Are we ready for a world without Buffett? May 9, 2025

28:44It's easy people to say, we need a recession. We should have a recession and get over and done with. Well, would that be cleaner? Yes. Does the kind of – the part of me that wants to kind of just flush it away and go, now we can move on. And it feels like we should or could want that, right? And it may even need to happen if we can't find another way to do it. But that last bit is the point, right? We should do everything we can to avoid a recession by making better decisions. Back to our politics conversation at the top. Now, if we can't, we're going to have a recession because we just end up there because we just end up there.

29:18But to want it to happen or to deliberately create it would be just madness if and when you have alternatives to actually solve the problem. We have those alternatives. They may be not nice. And again, short-term, long-term, maybe there's some short-term pain to avoid long-term pain, by the way. That's part of the story of, do we need a recession? No. Do we need a recession if we don't do anything else? Well, maybe. Are we going to get one anyway? Probably. But that's the difference, I think, for me. Yeah. I mean, yes, I agree with you. I mean, what I tend to think of is when there are the quote-unquote recessions that we need to have, You know, it just, it seems like that's a very easy argument to make when it's others that are copying the pain.

30:03It's usually when we have these things, it's the powers that be response that seeks to help and mitigate the damage. But really what they're trying to do is mitigate the damage to asset holders. because think about it like this. If there was a recession and the top 20 % saw their asset values plunge 30%, that would suck, right, for them. But, I mean, you're still going out for dinner. You're still going for your ski trip in Japan once a year. It's very, very different to sort of say, oh, my gosh, bond yields are doing this and the share market is doing this and we've got to come in and we've got to fix that.

30:44But it doesn't seem to be the same kind of urgency when the lower tiers, I just sort of be, that sounds classist, but you know what I mean? Like just people that aren't as economically privileged. It seems like we act and we act decisively because we have to act decisively. We've got no choice. Our hands are tied, too big to fail. It's sort of like it generally means, you know, it's the, what is it, capitalism on the way up for the rich and socialism on the down. And everyone finds their socialist roots when things are going bad. Exactly, exactly. The central bank really should come in and step out of this because my portfolio is not doing too good.

31:24So what I'm getting at there is I don't actually mind a bit of pain. I think pain just reflects the reality of things. It's not like someone's out there just to be a meanie. It's just sort of like, no, massive amounts of money was poorly allocated and lost. and we need to either, it's happened. It's already happened, right? So it's kind of like, is it bad? Yes. But it's either like, well, we can either have that reckoning and force that reckoning on the very people that created it through excessive speculative activities or poor allocation of resources. That is the kind of pain that I am far more comfortable with, even if it affects me directly, right?

32:05I'm less comfortable with the pain that is forced on others through less direct mechanism, which is largely inflation, right? Because it's like, the way we fix this is by printing up a bunch of money. It helps sort of preserve asset values. Everyone goes, whew, well, we had to do it, but look, we fixed the problem. And meanwhile, three years later, we realized that our purchasing power has dropped 25 % and everyone's worried about the cost of living. You know, it's kind of, do you want them coming out here? It's sort of like pain is pain, but it's like, it assumes that there is this even, and we're all in it together.

32:39And it's like, well, it's just generally it's not. I think that's true. Yeah, maybe unlike you from the sound of it, I was very happy with most of the COVID support. I do think it was one of those situations where the economy may well have created and we'll never know the counterfactual, right? But when Treasury was saying house price falls 30%, unemployment goes to 15%, even in the ballpark of that, you do what you can to avoid it. But what we didn't do was say, and here's how we'll repay the debt. Here's how we'll, you know, fridge breaks, you throw it on the credit card. Well, that sucks. All right, well, honey, we're going to have to cut the takeaways for the next couple of weeks and just pay the credit card off.

33:15You know, that kind of, rather than just, hey, fridge blew up, so we put them in the credit card and now we're just paying the credit card interest. So, well, shouldn't you pay the card off or pay back the emergency loan you took? Yeah, you probably should. Are we doing it? No, we're not. And that's, again, to your point about the uptick in debt. It's all come back to the same thing, which is just we need to be more sustainable, more responsible fiscally and monetarily to kind of, you know, get us, frankly, get us back on that even keel. As you say, the inflation rate has fallen, but prices haven't gone down.

33:45So we're permanently worse off. And the debt we took on hasn't been paid back. So we're permanently worse off because we pay more interest. To waive those two things away, I don't think we should have, well, I'm just going to do a deflation conversation. The reality is we're not going to get prices back to 2020 levels, we're just not. And so let's make sure it doesn't get worse. and let's take action on that debt. Mathematically, it has to get worse because of the huge amount of deficit spending. Yeah. Which is a fancy way of sort of saying we're spending money we don't have. And government deficit spending goes directly into the economy.

34:17It's not an asset pricing because they go out and they spend that on various programs. And I'm not to sort of get into the debate of the merit of those programs, but facts being facts, that money was borrowed and it was spent in the real economy. And that has implications. So it's kind of unavoidable. Yeah, I could talk all day about the COVID thing. I think you're right in principle. I think it was just so poorly done in execution. Particularly the last stuff. I've said I will defend the Morrison first handout till the cows come home. Because it was, I've said before, fast, big and ugly. You know, Ken Henry, when he was Treasury Secretary during the GFC, said we go fast, we go big, we go households.

