Chris Davis: Three Generations of Wealth

Most families who obtain immense wealth squander it by the third generation. But Chris Davis comes from a family whose grandfather and father all became independently wealthy of each other, and Davis has done the same. How does that keep happening? In this conversation, we find out. Shane and Chris discuss life and investment lessons he learned from his father and grandfather, why writing is more important to clarify one's thinking no matter who's reading it, and the surprising benefit of reading physical newspapers and wearing ties to work. Davis also shares his value-investing philosophy, what he learned from working with and meeting Charlie Munger, and what parents can do to raise kids who aren't entitled. Davis talks about his alcohol drink tracker and why it's important to him, why he never puts himself in situations where envy can grow, and the insights from Warren Buffett's key letter about why investment managers underperform. Chris Davis is on the board of Berkshire Hathaway and The Coca-Cola Company. Davis is Chairman of Davis Selected Advisers-NY, Inc., an independent investment management firm founded in 1969. Davis joined Davis Selected Advisers-NY, Inc. in 1989 as a financial analyst, and in 1995, he became a portfolio manager of the firm’s flagship funds. Watch the episode on YouTube: https://www.youtube.com/c/theknowledgeproject/videos Newsletter - I share timeless insights and ideas you can use at work and home. Join over 600k others every Sunday and subscribe to Brain Food. Try it: https://fs.blog/newsletter/ My Book! Clear Thinking: Turning Ordinary Moments into Extraordinary Results is out now - https://fs.blog/clear/ Follow me: https://beacons.ai/shaneparrish Join our membership: https://fs.blog/membership/ Sponsors: Eight Sleep: Sleep to power a whole new you. https://www.eightsleep.com/farnamstreet (00:00) Intro (03:20) Life lessons Davis learned from his grandfather and father (26:24) The importance of writing things no one reads (36:55) Davis' experiences through financial crises (52:31) Why Davis loves managing a mutual fund (55:49) Why Berkshire Hathaway operates with margin (01:01:05) What is risk? (01:04:02) On low interest rates and their future impact (01:14:46) The mismatched timelines between CEOs, companies, investors, and policy (01:22:19) How Davis and Munger met (01:30:20) Lessons learned from Munger (01:41:29) Why avoiding weaknesses is the ultimate recipe for success (01:55:46) How to raise non-entitled kids and avoid lifestyle creep (01:16:10) On happiness (02:27:00) Good vs. bad board meetings (02:31:34) Three generations of wealth (02:37:15) On success Learn more about your ad choices. Visit megaphone.fm/adchoices

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

• 0:00Speaker 00

  I just think you have to think about how do you position? You have no idea if you're going to be sailing through a storm. Be prepared for that and have redundancy, have resiliency. But you know, imagining there's some tropical island where you can go and drop the anchor and just wait it out. That's not an option. There is no safe harbor.

• 0:38Shane Parrish?

  Welcome to The Knowledge Project, a podcast about mastering the best of what other people have already figured out so you can apply their insights to your life. I'm your host, Shane Parrish. A quick favor to ask before we start. Most people listening to this podcast on Apple or Spotify haven't yet hit the follow button. If you can hit the follow button right now, I would appreciate it. The more people who follow the show, the better the guests I can get. Thank you so much and enjoy the conversation. If you'd like access to the podcast before everyone else, special episodes just for you, hand-edited transcripts, or you just want to support the show you love, join at fs.blog/membership.

• 1:21Shane Parrish?

  Check out the show notes for a link. Today, my guest is Christopher Davis, a member of the Board of Directors of Berkshire Hathaway and the Coca-Cola Company, and the Chairman of Davis Select Advisors, an independent investment management firm founded in 1969 that oversees about $20 billion in client assets. If you recognize the name, this conversation needs no introduction, just dive right in. And if you don't recognize the name, you will love this conversation. It's not just about investing. We talk so much about life and living. Oh, it's just fascinating. Tom Gaynor introduced us and it was like finding this older brother you never knew you had. Our conversation was supposed to go for an hour and ended up being nearly three hours. I almost missed my flight.

• 2:06Shane Parrish?

  We discuss topics such as risk, including unique insight from his front row seat on the Board of Berkshire Hathaway, why retirement has no appeal, the value of writing, resiliency, raising kids in an environment a privilege, cultivating a long-term mindset, assessing management quality, how he sees the market, how to change your mind, and so much more. This is the most honest and raw I've ever heard Chris in a conversation or seen him before. I really hope you enjoy it. It's time to listen and learn.

• 2:44Shane Parrish?

  Today's episode is brought to you by Eight Sleep. Eight Sleep's pod cover is redefining sleep, leveraging both data and technology to improve health. The pod cover will improve your sleep by automatically adjusting your bed's temperature based on your individual needs. The cover can be added to any bed like a fitted sheet and allows you or your partner to cool or warm your side of the bed, as low as 55 degrees if you're crazy, and up to 110 degrees if you're also crazy. I use Eight Sleep every night. I find this thing is amazing. Not only at adjusting temperature, some nights, you know, you're just cold and you want to warm up, and some nights you're really warm and you want to cool down. It's remarkable how consistently awesome my sleep is and how much the Eight

• 3:27Shane Parrish?

  Sleep affects that. You can go to eightsleep.com/farnhamstreet and get $200 off plus free shipping on the pod cover by Eight Sleep. That's eightsleep.com/farnhamstreet.

• 3:40Shane Parrish?

  I want to start with your grandfather. And if I understand correctly, when you were 14 and, or no, 15 and 16, you were working for him up in Maine as a cook and a chauffeur. And that really cemented your relationship with him. I want to talk about some of the lessons you learned from him.

• 4:01Speaker 00

  He was, in many ways, a great man, and in many ways, a very difficult and very flawed person, which I guess just makes him human. And I think it was, within our family system, he was sort of viewed as this very aloof, very unloving, sort of distant, and even sort of pompous, you know, it was, and almost sort of a caricature. And so, we had to kowtow and be polite. And I just remember my father, you know, always making sure we had good manners at the table, but- You know, he was not popular among the grandchildren.

• 4:40Speaker 00

  And I think that my grandmother, his wife, was just this incredibly warm human and just so full of love and light. I used to say, if you averaged them together, you'd get normal. And that was true in a lot of dimensions. And I think that that summer that I worked for them, I was able to sort of see much more of him, see him outside of the context of this sort of patriarch. And increasingly, I became interested in just the breadth of his knowledge. I mean, it was amazing how he was just reading all the time. He was curious all the time. It's almost like he didn't have time for antics.

• 5:24Speaker 00

  And I think sort of a switch went off then when I realized sort of people, people in general, but even in particular, there was so much more than this very narrow view of looking at him within our, our family system. And I became sort of curious about why there were always people coming to visit at the house, you know, why Kissinger would come, or Cap Weinberger, or, or executives from companies, or heads of colleges. And, you know, what was it that people wanted to see him? You know, this kid, this man that as kids, we thought was so boring or pompous. And it was just at that moment in adolescence, in essence, when you're able to sort of see an adult.

• 6:09Speaker 00

  And it was a little bit like a switch went on. We developed a very peculiar relationship. I was sort of his chauffeur. I would drive him, you know, to the airport on Monday mornings at 5:30 or 6:00 in the morning so he could get back down to New York. And, you know, those car rides, I saw a different sense of him. And it just, just flipped a switch in our relationship that really lasted all the way until he died. And, and it allowed me to see a lot more nuance and a lot of complexity. I think of the, you know, the old expression, no man is a hero to his valet? Well, that, that's probably true with kids. And grandkids too, you know, they they have a very narrow way of of judging people.

• 6:51Speaker 00

  And, you know, when Churchill said that that shows the limits of the valet, not the man. Well, that was sort of the the light that switched. I realized that, you know, maybe I was looking at this person with the wrong context. And that that was a big changing point. I'm glad you asked about that.

• 7:08Shane Parrish?

  And you were sort of going in a different direction. Your grandfather being a capitalist. And at the time, you were sort of exploring veterinary school and theology.

• 7:20Speaker 00

  You know, I threw myself into whatever vocation was sort of at the top of my mind. I I threw myself into. I could really imagine that that sort of life. And so in that sense, I was very curious. I never, at that stage, I was young enough that I didn't think about capitalism or communism or industry. I I always viewed my father and grandfather as somehow doing research of studying businesses. And it was a very, so I it wasn't that I assumed that what they did was boring. It just seemed narrow. And, you know, I think, yeah, as a kid, I I wanted to be a vet.

• 8:00Speaker 00

  I, you know, the the James Harriet view of all creatures, great and small. And it just captured me. I I never, we didn't have dogs or anything growing up. I grew up right in New York City. And so I was obsessed with the idea of animals. I was a dog walker. I had all of every kind of rodent known to man as a pet, unfortunately for my my mom. And, you know, gerbils and hamsters and mice. And and one cat that grew larger and larger by eating my rodents over time. And and but, yeah, the idea of of being a vet, it had this fantasy of everything that living in New York City in the 1970s wasn't.

• 8:45Speaker 00

  And I have to say, I I love New York now. I really, I've loved being here since I moved back in my 20s, but I hated it as a kid. It was just such a filthy, dark, almost. Post-apocalyptic time. I mean, New York in the seventies.

• 9:01Speaker 00

  People tried to imagine some romance about it. It was just, it was dirty and scary and dysfunctional. You know, there was a garbage strike, you know, the power blackout in nineteen seventy seven. It was like there were riots. I mean, it just, you know, I carried mug money going to school in the morning because the the crazy theory of Upper East Side parents was that if you got mugged, it might be good to have a little money to give them so that they didn't get mad. Well, you know, I'm no expert on Pavlov, but I think it's, it's a really stupid idea to give little skinny kids a bunch of money to carry around with instructions. Just give it to anybody when you get mugged.

• 9:41Speaker 00

  But I just, I just remember thinking it was, you know, it was what I wanted, this sort of image of the, of the, you know, British countryside and sheep and cows and farming and horses and animals. That just was a complete vision of Oz to me. And so being a vet was sort of how that vision or that desire to live a different life manifested. And so, you know, and I was quite serious about it. I worked at the Humane Society in New York for two summers. I worked at the Bronx Zoo as a intern, which was a crazy job to take the subway out to Tremont Avenue,

• 10:26Speaker 00

  you know, in time for early morning feeding and, and, you know, mostly I cleaned cages is what I did, but I cleaned cages all over the zoo. So I worked at the camel barn and the elephant house, but I also worked in the world of darkness with other nocturnal animals. I worked in the reptile house, even in Wild Asia, which is an area where theoretically the, the, the visitors go by monorail around the top and the animals are free. Well, of course, they're not free. There's a whole series of pens and, and, but that was an amazing experience and an amazing place to work. So I was very serious about it. And as a friend of mine told Much later, it was actually a priest that I worked for said, you know, I was confusing

• 11:10Speaker 00

  loving animals with wanting to be a vet. And they are very, very different things. And I definitely learned that.

• 11:16Shane Parrish?

  Was this driven by your father saying, go get a job? Or was this all self-driven?

• 11:21Speaker 00

  Well, I give my parents enormous credit. There was a rule from about the time we were 13, which was, you know, you were allowed in the house, you know, three weeks without a job. So that sort of got you through, you know, Christmas break or spring break. But the assumption was you were going to work in the summer. And that was sort of the assumption all the way through. But to their credit, they felt like, you know, if it was an internship at the Bronx Zoo or whatever, or working at the Humane Society, that was fine, you know? And they would pay you for that if the job didn't pay you. Everybody had summer jobs and it would never have occurred not to.

• 12:02Speaker 00

  I think I was a little bit more obsessed with the idea of, you know, I don't want to make it sound like, you know, I came out of the womb an entrepreneur or something. But I loved the freedom of having, you know, of having money. And so, you know, I started a dog walking service when I was probably in third grade or second grade. And my parents' rule was I couldn't cross streets with dogs, but I could go around the block many times. And so, you know, and it was a way of getting a pet without having a pet. And, you know, when the mayor passed the pooper scooper law, I mean, again, going back to

• 12:45Speaker 00

  New York in the 70s, you just can't imagine the amount of dog crap that was everywhere. I mean, it was just part of walking down the street. There were songs about it. It was just, it was just everywhere. And so, you know, this law was passed that you had to clean up after your dog. Well, people couldn't imagine it. Like, they really couldn't imagine. Now, by then, I had worked in the Humane Society. I'd cleaned a lot of animals' cages. It was not something I was at all squeamish about. But, boy, people would pay. Pay you anything to clean up after their dog. And there were all sorts of strange inventions. You know, with, you know, things that looked like sort of hedge clippers, but they would have a bag on the bottom or you'd try to get it under your dog before they went.

• 13:30Speaker 00

  Nobody had any idea and nobody had signed up for it. So in fact, there were some tragedies where people, uh, dogs were jumping off the top of apartment buildings because what happened was people were so appalled at the idea of cleaning up after their dog that they would go to the roof of their building, where of course it couldn't be policed and they'd let their dogs crap up there. And so there was a period of a few months where dogs were jumping off of buildings. And, you know, it was, when I say New York was chaotic in the seventies, just that's a sense of the chaos. There are dogs coming out of the air, there are dog shit everywhere. I mean, it was really, uh, and I think just as a, you know, ten year old kid or whatever, the sense of chaos was just, it was sort of overwhelming.

• 14:15Speaker 00

  But the point is that if I had been happy to charge 50 cents a walk, that law came into place and I could charge $5, $10. People would pay me to come twice a day. And, you know, all of a sudden, you know, I'm making, you know, a hundred bucks a week. It was just, you know, I, I liked that feeling. I liked that feeling of, of, of, of having the independence of money and having so. So it, it, it did sort of take off then.

• 14:46Shane Parrish?

  Did your father or mother give you an allowance growing up?

• 14:49Speaker 00

  They did. It was a little unreliable. My father, my, my parents were divorced and, and so of course that allows kids to, you know, I don't, I don't know if you ever fish, but, you know, in, in, in fishing, there's this thing about fishing the seam, you know, where you find two bodies of water moving at different rates. And in that seam between those two bodies of water, there's often a lot of, of marine life. And, uh, and so I think children of divorce are very good at fishing the seam. And, uh, so, you know, my father would put up some policy about doing chores and collecting kindling and, you know, he had. Moved out to the country and commuted and but you know, we were there every other

• 15:33Speaker 00

  week and and so you know, yes, we had an allowance. It was sort of, as I say, regularly sort of not uniformly enforced, which I think probably reinforced the idea of liking having my own funds from and of course, interest rates were very high then. And so, you know, I remember my brother and I both being struck that we had put for a few years money we had gotten at Christmas or our birthdays into the local savings bank. And you know, the idea that all of a sudden, I mean, I remember going to get the money out and being given a $50 bill plus a $2 bill and then some change because what seemed like I had

• 16:18Speaker 00

  put in only $10 or $15 and all of a sudden, there was $52 and change. It felt like the most money I had ever held. And so, yeah, I think very early, you know, I give my father especially enormous credit. We were a very financially numerate household. That was, you know, sort of a language that was just part of part of it. Savings, what interest rate meant, how money could compound. He was very good at object lessons for those sorts of things.

• 16:49Shane Parrish?

  What were your dinner table conversations like growing up?

• 16:53Speaker 02

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• 17:52Speaker 00

  You know, particularly with my father, we would be out there on every other weekend. And so, of course, that would begin on a Friday, which meant that Wall Street Week was on. And my father is very anti-television, and not even in a sort of fanatical way. He's just not interested. He just finds it an amazing waste of time. And it is one of the things that I really admire about him. But Wall Street Week was an exception. I mean, I felt like Louis Rukeyser must be a relative or something because he was in the dining room, you know, a little TV, watching Louis Rukeyser speak.

