#380 Four Hundred Pages of Warren Buffett and Charlie Munger In Their Own Words

For over 30 years the Berkshire Hathaway Annual meetings were recorded. Munger and Buffett answered over 1700 questions from shareholders during that period. Alex Morris watched hundreds of hours of these meetings and then he gathered, organized, and edited the most interesting ideas into 450+ pages — all in Buffett and Munger's own words. I thought it would be fun to rip through a bunch of Munger and Buffett's best ideas very rapidly. It was. This episode is what I learned from reading Buffett and Munger Unscripted: Three Decades of Investment and Business Insights from the Berkshire Hathaway Shareholder Meetings by Alex Morris. ---- Ramp gives you everything you need to control spend, watch your costs, and optimize your financial operations —all on a single platform. Make history's greatest entrepreneurs proud by going to Ramp and learning how they can help your business control your costs and save more. ---- Vesto: All of your company's financial accounts in one view. Connect and control all of your business bank accounts from one dashboard. Go to Vesto and schedule a demo with the founder Ben. Tell him David sent you. ---- Founders Notes gives you the ability to tap into the collective knowledge of history's greatest entrepreneurs on demand. Use it to supplement the decisions you make in your work. Get access to Founders Notes here. ---- Join my free email newsletter to get my top 10 highlights from every book ---- ---- Founders Notes gives you the ability to tap into the collective knowledge of history's greatest entrepreneurs on demand. Use it to supplement the decisions you make in your work. Get access to Founders Notes here. ---- “I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested so my poor wallet suffers. ” — Gareth Be like Gareth. Buy a book: All the books featured on Founders Podcast

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00David Senra?

  I asked Charlie Munger what he thought of Jeff Bezos and he told me that Bezos was ferociously intelligent. In this book Buffett calls Bezos a miracle worker and something that Bezos had in common with Munger and Buffett is from day one. In his very first shareholder letter, Jeff Bezos emphasized the importance of having the very best team. He wrote, "Setting the bar high in our approach to hiring has been and will continue to be the single most important element of Amazon's success." Bezos's focus on talent is just like this quote from Steve Jobs that happened in an interview that Steve gave the very same year in 1997. And Steve said, "I think that I've consistently figured out who the really smart people are to hang around with. You must find extraordinary people.

• 0:42David Senra?

  The key observation is that in most things in life, the dynamic range," you'll hear me repeat that over and over again in this episode. "The dynamic range between the average quality and the best quality is at most two to one. But in the field that I was interested in, I noticed that the dynamic range between what an average person could accomplish and what the best person could accomplish was 50 or 100 to one. So given that, you're well advised to go after the cream of the cream and to build a team that pursues the A-plus players. And that is exactly what Ramp did. Ramp has the most talented technical team in their industry. Becoming an engineer at Ramp is nearly impossible. In the last 12 months, they've hired only 0.23% of the people that applied.

• 1:26David Senra?

  This means when you use Ramp, you now have top-tier technical talent and some of the best AI engineers working on your behalf 24/7 to automate and improve all of your business's financial operations. And they do this on a single platform, which means the longer that you use Ramp, the more efficient your company becomes. That is very important because as Sam Walton said in his autobiography, "You can still make a lot of different mistakes and still recover if you run an efficient operation or you can be brilliant." And still go out of business if you're too inefficient. Ramp helps you run an efficient organization. In the end of that interview, Steve Jobs added one thing. He said that a small team of A-plus players can run circles around a giant team of B and C players. From a customer's perspective, what does having a team of A-plus players sound like?

• 2:11David Senra?

  It sounds like this customer review that I read, which said that Ramp is like having a teammate who you never need to check in on because they have it handled. Ramp's website is incredible. Take the time today to visit it and set up a demo and check out this product. You won't regret it. Make history's greatest entrepreneurs proud by going to ramp.com and learn how they can help your business today. That is ramp.com. One more tool that I want to tell you about is Vesto. A lot of my friends are using Vesto to see all of their company's bank accounts in one view. Vesto helps you connect and control all of your business bank accounts from one dashboard. I know the founder of Vesto, Ben. Spent a bunch of time with him and I've offered to help him by introducing him to other of my friends that could benefit from using Vesto.

• 2:55David Senra?

  And I actually called one of my friends and he told me, David, I will meet with anyone that you want me to, but I have to tell you upfront that we say no to over 90% of the software that we were pitched. And yet, a week later, I hear back and he said that Ben and Vesto are great and that they signed up. So I asked him, can you please ask your team to explain the benefit they get from Vesto in their own words? So I'm going to read you this text message exchange. They said, "It provides us the ability to view all of our bank accounts and loan accounts on one platform with a single sign-on. It makes it much easier to grant access to users in one place as opposed to 20 different banks." So I text back, "What did they do before Vesto?" This is his response. "We have 20-plus different bank logins across like five accountants.

• 3:38David Senra?

  We literally use 21 banks. So every bank has an account and a loan that multiple people need access and views to. Just to log in and see everything would take hours and be in all different tabs." So if you have multiple accounts and multiple businesses, go to vesto.com and schedule a demo with the founder, Ben. Tell them that David sent you. That is Vesto with a V, so vesto.com. The link will also be down in the show notes. I hope you enjoy this episode. It really is just me ripping through a bunch of Munger and Buffett's best ideas very rapidly, and I had a lot of fun doing so.

• 4:14David Senra?

  So the book that I want to talk to you about today is Buffett and Munger Unscripted. Three decades of investment and business insights from the Berkshire Hathaway Annual Shareholder Meetings. It was selected and arranged by Alex Morris, and Alex was kind enough to send me a copy before the book was released. He had a really smart idea. Since, I think, 1994, all of the Berkshire meetings or Berkshire meetings have been broadcast, they've been recorded and broadcast, so anybody can watch them. So he went through like 30 years, watched every single meeting, took copious amounts of notes, and then what he created for you and I, really, the way I think about this is it's a, it's a reference tool. So he separated it not by year, but by topic.

• 4:55David Senra?

  So you can pick up this book, you know, scroll through the table of contents and say, okay, I want to learn about subject X. You go right to that page and it'll show, you know, this year and this timestamp, this is what they said about that. So I read the book all the way through in chronological order and did what I always do, which is just apps, take a copious amount of notes and underlines and then add context like when, as I'm reading these notes and highlights, how it relates to the other, you know, 379 episodes that you and I have gone over and the hundreds of history's greatest founders that you and I've studied. So I want to start out with Charlie Munger talking about the importance of creating your own luck by following your curiosity and your intense interest.

• 5:37David Senra?

  And so Charlie says, Warren says he was lucky to find Geico, but not every 21-year-old was going to go down to Washington DC, start knocking on the doors of empty buildings to try to find something out that he was curious about. So we also made our own luck by being curious and seeking wisdom, Buffett adds to this. If you enjoy what you're doing, you are likely to get a better result than if you go to work with your teeth clenched every morning. My favorite, they say variations of the same ideas. Obviously, they repeat the importance of, you know, repetition is persuasive, but my favorite way that, that they ever said this is Munger said, intense interest in any subject is indispensable if you're going to excel in it. In fact, there's a great quote.

• 6:20David Senra?

  From this guy named Naval Ravikant that really echoes a lot of Buffett and Munger's ideas with what they're saying about here. And especially in the age of infinite leverage, how important, I think that idea only becomes more important. It's definitely something I'm betting my life and career on. But Naval said, if you're not 100% into it, somebody else who is 100% into it will outperform you and they won't just outperform you by a little bit. They'll outperform you by a lot because now we're operating in the domain of ideas. Compound interest really applies and leverage really applies. So I think it's really important. Again, if you enjoy what you're doing, you're going to get a better result than if you go to work with your teeth clenched every morning. There's another thing that's really important and Munger talks about having the benefit,

• 7:03David Senra?

  both him and Buffett had the benefit of role models that they can emulate inside of their family. Munger says, I think we're helped because we came from families where there were some admirable people and we tended to identify other admirable people outside of the family. So inside the family, and there's a maxim that Buffett will repeat, and he talks about the importance of picking the right heroes. So inside the family, think of Buffett's relationship, the fact that, you know, he was very close with his father, called his father his hero. Munger was very close with his father, but he also talks about his grandfather, Judge Munger. And one of the things that I think had a really big impact on the way Charlie conducted his life was the fact that he observed, and they were told stories of later on in the

• 7:44David Senra?

  family as well, that Judge Munger's sound judgment and then also financial strength really helped the Munger, the entire Munger clan survive the Great Depression. He was able to provide jobs, he was able to bail out some family members. And Munger talked about just how, like, you get the sense of, when he talks about his admiration for his grandfather, that that's the role that he wanted to play inside of his own family as well. Another interesting idea, and what I obviously want to do here is because this is essentially 400 Almost 500 pages of Munger and Buffett in their own words. There's almost no other commentary or anything else. So I'm just gonna rip through ideas because it's very different from, you know, I've done what?

• 8:26David Senra?

  10 episodes, something like that between all the biographies of Buffett and Munger. And so what I want to do here is just rip through idea after idea after idea. Because one of the, I think the really skills, the most admirable skills that Buffett and Munger both have is they're able to coin phrases that make their ideas, one, easy to understand and two, memorable. And they do, they also do this by telling short little stories. So I'm just gonna rip through, you know, maybe 100 different ideas that I found most interesting. And even though I've read almost every book that I've found on Munger Buffett so far, they use different ways to describe the same ideas. So they were actually new to me in this book where later on, Charlie, you know, they talk about the fact that you should study as much business history as possible, that you should be reading, you know, every biography you can get your hands on.

