MI298: Warren Buffett: An Entrepreneurial Mastermind's Story w/ Todd Finkle

28:34I don't know if he's ever gotten rid of it. He probably won't. But all the different entrepreneurial ventures are just fantastic. All the things that he does and he's thought outside of the box. My favorite one is the pinball machine. He bought pinball machines and he was putting them in barbershops. And the reason why that stands out for me is that when I was a kid, 11 years old, 12 years old, we used to ride up to Benson. There's an area in Omaha called Benson. There was a barbershop up there and they had a pinball machine in there. Whenever I talk about Warren Buffett, I think of that pinball machine and Benson, you know, as a kid going there.

29:12And, you know, that's genius. So, you know, one of the trips that we made to go visit Buffett, I gave an assignment to my students to come up with a new product with the intention of trying to get invited to go visit Buffett. And one group came up with the idea of a Warren Buffett pinball machine, which was brilliant. And it was a lady that was a religious studies major at a minor in entrepreneurship. It was her idea. And we didn't have the time or the money in order to do that, but we just did a design. And to make a long story short, of course, we got invited back to Omaha after we did that.

29:48And that was awesome. But all the entrepreneurial things that he does, he was relentless, man. And he kept on doing it. He made like$76 ,000 by the time he graduated. And he still graduated 16th in his class when he was in Washington, D.C., where his dad was a congressman. And that never stopped. His entrepreneurial stuff just never stopped. After he graduated from high school, his dad really kind of pushed him to go to college. He didn't want to go to college. And he ended up going to Penn, and then he wanted to drop out of Penn after one year. One year, he said he wasn't learning anything. And then his dad said, give it another year.

30:27And then he dropped out after his second year. And then he went to Nebraska. And he had 50 people working underneath him delivering papers while he was going to school full-time. Thinking about that and what I did in college, what I was doing and what he was doing, I mean, I certainly wasn't even thinking about doing something like that. And my dad owned a bar growing up, and I was bartending while I was in college undergrad. That's how I was making my money in undergrad. Yeah, and then he, after he got his degree, applied to Harvard, and they rejected him. And then he applied to Columbia after he read The Intelligent Investor, and he ended up studying under Benjamin Graham.

31:12And that's where he really started to blossom there. He got the only A-plus anybody's ever gotten under Benjamin Graham when he taught there at Columbia. And then he wanted to go work for Benjamin Graham on Wall Street, but he got rejected by Benjamin Graham because he only hired Jewish people because the Jewish people weren't able to get jobs anywhere else than any of the other banks. So Warren went back and worked for his dad. His dad had his own investment business in Omaha. So he went back there and he was selling stuff. but he still kept in touch with Benjamin Graham. And one of the things that really stands out from Warren, if you want to get on Warren's good side, is be persevere.

31:53He loves people that have perseverance, and he loves people that are creative. You wouldn't think a guy like Warren would love people that are creative, but he does. He really does. I've learned it the hard way. So he kept on persevering. He wanted to work for Benjamin Graham, and he eventually got up there, I think, after five years. He worked on Wall Street with Graham for a couple of years, and he became a millionaire. And he went back to Omaha, and he wanted to go ahead and retire and just take a couple of college classes and read some books and live off of the money that he made on Wall Street.

32:30And his family wouldn't let him do it. His family came up to him and said, no, you're not. You're not retiring. You're going to manage our money. And over the next 13 years, he started seven partnerships and they averaged 36 % a year. And then he stopped doing that because he didn't see any opportunities after that. And so he was honest enough to say that to him. He could have still charged him money and taken their money, but he's not that type of guy. You know, he's got a lot of integrity. But he bought Berkshire Hathaway, which was his biggest mistake of his investment career. The reason why he bought Berkshire Hathaway was that he had shares of it.

