Charlie Munger (Audio)

We sit down with the legendary Charlie Munger in the only dedicated longform podcast interview that he has done in his 99 years on Earth. We’ve gotten to have some special conversations on Acquired over the years, but this one truly takes the cake. Over dinner at his Los Angeles home, Charlie reflected with us on his own career and his nearly 50-year partnership at Berkshire Hathaway with Warren Buffett. He offered lessons and advice for investors today, and of course he shared his speech on the virtues of Costco once again (among other favorite investments). We’re so glad that we got the opportunity to record and share this with you all — break out your notebooks, tune in, and enjoy the singular wit and wisdom of Charlie Munger. Full episode transcript: https://www.acquired.fm/episodes/charlie-munger#transcript *Sponsor:* Special thanks to Tiny for being the exclusive sponsor of this episode. You can get in touch with them here (just tell them Ben & David sent you) https://bit.ly/acquiredtiny ...and order your very own bronze Charlie bust here https://bit.ly/acquiredbrknerds *More Acquired:* - Get email updates https://www.acquired.fm/email and vote on future episodes! - Join the Slack http://acquired.fm/slack - Check out the latest swag in the ACQ Merch Store https://www.acquired.fm/store! _Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions._

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

• 0:00David Rosenthal?

  Ben, when we teased this episode in the email about the Jensen episode that we just released, the guesses that we were getting from folks were amazing.

• 0:10Ben Gilbert?

  I mean, people were like, it's Charlie, it's Warren, or it's Taylor Swift. And a lot of people were right.

• 0:14David Rosenthal?

  Hey, Taylor, you know where to find us, [email protected].

• 0:18Ben Gilbert?

  If you are looking to get more publicity, we're open.

• 0:21David Rosenthal?

  Have Travis get in touch.

• 0:23Ben Gilbert?

  All right, let's do it.

• 0:41Ben Gilbert?

  Welcome to this episode of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert.

• 0:49David Rosenthal?

  I'm David Rosenthal.

• 0:50Ben Gilbert?

  And we are your hosts. This episode is a very unique one for David and I. Good friend of the show, Andrew Marks, organized a little dinner for us with Charlie Munger and a few other folks at Charlie's home in Los Angeles. You can hear Andrew a few times in the background, asking Charlie questions. We are pretty sure that this is the only podcast that Charlie has ever done. Charlie, aside from being one of the most prolific investors of all time alongside his partner Warren Buffett, is 99 years old. He will turn 100 on January 1st. Of course, our conversation was interesting because he's freaking Charlie Munger, but also because it was interesting to get the perspective of someone who has seen the last 99 years of human history.

• 1:33Ben Gilbert?

  We talked with Charlie, of course, about Costco, his history investing in retailers over the last 50 years. We also got to hear his views on what it takes to build a great partnership, what's gone wrong in the global securities markets these days, the concept of investing versus gambling, and where investment opportunities remain in the world today.

• 1:53David Rosenthal?

  Yeah, Ben, this was such a special life experience for you and me and you and me together to do this. And the fact that we got to record it and now share it with the world for posterity, just icing on the cake and the whole thing was unbelievable.

• 2:06Ben Gilbert?

  Yeah, listeners, we knew we were going to have dinner. We were not sure whether we were going to be able to record it. And now we get to share it with all of you. With that, join the Slack. There is awesome discussion of every episode and the news of the day at acquired.fm/slash/Slack. If you sign up for acquired emails, you will get episode corrections and follow up from previous episodes, plus hints at what the next episode will be. That's acquired.fm/email. And we have only one sponsor for this interview.

• 2:34David Rosenthal?

  Yes, a special conversation deserves a special sponsorship. And longtime listeners will know there's only one company in the acquired universe that is truly appropriate because everything they do is modeled after Charlie and Warren, and that's Tiny.

• 2:47Ben Gilbert?

  Yep. Tiny is the Berkshire Hathaway of the internet. Literally, they are such huge fans that they started a company that makes bronze busts of Buffett and Munger themselves. But more on that in a minute.

• 2:57David Rosenthal?

  Yeah, so Berkshire, as we know, started as a textile mill in Massachusetts nearly 200 years ago. And almost 20 years ago, Tiny founders Andrew Wilkinson and his partner Chris took their version of an internet textile mill, the premier design agency Metalab, which designed the UIs for Slack, Uber, Tinder, Headspace, Coinbase, and others. And they asked themselves, what would Charlie and Warren do if they were us? And that led to the realization that, just like Berkshire discovered in the physical world, the internet also has wonderful niche businesses with great cash flows. In fact, they tend to be even better than the old days of seized candies and blue chip stamps, because they

• 3:38David Rosenthal?

  require zero capital reinvestment, have software margins, and can build global brands much faster than the, what, 50 some odd years it took Sees to expand around the world?

• 3:47Ben Gilbert?

  Yep. So Andrew and Chris took the extra cash flow from Metalab and their other businesses and created Tiny, the world's first and best permanent holding company for wonderful internet businesses. And boy, did it work.

• 3:59David Rosenthal?

  Yeah, fast forward to today, and thanks to Tiny's success, this opportunity is no longer a secret. Many people have caught on to the idea that this can really work. But just like Berkshire itself, no one else has the combination of experience, temperament, access to capital, and frankly, reputation that Andrew and Chris have built over the past two decades. We're investors in Tiny ourselves alongside Bill Ackman and Howard Marks. And just like the two of them, Tiny is really the long-term buyer of choice in their niche. Anyone who's looking for a permanent home for their profitable internet business, or who needs a capital partner for a co-founder or VC cap table buyout, would be lucky to work with Tiny.

• 4:37Ben Gilbert?

  Yep. For instance, they just bought the premier social network for film buffs, Letterboxd, which has been the founder's baby for 12 years and will stay so within Tiny. And this really reflects Tiny's whole ethos. Work with only the best internet businesses, commit to simple diligence, 30-day deals, and leave the business alone, either for you to operate or bring in new, long-term-oriented management. Up to you.

• 4:58David Rosenthal?

  So, thanks to Tiny, this is the only sponsor, as Ben said, that you'll hear on this episode. And just like Berkshire, it'll be here in perpetuity. Tiny just became a public company earlier this year, and they can now do deals ranging anywhere from $1 million all the way up to $250 million. So if you want to get in touch, just shoot them a note at [email protected], and just tell them that Ben and David sent you.

• 5:20Ben Gilbert?

  Oh, and one more thing. The Bronze Charlie Busters, the perfect daily reminder in your workspace to ask, "What would Charlie do?" Just head on over to berkshernerds.store to buy your own. And they also have plenty of some guy named Warren, too. Okay, now, without further ado, this is not investment advice. David and I may have investments in the companies we discuss, and this show is for informational and entertainment purposes only. And on to Charlie Munger. Charlie, I was watching the NFL games last weekend, and it seems like every advertisement now is a sports betting advertisement. Is this good for America? No, of course not.

• 5:58Speaker 02

  Are the dog tracks and racetracks of America and the casinos good for America? Of course not. They're just very popular.

• 6:06David Rosenthal?

  But that's how Warren got his start, though, right? At the racetrack?

• 6:09Speaker 02

  Well, but Warren never gambled heavily as a patron of a Warren, one of the odds in his favor, not somebody else. Right. It's just so simple if you're Warren. You want the house, you want to be the house, not the putter.

• 6:23Ben Gilbert?

  Listeners, the next topic that came up was retail stock trading and the idea that for many Americans, this is akin to gambling.

• 6:30Speaker 02

  Well, it's the way it's organized. They don't really know anything about the companies or anything. They just gamble on going up and down the price. If I were running the world, I would have a tax on short-term gains with no offset for losses on anything. And I would just drive this whole car every ball of business.

• 6:50Speaker 03

  What do you think about the algorithms, like Renaissance and stuff like that?

