00:00:00:01 - 00:00:30:13 Unknown Well, for the last several years, both Greg and a geat have been vice chairman and they both every year gotten exactly the same amount of compensation down to the last dollar. And I think the reason Warren and Charlie did that is to avoid envy. And so Greg has been paid 20 odd million for several years. And Warren has said about Ajit that many times when he's paid him, he felt he left out a zero. 00:00:30:19 - 00:00:53:11 Unknown A deed is responsible single handedly for creating more than 100 billion, maybe 150 billion in value for both shareholders. So we can never compensate him enough. I mean, in the sense that if Berkshire paid him something like 30 billion or something, then it might be appropriate. 00:00:53:13 - 00:01:18:23 Unknown Today I'm here with no other than money's Perai. Money is. Welcome to our annual banter here that will be published over the Berkshire weekend stage. I always look forward to this. It's like the pre-game tailgate party. And so always a pleasure to be here with you. Wonderful. And so since this is the Berkshire weekend, I wanted to ask you here a few questions about the company. 00:01:19:03 - 00:01:43:13 Unknown Now, Greg Abel has arguably been running the operating businesses since 2018, when he became the vice chairman of non insurance operations. And I think it's safe to say that Greg is more hands on, whereas Buffett was inclined to I think he said delegate almost to the point of application. So which CEO approach would you prefer if you were a Berkshire shareholder? 00:01:43:15 - 00:02:14:23 Unknown Well, you know, Charlie Munger said that Greg is better than Warren in some important ways, and he never went further to describe what those. But I thought about what he might have meant. And so Greg is in Des Moines, Iowa, and he has a team. It may be more now, but he has a team about 30 people who are between him and the businesses. 00:02:15:00 - 00:02:45:15 Unknown And so he is put in a lot of very smart people to help him basically look at these companies. And for Warren was easier because he bought these businesses one at a time, and he got to know them, one of them. So like, for example, when he bought C's candy, there were very few operating subsidiaries. And Warren spent an inordinate amount of time on seeds in one time on Coke and on Buffalo News and so on. 00:02:45:16 - 00:03:12:02 Unknown Now, Greg doesn't have that luxury because when he comes in, there's like 80 plus businesses. Plus Moorman Group has hundreds of businesses inside that. So he's never going to be able to know the businesses as well as Warren does. And the second thing is Warren's persona was not to get involved, right. And so the Berkshire companies for decades have been under managed. 00:03:12:03 - 00:03:33:20 Unknown It can be an advantage to leave these managers alone. But it also has a lot of disadvantages. And I think Greg got a nice middle ground in the sense that he's not overbearing in your face, etc. but at the same time, if he clearly sees that a manager is not delivering, not the right person, etc., he is going to act on that. 00:03:33:21 - 00:03:52:03 Unknown And so I think we are going to be seeing tighter operations. Most of the acquisitions Warren did did not work well for Berkshire. Okay. Let that sink in stick. 00:03:52:05 - 00:04:16:22 Unknown Because you know we're talking about God here. Okay. So I would have some conversations with Charlie and I would tell him, you know, Charlie, I hate retail. You know, I wrote a chapter in my first book about how much I hate retail. And he says to me, well, all the subsequent furniture companies he bought after Nebraska Furniture Mart and all the subsequent jewelers we bought after Bhatia are so useless. 00:04:17:03 - 00:04:49:01 Unknown I'm with humans. And I think if Charlie had his way, Berkshire would have had much smaller retail footprint than they ended up with. And, you know, Warren himself has said, I think it was a 22 or 23 letter where he said that 12 ideas over 58 years or something have led to the creation of bookshelf, and Warren has made more than I would guess, somewhere between 300 to 400 investments or buying companies in those almost six decades. 00:04:49:01 - 00:05:18:18 Unknown And it's 3 or 4% in trade. And so that's the beautiful thing about this business. Now, the interesting thing about 4% is that if we go back for the last 90 years in the US stock market, about 4% of the businesses have delivered all the returns in the market. The other 96% have barely matched Barnes or inflation. They haven't done much. 00:05:18:19 - 00:05:41:14 Unknown So the funny thing is, what's happened in the bigger, bigger market and what's happened inside Berkshire have been very similar in terms of the percentages. Of course, in the case of Berkshire, the home runs have been so big that they've found some markets. But it's humbling for all of us is investors to know that most of the time when we act, the odds are stacked against us. 00:05:41:16 - 00:06:03:05 Unknown You know, it's interesting. One is that you mentioned that in the study. We had him on the show and talked to him about it, and then he made this comment. And I hope you'll forgive me for saying this, because I actually think it came across in a really nice way. But he said something and going to pursue the quote, and he said something along the lines of, I've been speaking with a lot of stock investors and they want to make money out of my study, and I'm not really sure what to do about that. 00:06:03:06 - 00:06:21:14 Unknown And I was like, have you met stock investors? Yeah, of course. Like they're looking at your resources, like, how do I make money? And he was just more like, that's such an interesting finding. Let me see if I can get funding for another reason that I was like, yes. Welcome to the world of finance. And another question here. 00:06:21:18 - 00:06:39:06 Unknown You are very kind here. Going into before we hit record, you were like, you have a tough job. You have to come up with questions no one has asked before. But the good thing here is that now with the transition to Greg, it's at least that part is going to be new, because we haven't had this transition before with Berkshire. 00:06:39:06 - 00:06:59:09 Unknown But I can't help but ask you about the $25 million annual compensation now. I think together with a lot of other Berkshire shareholders, I was curious about what Buffett would come up with as this is how a CEO should be compensated. And so it's all based. And then I don't know if Buffett is not able or probably not. 00:06:59:09 - 00:07:26:00 Unknown But, you know, he takes his entire compensation after tax and then buy Berkshire in the open market. If you are on the board, if you could if you were a god, how would you how would you incentivize Greg able to align him most with shareholders? Well, for the last several years, both Greg and Ajit have been vice chairman, and they both every year gotten exactly the same amount of compensation down to the last dollar. 