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The Investor's Podcast (We Study Billionaires) - The Investor’s Podcast Network
RWH060: What Buffett, Munger & Bill Miller Taught Me w/ Robert Hagstrom
02:08:33
William Green chats with Robert Hagstrom, Chief Investment Officer & Senior Portfolio Manager at Equity Compass.
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- [00:01]
A
You're listening to tip. Hi there, it's great to be back with you on the Richer, Wiser, Happier podcast. Our guest today is Robert Hagstrom, who's one of the most thoughtful writers and thinkers in the world of investing. Robert is the Chief Investment Officer at Equity Compass, where he manages a concentrated portfolio of dominant global stocks like Nvidia, Amazon, Microsoft, asml, Meta and Richemont. But he's best known as the author of an iconic bestseller, the Warren Buffett Way, which laid out with tremendous clarity the principles that have made Buffett the most successful investor of our time. We'll also discuss another of Robert's most famous role models, Bill Miller, who is the leading mutual fund manager of his generation. Robert offers unique insight into Bill, having worked alongside him for many years. As you'll hear, he witnessed up close what led Bill to make incredibly bold and prescient Betsy like buying a 15% stake in Amazon at a time when nobody else understood its competitive advantages and most of Bill's peers frankly expected it to go bankrupt. This is a subject close to my heart, as Bill is one of my absolute favourite people in the investment world and I've interviewed him at great length over the last 25 years or so. But before we get started, I also wanted to mention very briefly, a new venture that I'm extremely excited about. Applications are now open for the second intake of the Richer, Wiser, Happier Masterclass. This is a rare chance to study with me directly over the course of a year in an exceptionally small, intimate group of just 10 to 20 people. Starting in November. We'll meet once a month on Zoom for two hours per session and we'll also gather in person at two unique events. The Masterclass is designed for serious investors and passionate learners who are who want to explore in depth how to build a truly richer, wiser, happier life. To give you a flavor of the experience, the first intake brought together 20 extraordinarily accomplished people from seven different countries, including several highly successful hedge fund and mutual fund managers, asset allocators, wealth advisors, managers of single family offices, CEOs, entrepreneurs, a bank management consultant, a renowned physicist turned quant investor, not to mention a friend of mine who's a very successful professional gambler. Don't tell anyone, but I often feel like I'm the least intelligent person in the room. In any case, if you're intrigued by the idea of a life enriching experience with a small, carefully selected group of unusually talented but also really soulful people, please email my partner and fellow podcast host Kyle Grieve at Kyle, which is spelled k y l einvestors podcast.com Kyle will be happy to send you details about the dates, the price, the course structure, and how to join the waiting list. And now, as our friend Stig Brodersen would say, back to the show. You're listening to the Richer, Wiser, Happier podcast, where your host, William Greene interviews the world's greatest investors and explores how to win in markets and life. Hi, folks. I'm absolutely delighted to be here with today's guest, Robert Hagstrom. Robert is Chief Investment Officer at Equity Compass Investment Management, where he's also a senior Portfolio manager. Before that, he worked alongside the great Bill Miller for 14 years at Legg Mason. Robert is also an extremely successful author, much to my annoyance. Most famously, he wrote the Warren Buffett Way, which does a superb job of distilling Buffett's core investment principles. My copy, which I think is the third out of four editions, includes three separate forewords written by none other than Howard Marks, Bill Miller, and Peter lynch, which is quite a trifecta. So I think that's a reflection of what a valuable and important book it is. Robert also wrote a particularly interesting book titled the Last Liberal Art, which was inspired by Charlie Munger's multidisciplinary approach to investing. So we're going to spend a good deal of time today exploring some of the most important lessons, really, from three of the great investing legends who've all influenced Robert deeply, that's to say, Buffett, Munger, and Bill Miller. So, Robert, it's lovely to see you. Thanks so much for joining us.
- [04:39]
B
William, it's delightful to be here. Thanks so much for the invitation. I appreciate it.
- [04:43]
A
It's great. It's been a long time coming. We've been discussing doing this for a while, so I'm really happy that you're finally here. I wanted to start by asking you about your early years, and one aspect of your approach both to investing and life that I think is very distinctive and special is that you draw on so many different disciplines, from physics to philosophy to literature. And I've been reading a bunch of your books and rereading over the last few days, and it was striking to me. Obviously, you've written extensively about Warren, but you also are constantly quoting scientists like Charles Darwin and philosophers like William James and behavioral economists like Richard Thaler, mathematicians like Pascal, Roman poets like Lucretius, novelists like Tolstoy, not to mention fictional characters like Sherlock Holmes. And I'm just curious how you came to be this sort of Multidisciplinary person.
- [05:40]
B
Yeah. WILLIAM I would like to tell you the finger came down through the clouds, and God said, this is what you're going to do, Robert. But I literally flailed about for years and years trying to figure out what was going to be my score in life. My mom was a doctor. She was one of the first medical doctors out of Vanderbilt University, and my dad was a chemical engineer. And they seem to have wanted to do that day one. And I couldn't figure out what I wanted to do. But as we'll talk about, you know, kind of the whole journey of becoming an investor and riding the Warren Buffett Way, I would say the intersection of becoming. And I don't consider myself a polymath. I'm still a student of the art. There were two people, Bill Miller and Charlie Munger, and they both happened almost coincidentally as I was writing the Warren Buffett Portfolio after the Warren Buffett Way. That's where we really got involved with Charlie a lot more. Charlie was a lot more in the Warren Buffett Portfolio book than the Warren Buffett Way. And we got into the art of Achieving Worldly wisdom and the psychology of misjudgment and all these things. But that was also happening simultaneously when I began to work with Bill Miller after I wrote the Warren Buffett Way. I met Bill as a stockbroker when I joined Legg Mace in 1984. Bill was director of research, and. And he's a true polymath. And Bill and I struck a friendship that has lasted to this day. And the friendship was largely built around this whole curiosity of multidisciplines. And Bill, as you well know, William, is phenomenal at multidiscipline. And so two things were happening. One, I was theoretically trying to wrap my hands around what Charlie was saying, but the blessing that I had was the actual practitioner in a. People have said, you know, Robert, you wrote your dissertation on Buffett, but you did your practicals with Bill Miller. I can't emphasize how important it was to do the practicals with Bill, because I can see how Bill used philosophy and biology and literature and all down the line as we were actually making investments. So I could see the payoff, the tangible payoff that was accruing, and it just led me to do it more and more. It's kind of like when you kind of get that first spark, that aha moment. You go, gosh, I want some more. You know, give me more, give me more. And it just led me to do more readings in different disciplines and continue to drill down into different areas. So Charlie and Bill were pretty good, as you well know. Warren's not deep in this area. I mean, he's really good at investing and balance sheets and income statements and businesses. But he's not too vocal about multidiscipline. But certainly Charlie and Bill are.
- [08:15]
A
It's interesting to me that there's something kind of old fashioned about the type of lifestyle that you, you've set up and that I've set up. Both inspired, I think, by Bill and Charlie. I mean, I look at you in your office there in Pennsylvania, I think it is, and you're surrounded by books and I'm curious about how you set up a life basically where you are able to be this continuous learning machine. I mean, you've set yourself up so you're writing books. I think you've written seven or eight books at this point. You're also investing. There's a lovely line in Investing the Last Liberal Art, which I reread this week, where you quote Fisher Black, a hero of yours, talking about the importance of tuning out the noise, all the, as he put it, the rumor, miscalculation and bad information swirling around with the good. And I'm curious about how you construct this kind of quiet, slow, thoughtful lifestyle that's more bookish, that's less noisy at a time, particularly when most people really are just being barraged by these constant short term inputs.
- [09:18]
B
Yeah, I would tell you it is by design. One thing that is important to remember, William, is being a concentrated, low turnover portfolio manager. We own 20 stocks, plus or minus and average holding periods five, six, seven years. And I think out of the 20 stocks that I own, I think seven of them I've had for 11 years. So we're not doing a lot of trading so I don't have to spend a lot of my waking hours worrying about markets and prices and trading and stuff like that. We're kind of market aware, whereas, you know, we're economically aware, but we're really kind of agnostic. So we don't really invest a lot of time, energy thinking about where the market's going, where the economy's going. It's all kind of business centric. We just, we kind of feel like we own a collection of businesses and we just kind of hang out with our owners and see what they're doing and how they're prospering and stuff like that. So just by design, being this kind of portfolio manager opens up a lot of time. I don't have to be glued the first thing I did was I just turned off all the financial news networks. I don't have a TV in my office. You're in a brokerage firm or stuff. Like every broker seems to have a BNBC or Bloomberg or Fox Business on, whatever the case may be. And they just seem to stare at it all day long. Well, the first thing I did was, you know, years and years and years ago was just get the financial networks out of the room, get them out of the office, get them out. I watch Bloomberg, you know, for maybe 30 minutes. First thing in the morning, three I'm up usually, you know, five o'. Clock. And if we have trades going off in Europe, I'll start, you know, just what's going on in Europe with Bloomberg? And then I turned it off. And it's amazing. I, I remember as Debbie Bazanik, Warren's secretary, I said, does Warren watch cnbc? And she goes, well, Robert, I'm not sure how we would call it watching it. He sometimes has it on, but he never has the sound on. Kind of uses it as a ticker tape and see if there's any news coming in. But he spends no time watching tv. And I think that those two things. One, I have a portfolio strategy that allows me to have a lot of time to explore for ideas. But the other point is just turning out the noise. And it is noise. I mean, for my particular style, for my particular style, I wanted to share this with you. You remember when cable first came out, there was this idea that they would put a V chip in the television so it would protect the kids from violence, right? So you could actually put a chip in and if there was a violent program, come on, it would black out. I think we need that on with financial news networks. Like if you're going to speculate about markets or try to forecast markets, I need a speculation chip that'll turn it off, right? It's totally black. Cause that has no interest to me. And then I just want the chip that does, you know, how to, how to understand businesses and how to think about that. The problem is it probably would get no subscribers, no viewers, no advertiser. It's kind of like Alistair Cook Masterpiece Theater. Nobody would watch it. So, you know, by design I have a good strategy that allows me open time to shut up all the noise. And three, it's just this natural curiosity, and we were talking about this earlier, that once you find a nugget and you have an epiphany, you want another one? It's like, well, okay, this was really good. I didn't expect this. I didn't expect to learn this. And boy, I can connect this to that. And you go, well, I wonder what else is out there. So one of the things that Bill did, I mean, we all go through the Wall Street Journal and New York. That's just daily information. But he would have me reading the New York Review of Books and the London Literary Supplement and the London Review of Books and always scouring for books and ideas that might have relevance. And it's been a treasure hunt that I, every day, I always think about, you know, I wonder what I can find today.
- [13:02]
A
Yeah, I think this whole idea of constructing a quiet, thoughtful life, having an environment where you're somewhere quiet, which presumably helps that you're in Villanova, Pennsylvania, which is not exactly the heart of midtown Manhattan. But also really being thoughtful about your information data, I think is so important. And I was really struck when I was rereading your last liberal art book where there was a lovely line where you said, I've always believed there are no easy shortcuts to greater understanding. And it struck me that so much of what you do and what, what Charlie did and what, what Bill Miller does is really slow, cumulative building of, of knowledge. And it's, it's striking to me that if we're living in this era of, of chatgpt and the like, where you just get instant answers, how do we actually maintain this ability to do the slow drawn out work that actually enables us to understand stuff when you can get answers absolutely instantaneously?