• 6:53Speaker 02

  Well, of course Renaissance, first algorithm was so simple. They sifted all this data for the past. And what did they decide? Up, up for two closing prices and down, down were more common than down, up or up, down. Once they realized that's the way it was for various reasons, deep in the psychology of man, is that man is a natural trend follower, you're gambling short-term. And they just, he's programmed the computers to automatically, you know, buy on one thing on the first up day and then, and sell before the end of the second day. And they just did it day after day after day.

• 7:35Speaker 02

  And it's every day the machine would, you know, the central third agent would say, your check today is $8,500,000. It's crazy. Your check tomorrow is $9,400,000. Well, what happens is that the ones, the easiest trade is to front run what you know what the averages, what the index funds have to buy. And you know what it is exactly? They all know that. And the way they get their returns year after year is taking the leverage, the midday leverage up higher and higher and higher and higher. So they're making smaller and smaller profits on more and more volume, which gives them this big peak leverage risk, which I would not run myself.

• 8:18Speaker 02

  And that's the only way they make these big returns is to have this huge leverage that would make you crazy if you were already rich.

• 8:26Ben Gilbert?

  I had the good fortune of speaking with someone you know well, Richard Galanti at Costco and spending a few hours.

• 8:31Speaker 02

  He knows a lot about it. He's been there all his life.

• 8:33Ben Gilbert?

  It's crazy. I mean, it seems like that's everyone on the executive team.

• 8:35David Rosenthal?

  They've all been there.

• 8:36Speaker 02

  Yeah, I know.

• 8:38Ben Gilbert?

  I'm curious, how did you first come across Costco or Price Club at the time?

• 8:44Speaker 02

  Rod Hales somehow knew Saul Price and knew what he was doing. He said, you have to go down and meet him. He said, so I drove down and went through his store and talked to Saul. And of course Saul was a very intelligent man. Saul was an ordinary lawyer until he was 39 years of age. He knew how to inform government employees, discount company or whatever.

• 9:06David Rosenthal?

  Was this in the Fedco days?

• 9:08Speaker 02

  He was no longer with Fedco. He sold Fedco to the Germans.

• 9:14Ben Gilbert?

  Ah, FedMart to the.

• 9:15Speaker 02

  Yeah.

• 9:16David Rosenthal?

  Hugo Man.

• 9:16Ben Gilbert?

  Hugo Man.

• 9:17David Rosenthal?

  Yeah.

• 9:17Speaker 02

  Yeah.

• 9:19Ben Gilbert?

  And did you get to invest in Price Club before it merged with Costco?

• 9:24Speaker 02

  Yes, I did. But I just bought my stock in the market. I wasn't like I had any favor.

• 9:30Ben Gilbert?

  And so how did you eventually meet Jim Senegal?

• 9:34Speaker 02

  Well, Senegal asked Warren to become a director of Costco. He was looking for somebody with a financial reputation.

• 9:42Ben Gilbert?

  As an independent?

• 9:44Speaker 02

  Yes, and Warren wouldn't do it. He said, well, you get Charlie to do it. I want shorter plane rides to directors' meetings and so on. So that's how that happened.

• 9:55Ben Gilbert?

  And did Berkshire ever try to become a shareholder or acquire Costco?

• 9:59Speaker 02

  I tried to get Warren to buy out the French when they left, Carrefour.

• 10:03Ben Gilbert?

  Ah.

• 10:04Speaker 02

  And Warren wouldn't do it. Warren doesn't like retail.

• 10:08David Rosenthal?

  Was it just that he doesn't like retail or what was the big objection?

• 10:11Speaker 02

  He's afraid of retail. Practically everything that was Muntz-Mighty in retail is gone. Says Robb is gone, the big departments are gone, you know? It's just too damn difficult as far as he's concerned. And he had a bad experience with diversified retail, right? No, we made nothing but money at diversified. We didn't exactly make it in retailing, but we made a lot of money.

• 10:34Ben Gilbert?

  Wow. And with diversified, most of the money was not on the retailing operation. You made a lot of that money through?

• 10:39Speaker 02

  What happened was very simple.

• 10:43Speaker 02

  We bought this little pissant department store chain in Baltimore. Big mistake to the better. As the ink dried on the closing papers, we realized it would be a terrible mistake. So we decided just to reverse it and take the hits to look foolish rather than go broke. He just told us how to get us out of this. By that time, we'd already financed half of it on covenant free debt and so forth. And there was all this extra cash and our own stocks got down to selling it enormous. We just, in the middle of one of those recessions, we just bought and bought and bought and bought. And all that money went right into those stocks.

• 11:26Speaker 02

  And of course, we tripled and just were sitting on our ass.

• 11:29Ben Gilbert?

  And that led to blue chip?

• 11:32Speaker 02

  Yeah, it was part of the early success of Blue Chip.

• 11:35Ben Gilbert?

  Wow. And so, you know, you mentioned Warren doesn't like retailers.

• 11:39Speaker 02

  But you did something else that people don't know about.

• 11:41Ben Gilbert?

  Yeah.

• 11:41Speaker 02

  We bought a little pissant savings alone company for maybe $20 million. And when we left that thing, we had taken out of our little $20 million investment over $2 billion in marketable securities, which went into Nebraska Insurance Companies as part of their bedrock capital. So we had some wonderful early years and that's what everybody needs, is wonderful early years.

• 12:09David Rosenthal?

  Wow. So in our Costco episode, we started with the joke at one of the Berkshire meetings, probably 10 years ago. Warren told the joke about you were on a plane being hijacked and the hijackers gave you one final request and you said you'd like to give your speech on the virtues.

• 12:27Speaker 02

  Warren got tired of me kind of reminding him.

• 12:28David Rosenthal?

  Yeah, yeah. And he said, shoot me first. We were hoping, could you give us your speech on the virtues of Costco?

• 12:37Speaker 02

  No one was kidding me for being so repetitive on the subject. But there aren't many times in a lifetime when you know you're right and you know you have one that's really going to work wonderfully. Maybe five, six times in a lifetime, you get a chance to do it. And even do it two or three times early, all go broke because they think it's easy. In fact, it's very hard and rare.

• 13:04Ben Gilbert?

  What was it about Costco that made you realize this is one of those few moments in a lifetime?

• 13:09Speaker 02

  Well, they really did sell cheaper than anybody else in America. And they did it in big, efficient stores. And all the parking spaces were 10 feet wide instead of eight feet, nine or whatever they normally are. They did a lot right.

• 13:28Ben Gilbert?

  Yeah.

• 13:29Speaker 02

  And they had a lot of parking spaces. And they kept out of their stores. At least you didn't do big volumes, you see. And they gave special benefits to the people who did come to the stores in the way of reward points.

• 13:43Ben Gilbert?

  The executive membership?

• 13:44Speaker 02

  Yeah. It all worked.

• 13:48David Rosenthal?

  And the capital light business model, I mean, when we were studying it, the difference between Price Club and...

• 13:54Speaker 02

  They have no investment in them. They make the suppliers wait until they've been paid and then they're scheduled to pay only after they're scheduled to sell.

• 14:05Ben Gilbert?

  They've got 900 warehouses around the world full of high-quality merchandise, none of which they have sitting on their books.

• 14:13Speaker 02

  That's correct.

• 14:14David Rosenthal?

  Yeah. Our understanding is that Price Club went public initially before the merger. They just listed, they didn't raise any capital, they didn't need any capital.

• 14:25Speaker 02

  Who knows? It's all kind of like, it was kind of a financier. You like deals, you like this miscellaneous real estate, like, yeah, but it doesn't make sense. You don't want, you got an enterprise as big as Costco, you don't want to screw around with your parking lot. You get other people to clog up your parking lot permanently and stuff that's not going to pay you very much.

• 14:49Ben Gilbert?

  Right.

• 14:49Speaker 02

  You don't want them is the answer.

• 14:52Ben Gilbert?

