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Robert P. Miles: What 20 Berkshire CEOs Taught Him About Character, and More — Transcript

by Bogumil Baranowski (Talking Billions Podcast) · 12,148 words · 1,816 segments · language en · Watch on YouTube

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0:00I bought Roger Loenstein's book Buffett:
0:03The Making of an American Capitalist.
0:05And I read that and it just rang true to
0:08me that here's a Midwestern guy, which I
0:11am, who's a business owner, which I am,
0:14tests in parts of businesses, and lives
0:17in the same house, drives his car for 10
0:21years. And this just really rang true to
0:24me. I went to the annual meeting
0:27um and it was at a racetrack in Omaha
0:32called the Argarban racetrack and
0:36coincidentally it's the very spot that I
0:39now teach at the business school on the
0:41Scott campus. All the land was purchased
0:44by the very first shareholder of
0:47Berkshire Hathway and former director,
0:50late director Walter Scott. And I walked
0:52into this very antiquated
0:55building and there were probably three
0:58or 4 thousand people there and one lady
1:01got up and so I saw these two gentlemen
1:05sitting on stage answering unedited
1:07questions for 6 hours without looking at
1:10any notes. And one lady got up and said,
1:13"Mr. Buffett, I only own one beh." And
1:17he interrupted her and he said, "That's
1:19okay, lady. Between you and I, we own
1:22half the company. What's your question?"
1:24And I thought, "Wow, this is my kind of
1:26company. This is is a chief executive
1:30who is treating her as a partner and all
1:34his shareholders as partners." He said
1:38things I've never heard before.
1:39Bogamill.
1:41>> [music]
1:47[music]
1:51>> Welcome to Talking Billions. [music] We
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3:46None of what you're about to hear is
3:48investment advice. After 20 years of
3:51investing, I've seen countless research
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4:41genuinely transformed how I work. Use my
4:43link, see episode notes for 2 weeks of
4:46free trial plus 15% off. My guest today
4:50is Robert Miles, author, educator, and
4:53the world's foremost authority on
4:54Berkshire Hathaway's management culture.
4:56Robert has written three best-selling
4:58books on Warren Buffett, created the
5:00only graduate MBA course dedicated to
5:02Buffett's philosophies, and founded the
5:04value investor conference in Omaha. His
5:07journey from an entrepreneur to globally
5:09recognized Buffett scholar began with a
5:11single Berkshire annual meeting in 1996.
5:14And Warren Buffett himself has been
5:16paying attention ever since. Bob, how
5:18are you? So nice to see you.
5:20>> I'm doing great. Uh Bogum Mill, thank
5:22you for the invitation to join you.
5:25>> Well, first of all, I have to thank
5:26Peter Gustoson who was on the show. He
5:29wrote a wonderful book with your
5:30blessing, the the business investor.
5:33And Peter was kind enough to put us
5:36together, connect us. You are in Europe
5:38right now traveling and you're on the
5:39way to Maitius to see another mutual
5:42friend, Oliver Mueller, who is hosting
5:44you at an event. and you found a moment
5:46to sit down with me and my audience and
5:48talk about everything you've learned
5:50about Berkshire and I have so many
5:52questions about the books about the
5:54course but I want to start with you if
5:57you allow me and you might know by now I
5:59ask my guests about the early days
6:01childhood upbringing how do you think
6:03that time shaped you
6:05>> well I think it shapes all of us whether
6:07or not we recognize it or not and I um
6:12recognized at a very young age that I
6:15wanted financial freedom. I grew up in
6:18uh Detroit, Michigan, uh Mottown, uh the
6:21automotive capital of American uh cars.
6:26And I realized early on in my early
6:31teenage years that the path, the
6:34quickest, most successful, most likely
6:36path to financial independence was to
6:40own my own a business. And I I read a
6:44book that is still my favorite book
6:47today at the age of 18
6:50um by Napoleon Hill called Think and
6:53Grow Rich. And I still strongly believe
6:58as he outlines in his book, The Study of
7:00Successful
7:02uh Business Owners, that you can
7:06literally think and become rich or
7:09become financially independent.
7:12And uh that was probably the most
7:14pivotable pivotable book
7:18uh in my life and development. And then
7:21I was very fortunate in high school to
7:25begin experiencing
7:28entrepreneurial
7:29uh paths uh by being uh a class
7:33president of my high school for my
7:35junior year as well as my senior year.
7:39um where I organized events and I I sold
7:44tickets to them and then um I made money
7:48for the school. So it wasn't to benefit
7:51myself and it was through that those
7:54activities that I learned that being an
7:58entrepreneur was really kind of a cool
8:00thing that you needed to have grit. um
8:04you needed to learn from your failures
8:05and I had a big failure early on which I
8:10still remember today and will never
8:11forget. They say you remember your
8:14failures more than your successes and
8:16that if you want to improve your memory
8:18you should make more mistakes because
8:20you'll you'll learn. And um what I what
8:25I learned is that I organized movie days
8:29and this was in the 70s. So, I would
8:32rent uh movies like The Nutty Professor
8:35starring Jerry Lewis on a on a reel.
8:39This was way before digital. I would get
8:41free access to the auditorium at the
8:44high school. And then I would advertise
8:46to all the local uh grade schools around
8:50the high school to come by movie day and
8:53for 50 cents we would show you the Nutty
8:56Professor. And the parents knew it was a
8:58safe environment. So they would drop off
9:00their kids hoping they would enroll in
9:02high school later on as they aged. And
9:06uh the mistake I made is that I didn't
9:10realize what business I was in. I
9:12thought I was in the movie business and
9:14I was really in the babysitting
9:15business. And so when I had it initially
9:18around Christmas,
9:20all the kids were dropped off so the
9:22parents could go Christmas shopping. And
9:24then when I did it again because it was
9:27so successful in the spring, it was a a
9:31poor failure because the kids were
9:33wanting to be outside. They don't want
9:34to be in a high school auditorium. So I
9:37really learned that you got to
9:38understand what business you're in. And
9:41and you can only learn that through by
9:44doing. You know,
9:45>> it's such a powerful realization because
9:48when we analyze businesses, we think
9:50you're in a certain business and we
9:53realize once you look closer that you
9:55might be in a a different playing a
9:58different role for your client than it
10:00it it seems at the beginning. I mean,
10:02even in the investment profession, it
10:03looks like we're in the business of
10:04turning a million into two and two into
10:06four and four into eight. But once
10:08you're really in it, it's about the
10:11people. It's a very human experience.
10:12you know, they have their fears,
10:14anxieties, dreams, and you realize the
10:16numbers matter, but there's so much more
10:19that matters when you're talking to
10:20clients.
10:21>> Yes.
10:22>> I want to ask you about that moment. You
10:24walked into your first Berkshire
10:25Hathaway annual meeting in 1996.
10:28>> From what I know, you knew almost
10:30nothing about the company.
10:32>> What was it about that room and
10:34experience that changed what it it seems
10:37like the entire direction of your life?
10:39>> Well, I did know something. uh bogamill
10:42because I asked myself in uh 9596
10:49who's the most successful investor and
10:51is he available to invest manage um
10:55invest money on my behalf my family's
10:57behalf and I also had a small company
10:59responsible for the retirement funds and
11:02this was kind of before the internet and
11:04I realized through a little bit of
11:07research that it was Warren Buffett and
11:09I bought
11:11um Roger Loenstein's book Buffett: The
11:15Making of an American Capitalist. And I
11:17read that and it just rang true to me
11:20that here's a Midwestern guy, which I
11:23am, who's a business owner, which I am,
11:26who invests in parts of businesses, and
11:29lives in the same house, drives his car
11:32for 10 years. And
11:34>> this just really rang true to me. So, it
11:37was really the book. It was Roger
11:38Loenstein's book um that opened my eyes.
11:44And then the Bshares were issued um at
11:47now um split adjusted $20 a share,
11:51right?
11:52>> And um I went to the annual meeting
11:56um and it was at a racetrack in um Omaha
12:02called the Argarban racetrack. And uh
12:06coincidentally, it's the very spot that
12:09I now teach at the business school on
12:12the Scott campus.
12:15All the land was purchased by the very
12:17first shareholder of Berkshire Hathway
12:20and former director, late director,
12:23Walter Scott. And our Zarban is Nebraska
12:27spelled backwards.