• 18:32Speaker 00

  It's funny, when I was near the end of Louis's life, I went on the show and he made this comment that he had had all three generations, my family, on his show, which my grandfather had been on independently of my dad, and then I had been on. And so that was sort of a nice thing. And I think, given the idea of how important that show was growing up, there was something nice about that. But, you know, I think there was a lot of banter. I was generally the sort of the table provocateur.

• 19:14Speaker 00

  But my dad's a great storyteller. His breadth of information, like what he knows about, and his ability to describe businesses as stories. You know, it's funny, we'll get to this, but I was just with, who was I with? That was talking about how humans think in stories. And it makes sense, if you think over the course of evolution, how wired we are to learn by storytelling and story listening. And I've always argued that if we really want kids to get excited about STEM and like learning science, you know, throwing a bunch of formulas at them and calculus, it's going

• 19:58Speaker 00

  to work for some, whose minds really can see that. I sure wish every freshman in high school or every sophomore in high school was taught the biography of science. You know, think of the movie Oppenheimer. You know, Oppenheimer will probably draw more people into physics, you know, than STEM funding in high schools will. It's this idea that, you know, we're wired to sort of have heroes and to admire them. You know, the whole story of Homer, everything, you know, it's how we learn. We imitate, we study, we lionize people, we vilify people, and we affect behavior that way. And I would wish that we told more stories about scientists, about what it

• 20:43Speaker 00

  was like for, you know, Heisenberg, you know, pacing around this island in the North Sea, trying to, you know, coming to terms with the math of quantum mechanics and losing his sanity because it couldn't be right. It couldn't be right. It was such a disturbing implication. But going all the way back, I would say my father had an amazing ability to turn businesses into stories. And so every day when, you know, he would get off the train excited, he would, you know, we'd pick him up at the station and we'd come home and we'd have dinner. He just always had stories about what was going on. I mean, I was just thinking of it the other day because it was the anniversary of Apple coming public.

• 21:28Speaker 00

  It must have been the 40th, I think. But anyway, I'd heard something about it. And I remember my father telling this story about these hippies in his office at fiduciary trust company, you know, in downtown New York, respectable trust bank. And he said, this guy shows up in sandals, in sandals. He couldn't believe it. He said, how can a guy show up trying to raise capital for a business and show up in sandals? He's like, I'm not going to invest with any damn hippie. But of course, he was trying to teach us a story about, you know, about respect and knowing, you know, who you're meeting with, but also this sort of the craziness of the idea that these young hippies were

• 22:12Speaker 00

  raising money for some crazy computer company and...

• 22:16Speaker 00

  You know, he had been very close at the founding of Intel. So it was an area that he was interested in, but he just thought, these guys, you know, Steve Jobs, these guys seem crazy. And, but I, but that would be a good example of what we would talk about at the dinner table, him talking about how some guy showed up in his office in sandals trying to raise money for an IPO of a tech company. And it's an enormous strength of his, is just that, you know, passionate curiosity and his enthusiasm was infectious.

• 22:45Shane Parrish?

  Are there any particular stories that stand out about moral lessons or businesses that still stick with you today that you try to pass along?

• 22:54Speaker 00

  I mean, the, the, the list of business lessons is sort of endless. I mean, in other words, that, that was just sort of constant. I mean, just going, I'm not sure how much it was stream of consciousness for him versus here's my lesson plan of trying to shape my kids. And of course, it's six kids and everybody got different things out of it. It, it, you know, there were ways in which the business stories really resonated. I, I don't know if I've ever thought of that question in, in that way. I, I, I would say one story that really struck me in that I was remembering the other day was about a man who, as he described it, one of his inventions, he was a brilliant

• 23:39Speaker 00

  polymath businessman inventor, and he invented the yellow tennis ball.

• 23:46Speaker 00

  I remember him telling that. And he was telling us this story because the man had been bitten by a bat and had nothing, done nothing about it and had died of rabies. This enormously successful person. And I remember it, it being so out of left field, you know, the idea of somebody dying and you know, and he, he said, you know, the point is this guy that was so brilliant, you know, it just, but it never occurred to him that, that, you know, he could die of rabies. So I, I, I don't know how much my father intended that lesson to be a lesson about hubris or about

• 24:26Speaker 00

  Domain knowledge, or, you know, about the closeness of tragedy, or just about we were in the country now, and so if we got bitten by anything, to be sure to tell them. I just remember that being something so out of left field and being so different than anything that we had ever talked about.

• 24:45Shane Parrish?

  It seems really interesting, because like when you would have guests over, or your parents would be talking about business, you were at the table, which I would think is different in that generation as well, where kids were supposed to be seen and not heard, and sort of like, go to your room, and, you know, the adults are talking.

• 25:02Speaker 00

  That is true. I mean, again, because my parents were divorced, I had the gift of being exposed to two very different households, and both very admirable in some ways, and very dysfunctional in some ways. And I would say that, you know, my mom was from an old Boston family, and her mother was Australian, and there was a lot more formality there, you know. And my dad is structurally informal, and structurally inclusive, and that more the better. And he was very comfortable with us being included in that. He felt like he didn't want that all to be a mystery. I never viewed him as some businessman that went

• 25:46Speaker 00

  to an office where I didn't know what happened there. He, you know, every one of his kids understood, and can do a pretty good impression of him on the phone with the trading desk, and, you know, what the hell's going on, and, you know, or listening to him at the other end of conference calls when we were traveling as kids. He was very much, always comfortable being a remote worker before that was fashionable. I mean, my dad was out of New York State for six months a year from, really, I think, from the late 70s on. And so that meant he was working, you know, I remember the first cell phone, you know, the big thing that looked like almost a crate that he would carry around. And it's not that he was short-term trading, he just wanted to make sure he never missed a conference

• 26:29Speaker 00

  call, or earnings release, or, you know, he used to say, you know, you call 10 companies, you learn one thing, you call 20, you learn two. And, you know, so it was sort of a numbers game. And so we were always hearing one side of that conversation, whatever it was. And that was, you know, from the time we were little kids on, so.

• 26:49Shane Parrish?

  One of my favorite anecdotes, I'm going to fast forward a little bit here to you going through, sort of exploring the veterinary option theology. You start out in banking, you end up working for your grandfather. And he has you writing the insurance letters. You ask, why bother when nobody's reading them? And he had a really interesting response to that.

• 27:14Speaker 00

  Yeah, which is, is you write it for yourself. And Shade, it's so amazing that you say that on the walk in. You know, I've been, a fabulous book on AI is called The Coming Wave. It's written by one of the co-founders of DeepMind. And I was listening to it this morning, and it was talking about, you know, obviously, the ability of the AI models already to do very good writing. And so that exact anecdote was on my mind as I was walking over here. Because I was thinking about how strongly, he said, you know, the writing is not about

• 27:52Speaker 00

  the product for the client. It's about what you learn by writing for yourself. It is. And so it didn't matter that we sent out this insurance letter. I don't know, we probably sent out a couple, 200, 300 copies a week. You know, by the time I was working for him, he was probably already in his 70s. So a lot of his peers had long retired. And, you know, I wasn't sure anybody was reading this. And I mentioned that to him. And he said, well, we write it for ourselves. You know, the discipline of every week going through, you know, reporting on any company that had reported earnings, what was happening with inflation, what was happening with investment returns, was there any specific company news?

• 28:35Speaker 00

  What had been the performance of the indices, which we would calculate by hand? There was no. And, and, you know, were there new, you know, were there demutualizations happening, whatever. But I was realizing in this, you know, coming wave of AI, you know, the idea of being alienated from your work, not realizing, you know, it's, I was interviewing some interns, potential interns, and at our place, and they were, they were obsessed with this wanting to work remote, you know, this idea that, hey, you know, I want work to kind of be,

• 29:15Speaker 00

  not interfere with my lifestyle and, you know, and, and it's interesting because they all had been in college during COVID. And so I said, so, you know, tell, tell me about COVID and college. And, oh, it sucked. It sucked. And I said, why? And they're like, well, one, you didn't learn anything. Two, you didn't develop any relationships. And then three, and this is real, was really powerful, is everyone cheated. They felt so degraded by the experience. And, and I said to him, so why do you think work is different? Like, what is it that makes you think that work should be different than

• 30:00Speaker 00

  college? So you got your degree with a lot less effort. So you got the outcome. Why, why are you so unhappy? And of course, you're unhappy because you were alienated from the experience. Well, how can't it be the same at work? If you really think the goal of work is to invest as little as you can in order to get as much payment as you can, of course, it's going to suck. And of course, everybody's going to cheat, and you're not going to have friendships, and you're not going to learn anything. But this idea that that is how we're wired, that that's what we really want, is so demonstrably false. You know, we crave competence. We crave, it is just, you know, it's, it's, it's been

• 30:42Speaker 00

  our superpower as a species, you know, stories is part of it, but we love getting better at stuff. We're tinkerers, you know, we, we want to improve, we want to learn, we work together, we turn little things into competitions. Watch, you watch the way kids play, you know, and.

• 30:59Speaker 00

  And so this idea that that somehow the fact that I can push a button and AI could write my annual report or write a reference letter for somebody that I care about for something that they care about, well, I have no doubt that that can happen. I just, I think that then I'm alienated from that product. And for me, the process of, you know, creating that annual report, which is probably read by six people nationwide, probably five of them are probably in our compliance department, I think back to his comment that you do it for yourself. Well, he meant you do it in a very puritanical way because you're learning and I appreciated that. I mean, he was very intense that way.

• 31:44Speaker 00

  But I also think we do it because we develop meaning out of that sort of thing. And this idea that, well, you know, I have a favorite nephew that, you know, wants me to write a letter because he wants to go to some college or something like that, or a co-op board or whatever. And I really want the person reading that letter to know about this kid because I really like this kid. I love him. And so, you know, for me, instead of spending, you know, four minutes on the prompt and getting something in, you know, to spend two or three hours, you know, I feel like I know him a little better at the end. I feel proud to send it to him or to his parents, but I also feel like, you know,

• 32:29Speaker 00

  I don't think it will be more effective. I mean, I think that, or if it is, it's only because I still have a little lead on AI, but it ain't gonna last for long. And so, but I do it because I derive this satisfaction from it. You know, there was, ever read a short story, who the hell wrote it, called The Leviathan? It was, you know, written at a time of sort of the mechanical revolution. So it was in the industrial revolution. And it was sort of a futurist. And it was about the fact that it was based on the idea that there was a ship that had been

• 33:07Speaker 00

  created that was so big that it would, the bow and the stern would never simultaneously be in the trough of a wave. And therefore, it would move sort of absolutely fluidly through the ocean from crest of wave to crest of wave. And, of course, it did not work at all. The ocean's much bigger than that. But, but this guy wrote a short story, sort of saying, you know, that this is the future, this incredible floating palace of luxury. And the short story takes place on the deck of this boat when they see some lunatic in a little sailboat. And he's about to get run over because, of course, the great ship is on autopilot

• 33:52Speaker 00

  and can't possibly move. And this guy is scrambling and trying to get out of the way and, you know, bringing the sails around and just narrowly escapes being run down. And all the people on the deck are saying, what a moron, what a stupid, here we are living this life of luxury and, you know, eating our caviar. And that lunatic is getting, you know, wet and the waves are washing over and he almost died. And there's this moment where, as he sort of recovers himself, he waves to them. And they all feel enormously uplifted. They wave back and, you know, and they feel this sort of, and they were acknowledged by somebody who's really living.

• 34:34Speaker 00

  And it was a very, I mean, I read it in high school. I can remember the title. I can't remember who wrote it. In fact, I'm gonna look it up after we're done because I haven't thought about it in so long. And it does seem peculiarly relevant. But it was this idea, a little bit like Brave New World with the man beating himself, the primitive. And they think, you know, that is, but it's this idea that living this completely alienated life, it may not be a source of happiness after all.

• 35:03Shane Parrish?

  Something is definitely lost when you outsource that sort of thinking and writing. And you actually, it's weird because I think you convince yourself you're smarter than you are. And then in investing, you would take unwarranted risks, risks that you wouldn't be compensated for because you can't see them.

• 35:20Speaker 00

  Yeah, it's, you know, it's a little bit like that sort of hard form. I love that joke about the efficient market theorists where, you know, they're walking down the street and there's a $20 bill and one says, are you gonna pick it up? He says, no, because if it was real, somebody would have already picked it up. And this idea that sometimes by, by taking that shortcut, you, you just become, you, well, of course, I'm an old newspaper lover and so I'm heartbroken at how few newspapers I can read in their traditional format. And so I have to get better at reading on a screen and I'm not very good at it. And it's a real handicap. But what I loved about reading a newspaper is I wasn't always sure where my eye was

• 36:05Speaker 00

  gonna go, what I was gonna focus on. And it was often the case that something might have caught my eye in a way that it doesn't when I'm scrolling on this tiny little screen. It's actually one of the reasons I'm, I'm fairly optimistic that whatever replaces this shitty little, you know, five inch rectangle that we all carry around in our pocket, that is a very, very poor way to get information, this tiny little screen. And, you know, when you think about VR and AR, of course, there'll be much more satisfying ways to take in information and that will be the functional equivalent of what that big newspaper page was, which if you think about it, it's like the IMAX of computer

• 36:50Speaker 00

  screens, you know? You open up the old, you know, the old Wall Street Journal, how Financial Times, how big it was. It's actually sort of amusing if you were to look at a paper from 20 years ago versus today, even a print paper like the Journal or, you know, it's probably 40% smaller, maybe 50%. You don't realize it's happened a bit at a time. But just how big a newspaper used to be versus what it is now.

• 37:20Shane Parrish?

  I want to come back to writing a little bit. You write memos to the board. Take me behind the scenes in terms of what you were saying and the conversations you were having and what you were thinking. Sort of through the crises that you've been involved in from the 1999, 2001, Great Financial Crisis, COVID, and today.

• 37:41Speaker 00

  Every crisis is different. I mean, that is for sure. I feel like in this very vicarious way, you know, the the bear market of the 70s to me felt like the big crisis. Now, I was a kid, right? So I only experienced it through my father. And but somehow he had started the fund in 1968. So sort of at a high. And basically, the market was back to where it was in 66 in 1981. And so to me, what happened in the 70s felt like it was the big crisis. Now, you're looking through a kid's lens. So my parents got divorced,

• 38:25Speaker 00

  you know, things were upended. You also had the hostage crisis. You had, you know, this crazy inflation. You had the 73, four bear market, where it was just calamity, you know, and my I just I view that as this sort of epically transcendent sort of test of of of, you know, sort of the largest American crisis in my now, I don't know how much that's demonstrably true and how much was looking through that lens. But I think of that as sort of the first economic crisis that I felt aware of. And, you know, it

• 39:08Speaker 00

  just being in this time when everything seemed to be going wrong, you know, the the sort of the chaos in the streets and the divorces and the the oil embargo and the lines for gasoline. And, you know, are you an odd number played or an even number played? And, and, you know, riots in Los Angeles and New York and cities on fire, and the loss of American sort of preeminence and the Olympic boycott and Soviets invade Afghanistan. And, you know, just it felt like it was a time where everything was sort of hanging in the balance. And as I say, it was probably through this childhood lens.