  Have you ever seen another business that takes advantage of the virtue of the low SKU count, the way that Costco does?

• 15:00Speaker 02

  Well, there are lots of them. That little grocery store chain here in Los Angeles, Gelson Brothers.

• 15:08Ben Gilbert?

  Hmm.

• 15:10Speaker 02

  They wanted a high turnover and low capital cost. And they never made the least effort to earn any money. They wanted to show they're probably not with anybody.

• 15:19Ben Gilbert?

  Hmm. As you reflect back on, you know, one of these few great companies in a lifetime that you should bet big on, what advice would you have for David and I as young partners looking for a few of these in our lifetime, things to look out for?

• 15:36Speaker 02

  Well, you may find it five years after you bought it, you know. These things may work into it, or your own understanding may get better. But when you know you have an edge, you should bet heavily.

• 15:52Ben Gilbert?

  Hmm.

• 15:54Speaker 02

  You know you're right. And most people, they don't teach that in business school. It's insane. Of course, you gotta bet heavily on your best bets.

• 16:06Ben Gilbert?

  And how do you develop that level of conviction to know?

• 16:11Speaker 02

  You work at it. You redo a lot of reading and thinking and visiting.

• 16:15David Rosenthal?

  I'm curious, we wanted to ask you, you've had this beautiful partnership with Warren for half a century.

• 16:22Speaker 02

  Yeah.

• 16:23David Rosenthal?

  We're a decade into our partnership.

• 16:25Speaker 02

  There was a lot of low hanging fruit in the early days of our operation. You don't have any low hanging fruit that is easy to recognize.

• 16:34Ben Gilbert?

  You mean in investment opportunities?

• 16:37Speaker 02

  Yeah, that's right.

• 16:38David Rosenthal?

  But your relationship with Warren, like, how have you?

• 16:41Speaker 02

  Well, we were all kind of similar. We both wanted to keep our family safe and take a good job for our investors and so on. We had similar attitudes.

• 16:52Ben Gilbert?

  Yeah.

• 16:53David Rosenthal?

  Did it change over the decades?

• 16:56Speaker 02

  No, Warren still cares more about the safety of his purchase holders than he cares about anything else. If we used a little bit more leverage throughout, we'd have three times as much now. And it wouldn't have been that much more risk either. And we just, we never wanted to give them at least a chance of it.

• 17:17Speaker 02

  Screwing up our basic seller position.

• 17:20Ben Gilbert?

  If you had used more leverage, do you think there's some chance that?

• 17:23Speaker 02

  We would have done a little better, sure.

• 17:25Ben Gilbert?

  Do you think there's some chance that it wouldn't exist at all, that it would have cost you the franchise?

• 17:30Speaker 02

  No, I think it would have worked fine.

• 17:33David Rosenthal?

  Does Warren think that?

• 17:34Speaker 02

  It would have been very easy. The situation lent itself to, if you were intelligent, just milking it out.

• 17:41David Rosenthal?

  When you leverage, I'm so curious on after we did our.

• 17:44Speaker 02

  It's automatically leverage. You open a new store with no capital. Of course, it's leverage. Who wouldn't want a business with no inventories?

• 17:55Ben Gilbert?

  Right. That's a good point. By the virtue of you owe a whole bunch of people money on day one for these goods that.

• 18:02Speaker 02

  Which is which turnovers rapidly.

• 18:04David Rosenthal?

  Right. It's interesting. I mean, that's leverage. It's not debt leverage. I mean, how do you think about debt? Like after we did our Berkshire series?

• 18:13Speaker 02

  A lot of people do it now. A lot of people now do it. Who manufactures something? They're just terribly strong and they're just forcing the suppliers to carry all the inventory. Isn't like we're the only ones that do it.

• 18:28Ben Gilbert?

  Back to the point on partnership, David and I are coming up on 10 years as partners in this podcast we do together, different than the investing business, but a compounding one nonetheless. After a 50 year partnership with Warren, what advice would you have for us interpersonally to make for an enduring partnership?

• 18:47Speaker 02

  Well,

• 18:50Speaker 02

  it helps if you like one another and enjoy working together.

• 18:54David Rosenthal?

  We do.

• 18:54Speaker 02

  Yeah. But I don't use any one formula. A lot of partnerships that work well for a long time happen because one's good at one thing and one's good at another. They just naturally divide it. And each one likes what he's doing. Now, in Costco's case, they had Jeff Brodmann, who's very smart, but not a retailer, and Jim Senegal, and they divided it up. And they had originally agreed that Brodmann would be the chairman and CEO because he was the idea, he founded the whole thing. But Senegal was like, no, I have to be the CEO.

• 19:33Speaker 02

  So it was a big unfortunate board meeting. It was a big and hurtful struggle.

• 19:39Speaker 02

  And Brotman moved aside.

• 19:41David Rosenthal?

  Was that after you joined the board?

• 19:43Speaker 02

  No, before.

• 19:46David Rosenthal?

  Do you think you and Warren not living in the same city helped your partnership last so long?

• 19:51Speaker 02

  Well, it may have helped.

• 19:55Speaker 02

  But Warren has very close relations with all those people that have lunch every Saturday at Berkshire headquarters. It's like he doesn't have a little quarter of people there who are kind of pals from the ground up.

• 20:11Ben Gilbert?

  Do you think it helps that when you do spend the time together, it's special rather than being common?

• 20:19Speaker 02

  Well, of course, we used to spend a lot of time together when we were young because we didn't have that much to do. Now we've got more to do and then it's just the other minutiae of life. So it's different.

• 20:33Ben Gilbert?

  Yeah.

• 20:34David Rosenthal?

  It's funny. I feel like we have a lot to do now, but.

• 20:39Speaker 02

  Well, of course you do. It's very difficult to invest money well. And I think it's almost impossible to do time after time after time in venture capital.

• 20:49David Rosenthal?

  Yeah, we really wanted to ask your thoughts on venture capital.

• 20:52Speaker 02

  Some of the deals get so hot and you have to decide so quickly. You're all just sort of gambling.

• 20:59Ben Gilbert?

  Do you think the role of venture capital is being properly accomplished in society?

• 21:04Speaker 02

  No, I think it's very poorly done.

• 21:07David Rosenthal?

  Charlie elaborated on this point with a few things that we can't air, but the topic did turn to Bitcoin.

• 21:13Ben Gilbert?

  I've heard many comments you've made on Bitcoin. I'm curious if you have a thought on this particular angle. An easy way to transfer money in between countries, especially when those countries don't have a stable store of value within that country. Is it good to have an independent store of value that is not pegged to nations?

• 21:32Speaker 02

  Well, of course it's good for the world as a whole to have a way of having some currency. The way that was solved is for a long time, the British pound was the national currency of the investment world. And then it shifted to the dollar. And it's still a dollar.

• 21:51Ben Gilbert?

  Yep.

• 21:51Speaker 02

  And people like China have these enormous reserves of dollars. The money we make by, think of the money people give us where we always just print up these pieces of paper.

• 22:03Ben Gilbert?

  Yep. And what about the common person in some of these less fortunate countries who don't have access to US dollars?

• 22:12Speaker 02

  Oh, they do if they are getting money. The dollar is very fungible. You can always buy one anywhere.

• 22:20Ben Gilbert?

  I'm curious, back to this point of the role of venture capital in a society, if you could design a perfect system to fund innovation.

• 22:28Speaker 02

  It's a very legitimate business if you do it right. If you want to give the right people the power and nurture them, help them. You know a lot about the tricks of the game. You can help them run their business, yet not interfere with them so much they hate you.

• 22:46Speaker 02

  By and large, I have bumped into a lot of people in the businesses with venture capital financing. I would say the ordinary rule is that people in the business doing the work, they more than not, they hate the venture capitalists. They don't feel their partner trying to help them to come in. They're only taking care of themselves and so on and so on. And they don't like them.

