Excess Returns Podcast Episode Summary

“Buffett, Sun Tzu and the Ancient Art of Risk Taking” with Tobias Carlisle

Date: October 16, 2025
Host(s): Matt Zigler, Matt Bogumil
Guest: Tobias Carlisle (Author, Acquirers Fund Manager)
Book Discussed: Soldier of Fortune: Warren Buffett, Sun Tzu and the Ancient Art of Risk Taking

Episode Overview

In this insightful episode, Tobias Carlisle joins the Excess Returns team to dive into the strategic overlap between Warren Buffett’s investment philosophy and the ancient strategic teachings of Sun Tzu’s The Art of War. Drawing on his new book, Soldier of Fortune, Carlisle unpacks how enduring concepts like invincibility, victory without conflict, and unassailable strength underpin Buffett’s risk management and investment successes. The discussion traverses historical context, case studies (such as Apple, General Re, and the Japanese trading houses), and core investment lessons—all delivered in a lively, anecdote-rich conversation.

Key Themes & Discussion Points

1. The Art of War & Buffett’s Core Principles

Tobias Carlisle’s Three Pillars

• Invincibility – Avoiding Ruin
  • “You succeed by not failing in a game with a risk of ruin… If there’s some finality to something, then you need to be careful to avoid that finality.” (00:00)
  • Emphasis on defensive strategy; first “case study” involves General Re acquisition for risk mitigation.
• Victory Without Conflict
  • “That’s basically the art of war in a nutshell.” (00:00)
  • Explored through Buffett’s Apple investment—outperformance through patience, scale, and serenity, rather than activist conflict.
• Unassailable Strength
  • Building portfolios and positions that can withstand market turbulence and avoid ruin.

Timelessness of These Ideas

• Ancient strategic logic applies as much to modern finance as to historical battle: “That’s why they echo across time.” (03:35)

2. Case Studies & Strategic Moves

A. General Re Acquisition (Invincibility / Defending First) [03:54–11:02]

• Context: Berkshire’s overexposure to Coca-Cola in the late 1990s; need for diversification.
• Strategy: Merged with General Re (reinsurer heavy on bonds) using overvalued Berkshire stock—simultaneously diluting Berkshire’s Coke positions, adding defensive assets before the 2000 bust, and setting up for the next cycle.
  • “He engineers this merger… through a crash and he let the bonds roll off and reinvested them… Set up Berkshire for the next decade or 25 years.” (10:02)
• Derivatives Drag: Inherited problematic derivative positions—Buffett quickly unwound these, absorbing a $400M loss to avoid much greater disaster in the future.
• Perceived vs. Actual Outcome: “He writes about it subsequently as if the whole thing’s a giant mistake… I actually think it was a triumph.” (11:04)

B. Apple Investment (Victory Without Conflict) [12:34–19:21]

• Prior Activism: David Einhorn and Carl Icahn tried to unlock value through aggressive campaigns (buybacks/IPREFs), meeting some success but provoking confrontation.
  • “Icahn comes along… loud and… he says, just buy back a whole lot of stock.” (14:09)
• Buffett’s Approach: Quietly amasses a huge position, reframes Apple as a consumer franchise, and earns a 4x return—without confrontation or activist conflict.
  • “Greatest trade ever because nobody else… could have put that amount of money to work… and would pull a trigger on it and do it.” (18:32)
  • “Victory without conflict—he’s just found a way to win without having to fight with anybody.” (18:32)

C. Japanese Trading Houses (“Wu Wei”—Effortless Success) [40:21–49:22]

• **Buffett identifies value and durability in complex, underappreciated Japanese conglomerates in 2020.
• Nuanced Execution: Buys stakes using ultra-low interest rate yen debt—creating yield with minimal risk (“free carry”).
  • “He issues debt in Japanese yen at 0% interest rates… He’s getting 6, 7, 8, 9% dividends… just an extraordinary confluence of events.” (49:22)
• Fosters trust and long-term alliances: “We will stay [under control thresholds]… and now they’ve got lots of projects together.” (49:22)
• **Connects to “following the moral law” from Sun Tzu and to Buffett’s reputation for integrity and fairness.

3. Investment Philosophy Insights

Via Negativa (“Success by Not Failing”) [19:21–22:53]

• Rooted in Munger’s philosophy: “Invert, invert, always invert… Just tell me where I’m going to die, so I won’t go there.” (19:49)
• Focus on avoiding ruin—eschew debt, complex leverage, fragile models.

Survival, Omission vs. Commission [22:53–31:28]

• Survival as primary goal: “If there’s a single scenario that kills you, don’t play.” (22:32)
• Errors of Omission (missed opportunities) are safer than Commission (catastrophic mistakes).
  • “Better to commit sins of omission rather than sins of commission… If you take the one thing you shouldn’t have done, and it’s got a potential for ruin… you blow yourself up.” (28:44)

Circle of Competence & Simplicity [25:24–27:45]

• Stick to what you truly understand; expand slowly and practically.
  • “Simplicity is not the problem. Complexity is the problem.” (26:05)
• Predict the future of an investment with confidence—it’s not about growth, but about predictability.