• 39:51Speaker 00

  And then, you know, you really fast forward to the late eighties and you had the SNL crisis. And I think because I was coming into business then, that felt like opportunity. You know, now here it was one of the greatest commercial real estate crises and, well, you probably have to go back to the thirties, you know, all these look through office buildings and the collapse of these big financial institutions, Bank of New England and things like that. And, but nothing about that felt scarring to me. I, it all felt like opportunity. But of course, it was where I was in my career. You had nothing to lose. I had nothing to lose. I could come in and it reminds me of, you know, the fact

• 40:32Speaker 00

  that, you know, I described that seventy-three, four chaos and because I remember my father and just the, my father was thirty percent cash in nineteen seventy-five. And, and so the fund dramatically lagged in one of the best market years of, of a decade's, seventy-five, and market went up thirty percent or something like that. And, you know, the fund probably went up twenty because it was a third in cash. As he said, he was just beaten down. He'd just been wrong day after day after day. My grandfather had been living overseas. He was ambassador from sixty-eight to seventy-five

• 41:13Speaker 00

  in Switzerland. And he comes home and he's like, this looks great. Now, his net worth was down eighty percent, you know, huge loss, but he hadn't experienced it viscerally. So he just came in and he went on margin and he levered up and he probably had one of the best stretches of his entire career, starting in seventy-five. And so, you know, obviously, sort of the degree to which you're scarred in the trenches during the process. So, you know, I'd missed that in the late eighties. So that became very for, and similarly, when you got to the late nineties. It, you know, all of that excess of lagging, this crazy roaring bull market,

• 41:58Speaker 00

  you know, it was corrected so dramatically and so quickly. And we were so well positioned for that. It wasn't like, you know, in, in, in 2000, the market went down nine percent. If I remember right, maybe nine, nine and a half. And it wasn't like managers like us who had stuck to sort of a discipline, you know, went down two and the market went down nine. It's like we were up nine or 10, you know, managers, there were managers we admire. They were up 20 or 25 with the market down 10. It was such a, so that also didn't feel scary. Now you throw nine 11 on top of that. And then all of a sudden that's very visceral, right?

• 42:42Speaker 00

  You know, we had had offices in the trade center and that, that was, you know, that was, had this sort of disorienting fear. It had sort of a shockingly mild economic impact, but it was so visceral to us as individuals and, and it was so visceral to us as Americans too. You just, you know, the whole country was so shaken that there you had a crisis where the economic impact and the psychological impact were sort of mirror images of each other. Well, then the, the funny thing is you roll into the, the great financial crisis. And that was the opposite.

• 43:24Speaker 00

  You know, what we saw in the front row of that was the whole system about to collapse. And Did you see that before it happened? No, no, I, I felt smug because of what we had chosen not to own as the excesses got wretched. So, you know, if you think of the six horsemen of the apocalypse in the financial crisis, you know, Bear Lehman, Fannie Freddie, WAMU, Countrywide. You know, we didn't own a share of any of them. And yet here I am, running a financial fund, running a fund that probably had 40% in financials as well.

• 44:07Speaker 00

  So I felt very well positioned going into that. I felt like, oh, there's excesses and we're not anywhere near them. And then

• 44:19Speaker 00

  The storm hits and that was this, you know, I really felt flat footed. And I think this is one where, I mean, I think what happened at AIG was so primal for me because my grandfather had been, you know, an IPO investor in AIG. Hank Greenberg sat in our family pew at my grandfather's memorial service. I mean, that's how close we felt to that organization. His offices were in 70 Pine Street, which was the AIG building. And, and you had a company with a hundred billion dollars of net worth, 80 billion

• 44:58Speaker 00

  of tangible net worth, probably had, you know, it probably had 17 or 18 billion dollars of earnings that had nothing to do with financial markets, you know, that, and it couldn't go illiquid because to get your money out of an insurance company, you have to die or crash or have a claim. You can't just There's not really a run. You can't get a run on insurance companies. So the old saying I sort of grew up with, which shows you a very strange upbringing was, you know, banks go illiquid before they go insolvent and insurance companies go insolvent before they go illiquid.

• 45:39Speaker 00

  And yet here was AIG going illiquid. It didn't make any sense and I couldn't. So I just kept thinking, no, it's going to be okay. It's going to be okay. And then bam, one day we're down 90, 90% diluted in a single day. And, and of course you couldn't, couldn't recover. And by the way, when it was all fully said and done, it was probably more like 95%. And so I would say what happened in the financial crisis was so disorienting to me. I'd felt we're well positioned, we're well positioned. And then, you know, it was, it was, you know, the, the Tyson, you know, everybody has a plan until they get punched in the face.

• 46:22Speaker 00

  It all of a sudden, no, it's punched in the face and it was, and so we, we muddled our way through, but it was, I don't

• 46:32Speaker 00

  I give myself low marks for just the way psychologically I was so disoriented in that 2008, 9 period. We lived to fight another day. We, you know, in many ways, one of the things that we had done in that period was we had said, look, there's a possibility that even a company like Wells Fargo could be nationalized. If they can do it to AIG, they do it to anybody. And so we de-risk the portfolio. Now, I had studied my dad enough to know that going to 30% cash was not the right thing to do. But it may have been, you know, selling some wells and buying Nestle. That ensures that if the crisis gets worse,

• 47:16Speaker 00

  we're going to own businesses that'll get to the other side. And if the thing stabilizes, well, Nestle's going to go up a lot, too. It'll just go up a lot less. So in essence, we planted the seeds of a long stretch of underperformance relatively from that. We built wealth and we felt like that was job one. We had to get to the other side. But that was a, but that, you know, we're only just now beginning to sort of claw our way out of, you know, a long stretch of relative underperformance. And it started with that. And then, of course, it culminated in some of this crazy free money stuff. But when COVID came around, that was the crisis for which I think we were the best prepared.

• 47:56Speaker 00

  It was one that sort of, it was like 9/11 in the sense that it took over people's psyche. It was so visceral, so real. The fear was real. And yet, even at the time, I think we felt very convinced that the economic impact would be transitory. We didn't know how bad it would get and we, but we had a lot of conviction that we owned companies that would get to the other side. We weren't worried in that way that we had been in the financial crisis or something like that. And, and so.

• 48:31Speaker 00

  That was one where I felt we stayed very steady. And, and I think of all of the crises I've been through, that, that was the one where I felt the greatest resolve, that we were on the right course, that we were, we were cognizant of risk, but we were not, in the sense of the financial crisis, de-risking the portfolio at the wrong time. We weren't letting the emotional fear that came from having, you know, your physical safety in question undermine our focus and our discipline around the portfolio. And so that was one where I felt we, we sort of got better.

• 49:06Shane Parrish?

  Three distinct rabbit holes, I want to go down there. The first one is that you use the word positioning multiple times. Talk to me about the difference between positioning and predicting and why you chose that term. I think it's important.

• 49:23Speaker 00

  One of the great gifts of ages, but to me, I feel like there are some things in life that feel totally predictable. Like, as you get older, you're like, well, that, I knew that marriage would never work, or I knew that was a bad idea. But you also become overwhelmed by how many things were totally unpredictable. And I think it's that focus on the second bucket makes me think a lot about positioning, about preparation versus prediction. And it is just amazing, this sort of prediction industrial complex is just, it, nothing seems

• 50:06Speaker 00

  able to stop it because people want to believe. You know, they want a crystal ball and they've wanted that since, you know, ancient Greece. And, and people have been willing to, you know, look at chicken guts and, and look at, you know, M2 supply or look at, you know, they'll just come up with something that will retrospectively have been predicted, predictive. But of course, it's a correlation, not a causation. And so I think just as a firm, we think enormously about that idea of positioning and preparation versus prediction. And so we tend to think of characteristics like resilience, adaptability, durability

• 50:50Speaker 00

  versus optimization versus, it's not an optimizing sort of approach. There will always be people that are doing better.

• 50:59Shane Parrish?

  In the short term, so it's not optimized for short term, but it is by definition, it's probably the most effective long-term strategy because you can't predict the future. So eventually you get a string of whatever your return is, but you multiply by zero. Whereas somebody's always outperforming you if you're not maximizing current returns, but you're maximizing longevity. But in the long run, you actually outperform them.

• 51:26Speaker 00

  Well, the absolutely optimal outcome will be achieved based on luck. Right? In other words, it's, you know, somebody will buy that lottery ticket and, uh, and will get a nearly infinite return, you know, a billion to one payout or whatever. And so, you know, I do think there will, there will remain people, and you're right, in the, in the very long term, it should be the case that if you avoid the blowups, you make progress when the, the, the sun is out, but you don't sink, that over time, it will just be a war of attrition. And it's something that my friend Tom Gaynor and I talk a lot about,

• 52:10Speaker 00

  is it's just staying in the game. And, you know, it's funny watching the, you know, the collapse of SBF and all of that. But, you know, it was such an insane theory to think that, you know, the theory would say bet it all every time that you have an advantage. And if everybody did that, you would get a better outcome net.

• 52:34Speaker 00

  But of course, it's an insane theory because you're certain to end up at zero. It's just a matter of when. And so it was such a disconnect in terms of this sort of mindset of, you know, just the complete disregard for that Kelly criteria and for that idea of living to fight. And I think it's one of the, you know, goes back to one of the reasons I love that we manage a mutual fund. I mean, I love that what we do ultimately ties to a very specific individual, you know, that is going to retire or not, or is going to send a kid to college or not. Because it does make us realize one of the really deep,

• 53:19Speaker 00

  dark, dirty secrets of money management.

• 53:24Speaker 00

  Is that, you know, if you were faced with the choice of, you know, you return 10% a year for the next decade and the market does 12, or you are zero and the market's down two. Every money manager takes the zero, but every client would take the 10. Because that is going to determine, you know, 10 years of zero return is not going to help them achieve their goals, but you will be one of the largest money managers on earth if you do that. Right? And so this asymmetry of incentives,

• 54:06Speaker 00

  I think it's one of the things that we never want to lose track of, that, you know, ultimately, you know, achieving 10% is way, way better than achieving zero. And that we want to beat the index over time. We want to beat the competition over time. You know, if you have 5,000 competitors, you're going to have to go a very, very, very, very long time to eliminate luck being at the very top of that.

• 54:38Speaker 00

  But it doesn't matter to us. You know, what matters to us is, is, you know, that person being able to afford their retirement. Yeah. And so the zero versus the negative two, that, you know, we'll take the 10 and we'll run the portfolio for that. And as I said, in the financial crisis, that meant that we derisked. And I can't look back and I can look back and say that that was wrong in terms of what happened. But in terms of what we know it knew at the time, I feel it was right. And, and, or I give, I give us some, I give us some scope around that. You know, I think in COVID, it was, I think it's one of the reasons, you know, some of the people that

• 55:24Speaker 00

  Well, I think we had a great advantage in that of, for example, not having an insurance operation because I think what was really scary for investors that had insurance operations during COVID is they had no idea what was going to happen to their liability side. And so that also terrified them at a time when the assets were going down. Whereas for us, we felt, one, we were absolutely amazed at how well investors behaved then. You didn't see big redemptions. You didn't see people running to cash. And so that allowed us to stay very steady, too, and to look at this, you know, horrible, terrifying

• 56:08Speaker 00

  thing, but to be able to look at it with some dispassion around the economic implications.

• 56:14Speaker 03

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• 56:45Speaker 04

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• 57:14Shane Parrish?

  You sit on the board of Berkshire Hathaway, which is probably the company that comes to mind when I think of who's well positioned, no matter what the future, sort of what happens in the future, whether it's positive, negative, stays the same, $160 billion on balance sheet, like, they're going to exist, they're passively stable almost. How do you think about that in terms of positioning and in terms of the risk management from the company?

• 57:45Speaker 00

  You know, there was a beautiful last interview with Charlie that Becky Quick did. And I give her enormous credit. Now, of course, she was recording that for his 100th birthday in January. It's amazing that it was like two weeks before he died. And it was, it gave me so much pleasure to watch that. I mean, because he was just so lucid and engaged. If I'm remembering right, in that interview, but if not in that one, and over the years, it's something that he goes to over and over, is this idea, as Berkshire is run with the idea that some, that, that from the very beginning, that the people that were invested

• 58:29Speaker 00

  in Berkshire had 100% of their net worth in Berkshire. And that really does shape the culture there. So it is, it's not that it's afraid of risk, but it will not, the, the sort of risks it takes are risks that are manageable on the income statement. You know, the idea of Berkshire really, really being built to last, that is profoundly true. And, and I think that, you know, I was saying to somebody that, you know, being on the inside versus the outside of Berkshire, I mean, you know, going to Berkshire Annual Meeting

• 59:13Speaker 00

  since 1989 or something, and, and read everything that they've ever written, and all the back to the partnership letters. And so it's not like there's a big surprise on the inside versus the outside. And if, if somebody was to ask me, well, was there any, anything that seemed different or any change in nuance or emphasis or? The one thing I would say is how profoundly and deeply Warren thinks about risk and thinks about how important it is that Berkshire can withstand just about anything, just about anything. And I think publicly, they talk about that.

• 59:57Speaker 00

  But to see in the inside what that really means, how much they... And so, you know, it is really been built with the idea that this is somebody's only asset and it needs to be built to last. And yet amazingly, I mean, Charlie in that interview talked about how they, without taking much risk, they could have added a lot to returns by having a little more leverage. But that's not who Warren is and that's not what he wanted. And the amazing gift, and you know who I would put in this category is Seth. Carlman. Carlman at Bow Post.

• 1:00:40Speaker 00

  You know, what's so amazing is that the investors in Bow Post, I haven't looked in a number of years, but if you were to look over the long term, you know, the cash, if I remember rightly, at Bow Post is sort of averaged between, you know, 15 and 40% for sort of the whole time. I don't think there's ever been a time when it's gone, maybe below 15. I could be wrong, but I'm pretty... So even in times of chaos, and if you're in efficient market, CAPM, you know, efficient frontier, rather, efficient frontier quant, you'd say, well, that was an enormously costly

• 1:01:22Speaker 00

  decision because you carried the cash the whole time, you never really ran it down, even when there was chaos. So the idea that, oh, it's good to have a reserve in case bad things happen, well... And yet... The investors in Baupost have paid nothing for that insurance policy. Yes, there's a theoretical charge because you could say, well, if you didn't have that, and we impute the rest of the return. But in a way, you've gotten this incredible performance over an incredibly long period of time and have carried that. And I feel in many ways that Swordberg sure has been like that. It's been run in this incredibly conservative way, but you haven't paid any price for that

• 1:02:06Speaker 00

  as an investor, except some weird theoretical suboptimal outcome. But the fact is that you got your cake and you got to eat it, too. You got to have, you know, long-term wealth creation, long-term outperformance, and this incredible durability and resiliency. And I think that's not a terrible way to live. How would you define risk? What is risk? I mean, if I define risk as an investor, I'll always start with the client and work backwards. You know, when I speak to a client, I think, you know, for them, the risk for them is ultimately, it's ultimately becoming beholden on somebody, right?

• 1:02:50Speaker 00

  They don't want to be beholden on the government. They don't want to be beholden on their relatives or their kids, you know. They want that sort of financial independence. So you think very much, you know, you have this sort of responsibility where, you know, I sometimes joke, you know, risk is having to be forced to change your lifestyle. There's a lot to that. You know, I think a lot of people, particularly people that are savings and investing, right? It's, you know, you have to recognize that there's a huge amount of people living hand to mouth and paycheck to paycheck. So I'm going to define risk in terms of the investing public.