35:01and it was the right thing to do then and under the lmp you know job keeper increasing jobs it was like just just we're gonna yeah again if the treasury forecaster is in ballpark right we've got to do something to fix it let's just just do it now so we it was actually confidence more than money at that point it was like we will stand behind it will be fine don't sack people don't stop spending we'll get through this here's some money i think that was really useful i think for me because it was needed to be fast so it was big and ugly by definition the the error was then not tailoring the rest of the spending and you know to lots of loopholes lots of mistakes and of course everyone looks back and goes they screwed up these five things it's like yeah they did at first did they know that was going to happen maybe if you're a cynic or you maybe it's even true maybe they didn't know they didn't care okay maybe um but either way they got it out there they did it it did its job kept confidence in the economy kept people spending we kind of figured we'd get through it we were okay and then not change it not improve it not tailor it not bring it away not have a plan as hey guys here's what we're going to do we're going to do this now but by the way we're gonna have to increase taxes by two percentage points in the you know once the once the pandemic is over or in three years time whatever whatever it is and we're going to agree a bipartisan agreement we're going to make the pay it back it's gonna suck um it's gonna be on those people who as you say benefited or simply have the capacity to repay it because hey we're all this together it's wartime effort stuff um that that was the missing bit was ah who cares we're not going to do the hard things and actually solve the problem we create and that did they created a problem absolutely i said i still think it was the right thing to do um i still think that the objective was right.

36:26I even don't mind the mechanism. I think JobKeeper, keeping people connected to their employers so that if everyone gets sacked and then everyone gets back to work again, the startup is just harder to do. You're not spending, you haven't got a job. You like a welfare payment rather than a job support payment. Now, it was paid employers who didn't need it and that was completely screwed up. But yeah, we don't have to read your history. But in my opinion, just the lack of, as we're both agreeing, pay it back. You put on the credit card, fine, but pay the credit card off and then get back to normal.

36:55We just never did it. Yeah. And I guess make the final point. It's just like all of the things that we've been discussing at Infinitum here on the pod and everyone's worried about is you can draw a direct line from there to here. That's why, right? It's just, I don't know why I feel it's such a hard thing for people to understand, but there's no free lunch. It's just not. It's like, oh, but, but, but, but it's really unfair and it's really hard. It's like, yep, I agree. It sucks. What do you want to do about it, though? Yep, yep, exactly. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

37:31Uncle Warren has decided he's going to hang up the calculator. Do you hang up the calculator? Probably hang up the abacus. Put away the annual reports at the end of this year. So we've got another six and a half months of Uncle Warren and then no more. He's going to resign as CEO of Berkshire Hathaway. He'll be 95 by then. That's a pretty distant ending. He's done okay. He's been at Berkshire for 60 years in charge of that business, has created extraordinary amounts of wealth, has created even more value, I think it's fair to say, for investors around the world who've had the opportunity to learn from him.

38:06Wouldn't have been someone else if he wasn't there, maybe, but I don't know who number two is. So it's been an extraordinary journey. You learned from Ben Graham. Of course, Ben Graham was Buffett's mentor and so-called father of value investing. the first guy to really kind of codify in an accessible large scale. Well, I'm sure others have written about it before, but he was kind of the first guy, security analysis, and the intelligent investor he wrote, kind of codified investing. Buffett learned from him directly, literally, and then did his own thing for 60 years running Berkshire, took over a failing textile mill, which actually did end up failing, but used the proceeds and the assets of that business to go and buy other businesses and make investments and a remarkable, remarkable career.

38:4419.9 % per annum he earned up until the end of last year. So there'll be one more update on Buffett's success, but Berkshire shares up 19.9%. At the same time, the S &P up 10.4 % per annum. So Buffett doubled the return of the S &P almost over that period of time. A really, really incredible performance. The other thing though, and I know how this is known is because they're smart people, but if you double the return of the S &P, you don't just double the gains of the S &P. So the S &P is up 390 times in value over Buffett's reign. Right. Okay, well, so Buffett doubled that, doubled 390. Okay, call it 780.

39:22Okay, maybe call it 1 ,000. No, no, 5 ,500 times his money. Compounding, you're going to mess with your brain, isn't it? Right. So not 5 ,500 times the S &P. The S &P, 390. No, sorry, 55 ,000. 55 ,000. So the return for the S &P over that period of time was 390. Sorry, 39 ,000 at 54%. Wow. Buffett's return. 5 ,502 ,284%. Just a remarkable, remarkable gain over that period of time. Oh, yeah. Look, end of an era. Isn't it? Charlie dying, of course, last year. It's kind of, you know, two guys in one, but Buffett's still with us. But, yeah. I mean, look, it was always happening, right? By definition.

40:04I wouldn't believe he's immortal, but even I thought Buffett would eventually leave the job. Well, you and I were together at the 50th anniversary of the Berkshire. That was 10 years ago. I didn't have a hook up on my shelf. Yeah, and I've still got the menu from, is it Gorat's? Gorat's, yeah. Yeah, yeah. Yeah, that was very much being discussed then. Like how long? Yeah, I know. A decade later. I was like, okay, it took about a decade, right? So it was always coming. He's going to be there in the background. Greg Abel, one of his lieutenants, is taking over. I don't think Berkshire is going to miss a beat.