33:14He invested in it. And the CEO of Berkshire Hathaway was willing to buy his shares. I think it was, can't remember the exact number, but he gave a commitment that was like$1 ,250. And it It came back in the sheet of paper, 12 and a half cents below that. And Warren just flipped out. He was really mad. And his father passed away five days before that. That led to him making the worst decision he's ever made and a mistake that he learned from the hard way. It's related, I think, to temperament, which is what him and Charlie always talk about is the most important thing in investing is your temperament, which is related to biasness.

34:01He got really mad and he just bought this guy out and he fired him. I can see Warren going out and having a great steak that night, the night that he fired that guy. But the problem was, of course, it was a bad industry to get into. And Warren being Warren, he didn't want to lay off these people because they had nowhere to go. So he kind of hung on and he hung on and he eventually dumped it, I think in 1985. But that's kind of the Warren way. He doesn't like to lay off employees. He cares about people. He really does. As Susie said to me when I talked to her, people just don't understand how much he cares about other people and about social justice.

34:48or injustices as well, and a woman's rights and things of that nature. And his foundations hit on all that stuff that he's giving all of his money to. So let's look at some of his biggest influences. So, I mean, his father obviously was a huge influence on him, but another one, other than also Benjamin Graham, like you already mentioned, but one of the lesser known ones I would say is Philip Fisher. So he had a very big impact on how Buffett basically evolved away from investing in his traditional cigar butts that he learned from Benjamin Graham and transitioning to quality compounders. I'm interested in knowing what key concepts did Warren Buffett learn from Fisher that caused Buffett to transition away from that investing strategy that had worked so well for him for a very long time.

35:34Charlie really loved Phil Fisher. Charlie really pushed Warren to go in that direction. There are some things that Charlie has done a great job of, of Berkshire, and that was one of them. That and he pushed Warren to buy C's candy. They probably wouldn't have bought C's if it wasn't for Charlie. Fisher is known for his scuttlebutt methodology. So he wants to buy companies for the long term. He doesn't want to have a lot of companies. He's into maybe having 10 at the most so you can keep track of them. He's not just looking at the financials like Benjamin Graham. And he really wants quality companies that you can hold for the long run.

36:20And he looks at the sales team. He'll look at the R &D. He'll look at all the different facets and the management team as well. And I'm not so sure that Warren was doing that as much before. He was smoking on a puffing on a couple of cigarettes here and there, but he wasn't looking at the totality of it. And that's a great book that he wrote. Everybody should read that book. Was it called The Uncommon Stocks and Common Profits or something like that? Yeah, something along those lines. Yeah. Focusing on solid modes, having a margin of safety, all that stuff is something that Phil Fisher was into.

37:00And Buffett really took a lot of the stuff that he's doing today from Phil Fisher and Charlie. Charlie brought in some of this stuff as well. Let's take a quick break and hear from today's sponsors.

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40:07Between the screener and Legend Investment Portfolios to reference, I've gotten a ton of ideas from TIP Finance. What are you waiting for? Take the next step in your investment journey today with the right tools at your fingertips. Grab your device and type into your browser, theinvestorspodcast.com slash tip-finance to get started. That's theinvestorspodcast.com slash tip-finance. All right, back to the show. Outside of Fisher, like you said, Charlie Munger was a massive driving force in Buffett's evolution towards buying quality businesses. Warren seemed to really understand Munger's views that in order for them to scale Berkshire Hathaway, the cigar butts just wouldn't work because you can't make a lot of money off those for a long period of time.

40:54Charlie has said that Warren would have eventually come to the same conclusion without ever meeting Charlie, but Charlie, he's a very humble guy sometimes. So I know it's impossible to quantify, but how big of an impact do you think Charlie has had on Warren Buffett and Berkshire Hathaway? That's a hard question because I've been to all these shareholder meetings and I listen so closely to these guys like you're at church or something, it's really hard to know. Like I gave those two examples earlier, but Warren is a firm believer in giving credit to others. He doesn't have a big head. He doesn't need to take credit for everything.

