MI Rewind: Warren Buffett, Charlie Munger, and Berkshire Hathaway w/ Adam Mead

25:38I mean, he read that book, A Thousand Ways to Make a Thousand Dollars and I think tried to do them all. So when you look at the history of Berkshire Hathaway, that never changed. This entrepreneurial zeal that Buffett had just stayed with him. And so when you look across the history of Berkshire Hathaway, and again, I would encourage everyone to take this journey of digesting all this material, having a relatively short 800 pages. You can zoom in, but then you can see this broader arc. And one of these arcs is this entrepreneurial spirit. And so you have the entry into insurance in 1969 with national indemnity, but then you have this history primarily through the 1970s of trying stuff.

26:21The home state companies, some of them don't work. Lakeland Fire and Casualty Company, which was a Minnesota company formed in 1971. It gets closed down in 1982. Insurance Company of Iowa formed in 1973. It's merged into a Cornhusker casualty in 1980. They bought this home and auto business in Chicago. Great little business run by this guy, Victor Rabb. Let's try to replicate this in Miami. Another city completely fails. So he's had these number of different things even more recently. when you think about in Geico's case, Buffett's reasoning was that great auto drivers are great credit risks. And he ends up losing$50 million and even says that Geico's management told me not to do it.

27:08And I overrode them basically. And so he loses$50 million. He's constantly this entrepreneurial spirit pushing Berkshire ahead. Let's forget about today. Let's invest. Let's push forward. Let's try these things. I think that's underappreciated. And it comes directly from his early days. And it's just manifesting itself differently in Berkshire over time. Speaking of his entrepreneurial spirit, a very common misconception I hear from people is that Warren Buffett founded Berkshire Hathaway. And it doesn't only come from new investors. I've even had some very, very successful entrepreneurs that have mentioned this during a story that they were telling me that wasn't related to Buffett.

27:48It was just a different story they were telling me, but they mentioned in the founder of Berkshire Hathaway, Warren Buffett. And they've mentioned that. And I'm like, wait, wait, wait, wait, wait. Buffett was not the founder of Berkshire Hathaway. I just want to make sure that's clear. I know a lot of people think so, but he's not. For those listening that are hearing me say that and are hearing this for the first time might be a bit confused. Tell the audience what I mean when I say Buffett wasn't the founder of Berkshire Hathaway. It's interesting. In a sense, he is. And I want to touch on that in a minute.

28:17But so Berkshire Hathaway, as we know it today, you go back to 1955 and it was the merger of Berkshire Fine Spinning Associates and Hathaway Manufacturing. That was 1955. So Berkshire Hathaway existed from 1955 to today. That's the current name. But the predecessor companies, and I guess the best way to think about this is almost like a rope, I guess. So you have a single strand, you unravel it. And so the Berkshire Hathaway of 1955, when it finally becomes this merged entity, is made up of all these different textile companies that came together. And so the Berkshire comes from Berkshire Cotton Manufacturing, which was formed in 1889, and Hathaway Manufacturing, which just coincidentally also formed in 1889.

29:09But But the furthest back that you can go is this company called the Valley Falls Company, which was associated with the Chase family, who ultimately became part of the board and owners and so forth. But that was 1839. Taking you back a little bit, probably further than you wanted to go here, but the textile business comes from England in 1789. This guy, Samuel Slater, you know, it really gets kicked up and starts going in the mid 1800s and the late 1800s. And so you have half a dozen of these textile companies that are out there that ultimately merge in various forms and stages. And so this first big merger, if you will, is in 1929 when Berkshire Fine Spinning Associates is created.

29:52And that's a small conglomeration of these mills, King Philip Mills, Valley, which I just mentioned, Coventry, Greylock Mills, Fort Dummer. There's a whole host of these. I have a chart in the book that sort of shows this evolution over time. And then a couple others get picked up in 1930. So that's Berkshire Fine Spinning. And then Hathaway is sort of operating at this parallel track until 1955, when the two come together and ultimately form Berkshire Hathaway. And so the mills, when you look back and you see Berkshire Fine Spinning and then later Berkshire Hathaway, the mills that are listed on these old annual reports are really single predecessor companies were just merged into one and then into another over time.