• 23:09Ben Gilbert?

  How could it work differently?

• 23:11Speaker 02

  Yeah, well, that's not true in Berkshire. You see, our people, they know we're not trying to discard them to the highest bid. See if some asshole investment banker offers us 20 times earnings or some lousy business, we don't sell. If it's a problem business we've never been able to fix, we'll sell it. But if it's a halfway decent business, we never sell anything. And that gives us this reputation of staying with things, which helps us.

• 23:40Ben Gilbert?

  And do you think that buy and hold, not only mentality, but demonstration is the key thing that aligns investors with managers?

• 23:52Speaker 02

  Well, it's rare, you see. Everybody else has a standard way of doing things. The lawyers have their standard forms. And everybody just has the same standard form. And they get the same standard results. Subject to the institutes of investment life. You don't want to make money by screwing your investors. And that's what a lot of venture capitalists do. The world is full of XG Goldman Sachs partners that formed a private fund. And they manage a billion dollars or something like that. And they charge two points off the top plus this. And that enables them to make very handsome loins themselves. But the endowments are not getting a good return.

• 24:36David Rosenthal?

  And do you think it's specifically the fee aspect of fund structures?

• 24:40Speaker 02

  It's just human nature, the way it works. And of course, you really shouldn't be in the business of charging extra. Point is, you really are going to achieve very unusual results. And of course, it's more easy to pretend that you can get good results than it is to actually get them. And so it attracts the wrong people. People with investment capital turn of mind. And the people who make the most money out of venture capital are a lot like investment bankers, deciding which hot new area they're going to get in. They're not great investors or great at anything.

• 25:19David Rosenthal?

  What do you think endowments and large pools of capital should do then?

• 25:24Speaker 02

  Well, they're starting to do it. The endowments have started to say to the all these people that charge three and 30 or whatever they charge. They said, we'll pay your three and 30. But we're going to put in twice as much money and then the next tab you'll get nothing on it. We're just going to ride Perry Passeau on some of your investments. So the fees go down by 50%. That'll take a lot of the fun out of it. Fees down 50% and that's happening all over America. They feel had misled irritated. They've looked foolish to their own trustees.

• 26:06David Rosenthal?

  One of the issues I think in investing right now, you mentioned about venture capital, but I think it's true everywhere. It's like, there's just so much capital and so much competition. We're so far removed from the cigar butt era. We're in the opposite of the cigar butt era these days. Are there opportunities out there?

• 26:23Speaker 02

  Somebody will find a few things, but it gets harder and harder. I would argue one of the easiest ones was when they decided a little group around Home Depot, they would copy the Costco model and home improvements. That was basically a good idea and think of the money they made doing it.

• 26:45David Rosenthal?

  Yeah. Bernie Marcus.

• 26:47Speaker 02

  Yeah.

• 26:50Speaker 02

  It was a direct copy of Costco.

• 26:53Ben Gilbert?

  Do you think there are more opportunities to copy Costco?

• 26:55Speaker 02

  Well, there was another one at Costco.

• 26:59Speaker 02

  Floor and decor is the current imitator. And it's just this in vinyl, wood imitating vinyl flooring that they're running a Costco model. And they keep adding miscellaneous stuff to it too.

• 27:15Ben Gilbert?

  It's the miscellaneous stuff that'll eventually kill you though.

• 27:19Speaker 02

  Well, it would be simpler if it was all flooring.

• 27:24David Rosenthal?

  Yeah, it's like the vertical. Home Depot worked so well, but I don't know that it was totally obvious. Like part of the appeal of Costco was it was horizontal. It was everything. Consumers could come, they could make a trip, bring their big wagon, bring their big truck.

• 27:39Speaker 02

  Home Depot is the same.

• 27:42Speaker 02

  They copied everything.

• 27:44David Rosenthal?

  And famously Bernie Marcus came out to visit Saul.

• 27:47Speaker 02

  Yeah, they came out, they copied everything.

• 27:50David Rosenthal?

  Saul was like happy to share the playbook with everybody, right? How did Jim and you feel about that?

• 27:56Speaker 02

  Saul was not a crazy, he was domineering and so on. But he was also very intelligent.

• 28:08Speaker 02

  But there aren't many opportunities like Omnia and Costco. There aren't very many.

• 28:15Ben Gilbert?

  Why do you think Walmart hasn't been successful once they saw Costco in competing?

• 28:22Speaker 02

  They were too wedded by the ideas they already had. That's everybody's trouble. They just can't accept a new idea because the place space is occupied by an old idea. They got in the habit of getting the real estate product, giving nothing because they were in little towns where nothing was valuable. So they're always their occupancy costs are like zero and they knew how to make big division stores. That was their formula. So it offended them to go against the rich suburbs and have to pay up for the good locations. And Costco just specialized in the good locations where the rich people live. And Walmart just let them do it year after year was a terrible mistake.

• 29:00David Rosenthal?

  Did you know Sam Walton?

• 29:04Speaker 02

  No, never met him. I knew the son, one of the sons. And they divided it up, you know, about six parts very early.

• 29:13David Rosenthal?

  Yeah, Walton Enterprises.

• 29:14Speaker 02

  They never paid much gift taxes or anything.

• 29:18Ben Gilbert?

  The topic then turned to the automakers and the future of the car industry.

• 29:23Speaker 02

  Look how hard it would be to go into the auto business and have some big killing. Who's going to win? Who knows? The whole thing's been thrown way up in the air by all these electric cars. All those big new capital requirements, different ways of selling cars. And plus they got these tough unions. See, I just don't even look at the other industry.

• 29:48Ben Gilbert?

  Do you think it's more investable today than it was 50 years ago because of the disruptive innovation of electric?

• 29:55Speaker 02

  Well, for maybe for one or two electric cars that are really good at it, maybe, but certainly nobody else.

• 30:05Ben Gilbert?

  So you think BYD?

• 30:06Speaker 02

  They're too tough. BYD was a miracle, but that guy works 70 hours a week and has a very high IQ. He can do things you can't do. You can look at somebody else's auto bar and he can figure out how to make the goddamn thing. You can't do that, you see.

• 30:22Speaker 03

  Charlie, you invested a Hyundai.

• 30:25Speaker 02

  Yes, but they're clever too.

• 30:27Speaker 03

  How was that investment for you?

• 30:29Speaker 02

  I lost money. Not much because I was stubborn. I held out until I got back to almost what I paid for it and I sold it.

• 30:37Speaker 03

  There's been a lot of discussion about Berkshire's investments in the Japanese trading houses.

• 30:42Speaker 02

  Well, but that is a no brainer. Something like that, if you're as smart as Warren Buffett, maybe two, three times a century. You had an idea like that. The interest rates in Japan were half a percent per year for 10 years. And these trading companies were really entrenched old companies. And they had all these cheap copper mines and rubber foundations. And so you could borrow for 10 years ahead all the money and you could buy the stocks and it's likely at 5% dividends.

• 31:22Speaker 02

  So it is a huge flow of cash with no investment, no thought, no anything. How would you do that? You'll be lucky if you get one or two a century. We could do that. Nobody else could. It looked attractive at half or something. You couldn't get it.

• 31:40Speaker 02

  Berkshire with its credit cut, and the only way you could get it was to be very patient and just pick away at little pieces of the debt. It took forever to get $10 billion invested. But it was like having God just opening a chest and just pouring money into it. It was awfully easy money.

• 32:02Ben Gilbert?

  It's interesting that it's paradoxical. You need Berkshire's credit, but at Berkshire's scale, it's actually hard to put enough money to work.

• 32:09Speaker 02

  That's true, but why should it be hard to make money? Why should it be easy?

• 32:15David Rosenthal?

  Japanese trading companies reminds me, we studied another company recently, Nike, that is surprising to me.

• 32:21Speaker 02

  That's a very different company.

• 32:22David Rosenthal?

