masters. Sort of chastising young Abrams, the runner because they viewed his training methods as a bit commercial, a little bit not quite in the spirit of things.
Chris DavisRemember the man that they fancy would, practice hurtling by putting glasses of champagne on each hurdle. And here was Abrams, employing scientific methods and a professional coach. So they were sort of chastising him and. And he said, you relish my achievements, but you would have me achieve with the effortlessness of God's.
Chris DavisAnd that was very much the British mindset. I lived in the UK for five years. I love the UK. But. I always was struck by the fact that it's a little bit rude to ask somebody what they do, right? That's an American question. It's actually one of the first questions. I always ask people when I meet them.
Chris DavisWhat do you do? Why do you do it? This idea of vocation and being good at something and or how you spend your waking hours but in, in Europe, in general, and I'll say in the UK, there's an idea, well, you're presuming I need to work, and that alone, it could be a little insulting. I'm not a tradesman.
Chris DavisSo, anyway, that's a little bit of a point. Political tangent. But what I would say is this idea of self-improvement as something that you get started on just the way a value investor where Warren used to say you start at the as in the stock index, you start with, how do you improve yourself?
Chris DavisYou make a list, you put up pictures around you of people that you admire, you have role models, Ben Franklin wrote about it, Aristotle wrote about it, Warren writes about it, Dale Carnegie wrote about it, but somehow there is a cynicism about that I find really discouraging.
William GreenYeah, and unhelpful actually. I mean, when I read when I read Marcus Aurelius' Meditations, which was written not for publication, I think, it was his own notes written a couple of thousand years ago. I read the first chapter and I was like, wait a second, he's naming at the very start, something like 17 people whose qualities he essentially wants to clone and I'm like, here's one of the great thinkers and he's consciously cloning and it was such a fascinating example for me of how these, even someone like he was figuring out how do I improve myself by following this trait of my father in law or this trait of this the guy who adopted me.
William GreenSo yeah, in some ways I think having grown up in England, we think it's a little bit tawdry to admit that we want to improve ourselves. And so, I mean, I remember buying, when I first moved to New York in my early twenties, I was at 21. I was very anxious for some reason. I think it's quite a stressful time in your life where you don't really know what you're going to do and if you're going to find your way in the world.
William GreenI was having terrible trouble sleeping. And I remember getting Dale Carnegie's book the other one, the one about anxiety, that was something like how to stop worrying and start living. And I was like, this book is really good. It's really well written. And I had just got an English Literature degree from Oxford.
William GreenI was like the ultimate intellectual snob, right? And I literally I'm ashamed to say. I not only marked it out very heavily, but I hid it behind other books on the bookshelf because it looked tawdry. It had a tawdry title. It was a mass market paperback. It was on terrible paper, but it was so helpful to me.
William GreenAnd I remember it had these amazing quotes from people like Lincoln, where Lincoln had this sign on his desk that just said today, That was him just reminding himself that he could just focus on that one day and there was an extraordinary poem by Kalidasa, this written in Sanskrit, like two, 3000 years ago that I memorized because it was so helpful.
William GreenAnd so I feel like he had, he'd synthesized this incredible worldly wisdom. And yet somehow it was sort of embarrassing. So I'm mentioning it because I think someone in our audience is going to now buy that book on how to stop worrying, and it's actually going to really help them. And so I hope you'll benefit from my admission of my own shame and in, in hiding, hiding that book.
Chris DavisI absolutely share your shame. It's so true. And it is a peculiar. It's a peculiar regression as a civilization, and I think that it speaks to this idea that I do think is very much the currency of the moment, which is that your destiny is determined by circumstances that are outside of your control.
Chris DavisAnd it could be. Identity and gender, politics, race it could be that, no, the system is rigged so that people achieve, and by the way, I think that and so it feeds this idea that there is no true agency. That in a way, the people that succeeded because the system was rigged, the people that failed because the system undermined their opportunities, and this is outside of the, My, my world.
Chris DavisAnd, but I do think that there is something about removing that agency and that sense of agency that I think is very destructive. I don't think it's permanent. I think these things sort of wash through in waves but the idea that, you could read a book and make a series of decisions that improved your life relative to where you have been, if you hadn't read that idea of agency and a certain amount of mobility. And, I was born on third base, so it's, I'm a very dangerous person to even begin to talk in that way because, I really started with every possible advantage. So, but I will say that I look at, the, I look at my own research team, I'd say, 80 percent of our research team are first generation immigrants or, children of immigrants or themselves, immigrants, I really do believe that there is still an enormous amount of mobility that is possible and that it starts with this idea of self-improvement and that the more we create a cynical environment where that is considered inauthentic or manipulative the more it is dismissed the more we give up on the sort of feedback loops that you described from reading that book, how it helped you and or how Dale Carnegie helped Warren and what that means for the greater civilization.
William GreenYeah and I actually, I remember writing out on a couple of cards various quotes from that book much more the one on how to stop worrying than how to influence people and there was one from Thoreau if I remember I mean it's 35 years since I did this but there's one from Thoreau where I think he talked about exactly that where he said something along the lines of I know no more encouraging fact than our ability to transform ourselves through an act of conscious misquoting it but I'm that was incredibly heartening for me.
William GreenAnd when I look back, I had this fear that there were certain things that were just kind of kind of like your set points where, maybe you had a slightly melancholy nature, or maybe you were just always going to be anxious. And one of the most encouraging things I've found now at 55, looking back, is how, not completely, but very significantly, I've actually managed to change my wiring.
William GreenAnd that's a really, that's an incredible gift, and just to know that, to know, there's a great sage, Rav Ashayek, who said that It's a spiritual law that there's no negative characteristic that you have that can't be changed. And when you see something like that, you're like, ah, wait, so there are these sorts of forms of negativity that you have all these bad characteristics. So you're like, no, actually you can change that too. I find that incredibly heartening.
Chris DavisOf course it is. And you would almost say that even if it wasn't true, it would be good for people to believe it, but it is true. And it's not surprising in that, one of my when I was in seminary, there was a bishop that I loved who was a bishop of Newark, New Jersey, and his name was Jack Spong.
Chris DavisAnd he was a, incredible character and very controversial. But he was a great teacher and mentor to me in many ways and ways, way more than he would even have realized. But he once asked me what is the opposite of faith? And I said, doubt. And he said, Oh no. He says, faith requires doubt.
Chris DavisYou can't have faith without doubt. The opposite of faith is certainty. If you have certainty, you don't need faith. He said, it's very much like, like courage, courage is not the absence of fear. It's the very real presence of fear and then being able to master that fear. But the fear needs is part of what it is to be courageous doubt is part of what it is to be faithful and this idea and the sort of pathologizing of behavior as something that is immutably thrust on you as a condition.
Chris DavisLiterally as a condition and I tease my children often when they say things like, well I have real, I have anxiety about such and such. I was like, how about if you say I'm nervous about that? Just the change in the language. If you say or if you say I'm really worried about this.
Chris DavisWhat if you try saying I'm excited about this? Because both can be true. and excitement and nervousness and worry, you imagine, I mean, I'm sure, if you've ever get on, I have to give a speech, that, that nervousness can be part of what it is. It can all be, but once it becomes a condition, then it becomes sort of immutable or it needs to be treated, but the treatment comes from outside. The condition comes from outside and there we surrender agency. And I just, I'm so lucky, not just from where I started in life, but I'm lucky to have a profession where I'm constantly studying excellence. And I'm studying a group of people now you could say some of them were born to it.
Chris DavisThey, inherited a business or something, but most of them did not come. From a circumstance where you would say their achievement was obvious. And it's funny. We look at athletes with deep admiration because nobody thinks, well, I'm going to segue a little bit to inequality in the, in a strange way but nobody looks at the NBA and thinks it's a problem that LeBron is paid a greater multiple of the lowest paid player in the NBA than would have been the case 20 years ago. In other words, inequality in the NBA has gotten much, much greater, but we don't think it's a problem, and we don't think it's a problem for two reasons, and reason one is that the poorest player in the NBA, the lowest compensated player, still well compensated.
Chris DavisSo there's a sense that you don't have poverty in the face of this immense wealth. You don't have players that are afraid that if I get injured, I'm going to be kicked out of my house and I'm going to lose my coverage. And there's a sense that even the lowest paid player in the NBA is treated well.
Chris DavisAnd then second, there's a view that. LeBron James has a demonstrable talent that is unarguable. It's measured in the statistics and therefore it was fairly achieved. Right? So that nobody is saying that it's unfair. I would argue that Jeff Bezos is LeBron James of capitalism. He achieved what he did through immense talent, incredible commitment, and you could say, well, he went to Princeton and you could say, well, LeBron was born. I don't know how tall he is. Very tall, particularly more athletically inclined than I am. He had just enormous. advantages, physical advantages relative to me, and then he had enormous character advantages.
Chris DavisAnd those conspired together to produce somebody that is an absolute virtuoso and one of the great talents at what they do and I think one of the hard things for me about watching the state of capitalism at the moment is two things. One, we seem to vilify or imagine that success is achieved because the playing field isn't fair.
Chris DavisAnd I don't think that's the case. It is a vicious competitive playing field, the world of capitalism. But I think where there is plenty of blame to go around is the blame that we've somehow achieved a society that has enormous wealth in the face of enormous poverty. So it's not the inequality itself.
Chris DavisIt's that there are people living in fear and people living in poverty in the face of that wealth. And so that would be the area that I would wish for capitalism to do a little better job. Taking care of because I think that if we only focus on inequality rather than focus on poverty which is the real issue, because as I said, there's lots of inequality in the NBA.
Chris DavisIt's not a problem. Poverty is the problem. And that by focusing on inequality, we end up vilifying the talent. And I stand in awe of what the CEOs of so many companies have achieved, not just the founders, but even the leaders. And I was speaking today with the leader of Coca Cola, James Quincy. I mean, he is an incredible leader with incredible commitment, great values.
Chris DavisAnd to say that, oh, well, playing field was tilted for somebody like that to, to rise anyway, that's a little bit of a wild divergence, but I think this going all the way back to Dale Carnegie. This sort of undermining of the degree to which, the combination of luck with enormous talent, with incredible hard work, with incredible ability can manifest in our system.
Chris DavisI wish we could celebrate them the way we celebrate our athletes. They deserve it. And you could argue that what the athletes do for the creating sort of the goodwill and the diversion and the entertainment and the admiration you could argue that there are people that have succeeded in business.
Chris DavisIn a way that has done so much good for our country and for the world, and I would wish that that this tendency towards vilification would end because it's tied, it takes away those people as potential role models, which they shouldn't be.
William GreenIn many ways, Berkshire is a kind of iconic, emblematic teaching institution, right? It's there to show us capitalism done right in many ways. I mean, not that it's flawless necessarily, and sometimes there are controversies, but it's extraordinary. It's an extraordinary culture, and you're in this unique position of having been named by Warren as a director of Berkshire back in, I think, 2021, and just to give our listeners some context, the other directors are Warren himself and Charlie and Greg Abel the likely successor to Warren, Ajit Jain, who runs the insurance operations, Buffett's son and daughter Howard and Susan, Ron Olson, I think, who co-founded Charlie's old law firm, Ken Chenault who was CEO of American Express.
William GreenSo, in some ways, it's kind of the ultimate club, and it's given you this insider's view of capitalism done well, and what makes Warren and Charlie extraordinary, what makes the culture extraordinary. And I wonder if we could get a sense from you of what the experience has been like so far, what you've learned about culture.
William GreenAnd one thing I would mention, I remember talking to our mutual friend Brian Lawrence about this and he was pointing out that there are some really great money managers who would never dream of going on the board of Berkshire because the requirements are really difficult, like whether formally or informally, I think One of them is that you, you have to own a significant amount of the stock.
William GreenAnd I was looking at the ownership statements. And I think you own something like 20 million worth of the stock personally, and you don't get any stock options. And I looked at the compensation structure. and was stunned to see that you received the princely sum of 7, 000 a year to serve on the board.
William GreenAnd I think Brian told me that there's no insurance protection either for the director. So, so you're sort of personally exposed, not enriched, and you have to put up your own money. So can you talk about that unique culture and what you've seen about it and why you would even want to do it and what you've learned from it? And apologies for that long winded question.
OtherOh, no, it's a great question. That's the reason 7, 000 sounds high. I think it's 700 a meeting, but I could be wrong on that.
William GreenYou're the highest paid, I think. I think that most people get 3,000 and unless I misread it, which is eminently possible, I think you get 7,000.
OtherWe'd have to review that and figure out that but yeah, I believe Berkshire is incredibly important as, well, as an exemplar, but as an icon of how capitalism should work. Right? In other words, a company that hasn't taken shortcuts that in almost every dimension tries in every industry and every subsidiary has this goal of, as Charlie would say, getting what you deserve, trying to earn success, no shortcuts, they want to have the reputation with the regulators, with customers for their dealing and, you mentioned Tom Gayner. Of course, Markel aspires and has delivered in the same way. And by the way, there are other companies that do, but Berkshire is absolutely in a sense, the LeBron James of that, right? They, there is the sheer scale of the success the time horizon over which it's been done in every manner.
Chris DavisAnd so, I think Berkshire, for the good of the entire system, Berkshire is worth cherishing and protecting. It is this virtually sort of unsullied example. And, of course, the maintenance of that is something that is very easy so long as Warren and Charlie are there. But the laws of inertia in business and are, are such that the, there are a few records of that persisting and one of the extraordinary characteristics of Warren and Charlie is how much every year every decision they do with the goal of having it persist.
Chris Davisof making their successors jobs easier, trying to lay out a framework. So I think the responsibility of the directors will never be to be in any way involved in the business. It will be in a sense, protecting this culture that really is a culture that is stands out for its independence. It's rejection of all of the conventional ways that people begin to take shortcuts or begin to fall prey to all of the institutional biases that can cause something that's so excellent in its virtue.
Chris DavisSo little things like not paying the directors or paying them very little. Bye. And that is a symbol that is trying to reinforce a culture. And so if you have a criteria that says directors have to own a lot of stock personally, and they have to be willing to serve for no compensation. Well, why are they doing it?
Chris DavisThey're doing it because they care about the place. That's an incredible alignment. I don't, there is no other company that has that sort of criteria. So I think Berkshire is important. for the reminder that it is of how things ought to be. And it's a great sort of benchmark against which other companies can get something that they can look towards.
Chris DavisSo anyway I think the reason to do it. Is because it is so precious as an example. And I think it's good for the system as a reminder that when there's an ethos that says, corporate greed, CEOs, bad capitalism, bad companies get rich. Shareholders get rich. At the expense of other constituencies.
Chris DavisIt's a zero sum gain. So if shareholders grow, they must have somehow profited at the expense of another constituency, employees, communities, the environment, customers. And Berkshire and other companies that they aren't alone in this, but they, as I say, are the most extreme, they achieved not at the expense of any other constituency.
Chris DavisThey built themselves by creating value in the world. and then doing so in a transparent way. So it wasn't just the business. It was also the governance. It was also the communication, the education. So I think it is really worth fighting for. And I think it will be much, much, much harder when Warren and Charlie aren't here.
Chris DavisAnd so that's my one thing that I don't like about it and you and I've talked about this, but you know, I'm from a family of, work before play. That was my expression of my father's that it's in our family. It's just, we say it all the time. And it's granny's rule, eat your broccoli, then you get dessert.
Chris DavisAnd Berkshire is serving Berkshire right now is the opposite. You get your dessert first. You get the play first. You get to listen to Warren and Charlie. You get to go to each board meeting absolutely secure in the conviction that anything that is being done that they know about is being done in an absolutely the highest to the highest ethical standards and with deep transparency and advocacy for shareholders and
William GreenWhat's it like actually being at a board meeting? I mean, for those of us who will never have this experience of being on the inside and actually watching up close, like what's actually, I mean, not in terms of state secrets, but in terms of actually the dynamic and the energy of it, what's actually, what's that experience like?
Chris DavisIf you're a long time shareholder and you've attended annual meetings as you have, in one way I would say, not that different because the tone is completely candid. The only difference is at the annual meeting, I think the mindset that I experienced as a shareholder going to 30 years' worth of annual meetings was Warren saying, what's on your mind? You're the shareholders. I'll answer your questions. And I think in the boardroom, the orientation is, I want you to know what I think is important if our seats were reversed.
Chris DavisNow, I think Warren does that through the annual report for shareholders, and I think the only difference is within the boardroom. I think he has a view that he needs to make sure if there's, an issue and, subsidiary ABC. that he is surfacing it and communicating what he's thinking is going on in the world but the direction is exactly the same. I would say the depth and the fact that, to me, the great gift is twofold. One, Warren tells you what he. is focused on and he thinks in this moment, at this meeting, these are the issues that he thinks are very important for Berkshire. He obviously takes questions as, as long as anybody has them.
Chris DavisBut I think the second thing that I would say is different, not different, but it just was an incredible surprise is too strong a word. But You would know from the outside that there is no CEO in America that thinks about risk in a more profoundly broad way than Warren and Charlie. I mean, Warren thinks about the capital markets shutting down, he thinks about nuclear weapons and bioterrorism and in annual meetings, there are glimpses of that.
Chris DavisI think the one thing I would say I've seen sitting there listening. is how profoundly he structures and wants the enterprise structured to make sure it's resilient to, to, in scenarios that are so, far outside of the thinking of a normal CEO or a normal investor. He is really building something that he wants to last through almost any conceivable scenario.
Chris DavisAnd it is an incredible privilege to just see that mind at work in that way. So everything is directionally laid out, just sitting, reading the end report and sitting in a shareholders meeting. Everything is the same. It's just more of it. And as I say, the risk part in particular is something that I've been, was just, I've been incredibly struck by that sense of profound stewardship for this enterprise.
William GreenIt was very striking in the annual meeting, I always take a lot of notes in my phone, I'm sort of sitting there madly taking notes, and one of the things I wrote down was when he said, we'll never make a decision that kills us, and he said we'll, we keep ourselves in better shape than anybody else, so I think that sense of the obsession with resilience is hugely valuable for all of us.
William GreenI mean, we can't clone his brilliance, but that focus on resilience on surviving anything seems to me hugely important for any regular investor. And then the other thing that came across massively for me when he was talking about the culture of the company at the AGM, he said we feel no pressure from Wall Street.