40:41I mean, they're obviously very big shoes to fill. But Greg has been there for a long time. He's been a very keen understudy. I would be so amazed if he was to sort of go, you know, start investing in crypto. I think the ship is under very good stewardship and the business will go on. And I think I've said to you before, my expectation is that they'll probably pivot to paying dividends at some point. Absolutely. And they should. They've got too much cash. I mean, we said before, like cash is brilliant in terms of optionality and resilience. But they've got half a trillion dollars in Australian dollar terms, right?

41:24As we mentioned the other day. So it's a lot of cash. Yeah. So, but what an interesting meeting. Can I call out something I thought was particularly interesting? Yeah, go on. There was a few things that were really interesting. Just quickly, sorry. So the meeting we were talking about was the Berkshire Annual Meeting, which was held on the weekend. Buffer announced that he was the resignation at the end of that meeting. Just to kind of give that context to the meeting we were talking about. Yes. I hadn't mentioned that in the intro. Go. So he is going to be there in an advisory capacity. And I just imagine a guy like that is just not going to be able to help himself as long as he's got the capacity to do so.

41:59Yeah. Yeah. He made a lot of it was asked about the US dollar and deficits and unchecked spending. He said, you know, it's a really dangerous game. US dollar will remain the reserve currency for now. He's like, well, I just fell off my chair. Like what? He also cautioned that the privilege could erode trust if America's financial stewardship continues to decline. He made it clear that money printing and piling on debt without restraint is unsustainable and that both political parties have failed to tackle the issue seriously. It was like, oh, oh, oh. And he said like, because he's quite fond of Japan.

42:38Yes. Very low, very low cost of capital over there. He said, yeah, we might seek to source more of our capital from Japan. Like, what? Yeah. Like, that's huge, right? He said, no, and like, oh, we're going to look more to invest in Europe. It's just like, this is the biggest cheerleader for American capitalism that the world has ever seen. And for good reason, like very soundly, rationally sort of formulated view. And he's always been very, very, very careful to be reasonably apolitical, I think, and to not sort of weigh too much into the cut and thrust of sort of politics. But to just sort of make mention, I'm just like, oh, yeah, none of this is sustainable.

43:20And where was the comment?

43:24sorry mate I did have it written here you can't keep writing checks without worrying about the balance eventually the world starts asking questions and you may not like the answers now people probably know my personal view on certain things but it's just sort of like to me when Buffett said that my ears pricked up and I just thought it was noteworthy I think he's not an alarmist and he's certainly not a doomer So I don't think he's saying grab a shotgun and a bar of gold and head bush. He's not saying that. But he's just making, to my mind, an extremely rational, reasonable argument that this is not sustainable.

44:03And it hasn't been sustainable for a while. And it's sort of like where I find it all so fascinating is that we can all acknowledge that and yet do nothing about it. But there's the ice cube is on the ice cube. The iceberg is on the horizon. And we're not turning the steering wheel. And it just, like, it's the most slow motion car crash you've ever seen. And very slow motion. But it's kind of like, wow. Anyway, it didn't get much coverage either. No. Particularly here because of the election, I think. It was kind of Saturday night, our time. So, of course, Sunday morning was full of election stories.

44:41There's been Buffett stories around the place. a bit of a Buffett retrospective. It is still remarkable to me. It sounds weird to say. Everyone knows Buffett, but I'm about to say it astounds me he doesn't get more coverage, which sounds, well, he gets a lot of coverage. But really, when you think about how successful he's been, how well he's done, can I also say, I've also seen my first You Can't Be Buffett article post the annual meeting by someone who wants to try and suggest there's a better way to invest than Warren Buffett's way. And it's not that you can't invest differently, but to say don't try Buffett but Buffett can't work so do something different it's like that's just stupid so yeah with respect to the people who have seen those articles I mean look I'm with them in the sense that there's more than one way to skin a cat I mean Stanley Druckenmiller a completely different approach and he's got an incredible track record no this is buy and hold won't work you need to do something different yes yes yes but to sort of yes like to acknowledge that there is different approaches perfectly reasonable to suggest that don't do that way is like really?

45:41because it won't work It was like, hang on. That is a bold statement. It's a very bold statement. Yeah, I just - Anyway, people have been doing that forever. Forever. I know. That's exact. You'd look up. Buy and hold is dead. Don't copy Buffett. And again, you mentioned 10 years ago. Usually an active fund manager making the case for buy and hold being dead. Or someone who's trying to get you to trade a lot. A broker, for example. You mentioned 10 years ago, mate. So not only was Buffett old 10 years ago, but I'm going to just - Again, apologies for this in audio format because it kind of sucks.

46:13But over the 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 years, last 10 years, 2015, Berkshire's share price fell 12.5%. Since then, up 23.4%, then 21%. This is per annum, by the way. 2.8%, 11%, 2.4%, 29.6%, 4%, 15.8%, 25.5%. What's that average out over the 10 years, do you know? I'd have to. Decent. It's in a table, so I can't. He may have underperformed the market, though, right? because of the Mag 7. Possibly. My point was just to say that if 10 years ago people said, oh, Buffett's passed, we should sell Berkshire in case the shares go down. All the stuff that people do, reasons to kind of, you know, is it too late to invest in Berkshire?

