RWH060: What Buffett, Munger & Bill Miller Taught Me w/ Robert Hagstrom

25:34It's kind of, okay, what's your data set? What are your facts? What are your resources? What's the, you know, they got nothing. So that stood with me. So if I'm going to say something, I'm going to write something, you can damn well, sure, I'm going to footnote it. I'm going to have some backup because I'm not going to, you know, from being a writer, you know, you're exposed as soon as you write it and put it in print, you better be able to defend it because if somebody comes at you a year from now, a week from now, a month from now, and says, oh, that's wrong. There's nothing more horrid in your life as a writer than to be called out on a missed fact or an untruth that you said was true and it wasn't.

26:11So being a writer, you really got to get that stuff right. Let's take a quick break and hear from today's sponsors. One part of being an investor that I don't think gets enough attention is how hard it can be to continue to improve as an investment researcher. And for myself, I'll often find that when I finish a great conversation with some industry expert or fund manager, my head is full of ideas. But by the time I sit down to write it all up, half of them are already gone. That's why I've been using Plod Note Pro. It's a small device that sticks to the back of my phone and captures the conversation and hands me back a clean, searchable recap.

26:47And so the key points, the follow-ups, the things I usually want to act on, it has all of that. And that allows me to stay present in the room instead of scribbling notes that I won't be able to read back later. And I notoriously have very bad handwriting. And so it's changed how I prep and how I follow up with investors. It's also built for people who take conversations seriously. Enterprise-grade security. So if you're recording calls with clients or industry contacts, that's covered too. So if you live in meetings, calls, and interviews, well, give it a look. Go to plod.ai slash WSB and use code WSB for 10 % off.

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28:51NetSuite Next is the next huge leap because now AI is built into everything you do. It surfaces custom insights throughout your day. AI agents work alongside you on the routine stuff. And anytime you've got a question about anything, you just ask, like you're talking to a colleague. And I use it. And really, I think you should too. For the first time ever, you can try NetSuite Next for free. If your revenue is at least in the seven figures, go to netsuite.ai slash tip. Built for every industry, ready for every boardroom, netsuite.ai slash tip. All right, back to the show. I had it fairly early in my career where I wrote a profile of Sir John Templeton, and I'd spent a day with him in the Bahamas.

29:36And he had told me something about, I think it was the year that Germany invaded France. And so I wrote this story about, and it was just a small fact, but it was like when the market was collapsing during World War II and he made his first unbelievably bold bet. And then I got a letter from someone saying, no, you got the date wrong by a year. And I remember thinking, oh my God, it was Templeton. This guy is way smarter than I am, actually got the fact wrong. And it was a really helpful early lesson in just being kind of paranoid about everything. I mean, not paranoid, but just sort of obsessive about doing your preparation and double checking things.

30:18And I mean, if Templeton, as smart as he was, couldn't remember something from his own life, it just was, I don't know. I think in some way for a writer and maybe for an investor as well, you need somehow to have this tremendous self confidence that you're like, this is how it is. This is what I believe. I'm making this bet. or I'm writing this and people should listen. And then at the same time, you have to have this humility and paranoia to say, yeah, what if I'm wrong? Let me double check. Let me make the extra pull. Nothing is more fearful. And it's funny because I would send Bill stuff that would write and stuff like that.

30:54And I knew it was really polished. He'd always send it back with, you need to check that. That's misspelled. You know, the University of Conigsberg doesn't have two Gs. I'm like, oh, God. You know, you're in constant fear and paranoia that you don't have your facts right, or you've misspelled something or whatever the case may be. So I do spend a lot of time backing it up. But opinions are worth what? A cup of coffee sometimes. But a well-thought-out debate or defense of something, that's powerful. And I'm bullish on AI. I'm optimistic on AI. But you're right. There's so much yet that hasn't happened.

31:33And we haven't figured out, I think, how to use it to our best ability. There's a professor at Wharton here at University of Pennsylvania who's actually teaching, of course, he wants his kids to, the students to actually use AI. I want you to use AI, but he's really kind of helping them use it thoughtfully, not just as a get a quick answer and put it in the paper. It's just how to connect things and stuff. So I think he's going about it in the right way. But AI, I was just saying chat GPT number five is coming out, was reading the reviews on that. It's kind of like, well, they're getting better, but it's still, though, William, I get your thought on this.

32:10This still to me is still, these chatbots are still just Google on steroids. I mean, it just does a better job, right? And it gets you more material and it goes deeper and wider, but we're still not, by example, I saw where Cliff Ashna said, AI now can do about 80 % of the work of all his analysts. Well, that doesn't surprise me. Cliff's a very successful investor and deserves all his accolades, but he's a factor-based guy. And he runs factors out and he wants to know factors 10 years ago. And what were the factors when interest rates did this and inflation did that? So AI can get you that like that, right?

32:48It can get you anything you want in the historical database and it can build dividend discount models. I want a three-year model that does this and years four and five, I want it to do that. and it can get it for you. The one mistake that Warren says that he has made, the one mistake he has made most often and most critical and has cost him the most money is a question that AI can't answer yet. And the mistake that he made when we wrote the Warren Buffett Way was he looks for companies that have favorable long-term prospects, which is, you know, that's competitive advantage period. Michael Mobison, how long does this last?

33:26And how long can I get a high rate of return on my capital? And how long can I sustain it? Those are the mistakes Warren has made, the biggest mistakes. That which he thought was going to last long didn't, or that which he thought was going to do well with high economic returns longer didn't. He says, I got those wrong, whether it's Dexter Shue or whatever the case. If you go to AI and ask AI to ask you what is the competitive advantage period in Nvidia, it can't do it. It could tell you what happened today. It can tell you what happened last week. And we're going to monitor the sales and we're going to monitor the margins.

34:01And they kind of drill it down into sales margins, return on gain. But it has no idea how to think about Nvidia within a financial ecology of other competitors and how it works with AI and what is that. It can't get there yet. Now, maybe AGI gets there, But right now, for a buy and hold, low turnover portfolio manager, I spend 80 to 90 % of my time on how long can this last. And there's nothing in AI that can tell me that. It's almost old school. You got to be thinking about who your competitors are. You got to be thinking about the landscape. You've got to pull this multi-hack trick together of all these things, and AI is not there.

34:42That may be where we still have runway as human beings, as individual investors. One of the great books that Andy Grove wrote, I think in the 1990s, is Only the Paranoids Survive. And AI just can't put that together just yet. And I was looking at your portfolio yesterday, and I don't know whether it's still the case, but NVIDIA was your biggest position. And that's a really difficult judgment question as to whether the valuation is justified by the incredible growth. And it seems to me that one of the things AI can't do is provide that kind of judgment on a really painfully difficult question, right?

35:24Where you're balancing questions about not only how long is it going to last, but is it worth the amount I'm paying for it? What are the risks that it stops? Yeah. I don't know. Does that resonate at all for you? Sure. I mean, yeah. This would be Charlie and Pascal and we're building probability statements. What is the probability? Is it a 50 %? What is the probability you can do this? What is the probability you can do that? What is the probability you can do this, X, Y, and Z? Then you do a weighted average is how Warren does the decision tree. But you're actually having to think about that.

36:01People look at my portfolio and say, oh, you're just an AI geek. The economic returns actually drove what are the positions in the portfolio. The only reason why NVIDIA went to the top and Amazon is at the top and that goes back to the Bill Miller days and some of the snakes, it's because they earned it. I didn't buy it in anticipation of some rabbit coming out of the hat and, oh, my God, they finally figured it out. They basically earned their way to the top. I didn't start NVIDIA in 2022. 2022, we bought it in the fall of 2022, we knew AI was coming on. We knew from the Santa Fe Institute that the GPU was the way to get there over the CPU.

36:41We knew that that was all lining up. We just didn't know that chat GPT would show up in November of that year. And of course, when it did, it was off to the race. And at that time, I think NVIDIA was 2%, 3 % of the portfolio. Well, they ended up being 10 % to 12 % of the portfolio. And we had to actually, because we manage a lot of pension plans and individual IRAs. The attorneys, either right or wrong, say, you got to be careful about your overbet. So once it gets to 10 to 12, we peel a little bit back. But basically, NVIDIA should have been at the top because it earned its way at the top. We did a study in 2023 to 2024 when everybody was telling me that Magnificent 7 was 1999 at the tech bubble when Bill and I were managing money back then.

37:24And Cisco was 101 times earnings and Microsoft with 60 times earnings and all this, that, and another. And we looked at the price gain of NVIDIA, 23 to 24, and looked at the earnings per share of NVIDIA, 23 to 24. And the earnings per share over, that was actually over a two-year period, were growing faster than the share price. The multiple on NVIDIA actually was coming down. The same was with Microsoft. The same was with Google. The same was with Meta. The same was with ASML. So all of these gargantuan businesses that are at the top and causing everybody so much angst because they believe it's the beginning of the end, have actually earned their way to the top.

38:03And so then the question is, what's the value proposition? Is it still a value proposition? And I would make an argument that 25, 30, 35 times earnings for some of these businesses. And remember, NVIDIA is earning 125 % return on capital, right? And it has no close competitor. And if you believe AI is not a bottle rocket, but it's going to last much longer than a few more quarters or a few more years, it looks to me that NVIDIA is really quite compelling. And you can make that argument about Meta. You can make that argument about Google. What's just freaking everybody out is that we've never had a trillion-dollar business become a$4 trillion business.

38:40It just escapes people's ability to comprehend. It's just phenomenal. But we've never had, if you go back to Brian Arthur and increasing returns economics at Santa Fe, when you get into digital economies, it's totally different than brick and mortar economy. And you have to think about them differently. And you end up valuing them based upon return on capital much more so than just gap earning. And when you start to do that, what is more stupefying to me that NVIDIA and Microsoft are$4 billion and Meta's heading that way, Google's heading that way, Amazon's heading that way is I can't see right now how that slows down at all.

39:17So then you got to check yourself with that. So these are questions that AI doesn't answer. You've got to run through all these Rubik's cube type things. But what I would tell you is, looking at these companies, I don't care if they're 4 billion or 400 billion, 4 trillion or 400 billion, whatever the case may be, they actually have earned it. They actually have made the money that justifies the price. It's not a hundred times Cisco in 1999. Far from it. You mentioned the Rubik's Cube. And in one of your books, you wrote that one of the secrets to Bill Miller's success is his desire to take a Rubik's Cube approach to investing.