William GreenWe don't do investor calls. We're working for the people in this room, not people who care about quarterly estimates. And then he was talking about how if the company does good for America, I don't see any reason why it can't survive and do fine. And there was a moment, I think, where he said we'll, we will look at our shareholders as partners, not seeking an edge on them.
William GreenAnd Charlie said something along the lines of he, he started treating everyone else the way he treated his relatives and that to me was such a profound idea. Just that culture of not wanting to get an edge over your shareholders. Can you talk about that? Cause that seems to me to be the absolute essence of the thing, like running it, with not even trying to optimize because you know that a lot of your shareholders have so much of their net worth in the stock for example.
Chris DavisWell, I think you're absolutely right that they run it assuming that Berkshire is the only asset of the shareholders because in many ways it really was.
Chris DavisAnd so that partnership ethos of the family and the doctors and the people that, that had faith, the, obviously A significant amount of the stock is owned by indexes now, when it was added to the S& P 500 and so on. I think the, there have been times when Warren and Charlie have said, we would not buy the stock at these levels.
Chris DavisAnd by the way, you could argue in hindsight, they were wrong. You should always have bought the stock and there are times when they say, at, we are buying stock at this level. So, I think that they want shareholders to have the information to make their own decisions. So, I think that that remains true.
Chris DavisI think that I think that the, that culture, I think of viewing it as the only asset of the end owners. I think that will persist for a long time. I think you've heard me sort of say that I doubt either one of us could name this third CEO of Standard Oil. I used to say nobody could name the second CEO, except it was also a Rockefeller.
Chris DavisBut the third or the fourth. And yet Standard Oil was, the most valuable company in America for something like 11 decades or certainly one of the top three. And I think that's the right mindset. for thinking about Berkshire, how it's built, what Warren is trying to do. We, you couldn't name the third CEO, but what John D. Rockefeller left was a collection of assets that had very long lives and would produce cash for a long period of time. That was the first thing that he left, built and then left. The second thing was a culture that said Wall Street plays their games. famously at Exxon, governments come and go, but we're Exxon.
Chris DavisThat may be too strong for sure, certainly but in this idea that we make our own decisions and we make them based on the combination and the confluence. of engineering and economics. So there is no, it's not politics, it's not perception, it's not trends, it's, these are how we, it was a rigorous engineering culture.
Chris DavisSo I think the combination of this, I won't call it insular culture because that makes it sound like they have their head in the sand, but it was a culture that was resistant To the vagaries of outside influences, many of whom are sort of have ulterior motives and different agendas and that combination meant that If you had Standard Oil in 1900, if you had it in 1950, if you had it in 1990, or if you had it today in 2023, you were well served by those two characteristics that were laid in place by John D. Rockefeller. And John D. Rockefeller was a bigger, larger than life influence, and Chernow's biography is one everybody should read. But you didn't need another one after that. What you needed was people that were protective of the assets and the culture. And I think that is how I think of Berkshire, and how I think of the board's job and the management's job.
William GreenOne thing that's very distinctive, obviously, about the culture of Berkshire that I guess comes a lot from Charlie is this habit of rubbing their nose in their mistakes of admitting when they've where they've gone wrong. And the first time I met you, I think was when I interviewed you for Richer, Wiser, Happier for the book in your office at the Rockefeller center back in, I think, 2017, and I was very struck when you were giving me a guided tour of your office that you had set up, I think what you called a wall of mistakes.
William GreenThat was a wall of shame that was inspired I guess by Charlie and his effort to reduce standard stupidities by rubbing his nose in his mistakes. I think it's really fascinating as an idea relate, well, this whole idea of how you can structure your physical environment actually to tilt the odds in favor of making wiser decisions and I wondered if you could talk about that wall of shame, the wall of errors, the wall of mistakes, how you think about it, how it came about, why it's really helpful for you.
Chris DavisWell, it goes, I mean, it goes so much back to what we were talking about immutability and this relationship between how we can improve ourselves.
Chris DavisAnd as you said, you changed your wiring and of course, our wiring is got this plastic nature and is capable of, it is not at the extremes. I mean, right. We all know. I mean, what clinical depression is something very serious but this idea of, the connection of our physical environment, our physical bodies to our mental state.
Chris DavisOf course, those things are related. C. S. Lewis wrote an interesting essay I read a long time ago about praying. And he said, people have this view. I can pray any time I don't need to be on my knees. And he made a very strong case that you should be on your knees because the connection between our brains and our bodies is strong enough that position, which is, of course, a position of incredible submissiveness affects our wiring.
Chris DavisIn a much more modern interpretation, there was a in the early days of the idea of internet video, it was streaming, there was, at that time, laptops wasn't really the thing, it was just desktops, and this skeptic said to me, well, nobody's ever going to watch a movie on their computer screen, because when you're on your computer, you're leaning forward three degrees, and when you're watching a movie, you're leaning backwards three degrees, and you're different people.
Chris DavisWhen you're leaning forward, when you're leaning back, you have different expectations, your sensory apparatus is working differently. Well, of course that's true. Right now, it was wrong because then you can put your laptop in bed and lean back and read all sorts of things. But so I do think Charlie very early told me to put pictures in my office of people that I wouldn't want to disappoint.
Chris DavisSo that if I was on the cusp of making a decision that was in that gray zone, I might look around. And I might feel a little less comfortable making it I don't think he expected that I would have a bronze bust of him in my office, which I in fact do, but you know, in my grandfather, I had Warren, Charlie, people that I admired and I wouldn't want to disappoint.
Chris DavisAnd then Charlie said to me, when you create directors, you run a mutual fund that the relationship between you and your end investors is very tenuous. Not like Berkshire, where Warren sat at a table and knew his original investors. We work with financial advisors and, and he said, so have a board of directors that you're proud and you're proud of them and you don't want to disappoint them and you certainly don't want to mislead them.
Chris DavisBecause they're the face of your shareholders. And that's how we ended up with people like Tom Gayner and serving in that capacity. Who do you want to report to? But you're absolutely right. The symbolism, when we visit companies, we're always looking for symbols. Is there an executive cafeteria or do the executives eat, are there reserved parking spaces? Are there, the Palazzo's and we're always looking for those sorts of subtle cues. And so, of course, we've tried to internalize that ourselves. So you mentioned the wall of shame, and that's probably a very good and tangible example. So we bring the stock certificates of our biggest mistakes and we put the transferable lessons because and we lead these mistake reviews as a team, Danton, my partner, and I lead those because I worked at other firms and I saw.
Chris DavisThe success having a thousand fathers and failure being an orphan. And I worked for one individual that he just, it was always somebody else's fault. And it was so clear that this man who was an incredible analyst was going to fail as a portfolio manager and as a businessman. Because, as a portfolio manager, he had a hard time revisiting his work.
Chris DavisAnd then as a business, he created a culture where people were afraid to admit their mistakes and had to pin the blame. And it was always the company lied to us or, somebody else's fault. So, I think it's a really useful thing
William GreenAnd you looked at something like AIG, for example, which I remember you telling me once was definitely your most painful and expensive mistake, where You know, this had gone from being one of the world's biggest financial companies and great insurance companies to almost collapsing and having an 85 billion bailout from the government and during the financial crisis and you obviously were a big shareholder and an expert in financial companies. So particularly painful. Like what, when you came out of that and you went back and you did your postmortems, was there something where you actually changed the way you invested or the way that you looked for disconfirming evidence?
William GreenLike, was that process of. of really rubbing your nose in your mistakes, practically helpful to you and making you a better investor.
Chris DavisYeah, I mean, the goal, each plaque that's written on the bottom is not what happened, right? It's what was the transferable lesson learned from what happened, right?
Chris DavisIn other words, our goal is to earn a return on those mistakes, on the money that was lost. By the way, there wasn't money lost on all of them. There's one on that wall where we made. I don't know, six or seven folds on our investment. It was just trying to recognize that we had gotten lucky. So, obviously the mistake wall, the wall of shame is focused on process, not on outcome.
Chris DavisSo Warren, and you, I don't, I'm sure he wouldn't mind my saying this once, I was asking him about this idea of having a significant loss on an investment. He said, oh, you shouldn't be afraid of having a loss. It's, going back to, you were talking about Thorpe and you think of the Kelly criteria of how much to bet, he said to me, I'll bet you a billion dollars on a coin toss if you give me two to one odds, and so I'm willing to take a 50 percent chance of losing a billion dollars because the odds are so much in my favor.
Chris DavisBut I wouldn't bet you 10. So I have to size the bet right. I have to make sure I know the odds. So if he took that bet and the coin came my way, it wouldn't go on a mistake wall for him. I mean, I'm speculating, so I'll say it from my point of view. If we took that bet with 2 to 1 odds, and it didn't come out, and we had a loss, we wouldn't say there was a transferable lesson to learn from that unless the coin was rigged or something like that.
Chris DavisSo we're thinking very much about what is the transferable lesson learned. So you're right. AIG was the biggest one. Probably the one that we've earned the highest return on was Lucent, interestingly, because Lucent was one where our own processes worked, but we kept overriding them. And the reason we did is because Lucent was, it's hard to bear this in mind, Lucent was the most admired company in America.
Chris DavisNumber one, fortune ranked, most admired. Had a blue chip board. I mean, the most unbelievable board, absolute dominance in telecom equipment and always a very expensive stock. So we followed it from a distance. People admired Bell labs. We, all our visits to Silicon Valley, people talk about Bell labs and everything that came out of there.
Chris DavisAnd so they missed a product cycle and the stock went down a lot and we said, this could be a real opportunity for us because when, at that time, it was a real momentum market a little bit like it's been in recent years and so missing a quarter, a stock could really overreact.
Chris DavisWe bought 17 million shares of Costco in a single day when the stock closed at 42 and opened at 26 because they missed a quarter, but we were ready. So, that was sort of in our mind and we thought, hey, here's our chance, let's really look. And there was this anomaly that was so strange in Lucent's cash flow statement is they were reporting a lot of income but if you looked at cash from operations, it was negative.
Chris DavisAnd now when you think of a manufacturing company, so the first line on the cash flow statement is net income. Then you have a big ad back for depreciation. They're a manufacturing company, so that's a big ad back. To go from net income plus depreciation being a huge number to a number less than zero for cash from operations is very strange.
Chris DavisAnd it had to do with this vendor financing and so we thought, well, this doesn't make sense. But we were so disposed to want to own it that we sort of met with the CFO and we, and we asked the question and they did this kabuki of giving us an answer that made no sense, but it sort of played on our behavioral biases and.
Chris DavisIt ended up being a terrible investment, we overrode our own red flags, and so learning that mistake, to have confidence in your discipline, to recognize how behavior can unwind it, that saved us from [Inaudible], it saved us. Oh, global crisis. It saved us from so many things that have been incredibly admired businesses, GE, but that have, but where we couldn't make the math work.
Chris DavisSo that was a high return. AIG was, so painful because we just passed 9 11 and I still look at the downtown skyline and I can still see the silhouette even, what, more than 20 years later, it was just, they were so much a part of my existence for, most of my life. And to me, AIG vaporizing was like that.
Chris DavisEvery lesson that I learned didn't apply. Insurance companies go broke before they go illiquid. Insurance companies never go illiquid because they've got the money, right? They get paid up front. So they've got, AIG had a trillion dollars' worth of liquid assets, a trillion, a hundred billion dollars of equity, 80 billion of tangible equity.
Chris DavisSo it was so hard to see. So our lesson written on the wall is in some ways very technical. But I think the most important one was simply about the view that we knew when Hank was gone, there was nobody that could understand that complex enterprise. the way he could. So we knew whatever risk was there went up dramatically.
Chris DavisAnd the fact that there was so much growth in things like financial products in his absence should have been a very, now we have other things on that plaque but I would say that shapes us as we think about banks. But some of those mistakes are mistakes of omission, things we should have done that we failed to do.
Chris DavisA number of them are things that we sold, they were a little ahead of themselves, but ended up being fantastic. So, it is a big part of the culture it, and just continually trying to learn from all of those different types of mistakes, not just buying something that goes down, but things you should have been looking at things and it makes it more fun to work here.
Chris DavisI think the young people feel like. We love hearing about how our bosses did stupid things and it makes us feel more comfortable saying, well, I'm afraid I've really changed my mind. Everything I told you three months ago, I think I'm wrong.
William GreenIt was interesting to me also that you had all these images that you'd bought on eBay, I think, and framed with quotes and I was looking at a video I'd taken in your office of those videos and quotes, and I sort of wrote them out by hand. And it was striking to me how many of them were related to behavioral biases that you were trying to remind yourself of. And so, one of them very, obviously a kind of famous thinker on this subject, Richard Feynman, who said if you're doing an experiment, you should report everything that you think might make it invalid, not only what you think is right about it.
William GreenThat was interesting to me, you had a couple of quotes from him, but there was also a really interesting quote. One, feel free to comment on either of these. One was from Max Perutz, who I hadn't heard of until you mentioned him to me, who ran the Cavendish I think, one of the most innovative research institutions in the world and he was asked if there were simple guidelines on how to organize research so that it's still highly creative. And you had this great quote from him where it said, No politics, no committers, no reports, no referees, no interviews, just gifted, highly motivated people picked by a few men of good judgment and I wondered if you could talk about that idea of how to run an organization that isn't saddled with terrible bureaucracy and the like.
QuestionerYeah, I love that Max Perutz quote, and you're right, it's, I studied a lot of organizations that breed excellence when the participants could work anywhere else, right?
QuestionerIn other words, why, you mentioned Munger Tolls and Ron Olson, how does Munger Tolls rank literally as, I believe in one ranking I just read recently, the best law firm in the country? Right. It's like, what is it? And by the way, you could say the same about Wachtell Lipton. And what's interesting is they have totally different compensation practices, totally different.
QuestionerSo it's not just compensation but certainly in both cases, it is about culture. And so I'll use that and in the Cavendish lab to sort of draw them all together, which is that my experience is if that, of course, you have to pay people fairly, right? People, it's, it would be a crazy thing to tell people that, over the arc of your lifetime, I'm asking you to earn well below what you could earn elsewhere.
Chris DavisSo you have to pay people fairly. Within a very broad band of what FAIR is and what the appropriate time horizon is, I find if people are great at their craft, then what they really care about is being in an environment where they can be absolutely the best that they can be at that craft. And so what is it that takes somebody who's really gifted in analyzing businesses and selecting securities?
Chris DavisWhat sort of environment is it? where they can be the best at what they do, or alternatively, what are the sorts of things that would interfere with that? So, for example if you have to spend a lot of time meeting with clients, that's very destructive. Because, of course, clients want to face on focus on what Bob Kirby, who is a great mentor at Capital Group used to call tell me where the three W's, what went wrong, you'll spend 95 percent of the meeting on 5 percent of the portfolio.
Chris DavisIt's always what's gone down. If you go back to that same client a year later, and it's down more, you're going to have a hard time defending it in the third year. You're going to sell it before the meeting. So you don't have to and those are all terrible decision, waste, wasteful meetings, sitting in meetings, there's one of the quotes on that wall.
Chris DavisI thought you were going to quote was a baseball player because see how much I know about sports, a guy named Bill Lee. He was a pitcher for the Red Sox. I don't know anything about him. I don't even know what decade he pitched in, but yeah. But the quote of his that I had read that I liked so much is he was asked, what happens at team meetings?
Chris DavisAnd he said, oh, at team meetings, you sit on your ass, chew tobacco and nod at dumb things. And so of course I, I worked at other places. I saw that culture of like, why am I wasting my time? I've got work to do. So that's another criteria. You don't waste their time. You don't put them in surround them with people that are going to make them worse at what they do in terms of what are the external pressures.
Chris DavisHow do you minimize the external pressures that allows them to be the craftsperson they are? How do you make sure that they admire the people they work with? People don't, they say they don't quit their job. They quit their boss. But they also quit their colleagues. So if you really admire the people you work with, you like coming to work, you like their value system, you like their expertise, you admire what they do.
Chris DavisThey help you get better at what you do. So, there are a few others. We want a compensation system that's reasonable, and we want to remind people that what they're doing makes a difference in real people's lives. And I have nothing against hedge funds, except I'm jealous of the fees, of course.
Chris DavisBut what we do is very direct, right? Our average client might have 25, 000 invested with us, and it may well be their life savings. And so, it really determines whether a kid goes to college or whether they get to retire in the circumstances that they want, and they're having conviction in what we do, and what we do mattering is a very central part of what we do, so, we've tended to skew towards people where they prefer that.
Chris DavisThey like the idea that, what we do sort of matters versus if we're charging 2 and 20 and managing the Yale endowment. That's terrific. And they wouldn't hire us anyway. But we like, we like that we're offering a good value to the end client in terms of we have low fees, and we try to keep it that way.
Chris DavisSo all of those come from that Max Perutz quote, like how do you create an environment where talented people Enjoy coming to work, and they aren't trying to optimize just their income. They're trying to practice their craft in the best way possible. And, by the way, a small team is also part of that. It would be very hard to run the Cavendish Laff with 600 scientists.
Chris DavisAnd so, a small, talented team. Tom Murphy, I liked, used to say at Cap Cities that, He got to be a low cost provider by paying people that were twice as good and 50 percent more. And there is something about that too. We love having fewer, better people. And yet we have people that are in their twenties, in their thirties, in their forties, in their fifties, and in their sixties.
Chris DavisAnd this is on a team of 10, so it's not that, and yet on average, we've been together 20 years, just sort of incredible. Maybe it's 17 years. I get you the actual numbers, but it's something like that. I think on average, the team has been together an average of 17 years, and yet we have been peopling that have been here for less than five, less than 10, less than 15, 20, and people in every decade.
Chris DavisSo I love that going all the way back to where we started. about my grandmother and keeping interested and keeping making new friends. I do think investment organizations can also get a winning team and they age out and you end up with sort of a huge gap. And I think it can create a very brittle investment culture because of And it's harder for them to be challenged, and, I think about how much we had invested in newspapers in the nineties and when Danton, my partner now joined me in the nineties, I gave him newspapers as his first industry.
Chris DavisAnd I said, look, he had banking experience. He's an amazing just a human being I admire in every dimension. And in the beginning, I said, well, I'm going to give you newspapers because we own three or four of them. We own Gannett, we own Tribune, we own Dow Jones. I feel I'm leaving one out, but anyway, I said, these are old business models.
Chris DavisThey're very, in a way, predictable. They're regional monopolies, capital allocation matters, blah, blah, blah and a year and a half later, he came back and he said, have you heard of this internet thing because I don't think you understand how powerful it is, not as a source of news, but as a source of where to buy an apartment or how to find a job.