30:40That's the genesis of Berkshire Hathaway. So technically, Berkshire Hathaway, it was the struggling textile company that Warren Buffett takes over. And that's the seed capital that ultimately he redeploys into other businesses, harvests from the textile business and takes it what we know today. It's interesting, the basic notion of Buffett as the founder of Berkshire Hathaway is not entirely wrong in the sense that he really is the modern founder. I mean, this business would have faltered ultimately and sort of faded into history. And so it very well could be around that time they bought blue chip stamps.

31:23We very well could be sitting around talking about Warren Buffett and blue chip stamps, right? So that pool of capital or diversified retailing, that pool of capital that he started with, just sort of happened to be Berkshire Hathaway. And in a sense, he is the modern founder, but technically not. And I think, I hope my book will help tell the world of this fascinating history, pre-Buffett, even pre-Berkshire Hathaway, the merger, and a lot of timeless lessons in that early history. When I first sent Warren a chapter of the book, I had the idea of starting in 1965. And I said, I'm going to go back 10 years, then I'm going to go forward in 10-year increments.

32:07And so when I sent Warren this first chapter, he said, glad you're writing the book. It'd be interesting if you went back to the World War II days to see the profitability of these companies, this brief fleeting burst of profitability that World War II brought on. And so I said, well, I'm doing that. I'm going to go all the way back. Right. So that's why I went all the way back. But there's so many lessons in these early textile companies, working capital and reinvestment of into plant and equipment and depreciation and the accounting, which they often undercounted depreciation. So it looked like they were more profitable and they were declining into oblivion.

32:44All these are outdated examples, but just like the definition of value investing still relevant today, still just applicable to different businesses. And so World War II creates this shortage, which the surviving companies are able to just have this huge run up in profitability because they were the only ones around. And so these themes, history doesn't repeat, but it rhymes very much alive and well in Berkshire's early history. What other misconceptions or misunderstandings are there about Berkshire Hathaway today, such as the value of its float, for example? Float's an interesting one, and it might be a little bit more technical for some.

33:23But I think one of the biggest that I hear often is, geez, Berkshire Hathaway is just a mutual fund or it's an alternative. It's really not true. The thing that people don't quite understand is, yes, it has a big common stock portfolio. That's one which has been shrinking in importance over time. But Berkshire has the ability to move capital between subsidiaries tax-free. It has all these other advantages that a mutual fund just simply doesn't have. And so that's what I hear a lot. But float even among investors, I think is not as well understood. So float is simply monies that an entity holds, an insurance.

34:05It's premiums received and losses that haven't been paid out are sitting essentially in an account and a company can do something with them and invest them for their benefit until ultimately the money goes out the door. The first thing about Berkshire Hathaway's float is that it's of a high quality. And so what does that mean? That means that it's written to an underwriting profit. So Berkshire explicitly, 100%, their first focus writing to underwriting profits over time. And so this pool of capital, which it's no secret in the industry that you can write business. I write Robert a policy. He gives me$1 ,200 for his auto policy.

34:44And I get to hold that money and invest it until it's possibly paid out. That's no secret. But the industry just, you can immediately write a policy and get cash in the door. But the key is to have it being profitable over time. And so if you have basically two forms of insurance, two forms of float in Berkshire Hathaway, you have the short tail sort of revolving fund of GEICO, lots of policies, Lots of premiums coming in the door, lots of losses going out, but it's this revolving and growing fund. And then you have the reinsurance business, which is more akin to borrowing money with a payment stream that's not known and an ultimate dollar amount that's not known.

35:28And so the reinsurance is lumpy. It comes in fits and spurts and the accounting is kind of weird, but over time Berkshire has managed its reinsurance business very well. And so float as currently constituted and as Berkshire Hathaway has created it, really, truly focused functions just like equity without the dilution. So it's listed as a liability on the balance sheet. The way it functions is very, very much like equity. In fact, in some cases, better than equity. It's not dilutive and it has the ability to grow. And I even modeled this out and I have a chart in the book where Buffett says that float, if it declines, it will decline at say a 3 % rate.

36:06So you take their underwriting profits and across the board, if they're able to generate a 3 % underwriting profit or a 97 % combined ratio and float declines at 3 % a year, what you have is this steady state amount of capital that is available for shareholders. But what happens is the float declines, but the profits essentially make up this growing piece. And so it's better seen visually. But if Berkshire Hathaway, which I think it will, can generate a modest amount of underwriting profit, and even if it declines over time, this$135 billion plus in float is essentially equity capital. And I don't think it's fully appreciated even by those who follow Berkshire Hathaway.