  Yeah, did you ever look at it?

• 32:23Speaker 02

  That's a style company. Well, of course, I've looked at it, but I don't like style companies.

• 32:30Ben Gilbert?

  Too fad-driven?

• 32:32Speaker 02

  Well, I suppose if it were to be Hermes and the chief of enterprise, I'd buy it. But short of that, I'm not going to buy any style company.

• 32:38Ben Gilbert?

  Oh, that's a good pick.

• 32:40Speaker 03

  To the style point, another one that they covered was LVMH. What Arno has done has been amazing. So what do you make of that company?

• 32:49Speaker 02

  Well, if you're as good as they are at what they've done, you have a lifetime to do it in, or now a lifetime, really, if you have more lifetimes to do it in, you can create another, but it's not easy.

• 33:00David Rosenthal?

  Hermes is on the eighth generation, I think, now, the family running it.

• 33:05Speaker 02

  It's not a bit easy. They have meetings every day where they make policy decisions, and they choose the locations one at a time, and it's work.

• 33:15Ben Gilbert?

  It's definitely work. What do you think the durable value is in these, as you say, style companies of the very best one in the world, the Hermes or the LVMH? What makes them enduring?

• 33:27Speaker 02

  Well, they've just got a brand people trust so much.

• 33:32Speaker 02

  It took them a century to do it.

• 33:35Ben Gilbert?

  Our conversation then turned to comparing Kirkland Signature as a brand to Hermes.

• 33:41Speaker 02

  Kirkland is a brand the way Tide is a brand. And Hermes is a different kind of a brand.

• 33:50Ben Gilbert?

  Yeah, Ferrari doesn't make detergent.

• 33:53Speaker 02

  No.

• 33:54David Rosenthal?

  We've spent a lot of time studying these brands. How do you look at the value of a brand?

• 34:01Speaker 02

  Well, it's hard for us not to love brands. Since we were lucky enough to buy this candy for $20 million as our first acquisition. And we found out fairly quickly that we could raise the price every year by 10% and nobody cared. We didn't make the volumes go up or anything like that. Just made the profits go up. So we've been raising the price by 10% a year for all these 40 years or so. And it's been a very satisfactory company. We didn't acquire any new capital. That's what was so good about it. Very little new capital. We had two big kitchens and a bunch of rental stores when we bought it.

• 34:47Speaker 02

  And now it's got two big kitchens, a bunch of rental stores. Well,

• 34:54Speaker 02

  Charlie C was a playboy. And his brother ran the company, his older brother, and dominated it completely. But when he died, Charlie made his brother his executor. And now he needs a lot of money to pay death taxes. He doesn't have it. And it's due, you know, eight months or something later. And so they really wanted to sell so they could pay the death taxes.

• 35:21Speaker 02

  And it seemed it was only making for him in pre-tax when we bought it.

• 35:25Ben Gilbert?

  And so that buying opportunity only came about because the family needed liquidity to pay the death taxes.

• 35:30Speaker 02

  That's right. We only found out about it because Charlie C was on his cruise away or something with this guy who was a client of, and doesn't counsel, also worked for Blue Chip Stamps, who's the company that bought it. And.

• 35:48Speaker 02

  Any rate, that's how we found out about it. We paid that guy a finder's fee. We've never made one since.

• 35:54Speaker 03

  He always said that it was worth it.

• 35:57Speaker 02

  Of course, but you don't want to have a reputation for paying finder's fees everywhere in the world will be bothering you all day long.

• 36:05Speaker 03

  So what do you think? So there are categories like Cs or like Hermes where brands lead to pricing power?

• 36:14Speaker 02

  I think your chances of buying one of them. So, well, I wouldn't even look. I don't even believe in looking at things that I might find. You're not gonna get a chance to buy her.

• 36:24Ben Gilbert?

  No curiosity without a return.

• 36:28Speaker 03

  So why do you think there are extremely well-known brands in other categories, maybe packaged food or something where?

• 36:35Speaker 02

  Well, there are a lot, there are a lot of professional investors that buy Nellie Wood branded goods. And the one they usually start with is Nestle. And it is filled with. They've done two or three points better than average, but it's not a bonanza.

• 36:52David Rosenthal?

  After that, our conversation turned to Kraft Heinz and why Heinz is able to have pricing power while Kraft is not.

• 36:59Speaker 02

  It was very interesting. It's something about the flavor of ketchup on a goddamn fried potato. People are really willing to change brands over. They want Heinz. And so we could raise the price of Heinz pretty much. Anyway, you try to raise the Kraft cheese and everything goes into rebellion. Including the final, final customer, the housewife. They don't care that much about whether the cheese is Kraft or not.

• 37:28Ben Gilbert?

  Why do you think that is that some?

• 37:30Speaker 02

  I want the sauce flavor. It's happened elsewhere. In Korea, one guy, some Chinese guy controls all the sauces.

• 37:39Speaker 02

  Every single major sauce, he controls at least 95% of them.

• 37:43Ben Gilbert?

  And it's because sauces have such a particular flavor that no one can imitate the trade secret?

• 37:48Speaker 02

  Yeah.

• 37:48Ben Gilbert?

  Huh? And that gives pricing.

• 37:50Speaker 02

  They'll get used to it and like it.

• 37:52Speaker 03

  Is that Coca-Cola as well?

• 37:54Speaker 02

  Yeah, sure.

• 37:55Ben Gilbert?

  Charlie, I'm curious. At age 99, what is something that you believe today that 70-year-old Charlie would have disagreed with?

• 38:06Speaker 02

  I think I I knew when I was 70, that was plenty hard, but it's just so hard. I know how hard it is now. And all these people who are getting this two and 20 or three and 30 or whatever. They all talk as though it was easy and they get to believe in their own bullshit. And of course, it's not a bit easy. It's very hard.

• 38:32David Rosenthal?

  If you were back 30 or 40 years old again today, would you decide to go into the investment business again?

• 38:38Speaker 02

  Well, probably because it suits my nature. But I didn't really enjoy

• 38:44Speaker 02

  the three and 30 business. Once I had enough money on my own, I'd rather just operate with my own money. That is a much better way of doing it than.

• 38:54David Rosenthal?

  Because of the freedom?

• 38:56Speaker 02

  We're forced to deal with investment bankers, be forced to deal with investment consultants, be forced to deal with venture capital. The hell, who knew us? You don't need other people. The point of getting rich is so you don't have to need other, you don't have to get a lot of other people.

• 39:13Speaker 04

  Charlie, if you started with Warren today and you're both 30 years old, do you think you guys would build anything close to what Berkshire is today?

• 39:24Speaker 02

  Yes, no, we would.

• 39:27Speaker 02

  We had everybody that has unusually good results. Almost everything has three things. They're very intelligent. They've worked very hard. They were very lucky. It takes all three to get them on this list of the super successful. How can you arrange to have two? The answer is a good luck. The answer is you can start early and keep trying a long time and maybe you'll get one or two.

• 39:52Speaker 04

  If you were starting again today, do you think insurance would still be the vehicle?

• 39:56Speaker 02

  It depends on your temperament. Insurance would be ideal for a certain kind of a temperament. And it takes a very patient person to get rich in insurance.

• 40:08Speaker 02

  Takes forever to get anything in. It takes forever to push anybody aside. It's very hard to make money.

• 40:15David Rosenthal?

  I've heard you say, as soon as you're wealthy enough to self-insure, you should. Is there any insurance?

• 40:21Speaker 02

  Well, that's about practically everything. Think of all the crumbums of the world that drank too much and then filed big claims with the insurance company. But gets on fire or something. Why would you want to pay the? Your share of their stupidity.

• 40:38Ben Gilbert?

  Not to mention the overhead. Of course, the insurance company needs to pay all the people that work there.

• 40:41Speaker 02

  Yeah, yeah, no, no, I, it's crazy.

• 40:45Ben Gilbert?