- [14:03]
B
Well, there's a couple of ways to go about that. I think, kind of attack it first. You know, I think I read that stat not too long ago. The average book takes about eight hours to read, plus your money. And so when you kind of think about, do I have eight hours this week? I won't read a book a day. But let's say, do I have eight hours this week to get through a book? I'll find eight hours. I'll get it. But let's back that up and say, because this is important, which is, does the book deserve my eight hours? And that was big opening. When I wrote Investing the Last Level Art, there was a guy, Mortimer Adler, that wrote a book called how to Read a Book. And I thought, well, that's very presumptuous. I know how to read a book. But in fact, I did not know how to read the book. And this is for nonfiction, and we can talk about fiction later. And Bill is huge in fiction and the insight there. But the idea is that every book that you come across, you don't know whether it's worth your time for eight hours. You don't know yet. And so Mortimer Adler set up this kind of three step, four step process, which is the first thing you do is figure out whether the book is worthy or not. And so, well, how do you do that? He goes, well, first thing to do, you kind of read the forward or something like that. You go back to the bibliography, see if there are any books in there that you haven't seen before. Look in footnotes and stuff like that. Skim maybe the first chapter, maybe skim the last chapter. I know people think that's taboo because you got to the end without reading the book, but you're really just trying to glam onto it real quick to say, do I really want to spend a lot of time with the book? And you'd be surprised. Out of 10 books that you go, I want to read, there's probably only two or three that really deserve an up close spend a lot of time with. So what you try to do is, you know, you're casting the net wide for all these ideas and different disciplines and different periodicals. It's just getting down to what's worth it. So after you do what's called this kind of, you know, is it worth my time? Then you go into intelligent skimming, which is you read it as fast as you possibly can and you're going through the pages to see if anything's popping up new. And the other thing that I did, I don't know how you treat your books, William, but for so many years I refused to put a mark in them. They were like, you know, I was in a museum with my books. I didn't want anything to happen to them. They were glorious and stuff until I, you know, Mortimer Ratt said, make the book your own. I mean, it's your book, right? Take a pen, take a highlighter, underline things, you know, and try to figure out, you know, is this actually really worth your time? And if you get to there, then the third part is, okay, you've got my eight hours. So the first thing I do is kind of systematically go through trying to figure out whether the book deserves my time. Now if we get to that point and I make the book my own and I spend eight hours on it, what gets fun from there is do what's called synoptical reading, which is to find other books like this that are similar, that are written by somebody else. You're trying to bring in multiple viewpoints of a single topic. And that's. That's been terrific as well. So the whole idea here is that I am not going to learn anything. I'll get new information on financial news networks and mostly newspapers. But insight, you know, things that kind of change you in a fundamental way have always occurred through books have always. For me, it's like you're reading it and it is the epiphany. It's an epiphanic moment. The light bulb goes on. You get a feeling in your body and it really stays with you. Bill said all reading is experiential. And what moves people in books is it becomes an experience, an internal experience for them that I never get from tv, I never get from. The Wall Street Journal is a great paper. Financial Times, great paper. But I never get kind of a shiver moment of like, aha, I finally got it. I finally figured it out. I get those from books.
- [17:48]
A
Yeah. Like you, I spend an enormous amount of time skimming books. Um, but then. And I like your phrase in, in your book where you, you, you talk about purposeful skimming to see what the book is about. But then, I don't know. If you do this, I find I do an enormous amount of rereading. So when I find something that's actually profoundly important, I'll go back into my copy and it'll literally. I mean, my books are so beaten up and so covered in asterisks and squares and marginalia. So I, I mean, you know, so I could go back to my copy of Investing the Last Liberal Art over the last couple of days, and it was very, very easy for me to find the bits that were most important because they were so heavily marked up. And so for me, I keep thinking of Charlie's phrase where he would talk about pounding ideas in that there's something. So on the one hand, there's like this very broad skimming of self, and on the other hand, there's this very intense, deep repetition of the things that really do matter. Does that resonate with you at all?
- [18:51]
B
Yeah, it does. And I'm so glad to hear that you treat your books the same as I did, because I thought I was just a terrible person. But if you're doing it, it's okay. I'm in good company here. You know the phrase, you know, an inch deep and a mile wide? I don't really. I understand that phrase, but I would say I'm more like a foot deep and a mile wide. Because I do try to get, as Charlie says, the whole idea, you don't have to become an authority on the great mental mod. You don't have to be an authority on any one philosopher or, you know, any one aspect of the mental models that you're working on, but you have to have a working knowledge of it, right. And so that allows you to kind of get the big ideas, the stuff that. The moving and shaking part of it and the HAHA moment of it, without me necessarily having to do a PhD dissertation on the subject. Right. So that. That's the other key, which is Charlie says you don't have. Have to be an expert in all of it. You just have to grasp the really big ideas and so that you can pick up speed doing that, which is once you've glammed on to the big idea, the central component here, you can move on. You don't have to continue to write your dissertation on this for, you know, to get your Ph.D. and Ludovic Wittgenstein, Philosophical Investigations. I don't go that far. Right. But I got a pretty good idea about the philosophy of language and descriptions and. And how he thought about that, which helped me in investing. So once you kind of get a foot beat, you can then move on and continue to explore on the ripples, what else is going on.
- [20:21]
A
I've talked to people like Tom Gaynor from Markel about the importance of writing, as well as a way to really distill and synthesize what we've learned and also teach it and share it with others. And I assume for you, part of. Part of the power of writing all these books has actually been to kind of pound in these ideas to your own mind and to clarify what they really mean, why they're important.
- [20:47]
B
Yeah, 100%, I would say. My mother used to say, write it down. You won't forget it. And when you write a book, you own it, right? You own the material, so to speak. Writing things down. Even if I write a commentary for our shareholders, our partners, I should say, for the firm, or anything like that, writing for me, whether it's informal, formal, whether it's three pages, whether it's a chapter, whatever, really does pound it into me, it becomes a part of me. Once you've written it, you own it. It becomes a part of, you know, it's deep inside you. It's not a flighty idea that you forgot about and it showed up again. It really does become a part of your life and you don't forget it. I mean, I. And to your second point, William, and you're brilliant about this. You are A teacher, you know, once you then begin to share the ideas with other people and you share them with audiences or your listeners on your podcast or whatever, and you begin to, you know, verbalize it out in an hour long podcast, that's huge too. It all then becomes a part of you and it stays with you. And you know, stuff that I wrote, you know, in the Warren Buffett portfolio 25 years ago, just thinking of the other day about risk tolerance and how to think about that and stuff like that, I wrote about that 25 years ago, but I could cite everything about that right now because it really became a pretty good part of my learning is. And, and I, that learning was reinforced by writing it, writing it down. And I spent a lot of time with young college kids who were trying to get a job. And I said, look, you've gone to a great university, you got a great gpa, you've done all the internships and you're really terrific, you got the right contacts, but guess what? There's 20 of them just like you, all looking for this job. I said, what I want you to do is I want you to take one of your, your research papers, a term paper, whatever the case may be you really, really like, and I want you to clean it up and edit it and send it to your English teacher and get her. And then when you drop your resume on the guy's table and you're doing the interview, and then right before you leave, I want you to drop that term paper on his desk and say, hey, this is something that I wrote that meant a lot to me, that I've been researching. It's a strong idea. And I said, one, if you do that, the other 19 people will not have done it. So you're going to separate yourself. Two, it's going to demonstrate your thinking skills, your logic skills, and the ability to come to a conclusion. And more importantly, it's going to demonstrate your ability to write and communicate, which is what we're all afraid of with AI and texting and sloppy emails and stuff like that. It's just, can you communicate? Can you write and communicate? And when you do that and you demonstrate that, it does take you up another level from other people that are operating at the surface level.
- [23:28]
A
I have this feeling that with AI, the faster everything is getting and the easier it is to get quick, intelligent, seeming answers, the more of a premium there's going to be on the kind of study that you are doing. And I may be deluding myself and kind of trying to convince myself that we're still valuable, you know, these old sort of slow moving dogs. But I, I don't know, I was reading one of, one of your books and there's like this beautiful quote from Arthur Conan Doyle where you quote Sherlock Holmes and you have him saying to Dr. Watson, I have no data yet. It's a capital mistake to theorize before one has data. Insensibly, one begins to twist facts to suit theories instead of theories to suit facts. And I look at that and I can absolutely see your joy in finding this stray thing from an old detective story and being like, oh, that has such significance for an investor, right? Don't twist facts to suit your theories. And it's like, I think in some way what you and I are trying to do is figure out how to operate in this kind of slow moving, kind of lateral, nonlinear way in a world that's becoming just faster and faster. I don't know. I hope this is still valuable.
- [24:47]
B
Yeah, well, what I find, my experience is I find a lot of people have opinions with no facts. So it's kind of like, okay, you got the opinion, what are your facts? And then they had sloppy facts, right? And their facts are, you know, I heard it from a friend or you know, my, you know, you know, it was on TV or, you know, so it's kind of. So when I think about that, Sherlock Holmes is one, you got to have facts. If you, if you're going to make a statement, and it is, maybe it's a, it's a conversational statement that you're trying to convince someone or persuade or something like that, you say, well, I believe this and it's based upon these facts. Well, the facts ought to be pretty good. And you should have facts that support your, you know, your statements or whatever you're doing. But it's amazing how many people you'll run into and you'll start talking about something and they will then instantaneously almost act as if they are professor, a professor on this subject, it's going to, what's your data set? What are you, what are your facts? What are your resources? What the biblio, you know, they got nothing. So that stood with me. So if I'm going to say something or I'm going to write something, you can damn well sure, I'm going to footnote it. I'm going to have some backup because I'm not going to, you know, from being a writer, you know, you're exposed. As soon as you write it and put it in print, you better be able to defend it because if somebody comes at you a year from now, a week from now, a month from now, and says, oh, that's wrong, there's nothing more horrid in your life as a writer than to be called out on a misfact or, you know, an untruth that you said was true and it wasn't. So being a writer, you really got to get that stuff right. Let's take a quick break and hear from today's sponsors.
- [26:18]
C
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- [30:11]
A
I had it fairly early in my career where I wrote a profile of Sir John Templeton and I'd spent a day with him in the Bahamas and he had told me something about, I think it was the year that Germany invaded France. And so I wrote this story about, you know, and it was just a small fact, but it was like when the market was collapsing during World War II and he made his first unbelievably bold bet. And then I got a letter from someone saying no, you got the date wrong by a year. And I remember thinking, oh my God, it was Templeton. This guy's way smarter than I am, actually got the fact wrong. And it was a really helpful early lesson in just, just being kind of paranoid about everything and sort of really, I mean not paranoid but just sort of obsessive about doing your preparation and double checking things. And I Mean, if, if Templeton, as smart as he was, couldn't remember something from his own life, it just, it just was. I don't know. I, I think in some way for a writer and maybe for, for an investor as well, you need somehow to have this tremendous self confidence that you're like, this is how it is. This is what I believe. I'm making this bet or I'm writing this and people should listen. And then at the same time, you have to have this humility and paranoia to say, yeah, and what if I'm wrong? Let me double check, let me make the extra call.
- [31:32]
B
Nothing. Nothing is more fearful. And it's funny because I would send Bill stuff that would ride and stuff like that, and I knew it was really polished. He'd always send it back with, you need to check that. That's misspelled. You know, the University of Connaughtsburg doesn't have two GS. I'm like, oh God, yeah. You know, you're in constant fear and paranoia that you don't have your facts right or you've misspelled something or whatever the case may be. So I do spend a lot of time backing it up. But you know, opinions are worth what, you know, a cup of coffee sometimes. But, you know, a well thought out debate or defense of something that's powerful and you know, I'm bullish on AI. I'm optimistic on a. But you're right, there's so much yet that hasn't happened and we haven't figured out, I think, how to use it to our best ability. There's a professor at Wharton here at University of Pennsylvania who's actually teaching. Of course he wants his kids to. The students to actually use AI. I want you to use AI. But he's really kind of helping them use it thoughtfully. Not just as they get a quick answer and put it in the paper. It's just how to connect things and stuff. So I think he's going about it in the right way. But I, you know, AI, I was just saying ChatGPT number five is coming out. Was reading the reviews on that. It's kind of like, well, they're getting better. But it's still though William, I get your thought on this. This still to me is still. These chatbots are still just, you know, Google on steroids. I mean, it just does a better job, right? And it get. And it gets you more material and it goes deeper and wider. But we're still not by example. I saw where Cliff Asness said AI now can do about 80% of the work of all its analysts. Well, that doesn't surprise me. Cliff's a very successful investor and deserves all his accolades. But he's a factor based guy and he runs factors out and he wants to know factors 10 years ago and what were the factors when interest rates did this and inflation did that. So AI can get you that like that, right? It can get you anything you want in the historical database and it can build dividend discount models. I want a three year model that does this and years four and five, I want it to do that and it can get it for you. The one mistake that Warren says that he has made, the one mistake he has made most often and most critical and has cost him the most money, is a question that AI can't answer yet. And the mistake that he made when we wrote the Warren Buffett way was he looks for companies that have favorable long term prospects, which is, you know, that's competitive advantage, period. Michael Maubouson, you know, how long does this last and how long can I get a high rate of return on my capital and how long can I sustain it? Those are the mistakes Warren has made. The biggest mistakes. That which he thought was going to last long didn't or that which he thought was going to do well with high economic returns longer didn't. He says I got those wrong. Whether it's Dexter Shoe or whatever the case, if you go to AI and ask AI to ask you what is the competitive advantage period of Nvidia, it can't do could tell you what happened today, it can tell you what happened last week. And we're going to monitor the sales and we're going to monitor the margins and you know, they kind of drill it down into sales margins return on. But it had no idea how to think about Nvidia within a financial ecology of other competitors and how it works with AI. And what is that? You know, it can't get there yet. Now maybe AGI gets there, but right now for a buy and hold low turnover portfolio manager, I'd spend 80 to 90% of my time on how long can this last. And there's nothing in AI that can tell me that it's almost old school. You got to be thinking about who your competitors are. You got to be thinking about the landscape. You got to, you know, you just, you've got to pull this multi hack trick together of all these things and AI is not there. That may be where we still have Runway as human beings, as individual investors. One of the great books that Andy Grove wrote, I think in the 1990s is only the paranoid survive. And AI just can't put that together just yet.