• 9:10David Senra?

  Munger's read more biographies than I have. One of the reasons they mention this is because Munger states this in a different way, or at least a way that's new to me, where he says you need to, you should pick an extreme example and ask what the hell happened here. So that's something that they repeat over and over again. There's an example of this. Warren says, "I owe a great deal to Charlie in terms of learning a lot about businesses. I've also spent a lifetime looking at businesses, seeing why some work and why some don't. As Yogi Berra said, 'You can see a lot just by observing.' That's pretty much what Charlie and I have been doing for a very long time." They talk about the fact that greed doesn't run the world, that envy does. And the one way to, one, you have to cure yourself of envy.

• 9:51David Senra?

  And two, you should want to have, you should want to deserve any success that comes your way. And again, this comes from something they learned from a family member. So Charlie Munger is telling us that you really should build yourself into a person that deserves what you get. And so Charlie says, I had a great grandfather. When he died, the preacher gave the talk and he said, none envied this man's success so fairly won and wisely used. That is a very simple idea. We want to have people think of us as having won fairly and used wisely. And then here's another idea that I absolutely love, that if you're actually paying attention, right? You can spot opportunities in parallel industries.

• 10:36David Senra?

  And so they were talking about, I cannot believe how we absolutely missed Google. And why would they, like, why would they even say that? Because they were using Google's ads at GEICO. And it was the most effective ads that they could possibly find. And then they realized, hey, these ads cost Google almost nothing. So this is what Munger says. I feel like a horse's ass for not identifying Google better and Warren ads. We had some insights because we were using Google ads at GEICO and we were seeing the results produced. We were paying $10 a click for something that had a marginal cost to Google of exactly zero. And we saw that the ads were working for us. We could see at GEICO how well Google advertising worked and we just sat there sucking our thumbs.

• 11:20David Senra?

  So when I, when I thought of that, I didn't think of Warren or Charlie or GEICO or Google. I remember, so there's this guy named Jay Gold, who I became slightly obsessed with, because I'm always fascinated by, you know, people that reach the top of the profession, who they admire. And so Rockefeller was asked one time, like, who's the greatest businessman you know? And he said, without hesitation, Jay Gold. Cornelius Vanderbilt, when he was the richest man in America, he was in his 70s. He said that Jay Gold, who was in his 30s at the time, was the smartest man in America. So I read a bunch of biographies of Jay Gold and Jay was, Jay was making a ton of money in the railroad industry at the time. And by paying attention to what was happening in the railroad or next to the railroads. He actually spotted a massive opportunity and that was in the telegraph industry.

• 12:02David Senra?

  So I want to read from this transcript of this, uh, this episode on Jay Gould I did. Uh, so it says, Jay was keenly interested in the telegraph business now. Telegraphs went hand in hand with railroading because telegraph companies strung their lines alongside the railroad tracks, the railroad tracks that he owned. And so he started looking into this monopoly, the telegraph monopoly of the day, which was Western Union and, and Jay could not believe how much money they made. Western Union was a money machine. Jay coveted it. He said, I'd rather be the president of Western Union than the president of the United States. So I absolutely love that idea. You can spot an opportunity in these industries that are running parallel to the one that you're already operating in.

• 12:45David Senra?

  This is a great line, uh, from Warren Buffett, but could definitely be something that Charlie Munger says over and over again. He says, "The world is overwhelmingly short-term focused." So my friend Honam, who's the founder of Altos Ventures, he made me aware of this tweet that he wrote, and I thought was really interesting. He was reading this book and in the book, there's this quote by this guy named Andy Taylor. So Andy Taylor is actually one that took over Enterprise Rent A Car and he grew it from 78 million in revenue to 24 billion in revenue. And he was asked, like, what allowed you to do that? And he replied with one word, "Focus." He continues, "I'm not the smartest person in the room, but I have the ability to focus at a level that most people can't and I can focus for very long periods of time." He worked on that business for 38 years.

• 13:30David Senra?

  He continues, "I never tired of that focus. I never tired of buying cars. I never tired of renting cars. I never tired of service. I don't get bored. Most CEOs don't have the attention span to dedicate four decades of their life to doing the same thing over and over and over again and doing it really, really well." And so obviously going back to the Buffett quote, "The world is overwhelmingly short-term focused." Well, if you want an edge, you just do the opposite of what the world does. Now, I'm gonna repeat this over and over again because it's probably my favorite. It is my favorite line in the book. You know, you pick an extreme example and ask what the hell happened here? So they're constantly, because you know, Munger and Buffett both have this encyclopedic knowledge of business history in their heads, they're constantly referencing ideas they

• 14:13David Senra?

  have and they explain the idea to you and I through stories and usually through the stories of an individual founder or an individual company. And so here's an example of the importance of investing in and partnering, if you can, with talented fanatics. This is Munger. I always cite the early history of National Cash Register. It was created by a fanatic who bought all the patents, had the best sales force and had the best production plans. He was a very intelligent man and passionately dedicated to the cash register business. And it was a godsend to retailing when cash registers were invented. Think about that. There was a time where, you know, the amount of theft, I think the primary, in addition to like organizing your sales and keeping track of it, but I think it drastically reduced the amount of theft that would happen at the actual cash register for your employees

• 14:58David Senra?

  stealing from you, in other words. If you read an annual report prepared by John Henry Patterson, who he's describing, who was the CEO of National Cash Register, any idiot could see that this was a talented fanatic who was very favorably located and therefore the investment decision was easy. We have the NCR annual report from 1904. Patterson not only tells you why his cash register is worth to people about 20 times what he's selling it for, but he also tells you that you're an idiot if you want to go into competition with him. Another idea that's explained beautifully with a story, that none of this, none of this works if you cannot trust your own judgment. So Buffett says, you can't expect anybody else to do this for you. People are not going to tell you about wonderful little investments.

• 15:43David Senra?

  You have to find them yourself. When I first visited GEICO in January 1951, I left and then the rest of the year I went down and would visit leading insurance analysts. I thought I had discovered this wonderful thing, so I went to see these great investment houses that specialize in insurance stocks and I wanted to know what their opinion was. And they told me that I didn't know what I was talking about. You can't look around for people to agree with you. You can't look around for people to even know what you're talking about. You have to think for yourself. An ability to detach yourself from the crowd is a quality that you need. Another note that I left myself and really an idea that I absolutely love. There's just always, it's always shocking to me. And this, I think I got obviously the benefit of reading biographies and studying history in general.

• 16:27David Senra?

  There's just always opportunity hiding in plain sight. So think about the last, like, I think, last few weeks. So Jerry Jones was the 76th person, right? 75 other people before buying the Dallas Cowboys said no, right? Jerry Jones was the 76th and he said, yes, he paid 140 million today. That's worth $10 billion, not including all the money, you know, and opportunities that came from that and the three decades that he's on the team. The week before I did the, the episode on Leon Hess, same thing. He literally, like Leon Hess, that family company just sold for like $53 billion. And it starts with Leon Hess saying, hey, that product that you as a refiner is throwing away,

• 17:07David Senra?

  I'm going to make a business out of that in the same way that Sam Zemurray built his banana empire. Right? Became the richest person in Louisiana, if I'm not mistaken. From saying, hey, you're throwing away those bananas because you can't sell them in two days. I'll just sell them in two days. And then obviously building a business from that. But it's shocking the amount of opportunity that's hiding in plain sight. And Warren makes the point where a lot of the things that he's invested in, some of his biggest wins, they were publicly available information. And so he's talking about one, this is, you know, he said this 30 years ago, but he goes, what is complicated about Coca-Cola? Where $3 billion pre-tax better off than a few years ago because of Coca-Cola?

• 17:48David Senra?

  There's nothing I know about the product, its distribution system, its finances or anything really, that hundreds of thousands or millions of people don't already know. They just didn't do anything about it. And then another idea I think is very important, and I've seen it a few times. John Rockefeller is obviously the, the first example of this. John Malone is another example of this, but there's been tons of examples that, from the biographies that you and I talk about. This idea that you can go and actually know more about an industry than anybody else. And Warren's talking about some of the due diligence and really like he went out. He wasn't just sitting in his office in Omaha, especially in his early career. He went out and tried to dig for information. And I like this idea of saying, hey, I'm gonna, I think there's an opportunity in this case. The industry is coal.

• 18:32David Senra?

  I think there's opportunity in this industry. So I'm going to learn about every single major company in this industry. The reason I brought up Rockefeller about this is because in the early refining industry, he had this thing called secret allies. And what he went, he literally, the same thing. He wasn't sitting in his office in Cleveland. And then later on, when they moved to New York, he went and met every single other oil refiner. They wind up creating, I think it's called like the Refining Association of America, something like that, to band together. And then he would see the books of every single one of his competitors. And two, they gave him a bunch of advantages. Obviously, one, he could figure out, okay, this, this guy's a serious player. He's actually running a good business. This guy sucks. He's gonna go out of business.

• 19:17David Senra?