39:56And this obviously is an approach where he's drawing on so many different disciplines and ideas. And I wanted to go into that in more depth because it relates to the question you just raised about how we have to think more broadly about how big a company can get, for example, or how companies can scale if they're digital. I wrote about Bill. I wrote a long profile of him for Fortune back in 2001 when he had bought 15 % of Amazon. It was hugely controversial. The stock had fallen to six at the time. You were very much in the mix in those days with him. I think he had got you to come run a fund at Lake Mason in 1998.

40:37And so you were there during that period. Can you talk about what it was like watching Bill make this extraordinarily contrarian bet? Because I think you were even around when Amazon was going public in 1997, and he was making his initial bet in the company. Yeah. Well, it is a fascinating story, and I want to share the complete because it shows the brilliance of Bill, which was, first of all, he bought Dell, let's just back up. He bought Dell computer, Bill will slap me on the head, you know, 93, 94. And it was a single multiple stock. And, you know, he had an idea, you know, the internet's coming, blah, blah, you know, and he had that all figured out and Dell looked pretty cheap.

41:20But what happened with Dell is that it became the very first company that became a hundred percent return on investor capital company. Never had happened in history before. And of course, the multiple went through the roof. I think it ended up being 18 % of the value trust portfolio and he didn't sell it. Dell computer went up 8 ,000 % in the decade of the 1990s. I think Bill got 5 ,000 % of that in value trust. So it wasn't that it was hard to buy Dell at six times earnings. The hard part was how did you hold it at, I don't know, 50 times earnings, 55, wherever it was maxing out. And it was the 100 % return on capital.

41:59I mean, because they had negative working capital. You remember, you'd order a computer, you'd call up Dell and you'd order a computer and you'd say, I want this monitor, this keyboard, this much speed, this much storage, whatever the case may be. And they said, okay, that's great. And X amount of dollars, and it'll be to you in two weeks. You say, great, thanks. And they get your American Express number. And then the American Express number went into the, that money went into the Dell coffers that night, but they didn't have to pay the suppliers for 30, 60, 90 days. So he grew the entire business on the accounts receivables, right, of his customers, right?

42:34It was a negative working capital story that allowed him to get to 100 % return on capital. So through the roof. We go to visit, you know, we're in Amazon. I think we're out in Las Vegas at the time doing the brokers with a boondoggle out there and we were out there speaking and bill met with jeff was right when the ipo's coming up and jeff is just this loud laughable gafoth you know and everything like that and bill said okay you know what are you doing bye bye and at the time it was books right and he said uh what's your business model and uh kind of everybody was kind of waiting around and he's trying to figure out you know was it barnes and noble this was the board you know how do you think about that and jeff said it's Dell.

43:13And Bill went, okay, explain. He goes, well, with books, I can keep them for six months and don't even have to pay for them. And sometimes they'll take them back for free. He goes, I got no capital in this thing and we're going to run it out of the garage. We got things like that. But basically he convinced Bill that Amazon's business model was Dell. And by Bill seeing what

43:41Now, here's the part. What was, so then, you know, Bill was a PhD in philosophy, absent the dissertation, pragmatism, all that. One of his favorite philosophers is Ludwig Wittgenstein, the very famous Austrian philosopher who, you know, I think it was Bertrand Russell said the greatest example of genius that you've ever seen and considered Bertrand Russell was a genius, that guy was pretty good. But he did on the philosophy of language that everything that you do is based upon the words that you choose that give the meaning and the meaning then forms a description. the description is your ultimate explanation.

44:13And Bill's walking us through this, right? And we're all scribbling. He goes, what is the description of Amazon today? And everybody said, well, they think we should buy Barnes and Noble and sell Amazon because Barnes and Noble is 15 times earnings and Amazon is through the roof and stuff like that. He goes, no, that's not the right description. You have the wrong explanation. And they said, well, now it's Walmart because they're doing other things and they're doing kitchen stuff and stuff like that. And he goes, nope, you've chosen these words. This is what's forming your description. Your description's wrong, so your explanation's wrong.

44:47And when he got it into our heads, it was Dell. Then it was home free. It was just, we're off to the races. But everybody on Wall Street had the wrong description. Therefore, their explanation was wrong. And so when you go into the philosophy of language, you begin to understand very quickly that how you form descriptions ultimately determines your explanation. You better damn well have your description right. But then Bill would come back to us and say, how many different ways can you describe something? I mean, you know, take a company, you know, whatever the case, how many multiple descriptions can you come up with?

45:19And you can come up with several different ones. Then he goes, which one's right? Because whatever the right description is, that ultimately tells you what's going to happen to the stock. So that's not taught in CFA land. I got a CFA designation back there. That's not what they teach to get a CFA designation. But Bill Miller taught me more about investing outside the world of accounting, finance, and economics than I could ever imagine that you could learn. So making those decisions required you to have a multidiscipline thought process that allowed you to pull on models from different disciplines that gave you the insight to make the bet.

45:54And when I saw that reality and I saw the payoff from that, I went, holy mackerel, this is just good stuff. I mean, it's just to make, Charlie was right. It's been a lot of loop effect. When it all comes together and all these multi-models are starting to come and working in, I think confidence goes up, not stubbornness. Your confidence goes up and you're able to pull the trigger. And more importantly, you're able to defend it when the stock price doesn't always behave correctly. There was also something exquisite going on at the time, not just with his use of Wittgenstein to say, how do you describe accurately what Amazon is?

46:33Is it a money losing business or is it, I remember him comparing it to Fannie Mae as well to me and sort of saying, it's profitability is concealed. Its cost advantage is concealed at the moment, but it will become evident later. But there was also this beautiful thing that you're deeply aware of as well that I'd love to unpack, which is that he was really profoundly influenced by William James and Pragmatic Philosophy in the Bet on Amazon. He got me to read this amazing essay that I'm sure he got you to read. I guess it was a talk that William James had given in 1898. It had the most wonderful title.

47:14It was called On a Certain Blindness in Human Beings. I mentioned it briefly in the notes on sources and additional resources at the back of Richer, Wiser, Happier, because it had such a profound effect on me. And so there's this story that Bill pointed out to me, which is that William James goes to North Carolina and he sees this cabin in the mountains in this really beautiful area. And it's just like unmitigated squalor. And he says, basically, it's hideous. He describes it as a sort of ulcer where they've just ruined the beauty of nature. And then this mountaineer comes along and says to William James, no, you've got this completely wrong.

47:55And actually what this cabin is, is this triumph of the human spirit where this guy has created this warrant of safety for family and for his babes. And it's all about the triumph of struggle and duty and success. And there's a beautiful line from William James there where he said, I had been as blind to the peculiar ideality of their conditions as they certainly would have been to the ideality of mine had they had a peep at my strange indoor academic ways of life at Cambridge. And so he's sort of saying, if they came and saw me teaching psychology at Harvard, they would be so bemused by this odd guy surrounded by books.

48:37And for me, this had a profound effect because Bill was explaining to me, do you see the biases that we have, that William James points out, where he said to me, look at this guy who writes in Barron's every week. And I love Barron's, but every week he would basically crap on them. on Amazon. Bill was like, do you see the biases this guy has? You can't see it clearly. Same with so many fund managers. I remember someone as brilliant as Howard Marks, attacking Bill at the time, saying, how can you buy something like this? It doesn't look like value. Bill said, it looks like value to me. When I interviewed Howard a couple of years ago, he was like, well, Bill was totally right.

49:19There's something really beautiful about the fact that Bill could draw on a philosopher like William James and say, okay, let me look at this company, Amazon, without bias, and just be totally agnostic. Sorry, I know I've dumped a lot on you there, but does that raise any thoughts for you? With pragmatism, of course, that's probably, Hopkins was rich in pragmatism there, and Sanders Pierce, with Charles Sanders Pierce, taught there and stuff like that. But the whole thing about William James and how Bill related to investing was just observe what's working. Now, what does that mean? Well, it could mean the stock price is going up, or it could mean that sales are going up or market share.

50:04Just kind of be an observer of what is the reality going on in the market. And he would look at things that were being successful. Then he would say, okay, why is it being successful? let's figure out, right, why this thing is doing what this thing is doing. Instead of stopping, which other people did and said, oh, the multiple is too high. Or, you know, and you wrote about this too. And I think it's something that Bill had made the bet. You know, he asked a room full of people, maybe this was 2002 or something like that, and said, how much profit had Amazon either gained or lost over the last three or four years?

50:43And the numbers were like, they've lost$3 billion and they've never made any money. And Bill came up with, you know, they made something and I don't have the right number, but you know, they made like 500 million, 600 million. And the crowd was aghast. And Bill walked them through and said, look, here's the income statement and here's the number. But right before he drops it to Gap to record it, he just throws it back in the company. But on that moment before he reinvested it, it had earned a hundred million dollars. It earned $200 million. It had a thriving, growing business. It was growing leaps and bounds year over year.

51:15But Jeff was smart enough to do what he should have been doing, which is continually reinvest in the business to make it as big as you can't be in Amazon to get there as fast as you can get the land grab, build up. You know, the thing that was so laughable was the guy that did maybe that was the Barron story. The guy that did he was doing the convertible bonds for Amazon. They did a convertible bond issuance because Jeff wanted for a one time only, you know, built six or seven, eight big distribution centers, you know, in the marketplace that he needed. and the guy continued to linearly extrapolate that he'd do that every year, he'll go broke without ever talking to management and saying, well, how many more times do you have to do that?

51:53And Jeff goes, I'm done. And Bill said, but he's not doing this again. This is all he needs for the time being. What that struck to me is this two ways. One is you just didn't do the work. I mean, here you're talking about Amazon and you're basically making a call on it. You might've thought about calling management and saying, how many more distribution centers do you need? And how many are you going to build over the next five years? And that would have said your thesis is long. Or two, could you have gone through the income statement and followed the cash all the way down and said, yeah, there's a lot of cash here just because it didn't get to the gap number at the end of the quarter and the quarter showed a loss or the quarter showed a break even?