- [35:42]
A
I was looking at your portfolio yesterday, and I don't know whether it's still the case, but Nvidia was your biggest position, and that's a really difficult judgment question as to whether the valuation is justified by the incredible growth. And it seems to me that one of the things AI can't do is provide that kind of judgment on a really painfully difficult question where you're balancing questions about not only how long is it going to last, but is it worth the amount I'm paying for it? What are the risks that it stops? I don't know. Does that resonate at all for you?
- [36:20]
B
Sure. I mean, yeah, this would be Charlie and Pascal and from. We're building probability statements. What is the probability? Is it a 50%? What is the probability you can do this? What is the probability? Do that? What is the probability you can do this? X, Y and Z. And then you do a weighted average is how Warren does the decision tree. But you're actually having to think about that. And it's not so much. People look at my portfolio and say, oh, you're just an AI geek. The economic returns actually drove. What are the positions in the portfolio? The only reason why Nvidia went to the top and Amazon is at the top, and that goes back to the Bill Miller days and some of the snacks. It's because they earned it. I didn't buy it in anticipation of some rabbit coming out of the hat. And oh my God, they finally figured it out. They basically earned their way to the top. I didn't start Nvidia in 2022. We bought it in the fall of 2022. We knew AI was coming on. We knew from the Santa Fe Institute that the GPU was the way to get there over the cpu. We knew that that was all lining up. We just didn't know that ChatGPT would show up in November of that year. And of course, when it did, it was off to the race. And at that time, I think Nvidia was 2, 3% of the portfolio. Well, they ended up being 10 to 12% of the portfolio. We had to actually, because of a. We manage a lot of pension plans and individual IRAs. The attorneys, either right or wrong, say you got to be careful about your overbet. So once it gets to 10 to 12, we peel a little bit back. But basically Nvidia should have been at the top because it earned its way at the top. We did a study in 2023-2024 when everybody was telling me that Magnificent Seven was 1999 at the tech bubble, when Bill and I were managing money back then and Cisco was 101 times earnings and Microsoft was 60 times earnings and all this that and another. And we looked at the price gain of Nvidia 23 to 24 and looked at the earnings per share of Nvidia 23 to 24 and the earnings per share over that was actually over a two year period were growing faster than the share price. The multiple on Nvidia actually was coming down. The same was with Microsoft, the same was with Google. The same was with Meta. The same was with asml, the same. So all of these gargantuan businesses that are at the top and causing everybody so much angst because they believe it's the beginning of the end have actually earned their way to the top. And so then the question is, what's the value proposition? Is it still a value proposition? And I would make an argument that, you know, 25, 30, 35 times earning for some of these businesses and remember, Nvidia is earning 125% return on capital. Right. And it has no close competitor. And if you believe AI is not a bottle rocket, but it's going to last much longer than a few more quarters or a few more years, it looks to me that Nvidia is really quite compelling. And you can make that argument about Meta, you can make that argument about Google. What's just freaking everybody out is that we've never had a trillion dollar business become a $4 trillion business. It just escapes people's ability to comprehend. It's just phenomenal. But we've never had, if you go back to Brian Arthur and increasing returns economics at Santa Fe, when you get into digital economies, it's totally different than brick and mortar economy. And you have to think about them differently and you end up valuing them based upon return on capital. Much more so than just gap earnings. And when you start to do that, what is more stupefying to me that Nvidia and Microsoft are 4 billion and Meta's heading that way, Google's heading that way, Amazon's heading that way, is. I can't see right now how that slows down at all. So then you got to check yourself with AI. So these are questions that AI doesn't answer. You've got to run through all these Rubik Cube type things. But what I would tell you is looking at these companies, I don't care if they're 4 billion or 400 billion. 4 trillion or 400 billion, whatever the case may be. They actually have earned it. They actually have made the money that justifies the price. It's not a hundred times Cisco in 1999. Far from it.
- [40:28]
A
You mentioned the Rubik's Cube, and in one of your books you wrote that one of the secrets to Bill Miller's success is his desire to take a Rubik's Cube approach to investing. And this obviously is an approach where he's drawing on so many different disciplines and ideas. And I wanted to go into that in more depth because it relates to the question you just raised about how we have to think more broadly about how big a company can get, for example, or how companies can scale if they're digital. And I wrote about Bill. I wrote a long profile of him for Fortune back in 2001 when he had built a 15%. He had bought 15% of Amazon. And it was hugely controversial. The stock had fallen to six at the time. And you were very much in the mix in those days with him. I think he had got you to come run a fund at LEGG Mason in 1998. And so you were there during that period. Can you talk about what it was like watching Bill make this extraordinarily contrarian bet? Because I think you were even around when Amazon was going public in 1997 and he was making his initial bet in the company.
- [41:39]
B
Yeah, well, it is a fascinating story and I want to share the complaint because it shows the brilliance of Bill, which was, first of all, he bought Dell. Let's just back up. He bought Dell Computer. Bill will slap me on the head, you know, 93, 94. And it was a single multiple stock. And, you know, he had an idea, you know, the Internet's coming, blah, blah, you know, and had that all figured out. And Dell looked pretty cheap. But what happened with Dell is that it became the very first company that became 100% return on invested capital company never had to happen in history before. And of course, the multiple went through the roof. I think it ended up being 18% of the value trust portfolio, and he didn't sell it. Dell computer went up 8,000% in the decade of the 1990s. I think Bill got 5,000% of that in value trust. So it wasn't that it was hard to buy Dell at six times earnings. The hard part was, how did you hold it at, I don't know, 50 times earnings, 50 by wherever it was maxing out? And it was the 100% return on capital. I mean, nobody. Because they had negative working capital. You remember, you'd order a computer, you call up Dell and you'd order a computer and you'd say, I want this monitor, this keyboard, this much speed, this much storage, whatever the case may be. And they said, okay, that's great. It's X amount of dollars and it'll be to you in two weeks. You say, great, thanks. And they get your American Express number. And then the American Express number went into that money went into the Dell poppers that night. But they didn't have to pay the suppliers for 30, 60, 90 days. So he grew the entire business on the accounts receivables, right. Of his customers. Right? It was a negative working capital story that allowed him to get to 100% return on capital. So through the roof we go to visit. You know, we're in Amazon, I think we were out in Las Vegas at the time doing the brokers was a boondoggle out there. And we were out there speaking and Bill met with Chip. It was right when the IPO's coming out, and Jeff is just as loud, laughable and everything like that. And Bill said, okay, what are you doing? Blah, blah. And at the time it was books, right? And he said, what's your business model? And everybody was kind of waiting around and he was trying to figure out was it Barnes and Noble this, or was it how do you think about that? And Jeff said, it's Dell. And Bill went, okay, explain. He goes, well, with books, you know, I can keep them for six months and don't even have to pay for them. And sometimes they'll take them back for free. He goes, I got no capital in this thing and we're going to run it out of the garage. We got things like that. But basically he convinced Bill that Amazon's business model was Dell. And by Bill, seeing what a Dell business model could eventually become, went, I'm interested now, here's the part. What was. So then, you know, Bill was PhD in Philosophy, absent the dissertation, pragmatism, all that. One of his favorite philosophers is Wittgenstein, the very famous Austrian philosopher who, you know, I think it was Bertrand Russell said, the greatest example of genius that you've ever seen and considered Bertrand Russell was a genius. That guy was pretty good. But he did. On the philosophy of language, that everything that you do is based upon the words that you choose that give the meaning, and the meaning then forms a description. The description is your ultimate explanation. And Bill's walking us through this, right? And we're all scribbling. He goes, what is the description of Amazon today? And everybody said, well, they think we should buy Barnes and Noble and sell Amazon because Barnes and Noble is 15 times earnings and Amazon is, you know, through the roof and stuff like that. He goes, no, that's not the right. That's not the right description. You have the wrong explanation. And they said, well, now it's Walmart because they're doing other things and they're doing kitchen stuff and stuff like that. And he goes, nope, that's. You've got the right. You've chosen these words. This is what's forming your description. Your description's wrong, so your explanation's wrong. And when he got it into our heads, it was Dell, then it was home free. You know, it was just, we're off to the races. But everybody on Wall street had the wrong description, therefore their explanation was wrong. And so when you go into the philosophy of language, you begin to understand very quickly that how you form descriptions ultimately determines your explanation. You better damn well have your description, right? So then Bill would come back to us and say, how many different ways can you describe something? I mean, you know, take a company, you know, whatever the case, how many multiple descriptions can you come up with? And you can come up with several different ones. Then he goes, which one's right? Because whatever the right description is, that ultimately tell you what's going to happen to the stock. So that's not taught in CFA land. I got a CFA designation back there. That's not what they teach to get a CFA designation. But Bill Miller taught me more about investing outside the world of accounting, finance and economics than I could ever imagine that you could learn. So, you know, making those decisions required you to have a multidiscipline thought process that allowed you to pull on models from different disciplines that gave you the insight to make the bet. And when I saw that reality and I saw the payoff from that, I went, holy mackerel. This is just good stuff. I mean, it's just amazing. Charlie was right. It's been lava loop effect, right? When it all comes together and all these multi models are starting to come and working in, think, you know, confidence goes up, not stubbornness. You know, your confidence goes up and you're able to pull the trigger. And more importantly, you're able to defend it when the stock price doesn't. Doesn't always behave correctly.
- [47:05]
A
There was also something exquisite going on at the time, not just with his use of Wittgenstein to say, how do you, how do you describe accurately what Amazon is? You know, is it a money losing business or is it, you know, I remember him comparing it to Fannie Mae as well to me and sort of saying, you know, it's, it's, it's profitability is concealed, it's, its cost advantage is concealed at the moment, but it will become evident later. But there was also this beautiful thing that you're deeply aware of as well that I'd love to unpack, which is that he was really profoundly influenced by William James and pragmatic philosophy in the bet on Amazon. And he got me to read this amazing essay that I'm sure he got you to read. There was this, I guess it was a talk that William James had given in 1898. It had the most wonderful title. It was called On a Certain Blindness in Human Beings. And I mention it briefly in the notes on Resources and Additional Notes on Sources and Additional Resources at the back of Richer, Wiser, Happier, because it had such a profound effect on me. And so there's this story that Bill pointed out to me, which is that William James goes to North Carolina and he sees this cabin in the mountains in this really beautiful area, and it's just like unmitigated squalor. And he says, basically, it's hideous. He describes it as a sort of ulcer where they've just ruined the beauty of nature. And then this mountaineer comes along and says to William James, no, you've got this completely wrong. And actually what this cabin is is this triumph of the human spirit where this guy has created this warrant of safety for family and for his babes, and that it's all about the triumph of struggle and duty and success. And there's a beautiful line from William James there where he said I had been as blind to the peculiar ideality of their conditions as they certainly would have been to the ideality of mine had they had a peep at my strange indoor academic ways of life at Cambridge. And so he's sort of saying, you know, if they came and saw me teaching psychology at Harvard, they would be so bemused by this odd guy, you know, surrounded by books. And for me, this had a profound effect because Bill was explaining to me, do you see the biases that we have that William James points out where he said to me, look at this guy who writes in Barron's every week, and I love Barron's, but every week he would basically crap on Amazon. And Bill was like, do you see the biases this guy has. You can't see it clearly. And same with so many fund managers. I mean, I remember someone as brilliant as Howard Marks attacking Bill at the time saying, how can you buy something like this? It doesn't look like value. And Bill said, it looks like value to me. And when I interviewed Howard a couple of years ago, he was like, well, Bill was totally right. And so there's something really beautiful about the fact that Bill could draw on a philosopher like William James and say, okay, let me look at this company, Amazon, without bias, and just be totally agnostic. And sorry, I know I've dumped a lot on you there, but does that raise any thoughts for you with pragmatism?