  Is there any insurance that you carry today?

• 40:48Speaker 02

  I carry no fire insurance anywhere.

• 40:51Ben Gilbert?

  Do you carry auto insurance?

• 40:53Speaker 02

  Yeah, I have to.

• 40:54Speaker 03

  Well, you're legally.

• 40:55Speaker 02

  Yeah, yeah.

• 40:56Ben Gilbert?

  I don't know, Charlie could.

• 40:58Speaker 02

  No, I have to, I do.

• 41:01Speaker 03

  I'm curious, being that since these guys are very tech focused, I'm curious, not being a tech person, how did you think about the Apple investment? And what gave you the conviction to be so big?

• 41:12Speaker 02

  What everybody has learned is that everybody needs some significant participation in the 12 companies to do better than everybody else.

• 41:23Speaker 02

  And you need two or three of them at least. And if you have that mindset, Apple was a logical candidate to be on the list for which you're going to select your companies. And it's not very hard to come up with the idea that it may be okay.

• 41:44Ben Gilbert?

  Making the list doesn't sound too hard. In fact, there are these acronyms, FAANG or MAMA, you know, Microsoft, Apple, Google, Facebook. But selecting the one and putting hundreds of billions of dollars into it.

• 41:57Speaker 02

  We didn't put hundreds of billions.

• 41:58Ben Gilbert?

  Tens of billions.

• 41:59Speaker 02

  We put a dirty billion into it.

• 42:00Ben Gilbert?

  To create hundreds of billions of value, that to me sounds hard to pick the one. How did you guys pick the one?

• 42:06Speaker 02

  We couldn't find anything else.

• 42:10David Rosenthal?

  Was it valuation or?

• 42:11Speaker 02

  Yeah, well, it got cheap. It got a day about 10 times earnings, more than a body.

• 42:16Ben Gilbert?

  2015, I believe, was the first.

• 42:18Speaker 02

  Yeah.

• 42:19Ben Gilbert?

  It's fascinating to me, this concept of if you look at distressed debt, or you look at, I think Warren in the last Berkshire letter pointed out, it's been a handful of really good decisions. Or you look at venture capital that's classically power law distributed, any of these asset classes comes down to a few really good decisions with high conviction over an entire career.

• 42:38Speaker 02

  Yeah, that's exactly what I, that's exactly the way it works.

• 42:42Ben Gilbert?

  It's not smoothed. There's no asset class where you can repeatedly just do.

• 42:46Speaker 02

  No, no, there's the, the, the low hanging fruit for the idiot is, it's not gone, but it's very small.

• 42:55Ben Gilbert?

  You mentioned this idea that when we were talking about Apple, there's a few companies that it's just really important to be in. Do you think these big tech companies being the winners, where all of the pensions and Berkshire and university endowments and everyone's 401Ks being concentrated in these companies, do you think that was the natural outcome? Did we have to end up this way?

• 43:18Speaker 02

  Yeah, it was natural. That's why it happened.

• 43:23Ben Gilbert?

  What causes that?

• 43:25Speaker 02

  Well, it's just, it's just, that's what human nature and competition, that's what it causes.

• 43:31Ben Gilbert?

  Will we eventually have one?

• 43:34Speaker 02

  Eventually, this craziness in venture capital, when they're all gone stupid, that's a natural outcome.

• 43:42Ben Gilbert?

  Will we have one $20 trillion companies? And then the next biggest company is one?

• 43:47Speaker 02

  I don't know how the world's gonna... I didn't know we were gonna have as many as we did. They just happened. Would you continue investing in China? What's your position with that? Well, my position in China has been that the Chinese economy has better future prospects for the next 20 years than almost any other big economy. That's number one. Number two, the leading companies of China are stronger and better than practically any other leading companies anywhere. And they're available at a much cheaper price. So naturally, I'm willing to have some China risk in the Munger portfolio.

• 44:31Speaker 02

  How much China risk? Well, that's not a scientific subject, but I don't mind whatever it is, 18% or something, whatever, whatever's worked out in the Munger family. It's okay with me.

• 44:43Ben Gilbert?

  What about other geopolitical considerations? Like, would you hold TSMC at this point?

• 44:48Speaker 02

  Well, I don't like that as well. So I like something with a real consumer brand of its own, like Apple.

• 44:54Speaker 05

  I'm curious, what major companies that haven't been mentioned, do you think people would do well to study the virtues of? Like, studying the virtues of Costco?

• 45:02Speaker 02

  Well, I only study two kinds of companies. One, I'm an Apple big Ben Graham. Follower. If something is really cheap, even though it's a crappy company, I might only consider buying it for a while anyway. And I do that occasionally. And I've done it with great success a time or two, but I might hard mark that other once or twice in my lifetime for big gains and that's it. It's not like I have a second, I've done a hundred times. So it isn't a bit easy. Yeah, a hundred times the easy money is almost nonexistent.

• 45:39David Rosenthal?

  One type of company is the cigar bud. What's the other type of company?

• 45:45Speaker 05

  The companies that people would do well to study.

• 45:48Speaker 02

  The great brand companies, of course, are good. Get them at the right price, the whole trick is to get them on the few rare occasions when they're really cheap. But buying Costco at its present price.

• 46:01Speaker 02

  It may work out all right, but that's again, it's getting hard.

• 46:06Speaker 05

  Yeah. Forgetting the prospects of the stock, how do you think about the next 10 years for the business?

• 46:11Speaker 02

  I think it'll do pretty well.

• 46:13Ben Gilbert?

  One more question for you in this area. What is your favorite advice to give to young people?

• 46:21Speaker 02

  Well, I don't give advice to just any young people. I give it to some. I pick my spots. I don't want to be more of a guru than young people. I already am.

• 46:32Speaker 02

  It's getting hard out there. And there's all this bullshit and craziness. Of course, it's gonna be hard.

• 46:40Ben Gilbert?

  Where do the attractive opportunities hang out anymore? It sounds like everything in the whole world is overpriced. Could that be possible?

• 46:46Speaker 02

  Damn near. Of course it could be possible. It's not only possible, it's likely it's actually happened.

• 46:51Ben Gilbert?

  How did the world get so rich if we have all this capital for so few opportunities?

• 46:55Speaker 02

  It's the nature of things. Look, biology produces a very advanced creature like us. You can sit around and talk intelligently and all these subjects. But it doesn't by killing everybody off in brutal competition one with the other for hundreds of thousands of years. In other words, the system that nature uses to get smart is kind of unpleasant to the people who are losing.

• 47:19Ben Gilbert?

  So over the last hundred years, we've brutally shifted all this value from labor to capital. And now capital is all competing to get into a very small set of opportunities.

• 47:29Speaker 02

  Well, capital never had, you would, it wasn't that it was all that easy. You go back a long time. It just was a lot easier.

• 47:39Ben Gilbert?

  And if it continues to get harder, the natural end is that you have

• 47:43Speaker 02

  Yes, an unpleasant blow up of some kind. And God knows what happens after an unpleasant blow up with our modern democracies. You get to see a lot like Europe, which is quite dysfunctional.

• 47:55Ben Gilbert?

  Is it too pessimistic of a view to say that the world seems to be out of good ideas to match the amount of capital out there looking for good ideas?

• 48:05Speaker 02

  It was never easy. Thoroughly understood it was never easy. And it's harder now. Those are the two where it was. And you pay attention that you're handling the people you deal with. You want a good reputation when you're all done, not a bad one.

• 48:20Speaker 05

  And I don't think you're saying there are no opportunities whatsoever. I think you're just saying low expectations and fewer bonanzas.

• 48:29Speaker 02

  And the beauty of it is, you only have to get rich once. You do not have to climb this mountain four times. You just have to do it once.

• 48:37Speaker 05

  Well, that's sort of your philosophy on both sides is you got to be patient for the great opportunities. But when they, you got to recognize them when they come and pounce.