46:52All those things. And over that time it's like bang, bang, bang, bang. Three years over, no, four years of over 20%, one of those almost 30. The others, I can't, I won't try to do it in my head, mate, but anyone with a calculator can do it afterwards. Yeah, it's really remarkable. The other thing, by the way, this is the stupidest part of this and I know we talk about market irrationality regularly. Monday, American time, after the meeting when Berkshire shares started trading, the shares fell 5.2%. Now, as someone said on Twitter, who hadn't priced in the fact that Buffett might die at some point?

47:23I mean, to imagine that at 94 and change on Friday and then 94 and change a bit more the day after, the bloke's going to die at some point in the next five years anyway and he's probably going to run Berkshire for all that time. If you honestly thought, I'm going to keep Berkshire on Friday because Buffett might be around forever, And then all of a sudden on Monday morning you go, oh, turns out he's old. I just – it boggles my mind. It's just bananas. I didn't have any money in US dollars at the time, but it was just one of those things you're going to go, what? I mean, if I go value – again, I've said lots of times, just because the share price falls in a minute, it's great value.

47:54But if you liked it on Friday because Buffett was 94 and something and he had a retire – I mean, let me be unkind a little bit uncouth here. There's no guarantee he's going to make it at the end of the year. I mean, he's announced his resignation in seven months' time. I don't know what the life expectancy of someone who's 94 already, but I hope he lives for 100 years but he's not going to and so I just thought it was, again, am I surprised? No. Do I think it's stupid? Yes. And again, by the way, the key takeaway is if you think the market is the smart money, ask yourself what the hell happened to Berkshire on Monday because it's just bananas.

48:25Yeah, it's pretty crazy, right? Just mad. I'll tell you another thing. There's a couple of things that stood out with the meeting. So as has been well discussed, they have been selling down their stake in Apple. Yeah. And that's interesting, right? Is it? Yeah. But Buffett was kind of like, oh, it was basically a tax reasons that we had to liquidate it. We still love it. He actually said something. I forget the exact quote, but it was basically like, there's no better business we hold than Apple. It is the best business that we hold. He called it, what did he call it? He called it a consumer company with a tech wrapper, which I thought was very, very cool.

49:04And so that was very interesting. A lot of praise for Tim Cook. So again, you've got to be careful not to read into actions in ways that just sort of help reinforce various sort of biases or prejudices. So it's very easy to go, oh, Buffett's selling down Apple. He doesn't like Apple. Yes, exactly. He's got a lot of cash. He thinks the market's going to crash. It's like, no, I've got some tax obligations. Also, it's a very heavy weighting and it remains a very heavy weighting. We've got zero intention of selling. I think it's one of the best businesses that's out there. It's like it's a very different take.

49:37And this is right from the horse's mouth. Now, you might be, anyone else you might go, well, yeah, they're saying that, but what do they really think? A guy with 60 years of just being so brutally honest and open and transparent, he's probably telling you exactly what he thinks there. So that was interesting. Oh, the other interesting thing was AI came up. Yes. Obviously, AI came up. Yeah, that's right. Obviously, it came up. And anyway, and I just, I love the humility of Buffett because he just basically said, oh, it's outside of my circle of confidence. I mean, he made some comments on it. It was just like, he said, when you think about the potential for good versus potential harm, it's similar to nuclear weapons.

50:18You know, it could be fantastic. It could be disastrous. But, you know, there's no putting the genie back in the bottle is what he said. And he said, I think it's something we should be cautious and humble about. So it's that. I love that. I love that. I recognize that this is a big deal. I have yet to wrap my head around it. And let's face it, I think all of us have, right? Like very few of us have got a good handle on it. And those that do will probably be surprised at how the pace of things or the direction of things as well. but but just that idea of just because it's the new hotness and and just because it is recognized as potentially you know world-changing sort of tech so i've got no interest in it again i've got no interest in it as an investor not for any other reason that i just can't handicap it so i just i just don't do it and i think there's a real lesson in in that for all of us in relation specifically to AI, but to any, whatever the next thing is that comes along.

51:19You know, I heard the other day that Fusion's apparently pretty close, although I've heard that many times before. Oh, yeah. Right? But let's say it is. Let's say that there's some team somewhere and they have a breakthrough and, you know, and Fusion becomes a very practical commercial reality in the near future. You know, you and I will be talking about it here on this podcast. But the natural knee-jerk reaction from an investor is it's big, it's game-changing, I need to invest in it. And it's sort of like the first two points can be true, but the last point, not necessarily. If you have an extremely good handle on it, and if you've got a very reliable way to sort of handicap odds in that, absolutely, absolutely take advantage of it.

52:01But just don't do it because it's the new hotness and because you recognize the significance of it. And just come back to Apple. And that's been Buffer 101. That's always been there. That's always here. So go Apple. 2012 was when he bought Apple. 2012! That had been around for a long time, right? And even then it was like, oh, he's late to the party. Finally, he's got a tech company. Finally, welcome to the party, old man. And it still knocked it out of the park. But the point was he got involved at a point where he thought, oh, the penny's dropped. And I think the story was just like it was one of his grandkids and he just sort of looking at them on the iPhone going, oh, yeah, this is the most valuable real estate in the world.