52:31There's tons of cash. I mean, a second year student at college could have figured that out if they just would have had a nose for curiosity. So there's Bill. He's got a company that's working. He can see the revenues. He can see how it's getting bigger and getting larger. He knows that it's working. The goal, let's figure out how it's working. So William James has always the cash value of ideas. Go figure out what's working and get to it, right? And just figure out is it sustainable or it's a one-time trick pony. And William James just kept saying, I don't want to say follow the cash, but it was like, what's the cash value of these ideas?

53:07And Bill seemed to be able to snip those out beautifully, no matter what the street was saying. You know, he had the self-confidence and the ability just to say, the street says this, I see this, and furthermore, I'm betting it. And he was right. I mean, that counts. That counts. It's such an interesting and unique experience that you had, actually, to watch him applying philosophy. Because I think this subject that seems kind of abstruse and esoteric, you and I both got to see, with this tremendous sense of revelation and excitement, one of the great minds of our time, kind of taking ideas from philosophy and using it in a totally fresh way to make a fortune.

53:49And there was something just thrilling about it. You have a chapter in Investing the Last of the Block where you talk about philosophy and you home in quite a bit on pragmatism. And there are a couple of really important parts of that discussion where you say that, I think it was in that chapter where you say that Bill helped you avoid being stranded on a desert island of absolutes. And you also said he made sure that you never became a prisoner of absolutes. And I think that's such an important idea, like that Bill was so free thinking that he didn't let you get carried away and become dogmatic about anything.

54:32Yeah. Yeah. Bill, I thank you for that quote. That has to be one of my most favorite lines. I'm not sure how I ever came up with that, but let's not get stranded on a desert island of absolutes. It was one of those moments where I went, gosh, maybe you can write. I don't know. But remember Bill talked about there's kind of two theories of truth. One is a correspondence theory of truth, which is you basically have figured out how the world works. The scientists have basically said, this is how it works. And so you are connected intellectually, emotionally, psychologically to just this is how it works.

55:08This is the correspondence theory of how the world works. And then there's the pragmatic theory of truth, which is in a biological system, things are changing, evolving, adapting, things of that nature. And Bill said most of the problems and failures of investors is they're too wedded to the correspondence theory of truth. and unwilling to see what's changing and working and the pragmatic theory of truth. And you could see it everywhere, right? And I don't know how many times you and I probably have listened to a classic value investor who's had a great career, lots of money under management, stuff like that, but it's in a dry hole performance-wise and says, you know, as soon as value investing returns to the market, we're going to make a lot of money.

55:54And Bill used to laugh. He goes, I just made 20 times on Dell. That was a huge value investing. How come they didn't own Dell? And he could go through all of these other stocks that people with a correspondence theory of truth of how to think about value ignored because it doesn't work the way the world says it's supposed to work. And Bill went to a pragmatic view about what's working and how long can this work and how to think about that. And he says, value is always in the marketplace. It just migrates. It goes to different places. So if you're pragmatic in how you think about things, you're not afraid to buy value if it's in technology.

56:30You're not afraid to buy value if it's in a financial. You're not afraid to buy, you just go wherever the opportunity set is. But correspondence theory of truth does put you in a sense of absolute and you're not flexible in your thinking. There's so many classic value investors that have lost decade plus performance numbers because of stubbornness. One of Bill's great strengths was that even though he was a great value investor, obviously, he was never theological about it. He's one of the great free thinkers and agnostics about investing. There were no rigid dogmas for him. There's a very interesting book that I know you've read by Louis Menand, the New Yorker writer called The Metaphysical Club, where he talks a lot about pragmatic philosophy.

57:16The idea that I got from it, there's a beautiful line that was one of the few things I sort of really have tried to bed down in my adult brain, which was, he said that ideas are tools like forks and knives and microchips that people devise to cope with the world. And I love that, that an idea, you know, he would say, for example, that it doesn't really matter whether God exists or doesn't. It's like, is your life happier because you believe in God? And so it's sort of, as you said, I mean, I think literally that phrase, the cash value of ideas. I think James actually literally used the phrase cash value, right?

57:53I mean, it's like, how is it working for you? Is it paying off for you, this idea? And so it's just such an incredibly helpful way to think about markets. Well, if you look at Bill's value trust, it was never a growth portfolio, never a value portfolio. It was a core portfolio that had both growth and value stocks. In his mind, the growth stocks were mispriced and the value stocks were mispriced as classically defined. But when we were managing money for sovereign wealth funds and the big pension plans and traveling around the world and stuff like that, they were all like, well, is he value or is he growth?

58:26He's value, but there's value over here in low PE and there's also value over here in high PE. and so they always stuck him in core. They always made him a core manager. But that ability to be able to navigate back and forth between value and growth was a pragmatic way in which to attack the investing world. I mean, he said, I'm only going to buy growth stocks. Well, growth stocks work sometime, but not all the time. Or I'm only going to buy classic value stocks. Well, you're going to be in the doghouse two out of five years. Is that the life that you want? And he goes, well, why don't we just kind of figure it out?

58:57Let's just figure out where value is, and I'm not going to be locked in to only buying low PE stocks, and I'm not going to be blocked in to buying Tom Marcico growth stocks. I'll do both. Just tell me where the mispricing is. So that's pragmatism, right? Let's just figure out what's working. Let's go after it. I don't know if you want to talk about one of his biggest mistakes with the financial crisis, but actually it was a great insight about how that mistake was. And we all come to terms with It was cathartic, obviously. But here was a situation where we failed when we did the postmortem on it and stuff like that.

59:36As you well know, and you wrote extensively about it, we thought that 2008 was 1992. You go back to 1992, that was a great savings and loan, the Keating story and all that. And banks in Colorado were failing and in Texas and Boston and stuff like that. And it was really a mess. But the government decided that for the health and the banking system, financial system, he would allow the equity to survive, to come again. And so Fannie and Freddie went to two and three state private companies, right? Even though they were the government support. And so he bought Fannie and Freddie at two and three and four, and that was the beginning of the 15-year track record.

1:00:16So the government said, okay, it's fine. Let's just do it this way and let them work it out themselves. In 2008, we thought that 2008, having the track record of what happened in 1992, the smart thing would have been just let them work it out. We'll get through it. And through support, they'll come out on the other side and we'll be able to keep the system intact. And, of course, the exact opposite happened. They wiped out all the equity and it caused large, large ripple effects. And so the answer then was what? We had the wrong description, right, of 2008. 2008 was not 1992. It was something totally different.

1:00:54And the lesson we took away from, which is, I'd love to talk, you know, have dinner with Billy soon again and talk about this, is when government is involved in the decision-making process, you know, no matter what happened 20 years ago, what happened, you know, 50 years ago, if government and large committees are involved in decision-making process, your ability to predict what's going to happen goes right down because there's so much personality and emotion. The politics of the day was, we're not lending money to these fat cats on Wall Street just so they can keep their job and their company.

1:01:26And they wiped them out. And we missed it. I mean, and so that was one of those things where I will never forget. And anytime I see government playing a heavy hand and God knows how we can get through the day today without worrying about heavy hands. When the government gets involved in decision-making that can affect the underlying value of stocks, it's almost like the too hard pile of Charlie Munger. Remember Charlie Munger said, I'll do the easy one. This is the flat out, no, I'm not going to do it. And the third one is, this is just too complex. I'll come back to it later. I can't figure it out.

1:01:58But it's almost anytime government's involved in investing in a very big way, that's in the too hard to figure out pile for me now. I don't get involved. It's just really too difficult to make. Now you might argue government's involved in AI and governments fall in tariffs and things like that. And yet it makes it a little bit more trickier. But when something is either going to survive or not survive based upon a government decision, we're out. We go somewhere else. We're not going to play that game. Let's take a quick break and hear from today's sponsors.

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1:06:10I thought that was really interesting that he… Well, that was in your book. And I got it. You helped me understand that because when he was going through that, it was personally traumatic, personally devastating, you know, so many ways. And I did not, I knew he was hurting and I knew it was a hard, hard, hard time. I did not know until you had written about it and you talked to him about it, how important the Stoics were. And now you can see what, right? I mean, it was a perfect philosophy to embrace in your darkest hour that allowed him to come out on the other side and then still be able to contribute.

1:06:46Because, you know, something like that, there are not a lot of managers that come back from that. No. Can't come back. No, it was an extraordinary. It was an extraordinary thing. And I've said before, the thing that I really admired Bill for most in my youth as a young journalist was just the thrilling brilliance of his mind, the freshness of his mind. And then as I got older, the thing that I really admired most was just this indomitability, his ability to come back from that pain. with a sense of humor and integrity and honesty and perseverance and the courage to keep buying. I mean, he once said to me, I'm glad that I didn't curl up like a turtle or a tortoise in its shell, but that I kept buying.

1:07:40And obviously, you know even better than I do, the fact that he managed to keep personally his enormous position in Amazon, so much so that he said to both of us, I think, that he's the biggest individual shareholder of Amazon, not called Bezos. So there's something stunning about that recovery. Yeah. Well, you know, we haven't covered a lot of this. I've talked about doing something, but I don't know if you'll ever come in. But, you know, like Buffett's a competitor, right? You know, and for him, competition was a bridge and, you know, probabilities. Bill was a baseball pitcher, and I read a lot about baseball pitchers.

1:08:16And baseball pitchers have to have, you know, a strong backbone. You know, they have to have the ability when they just got knocked out of the ballpark and maybe lost the game or lost the World Series or whatever the case may be. They take a lot of pain. They take a lot of abuse. But they got to get back up on the mound and pitch again. Right. The whole, you know, you've got to wave it off and you've got to you've got to keep pitching. And you're talking about a guy that, you know, playing baseball from Little Leaguers all the way to college. So how many of those episodes in his life? and I'm just theorizing now, where sometimes you've got your good stuff and you've got the strike zone and you're fine and everything's good, and another day you might have lost the most important game and your team is down and the chance to go off into the playoffs.

1:09:05As a pitcher, you've got a lot of failure that comes your way, just naturally by the numbers. But if you spend a whole life pitching winning games and enduring losing games, as he had as a pitcher, You have to think that that helped to craft some sense of not only competition, but perseverance, willing to get back up on the mound again, not quit. You know, some kid that might have lost the game, might have never would have thrown the glove in the dirt and never come back, you know, but he was not one of those guys. Yeah, it's fascinating. I often think about what people like Warren and Charlie and Bill have, like this strange kind of chemical mixture of weird personal traits that allow them to succeed.