- [50:22]
B
Of course, that's probably. Hopkins was rich in pragmatism there, and Sanders Pierce with Charles Sanders Pierce taught there and stuff like that. But the whole thing about William James and how Bill related to investing was just observe what's working now. What does that mean? Well, it could be mean the stock price is going up, or it could mean that sales are going up, or market share. Just kind of be an observer of what is the reality going on in the market. And he would look at things that were being successful. Then he would say, okay, why is it being successful? Let's figure out, right, why this thing is doing what this thing is doing instead of stopping, which other people did and said, oh, the multiple's too high. Or, you know, and you wrote about this too, and I think it's something that Bill had made the bet. You know, he asked a room full of people, maybe this was 2002 or something like that, and said, how much profit had Amazon either gain or lost over the last three or four years? And the numbers were like, they've lost $3 billion and they've never made any money. And Bill came up with, you know, they made something, and I don't have the right number, but, you know, they made like 500 million, 600 million. And the crowd was aghast. And Bill walked him through and said, look, here's the income statement and here's the number. But right before he drops it to Gap to record it, he just throws it back in the company. But on that moment, before he reinvested it, it had earned $100 million. It earned $200 million. It had a thriving, growing business. It was growing leaps and bounds year over year. But Jeff was smart enough to do what he should have been doing, which is continually reinvest in the business, to make it as big as you. So they can't be In Amazon too. Get there as fast as you can, get the land grabbed, build out. You know, the thing that was so laughable was the guy that did, maybe that was the Barron story. The guy that did, he was doing the convertible bonds for Amazon. They did a convertible bond issuance because Jeff wanted for a one time only, you know, built six or seven, eight big distribution centers, you know, in the marketplace that he needed. And the guy continued to linearly extrapolate that he'd do that every year. He'll go broke without ever talking to management, saying, well, how many more times do you have to do that? And Jeff goes, I'm done. And Bill said, but he's not doing this again. This is all he needs for the time being. What that struck to me is this two ways. One is you just didn't do the work. I mean, here you're talking about Amazon and you're basically making a call on it. You might have thought about calling management and saying, how many more distribution centers do you need and how many are you going to build over the next five years? And that would have said your thesis is wrong. Or two, could you have gone through the income statement and followed the cash all the way down and said, yeah, there's a lot of cash here just because it didn't get to the GAAP number at the end of the quarter and the quarter showed a loss or the quarter showed a break even, there's tons of cash. I mean a second year student at college could have figured that out if they just would have had a nose for curiosity. So there's Bill, he's got a company that's working. He can see the revenues, he can see how it's getting bigger and getting larger. He knows that it's working. The goal. Let's figure out how it's working. So William James is always the cash value of ideas. Go figure out what's working and get to it right? And just figure out if it's sustainable or it's a one try, you know, trick pony. And William James just kept saying, you know, I don't, I don't want to say follow the cash. But it was like, what's the cash value of these ideas? And Bill seemed to be able to sniff those out beautifully. And no matter what the street was saying, you know, he had the self confidence and the ability just to say, the street says this, I see this and I'm, and furthermore, I'm betting it. And he was right. I mean that that counts. That counts.
- [54:05]
A
It's, it's such A an interesting and unique experience that you had actually to watch him applying philosophy. Because I think this, this subject that seems kind of abstruse and esoteric. You and I both got to see with this tremendous sense of revelation and excitement, one of the great minds of our time kind of taking, taking ideas from philosophy and using it in a totally fresh way to make a fortune. And there was something just thrilling about it. And you have a chapter in investing, the last of the block, where you talk about philosophy and you home in quite a bit on pragmatism. And there are a couple of really important parts of that discussion where you say that. I think it was in that chapter where you say that Bill helped you avoid being stranded on a desert island of absolutes. And you also said he made sure that you never became a prisoner of absolutes. And I think that's such an important idea like that Bill was so free thinking that he didn't let you get carried away and become dogmatic about anything.
- [55:14]
B
Yeah, yeah, Bill, with you and I thank you for that quote. That has to be one of my most favorite lines. I'm not sure how I ever came up with that, but let's not get stranded on a desert island of absolutes. Just it was one of those moments where I went, gosh, maybe you can write, I don't know. But Phil, remember Bill talked about, you know, there's kind of two theories of truth. One is a correspondence theory of truth, which is you basically have figured out how the world works. You know, the scientists have basically said this is how it works. And so, and so you're, you, you are connected intellectually, emotionally, psychologically to just this is how it works. This is the correspondence theory of how the world works. And then there's the pragmatic theory of truth, which is in a biological system, things are changing, evolving, adapting things of that nature. And he said most of. Bill said most of the problems and failures of investors is they're too wedded to the correspondent theory of truth and unwilling to see what's changing and working and the pragmatic theory of truth. And you could see it everywhere, right? And I don't know how many times you and I probably have listened to a classic value investor who's had a great career, lots of money under management, stuff like that. But it's in a dry hole performance wise and says, you know, as soon as value investing returns to the market, we're going to make a lot of money. And Bill used to laugh. He goes, I just made 20 times on Dell that was a huge value investing. How come they didn't own Dell and he could go through all of these other stocks that people with a correspondent theory of truth of how to think about value ignored because it doesn't work the way the world says it's supposed to work. And Bill went to a pragmatic view about what's working and how long can this work and how to think about that. And he says value is always in the marketplace. It just migrates, it goes to different places. So if you're pragmatic in how you think about things, you're not afraid to buy value. If it's in technology, you're not afraid to buy value. If it's in a financial, you're not afraid to buy. You just go wherever the opportunity set is. But correspondence theory of truth does put you in a sense of absolute and you're not flexible in your thinking. There's so many classic value investors that have lost decade plus performance numbers because of stubbornness.
- [57:32]
A
One of Bill's great strengths was that even though he was a great value investor, obviously he was never theological about it. He's sort of one of the great, one of the great free thinkers and kind of agnostics about investing. There were no rigid dogmas for him. And there's a very interesting book that I know you've read by Louis Menand, the New Yorker writer called the Metaphysical Club, where he talks a lot about pragmatic philosophy and the idea that I got from it. There's a beautiful line that was one of the few things I sort of really have tried to bed down in my adult brain, which was, he said that ideas are tools like forks and knives and microchips that people devise to cope with the world. And I love that, that an idea. He would say, for example, that it doesn't really matter whether God exists or doesn't. It's like, is your life happier because you believe in God? And so it's sort of, as you said, I mean, I think literally that phrase the cash value of ideas. I think James actually literally used the phrase cash value. I mean it's like, how is it working for you? Is it paying off for you, this idea? And so it's just such an incredibly helpful way to think about markets.
- [58:45]
B
Well, and hood, if you look at Bill's value Trust, it was never a growth portfolio, never a value portfolio. It was a core portfolio that had both growth and value stocks. In his mind, the growth stocks were mispriced and the value stocks were mispriced. As classically defined. But when we were managing money for sovereign wealth bond and the big pension plans and traveling, you know, around the world and stuff like that, they were all like, well, is he value is. He grows, he's value. But there's value over here in low PE and there's also value over here in high pe. And so they always stuck him in core, they always made him a core manager. But that ability to be able to navigate back and forth between value and growth was a pragmatic way in which to attack the investing world. I mean, he said, I'm only going to buy growth stocks. Well, growth stocks worth some time, but not all the time, or I'm only going to buy classic value stocks. Well, you know, you're going to be in the doghouse two out of five years. Is that the life that you want? And he goes, well, why don't we, you just kind of figured out, let's just figure out where value is. And I'm not going to be locked into only buying low PE stocks and I'm not going to be blocked into buying Tom Marcico growth stocks. You know, it's, I'll do both. Just tell me, you know, where the mispricing is. So that's pragmatism, right? That's just, you know, let's just figure out what's working, let's go after it. You know, I don't know if you want to talk about, you know, one of his biggest mistakes was the financial crisis, but actually it was a great insight, sure. About how that mistake was. And Bill's kind of the term, you know, we all come to terms with it. It was, it was cathartic, obviously. But here was, here was a situation where we failed when we did the, you know, the postmortem on it, stuff like that, as you well know, and you wrote extensively about it. We thought that 2008 was 1992. You go back to 1992, that was the great, you know, savings and loan, you know, the Keating story and all that. And banks in Colorado were failing and in Texas and Boston and stuff like that. And it was really a mess. But the government decided that and for the health of the banking system, financial system, he would allow the equity to survive to come again. And so Fannie and Freddie went to two and three state private companies, right. Even though they were the government support. And so he bought Fannie and Freddie at 2 and 3 and 4. And that was the beginning of the 15 year track record. So the government said, okay, it's fine. Let's just do it this way and let them work it out themselves. In 2008, we thought that 2008, having the track record of what happened in 1992, the smart thing would have been just let them work it out, we'll get through it and through support they'll come out on the other side and we'll be able to keep the system intact. And of course, the exact opposite happened. They wiped out all the equity and it caused large, large ripple effects. And so the answer then was what we had the wrong Description Right of 2008. 2008 was not 1992. It was something totally different. And the lesson we took away from, which is I'd love to talk, have dinner with Bill soon again and talk about this, is when government is involved in the decision making process. No matter what happened 20 years ago, what happened 50 years ago, if government and large committees are involved in decision making process, your ability to predict what's going to happen goes right down. Because there's so much personality and emotion. The politics of the day was we're not lending money to these fat cats on Wall street just so they can keep their job and their company. And they wiped them out and we missed it. I mean, and so that was one of those things where I will never forget. And anytime I see government playing a heavy hand and God knows how we can get through the day today without worrying about heavy hand. When the government gets involved in decision making that can affect the underlying value of stocks. It's almost like the too hard pile of Charlie Munger. Remember Charlie Munger said, I'll do the easy one. This is the no, flat out, no, I'm not going to do it. And the third one is this is just too complex. I'll come back to it later. I can't figure it out. But it's almost anytime government's involved in investing in a very big way, that's in the too hard to figure out pile for me now I don't get involved. It's just really too difficult to make that you might argue government's involved in AI and government's involved in tariffs and things like that. It makes it a little bit more trickier. But when something is either going to survive or not survive based upon a government decision, we're out, we go somewhere else. We're not going to play that game. Let's take a quick break and hear from today's sponsors.
- [63:13]
D
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- [66:34]
A
All right, back to the show. I thought one of the most striking things when I look back on that period and just the pain that Bill went through was that he was able to draw on stoic philosophy to help him. I thought that was really interesting that he.
- [66:51]
B
Well, that was in your book and I did and I got it. You helped me understand that because when he was going through that, it was personally traumatic, personally devastating, you know, so many ways. And I did not. I knew he was hurting and I knew it was a hard, hard, hard time. I did not know until you had written about it and you talked to him about it how important the stoics were. And now you can see why, right? I mean, it was a perfect philosophy to embrace in your darkest hour that allowed him to come out on the other side and then still be able to contribute. Because something like that, there are not a lot of managers that come back from that can't come back.
- [67:31]
A
No, it was an extraordinary. It was an extraordinary thing. And I've said before, the thing that I really admired Bill for most in my youth as a young journalist was just the thrilling brilliance of his mind, the freshness of his mind. And then as I got older, the thing that I really admired most was just this indomitability. His ability to come back from that pain with a sense of humor and integrity and honesty and perseverance and the courage to keep buying. I mean, the fact he once said to me, you know, just, I'm glad that I didn't curl up like a tortle, like a turtle or a tortoise in its shell, but that I kept buying. And obviously, you know, even better than I do, the fact that he managed to keep personally his enormous position in Amazon. So much so that he said to both of us, I think that he's the biggest individual shareholder of Amazon, not called Bezos. So there was something stunning about that recovery.
- [68:38]
B
Yeah, well, we haven't covered a lot of this, I've thought about doing something, but I don't know if it'll ever come in. But, you know, like, Buffett's a competitor, right? You know, and for him, competition was bridge and, you know, you know, probabilities of the. Bill was a baseball pitcher. And I read a lot about baseball pitchers, and baseball pitchers had to have, you know, a strong back backbone. You know, they have to have the ability when they just got knocked out of the ballpark and maybe lost the game or lost the World Series or whatever the case may be, they take a lot of. Of pain, they take a lot of abuse, but they got to get back up on the mound and pitch again, right? The whole, you know, you've got to wave it off and you gotta. You gotta keep pitching. And you're talking about a guy that, you know playing baseball from Little Leaguers all the way to college. So how many of those episodes in his life? And I'm just theorizing now where, you know, sometimes you got your good stuff and you've got the strike zone and you're fine and everything's good, and another day you just, you know, you might have lost the most important game and your team is down and it just, you know, the chance to go off into the playoffs, whatever. You know, as a pitcher, you got a lot of failure that comes your way just naturally, by the numbers. But if you spend a whole life of pitching winning games and enduring losing games as he had as a pitcher, you have to think that that helped to craft some sense of not only competition, but perseverance. Willing to get back up on the mound again, not quit. You know, some kid that might have lost the game might have never would have thrown the glove in the dirt and never come back, but he was not one of those guys.