52:37I get it. I don't get the technology behind it, but I get the consumer significance of this. I get that this is more than just the technology. It is the brand behind it. It is the social signaling that it represents. It is this, it is this, it is this, it is this. And it's like, oh, I get that. You know, it might be a new version of that, but it is still that. And that I get, that I understand the power. That has a huge moat. I'm going all in, or not all in, but, you know, it was a very large position. It became a much larger position. And I dare say if he was immortal, or let's say he was 60, right?

53:13In 10 years time, he'd probably be making some very big AI bets. Yeah, yeah. But only at a point where he's just like, okay, I get it now. Or I get it enough. Or the windows are clear enough. Yes, exactly. Yes. So I thought that was always an interesting meeting, but they were the things that stood out to me. Yeah. I can't have much to that actually, mate.

53:39No. We don't yet know who's going to look after the equity portfolio. Todd and Ted, his investment managers, hold about 10 % of the assets. Buffett managed the other 90%. Greg Abel is an operator, not an investor. So fascinating to see. The biggest challenge for Greg Abel is to either start his own investment decisions, and he's a smart guy, but he's not known for his investing. Todd and Ted, smart guys, are known for their investing, but have got reasonably small amounts. But now, what do you do? How do you run Berkshire? You don't want to turn into an active investment fund with a dozen. I imagine maybe you do, but it's a very different business at that point.

54:18Why Buffett holds 90 % of the investing is largely because he's made really, really big bets. Not lots of people make their own little bets each, but these two, I'm going to say bets, I don't mean it in a better way, obviously. But making those decisions, it is absolutely just a question of how do you then, you mentioned the 500 billion Australian dollars worth of cash dividend. it's going to happen. I'm equally sure. But how do you, if you have 12 investment managers, they're all going to have some of that each to the point where they're all buying the same things as each other. It's a really, really tough decision for Berkshire to make.

54:50It is the fifth largest company in the US. I think it's, well, I've said before, it's cash could buy BHP and Macquarie Bank and still have money left over. So you kind of, you know, Berkshire buy BHP outright, right? It's remarkable. Couldn't quite buy CBA, but very close. trying to find a good place for that large amount of cash is really, really hard, which is kind of why they've got the cash because they haven't been able to find a spot. There's no point 100 people looking for$100 million opportunities each because you're just some of this mess of companies. They'll want to buy whole businesses, by the way.

55:23It's always been their preference. But how many are left at that point? As you say, maybe it's Japan, maybe it's Europe. I wouldn't be at all surprised. There are large enough businesses, but how many of them are there? How well are they understood? How likely are you to be successful with them? And here's the problem. the problem with scale is the business they buy for two three four hundred billion dollars is going to be the biggest business they own yeah and so all of a sudden berkshire's future hinges meaningfully not entirely but meaningfully on that business you buy so it kind of ups the odds or ups the risk every time potential returns as well right but yeah it's a really really tough thing for them to try and do um well that was that was probably the most um interesting question unanswered that we still have.

56:03But as you said, Buffett will be around. Greg will be on the phone or Buffett will be in the office. Warren's going to be in the office. He can't help himself. What's he going to do? Sit at home? He's not going to play golf. So he's going to be doing that anyway. But yeah, just a remarkable history, remarkable success story. Yeah, incredible. Incredible run as I see you. I think the other thing that they might do, this will be a situational thing. It depends. But I can imagine very significant buybacks if the market takes a bit of a tumble as opposed to dividend. And that probably makes more sense from a tax perspective for people in the US.

56:34They don't have franking credits and the rest of it. So that's a very interesting and actually a very worthwhile exercise too, because unlike most companies, they're pretty disciplined with their buybacks and they've telegraphed very clearly. But we do it at this, what is it, 1.2 book value, something like that? They've changed a little bit now, but yes, it used to be 1.2 book. They changed it because it got so many intangibles that the book value multiple wasn't. It's also why they've stopped. They used to, in their own report, highlight Berkshire's growth in per share book value. and the share price.

57:02They dropped that about five or seven years ago until we had the share price because just the book value was less relevant, unfortunately, so it makes it harder to do. Yep, yep. On the other thing, just the final lesson I would draw out, few of us have the challenge of hundreds of millions of dollars sitting idle and try to invest it. But one of the things that I think Buffett's approach teaches us, certainly helped frame my approach, is that if there's no good ideas, and often there won't be, I'm not saying that there's always something out there, right? Yeah. But if you don't have a good idea, if there's nothing that you're super high conviction on, then keep it in cash.

57:41You and I always talk about it's usually best to sort of be fully invested for various reasons. And I think that is true. But at the same time, you don't want to force it for the sake of it. And he's just so good at just going, yeah, I just don't have a good idea. Exactly. Now, and usually these things come, it's not like an even linear kind of every year we get an okay idea. It might be like we get no good ideas for five years and then we get 10 good ideas in three months, right? Not because the market gives you those opportunities that just happens to turn up or whatever. When it happens, right?

58:14And I think that is something, particularly if you're in a situation, dear listener, if you've got an inheritance or you've had a bit of a windfall lately, you've sold a business, something. It's different when you just got, I'm just saving a bit and I'm just putting into the market on a dollar cost average kind of approach. But it's like, gosh, I just got this big lump sum. I should invest it. I've got to invest it now. It's like, well, no, not necessarily. I mean, yeah, don't be too fussy and don't sit around forever, but wait until you've got a good idea. Wait until you've got a good, and maybe that idea is just a broad-based ETF.