  And he obviously knew which ones he wanted to buy from this. So I think it's a really interesting idea. This is Buffett's version of that. When I was 23 years old, I got interested in the coal business. I would go out and see the CEOs of eight or 10 coal companies. I'd ask them a lot of questions, but there were two questions I'd always ask at the end. If they had to put all of their money into any other coal company except their own and go away for 10 years, which one would it be and why? Then the second question, if they had to sell short in the equivalent amount, one coal company, which would it be and why? It sounds a lot like the Rockefeller example. It's like, oh, I see your books. I see how well you, how well this company's run. You are my most formidable competitor.

• 19:59David Senra?

  Or in many cases, it turns into one of his, like he'd buy it and they'd turn into partners because he'd get, he'd give them the Standard Oil stock. So it says, I would know more about the coal companies from an economic standpoint than any one of those managers probably would. I'm going to mention Rockefeller again because there's a lot of similarities between the way Buffett and Munger think and the way Rockefeller did. When I went to Charlie Munger's house and got to have dinner with him, he actually said that he thought Rockefeller was the greatest entrepreneur of all time. So Buffett says, we do, he talks about the importance of having a fortress of cash. We do like having a lot of money to be able to operate very fast and very big. We know we won't get those opportunities frequently. Certainly, in the next 20 or 30 years, there'll be two or three times when it'll be raining gold and all you

• 20:43David Senra?

  have to do is go outside. So later in the book, at the very end, Munger gives, Munger and Buffett give a bunch of book recommendations and Munger heavily recommends reading Titan, the biography of Rockefeller written by Ron Chernow. And listen to this, this is very similar to what Warren was just saying, you know, two or three times it'll be raining gold and all you have to do is go outside. Says, this is now, I'm reading from Titan, "It is impossible to comprehend Rockefeller's breathtaking ascent without realizing that he was always, that he always moved into battle backed by abundant cash. Whether riding out downturns or coasting on booms, he kept plentiful reserves and won many bidding contests simply because his war chest

• 21:27David Senra?

  was deeper. Keeping a fortress of cash is how he kept buying out his competitors and other refiners." And then he has another observation, and it's not the speed at which you get the information, it's actually the quality. Like, are you actually getting, your top priority should be the quality of the information that you get. He sings in 1994. Imagine, like, I mean, the vast difference between, you know, the world when he's making this comment, this problem is so much more pronounced now. And again, my own personal opinion on this is that attention spans just keep getting shorter and shorter and shorter. So if you do have the ability to focus on something for a very long time, I think that advantage just keeps getting more and more valuable in the future. But Warren says, "The speed of information really doesn't make any difference to us. It's the processing and finally coming to some judgment that has some utility. And none

• 22:11David Senra?

  of that involves anything to do with quick information. It involves getting good information."

• 22:18David Senra?

  Another idea that I absolutely love is the importance of building a business that is natural to you. I have, I read both of Michael Dell's autobiographies. They're excellent. I'm gonna make episodes on them soon. And in the second autobiography, one of my favorite ideas that he had was, you know, this idea of Dell was completely natural to how he wanted to spend his time. And he actually got energy. So where other people in his organization would burn out, Michael Dell was able to keep going. Cause like this, I designed a business that is completely natural to how I want to spend my time. And so Warren Buffett is talking about, you know, there's, there's a different, a bunch of different ways to run your business. He was talking about there's a bunch of different ways to invest. He was, he was comparing and contrasting the way he wants to invest with Peter Lynch. And I'll skip over most of the parts, but I just want to get to the

• 23:03David Senra?

  punchline. He says, "I've said on, on investing, there's more than one way to get to heaven. I would not do as well if I tried to do it the way Peter does it. And he probably would not do as well if he tried to do it exactly the way I do it." So that idea of building a business is completely natural to you and how you want to spend your time and how you want to actually organize. Like what is your actual company building philosophy? What do you want to do? I think it's something you should, you know, I spent a lot of time thinking about and then of course refining over a long period of time. Munger, one of my favorite, one of my favorite things about this book is there's just great, you know, stories that Munger tells that really are self-explanatory and memorable. And here's one. Berkshire has a substantial shareholder whose father accumulated the original position.

• 23:46David Senra?

  And when he died, he left a very large estate. Practically all of it was in two securities, Berkshire and one other outstanding company. A bank was a co-trustee and the bank officer said, "You've got to diversify this." It was a very large estate. And the young man said, "Well, you know, if my father believed the way you do, he might've been a trust officer in a bank instead of leaving this large estate." And this goes with their reoccurring theme. The advice they have is like, you really should, should be trying to find a wonderful business or build a wonderful business. And if you do that, you'll, you'll have, your entire family for generations will be wealthy. And so they said, "If you look at how the fortunes were built in this country, they were built by someone who identified a wonderful business." Coca-Cola is a great example.

• 24:29David Senra?

  There aren't 50 Coca-Colas. A really wonderful business is very well protected against the vicissitudes of the economy over time and competition. We're talking about businesses that are resistant to effective competition. So when they're like, "Hey, if you look at how the fortunes in this country were built," that- That popped out into my mind, right? And then the second thought, second thing, we're like, hey, we're talking about businesses that are really resistant to effective competition. So those two things in coming one after another in short order, I thought of Michael Bloomberg, right? How many people have said, I started a Bloomberg killer? And the guy 50 years later is just still printing cash. And what was fascinating is Bloomberg's autobiography, I think it's episode 228 of Founders, somewhere in there.

• 25:11David Senra?

  It's one of my favorite books I've ever read because, you know, he's unapologetically extreme. What was fascinating is, you know, he had this huge windfall. And he's on Wall Street and he's like, okay, well, what am I going to do? Like, what's my next act here? And he decides, there's actually a line where he's talking the reader through his decision-making process, figuring out, you know, what's the next thing I'm going to do? Which obviously the next thing he's going to do is Bloomberg. And he realizes like, actually, most of like, the great, great wealth in the country was not through just pure investing, it's the entrepreneurs. You know, I love that line from Nick Sleep, one of my favorite lines ever. It's like, the greatest investors aren't investors at all, they're entrepreneurs who never sold. You know, Bloomberg still owns all of his company. So Bloomberg writes in his autobiography, although few of the great fortunes have been

• 25:56David Senra?

  made in investing. So from John D Rockefeller to Sam Walton to Bill Gates, great financial success comes from starting businesses with concrete products in the real world, building jobs, creating value and helping people. And so I think Bloomberg is a perfect example of what Buffett and Munger are saying here. If you look at how fortunes were built in this country, they were built by someone who identified a wonderful business, something Charlie Munger repeats over and over again. And this is an idea that I think of all the time. And I try to make all my decisions through this, just because I learned it from Charlie. In fact, I was on the phone with a friend of mine and he was trying to make decisions too. And I was like, you've just got to think of like your alternatives, like you shouldn't be running every single decision through opportunity costs. Munger says, "All intelligent people should think primarily in terms of opportunity costs."

• 26:41David Senra?

  There's a great book, I think it's episode 286 of Founders, it's called, "All I Want to Know is Where I'm Going to Die, So I'll Never Go There." I think it's a Buffett and Munger Uncommon Common Sense, something like that. I forgot the actual subtitle, but it's one of my favorite episodes ever done. If you could only read one book on Buffett and Munger, that's the book I would read. And I want to pull a line out of that book that Munger says, "Decisions in life are all about opportunity costs, and wise people think in terms of personal opportunity costs. In other words, it's your alternatives that matter. That is how we make all of our decisions." So this idea of using opportunity costs as a filter to make decisions, I think is one of the most powerful ideas. This next page, this is, to me, this is related to opportunity costs. Charlie Munger.

• 27:24David Senra?

  "We ordinarily don't like small positions. Buffett, we like to go in heavy. If we want to invest in a business through the stock market, we want to put a lot of money in. We do not believe in a little of this and a little of that." Buffett continues, "If we find an idea that we want to put $500 million in, we probably would be even happier if we could put three or four billion in. Good ideas are too scarce to be parsimonious with once you find them." And Munger perfectly summarizes this entire section in one sentence, as he is prone to do, "The whole secret of investment is to find places where it's safe and wise to not diversify." A few pages later, they continue this. "Charlie and I, when we read about one business, we're always thinking of it against a screen of dozens of other businesses.

• 28:09David Senra?

  It just happens automatically. But it's just like a scout in baseball, thinking about one baseball player against an alternative. You only have a given number on the squad. One guy may be a little faster, one guy can maybe hit a little better, that sort of thing. But always in your mind, you are prioritizing and selecting in some manner. My own feeling about the best way to apply that is to just read everything in sight." Again, so they have this historical business knowledge in their head. The way I would put it, I love this, is Charlie Munger's description. He's 95 when he says what I'm about to read to you. And this is Charlie Munger on Li Lu. And Munger says, "Li Lu is not normal." "He is the Chinese Warren Buffett. He's very talented.

• 28:51David Senra?

  In 95 years, I have given Munger family money to an outsider to run once. Once in 95 years, and that is Li Lu. And he is hit it out of the park. It is pretty picky. But once I have Li Lu, if I'm comparing to him," remember using opportunity cost as a filter, "who else am I going to pick? By the way, that is a good way to make decisions, and that is what we do. If we've got one thing we can do more of, we are not interested in anything that is not better than that. That simplifies life a great deal." And so, one way to refine your ability to make decisions through opportunity costs, they're constantly talking about, you know, the importance and the value of reading history.

• 29:34David Senra?