36:54What is the risk exposure for Berkshire Hathaway's underlying insurance businesses from COVID-19? Well, in some ways, I think it's probably modest, but in some ways it's not known. I mean, one thing that we've seen over time and looking through Berkshire's history is this concept of social and judicial inflation. And so there's always this risk that a judge or a series of judges or legislation sort of retroactively changes the rules of the road. And so, you know, Berkshire could find itself liable, but I suspect the last SARS episode, there are a lot of insurance companies put these pandemic exclusion clauses in their contracts.

37:38So that's one element if Berkshire is on the primary front there. And the reinsurance front is another interesting thing. So at one point, Buffett makes the comment that it almost doesn't matter what the reinsurance liabilities are. It's only the amount and timing of the payments that go out. And so in, I believe at this point, I'm fairly certain in saying this, that every single reinsurance contract that Berkshire writes, there's an upper limit cap on how much they can pay out. So if it's asbestos or if it's other long tail risks that they've offloaded or retrocessional policy. The biggest thing is, okay, they've received the cash premium upfront.

38:19How quickly will it go out the door? If it's capped, if it's the big AIG policy from a couple of years, as an example,$10 billion premium, and they pay 80 % of$25 billion over 25. There's a whole formula, but basically the upper limit is capped. And so what COVID might end up doing is accelerating those payments out the door, but that cap will still remain. And so I think it will have, in some instances, unfavorable impact on Berkshire. But I think in other ways, it's a risk that in some ways was almost anticipated in the sense of looking for these long tails and look for these out-of-the-blue risks, which that's what a G-Jane is paid to think about, right?

39:04I remember back to March 2020, a lot of people were expecting a big deployment of cash during that time from Buffett and Berkshire Hathaway. And it didn't really come. We were expecting maybe a big acquisition or maybe just even an equity position, upwards of 10%, maybe ownership of a company, but it didn't happen. And some people argued that it was potentially because of this exposure and risk that they had to underlying insurance businesses. And Buffett wasn't... He wanted to make sure above all else that he didn't lose money and keep solvency. So there was some debate that he kept that cash on his balance to help with those things and didn't deploy it because of that.

39:40What do you see as the reason as to why Buffett didn't deploy more capital during the last market drawdown back in March 2020? I guess I was among those that were sort of a little bit disappointed in the lack of major buybacks. I mean, I would have liked to see them hand over fist. And if they had 120 billion of cash. You know, why not? They were doing fine with 50 billion of excess cash. Why not just let that go out the door and repurchases or do some aggressive moves? But you listened into that last annual meeting, and I'm sure a lot of the listeners did. And I really sensed a lot of fear in Buffett's voice.

40:18And he and Ajit Jain and Munger and a lot of others spend their time thinking about worst case scenarios. And I think the scenario that played out last year was one of many possible scenarios. I think there was a genuine chance that we could have entered another depression, another major, major depression that even rivaled the 1920s. I think seeing those number one rule of live to see tomorrow just trumped everything else. I'm not sure if it was necessarily on the insurance front. I think it was more of just a catastrophic worldwide shutdown. I mean, imagine if the support that was given to businesses wasn't there.

40:59I mean, we could have seen even precision cast parts, which they marked down by 10 billion. I mean, that business could have gone completely out if airlines is completely shot down. A lot of the MSR businesses could have just completely failed. I mean, the dark scenario that I think as a possibility was playing through his head very much could have come to play. And so I can't really fault him knowing his thinking, at least what he said over time. And I suspect that those things were going through his mind and just led to, we need to sleep at night. Let's not be too aggressive here, even with$130 billion in cash.

41:33Robert Leonard Yeah, I actually sensed some worry or him just being genuinely scared during that annual meeting as well. And we'll talk about how his approach to preserving capital right now versus growing it like you might have in his earlier days. We'll talk about that a little bit later in terms of how that might have impacted his returns versus the market lately. Do you think he'll ever deploy that capital before he passes, which we'll again talk about later in the conversation? I think there's a good chance of it. The world can do crazy things. And he says that it can go from green to red without stopping at yellow.