• 48:46David Rosenthal?

  We turned off the mics to have dinner and then recorded a little bit more later in the evening about Costco and some life advice from Charlie.

• 48:53Ben Gilbert?

  So one Costco question that I've been wanting to ask you is all the puzzle pieces of the low SKU count and the high inventory turnover. And there's just so many things that fit together so beautifully.

• 49:04Speaker 02

  They're pretty obvious, though.

• 49:06Ben Gilbert?

  But how come no one else can pull it off if they're so obvious?

• 49:09Speaker 02

  It takes a lot of good execution to do it. You really have to set out to do it and then do it with an ethicism every day, every week, every year for 40 years. It's not so damned easy.

• 49:23Ben Gilbert?

  So you think the success is the magic of the business model and culture?

• 49:27Speaker 02

  Yes. Yes. Culture plus model. Yes, absolutely. And very reliable, hardworking, determined execution for 40 years.

• 49:39David Rosenthal?

  I mean, they talk about the story of the ketchup, that you could increase the price of ketchup by 3% and nobody would notice. But that would destroy everything if you did that, right?

• 49:50Speaker 02

  I would say that the central norm was, don't raise the market.

• 49:56Speaker 02

  Get it low and keep it there forever.

• 50:00David Rosenthal?

  Which brings us to the hot dogs. Is it true, the story that when Craig took over as CEO, he did try to raise the price of the hot dogs?

• 50:12Speaker 02

  I don't know. I had no conversations with him on that subject.

• 50:17David Rosenthal?

  And Jim forbade him.

• 50:19Speaker 02

  Well, I'm sure Jim would have forbade it. Absolutely.

• 50:23David Rosenthal?

  There was no board level discussion of the hot dog?

• 50:27Speaker 02

  Those two would not have thought it was a board matter to discuss the price of hot dogs.

• 50:32Ben Gilbert?

  The one thing that fascinates me about Costco is they seem to only be able to grow 10% per year because they're not capital constrained. No amount of money, if they were to access it for free, could help them.

• 50:44Speaker 02

  I'll tell you what it is. It is hard to open too many stores a year. New store, new manager, new this, new politics, new it. It's hard.

• 50:55Speaker 02

  Plus, a lot of stuff has to be learned and taught and put in place. And so they didn't want to do more than they could comfortably handle.

• 51:04David Rosenthal?

  Store openings, you mentioned China earlier. Was it 12 to 20 years that Costco had the license to operate in China?

• 51:11Speaker 02

  Well, let me what happened there. The first store, they tried to open in China. The first store, somebody wanted a $30,000 bribe. You know, Chinese culture. And they just wouldn't pay it. And that made such a bad impression on Jim Sinegal. He wouldn't even talk to him going into China for about 30 years thereafter.

• 51:32David Rosenthal?

  Ah, so what changed? Why finally go in?

• 51:35Speaker 02

  Well, finally, the board started making enough noises.

• 51:39David Rosenthal?

  You started agitating.

• 51:40Speaker 02

  Yeah, yeah.

• 51:41Ben Gilbert?

  Yeah, who on the board could be excited about the Chinese market?

• 51:44Speaker 02

  Yeah, who can? Who knows?

• 51:50David Rosenthal?

  Oh, that's so great.

• 51:52Ben Gilbert?

  One thing I found fascinating about Costco was the fact that even though they're you know, the lowest possible prices, their audience skews wealthy. Was that an accident that they figured out over time? Or did they know that?

• 52:06Speaker 02

  Yeah, that figured out to a nuts.

• 52:09Ben Gilbert?

  All the way back in the Price Club days?

• 52:10Speaker 02

  Yes.

• 52:12Speaker 02

  You always wanted the rich man trying to save money.

• 52:15David Rosenthal?

  Well, and it's not just that they're the wealthiest customers. They're smart, wealthy customers. Yeah, they're picky, wealthy customers.

• 52:22Ben Gilbert?

  On some topics that are outside of Costco, you mentioned in the Daily Journal annual meeting this year that a young man knows the rules and an old man knows the exceptions.

• 52:32Speaker 02

  Yeah, that's an old saying of Peter's.

• 52:34Ben Gilbert?

  Oh, is that a Peter Kaufman?

• 52:35Speaker 02

  Yeah.

• 52:36Ben Gilbert?

  What are some of the exceptions that you've found the most useful in life?

• 52:42Speaker 02

  Well, take those goddamn Costco hot dogs.

• 52:47Speaker 02

  That's an exception. Anybody else would have raised the price of hot dogs a long time ago. They just don't do it. They just know that it's like half famous. You'll bring your kids in, they have the hot. They know they've got something going there that's worth extra money to them. They just don't destroy it.

• 53:04Ben Gilbert?

  A thing that I've never fully understood, I know you're a big fan of the company BYD that of course makes the Chinese company that makes batteries and electric vehicles.

• 53:13Speaker 02

  I may be a big fan, but I'm sort of hanging out by my hat while he lurks around the track.

• 53:21Speaker 02

  And they make me nervous. It's so aggressive.

• 53:25Ben Gilbert?

  Is that dangerous in a company?

• 53:27Speaker 02

  No, that's what makes me nervous. Of course it's dangerous.

• 53:31Ben Gilbert?

  So do you think that companies should try to grow at a lower rate than they're capable of in order to be more durable?

• 53:41Speaker 02

  Well, of course you do that if it's safer and it's easier and so forth. But I would argue Costco, where they've done some of these things that are extreme like the hot dog, it's been a plus and it was smart to not to change their ways on one item or two.

• 53:59Ben Gilbert?

  And it seems like there's a spectrum where on the one side, there's Costco that is just not a fast growing company because it's very difficult to. And on BYD, like you're saying, they grew like crazy. I mean, you turned.

• 54:11Speaker 02

  Well, BYD.

• 54:14Speaker 02

  This year, I sold at least two and a half million cars. Most of them electric. That's unheard of. Well, I never heard of that. They also way more than Mercedes, for instance.

• 54:24David Rosenthal?

  More than Tesla, right?

• 54:25Speaker 02

  Yeah, more than anybody. Yeah. Lots of troubles and losses. They ran into terrible trouble. They created the wrong kind of... They made lots of mistakes. They were lucky to be on the cutting edge of this electric car business. It's way more acceleration than most people. So you got a car with more oomph than most people. So the young macho male has a real lively car. There are a lot of things about electric car really works in some ways that is better. It make it a 90-degree turn. You go right opposite, a parallel party ways and just move this way. Turn the wheels 90 degrees and go in.

• 55:06David Rosenthal?

  Yeah.

• 55:07Speaker 02

  Well, nobody's ever done that. If your car goes flat, you could run 100 miles on three other wheels or something.

• 55:15Speaker 03

  And do they have better economics because they don't have nearly as many parts?

• 55:19Speaker 02

  It's simpler.

• 55:22Ben Gilbert?

  Have you ever had an investment like that before? I think you've invested something like 270 million. That's now worth something like 8 billion in BYD.

• 55:30Speaker 02

  Well, very few people have an investment. That's a venture capital type of investment. It happened to be a suddenly traded public company and we bought it instead of a venture capital company. It was a venture capital type play. And they just went, put the foot right to the floorboard and played it hard.

• 55:50Ben Gilbert?

  Had they manufactured...

• 55:51Speaker 02

  By the way, both BYD and we tried to talk about how they're going into the car business. They're going to buy a bankrupt car business and go into the car business. I said, "That's a graveyard for you, and why would you want to do that?" And he paid no attention to us and right ahead.

• 56:11Ben Gilbert?

  Had you invested already when he told you this plan?

• 56:13Speaker 02

  Yes, yes. And it worked fabulous. They will. After huge mistakes, they almost went broke with their early dealership building system. Almost went broke.

• 56:27David Rosenthal?

  What captivated you about BYD?