12:29And I walked into this very antiquated
12:33building
12:34and there were probably 3 or 4 thousand
12:38people there. And one lady got up and so
12:43I saw these two gentlemen
12:46um sitting on stage answering unedited
12:49questions for six hours without looking
12:52at any notes. And one lady got up and
12:55said, "Mr. Buffett, I only own one
12:58Bshare. And he interrupted her and he
13:01said, "That's okay, lady. Between you
13:03and I, we own half the company. What's
13:05your question?" And I thought, "Wow,
13:09this is my kind of company. This is this
13:13is a chief executive who is treating her
13:18as a partner and all his shareholders as
13:22partners." He said things I've never
13:25heard before. Bogamill. He said Wall
13:28Street will sell you anything you're
13:30willing to buy. I went, "Who says that?"
13:35He said, "Wall Street is the legal
13:37pickpocket of the average investor." And
13:41I went, "Wow, this is somebody who is
13:44authentic, who's speaking the truth to
13:47me, who is my kind of guy." So I made a
13:53decision that was probably
13:57one of the most pivotal pivotal
13:59decisions of my life. I went all in. Uh
14:03something that you as a investment
14:06manager would probably not advise, but
14:08if you look at your clients, most of
14:10them have probably made their wealth by
14:12investing in one company.
14:14>> That's true. I went all in on Brookshire
14:16Hathway and I still own it today and
14:19it's my largest holding and I'm up about
14:2225 times from $20 split adjusted to uh I
14:28guess 480 or whatever it is today. I
14:30don't I don't watch it that closely.
14:33Yeah, I've been going to Amaha for many
14:35years and now and then I I meet people
14:38on the way or waiting in line who have
14:40owned shares for for decades. And to me,
14:43it's not in investing just that you
14:44bought it, but you haven't sold it.
14:46That's that's the more powerful aspect
14:48of it, right? And through the podcast,
14:50people reach out to me and share their
14:52stories. I meet people that bought
14:53shares 40 years ago and they haven't
14:55sold a single share. The conviction, the
14:58commitment, it's quite unique in the
15:00world that's changing so fast and we
15:02change our mind about I mean, anything
15:04from a sofa in the house to the color of
15:06the car we drive and to hold something
15:08for so long.
15:09>> Yeah. Bob, you stood in line at the
15:11Dairy Queen in Omaha hoping to meet
15:13Buffett and two years later he showed up
15:15at your book signing. Can [laughter]
15:19you take us back to that moment? What
15:21did it feel like when he walked through
15:22the door?
15:24>> Well, um, I wrote my first book. I
15:27wasn't intending to write a book. I
15:30a after a few years of owning the stock
15:33and following them and reading the
15:35annual letters I
15:38I went on to the mly fool fool.com
15:41created a pseudonym called simple
15:43investor
15:44>> and uh pronounced more as a challenge to
15:47myself than any anyone else. I just said
15:50I could come up with 101 reasons why you
15:51should own this company, not buy this
15:54company, not trade this company, but own
15:56it.
15:56>> Mhm. And then I sat down over the next
16:00101 days and I would log in uh you know
16:04dial up internet service under my
16:07pseudonym
16:09um and I would say reason five out of
16:12101
16:14um Buffett only pays himself $100,000 a
16:16year. There are no stock options and
16:18he's not going to issue stock options.
16:20You know reason number 12 out of 101. It
16:23was just a stream of consciousness as a
16:25business owner owning a business, owning
16:28a part of a business. Um, and and then
16:32when I finished, I had no idea who was
16:36following me. Um, because it was before
16:39blogs were blogs. Now you can see who's
16:42following you or how many views you get.
16:45And um, I had a hundred emails come in
16:49uh, wanting copies. And I said, "Well,
16:52just print out 101 posts, put a staple
16:54in it, and there you go."
16:56>> And they said, "No, we'd like you to uh
16:58make a book out of it." You know, I had
17:00emails from Europe, from um from the
17:04Pentagon. It was just it was mindblowing
17:07all the different uh people who were
17:09emailing me, who I had no clue who was
17:12following me. So, as a courtesy, I wrote
17:15to Warren said, "Warren, you know, my
17:17name's Bob Miles. I wrote 101 Reasons to
17:20own your company. Uh would it be okay
17:23with you if I publish this 101 Reasons?
17:27And he wrote me back and he said he was
17:30reading it as I wrote it and he
17:32encouraged me to publish it. So I
17:35self-published it. It looked like a
17:37dissertation. It was a manila cover,
17:40tape binding. No bookstore would handle
17:43it. Uh, Amazon was just getting going,
17:45but they wouldn't handle it either
17:47because there was no title on the bind
17:48and there was no ISBN number on the
17:51back. So, I just said, you know, 20
17:54bucks. I printed it for $5. Um, and then
17:58for 20 bucks, including postage, I'd
18:01send it to you. Sold out. And in the
18:04mail comes a check for 10 copies from
18:12>> Orman Buffett for his board of
18:14directors.
18:16And then I said, "Well, I got to get
18:18this in the hands of, you know, who's
18:21likely to want to read this book?" Well,
18:23shareholders. So, I announced, as you
18:26mentioned, free ice cream between 7 and
18:309:00 p.m. [snorts] Friday night before
18:32the annual meeting if you show up at
18:35114th Street in Dodge to this little old
18:38Dairy Queen, I'll buy an ice cream and I
18:41just happened to have my book there and
18:45um and then up and then when I showed up
18:48there was a line around the Dairy Queen.
18:50I mean, Berkshire Hathaway shareholders,
18:53they know a good value when they hear
18:54it. Yes. And I only announced it on the
18:56Milely Fool and I didn't advertise this.
18:59I didn't send out any invitations and
19:03and um
19:05the worldwide media is there because
19:08they're wanting to cover the annual
19:10meeting and, you know, free ice cream to
19:12the media. Mhm.
19:13>> So they show up and then in through the
19:15door walks Warren Buffett and I just,
19:20you know, he he he whispered in he put
19:23his arm around me. He whispered in my
19:25ear like he likes to do and then
19:27pictures were taken,
19:29published all over the world. And then
19:32on Monday, the who was now my publisher,
19:35John Wy and Sons calls me and they said,
19:37"We want to fly to New York. we want to
19:40sign you for a twobook deal. And um
19:45and I wasn't intending to write a book,
19:48let alone two. Uh so,
19:52uh that's kind of how I launched my
19:55self-publishing
19:57uh career. And um I just got lucky.
20:01Right subject, right tone.
20:04um you know having Warren Buffett
20:07endorse you as you know better than
20:09Oprah terms of selling books and
20:14so I got very lucky Bogle Mill es
20:17especially to us you know Berkshire fans
20:19if you get the endorsement we'll
20:21definitely read it and I I read your
20:23books and I'm a big fan and I was
20:24reading the new 25th anniversary edition
20:28so you you didn't stop with that book
20:29you ended up interviewing or profiling
20:3218 Berkshire CEOs
20:34And I'm curious about this experience.
20:35You share so much in the book, many
20:38things about them, but those
20:40conversations, what do they reveal about
20:42the kind of CEO that thrives under
20:45Buffett and maybe the kind that probably
20:48wouldn't fit?
20:50Yeah. Um well it was a fascinating
20:54project because like I mentioned earlier
20:56the my publisher wanted two books out of
20:58me and and Warren said I think in a
21:02letter you know enough writing about me.
21:05You know the real story are all the
21:07managers who make up the companies.
21:10>> So then uh this was um 2000 there were
21:1456 subsidiaries. So, I interviewed I
21:17profiled about 20. Uh, you counted 18. I
21:21I counted 20.
21:23>> Maybe it's 20.
21:24>> Miss Mrs. B had already passed away, so
21:26I didn't interview her.
21:27>> 20.
21:28>> And there were a couple I did uh
21:30together. Um, you know, the Tatleman
21:32brothers were together, so maybe you're
21:34only counting.
21:35>> Maybe I counted as one.
21:36>> Yeah.
21:36>> Counting one of them. So, maybe it's
21:38We'll split the difference. We'll say
21:39there's 19. So what did I discover is
21:43that they're
21:46they're working for passion. They're
21:48working in something that they really
21:51enjoy. Uh many of them sold their
21:54businesses because they wanted to
21:56release all the capital that was in the
21:58business, but they didn't want to give
21:59up any of the control
22:02>> and they didn't want a boss. They didn't
22:04want somebody telling them how they
22:06should be doing what they've been doing
22:08successfully for so many years.