00:07:26:02 - 00:07:58:17 Unknown And I think the reason Warren and Charlie did that is to avoid envy and avoid anything. I mean, even though these two guys are very high quality individuals, they didn't want to go go anywhere near the envy kicking in or whatever else. And so Greg has been paid 20 odd million for several years. And Warren has said about Ajit that many times when he's paid him, he felt he left out a zero. 00:07:58:19 - 00:08:26:21 Unknown So so a deed is responsible single handedly for creating more than 100 billion, maybe 150 billion in value for boxer shareholders. So we can never compensate him enough. I mean, in the sense that if Berkshire paid him something like 30 billion or something, then it might be appropriate. Okay. But they haven't paid anywhere near that. And I think one time there was some hue and cry about Jamie Diamond's compensation. 00:08:26:21 - 00:08:52:15 Unknown And I think Jamie was making like 25 or 30 million. And Warren said, anytime Jamie wants to come to Berkshire, I'm happy to double it. Okay. He was telling people that you think Jamie's overpaid at 30 million? Well, I'm willing to give him 60 million base salary tomorrow without even defining what he'd be doing for us. Okay, so Greg is seriously underpaid. 00:08:52:17 - 00:09:27:06 Unknown Ajit is seriously underpaid. Also, you have to understand, Greg had a significant stake in Berkshire Hathaway Energy, and that got sold to Berkshire. So Greg's net worth, I think, is somewhere between 700 million and 1 billion somewhere in that range. So between us girls, not much of his net worth is in Berkshire. If I look at Ajith, for example, Ajith has been taking his salary after expenses, whatever else and just buying books, just talk. 00:09:27:06 - 00:09:48:08 Unknown And he's been doing it for decades. So I would say that I don't know what a net worth is, but I would guess that maybe 80% or more of his investment, maybe even 90% or more, would be in Berkshire Hathaway. So Greg is plenty diversified. I think he came up with putting the money into Berkshire stock on his own, because I think he felt it's appropriate thing to do. 00:09:48:13 - 00:10:11:04 Unknown He's not at Berkshire for a paycheck. Greg is very smart. He doesn't need to work another day in his life, and any number of people will pay him multiples of that to work for them. Yeah, unlikely to say that money is. And that's it's important for a number like that not to stand alone. It's very difficult to be like it's 25 million a lot. 00:10:11:05 - 00:10:33:05 Unknown And if you do compare it to what other fortune ten CEOs are making. Well, we can go on the rabbit hole in terms of, you know, well, I'm just saying look at look at Sundance compensation. Look at Sasha's compensation. Look at those hired guns in those companies. I mean, Sundar is like more than 500 million, I think, and might be underpaid. 00:10:33:06 - 00:11:01:00 Unknown Yeah. You know, so, you know, I've been watching your videos for a very long time, as you know, and starting your work for a long time. And you used to say to people, unless they wanted to invest and do the hard work themselves, that they could buy the 500 or an index, whatever. And I'm here to recently talk more about not to give people a hot stock tip, but you talk more about perhaps with the valuation of the 500. 00:11:01:00 - 00:11:21:09 Unknown Look at Berkshire, for example. And again, not as a hot stock tip, but more as in, hey, it's super diversified, it's well-managed, it's a reasonable valuation and so on and so forth. But I sort of like I wanted to tweak a bit of a question here because as let's say, over the next ten years, I think most people in the investing community would be like, yeah, sure. 00:11:21:11 - 00:11:42:21 Unknown All these 500. What if we said over the next 50 or 100 years, meaning the fingerprints above the manga would slowly fade away? If Greg Abel, for that matter. And then the 500 has this built in mechanism where the recycles out the bad companies and include some some good companies. So if I put you on the spot today, I know it's purely theoretical for grandkids. 00:11:42:23 - 00:12:10:19 Unknown They had to hold it for 5200 years. Should they be holding Sp500 or Berkshire? I think when you go to such a long period, I would switch from a single holding to maybe around four. So I would say you could do the S&P one fourth, you could do Berkshire one fourth. And I would like to get some good broad international index which has more exposure to Asia and China and others like that. 00:12:10:19 - 00:12:38:14 Unknown So I would just make it more like four, spread it between four indices, like that being one of them. Okay. That makes sense. Previously here on the show talked about how you like to play single player games. And one example is that you didn't want to run translate because you felt you were herding cats. And I was speaking with your team here before our interview, and they asked me to include a disclaimer about me being an investor in public funds, which is perfectly fine. 00:12:38:14 - 00:12:57:15 Unknown I'll be happy to include all the disclaimers I need to, but you know, one of the reasons why I started my own company was because I didn't want to deal with all the politics and of being in the corporate world. And then the irony of life is that you build your own company, you build your team, and then all of a sudden you get this entangled in the same admin stuff that you trying to escape. 00:12:57:19 - 00:13:18:15 Unknown And I can't figure out if it's similar to being a retailer. And then you have to accept that there's just a small amount of shrinkage. It's just a cost of doing business. But then I was thinking ask money because he already thought about this. Like, how much of your life can you structure around not having any admin stuff, and how much can you truly delegate to your team? 00:13:18:17 - 00:13:52:00 Unknown I try to keep it front and center that Mohnish is not going to do well if he's lost in a team, and so thankfully, I have a few very gifted people in the company, and I have delegated to the point of abdication to them. You know, just to tell you how much I just don't care for the stuff is we use a software package to do our reviews for our people, and it does a 360 review. 00:13:52:00 - 00:14:14:11 Unknown So it sends information to, you know, peers, superiors, subordinates, everything. And then, you know, all of that gets pulled together and then gives us a kind of combined report of what the person thinks and what all these people above or below him think as well. Right? And they send it to me as well to fill out for at least the people who are directly reporting to me. 00:14:14:13 - 00:14:52:09 Unknown And I've never felt it out. And because that's just not Mohnish, you know. So whenever I go there, I tell them, I'm sorry, I just can't go here. And here's my three sentences about what's going on with this person. Warm regards. Okay. And that's it. So I try not to get involved in things that I don't like. I'm probably not being fair to those individuals because they would probably appreciate more granularity with me about what is going on, but it's just not me. 00:14:52:11 - 00:15:15:12 Unknown And so I really don't want to spend my time on reviews. I mean, I hate reviews, I don't like to think about compensation changes, and I have no problem with the change. I just don't want to spend brain cells on it, you know? And so thankfully, I've been able to keep our team without going deep into that area, which I would just not like to do. 00:15:15:14 - 00:15:40:11 Unknown You live a good life, my friend. So I think I think in your case, you know, like I said, because you have more things than when you started, I think you can set things up in a way that can work better for you. So you have to think about what does take love to do, what does take not love to do, and who else can do what sting doesn't love to do and then just go with that. 00:15:40:13 - 00:16:07:22 Unknown Well said. So? So if we continue in this framework of choosing, let's call the simplicity over complexity. Could you talk to us about why you set up the Pop Wagons ETF and how that adds to your daily happiness? Yeah, so our minimums in funds are very high. Funds are over $1 billion and it's multiple millions. And so it's just a very small sliver of folks that it would appeal to. 00:16:07:23 - 00:16:32:07 Unknown And it's very concentrated and so on. And I always felt like we had so many people interested in wanting to invest, etc., and really had no way to serve them. And I don't like to be elitist about it. So I really like the ETF because it allows us to work with Joe Public and also work with your public around the world, which is great. 