Chris DavisAnd when you recognize that Help wanted real estate listings and, miscellaneous class, classified, car, essentially responsible for 100 percent of the profits of the newspapers on average that we owned, and that it sucks looking for a job in the classified. You used to read through them and you'd circle the ones that applied.
Chris DavisYou couldn't search. And so anyway That I don't know where I would have been without Danson joining and we sort of carried that through with the younger ones. So, that, that's been all part of, and you're so amazing that you remember that Max Perutz's quote. I keep that one a little in a different place. That's right, you're probably in my office.
William GreenThat was a beautiful quote. I also, there was an amazing quote also from JP Morgan that I wrote down that I love where he talked about how our mistakes have been errors of judgment and not of principle and that also seems to me, Yeah, he said, since we have no more power of knowing the future than any other men, we have made many mistakes, but our mistakes have been errors of judgment and not of principle, and that seemed to me a really interesting thing from back in, and it was accompanied with a photo of J. P. Morgan, so this was from 1933 when he talked about the importance of doing first class business in a first class way, and so in a way it's, it is, it's consistent with the Buffett Munger approach to capitalism as well, right?
Chris DavisYeah, it absolutely is. And I think you know my, my grandfather had one of those quotes where I think in today's era, I would've said, shh. I think you need to stop saying that and his quote was, making the first million is the hardest. The second million is just a double. The third is just 50%, the fourth is 33, the fifth is 25. Like each one the threshold for making a million bucks in K gets it, gets to where you can make it on interest.
Chris DavisBut the first one is hard. And so what I would say is, it is, it's Ben Franklin going back to, I think the most, for me, the most important book that I read wasn't Dale Carnegie. It was Ben Franklin's autobiography, which is only 80 pages or 85 pages. And it had checklists, It had ways to improve your character, it had ways to deal with negotiations, it had great techniques for winning influence, I mean, it, a lot there, there's an enormous amount in that book that is useful, but one of course, his famous sayings was, it's hard for an empty sack to stand upright.
Chris DavisAnd so, I used to say that when I was starting, I, I used to buy shoes in New York City for work and then I would have them shipped to my brother who lived in Hoboken. And that way I would avoid New York City sales tax and do I think that is an ethical way to live? No I think the world can understand a kid making 18, 000 a year, sending shoes to his brother's apartment to save sales tax.
Chris DavisNow, when Dennis Kozlowski is sending Monet paintings to New Hampshire, it's a different standard. So one of the quotes in that wall of Charlie Munger's is. is he says, I think as you rise in life, more is expected of you. He then somewhat colorfully says, if you're beer swilling sand shoveler, you can go to a strip club.
Chris DavisBut if you're the Bishop of Boston, you probably shouldn't. So wrong on all levels. But I think this idea that I'm not I don't want to ever have a sort of a holier than mindset, but I do think there is. A point that people sometimes push out too late in their career and the earlier you move it in, better the longer term consequences of saying just what you say.
Chris DavisWe want to do first class business in a first class way. I'll give you a good this. This may be helpful for your listeners, but it's a piece of advice. I recently gave my kids where, as I said, I'm not sure I've quite got the ages right, but one thing I said is before you're 40, and maybe the number's 30 but before, let's split it and say 35, before you're 35, never do business with friends, after you're 35, only do business with friends, there is a turning point there where as you, so you accrue so much insight, wisdom, data, In that in some period of your early career that as you get to your later career, you start realizing that's the coalescence that you started in talking about these networks of people, they weren't relationships. I was going to have it 22 because we were all trying to figure it out. But over time you start realizing, and the sooner you can shift that, the better.
William GreenI wanted to ask you before I let you go about Cardinal John Henry Newman, because when we were in Omaha, you told me about this great quote of his, that I looked up, it's from an 1852 lecture that he gave in Ireland, where he said, it is almost a definition of a gentleman to say that he is one who never inflicts pain.
William GreenAnd I think you told me that you had it in, that you keep it in your phone and it's a central teaching for you and our listeners probably won't know that Colonel Newman was this great English theologian and scholar and priest and he was actually made a saint by Pope Francis, I think in 2019.
William GreenAnd most important of all, he was a fellow of Oriole College, Oxford, which is my college at Oxford and so he may be the only great person to have been a fellow of Oriole College, Oxford, or to have come through Oriole. Can you talk about this idea of a gentleman being someone who never inflicts pain, because it's a beautiful insight, but it's also one that obviously has deep resonance for you.
Chris DavisWell, I mean, one of the interesting things about that is it was given to me by my tutor and my favorite professor in university, and it was a professor named James White, and he subsequently became the moderator of the Church of Scotland, and I have to say, you have to admire any church where the head of it is called the moderator.
Chris DavisIsn't that a great title? Yeah. So he was the moderator, and he gave it to me in a way the way maybe Charlie would have given me, if I had known Charlie then, he might have given me the Ben Franklin quote about these argumentative people may, they win the arguments, but they don't win friends and influence, which would serve them better.
Chris DavisHe gave it to me because I think he appreciated my very deep engagement in the work that we're doing and in my degree. And but I think he also felt that well. I recently had a very sore throat after spending a couple of days at a conference and a man I admire greatly funny. I said, I think I'm losing my voice.
Chris DavisHe said, yeah, you usually don't get that from listening too much. So I would not have been accused of listening too much in those tutorials and in the seminars at university. So he hand wrote out Cardinal Newman's talk because, there, I don't think he had a computer printer and so he hand wrote it out and he, he gave it to me the beginning of my last semester with him and he said he thought it would serve me and so the not inflicting pain as a, as an important part of it.
Chris DavisSo was the idea of the gentleman will seem to be receiving when he's in fact conferring. It's… There's a line in there I love where it talks about, he's, compassionate with the pain, he's patient with the absurd, it's this, he has his eyes on the whole table trying to put people at their ease.
William GreenYeah, it's beautiful, it says he has his eyes on all his company. He is tender towards the bashful, gentle towards the distant, and merciful towards the absurd.
Chris DavisExactly. So, I, my, my grandmother used to quote Harold and Maude that wonderful movie. And there's a line in it where Maude says, yeah. Harold says to [Inaudible] you really love people, don't you? And she says, of course I do. They're my species and I really love people. I love the complexity of life. You can sit on a subway and look at all of those faces and every one of them has a story. And being curious about that to me is a source of so much risk richness.
Chris DavisAnd I think, back then at age 19 or 20 or whatever it was when he handed me that, I think I was much more impatient and aggressive and insecure and there was something about wanting to aspire to that and my gratitude to him for seeing that as potential and going all the way back to mutability, of course, you can become a better investor by learning, of course, you can become a better parent by reading and working at it.
Chris DavisOf course, you can become a better lover and a better spouse or husband. Why if you could become a better cook of course you can become a better person, of course. And this idea that people are defined by their worst moment and reviled and identified by their worst moment. I mean, if you're a Hitler, you deserve it.
Chris DavisBut if you were somebody that worked hard to live a good life and you really screwed up, I was reading about a figure in the Hudson Valley who. Had led the well, it was a complicated redefinition of his legacy where there was unarguably wonderful things that he had done. So, I just think that idea of the beauty of it, of course, it's one of the things I love about investing is it's always changing.
Chris DavisWonderful companies become absolute bureaucratic nightmares, terrible companies reform. I mean, you think about going back to JP Morgan. Think about Jamie Dimon going into JP Morgan. If you want to know what kind of leader he is, and I met him very early when he was still at Primerica, or actually Commercial Credit, which is where he started with Sandy, and his first annual report at Bank, when he became CEO of Bank One.
OtherChris Davis is just required reading. Everybody should read it. Because he had never led anything, so we had no idea. Would he be a good CEO? Would he be too abrasive? Would he be… And he wrote a shareholder letter of accountability, of how to be measured, of fairness, of aspirate. And, J. P. Morgan had certainly, and Bank One, both, had become very mediocre institutions and the drive and the commitment and the value system and the legacy is an incredible transformation. So that, that constant changing that can come I love that in all aspects of life.
William GreenThere's also something in that Cardinal Newman letter that I thought was very beautiful and weirdly resonant and apposite for investors as well, where he just was so on undogmatic.
William GreenI wrote down this paragraph where he was talking about non-believers, and obviously he was a man of deep faith, but he said, if he be an unbeliever, he will be too profound and large minded to ridicule religion or to act against it. He is too wise to be a dogmatist or fanatic in his infidelity.
William GreenHe respects piety and devotion. He even supports institutions as venerable, beautiful, or useful, to which he does not assent. He honors the ministers of religion, and it contents him to decline its mysteries without assailing or denouncing them. He is a friend of religious toleration. And I thought that was really lovely that he's able to say, well, Yeah, you can disagree, but disagree agreeably, and be large minded enough not to ridicule what you disagree with, and not to be a dogmatist, and not to be a fanatic.
William GreenIn a way, again, it's something that's beautiful about Warren and Charlie's relationship, right? That you can have a Democrat and a Republican, and they're willing to change their views, and be open to others' views. What do you think?
OtherWell, I think, yeah, I think the sort of the litmus test of what allows you to dismiss somebody completely from your regard has become so, so narrow and so tightly defined, and it's You know, there's so much of the internet that is a gift to the world and I think people that rail against it are making a mistake, but, I actually spent the weekend Saturday in the small town that I'm in, there was a big public hearing where there was a controversial issue in the town, and people, if you were to read what had been written on the internet, the vitriol was despicable.
Chris DavisAnd so the supervisor called this meeting and everybody came together to interestingly held in a church because the town hall was under construction. And maybe that made people behave a little better. But there was so much decency in that room at the end. People really listened. They sat together.
Chris DavisYou drive differently in a small village if you live there. You're a much more courteous human being. Not you specifically, one is. There's a chance that you know the person in the car in front of you. You're less likely to honk very aggressively when the light turns green. And it is, I think that underlying, sort of tolerance for different views it is.
Chris DavisI think, I don't know where the blame starts in the political sphere, but I'm, it is amazing how many people think life is going pretty well in their neighborhood and in their community, but somehow thinks the world is going to hell in a handbasket. And I'm fundamentally more optimistic.
Chris DavisAnd I think like Warren and Charlie, I think there are many people that maintain very close relationships and friendships with people that have differing political views on a personal level. And then as they get out into the broader context, then they're back to the anonymity of just sending in the hate mail.
William GreenYeah and one of my favorite moments, I think from the annual general meeting back in May was when Buffett strays off into non investing topics, which I always find much richer in some ways than the pure investing topics that they discuss, and he said, I've never known anybody that was basically kind that died without friends, and then he said, I've known plenty of people with money who died without friends, and then he talked about Tom Murphy, who you mentioned before, and he said, I never saw him do an unkind act in 50 years, he didn't see any need, And so I think in some ways that message that maybe this is one reason why in sort of David Hawkins kind of terminology Berkshire makes us go strong is it embodies not just being fair to shareholders and the like and being transparent about mistakes, but trying to be honorable and decent and generous, like the way Warren tries to avoid criticizing people by name.
William GreenAnd there's also, there's a kind of, you see the kindness, I think, between him and Charlie and you see the kindness that they show towards Ajit and Greg Abel. There's a sort of sense of decency. And so I don't know, I think that's in a way one of the most valuable things that we can clone and it's relatively easy to clone.
Chris DavisYeah, and if a good framework for thinking about Berkshire as an example is just to think of a phrase of Charlie's that I've always liked is that investing is a subset of worldly wisdom. So everything that they say about investing is if you think about it in a sense, metaphorically, or as a subset of a broader worldview the fact that it works in this subset.
Chris Davisis generalizable. And it, and I think that is true. I just think by and large, that's one of my sort of queries about the basic premise of some aspects of this formalized ESG movement is that it rests on this premise that somehow capitalism succeeds by exploiting another constituency.
Chris DavisAnd that was something that Keynes wrote about and Adam Smith wrote about, going all the way back, that's not the way it works at all. It's not a zero sum game that, the person who's good at fishing and the good person that's good at making hooks can both do those things and both end up better off.
Chris DavisIt's not that one's getting the better deal than the other, and I think that you're absolutely right on that mindset that's there, and thinking of it as a subset of worldly wisdom helps sort of move from one scale to another scale.
William GreenYeah, and well, as Charlie would say, it's all one damn relatedness after another, right? Everything is related. And once you start to have this sort of simple framework for how you think about the way they're behaving, you're like, oh, they're doing it that way that's what I should do. So, I was very struck, for example, when Warren was talking about Ben Graham, and he said, Ben did all kinds of, Thing for me that where he just never expected anything in return and you hear that and you're like, Oh, okay, so here are these people operating in a way where they're kind of generous in sharing their wisdom.
William GreenThey're not expecting anything in return. You're like, oh, it's a different system. Where there's enough wisdom, enough knowledge, enough money to go around, you don't need to kind of hoard it all.
Chris DavisWell, and the elimination of that friction, the elimination of that friction is a source of huge efficiency and in both in this metaphor, in this subset of investing in worldly wisdom, but also in life. It goes back to what we were saying about the amount of energy that needs to be consumed if there isn't trust, all of this friction is created and you need an enormous amount of energy to push through that.
Chris DavisAnd so that sort of effortlessness of the way it falls back and forth it'll probably work out at the end. I have a partner at work, not Danton who runs our client side, who was, probably my oldest friend. We were baptized together as infants and been godparents of each other's children.
Chris DavisAnd we've worked together for 30 or more years. And we go out for coffee or we walk to work together or we walk home from work together, at least two or three times a week. And it is amazing how, whoever gets their phone out quicker to tap to pay for the coffee, but it's, we've had such a, it's on my mind because we were talking last night and this sort of view that over time, we both are convinced.
Chris Davisthat we got way more from the other than we contributed. And it is going back to that Harvard study on happiness, of course, gratitude is a huge shaper of life. And this idea of not keeping score. And the analogy I sometimes use with my kids is if you're running downstairs and you try to place your feet on each stair, you're going to and you're going to go very slowly.
Chris DavisSomehow you lift your head. And you just float down the stairs and this scorekeeping in who did what for whom it, it destroys relationships and this contractually legislating, not just kindness, but also, helping out one another professionally. It is amazing. The gift that I feel, how much I've received.
Chris DavisFrom all of the mentors that you mentioned, and as a result, how much I feel I owe the rest of the world. It's a hell of a great way to live. And it works. I'm not one to speak totally on this front, but I think it works as well. I'll say in friendships, because I'm good at that. It works as well.
Chris DavisAs well in friendships as it does in business, I, one last point, but I just, because we were interviewing some younger kids about internships here and they were all interested in remote work. That was a big that was a source of interest to them. And I talked to them about why, and they said, well, because they have all, they want to have work life balance and so on.
Chris DavisAnd I said, so I'm curious because you just graduated from. College. You were in college during COVID. What was remote class like? And everyone, one of them says they hated it. And you say, why? And they said, well, I didn't learn a lot because I was obviously multitasking. I didn't create great relationships and everybody cheated.
Chris DavisEverybody cheated and I think, well, why would work be any different? Like if you view work as something you do in order to then have a life outside of work. That is a totally different mindset than the idea that work is where you go to become excellent at something, to learn, to have deep relationships and friendships, to admire people that you get to work with every day, to serve a customer, to serve a client to create value, to get better at what it is you do, and by the way, I know there's a, there are a lot of shitty jobs out there, I know that, but I also know that there are far more people That are in those same jobs who somehow find it rewarding and those people are the people that, smile when they help you at checkout.
Chris DavisAnd, then you deal with whether you're calling Comcast to deal with your cable, or whether they're helping you fix a pipe, or whether they're building, installing cabinets. Every are moving. Everybody knows what it is to deal with somebody that is taking pride and pleasure in what they do and somebody that is just trying to get paid and get the hell out the door.
Chris DavisAnd sometimes the vocations overlap. The only difference is what they the orientation that they bring to them and. I feel like with remote work, to me, it's a cancer because it's creating this future alienation from what you really are spending 40 hours a week doing, which is a lot of time to feel like my goal is to do the minimum I can to get paid the most versus it's a way just like school to build relationships, learn, and for God's sakes, not to cheat.
William GreenI don't know. I like working at home, but I've done it for so many years and I love remote working because it meant that my wife started to work at home as well. So suddenly
Chris DavisAnd also your work is entirely cerebral, although I would say the way I do it, I would feel differently doing this with you if we hadn't drunk wine together, out on Fire Island, if we hadn't if you hadn't been through the office and we hadn't sat here talking about walls and culture and sipping coffee. And so this is an extension of our relationship. But if this is all I knew of you, it would be a totally different experience for me.
Chris DavisThat's true. By the way, my father was a remote worker too. So I can see how it works for people that aren't, that are in a sense, self-learning but if you're part of a team or part of an environment, I think it's a totally different experience.
William GreenWell, Next time, Chris, I definitely hope we'll do it in your office. I'll be more efficient about arranging a cameraman and the like and we'll come do it in person.
Chris DavisEspecially one that can airbrush in the illusion of an upper body.
William GreenHa, but this has really been such a pleasure. I've really enjoyed it and it's always a delight chatting with you and also as a longtime shareholder in Berkshire, I'm happy that you'll be helping to safeguard the culture down the road. So, I'm fully in support of that mission.
Chris DavisAll right. Well, thank you so much. I'm so glad for what you've done, I think really to me, celebrate what's special about the number of people that I admire and, in a profession, I think that gets misunderstood and I'm just grateful that you've put that out in the world.
William GreenAh, thank you so much. All right. Take care.
Other[Crosstalk]
William GreenAll right, folks. Thanks so much for tuning into this conversation with Chris Davis. As I'm sure you could tell, I always find it tremendously enjoyable chatting with Chris, not least because he's full of thought provoking insights and unexpected opinions.
William GreenA few years ago, when I was interviewing him for my book, Richer, Wiser, Happier, I remember visiting him at his office in the Rockefeller Center in New York, and we chatted about his view that great investors tend to have relatively low emotional intelligence. As Chris explained it to me, one reason why they're so successful is that they're not overly influenced by what other people think and, as he put it, the easiest way not to be overly influenced by what other people think is not to be that aware of what they think, or, for that matter, simply not to care what they think.
William GreenSo as Chris saw it, having low emotional intelligence helps them as investors. But also tends to be a problem in other areas of their life, because often, yeah, they're able to go against the crowd and think for themselves, but their lack of emotional intelligence makes it pretty hard for them to bond with people and form close attachments, whether it's with relatives or friends, which may explain why so many of the greatest investors end up getting divorced.