22:10um they had no retirement age, they had
22:14no contract, they had no non-compete
22:17agreement. Usually when you buy a
22:20business, you're going to ask the of
22:22course,
22:23>> you know, the entrepreneur or the family
22:26manager or the professional manager, you
22:28know, let's sign a deal here that you're
22:30going to protect my investment.
22:33Uh Buffett has such an extraordinary
22:36ability to choose people who love the
22:39business more than they love the money
22:41because he has to figure that out real
22:43quickly because if they love the money,
22:45you know, on average then they were
22:47going to get about $100 million. Some of
22:49them are billionaires that I interviewed
22:52and um he knew they would never do
22:55anything to hurt the business.
22:58What really struck me that I shared with
23:00you earlier was that they didn't want
23:02the spotlight. They're very humble
23:05you, you know, human beings and and they
23:07love what they do and and you even share
23:09in the book once you profiled them, they
23:11said [laughter]
23:13you made them you made it you sound they
23:15they sound even better than they really
23:17are in the book.
23:18>> Can can you share that? I mean it's so
23:20unique in a world where we see cos that
23:22have to be in the spotlight, have to be
23:24in the headlines and these are different
23:26individuals.
23:28>> Yeah. And you know the book um Bogamill
23:31as you probably realized is really the
23:33first and only book that's the
23:35qualitative aspect of investing. All the
23:39other books um are all the quantitative
23:42or the numbers of how to invest like
23:44Buffett. This is really um the secret
23:48ingredient and one of the reasons why we
23:50called it the secrets of Birkshire
23:52Hathway managers is um this is really
23:56the character it's the culture that I
24:00think is exposed through the people that
24:03Buffett has selected as partners as the
24:06managers of the business and you know
24:09and those that he chose not to partner
24:12with he says to um you know to buy a
24:17business when you're already rich with
24:19somebody who churned your stomach. You
24:20know, he likens it to getting married.
24:23He says, you know, marrying for money is
24:26never a good idea, but marrying for
24:29money when you're already rich is
24:30absolutely insane.
24:33>> So, it's the same thing in terms of
24:36partnering with the manager of the
24:39business. Um, so anyhow, uh, in the 25th
24:42anniversary edition, it was the same
24:44thing. I profiled, you know, some new
24:49CEOs. I updated all the CEOs that I
24:52profiled 25 years ago, but in the new
24:54edition, I u profiled the CEOs that were
25:00more reflective of where the net
25:02operating earnings were coming from. Um,
25:06and you know, Ted Wesler, who manages
25:10about 6% of the, you know, publicly
25:13traded portfolio, about $18 billion,
25:16maybe 20 billion. He he said, "Bob, you
25:20you know,
25:22you make me sound better than I am."
25:24>> And Charlie Shammy at chairman of Gen
25:27Ree, said the same thing. Don Worester,
25:29the president of National Indemnity, the
25:31largest insurance company in the world
25:33that no one's ever heard of.
25:35>> Um, he turned me down 25 years ago. He
25:38says, "I'm not going to let you profile
25:42me, you know." Uh, and then we became
25:45friends over the years and he said he
25:48would sit down with me and he too said,
25:51"You make me sound a lot better than I
25:53am." So, and that's unique. I I think
25:57the other unique thing um Bogum Mill as
26:01you probably have experienced in dealing
26:04with um investments and highprofile CEOs
26:09is that the average CEO
26:12is on the job in in in America in
26:15corporate America. They get the job at
26:1759 and a half and they're kicked out at
26:1965 no matter how good or bad they are.
26:21So they're on the job five and a half
26:23years um making most of their money
26:26through stock options uh through
26:28compensation. The average Bergkshire CEO
26:32is on the job five times more than that.
26:36They're on the job 25 years in counting
26:40with no intention to retire. I I don't
26:44know if you you read Mrs. Blumin's
26:46chapter,
26:47>> but uh she retired at 103 and died soon
26:53thereafter. And Buffett says to all the
26:56other managers, let that be a lesson for
26:58you as to what happens if you ever think
27:01to of retiring. [laughter]
27:03He has a sense of humor.
27:05>> Yes.
27:06>> I have so many thoughts, but when I was
27:09rereading your book and the new edition,
27:11I kept seeing the word temperament. you
27:14know, we're looking at the CEO as
27:15somebody very capable, very intelligent,
27:18but then you would highlight Buffett
27:20really appreciated that person's
27:22temperament, and I I saw it again and
27:24again and again. Can you talk about
27:26that? I think it's there's there's some
27:28secret there that maybe we don't
27:29appreciate enough.
27:31>> Yeah. Well, in fact, when I teach um the
27:36course on Buffett, I challenge myself
27:40and I think to myself, can you really
27:44teach someone to be rational?
27:47And Bogamill, I'm not sure you can. that
27:51I think it's like some things you're
27:54just born with the rationality of your
27:58grandmother who knew instinctively that
28:01you've talked about. She knew value and
28:05and I think that goes along with
28:08temperament where she's not going to pay
28:10a high price for whatever's on sale at
28:14the market. She knows what a fair price
28:15is. Mhm.
28:16>> So I would think it's is you probably
28:19witnessed temperament
28:22>> um and it and you in the investment
28:26business it's amazing as I'm sure you've
28:29observed and you've spoken about on
28:31previous podcasts that I've watched how
28:34very very smart people are sometimes
28:39um deluded in thinking that they can
28:43beat the market
28:45>> because they're so smart. In fact,
28:47they're handicapped and they don't know
28:48it.
28:51>> And it all comes down to temperament
28:55is
28:57a lot of people go into investing
28:59because they want to be right. And I
29:01have the other aspiration. I want to be
29:03the least wrong.
29:04>> Yes. [laughter] Yes.
29:05>> And you want to be um you don't want to
29:09be precisely
29:11wrong. You want to be roughly right this
29:14in the investment business to survive. I
29:18think it's a very very very hard place
29:20for a lot of us to to operate from and
29:23you know there are all kinds of
29:24professions that require true precision
29:26and there's no room for mistake you know
29:28all kinds of serious surgeries
29:30>> even you know construction architecture
29:33bridge building all those things there
29:35is a margin of safety
29:37>> yes
29:37>> but it's very
29:39>> necessary
29:40>> in investing go ahead
29:41>> but we talk about Buffett's mistakes you
29:43know I outlined them in the latest
29:45edition you know he's got a mistake
29:47every year and he freely admits it and
29:50and I debated him at lunch, you know,
29:52his biggest investment mistake. And I
29:55said it was Dexter Shoes, uh, early8s,
29:58the largest then the largest shoe
30:00manufacturer in the United States. He
30:02paid 400 million for it. That wasn't the
30:05mistake. The mistake is he gave 2% of
30:10Bergkshire stock in the early 80s. Uh,
30:13so it's an ever escalating mistake now
30:16with a $2 trillion market cap. It's 20
30:20billion. So it's no longer 400 million.
30:23Uh, if he had used cash, he said, "No,
30:26Bob, that's not my biggest investment
30:28mistake." And he argued with me and
30:33um and he's right. He said, "My biggest
30:37investment mistake was buying Birkshire
30:38Hathway Old New England textile mill."
30:41>> Yeah. uh roughly $15.5 million uh in the
30:4660s, early 60s. Um instead he said if I
30:51wisely invested in an insurance company
30:55uh like GEICO or National Indemnity
30:57which he did buy Brookshire would be
31:00worth um twoundred
31:04to$200 billion more compounded
31:08>> u over
31:10over you know 59 years that he's 60
31:14years that he's run the
31:19So even even the world's greatest
31:22investor
31:23>> is making mistakes
31:25all the time. you just you got to have
31:29some big winners and which he's had over
31:31the years and and and his success really
31:34only comes down to a handful of stock
31:37picks and um and company picks you know
31:41and he's he still made the mistake of
31:45you know investing in newspapers and
31:48uh uh you know other businesses you know
31:50the textile mills that he had to close
31:54>> but I think for all of us you know
31:55listening today or watching Buffett if
31:58if he makes mistakes and he did just
32:00fine, we can make some mistakes and I
32:04think embracing the fact that investing
32:06you will make mistakes. Just make sure
32:08you make them small enough that you can
32:10afford them and I you know I certainly
32:13believe that there are certain risks
32:14that even the richest people in the
32:15world cannot afford and it's it's quite
32:18a realization because you feel like with
32:20a certain amount of money you you got
32:21away. No, there's always risk. It's just
32:24what kind of risk are you willing to
32:25underwrite? You talk a lot about
32:27insurance companies throughout the book
32:29be before we move on to the anniversary
32:32edition. I have a lot of questions about
32:34what has changed. I want to talk about L
32:36Simpson for a little bit. I feel like
32:38>> certainly
32:38>> I I I know of him. I wish I knew more.