00:16:32:11 - 00:16:56:15 Unknown So that's one of the big motivations. Man is just a good person. Mine is, you know, I spoke with a friend here the other day. He's like of a public company. And every time there was something going on, there was always someone with five screaming at him about how unhappy they are. And after I sort of, like, have gone through the motions with him, I was like, that's why you work in private companies. 00:16:56:16 - 00:17:13:14 Unknown Like that's why you don't want that exposure. And so that was why I don't think that reflects well on me, I think reflects really well on you that you were saying you could sort of like have this gated walled garden, but you don't want to just deal with that. You also want to open up to the public, and perhaps it's because you have a thicker skin than me. 00:17:13:14 - 00:17:44:19 Unknown But like I would imagine you get a lot more feedback just by numbers, because now you open up to a lot more people. Or does that not face you, or does that feedback just not get to you? Whenever people are happy about whatever people are happy about? One of the mental models that is very front and center for me is that I run into people who criticize Gandhi, criticize Buffett, who criticize all kinds of people who are, from my perspective, great or phenomenal. 00:17:44:22 - 00:18:14:01 Unknown So if they can criticize Gandhi, then who am I? Like Buffett says, we can choose to live our life with the inner scorecard or an outer scorecard. And it's really important to live by an inner scorecard. So you are not going to silence the critics. And the critics will say all kinds of things, and they may be fair or unfair or whatever, but I love Teddy Roosevelt's quote about the man in the arena, which it is not the critical counts. 00:18:14:05 - 00:18:36:12 Unknown I have that quote right here on my wall. I'm just going to read you a couple of parts of it. Right? Yeah. So credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who heirs, who comes up short again and again. That's very important. Who comes up short again and again. 00:18:36:13 - 00:19:14:23 Unknown He's human. Okay? He's not perfect. He's not always able to prevail because there is no effort without error or shortcoming. But who does actually strive to do the deeds? Who knows great enthusiasms, the great devotions, who spends himself in a worthy cause, who at the best knows in the end the triumphs of high achievement, and who at the worst, if he fails, at least fails while daring greatly so that his place shall never be those old and timid souls who neither know victory nor defeat. 00:19:15:00 - 00:19:43:15 Unknown Okay, so I just think that to me, it's all about the man in the arena and the man in the arena is not perfect. He comes up short, he's bloodied and scarred and whatever. But he keeps persevering, ignores the critics. Right? And so I think that's our job, is we don't need to be in a walled garden. Munger Buffett had been an open field with all kinds of people saying all kinds of things about him. 00:19:43:15 - 00:20:05:00 Unknown And people criticize Warren all the time, I think. Yeah, the outer scorecard in a scorecard, those are great models. You know, I love that you say that. One of the things I've been thinking a lot about with this whole Buffett and Mango framework is this idea of it's really difficult to solve hard problems. So one of the best ways just to complete it, to avoid them. 00:20:05:02 - 00:20:22:04 Unknown But then at the same time, they're also things you want to take on, sort of like you always want to make sure that you keep your promises in one way to do that is not to make any promises, but it's also a poor life. If you don't make promises to people that you really, really care for. But then you also have the struggle. 00:20:22:04 - 00:20:39:00 Unknown But the struggle is is where the meat is. That's still the good part. It's wonderful. If I can go back to the South original after. This is a wonderful quote that you just listened up, and here I am. But I know you invest in a lot of emerging countries. This is one of the many wonderful reasons why I like to invest with you. 00:20:39:00 - 00:21:07:04 Unknown But do you ever have any issues withdrawing money from those countries? Our investments really very heavily are in one country outside the US, which is Turkey, and I was drawn to Turkey because it was screening cheap, but we didn't invest in these businesses because we wanted Turkish exposure. We invested in these businesses because they were exceptional businesses available at cigar but prices. 00:21:07:06 - 00:21:36:22 Unknown I think one thing to keep in mind is that for most businesses, almost all businesses, the micro is going to trump the macro. So how well we do with our Turkish businesses is probably 95% dependent on what the managers of those businesses do, and what is the nature of the markets they are serving. It's really things inside and around the business. 00:21:37:00 - 00:22:03:22 Unknown Very little has to do with the macro. So anytime I bring up some Turkish business to someone, they'll say, what about Ertegun? Right? And quite frankly, the focus on going after the leadership of a country as being your number one factor you're concerned about is very myopic. I mean, the important thing is what is the quality of these managers? 00:22:03:22 - 00:22:29:00 Unknown What is the quality of the business? What is the size of the market? How well are they executing? I think those are much more important questions, because usually, I mean, the companies we've invested in, there is no real advantage. The leader of Turkey is going to get by trying to go in and mess with those companies. It's just he's got other fish to fry. 00:22:29:01 - 00:22:51:10 Unknown It's always important to focus around and inside the business. Okay, that makes sense. You know, I'm always trying to figure out some of that long tail risk. And one story that stuck with me. I used to play a lot of poker back in the day, and there was one story that always sits with me, and I think it's applicable to investing. 00:22:51:10 - 00:23:09:08 Unknown And so for a guy who's been banned in Vegas, I thought you would they thought you would appreciate the story. But so it's about in poker, like so in poker you can have the so-called nuts. So that's the best hand. So you can say that in life nothing is 0 or 100%. But then you can be like, hey, but in poker, if you have the notch, you have the best hand. 00:23:09:08 - 00:23:34:22 Unknown So what is your risk? And then there was this Brunson, this old poker legend who said, well, whenever you played in Texas back in the day, even if you had the nuts, someone would pull out a gun and then you would just take your money. So like even 100% is not 100%. Just so you know. Yeah. So so that was the reason why I mentioned that it was that was sort of like where I came from when I was thinking, I understand the thesis or like to think so in Turkey. 