1:09:46And I was sort of trying to think of it with Bill this morning, right? I mean, there's clearly the extraordinary intellect and the incredible breadth of knowledge. There is this tremendous perseverance, this tremendous competitiveness and drive, amazing memory, amazing pattern recognition. Then there's kind of courage, right? To take bold contrarian bets and an independence of mind. And then I was thinking sort of the lack of emotion as well, even though I think he is sort of emotional in certain ways. Like I remember him saying to me that he would cry listening to music, I think, but a weird lack of emotion, like when there's pain in the market.

1:10:23So I remember your former colleague, Lisa Rapuano, telling me right after 9-11, what Bill was like on 9-11. And I think her phrase was, she said, you know, we were all crying and Bill and Terry and Bill's like, assess, assess, assess. It was very much like the Bill Miller who had been an intelligence officer in Germany during the Vietnam War. Can you talk about that temperamental advantage that he had that enabled him to win? Because it wasn't just intellect. There's some weirdness to the temperament that enables someone like that to be so extraordinary. Well, you hit on something very important, Will, which I think we're coming to, it's the culmination of all, right?

1:11:05His father was a baseball coach, and so he had that competition spirit early on. I spent a lot of time with Bill talking about intelligence, and he kept the cards close. And it's not like he's got any information that's now 50 years old that he can't share anything like that. I read a book that he read. He said, read Sherman Kent, who wrote a book about the intelligence services in the US. And it's almost Bill to the T, which is how to handle things like that. But Sherman Kent was also the guy that said, go find the experts, the scientists, Go find these other people. You're an analyst and you've got all this data in it, but go find out what the scientists over here are saying and find out, you know, so he was, Sherman Kent, his hero, kind of a guy that he looked up to being an analytical, you know, figure at the time in the forties and fifties.

1:11:51You know, that was probably somebody he wanted to emulate. Right. And so, you know, this whole thing about the Intel, I've got, I must have 20 some odd books on intelligence analysis, you know, kind of going, all right, what's there, what's there. And there's something there. Right. And it was his willingness to, like you say, assess, assess, assess. You go through all these layers, one, two, three. But then Sherman Kent was very much broadening out, see what everybody else is thinking, seeing what they're thinking. I never saw Bill emotional. Not to say that he wasn't. As you pointed out, he confessed that maybe in private he was emotional.

1:12:23I never saw him yell. I never saw him dressed down and analyst. I never saw him angry. he just always seemed to be so he might have gotten in the car and punched the windshield, who knows but his decorum demeanor temperament in his job as CIO and senior portfolio manager and all of this under it, we couldn't have had a better role model to go through the wicked time and he just had it all figured out but I think to your point I don't know if we can point to one thing it's just a lot of things came together in life and bubbled up but to you know if we could say if there's anything that you could say what was the one thing it was just that he never quit he never quit being curious he never quit wanting to make money he never quit wanting to be successful and there's some people that just get tired and quit he'd go home and gosh knows he he earned enough stripes and he had enough things that he wanted to call it today he could have but you know he's wide back you know he goes to bitcoin and he goes to this and now he's an AI.

1:13:29Santa Fe Institute, huge influence on his life and all that. But that's a special person that has this continuous appetite to learn and discover and curiosity. And Bill's, what, 75 this year? And just as much curiosity today as he had almost 40 years ago when he started doing the value trust track record. His enormous bet on Bitcoin in some way reminds me of the bed on Amazon. And I think when I had him on the podcast, we talked about the parallel. Because there's something about the fact that people like Charlie were saying that Bitcoin was rat poison squared. And here's Bill, who's so contrarian by nature that even though he really, really admired Warren and Charlie, it kind of excited him almost more the fact that they hated it and that they had a blind spot.

1:14:25Because he was so obsessed with pragmatic philosophy, he could look and say, there's something there missing because these old guys from the Midwest don't have a great record of understanding cutting edge technology. But at the same time, I remember asking Charlie about this and asking Charlie if there's any evidence that could come along that would kind of change your mind about Bitcoin. It was pretty clear to me from the way Charlie didn't engage with that question, that he wasn't interested in it as an investment. He basically said to me, I'm proud of the fact that I don't own Bitcoin because he regarded it as a social ill.

1:15:06Whereas Because Bill seemed to look at Bitcoin and say, well, I didn't think that the goal of investing was to buy things with tremendous returns on investment and return on capital and cash flow generation. I thought the purpose of investing was to make money. And so it seemed to me there was something kind of agnostic almost to the point of being a knock kick. What do you think? Well, a couple of things is, I'm not sure, I'd have to think about this more about whether Amazon equals Bitcoin, because the way that he described Bitcoin to me, and I think you've heard it the same way, is that after you read the paper, the argument was, I have no idea if this is going to work or not.

1:15:52But if it does work, it could be really big. And if it doesn't work, you should put no more than 1 % of your net worth in it. So for Bill, those are great odds, right? Which is, all right, I'm going to make a 1 % bet. And if I'm wrong, it's not going to change my lifestyle. But if I'm right, and there could be things that we could think about that could make it right, you know, deficits, inflation, whatever the case may be, the value of the dollar over the last hundred years, whatever you want to go to. If this actually thing works, then it could be a really big deal. And I think that's the way he set it up.

1:16:27Now, you know, writing a check for 1 % of your net worth that says, I could go to zero and I lose, you don't lose any sleep over. But when it becomes hundreds of millions of dollars and then a billion dollar investment and you still own it, and it's given a lot away. I mean, a lot that he's given away through his charity has been Bitcoin and others. I don't think he's given any Amazon away. I could be mistaken. But it was harder. It would have been harder in my mind to hold it at a hundred million than to have bought it with 1 % of my net worth. But he did. The hardest thing was holding on to it at 100 million and watch it go to a billion, not to write a check on 1 % of my net worth that's going to go to zero in my mind.

1:17:10So he saw something there. I think everyone is kind of flabbergasted. That's Charlie's word, flabbergasted at how this thing has evolved. Now, I came about it slightly different, and I don't own Bitcoin. But at the same time, I thought the argument that it can't be valued because it didn't generate any cash was a poor argument. I mean, a Van Gogh painting doesn't generate any cash. Yeah. But there's obviously a supply-demand issue here. And if demand is more than supply, the price goes up. And there's plenty of things to look at that value has gone up that didn't generate cash. So I put that aside.

1:17:51That didn't make any sense. When we bought Louis Vuitton, I would say until we bought Louis Vuitton 11 years ago, and you go through Maslow's hierarchy of needs, you know, when disposable income goes up, better tasting liquor, better tasting food, household products, and makeup. And then, you know, fourth on the list is fashion goods. You just start dressing better. And so when we drilled down into Louis Vuitton and kind of had that, I figured out one of the executives said to us, in addition to Maslow's hierarchy of needs, as you've identified, we've also discovered it's a great sense of stored value.

1:18:21that people in difficult countries with fragile banking systems or dictatorships or things like that, we can see that there's purchases there. And whether it's Louis Vuitton handbags or jewelry or whatever, if things go bad, they hop on a plane. And when they get to Honolulu, they open up the luggage and they monetize all their Louis Vuitton bags. And I said, okay, that's Bitcoin. I said, what I see happening with Bitcoin is that if you were in, and today actually there's an article on Bloomberg talking about Bolivia. And Bolivia has roadside stands transacting in Bitcoin because their inflation is 50%.

1:19:01There's no currency. But it could be El Salvador or it could be Lebanon, Brazil, Argentina, go down the list. And I gave that talk to a client event. And I said, first of all, I said, look, you're going to do it, do it with 1%. That's the right way to do it. But two, if it works, Charlie may not be right in that it could be horse manure here in the United States where we don't have a fragile banking system. And even though we've got some inflation, nothing like you would see in very poor countries. I'd say, but imagine if you were, you know, in a very dire place, maybe you would have some money in a blockchain Bitcoin that if you had to leave the country, you wouldn't even have to worry about them searching your luggage.

1:19:41you can get out of town, get to the next country and access your blockchain and bring your Bitcoin with you. That to me makes perfect sense of why Bitcoin has tremendous value. It's just it has value for different people in different locations. A woman came up to me afterwards. She goes, that was the best explanation. Our family lives in Argentina. We've been wiped out twice by the government. Bank account to zero twice. Yes, we're in Argentina. We have a lot of Bitcoin. And so then I went, okay, so then Bitcoin is something that would be a currency that would be valuable to people in very unstable countries, economies, whatever the case may be.

1:20:20I've lost sight and help me, William, understand what's going on today. Yeah, I mean, I don't understand Bitcoin either, despite the fact that Bill told me to buy it backward. It was at like 8 ,000. I think you and I are way beyond our pay grade here. And I can tell that people are going to write in and complain, which is fine. That's where I put it in the too hard to figure out pile. And I just move on. I did as well. And I don't think that's a mistake over the course of an investing lifetime to say, there are all of these things that I don't understand and I don't have to do them. I don't have to play this game in order to do well.

1:20:59And one of the things that Bruce Greenwald, this great investor and former Columbia professor said to me at one point, we were talking about Bill's Amazon bet. And Bruce obviously had thought at the time that it was an incredibly stupid bit bad and is very honest about the fact that he was wrong. And Bruce had been shorting it back then. Bruce said to me that Bill is a specialist in explosive upside. I thought that was such a beautiful insight. I love it. I've never heard that before. I love it. I love it. I thought it was a brilliant observation. And it goes back to what you were saying about the probabilities with Bitcoin, that he could look at something and say, well, if I'm right, it's going to be enormous.

1:21:46And same with when he was being attacked all those years ago by Bruce and others at a conference that I attended that had all these guys. I think it was Seth Carman and Bill Ruin, all of the legends of the business, and Bill got kind of pilloried. And he said, as I recall about Amazon, if I'm wrong, we'll lose all our money. And if I'm right, we'll make 50 times our money. And so that willingness to bet on things where if you're right, the payoff is enormous, it was just very distinctive to Bill. Yeah, but he would right-size the bets. I mean, I bet if you and I went back and looked at Amazon, I don't think Amazon in 2001, 2002, I don't know, I'm just speculating.