  If you've never watched a baseball game and you've never seen a statistic on it, you wouldn't know whether a 300 hitter was a good hitter or not. You have to have some kind of mosaic there that your thinking is implanted against. You'll have a pretty good idea of what happened over time in America, in American business, if you do so. He says, "I like to have that material going all the way back. I'll go back and read Fortune articles from the 1930s on a specific company. I like a lot of historical background on things, just to get it in my head how the business has evolved over time." And I don't know if you can hear that, but I keep flipping pages and they keep saying the same stuff. "When deciding whether to do something, compare it with the best opportunity you have. Next page. Everything we do comes back to opportunity costs."

• 30:20David Senra?

  There's a bunch of great lines. I don't think most of these even need explanation. "We love working with people who are just plain nuts about their business. The best thing to do is learn from the other guy's mistakes. George Patton used to say, 'It's an honor to die for your country. Make sure the other guy gets the honor.'" One thing they're constantly preaching to protect yourself against, they've saw so many people go broke. Because they abused leverage, so avoiding the self destruction is obviously very important. Big thing you want is to protect yourself against the insanity and market prices and volatility wiping you out. And the way they teach this, in my opinion, the best way to teach this is these stories.

• 30:59David Senra?

  So Munger says, "One of my children knew a man who had a $2.5 million house and $5 million worth of securities, but he couldn't live as comfortably as he liked on the income from his securities. So he got in the habit of picking up easy money. He kept selling naked puts secured by his account. And in due time, he didn't have the $5 million securities and he didn't have the house. And he now works in a restaurant." Two things that Buffett and Munger both repeat is these mistakes that tend to be hidden, which is not buying when you know you have a great opportunity and then selling too early. So Munger says, "The mistakes that have been the most extreme in our history are mistakes of omission. They do not show up in our figures. They show up in our opportunity costs.

• 31:44David Senra?

  In other words, we have an opportunity and we almost do it, but they don't." And so he gives us an example of this that cost him $200 million personally. "When I was younger, I was offered 300 shares of Bell Ridge Oil. Any idiot could have told you there was no possibility of losing money and a large possibility of making money. So I bought it. The guy calls me back three days later and offered me 1,500 more shares. But this time, because he was limited on money, I had to sell something to buy the damn Bell Ridge. That mistake of not buying more shares has cost me $200 million." Another idea told in a funny way is this idea that, you know, they prioritize having essentially like a lean headquarters, low cost structure, really deliberately understaffed.

• 32:28David Senra?

  And so Munger says, "Somebody once subpoenaed our staffing papers on some acquisition. Not only did we not have any staffing papers, we didn't have any staff." And so that reminded me, Steve Jobs, when he came back to Apple, was going through some kind of lawsuit. I think it was with, probably like with Google, it might've been with Microsoft. But They subpoenaed all of like the, the employee records. And one of the employees is talking with one of Apple's lawyers and they're like, where's your employee fire file? And so he opens a file, it's like one piece of paper. And so the guy goes to Steve and he's just like, where's our annual reviews? Like, where's all this stuff? He's like, I don't like, why would I give you an annual review? It's ridiculous. I give you feedback all the time. And so this idea is like, really question the decisions. Like, do you need this process?

• 33:12David Senra?

  Do you need this person? Do we actually need to be doing this? Steve, Steve thought annual reviews was the dumbest thing ever because like, I'm giving you feedback constantly. Why would I wait for 12, you know, once a year to give you feedback? It didn't make any sense, but I love this idea. It's like, we didn't have any staffing papers and we didn't have any staff. Just again, like, I just love the simplicity to all this. Buffett says, "When we bought the Scott and Felser Company in 1986, it had been shot by First Boston to more than 30 partners. I read about it in the paper. So I sent a letter to Ralph Shea. I had never met or talked to the guy, but I figured I'd gamble 21 cents or whatever a, a first-class stamp cost. And I said, 'We'll pay $60 a share.

• 33:54David Senra?

  If you like this idea, I'll meet you in Chicago on Sunday. And if you don't like the idea, tear up this letter.'" Ralph met me and we made the deal and we paid $60 per share. So there's actually a guy named Jim Clayton. I read his biography a long time ago and Warren actually buys his company. And in Jim Clayton's autobiography, he talks about what it was like to negotiate with Warren Buffett. And by this time, Jim Clayton had let his son Kevin become the CEO of Clayton Homes. So it says Buffett told Clayton, the CEO of Clayton Homes, he wanted to buy the company and would pay $12.50 a share. Kevin said that his board would give consideration to an offer of $17 per share.

• 34:39David Senra?

  Buffett responds, $12.50. Kevin replied, "The board was interested in considering $15 per share." Buffett responded with $12.50. Kevin said, "The board will accept $13.50 per share." Buffett responded with $12.50 and then he hit him with this closer.

• 35:01David Senra?

  He says, even if all, this is Buffett now, even if all the capital and stock market shut down, you can still bank on my $12.50 price. And that is the price that Buffett bought the company for. And then Buffett talks about the importance of being able to trust your own judgment. And really, shouldn't really be asking other people's opinion or paying attention to people when they're buying or selling your stock, or if you want to make an investment or buy a company or do something with your company and other people disagree. Says, every day, somebody sells a few shares of Berkshire and somebody buys a few shares. And they're probably coming to differing opinions on the valuation. It really doesn't make any difference to us. We don't pay any attention to what people say. You really should not make decisions based on what other people think. So there's a great comment about, from Jeff Bezos,

• 35:45David Senra?

  about, he knew the fundamentals of Amazon, even when his stock was dropping like a rock. And so this is what he said. I watched the stock fall from $113 to $6, but I was also watching all of our internal business metrics, numbers of customers, profit per unit. Every single thing about the business was getting better and fast, even as the stock was dropping. It's a fixed cost business. And so what I could see is that from the internal metrics, it is that at a certain volume level, that we would cover our fixed costs and the company would be profitable. And then a bunch of lines on the importance of keeping things as simple as possible and really just keeping the main thing, the main thing. We have no human relations department, no legal department, no investor relations, no public relations. We don't have any of that.

• 36:29David Senra?

  We've got a bunch of all-stars out there running businesses. We just ask them to mail the money to Omaha. Another thing, the important thing we do with managers generally is to find the 400 hitters and then not tell them how to swing. And then this is my favorite one, it reminds me of Novak Djokovic. We have a number of people working for us that have no financial need to work at all, and they probably outwork 95% or more of the people in the world. And they do it because they just love smacking the ball. Now, I don't watch tennis, but I do love excellence in every form. And there is a 2018 interview in the Financial Times with Novak Djokovic. And I went back and I read the interview, but, because he says, I can carry on playing at this level

• 37:14David Senra?

  because I like hitting the tennis ball. It's as simple, I'm going to keep doing this and keep playing this because I love it. The simple act of hitting the tennis ball, which is the main thing, right? I kept the main thing, the main thing, I actually love it. The interesting part is that the person interviewing me in the Financial Times follows up. Are there tennis players who don't? And Djokovic says, oh, yes. There are people out there who don't have the right motivation. I can see it, but I don't judge. And so you go back and you can see how many majors did he have? You know, in 2018, he was like, I don't know. Let's say fifth or sixth, something like that in total majors in all of tennis history. And then you fast forward, you know, a decade or even less, what? Half a decade and he's number one.

• 37:55David Senra?

  I can carry on playing at this level because I like hitting the tennis ball. This next quote is really a combination of two ideas. The importance of designing a business that's natural to you and making yourself easy to interface with. So Buffett says, before I ran this, I had a partnership. I had a great group of partners and essentially I like to be left alone to do what I did. I like to be judged on the scorecard at the end of the year rather than on every stroke and not second guessed in a way that was inappropriate. I like to have people who understood the environment in which I was operating in. And one of the most important things is Buffett told his partners what he liked to do, how he wanted to spend his time, how he wanted to run his business. They do this over and over again. And then you can decide, hey, do I want to, do I want to be a shareholder?

• 38:40David Senra?

  Do I want to partner with these guys? And like one thing that they bring up over and over again is in their wholly owned businesses, unless it's going to completely drain a bunch of money, they're not going to sell them. Even if, you know, they could say, oh, we're, we used to make 15%. Now we make five, let's sell it. And then we take that money and we can make 15%. They're like, this is just the quirk of us, how we want our, how we want to run our businesses. But I think telling people that, making yourself easy to interface with about what's important to you, what you actually like to do is very, I think, very, very important. Another great idea that they repeat is that good news takes care of itself. So just tell me the bad news. I don't need to know the good news. That'll take care of itself and make sure you don't let problems fester. You ought to jump on everything.

• 39:21David Senra?

  Charlie has pushed me all my life to make sure that I attack unpleasant problems that surface. And that's sometimes not easy to do when everything else is going fine. When I procrastinate, Charlie has been the one that jabs me into action. He's performed a lot of services that you don't know about. They're constantly talking about the importance of working with the best people you possibly can. Again, the way I think about this is never, ever, ever forget the dynamic range of humans. So in many cases, like you want to overpay for talent because if they're truly talented, it's almost impossible to overpay for talent. My, the greatest example of this is when Apple buys Next, you can think of that as, hey, they spent half a billion dollars to rehire Steve Jobs and they got the deal of a century. They say, "Large sums don't bother me.

• 40:06David Senra?