00:23:34:22 - 00:23:56:14 Unknown And I was like, is there like, like I told my investors and you've probably read this where I said, look, if you are invested in any of the funds and they're very concentrated, in some cases one stock is more than half the fun. And I said that if you have less than 20% of your net worth with me, you have nothing to be concerned about, okay. 00:23:56:15 - 00:24:19:22 Unknown And if you have more than 20% of your net worth with me, you can trim the position. In fact, I recommend you turn it right. And if someone has one fifth of their assets with funds, and when you look through those one fifth, probably no more than 1,012% of their net worth is in one particular company. That's plenty of diversification. 00:24:20:03 - 00:24:58:00 Unknown And if we if we look at I mean, let's put it this way, Walmart went public in, I think 1970 or 72, I think maybe 72. They went public. So it's been 28 and 26. So like, you know, 54 years since they've been public. Right? The heirs of Sam Walton owned more than what they owned in terms of percentage of Walmart that they own today versus when it IPO, because Walmart has bought back shares, 46% of the company is owned by family members. 00:24:58:02 - 00:25:38:09 Unknown 56 years after the IPO. And they are not diversified. Refunds is diversified. Okay. The Walton family is not diversified, but the Walton family would be far worse off if they had listened to the helpers. You don't need to listen to the helpers. The helpers are just helping themselves. So the reality is that most entrepreneurs and most people who have become billionaires have, through that journey had 90, 95, 99% of their net worth in a single stock and they don't lose sleep over it. 00:25:38:10 - 00:26:04:07 Unknown So we somehow accept that some couple running a Chinese restaurant has 90% of everything in the restaurant. They're just busy working. It's not even liquid. They don't lose sleep over it. And here we have a portfolio that we can, you know, buy and sell every day. And we want to own one of everything. That just makes no sense. 00:26:04:09 - 00:26:22:17 Unknown No, I think it's a good point. And there was this expression the cup is already full. Basically means that people already have an idea of how the world is. And so actually, I was having a conversation with Guy about this some time ago when we talked about you and your portfolio, and he talked about how concentrated you were. 00:26:22:23 - 00:26:41:23 Unknown Not in a bad way, but he was just like, he just does it a different way, as I'm sure you know. And my rebuttal to that was that was because guys thinking someone would put all his wealth into, let's say, funds, which is probably if you not an investor, you probably want money to be fully invested in refunds. 00:26:41:23 - 00:26:58:16 Unknown If you're investing in Berkshire Hathaway, you want Buffett to be fully invested in the way, but you can size accordingly. Like if you feel it's too much, you know, sure, put 10% in or 3% of your networks or whatever, and then you would have it. I think a lot of people are missing that whenever you're looking. Oh, look at the concentration here. 00:26:58:17 - 00:27:18:05 Unknown Yes, but what is your true exposure of that? And it probably comes from this feeling of control where we feel like if things are going well, we feel like it's okay. Oh, minus is just doing his thing, but we get something back and say, oh, that doesn't look as it's different. If you run your own restaurant, you can just feel like you just do this differently. 00:27:18:05 - 00:27:43:01 Unknown But I can't control what's going on in Turkey or whatever. So I was reading one of the investment letters of an investment manager who shall go nameless, and they were very early to invest in Constellation Software. You know, Mark Leonard, unbelievably great, great manager, built a great business, etc. and constellation has compounded at 30 plus percent, 35% since they went public, whatever. 00:27:43:03 - 00:28:16:16 Unknown And these guys were invested early, etc. anytime the constellation position got to 10% or more in this fund, they trim it. And in my opinion that a great fund manager should, after 20 or 30 years, end up with 95% in one stock. Because what Warren has told us, with the 4% rule, that's like a law of physics, is it is very difficult to find companies like constellation. 00:28:16:18 - 00:28:38:05 Unknown Constellation is a very rare company, just like the company I have in Turkey. Resource is a very rare company. And so when you find yourself in the happy position of owning it, owning a small portion of it, and the guy is compounding and he's doing his thing. And you know, Mark Leonard, he now has cancer. He stepped away. 00:28:38:05 - 00:29:01:07 Unknown He's the chairman. Did not take a base salary, no bonus, no base salary. And he flew commercial. Okay. Then he said that I'm too old for commercial. I need to fly business. So what he told the company is I'm going to be flying business, but I'm going to be paying personally. So the company used to pay for his coach travel. 00:29:01:10 - 00:29:30:11 Unknown Now the company pays nothing and he travels business. Right? I mean, look at the ethics of the manager. Okay. And the other thing is, so when I look at a business like constellation, I actually see a business like constellation at as far less risky than a business like Walmart. I think constellation is a more resilient business than Walmart because it is 1000 businesses in one. 00:29:30:12 - 00:30:00:00 Unknown I mean, Walmart is also many businesses in one, but not 1000. Maybe by the time you get the 6 or 7 business of Walmart, the rest may be very small. So Walmart is an exceptional company as well. But just if you look at resilience, I would bet for me constellation is more resilient. So when we are managers, investment managers running a portfolio, and these people who have invested in constellation, they're listening to every conference call, they're reading every annual letter. 00:30:00:03 - 00:30:25:16 Unknown They know that company code and they know how good that company is. And to me, it is desecration of the temple. When you sit there and say it's not going to go over 10%, the temple just got desecrated. One is I want to take the opportunity to talk about one of your older investments. It's actually it's the front line investment back from the fall of 2002. 00:30:25:17 - 00:30:44:18 Unknown And you might be thinking, that's such a ridiculous question. Is that really because stake really wants to come up with brand new questions? Is, is that why we're talking about something I have 24 years ago? No, that's actually not why. I think, to be fair, one of the reasons is that I think that there are some similarities to the whole medical thesis. 