1:22:27I don't think Amazon was 50 % of its net worth in 2002. It wasn't. I mean, it could have been a 5 % bet, but when you buy it at nine, I think he had$9 Amazon on Lake Mason Opportunity Trust,$9 Amazon. You can buy a few hundred thousand shares and it's not going to be your entire net worth. You can buy a few million shares and it may not be a big part of your net worth. But once again, here's the Lou Simpson, right? One of my favorite lines from Lou Simpson is that it's not difficult to identify, he would say, not identify good businesses. The hard part is holding on to them for a decade. And that's where I've been spending a lot of time with, which is, you know, once again, is it going to last a decade?

1:23:08Let's get that part right. Right. Can this last a decade and we can make money for a decade? That's a total, you know, different set of thinking model. But then the question that I'm spending time on, and I'm talking to Michael about this and the other one, is what is the ride like when you said, OK, I got T1 to, you know, T100. I made 100 times my money. What was the ride like along the way? And what kind of character, temperament, belief, confidence that you needed to have to keep the bet on, right? That, to me, is a fascinating thing. So, you know, Hendrick, Beth and Minder, the professor from Arizona State University.

1:23:46So, I've been going through his research and stuff like that. And his latest one, I think he did. It's the same thing that he does, which is, I think, since the Great Depression or something, And he looked at all the stocks and figured out that two-thirds of them don't even beat the treasury bills over time. And only a small 1 % actually add most of the value of what stock market capitalization is. And he updated the paper 1990 through 2020. So it was a 30-year look back. And he took out the 50 best contributors to the total market capitalization over the period. 35 of them were U.S. stocks. 15 were not.

1:24:23So I looked at the 35 U.S. stocks. And then I said, okay, in the last 10 years of these 35 stocks, what's been the performance? And there have been 17 underperformers out of the 35 and 17 outperformers. The one odd ball is General Electric that separated itself. So we took that. So we took the 17 outperformers. we said okay if you'd had you had no premonition that these would be you know the biggest contributors to the stock market capitalization but these were good businesses you know they're leaders in their industry and stuff like that and you decided that you were going to buy all 17 equally weighted over the 10 years what would have been the right you know what would have been it what would have been like and of course it crushed the market i mean you know the market was up i don't 200 these guys were up 800 if you took out nvidia which was you know amazing, up 28 ,000%.

1:25:13I think the portfolio was up 600%. So clearly home run territory. Then we looked at it, as I was saying earlier, we said, all right, what's the frequency of the outperformance? On a monthly basis, these 17 biggest contributors to market wealth capitalization underperformed monthly 50 % of the time. Quarterly, kept this off to the side, 60 % of the time. yearly 63 % of the time. Drawdown. The drawdown, well, actually they had 102 different periods of 20 % drawdowns over the time period, once, you know, twice on average. Then we looked at the worst percentage drawdowns from trading high to trading low, average 41%.

1:25:55So here you have a portfolio that's going to kill the market. You basically are only going to win 50 % to 60 % of the time monthly and quarterly. And along the way, you're going to have 40 % tight drawdown. Who holds that portfolio? Who holds those individual stocks? And that to me is a missing piece of our puzzle to figure out, which is there's some good businesses out there, but I think we cut them loose too fast because they'd either underperformed for a while or there's been a big drawdown or something. And here's modern portfolio theory and variance and loss aversion, Kahneman, Tversky, all this stuff all the way down the line, that, once again, Simpson was right.

1:26:38I don't think the difficulty lies in making these individual bets as much as it is hanging on to them when the road gets bumpy. And here's Bill, right? How many bumps did he go through a lot of bumps in Bitcoin? He goes through a lot of bumps in Amazon. He goes through a lot of bumps and we can go down the list. What was it about him that he said, play the courts. Yeah, 28 years of holding Amazon. It's a stunning thing. And same with Nick Sleep and Gates Sicaria, who came to it a little later, obviously. But last time I chatted with them, almost their entire net worth was still in Amazon, Costco, and Berkshire.

1:27:21So just three stocks. And I remember at one point going to Nick, and I'd interviewed some legendary investor who had said something really negative about Berkshire that was really quite worrisome. It almost made me sell my Berkshire. And I told Nick, and he was like, yeah, great culture. And he just didn't do anything and just kept it. And all these years later, you know, like, I mean, it's an incredible temperamental ability to hold. And then at the same time, Bill Nygren, who I had on the podcast recently, was really kind of irked by this idea that there are these compounding machines that you should just keep holding.

1:27:56And his view is, no, there comes a time, you know, he was happy to, I think he'd held Apple or something for like 12 years, but he's like, no, at a certain point, you have to sell because the valuation isn't where you need it to be. How do you think of that kind of quandary? You know, what I will do, and I'm not saying any of these guys are wrong, they're much smarter than I am, but I would say, I go through this iteration, the first thing, So you were saying, let's just make it easy. A 25 stock portfolio, 4 % is the average bet. 2 % is the entry bet that goes to 4. 4 of 4 is going to 2 to 0. And then you have your overbet.

1:28:35So today, NVIDIA is an overbet. Amazon is an overbet and stuff like that. But Apple was an overbet for me at the end of last year, the beginning of this year. And so it was 7, 8%. Now it's a 3. And I wasn't selling it just because Warren. And, you know, we were selling it because we were concerned about the app store and what was the revenue growth of the app store. You know, we knew, you know, AI was an issue and stuff like that. So there was a point in Apple that you basically felt that it wasn't an 8 % overbet. So I get that. I mean, that made pretty sense. So it's still down there. You know, we saw Paul Johnson out at Guy's conference as well.

1:29:17And he did a presentation on Apple, and he's working on a book, I believe, they'll be out soon, I hope, on how to value growth. So when we bought Apple 2014, and I guess that was about the same time that, I think Ted Wexler bought it, 2016. But you could have bought Apple, and it was discounting zero growth. It said basically the handset business is flat. But you looked at the service business that was growing at 30%, 40 % per year with returns on capital that were 100%, and that was 20 % of revenues. And you can say to yourself, well, geez, if just the app store works out and the handsets don't move, we still can make money here.

1:29:54And that's the way we thought about it. What's gotten to be trickier though, is now that the price of Apple is really about 15 % growth. And it's struggling to get there. And so it's a harder puzzle today than it was 10 years ago when we were buying this stock. Today, it's a little bit trickier than how to think about. But it's all about right-sizing the bet. I very rarely go from zero to four or four to zero. I mean, I work it up and then I'll work it down looking for disconfirming evidence along the way. And we're always looking for disconfirming evidence. Who else has an idea that you can go on Bloomberg and get all the analysts?

1:30:35And these are short-term type things, but I'm looking for the outlier. Who thinks this is going to the moon and what's your thesis and who thinks this is going down 50 % from here? What's your thesis? And then we try to block those off and then start working into the middle to try to figure things out. So it, you know, you know, built it to art and science, you know, there's, there's a little bit of the art side to it, you know, and will AI figure that out? Maybe there'll be a model that tells you, you know, how to do that. And I actually wanted to show you that because when you say Bruce Bruce Greenwald, I'm reading this for about the 10th time, competition demystified.

1:31:10AI can't write this book yet. But this is where I think the secret, and Moe was in competitive advantage period and Porter's five forces, but AI can't get there yet. Yeah. AI is not yet as smart as Bruce Greenwald. No, not yet. Well, in some parts. Oh, yeah. He's a pretty smart dude. Yeah, I wanted to talk a bit more about this whole topic of concentrated investing, because it's clearly a really central part of your focus over your career. You wrote a book titled The Warren Buffett Portfolio, which is subtitled Mastering the Power of the Focus Investing Strategy, which is all about succeeding with a concentrated low turnover portfolio.

1:31:56There's a great quote that I think is in the Warren Buffett way where you quote something from Warren where he talked about how if you're a know-nothing investor, yeah, it's fine for you to diversify on dollar cost average. But then he said, and these are his exact words, on the other hand, if you are a know-something investor able to understand business economics and to find five to 10 sensibly priced companies that possess important long-term competitive advantages, conventional diversification makes no sense to you. I wonder if you could talk a bit about this because you gave an excellent speech at ValueX, BRK, Guy Spears conference.

1:32:34I think this was two years ago. You gave a very good one last year as well, or this year on private equity. But you gave a very good speech about the general failure of active investment strategies. Then this curious fact that concentrated low turnover value strategies seem to have worked really well and yet almost nobody does it. Can you talk more about this? Tell us for a start, make the case for why this actually is a good strategy. Okay. Well, as I said, when I wrote The Warren Buffett Way, I don't think I even mentioned portfolio management. I think I said something like, Warren buys and holds for a long period of time and they never sell.

1:33:14So after we wrote The Warren Buffet Way, which was all about stock selection, I remember watching the days when I was probably watching more financial news networks than I ever do today. You have these people come on and say, well, I really like to buy companies with favorable long-term prospects, simple and understandable. We like cash earnings and good returns on capital. We want management that looks after our interests, and we're all buying them for less than they're worth. And I go, that's great. That's The Warren Buffet Way. They got it. This is perfect. And then you look at the portfolio and it's 100 stocks and 100 percent turnover ratio.

1:33:48And you go, wait a minute. This isn't right. You know, you're talking the talk, but you're not walking the walk. And so when I told Warren we were going to do the book, you know, he was one of my first interviews and he was very plain spoken about it. And simply, you know, he said, Robert, we're just focused investors. We just focus on a few companies. And so he didn't give me, you know, the answers. He just said, this is what we do. Go for it. So the thing that we did was we started looking at those people that were doing it. And you go back to John Maynard Keynes at the Chess Fund and you had Charlie's track record.

1:34:19You had Sequoia Fund track record. You had Lou Simpson's track record and you put it all together. All of them, fantastic long-term track records. All of them, except Buffett, had periodic underperformance and frequency magnitude issues and stuff like that. But clearly it was an optimal strategy. Then we did 3 ,000 portfolios for 250 stocks, 3 ,000 for 150, 3 ,000 for 50, and 3 ,000 for 15, and ran it through the computer through the, I think it was 2 ,000 stocks. And sure enough, to the degree that you reduce the number of stocks in your portfolio, it increased the likelihood, the odds that you would outperform.