William GreenIn any case, it's a fascinating insight and it gives you a sense of why it's always a blast to chat with Chris, who's a really interesting and thoughtful observer of business and investing and life. I'll be back very soon with some more terrific guests, including a conversation with Laura Geritz, whom I wrote about at some length in my book. I'll also be interviewing another legendary investor who oversees more than two trillion dollars.
William GreenIn the meantime, please feel free to follow me on Twitter @WilliamGreen72 and if the spirit moves you, do let me know how you're enjoying the podcast. I'm always really happy to hear from you. It makes it a lot of fun doing the podcast, knowing that it's resonating with a lot of you. So thank you truly for your messages. I really appreciate it. Until next time, take good care and stay well.
OtherThank you for listening to TIP. Make sure to subscribe to We Study Billionaires by The Investor's Podcast Network. Every Wednesday we teach you about Bitcoin, and every Saturday we study billionaires and the financial markets.
OtherTo access our show notes, transcripts, or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision consult a professional. This show is copyrighted by The Investor's Podcast Network. Written permission must be granted before syndication or rebroadcasting.Help us reach new listeners by leaving us a rating and review on Apple Podcasts ! It takes less than 30 seconds, and really helps our show grow, which allows us to bring on even better guests for you all! Thank you – we really appreciate it!Disclosure: The Investor's Podcast Network is an Amazon Associate. We may earn commission from qualifying purchases made through our affiliate links.In this episode, William Green talks with Chris Davis, a renowned investor at Davis Advisors who also serves on Berkshire Hathaway's board of directors. Here, Chris shares powerful lessons he's learned from his mentors—Warren Buffett & Charlie Munger—about building financial resilience, learning from our mistakes, avoiding our weaknesses, harnessing trust, & flourishing as we age.Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.
William GreenHi there. I'm thrilled to introduce Chris Davis, who's our special guest on today's episode of the Richer, Wiser, Happier Podcast. Chris is a very well-known and extremely insightful investor who spent most of his career at an investment firm called Davis Advisors. One thing that's unusual about him is that he belongs to a multi-generational family of exceptional investors.
William GreenHis father was a legendary fund manager named Shelby Davis, and his grandfather was a legendary private investor named Shelby Cullom Davis, who famously turned an initial investment of $100,000 into something like $800 million by the end of his career. So Chris is the third generation in this dynasty of elite investors, who've built a series of fortunes in the stock market going back to the late 1940s. As you'll hear in this conversation, he's also an unusually charming and ebullient and engaging conversationalist, so maybe it's no surprise that he's one of the best-liked and best-connected investors I know. He's friends with an amazing array of financial icons, including Warren Buffett and Charlie Munger, who've been invaluable mentors to him.
William GreenHe's also very close to renowned investors like Tom Gayner, Mason Hawkins, Bill Miller, and he was friends with the late Jack Bogle, who founded Vanguard. Chris has also spent a good deal of time in the company of a lot of hugely successful CEOs, including Jeff Bezos and Jamie Dimon. So, in many ways, I think of him as the ultimate insider, observing up close what it takes to succeed at the very highest levels of business and markets.
William GreenA couple of years ago, Chris received the ultimate seal of approval when he was appointed to Berkshire Hathaway's board of directors, where he gets to hear Buffett and Munger opine behind closed doors on whatever's on their minds. In today's conversation, Chris and I talked in some detail about what it's like to be in that inner sanctum, listening to Buffett speak at Berkshire's board meetings about subjects like risk and the profound importance of being financially resilient under any circumstances.
William GreenWe also talk in some depth about what Chris has learned from Buffett and Munger, about how to succeed by structuring your life to avoid your weaknesses, about learning from your own mistakes in an unusually honest and transparent way, and about harnessing the power of relationships built on virtues like trust and kindness and generosity of spirit.
William GreenI hope you enjoy our conversation. Thanks so much for joining us.
OtherYou're listening to the Richer, Wiser, Happier podcast, where your host, William Green, interviews the world's greatest investors and explores how to win in markets and life.
William GreenAll right. Hi, folks. I'm absolutely delighted to welcome today's guest, who's Chris Davis. And Chris is chairman of an old and renowned investment firm named Davis Advisors, which I think was founded back in 1969 and he's also a member of the board of directors of a small obscure company that some of you may have heard of, namely Berkshire Hathaway. It's lovely to see you, Chris. Thanks so much for joining us.
OtherOh, I'm so glad to be here. I've been looking forward to this, which I don't say about a lot of interviews but I feel like the way you approach life and the universe and everything has made me look forward to this conversation.
William GreenThank you so much, and before I forget, since we were talking about it right before we got on, talk to me about this idea of our 30,000 days, because it's such a beautiful idea, and two hours from now I'm likely to have forgotten that we talked about it, so discuss the significance of this before we get started on anything else.
[00:04:00] Chris Davis: Well, I’m going to start, I’m going to go back to my days as an accountant because this is actually when I first sort of started thinking about it, I’m not much of a birthday celebrator but one of the things I’m particularly struck by is the ones that are hallmarks tend to be tied to 10, 20, 30, 40, 50, 60 and so on, not a lot of life changes around those sort of random decades.[00:04:24] Chris Davis: And when I was working back at State Street as an accountant, I had the worst job, which is I had to, at one part of my job was to calculate the NAV of money market and bond funds. And that meant accruing the interest by the day. And so, Lotus 1, 2, 3 had just come out and so I was using that to write a little program to make it easier to calculate bond interest and count all the days and so on.[00:04:54] Chris Davis: And when I was testing it, I put in my own birthday and ended up, I was at the time, something like 9,500 days old. And that was sort of the genesis of this idea where I started thinking, we live about 30,000 days or generally have 30,000. Really productive days and our life divides much more naturally on the 10,000 day increments.[00:05:18] Chris Davis: So, after 10,000 days, you’re about 27 or so, 28, somewhere in there, and you often think that first 10,000 days is about going wide, experimenting, trying new things, new places, new professions, new people, new towns. It’s a time of exploration and 21 years old doesn’t capture it or 20. And by the time 30 comes around, usually you’re already into what I would call that second phase of life.[00:05:46] Chris Davis: So right around 10,000 days by then, usually on average, people have decided what they want to do, where they want to do it, who they want to do it with. And instead of going wide as they have for the first 10,000 days, it’s about going deep, just the depth of relationships that comes through marriage, through family, through your vocation, your profession, your colleagues, you sort of have 10,000 days to execute. 10,000 days to accomplish and build what in many ways will be the sort of monuments of your life, your family, your kids, your profession, and then right around 55, 56, 57, somewhere in this 50s range, but what happens, your kids are grown and beginning to leave, what you’ve achieved professionally is fairly settled.[00:06:37] Chris Davis: And in a funny way, it lifts an enormous weight off many people. I think it’s one of the reasons people actually end up growing happier as they get to their 50s, 60s, 70s. Because you’re in a time when you can, in a sense, go wide again, you have more perspective, you have less of that urgent depth of the day to day.
QuestionerSo, anyway I know when we started talking, we were talking about this idea of both sort of completing the, maybe our second 10,000 days and now looking at how we think about this next 10,000. This chapter that sort of gets us from here to around in our 80s and how does this affect the way that you're actually living?
QuestionerLike, what is this awareness of these three phases do to your view of how to behave and what to focus on and what you're actually optimizing for at this point?
QuestionerWell, this sort of ties in with how I think about investing is so much about it. It's about anticipation and preparation. So I think a lot of people go through unhappiness in their thirties in part because they're sort of thinking, where did my youth go? I used to be able to do all these different things and now I'm tied down and if instead you have this mindset, you really look forward to that. The privilege of being able to go so deep to concentrate and I think how it's affected me thinking about this next 10,000 days is a little bit about this idea of inverting it and thinking about what would stand in the way of this 10,000 days being a very enriching time of life. And of course, health is one of them. So it becomes, as you think about going into this next third, it becomes a time where you think a lot about taking care of yourself.
QuestionerYou think about investing in relationships. When you're raising a family, when you're in the office every day, when You know, a lot of your life and your social life are structured for you. As you get to the next 10,000 days, people can lose touch. So I think it's also been a time when I've really invested in maintaining, invigorating, revisiting relationships, deeply getting to know my children's partners and spouses.
QuestionerMaking sure that there are aspects of friendships as people, I, we may get to this, but I, the idea of retiring has no appeal to me. I mean, I love what I do. It always seems startling to me that we get paid so well for studying something so interesting and it should be a profession where we get better over time, provided we're not creating behavioral and psychological roadblocks.
QuestionerAnd if that is the case, I would like to continue as long as I could, but of course, I also recognize that's not the same for many of my closest and oldest friends. And so, as they contemplate retirement and moving and going to different places, old patterns can dissipate.
Chris DavisSo, I think it's a time to really invest in being prepared for this sort of exciting chapter that's in front of us. It may not end very well but 10,000 days, it's a long time and so I think it certainly has impacted how I think about preparing for that transition.
William GreenI thought it was very interesting the Berkshire annual general meeting, which I guess that's where you and I last chatted.
William GreenActually we spoke for a couple of hours on the Sunday, I guess, after it all ended and everyone had laughed and you and I had the pleasure of sitting down with another friend of mine, Inah and chatting. I was very struck at the AGM that Buffett said a couple of times, he talked about the idea of writing your obituary, and then trying to figure out how to live up to it, and he said, look, if you want to know how to live your life, write the obituary, then reverse engineer it, go backwards, which is really not dissimilar to what Nick Sleep does with this whole idea of destination analysis, of figuring out a happy ending, and then, oh, they didn't use that phrase, And then working backwards, thinking of the inputs.
William GreenI know, sorry about that. Trigger warning here and then starting to work backwards to figure out what the inputs are to get that. And obviously, you've been close to Charlie Munger and Warren Buffett and we'll talk about this more. I'm wondering how… Seeing Warren at 92 and Charlie at 99, seeing how they've lived the sort of the final chapters, the closing chapters in this kind of remarkable way, how that's had an impact on your sense of how you want to live that third stage out of the three, however long it may be.
Chris DavisWell, and I could expand that list. I mean, Warren and Charlie are great examples, but I had an incredibly influential grandmother. In fact her pictures on the wall here next to me who died at 106 and I had her in a kayak at 104 and had her on a motorbike at a hundred and she had a PhD in international relations.
Chris DavisI mean, she was an incredible intellect and model, [Crosstalk] Catherine. So that was Catherine Davis.
William GreenWhat did you learn from her? What did you observe?
Chris DavisWell, she was magnificent in every way but this is going to be a tie into Warren to Charlie to all of the people that I would put on that list is one was this idea of they kept interested, they kept so engaged with life. My mother has a very close friend who we always admired as kids because she was, that, that powerful sort of irreverent woman. But one of the things I've watched as she's gotten older is she resents the impact of technology.
Chris DavisShe doesn't want to learn to use a cell phone. She doesn't want to do email, she doesn't. Certainly not going to do Instagram or something and the result is she is increasingly getting cut off. So this idea of keeping interested, how you stay interested in the world around you. I think the second thing is they all kept optimistic.
Chris DavisThere's a very common sort of old man disease, which is the world is going to hell and of course, we feel like that because we're no longer at the center of it. America in particular, but a lot of the world is oriented. Every marketing message is oriented towards people in their peak spending years, in their peak, family years, you're at the center of everybody depending on you.
Chris DavisAnd I think what happens is gradually, of course, the world moves on and you become less relevant, and rather than have your ego absorb that reality, people rail that the world is wrong, that if only people listen to them, so I think you get a pessimism that begins to take over, a rancor, and so I think resisting that is the next, so keeping interested, resisting that pessimistic tendency, which is really simply the extrapolation, of the approach of your own demise and projecting it onto the world, a related one to keeping interested, and I've seen this so much with Warren with Charlie, with my grandmother, other people who are octogenarians and whatever the next two decades that come after that means certainly with my father, who's 86 and still skiing.
Chris DavisIs this they keep making new friends. It is a very sobering part of life is how dramatically differently people age. I had the enormous misfortune when I was a kid and a teenager of not hitting puberty. In fact, I didn't break five feet tall until I was a senior in high school.
Chris DavisI will just say the loss of other defining milestones happen somewhat later and that made that time of life very trying and but of course, the other side of that as Charlie Munger likes to point out is one of the other than genetics. One of the strongest predictors of age is how late you hit puberty.
Chris DavisAnd so, of course you see it with friends aging at different rates, and so that idea of my grandmother very late in her life said to me that it was very difficult for her that she not only outlived all of her friends, but she also outlived many of her friends' children. And so for her, it was keeping making new friends became a very important part of it.
Chris DavisSo, what I would say when I look at all of these older people that I admire is they're interested, they're optimistic, and they're constantly meeting new people and pursuing relationships and there's not a lot of time for self-pity to one friends that only one organ recital a day, they don't need to spend a lot of time talking about what's failing.
Chris DavisSo, look, isn't it ultimately that idea of living life backwards from your obituary or from your funeral? It is a very useful way to think and it, it is keeping that perspective in the back of your mind, I think is a very useful exercise. And so yeah, I'm with you on that one.
William GreenYeah, Ray Dalio came on the podcast and was, we had a long discussion about his most recent book, Your Principles Journal. I think it's called, which is all about how to develop your own principles and there's a very bracing section of that and also of our discussion where he talks about just being brutally aware of where you are in that arc and also being brutally aware of where the people you love are. are in that arc, whether it's your parents or your kids or whatever.
William GreenAnd so you can adapt your behavior accordingly to people depending on what their needs are and one thing he said to me that had a real impact on me was he said that your job in the later stage really is to prepare the next generation to make sure that they'll be okay without you.
Chris DavisYeah, it's funny you say that. I was out actually out in Fire Island where we have a shack on stilts in a swamp.
William GreenYeah, right. I've been there. That whole area is not such a shack.
Chris DavisWell, you didn't see my house. Visited friends who have, views of an ocean and so on but I was coming back at night and it's a place where there are no cars.
Chris DavisAnd so I was riding a bike and had a little flashlight and I was coming up to the house and the lights were all on inside. So I could see in the windows and, what I saw was my three kids and their significant others and some friends of theirs and they're all sitting at our dining room table laughing and carrying on and that moment of feeling like I'd almost don't need to go in.
Chris DavisI would mark it at that particular moment. One of the happiest moments of my life, just looking in that window and seeing all that. So I do think there's a lot of truth in that idea of doing what you can to make yourself obsolete.
Chris DavisAnd yet, of course, wanting to occupy mental space in people's minds and wanting to have been a productive force in the world and within your community, within your family but, within the world in general, you don't, you don't want the world to be worse off for your existence.
William GreenSo much of what seems to become most important increasingly, the more I interview great investors, the more I realize the extent to which they're talking about relationships is the thing that determines everything. I mean, I remember asking Charlie, what can we learn from you and Warren about how to have a happy life and he immediately started talking about relationships. Same with Ed Thorp, when I asked him about the secret of a happy life, how to win the game of life, given that he's one of the great game players of all time. And he again, he starts talking about how, who you spend your time with is clearly the most important thing of all.
William GreenI wanted to talk to you about this whole idea of relationships in some depth, because I think one of the things that's distinguishing about you and your friend Tom Gayner, who's been on the podcast and who's a friend of mine as well, is your ability to have these extraordinary relationships, your You have this incredible network of remarkable friends.
William GreenIt includes people like Buffett and Munger and Bill Miller and Mason Hawkins and Tom Gayner, as we mentioned, and Brian Lawrence, a lot of remarkable investors and remarkable human beings are very high integrity, extraordinarily talented people. I wonder if you could talk about how, you've done it, and also how you observe these masters of building what Tom would call trust based relationships, how you've observed them doing it, because it seems to me an extraordinary competitive advantage in life and at the same time, obviously enormously life enriching.
Chris DavisWell, I think going back to this peculiar subset of people that you focus on investors, obviously that's a term that covers way more people than would fit the description that you just mentioned of valuing relationships.
Chris DavisRight? In fact, I would argue that there's an enormous subset of people that have built very substantial fortunes in one way or another, investing or speculating or trading. To quote Charlie Munger once said to me, who don't have one true friend in the world and rightly so and so I actually think it is a relatively narrow subset of investors that end up at some point in their life, highly recognizing and acknowledging the profound value of relationships.
Chris DavisThey're playing a different game my, my brother, when we were in our teens, had a t shirt that said, whoever dies with the most wins, and there are people that live that way and I think they would pass a lie detector test saying that they're happy, I don't think it's much of a life, but it's the way that, it's the goals that they set out, and it's, What their sense of validation, that's what it comes from.
Chris DavisAnd so I actually think that's more common in investing rather than less common. I think the reason is, I think that to succeed as an investor, you have to think you're right. When, and most other people are wrong about each investment that you make. So that takes a certain amount of either arrogance.
Chris Davisor hubris or an enormous amount of discipline to be able to push through all of the social signals that make us herd animals, which have helped us succeed as a species by being very sensitive to what other people think. And recognizing that the heuristic that most of the time, most people are right in aggregate, in other words, setting price and so on the markets mostly efficient.
Chris DavisSo I think you have a series of personality traits, including Just the amount of work that you need to do it. You need to be engaged deeply in the process. So it's very hard to simultaneously, I think, build a very successful investment career and necessarily check every other box that we might associate with a good and honorable citizen in a community, making sure you're at the PTA meetings and at the meeting.
Chris Davischild conferences and at the weddings and the baptisms and so on. So you add that recipe together of, generally a very driven work ethic, often an ability to disregard what others think about you or What you're doing often, a desire for money, right? Of course. The, there's an aspect of some people are attracted to investing, or certainly most people appreciate the fact that it can be a lucrative profession.
Chris DavisWell, you add that all together, you're not going to get a recipe of, well-adjusted, philanthropically minded, civic oriented people in on average right now, if you swung that. That, that cast that same net into nursing, you'd probably find a lot more people that you would feel are going to be deeply human and have deep connections and so on.
Chris DavisSo, I think you described a tiny, narrow subset and that subset who I think of as value investors and not in the sense of any particular investment discipline. But in the sense of thinking that over a long period of time, things that create value get recognized for doing so. And then it can take a long period of time and it can be lonely and so on.
Chris DavisAll of these things, I think you do begin to get into that subset of people. And then I would say when you get right down to the relationship part, I think ultimately for long term investors. So I'll now distinguish between the value investors that might be doing trade convergence or something.