00:30:44:18 - 00:31:08:13 Unknown But anyways, I think one of the things that asset managers love to talk about is their ears. Whenever they if I put you on here a bit on the spot, mine is where they say, oh, I saw loud too early. I only made 55% on front line. I could have made 100 x on that. And so sometimes, you know, as a man just like to talk about their emissions, but I think I wanted to talk about it. 00:31:08:14 - 00:31:37:09 Unknown I sort of like I'm a bit sneaky about it. So please forgive me for this. But beyond the the lesson of exiting too early with a wonderful business case here, what key insights or principles did you take away from the frontline vestment that have influenced how you approach similar opportunities today? So as you know, with the frontline story, and just to give you give your listeners the Cliff notes version of it is that I bought a stock with basically no downside. 00:31:37:12 - 00:32:04:03 Unknown Very quickly I doubled my money and patted myself on the back and exited. And then I saw it go up 200 x after that or more. Right now, in the fall of 2008. You know, God loves Mohnish a lot. And the proof of that is that in the fall of 2008, I was going to make a trip to San Jose, California, and I was saying, well, you know, I know they have some time. 00:32:04:03 - 00:32:21:00 Unknown Who can I meet? And I see that Michael Burry lives in San Jose, California, and I don't know Michael Burry very well, but I sent him a email and said, Michael, more than you or may not know me, but I would love to meet you in your office if you have some time. And he says, come on over, okay. 00:32:21:00 - 00:32:41:08 Unknown And so it's like September 2008 or something. So I go to Michael Burley's office, which you saw in The Big Short. They short his office. It office looks like that. And all these papers all over and all that. And as soon as I go into his office, he launches into CDs, okay. And he's picking up all these things. 00:32:41:09 - 00:33:06:11 Unknown Like, literally, he didn't even say, hi, Mohnish. Welcome. Whatever. He just goes straight into CDs. And God, who loves me so much, brought me to the epicenter of CDs. Okay? There's no human on the planet who could have explained CDs to me and the whole housing market, implosion, etc., which was going to happen in the future, better than Michael Berry. 00:33:06:13 - 00:33:31:19 Unknown And it's going so far above my head so fast and so poor God, he thought, Mohnish is a capable guy. And he said, if I just sent him to Mecca and show him the sermon, everything will be obvious to him. But of course God did not understand how dumb I am. Okay now. So you know, this whole front line thing happened. 00:33:31:20 - 00:33:55:05 Unknown I got a double layer end up 200 days. Last year I happened to have a trip to Norway. I'd never been to Norway in my life. Okay. And I'm had this conference for offshore drillers, whatever in Norway. That's why I went right. And they say that we have a field trip which is not on the schedule. If you guys want to go on the field trip. 00:33:55:05 - 00:34:02:00 Unknown The field trip is to the headquarters of Front Line. 00:34:02:02 - 00:34:23:15 Unknown Okay. So I said, you know, God has a sense of humor. Okay. I said, I'm going to go on this field trip because I know that's why he brought me to Norway, not for the offshore drillers. He wants to rub my nose in. Okay? He wants to rub my nose in. My mistake. So I go to the headquarters of frontline. 00:34:23:18 - 00:34:51:11 Unknown It was an out-of-body experience. So when I go to the headquarter of the front line, it's very high end Persian rugs. It's very ornate, extremely ornate, old school mahogany interiors and all that. But they have a lot of art all over the place. And they have a lot of ships, you know, replicas of ships and those replicas or ships, you know, they're like, you know, four feet, five feet. 00:34:51:13 - 00:35:07:00 Unknown There's a real CC. Here's another. These are the very large crude carriers which went up to one next. Right. I'm walking around and seeing that I owned 2% of all of this. 00:35:07:01 - 00:35:29:11 Unknown And Frederickson, you know, did all of that. Then I go, there's like a there's a door that opens and you can it's right on the harbor. I mean, it's the most beautiful building right on the harbor, all these boats and everything. Such a nice office says God wanted you to see this knowledge. He didn't want you to die. 00:35:29:11 - 00:35:52:21 Unknown And just knowing that was a 200 x whatever. All that art, all those Vlk. See, everything got paid by a tiny rounding error of the returns on that investment. So I like the way God has a sense of humor with me. I knew the front line trip was not to hey, I'm going to make you some money. It was like, hey, I took you to the altar. 00:35:52:23 - 00:36:01:05 Unknown You decided not to get married, and I want to show you what could have been if you had gotten married. 00:36:01:07 - 00:36:28:13 Unknown I love it, so you wanted to know. I'm sorry. The similarity between front line and what were you saying? The the Metco thesis. Yeah. So actually, the the medical thesis is more similar to a company called Ipso than it is to front line. And you may recall that if school was a Canadian steelmaker and this was a beautiful math game, it's like playing blackjack in Vegas. 00:36:28:14 - 00:36:51:21 Unknown Okay, what a blessed life. So I wake up one morning, I look at school, and if school is a Canadian company with a $40 stock price, they have $15 a share in cash on their balance sheet, no debt. And they have publicly announced that for the next two years, they're going to produce $15 a share of cash flow each of the next two years. 00:36:51:21 - 00:37:14:08 Unknown So if you just hold the stock for two years, you have $45 in cash. Stock is currently at 40 plant equipment inventory. Everything free. Okay. What's not to like about that? And then of course the issue was that in year three it's a cyclical business. They make tubular steel cash flows could be negative. They could go below zero. 00:37:14:08 - 00:37:42:21 Unknown But I said you know why entertain such morose thoughts okay let's just hold the stock for two years and see what happens. I want to see Mr. Market price this thing at 40 bucks when there's $45 of cash on the balance sheet. Okay, so I put 10% of the funds in scope. One year goes by and the company announces the third year is also going to be $15 a share. 00:37:42:23 - 00:38:10:21 Unknown So now we are at $60 on the balance sheet. And the stock price by now has moved to about $90, which is a little bit more reasonable than the stupid $40 was sitting at. Now, in a city of $90, I'm thinking, Mohnish, we have long term gains, we have a double. Well done and we need to be out of here. 00:38:10:23 - 00:38:36:23 Unknown Okay. And while I'm going through these thoughts, I wake up one day and I see the stock that 155 were share. It jumped from 90 to 155 because some Swedish company came in and offered 160 a share. Now Mark Twain says that truth is stranger than fiction because fiction has to make sense. Why that Swedish company didn't make an offer of 50 bucks when it was 40 bucks a share. 00:38:37:00 - 00:39:12:00 Unknown It's something I will never understand. Okay, but but what they did offer the 160 and one femtosecond after I read that, I exited my position. Okay? And I've always had great nostalgia about it. And then on Twitter, where about 260,000 of my close friends hang out, one of my close friends on Twitter posts. Hey Mohnish, this console energy position by David Einhorn looks like your ipso bet. 00:39:12:05 - 00:39:40:09 Unknown And I read that and say, oh God, you know he still loves me so much because now through Twitter and through X, he gives me what he's thinking. So anytime someone says something like if so, I'm going to look at it. Such a beautiful experience. No downside. So I look at console energy and the guy is right. It looks very similar to if they have forward selling. 