42:10And I mean, we've been lucky that the stock price has lagged as an owner, full disclosure, probably no surprise, of Berkshire. What a blessing that the stock price has lagged. And that has been an opportunity to deploy capital. So I suspect before too long, we'll see something happen there. If he does deploy it, what do you think the most likely scenario is? What do you think he'll do with it? Do you think it's share buybacks? Do you think it's acquiring a full business? Do you think it's taking a major equity stake in one company, maybe smaller stakes in a couple of different companies? What do you think he's going to do with the money?

42:44The short answer is yes. And he said this over time, Berkshire strategy is one of opportunists. Our strategy is no strategy. And I've sort of classified or thought of it as patient opportunism. And so I'm confident that something before long, humans make up markets. And so whether it's repurchasing shares, when that makes sense to do, if there's a big acquisition that can be made, maybe another partnership with 3G Capital, another big stake in a public company, Those things are certainly possibilities and even a combination of those. I think it's less likely that they pay a dividend. I think there's other things that can be done before that.

43:19But I suspect within the next few years, we'll see something intelligent done with that cash. There have been some investors who have been successful by just cloning Buffett. One of the most popular is Monish Pobrai. But for the most part, investors likely wouldn't do too well trying to just copy Buffett's picks. And I think this is one of the most common misconceptions around Buffett and approach to studying him, why should most investors not try to just copy Buffett's picks? If you approach it as a learning opportunity, that basic notion is a good one. Being a shameless cloner, as Pabri says, 13F surfing, looking at the big positions of other well-known investors, that is a good practice.

44:04That is a way for you to study and really back into certain decisions why they're being made, even looking at some of the mistakes. You and I cloning Buffett at this point, we're giving up our advantage of being small and nimble for Buffett's and Berkshire's disadvantage of being large and having this universe of businesses, the small universe of businesses. And I don't think that's an intelligent thing to do. But following it and certainly studying why he makes certain moves is a smart thing to do. But simply riding coattails, if you don't know why you're buying something, how do you know when to sell?

44:42And Buffett makes mistakes. I mean, let's not forget IBM, for example, or some of these other ones. He makes mistakes too. So study, but you got to do your own thing, even if it's Warren Buffett you're following. Let's take a quick break and hear from today's sponsors. Hey, it's Sean O'Malley, just popping in with a quick message. If you like this podcast, well, I've got great news for you. We've got a handful of other shows for you to explore, from learning about Bitcoin to embracing a richer, wiser, happier lifestyle. Just go into your podcast app and type in We Study Billionaires to find our collection of shows.

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48:18All right, back to the show. Whenever somebody is the greatest of all time, or at least in the debate, there are always people who have negative things to say about that person and that they've fallen from their once elite status. Adam, you're from New England like I am. So we've been able to witness one of the greatest quarterbacks of all time in Tom Brady. And we hear it all the time. People have been writing Tom Brady off for years and years now. Then he goes and wins another Super Bowl this year. The same thing has been happening to Warren Buffett for years. But the big difference between Tom Brady and Warren Buffett is that Brady is continuing to prove the doubters wrong.

48:58Whereas Buffett isn't quite doing so well, and he continues to underperform the market. These two are playing very different games, but I think the idea is the same. Has Buffett lost his edge? What has been the leading cause for Buffett's underperformance over the last decade? Robert Leonard Just talked about this basic disadvantage of size and Berkshire Hathaway not paying a dividend. It just supercharges the amount of capital that they have to deploy. That becomes a problem. And so I guess I look at it as two basic problems. One is their growing size and the shrinking universe of opportunities because of that size.

49:35And the other is just this simple abundance of cheap capital out there with interest rates being as low as they are. And who would have thought that the Fed, maybe someone would have, but the Fed would have stepped in the way they did and lent to companies last year versus what Berkshire was able to do in the Great Recession, which was lend out a bunch of capital at, you know, exorbitant. punitive rates. And so that opportunity was spoiled by the Fed. Those are the two main causes, I think, Buffett's underperformance. And it's certainly a great analogy. And I guess you got to watch out, you know, again, being from New England, say Tom Brady outside of New England, you might lose some listeners because of bringing up Tom Brady.