58:44I don't know, but don't force it. And Buffett, I think, teaches us that because it is so hard having money burn a hole in your pocket. It is especially hard when the market's on a tear and you're just watching everyone else move ahead of you. And in Buffett's case, all the articles, you know, he's lost it, he's out of the game, he doesn't know what he's doing. And he had to endure that time after time after time. We talked the other day about the lazy balance sheet and all of this stuff. And then all of a sudden these opportunities come. It's completely super agile, super quick, bang, bang, bang, bang.

59:16And we just, and why? Not because of any forecast on the future. It's like things are just objectively good value right now. I really like these businesses. I really now like them, but I'm going to act. And I just think there's a practical lesson in that whether you're dealing with$500 million or billion dollars, sorry, billion dollars, I should say, or whether you're dealing with$10 ,000. It's the same kind of thing. I'm going to disagree with you, just for fun. And this won't be a surprise to all this, because I'm always fully invested. so I think my my only challenge and you want to disagree with Buffett let's yeah yeah that's right exactly um well here's why though to some degree mate is I'm not Buffett either and so I think you know and and I I would suspect I would suspect I I think this is right he hasn't made a big acquisition I want to say seven or eight years I would I would be remarkably surprised if the acquisition he made would create more value than had he invested in a broad-based etf 10 years ago so there is a there's a size and a time and if i was not a market timer i don't want to i don't give that impression he's absolutely not he's a he's an opportunist when he gets a business at the best price for me i'd rather be in a broad-based etf than in cash for all the reasons we've talked about before in terms of just cash drag broadly now but i'm probably getting four and a half cent in treasuries so you're not it's not it's not zero return like cash cash cash we say he's in cash he's not he's in treasuries the short-term treasuries and they'll go up and down fluctuate this is treasury bonds by the way they're kind of a government government term deposit if you want to think about it that way um so i only to say the longer you are getting a subpar return the better you've got to be able to when you finally pull the trigger on something and i personally don't think i have the skill and ability to hold a large amount of cash proportional to my current portfolio size which is what's happening at berkshire they're getting more and more and more cash if i bought no shares for the last seven years and then waited and then waited and waited and waited.

1:01:07Am I going to find the fat pitch that makes the waiting worthwhile? Now, if I wait six months, yes, easily, right? Because the market might go up 5 % in that period of time. If I can get a genuine compounding fat pitch and do it, then yeah. I suspect though that my returns are better being fully invested than having cash on the sidelines, given the cash drag. So yes, I absolutely disagree with Buffett. The two areas I disagree with is the cash thing. I don't actually disagree with the other one. The other one's the Buffett ratio that gets talked about all the time i think it's nonsense these days used to be a different thing we can talk about that in a minute if you want but yeah i i do actually disagree i think i think you're right don't buy subpar rubbish if you can't buy anything i i mean maybe there's a point at which the market would be stupidly overvalued and i wouldn't buy etf either so i can't i can't make it a blanket rule but i'd rather be invested than not because i suspect frankly even a subpar investment is probably going to do better than than cash uh when a subpar i mean terrible i mean something I give you 6 % a year is better than cash.

1:02:01If the market does 9%, okay, I lost to the market, but I was better at holding cash. And if I find something better, I can sell that and then buy the better thing. So that would be my personal approach. Everyone's different. As you said, I'm not going to argue with Buffett doing Buffett stuff or you doing you stuff. For me, I never have – I build up cash deliberately. I never hold a cash pile deliberately. I'd rather be fully invested because I think over time, sailing with the wind in my sails is likely to give me a better result than sitting and waiting for the wind to turn up. Actually, I don't.

1:02:30No, look, I'm not a mile away from that. I guess it's more a matter of you're basically treating an ETF as a quasi-cash holding position, sort of. Or another company. My 20th best idea is you're my Buffett's 20th best idea. He's still our 20th best idea. He didn't have everything in Apple. He had Apple plus Coke, plus Amex, plus, plus, plus. At some point, he's like, well, they're not going to give you the same return. So I'm doing something. So, you know, if I don't personally, just to be clear, I don't buy an ETF as a cash proxy. I will buy something I think is the least worst idea I can find.

1:03:05And it might be an ETF or it might be a company. All I'm saying is being invested, I expect even my 25th best idea is probably going to do better than cash. And so that's why I would own that 25th best idea to give myself the best chance of maximizing my long-term returns. If I can sell the 25th best idea and buy another 25th best and replace it or sell it out to my 24th best idea because I have a better, I have more conviction, I'll do that as well. But I would be, I would suspect that probabilistically, given my style and my abilities, I'd be better off being invested in my least worst idea or an ETF than cash.

1:03:39Yeah, as long as you thought that it was going to be cash, right? There'll be periods of time where it's just like, I look around and it's like, am I really going to buy CBA at 25 times earnings? A hundred percent, yes. There are things I'd rather have cash than some companies. I agree with you entirely. Yeah, yeah. And I think that, oh my God, you know, but that's, that's it for me. And it's just like, and I actually had some sympathy and probably will do it actually made mention on strongman the other day. Cause I, I, I, I sold a bunch of stuff. I just, I just, it was just time for a refresh.