  I do not mind paying a lot for performance. In the end, if you get a great manager, you want to pay him very well. You want a big carrot out there for them if they achieve the results that you've set out." And a few pages later, picks up on, "You have to be very careful how you design. Like you want to reward great people in your business. Be careful how you design this incentive structure." He says, "You don't want to award profits alone." So he talked about the fact that GEICO spends like, and this number is probably even higher. They spend like, you know, 800 million a year in advertising or something like that. And so it's like, well, if people working in GEICO, if we say your, your individual compensation is just tied to, you know, short-term profits, what's the best way, short-term, to increase our profits? It's like, we're just going to pull back on advertising.

• 40:50David Senra?

  And he says, "It'd be the dumbest thing you could do. You don't want to award on profits alone. You just quit advertising and then you'll start shrinking the business a little." And so there's two actually ideas that popped in my mind about this section that, that are, you know, I don't hear repeated very much. And so David Ogilvie, he talked about that. Advertising is actually a production cost. This is what he says. "I've come to regard advertising as part of the product, to be treated as a production cost, not a selling cost. It follows that it should not be cut back when times are hard any more than you would stint on any other essential ingredient in your product, assuming that you need to advertise to sell your product, right? So if that's the case, then advertising is actually a production cost." Now, Izzy Sharp had the best application of this. Izzy Sharp was the founder of Four Seasons.

• 41:32David Senra?

  And he talked about the fact that one of the benefits in his business is that His other competitors building hotel brands, they all did the same shit. When there was a pullback in the economy, they would automatically pull back their advertising budget. He would either maintain or if he could extend and spend more in advertising. So he wound up picking up a bunch of market shares in financial downturns because his competitors wind up cutting back their advertising costs when he realized he needed to do the exact opposite. And I think a few pages later, Munger didn't have Izzy Sharp in mind, but really, if you analyze what Izzy Sharp was doing by making decisions like that, that's how you know he was a great manager. So Munger says, "I think almost all good businesses have occasions where their managers are willing to make today's results

• 42:17David Senra?

  look a little worse than they would otherwise to help tomorrow." And again, the importance of this is like you can really see in the behavior, the fact that most businesses are actually poorly run. And even you would think, they talk about in this example, that even the variance, like think about the Fortune 500 CEOs, the variance in performance even in that subset, right? There's an enormous difference, frankly, in the talent of American business managers. The CEOs of the Fortune 500 are not selected like the members of the Olympic track and field team. You do not have the uniformity of top quality that you get with the American Olympic team. You get some very, very terrific people, but you also get a lot of mediocrity. And I think that's why Munger is always saying,

• 43:02David Senra?

  "Listen, find great people and stick with them." Really Buffett has his own version of this, right? He's not talking about himself, but Munger uses Buffett as an example, where Buffett says really outstanding managers are invaluable. And I love what Munger says here. He goes, "You should not be looking for other warrants on the theory that they're under every bush." It's like there is not other warrants. And then they give you some advice. I love this. They talk about when they're picking managers to run their businesses. "We don't like banjo hitters who suddenly proclaim that they could become power hitters." So my friend Brent Bishore runs a company very similar to, in some ways, to Berkshire. He spent time with both Buffett and Munger.

• 43:47David Senra?

  Brent buys a bunch of private companies, keeps them forever. And sometimes he has to find new CEOs for these companies. And so one time he was having dinner with Charlie Munger and he was just asking like, "How do I solve this problem?" And it's one of my favorite stories because it's just like the simplicity of Munger's thinking. And Brent was like, "Well, how do you hire great CEOs?" And Munger's response to Brent was something like, "We find somebody that did a good job before and ask them to do the same job for us." And the follow-up question, Brent's follow-up question, was something like, "Yeah, but what about, you know, hiring for potential or youth?" And Munger's like, "We don't do that." Just like, it couldn't be any more simple. "We found somebody who was a great CO." It's like, "Great, come over here and be a great CO for us." But I just love that idea. It's like, okay.

• 44:32David Senra?

  Or you could say, "I'm a ban..." You know, try to take the chance on the banjo hitter. Maybe the banjo hitter can transform into the power hitter. But most times, they don't. So I just love Munger's, again, beautiful simplicity on that. And then again, I think this is the perfect illustration of how do you communicate ideas so they're memorable? Right? And you could say, "Hey, you know, you really should be organizing your life and your business in a way that, you know, they can withstand, that they will actually survive." Or you can say, "Hey, you don't want to drive yourself into a vat of beer at one point in your life." So what does that mean? Saying that if you're a shareholder in Berkshire, your returns in 99 years out of 100 will probably be penalized by us being excessively conservative. And one year out of 100 will survive when other people don't.

• 45:17David Senra?

  When I set up my office in 1962, I put seven items on the wall. I went down to the library, right? And I made photocopies of pages from financial history. One was a story that happened in May 1901 when the Northern Pacific Corner occurred. Harriman was trying to get control of the Northern Pacific Railroad, and James J. Hill was the largest stockholder, was trying to retain control. And in that paper, in 1901, the whole rest of the market was totally collapsing because Northern Pacific went from $170 a share to $1,000 a share in one day, trading for cash because the shorts needed it. And there was a little item at the top of that paper, which I still have hanging up in my office,

• 46:02David Senra?

  where a beer brewer in New York committed suicide by driving into a vat of hot beer because he received a margin call. He probably knew how impossible it was that in one day, a stock could go from $170 to $1,000 to cause a margin call. But he ended up in a vat of hot beer. And I've never wanted to end up in a vat of hot beer. There is something interesting when I had dinner with Munger. One of the most fascinating things, he said it was so odd. He thought it was very unusual to be so wealthy and loved that that goes against human nature. The fact that him and Buffett, everybody obviously knows they were super rich, but they were also really beloved.

• 46:44David Senra?

  And my own theory of this, and I didn't think about this to ask him at the time, but it popped in my mind, like, why would that be the case? And I actually think it's because there's the benefits of teaching. You know, it's not like they hoarded the knowledge that they, of their six or seven decade career. They wrote about their shareholders, they talked about the AGM, they, you know, people wrote books on it. You could just pick it up and be like, oh, you know, Munger Buffett found some really good ideas. I should probably take them and use them. And there's also other benefits as well, where by doing this, this is multiple times. I actually read a book called What I Learned Before I Sold to Warren Buffett. I think that's the title of the book. It's the guy that, third generation of Helsberg Diamonds.

• 47:27David Senra?

  And, you know, he had a very prosperous privately held family business. And when the, he realized it's probably the right time to sell the business, he had one person in mind, Buffett. Why do you have a, because he went to the meetings. He read the shareholders. I'm pretty sure he was a shareholder. It's like, I benefited so much from all the teaching. And so they're actually talking, it starts out with Munger and then Buffett chimes in, about the fact that they have all this opportunity by the fact that they built this following. And I think they built the following through the best way. It's just like, hey, I'm going to sit there and learn all this stuff through my day to day job. You know, I'm going to turn around and like, share it with you and you can hopefully benefit as well. So Munger says, we get offered things by people who would not sell to anyone else. That is really peculiar and it has happened a lot.

• 48:11David Senra?

  Buffett chimes in, it's happened and on important ones. When I heard from Iskar, that's the metal cutting tools company. I had never heard of Iskar or its founder. His name is Eaton Werthenheimer. I think it's how you pronounce it. He basically told me that he wanted to sell to Berkshire and/or he didn't want to sell to anybody else. We met and we made a deal. Another thing they repeat is the fact that they are individual opportunity driven. In fact, there's a great line in Napoleon that is related to this. But they're talking about, you know, when they, when they started, it was like, we didn't know what we were building. Right? We just had a lousy textile mill. It isn't like Charlie and I sat down and worked out some plan. We'll run this dumb textile business for 20 years and then we'll finally have to fold it. And then we'll do this, that, and everything.

• 48:53David Senra?

  We just kept putting one fit, one foot in front of the other. Napoleon approached his life the same way. He says, "I had very few really definitive ideas. And the reason for this was that instead of obstinately seeking to control circumstances, I obeyed them. And they forced me to change my mind all the time. Most of the time I had no definitive plans, only projects." Buffett continues, "Our partnership was the same way. We sat down with people and in my case, I handed them a little sheet of paper. It laid the ground rules. I wanted to be sure that we were on the same page. You don't have to read the partnership agreement. There's no way in the world I would take advantage of you. You shouldn't be here if you think I would.

• 49:36David Senra?

  But I do want you to be on the same page and be measuring me by the same yardsticks that I measure myself." So I already repeated this. I love that idea because it combines really a number of things, but really being easy to interface with. Right? Making yourself easy to interface with by just telling people what's important to you. And then working with people where you'd be comfortable with just a handshake agreement. And then in case you were doubting the importance of never, ever, ever forgetting the dynamic range of humans. Buffett is asked, "What's the best investment he ever made?" Listen to his response. "The best investment was getting Charlie to be my partner." Another great idea. Maximize the amount of time that your company spends on making magic for your customers. And minimize or eliminate overhead or processes that get in that way.

• 50:20David Senra?