Chris DavisBut over a long period of time, you come to recognize what an incredible difference individuals can make and they can, what they can, the difference they can make in the world, the difference they can make to their companies. the difference that they can make in any given situation. It is incredible and so you gain almost sort of a reverence and an admiration for what people can achieve.
Chris DavisAnd so I think you end up with a higher view of humanity because you've taken a time horizon that you've extended over a long period of time and you've sort of seen that impact and yet you've combined it with a value system that is willing to think independently and be held accountable. And so I like that subset you described.
Chris DavisI just don't think if you swung that same net around Wall Street that would be the, that would be the way it would shake out the most. And of course, in some ways we've all selected each other. As Bill Miller said to me once, it's nice to see people who approach the world the way you do well.
Chris DavisAnd so you want to help each other and so of course, we seek each other out. I have a picture in our conference room from the depths of the financial crisis and it was with Warren. Who else was in there? Will Danoff was in that picture and Mason, Bill as I said, Warren, I think there were a couple of others but the caption, somebody had scrolled on the bottom was, value investor support group and it was just all trying to get through that dark period.
Chris DavisSo, it's I think it is unusual in Wall Street on average, but I think that the key determinants are what I'll call the value system with a capital V and then the time horizon. And those two things, I think, is part of what creates that convergence.
Chris DavisI certainly think there's some kind of competitive advantage here that I was slow to realize that we're often taught that you have to have sharp elbows to get by in any profession.
Chris DavisI think that was the case in journalism, that it's pretty brutal, and also it was a sort of slowly sinking ship, which doesn't bring out the best in people. And in investing as well, very cutthroat, very intense, very competitive. And so it took me a while to realize that there's a different way of playing the game that was more Well, less of a zero sum approach where one person has to suffer in order for someone else to do well.
Chris DavisAnd so I sort of had this sense when I was thinking about people like Charlie, for example, that it was a different way of operating. And so I remember Charlie sort of saying, look, we have this simple system to have a good partner, be a good partner, or to have a good spouse, deserve one. Or Tom Gayner saying, you need to extend trust first and then see if people reciprocate it.
Chris DavisAnd so I do, I think there's something going on here that's deeper that these very wise people have figured out a different operating system. Am I deluding myself or is there something going on where they're behaving in a kind of relatively exemplary way, despite being flawed human beings like all of us and they're attracting extraordinary people into their ecosystem as a result?
OtherYeah, the only trouble is you're discussing a correlated group. In other words, they aren't, it's not a random distribution of people that have succeeded. They're people that have been enormously influenced primarily by Warren and Charlie.
OtherAnd that and that relationship, the waves of that have sort of persisted out. You could say Thorp is sort of a non-correlated in some ways, although there were obviously those historic overlaps and he's not somebody I know personally but I would say that, and for Tom and for me, the influence of Warren and Charlie is so dramatic.
Chris DavisIt's not a coincidence that we have shaped decisions that we've made in our own lives and our own careers based on our admiration of. Not just what they've achieved, but the way they've achieved it. And I would put Bill Ruane in that category too, Bill used to say that, I know Warren's got 70 IQ points on me, but knowing that, that's helped me make good decisions because I don't kid myself and I was able, as Bill did, to delegate an enormous amount of his return in essence to Warren.
Chris DavisSo I do think that there's sort of correlated in that sense but well I may have lost my thread on where you started there but
William GreenI just, I think there's a different system at play. It reminds me of Nick Sleep saying to me. He said at one point, look, I don't know whether or not I believe in God.
William GreenI think he probably does, but he said I believe in good and I believe that good things grow. And I think there's something. There's something kind of life affirming when you see these people behaving decently and honorably and it kind of works out, but who knows, maybe it is just because they're so damn smart anyway that they could succeed anyway.
Chris DavisWell, that's probably true in some but I do agree that we were marooned on a desert island, sooner or later, everybody would be killing one another and there's really no evidence for that. The evidence is the opposite and the more you study. Evolutionary biology at the species level rather than at the individual, survival of the fittest is one of the most grossly misrepresentative articulations of a profound truth that there is, of course, humans are in no way the fittest in almost any dimension.
Chris DavisThe superpower is not at the individual level. It's at the cooperation level. It's at language. It's really at trust. If we were not able to cooperate, we would still be floating around the middle of the food chain as we were for most of all of human existence cooperation and trust and the feedback loop that comes from that.
Chris DavisNow, if you want a wonderful way to quantify that, I love the idea of not just cryptocurrency and blockchain generally, because to me, one of the most interesting tenants of blockchain in general and I'll use Bitcoin in particular, is what did they call them? Trust lists networks. So you have a, you're creating using technology, a means of exchange that does not require trust.
Chris DavisNow, an interesting thought, experiment is to say, wow, how much energy needs to be consumed to duplicate trust. And therefore, sort of conclude, well, that must be, in a sense, the efficiency of trust is requires this much energy to sub, as a substitute. So, you've got to burn a lot of carbon and burn a lot of electricity generate a lot of electricity to generate a substitute for trust. Now, think of the other side. You think about this idea of operating in a web of earned trust, and we talk about it on a moral plane that this is good, the right way to behave. That you have to have some metaphysical belief in the power of good, but you could be entirely mercenary and simply say, trust is an incredible source of efficiency in particularly in business.
Chris DavisI would also say in life and that ironically, Bitcoin is a demonstration of how much energy has to be consumed to replace trust. So we have traders that have been in the business a long period of time, and they're on the phone, sort of generalize here, but they're putting in trades that may involve, billions of dollars.
Chris DavisAnd there are cases every year where there has been a mistake made somewhere, and I don't mean an investment mistake. I mean, somebody, inadvertently, put a zero in the wrong place or, misspoke or misheard. And it is amazing how much is undone because the person on the other side says, oh yeah, we'll figure that out. it's not a survival of the fittest. It's this view that we are in a system where I trust you and you trust me. And so watching the way that operates and watching it as scale at a company like Berkshire. It's staggering the efficiency and how much you would need to do.
Chris DavisJust think of a due diligence on a transaction. Think of what the investment bankers charge and the consultants just to do due diligence on a transaction. You can view that as like with the crypto. That is what people are paying because they don't have trust. So they pay all that and then do they get a better outcome?
Chris DavisI don't think so. I mean, I think Berkshire is an example that all of the foregone due diligence trips and investment banking and auditors and so on would not have produced an outcome that would have raised returns or avoided fraud. In a way, trust ended up being a superpower on it. So I think it's the right way to live but I think, even if I didn't think about that, it would be a strange thing for somebody to fail to recognize what enormous power there is in having a strange thing certainly in a business context, operating in a web of trust it is, and as I say, it's certainly a more fun way to go through life. I wouldn't want to substitute it.
William GreenSo, it's also interesting if you invert it, right? And you go back to what Charlie was saying at the annual general meeting where he was talking about avoiding toxic people. And he said, look, get toxic people out of your life and do it fast. And there was a wonderful moment where Warren said, we'll do it tactfully if possible.
William GreenAnd Charlie was like, yeah, I don't mind a little tact, but just get them out of your life. And so it's, in a way it gets back to Tom's comment that you want to extend trust first, but if people don't reciprocate, boy, do you get away from them quickly.
Chris DavisWell, for me, it felt, for example, one of the things I love about stocks is it's not a negotiated transaction and if I look over my whole career at the private deals I've done personally, as a firm, we've done some with great success, but when I look at the ones that I've done personally, it's a pretty poor record and it's particularly poor because I can't imagine looking somebody in the eye and lying. And so, when you're in a negotiated transaction with a seller.
Chris DavisI am terrible at that. I would not. What I love about stocks is the price is set. I'm not negotiating with the other person. That is, I view that as a weakness in me not a strength, but I've been able to structure my life. So my inability to be a hardnosed negotiator has not hurt me, in other words, to be a little naive and, except it, it doesn't help me when I, buy an apartment or something. And I learned subsequently that people were lying through their teeth about whether a fireplace works or something, then I feel like a sucker.
Chris DavisOh, I shouldn't, I should have had an inspection on that element or so on, but. For me, stocks are wonderful because I don't have to have, I don't have to have that negotiated transaction. The I think the idea of when somebody has lied to you, it's one of the reasons I think short selling would be such a terrible way to live.
Chris DavisYou have to You know, that toxic person, you can't get them out of your life. You've got to, you've got to spend every waking hour studying that toxic person, trying to elucidate all the ways that they're toxic and deceitful and lying and stealing. Well, that's a. That's a tough way to go through life immersed in toxic people.
Chris DavisSo I like Charlie's and Warren's philosophy a lot more. And as I say, there are people where I think where stocks sort of create the perfect venue where you don't need that individual on the other side, you don't need to come to terms with the seller. And whatever, for me, the behavior biases I have that would make that very difficult, instead, I have a set price and I can figure out what to do with that price.
Chris DavisSo, it's what I would say is that all of the people have in common a Tiger Woods trick, which I really love, which is I, whenever I talk about sports, you have to footnote that I don't know anything about almost any sports. But I like sports because I find it metaphorically rich. And so, Tiger Woods, I think it was his first British Open, as I understand it.
Chris DavisThe weakest part of Tiger Woods game at that point was his coming out of the sand trap. He was not very good at that, relative to the people that were the best at it, and they were playing the British Open at a course that was renowned for these bunkers that looked like they were created by a piece of artillery, and, the deep, nasty bunkers, and so the press was really pushing Tiger on, have you been working on your sand game?
Chris DavisAnd they were watching him in the practice rounds. And he said, no, I'm working on my drives and my low irons. And they said, why? And he said, because I don't want to go in the sands and he played the entire British open and didn't go into a bunker once, which is an incredible sort of mental model to have.
Chris DavisWhich is, and if you can identify your weaknesses, yes, trying to reduce how severe they are, you don't want weaknesses that are going to take you down, but then trying to architect your life. So you avoid them is the best of all. And I would say something that Warren and Charlie and many of the people you mentioned have done well as they've structured their lives.
Chris DavisSo whatever their weaknesses are it hasn't been taken them down. And so you mentioned Charlie's bluntness. I don't think that would have served Charlie as the CEO of a Fortune 500 company. It wouldn't have served him as a manager of a lot of people. It wouldn't serve him to have to, when you go from a platoon to a company to a brigade, all those, Roman, there's a turning point where all of a sudden you can no longer communicate directly.
Chris DavisYou have to begin to communicate. with stories and you have to allow yourself to become a, some sort of, some sort of an out of who you are and that I think would have been, I mean, I'm speculating, but I think it would have been very difficult for Charlie and so Charlie structured his life in a way where that, those personality traits of his didn't set him back.
Chris DavisWarren is an incredible communicator and exudes this sort of warmth and people. But he has a very hard time, as he says, describes, making those really hard decisions to fire somebody or to replace them. So he's structured, here he is as a CEO of a Fortune 500 company, where over time he's had to make very few of those decisions.
Chris DavisSo he's structured his life to minimize those weaknesses and so on. So I think there's. A very powerful lesson for people to carry out is not to necessarily obsess on your weaknesses, but to do your best to structure your life so that you can avoid a lot of them.
William GreenYou made a fascinating observation about the difference between Charlie and Warren's approach to human interactions back when we were talking in May in Omaha, where I was pointing out someone, I'll try not to be too specific, but someone asked a really stupid question.
William GreenAnd I was mentioning that Charlie just dismissed it instantly, like he didn't pretend that it was anything but a stupid question. And Warren replied in such an incredibly deft way, where he didn't insult the person who'd answered, who'd asked the stupid question. He turned it into a useful teaching lesson about something else.
William GreenSo that people in the audience got something out of it, and it was so emollient, it was so charming, and so deft, and I mentioned this to you, like, his brilliant diplomacy, and you were saying, the funny thing is, actually, in some ways, Charlie is the soft hearted guy, even though it doesn't seem it Warren Is this sort of brilliant machine who studied Dale Carnegie and how to win friends and influence people and he has, as you put it, super high processing speed so he's able to tick all of these boxes and know how to behave in a way that's going to be kind and thoughtful and I just thought it was such a fascinating observation. Can you talk a little bit more about that? I don't know if I'm doing justice to your observation.
Chris DavisWell, you know what I'd say, Warren shows any visitor that comes to see him, his Dale Carnegie certificate. hanging in his office. And he talks about how important that was. And people don't read much Dale Carnegie anymore.
Chris DavisIt's really worth reading. It's enormously useful. And it is a very practical guide. It's the subtitle is how to make friends and influence people. And we hear that in our modern ear now, and that sounds very disingenuous or manipulative or somehow lacking integrity. I actually totally disagree.
Chris DavisI think it was, it is a way, as John Wooden famously said, you, you haven't taught unless they've learned. I think it is a way to, to do your best to make sure that somehow you aren't communicating something you don't wish to communicate or don't intend to communicate. And so, I think Warren was an incredible student of that mindset, and so you're absolutely right, and by the way, Ben Franklin was too I have written down, I should have brought it in, I, a book of things that I've jotted down, mostly quotes from books or poems, since I was in college, And one of them is about Ben Franklin talking about how he knew people that were very effective at winning arguments, but they never win one influence or goodwill, and that would have served them better.
Chris DavisAnd the reason they didn't is they, on the course of their winning the argument, they tended to humiliate. The other person. And in so doing they impressed people with their intelligence, but they also gained an enemy and ultimately that set them back. So, and Charlie would hold up Ben Franklin as his Dale Carnegie.
Chris DavisSo, I mean, both of them have enormous, have learned ways Charlie once told me he, he wears suits. In part because he said I'm so unconventional in other ways that if I at least wear a suit, people immediately assume I'm conventional in some ways and that, that's probably helpful. But he, that it was purely a practical matter.
Chris DavisBut I do think that I think Warren is. is so, his father, of course, was a congressman, so I think he grew up with this sort of understanding of this sort of political sensibility in the best sense of the word, in other words, how to create goodwill, how to have people rooting for your success.
Chris DavisImagine the record that he's achieved with almost no enemies. Can you name another fortune that was built where there wasn't a significant consensus or a significant view in the world that somehow that person gets vilified. I mean, I think about watching the changing narratives around Jeff Bezos or Bill Gates or Sam Walton and Walmart.
Chris DavisAnd there are very few you can point to, certainly John D. Rockefeller and Carnegie and all of them but there tends to be Howard Schultz. There's a cottage industry vilifying Howard Schultz. I don't get it. It seems, crazy, but it just seems it sort of goes with the territory.
Chris DavisSo it's an amazing thing for Warren to have built this fortune and still have so much of the world viewing him as this sort of kind, gentle presence and patient. And but I think you're right. I think in, in, in many ways it is a Well, we don't have to speculate whether it's good. It's like honesty, whether it's good policy or whether it's ethically right.
Chris DavisYou can do it for either reason. The effect is the same. Tom Gayner loves to talk about the Quakers. Came to do good and did well, it's the same idea that it ends up that, that approach both serves him enormously well and is a very ethical way to treat people even when they ask asinine questions, but, Charlie dismissing somebody and saying that's an asinine question Warren, as you say, he invests dignity into the question, even if it wasn't there or if it wasn't intended by the asker.
William GreenYeah, I would definitely reiterate that people should go back and read that book, How to Win Friends and Influence People, because of the title, it sounds very cynical, but I started re reading it again last year, because I was talking to my daughter about it, and I was like, yeah, I was saying to her, look, there are really important skills And I was struck when I reread it not only by how skillfully written it is, but how actually I think unconsciously it's influenced an entire generation of our most successful writers.
William GreenAnd so, I actually suspect that in, in the same way that you can show that there's this lineage that comes out of Ben Graham through, Warren and Charlie and many others, including yourself. You can actually, you could plot a kind of lineage coming out of Dale Carnegie, where you could actually show that the techniques that people like Malcolm Gladwell use, and that I use in Rich or Wiser Happier, consciously or unconsciously actually stem from Carnegie, that he would interview these people, and then he would tell these people Really elegant stories and come up with great quotes and sayings.
William GreenIt was very practical. I don't know. I suspect if you looked at all these guys like Daniel Pink now or David Epstein, all these really good nonfiction writers, you'd find that a hell of a lot of us actually consciously or unconsciously owe this huge debt to Dale Carnegie.
OtherI think you're right and I think that the cynicism about it is a real something that's very deeply troubling.
OtherAnd the reason is it sort of gets at this idea of the mutability of human nature, right? If right now there's this sort of obsession with, identity, what is, who are you? How malleable is it? How fixed is it? And so on. And that manifests in all different ways. Almost 3, 000 years ago, Aristotle said virtue is a habit.
OtherIt is what we do. So there was implicit in that, this idea that you could become virtuous. You could make yourself more virtuous. There is something in the zeitgeist at the moment that really views that cynically, as if somehow, it's inauthentic, that who you are is you're screwed. Like whoever you are, that's it.
OtherAnd I think that there was part of the 1950s America, which is, it's a period, the post war U. S. is a time in history that I admire so profoundly, you think of the Marshall Plan, you think about rebuilding Japan, rebuilding Germany, creating almost a hundred years of peace and not just peace, enormous goodwill, right?
Chris DavisThese are our strongest allies. That mindset, which of course came with this sort of optimism that, that in this sort of we can do attitude, but I think that went to the individual, this idea that I will, and by the way, it didn't just start then it was a real characteristic of the late 19th century and the emerging middle class and the creation of [Inaudible] and this idea that as we Achieve means we should work on self-improvement.
Chris DavisAnd this idea of self-improvement, it's a very American mindset. There was a wonderful scene in Chariots of Fire. I don't know if any people even remember that movie now, but with the old English school masters. Sort of chastising young Abrams, the runner because they viewed his training methods as a bit commercial, a little bit not quite in the spirit of things.
Chris DavisRemember the man that they fancy would, practice hurtling by putting glasses of champagne on each hurdle. And here was Abrams, employing scientific methods and a professional coach. So they were sort of chastising him and. And he said, you relish my achievements, but you would have me achieve with the effortlessness of God's.
Chris DavisAnd that was very much the British mindset. I lived in the UK for five years. I love the UK. But. I always was struck by the fact that it's a little bit rude to ask somebody what they do, right? That's an American question. It's actually one of the first questions. I always ask people when I meet them.
Chris DavisWhat do you do? Why do you do it? This idea of vocation and being good at something and or how you spend your waking hours but in, in Europe, in general, and I'll say in the UK, there's an idea, well, you're presuming I need to work, and that alone, it could be a little insulting. I'm not a tradesman.