1:04:10Starting again. That's too much, but I did, I did get rid of a lot of sort of watching positions and stuff. Yeah. I just got a bit of a spring clean. And I did say that, yeah, I'll probably park some of it in some ETFs. I haven't got around to doing that kind of thing. So I can, I get, I can do that. So I'm really, I'm coming at it from a direct investment perspective. It's like, don't feel as though you must buy specific companies. Of course, you've got the money now. If you feel as though that they're better than what the alternative is, whether that alternative is cash or an ETF, I don't really care.

1:04:38Yes. Then, then sure. But, but if it's not, then it's just, you just, you being invested for the sake of it and something you don't have a lot of conviction can do better than just risk free. He quote unquote cash is, is I know. I think Buffett has been very good with that. It's one of those things that absolutely leads to underperformance and has led to underperformance for him until the opportunity comes and then he gets those multi-year runs of 20 % plus compound because he had the dry powder, because he then put it to work when he had the opportunity to kind of do it. So it's sort of… The other thing about Buffett, and this is where it is.

1:05:13I mean, he can still put in equities and sell them out when he wants to and needs to. That's kind of what he's already said about the equity portfolio, actually, is as much as he has cash as well, equities have always… But he'd rather own whole businesses. but if you can't find them or can't get them, we'll buy shares in companies. So the difference with Buffett too is I'm not keeping a couple of million dollars in the back pocket just in case the local cafe comes up for sale and I can go and buy it at a cheap price, right? So he and I are very different investors from that perspective. I don't, I was going to speculate it wild that I don't know the answer.

1:05:41I would suspect, I wouldn't expect to see a large equity position institute. I suspect it's going to be either a whole purchase of a public company and he's rarely going to do that because he paid public company multiples or he's going to wait until something comes up. Another, you know, a Mars Wrigley type thing. Kraft Heinz is still publicly. He bought big businesses and kind of made them part of the family. I suspect that's what he's looking for next. Yeah. Yep. I can't wait to see it. I'm here to see it. He may not be able to. That's the other thing, right? He might fall off the small little coil without having to invest that money and that's what I mean about it's just bloody hard for the next guy.

1:06:18What do you do? I also wouldn't... so Greg Abel's background is interesting he's an energy guy so he ran the company called Mid-American Energy that is now called Berkshire Hathaway Energy he owned at some point I think he owned well Berkshire owned 90 % I don't know if Greg personally owned the other 10 or was Greg and others but otherwise he's a squint in his own right but I do wonder so firstly that's very Berkshire right just capital intensive companies like the big BNSF the railroad and Buffett kind of bought those largely so he could put money into them it was literally you know we haven't got enough places for our money We're going to buy something that requires ongoing capital investment so we can do it and get a return on that investment.

1:06:55It's kind of what they did deliberately. So Greg Abel, being that guy, if he is going to influence the decisions, I suspect we'll see more purchase of those kind of infrastructure businesses more than maybe anything else. Again, I don't know how many there are. You own one of the largest energy. I suspect they'll try and expand energy because it just makes sense. You can do it in 50 states in the US and lots and lots of ground you can cover if those states want you in there. I wouldn't be surprised to see more infrastructure purchases a la BNSF or something like that. Because again, it's reliable, understandable.

1:07:27You're going to get a modest return. By the way, they are lower returning businesses. That's the other challenge for Berkshire is how do you keep going? But yeah, usually how he influences the direction of the company, both operationally, but as importantly, I think, from a capital allocation perspective and potentially, if Todd and Ted aren't given more and more money, they may be. If not, I suspect Greg's leanings are going to be those sorts of businesses the really kind of the old industrial type businesses that he knows, understands, and can reasonably estimate the sort of returns, internal returns.

1:07:57Because again, remember, Berkshire runs those things for cash they own. They're not trying to get a higher share price or whatever. They want the cash from them. So something that can generate cash is really what they're looking for. Yes, they are. And I would add, they're looking for things that are kind of future-proof. So we can all try and guess at the future, right? Is it AI? Is it quantum? Is it this? I mean, I love that stuff. I'm such a tech geek. It's super exciting kind of stuff. But whatever the future, nothing is certain, but whatever the future brings, you probably need trains to transport stuff around because they are by far the most energy efficient bulk transport mechanism.

1:08:37Oh, sorry. No, I stand corrected. After boats, boats are much more efficient. But on land, trains, you can't beat it. You're going to need them. Whatever we're transporting, you're going to need them, right? And energy, kind of important, right? So it's sort of like, that's what I love about it because they're trying to say, well, we're going to make these big, I think the BNSF railway was, I searched it up here, $44 billion acquired for in 2010. Which was massive at the time, by the way. But if it's got, you know, nine times that in US dollars cash, it's crazy. Right, right. I think last year alone, it threw off$4.5 billion in operating income.

1:09:15Right? That's astonishing. But that was – so you're right. The bet was we need something that gives us an opportunity for reinvestment at attractive rates of return, which for me is just kind of like that's what you want in a business. If I could put it in a single cent, a business that has got good economics, that it can continue to suck in money and continue to throw out even more money is a great business. And yes, it offers that. But against that backdrop of, I want to say, nothing is fully future-proof, but pretty future-proof as well. It's really, and it's boring. Trains are boring. Energy is boring, right?