32:42You write quite a bit about him. You've
32:44spoke with him. For the benefit of the
32:47audience, what should we know about Lou?
32:50>> Yeah, Lou in terms of temperament.
32:52You've never met a guy who is more
32:55devoid of emotion. I mean, this guy is
32:59as rational as you could possibly be.
33:02>> Uh, unfortunately, he's passed away. Um,
33:05but he was responsible for investing the
33:11float of Geico insurance uh CEO in ter
33:14in terms of investment operations where
33:16Tony Nicely was CEO of operations. So
33:18they they divided their roles between
33:21operator or generating the float and
33:24investing the float. Uh when I
33:27interviewed him in his office in the
33:29hills outside of San Diego San Diego in
33:33Rancho Santa Fe, California,
33:36uh he had an office which might look
33:39similar to yours. It looked like a
33:41library. It was quiet like a library.
33:45Like most successful investors that I
33:48visited all over the world, they're they
33:50surround themselves with books. They
33:53principal
33:54um use of their time is reading.
33:58um he um had $2 billion under management
34:04at the time and invested in seven
34:07stocks, different stocks than Warren,
34:10some technology stocks, some retail
34:12stocks. Um and
34:17he
34:18beat the pants off of, you know, most
34:22professionals. Um, I think he had a over
34:25a 25- year investment record Buffett
34:29published in the annual report um,
34:32praising him. Uh, I think he beat the
34:36S&P by 4.8% if I remember correctly over
34:40a long period of time. In fact, his
34:42compensation was tied into his
34:44outperformance, the S&P 500. So, it
34:47wasn't a percentage of the amount of
34:50assets he had under management, but just
34:52like Ted's Wesler's compensation and
34:56Todd Combmes before he left for JP
34:59Morgan, they're compensated at 10% of
35:03the outperformance of the S&P 500 over a
35:06rolling three-year average. So, like all
35:10of the simple compensation formulas of
35:13the managers of Birkshire Hathway,
35:16they're all tied into their value ad and
35:20it's all cash generated and he was
35:26um Lou was quite the performer.
35:30>> They were similar, I mean Lou and
35:32Warren, but also different. I want to
35:34ask about the aspect of being, you know,
35:37a concentrated investor. Lou and and
35:40Warren have that in common. Ben Graham
35:43was not an investor of that kind. He had
35:46a lot of stocks from what I know.
35:48>> Where did this idea come from? Because
35:49nowadays I hear it again and again. It
35:51looks like it's it's very it's more
35:53common even than than [laughter]
35:55diversifying,
35:57>> right?
35:57>> When did that happen that it's a good
35:58idea to hold, you know, seven stocks?
36:01Well, I think with Warren, it happened
36:04when he was 19 years old and he had his
36:08uh he had five companies and 65% of his
36:12$20,000 net worth was in Geico because
36:16he he went to GEICO and he he learned
36:19all about GEICO and then he he wrote a a
36:22paper on the security that I like best
36:25and it was Geico.
36:28So, uh, Buffett very early on, I I'm not
36:32sure that he learned that from from his
36:35professor Benjamin Graham. Uh, but he
36:39realized that, you know, make an
36:41investment in that which you know, and
36:43reinvest in your star players.
36:47uh you know he uses the basketball team
36:49analogy you know rather than take out
36:51your star player LeBron James and sit
36:54him on the bench to put in your sixth
36:55player
36:56>> who's not as good uh keep playing your
36:59star player and I would say Charlie Mer
37:04um Lou Simpson Warren Buffett Todd
37:08Combmes Ted Wesler
37:10>> all have portfolios that are
37:14predominantly
37:15uh 10 stocks are smaller. Charlie with
37:20um the Daily Journal had three stocks
37:23when he passed away. Um they say when
37:27you come across a great idea, load up
37:30and fortunately that's what I did with
37:32Berkshire Hathaway.
37:35I'll make a confession that you know
37:37I've been investing money for people for
37:3820 years in the first half of my career.
37:41[laughter]
37:43Obviously, a lot of my money was in
37:44various, you know, funds that were the
37:46firm was managing, but my own
37:48investments were in four stocks.
37:50>> Very, I had this idea that if if I get
37:53it all wrong, [laughter]
37:55I can earn it back.
37:57>> Oh, right.
37:58>> And
37:58>> well, if you're young enough, that's
38:00true.
38:00>> And then at some point, I gravitated
38:03towards a a larger number of stocks
38:05because
38:07I wanted to be the least wrong. And I do
38:09let the winners run. And I think what
38:12happens and I see it time and time again
38:13especially with accounts that have been
38:15with me for a while that it is a handful
38:17of stocks that really pull the
38:19portfolios forward and I think that's a
38:23realization. So I let them become much
38:25larger positions. I don't have Buffett's
38:27confidence to make them you know a
38:28quarter of the account up front but I I
38:31let them run. So that's where I find my
38:34happy middle. I wanted to mention
38:36something and you may correct me if I
38:38remember it wrong but in the Geico
38:40article that you mentioned the last
38:41sentence of that article Buffett says
38:44that the market does not appreciate the
38:46growth potential of this business
38:48something along those lines and I think
38:50it's a tiny little hint to all of us
38:52that are think of Ben Graham and his
38:54teachings which basically was you know
38:56liquidating value of the businesses and
38:58no future for the business Buffett is
39:00already switching and thinking Geico has
39:03future you're not just buying it in in a
39:06static value way but a dynamic. This
39:08could be a much bigger company and we
39:10both know it has become a much much
39:12bigger company. [laughter]
39:13>> It has
39:14>> and and Ben Graham himself at the end of
39:17uh one of the editions of the book he
39:18says in third person that Geico was a
39:23big success and made more money than all
39:25the other hundreds and hundreds of
39:26investments that he made. Anyways, just
39:27a foot for here about buying a company
39:30that can carry you forward. Buff.
39:33>> The other thing that sets um Buffett and
39:37Lou Simpson apart from Benjamin Graham
39:40>> is Benjamin Graham didn't believe in
39:42visiting with management,
39:44>> right?
39:44>> He felt as though management was going
39:46to sell you on the stock and sell you on
39:48the business. They weren't going to tell
39:50you what their weaknesses were. And and
39:53that early on Buffett met, you know,
39:57Walt Disney before he bought Disney. And
40:00he he visited and you know Geico auto
40:04insurance he visited management and I
40:07asked Lou Simpson would he make an
40:09investment without ever meeting
40:11management. He said no that he he wanted
40:14to meet management and um you know they
40:18want to see what their offices are. They
40:20are they palatial and you know are there
40:23gold faucets in the restroom and you
40:26know are they are they treating the
40:30shareholders
40:32like partners? Are they creating value
40:35for the themselves? Are they creating
40:37value for the shareholders? So, uh, I
40:40think that's another example of how Lou,
40:44uh, as well as Warren deviated from
40:46Warren's, um, hero, his second hero, you
40:50know, he had three hero heroes and his
40:52second hero um, he holds dearly and with
40:56great respect, you know, Benjamin
40:58Graham, and he he says the intelligent
41:01investor is the only book an investor
41:03needs to to read. There's no other book
41:06necessary. In fact, I asked Warren. I
41:09said, ' Warren, when are you going to
41:10write the most definitive book on
41:11investing? He said, ' Bob,
41:15everything that an investor needs to
41:16know has already been written. He had
41:19nothing to add for what's already out
41:21there. It's just he said that as humans,
41:25there's something about us where we want
41:28things to be more complicated than what
41:30they are. He says it's just not that
41:32complicated. We We just want it to be
41:35complicated. Although he he has a way
41:37you know he's a genius so he has a way
41:39of making you know simple things or
41:43complex things pretty simple you know
41:45his use of metaphors is extraordinary
41:48um but but but I think he's right you
41:51know and he never misses an opportunity
41:53to explain the three lessons of the
41:56intelligent investor to any young
41:58audience of college students who used to
42:00visit him uh telling them stocks are
42:02businesses uh your partner is Mr. market
42:05and he's manic depressed and make sure
42:08you have a margin of safety, you know,
42:09and that's really the three lessons he
42:13and he says they're principles because
42:15they don't change, you know. So all
42:17every time that Buffett underperforms
42:19for whatever reason, you know, the media
42:22says, "Oh, Buffett's lost it. He's old
42:24school and he doesn't understand." And
42:28he just says principles are principles
42:30because they don't change. So
42:33>> just wait every time. Just wait.