Chris DavisSo, anyway, that's a little bit of a point. Political tangent. But what I would say is this idea of self-improvement as something that you get started on just the way a value investor where Warren used to say you start at the as in the stock index, you start with, how do you improve yourself?
Chris DavisYou make a list, you put up pictures around you of people that you admire, you have role models, Ben Franklin wrote about it, Aristotle wrote about it, Warren writes about it, Dale Carnegie wrote about it, but somehow there is a cynicism about that I find really discouraging.
William GreenYeah, and unhelpful actually. I mean, when I read when I read Marcus Aurelius' Meditations, which was written not for publication, I think, it was his own notes written a couple of thousand years ago. I read the first chapter and I was like, wait a second, he's naming at the very start, something like 17 people whose qualities he essentially wants to clone and I'm like, here's one of the great thinkers and he's consciously cloning and it was such a fascinating example for me of how these, even someone like he was figuring out how do I improve myself by following this trait of my father in law or this trait of this the guy who adopted me.
William GreenSo yeah, in some ways I think having grown up in England, we think it's a little bit tawdry to admit that we want to improve ourselves. And so, I mean, I remember buying, when I first moved to New York in my early twenties, I was at 21. I was very anxious for some reason. I think it's quite a stressful time in your life where you don't really know what you're going to do and if you're going to find your way in the world.
William GreenI was having terrible trouble sleeping. And I remember getting Dale Carnegie's book the other one, the one about anxiety, that was something like how to stop worrying and start living. And I was like, this book is really good. It's really well written. And I had just got an English Literature degree from Oxford.
William GreenI was like the ultimate intellectual snob, right? And I literally I'm ashamed to say. I not only marked it out very heavily, but I hid it behind other books on the bookshelf because it looked tawdry. It had a tawdry title. It was a mass market paperback. It was on terrible paper, but it was so helpful to me.
William GreenAnd I remember it had these amazing quotes from people like Lincoln, where Lincoln had this sign on his desk that just said today, That was him just reminding himself that he could just focus on that one day and there was an extraordinary poem by Kalidasa, this written in Sanskrit, like two, 3000 years ago that I memorized because it was so helpful.
William GreenAnd so I feel like he had, he'd synthesized this incredible worldly wisdom. And yet somehow it was sort of embarrassing. So I'm mentioning it because I think someone in our audience is going to now buy that book on how to stop worrying, and it's actually going to really help them. And so I hope you'll benefit from my admission of my own shame and in, in hiding, hiding that book.
Chris DavisI absolutely share your shame. It's so true. And it is a peculiar. It's a peculiar regression as a civilization, and I think that it speaks to this idea that I do think is very much the currency of the moment, which is that your destiny is determined by circumstances that are outside of your control.
Chris DavisAnd it could be. Identity and gender, politics, race it could be that, no, the system is rigged so that people achieve, and by the way, I think that and so it feeds this idea that there is no true agency. That in a way, the people that succeeded because the system was rigged, the people that failed because the system undermined their opportunities, and this is outside of the, My, my world.
Chris DavisAnd, but I do think that there is something about removing that agency and that sense of agency that I think is very destructive. I don't think it's permanent. I think these things sort of wash through in waves but the idea that, you could read a book and make a series of decisions that improved your life relative to where you have been, if you hadn't read that idea of agency and a certain amount of mobility. And, I was born on third base, so it's, I'm a very dangerous person to even begin to talk in that way because, I really started with every possible advantage. So, but I will say that I look at, the, I look at my own research team, I'd say, 80 percent of our research team are first generation immigrants or, children of immigrants or themselves, immigrants, I really do believe that there is still an enormous amount of mobility that is possible and that it starts with this idea of self-improvement and that the more we create a cynical environment where that is considered inauthentic or manipulative the more it is dismissed the more we give up on the sort of feedback loops that you described from reading that book, how it helped you and or how Dale Carnegie helped Warren and what that means for the greater civilization.
William GreenYeah and I actually, I remember writing out on a couple of cards various quotes from that book much more the one on how to stop worrying than how to influence people and there was one from Thoreau if I remember I mean it's 35 years since I did this but there's one from Thoreau where I think he talked about exactly that where he said something along the lines of I know no more encouraging fact than our ability to transform ourselves through an act of conscious misquoting it but I'm that was incredibly heartening for me.
William GreenAnd when I look back, I had this fear that there were certain things that were just kind of kind of like your set points where, maybe you had a slightly melancholy nature, or maybe you were just always going to be anxious. And one of the most encouraging things I've found now at 55, looking back, is how, not completely, but very significantly, I've actually managed to change my wiring.
William GreenAnd that's a really, that's an incredible gift, and just to know that, to know, there's a great sage, Rav Ashayek, who said that It's a spiritual law that there's no negative characteristic that you have that can't be changed. And when you see something like that, you're like, ah, wait, so there are these sorts of forms of negativity that you have all these bad characteristics. So you're like, no, actually you can change that too. I find that incredibly heartening.
Chris DavisOf course it is. And you would almost say that even if it wasn't true, it would be good for people to believe it, but it is true. And it's not surprising in that, one of my when I was in seminary, there was a bishop that I loved who was a bishop of Newark, New Jersey, and his name was Jack Spong.
Chris DavisAnd he was a, incredible character and very controversial. But he was a great teacher and mentor to me in many ways and ways, way more than he would even have realized. But he once asked me what is the opposite of faith? And I said, doubt. And he said, Oh no. He says, faith requires doubt.
Chris DavisYou can't have faith without doubt. The opposite of faith is certainty. If you have certainty, you don't need faith. He said, it's very much like, like courage, courage is not the absence of fear. It's the very real presence of fear and then being able to master that fear. But the fear needs is part of what it is to be courageous doubt is part of what it is to be faithful and this idea and the sort of pathologizing of behavior as something that is immutably thrust on you as a condition.
Chris DavisLiterally as a condition and I tease my children often when they say things like, well I have real, I have anxiety about such and such. I was like, how about if you say I'm nervous about that? Just the change in the language. If you say or if you say I'm really worried about this.
Chris DavisWhat if you try saying I'm excited about this? Because both can be true. and excitement and nervousness and worry, you imagine, I mean, I'm sure, if you've ever get on, I have to give a speech, that, that nervousness can be part of what it is. It can all be, but once it becomes a condition, then it becomes sort of immutable or it needs to be treated, but the treatment comes from outside. The condition comes from outside and there we surrender agency. And I just, I'm so lucky, not just from where I started in life, but I'm lucky to have a profession where I'm constantly studying excellence. And I'm studying a group of people now you could say some of them were born to it.
Chris DavisThey, inherited a business or something, but most of them did not come. From a circumstance where you would say their achievement was obvious. And it's funny. We look at athletes with deep admiration because nobody thinks, well, I'm going to segue a little bit to inequality in the, in a strange way but nobody looks at the NBA and thinks it's a problem that LeBron is paid a greater multiple of the lowest paid player in the NBA than would have been the case 20 years ago. In other words, inequality in the NBA has gotten much, much greater, but we don't think it's a problem, and we don't think it's a problem for two reasons, and reason one is that the poorest player in the NBA, the lowest compensated player, still well compensated.
Chris DavisSo there's a sense that you don't have poverty in the face of this immense wealth. You don't have players that are afraid that if I get injured, I'm going to be kicked out of my house and I'm going to lose my coverage. And there's a sense that even the lowest paid player in the NBA is treated well.
Chris DavisAnd then second, there's a view that. LeBron James has a demonstrable talent that is unarguable. It's measured in the statistics and therefore it was fairly achieved. Right? So that nobody is saying that it's unfair. I would argue that Jeff Bezos is LeBron James of capitalism. He achieved what he did through immense talent, incredible commitment, and you could say, well, he went to Princeton and you could say, well, LeBron was born. I don't know how tall he is. Very tall, particularly more athletically inclined than I am. He had just enormous. advantages, physical advantages relative to me, and then he had enormous character advantages.
Chris DavisAnd those conspired together to produce somebody that is an absolute virtuoso and one of the great talents at what they do and I think one of the hard things for me about watching the state of capitalism at the moment is two things. One, we seem to vilify or imagine that success is achieved because the playing field isn't fair.
Chris DavisAnd I don't think that's the case. It is a vicious competitive playing field, the world of capitalism. But I think where there is plenty of blame to go around is the blame that we've somehow achieved a society that has enormous wealth in the face of enormous poverty. So it's not the inequality itself.
Chris DavisIt's that there are people living in fear and people living in poverty in the face of that wealth. And so that would be the area that I would wish for capitalism to do a little better job. Taking care of because I think that if we only focus on inequality rather than focus on poverty which is the real issue, because as I said, there's lots of inequality in the NBA.
Chris DavisIt's not a problem. Poverty is the problem. And that by focusing on inequality, we end up vilifying the talent. And I stand in awe of what the CEOs of so many companies have achieved, not just the founders, but even the leaders. And I was speaking today with the leader of Coca Cola, James Quincy. I mean, he is an incredible leader with incredible commitment, great values.
Chris DavisAnd to say that, oh, well, playing field was tilted for somebody like that to, to rise anyway, that's a little bit of a wild divergence, but I think this going all the way back to Dale Carnegie. This sort of undermining of the degree to which, the combination of luck with enormous talent, with incredible hard work, with incredible ability can manifest in our system.
Chris DavisI wish we could celebrate them the way we celebrate our athletes. They deserve it. And you could argue that what the athletes do for the creating sort of the goodwill and the diversion and the entertainment and the admiration you could argue that there are people that have succeeded in business.
Chris DavisIn a way that has done so much good for our country and for the world, and I would wish that that this tendency towards vilification would end because it's tied, it takes away those people as potential role models, which they shouldn't be.
William GreenIn many ways, Berkshire is a kind of iconic, emblematic teaching institution, right? It's there to show us capitalism done right in many ways. I mean, not that it's flawless necessarily, and sometimes there are controversies, but it's extraordinary. It's an extraordinary culture, and you're in this unique position of having been named by Warren as a director of Berkshire back in, I think, 2021, and just to give our listeners some context, the other directors are Warren himself and Charlie and Greg Abel the likely successor to Warren, Ajit Jain, who runs the insurance operations, Buffett's son and daughter Howard and Susan, Ron Olson, I think, who co-founded Charlie's old law firm, Ken Chenault who was CEO of American Express.
William GreenSo, in some ways, it's kind of the ultimate club, and it's given you this insider's view of capitalism done well, and what makes Warren and Charlie extraordinary, what makes the culture extraordinary. And I wonder if we could get a sense from you of what the experience has been like so far, what you've learned about culture.
William GreenAnd one thing I would mention, I remember talking to our mutual friend Brian Lawrence about this and he was pointing out that there are some really great money managers who would never dream of going on the board of Berkshire because the requirements are really difficult, like whether formally or informally, I think One of them is that you, you have to own a significant amount of the stock.
William GreenAnd I was looking at the ownership statements. And I think you own something like 20 million worth of the stock personally, and you don't get any stock options. And I looked at the compensation structure. and was stunned to see that you received the princely sum of 7, 000 a year to serve on the board.
William GreenAnd I think Brian told me that there's no insurance protection either for the director. So, so you're sort of personally exposed, not enriched, and you have to put up your own money. So can you talk about that unique culture and what you've seen about it and why you would even want to do it and what you've learned from it? And apologies for that long winded question.
OtherOh, no, it's a great question. That's the reason 7, 000 sounds high. I think it's 700 a meeting, but I could be wrong on that.
William GreenYou're the highest paid, I think. I think that most people get 3,000 and unless I misread it, which is eminently possible, I think you get 7,000.
OtherWe'd have to review that and figure out that but yeah, I believe Berkshire is incredibly important as, well, as an exemplar, but as an icon of how capitalism should work. Right? In other words, a company that hasn't taken shortcuts that in almost every dimension tries in every industry and every subsidiary has this goal of, as Charlie would say, getting what you deserve, trying to earn success, no shortcuts, they want to have the reputation with the regulators, with customers for their dealing and, you mentioned Tom Gayner. Of course, Markel aspires and has delivered in the same way. And by the way, there are other companies that do, but Berkshire is absolutely in a sense, the LeBron James of that, right? They, there is the sheer scale of the success the time horizon over which it's been done in every manner.
Chris DavisAnd so, I think Berkshire, for the good of the entire system, Berkshire is worth cherishing and protecting. It is this virtually sort of unsullied example. And, of course, the maintenance of that is something that is very easy so long as Warren and Charlie are there. But the laws of inertia in business and are, are such that the, there are a few records of that persisting and one of the extraordinary characteristics of Warren and Charlie is how much every year every decision they do with the goal of having it persist.
Chris Davisof making their successors jobs easier, trying to lay out a framework. So I think the responsibility of the directors will never be to be in any way involved in the business. It will be in a sense, protecting this culture that really is a culture that is stands out for its independence. It's rejection of all of the conventional ways that people begin to take shortcuts or begin to fall prey to all of the institutional biases that can cause something that's so excellent in its virtue.
Chris DavisSo little things like not paying the directors or paying them very little. Bye. And that is a symbol that is trying to reinforce a culture. And so if you have a criteria that says directors have to own a lot of stock personally, and they have to be willing to serve for no compensation. Well, why are they doing it?
Chris DavisThey're doing it because they care about the place. That's an incredible alignment. I don't, there is no other company that has that sort of criteria. So I think Berkshire is important. for the reminder that it is of how things ought to be. And it's a great sort of benchmark against which other companies can get something that they can look towards.
Chris DavisSo anyway I think the reason to do it. Is because it is so precious as an example. And I think it's good for the system as a reminder that when there's an ethos that says, corporate greed, CEOs, bad capitalism, bad companies get rich. Shareholders get rich. At the expense of other constituencies.
Chris DavisIt's a zero sum gain. So if shareholders grow, they must have somehow profited at the expense of another constituency, employees, communities, the environment, customers. And Berkshire and other companies that they aren't alone in this, but they, as I say, are the most extreme, they achieved not at the expense of any other constituency.
Chris DavisThey built themselves by creating value in the world. and then doing so in a transparent way. So it wasn't just the business. It was also the governance. It was also the communication, the education. So I think it is really worth fighting for. And I think it will be much, much, much harder when Warren and Charlie aren't here.
Chris DavisAnd so that's my one thing that I don't like about it and you and I've talked about this, but you know, I'm from a family of, work before play. That was my expression of my father's that it's in our family. It's just, we say it all the time. And it's granny's rule, eat your broccoli, then you get dessert.
Chris DavisAnd Berkshire is serving Berkshire right now is the opposite. You get your dessert first. You get the play first. You get to listen to Warren and Charlie. You get to go to each board meeting absolutely secure in the conviction that anything that is being done that they know about is being done in an absolutely the highest to the highest ethical standards and with deep transparency and advocacy for shareholders and
William GreenWhat's it like actually being at a board meeting? I mean, for those of us who will never have this experience of being on the inside and actually watching up close, like what's actually, I mean, not in terms of state secrets, but in terms of actually the dynamic and the energy of it, what's actually, what's that experience like?
Chris DavisIf you're a long time shareholder and you've attended annual meetings as you have, in one way I would say, not that different because the tone is completely candid. The only difference is at the annual meeting, I think the mindset that I experienced as a shareholder going to 30 years' worth of annual meetings was Warren saying, what's on your mind? You're the shareholders. I'll answer your questions. And I think in the boardroom, the orientation is, I want you to know what I think is important if our seats were reversed.
Chris DavisNow, I think Warren does that through the annual report for shareholders, and I think the only difference is within the boardroom. I think he has a view that he needs to make sure if there's, an issue and, subsidiary ABC. that he is surfacing it and communicating what he's thinking is going on in the world but the direction is exactly the same. I would say the depth and the fact that, to me, the great gift is twofold. One, Warren tells you what he. is focused on and he thinks in this moment, at this meeting, these are the issues that he thinks are very important for Berkshire. He obviously takes questions as, as long as anybody has them.
Chris DavisBut I think the second thing that I would say is different, not different, but it just was an incredible surprise is too strong a word. But You would know from the outside that there is no CEO in America that thinks about risk in a more profoundly broad way than Warren and Charlie. I mean, Warren thinks about the capital markets shutting down, he thinks about nuclear weapons and bioterrorism and in annual meetings, there are glimpses of that.
Chris DavisI think the one thing I would say I've seen sitting there listening. is how profoundly he structures and wants the enterprise structured to make sure it's resilient to, to, in scenarios that are so, far outside of the thinking of a normal CEO or a normal investor. He is really building something that he wants to last through almost any conceivable scenario.
Chris DavisAnd it is an incredible privilege to just see that mind at work in that way. So everything is directionally laid out, just sitting, reading the end report and sitting in a shareholders meeting. Everything is the same. It's just more of it. And as I say, the risk part in particular is something that I've been, was just, I've been incredibly struck by that sense of profound stewardship for this enterprise.
William GreenIt was very striking in the annual meeting, I always take a lot of notes in my phone, I'm sort of sitting there madly taking notes, and one of the things I wrote down was when he said, we'll never make a decision that kills us, and he said we'll, we keep ourselves in better shape than anybody else, so I think that sense of the obsession with resilience is hugely valuable for all of us.
William GreenI mean, we can't clone his brilliance, but that focus on resilience on surviving anything seems to me hugely important for any regular investor. And then the other thing that came across massively for me when he was talking about the culture of the company at the AGM, he said we feel no pressure from Wall Street.
William GreenWe don't do investor calls. We're working for the people in this room, not people who care about quarterly estimates. And then he was talking about how if the company does good for America, I don't see any reason why it can't survive and do fine. And there was a moment, I think, where he said we'll, we will look at our shareholders as partners, not seeking an edge on them.
William GreenAnd Charlie said something along the lines of he, he started treating everyone else the way he treated his relatives and that to me was such a profound idea. Just that culture of not wanting to get an edge over your shareholders. Can you talk about that? Cause that seems to me to be the absolute essence of the thing, like running it, with not even trying to optimize because you know that a lot of your shareholders have so much of their net worth in the stock for example.
Chris DavisWell, I think you're absolutely right that they run it assuming that Berkshire is the only asset of the shareholders because in many ways it really was.
Chris DavisAnd so that partnership ethos of the family and the doctors and the people that, that had faith, the, obviously A significant amount of the stock is owned by indexes now, when it was added to the S& P 500 and so on. I think the, there have been times when Warren and Charlie have said, we would not buy the stock at these levels.