• 1:03:33Speaker 00

  And I would say in terms of the investing public, you know, everybody who invests is making a choice not to consume now in order to be able to consume in the future when they aren't producing. And so, you know, obviously, for them, risk is about that somehow that decision having been mistaken, right? In other words, they should have consumed now because they ended up with less. And so, you know, I do think that, you know, I joke that risk is about, you know, a lifestyle change. It's one of the things we often, when we spend so much time with financial advisors and financial advisors that are thinking about how to manage client behavior.

• 1:04:17Speaker 00

  And I always say, you know, the number one is if you can get them to spend less, that has just a huge benefit, right? Because it's not that they spend less, which means that they have more to save, you know, more to invest for next year or the year after. That's true. But what really matters is that you're annuitizing a lower rate of spending, right? You're sort of creating expectations. But I do think at a deeper level, I mean, the risk, the financial risk that people fear the most is this idea that somehow they lose their financial independence. And that there is real dignity in that. There's dignity in financial independence, and there's a loss of dignity in becoming

• 1:05:01Speaker 00

  beholden and becoming dependent. So I often think of risk around those things. And of course, at an individual investment level, you know, risk is about the permanent loss of capital in that investment and really over a course of a portfolio. Because you can be taking a risk of 100% loss in an investment, and it can be a very rational risk to take. You just, you better size it right.

• 1:05:26Shane Parrish?

  We mentioned earlier free money. How do you think about where we are today? We've just gone through probably the lowest interest rate period.

• 1:05:37Speaker 00

  Human history.

• 1:05:38Shane Parrish?

  In human history. And we've printed more money.

• 1:05:41Speaker 00

  Yeah.

• 1:05:42Shane Parrish?

  How do you think about this?

• 1:05:43Speaker 00

  The scale of what we've gone through is really unprecedented.

• 1:05:50Speaker 00

  I hate that word because everything is unprecedented and it's never happened before. Money has a cost for reasons that are totally obvious when you just think of the structure of what it is, you know, going all the way back to Babylon, which is I think some of the first recorded interest rates had to do with, you know, somebody has a herd of goats and you want to borrow a couple of goats for a while, right? You then you had to return to them the lost productivity, that what they gave up the milk, or they gave up the kids, or whatever it was from those goats. So in order to use their goats, you had to pay them something. Otherwise, why would they give them to you? And so

• 1:06:33Speaker 00

  interest rates is really about you taking the productive asset from using a productive asset that belongs to somebody else and therefore needing to compensate them for their loss of that. So of course, for all of human history, money has a cost, right? Because it wouldn't make any sense if you were providing a productive asset to somebody for free, right? It would. So the idea that we actually created that environment and that we created this environment by driving down rates and then simultaneously printing so much that normally would have

• 1:07:15Speaker 00

  caused rates to go up, would have created a lot of inflation, but we created an artificial suppression mechanism by buying all that in and sort of, well, that was like pulling back on a slingshot. And nobody has any idea where this is going to end up. I mean, it is the idea that we're done, some of the euphoria that people feel today, that's nuts. I mean,

• 1:07:40Shane Parrish?

  Well, yeah, talk to me about that because it looks, you know, from the outside in in a little way, and I mean, you do this for a living, there's been no consequence, or very little consequence, considering the scale, magnitude, and duration of what's happened.

• 1:07:57Speaker 00

  Yeah. Well, I think it's going to play out slowly, but it is, it is a massive sort of turning steamroller. And the, I don't really see any easy way out of it.

• 1:08:13Speaker 00

  In other words, I don't see the solution. Now, I'm going to put AI on a sideburner because, of course, what has historically happened is that, in some ways, technology has often created a bailout. We will need something like that. I mean, certainly, inflation will have to. The only way we can repay the debts that we have incurred is going to be by devaluing the currency so we can pay back. And you could do that gradually over a long period of time with 3%, 4% inflation and let that roll through and that chips away at it.

• 1:08:57Speaker 00

  And you can do that, provided there's enough discipline to stop growing it. I don't think either one of those things are particularly sure bets. So I think we're still in this idea that, well, you know, there's a fabulous investor who came out of T. Rowe Price, who talked recently, I heard him speak about, a 2021 versus 2023 mindset. And the 2021 mindset is still that there's free capital, that you know, you grow, you'll always be able to get bailed out. And there's still a lot of that if you haven't been forced to the table.

• 1:09:39Speaker 00

  Now, owners of office buildings are finding that there is no access. And so you're seeing things beginning to change there. We saw some of the chaos at First Republic, at Silicon Valley, saw it in the UK pension plans. You know, you've seen these real cracks in the dyke that were quite dramatic, but very, very narrow. I think everything else is sort of rolling through as things reprice. So, you know, private credit, private equity, you know, venture capital, there's a lot of stuff that is going to take some time to play out.

• 1:10:20Speaker 00

  And as I say, the sort of wild card is that if you read the annual report of our own government, you would not finance them at 3% or 4%. There's just no chance. And so one of the risks of deglobalization There's so many risks. I mean, the idea that we could be giving up on one of the most powerfully constructive trends in the history of humanity. I mean, it just, it wins at every level. It's not perfect, but it is, it is so important and that we could be willful. Well, one of the risks of that is if, you know, if, if China ends up with

• 1:11:05Speaker 00

  fewer dollars, then we have fewer buyers for the debt that we're issuing. And so there's, there's a lot of ways it could go wrong. I'm, you know, it's, my grandfather said, you always sound smarter if you're bearish. You know, I just listened to, you know, one of the great investors of the last 50 years, Stan Druckenmiller and, and, you know, I, I made a note of his comments because what came to mind, to my mind at the end was Woody Allen's Talk to the Graduates, when he says, you know, on one side, we face calamity and extinction, and on the other side, we face, you know, total ruin

• 1:11:47Speaker 00

  and, you know, and obliteration. Let us hope we have the wisdom to choose correctly, you know. And, you know, you create these scenarios where there is no, it's hard to see any way out. And so going back all the way to your question about positioning, I think you say, well, if that's the future, what do I do? Right? Well, I could own some shiny metal. I could own some bits and bytes in the form of Bitcoin. I sure as hell don't want to own any sort of fixed income instrument. And so it, real estate scares me. I mean, I listened to the head of one of the largest real estate companies last week talk about,

• 1:12:29Speaker 00

  you know, they were seeing some unbelievable opportunities to buy buildings with, you know, 8%, 9% cap rates.

• 1:12:39Speaker 00

  Well, what's so good about that?

• 1:12:41Shane Parrish?

  Yeah, I mean, yeah, the risk adjusted return on that is pretty small.

• 1:12:44Speaker 00

  Yeah, I could buy Capital One at a 14% after-tax earnings yield. I mean, what's so great? I don't understand this, this real estate mindset that still thinks that a single-digit cap rate, you know, compensates them for the risk that they're taking. And, and, you know, as I said, you buy that at a cap rate. I'm not sure you could finance it at that, but who knows? I'm no expert in real estate. So I, I take real estate off the table. You know, venture capital, well, of course, there can be fortunes made. Private equity, I think there's one hell of a reckoning should be coming, but I feel that in a puritanical way, and it never seems to come. They seem to get away with it.

• 1:13:25Speaker 00

  You know, when, when they, the government tries to pass laws on carried interest, it just seems so obvious that, you know, even a friend of mine in the private equity space was like, well, it was good while it lasted. Even he couldn't believe that, that they're still getting away with it. It's just, so, you know, I'm jealous of the fees. I, I hate the accounting. I was arguing with the head of a very major private equity firm recently, and I was like, it's just despicable that you show your returns, but you don't adjust them for leverage. Like, benchmark them to the S and P with the same amount of leverage. You know, with all of that said, well, it seems to me in that world,

• 1:14:06Speaker 00

  owning Berkshire seems like pretty fabulous. And, you know, when I look at the portfolio, the positioning of our portfolio, I think owning Google feels pretty good. Owning Amazon feels pretty good. Owning Meta feels pretty good, but sure, so does Capital One, so does Wells Fargo, Bank of New York, you know, tech industries, you know, the largest copper mines in the world. Whatever you believe about electrification, a lot of copper is needed, and they have the longest lives, some of the lowest-cost deposits in, in the world. So I just feel like, I, I can't predict. You know, Stan creates a picture where I can't find any way out of it.

• 1:14:50Speaker 00

  But having said that, what am I gonna do? Well, I'm gonna, I'm gonna own businesses that are resilient, that can adapt, that have pricing power.

• 1:15:00Shane Parrish?

  Don't have too much debt.

• 1:15:02Speaker 00

  Don't have too much debt, have global, you know, durable, have, have, have cash, current cash that allows them to reinvent. I mean, one of the dangerous things about, you know, the, the most aggressive type of growth investing is it just posits a huge amount of cash in the distant future. And it really underestimates all of the risk adjustments you should be making because you, you, there's uncertainty that you will get that, but there's also uncertainty about what the discount rate should be when you get there. And I, I can perfectly easily see a world where rates go down to two or 3% for a couple of years and then they're eight, you know, four or five years from now. I just don't know how to handicap that.

• 1:15:45Speaker 00

  And to be fair, I've never met a rich economist, so I don't, I don't think it's, it's really a, I just think you have to think about, how do you position? You know, what, you, you have no idea if you're gonna be sailing through a storm. So just be prepared for that and have redundancy, have resiliency. But, you know, going, you know, imagining there's some tropical island where you can go and drop the anchor and just wait it out, that's not an option. There is no safe harbor.

• 1:16:12Shane Parrish?

  Do you think there's a timeline mismatch between policy and citizens and also investors and CEOs and companies?

• 1:16:21Speaker 00

  Yeah. You know, I think Brian Roberts is now in the top five CEOs in the, in the S and P for tenure. And, you know, in thinking about that, I think that the median tenure is something like three and a half or four years. Whenever you get cycles that are in conflict.

• 1:16:44Speaker 00

  You know, obviously, we have an election cycle that is totally different than the policy cycle. It's one of the things that we should all, I mean, this jingoism and this anti-China sort of mindset is so dangerous because we stop learning.

• 1:16:57Shane Parrish?

  Right.

• 1:16:58Speaker 00

  China has done some things magnificently well, including lifting almost a billion people out of near starvation, poverty in a generation. But one of their great strengths has been this enormous long-term focus. And of course, that's been part of what's created businesses like Berkshire and Mark I mean, I always, I highlight Capital One because it's still run by the founder, right? He created that company, I think, in 1986 or 87, still the CEO. You know, the tenure of CEOs can really, really matter. You know, the old saying in nepotism is that, you know, a good farmer farms for his children. I remember Freddie Heineken saying to me very early in my career, making a comment

• 1:17:43Speaker 00

  that, you know, pointing at this little kid that was playing by a swimming pool and saying, you know, I make decisions for him. That's my grandson. What a huge advantage, right? Versus the average sort of, and by the way, you know, private equity loves to tout that they are great managers. They are always looking for the exit, you know? And that is a-

• 1:18:04Shane Parrish?

  It's interesting, right? Because Berkshire Hathaway was able to do what it did because Buffett owned so much, he wasn't worried about somebody else coming in and sort of usurping control. Like, if you think, if you scale the numbers down a lot and you take 100 and, you know, 160 billion, a private equity fund would see that and be like, oh, we're going to buy it, dividend the cash out. But you can't do that because structurally-

• 1:18:32Speaker 00

  Well, that's true. I, I'm not a total believer. I mean, people have used that rationale to create A B stock and things like that and controlling stock. And- I have mixed feelings about that. You know, to me, it is curious that Amazon never needed that. They didn't create super voting shares where you could own a tiny economic interest and yet.

• 1:18:59Speaker 00

  So I have mixed feelings about controlling stock. But on the other hand, I do not have mixed feelings about the idea of how long term investors get screwed by short termism creeping in. And if I'll give you a good example. Costco had a classified board, which meant that, you know, only a certain number of directors could be elected each year. And that operates as a fairly effective poison pill. Because what it means is if you wanted to get control of that board, it would take you three years. By and large, as investors, we don't love that sort of poison pill. I think it.

• 1:19:42Speaker 00

  However, in the case of Costco, we really supported it. And we supported it because we said Costco, we want them to have an incentive to report earnings exactly as they are. Or put differently, we don't want them to have a disincentive for doing that. And so, you know, one day in, I forget what year it was, probably 15 or more years ago now, maybe 20 years ago, Costco closed at 41, had been come down from 45. It was a momentum growth stock darling. They reported a bad quarter, the stock opened at 27. And we amazingly bought 17 million shares that day. It was one of the great trades of my whole career.

• 1:20:25Speaker 00

  And you could talk about how much I screwed it up, that we still don't own those shares, which we don't. And so that was a terrible mistake, selling it over time. And one that Charlie was always willing to point out.

• 1:20:40Speaker 00

  But, you know, when we bought it, we had high conviction that it was worth over 40.

• 1:20:47Speaker 00

  And so, but it would have been easy if. Theoretically, for some sort of private equity firm to jump in and say, hey, we'll bid 34 for the whole thing. And people say, hey, well, that sounds good. The stock's at 27, you know, 34 sounds good. So that idea of private equity being able to take advantage of volatility means that you create for, if you want to represent long-term shareholders, you may have an obligation not to have negative surprises. And if you have an obligation not to produce, you know, you're going to have negative surprises. So what means is you're creating an incentive system of hiding those or smoothing them out.

• 1:21:27Speaker 00

  And so I do not have an answer on whether control stock is good or not. Obviously, before the creation of the B shares, there was no super voting stock at Berkshire or anything like that. You could argue there still isn't. The A shares have more vote, but anybody can own them. But it is a, you know, you could argue that it was a good thing that Meta had that, that people, you know, Mark did not have to worry about, you know, being forced out because he controlled the company. So, but I do tend to like when control is simply because you own more shares rather

• 1:22:08Speaker 00

  than you somehow have a separation of your economic interest from your controlling interest. But I'm not, I'm not certain. I've got, there's so many good examples on both sides. There are examples of, you know, Hershey was an example where controlling, you know, shareholders, you know, force them to do absolutely suboptimal things for long periods of time. And there are lots of examples of family businesses that have that second, you know, second or third generation really screwing it up. But there's so many success stories, too. And you look at some of the Graham family and things like that. And so. So I'm torn. I'm not sure I really welcomed it for companies like Google and Meta.

• 1:22:53Speaker 00

  I didn't like it. I didn't like the way venture capital firms were convincing founders to do this. And at the same time, I mean, I actually had this argument with a very prominent venture capitalist publicly at a conference where I said, have you ever invested in any company where you haven't asked for a seat on the board? And the answer was no. So why do you think that somehow your equity is more valuable? That you should have a seat, but no other owner should? And especially after you've sold out. Yeah. So they would go and, you know, sort of create this view that, oh, well, you know,

• 1:23:35Speaker 00

  let us be your backer because we'll ensure you're always in control. And it drove me crazy, but that's okay. They made a lot of money, so hats off to them.

• 1:23:47Shane Parrish?

  You mentioned Munger a few times. How did you guys meet?

• 1:23:50Speaker 00

  Oh, God, it's such a great story. My grandfather built this fortune. I mean, it was amazing. He started, borrowed a hundred thousand dollars. When he died, it was eight hundred million. It was held in a trust as long as my grandmother, his wife, was alive. And when she died, it was two billion. But a hundred percent of that money, a hundred percent was marked for charity. That was his belief. He told us all from the beginning, my father's done the same thing, unfortunately. And, you know, so they've really sort of followed what I'd call the Carnegie Buffett school versus the Munger school, where I think Charlie said on that same podcast

• 1:24:32Speaker 00

  that half of his net worth had already been transferred to his kids, and he has fabulous kids. I was working for my grandfather, and it was clear that the capital of his firm was all gonna go to charity. And so it couldn't function as an operating business anymore. And he had this business that was called, it was a stock loan business. I don't know how familiar you are with securities lending. In its simplest form, it would be if you were a short seller and want to sell shares, shares short in, you know, company XYZ. The person who buys company XYZ from you is not interested in the idea that you're short. You need to deliver them some shares.