- [70:11]
A
Yeah, it's fascinating. I often think about what people like Warren and Charlie and Bill have, like this strange kind of chemical mixture of weird personal traits that allow them to succeed. And I was sort of trying to think of it with Bill this morning, right? I mean, there's clearly the extraordinary intellect and the incredible breadth of knowledge. There is this tremendous perseverance, this tremendous competitiveness and drive, amazing memory, amazing pattern recognition, then this kind of courage, right? To take bold contrarian bets and an independence of mind. And then I was thinking sort of the lack of emotion as well. Even though I think he is sort of emotional in certain ways. Like I remember him saying to me that he would cry listening to music, I think. But a weird lack of emotion, like when there's pain in the market. So I remember your former colleague Lisa Rapuano telling me right after 911 what bill was like on 9 11. And I think her phrase was. She said, for Bill, she said, we were all crying and Bill and Terry and Bill's like, assess, assess, assess. It was very much like the Bill Miller who had been an intelligence officer in Germany during the Vietnam War. Can you talk about that temperamental advantage that he had that enabled him to win? Because it wasn't just intellect. There's some weirdness to the temperament, right. That enables someone like that to be so extraordinary.
- [71:38]
B
Well, you've hit on something very important, Will, which I think we're coming. It's the culmination of it all, right? His father was his baseball coach, and so he had that competition spirit early on. I spent a lot of time with Bill talking about intelligence, and he was very. He kept the cards close. And it's not like he's got, you know, any information that's now 50 years old that, you know, he can't share, anything like that. I read the, you know, a book that he read. He said, read Sherman Kent, who wrote a book about the intelligence services in the US and it's almost built to the T, which is, you know, how to handle things like that. But Sherman Kent was also the guy that said, be multi. Go find the experts, the scientists, go find these other people. You're an analyst and you've got all this data, but go find out what the scientists over here are saying and find out, you know, so he was, Sherman Kent, his hero, kind of a guy that he looked up to being an analytical figure at the time in the 40s and 50s. That was probably somebody he wanted to emulate. Right? And so this whole thing about the intelligence. I've got, William, I must have 20 some odd books on intelligence analysis, kind of going, all right, what's there? What's there? And there's something there. Right? And it was his willingness to, like you say, assess, assess. You go through all these layers, you know, 1, 2, 3. But then Sherman Kent was very much, you know, broaden out, see what everybody else is thinking, seeing what they're thinking. I never saw Bill emotional, not to say that he wasn't, as you pointed out, you know, he confessed that, and maybe in private, he was emotional. I never saw him yell. I never saw him dress down an analyst. I never saw him angry. He just always seemed to be so out. He might have gotten the car and, you know, punched the windshield, who knows? But his decorum demeanor, temperament, and his job as CIO and senior portfolio manager and all of us under it, we couldn't have had a better role model to go through the wicked times. And he just had it all figured out. But I think to your point, I don't know if we can point to one thing. It's just a lot of things came together in life and bubbled up. But to, you know, if we could say, if there's anything that you could say, what was the one thing? It was just that he never quit. He never quit being curious. He never quit wanting to make money. He never quit wanting to be successful. And there's some people that just get tired and quit. You know, he'd go home and gosh knows, he. He earned enough stripes and he had enough things that he wanted to call it a day he could have. But, you know, he's way back. You know, he goes to bitcoin and he goes to this. And now he's an AI Santa Fe Institute. Huge influence on his life and all that. But that's a special person that has this continuous appetite to learn and discover and curiosity. And Bill's, what, 75 this year and just as much curiosity today as he had almost 40 years ago when he started doing the Value Trust track record.
- [74:33]
A
His enormous bet on bitcoin in some way reminds me of the bet on Amazon. And I think when I had him on the podcast. Podcast, we talked about the parallel, because there's something about the fact that people like Charlie were saying that bitcoin was rat poison squared. And here's Bill, who's so contrarian by nature that even though he really, really admired Warren and Charlie, it kind of excited him almost more the fact that they hated it and that they had a blind spot. And he could sort of, because he was so obsessed with pragmatic philosophy. And he could look and say, there's something they're missing, because these old guys from the Midwest don't have a great record of understanding cutting edge technology. But at the same time, I remember asking Charlie about this and asking Charlie if there's any evidence that could come along that would change your mind about bitcoin. And it was pretty clear to me from the way Charlie didn't engage with that question that he wasn't interested as an investment. And he basically said to me, I'm proud of the fact that I don't own bitcoin because he regarded it as a social ill. Whereas Bill seemed to look at bitcoin and say, well, I didn't think that the goal of investing was to buy things with tremendous returns on investment and return on capital and cash flow generation. I thought the purpose of investing was to make money. And so it seemed to me there was something kind of like agnostic almost to the point of being a narcic. What do you, what do you think?
- [76:14]
B
Well, a couple of things is, I'm not, I'm not sure. I'd have to think about this some more about whether Amazon equals Bitcoin. Because the way that he described bitcoin to me, and I think you've heard it the same way, is that after you read the paper that, you know, he basically, you know, the, the argument was I have no idea if this is going to work or not. But if it does work, it could be really big. And if it doesn't work, you should put no more than 1% of your net worth in it. So for Bill, those are great odds, right? Which is all right, I'm going to make a 1% bet and if I wrong, it's not going to change my lifestyle. But if I'm right and there could be things that we could think about that could make it right, you know, deficits, inflation, whatever the case may be, the value of the dollar over the last hundred years, whatever you want to go to, if this actually thing worked, then it could be a really big deal. And I think that's the way he set it up now, writing a check for 1% of your net worth that says I could go to zero and I lose. You don't lose any sleepover. But when it becomes hundreds of millions of dollars and then a billion dollar investment and you still own it and it's given a lot away, I mean, a lot that he's given away through his charity has been Bitcoin and others. I don't think he's given any Amazon away. I could be mistaken, but it would have been harder in my mind to hold it at 100 million than to have bought it with 1% of my net worth. But he did so right. The hardest thing was holding on to it at 100 million and watch it go to a billion. Not to write a check on 1% of my net worth that's going to go to zero in my mind. So he saw something there. I think everyone is kind of flabbergasted. That's Charlie's word, flabbergasted at how this thing has evolved. Now I came about it slightly different and I don't own bitcoin. But at the same time I thought the argument that it can't be valued because it didn't generate any cash was a poor argument. I mean a Van Gogh painting doesn't generate any cash. But there's obviously a supply demand issue here. And demand is more than supply. The price goes up and you know, there's plenty of things to look at that value has gone up that didn't generate cash. So I put that aside. That didn't make any sense when we bought Louis Vuitton. I was saying that we bought Louis Vuitton 11 years ago. And you go through Maswa's hierarchy of needs. You know, when disposable income goes up, better tasting liquor, better tasting food, household products and makeup. And then, you know, fourth on the list is fashion goods, you just start dressing better. And so when we drill down into Louis Vuitton and kind of had that figured out, one of the executives said to us, in addition to Maslow's hierarchy of needs as you've identified, we've also discovered it's a great sense of stored value that people in difficult countries with fragile banking systems or dictatorships or things like that, we can see that there's purchases there. And whether it's Louis Vuitton handbags or jewelry or whatever, if things go bad, they hop on a plane and when they get to Honolulu, they open up the luggage and they monetize all their Louis Vuitton facts. And I said, okay, that's bitcoin. I said, what I see happening with bitcoin is that if you were in and today actually there's an article on Bloomberg talking about Bolivia and Bolivia has roadside stands transacting in bitcoin because their inflation 50% and there's no currency. But you know, it could be El Salvador or it could be Lebanon, Brazil, Argentina, go down the list. And I gave that talk to a client event and I said, first of all, I said, look, you're going to do it, do it with 1%. That's the right way to do it. But two, if it works, Charlie may not be right in that it could be horse maneuver here in the United States where we don't have a fragile banking system and even though we've got some inflation, nothing like you would see in very poor countries. I said, but imagine if you were in a very dire place, maybe you would have some money in a blockchain, bitcoin, that if you had to leave the country, you wouldn't even have to worry about them searching your luggage. You could get out of town, get to the next country and Access your blockchain and bring your Bitcoin with you. That, to me, makes perfect sense of why bitcoin has tremendous value. It's just. It has value for different people in different locations. Woman came up to me afterwards. She goes, that was the best explanation. Our family lives in Argentina. We've been wiped out twice by the government bank account to zero. Twice. Yes, we're in Argentina. We have a lot of Bitcoin. And so then I went, okay, so then Bitcoin is something that would be a currency that would be valuable to people in very unstable countries, economies, whatever the case may be. I've lost sight. And help me, William, understand what's going on today.
- [81:04]
A
Yeah, I mean, I don't understand Bitcoin either. Despite the fact that Bill told me to buy it back credit. It was at like 8,000. I think you and I are way beyond our pay grade here. And I can tell that people are going to write in and can complain, which is fine.
- [81:21]
B
But I think that's where I put it in the too hard to figure out pile. And I just move on.
- [81:25]
A
I did as well. And I don't think that's a mistake over the course of an investing lifetime to say there are all of these things that I don't understand and I don't have to do them. I don't have to play this game in order to do well. And one of the things that Bruce Greenwald, this great investor and former Columbia professor, said to me at one point, we were talking about the fact about Bill's Amazon bet, and Bruce obviously had thought at the time that it was an incredibly stupid bet. And he's very honest about the fact that he was wrong and Bruce had been shorting it back then. Bruce said to me that Bill is a specialist in explosive upside. I thought that was such a beautiful insight that I love it. Yeah.
- [82:12]
B
What? Bill heard that before. I love it.
- [82:14]
A
I thought it was a brilliant observation. And it goes back to what you were saying about the probabilities with Bitcoin, that he could look at something and say, well, if I'm right, it's going to be enormous. And same with when he was being attacked all those years ago by Bruce and others at a conference that I attended that had all these guys, I think it was Seth Klahman and Bill ruin all of the legends of the business. And Bill got kind of pilloried and he said, as I recall about Amazon, if I'm wrong, we'll lose all our money. And if I'm right, we'll make 50 times our money. And so that willingness to bet on things where, if you're right, the payoff is enormous, it was just very distinctive to Bill.
- [82:57]
B
Yeah, but he would right size the bet. I mean, I bet if you and I went back and looked at Amazon, I don't think Amazon in 2001, 2002, and I don't know, I'm just speculating. I don't think Amazon was 50% of its net worth in 2002. Right. It wasn't. But I mean, it could have been a 5% bet. But when you buy it at 9, I think he had $9Amazon on Legg Mason Opportunity Trust. $9Amazon. You know, you can buy a few hundred thousand shares and it's not going to be your entire net worth. You can buy a few million shares and it may not be a big part of your net worth, but once it gets over, here's the Lou Simpson, right. One of my favorite lines from Lou Simpson is it's not difficult to identify, he would say, not identify good businesses. The hard part is holding onto them for a decade. And that's where I've been spending a lot of time with, which is once again, is it going to last a decade? Let's get that part right. Can this last a decade? And we can make money for a decade. That's a total, you know, different set of thinking models. But then the question that I'm spending time on and I'm talking to Michael about this, another one is what is the ride like when you said, okay, I got T1 to, you know, T100, I made 100 times my money. What was the ride like along the way and what kind of character, temperament, belief, confidence did you needed to have to keep the bet on? Right. That to me is a fascinating thing. So you know Hendrik Bethen Minder, the professor from Arizona State University. So I've been going through his research and stuff like that, and he's glad it's one I think he did. It's the same thing that he does, which is, I think since the Great Depression or something. He looked at all the stocks and figured out that, you know, 2/3 of them don't even beat the treasury bills over time and only a small 1% actually add most of the value of what stock market capitalization is. And he updated the paper 1990 through 2020, so it was a 30 year look back. And he took out the 50 best contributors to the total market capitalization over the period. 35 of them were US stocks, 15 were not. So I looked at the 35 US stock and then I said, okay, in the last 10 years of these 35 stocks, what's been the performance? And there have been 17 underperformers out of the 35 and 17 outperformers. The one oddball is General Electric that the, you know, separated itself. So we took that. So we took the 17 outperformers. We said, okay, if you had, you had no premonition that these would be, you know, the biggest contributors to the stock market capitalization. These were good businesses, you know, leaders in their industry and stuff like that, and you decided that you were going to buy all 17 equally weighted over the 10 years, what would have been the right. You know, what would have been it? What would it have been like? And of course, it crushed the market. I mean, you know, the market was up 200%. These guys were up 800%. If you took out Nvidia, which was, you know, amazing, up 28,000%, I think the portfolio was up 600%. So clearly home run territory. Then we looked at it, you know, as I was saying earlier, we said, all right, what's the frequency of the outperformance? On a monthly basis, these 17 biggest contributors to market wealth capitalization underperform monthly 50% of the time, quarterly. Kept this off to the side 60% of the time. Yearly 63% of the time. Drawdown. The drawdown. Well, actually they had 102 different periods of 20% drawdowns over the time period. Once, you know, twice on average. Then we looked at the worst percentage drawdowns from trading high to trading low, averaged 41%. So here you have a portfolio that's going to kill the market. You basically are only going to win 50% to 60% of the time, monthly and quarterly. And along the way, you're going to have 40% trike drawdown. Who holds that portfolio? Who holds those individual stocks? And that, to me is a missing piece of our puzzle to figure out, which is there's some good businesses out there, but I think we cut them loose too fast because they've either underperformed for a while or there's been a big drawdown or something. And here's modern portfolio theory and variance and loss avers and Kahneman, Tversky, all this stuff all the way down the line. That once again, Simpson was right. I don't think the difficulty lies in making these individual bets as much as it is hanging onto them when the road gets bumpy. And here's Bill, right. How many bumps did he? He goes through a lot of bumps in bitcoin. He goes through a lot of bumps in Amazon. He goes through a lot of bumps. And we can go down the list. What was it about him that he said, say, the courts?