  We really free up our managers of our business to spend 100% of the time thinking about what is good for their business. Ideally, what he wants the managers of the Berkshire businesses to be doing. Spending all their time focused on what counts for the business and eliminates the distractions that often come in with, come with running a business. He says, "I would guess that CEOs of most public companies waste a third of their time at least on all kinds of things that really don't add a thing to the business. And in many cases, subtract from the business. We allow them to spend 100% of their time focused on what counts. And that is a rare occurrence in American businesses." It'd be very fascinating if you have a tool that can actually calculate like what

• 51:04David Senra?

  percent of your company's time is actually focused on making magic or improving things for your customers as opposed to, you know, all this overhead, these processes, these things that actually don't matter to the customer. I've never heard of or seen anybody tracking that as a metric, but I actually think that's a really good idea. I want to go back to this idea where he says, you know, there's these low hanging fruit, maybe not low hanging fruit because you have to know how to analyze it, but they, you know, there's a bunch of public information that if you have good judgment and you have, like you can interpret differently and you can profit from this. So he winds up investing 400 million, I think, in PetroChina in the early 2000s. He's going to sell this for a few years later for a $3.5 billion profit, but I just want to pull out some, the way he was thinking about this. It was right there in black and white in a report that anybody could get.

• 51:48David Senra?

  We just sit in office and read those things and we were able to put 400 million out that now is worth 1.2 billion. So again, he gets like 3.5 billion when, when he winds up selling the stock. The PetroChina annual report came out and I read it. That's the only thing I ever did. I never contacted management, read a brokerage report or asked for anybody's opinion. I came to the conclusion that it was worth $100 billion and it was selling for $35 billion. What is the sense of talking to management? Any further refining of analysis would be a waste of time when what I should be doing is buying the stock. It is like somebody that walked in a door and they weighed somewhere between 300 and 350 pounds. I might not know how much they weigh, but I would know that they were fat.

• 52:29David Senra?

  That's all I'm looking for, something that is financially fat. There's a line that Munger says, it's not in this book. He's actually got a funny way to say it in this book I'm going to read to you, but it's something I think of constantly. And he says, "In business, we often find that the winning system goes almost ridiculously far in maximizing and/or minimizing one or a few variables."

• 52:50David Senra?

  He has a great line in this book. He says, "I think it's a great strategy for the great mass of humanity is to specialize. Nobody wants to go to a doctor who's half proctologist and half dentist." And so they quote the former CEO and chairman of IBM, Thomas Watson, where he says, "I'm no genius. I'm just smart in spots and I stay around those spots." So they're talking about circle competence. Really, the way I think about it is like they're talking about the multiplication of effects of extreme, extreme focus. I talk about one of my favorite entrepreneurs in America. People are surprised when I say this because I just think it's hilarious. And he's only done like one interview and I think the interview's like two or three years old. This guy named Todd Graves, okay? Todd Graves is the founder of

• 53:34David Senra?

  this place called Raising Canes. Todd Graves sells chicken fingers. That is all he does. He just happens to do it better than anybody else in the world. And he has done that for 25 years with extreme levels of focus. And he's worth $10 billion and he sells fucking chicken fingers. And one of the things I absolutely love, when, if I ever sold chicken fingers, and I'm not going to, based on what he said in this one interview I heard from, he's like, "That's exactly the way I would do it." I loved everything about his mentality, the way he thought about his business. It is unbelievably similar to countless of, you know, history's greatest founders that I've read biographies of and that you and I have talked about on this podcast. It's crazy. It just, he applied it to chicken fingers.

• 54:17David Senra?

  And so he said one thing in that interview I actually love. He goes, "I believe in doing one thing and doing it better than anyone else." I run into people all the time. And sometimes it's people I read about, sometimes it's people I actually meet, that they invest and build in only one industry. And they do that for a long time that if you track every great company or every great person in that industry, somehow they're in that deal. And I think that's a sign of wisdom. There's a great line where, I think it's Buffett that says, "If you have doubts about something being in your circle of competence, it isn't." And I think it takes discipline and, you know, wisdom and self-control over a long period of time. In that interview that Todd Graves did, they're taking like all these phone calls from people, like they're calling in or making videos and they're asking questions.

• 55:01David Senra?

  This is like, "I love what you do." This happens over and over again. It's remarkable, part of human nature. "I love what you do. I love," it's like, I get this myself. It's like, "I love what you do X. Have you ever thought about doing Y?" And I'm like, if I do Y, that means I do, I spend less time on X. And you just said you love that I do X. And so he kept getting, he's like, I love what you do. Why don't you do, you know, add dessert to the menu or make it spicy or do all those stuff. And Todd, he was very likable, comes off very likable in the interview. He's just like, no, I like, the menu is the way it is today. That was exactly how it was the day I opened. And he talks about the benefits of extreme focus and it goes down to even how fast he's able to turn cars over in the drive through. And that may make, may make a tiny difference when you've got five locations.

• 55:44David Senra?

  But he's got like 600 or 800. It makes a massive difference. And in a business that's working, that difference only expands over time. Again, I believe in doing one thing and doing it better than anyone else. I actually had a friend of mine. Who's really good at new business creation, heavily focused on technology and AI. And he met with a guy who was like the grandson of like a shipping magnet. And the guy's like, oh, I want to do what you want to do. And he's just like, why would you think that's possible? It's like, do you see me trying to go buy oil tankers? Like, what is going on here? If I jumped in your game, you would kick my ass. Why do you think this, the reverse is not true? It has a very fascinating quirk to human nature to me. It's like, I don't know if we can see it in ourselves, maybe other people have to tell us where the case is.

• 56:27David Senra?

  I don't know. I just, and maybe it's also like prone to my personality. It's why these lines jump out in the books. It's just like, I just like doing one thing and doing it over and over and over again. It just speaks to my soul. So, uh, this is really interesting. You see their take on the internet over time and really technology. And this isn't what I'm about to read you is not really about the internet. I don't think that for, for our purposes, like how we should be thinking about this. So they say this in 2000 and they're talking and it was obvious to them, like, oh shit, we got some businesses here that we own that are gonna get wrecked by the internet. And so for us, for, for me and you, I think like when we're, when I'm going to read this to you, but not, don't think about like, you know, encyclopedias or the newspaper internet. It's like, really?

• 57:11David Senra?

  Well, we want to know is like, what is, all technology is a better way to do something. And usually it's better and cheaper. So what is, what is happening now? What are the businesses that are happening now? What, which ones will decline as a result of the new technology that is created? Today, and I think the proper response to this is to be like Billy Durant, the founder of General Motors, and I'll explain to you what I mean by that. So this is from the 2000 meeting. Buffett says, 15 years ago, print encyclopedias were the best tool for educating not only young children, but for educating me or Charlie when we wanted to look something up on a subject. That was in 1985, worked fabulously, right? And they owned the World Book Encyclopedia. It was a marvelous product, but it requires, this is again, why you think of technology

• 57:55David Senra?

  as all technology is, is a better way to do something. So for me to learn back, you know, in 85, I'm picking up the World Book Encyclopedia. What does it cost? Like, how did that get to me? The World Book Encyclopedia requires chopping down trees, operating paper mills, binding and printing and delivery of a 70 pound UPS package. It was put together in a way that for four or 500 years was the best technique for taking that information and moving it from those who assembled it to those who wanted to use it. Then the internet came. We pay, and then they talk about, okay, so the internet's going to destroy that, obviously. You know, Wikipedia, it's free, you can use it anytime you want, and that's just like the tip of the spear there.

• 58:38David Senra?

  Then they talk about the fact that they were at one point in the book, they talk about, you know, just from owning a single newspaper, which is the Buffalo News, they were making like 40 million a year in profit that they could not reinvest in the business. So it's just shooting off 40 million a year in cash flow that they were then taken by other businesses. We pay a significant percentage of our circulation revenue at the Buffalo News to our carriers, and we pay additional money to the district managers, and then we pay for trucks to deliver the product out, and we pay for huge printing presses and all that sort of thing. And people chopped down trees in order to give us the raw material to transmit information in Buffalo about what the Buffalo Bills did on Sunday. Now you have the internet that has virtually no incremental unit cost and could deliver the information instantaneously.

• 59:21David Senra?

  It is incredibly low cost compared to most of the other methods of conveying entertainment and information now. They're saying this in the year 2000. We were asked if we're afraid the internet would hurt some of our businesses. The answer is yes. So even if famously Buffett and Munger are not great technology investors, I guess the Apple investment notwithstanding, even if they didn't make a lot of money in all these internet stocks, they clearly saw what, which like, they saw it very clearly. Like, the internet is going to destroy our newspaper business and our world book encyclopedia business. But again, what is, the point of here is like, okay, what is like this today? And then if you've identified that maybe you're in a business like that now, what is the proper response? And the reason, the proper response, in my opinion, is to be like Billy Durant.

• 1:00:06David Senra?