42:35>> Yeah.
42:36>> Bob, you wrote the book and then a
42:39quarter of a century passed. You looked
42:41back. You have this updated edition. I'm
42:44very curious. What is it that you
42:46couldn't have known at the time? What
42:48have you learned? What have you
42:50observed? Maybe some of the ideas got
42:52reinforced. Maybe some new revelations
42:54came to you revisiting those stories and
42:57those profiles.
42:59>> Yeah. Well, it's appropriate that I
43:02be on a podcast called Talking Billions
43:05because my first revelation
43:08was that 25 years ago,
43:12uh there was a billion dollars in net
43:14operating earnings. So, this isn't the
43:17cash, this isn't the uh equity
43:20portfolio. Uh this is strictly
43:24um 56
43:27um wholly owned operating companies net
43:30of taxes, $1 billion
43:33in 2000.
43:35All of that or 100% of it came from
43:38investment insurance income,
43:42which kind of blew my mind when I went
43:44back and looked at that in
43:46retrospectively.
43:48And then fast forward 25 years later and
43:52it's 47 times that. So it's 47 billion
43:58which is a really nice growth in annual
44:01earnings net. And you now have four
44:05times the employees. You have four times
44:08the amount of wholly owned subsidiaries.
44:12But most dramatically and I think
44:17structurally
44:19he and the other managers have
44:22solidified
44:23the investment of Berkshire Hathaway by
44:26dividing the 100% of
44:31net operating income from insurance
44:33investment income to a broader pie which
44:37is more sustainable and more durable
44:41where We have now 30% of the $47 billion
44:46coming from insurance investment income.
44:49The other 20% or half the earnings
44:51coming from insurance underwriting. So
44:54half the in income pie is insurance
44:58related which is also reflective in the
45:00book of who I chose to profile. And then
45:03you got a big slice of about 28% of
45:07manufacturing service and retail. Um and
45:11then you have a big slice for the
45:14railroad BNSF railroad. And then um a
45:18nice big slice of the energy business
45:21which uh Warren's successor Greg Ael has
45:25built and become financially independent
45:28and is likely to be a billionaire now
45:31because of his work um developing that
45:35enterprise, deploying capital,
45:38allocating capital um and and then just
45:41a very small sliver of where the
45:44earnings are coming from outside of that
45:48um so that was my biggest revelation
45:52>> power of compounding and that's why you
45:54told me to rename the podcast to talking
45:56trillions TT [laughter]
46:00>> you never know you might you might take
46:02credit for me renaming the podcast down
46:04the road so okay
46:07>> but I want to ask you and you kind of
46:09brought it up right now you know the
46:11public and private companies that
46:12Buffett has owned so Lou Simpson from
46:14what I know almost only publicly traded
46:17companies.
46:18>> Yes. Y
46:19>> Buffett is a different
46:20>> and no no no debt um no other non-equity
46:26investments.
46:27>> Exactly. and different you know very
46:29very focused
46:31>> in the public markets and and maybe you
46:34know it's my contrarian bone you you
46:35pointed out my grandma and value
46:37investing I think upbringing that I had
46:39that I deployed in this field and I
46:41never knew it would be handy much more
46:42than you know looking for groceries on a
46:44on at a farmers market [laughter] but
46:46buying businesses in the public market
46:48one of the things that I love is that
46:50people panic together and you can get
46:53incredible businesses at a discount that
46:56you would never see in the private
46:58market, especially when somebody is a
47:01motivated seller in the private market,
47:03you should ask a lot more questions,
47:05right? You when you see a a motivated
47:07private market seller. So Buffett has
47:10operated in two worlds that are really
47:12different at least on many levels, but
47:14at least on the price level. In the
47:16public market, he waits and he takes
47:18advantage of the weakness. In the
47:20private market,
47:21>> he's not really trying to squeeze the
47:23last dollar, get a deal. It's a very
47:25different price sensitivity and you
47:27brought up, you know, when we spoke
47:28privately how how Buffett sometimes even
47:31hides the price not to be impacted by
47:34not to be influenced by it. Talk to me
47:36how you can how he operates in the two
47:38different universes that work in a
47:41different way.
47:42Well, as you mentioned, in the public
47:46markets, um, you have to pay maybe 20%
47:49more than the market in order for the
47:51shareholders to agree to, uh, surrender
47:55their shares to you and for the majority
47:57owners to agree to an acquisition. Um,
48:01and that's not Buffett's uh, preferred
48:04method of operating. So, he waits for
48:06Mr. market to be depressed and can step
48:09in and take advantage of that in the
48:12private markets.
48:14um he doesn't want to um engage in the
48:20uh what private equity often does uh
48:23where they bid up they they enter into
48:26an auction they take the highest price
48:29um usually um and then they load it up
48:32on debt with debt and they're able to
48:35deduct that debt and then they usually
48:37spin it out. Um,
48:40in fact, you know, I'm I'm traveling the
48:42world collecting unpopular opinions and
48:44maybe later on you'll share one of your
48:47unpopular opinions and I shared my
48:51unpopular opinion which is that private
48:54equity has done more harm than good. Um,
48:58and then to invert like Charlie Mer says
49:02always invert. What's the corollary or
49:05what's the opposite of private equity?
49:07[snorts]
49:08And I would say that's the Birkshire
49:10system also created by Charlie Mer. And
49:16uh Warren says he's the architect and
49:19that Charlie's the architect. He's just
49:21the general contractor and all the
49:23managers are the subcontractors.
49:26>> So um with Warren when he makes a
49:29purchase he wants people to self-
49:32select. So he wants them to call him or
49:35now call Greg Ael. I want to sell my
49:38business and you're the only company I
49:40want to sell it to. And then he
49:42reassures them that I'm sure Greg will.
49:45We are your last owner.
49:48>> You are not for sale,
49:50>> right? Uh uh so I think he's able to
49:54attract businesses
49:57>> and the right businesses because they
49:59got to figure out as as you've mentioned
50:02when you're when a bis private business
50:04owner is selling they know more about
50:06that business than you will ever know.
50:08Even Buffett being a genius will ever
50:10know or Greg Ael uh than you know the
50:15advantages of a public market where you
50:16can take advantage of a depressed Mr.
50:18Market. Um, so he has to figure out
50:22right away, does this business owner
50:25love the money or do they love the
50:27business? Because if they love the
50:30money, they're going to take the money
50:33and go. And if they love the business,
50:37then that's that's the kind of business
50:40he wants to buy. And he's got to figure
50:44that out. And somehow he can do that.
50:46It's it's the magic or the secret of
50:49Buffett
50:51>> and and Greg Ael.
50:54>> It's such a unique setup here because I
50:57mean we hear those anecdotes of people
50:59starting businesses to sell. They scale
51:01them really fast. They grow them really
51:03fast. Maybe the practices they deploy
51:05are not sustainable. You have to get
51:07there real quick. And here you have the
51:09opposite. people sell the majority of
51:12the business to Buffett and then they
51:15remain involved in the business. They're
51:18not going away and retiring or you know
51:21buying an island. It's a it's a very
51:23unique not just the founder CEO or it's
51:27just a very unique human being.
51:29>> Well, when they come to him boil they he
51:32actually tries to talk him out of
51:33selling it. He says, "You have this
51:36wonderful business and we're going to
51:39exchange, you know, cash for your
51:42business and you're going to take that
51:44cash and you're going to go out and
51:45you're going to buy 500 uh publicly
51:47traded companies if you buy the index of
51:50businesses you don't know. And you're
51:53better off keeping this business. So, if
51:56it's a legacy reason, uh, which is often
51:59the case, uh, then the the perfect home
52:03is Berkshire Hathaway because they're
52:05going to preserve your legacy and your
52:07company is not going to be moved or
52:10changed or
52:12>> um, you know, you you love your
52:14suppliers, you love your customers, you
52:16love your community, all that stays the
52:18same. We're not making any changes. It's
52:21it's an amazing uh business model, but
52:23but you're right, you can get better
52:26deals often when Mr. Market
52:30um you know, they they say Mr. Market
52:32takes the escalator down and the stairs
52:34up, you know, so when he's on the way
52:36down,
52:37>> that's but but it's it's difficult to to
52:40step in. Then
52:43>> just a quick thought, you know, we're
52:44talking about Buffett as a very
52:45concentrated investor. He has acquired a
52:48lot of businesses
52:50And I don't know what the count is right
52:52now if you count it because some of the
52:54businesses he bought that have business
52:56within them,
52:57>> right?