00:39:40:09 - 00:40:00:20 Unknown They've got kind of visibility in which it's not as clean as if if score was just with a bow on it, it was just picture perfect, like you couldn't do this was not as clean as that, but it was very favorable risk reward because of the what the stock price was, what the cash flows were coming in and so on. 00:40:01:00 - 00:40:27:17 Unknown And so I said, Hallelujah. It was back. And we don't need to think much. We already have that framework in the head. So I went in and bought console and I started studying the whole business. And then I find that on the met cold side console was thermal called a very good company. But on the medical side it's even more favorable. 00:40:27:19 - 00:40:54:06 Unknown And so I switched the bet from console to Alpha and Warrior. And then one month before Charlie Munger passed away, I had never in all the years I was friends with Charlie Munger ever requested that he meet me. I always met him when he wanted me. So he would say, Mohnish, comfort dinner. I'd come. I'd never ask for anything, and he's too busy. 00:40:54:08 - 00:41:13:20 Unknown But that year in 23, for the first time, I was feeling that I need to meet Charlie. Right? So I reached out to his assistant and said, you know, I really like to connect with Charlie. She said, oh, here's some dates and weekends, whatever. What do you want to do? So I picked a Saturday and I flew from Austin to me, Charlie. 00:41:13:22 - 00:41:48:13 Unknown It turned out that exactly four weeks after that, he passed away. And so we had our last what was to be our last meal together in October 2023. Right. And when I'm talking to Charlie, console energy comes up and Charlie says that he invested in console. And this was in May of 2023. And I told Charlie we both bought the same stock, a coal company, within two weeks of each other without ever having spoken to each other about it. 00:41:48:14 - 00:42:13:20 Unknown So I said, how strange is that? So he says, Mohnish, it was bound to happen. I'm glad, glad Charlie felt like that. Like bound to happen by by saying that. But then I told Charlie in October, I said, Charlie, you know, I was orgasmic about cancer. But then I ran into Alpha Alpha metallurgical resource and it was even better than console. 00:42:13:22 - 00:42:39:09 Unknown So I said, I'm going to send you a write up on alpha, and I think you should switch. You should switch from console to album. So I sent him the writer and six days before he passed away that used before Thanksgiving, he was still buying AlphaStar. What I love about Charlie's is 99.9 years old, and it's irrelevant what his life expectancy is. 00:42:39:09 - 00:43:05:06 Unknown He's still excited to make bets, so he was buying Alpha literally till he passed away. I mean, I think these are these are just great bets because no one wants to be in coal. It's a four letter word, and people don't want to even spend time thinking about it. And that's all okay with me. No problem. I'm going to make an ambitious bridge here. 00:43:05:08 - 00:43:24:04 Unknown Money is because people think that they're getting a investing show whenever they listen to you, but you also give good merits, advice. And one of the things that you, for example, have told me is that remember that the mistress is not always better than the wife. You know, like, I just think there's one line itself. It's just like, what did I ask? 00:43:24:06 - 00:43:46:02 Unknown But anyway, it was one of the things you said to me. So I'm going to send you, send one back to you that you should not go back to your ex-girlfriend unless it's for the right reasons and not for the wrong reasons and the reason why I came to think of that. And I know it's a bit of a stretch here, but I was looking at front line and I was looking at the medical, and I had this idea of this supply opportunity. 00:43:46:03 - 00:44:10:15 Unknown You know, whenever the demand goes parabolic and the supply can't go online and then what happens? And so on and so forth. And then it dawned to me, whenever someone like Manish would double his money but lose out on a 200 bagger, is there something lingering where we all know that we shouldn't be making the money back the way that we lost it, or whatever metaphorical way you want to put that. 00:44:10:15 - 00:44:31:14 Unknown But how do you protect your own bias against saying, I should have had a 200 bag of in front line, and now I see the same thing and this thesis or whatever. And so now I want to make that best, because now I learn the framework. So you're making those bets for the right reasons. How do we protect against yourself and sort of like only take the good from your past experiences and not the bad. 00:44:31:16 - 00:45:00:20 Unknown I think that's a wonderful question and it's a very important question. So one of the lessons that took me many decades to learn is not to sell a good company or great company when it's fairly priced or even overpriced. I was always trying to sell things at 90% of fair value, and that was a very bad framework to have, because we don't know what actual fair value is for a great business. 00:45:00:22 - 00:45:28:17 Unknown Only when it gets egregiously overpriced, like there's no way you can justify it is when you can consider exiting the business because of the 4% rule that what Warren has shown that was talk market has shown us that the true great compounds are few and far between. They are going to end up in your portfolio, and your job, when it ends up in your portfolio, is not to be trigger happy. 00:45:28:19 - 00:45:54:03 Unknown And so the the reality of investing is that this is a very forgiving business. So let's say, for example, there's some controversy whether Walmart was part of the nifty 50 or not in the 1970s. Right. Let's take the case. It was part of the nifty 50. It was 2% allocation to Walmart out of 50 stocks. And let's say the other 49 stocks went to zero. 00:45:54:05 - 00:46:14:09 Unknown So we we made a $100,000 bet in 1970 or whatever, or 1972, and 98,000 of that has gone to zero. All the companies that were there, which some of them were very good companies like McDonald's and Coke and all of that, let's say they all went to zero, and you only had the 2% that you invested in Walmart. 00:46:14:10 - 00:46:48:17 Unknown If you carried that till today, you blew out the SNP. So you blew out the SNP with 98% error rate, holding on to just one business, because that one business outperformed the S&P by so much that it outperformed significantly. So there's a very strong asymmetry here where the winners can be true, truly spectacular winners. So it's not so much that if you hold on to five companies that it may have been better sell three of them. 00:46:48:18 - 00:47:13:15 Unknown You don't need to be optimized. You own all five. And that allows you to own the 1 or 2 that just go spectacular. So the important thing is that not to get cute. So for example, if you look at our wagons fund, right, we have the constellation businesses in there, the Mark Lerner constellation businesses. They have a good future okay. 00:47:13:16 - 00:47:31:08 Unknown I have no crystal ball. That tells me what those companies look like 10 or 20 years from now. But I want to let them run. I want to let them run. We have the coal companies. I also don't know what those look like ten, 20 years from now. You want to let those run to it looks favorable. We want to let them run. 00:47:31:08 - 00:47:57:20 Unknown So we have some Turkish bets in there too. You know, like race assets. We want to let them run. And I think that when you put enough of these things which have great characteristics, you know, the world is a messy place. Things will come from left field. We don't know what happens to these different companies at what point, but it's almost inconceivable that all of them fall apart. 