Chris DavisAnd by the way, you could argue in hindsight, they were wrong. You should always have bought the stock and there are times when they say, at, we are buying stock at this level. So, I think that they want shareholders to have the information to make their own decisions. So, I think that that remains true.
Chris DavisI think that I think that the, that culture, I think of viewing it as the only asset of the end owners. I think that will persist for a long time. I think you've heard me sort of say that I doubt either one of us could name this third CEO of Standard Oil. I used to say nobody could name the second CEO, except it was also a Rockefeller.
Chris DavisBut the third or the fourth. And yet Standard Oil was, the most valuable company in America for something like 11 decades or certainly one of the top three. And I think that's the right mindset. for thinking about Berkshire, how it's built, what Warren is trying to do. We, you couldn't name the third CEO, but what John D. Rockefeller left was a collection of assets that had very long lives and would produce cash for a long period of time. That was the first thing that he left, built and then left. The second thing was a culture that said Wall Street plays their games. famously at Exxon, governments come and go, but we're Exxon.
Chris DavisThat may be too strong for sure, certainly but in this idea that we make our own decisions and we make them based on the combination and the confluence. of engineering and economics. So there is no, it's not politics, it's not perception, it's not trends, it's, these are how we, it was a rigorous engineering culture.
Chris DavisSo I think the combination of this, I won't call it insular culture because that makes it sound like they have their head in the sand, but it was a culture that was resistant To the vagaries of outside influences, many of whom are sort of have ulterior motives and different agendas and that combination meant that If you had Standard Oil in 1900, if you had it in 1950, if you had it in 1990, or if you had it today in 2023, you were well served by those two characteristics that were laid in place by John D. Rockefeller. And John D. Rockefeller was a bigger, larger than life influence, and Chernow's biography is one everybody should read. But you didn't need another one after that. What you needed was people that were protective of the assets and the culture. And I think that is how I think of Berkshire, and how I think of the board's job and the management's job.
William GreenOne thing that's very distinctive, obviously, about the culture of Berkshire that I guess comes a lot from Charlie is this habit of rubbing their nose in their mistakes of admitting when they've where they've gone wrong. And the first time I met you, I think was when I interviewed you for Richer, Wiser, Happier for the book in your office at the Rockefeller center back in, I think, 2017, and I was very struck when you were giving me a guided tour of your office that you had set up, I think what you called a wall of mistakes.
William GreenThat was a wall of shame that was inspired I guess by Charlie and his effort to reduce standard stupidities by rubbing his nose in his mistakes. I think it's really fascinating as an idea relate, well, this whole idea of how you can structure your physical environment actually to tilt the odds in favor of making wiser decisions and I wondered if you could talk about that wall of shame, the wall of errors, the wall of mistakes, how you think about it, how it came about, why it's really helpful for you.
Chris DavisWell, it goes, I mean, it goes so much back to what we were talking about immutability and this relationship between how we can improve ourselves.
Chris DavisAnd as you said, you changed your wiring and of course, our wiring is got this plastic nature and is capable of, it is not at the extremes. I mean, right. We all know. I mean, what clinical depression is something very serious but this idea of, the connection of our physical environment, our physical bodies to our mental state.
Chris DavisOf course, those things are related. C. S. Lewis wrote an interesting essay I read a long time ago about praying. And he said, people have this view. I can pray any time I don't need to be on my knees. And he made a very strong case that you should be on your knees because the connection between our brains and our bodies is strong enough that position, which is, of course, a position of incredible submissiveness affects our wiring.
Chris DavisIn a much more modern interpretation, there was a in the early days of the idea of internet video, it was streaming, there was, at that time, laptops wasn't really the thing, it was just desktops, and this skeptic said to me, well, nobody's ever going to watch a movie on their computer screen, because when you're on your computer, you're leaning forward three degrees, and when you're watching a movie, you're leaning backwards three degrees, and you're different people.
Chris DavisWhen you're leaning forward, when you're leaning back, you have different expectations, your sensory apparatus is working differently. Well, of course that's true. Right now, it was wrong because then you can put your laptop in bed and lean back and read all sorts of things. But so I do think Charlie very early told me to put pictures in my office of people that I wouldn't want to disappoint.
Chris DavisSo that if I was on the cusp of making a decision that was in that gray zone, I might look around. And I might feel a little less comfortable making it I don't think he expected that I would have a bronze bust of him in my office, which I in fact do, but you know, in my grandfather, I had Warren, Charlie, people that I admired and I wouldn't want to disappoint.
Chris DavisAnd then Charlie said to me, when you create directors, you run a mutual fund that the relationship between you and your end investors is very tenuous. Not like Berkshire, where Warren sat at a table and knew his original investors. We work with financial advisors and, and he said, so have a board of directors that you're proud and you're proud of them and you don't want to disappoint them and you certainly don't want to mislead them.
Chris DavisBecause they're the face of your shareholders. And that's how we ended up with people like Tom Gayner and serving in that capacity. Who do you want to report to? But you're absolutely right. The symbolism, when we visit companies, we're always looking for symbols. Is there an executive cafeteria or do the executives eat, are there reserved parking spaces? Are there, the Palazzo's and we're always looking for those sorts of subtle cues. And so, of course, we've tried to internalize that ourselves. So you mentioned the wall of shame, and that's probably a very good and tangible example. So we bring the stock certificates of our biggest mistakes and we put the transferable lessons because and we lead these mistake reviews as a team, Danton, my partner, and I lead those because I worked at other firms and I saw.
Chris DavisThe success having a thousand fathers and failure being an orphan. And I worked for one individual that he just, it was always somebody else's fault. And it was so clear that this man who was an incredible analyst was going to fail as a portfolio manager and as a businessman. Because, as a portfolio manager, he had a hard time revisiting his work.
Chris DavisAnd then as a business, he created a culture where people were afraid to admit their mistakes and had to pin the blame. And it was always the company lied to us or, somebody else's fault. So, I think it's a really useful thing
William GreenAnd you looked at something like AIG, for example, which I remember you telling me once was definitely your most painful and expensive mistake, where You know, this had gone from being one of the world's biggest financial companies and great insurance companies to almost collapsing and having an 85 billion bailout from the government and during the financial crisis and you obviously were a big shareholder and an expert in financial companies. So particularly painful. Like what, when you came out of that and you went back and you did your postmortems, was there something where you actually changed the way you invested or the way that you looked for disconfirming evidence?
William GreenLike, was that process of. of really rubbing your nose in your mistakes, practically helpful to you and making you a better investor.
Chris DavisYeah, I mean, the goal, each plaque that's written on the bottom is not what happened, right? It's what was the transferable lesson learned from what happened, right?
Chris DavisIn other words, our goal is to earn a return on those mistakes, on the money that was lost. By the way, there wasn't money lost on all of them. There's one on that wall where we made. I don't know, six or seven folds on our investment. It was just trying to recognize that we had gotten lucky. So, obviously the mistake wall, the wall of shame is focused on process, not on outcome.
Chris DavisSo Warren, and you, I don't, I'm sure he wouldn't mind my saying this once, I was asking him about this idea of having a significant loss on an investment. He said, oh, you shouldn't be afraid of having a loss. It's, going back to, you were talking about Thorpe and you think of the Kelly criteria of how much to bet, he said to me, I'll bet you a billion dollars on a coin toss if you give me two to one odds, and so I'm willing to take a 50 percent chance of losing a billion dollars because the odds are so much in my favor.
Chris DavisBut I wouldn't bet you 10. So I have to size the bet right. I have to make sure I know the odds. So if he took that bet and the coin came my way, it wouldn't go on a mistake wall for him. I mean, I'm speculating, so I'll say it from my point of view. If we took that bet with 2 to 1 odds, and it didn't come out, and we had a loss, we wouldn't say there was a transferable lesson to learn from that unless the coin was rigged or something like that.
Chris DavisSo we're thinking very much about what is the transferable lesson learned. So you're right. AIG was the biggest one. Probably the one that we've earned the highest return on was Lucent, interestingly, because Lucent was one where our own processes worked, but we kept overriding them. And the reason we did is because Lucent was, it's hard to bear this in mind, Lucent was the most admired company in America.
Chris DavisNumber one, fortune ranked, most admired. Had a blue chip board. I mean, the most unbelievable board, absolute dominance in telecom equipment and always a very expensive stock. So we followed it from a distance. People admired Bell labs. We, all our visits to Silicon Valley, people talk about Bell labs and everything that came out of there.
Chris DavisAnd so they missed a product cycle and the stock went down a lot and we said, this could be a real opportunity for us because when, at that time, it was a real momentum market a little bit like it's been in recent years and so missing a quarter, a stock could really overreact.
Chris DavisWe bought 17 million shares of Costco in a single day when the stock closed at 42 and opened at 26 because they missed a quarter, but we were ready. So, that was sort of in our mind and we thought, hey, here's our chance, let's really look. And there was this anomaly that was so strange in Lucent's cash flow statement is they were reporting a lot of income but if you looked at cash from operations, it was negative.
Chris DavisAnd now when you think of a manufacturing company, so the first line on the cash flow statement is net income. Then you have a big ad back for depreciation. They're a manufacturing company, so that's a big ad back. To go from net income plus depreciation being a huge number to a number less than zero for cash from operations is very strange.
Chris DavisAnd it had to do with this vendor financing and so we thought, well, this doesn't make sense. But we were so disposed to want to own it that we sort of met with the CFO and we, and we asked the question and they did this kabuki of giving us an answer that made no sense, but it sort of played on our behavioral biases and.
Chris DavisIt ended up being a terrible investment, we overrode our own red flags, and so learning that mistake, to have confidence in your discipline, to recognize how behavior can unwind it, that saved us from [Inaudible], it saved us. Oh, global crisis. It saved us from so many things that have been incredibly admired businesses, GE, but that have, but where we couldn't make the math work.
Chris DavisSo that was a high return. AIG was, so painful because we just passed 9 11 and I still look at the downtown skyline and I can still see the silhouette even, what, more than 20 years later, it was just, they were so much a part of my existence for, most of my life. And to me, AIG vaporizing was like that.
Chris DavisEvery lesson that I learned didn't apply. Insurance companies go broke before they go illiquid. Insurance companies never go illiquid because they've got the money, right? They get paid up front. So they've got, AIG had a trillion dollars' worth of liquid assets, a trillion, a hundred billion dollars of equity, 80 billion of tangible equity.
Chris DavisSo it was so hard to see. So our lesson written on the wall is in some ways very technical. But I think the most important one was simply about the view that we knew when Hank was gone, there was nobody that could understand that complex enterprise. the way he could. So we knew whatever risk was there went up dramatically.
Chris DavisAnd the fact that there was so much growth in things like financial products in his absence should have been a very, now we have other things on that plaque but I would say that shapes us as we think about banks. But some of those mistakes are mistakes of omission, things we should have done that we failed to do.
Chris DavisA number of them are things that we sold, they were a little ahead of themselves, but ended up being fantastic. So, it is a big part of the culture it, and just continually trying to learn from all of those different types of mistakes, not just buying something that goes down, but things you should have been looking at things and it makes it more fun to work here.
Chris DavisI think the young people feel like. We love hearing about how our bosses did stupid things and it makes us feel more comfortable saying, well, I'm afraid I've really changed my mind. Everything I told you three months ago, I think I'm wrong.
William GreenIt was interesting to me also that you had all these images that you'd bought on eBay, I think, and framed with quotes and I was looking at a video I'd taken in your office of those videos and quotes, and I sort of wrote them out by hand. And it was striking to me how many of them were related to behavioral biases that you were trying to remind yourself of. And so, one of them very, obviously a kind of famous thinker on this subject, Richard Feynman, who said if you're doing an experiment, you should report everything that you think might make it invalid, not only what you think is right about it.
William GreenThat was interesting to me, you had a couple of quotes from him, but there was also a really interesting quote. One, feel free to comment on either of these. One was from Max Perutz, who I hadn't heard of until you mentioned him to me, who ran the Cavendish I think, one of the most innovative research institutions in the world and he was asked if there were simple guidelines on how to organize research so that it's still highly creative. And you had this great quote from him where it said, No politics, no committers, no reports, no referees, no interviews, just gifted, highly motivated people picked by a few men of good judgment and I wondered if you could talk about that idea of how to run an organization that isn't saddled with terrible bureaucracy and the like.
OtherYeah, I love that Max Perutz quote, and you're right, it's, I studied a lot of organizations that breed excellence when the participants could work anywhere else, right?
OtherIn other words, why, you mentioned Munger Tolls and Ron Olson, how does Munger Tolls rank literally as, I believe in one ranking I just read recently, the best law firm in the country? Right. It's like, what is it? And by the way, you could say the same about Wachtell Lipton. And what's interesting is they have totally different compensation practices, totally different.
OtherSo it's not just compensation but certainly in both cases, it is about culture. And so I'll use that and in the Cavendish lab to sort of draw them all together, which is that my experience is if that, of course, you have to pay people fairly, right? People, it's, it would be a crazy thing to tell people that, over the arc of your lifetime, I'm asking you to earn well below what you could earn elsewhere.
Chris DavisSo you have to pay people fairly. Within a very broad band of what FAIR is and what the appropriate time horizon is, I find if people are great at their craft, then what they really care about is being in an environment where they can be absolutely the best that they can be at that craft. And so what is it that takes somebody who's really gifted in analyzing businesses and selecting securities?
Chris DavisWhat sort of environment is it? where they can be the best at what they do, or alternatively, what are the sorts of things that would interfere with that? So, for example if you have to spend a lot of time meeting with clients, that's very destructive. Because, of course, clients want to face on focus on what Bob Kirby, who is a great mentor at Capital Group used to call tell me where the three W's, what went wrong, you'll spend 95 percent of the meeting on 5 percent of the portfolio.
Chris DavisIt's always what's gone down. If you go back to that same client a year later, and it's down more, you're going to have a hard time defending it in the third year. You're going to sell it before the meeting. So you don't have to and those are all terrible decision, waste, wasteful meetings, sitting in meetings, there's one of the quotes on that wall.
Chris DavisI thought you were going to quote was a baseball player because see how much I know about sports, a guy named Bill Lee. He was a pitcher for the Red Sox. I don't know anything about him. I don't even know what decade he pitched in, but yeah. But the quote of his that I had read that I liked so much is he was asked, what happens at team meetings?
Chris DavisAnd he said, oh, at team meetings, you sit on your ass, chew tobacco and nod at dumb things. And so of course I, I worked at other places. I saw that culture of like, why am I wasting my time? I've got work to do. So that's another criteria. You don't waste their time. You don't put them in surround them with people that are going to make them worse at what they do in terms of what are the external pressures.
Chris DavisHow do you minimize the external pressures that allows them to be the craftsperson they are? How do you make sure that they admire the people they work with? People don't, they say they don't quit their job. They quit their boss. But they also quit their colleagues. So if you really admire the people you work with, you like coming to work, you like their value system, you like their expertise, you admire what they do.
Chris DavisThey help you get better at what you do. So, there are a few others. We want a compensation system that's reasonable, and we want to remind people that what they're doing makes a difference in real people's lives. And I have nothing against hedge funds, except I'm jealous of the fees, of course.
Chris DavisBut what we do is very direct, right? Our average client might have 25, 000 invested with us, and it may well be their life savings. And so, it really determines whether a kid goes to college or whether they get to retire in the circumstances that they want, and they're having conviction in what we do, and what we do mattering is a very central part of what we do, so, we've tended to skew towards people where they prefer that.
Chris DavisThey like the idea that, what we do sort of matters versus if we're charging 2 and 20 and managing the Yale endowment. That's terrific. And they wouldn't hire us anyway. But we like, we like that we're offering a good value to the end client in terms of we have low fees, and we try to keep it that way.
Chris DavisSo all of those come from that Max Perutz quote, like how do you create an environment where talented people Enjoy coming to work, and they aren't trying to optimize just their income. They're trying to practice their craft in the best way possible. And, by the way, a small team is also part of that. It would be very hard to run the Cavendish Laff with 600 scientists.
Chris DavisAnd so, a small, talented team. Tom Murphy, I liked, used to say at Cap Cities that, He got to be a low cost provider by paying people that were twice as good and 50 percent more. And there is something about that too. We love having fewer, better people. And yet we have people that are in their twenties, in their thirties, in their forties, in their fifties, and in their sixties.
Chris DavisAnd this is on a team of 10, so it's not that, and yet on average, we've been together 20 years, just sort of incredible. Maybe it's 17 years. I get you the actual numbers, but it's something like that. I think on average, the team has been together an average of 17 years, and yet we have been peopling that have been here for less than five, less than 10, less than 15, 20, and people in every decade.
Chris DavisSo I love that going all the way back to where we started. about my grandmother and keeping interested and keeping making new friends. I do think investment organizations can also get a winning team and they age out and you end up with sort of a huge gap. And I think it can create a very brittle investment culture because of And it's harder for them to be challenged, and, I think about how much we had invested in newspapers in the nineties and when Danton, my partner now joined me in the nineties, I gave him newspapers as his first industry.
Chris DavisAnd I said, look, he had banking experience. He's an amazing just a human being I admire in every dimension. And in the beginning, I said, well, I'm going to give you newspapers because we own three or four of them. We own Gannett, we own Tribune, we own Dow Jones. I feel I'm leaving one out, but anyway, I said, these are old business models.
Chris DavisThey're very, in a way, predictable. They're regional monopolies, capital allocation matters, blah, blah, blah and a year and a half later, he came back and he said, have you heard of this internet thing because I don't think you understand how powerful it is, not as a source of news, but as a source of where to buy an apartment or how to find a job.
Chris DavisAnd when you recognize that Help wanted real estate listings and, miscellaneous class, classified, car, essentially responsible for 100 percent of the profits of the newspapers on average that we owned, and that it sucks looking for a job in the classified. You used to read through them and you'd circle the ones that applied.
Chris DavisYou couldn't search. And so anyway That I don't know where I would have been without Danson joining and we sort of carried that through with the younger ones. So, that, that's been all part of, and you're so amazing that you remember that Max Perutz's quote. I keep that one a little in a different place. That's right, you're probably in my office.