• 1:25:16Speaker 00

  So what you do is you go find an owner of XYZ and you say, hey, can I borrow your shares for me to deliver in? And the guy says, well, what are you going to give me for collateral? Do you say, well, I'll give you 102% of the value of that short position. And you, I will give you that, but you've got to pay me interest on that money. And so there is a very, very thin profit margin that is basically tied to the relative credit of the borrower versus the lender. And you make a tiny little crumbs of spread.

• 1:25:57Speaker 00

  So my grandfather's firm had this portfolio of appreciated stocks. A best example of all is Berkshire. And Berkshire, for many, many years, had a charity program where if you owned a share of Berkshire, each year you were given a dollar amount per share that you could assign to any charity of your choice. And companies have this tax incentive and usually the CEO decides and gives it to whatever his or her favorite charity is. But at Berkshire, they said it's much more democratic to let each person vote. So for many years, but in order to be able to do that, you had to own the shares in your own name, right? It had to say your name on the stock certificate.

• 1:26:41Speaker 00

  So very little, few shares were held in street name. And because there were very few shares in street name, if you wanted to short Berkshire Hathaway, it was really hard to find any shares to borrow. And so my grandfather, having a brokerage firm, having a big position in Berkshire, and all of these people that wanted to short Berkshire, well, there was a big thing in the 80s particularly, that this argument, oh, Berkshire is just a closed-end fund selling at a premium. So there was an obvious trade that all these really smart people would talk about, which was basically, short Berkshire, buy some Coke, some Cap Cities, some Freddie Mac, you

• 1:27:23Speaker 00

  know, buy the public companies, and you pick up a nice, risk-free arbitrage. Well, of course, the shorts got killed for decades, but of course, they still wanted to keep doing it. You know, short sellers are often convinced that they're right, even, you know, you think of the Tesla short sellers over the years, you know, just, they just didn't want to look at the facts. And so my grandfather loved this, because he could make an extra 1% or 2% a year by lending out Berkshire to these crazy short sellers. And it sort of delighted him, because he thought that they were completely wrong, and yet they were going to pay him. So, anyway, he, he had a guy who ran that operation.

• 1:28:05Speaker 00

  And the guy gradually said, well, I want, how about if you pay me 20% of the profits that I make lending out stocks? And my grandfather said, great. Well, next thing you know, he's got, you know, 10 or 15 employees in the securities lending operation, and they're acting, not just lending out his own securities, but acting as what's called a broker finder, you know? And it was sort of out of control. And so my grandfather, who was 80s, said, geez, Chris, I, you know, I don't know what to do. I said, you got to get out of this business. I don't even, I mean, we're doing a couple of billion of footings a day, and I don't even know some of these counterparties. There's this one here I've never heard of, you know, in Greenwich, Long Term Capital. I mean, I don't.

• 1:28:50Speaker 00

  A miracle. So I'm like, I'm gonna get us out of this thing. So I decide I'm gonna try to sell it. I'll try to sell this operation because we're gonna have to close it down when he dies anyway. Because the charity couldn't operate that business. So I was thinking of who would be a good buyer. It needs to be somebody with a really strong balance sheet, a big portfolio of appreciated securities, you know, great credit and credit rating. And so I thought Berkshire. Now, I'm like 26 years old. And a guy named Bob Lenzner, who was somebody I knew in New York, who was a friend of Sandy Goddismans, I think. And he knew Charlie.

• 1:29:32Speaker 00

  And so I said to him, hey, do you, you know, you think you'd put me in touch with Berkshire? And he said, sure. So he put me in touch with Charlie. And Charlie said, well, I'm gonna be in New York for, I think, either Costco or a Solomon meeting, and I'll have breakfast with you. So I show up at 8 o'clock at the Millennium Hotel downtown in New York. And I pitch this stock loan business. Like, I throw it right out there. I have no idea. And Charlie stops me after like four minutes. And he goes, I have no desire to own a business run by seven guys named Vinny.

• 1:30:15Speaker 00

  And of course, it was the perfect, we literally had seven guys named Vinny. I mean, it might have been Vinny, Tony, Mikey. But it was really a back office, slightly shady operation. And he said, but I'm very curious about how you picked Berkshire and how you got where you are? And what are you doing? And we got talking about the insurance letter and this, my grandfather. And we stayed at that table until lunchtime, which is, it was almost four hours. And it was, it changed everything for me. I mean, it was, and at the end, he said, you know, young man, anytime you wanna, I'll make time to see you anytime you come to Los Angeles. And I enjoyed our conversation. And so I just started ginning up an excuse.

• 1:31:00Speaker 00

  To go there all the time and would call on him and and I just I I can't I can't even put into words how much I just admired his incredible depth and breadth and and you know, it's funny, the the Venn diagram of what I admired about Charlie and what I admire about my father don't have a huge amount of overlap. They're very, very different. But there's something in in my admiration of Charlie that has this real, real depth. And that was that was I met I met Charlie long quite a bit before I met Warren and.

• 1:31:39Speaker 03

  At Edward Jones, we believe rich isn't about having life all figured out. It's opening yourself to all the possibilities. That's why your dedicated financial advisor provides long term planning built around you, meeting you where you are, and helping you get closer to where you want to be. So no matter where you're starting from, you can move forward with confidence. The key to being rich is knowing what counts. Let's find your rich. Edward Jones. Member SIPC.

• 1:32:09Speaker 04

  There is so much NFL on ESPN right now. Monday Night Football, plus pregame and postgame, NFL Live, NFL Primetime, everything you need to stay on top of every game every week. Unbelievable. And now NFL Network is on the ESPN app. More football, more coverage, more ways to watch. Football's on all season long on ESPN and streaming on the ESPN app.

• 1:32:40Speaker 00

  But just the sheer breadth of his knowledge and his is it the speed and the processing speed and what would come in and what would come out of left field. It was just breathtaking. A really incredible human being.

• 1:32:52Shane Parrish?

  Talk to me about some of your favorite stories or lessons you learned from him.

• 1:32:57Speaker 00

  Well.

• 1:32:59Speaker 00

  It would be a book. If I was to think of like a couple of the things that mattered. There were things that mattered personally in a way that was very surprising. You know, in my personal life, I went through an unexpected divorce and I was having dinner with Charlie and he was saying, you know, I generally am not a fan of divorce because people don't tend to do better. It's, you know, they, it tends to be about a fantasy and it tends to reflect sort of a lack of, you know, realism. And all of the things he said about marriage over the years are so

• 1:33:38Speaker 00

  interesting about, you know, trying to, you know, be deserving of the partner that you would like to find and so on. But in, you know, just in this moment where, you know, I could feel, you know, Charlie was a tough critic and there was, he never held back telling me when he thought I was, you know, foolish or stupid. But I felt so deeply supportive too, that, you know, that he was, it was coming from the, it was like the hardest teacher you've ever had. You know, the hardest teacher you ever had is a tough critic. But you feel they're rooting for you. Like that's part of what makes them your favorite, you know?

• 1:34:17Speaker 00

  I felt like that with Charlie, but at one point Charlie said, well, you know, it's, it's very hard to be blamed for someone else's unhappiness. And that, just those words, and in this moment that was for me, you know, quite a low point in my life and a time when it felt quite traumatic, just the grace of that phrase, you know, that it's very difficult to be blamed for someone else's unhappiness and, and, you know, there can come a time when it's just too much. And he said, it's particularly hard if you're wired in a way that you love somebody and you want to help them. You know, you're trying to make them happy, you're doing, you know, and so he said it,

• 1:35:00Speaker 00

  it can get to a point where that that's that's just too much. That that was something that I wouldn't know how to describe that in any other format. It wasn't an investment lesson per se, but it was it was one that was very, very helpful to me. You know, the story now is out. It was something that he had said to me when I was asking him about his happiness and and how he owed his his debt of happiness. And he said he owed it to his wife's first husband. But I'll give you one, though, that was also amazing, which was around Costco. You know, we were talking, we talked so much about Costco over the years and and and we

• 1:35:43Speaker 00

  owned it for, you know, 14 years, I think. So we had a long run with it and it just the valuation kept going up and up. And it was a mistake to have sold it, not because the valuation went up, but because the the the reach of the business got so far beyond what we thought was possible. And so it was it was a real mistake. But Charlie made an interesting comment once because I was challenging him on this idea that there's a certain number of customers that would go to a Costco if they didn't have to be a member. And so I said, let's say the membership fee is 2% of revenue. If you raised prices 2%, you would still be lower cost than anybody else, and yet you

• 1:36:28Speaker 00

  would have more customers. And because you had more customers, you'd have higher revenue. And so it would seem to me that keeping customers out of your store that would otherwise be there is is a mistake. And Charlie's insight, I mean, there's there's a long answer to that, but the one of the shortest answers is, he said, think about who you're keeping out. Think about that, the cohort that won't give you their license and their ID and get their picture taken, or they aren't organized enough to do it, or they can't do the math

• 1:37:09Speaker 00

  to realize how they're... He said that cohort will have 100% of your shoplifters and 100% of your thieves. And now, it'll also have most of your small tickets. And that cohort, relative to the US population, will probably be shrinking as a percentage of GDP, relative to the people that are able to do the math that are responsible enough. So, going all the way back to insurance, you know, somebody's credit rating is a great predictor of whether they'll crash their car. Well, because they're responsible and they tend not to cheat. So is being an army officer, right? USAA doesn't need to know anything else about you, just that you're an officer in the United States Army and they can offer you a lower price

• 1:37:53Speaker 00

  because they know you're not going to cheat. And the difference in fraud, of course, there's a lot of fraud in auto insurance. So, if you don't have to charge for that fraud, you can charge a lower price. But the question is, how do you keep the fraudsters out? Well, army officers is a good shorthand. Government employees used to be a good shorthand, which of course was what GEICO stood for, Government Employees Insurance Company. We'll just insure government employees and we'll just, we don't need to know anything else. Just you're a government employee, you have a lower risk. And so, this ability to, Charlie's phrase was the intelligent loss of sales. He said, "You're young and you just think more is better, more is better, more is better." But more is not necessarily better. It's who

• 1:38:37Speaker 00

  do you keep out? Who do you keep out of your company? Who do you keep... And, you know, in running our own firm, you know, there's so many lessons of Charlie's that are captured in, including having a board of directors made up of people that I don't want to disappoint. Well, in the mutual fund industry, that's very unusual. But we have a board of people that I really admire and I don't want to disappoint. Well, Charlie said you should because they're the face of your client. And so, have people on that board where you would feel a little sheepish to do lousy. And then you'll you'll work harder. That's a that's a good a good lesson. And but, you know, have things that make it hard for people to trade in and out. Now, now, you know, when we had the mutual fund trading and all of those scandals,

• 1:39:19Speaker 00

  you know, we were in a wonderful position of that because we never let them in in the first place. You know, he's like, well, why do you want, you know, that sort of investor, like, set their expectations. Keep them out. Like, you don't want to be the biggest, you want to be the best. And so that means you're gonna have to keep a lot of clients out. And your your life will go better if you keep them out. He said it's one of the reasons he gave up being a lawyer. Because, you know, being a lawyer, he said, it's tough because your best, your most profitable clients are gonna be people that you don't respect very much. Because they're always operating right on the line, they always need a lawyer, they're always trying to get around it. But, you know, your your best clients will be your worst customers.

• 1:40:02Speaker 00

  Well, that's a tough, that was part of Charlie giving up the law, you know. And so those are, you know, examples that, you know, had very personal impact on me in terms of how we structured our firm, how I think about businesses and think about, you know, that loss of sales, about, you know, having, you know, setting, you know, putting, you know, I have Charlie's bust behind me in my desk. You know, he just said, having physical reminders. Reminds me a little bit when I was doing my degree in theology that that, you know, C.S. Lewis was somebody I admired a lot. And and C.S. Lewis was very old fashioned in this in certain ways.

• 1:40:42Speaker 00

  And and one of them is he believed it's a it's a good idea to get on your knees when you pray. And and that's, you know, I I thought that was really sort of reactionary. I mean, you know, you can pray anywhere, you just sort of, you know. Talk to the greater being, whatever it is, you know. And CS Lewis's point was, well, we're animals. And, boy, there is nothing like, you know, being on your knees with your head down to reinforce in your brain that you are very vulnerable. And that gesture changes your mindset. It's why I still, I'm gonna be the last guy in New York wearing a tie.

• 1:41:25Speaker 00

  But I always felt it was respectful, going all the way back to Steve Jobs and fiduciary trust and my dad thinking, who is this hippie in sandals with his long hair and won't even get a haircut? But, you know, we have clients, you know, who come to visit us and, you know, if they're coming from the Midwest and I'm wearing a golf shirt, it feels disrespectful. So, part of it is about communicating respect to them. But it's also, it makes me feel like I'm ready for work now. It's why I'm a believer in school uniforms. I think, I think kids behave a little better when they're in a school uniform.

• 1:41:59Shane Parrish?

  I'm also a believer in that. Was it your father or your grandfather who used to like run down the street too?

• 1:42:04Speaker 00

  My grandfather.

• 1:42:06Shane Parrish?

  Because he was like, what if somebody saw me?

• 1:42:07Speaker 00

  I know. And it is an area where my dad and grandfather were so different. And again, both admirable, but in very, very different ways. But, yeah, my grandfather always sort of had this sense of, you know, he was a great man and it was important that he, and, you know, Ben Franklin did the same with a wheelbarrow in the streets of Philadelphia. In his autobiography, which is, you know, 80 pages, there's a section about borrowing money. And he says, you know, when you borrow money, it's very important that you do certain things. And one is that you need to reassure your creditors that you're trustworthy. And so, he always advised paying them interest a day early.

• 1:42:52Speaker 00

  But another thing he said is he would load up these, you know, big printing blocks and type things and he'd have a wheelbarrow and he would be seen pushing this wheelbarrow. And he said, it's important that they know I'm industrious. And so in the book, he says there were times he didn't need to do it. He just, you know, he was managing his, his brand, you know, and but in a way that he felt it was important. Well, my grandfather had, had that. He felt, you know, interestingly, Charlie always talked about dressing conventionally, you know, wearing, he said he's so eccentric in other ways that by wearing a suit and tie, people assume that he's more conventional than he is and that serves him. So, but yeah,

• 1:43:35Speaker 00

  it was my grandfather that would hold his jacket and shuffle. And whereas my father is, he, there are ways that he doesn't care what anybody else thinks. And he is much more, just dispositionally, much, much lower profile than his father.

• 1:43:53Shane Parrish?

  We talked a little bit about avoiding customers, which is like a form of inversion.

• 1:43:58Speaker 00

  Yeah.

• 1:43:58Shane Parrish?

  What do I want to avoid? One thing I've heard you talk about in the past is avoiding your weaknesses. You tell the story of Tiger Woods. I'm wondering if you can tell us that story and also relate that to your life and how you learned this lesson.

• 1:44:11Speaker 00

  The story, which I believe is true, was about Tiger Woods' first British Open. I forget which course it was going to be held at, but whatever the course was, it was notorious for those deep pot bunkers. And, and apparently, the weakest part of Tiger's game was his sand game coming out of bunkers. And so as the press was following him around, they kept badgering him about what is he doing to improve his sand game? Because that could really be the linchpin in the British Open. And, and he'd said that he was working on his drives and his irons. And they said, why? And he said, because I want to avoid the sand.