- [87:38]
A
Yeah. 28 years of holding Amazon, it's a stunning thing. And same with Nick, Sleep and Gates. Scarier. Who came to it a little later, obviously. But last time I chatted with them, they still, basically almost their entire net worth was still in Amazon, Costco and Berkshire. So just three stocks. And I remember at one point going to Nick, and I'd interviewed some legendary investor who had said something really negative about Berkshire. That was really quite worrisome. It almost made me sell my Berkshire. And I told Nick and he was like, yeah, great culture. And he just didn't do anything and just kept it. And all these years later, it's an incredible temperamental ability to hold. And then at the same time, Bill Nygren, who I had on the podcast recently, was really kind of irked by this idea that there are these compounding machines that you should just keep holding. And his view is, no. There comes a time he was happy to. I think he'd held Apple or something for like 12 years. But he's like, no, at a certain point, you have to sell because the valuation isn't where you need it to be. How do you think of that kind of quandary.
- [88:53]
B
What I will do. And I'm not saying any of these guys are wrong, they're much smarter than I am. But I would say I go through this iteration the first thing. So you were saying, let's just make it easy. A 25 stock portfolio, 4% of the average bet, 2% is the entry bet. That goes to 4. 4, 4 is going to 2 to 0, and then you have your over bet. So today Nvidia is an over bet, Amazon's an overbet, and stuff like that. But if we. Apple was an over bet for me, end of last year, the beginning of this year, and so it was 7, 8%. You know, now it's a 3. And I wasn't selling it just because Warren. You know, we were selling it because we were concerned about the App Store and what was the revenue growth of the App Store. You know, we knew, you know, I was an issue and stuff like that. So there was a point in Apple that you basically felt that it wasn't an 8% over bet. So I get that. I mean, that makes pretty sense. So it's still down there. You know, we saw Paul Johnson out at Guy's conference as well. And he did a presentation on Apple, and he's working on a book I believe will be out soon, I hope, on how to value growth. So when we bought Apple 2014, and I guess that was about the same time that I think Ted Wexler bought it 2016, but you could have bought Apple and it was discounting zero growth. It said basically the handset business is flat. But you looked at the service business, that was growing at 30%, 40% per year with returns on capital that were 100%, and that was 20% of revenues. And you can say to yourself, well, jeez, if just the App Store works out and the handsets don't move, we still can make money here. And that's the way we thought about it. What's gotten to be trickier, though, is now that the price of Apple is really about 15% growth and it's struggling to get there. And so it's a harder puzzle today than it was 10 years ago when we were buying this stock. Today, it's a little bit trickier than how to think about, but it's all about. Right. Sizing the bet. I very rarely go from zero to four or four to zero. I mean, I work it up and then I'll work it down, looking for disconfirming evidence along the way. And we're always looking for disconfirming evidence. Who else has an idea that, you know, you can go on Bloomberg and get, you know, all the analysts and these are short term, you know, type things. But I'm looking for the outlier who thinks this is going to the moon and what's your thesis and who thinks this is going down 50% from here. What's your thesis? And then we try to block those off and then start working into the middle to try to figure things out. So it, you know, Bill says it's art and science. You know, there's, there's a little bit of the art side to it, you know, and will AI figure that out? Maybe there'll be a model that tells you how to do that. And I actually wanted to show you that because when you say Bruce Greenwald, I'm reading this for about the 10th time. Competition demystified. AI can't write this book yet, but this is where I think the Secret and Mobison's competitive advantage, period, and Porter's Five Horses. But AI can't get there yet.
- [92:02]
A
Yeah, AI is not yet as smart as Bruce Greenwald.
- [92:05]
B
No, not yet. Well, in some parts, he's a pretty smart dude.
- [92:10]
A
But yeah, I wanted to talk a bit more about this whole topic of concentrated investing because it's clearly a really central part of your focus over your career. You wrote a book titled the Warren Buffett Portfolio which is subtitled Mastering the Power of the Focus Investing Strategy, which is all about succeeding with a concentrated low turnover portfolio. There's a great quote that I think is in the Warren Buffett way where you quote something from Warren where he talked about how if you're a know nothing investor, yeah, it's fine for you to diversify on dollar cost average. But then he said, and these are his exact words, on the other hand, if you are a know something investor, able to understand business economics and to find five to 10 sensibly priced companies that possess important long term competitor advantages, conventional diversification makes no sense to you. I wonder if you could talk a bit about this because there's a. You gave an excellent speech of value x BRK Guy Spier's conference. I think this was two years ago. You gave a very good one last year as well, or this year on private equity, but you gave a very good speech about the general failure of active investment strategies. And then this curious fact that concentrated low turnover value strategies seem to have worked really well and yet almost nobody does it. Can you talk more about this? Tell us for a start, I mean, make the case for why this actually is a good strategy.
- [93:44]
B
Okay, well, as I said when I wrote the Warren Buffet way, I don't think I even mentioned portfolio management. I think I said something like Warren buys and holds for a long period of time and they never sell. So after we wrote the Warren Buckaway which was all about stock selection, I remember watching the days when I was probably watching more financial news networks than I ever do today. You'd have these people come on and say, well, I really like to buy companies with favorable long term prospects. Simple and understandable. We like cash earnings and good returns on capital. We want management that looks after our interest and we're all buying them for less than they're worth. And I go, that's great. That's a Warren Buffett Warren. They got it. This is perfect. And then you look at the portfolio and it's 100 stocks and 100% turnover ratio. And you go, wait a minute, this isn't right. You're talking the talk, but you're not walking the walk. And so when I told Warren we were going to do the book, he was one of my first interviews and he was very plain spoken about it. And simply he said, robert, we're just focus investors. We just focus on a few companies. And so he didn't give me the answers. He just said, this is what we do and go for you. So the thing that we did was we started looking at those people that were doing it. And you go back to John Maynard Keynes at the Chess Fund and you had Charlie's track record, you had Sequoia Fund track record, you had Lou Simpson's track record, and you put it all together, all of them fantastic long term track records, all of them except Buffett had periodic underperformance and frequency magnitude issues and stuff like that. But clearly it was an optimal strategy. Then we did a 3,000 portfolios for 250 stocks, 3,000 for 150, 3,050 and 3,015, and ran it through the computer, through the, you know, I think it was 2,000 stocks. And sure enough, to the degree that you reduce the number of stocks in your portfolio, it increased the likelihood, the odds that you would outperform. It also increases the odds that you would underperform. So stock picking becomes critical. And so it started to all add up that the optimal strategy is to own fewer stocks than own more stocks. And right then, so that was kind of 1998, going into 1999, we came out with that and said, this is the way based upon these facts, very simplistic facts, this is the way you ought to do it. I think where it then jumped on big notch in my mind, William, is that when Kramer's Martin Kremers and Pete Giusta wrote the high active share papers in 2009. So 10 years after we wrote Warren Buffett portfolio, they come out with high active share and they do an academic, rigorous study of a gazillion mutual funds and break it down and say, sure enough, the fewer stocks you have in the portfolio, the higher likelihood that you're going to outperform a couple of years later. They do high active share and low turnover. Say that's the sweet spot. High active share, low turnover. There's your excess returns. And so it's all laid up.
- [96:37]
A
But they also found the same thing you mentioned, right, which is that you also increase the probability of underperforming.
- [96:44]
B
Well, that's it, right? So you've got to be a half decent stock picker. If you just kind of say, okay, if you can give us that, we can do an average job of picking half decent stock. What Charlie said, I think it was back in 1997, I wrote it down again. He said right in the end of the meeting, he's talking about the Berkshire system of managing concentrated low turnover portfolios. He said, if we are so right in the Berkshire system, why are so many imminent places so wrong? Well then that opened it up, right. All right, so let's get to the heart of the matter. And that's when I drove down into modern portfolio theory, which basically hoodwinked everybody into thinking we've got the perfect strategy for you to get through a bumpy ride. Non correlative, broadly diversified. You won't have to worry about drawdowns and we're going to give you good performance. But then when you look at the performance and you go through the, the SPIVA data, the S and P versus active manager, it's atrocious. I mean it's just absolutely atrocious. We all knew it intuitively long only managers, it doesn't matter. If you're big cap, mid, small value growth, core, it doesn't matter. International domestic is atrocious. Atrocious, horrible. So you say to yourself, okay, it's modern portfolio theory, broadly diversified portfolios, low tracking error, low correlation, but they can't beat the market. And the focus investing can beat the market, but it has the baggage of eye tracking error and standard deviation and periodic underperformance. Why wouldn't you, just a rational person, say let's do the focus investing and put the rest of it in an index fund. And as simple minded as that, you'd be shocked at still how many thoughtful consultants still can't wrap their hands around it. And when I talk to people on, leave them out of the conversation. When I talk to people that actually recommend it, they want to recommend focused portfolios, they want to recommend concentrated low turnover bets and the client understands the mathematics of doing so. But they still freak out on drawdowns, they still freak out on standard deviation, they still freak out on volatility. And it is that. It's the kryptonite, the kryptonite of our industry, which is people cannot handle volatility. So you know, then we get back to, well, okay, volatility is the nemesis. Now maybe private equity is going to take over the whole world because they don't have volatility. They're going to be able to sell it to anybody. Right? But you know, Warren, what was so brilliant about Warren and said this in the book is that I think two things happen to bless Warren of many things that have blessed him over life. One is that he was never raised on modern portfolio. Theory, so he didn't have to unlearn it. Same with me. I wasn't raised on finance and accounting. I never had to unlearn modern portfolio theory. And secondly, he both owned private companies and public companies at the same time, and he chose to treat his public company in the same way he chose to treat his private company and analysis and performance evaluation and management. The lessons learned in private companies were the same lessons learned in his public company, and he treated them both the same. Nobody else has had that kind of experience. And Warren says, I think we'll just do it this way. And Charlie said, I think we'll just do it this way. But there are other people that are very, very smart that basically say, yeah, that makes all the sense in the world. But when the price shows up, they just go, weak knee. They just go weak at the knee. And William, I have no idea how to solve prospect theory. I mean, it is a fact of life that people wait a unit of loss twice as grievous as they do one unit of gain. And, and it, and I don't know. I think at the end of the day, this is our kryptonite. We just can't get over this. And I don't know, you know, I don't know what happens from here.
- [100:33]
A
I think some of it is just wiring right, Because I, I, I've told this story before where I was with Bill right after 911 with Bill Miller, and he calls the office in Baltimore. He was visiting his alma mater, and he calls the office and they tell him that AES, which he had just bought the day before, had just massively missed earnings and he just lost $50 million. And he just immediately said, he got really serious and he's like, where's my cash? And he's like, let's just double opposition. And he hadn't really done his work yet. And he just said basically, because people feel the pain of loss twice or two and a half times as keenly as the pleasure of gain. He just had this assumption that people were overreacting. And you write about this in the psychology chapter of the Investing the Last Liberal Art book. There's this kind of foundational paper from 1985 where I think it was Richard Thaler talked about how. Yeah, how people overreact to new information, whether it's good or bad.
- [101:39]
B
Oh, yeah.
- [101:42]
A
And so I think there are just a few people like Bill or Charlie or Warren, who sort of don't really feel those emotions. Like Charlie said, he didn't feel the emotions at all. He just could see that the odds were great.
- [101:56]
B
And he writes about that. He was never bothered by drawdowns. He said, I was raised by a family who, you know, had to deal with bumps. We dealt with bumps in life, and that's, you know, that's who we were. And I was trying to think. His dad was an attorney, right. And his grandfather was a judge, trying to think, well, what bumps in life did you have that, you know, prepared you for the psychology of having bumps in the stock market. But that was Charlie. Charlie said, you know, and he said something like, if, you know, if you can't handle the idea of, you know, going down 50% somewhere in your career as an investor, then you deserve the mediocre results that you're going to get for trying to avoid it.