50:14But, you know, maybe it's just a case of, you know, we're sort of early in the season, right? And we're not quite at the Super Bowl with Buffett. I think he is more likely than not to be proven right at the end of this, within the next couple of years, this extreme conservatism and prudence, managing a strong balance sheet, I think will shine through. I think we'll have one of these moments, oh, okay, this looked great in hindsight. But who knows? Those opportunities because of their size are really shrinking. Even more than just the underperformance that Buffett's had, what I think is more important or more valuable than copying him and his stock picks is learning from him and his principles, like you said.

50:55And for me, one of the biggest reasons for that is because every investor has a different circle of competence than Buffett. So it doesn't really make sense to invest exactly the same way he does. You don't have the same temperament he does. You don't understand his thesis. Those are probably pretty obvious. But more importantly, for me, I don't have the same circle of competence as Mr. Buffett does. But I can take his principles of investing and that principle he has of circle of competence and apply it to my investing. He applies it to energy. He applies to insurance. He invests in these two industries and businesses a lot.

51:29I don't really understand the insurance business all that much. Maybe if I studied it a bit more, I probably could, but I don't think I really do. And I really don't think I could understand the energy business. I just don't think either of them are really within my circle of competence, but I know that fintech is. And so I personally have positioned my portfolio that way. I don't copy Buffett's picks, but I take his philosophies and his strategies and his principles and apply it to my portfolio that way. What other principles of Buffett's have led to his success that investors listening today should follow?

51:58One of the biggest ones that I've learned over time again and again is really patience. What we're just talking about eventually coming through this long episode of underperformance and sort of frustrating environment of opportunities is patience. When I look back in my own investing career, there were certain times where my patience kind of gave up, went down the quality scale and kind of just said, well, I'm going to buy this, you know, like in various degrees over time. And so, you know, what I've learned over time is really that patience really pays off. A lot of times comes back to temperament and being active in your searching and thinking and reading versus trading.

52:36I often stop and think about, okay, well, if it takes me three years of searching to find an opportunity and it doubles in the next two, Or, you know, even if it takes four years to find waiting three years and a double in two, that's a double in five years is 15 % a year. Like the math checks out. If it takes you seven years to double, and so it's four years of searching and three years to double, that's a 7 % return. It's not terrible. And so this idea of patience is so powerful and the math and the reasoning behind it is so powerful. One thing that comes up over and over again in Berkshire's history is this idea of economics over accounting.

53:14And so you see it with look through earnings, which, you know, with Berkshire having such a heavy investment portfolio, it's just simply looking at those companies and saying, well, geez, not all of them are paid out as dividends. They don't show up in the accounting. What would our share of these earnings be if we just look through, if they float all the way through to the bottom line, what would they look through? And so separating the economics of the situation from the accounting is so important. That's another one I think would benefit everyone listening today. I saw a post on social media, I think it was yesterday or a couple of days ago.

53:45And the post is basically talking about celebrating your small wins and talking about how small wins build up momentum for you. And I commented a quote, one of my favorite quotes of Warren Buffett, where he says, I don't look to jump over seven foot bars. I look around for one-step bars that I can step over. And I commented that on the post. And then I didn't really think much of it because that's a quote that I love. And then I was checking my phone this morning on social media and somebody commented and said, yeah, the same guy who sold all of his Apple shares for Chevron and Verizon? No thanks.

54:18And I found that funny because I think it speaks to the patience that you just said. And you talked about how we might be at the beginning of the season for Buffett. And sometimes that's hard to believe because he's older. I would say he's on the older end of the spectrum. So it's hard to think that he might just be at the beginning of the season. But to the comment that that individual made, it's like, I believe in Buffett and his track record deserves that reputation. And maybe we don't understand why he made those trades or those investments right now. But I think in the future, if you have patience, like you said, we'll see if he was right or wrong.

54:52And we're not guaranteed that he'll be right. But it's just interesting to see that so many people have been writing him off already and just illustrates how we don't necessarily understand why he's making the pics he's making. I suspect he wouldn't be too offended, you know, to call a 90 year old and Munger's 97. I guess that, you know, they'd like to think they're middle-aged, but actuarial science might call them old if they don't use that technical term. But one thing again, for with Buffett and the patients is thinking long-term. And so I think it's the mindset that they have and Charlie Munger with Daily Journal making these investments that are very likely to not come to fruition until they're gone.