00:47:57:22 - 00:48:18:15 Unknown That constellation falls apart and the coal beds part fall apart and Turkey falls apart. And, you know, our offshore drillers fall apart. Everything falls apart. That's just in fact, I just can't see that. I can see that maybe 1 or 2 of them might have some issues, but I don't see it across the board. So we don't need to be right to the fourth decimal. 00:48:18:17 - 00:48:40:14 Unknown We also don't need to know which one of these is going to be the one. They're all there. Let them all run. Let them go do their thing. We just watch in the sidelines, see what happens and that's it. So whenever you're saying that and you're mentioning Walmart and saying the 50 stocks, you need to hold on, it's a 2% position. 00:48:40:19 - 00:48:57:03 Unknown I'm probably the only one of your investors in funds who wants you to be more concentrated. Because I have this this bias where I feel the highest conviction ideas and that what you're doing personally, you know, I only have five stocks, probably because I don't understand a lot of things. And so and so I have a bias towards concentration. 00:48:57:03 - 00:49:18:11 Unknown But then to your point, you know, if you have 50 stocks and then just 2% allocation, you just hold on for 50 years and then it beats the 149 others go to. How do you think about position sizing? Are you thinking differently about the ten by ten framework, for example, in funds and we talked about in the past, or how should we square the circle? 00:49:18:13 - 00:49:52:05 Unknown Well, the ETF laws and rules require plenty of diversification, much more diversification than I would natural. That's my natural bent. So we are not going to have large positions there, which is fine and in funds. We've never wanted to put more than 10% into anything. So that's also fine. And so basically, I think at the end of the day, if you've got a spectacular winner, it's going to take care of itself, even with a small position size, as long as you don't trim, as long as you don't desecrate the temple, we're all fine. 00:49:52:09 - 00:50:16:18 Unknown And so so we don't need to go all in with the big conviction. The winners are going to get there even no matter what they where they start out, they'll get there. Just be relaxed and patient and they'll be fine. In fact, that's exactly what happens in index investing. We don't get to see what's happening with the sausage factory or how the sausage is made with the index. 00:50:16:18 - 00:50:38:21 Unknown But effectively what's happening in the index is that it keeps the winners for very long time. And those few 4 or 5% of companies are driving the whole end result. But we don't see it because we just see the S&P. And that's fine. So that's actually what's happening inside the market and inside the index as well. And the important thing is just leave it alone. 00:50:38:22 - 00:50:58:18 Unknown I'm looking all these mental models and trying to figure out how to go back to first principles. And you're typically in trouble whenever you're listening to someone who's talking about first principles, because they seem to go all kinds of directions whenever you do. But I was trying to think about Davin and what he taught us about survival and adaptation, and I wanted to give you that framework. 00:50:58:19 - 00:51:24:04 Unknown And please feel free to question the premise in the first place. But have you learned anything from Davin about how to avoid ruin and compound capital in investing? There's a wonderful book written by a great investor called Polak Prasad, called what I Learned from Darwin about Investing, and it's one of the best investment books I ever read. It's a wonderful book, and in fact I learned a lot from Polak. 00:51:24:06 - 00:51:51:18 Unknown And Polak is an interesting guy. He lives in Singapore and he runs a fund. It's, I think about about 5 billion or so. I don't think they're taking new capital in. He's posted his entire portfolio on their home page. And basically there's no movement in that portfolio. If they buy a company, they're married to the company. They might do five years of research before they buy a company, but once they buy the company, they're pretty much all in forever. 00:51:51:20 - 00:52:23:12 Unknown So it's a very wonderful framework where they think of themselves as owners of these businesses, and these are businesses with truly exceptional corporate governance, very well run businesses. They can be very basic businesses, but they're really well run. So I think Darwin says that the species that survive are not the strongest or the biggest. But he says the ones that are the fittest, its arrival of the fittest. 00:52:23:12 - 00:53:02:10 Unknown And I think that applies to investments big time. So if we look at if we look at a company like, let's say you look at a company like Microsoft, I mean, the evolution that business has gone through over the last six decades or whatever they've been around is unbelievable. They've continuously reinvented themselves. And each time they reinvented, I mean, they were Microsoft was threatened with extinction so many times, and if they had not exact, they would have gone extinct like everyone else did. 00:53:02:12 - 00:53:33:12 Unknown That's an example of a business that's a very fit business, even though it was a big business. What are the important was the fitness of the business. When we look at business like Walmart, for example, that's also a very fit business because they've been so fanatical about delivering value to their customers and efficiency and taking cost of the system and all of that, that they've taken out everyone and, you know, built their footprint. 00:53:33:14 - 00:54:03:13 Unknown So yes, we we want to have the fittest businesses. And one of the definitions of fitness is lack of leverage. You know, so so when you look at these businesses, you want to see management teams that have the ability to think that. And you have a capital structure that allows you the freedom to zig zag. And so I think, yeah, there's a lot of things that you can learn from Darwin that you can apply in the corporate world, which would be helpful. 00:54:03:19 - 00:54:23:22 Unknown Well, let's jump from Darwin. And then to our friend Guy, I think Guy would appreciate that we make that jump, but especially in this tricky situation. But I wanted to round off the episode by asking you, but the most important thing that you learned from Guy, both whenever it comes to investing, but also about living a good life. 00:54:24:00 - 00:54:54:21 Unknown Yeah, well, first of all, guy's situation is very unfortunate. Very sad. Actually, I was I was so heartbroken. Probably still heartbroken. Guy and I are very different people, and I would have never predicted that someone like him would be my best friend. I mean, just we are so different in how we think about things. You know, I recently wrote a letter to Guy, old fashioned letter. 