William GreenThat was a beautiful quote. I also, there was an amazing quote also from JP Morgan that I wrote down that I love where he talked about how our mistakes have been errors of judgment and not of principle and that also seems to me, Yeah, he said, since we have no more power of knowing the future than any other men, we have made many mistakes, but our mistakes have been errors of judgment and not of principle, and that seemed to me a really interesting thing from back in, and it was accompanied with a photo of J. P. Morgan, so this was from 1933 when he talked about the importance of doing first class business in a first class way, and so in a way it's, it is, it's consistent with the Buffett Munger approach to capitalism as well, right?
Chris DavisYeah, it absolutely is. And I think you know my, my grandfather had one of those quotes where I think in today's era, I would've said, shh. I think you need to stop saying that and his quote was, making the first million is the hardest. The second million is just a double. The third is just 50%, the fourth is 33, the fifth is 25. Like each one the threshold for making a million bucks in K gets it, gets to where you can make it on interest.
Chris DavisBut the first one is hard. And so what I would say is, it is, it's Ben Franklin going back to, I think the most, for me, the most important book that I read wasn't Dale Carnegie. It was Ben Franklin's autobiography, which is only 80 pages or 85 pages. And it had checklists, It had ways to improve your character, it had ways to deal with negotiations, it had great techniques for winning influence, I mean, it, a lot there, there's an enormous amount in that book that is useful, but one of course, his famous sayings was, it's hard for an empty sack to stand upright.
Chris DavisAnd so, I used to say that when I was starting, I, I used to buy shoes in New York City for work and then I would have them shipped to my brother who lived in Hoboken. And that way I would avoid New York City sales tax and do I think that is an ethical way to live? No I think the world can understand a kid making 18, 000 a year, sending shoes to his brother's apartment to save sales tax.
Chris DavisNow, when Dennis Kozlowski is sending Monet paintings to New Hampshire, it's a different standard. So one of the quotes in that wall of Charlie Munger's is. is he says, I think as you rise in life, more is expected of you. He then somewhat colorfully says, if you're beer swilling sand shoveler, you can go to a strip club.
Chris DavisBut if you're the Bishop of Boston, you probably shouldn't. So wrong on all levels. But I think this idea that I'm not I don't want to ever have a sort of a holier than mindset, but I do think there is. A point that people sometimes push out too late in their career and the earlier you move it in, better the longer term consequences of saying just what you say.
Chris DavisWe want to do first class business in a first class way. I'll give you a good this. This may be helpful for your listeners, but it's a piece of advice. I recently gave my kids where, as I said, I'm not sure I've quite got the ages right, but one thing I said is before you're 40, and maybe the number's 30 but before, let's split it and say 35, before you're 35, never do business with friends, after you're 35, only do business with friends, there is a turning point there where as you, so you accrue so much insight, wisdom, data, In that in some period of your early career that as you get to your later career, you start realizing that's the coalescence that you started in talking about these networks of people, they weren't relationships. I was going to have it 22 because we were all trying to figure it out. But over time you start realizing, and the sooner you can shift that, the better.
William GreenI wanted to ask you before I let you go about Cardinal John Henry Newman, because when we were in Omaha, you told me about this great quote of his, that I looked up, it's from an 1852 lecture that he gave in Ireland, where he said, it is almost a definition of a gentleman to say that he is one who never inflicts pain.
William GreenAnd I think you told me that you had it in, that you keep it in your phone and it's a central teaching for you and our listeners probably won't know that Colonel Newman was this great English theologian and scholar and priest and he was actually made a saint by Pope Francis, I think in 2019.
William GreenAnd most important of all, he was a fellow of Oriole College, Oxford, which is my college at Oxford and so he may be the only great person to have been a fellow of Oriole College, Oxford, or to have come through Oriole. Can you talk about this idea of a gentleman being someone who never inflicts pain, because it's a beautiful insight, but it's also one that obviously has deep resonance for you.
OtherWell, I mean, one of the interesting things about that is it was given to me by my tutor and my favorite professor in university, and it was a professor named James White, and he subsequently became the moderator of the Church of Scotland, and I have to say, you have to admire any church where the head of it is called the moderator.
OtherIsn't that a great title? Yeah. So he was the moderator, and he gave it to me in a way the way maybe Charlie would have given me, if I had known Charlie then, he might have given me the Ben Franklin quote about these argumentative people may, they win the arguments, but they don't win friends and influence, which would serve them better.
OtherHe gave it to me because I think he appreciated my very deep engagement in the work that we're doing and in my degree. And but I think he also felt that well. I recently had a very sore throat after spending a couple of days at a conference and a man I admire greatly funny. I said, I think I'm losing my voice.
OtherHe said, yeah, you usually don't get that from listening too much. So I would not have been accused of listening too much in those tutorials and in the seminars at university. So he hand wrote out Cardinal Newman's talk because, there, I don't think he had a computer printer and so he hand wrote it out and he, he gave it to me the beginning of my last semester with him and he said he thought it would serve me and so the not inflicting pain as a, as an important part of it.
Chris DavisSo was the idea of the gentleman will seem to be receiving when he's in fact conferring. It's… There's a line in there I love where it talks about, he's, compassionate with the pain, he's patient with the absurd, it's this, he has his eyes on the whole table trying to put people at their ease.
William GreenYeah, it's beautiful, it says he has his eyes on all his company. He is tender towards the bashful, gentle towards the distant, and merciful towards the absurd.
Chris DavisExactly. So, I, my, my grandmother used to quote Harold and Maude that wonderful movie. And there's a line in it where Maude says, yeah. Harold says to [Inaudible] you really love people, don't you? And she says, of course I do. They're my species and I really love people. I love the complexity of life. You can sit on a subway and look at all of those faces and every one of them has a story. And being curious about that to me is a source of so much risk richness.
Chris DavisAnd I think, back then at age 19 or 20 or whatever it was when he handed me that, I think I was much more impatient and aggressive and insecure and there was something about wanting to aspire to that and my gratitude to him for seeing that as potential and going all the way back to mutability, of course, you can become a better investor by learning, of course, you can become a better parent by reading and working at it.
Chris DavisOf course, you can become a better lover and a better spouse or husband. Why if you could become a better cook of course you can become a better person, of course. And this idea that people are defined by their worst moment and reviled and identified by their worst moment. I mean, if you're a Hitler, you deserve it.
Chris DavisBut if you were somebody that worked hard to live a good life and you really screwed up, I was reading about a figure in the Hudson Valley who. Had led the well, it was a complicated redefinition of his legacy where there was unarguably wonderful things that he had done. So, I just think that idea of the beauty of it, of course, it's one of the things I love about investing is it's always changing.
Chris DavisWonderful companies become absolute bureaucratic nightmares, terrible companies reform. I mean, you think about going back to JP Morgan. Think about Jamie Dimon going into JP Morgan. If you want to know what kind of leader he is, and I met him very early when he was still at Primerica, or actually Commercial Credit, which is where he started with Sandy, and his first annual report at Bank, when he became CEO of Bank One.
OtherChris Davis is just required reading. Everybody should read it. Because he had never led anything, so we had no idea. Would he be a good CEO? Would he be too abrasive? Would he be… And he wrote a shareholder letter of accountability, of how to be measured, of fairness, of aspirate. And, J. P. Morgan had certainly, and Bank One, both, had become very mediocre institutions and the drive and the commitment and the value system and the legacy is an incredible transformation. So that, that constant changing that can come I love that in all aspects of life.
William GreenThere's also something in that Cardinal Newman letter that I thought was very beautiful and weirdly resonant and apposite for investors as well, where he just was so on undogmatic.
William GreenI wrote down this paragraph where he was talking about non-believers, and obviously he was a man of deep faith, but he said, if he be an unbeliever, he will be too profound and large minded to ridicule religion or to act against it. He is too wise to be a dogmatist or fanatic in his infidelity.
William GreenHe respects piety and devotion. He even supports institutions as venerable, beautiful, or useful, to which he does not assent. He honors the ministers of religion, and it contents him to decline its mysteries without assailing or denouncing them. He is a friend of religious toleration. And I thought that was really lovely that he's able to say, well, Yeah, you can disagree, but disagree agreeably, and be large minded enough not to ridicule what you disagree with, and not to be a dogmatist, and not to be a fanatic.
William GreenIn a way, again, it's something that's beautiful about Warren and Charlie's relationship, right? That you can have a Democrat and a Republican, and they're willing to change their views, and be open to others' views. What do you think?
OtherWell, I think, yeah, I think the sort of the litmus test of what allows you to dismiss somebody completely from your regard has become so, so narrow and so tightly defined, and it's You know, there's so much of the internet that is a gift to the world and I think people that rail against it are making a mistake, but, I actually spent the weekend Saturday in the small town that I'm in, there was a big public hearing where there was a controversial issue in the town, and people, if you were to read what had been written on the internet, the vitriol was despicable.
Chris DavisAnd so the supervisor called this meeting and everybody came together to interestingly held in a church because the town hall was under construction. And maybe that made people behave a little better. But there was so much decency in that room at the end. People really listened. They sat together.
Chris DavisYou drive differently in a small village if you live there. You're a much more courteous human being. Not you specifically, one is. There's a chance that you know the person in the car in front of you. You're less likely to honk very aggressively when the light turns green. And it is, I think that underlying, sort of tolerance for different views it is.
Chris DavisI think, I don't know where the blame starts in the political sphere, but I'm, it is amazing how many people think life is going pretty well in their neighborhood and in their community, but somehow thinks the world is going to hell in a handbasket. And I'm fundamentally more optimistic.
Chris DavisAnd I think like Warren and Charlie, I think there are many people that maintain very close relationships and friendships with people that have differing political views on a personal level. And then as they get out into the broader context, then they're back to the anonymity of just sending in the hate mail.
William GreenYeah and one of my favorite moments, I think from the annual general meeting back in May was when Buffett strays off into non investing topics, which I always find much richer in some ways than the pure investing topics that they discuss, and he said, I've never known anybody that was basically kind that died without friends, and then he said, I've known plenty of people with money who died without friends, and then he talked about Tom Murphy, who you mentioned before, and he said, I never saw him do an unkind act in 50 years, he didn't see any need, And so I think in some ways that message that maybe this is one reason why in sort of David Hawkins kind of terminology Berkshire makes us go strong is it embodies not just being fair to shareholders and the like and being transparent about mistakes, but trying to be honorable and decent and generous, like the way Warren tries to avoid criticizing people by name.
William GreenAnd there's also, there's a kind of, you see the kindness, I think, between him and Charlie and you see the kindness that they show towards Ajit and Greg Abel. There's a sort of sense of decency. And so I don't know, I think that's in a way one of the most valuable things that we can clone and it's relatively easy to clone.
Chris DavisYeah, and if a good framework for thinking about Berkshire as an example is just to think of a phrase of Charlie's that I've always liked is that investing is a subset of worldly wisdom. So everything that they say about investing is if you think about it in a sense, metaphorically, or as a subset of a broader worldview the fact that it works in this subset.
Chris Davisis generalizable. And it, and I think that is true. I just think by and large, that's one of my sort of queries about the basic premise of some aspects of this formalized ESG movement is that it rests on this premise that somehow capitalism succeeds by exploiting another constituency.
Chris DavisAnd that was something that Keynes wrote about and Adam Smith wrote about, going all the way back, that's not the way it works at all. It's not a zero sum game that, the person who's good at fishing and the good person that's good at making hooks can both do those things and both end up better off.
Chris DavisIt's not that one's getting the better deal than the other, and I think that you're absolutely right on that mindset that's there, and thinking of it as a subset of worldly wisdom helps sort of move from one scale to another scale.
William GreenYeah, and well, as Charlie would say, it's all one damn relatedness after another, right? Everything is related. And once you start to have this sort of simple framework for how you think about the way they're behaving, you're like, oh, they're doing it that way that's what I should do. So, I was very struck, for example, when Warren was talking about Ben Graham, and he said, Ben did all kinds of, Thing for me that where he just never expected anything in return and you hear that and you're like, Oh, okay, so here are these people operating in a way where they're kind of generous in sharing their wisdom.
William GreenThey're not expecting anything in return. You're like, oh, it's a different system. Where there's enough wisdom, enough knowledge, enough money to go around, you don't need to kind of hoard it all.
Chris DavisWell, and the elimination of that friction, the elimination of that friction is a source of huge efficiency and in both in this metaphor, in this subset of investing in worldly wisdom, but also in life. It goes back to what we were saying about the amount of energy that needs to be consumed if there isn't trust, all of this friction is created and you need an enormous amount of energy to push through that.
Chris DavisAnd so that sort of effortlessness of the way it falls back and forth it'll probably work out at the end. I have a partner at work, not Danton who runs our client side, who was, probably my oldest friend. We were baptized together as infants and been godparents of each other's children.
Chris DavisAnd we've worked together for 30 or more years. And we go out for coffee or we walk to work together or we walk home from work together, at least two or three times a week. And it is amazing how, whoever gets their phone out quicker to tap to pay for the coffee, but it's, we've had such a, it's on my mind because we were talking last night and this sort of view that over time, we both are convinced.
Chris Davisthat we got way more from the other than we contributed. And it is going back to that Harvard study on happiness, of course, gratitude is a huge shaper of life. And this idea of not keeping score. And the analogy I sometimes use with my kids is if you're running downstairs and you try to place your feet on each stair, you're going to and you're going to go very slowly.
Chris DavisSomehow you lift your head. And you just float down the stairs and this scorekeeping in who did what for whom it, it destroys relationships and this contractually legislating, not just kindness, but also, helping out one another professionally. It is amazing. The gift that I feel, how much I've received.
Chris DavisFrom all of the mentors that you mentioned, and as a result, how much I feel I owe the rest of the world. It's a hell of a great way to live. And it works. I'm not one to speak totally on this front, but I think it works as well. I'll say in friendships, because I'm good at that. It works as well.
Chris DavisAs well in friendships as it does in business, I, one last point, but I just, because we were interviewing some younger kids about internships here and they were all interested in remote work. That was a big that was a source of interest to them. And I talked to them about why, and they said, well, because they have all, they want to have work life balance and so on.
Chris DavisAnd I said, so I'm curious because you just graduated from. College. You were in college during COVID. What was remote class like? And everyone, one of them says they hated it. And you say, why? And they said, well, I didn't learn a lot because I was obviously multitasking. I didn't create great relationships and everybody cheated.
Chris DavisEverybody cheated and I think, well, why would work be any different? Like if you view work as something you do in order to then have a life outside of work. That is a totally different mindset than the idea that work is where you go to become excellent at something, to learn, to have deep relationships and friendships, to admire people that you get to work with every day, to serve a customer, to serve a client to create value, to get better at what it is you do, and by the way, I know there's a, there are a lot of shitty jobs out there, I know that, but I also know that there are far more people That are in those same jobs who somehow find it rewarding and those people are the people that, smile when they help you at checkout.
Chris DavisAnd, then you deal with whether you're calling Comcast to deal with your cable, or whether they're helping you fix a pipe, or whether they're building, installing cabinets. Every are moving. Everybody knows what it is to deal with somebody that is taking pride and pleasure in what they do and somebody that is just trying to get paid and get the hell out the door.
Chris DavisAnd sometimes the vocations overlap. The only difference is what they the orientation that they bring to them and. I feel like with remote work, to me, it's a cancer because it's creating this future alienation from what you really are spending 40 hours a week doing, which is a lot of time to feel like my goal is to do the minimum I can to get paid the most versus it's a way just like school to build relationships, learn, and for God's sakes, not to cheat.
William GreenI don't know. I like working at home, but I've done it for so many years and I love remote working because it meant that my wife started to work at home as well. So suddenly [Crosstalk].
Chris DavisAnd also your work is entirely cerebral, although I would say the way I do it, I would feel differently doing this with you if we hadn't drunk wine together, out on Fire Island, if we hadn't if you hadn't been through the office and we hadn't sat here talking about walls and culture and sipping coffee. And so this is an extension of our relationship. But if this is all I knew of you, it would be a totally different experience for me.
Chris DavisThat's true. By the way, my father was a remote worker too. So I can see how it works for people that aren't, that are in a sense, self-learning but if you're part of a team or part of an environment, I think it's a totally different experience.
William GreenWell, Next time, Chris, I definitely hope we'll do it in your office. I'll be more efficient about arranging a cameraman and the like and we'll come do it in person.
Chris DavisEspecially one that can airbrush in the illusion of an upper body.
William GreenHa, but this has really been such a pleasure. I've really enjoyed it and it's always a delight chatting with you and also as a longtime shareholder in Berkshire, I'm happy that you'll be helping to safeguard the culture down the road. So, I'm fully in support of that mission.
Chris DavisAll right. Well, thank you so much. I'm so glad for what you've done, I think really to me, celebrate what's special about the number of people that I admire and, in a profession, I think that gets misunderstood and I'm just grateful that you've put that out in the world.
William GreenAh, thank you so much. All right. Take care.
William GreenAll right, folks. Thanks so much for tuning into this conversation with Chris Davis. As I'm sure you could tell, I always find it tremendously enjoyable chatting with Chris, not least because he's full of thought provoking insights and unexpected opinions.
William GreenA few years ago, when I was interviewing him for my book, Richer, Wiser, Happier, I remember visiting him at his office in the Rockefeller Center in New York, and we chatted about his view that great investors tend to have relatively low emotional intelligence. As Chris explained it to me, one reason why they're so successful is that they're not overly influenced by what other people think and, as he put it, the easiest way not to be overly influenced by what other people think is not to be that aware of what they think, or, for that matter, simply not to care what they think.
William GreenSo as Chris saw it, having low emotional intelligence helps them as investors. But also tends to be a problem in other areas of their life, because often, yeah, they're able to go against the crowd and think for themselves, but their lack of emotional intelligence makes it pretty hard for them to bond with people and form close attachments, whether it's with relatives or friends, which may explain why so many of the greatest investors end up getting divorced.
William GreenIn any case, it's a fascinating insight and it gives you a sense of why it's always a blast to chat with Chris, who's a really interesting and thoughtful observer of business and investing and life. I'll be back very soon with some more terrific guests, including a conversation with Laura Geritz, whom I wrote about at some length in my book. I'll also be interviewing another legendary investor who oversees more than two trillion dollars.
William GreenIn the meantime, please feel free to follow me on Twitter @WilliamGreen72 and if the spirit moves you, do let me know how you're enjoying the podcast. I'm always really happy to hear from you. It makes it a lot of fun doing the podcast, knowing that it's resonating with a lot of you. So thank you truly for your messages. I really appreciate it. Until next time, take good care and stay well.
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