- [102:32]
A
I think it takes a weird type of person to be able to handle it in, in reality, like, you can, you can, you know, theoretically, all of us can say, yeah, yeah, yeah, I understand that these are great opportunities when there's tremendous volatility, but when it hits the fan, most of us don't really think that way. And I, I mean, I, I don't know. I sometimes wonder if there is something a little bit emotionally defective with a lot of these people that, that's, you know, that it's connected. I, I know it's a little bit too glib and sort of. I, I, I know it's a, there's, there's something directionally correct about it, but I, I think it's connected to the fact that so many of them end up divorced. Right? Like, there's a sort of, there's a lack of emotional intelligence that allows them to kind of look at probabilities. I, I don't know. But, but then Bill has a great deal of emotional intelligence.
- [103:25]
B
You know, I, maybe, you know, maybe. Why? You know, I don't know. I don't, I feel, you know, I don't know what I'm going to say this year when we go see Guy. You know, I kind of feel, William. And this is me on the couch talking to my therapist. You know, I'm getting tired of swinging at the windmills. I mean, you go at the windmill so many times with all the facts and the defense and, you know, the obvious things that you can then. And basically, you know, people are just saying, no, I can't do it. I just cannot do it. So, you know, then the argument is, well, there's your excess return, but you got to find, you've got to find those people. I didn't tell you the Bill Ruane story yet, did I?
- [104:01]
A
No. I mean, I've heard you tell it before, but it's an important one to tell. I mean. Yeah. And he's a fascinating guy.
- [104:10]
B
Yeah. This is my solution to how to try to deal with the fact that people can't embrace Focus Investing. So it was right after Warren Buffet Way was published, and on those days when you might remember, the meetings were on Monday because there weren't that many people. I think there were 3,000 people that went to the Holiday Inn Convention center, and the baseball game was on Saturday. And Warren would go out and, you know, the Omaha Royals get up and, you know, he would throw out the first pitch. And we were watching the game along the first baseline, and here walks up Billy Wayne, who I never met, but I certainly recognized him. And I said, Mr. Wayne, I said, you know, I'm Robert Hagstrom. I wanted to introduce myself. I just wanted to, you know, congratulate you on everything that Sequoia Fund had accomplished. The very first Focus Fund, whatever. They said, robert, you're very kind. You know, congratulations on your book. And I said, well, thank you. And. And he said that I guess you're going to try to manage money. I said, well, yeah, I guess I'm going to try to manage money and, you know, to do this one thing. And he said, well, listen, can I give you some advice? I said, Absolutely, Mr. Wayne. He goes, I'm going to give you some advice, but you're not going to take it. I said, no, I assure you, Mr. Ruane, any advice that you give me will be under careful consideration. I will certainly take it to heart. He said, no, you won't. I finally said, look, just give me the advice and we'll go from there. And he said, well, you're going to start this portfolio, and you wrote a good book and everybody loves Warren Buffett. So you're going to get a lot of people say, yeah, I want to do this, and you'll get a lot of money. And then about six months later, about half of them are going to start yelling and screaming at you because you're underperforming or you don't own oil stocks and oil stocks are going up or you don't own this and that, and they're all going to be complaining at you. And I want you to fire every single one of them. I said, okay, I'll fire every single. He goes, no, you won't. I said, you're a young man. You've got a family. You got A mortgage you're saving for your kids. You're not going to sell those assets. He said, you know, you're going to try to convert them, thinking that you can bring them to salvation and doing this stuff. But I guarantee you if you don't, your life will be miserable because you'll be spending half your time trying to convince people you've already convinced once stay in the game with you. And it's just a horrible thing. So make sure you pick the right partners. And so my strategy now is if somebody calls and says, we're going to put a million in, I say, I'll tell you what, I'll make a deal, put 250,000 in, but don't bother me for three years. If that's a deal, I will take that deal, right? But I don't want a million. And all of a sudden, if AI is not working in the fourth quarter of this year, because it didn't work in the first quarter this year when everybody was going in a de risking way, I don't want you calling and yelling at me about, sell this, let's get out of this. I said, I don't do that. So give me 10% of your money, give me 5%, but give me something that you can handle and I'll take that. And then the rest you can farm out to somebody else and do something, something else. I'm beginning to think that maybe that's the only strategy I have left, which is you almost say, I don't want your money. So they give it to you, but take less than they would otherwise give you or take less than the amount of money that would cause them discomfort. It was JP Morgan. Guy stopped him on the street and said, God, I'm so worried about the market. And you know, it's going to go down. I know it's going to rain, you know, and I can't sleep. And you know, you know, what should I do? And JP Morgan said, well, sell down until you can sleep. It's kind of like you should sell down your portfolio and get to a focused portfolio to some level that you can sleep. And maybe the strategy, we'll see what others say. Maybe the strategy is to say that this is always going to be a satellite, unique, different type thing. You diversify by styles, you diversify by market caps, you diversify by US and international. I said, why don't you diversify by running a concentrated, low turnover and the rest of it, you can run modern portfolio theory and just let them run side by side for the next Three to five years and let's see what's happened. I'd love that bet. So it's about finding the right opportunity with the right people. You can make this happen. But as you point out, William, it's very hard for most people to get comfortable with a focused portfolio. It's just a fact.
- [108:20]
A
Well, you have some great statistics in your various books where you make it pretty clear why it's so hard. I mean, you talk about Ruane's Sequoia fund, how it underperformed 37% of the time, and he got off to a terrible start, right, in 1970-74, where he was 36 percentage points behind the market. Same thing with Lou Simpson, who generally had less than 10 stocks. You said he underperformed the market basically about a quarter of the time. Munger, you know, crushed the market over 13 years. Yeah, but huge drawdowns and, and particularly 72 to 74 when he got really clobbered and he, he never wanted to manage money into individually again. Right. I mean, I think so. So I think it was very painful.
- [109:11]
B
Yeah. Well, by that time, you know, they were doing the, you know, the blue chips and the seed candies and I think the future was, you know, was the closed end fund, Berkshire Hathaway. And a lot of people, I think, have it wrong. They say, well, you know, Warren's got it easy, doesn't have, you know, he's got a closed end fund. He doesn't have to worry about redemption. You underestimate how emotional Warren is about his partners and that he wants no harm to come to them. He wants, you know, now harm to them. And it's permanent capital loss, not short term quotational loss. But even though he runs a closed end fund, so to speak, he has an emotional motional dedication to his partners to do the right thing. Now, he did, I think, remember that when he did the annual report, might have been 2017, when he did the Rudrar Kipling poem of if. And he went back from 73, 74. And there were four different periods of time where Berkshire Hathaway went down at least 50%. Maybe one of them was 39%. 73, 74, 87. It was 2000, 2000, actually, 99 to 2000 during the tech thing and then the financial crisis where Berkshire Hathaway went down 50%. 50%. And he, you know, pulls out Rudyard Kipling and says, you know, there's the temperament that you need when stocks go down 50%. So, you know, he's just saying, and and he said it to him again, you know, the light doesn't stop at yellow. It goes from red to green or green to red. It doesn't stop at yellow. And it's going to happen again in the next 50 years. And when it does, just think about Rudyard Kipling. So it is a temperament thing. It is self confidence. But it may be, I'm thinking at this point, if we could run 5%, 10%, 5% of modern portfolio theory, money, and generally speaking, and focused strategies, maybe those strategies would demonstrate over time their performance characteristics, that people would look back and go, okay, they made more money than the s and P500. Yes, they had a bumpy ride. Yes, there were drawdowns before this worked out fine. So why don't I make that my private equity bet? And so you heard Warren talk about private equity. He goes, I don't get it. I just don't get why would you buy private equity? Not only is it illiquid, the menu set that you get to choose from in private equity is nowhere near as grand as the opportunity set of public stocks that you can look at. The economics of public stocks in most cases are far superior to what you can get in private equity. And three, the market gives you these opportunities periodic to buy these things at huge discounts, which you no longer get in private equity because they're all long cash and short deals. And as Warren says, I can't compete in this space anymore because private equity purchases the prices up. So private equity gives me illiquidity. It gives me a menu set that is not as big as the public markets. It gives me economic returns that are aggregate or lower than the market. And two, I can never buy them at a cheap price. Why would you sign up for that? And oh, by the way, the performance returns in private equity in the last 10 years are really bad. If you look at what it's no longer the Swenson market in the 1990s when he was killing it and there was an illiquidity premium. You make huge money by then. If you look at the private equity, whether it's the cigar butts, the growth companies, the venture capital, they're all underperforming. So what do they got left to sell? Once again, the only thing they're selling is no volatility. They've gone to the Achilles heel of where the client is most at emotional risk and says, I'll solve that problem for you. And they're coming. My thesis for Guy this year is, if you can't beat them, join Them. And what we need to do with focused portfolios is treat them like private equity. And if you don't give them anything but price returns to judge their performance, then they're always going to judge you by your price returns. But if you give them their price returns, which we're obligated to do, plus the economic returns of what we own and the progress of the economic returns of what we own, maybe they can glam onto that to say, okay, the price is doing this, but the economics are doing this. I think we'll just hang on. And maybe that would be the saving grace. I don't know.
- [113:22]
A
I think it's always going to be hard to deal with the volatility. I don't know. I mean, I'm a heavy proponent of concentrated funds and I own them myself, but I don't know. It's hard. I worry. I feel very happy with it lately because they've been great for a few years, but when they start getting crushed, you know, I own three concentrated funds, you know, one. One of which has maybe nine stocks, one has eight stocks and one one has 70% of its money and seven stocks, but owns probably more like 20 in all. And so I'm a big. But then I also own a couple of index funds and one diversified fund. And I. I don't know. So I'm a big believer in this stuff, but I feel, I. I feel like kind of smart at the moment. But then there was one. I mean, I remember one of those funds went down 46% in 2008, and I didn't feel so smart then when I simultaneously lost my job and I was down 46%.
- [114:22]
B
That's a hard one. That's a hard one.
- [114:23]
A
It was really painful.
- [114:25]
B
Well, you know, when I do these client events, someone would say to me, they'd say, oh, Jesus, you know, if the market goes down and, you know, we got these wars in the Middle east and, God, this is happening, and the deficit that's happening, you know, I just. I really feel like, you know, it's all coming to an end. And I said, well, you think this is it? And you go, yeah, this is it. I said, well, how much bottled water do you have in the basement? I said, canned soup, peach preserves, AK47, anything in the basement? And he goes, no. I said, well, I guess you don't think the world's coming to an end, because if you thought the world was coming to an end, you'd be batting down the hatches and getting ready. And I think Warren, his once Again, Warren believing in the American tailwind and the love of this country is we've taken so many body blows that his viewpoint is we can take pretty much any body blow that comes. And the worst one would be is Warren has said his worst fear is the nuclear. But we've taken body blows for 250 plus years and we always seem to be able to come back. So that's a pretty good frequency distribution, right? I mean, how many body blows have we taken? And we still seem to wait to get to the other side and come out a little bit better. That's his personal philosophy about it.
- [115:31]
A
I think in rereading the Warren Buffett way over the last couple of days, I also find it really reassuring to kind of pound into my brain some of these very fundamental foundational tenets that you talk about there that it's really easy to forget. I was very struck by this central idea where you just said, these are your exact words. You said, when Warren Buffett invests, he sees a business, most investors see only a stock price. And then you had this quote that I'd kind of forgotten where he said that the nine most important words ever written about investing with a sentence from the intelligent investor where Graham said, investing is most intelligent when it is most businesslike. And so for me, that was a really good reminder that with these focused funds that I own, I'm an investor in things like Amazon and Meta and stuff like that. And they're Alphabet and they're whatever happens to the world over 5, 10, 15 years, some of those companies are going to do pretty well, I think. And I think just the reminder that we own businesses here, that this is what's really extraordinary about Buffett. Well, one of the many things is just this sort of elementary idea that you're owning businesses that are growing and making money. I don't know, does that raise any 100%?