55:30This mindset of thinking very long term. I mean, he literally thinks in decades, if not longer, and just says, okay, take this, the principle from economics of Ceteris Peribus, everything else the same, and just extend our viewpoint to infinity. What do things look like? But he's really thinking in at least decade stretches. And so if you're someone like Warren and you're the head of Berkshire Hathaway, you're thinking 10, 20, 30, 40, 50 years in the future, even though you know you're not going to be around. So I'd almost say that your age doesn't preclude you from thinking very long term. And in fact, I think Buffett and Munger have proved that.

56:08It's no secret that Buffett and Munger are getting older. We've both talked about that. And although I wish they'd be around forever, we know that's not a possibility yet. Science isn't there yet. So what does the future of Berkshire Hathaway look like after Warren Buffett and Charlie Munger are gone? A little bit of the same, a little bit different. I think that the future is capturing incremental value. And so just simply by virtue of their size, they are not going to have these massive gains that they've had in the past. And I have a chart in the book of the rolling 10-year outperformance of Berkshire's book value compared to the S &P 500.

56:45And it's a very clear downward trend from double digits in the earlier days down to just a few percentage points more recently. And if you do the math and you calculate it out over a 10, 15, 20-year period, even a 1 % to 2 % outperformance compounds it to something very meaningful. And so I think that won't change. How do they get that incremental return? I think it's really taking advantage of these infrequent, perhaps, but meaningful upside opportunities and avoiding the downside. So they don't, you know, if they could just not do something dumb, on the flip side, they can repurchase shares when it makes sense to do so when they're trading at, you know, a modest discount to intrinsic value.

57:31They could lend to different businesses, you know, serve as this sort of merchant bank over time. You know, they can buy stocks when the market panics and pick up value that way. And so I think it will definitely, without a doubt, be less than the glory days. But I think that's not to say that Berkshire Hathaway's future doesn't look right. Does this change at all if one person leaves before the other? We've heard couples sometimes and frequently pass within a very short period of time of each other. But I'm not sure if Buffett and Munger have quite that connection. So it's probably likely that one will leave us before the other.

58:11And if that's the case, do you think that this is going to have an impact on Berkshire Hathaway? What if Munger leaves before Buffett? Does that mentally impact Buffett so much that he leaves the investing game forever? Or what if vice versa? What if Buffett leaves first and Munger stays? What is the future of Berkshire Hathaway in terms of one of those different scenarios happening? First thing that comes to mind is Buffett's quip that Charlie Munger's main purpose is, you know, he's the canary in the coal mine because he's seven years older. But I would argue that Berkshire's course, again, retaining all this capital, it's accelerating and it's a larger size.

58:49Its course was probably set 10 years ago. So in other words, if either one or both of them had left 10 years ago, we probably would roughly be in the same place we are today. In many ways, and I mentioned this at the end of the book, Berkshire after Buffett, I didn't completely steal the book by the same name, but basically Buffett's greatest accomplishment is that Berkshire Hathaway can live without him there. And I think we're at that point now, but I think we would have been there many years ago. And you go back even to the early 1990s when Berkshire has their Solomon investment almost blow up and Buffett has to become interim chairman of Solomon.

59:31And he says, basically proves the Berkshire model of this extreme decentralization, this delegation just shy of abdication. And so Berkshire has always been ready in many ways for Buffett and Munger to take off or leave the scene in one way or another. But I would argue that where we are today, I don't think much will change. I really think its course has been set. And we see Greg Abel taking up additional responsibilities and we see Jane taking up additional responsibilities. And don't forget that all of those subsidiaries still have this basic advantage and operating structure of operating in a decentralized manner.

1:00:08So in many ways, saying that Berkshire Hathaway can operate without Buffett and or Munger is indeed a compliment to both of those men. Jim Collins in his book, Good to Great, talks a lot about this principle is how a real leader is judged based on how the organization continues to do once they've left. Not so much by just the results that they've had when they were there, because there are plenty of people that have done great organizations, then they leave and everything crumbles. So he argues that the real test of a true leader or good leader is based on how the organization does once they've departed.

1:00:43So it'll be interesting to see what happens to Berkshire Hathaway post Munger and Buffett. Do you think it's possible, given how much Buffett talks about individual investors and people investing in the S &P 500, do you think it's possible we ever see his$100 billion in cash just go to an S &P 500 fund and really not much individual equity investments anymore? You mean essentially trade the investment portfolio for a hands-off? We can send Todd and Ted home and they're just going to invest in a low-cost index fund and that'll be that? I don't think so. I don't see that happening. I mean, really, I think this decentralization happened because Buffett and Munger came from a background of picking stocks.