00:54:54:22 - 00:55:23:19 Unknown Right? And I told him that I've often wondered, why do we have a connection? Why do I feel such a strong connection with you? Why do you feel such a strong connection with you? And I told him that. I concluded that it was because he sees me. You remember the avatar movie I see you? Yes. You don't remember saying you have to go back and see the movie again. 00:55:23:21 - 00:55:55:15 Unknown Okay. You got too much going on. Watch the movie. So in the movie, there's a there's a point and they bring it up several points where they make the comment, I see you and I see you is very deep. And what what I felt with Guy is still feel is he gets me in a way almost no one gets me and I get him in a way almost nobody gets it. 00:55:55:17 - 00:56:25:14 Unknown So I told him, Guy, I think the reason we have this connection is because you see me and I see and I remember that one time guy and I were going to take an overnight train in India from Mumbai to Delhi. The train leaves at around 4 p.m. from Mumbai and it gets into Delhi around 10:00 in the morning. 00:56:25:14 - 00:56:51:13 Unknown It's the overnight train and it's a beautiful train. It's it's a very nice train. And he and I had a two person private compartment, private troop, two people. And I told him, Guy, I want to just tell you something. Just when the journey was about to start, I said, you see that? There's that button there. That's a bell. 00:56:51:15 - 00:57:17:01 Unknown And I said, when you press that bell, the butler is going to show up and the butler will do whatever you want. Okay. But I said that I want you the first time you press that bell to drown the butler in cash. Okay? I said the first time you press the bell, don't ask him for anything. Just hand over. 00:57:17:01 - 00:57:43:00 Unknown And I said, drowning in cash. In India, $25 is enough. Okay? He's almost going to have a cardiac at that point. Okay, so I said, just ring the bell. So he he rings the bell. The butler shows up, guy gives him the 25. And I'm going to take a little detour for a second before I continue the story, though. 00:57:43:03 - 00:58:03:15 Unknown Another friend of mine, who used to be an engineer installing cellular networks in Africa. He used to work for AT&T, so they'd go into different African countries and he was like in charge. So he said that one time he went to Ghana, okay? And they always put him up in the best hotel Accra, right on the ocean. Beautiful hotel. 00:58:03:16 - 00:58:25:00 Unknown Right. So he says that, you know, the porter carrying my luggage to my villa. I gave him a dollar, $1 tip. And the guy looked at the dollar and he said he gave me a full military salute, okay. And he said, no one has ever given me that type of salute or that type of respect ever in my life. 00:58:25:02 - 00:58:47:22 Unknown So he said, I gave him another dollar and said, can you please do it again? So he said I was giving him a lot of dollars because it was not. It was awesome. So anyway, coming back to coming back to Guy and so the guy shows up, gives him the $25. He's like, he's almost died. It's like almost half as much salary or something. 00:58:48:02 - 00:59:12:09 Unknown And he said, yes, sir. What can I do for you? So Guy says nothing right now, please. This was just we just wanted to say that we're so happy to have you, etc.. And the guy couldn't believe. He couldn't believe that we had called him back. And I said, now, Guy, feel free to ring that bell as often as you want, okay? 00:59:12:09 - 00:59:36:17 Unknown And he's going to drop everyone else and be here, okay? Now Guy loves to have tea, right? And I said, don't you want some tea guy? He said, yeah. So in that, you know, 17 our journey guy must have rung that bell like 30 times. Okay. Like there was tea coming every 45 minutes. And then, you know, he's he's FaceTiming his wife Laurie. 00:59:36:18 - 00:59:56:10 Unknown He's in a orgasmic state, okay? He's an organic state, the third world country with a train, whatever. And he's telling his wife, Laurie, that in the compartment you don't have to go to a dining car. In the compartment. They bring me my tea. They bring me just to bring me this. Bring me that. And then I tell him, slightly called the new one this, that, whatever. 00:59:56:10 - 01:00:24:13 Unknown And then he says for dinner, white tablecloth, everything in our suite, right in our thing. It's continuously FaceTiming his wife, telling her this, that whatever else is going on. And I told Guy, Guy, I see if you were traveling with anyone else, they would not be able to understand what's really going to get you excited. So that was just a wonderful experience. 01:00:24:13 - 01:00:52:16 Unknown And I felt many times when I'm doing something, he'll make some comment and I'll say what? He's looking straight into me. You knows exactly what I need. You know, it was just so beautiful. Wonderful. I see you. Yeah. What's the movie again? You said avatar, didn't you? Oh, yeah. Yeah, yeah. Okay. Yeah. Go out and watch avatar. That's the final words. 01:00:52:18 - 01:01:21:14 Unknown What is this is. So thank you so much for your service to the value investing community. And how poetic that you say all these wonderful things about Guy. I'm sure he would say the same thing about you. And we published this over the Berkshire weekend. Any concluding remarks here before I let you go, Stig, I always enjoy our conversations and you always impressed me so much because every time I'm thinking Stig is going to have such a hard time, you know, he's asked me everything already. 01:01:21:14 - 01:01:43:12 Unknown He's. Well, guy has to watch so many hours of videos and all that, but you outdo yourself each time. It's so much fun. Thank you so much. Oh, thank you so much for saying so. Thanks for listening. To tip, visit the Investors Podcast for show notes and educational resources. This podcast is for informational and entertainment purposes only and does not provide financial, investment, tax or legal advice. 01:01:43:13 - 01:02:03:16 Unknown The content is impersonal and does not consider your objectives, financial situation or needs. Investing involves risk, including possible loss of principal and past performance is not a guarantee of future results. Listeners should do their own research and consult a qualified professional before making any financial decisions. Nothing on this show is a recommendation or solicitation to buy or sell any security or other financial product. 01:02:03:17 - 01:02:25:12 Unknown Hosts, guests and the Investors Podcast Network may hold positions in securities discussed and may change those positions at any time without notice. References to any third party products, services or advertisers do not constitute endorsements, and the Investors Podcast Network is not responsible for any claims made by them. Copyright by the Investors Podcast Network. All rights reserved. 01:02:25:14 - 01:02:45:06 Unknown A lot of humans have difficulty with giving up. Like you're saying, okay, I like this business. I've seen this business, I've spent some time on the business. But I don't understand this part of it. How do I get to understanding that part? And I think buffet and mongers answer would be that 99% of businesses need to go in.