52:58>> So if you looked at it,
53:01>> do you think I mean how do we really
53:03think about it? It's not five
53:04businesses. It's it's 100 probably. And
53:08how do we really think about it?
53:09>> It's 200.
53:10>> 200, right?
53:10>> 200 Marman Holdings is 120.
53:13>> There you go. Right. So, so bringing
53:16them on double the or more than double
53:18the number of actual businesses. So, how
53:22do we really think about it? Because if
53:24you look at the m majority of the value
53:26of Berkshire, it's actually in a handful
53:28of large large stakes or large
53:30investments in public and private
53:32universe, but then you have 200
53:35entities. How do you reconcile that?
53:38Well, I think you know 50% of the net
53:41operating ear earnings as I mentioned
53:43earlier is the insurance. So it's to
53:47understand Berkshire Hathaway you have
53:48to first and foremost understand
53:50insurance how they generate a float and
53:54then how that float's invested and it
53:56it's it's extraordinary
53:59a business model if done right. Um it
54:02can also go terribly wrong as you know
54:07Charlie Sheamy at uh the chairman of Gen
54:10Ree uh spoke about in I highlighted in
54:13his chapter when he went as the chief
54:15risk officer at Munich Re then the
54:18largest reinsurer in the world and they
54:21were letting the investment guys run the
54:23business. They were selling policies
54:26that were underpriced because all the
54:28money that they were bringing in, they
54:31could make better investments
54:34uh than what was costing them in losses
54:38on the insurance side until the market
54:41went down like an escalator and then it
54:43blew up and then they put the insurance
54:46or the risk managers back in charge. Uh,
54:49so you got to understand insurance to
54:52understand Berkshire Hathway. It's
54:55pretty magical.
54:56>> I think Buffett makes it sound a lot
54:59easier than it is. I think we both know
55:01that a lot of really capable investors
55:04have tried to run insurance companies
55:06trying to replicate what Buffett has
55:08done.
55:09>> Yes,
55:10>> Buffett has other people running the
55:12insurance business. We forget that. He
55:14>> even jokes that if the boat was sinking
55:17to save a Jeet before they save him.
55:19Yeah.
55:19>> Is it is it really the case and I don't
55:22know if it's a fair question but is it
55:24really the case that it takes one single
55:25genius to run the insurance business at
55:27the performance level we've seen or is
55:29it is it much deeper than that from
55:31outside looks like if Ajit is not there
55:34do we have the same [laughter]
55:35>> yeah well Ajit is a very valuable
55:39contributor um you know the amount of
55:42float he's generated over the past 25
55:45years you know uh and the amount of
55:48earnings from that float vote is really
55:51puts him in the stratosphere and and
55:53that's where we are still talking
55:55billions on that uh in terms of what
55:58he's generated but yeah I think you know
56:0110% of the 400,000 employees are on the
56:05insurance side of the business and I do
56:07think
56:08>> they have a pretty deep bench in terms
56:11of um capable oh well Don Worester
56:15president of national indemnity
56:17describes himself and I titled his
56:18chapter
56:19a socially responsible bookmaker. So he
56:24and there's others that are very capable
56:26of assigning, you know, a proper premium
56:29to understanding the risk, assigning a
56:32proper premium. And most importantly,
56:34Bogamill is walking away when the price
56:39isn't right or the risk is too great.
56:41And that's what's so hard about most
56:44publicly traded insurance companies.
56:46they just can't walk away because their
56:49incentives and their compensation is
56:51often tied to uh the top line instead of
56:56the bottom line in terms of you know
57:00underwriting income is how they're
57:02compensated. So the the better your
57:04underwriting income, the better your
57:07compensation. And and Don Worster, a
57:10national indemnity, he often uh speaks
57:13about how he's overcompensated. You
57:15know, they pay me too much. Um yet, u
57:20the guy's absolutely brilliant at
57:24his job. And I would I would pick Don to
57:27succeed Azite except I think he's aged
57:30out and Charlie Sheami is a is a better
57:34pick because he's younger and has had a
57:37more diverse experience particularly
57:39with insurance failures from AIG to
57:43Munich Re
57:45>> to other uh insurance companies in the
57:47UK and Australia.
57:52What I'm hearing is when you look at the
57:53insurance which is such a big part of
57:55the success story of Berkshire having
57:58the float but also the underwriting
58:00practices
58:02is that the mode like the way they
58:03underwrite is that the mode and if it is
58:05the mode do you think that with and I I
58:08think I have to ask it these days but
58:10with the data collection that we have
58:12and AI sifting through the data do you
58:14think that mode will go away because
58:16other operators will be as equally good
58:20at underwriting because they can process
58:22information at the speed of Ajet or
58:25Buffett. [laughter]
58:27>> I think that's a fair question. I I see
58:30the moat as cash.
58:32Um Berkshire Hathway has more cash.
58:37I think it's near touching 400 billion
58:42then the market worth or the GDP of Hong
58:47Kong of Norway and most most but just a
58:53handful of the S&P 500 companies.
58:57Uh so I think the moat is cash. So when
59:00the market goes down, when the risk uh
59:05bubble up, uh where do you go? You go to
59:09the rock of Jialter and you go where the
59:12the cash is. [snorts] So if you remember
59:15when the um Japan had the um tsunami
59:21that uh created um a cat catastrophe
59:26with their nuclear power plant. Um the
59:30next day, Ajit Jane is on the ground in
59:34Japan writing insurance policies cuz no
59:38other insurance company was willing to
59:42write those policies. And Ajit was just
59:45writing them all day long because the
59:47premiums were skyhigh just like uh you
59:51and I live in Florida. And when the
59:54hurricanes come um you know every
59:57hundred years um the next day to write
1:00:01insurance when the the under capitalized
1:00:05insurance companies are trying to cover
1:00:07their losses and not write premiums uh
1:00:11Birkshire Hathway is right in a way. So
1:00:16I I would say the moat is capital.
1:00:18>> Mhm. combine that with uh brilliant
1:00:22insurance risk managers.
1:00:25Um but we got a deep bench
1:00:28um as I profiled in in the book.
1:00:32>> A lot of people that we don't hear
1:00:33about, but we find out about them
1:00:34reading your book. But you travel a lot.
1:00:37I'm catching you on the road this week.
1:00:40You would think that given the travel
1:00:42you're doing, you're trying to visit
1:00:43five countries per year. Is that is that
1:00:45right?
1:00:45>> I try to.
1:00:46>> You try to, right?
1:00:47I'm up to 101. I'll be 102 on Friday.
1:00:53>> And they'll be happy to have you in
1:00:54Mauritius. So 101. I would think that
1:00:57you would tell me I'm finding a
1:00:59Berkshire Hathaway company on every
1:01:01single continent. Here they are. But
1:01:03that's not the case.
1:01:05>> Yeah. No.
1:01:06>> What's going on here?
1:01:07>> I looked. I looked. I I think you know
1:01:12Buffett is very unique. you know he's
1:01:17he's a Thomas Edison he's a well I
1:01:19describe him uh as you know if you take
1:01:23four characters um known throughout
1:01:26history by their last name
1:01:28>> if you take the mathematical genius of
1:01:30Einstein
1:01:32the uh political savvy of Franklin the
1:01:38writing communication and humor skills
1:01:41of Twain and now that he's given all his
1:01:44fortune back to the world, the humanity
1:01:46of Gandhi. I think if you take all four
1:01:50of those cultural icons and meld them
1:01:52together, you get this character known
1:01:54as Buffett. And I don't think it's
1:01:56possible to have a discussion bogum on
1:02:00Warren Buffett without first and
1:02:02foremost talking about character. And
1:02:05certainly there are other outstanding
1:02:08investors in the world. Um and uh
1:02:13there'll be another Berkshire Hathway
1:02:16given somebody who's starts at a an a
1:02:21young enough age and is able to live a
1:02:24long life like Buffett was blessed
1:02:27and with the power of compounding I I
1:02:30think it is possible. Um but I haven't
1:02:33found uh the next Bergkshire Hathway and
1:02:37but I'm not necessarily looking for
1:02:38that, you know. I'm I'm looking to
1:02:40spread the gospel of Warren Buffett. I'm
1:02:45not looking to to find the next, you
1:02:49know, Warren Buffett. I I think he's
1:02:52he's one of a kind.