41:33And so I just wonder sometimes that he's always giving all this credit to Charlie, but who's coming up with the ideas? I don't know. But obviously, it's worked for them. So who am I to say anything? But he's a genius. You know, his kid, you know, he has, I don't know, seven or eight kids, Charlie does. And my wife is from Palo Alto. And I met her through the internet. And when I went out there one time to visit her, she was a middle school counselor in Palo Alto. And Charlie Munger's grandson was at the same school. So I sat in out of class with Charlie Munger's grandson. And let me tell you something.

42:17He is the spitting image of Charlie Munger. It was pretty funny. That's just a story there. I love Charlie. I have a chapter in the book on Charlie. I initially had two chapters on Charlie and they told me that I needed to cut it down to one. But I love that chapter. It goes through his whole life and talks about his entrepreneurial ventures. He had an investment company that he ran and he got great returns. It's interesting about Charlie and Warren. I mean, they're both so humble saying, investing's super simple, anyone can do it. But you just think about the stuff that these guys have done and it's like, okay, I understand a lot of it, you simplify things for everyone else.

43:01But like you said, I think they're both geniuses. And there's not a lot of people like Warren and Charlie. And I think just the amalgamation of having them together has just been lightning in a bottle. But they always say that being a successful investor is not that hard. They always emphasize that. And they've been doing that for years. Just buy, keep on buying, and hold it for the long term. Buffett says, if you're not involved in the markets every day, 90 % SPY index, low cost, 10 % short-term bond index. And he says that's what his wife is going to be inheriting from him. And he said that, again, I went to all these shareholder meetings, but he didn't start saying that really until about eight years ago.

43:48He wasn't talking about that at shareholder meetings before. I don't understand why maybe he was before I started going, but he really started to hit on that. Maybe after the Great Recession, he started to hit on that. Yeah, he says, if you're not involved in the markets, you're at a disadvantage, information-wise. He's worked on Wall Street. He knows what's going on on Wall Street. That's all I'll say about Wall Street. So since Warren has been in business and investing now for over 70 years, it's impossible for him to have not encountered some major crises. Can you discuss how Buffett has performed during some of these crises that he's lived through?

44:27The dot-com bust. I remember that vividly. I remember the market going up and up and up before it busted and people were going on TV and lambasting Buffett, making fun of him. And then it collapsed. And then the NASDAQ went down like 73%. And Buffett was probably laughing all the way to the bank. Berkshire was up 30%. So he just sticks to his guns, sticks to what he knows, value investing, everything that was going down, he was probably buying some stuff. That's an example that I remember really vividly. And then the Great Recession, he came on in 2008, you probably remember this. And he wrote an op-ed in the New York Times and said, buy now, buy US stocks now.

45:22And I think the market was down 38 % at that time, something like that. I didn't buy because I always remember him saying, nobody knows what's going to happen over the next year or two years. And it felt like a depression. And I didn't want to lose my money. I should have bought even a little bit because it was Warren Buffett. Today, I would do it if he did that. But it went down another 20 % even after he did that. And it bottomed, the S &P bottomed on March 9th, 2009. I believe it was 53%, something like that, that it bottomed. And he was down about 50 % during that time at his worst point. But hit what Charlie say, they go, hey, if you're not willing to take a 50 % loss in your stocks, you shouldn't be in the market.

46:16You should be in a CD or treasury or something like that. And I think that they've gone down like 50 % three times. I always keep that in the back of my head too when I'm investing is, am I willing to lose half of my money? And a lot of it will be dependent on the individual. If they're younger, like you, you can afford to lose 50 % and still come back. For me, I can't afford to lose 50%. So that's dependent on the individual and their situation. And lately was COVID. And I record all of it. Whatever Warren says, I record it. I've got everything recorded. And I've got stuff recorded on my TV right now from him.