• 1:44:52Speaker 00

  And, and then I believe played the entire British Open without going into a bunker once in the whole open, which was at the time unprecedented, people talked about. So now, if you were to tell me that that's not true, or it's apocryphal, I'd believe you, but it's such a good story. And it does get at this very deep truth. And you said it certainly was a Charlie truth about inversion. And, you know, so much of Charlie's mind was about, and, you know, think about the causes of failure and try to avoid them. And in fact, in our research department, we have a letter that Warren wrote in 1965,

• 1:45:32Speaker 00

  I think, that, or 66, that lists the reason that he believes most money managers, institutional managers tend to underperform. And we framed that letter and put it on the wall in the research department because we said, what we should do is just try to avoid these five things. And to the extent that we avoid these five things, we will, over time, be above average. You know, one was group decisions. That was number one.

• 1:46:04Speaker 00

  Number two was the desire to conform your portfolio and policies to what other large, well-regarded firms are doing. Three was the asymmetry of risk and reward, obviously better to fail conventionally than succeed unconventionally.

• 1:46:19Speaker 00

  Four was over diversification. And five was inertia. And it's funny, we just did the reviews of our whole research team, which is one of my favorite times of year, just to really sit and go in depth with each person about, you know, how to help them get better and, you know, how to be learning machines, how to... And every once in a while, there's a theme that we'll run through each one. And inertia was the theme that really ran through it. We just said, as a firm... We really still struggle with being held captive by our past decisions. You know, the, we're held captive if we've, you know, chosen not to own something and it's gone up a lot. It makes it so hard for us to revisit that.

• 1:47:04Speaker 00

  If we own something and it's gone down, it makes it very hard for us to let go. You know, what are the ways in which inertia? But anyway, all a digression back to this idea of framing that letter was of course from Charlie saying, you know, trying to avoid things that will lead you to fail. And I think at a personal level, really doing your best to try to figure out where those blind spots are. And so for me, I have, you know, I have the motherload of all ADD. I mean, I, you can probably tell, it's very hard to keep me on topic. And that's one of the reasons I love this business. Everything's interesting, everything's relevant.

• 1:47:45Speaker 00

  No matter what article I read, it has some tentacles back that have investment implications. And, and so, you know, for me, the question was, well, how do I structure my life in a way that allows me to make sure I get things done that I don't really want to do or that are easy to put out of my mind? And so for me, for example, physically, being in the office matters hugely. I, I'm, I do not work well remotely. I don't do Zoom well. It just doesn't work for me. And knowing that, I really try to structure my life to, to avoid that. And I show up in person.

• 1:48:30Speaker 00

  I, you know, if I'm working on a weekend, I just come to the office for half a day. It's like a very relaxing time to be there and I can get more done in a few hours. But if I'm at home, you know, trying to work and, you know, the kids are there or the, like I, it's, it's not that, it's just I want to be with them, you know? And, and so physically putting myself in a different location mattered. It didn't matter to my dad at all. He could. Tune out everything, work anywhere. But for me being, that's sort of an easy, concrete example. You know, I mentioned that I dress differently when I go to work. Again, even if it's a Saturday, I just feel like it's, you know, I'm in a different mindset.

• 1:49:14Speaker 00

  And when I was at university, this is going to sound very reactionary and old fashioned, but I was at a university where even as undergraduates, you wore, you could wear a gown, you know, a robe, an academic robe. And you were required to wear it to certain things, to chapel, or to a debate, or to big university functions. But you could also choose to wear it. And, you know, it was quite warm, and it was the east coast of Scotland, so, you know, you didn't mind wearing your red robe. Originally, I'm sure it was to make sure that undergrads weren't, you know, getting drunk in the streets, or something like that. So it was a little like a school uniform, like we were saying. But to me, you know, wearing a tie is a little bit like that.

• 1:49:57Speaker 00

  It just, so, Granny's rule, work before play, that's probably the strongest. You know, I joke that, you know, that is, you know, in our family, six kids, that, people will say that over and over and over, work before play. That was my dad's favorite expression, work before play. Well, it suits me. I just, if I, and it suits me whether it's, you know, going to work, or whether it's going to exercise. You know, it's, there's one thing on earth I love, I love a sauna. And so, you know, I only give myself a sauna after I work out. Like, there's no, no other way I can get a sauna.

• 1:50:37Speaker 00

  And so, it's amazing how effective that is in manipulating myself into doing something I don't really feel like doing, which is, you know, going and exercising. So, there's all sorts of, those sorts of influences of trying to look at ways, things that would normally sort of bring me down. And a big, a big part of it is also the choice of friends. I don't mean you should choose opposites. I don't think that really works. Charlie once said, you know the saying, opposites attract? They don't.

• 1:51:11Speaker 00

  I do think having, you know, colleagues especially that, you know, fill in the areas where you're weak. And, you know, by understanding the areas you're weak, you, you, you don't keep sort of, you don't end up in a Peter Principle sort of effect. And it's a big part of how we try to manage the team is, you know, to keep people away from the areas they're weak in, or at least take those away from being, you know, completely destructive. What did St. Augustine said? For many, abstinence is easier than perfect moderation. And, you know, for some people, that is the case. I'm, I'm very lucky that way. I'm very good at moderation in, in most things.

• 1:51:52Speaker 00

  But, but I've watched addiction destroy people's lives and people that I love. And, and so that's an area where, you know, I, I keep a journal of every alcoholic drink I have a week.

• 1:52:08Speaker 00

  Because I love alcohol. I should be clear. I mean, I just think it's such a wonderful gift. I don't think it's a coincidence that Jesus's first miracle was turning, you know, water into wine. It is every culture on earth, you know, 152 countries or whatever it is, you know, invented alcohol independently of each other in many cases. I mean, it's just amazing. So I, I love alcohol. I would hate to have to give it up. And I'm such a believer that it will destroy your life if it gets out of control. And I'm a believer in what Charlie said about the "bonds are too light to be felt until they're too strong to be broken." I'm a believer it can absolutely take you by surprise.

• 1:52:51Speaker 00

  And so, you know, for me, just keeping track of the drinks I have over a course of a week is a way of it, you know, ensuring it never gets out of hand. I, you know, I'm not. Weight obsessed, as I my children like to say, I'm sort of threatened by the shower drain. Looks like a manhole cover. I've always been very skinny.

• 1:53:12Speaker 00

  But I do, you know, I do weigh myself probably once or twice a week. So that if if I end up, you know, a couple of pounds above where I was, I just try to deal with that right away.

• 1:53:23Shane Parrish?

  Yeah.

• 1:53:24Speaker 00

  And where I can all be in sort of moderation, where I don't have to go to an extreme. So that those are examples of some sort of self manipulation as well.

• 1:53:34Shane Parrish?

  That's interesting. How long ago did you start the drinking thing?

• 1:53:38Speaker 00

  Oh, a long time ago.

• 1:53:39Shane Parrish?

  Okay.

• 1:53:40Speaker 00

  I mean, you know, probably 20, let's see, you know, probably in my, I was probably 40. I would say somewhere in there. It was around that age where I started seeing it.

• 1:53:54Speaker 00

  Begin to take some people down, you know, the kids that have been college buddies and always a lot of fun and life of the party. And every time you're with them, you drink too much. And, and, you know, but it's always a great time. And there were somewhere in the late 30s or so where, you know, it it stopped being so funny. And you realize they couldn't stop. And that's when I was like, ooh, this kid.

• 1:54:20Shane Parrish?

  I don't want to be in that position.

• 1:54:21Speaker 00

  This can get away. And, you know, it's a, so.

• 1:54:26Shane Parrish?

  That's interesting, because that's been something I've been thinking a lot about recently, too, in terms of like, watching people and then also like, loving wine. And at the same time, like, how do I prevent myself from being in that position, which I don't want to be in, and yet not having feedback on, especially during COVID, right? Where it was so easy to.

• 1:54:48Speaker 00

  So easy. And wine's the most dangerous of all, because the portion sizes grow and the alcohol content has grown. So, you know, you end up with wine now that is being drunk out of much bigger glasses and the wine itself is 20 or 30% more potent than it was. I try, that's a good example of something where you can do the opposite, which is smaller portions. Smaller glasses, you know, I love cocktails, so you know, I will craft some beautiful, spectacular work of art, but I serve them in very small glasses, which in the 50s was often how things like martinis were served, was in these very, much, much smaller glasses.

• 1:55:32Speaker 00

  Even recently, feel I've been trying to craft, I, I've not succeeded in a no alcohol cocktail that's any good. I, I would say there is good no alcohol beer, the Athletic Club, I mean, that, by the way, that's a company that probably has got a, probably worth over a billion dollars today, or two billion dollars, a couple of guys in Connecticut. Just how do we make really great non-alcoholic beer, where it's not an afterthought, where it's our mission?

• 1:55:56Shane Parrish?

  Yeah.

• 1:55:57Speaker 00

  That stuff's amazing. I mean, what a great gift. So, but, but I, I spent a whole weekend with a friend of mine. We, we bought every one of the fake spirits, we tried all different combinations, and where we landed was we developed a very good low alcohol, where it was basically making a Manhattan using fake bourbon,

• 1:56:19Shane Parrish?

  Yeah.

• 1:56:19Speaker 00

  but real Amaro or real Vermouth.

• 1:56:21Shane Parrish?

  Okay.

• 1:56:22Speaker 00

  And then chili bitters, and the chili gives it that bite that gives you the little burn, and there's some psychic connection with that. The Amaro has alcohol, so it gives you this, but it, you know, the total cocktail probably has 20%

• 1:56:38Shane Parrish?

  Yeah.

• 1:56:38Speaker 00

  of the alcohol of a Manhattan, but probably 80% of the satisfaction. But you know, you think about, I love what Hemingway said, you know, it's, it's not finishing the bottle that gets you in trouble, it's opening another one. And there's a lot to that, too.

• 1:56:54Shane Parrish?

  I agree with that. Most of my, I'm always like, if I wake up and I'm like, a little groggy, not hungover, but you know, you're just mental fog. It's like, man, that second bottle of, you know, that.

• 1:57:05Speaker 00

  I know.

• 1:57:06Shane Parrish?

  Should've kept that one closed.

• 1:57:08Speaker 00

  Oh, that after dinner, that is a, yeah. But those are good. And so, I mean, I, I always had a glass of wine with Charlie, and, and I, I enjoyed that.

• 1:57:17Shane Parrish?

  That was one thing that surprised me. I was fortunate enough to, to be in his presence a few times and have dinner with him, and I was surprised the first time I saw him with a glass of wine.

• 1:57:26Speaker 00

  Yeah. Yeah. And by the way, there's one other thing which I never ever got to ask him about, but he never seems to go to the bathroom. But you'd be sitting with him.

• 1:57:35Shane Parrish?

  Hundred percent.

• 1:57:36Speaker 00

  That breakfast, when he got up at noon, because he said he had to go to a lunch, I ran to the bathroom. But I kept thinking at the time, he must have been, you know, he was probably only 60 now that I think about it, which is sort of hard to believe. Maybe he was a little older. Maybe he was, he was probably 65. But, but I remember thinking, I'm not gonna get up, like as long as he wants to sit at this breakfast table, I'm staying here. But it almost killed me. And, and so just over all the years, it's sort of amazing. I don't know what his trick was on that.

• 1:58:09Shane Parrish?

  No idea. Talk to me about raising privileged kids. How do you, how do you raise kids in, in a world where, I mean, you're the third generation of this in a, in a way. Your grandfather is very successful. Your father was very successful. You're very successful. And, but you live in a different era where I know a lot of my friends are sort of struggling with like, how do we raise kids in an environment where we have affluence?

• 1:58:35Speaker 00

  Well, I like what, you know, Charlie said that, that money doesn't ruin kids, you know, parents do. And I would add genetics can too. I mean, it, you know, there, you can look at siblings from the same family that make totally different choices. They've had roughly the same home life, roughly the same genetics and something is, is different. Maybe it's peers, maybe it's, you know, just some nuance in the one or the other. But I feel like, for me, the, that was an area that,

• 1:59:10Speaker 00

  you know, I, I, I could, I could get pretty emotional about it because it's, there were a lot of people that I know who are very successful investors. And their basic view was, thank God, I married somebody that could, you know, raise my kids right. That was not me. I actually married a woman that had a four and five year old when I was only 28. And then we had a child together. We actually, you know, functionally adopted a boy in there as well. That, to me, was, you know, maybe the greatest source of joy in my life. I mean, I love, I talk to almost all my kids almost every day.

• 1:59:55Speaker 00

  I don't think I was ever a helicopter parent. In fact, their line was, I somehow managed to turn every activity into a helmet sport. And there's some truth to that. And, but I just loved raising kids. And I've actually got three grandchildren now. And, and it just, you know, COVID, I had all of my children came and lived with me. And, and my grandchildren and my mother. And it was a glorious time. I mean, I just, so I've always loved, loved kids. I've loved little kids.

• 2:00:31Speaker 00

  I, I, so, you know, I would say that, I think, I think having grown up in New York and really not been a part of that, that I think, I think we felt a little bit like outsiders growing up. And I think, you know, the seventies, everybody was an outsider. So there was probably some of that. But, but I look at my kids and I'm, I'm so proud of them. And they all, they all worked through, you know, we did have the same rule, like three weeks without a job as long as you're in school and then three months without a job. You know, is how long you can live at home.

• 2:01:14Speaker 00

  And, and, you know, my parents were very straightforward about that. And, and so, you know, and I look at Charlie Munger's got great kids, like they're all.

• 2:01:23Shane Parrish?

  And he took a different approach, right? He, he gave a lot of money to his kids.

• 2:01:27Speaker 00

  He gave money to his kids, but they, you know, they're just, they're good citizens. You know, on balance, that's swing a cat through the Munger clan and you're hitting above average people in their value system, in their, in their intelligence and IQ. And so, you know, I, I would say, I don't know the secret. I know what doesn't work.

• 2:01:52Shane Parrish?

  What doesn't work?

• 2:01:52Speaker 00

  What doesn't work is giving your kids a lifestyle where they will feel like a loser if they are unable to maintain that lifestyle on their own merit. I just think that, you know, if you do the Southampton, Palm Beach, Aspen, like, you're creating, you're creating kids that either you're gonna have to leave them a hell of a lot of money to maintain that lifestyle. But even then, even if they maintain the lifestyle, they do so purely because they can brute afford it, not because they are interesting or substantial people.

• 2:02:35Speaker 00

  And I think you surround them with a lot of, I think, unhappiness. I will, you know, I had both sides of my family. I was very lucky that we never, to this day, I like to brag that I've never been east of Bay Shore on Long Island. And somebody would have to be a New Yorker to know what a humble brag that is. But, you know, basically, east of Bay Shore is where the Hamptons are. And, you know, I've been a lifelong New Yorker. I've never been to the Hamptons. I've never, and, you know, I, you know, my father once made a very off-color comment, but I'll share it because he said, you know, I don't, I don't go to strip clubs because if I don't like it, it's a waste of time. And if I do, it's gonna be very expensive.