1:34:57It also increases the odds you would underperform, so stock picking becomes critical. And so it started to all add up that you know, the optimal strategy is to own fewer stocks than own more stocks. And right then, so that was kind of 1998 going into 1999. We came out with that and said, you know, this is the way based upon these facts, you know, very simplistic facts, this is the way you ought to do it. I think where it then jumped a big notch in my mind, William, is that when Kremers, Martin Kremers and Pettigusta wrote the high active share papers in 2009. So 10 years after we wrote more about the portfolio, they come out with high active share.

1:35:36And they do an academic rigorous study of a gazillion mutual funds and break it down and say, sure enough, the fewer stocks you have in the portfolio, the higher likelihood they've been outperform. A couple of years later, they do high active share and low turnover. That's the sweet spot, high active share, low turnover. There's your excess returns. And so it's all laid up. But they also found the same thing you mentioned, right? Which is that you also increase the probability of underperforming. Well, that's it, right? So you've got to be a half-decent stock picker. So if you just kind of say, okay, if you can give us that, we can do an average job of picking half-decent stock.

1:36:16What Charlie said, I think it was back in 1997, and I wrote it down again, he said right in the end of the meeting, he's talking about the Berkshire system of managing concentrated low turnover portfolios. He said, if we are so right in the Berkshire system, Why are so many eminent places so wrong? Well, then that opened it up, right? All right. So let's get to the heart of the matter. And that's when I drove down into modern portfolio theory, which basically hoodwinked everybody into thinking, we've got the perfect strategy for you to get through a bumpy ride, non-correlative, broadly diversified.

1:36:48You won't have to worry about drawdowns, and we're going to give you good performance. But then when you look at the performance and you go through the SPIVA data, the S &P versus active managers. It's atrocious. I mean, it's just absolutely atrocious. We all knew it intuitively. Long only managers, it doesn't matter if you're big cap, mid, small, value, growth, core. It doesn't matter, international, domestic. It's atrocious. Atrocious. Horrible. So you said yourself, okay, if modern portfolio theory, broadly diversified portfolios, low tracking year, low correlation, but they can't beat the market and the focus investing can beat the market, but it has the baggage of high tracking era and standard deviation and periodic underperformance.

1:37:34Why wouldn't you just a rational person say, let's do the focus investing and put the rest of it in an index fund? And as simple-minded as that, you'd be shocked at still how many thoughtful consultants still can't wrap their hands around it. And when I talk to people, and I'll leave them out of the conversation, when I talk to people that actually recommend it, they want to recommend focus portfolios. They want to recommend concentrated low turnover bets. And the client understands the mathematics of doing so, but they still freak out on drawdowns. They still freak out on standard deviation. They still freak out on volatility.

1:38:10And it is that, it's the kryptonite. It's the kryptonite of our industry, which is people cannot handle volatility. So then we get back to, well, okay, volatility is an emesis. Maybe private equity is going to take over the whole world because they don't have volatility, right? They're going to be able to sell it to anybody, right? But Warren, what was so brilliant about Warren, and I said this in the book, is that I think two things happened to bless Warren of many things that have blessed him over life. One is that he was never raised on modern portfolio theory, so he didn't have to unlearn it.

1:38:45Same with me. I wasn't raised on finance and accounting. I never had to unlearn modern portfolio theory. And secondly, he both owned private companies and public companies at the same time. And he chose to treat his public company in the same way he chose to treat his private company. And analysis and performance evaluation and management, the lessons learned in private companies were the same lessons learned in his public companies. And he treated them both the same. Nobody else has had that kind of experience. And Warren said, I think we'll just do it this way. And Charlie said, I think we'll just do it this way.

1:39:22But there are other people that are very, very smart that basically say, yeah, that makes all the sense in the world. But when the price shows up, they just go weak knee. They just go weak at the knees. And William, I have no idea how to solve prospect theory. I mean, it is a fact of life that people wait a unit of loss twice as grievous as they do one unit of gain. And I don't know. I think at the end of the day, this is our kryptonite. We just can't get over this. And I don't know what happens from here. I think some of it is just wiring, right? Because I've told this story before where I was with Bill right after 9-11 with Bill Miller and he calls the office in Baltimore.

1:40:06He was visiting his alma mater and he calls the office and they tell him that AES, which he had just bought the day before, had just massively missed earnings and he just lost like 50 million dollars and he just immediately said, he got really serious and he's like, where's my cash? And he's like, that's just double opposition. And he hadn't really done his work yet. And he just said, basically, that because people feel the pain of loss twice or two and a half times as keenly as the pleasure of gain, he just had this assumption that people were overreacting. And you write about this in in the psychology chapter of the investing the last liberal art book there's this kind of foundational paper from 1985 where i think it was richard thaler talked about how how yeah how people overreact to new information whether it's good or bad oh yeah um and so i and so i think there are just a few people like like bill or charlie or warren who who sort of don't really feel those emotions.

1:41:12Like Charlie said, he didn't feel the emotions at all. He just could see that the odds were great. And he writes about that he was never bothered by drawdowns. He said, I was raised by a family who had to deal with bumps. We dealt with bumps in life. That's who we were. And I was trying to think, his dad was an attorney, right? And his grandfather was a judge. I'm trying to think, well, what bumps in life did you have that prepared you for the psychology of having bumps in the stock market. But that was Charlie. Charlie said, you know, and he said something like, if you can't handle the idea of going down 50 % somewhere in your career as an investor, then you deserve the mediocre results that you're going to get for trying to avoid it.

1:41:52I think it takes a weird type of person to be able to handle it in reality. Like you can, you know, theoretically, all of us can say, yeah, I understand that these are great opportunities when there's tremendous volatility. But when it hits the fan, most of us don't really think that way. I don't know. I sometimes wonder if there is something a little bit emotionally defective with a lot of these people that it's connected. I know it's a little bit too glib.

1:42:27There's something directionally correct about it, but I think it's connected to the fact that so many of them end up divorced, right? Like there's a sort of, there's a lack of emotional intelligence that allows them to kind of look at probabilities. I don't know. But then Bill has a great deal of emotional intelligence. I, you know, I, maybe, you know, maybe why, you know, I don't know. I don't, I feel, you know, I don't know what I'm going to say this year when we go see Guy. You know, I kind of feel William and this is me on the couch talking to my therapist. I, you know, I'm getting tired of swinging at the windmills.

1:43:01I mean, you go at the windmill so many times with all the facts and the fence and the obvious things that you can do. And basically, people are just saying, no, I can't do it. I just cannot do it. So then the argument is, well, there's your excess return. But you've got to find those people. I didn't tell you the Bill Ruane story yet, did I? No, I mean, I've heard you tell it before, but it's an important one to tell. I mean, and he's a fascinating guy. Yeah, this is my solution to how to deal with the fact that people can't embrace focus investing. So it was right after Warren Buffett Way was published.

1:43:37And on those days, when you might remember the meetings were on Monday because there weren't that many people. I think there were 3 ,000 people that went to the Holiday Inn Convention Center. And the baseball game was on Saturday. And Warren would go out and, you know, the Omaha Royals get up. And, you know, he would throw out the first pitch. and we were watching the game along the first baseline. And here walks up Billy Wayne, who I'd never met, but I certainly recognized him. And I said, Mr. Wayne, I said, you know, I'm Robert Hackstrom. I wanted to introduce myself. I just wanted to, you know, congratulate you on everything that Sequoia Fund had accomplished, the very first focus fund, whatever.

1:44:11He said, Robert, you're very kind. You know, congratulations on your book. And I said, well, thank you. And he said, I guess you're going to try to manage money. I said, well, yeah, I guess I'm going to try to manage money and, you know, do this Warren thing. And he said, well, listen, can I give you some advice? I said, absolutely, Mr. Wayne. He goes, I'm going to give you some advice, but you're not going to take it. I said, no, I assure you, Mr. Wayne, any advice that you give me will be under careful consideration. I will certainly take it to heart. He said, no, you won't. I finally said, look, just give me the advice and we'll go from there.

1:44:43And he said, well, you're going to start this, you know, in a portfolio. And you wrote a good book and everybody loves Warren Buffett. So you're going to get a lot of people to say, yeah, I want to do this. And you'll get a lot of money. and uh and then uh and about six months later about half of them are going to start yelling and screaming at you because you're underperforming or you don't own oil stocks and oil stocks are going up or you you don't own this and that and they're all going to be complaining at you and i want you to fire every single one of them i said okay i'll fire every single he goes no you won't i said you're a young man you've got a family you got a mortgage you're saving for your kids you're not going to sell those assets he said you know you're going to try to convert them thinking that you can bring them to salvation and doing this stuff.

1:45:24But I guarantee you, if you don't, your life will be miserable because you'll be spending half your time trying to convince people you've already convinced once, stay in the game with you. And it's just a horrible thing. So make sure you pick the right parts. And so my strategy now is that somebody calls and says, we're going to put a million in. I say, I'll tell you what, I'll make a deal. Put 250 ,000 in, but don't bother me for three years. If that's a deal, I will take that deal. Right. But I don't want a million. And all of a sudden, if AI is not working, you know, in the fourth quarter of this year, because it didn't work in the first quarter of this year, when, you know, everybody was going in a de-risking way, I don't want you calling and yelling at me about, you know, sell this, let's get out of this.

1:46:08I don't do that. You know, so give me 10 % of your money, give me 5%, but give me something that you can handle, and I'll take that, and then the rest you can farm out to somebody else and do something else. I'm beginning to think that maybe that's the only strategy I have left, which is you almost say, I don't want your money, so they give it to you, but take less than they would otherwise give you, or take less than the amount of money that would cause them discomfort. It was J.P. Morgan. And a guy talked to him on the street and said, God, I'm so worried about the market. And, you know, it's going to go down.

1:46:45I know it's going to be great. And, you know, and I can't sleep. And, you know, what should I do? And JP Morgan said, well, sell down until you can sleep. It's kind of like you should sell down your portfolio and get to a focus portfolio to some level that you can sleep. And, you know, maybe the strategy, and we'll see, you know, what others say, maybe the strategy is to say that this is always going to be a satellite, unique, different type thing. you know you diversify by styles you diversify by market caps you diversify by u.s and international i said why don't you diversify by running a concentrated low turnover and the rest of it you can run modern portfolio theory and just let them run side by side for the next three to five years and let's see what's happened you know i'd love that bet so you know it it's about it's about finding the right opportunity with the white people you can make this happen.