47:03And I'll go back and I'll listen to it. And he said, don't do anything. Because I remember he was on CNBC with Becky Quick. And she asked him, and he just said, don't do anything. And that was like the day that it was down 3%. And then the next day, it was down another 3%. He's never been through something like this before. That was a first for him. But it turns out that he was right in doing that and not doing anything, right? I don't know what I'm going to do when Warren dies. He's my mentor on what to do and a lot of this stuff. I mean, there's other guys that I listen to that are really bright guys.

47:40But the thing about Warren that you get that you don't necessarily get with everybody is, you know, he's got your best interest at heart. He has integrity. He's not going to be lying to people for his own benefit. That's why I think they bring him on TV when we have all these crisis, because they know that he's going to give it to us straight and he's going to help all of us to manage our money and help us through these trying times. So Warren has frequently discussed how important investing in your circle of competence is, but the more you learn, the more your circle widens. So with that said, what do you think the primary reason for aversion to technology stocks, I mean, he's so intelligent.

48:22You think he could have learned that if he really wanted to, but yeah, I would love to know. Is it just that he just doesn't like them? What's the main reasoning behind that? Well, if you go back, I think if you listen to some of his older interviews, he always abuses technology and he all never touched technology and da, da, da, da, da. I don't think that that's true now. And I think a big reason why is because he hired two new CIOs, co-CIOs, Ted Weschler and Todd Coombs, who are more tech savvy, obviously, because they're younger. And they started to buy Apple in 2016. They bought Amazon. And one thing I never understood about Buffett is forever he's been telling the world that Jeff Bezos was the best manager in the world.

49:12And I remember giving a presentation at the University of Iowa and telling them about that back in 2016 or something like that. And he still didn't buy Amazon and you know how much Amazon's gone up. But eventually, you know, after you got Ted Weschler and Todd Coombs in there, you know, then they started to get into tech. They started to buy Apple. I don't think that the big positions in Apple were bought by them because they're only managing 15 billion apiece. I think the big positions were worn with Apple. And then they started to get into, they bought Amazon, then they got into some fintech stuff.

49:52Snowflake, they got in on that IPO. I don't know that much about Snowflake, but I don't even know how well they're doing. I haven't really checked them that much. new bank and another company, I think that's down in South America related to a fintech. So they're, they're slowly getting into that. And I think that's kind of the future for them when Warren does pass away and Charlie is, they're going to be more into tech. And the question maybe I have for you is, are they going to have the green light to do whatever they want? Or is there going to be somebody that's going to be looking over their decisions because, you know, they have a new couple of new board of director members that are both financial guys.

50:34They manage money, Wally White's and Chris Davis. They're going to be seeing all that stuff, right? I don't know. Yeah. I mean, you think so. And it kind of makes fintech at least kind of makes sense, right? Because Buffett has such a long history of investing in banks and understanding the financial sector so well that maybe melding now with technology kind of makes sense and still is somewhat in their circle of competence. So yeah, I don't know. I mean, Greg Abel, who obviously is going to take over, he definitely, he's not going to make the investment decisions because he doesn't have any edge over Ted and Todd.

51:05So yeah, it's going to be really interesting to see how that plays out. We had a talk at the last Berkshire meeting. I was invited to be on a panel at the Gabelli Funds Research Conference. and I was up there with Chris Bloomstrom and Adam Mead, who just wrote a book on Buffett, and Max Sykes from Belly. And we were talking about a lot of this stuff. We were talking about what's going to happen to Berkshire after Warren passes away, what's going to happen to the stock price after he passes away. And these guys are really convinced that they're going to be okay because Abel, they all really like Abel.

51:44But kind of like what you were saying, I think Abel is more of an energy guy. That's what he's been brought up in. And so Abel will probably be doing acquisitions related to energy because his expertise is not really in tech. And yeah, I was kind of surprised. Everybody was really positive on Buffett, even at the last shareholder meeting. Basically, I don't know if you were there, but at the last shareholder meeting, Charlie and Buffett basically said, and Abel was there, by the way, basically said, you'd have to be a fool to mess this up, but we're leaving you. And they didn't say it towards Abel, but they were just talking in general.