1:09:55But it's a very safe bet, at least in terms of the demand for that. And it's also both, here's another interesting thing. Both energy and railways are very concentrated industries because they have to be concentrated industries. They're natural monopolies to an extent. So he's got like massive moat, massive reinvestment potential, massively future-proof. It's like what's not to love, you know? Exactly. So yeah, it'd be fascinating to see what comes of it. Insurance obviously is still a massive part of the Berkshire business, so maybe there's something there. but yeah plenty of plenty of potential places for that money to be invested we talked about dividends before of course it's the other or buybacks some combination of that I mean at some point they have to because they get bigger bigger bigger how much bigger do you get but yeah at some point I suspect that it's because they're retaining all of their earnings too that's the other thing at the moment they get bigger almost by definition and the other big guys Apple pays a dividend I mean Amazon doesn't and Tesla doesn't but there's others but you know Microsoft does that's just going to happen because that's just the way these things go if they're retaining their earnings they're going to grow even more quickly if they pay them out as dividends then they don't get the growth but the investors get something back and it does we've talked a bit before I think it's an upcoming episode actually mate so we won't do too much on it but return on equity is a huge deal and the more cash you keep the harder that money's going to work and you are more efficient if you pay it out and let your shareholders reinvest the way they want to so it's a really really tough one By the way, people are probably wondering, I still own my Berkshire shares.

1:11:37I'm not going to sell any Berkshire shares. Not out of any perceived loyalty, just I don't think the price is particularly high relative to the underlying earnings of the businesses, even without Buffett there. And that's kind of the beauty of the decentralized business. You know, Buffett, you know, all he says is, if you need to call me, call me. And any excess cash comes to me, not you. In other words, you know, you don't get to spend anything extra. Keep operationally, knock yourself out. You don't make investments unless you check with me, unless they're really small. Otherwise, you send me the money and do your job.

1:12:07I'll sack you if you do a terrible job, but otherwise I'm saying you have to your hair, which is the great thing about being able to take over for Greg Abel because it's like, well, what do you need to do? It's not like he was, you know, he's not Elon Musk or Steve Jobs or Jeff Bezos or pick your favorite CEO. It's not a professional CEO where there's like an operational responsibility where it's like, well, Commonwealth Bank CEO goes, hopefully the new guy or girl can do a good job of banking. Yes, I mean, massive capital allocation decisions, but the operational businesses, the heads of those don't change at all so there is no change to the day-to-day operation of Berkshire, the only question is, do they get the deals when Buffett's gone, maybe not because Buffett's Buffett but the checkbook will still be large so there'll still be a potential call for people to make and can allocate that capital well enough, but yeah I'm keeping my shares I'm not going to, I'd sell them at some point if the business kind of started sucking but the operational parts of that business are still very very good, the returns are very very good it's kind of you know i'd love buffett still be there it's better with buffett than without don't get me wrong it's it's a it's a lower quality business without warren at the home because he's bloody warren buffett but not going anywhere yeah all even and but that's that's a fluid situation too that's a true statement but at 97 maybe there's some cognitive decline maybe that's not true maybe there is there is a point where actually it's better that he is not there and i think that's what is so noble about him like he's he's he's he's stepping down voluntarily at a timing that he sees appropriate, he could hang on.

1:13:33He could cling on right until, you know. And no one would complain, by the way, because it's Warren Buffett. No one would complain. But I think he just feels as though the energy's waning. You know, he was sharp as a tack, right? So I don't want to suggest that there is any great cognitive decline. But there would come a point in which, yeah, actually, it's time to go. And I think he probably recognizes that. Not now, but not far off. And it's better to do it now. So here's another interesting stat that I read. So of their cash part, it's not cash. It's all in US treasuries. And when I say US treasuries, they're bonds.

1:14:09It's all short dated, like three months or less. So effective cash, plus cash. Buffett's not buying 10-year debt. And why would you, right? But I wouldn't. I've got so much to say on that. But did you know that Berkshire accounts for 5 % of the entire market for US short-term government debt? I did not. It's about the share of the national tax revenue by the US government too, by the way. So let's play forward a hypothetical scenario. Some incredible deal comes along and they just spend all of their cash. Yeah. The US government loses a massive buyer of their debt. Because they're short-term, they have to roll it over.

1:14:54So it expires, they get paid back, they buy more. That's what the government needs that to happen because they're not paying the debt back. And it just sort of like there's interesting dynamics that are at play there. It's just sort of like we as a single entity controlled largely up until this, well, it hasn't happened yet by one 94-year-old man accounts for one in 20 purchases of the largest economy of the world of its debt. It's mind-boggling. And if that went off, because as we know, prices are determined on the margin. If Berkshire steps out of that market, not because of any macro machinations or anything like that, just because we've found we just want to buy back a bunch of our own stock.

1:15:38That's not great for interest rates. No, it's not. Rates are going to spike, you know. There's just not enough buyers there. So I just find that fascinating. Fascinating. It is, it is. we've probably got long enough but yes hopefully we will we'll definitely chat more about Warren Buffett in future in the meantime mate would you come back on Sunday? If we can do an episode without mentioning the B word Buffett I'm talking about here not the other B word I'd be very surprised Well yeah it's in the contract Thank you for listening Enjoy the first half of your weekend We'll talk to you on Sunday morning Cheers

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