1:01:25And so what's the difference whether they own 10 % of a company or 100 % of the company, they could be managed in a decentralized manner. They're always looking at businesses. I think if that were to happen, that would be a complete admission that they can't do well. And it would be extremely inefficient. I mean, at that point, that capital would have been better served, distributed to shareholders because you'd have this horrible tax situation of owning this index and paying a corporate tax and then going to the shareholders. So I'd have to start to question management if I saw that happen. So short answer is no.

1:02:00What role do you think Ted and Todd play in the future of Berkshire Hathaway when Munger and Buffett are no longer around? I think they will serve as part of that inner team and part of that, their primary function will be to find investments and manage the investment portfolio, the whole thing, not just pieces of it. But as business owners, again, why they wouldn't have an S &P index is they're buying businesses and it really doesn't matter whether they buy a part of it or all of it. And so, and we've seen this Todd and Ted serving as chairman, certain subsidiaries. And so I think they will serve as primarily operating the investment portfolio, but then serving as a consultant and idea generator for, I'm assuming, Greg Abel, who's going to be the next CEO.

1:02:55And I think Greg is someone that would appreciate that input. He doesn't have an ego. And then if it's 20 years in the future, those investment people, I think, would serve, if it's not Todd and dead, will serve this primary function of being capital allocators and really astute business observers. And I think that will benefit Berkshire both explicitly through the investments that they have, as well as managing the internal wholly owned subsidiaries. I know for me personally, Buffett has had a big impact on my life, not just as an investor, but just even as a person, as a man. For me, it goes deeper than just his investing principles, such as when he talks about reputation.

1:03:37As a younger kid, when I was 14, 15, and I found Buffett, I truly believe learning about his principles around reputation kept me out of a lot of trouble that some of my friends might have been getting into. And I think it's really had an impact on how I live my life. From your time studying Warren Buffett and Charlie Munger, investing-wise or personally, what have you learned that has truly changed your life? Yeah, that's a great question. And I mean, all those things, right? I mean, I feel so fortunate to have found these guys and to have, you know, luck, whatever it might be to be receptive to their ideas.

1:04:16And, and I agree. I mean, it's almost incalculable, you know, where would I be today without these two guys? And, you know, taking the high road, which, you know, almost paradoxically or counterintuitively is actually the easier way to go, as they say, you know, thinking long term, which, you know, doesn't just apply to business. It applies to your relationships. It applies to, you know, your personal life or your personal habits. Charlie Munger, I very much relate to Charlie, just again, sort of personality quirk wise, this idea of worldly wisdom and, you know, the liberal arts and just synthesizing wisdom from all different areas of life has really helped me.

1:04:54And even his counsel of no self-pity, right? I mean, and he's one where he went through a divorce and he went through his child dying of leukemia. I I mean, when he says, you know, don't feel pity on yourself, even if your child dies. I mean, he has earned the right to say that. And I've found myself drifting in that direction in terms of, you know, it's a stoic philosophy, really. But one, I would also add to your question, Rob, and almost use a mongerism and invert it and say, what from their life would I not do? And I've thought about this. And it's a question, you know, not a lot of people ask.

1:05:33But when I've studied Buffett, his life, two things come to mind. One is he was just so obsessed with business. One of the reasons why he's so successful, he's just laser focused and just obsessed with business and investing and making money. And his relationships with his kids, his family, it's all worked out for the good. But I'm personally not willing to trade that time with my family for some extra money or a few extra percentage points. That's one choice I've made. And the other is, I don't think you can live off of a diet of cherry Cokes and seized candy. I feel like to take that long-term view and to be around for the next 50 years, 60 years, or whatever I'm blessed with, I have to take care of my body.

1:06:24And that will take care of my mind. So the family time and eating well are some two anti-lessons or things that I don't want to follow Buffett, which again, I don't often hear that question asked. Don't forget all of his McDonald's. So that's right along there with it, or ice cream and Oreos for breakfast or whatever it might be, which I mean, there's a certain degree of truth to being happy, but I think you can be happy eating, you know, Cheerios instead of, you know, briars for breakfast. And, you know, Todd and Ted are runners. People might not know that. I mean, they're big runners. If I ever get the chance to ask them that question, I'd certainly do that.