52:25Yeah, it's going to be really interesting. I think that their assets, especially in energy and transportation, they're just, they're really good assets and they're not going anywhere. And he keeps on buying Oxy. I'm not really 100 % sure what's going on there. The only thing that I could think of is that there's not going to be as much oil, so he's looking 20 years down the road because that's the way he thinks. He's not thinking, oh, what's the market going to do tomorrow? He's looking 10, 20 years down the road. Your book also, which you already mentioned, had a really good chapter about Buffett's mistakes that I really enjoyed because I love looking at mistakes, especially mistakes that really, really smart people make because if they're capable of making it well, then so am I.

53:09So you mixed a lot of mistakes of omission with mistakes of commission, which I really appreciate as well. So out of all those mistakes that Warren made, which do you think was the most painful and why? Well, the most painful for him was buying Berkshire because he lost, including opportunity costs anywhere from 300 to 500 billion. That was definitely the most painful for him. But then there's losses of omission. Google, he had an opportunity to get in on the IPO of Google. And he passed on that. Amazon, they didn't get into that until late in the game. They didn't get into Microsoft. I know he has his reasons for that, but that was another big one.

53:54There's a whole bunch of them. And then the whole airline thing, the whole airline debacle, debacle, or whatever you call it, that's just crazy. He goes back and his initial investment with US Air and he talks about, oh, he just hates airlines. He goes on and on about hating airlines and he talks about them all the time at the shareholder meetings about, oh, he hates airlines. And then he buys airlines right before COVID. That's pretty funny. Probably not so for him. I liked that part in your book where you mentioned that he calls himself an aeroholic. I laughed at that. There was another part of your book that really stood out to me was the part about how Berkshire Hathaway has no master plan.

54:36Buffett basically just kind of been showing up, deploying capital as he saw fit at incredibly high returns, and then allowing compounding to work its magic. So how is it that Warren has basically got to where he is today without ever really having a master plan or a plan for the future? Warren Buffett, every morning he reads like seven papers. And I'm probably just waking up in the morning and he's already read seven papers. His ex, not his ex-wife, but his first wife passed away from cancer. And she used to say that what he's looking for is an edge over the common person, over you and I, if we read the same thing, what can he pick out of that article or out of that paper that the common person wouldn't pick?

55:24And that's where he gets a kick at being just smarter than other people. So his master plan, I don't think he has a master plan. Stay within your circle of competence. He follows companies and he'll follow them for 20 years, 25 years, and he'll wait for the right time to get involved with them. But they have to be a business that he knows about, that he understands. And he talks about that all the time within a circle of competence. And that really lowers the number of companies that are available. Now he has$148 billion in float money from insurance. And what is he doing with that? Well, every Monday morning, every Monday morning, this is what he says.

56:14He goes right to the treasuries or T-bills online and buys T-bills. That's what he does with all of his money. And why not? I mean, you're getting over 5 % on those T-bills right now. I bought some the other day for 5.6%, or yeah, 5.6%. That's not bad. The market premium on the S &P is 5%. So that's one thing about Warren is he was just laughing about that at the shareholder meeting, about how much money he's making in these T-bills. Every Monday, he goes, that's probably the amount of money that they collect every week and then they go right into the D-bills. There's a lot to be said there. He was a nut seller of stocks last semester or last quarter.

57:02Well, Todd, I'd like to thank you so much for joining me today. Before we close out the episode, where can the audience connect with you and learn more about you and your book? You can connect with me on LinkedIn. I've got a private website, toddfinkel.com. I've got Twitter at Todd Finkel I've got my university account you can just go on there and hit Todd Finkel at Gonzaga University and you can buy my book through Columbia University Press or on Amazon or all the bookstores that are out there it's all over the place and I had a great time today Kyle it was a lot of fun I probably could go on for another couple hours with you we had fun yes we did Okay, folks, that's it for today's episode.

57:46I hope you enjoyed the show and I'll see you back here very soon.

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