1:47:33But as you point out, William, it's very hard for most people to get comfortable with a focus portfolio. That's just a fact. Well, you have some great statistics in your various books where you make it pretty clear why it's so hard. I mean, you talk about Ruane's Sequoia Fund, how it underperformed 37 % of the time, and he got off to a terrible start right in 1970 to 74, where he was 36 percentage points behind the market. Same thing with Lou Simpson, who generally had less than 10 stocks. You said he underperformed the market basically about a quarter of the time. Munger crushed the market over 13 years.

1:48:15Yeah, but huge drawdowns, and particularly 72 to 74 when he got really close. And he never wanted to manage money individually again, right? I think so. So I think it was very painful. Yeah, well, by that time, they were doing the blue chips and the seeds candies. And I think the future was the closed-end fund, Berkshire Hathaway. And a lot of people, I think, have it wrong. They say, well, Warren's got it easy. He's got a closed-end fund. He doesn't have to worry about redemption. You underestimate how emotional Warren is about his partners and that he wants no harm to come to them. Now, harm to that is permanent capital loss, not short-term quotational loss.

1:49:02But even though he runs a closed-end fund, so to speak, he has an emotional, emotional dedication to his partners to do the right thing. Now, he did, I think, remember that when he did the annual report? It might have been 2017 when he did the Rudolf Kipling poem of If. and he went back from 73, 74. And there were four different periods of time where Berkshire Hathaway went down at least 50%. Maybe one of them was 39%. 73, 74, 87. It was 2000, 2000. It was actually 99 to 2000 during the tech thing. And then the financial crisis where Berkshire Hathaway went down 50%, 50%. And he pulls out Rudyard Kipling and says, there's the temperament that you need when stocks go down 50%.

1:49:51So, you know, he's just saying, and he said it to him again, you know, the light doesn't stop at yellow. It goes from red to green or green to red. It doesn't stop at yellow. And it's going to happen again in the next 50 years. And when it does, just think about Woodward Kipling. So it is a temperament thing, it is self-confidence, but it may be, I'm thinking at this point, if we could run 5%, 10%, 5 % of modern portfolio theory money, and generally speaking, and focused strategies, maybe those strategies would demonstrate over time their performance characteristics that people would look back and go, okay, they made more money than the S &P 500.

1:50:29Yes, they had a bumpy ride. Yes, there were drawdowns. But boy, this worked out fine. So why don't I make that my private equity bet? And so you heard Warren talk about private equity. He goes, I don't get it. I just don't get it. Why would you buy private equity? Not only is it illiquid, the menu set that you get to choose from in private equity is nowhere near as grand as the opportunity set of public stocks that you can look at. The economics of public stocks, in most cases, are far superior to what you can get in private equity. and three, the market gives you these opportunities periodic to buy these things at huge discounts, which you no longer get in private equity because they're all long cash and short deals.

1:51:11And as Warren says, I can't compete in this space anymore because private equity is the price of them. So private equity gives me illiquidity. It gives me a menu set that is not as big as the public markets. It gives me economic returns that are lower than the market. and two, I can never buy them at a cheap price. Why would you sign up for that? And oh, by the way, the performance returns in private equity in the last 10 years are really bad. So if you look at what, it's no longer the Swinson market in the 1990s when he was killing it and there was an illiquidity premium, right? You made huge money back then.

1:51:46If you look at the private equity, whether it's the cigar butts, it's the growth companies, the venture capital, they're all underperforming. So what do they got left to sell? Once again, the only thing they're selling is no volatility. They've gone to the Achilles heel of where the client is most at emotional risk and says, I'll solve that problem for you. And they're coming, you know. So my thesis for Guy this year is, well, if you can't beat them, join them. And what we need to do with focus portfolios is treat them like private equity. And if you don't give them anything but price returns to judge their performance, then they're always going to judge you by your price returns.

1:52:23But if you give them their price returns, which we're obligated to do, plus the economic returns of what we own and the progress of the economic returns of what we own, maybe they can glam on to that to say, OK, the price is doing this, but the economics are doing this. I'll think we'll just hang on. And maybe that would be the saving grace. I don't know. I think it's always going to be hard to deal with the volatility. I don't know. I mean, I'm a heavy proponent of concentrated funds and I own them myself, but I don't know. It's hard. I worry. I mean, I feel very happy with it lately because they've been great for a few years.

1:53:02But when they start getting crushed, I mean, I own three concentrated funds, one of which has maybe nine stocks, one has eight stocks, and one has 70 % of its money and seven stocks. but owns probably more like 20 and all. But then I also own a couple of index funds and one diversified fund. So I'm a big believer in this stuff, but I feel like kind of smart at the moment. But then there was one, I mean, I remember one of those funds went down 46 % in 2008. And I didn't feel so smart then when I simultaneously lost my job and I was down 46%. That's a hard one. That's a hard one. It was really painful.

1:53:45Well, you know, when I do a client event, someone would say to me, they'd say, oh, Jesus, you know, the market goes down and, you know, we've got these wars in the Middle East and God, this is happening and the deficit that's happening. You know, I just I really feel like, you know, it's all coming to an end. And I said, well, you think this is it? And he goes, yeah, this is it. I said, well, how much bottled water do you have in the basement? Oh, no. And I said, canned soup, peach preserves, AK-47, anything in the basement? And he goes, no. I said, well, I guess you don't think the world's coming to an end because if you thought the world was coming to an end, you'd be batting down the hatches and getting ready.

1:54:17And I think Warren, once again, Warren, believing in the American tailwind and the love of this country, we've taken so many body blows that his viewpoint is we can take pretty much any body blow that comes. And the worst one would be, as Warren has said, his worst fear is the nuclear. But we've taken body blows for 250 plus years, and we always seem to be able to come back. So that's a pretty good frequency distribution, right? I mean, you know, how many body bloods have we taken and we still seem to get to the other side and come out a little bit better. That's his personal philosophy about it.

1:54:51I think in rereading the Warren Buffett way over the last couple of days, I also found it really reassuring to kind of pound into my brain some of these very fundamental foundational tenets that you talk about there, that it's really easy to forget. I was very struck by this central idea where you just said, these are your exact words, you said, when Warren Buffett invests, he sees a business, most investors see only a stock price. And then you had this quote that I'd kind of forgotten where he said that the nine most important words ever written about investing were the sentence from the intelligent investor where Graham said, investing is most intelligent when it is most businesslike.

1:55:32And so for me, that was like a really good example, a really good reminder that with these focused funds that I own, you know, it's like, I, I, I'm an investor in things like Amazon and Meta and, and stuff like that. And they're, you know, Alphabet and, and they're whatever happens to the world over five, 10, 15 years, some of those companies are going to do pretty well, I think. And, and I think just Just the reminder that we own businesses here, that this is what's really extraordinary about Buffett, well, one of the many things, is just this sort of elementary idea that you're owning businesses that are growing and making money.

1:56:17I don't know. Does that raise any - 100%. If we go back and talk about Markowitz, I mean, here was this kid, he was a fine young man, you know, that liberal arts major, never owned a business, never owned, you know, an individual stock, never invested in the market, just had this view about the economy and risk and return and stuff like that, and took it upon himself to define return as expected yield, which is, you know, kind of Buffett's coupons. And he read John Burr Williams, got that. But he said, you know, there's not a really firm definition of risk. And so I think, you know, a suitable definition of risk is variance of return.

1:56:53And he put it into his dissertation, put it into the 1952 paper. Now, what I find interesting, I think we talked about this, which is, well, that's not what Graham said. Graham said risk is margin of safety. And he wrote about that in 34. He wrote it again in, you know, 49. 51 was the third edition. He wrote about an intelligent investor. And he said, no. Now, as we both know, nobody gave a crap about Merkowitz and modern portfolio theory for 30 years until we had the 73-74 blow up. And then the value guys were gone. Warren was gone. He didn't come back to 84 when they did the security analysis 50th anniversary.

1:57:28There was nobody to pick up the pieces except these academicians who had been sitting in the hallway waving their hand saying, hey, you want to try something new? How about broadly diversified, low volatility portfolios with minimum drawdowns and we'll try to give you a good return on your money. and everybody said, that sounds good. They didn't want to say that's a business. It was all about building a portfolio of stock prices that were non-correlative, that wouldn't bounce around a lot. And over time would give you a good return. They totally divorced investing from the business and it became managing a portfolio prices, not managing a portfolio business.

1:58:03So I'll give you the last one. I'm keeping an eye on the clock. I know we're running. When I do a seminar, I say to my people, my best partners, My best investors and global leaders have always been business owners because we talk the same language. When I talk to a business owner, I say, what's most important to you? And he goes, cash. I got to pay them. I need my money, right? I need money to come out. I need to pay my bills, whatever the case may be. I said, yeah, I get it. That's what I do. And we talked about, you know, if you borrowed money, you better earn more than what you borrowed, blah, blah, blah.

1:58:34and i said by foreign and uh mrs owners are my best clients because we're talking the same language they get they seem to say yeah it's a stock but i get it i own a business you own a business we we talk a common language then i have the people in the room how many are your business owners maybe a dozen hands go up and then i'd say how many of you in the room own common stock the other 88 hands go up in the air and i'd say okay you 88 people own common stocks what What do you think they are? And they have no answer. The things that you own are businesses, right? People do not think that a stock price, as you said, they have not yet made that connection that I bought Meta.

1:59:21It's a business. It's a publishing business, right? Amazon is an online retailing, advertising, data center business. These are businesses. But you ask people that own common stocks, how many of you own businesses? They cannot put that two and two together. They don't feel it. And Warren felt it because he did both simultaneously. He owned private businesses. At the same time, he owned public companies. Now, what will be interesting is that now they want to do privates, and they're going to do tokenization on private. How are you going to determine what is the value of the tokenization? Well, at private equity, they should tell you what the revenues are and what the margin.