  So what do I mean? If you go back and you actually think about the American automobile industry, I would argue the two most important founders in the history of this industry that changed our geography, for God's sake, was Henry Ford and Billy Durant. Billy Durant was the founder of General Motors. Now, what was interesting to me is what Billy Durant was doing before he founded General Motors. He created one of the most successful horse carriage manufacturing companies. And as soon as he realized the car was coming, and this is at a time, this is before, this is a decade and a half before Ford actually solved the problem of how to mass produce cars, right? So he saw this early, right? He's like, wait a minute, the car, even though I think there's like a couple hundred on the road in Detroit,

• 1:00:51David Senra?

  and most of them, all of them were handmade, most of them didn't go very far. He immediately switched. He's like, the car, they're gonna improve the car, they're gonna figure this out. I'm getting out of the horse carriage business because this new technology has come around, and he immediately jumped into the automobile business. That's why I said, if you can, if you are in a business, or you're identifying one, or maybe you're in one, where technology is going to do what you're doing today better and cheaper, the move is to do what Billy Durant would do, which is to jump into that oncoming phenomenon that was impossible. It was impossible for any one person to stop the phenomenon of the automobile. And I would guess there's a ton of industries and businesses that are going to be severely diminished

• 1:01:35David Senra?

  as a result of all the new technologies coming out right now. One thing that Buffett and Munger taught me is that learning is not memorizing information. Learning is changing your behavior. And so there's multiple examples where they identify as a supremely talented person. And they sell way too early. So two examples of this that popped to mind is Buffett knew Bob Noyce, founder of Intel, and met Walt Disney and knew without a doubt how talented these people were. So they were sitting, there's a college in Iowa called Grinnell. And both Bob and Warren Buffett were sitting on the board of this, the chairman of the board of trustees of Grinnell College. And the investment decisions of that endowment were made by the board of trustees, specifically Buffett.

• 1:02:16David Senra?

  And Grinnell actually buys 10% of the private placement. That was the initial funding of Intel. And he says, we bought 10% of the original issue at Grinnell. This is Buffett talking now. The genius who ran that investment committee, which was him, managed to sell it a few years later. He says, I won't give you his name, which was him. And there's no prize for anybody who calculates the value of those shares now. What is also fascinating, so again, learning is not memorizing information. Learning is actually changing your behavior. You knew how talented Noyce was, how much you respected him, and you sold too early. He also did this, and again, they talk about the importance of rubbing your nose in your own mistakes. So you avoid doing that in the future because the amount of gains they gave up.

• 1:03:02David Senra?

  You know, in the oil, Belridge Oil Company, he said it was 200 million. If you, if you think about, you know, missing out on Google, even though the ads are working, the increase in Intel, even though you knew Bob Noyce. And then maybe the most egregious of all is Disney. You know, you're talking, I don't know, maybe hundreds of billions of dollars, depending on how much money they had and they could have put into it at that time. But the reason I bring this up is because Buffett bought Disney stock after meeting Walt Disney in 1966. He paid 31 cents a share and sold when the stock went to 48 cents a share. Another person they identified as a talented fanatic. As somebody who's ferociously intelligent was they loved Jeff Bezos. And you know, they talk about the fact that it's remarkable what he's done.

• 1:03:45David Senra?

  They saw how talented he was relatively early on, obviously, maybe not at the IPO or before that. And they never acted on it. They never bought a single share. Buffett loves Bezos. So I just want to read a couple of things that he was, he said about him. It's really remarkable. One person who built an extraordinary economic machine in two really different industries almost simultaneously. From a standing start at zero, while facing competitors with lots of capital and everything else. To do it in retailing and to do it in the cloud like Jeff Bezos has done at Amazon is really incredible. The truth is that I watched Amazon from the start, and I think what Jeff Bezos has done is something close to a miracle. I had a very, very, very. I'm not stuttering. He said it three times or he wrote it three times or said it three times.

• 1:04:29David Senra?

  I had a very, very, very high opinion of Jeff's ability when I first met him and I underestimated him. And I love the way they think about or describe, you know, this, the constant, ever-changing nature of technology. And I think one of the things that Walt Disney did spectacularly is you just stay in the game long enough to get lucky. Someone else can actually invent a technology that will drastically increase. The market for your products, the value of your company, they were talking about, and Buffett knows this, he was saying somewhere. Way back, somebody invented television and then they invented cable. So a baseball player who could bat 406 in 1941 was worth $20,000 a year. Now, a baseball player, even a marginal big leaguer, will make vastly greater sums because in effect, these inventions of these two technologies.

• 1:05:15David Senra?

  The stadium size was increased from 40,000 to the entire country, or in many cases, even the entire world. And so one thing I think about this, and this comes up a bunch in the books, is stay in the game long enough to get lucky. Someone else can invent a technology that drastically increases your market. Walt Disney blew up a partnership. Okay, I think this was the United Artists and one of the founders of United Artists was Charlie Chaplin, which was one of Walt Disney's heroes. He blew up a partnership because he refused to sell them. The rights, Disney's rights to television. And he did that at a time when there was only a few thousand TVs in existence. So again, stay in the game long enough to get lucky.

• 1:05:57David Senra?

  Someone else will invent a technology that can drastically increase the value of your business market. Right? Munger and Buffett talk about, you know, the fact that Coke benefited Coca-Cola benefited incredibly because somebody else that did not work at Coca-Cola invented refrigeration. There's a great line, there's a great line in Rockefeller's autobiography. You know, he writes that he's a much older man. He's probably in his eighties at the time, if I'm not mistaken. And he's talking about the fact that, oh, this, this guy that I absolutely love, this young, this young fellow, Henry Ford came to visit today and I just love spending time with him. I was like, yeah, I bet you do because Rockefeller made more money in retirement from his oil stocks

• 1:06:37David Senra?

  because Henry Ford invented the Model T, invented the mass production of automobiles, which then what does that do? Drastically increase the demand for Rockefeller's product. Yeah, I bet you love spending time with him too. So I just, I just love that idea. Again, like stay in the game long enough to get lucky. What would have been the difference in Rockefeller's wealth? You know, what if he decided to retire and sold his stock before the invention of the automobile? It's an interesting question to think about. Another interesting question to think about is how many people do I actually need? They talk about over time in industries that are working, you actually see them become more efficient on a per person basis. So one example they give is the oil companies are a classic example. If you look at employment relative to barrels produced, refined and marketed,

• 1:07:22David Senra?

  it's gone down dramatically over 20 years. Munger continues, "If you put it in reverse, you say, name a business that has been ruined because it was over downsized. I cannot think of a single one, but if you ask me to name businesses that were half ruined or ruined by bloat, I could rattle off name after name after name. It has gotten fashionable to assume downsizing is wrong. Well, it may have been wrong to let the business get so fat that it eventually had to be downsized." Goes back to being almost deliberately understaffed. There's a great example in, in Sam Walton's autobiography where they're interviewing other people around him. And he's constantly questioning, he gets annoyed at like any level, any extra level of layer, any extra level of process.

• 1:08:08David Senra?

  And, you know, he says over and over again in his autobiography, like if you you either serve customers or you support the people that do it, we don't need you. And, you know, there was this one example where they were having a problem. When when inventory comes into the Walmart stores of actually putting the right prices on there, so they had to add another layer of these guys that would go around and it would like have these like handheld devices and they would scan every single thing to make sure that the price that the computer says it should be is actually the price that the customer sees. And their their mere presence would annoy Sam. He kept asking, why do we have this extra layer? Like, why don't we just do it right the first time? And I think implied in there is his his his correct instincts, that you have to be very careful of being bloated, of jumping immediately that the solution to the problem is more people.

• 1:08:50David Senra?

  Then there is an interesting comment here where they're like, we really don't want to clutter clutter up our minds. And so we try to focus on what is important and what is knowable. So when I was lucky enough to have a two hour lunch with Sam Zell before he died. And we talked about this because anybody that knows Sam Zell says the same thing. So what they say about Sam is what Sam said about Jay Pritzker. So Jay Pritzker was his his mentor when Sam was a very young man. I think he was still in his twenties when he met Pritzker. And he said that Pritzker was the greatest financial mind of anybody he ever met. And that, you know, Sam would bring him a deal or they would talk about buying a business or whatever. And he's like, OK, here's like a list of eight things or seven things that that we need to worry about. And Pritzker's like bullshit. It's like, that's the one thing. There's only one variable, and if you solve for that variable, the deal will work out.

• 1:09:35David Senra?

  And so they're talking about, you know, if you went back in 1919, you could have bought a share of Coca-Cola for 40 bucks. And in between that, a bunch of times it dropped by 50%. There was World War II, there were pandemics, there was a ventriloquist atomic bomb. And really, the only important thing was how many servings of Coca-Cola were going to be served every day, you know, many years into the future. So you think about it, like, what is the most important factor? That's what Jay, that's what Sam Zell or Jay Pritzker taught Sam Zell, that's what Sam Zell taught other people. And that's what they're saying here. It's like, you know, War wars be damned, economic financial crises be damned. Like if I'm buying the stock for the long term and I forgot how long they may have been holding

• 1:10:18David Senra?

  this for three decades, are they going to be serving more Coke on a daily basis, you know, in the future? And all that mattered was by 1998, they were selling 1 billion servings a day. And Buffett makes the point here, the person that can make people a little happier a billion times a day around the globe ought to make a few bucks doing it. If you developed a view on any other subject in any other way that forestalled you in acting on that which is most important, this specific narrow view about the future of the company, you would have missed a great ride. And then I love this part because they're talking about an ideal asset or ideal business. They're talking about during inflation, but really I think it obviously applies during times of low inflation as well.

• 1:11:02David Senra?

  The ideal asset is a royalty on somebody else's sales where all you do is get a royalty check every month and it's based on their sales volume. You came up with a product originally, licensed it to them, and you never have another bit of capital investment. You have no receivables, no inventory and no fixed assets. And there's actually, I've come across some of these crazy deals where people have become very wealthy as a result of that. So I did this episode on Jimmy Buffett. And what's fascinating, if you go and look at like, there's lists of like the top 10 wealthiest musicians of all time, they're all like, kind of makes sense, you know, they had huge hits, they're very well known. And you have like this, the one outlier on that is Jimmy Buffett, you know, they had like two hits, they weren't even that big, you know, and they were like 20 years apart.