• 2:03:20Speaker 00

  And, you know, why do you wanna create an environment where, you know, you would have to endow, I mean, think of what that lifestyle would cost. And maybe you endow it for the next generation, but then they can't do it for their kids and they can't do it for their kids, you know. Sooner or later, you're creating people that feel like failures. And I feel like, you know, so for me, you know, we have a falling apart farm in upstate New York and I live a fabulous life, but I just think, I don't think we raised our kids in, and, you know, Charlie talked a lot about not having sold his house. And that was very much true with me. I mean, I, the, you know, what my kids would describe as our family home, I bought in

• 2:04:05Speaker 00

  1993 or 1994, and it is not a fancy place, but it's sort of a farmhouse about an hour and 15 minutes. Minutes north of New York and it's got you can roll a marble through the house and it's a very gracious, beautiful place, but it's a farmhouse and and that feels very realistic. I mentioned, you know, I have this old wooden sailboat that we jokingly call the Wasp Winnebago, but it is kind of like a Winnebago. I mean, it's it's 50 feet and you sort of drive it to campsites and you pump out the toilet. We sleep all in two little rooms and and but so I feel lucky that way. I definitely and and I I had a good group of kids that I grew up with and we all raised our kids together. So I think

• 2:04:49Speaker 00

  we also had a peer group of friends that achieved different things in different ways. So for example, we do a trip every 18 months, the same group of friends does a trip together and we've done it since we were teenagers. Because we all we would spend some time together in the summers, but then everybody lived. So we would always, you know, have a weekend where we all got together and and, you know, the the way we pay for that trip is it used to be that, you know, whoever, you know, what friend who's a teacher, you know, that he would dictate the the amount of the trip. But, you know, as I said, how many times do we need to canoe down the Hoosatonic? Can't we do something more? And so we all

• 2:05:31Speaker 00

  decided we would contribute one week's pay. So it was, you know, sort of, you know, from each according to his ability. And so everybody made an equal sacrifice. And then that was the trip kitty. But I just think having a group of friends that has persisted from childhood, in fact, three of three of us were baptized together as infants. I mean, that's one is a partner at work of, you know, we've been partners for 30 years. He runs all of our client side. But there are people that that I admire and they're truth tellers. And so we raised our kids all together. I think that helps a lot. I just think this idea that you make a lot and then you begin to separate yourself, separate yourself more

• 2:06:15Speaker 00

  and more. I think that that's the message that you're sending your kids is that there's no continuity or they're more special than their cousins who didn't do so well or the I think it's a

• 2:06:29Shane Parrish?

  How do you avoid that lifestyle creep from sort of like setting in?

• 2:06:34Speaker 00

  Well, it's gonna be whatever. I mean, of course, one of the great things about making money is you can sort of have what you want. And I think the question is, how do you try to do a good job deciding what you want? You know, obviously, I mean, and you know, I mean, one of the great gifts to humanity has been Morgan Housel. And, you know, the psychology of money is like the perfect reminder that what we really want, you know, what kids crave is time with their parents. And, you know, you end up in the Hamptons on the cocktail circuit and, you know, biking in your Lyra with all your private equity buddies. I mean, can

• 2:07:14Speaker 00

  you tell I got a chip on my shoulder about that? But, you know, and all your business school buddies. So I just think, you know, I've had a, I'll give a good example. We grew up loving skiing. And my dad is a fabulous skier, and so my grandparents were good skiers. But they were so worried about spoiling us. So that I grew up skiing in upstate New York in a town called, well, by the snow, the mountain was called Snow Ridge. It's in Boonville, New York, or near Boonville, New York, which is, you know, it's just a farm hill. But, you know, as we were doing better, my dad wanted us to ski in nicer

• 2:07:57Speaker 00

  places and so on. And, and we went to all different places, but we always stayed in a pretty modest way. We, he would, you know, make a big deal out of buying our ski equipment, you know, secondhand at the end of the season so that we would have. And, but we ended up in Taos, New Mexico. Now, there were some other reasons we ended up out there. We had an office in Santa Fe for various reasons. And, and Taos, New Mexico is a very old school kind of place. It's steep, it's technical, but it is the opposite of Aspen.

• 2:08:33Speaker 00

  And so, you know, for me, it was this sort of idea, well, I could just keep going to Taos. My kids are going to be great skiers, but it's going to be a place that they could likely afford for generations. You know, we've got a condo with orange shag carpet and my daughter met her husband is from Taos and, you know, and so it feels like a family spot. Whereas if we ended up with in Aspen, I just think it, the total cohort would change. And then what? How the hell are my kids or my grandkids going to afford, all afford to have homes in Aspen? So they're going to instead end up going to a place like Taos and feeling like failures. Whereas my kids feel like Taos is the greatest place on earth. Well,

• 2:09:18Speaker 00

  they've never been to Aspen. It's right just as well. And so going back, I'm very prone to envy in myself. I'm not proud of that. I'm, I'm, it's a, you know, I, I can be a very competitive person. And, um, and so a big part of checking that weakness in me is not to get in that pool. And so, you know, I don't go to Southampton, not because I don't think it would be lovely and not because there aren't some amazing, interesting people that I admire hugely that live there and they live beautifully there. It's because if I got there, I would feel like, I want to be here. I gotta do this. And, you know,

• 2:10:00Speaker 00

  and I gotta get a big house here. And then, you know, now what? Now my kids are all trying to figure out, well, can we get so, you know, instead we have, we literally have a campground in Maine, you know, little cabins and, and it's, it's a place that we're very happy because it feels sustainable. So, but my going, not going to Aspen is, is not because I don't think I would love it. I know I would love it. And, you know, uh, and, you know, Southampton, Aspen, you know, Palm Beach, I, I'm sure I would love it. Look, people are not crazy. If people go to Palm Beach, it's because it's pretty great and they pay a lot of money to go there. It's probably pretty great. I just feel like, why do I want to get on that trolley? I, I feel like crystal meth is probably pretty great, too. I just, I

• 2:10:45Speaker 00

  just think I'd better not to, not to get started.

• 2:10:49Shane Parrish?

  I've been thinking about it a lot. I mean, I, I went with, um, the, my kids who are 13 and 14, they were 12 and 13 at the time to Europe last summer. And we rented this dingy Airbnb without air conditioning. And I was like, you know, I wanna, I wanna sort of like, I want them to be able to be flexible, no matter where we're staying.

• 2:11:07Speaker 00

  Yeah.

• 2:11:08Shane Parrish?

  And I remember like lying there trying to sleep and it's like 33 degrees. I was like, the only problem with this is like, I have to suffer with them.

• 2:11:17Speaker 00

  Well, you know, this is a, this is a trick. I don't know how well this would work for your kids, but we had that with airline travel because, you know, my grandfather famously wrote his will and the beginning words of it say, I'm writing this myself on, you know, TWA flight 323, economy class, underlined. So, you know, first class was always an absolute no-no. It was like ordering filet mignon on a menu. Like, it would still, I could still feel my dad's blood pressure going up if any one of us tried to order a steak at a restaurant. But, you know, it got to where traveling coach, you know, is, we, today is a lot worse than traveling coach 30 years ago.

• 2:12:03Speaker 00

  But I hated the idea of having my kids in business class. It just felt like, it didn't feel right either. So I hit on this idea about when they were your kids' age of, I'll split the difference with you. Like, I literally will write you a check. You can choose, like, we'll get you a seat in business class or you get $700. And it is amazing how into that they were. They even started with this view of, what if we find a cheaper flight? I was like, no, no, no, no, no. But I don't, I think it is okay. And again, you know, going with the, the, like, travel is a huge gift and slumming it isn't necessary.

• 2:12:47Speaker 00

  It's trying to find that line of what you feel is reasonable. Like, what we all want to be is at the high end of value. I, you know, David Brooks wrote a beautiful article about traveling in Africa, eight or nine different places. And he asked his kids at the end what their favorites were. And it ended up not just to be not correlated to the amount that the place cost, but to be inversely correlated. And he said, the reason is the nicer the place, the more they tried to isolate you. Like, oh, you're in our private villa bungalow out here with the private. Whereas the lowest end place was one where the kids ended up playing soccer with the people

• 2:13:30Speaker 00

  that worked in the kitchen and running around in the scrub and the dirt and sort of having a great time. And he talked about there was a Yiddish word, and of course, I don't remember what it was. But he talked about that's what people really crave. They crave connection. And so it's not really about the luxury. It's about the connectedness. And so, you know, staying in a very luxurious place that feels very simple and connected, fabulous use of funds, you know, staying in the Four Seasons where your children are given a butler and a ski valet, probably, probably not as good.

• 2:14:10Shane Parrish?

  We, we got upgraded once, just because I fly a lot. So I have like crazy status on the airline and they're like, hey, you guys got your seat changed. And I went up with my mistake was I went up with the kids and she's like, oh, you're all, you're all going to be in like business class. And the kids were like so excited and I was like, oh, God. And now from now, you know, one of my sons is like lying back there. He's like, more ice cream. He's like, why haven't we flown this way before?

• 2:14:38Speaker 00

  But of course, being able to love and cheer that, you know, it's not going to be perfect. I mean, that's one again, where Charlie says, if you want your kids to be as ambitious and as hardworking, it's unlikely. But Barry Diller tells a great story. I don't think he'd mind my telling it. You know, Barry grew up in relative privilege, he would say, you know, and he had a friend that was from one of the wealthiest oil families in LA. And the parents made him sleep in like the servants wing of their mansion.

• 2:15:14Speaker 00

  And he just talked about how deranged it all seemed. Like it was signaling to the kids that you don't love them. Or that they're not trustworthy or they're. So I've I've seen just as much damage done by wealthy families trying to build character as I as I've seen the the opposite. I would say my father had a very difficult relationship with his own father. And I think a big part of that was his own father was so puritanical. And, you know, would make him carry his skis and walk up the hill for the first in order to get a lift ticket. Or, you know, they're going to build a pool. And so they had to get out there and dig for two weekends until their hands were sort of bloody.

• 2:15:57Speaker 00

  And, you know, the grandfather was always trying to teach them a lesson. And it had felt false. It felt false to my dad. It felt. And so they ended up really not close. Whereas my dad, my dad just loved life. And so he embraced. And it's true, we didn't stay. You know, I remember going to Switzerland and, you know, in Stade, there's a very famous hotel, The Palace. It's up on this hill. And my grandfather, even when he was the ambassador of Switzerland, used to brag that he would never stay there because it's a terrible hotel for skiers. He stayed at a little place called the Archon Ciel because it was right at the base of a lift. And he said, this is a skiers hotel. Well, it's not.

• 2:16:39Speaker 00

  He was not suffering being slope side, but it it made sense. And so I think that's sort of the idea. It's that, you know, putting your kid in the servant's wing versus, hey, kids, we got upgraded. We got upgraded because I worked my ass off. And isn't this amazing? You know, and and letting them savor and laugh and enjoy that. You know, it's that's. Well, they weren't so happy on the way back.

• 2:17:08Speaker 00

  But you know, there's a lot of opportunities to have that conversation, but.

• 2:17:13Shane Parrish?

  It was Charlie who told me, and I had never thought of it this way. He said, you get into a lot of trouble when you want your kids to live a different lifestyle than you're living.

• 2:17:20Speaker 00

  Yes.

• 2:17:21Shane Parrish?

  Uh, when you're getting a chauffeur to drive you to work and you're telling your 15 or 16 year old to go get a job at McDonald's. Uh, he said, that's going to create a lot of resentment.

• 2:17:30Speaker 00

  Yeah, I think that's the real truth of it is that your kids are going to imitate you. And it's maybe the most important thing you can do as a parent is model happiness. Not desperation, not greed, not need for other people's approval, not, you know, just try to model happiness. And whatever that means in how you live. And, you know, if there are people that develop money and it really makes them happy to have that big house. Well, chances are that, you know, that they may have a view with their kids that I want my kids to have everything. You know, I can't think of anything better than my children living in a mansion that I produced for them.

• 2:18:12Speaker 00

  And, you know, if it's sincere and happy, I don't think that, I don't think you've created a miserable child if you're a happy, engaged human being. And so, uh, that's why I think the formulas, I think the, you know, the, the falseness is what kids sniff and, and.

• 2:18:31Shane Parrish?

  When are you happiest?

• 2:18:32Speaker 00

  Well, I, you know, I, I've, uh, I've, I've had a lot of, uh, um, experience with, uh, depression and others. And, uh, some growing up and some through marriage and, and, uh, and it's a little bit like insomnia. Like if you, I, I have almost a sleeping superpower. It's like, I'm not even supposed to say that out loud because it, I have a, my, my closest friend who's also my partner at work. And as I say, we were. Raised together, sent infants, and he's hugely important person in my life. And he has a terrible time sleeping.

• 2:19:15Speaker 00

  And it's like I've learned that my talking about how I can fall asleep, like, like if you told me I can lie down here and have a nap for 15 minutes, I would have a nap for 15 minutes. Like, I'm really good at sleeping. It helps me with jet lag. I can like, you get anywhere, you say it's time for bed. It's like, I'm ready for bed. And, and yet, I have, even though I can't, I can't physically, I haven't experienced insomnia. I have a deep visceral sense of what hell that must be. And similarly with happiness and depression, like, I, I see people that are depressed and I feel so lucky

• 2:19:54Speaker 00

  that I just dispositionally have a tendency towards happiness and, and contentment. And it certainly came from my dad had it, my grandfather had it, my grandmother. I mean, I just feel I grew up very, very lucky that way. My sister, my closest friend has that. We talk about it a lot. It's like it, and so I know enough about unhappiness and depression to know that it's, you know, saying, well, why don't you just change your attitude? Does not, is not going to work. And so I've, I've learned enough to just simply not take it for granted, but just feel deeply grateful

• 2:20:34Speaker 00

  that I tend to wake up reasonably content, you know, there's a, this is, this is a little bit strange thing to say, but, but there's a psalm. And by the way, I should say, I'm, I'm actually quite agnostic. I'm not, I'm not a deeply religious person. I always admired the church as an instrument of social improvement. I think that the fundamental message and its danger in our society of victimhood, I think, is, is a dangerous message versus the empowering message of the degree to which you have agency for your life. And I feel like that is a message of Christianity historically that I really admired, especially in Protestantism.

• 2:21:18Speaker 00

  You know, this idea of taking, being accountable for your choices and for your life. And anyway, all, all, all to say that.

• 2:21:31Speaker 00

  You know, this, I do think that it is very often the case that people do not have control over their happiness. But having said that, what I was going to tell you is there's a, there's a psalm that begins, behold, the day the, the Lord has made, rejoice and be glad in it. Well, that's not a terrible way to start each day is just to say that, you know, just, this is the day the Lord has made, rejoice and be glad in it. And I feel like I get, I've, I've had such a super abundance in my life, like it is, and that tomorrow, you know, the phone could ring and somebody could say it's malignant, or

• 2:22:13Speaker 00

  they could say there's been an accident. And, and everything will change. And, and I don't want in that moment to regret that I didn't appreciate just how lucky I had it today, the day before all that changed. And so that is sort of a driving part of my mindset. You know, the, I had, believe it or not, I had an English nanny growing up. I had a very strange upbringing in some ways, but, so this is, you know, my dad had us out trying to gather kindling and, you know, and my mom's had this English nanny

• 2:22:51Speaker 00

  named Ellen Wigglesworth. And Ellen Wigglesworth was born in 1898. And, and she lost her fiance in World War I. And that's what, when she came to the States and she ended up being my mom's nanny in the 30s. And, you know, she was in my life, she died at about 86. So she died in, you know, I was out of high school, I was probably already in college when she died. And, but she would tell stories about World War I. And to this day, like I can even feel my heart rate going up as I'm saying it, how terrified I was of that

• 2:23:30Speaker 00

  idea of the guy blowing the whistle and going up and over the top. And in the mud and the rain and the machine guns. And, and I used to say as a little kid, I would sort of, you know, when you say your prayers at night, I would sort of say, you know, I, I, I hope I would be brave, but please don't ever test me. Like, I never want to be tested. And, and I feel like that about, you know, Health, about depression, about contentment, about sleep. You know, I feel like I'd like to think, you know, Charlie was so powerful about handling suffering and his stoicism, you know, this opportunity to behave well.