1:07:04And, but, but even, you know, the food thing, it illustrates this. Buffett is certainly, I mean, he's not a genius, pretty close to it, but really, I mean, he simplifies so many things and I've heard him, one comment he made was, well, geez, you know, I can eat, you know, whatever it is, 2000 calories a day or 2 ,500 calories a day. If I have a cherry Coke and it's 210 calories, you know, geez, that's just part of my daily calorie allocation. So he's broken it down to something very simple, but I would almost say, well, geez, you know, if a younger Charlie Munger were looking at his diet, maybe he would introduce some science of nutrition and molecular or cellular biology or something into the mix to convince him to maybe try broccoli once in a while.

1:07:48I don't know. What I love about this last few minutes of the conversation that we've been talking about in terms of what we've both learned and taken from Buffett and Munger is probably one of the most common things I get asked from people is, how do I find a mentor? And I think I can safely say neither you nor I have been one-on-one mentored by Warren Buffett or Charlie Munger, and we probably never will be. But I still feel like I have been in a sense. And I feel like I have Buffett as a mentor. And so that's one of the things I try and tell people and teach people is, with technology the way it is today in books and podcasts, you don't need a one-on-one mentor to get the same mentorship or pretty close to it that you would get even if you were one-on-one with them.

1:08:31So this, I think, just drives that point home even further for me. Oh, absolutely. And I think Charlie Munger has called it, you can converse with the eminent dead. You can have a conversation with Benjamin Franklin or Cicero if you wanted to, or anyone one from the past. It's a blessing. And Buffett and Berkshire and Munger, they were great teachers. Buffett has even said he wants to be remembered as a teacher. But when you look at all of the material that's out there and the things that he's shared, we're so lucky. I was so lucky to have all this material to go through and writing a book about it and timeless wisdom or if you want to become a better investor.

1:09:11He said it all. It's right there for the taking. And so what's fun about today, and especially like you said with technology, is we can all learn together. And I think it really is just the willingness to do it. We're all on this journey together and there's a lot out there to learn. I think too often people want to be able to reach out to someone and get the direct answer, even though that answer might already be in a book or a podcast. They don't want to have to do the work to find the answer. Rather, they just want to be able to call them or text them and say, hey, what's the answer to this?

1:09:41And not necessarily put in the work. When you look back to when you first started investing, what do you know now that would have helped you grow your wealth quicker if you had known it back then? Let's see. Buy Apple, buy Tesla, even though I wouldn't. No. Buy Bitcoin. Other than a crystal ball scenario, I would reiterate the patience. I think the best analogy that Buffett has talked about is the punch card analogy, which if you had 20 punches, every investment decision that you made in your entire lifetime, you'd take a punch out of that card. You only had 20 decisions to make. You'd think a lot differently.

1:10:22And I think that would just help crystallize and incorporate a lot of different things that make a successful investor, that patience would definitely be there. Adam, thanks so much for joining me today. I've really, really enjoyed this conversation. And I could have kept talking for hours. I'll definitely have to have you back on the show again soon to talk about Buffett and Munger and Berkshire Hathaway more. For those listening that want to learn more about Buffett, Munger, Graham, any of the guys we've talked about today, or even yourself, where's the best place for them to go? Yeah. So thanks, Robert.

1:10:59This has been extremely fun. And we have decades and decades of Berkshire's history. I'd love to dig in and even take some questions from listeners or, you know, however you want to structure it. We can go decade by decade. There's just so many great lessons. So as I was going through my research, I realized, you know, I wanted to have a place to put this and as a way of giving back and as a platform for the book, I created this website called theoraclesclassroom.com. I also have the domain brkbook.com. So you can go to either one of the two and there you'll find, you can contact me. You can browse through a lot of Berkshire's archives, a lot of the early material, some of the even Moody's reports dating back to the 1920s and 30s.

1:11:41And if there's stuff I've missed, I mean, there's a glossary there. There's all kinds of stuff. It's a work in progress. But if you go there, you can find me and I'm not going away. I'd love to come back on the show and look forward to the next time and from hearing from folks. It's a lot of fun. Thanks so much, Adam. Thank you, Robert. All right, guys, that's all I had for this week's episode of Millennial Investing. I'll see you again next week.

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