• 1:11:43David Senra?

  And yet this guy, you know, had a multiple billion dollar net worth when he passed away, not including all the money he was taking out of the business. I forgot, I forgot what it was on the podcast, but he was making something like $70 million a year. And when you write about how he did that is because he had all these license agreements that were using like the Buffett name and Margaritaville and Jimmy Buffett and Warren Buffett were actually friends. So also one of the reasons I popped my mind. But then you also look at some of the craziest deals in history, like Michael Jordan's royalty. He gets 5% of all the the sales of the Jordan brand. I think he made like 300 million last year doing that, maybe like 150 million the year before. And it's like, keeps growing. Coco Chanel became the richest woman in the world when she was alive, based on the deal where she got either 2%,

• 1:12:28David Senra?

  I think 2% of all sales of Chanel. And in the contract, it said that the her former partners had to pay every single one of her living expenses, which was very fascinating. There's one that came up recently. Steven Spielberg, for for quite a while, has gotten 2% on all of Universal Studios ticket sales. And I think it's at every single Universal Studios throughout the world. In fact, because that's a public company, they he's been making anywhere from I've read different reports from like 30 million to like 70 million a year for a while. And they had this disclosure in in their Universal, their disclosure where they estimated to buy him out of the deal would cost like another like 1.5 or 1.7 billion dollars. So this idea, it's like, well, you're just getting a check every month.

• 1:13:13David Senra?

  It's based on the sales volume. You know, you don't have to invest any other capital to the business. It's just you have no receivables, no inventory and no fixed assets. Very interesting. Now, we talked about earlier that you can sometimes spot an image, spot an opportunity based on this like this parallel or related industry to the one you're working in. There's actually an example of this that's it's it's kind of similar to this, where you have a deeper understanding that only happens through experience. There's two things that they mentioned, Sees Candy, over and over again forever. It's probably the most commonly mentioned business in this book. Maybe Coca-Cola is up there as well. But one of the most, the only part I really want to pull out about Sees is that it taught them. There's two benefits. One, all the money coming out of it.

• 1:13:58David Senra?

  I think they've pulled at least 2 billion of cash out of it. I think the number's got to be higher now. And I think they were still doing like 100 million a year in cash flow that they can then obviously reinvest into other businesses. But I that that's fascinating. Obviously, they only paid 25 million for the company, right? But what was fascinating is They didn't understand the power of brand, like the magic that is a brand until they actually own a business that was a brand and you have these benefits that seem undeserved but are directly related to the fact that you have a brand that is beloved in the consumer's eyes. And when you have that, a lot of weird things happen. C's not only provided us with earnings used to buy other businesses, but beyond the earning, it also opened my eyes to the power of brands. You could say that we made a

• 1:14:42David Senra?

  lot of money in Coca-Cola partly because we bought C's. I understood brands to some degree, but there's nothing like owning one and seeing the possibilities to educate yourself about things you might do in the future. If we had not owned C's, I would not be surprised if we would have never owned Coca-Cola later on. And so that's related to the fact that Buffett really loves mind share, like having mind share in a consumer's mind, like C's Candy does for a much smaller group of people, Coca-Cola does for the entire world, talks about Walt Disney, the fact that no mom is going to be like, I want to go to the store and buy Paramount Pictures movie. It's like, no, Disney's the only brand. It's super, super valuable to have this mind share.

• 1:15:25David Senra?

  And you see this with Geico and how much money they spend on advertising, how important it is, we'll spend, and these numbers are more than a decade old, so they probably even spend more now, we'll spend about $800 million a year on advertising. We were spending a little over 20 million a year when we bought Control in 1995. So he's drastically increased. Buffett has drastically increased the amount of money he spends on advertising. He's aiming for ubiquity is the way you can think about this. We want everyone in the United States to have in their mind the fact that there's a good chance they can save money by picking up the phone or going to the website and checking it out. When we get that message in people's minds, you never know when it's going to pay off later down the line. We love spending money on advertising at Geico. We want to be in everybody's mind. A brand is a promise. That's still the best description or

• 1:16:10David Senra?

  the best, yeah, the best definition of a brand I've ever come across. A brand is a promise. But I just think there's just a great line to describe what you're really aiming for, this mind share, the brand is a promise. There's something that's happening in the mind. That just gives you these, you know, unexpected and like compounding benefits for a very long time. And Munger talks about Costco. You know, my wife's family, they're Costco fanatics. I didn't even know what the hell Costco was before I married into this family. And I told you they've been Costco members, I don't know, 27, no, it's gotta be longer now, 27, 29 years in a row. They're never cancelling that menu or that, that, that membership. I don't even know if they shop anywhere else. It's, it's

• 1:16:50David Senra?

  friggin nuts. So again, I think this is just a great line. Costco has created ferocious customer loyalty. And of course, strange things happen when you do that long enough. And again, Coca-Cola has ferocious customer loyalty, Disney, you know, Costco, all these interesting brands have ferocious customer loyalty. Now I want to get to this part that I've been quoting over and over again. It's my favorite line in the book, right? Pick one example, pick one extreme example and ask what in the hell is going on here? So they're talking about the fact that, you know, well before they bought into GEICO, they knew all about the history of the US auto insurance. And there's all these other

• 1:17:30David Senra?

  outliers that they found interesting. So they said State Farm was started in 1922 by a fellow in Bloomington, Illinois, who had no money, no capital into the business. And over time, in a huge industry, he becomes the dominant player. And at this point, this is like 20 years ago, he was like more than twice the size of the number two player, which is very interesting. And incidentally, State Farm on the Fortune 500 list has the third largest net worth of any company in the United States. Number three, from Bloomington, Illinois, with the guy who had no money. How does that happen? You find, you find some interesting aspects in studying how a company could become the third largest in net worth in a country with no apparent advantage going in. So this is when Munger follows

• 1:18:11David Senra?

  on. Again, I love this idea. Picking some extreme example and asking my favorite question, what in the hell is going on here is the way to wisdom in this world? When something like a State Farm happens, you should try to understand it. And if you think about that, that's exactly what you and I are doing together every week. You can't have a more extreme subset of the human population than somebody that was so good at their job that somebody decided they had to write a book about that person's life. That is the smallest percentage that you can't, there, there is not more of, I don't know many, there probably isn't another way to pick a more extreme like subset of the human population and ask what the hell is going on here? And then, interesting enough, this book ends with a bunch of book recommendations

• 1:18:54David Senra?

  from Charlie and Warren over the years. So I just want to read a few to you. Some of these I've done podcasts on and some of these I bought immediately. So it says, "I very much enjoyed Connie," this is Charlie Munger speaking, "I very much enjoyed Connie Brooks' book, Master of the Game, which is a biography of Steve Ross, who headed Warner and was later CEO of Time Warner. She's a very insightful writer and it's a very interesting story. I'm rereading a book I really like, which is Carl Van Doren's biography of Ben Franklin. I had almost forgotten how good a book it was. We've never had anybody quite like Franklin in this country and never will again." Buffett says, "There's one chapter in The General Theory by John Maynard Keynes that relates to markets, the psychology of markets, and the behavior of market participants.

• 1:19:35David Senra?

  You'll get as much wisdom from reading that as anything written in investments." Buffett also says, "I read The Quotable Einstein. It's a lot of his commentary over the years and it's a great read. I just ordered it." I think it's like, again, 400 pages of just Einstein and his own words. I'll have that book soon. If it's good, I'll make a podcast on it. Munger says, "Robert Hagstrom sent me his latest book on Warren Buffett, The Buffett Portfolio. I was flabbergasted to find it not only very well-written, but a considerable contribution to the synthesis of human thought on the investment process." Munger also says, "Another book I like very much is Titan by Ron Chernow. I did this on episode 248, if you haven't listened to it. It's obviously the biography of John D. Rockefeller.

• 1:20:17David Senra?

  That's one of the best business biographies I've ever read," Munger said. Warren Buffett says, "You should read Catherine Graham's autobiography, Personal History. It's a terrific book." That's episode 152. Buffett says, "Probably the most representative book on my views is the one that Larry Cunningham has put together, The Essays of Warren Buffett." I love that book, too. That's episode 227. "Because he essentially has taken my words and rearranged them and put together, what he put together there, best represents my view." And then Munger says, "He just read In the Plex by Stephen Levy about Google and he found it very interesting. I find it interesting the way people have created these engineering cultures, which are quite peculiar and different from most of what we have at Berkshire." I haven't read this book, I actually just ordered it.

• 1:21:01David Senra?

  "I certainly enjoyed learning it. And if I enjoy learning it, I regard it as important because I think that's what you're here for, to go to bed every night a little wiser than when you got up."

• 1:21:15David Senra?

  And hopefully you feel this podcast helps you do just that, makes you a little bit wiser than you were before you listened to it. That is where I'll leave it for the full story. Highly recommend buying the book. I think it's a no brainer. Again, I wouldn't read it straight through. I definitely think of it more as a reference and I would jump around based on the table of contents. But if you buy the book using the link in the show notes, you'll be supporting the podcast at the same time. That is 380 books down, 1,000 to go, and I'll talk to you again soon.