• 2:24:14Speaker 00

  That's what suffering is, an opportunity to behave well. And I almost feel like, I hear you, Charlie, but please don't test me. Like, I just, I just don't want to be tested. And, but of course, life doesn't give you that option. Sooner or later, we're all going to be tested. It's, it's, it's a matter of whether it's sooner or later. But, uh, but so I, I feel like dispositionally happy so much of the time. Like, if you were to ask me the, you know, what are those moments in a year? It's like, there are so many. You know, I love the people I work with. I can't tell you what a privilege it is to really love your colleagues. Like, just to be curious about, you know, what they're up to in their lives.

• 2:24:56Speaker 00

  We have, you know, a small team, there are eight of us on the research side, but they're in every decade. We have one colleague in his sixties, a couple of us in our fifties, some in their forties, some in their thirties, and some in their twenties. And it's like the island of misfit toys. I like have no idea how we could have found each other otherwise. You know, I think our average tenure together is something like fourteen years. But there are people that I've worked with for thirty and twenty-five and twenty, and the newest one is probably been less than a year. And so it's a very gradual turnover process.

• 2:25:38Speaker 00

  And, but, you know, there is turnover, and there has to be, because, you know, we have a responsibility to have the best team on the field, and that is the worst part of my job. But it's not, it's almost never the case that it's not because that person doesn't deserve success. It's just that they're doing the wrong thing. I mean, if they have that credential and that work ethic and that level of IQ and processing speed and communication skill and, you know, value system, and they aren't succeeding. They're just in the wrong job. Like, you know, in fact, we had one guy that it's actually become a little bit of a sore spot in the company because it was that sort of situation and we worked like hell.

• 2:26:19Speaker 00

  I was like, you'd be so good in the corporate finance function of a company because, you know, you're not good at predicting how things could change, but you have a deep understanding of investing and capital allocation and, you know. And anyway, he ended up very early at Facebook and has done great. You know, he's like, I wish you had fired me sooner. So everybody, the company's like, fire me next, you know. And, but so it's, you know, there's an expression in sailing that a bad day at sea beats a good day at the office. That's not true. One, a bad day at sea is really scary. And, and two, a good day at the office kicks ass. I mean, it's just fabulous.

• 2:27:04Speaker 00

  It's exciting and you're watching things come together. So, you know, that whole column of life feels great. And I've got this group of friends from baptism to today that I love. I've got this experience of being on corporate boards of some of the greatest businesses on earth. And I never thought I would love that as much as I do. I mean, it's just, I've loved watching how, you know, the Washington Post evolved. I mean, it was one of the great, great examples in all of corporate history of fiduciary leadership and servant leadership of the Graham family to make the decision to sell the newspaper that it needed to be in safer and better hands.

• 2:27:44Speaker 00

  And it was just incredible thing to be able to sit at a table with people of that caliber and then watch a process. Imagine the gossip of the Washington Post is going to be sold, the Grahams are going to be sold. Imagine that taking six or seven months and imagine it never leaking. I mean, just that unbelievable character, the people involved in that. So, you know, and then of course Coke and Berkshire, I mean, so that part's amazing. And then, you know, I've got a family, I've got two living parents that are amazing. You know, they're, they do totally different things, but, and then I've got this group of kids where we've been able to transition. I always say the most dangerous thing in the world with a 12 year old is to try to

• 2:28:29Speaker 00

  be his friend. But, you know, the worst thing with a 40 year old is to try to be their parent. You know, you've got to figure out how to transition that relationship to being, you know, a person that you care about and admire and want to help and, but that they're a peer.

• 2:28:46Shane Parrish?

  Yeah.

• 2:28:46Speaker 00

  At that point, you know.

• 2:28:47Shane Parrish?

  Take me behind the scenes of no particular company in general, but a board meeting. And what makes for a really good board meeting versus a really bad board meeting?

• 2:28:56Speaker 00

  Well, the board meetings, I mean, I've been, I think that a lot of average companies' board meetings are basically the lights go down, the PowerPoint comes on, there is a focus on pageantry, process.

• 2:29:17Speaker 00

  And, you know, sort of checking the boxes and I'd rather shoot myself in the face. I just, I mean, going back to the ADD, you know, and, but the first board I ever came, and I do think that's the way a lot of corporate boards work, and I think it's gotten even more so because I think investors are discouraged from going on boards by the regulations. I think the SEC is, makes, I think it's a terrible mistake to discourage money managers, especially long-term investors, from getting involved in the governance of the companies that they, they manage.

• 2:29:58Speaker 00

  And it's, it's, the compliance issues are real because you've got to be very careful about disadvantaging your clients, or if you're burdened with inside information. And, but I think the importance of having owners of the businesses represented on the boards versus academics and lawyers and politicians, you know, you want people that have a real skin in the game and are advocating and representing their investors, their clients. So it's a very, but it, it ain't easy. I mean, we're in a world where often regulation is for its own sake. And so I was very lucky that the gateway drug, it was like starting, you know, at the absolute top, which was, you know, the Washington Post.

• 2:30:42Speaker 00

  So, you know, there's Warren was on that board and Ron Olson, I mean, to Barry Diller.

• 2:30:49Speaker 00

  At the time, Melinda Gates. I mean, and, and, and of course, the Graham family. I mean, it just, and so they had a tradition where the night before the board meeting, there's a dinner. The dinner was held at the CEO's house and nobody else is invited, just the directors. And you sit and you have cocktails and you talk and you sit at the table and you talk about business and you talk about the world and you develop a deep culture of trust. You also develop an environment where you talk about the real issues.

• 2:31:29Speaker 00

  And then what happens at the board meeting becomes much more, perfunctory is not the right word, but to me, it was a way of orienting a board that your focus is really on, you know, the long term, you know, do we have the right people running the business? Are we able to stop them from overreaching? Are the shareholders getting the information they should have to make an informed decision? Are the records being presented honorably, transparently? And then to weigh in on the big strategic decisions. Then the rest is whatever hygiene needs to happen. So that tone got set there at, at Graham.

• 2:32:11Speaker 00

  And of course, I would expect that that was always the case at a place like Berkshire, where there's so much candor. Certainly, that's been my experience. And then at a place like Coke, I would say that, you know, there have been different phases in Coke's histories and you can read some of the things Warren has said about sitting on those boards in the past and they're not always super complimentary. And, but I think that, you know, one of the ways that I, I try to contribute or be part is to try to bring that Graham. Culture to these big company, you know, to a big company like Coke. And it's been fabulous. The it's a great group of people. It's a great board.

• 2:32:56Speaker 00

  They've gone into this, you know, having a small dinner of directors only the night before. And it's just amazing how important that is and the degree to which you get trust and accountability and candor. And Jamie Dimon famously said, the bigger the group, the better the news. So, you know, that is.

• 2:33:13Shane Parrish?

  Oh, that's interesting. I've never heard that before.

• 2:33:15Speaker 00

  Yeah. Isn't that a good expression? And so smaller functioning boards, you know, people being, you know, you look at what happened at places like Hewlett Packard and, you know, Intel for that matter. I mean, these, these companies, you know, it's quite a well-known expression that, you know, a great board can't make a great company, but a bad board can ruin a great company. And, you know, I would certainly argue that both Hewlett Packard and Coke, the boards had a lot of accountability for decades of, of, of bad decisions. And it was bad decisions on what is the board responsibility, which is who's in charge.

• 2:33:58Shane Parrish?

  Talk to me about the third generation of a family business. Usually the expression is like.

• 2:34:03Speaker 00

  Shirt sleeves to shirt sleeves.

• 2:34:04Shane Parrish?

  Three generations, and yet you're an exception to that. In part, what are the lessons that you've learned of having that success? You've all created your own success in a way.

• 2:34:17Speaker 00

  Well, I don't think there was any sense of a family business. Um, you know, when I joined the mutual fund company was called Venture Advisors. Um, my father had a partner. He had had a firm called Davis Palmer and Biggs, but that's he sold it in the seventies, really pretty near the bottom. Uh, that was another opportunity for me to learn, you know, differently, like where we want to, we want to get through, we want to build something and stand for something. And, and, you know, my grandfather, you know, it was so clear that everything was being given away anyway, that, so I don't think we ever grew up with a sense, you know, if

• 2:34:56Speaker 00

  I look at, you know, my dad has six kids and, you know, two or one, one's a medical doctor, one's a psychiatric practitioner.

• 2:35:10Speaker 00

  You know, they're by and large, they're good parents, like good, but they all live differently, do different things. And I think that you'd be glad to have any one of them as your neighbor, you know, it's, it's, it's, I think, I give him a lot of credit for that.

• 2:35:28Shane Parrish?

  And the way that you all made money was really different. Like, your grandfather was 50% margin for most of his career.

• 2:35:36Speaker 00

  Dad had a lot of margin too.

• 2:35:38Shane Parrish?

  How do you think about that?

• 2:35:39Speaker 00

  Well, it's terrible. I have to say.

• 2:35:42Shane Parrish?

  Do you have a lot of?

• 2:35:43Speaker 00

  No, and my, my father, to this day, thinks I'm the biggest sucker on earth. He just, and that is often the way, you know, the, the generation, you know, what happens is, you know, you, if you started with nothing, you had to be such a risk taker. And then I think what happens is that propensity to risk falls over the generations, but often so does the corresponding ability to build wealth. And that did not happen with my father. I think partly because of the rivalry with his father. So they both went through life, you know, with a lot of margin calls and a lot of, you know, I took on quite a lot of debt to buy, you know, to buy out the partners of the management company. So in that sense,

• 2:36:27Speaker 00

  you could argue I was on margin. And as my father said, nothing focuses their mind like a little debt. I was like, oh, you know, and that was in, you know.

• 2:36:37Shane Parrish?

  Well, we're all on margin. A mortgage is a margin.

• 2:36:39Speaker 00

  Yeah, that's true. That's true. Although, believe it or not, I didn't even have a mortgage, because I always, I always wanted this idea of just having a very

• 2:36:49Shane Parrish?

  Stable.

• 2:36:50Speaker 00

  Stable and never wanting to go back to go and going all the way back to the dog walking and like, how important it was to me to, to have money, you know, I just, and so, you know, my father would say that it's, I should be embarrassed at how conservatively I've run my financial affairs and that, you know, I would have a dramatically different net worth if I had been willing. By the way, not just to be on margin, but not to have my money in the funds. Because it being in the funds meant that I was running the portfolio, my portfolio as theoretically quite a high net worth individual that would be willing to have 40% in a single stock, easily. Wouldn't, it wouldn't make me nervous at all.

• 2:37:36Speaker 00

  I can't run a fund that way, or I felt I couldn't. And so what that meant is that if I had simply bought each stock that I ever bought for the funds in a personal account and held it, then I simply never would have sold, simply because something was getting too big. Whereas in the funds, I do that all the time, and it's been a terrible mistake. So if I had never done that, you know, Costco would be, you know, whatever, 40% of my worth, Amazon would be 40%, you know, Google would probably be, you know, 20%, and Berkshire would be 20%, you know, there'd be pretty much everything in there, you know, those

• 2:38:21Speaker 00

  four or five positions. But I felt it was the right thing to put the money in the funds. And so the result is I have this enormous tax inefficiency, I'm selling things and realizing gains that I wouldn't do in my own life, but I'm doing it going back to the idea that, you know, we have a client where that's all they have, they can't take, and by the way, they might have gotten in the day before. So, you know, if I say I bought something at a 4% position, and now it's 40 and it goes back to 20, I'm still fine. But the person that got in that day before isn't fine. So, but I feel intellectually at peace that that was the right way to do it, but of course I still have my father's voice in my head saying, what a sucker, you know, you should

• 2:39:05Speaker 00

  have, you know, as I said, my father is giving away a scale of fortune every year that's just mind blowing, and it is incredible, the impact that he's had on a lot of kids' lives doing that. I will have less ability to do that relatively, probably, you know, in all likelihood, but that's okay. I've liked doing it this way, and I think I've ended up with great colleagues and great clients and a great board as a result of all of those things being aligned.

• 2:39:33Shane Parrish?

  That's a great segue into the question we always end with, which is, what is success for you?

• 2:39:39Speaker 00

  Well, I mean, it for me, that is one where Charlie shaped that from the beginning. It's just living your funeral backwards and thinking, thinking about, you know, well, I'll give you an image that that was true image. I talked about this recently, but this this idea of, you know, I came up to this house after being out for a dinner and and all my kids were there and and, you know, it was glowing on the inside. It was like Courier and Eves, you know, it was so beautiful. And and I saw all of my kids at the dining room table with their significant others and laughing. And and it was this moment where I felt like I didn't even need to go in. And so that, you know, in that dimension

• 2:40:24Speaker 00

  of life, just this, just the intense love and admiration I have for for them and my curiosity at how it's going to play out. And the fact, I mean, one of the things I love is that my my daughters are friends, even though they're 13 years apart. And it's a very, very unlikely friendship, you know, one is that Princeton kid running a big residential real estate operation and like, you know, and the other one is invented a, you know, the founder and CEO of a what is a can only be called a sex toy company. You know, I just, but she is just, she is just a crazy, exuberant kid, living in a

• 2:41:08Speaker 00

  totally different world than one that I can grasp. But, you know, so there's a lot there. And then, of course, I love having, you know, building a place where the people that have invested their careers there have felt like they've made a difference and that they've lived meaningful and substantial lives because I'm with them every day, I feel. And then, finally, where, you know, the clients that come along there feel like they were treated well and that that they, you know, the advisors got a little better at their jobs because of how we did things. And, you know, it's just, it's, there was a, and really quickly by saying, there was a man who ran one of the big accounting firms, I can't remember which one, and he

• 2:41:49Speaker 00

  Died very young while in fact, he died within becoming a year or two of becoming the managing partner of the firm. I can't remember if it was E and Y maybe, but and he wrote a book called Chasing Daylight in his last year. He only lived for a year. It was a bad brain cancer. And he wrote this book about shutting down his life. And it was very unusually positive. It's not a great book, but it was very emotional. I knew him a little bit. And, and he talked about these concentric circles. So he's like, you know, when he first found out, he's like, okay, I've got to get the, the firm secure. And then, you know, I've got to work on these, you know, relationships

• 2:42:31Speaker 00

  that I left hanging in different ways. And I want to make peace with these things. And it sort of got smaller and smaller and smaller down to his immediate family and then just to his spouse. And, and, you know, I think that's sort of the right mindset to think about is these sort of concentric circles. And, you know, in some ways, the outer circle, you think it's the biggest, it matters the most. I have a feeling the end it may matter the least, but you still want to get it right. So, so I, I think about him and, and the circles and that chasing daylight idea.

• 2:43:08Shane Parrish?

  That's a beautiful way to end this, Chris. Thank you so much for your time.

• 2:43:12Speaker 00

  Are you kidding? I was so glad to be here. This was just a complete pleasure.

• 2:43:23Shane Parrish?

  Thanks for listening and learning with us. For a complete list of episodes, show notes, transcripts, and more, go to fs.blog/podcast or just Google The Knowledge Project. The Farnham Street Blog is also where you can learn more about my new book, Clear Thinking: Turning Ordinary Moments Into Extraordinary Results. It's a transformative guide that hands you the tools to master your fate, sharpen your decision making, and set yourself up for unparalleled success. Learn more at fs.blog/clear. Until next time.