1:02:54>> But if you find one, let us know.
1:02:57[laughter]
1:02:57>> Yeah.
1:02:59Well, I'm sure there's a lot of people
1:03:01who are going to call you or email you
1:03:03and say, "Why didn't he mention me?" So
1:03:06>> there you go. So, so if you're listening
1:03:08to it, if you're listening to it and
1:03:09want to talk to us, tell us.
1:03:11>> I I have a handful more questions, but I
1:03:13want to bring up something that you talk
1:03:15about in the book and your writing that
1:03:16Buffett um discusses, you know, totes,
1:03:19princesses, and kisses. And and I really
1:03:21like that somehow it speaks to me that
1:03:24you can't turn a bad business into a
1:03:26good one, no matter how brilliant the
1:03:27manager. We're talking about CEOs today
1:03:29and I feel like let's grab one of the 20
1:03:32and put them in charge of a really
1:03:34really bad business and let's see what
1:03:36happens.
1:03:37>> It's not going to
1:03:38>> No, it's not going to work.
1:03:39>> Talk to us about that. So, it's the
1:03:41business and the CEO.
1:03:44>> Yeah. He he says that, you know, if
1:03:46you're in a boat, the boat being the
1:03:48metaphor of the business, you know, no
1:03:49matter how good of a rower you are, you
1:03:52know, you're [clears throat] you're
1:03:53better spend your time changing boats
1:03:56than you are trying to bail out, you
1:03:58know, the a sinking ship. And um I do
1:04:02think
1:04:04that it's you know the business and the
1:04:07moat or the economic moat and the
1:04:09durability of the earnings of the
1:04:10business are are are
1:04:14vastly more important than a manager. U
1:04:18but a manager is critical and it's one
1:04:20of his five criterias that if it's not
1:04:23there he's not going to make an
1:04:24investment. But it's not the only
1:04:26criteria. And um whether or not an
1:04:30investor realizes it or not, when you
1:04:34make an investment in the stock market,
1:04:36you're making an investment as a you're
1:04:39partnering with the CEO.
1:04:41And if this CEO is doesn't have the
1:04:44character,
1:04:46um then it's not going to you might get
1:04:50lucky, but in the long term, it's not
1:04:52likely to be a great investment.
1:04:55because he's or she is, you know, has
1:04:58their own self-interest
1:05:00uh in mind. And unfortunately, you know,
1:05:03as Charlie Munger says, um look at the
1:05:05incentives and the incentives will will
1:05:08show you uh whether or not it's a great
1:05:11investment or not.
1:05:13Way Warren and Charlie go about finding
1:05:16businesses and analyzing, understanding
1:05:19managers. It's it was an exception when
1:05:22they started doing it. It feels like an
1:05:24even bigger exception now because of how
1:05:27incentives have evolved and compensation
1:05:29has evolved and everybody gets options.
1:05:32Everybody's I go to some conferences and
1:05:34I feel like I I've been invested in
1:05:37those companies longer than the CEOs
1:05:39stick around and it it scares me as a
1:05:41thought. Right. So what we're seeing is
1:05:44>> it's uh we're going up against something
1:05:46that's changing dramatically and almost
1:05:48I feel like it has to snap back to what
1:05:51Buffett is teaching us. You know if you
1:05:53become a CEO feel like you are the
1:05:55owner. You and I were talking at the
1:05:56beginning as an investor I want to feel
1:05:58like I'm a part owner in the business. I
1:06:00would love the CEO to feel like they are
1:06:02a part owner in the business not just
1:06:04the visitor. Right.
1:06:06>> Yeah. So I think we maybe maybe it's a
1:06:09lofty aspiration that we see more CEOs
1:06:11thinking like Bergkshire CEOs out there
1:06:13in the world. So well look at Bogamill
1:06:16what Greg Ael did in his first act as
1:06:19CEO. He he took a 100% of his after tax
1:06:25income
1:06:26and bought on the open market shares of
1:06:30the company he's now running. and he
1:06:33pledged to do that every year that he
1:06:36was CEO. He also pledged if his um
1:06:41mental and physical capabilities sustain
1:06:44to be in the job for 20 years.
1:06:48So who has ever done that in the public
1:06:51markets?
1:06:53>> I hope.
1:06:53>> No, no one that I can think of. I mean,
1:06:56they'll they'll buy their own shares on
1:06:58the open market only as a prop to
1:07:02convince other shareholders that they
1:07:05ought to be buying the stock because
1:07:06they are.
1:07:07>> Uh, but that's not who Greg Ael is. And
1:07:11what an extraordinary act that even
1:07:14Buffett didn't do that. Buffett didn't
1:07:16take 100% of his after tax. Although he
1:07:19did, Buffett does write a check for half
1:07:21of salary back to the company to cover
1:07:24personal expenses. So, he does write a
1:07:26check annually for 50,000 of his
1:07:28100,000. Um,
1:07:31but but what Greg did is an example of
1:07:36yes, there are CEOs. So, you're you're
1:07:38asking me, I'm traveling the world. I'm
1:07:40going to Africa tomorrow.
1:07:43Uh, I'm not going to find a CEO in
1:07:47Africa that's done what Greg Abel just
1:07:50did. I just I might if I do I'll call
1:07:53you but I'm not likely to find that.
1:07:55>> Maybe after listening to us today more
1:07:58of them will will follow. That's that's
1:08:00my [laughter]
1:08:01little little wish here. You brought up
1:08:04Greg Ael and I highly recommend the book
1:08:06to read the profile of Greg Ael that you
1:08:08have in the book all the way from the
1:08:10beginning and how he
1:08:13he grew and the challenges he had and
1:08:15how he proved himself and and everything
1:08:17else, how he became who he is today
1:08:18because I think we all want to get to
1:08:20know Greg better. The one thing that I
1:08:22want to highlight, I'm curious about
1:08:23your thoughts. You share in the book how
1:08:26he speaks the language of workingclass
1:08:28Americans in the language of a
1:08:29boardroom. [clears throat] made me made
1:08:31me pause and I I found it really
1:08:34fascinating. Can you talk about who is
1:08:37Greg Ael? Why does he speak more than
1:08:39one language?
1:08:40>> Yeah, the helps.
1:08:42>> I think the biggest reveal on the
1:08:45difference between Warren and Greg is
1:08:47when they were asked uh last year um how
1:08:52would they one word to describe
1:08:54themselves? How would they like to be
1:08:56remembered? And Orin immediately said
1:09:00teacher,
1:09:01which he's often said. Greg said that he
1:09:05would like to be remembered as a father
1:09:07and as a coach. And I think that
1:09:11selfdefined
1:09:13um image of themselves really shows and
1:09:17highlights what kind of CEO is now
1:09:20taking over from Warren. because Warren
1:09:24being a teacher is at a chalkboard
1:09:26instructing a group on um the different
1:09:31things that you need to know and
1:09:33understand. Whereas a coach is
1:09:38no matter how good you are is calling
1:09:41you to task to work on another skill or
1:09:44another strategy and is mentoring you
1:09:49and impacting you. Uh particularly if
1:09:52you've played sports in your youth, you
1:09:54you might uh relate to the difference
1:09:57between having an outstanding teacher
1:09:59who really inspires you and having an
1:10:02outstanding coach who makes you better
1:10:05and no matter how good you are,
1:10:07Bogamill, you can do a little bit better
1:10:09on that sidekick and let's be working on
1:10:12it this this week. And um I think that's
1:10:17what is how I wrote uh the chapter and
1:10:22it's kind of the underlying theme of um
1:10:26what shareholders might expect in the
1:10:29next 20 years. Um, as we make this
1:10:32transition or we've made the transition
1:10:35from this uh genius of a manager to a an
1:10:40outstanding uh proven capital allocator
1:10:44and builder of a business, you know, the
1:10:46Brickshire Hathaway Energy subsidiary
1:10:47that Greg built, if it were a wholly
1:10:50owned uh sold subsidiary, it'd be worth
1:10:53hundred million or hundred billion
1:10:55dollars. And it's not going to be sold.