Temperament Over Intellect [32:05–36:44]

• Psychological discipline trumps brilliance: “You can understand something on a rational level and still do the wrong thing on an emotional level.” (32:05)
• Emotional missteps (greed, FOMO) are perennial pitfalls.
  • “It’s the hot-blooded guy who gets himself in trouble… the cold-blooded person acting rationally… tends to do a little better.” (32:05)

Patient Preparation in a Rapid World [38:11–39:52]

• Despite new tools and data speed, deep diligence and readiness are irreplaceable.
  • “There aren’t many good opportunities… Your time is best spent working on things worth investing in… and just waiting for a systemic event.” (38:11)

4. Position Sizing and Portfolio Construction [43:02–49:10]

• Equal Weight vs. Market Cap vs. Kelly Criterion:
  • “The long-run performance… from a statistical perspective… smaller stocks outperform larger stocks… We're talking about weighting on a risk-reward basis.” (44:12)
  • Kelly Criterion (“art of war in a formula”)—size up bets where odds are heavily in your favor; focus on frequency of wins even over magnitude.
  • “If you oversize a pretty good idea… if it loses, you lose a lot. If you undersize, that’s closer to a sin of omission. That’s okay.” (48:40)
• Buffett’s track record: outsized returns often come from outsized conviction positions.

5. Notable Quotes & Moments

• On Emotional Restraint:
  • “Temperament is very important in the markets, more important, Buffett says, than intellect… It’s really the most important thing that Sun Tzu talks about.” (32:05)
• On Being a Mark:
  • “You know rationally you shouldn’t do it… FOMO is making you do it… so you behave in ways you wouldn’t in a cooler state.” (36:13)
• On Human Nature in Markets:
  • “More people lost more money because the neighbor was getting richer faster than they are… we get sucked in because the neighbor told us.” (37:24, Bogumil referencing JP Morgan)
• On Research vs. Pattern Recognition (“Coup d’oeil”):
  • “Napoleon could just arrive on a battlefield and see something… In investment, Buffett had ‘coup d’oeil’ with BNSF: summing up complexity into one decision.” (56:30)
• On Munger’s Blueprint:
  • “Buffett says he has been the general contractor building to Munger’s blueprint… don’t invest in these things that really don’t have any of the Wu Wei… Look for things that are going to grow and compound over time.” (61:46)

Timestamps of Key Segments

| Segment | Timestamp | |-----------------------------------------------|------------------| | Introduction of Sun Tzu concepts | 00:00–02:04 | | Case study: General Re acquisition | 03:54–11:02 | | Case study: Apple investment | 12:34–19:21 | | Via Negativa, survival, risk of ruin | 19:21–22:53 | | Sins of omission & commission | 27:45–31:28 | | Temperament, psychology, emotional control | 32:05–36:44 | | Research depth vs. technology speed | 38:11–39:52 | | Wu Wei and Japanese Trading Houses | 40:21–49:22 | | Position sizing, Kelly Criterion, risk | 43:02–49:10 | | Pattern recognition (“coup d’œil”) | 56:30–61:08 | | Epilogue: Charlie Munger’s influence | 61:46–63:17 |

Memorable, Attributed Quotes

• Tobias Carlisle [00:00]:
  “You succeed by not failing in a game with a risk of ruin. Which investment has a risk of ruin? Life has a risk of ruin.”
• Tobias Carlisle [19:49]:
  “Just tell me where I'm going to die, so I won't go there.” (on Inversion via Munger)
• Tobias Carlisle [32:05]:
  “You can understand something on a rational level and still do the wrong thing on an emotional level. And that's the challenge: to control the emotional, temperamental side, to let the rational side [lead].”
• Matt Bogumil [37:24]:
  “More people lost more money because the neighbor was getting richer faster than they are.” (quoting J.P. Morgan)
• Tobias Carlisle [61:46]:
  “Buffett says that he has been the general contractor building to Munger's blueprint…”

Key Takeaways

• Strategic patience, defense, and emotional management are the real edges in investing—not secrecy or complexity.
• Applying ancient wisdom to modern markets—Buffett’s approach mirrors Sun Tzu: focus on survival, avoid ruin, seek non-confrontational victories, and invest with integrity and preparation.
• Position sizing and discipline in only swinging at the fat pitches are as important as security selection itself.
• Buffett and Munger’s partnership embodies the synthesis of strategic brilliance, honesty, reputation, and human psychology.
• Pattern recognition and accumulated experience (“coup d’oeil”) are cultivated, not innate, and allow swift, confident decisions in rare opportunities.

Recommended Actions

• Read Tobias Carlisle’s Soldier of Fortune for deeper, story-rich insights into these themes.
• Reflect on your own investment process: Where are you exposing yourself to avoidable risks? Are you focused enough on temperament, patience, and sizing?