- [117:01]
B
If we go back and warm up? We've been talking about Markowitz. I mean, here was this kid, he's a fine young man, that liberal arts major, never owned a business, never owned an individual stock, never invested in the market. Just had this view about the economy and risk and return and stuff like that, and took it upon himself to define return as expected yield, which is kind of Buffett's coupons. And he read John Burr Williams, got that. But he said, you know, there's not a really firm definition of risk. And so I think, you know, a suitable definition of risk is variance of return. And he put it into his dissertation, put it into the 1952 paper. Now, what I find interesting, I think we talked about this, which is. Well, that's not what Graham said. Graham said, risk is margin of safety. And he wrote about that in 34. He wrote it again in 49. 51 was the third edition. He wrote about an intelligent investor. And he said no. Now, as we both know, nobody gave a crap about Markowitz and modern portfolio theory for 30 years until we had the 73, 74 blow up. And then the value guys were gone, Warren was gone. He didn't come back to 84. When they did the security analysis 50th anniversary, there was nobody to pick up the pieces except these academicians who'd been sitting in the hallway waving their hands, saying, hey, you want to try something new? How about broadly diversified, low volatility portfolios with minimum drawdowns, and we'll try to give you a good return on your money. And everybody said, that sounds good. They didn't want to say, that's a business. It was all about building a portfolio of stock prices that were non correlative, that wouldn't bounce around a lot, and over time would give you a good return. They totally divorced investing from the business, and it became managing a portfolio prices, not managing portfolio businesses. So I'll give you the platform. I'm keeping an eye on the clock and that we're running. When I do a seminar, I say to my people, you know, my best, my best partners, my best investors and global leaders have always been business owners because we talk the same language. When I talk to a business owner, I say, what's most important to you? He goes, cash, I got to pay them. I need my money, right? I need money to come out, I need to pay my bills, whatever the case may be. I said, yeah, I get it. That's, that's what I do. And we talk about, you know, if you borrowed money, you better earn more than what you borrowed, blah, blah, blah. And I said, by far. And business owners are my best clients because we're talking the same language they get. They seem to say, yeah, it's a stock, but I get it. I own a business, you own a business. We talk a common language. Then I asked the people in the room, how many of your business owners, maybe a dozen hands go up? And then I say, how many of you in the room own common stock? The other 88 hands go up in the air. And I'd say, okay, you, 88 people own common stocks. What do you think they are? And they have no answer. The things that you own are businesses. Right. People do not think that a stock price, as you said, they have not yet made that connection that I bought Meta. It's a business. It's a publishing business. Right. Amazon is an online retailing, advertising, data center business. These are businesses. But you ask people that own common stocks, how many of you own businesses? They cannot put that two and two together. They don't feel it. And Warren felt it because he did both simultaneously. He owned private businesses at the same time he owned public companies. Now, what will be interesting, now they want to do privates and they're going to do tokenization on privates. How are you going to determine what is the value of the tokenization? Well, at private equity, they should tell you what the revenues are and what the margin are we making progress, economically speaking. So there could be a way that you could pick up on the experience of owning a private company. You could buy, you know, this, you know, Elon Musk rocket company. I'm having a moment here. All these different private. Yeah, thank you. All these private businesses you can now own and mutual funds, and you'll be able to own them in Robinhood and different places and you'll be able to trade them through this tokenization process. But then how do you think about those? Are those different than stocks or are you going to treat them the same way as stocks? They'll probably treat them in the same way as stocks. But if we can find some way to connect people that that stock is a business. How do you determine what is a good business? That's the same way that you determine it's a good stock. And if we can get them to figure that out. But we've been trying for 50 years and for 40 years they said don't write any more about Warren Buffett giving away all the secrets. That didn't seem to matter. It didn't seem to matter at all.
- [121:28]
A
Well, I think that gets at such an important point, which, that however much we study this stuff, and you and I have both written a lot about the greatest investors, right? I mean, we spent much of our adult lives studying these guys and then writing about them, there is something ultimately inimitable about them. Like we can internalize their principles and they definitely, by internalizing their principles, it definitely helps us do less stupid stuff and we're more likely to do well. But I still think when you look at people like Warren and Charlie and Bill Miller, there's some weird X factor that ultimately makes them inimitable. And I don't know, there's a part of me that sometimes feels slightly sheepish about this because I write a lot and talk a lot about these guys. And I'm saying here are the ideas you need to get from them. And I know those ideas will help people because I know they've helped me. But there is a kind of gap between the theory and the practice. And I wondered if you've sort of thought about just that fundamental problem that there's some X factor that's inimitable because they're just kind of brilliant and weird.
- [122:41]
B
I thought about it a lot and I just finally came to the realization I will never be as smart as Bill Miller. I will never be as smart as Warren or Charlie. And I'll never have their X chromosome, whatever the case may be, that gets them to a level. But I have always argued in the books and stuff like that you'll never get the. There was a guy, Alan Sloan, wrote an article in Newsweek way back when called A Pig and a Poke. They said, well, Robert wrote this book. We don't know. It's like a pig in a gunny stack. You don't know if it's a little bitty pig or it's going to be a big pig. And he argued that nobody, just because you wrote a book about Warren Buffett, no way you're going to be able to achieve the same returns as Warren Buck. And my retort was, well, I agree with that. And I would argue that if I wrote a book about Mozart, I will never be able to compose or play the piano like Mozart, but maybe I get to be a little bit better piano player than I otherwise would have been. And the way my I've settled in life and my viewpoint is I'll never be as good as Bill or Charlie or Warren, but by studying him, have I become better than I otherwise would? Or better yet, am I better than the index that I'm competing for, against? No, I didn't generate the same returns, excess returns that they did over such a long period. But you know, the 14 years we did with Bill, we were at one time the number one growth fund in the country. The last 11 years running the global leaders portfolio were ahead of index. You know, that that to me is the ride has been worthwhile. Not that I will ever achieve, you know, their level and I will never. But by studying them that I get just a little bit better, that'll get just a little bit better, that allow me to be a little bit more than average. If you got that, then I'm okay. I'm okay with that.
- [124:27]
A
And is there anything that you feel you've learned from observing Warren and Charlie and Bill that's actually really helped you to lead a happier life? When you think beyond making you a better investor, is there stuff where. Because I think of some of the quotes in your books where, for example, there's one bit where you said, you quote Warren saying, it's not that I want money, it's the fun of making money and watching it grow. Or you talk about the way Warren and Charlie invested in a way that fit their personalities and, as they put it, the way we want to live our lives. I'm wondering if, seeing those examples of how to live in a kind of harmony and a kind of alignment with one's own interests or personality, did any of that stuff actually change the way you live your life?
- [125:15]
B
Well, certainly, you know, handling periodic underperformance and tracking error and tough clients and stuff like that, you know, you can look back at, you know, some of these great investors and go, yeah, they probably went through the same thing. Bill Rubane and all of them, right? So I'm in good company, right? I'm in good company. I think what I, you know, take away from Warren, and this was just a few years ago, Warren will be 95 in August. August 30th. When I wrote the Warren Buffett Way, he was. So that came out in 80. I'm sorry, that came out in 94. So he would have been 64 right back then, if I got the math right.
- [125:50]
A
Wow. Yeah.
- [125:51]
B
94, 1930. That's 64 years old. So when I wrote the Warren buff away, he was 64 years old. I'm just a little older than 64 years old, and I'm looking at a guy up until this last year, and he'll still be active in the market for 30 years. He stayed in the game to me and Bill. Not, you know, he's not in the game like he used to be when he was with opportunity, trust and value. Trust. But for me and Bill and even Charlie, you know, it's the idea that you can stay competitive, stay in the. I love this business, Will. William I love this business. I love solving puzzles. I love thinking about odds. I love the competition. I can't think of anything more fun to do over the next 20, 30 years than what I'm doing now, whether I do it in this capacity or another capacity. And I look at Warren and go, robert, you're a puppy. This guy's been doing it 30 years longer than you. And there's no reason why you can't stay in the game in some form or fashion over the next 30 years. And to me, that is the most uplifting of it all, which is I can stay in this game as long as it works between the ears, health will wise and all that other stuff. This could be a great ride for the next 30 years. And I'm looking forward to it. I think it's just. I can't imagine not doing it. I'm a horrible golfer. I don't like to gamble. You know, this is what I love to do and it worked. And I love writing and writing and investing work together. So you're talking I'm a better businessman because I'm an investor. I'm a better writer because I'm an investor, and I'm a better investor because I'm a writer. So both of them work in helping me, you know, move my craft forward. And I just love it. And when I look at Warren, I go, man, you know, he could have retired anytime he wanted to, but he loved it. He kept in the game. He was active. He was active for 30, 40 years after I wrote the book. And I'm going, well, that's a pretty. I can, I could do that if I wanted to. So that's kind of fun.
- [127:41]
A
That's good. Yeah. The longevity of these guys was amazing. I remember seeing Marty Whitman many, many years ago interviewing him, and he kind of came into his office wearing tennis shorts and stuff, and he was like, the secret of what we do as value investors, it's not that exhausting. We're like, we buy some stuff and then hold it for a long time. But I always felt like he lost some of his intensity towards the end and sort of took his eye off the ball.
- [128:08]
B
It's going to happen to us all once you cross 90. If we can live to 90. I've talked to more people who observed 90 is a tough one, 90 is a downturn. But if you kind of got it figured out and you know you've got too much pressure on you. I'm more worried about not working than I am about working. Yeah. I don't know what I would do with myself if I wasn't working, writing and investing. And I just love it. And Warren is kind of a poster child and Charlie is the poster child that, you know, they stayed in the craft well into their 90s. God bless them all, you know, So I kind of, when I look at them, I kind of go, yeah, I'll stick around. You did. I'll stick around. That's how I think about it.
- [128:47]
A
Well, I wish you much continued success, Robert and I, along with many, many other people, have benefited greatly from your writings. And it's been a great pleasure catching up with you today after all these years. So, yeah, you've helped an enormous number of people. We may not have become Warren ourselves, but I think probably I always figured there were some people who read my book, Richard Weiser, happier, who would sort of nod and just not really internalize it. But then there would be a few people who would read it and would become, like, billionaires and would actually really get it and would then give money back to society and would be extraordinary. And so I'm sure there are some people who. I mean, I'm sure people like Mohnish Pabrai, when he read your book, it was totally and utterly transformative. And I.
- [129:36]
B
He read the annual reports, you know, and did I tell you this story? I know we got to quit. Tony never liked the Warren Buffett way. He said in the annual meeting, he goes, I didn't think much of the book. It didn't do anything new, really. If you think about the Warren Buffett white, it wasn't new. I just rearranged it. And then I put the case studies in there to study if everything lines up. The reason why, when he recommended the Warren Buffett portfolio at the annual meeting and he put it in his book, his recommended reading, I said to a friend of mine, I said, why do you think Charlie like Warren Buffett portfolio so much more than Warren Buffett way? And he goes, I'll tell you why. You barely mentioned Charlie in the Warren Buffett way, and all you did was talk about him in the Warren Buffett portfolio.
- [130:15]
A
That's funny.
- [130:16]
B
I never forgot that. But, you know, it's like, we got new stuff to do tomorrow. We got a new puzzle tomorrow. Right? We got new things to think about. And to me, that's. It's glorious. And William, you know, right back at you. I've learned so much from you and your writing. The fact that you do these podcasts, you come to the conference, you speak to the young people. I think we've got to keep it going this year more than ever. We've got to keep the momentum going because there are not many of us out there left.
- [130:43]
A
Well, I have ideas for an event that I want to host on May 1st that I will invite you to the night before.
- [130:51]
B
Love it.
- [130:51]
A
To keep some of these ideas alive. And so hopefully, we'll have you on a panel and we can discuss it, then it'll be right after Valuex so you won't be exhausted yet.
- [131:02]
B
Yeah, no, no, you count me in. It would be my honor and I would love to repay all the favor that you've shown me over the years. So count me in.
- [131:08]
A
I'll be wonderful. Well, it's been a great joy chatting with you and I really appreciate it. Thanks so much and I wish you a great ride from here to 95 with much compounding and many more successful books. We'll be at the 12th edition of your books by then.
- [131:26]
B
I look forward to it. Thanks so much William. It was great to be with you and thanks so much.
- [131:30]
A
Take care, Robert. Okay, thanks. All right folks, thanks so much for joining me for this conversation with Robert Hagstrom. If you'd like to learn more from Robert, I would definitely encourage you to delve into his books, including the Warren Buffett Way, but also the Warren Buffett Portfolio, which is a companion book that explores the benefits of owning a concentrated portfolio of high quality businesses. I'd also recommend a book of Robert's titled the Last Liberal Art, which explains how it can help you as an investor to have an understanding of seemingly unrelated disciplines like psychology, philosophy, literature, physics and biology. This multidisciplinary approach to investing was very much inspired by Charlie Munger, who often spoke about the rewards of building this type of latticework of mental models. I'll be back very soon with some more great guests, including the legendary Howard Marks. In the meantime, please feel free to follow me on xilliamgreen72 or connect with me on LinkedIn. And as ever, do let me know how you're enjoying the podcast. I'm always really happy to hear from you. Until next time, take good care and stay well. Thank you for listening to tip. Make sure to follow richer, wiser, happier on your favorite podcast app and never miss out on episodes. To access our show notes, transcripts or courses, go to theinvestorspodcast.com this show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.