1:10:59Um, but he's proven himself. I mean, he
1:11:02kept 1% as his incentive over 25 years
1:11:06and sold 1% for $870 million
1:11:11uh making himself um he's probably a
1:11:14billionaire by now with what he he paid
1:11:17taxes on that. Bought Berkshire stock on
1:11:19the open market and um the guy's proven
1:11:24and he he's going to be different. But I
1:11:26also point out that there's different
1:11:29types types of leaders or managers
1:11:31needed for different stages of the
1:11:32business. So I have a section on
1:11:34entrepreneurs, family managers, and
1:11:37professional managers. Um Buffett is,
1:11:41you know, the entrepreneur, the
1:11:42developer of the business, the visionary
1:11:44along with Munger. And then you've got
1:11:47Greg as the professional who steps in
1:11:50and just is going to hit it out of the
1:11:52ballpark. I mean, I have every
1:11:53confidence in the world
1:11:55um in Greg and he's already done a
1:11:59fantastic job.
1:12:01>> I'm excited to see where he takes
1:12:03Bergkshire. I think we all have some
1:12:06thoughts and expectations. I'm curious
1:12:07and reading your book gives me some, you
1:12:10know, conviction and confidence. I want
1:12:12to ask you about the teaching
1:12:13experience. So, you teach your students
1:12:15that character choices have nothing to
1:12:17do with education or family background.
1:12:20And in a world where we think about
1:12:21credentials with, you know, and
1:12:23competence, how does this idea land of
1:12:26the character? Where does it come from?
1:12:27You have students coming from 55
1:12:29countries or maybe more by now,
1:12:32different backgrounds, different
1:12:34cultures.
1:12:36How do those ideas land with them when
1:12:38you talk about character?
1:12:41Yeah, I think I think character is is uh
1:12:44super important and particularly in the
1:12:46investment business and the business of
1:12:49managing people. Um and uh you know
1:12:52Buffett often talks about Benjamin
1:12:54Graham who who says you know you should
1:12:58take out a sheet of paper on one draw a
1:13:01line and on one column write all the
1:13:05character traits that you admire in
1:13:06others.
1:13:07>> Mhm. um from modesty to diligence to to
1:13:12uh you know responsibility and
1:13:14timeliness and um you know reputation
1:13:17and the other side you know dishonesty
1:13:19and all the things you don't admire and
1:13:23Buffett said he never saw Benjamin
1:13:26Graham do that I'm not sure Warren has
1:13:28ever done that but if you he says that
1:13:32if you concentrate
1:13:35long enough on all the character traits
1:13:37you admire in others,
1:13:38>> right?
1:13:39>> There's no cost. It doesn't matter where
1:13:44you're from or what your background is,
1:13:46what your social economic standing is,
1:13:48what your educational level is. If
1:13:50that's important to you and if you're
1:13:52young enough, you can let that, you
1:13:55know, self-determine your you what your
1:13:57future's going to look like. So, um, and
1:14:00then, you know, Charlie Munger says,
1:14:04um, if you say you're going to do it,
1:14:06get it done. Nobody cares about an
1:14:08excuse, you know, and it, and all of us
1:14:12can be reliable if we choose to be
1:14:15reliable. It's a choice. It's it's not,
1:14:18you know, we don't inherit these
1:14:20character traits. They may have been
1:14:23modeled for us by our parents or our
1:14:25siblings or our teachers or our coaches,
1:14:29but it's it's up to us to determine just
1:14:33what kind of character choices we're
1:14:36going to make.
1:14:38I like the sound of that that it's up to
1:14:40us. We can decide. Bob, I have one last
1:14:43question. How do you think about
1:14:45success? What's your definition of
1:14:47success? And you can take it in any
1:14:49direction you want.
1:14:51>> Yeah. Well, like you, I, you know, I
1:14:53like to go to bed a little bit smarter
1:14:56than I woke up. And um because I think
1:14:59you've made reference to that, you know,
1:15:01you you one of the reasons why you do
1:15:03the podcast is you can be a little bit
1:15:05smarter. Um
1:15:08and you know, and I think if you're
1:15:11humble, the very definition of it means
1:15:14you can be taught. And the the that's
1:15:18that's the virtue. The vice or the
1:15:21opposite since Charlie says we should
1:15:23always invert is arrogance. The
1:15:25definition of arrogance is means you
1:15:28cannot be taught. So I I want my
1:15:31definition of success is to be humble
1:15:34and to try to go to bed smarter every
1:15:38day than when I woke up. And one of my
1:15:40buddies likes to tease me that he says
1:15:42for some people wink wink, it's pretty
1:15:45easy to go to bed a little bit smarter
1:15:46than when you woke up. But I also like
1:15:50you in the way you began this uh podcast
1:15:54um is my other definition of success
1:15:57which is to have fun. You said hey Bob
1:15:59let's have some fun. So I tell
1:16:03participants or lifelong learners in the
1:16:06genius of Warren Buffett right up I I
1:16:08give them my three goals and I the first
1:16:11one is to have fun or or what I like to
1:16:14say is I put the f in unemployed. I am
1:16:18funemployed. So at my age I I do what I
1:16:22like to do what gives me um fulfillment
1:16:26and purpose and and so this the second
1:16:29thing after fun is I I I'm seeking
1:16:32satisfaction. So if you just have a life
1:16:35of fun, you know, that's that's not very
1:16:37satisfying. Satisfaction is when you
1:16:40say, "Okay, I'm going to write this
1:16:41book. It's going to be a couple thousand
1:16:43hours. I'm going to sit down and get
1:16:46this done and I'm going to get it
1:16:47published by this date and you get it
1:16:50done. That that's it's not easy. It's
1:16:52not necessarily fun, but you get it done
1:16:56and you're you're better for it and it's
1:16:58very satisfying. Yeah. Yeah. You you
1:17:00mentioned in my introduction that I've
1:17:03written three books. It's actually four
1:17:04books um with the anniversary edition.
1:17:08>> There you go.
1:17:08>> And then the the third thing is I'm
1:17:11looking for meaning and purpose, you
1:17:13know. So that to me is my definition of
1:17:15success. If I can go to Mauritius
1:17:18uh and
1:17:20you know a remote island in the South
1:17:23Indian Ocean and uh share a little bit
1:17:28of the the science of investing
1:17:31according to Buffett and the art of
1:17:33managing and the culture of leading uh
1:17:36then I I feel as though that's a pretty
1:17:39successful
1:17:40uh purpose-driven life with with a lot
1:17:43of meaning.
1:17:45I love the sound of that. To me, it's
1:17:47not just learning, but also sharing with
1:17:49others what I learned. And this podcast,
1:17:51you know, I told you that I show up and
1:17:53I feel like a student. I'm going back to
1:17:54school. And if I learn something new or
1:17:58somebody proves me wrong about
1:17:59something, I feel like I'm a bit richer
1:18:01today than I was this morning. So, I
1:18:04feel definitely richer after talking to
1:18:05you for an hour and a half. And very
1:18:08grateful for this time today. And it was
1:18:10definitely fun. So, I hope you come back
1:18:12and we talk about the the next edition
1:18:15of any of the books and learn some more.
1:18:18Bob, thank you so much for today. What a
1:18:20joy.
1:18:21>> Yeah, thank you for the invitation,
1:18:22Logan Mill. And I wish you uh great
1:18:24continued success as your podcast goes
1:18:28from talking billions to talking
1:18:30trillions. [laughter]
1:18:32That's the next stop.
1:18:35Before you go, just a quick reminder. If
1:18:38you want to check out Fiscal AI and see
1:18:40how it can upgrade your research
1:18:42process, subscribe using the link in the
1:18:44show notes to get a free 2e trial plus
1:18:4615% off. You are listening [music] to
1:18:49Talking Billions. We talk about big
1:18:51ideas, big inspirations, big topics. We
1:18:54take on the hardest subject of all,
1:18:56money. [music] But our conversations
1:18:58lead us to an even bigger question, what
1:19:01it means to live a rich life beyond
1:19:03money. If you enjoyed the show, [music]
1:19:05please take a moment and follow,
1:19:07subscribe, rate, and share with friends
1:19:09and family. We rely on [music] word of
1:19:12mouth to promote the show. One click for
1:19:14you means the world to us. Thank you.
1:19:16[music] Until next time, your host,
1:19:18Pokemon Baronoski.

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