1:59:58Are we making progress economically speaking? So there could be a way that you could pick up on the experience of owning a private company. You could buy, you know, this, you know, Elon Musk rocket company. I'm having a moment here. SpaceX. All these different private. Yeah. Thank you. All these private businesses you can now own and mutual bonds and you'll be able to own them in Robin Hood and different places. And you'll be able to trade them through this tokenization process. But then how do you think about those? Are those different than stocks? or you're going to treat them the same way as stocks?

2:00:28They'll probably treat them the same way as stocks. But if we can find some way to connect people that that stock is a business, how do you determine what is a good business? That's the same way that you determine it's a good stock. And if we can get them to figure that out, but we've been trying for 50 years and for 40 years, they said don't write any more about Warren Buffett giving away all the secrets. It didn't seem to matter. It didn't seem to matter at all. Well, I think that gets at such an important point, which is that however much we study this stuff, and you and I have both written a lot about the greatest investors, right?

2:00:58I mean, we spent much of our adult lives studying these guys and then writing about them. There is something ultimately inimitable about them. We can internalize their principles and by internalizing their principles, it definitely helps us do less stupid stuff and we're more likely to do well. But I still think when you look at people like Warren and Charlie and Bill Miller, there's some weird X factor that ultimately makes them inimitable. I don't know, there's a part of me that sometimes feels slightly sheepish about this, because I write a lot and talk a lot about these guys, and I'm saying, here are the ideas you need to get from them.

2:01:43I know those ideas will help people, because I know they've helped me, but there is a kind of gap between the theory and the practice. And I wondered if you've sort of thought about just that fundamental problem, that there's some X factor that's inimitable because they're just kind of brilliant and weird. I thought about it a lot and I just finally came to the realization, I will never be as smart as Bill Miller. I will never be as smart as Warren or Charlie, and I'll never have their X chromosome, whatever the case may be, that gets them to a level. But I have always argued in the books and stuff like that.

2:02:19You'll never get the, you know, there was a guy, Alan Sloan wrote an article in Newsweek way back when called A Pig in a Poke. And he said, well, Robert wrote this book. We don't know, you know, it's like a pig in a gunny stake. You don't know if it's a little bitty pig or it's going to be a big pig, right? And he argued that nobody, just because you wrote a book about Warren Buffett, no way you're going to be able to achieve the same returns as Warren Buckley. And my retort was, well, I agree with that. And I would argue that if I wrote a book about Mozart, I will never be able to compose or play the piano like Mozart, but maybe I get to be a little bit better piano player than I otherwise would have been.

2:02:56And the way I've settled in life and my viewpoint is I'll never be as good as Bill or Charlie or Warren, but by studying him, have I become better than I otherwise would, or better yet, am I better than the index that I'm competing against? No, I didn't generate the same returns, excess returns that they did over such a long period. But the 14 years we did with Bill, we were at one time the number one growth fund in the country. The last 11 years running the global leaders portfolio, we're ahead of index. That to me, the ride has been worthwhile. Not that I will ever achieve their level, and I will never.

2:03:34But by studying them, did I get just a little bit better? Did I get just a little bit better that allowed me to be a little bit more than average? If you got that, then I'm okay. I'm okay with that. Is there anything that you feel you've learned from observing Warren and Charlie and Bill that's actually really helped you to lead a happier life? like when you think beyond making you a better investor? Like is there stuff where, I mean, because I think of some of the quotes in your books where for example, there's one bit where you said, you quote Warren saying, it's not that I want money, it's the fun of making money and watching it grow.

2:04:12Or you talk about the way Warren and Charlie invested in a way that fit their personalities and as they put it, the way we want to live our lives. I'm wondering if like seeing those examples of how to live in a kind of harmony and a kind of alignment with one's own interests or personality. Did any of that stuff actually change the way you live your life? Well, certainly, handling periodic underperformance and tracking error and tough clients and stuff like that, you can look back at some of these great investors and go, yeah, they probably went through the same thing, Bill Ruane and all of them, right?

2:04:49So I'm in good company, right? I'm in good company. I think what I take away from Warren, and this was just a few years ago, Warren will be 95 in August, August 30th. When I wrote the Warren Buffett way, he was, so that came out in 80. I'm sorry, that came out in 94. So he would have been 64, right? Back then, if I got the math right, 94, 1930, that's 64 years old. So when I wrote the Warren Buffett way, he was 64 years old. I'm just a little older than 64 years old. And I'm looking at a guy up until this last year, and he'll still be active in the market. For 30 years, he stayed in the game. To me, and Bill, he's not in the game like he used to be when he was with Opportunity Trust and Value Trust.

2:05:35But for me and Bill and even Charlie, it's the idea that you can stay competitive. I love this business, William. I love this business. I love solving puzzles. I love thinking about odds. I love the competition. I can't think of anything more fun to do over the next 20, 30 years than what I'm doing now, whether I do it in this capacity or another capacity. And I look at Warren and go, Robert, you're a puppy. This guy's been doing it 30 years longer than you. And, you know, there's no reason why you can't stay in the game in some form or fashion over the next 30 years. And to me, that is the most uplifting of it all, which is I can stay in this game as long as it works between the ears, health wise and all that other stuff.

2:06:19Um, it, this could be a great ride for the next 30 years. And I'm looking forward to it. I think it's just, I can't imagine not doing it. I'm a horrible golfer. I don't like to gamble. You know, this is what I love to do. And it worked and I love writing and writing and investing work together. They, I'm a bit, so you said, I'm a better businessman because I'm an investor. I'm a better writer because I'm an investor and I'm a better investor because I'm a writer. So both of them work in helping me, you know, move my craft forward. And I just love it. And when I look at Warren, I go, man, you know, he could have retired anytime he wanted to, but he loved it.

2:06:52He kept in the game. He was active. He was active for 30, 40 years after I wrote the book. And I'm going, well, that's a pretty, I can, I could do that if I wanted to. So that's kind of fun. That's good. Yeah. The longevity of these guys was amazing. I remember seeing Marty Whitman many, many years ago interviewing him and he kind of came into his office wearing tennis shorts and stuff. And he was like, the secret of what we do as value investors. It's not that exhausting. You know, like it's, you know, we're like, we'll buy some stuff and then hold it for a long time. But I always felt like he lost some of his intensity towards the end and sort of took his eye off the ball.

2:07:27And I, it's going to happen to us all. Once you cross 90, you know, if we can lead to 90, I've talked to more people who observe 90 is a tough one. You know, 90 is a downshift. But if you've kind of got it figured out and you've got too much pressure on you, I'm more worried about not working than I am about working. I don't know what I would do with myself if I wasn't working, writing, and investing. I just love it. And Warren is kind of a poster child, and Charlie is a poster child. They stayed in the craft well into their 90s. God bless them all. So when I look at them, I kind of go, yeah, I'll stick around.

2:08:04You did. I'll stick around. That's how I think about it. Well, I wish you much continued success, Robert, along with many, many other people who have benefited greatly from your writings. It's been a great pleasure catching up with you today after all these years. So yeah, you've helped an enormous number of people. We may not have become Warren ourselves, but I always figured there were some people who read my book, Richer, Why is a Happier, who would sort of nod and just not really internalize it. But then there would be a few people who would read it and would become like billionaires and would actually really get it and would then give money back to society and would be extraordinary.

2:08:46I'm sure there are some people who, I mean, I'm sure people like Monish Pabrai, when he read your book, it was totally and utterly transformative. Yeah. He read The End of Reports, and I tell you the story, I know we've got to quit. But, you know, Charlie never liked the Warren Buffett way. He said in the annual meeting, he goes, I didn't think much of the book, you know, it didn't do anything new. Really, if you think about the Warren Buffett way, it wasn't new. I just rearranged it. And then I put the case studies in there to study if everything lines up. The reason why, you know, when he recommended the Warren Buffett portfolio at the annual meeting and he put it in his book, his recommended reading, I said to a friend of mine, I said, why do you think Charlie liked Warren Buffett portfolio so much more than Warren Buffett way?

2:09:29And he goes, I'll tell you why you barely mentioned Charlie in the Warren Buffett way. And all you did was talk about him in the Warren Buffett portfolio. That's funny. So, but you know, it's like, we got new stuff to do tomorrow. We got a new puzzle tomorrow, right? We got new things to think about. And, and to me, that's, that's, it's glorious. And William, you know, right back at you, I've learned so much from you and your writing and the fact that you do these podcasts, you come to the conference, you speak to the young people. I think we've got to keep it going this year more than ever. You know, we've got to keep the momentum going because there are not many of us out there left, you know.

2:10:04Well, I actually, I have ideas for an event that I want to host on May 1st that I will invite you to the night before to keep some of these ideas alive. And so hopefully we'll have you on a panel and we can discuss it then. It'll be right after ValueX, so you won't be exhausted yet. Yeah, no, no, you count me in. And it would be my honor, and I would love to repay all the favor that you've shown me over the years. So count me in. I'll be there. Wonderful. Well, it's been a great joy chatting with you, and I really appreciate it. Thanks so much. And I wish you a great ride from here to 95 with much compounding and many, many more successful books.

2:10:42We'll be at the 12th edition of your books by then. I look forward to it. Thanks so much, William. It was great to be with you. Thanks so much. Take care, Robert. Okay. Thanks. All right, folks. Thanks so much for joining me for this conversation with Robert Hagstrom. If you'd like to learn more from Robert, I would definitely encourage you to delve into his books, including The Warren Buffett Way, but also The Warren Buffett Portfolio, which is a companion book that explores the benefits of owning a concentrated portfolio of high-quality businesses. I'd also recommend a book of Robert's titled Investing, The Last Liberal Art, which explains how it can help you as an investor to have an understanding of seemingly unrelated disciplines like psychology, philosophy, literature, physics, and biology.

2:11:29This multidisciplinary approach to investing was very much inspired by Charlie Munger, who often spoke about the rewards of building this type of latticework of mental models. I'll be back very soon with some more great guests, including the legendary Howard Marks. In the meantime, please feel free to follow me on x at williamgreen72 or connect with me on LinkedIn. And as ever, do let me know how you're enjoying the podcast. I'm always really happy to hear from you. Until next time, take good care and stay well. Thank you for listening to TIP. Make sure to follow Richer, Wiser, Happier on your favorite podcast app and never miss out on episodes.

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