• 56:29Speaker 02

  The guy was a genius. He was at a PhD in engineering and he could look at somebody's party. He could make that part, you know, look at it in the morning and look at it in the afternoon. He could make it. I'd never seen anybody like that. He could do anything. He is a natural engineer and a get it done type production executive. And that's a big thing. It's a big lot of talent to have in one place. It's very useful. They've solved all these problems on these electric cars and the motors and the acceleration and the braking and so on.

• 57:07David Rosenthal?

  How would you compare him and BYD to Elon and Tesla?

• 57:11Speaker 02

  Well, he's a fanatic that knows how to actually make things with his hands, so he has to. He's closer to ground zero, in other words. The guy at BYD is better at actually making things than any that Elon is.

• 57:27Ben Gilbert?

  Charlie, you turn 100, which is an unbelievable statement, on January 1st of next year. Do you have any plans?

• 57:36Speaker 02

  I'm going to party.

• 57:37David Rosenthal?

  Where's the party gonna be?

• 57:41Speaker 02

  To California. But I've totally maxed out the room. I can't squeeze another person.

• 57:49Ben Gilbert?

  What captivates you these days? What's fun?

• 57:51Speaker 02

  Well, practically everything is. Even politics, bad as it is, is kind of interesting.

• 57:59David Rosenthal?

  When you look back at your, you're in Warren's time together. When did you have the most fun?

• 58:03Speaker 02

  We had about the same amount of fun all the way through. We're having fun now.

• 58:10Ben Gilbert?

  Is there a particular era that you remember the most fondly that feels like the good old days?

• 58:15Speaker 02

  Well, I remember we were sweating blood in some of those good old days.

• 58:19Ben Gilbert?

  Oh, I mean, Solomon Brothers.

• 58:21David Rosenthal?

  Solomon Brothers, yeah.

• 58:22Speaker 02

  Yeah, yeah. There were a lot of close misses. We've got out with a big problem with Solomon. We could have had a big loss.

• 58:30David Rosenthal?

  We could have had more problems than just a loss with Solomon, right?

• 58:33Ben Gilbert?

  Well, actually, on our, when we examined Berkshire Hathaway on our podcast, our takeaway was that the whole franchise was at risk during Solomon Brothers, the entire Berkshire Hathaway name and future. Would you agree with that?

• 58:47Speaker 02

  Not so much. I would have survived.

• 58:51Ben Gilbert?

  If you would let the whole investment in Solomon go to zero, it would have been-

• 58:54Speaker 02

  If it all blown up and went to zero, we would have put it all and gone and done pretty well.

• 59:02David Rosenthal?

  What do you consider it to be your finest hour?

• 59:07Speaker 02

  Well, we like to remember the close misses for real terrible problems. They had a terrible problem with the Buffalo News.

• 59:18Ben Gilbert?

  The Buffalo Evening News brawl?

• 59:20Speaker 02

  Yeah, there were two news papers in that town and we started a Sunday edition and that started a holy war and the other guy went broke. We could have had a lot better purpose to deal with that.

• 59:33Ben Gilbert?

  And you were, you were both pretty young in enterprising at that point. I mean, you weren't the Warren and Charlie of-

• 59:38Speaker 02

  No, but I was very aggressive about wanting to have a good Sunday edition. I didn't want to own the paper for 50 years and no Sunday edition when the other guy had one.

• 59:48Ben Gilbert?

  What made the newspaper business so attractive at that point in history?

• 59:51Speaker 02

  Well, it was a goldmine.

• 59:53Ben Gilbert?

  That's attractive.

• 59:55Speaker 02

  Total goldmine.

• 59:56David Rosenthal?

  Well, and the play in particular with the Buffalo Evening News and the Sunday Edition was playing for the local monopoly, right? To be the game, the game in town and with newspapers, you could do that.

• 1:00:07Speaker 02

  Sure.

• 1:00:09David Rosenthal?

  I mean, newspapers for decades had EBITDA margins in the 50, 60% range, right?

• 1:00:17Speaker 02

  No, only the little ones.

• 1:00:18David Rosenthal?

  Only the little ones, huh?

• 1:00:19Speaker 02

  Yeah, the big ones are less, 30 or 40 or 25 or-

• 1:00:24David Rosenthal?

  I'm sorry, I said EBITDA in your presence, I apologize. Cash flow margins.

• 1:00:28Ben Gilbert?

  Actually, do you still feel as, that EBITDA is a criminal the way that you've demonized it in the past?

• 1:00:34Speaker 02

  Yeah, I do. I think you have a big truck company and take the depreciation out of the trucks, out of the earnings, you're relying about the earnings.

• 1:00:45David Rosenthal?

  I mean, you witnessed its rise with Malone and TCI and Liberty like when EBITDA was invented as a concept, right? Like, what were you thinking?

• 1:00:55Speaker 02

  Oh, I've never liked John Malone's extreme manipulations. I don't want to be known as the great manipulator like John Malone is. He paid less income taxes than anybody. He just pushed everything to the drive of extreme.

• 1:01:11Ben Gilbert?

  In many ways, EBITDA was the community adjusted earnings of its era. Are you familiar with the community adjustment?

• 1:01:18Speaker 02

  No.

• 1:01:19Ben Gilbert?

  From WeWork?

• 1:01:19David Rosenthal?

  WeWork, oh, boy. Maybe a final question to wrap up. What are the set of companies that you think are the greatest that you've ever seen, either that you've owned or that you've not owned?

• 1:01:34Speaker 02

  Well, there are a lot of great companies. San Hermes is a great company. In its heyday, General Motors was a great company. It just gradually went to hell one contract at a time.

• 1:01:50Speaker 03

  What do you think about the predictability of, there were a number of companies back when you started where you could have said this business will be the same in 10 years? You think that number is the same today, or you think it's much harder?

• 1:02:01Speaker 02

  I think most places have a lot of change and threat in their future.

• 1:02:06Ben Gilbert?

  Do you think most places had a lot of change and threat in their future even 50 years ago, and this story is overblown?

• 1:02:11Speaker 02

  There's a difference, somewhat like always specialized industrial companies. Berkshire has a lot of them. We have a lot of companies that are quite insulated from really tough competition. Just because they've been so long and are so good at what they do and has a good reputation and high value and so on and so.

• 1:02:31Speaker 03

  What companies can you see today where you can confidently say, Berkshire aside, Costco aside, you can confidently say the business will be as good as it is today in 10 years?

• 1:02:42Speaker 02

  Well, I think a lot of companies are pretty good, but you can't confidently say what's going to happen. Because you may get some guy like Iger and that just wants to push everything and do the right policy relations. So no matter how good the business is, it'll be kind of phony.

• 1:03:00Ben Gilbert?

  Charlie, I have a personal question for you. David has a two-year-old, and I'm going to have my first child in a month. What advice do you have for us about building families?

• 1:03:14Speaker 02

  Well, of course, you've got to get along with everybody. You've got to help them through their tough times and they help you and so forth.

• 1:03:22Ben Gilbert?

  Yeah.

• 1:03:23Speaker 02

  But I think it's not as hard as it looks. I think half of the marriages in America work pretty damn well. And it would have worked just as well if both of them had to marry somebody else, by the way.

• 1:03:36David Rosenthal?

  Well, you've said that the best way to have a great spouse is to deserve one.

• 1:03:40Speaker 02

  Yeah, sure.

• 1:03:41David Rosenthal?

  As long as both parties feel that way, then it's a recipe for success.

• 1:03:46Speaker 02

  Of course it is. And you've got to have trust with your spouse, I guess, things like education of the children and so forth.

• 1:03:54Ben Gilbert?

  Yeah. I love that. Well, Charlie, thank you.

• 1:03:57Speaker 02

  Yeah.

• 1:03:58David Rosenthal?

  Thank you, Charlie.

• 1:03:59Speaker 02

  Well, good luck to you.

• 1:04:00Speaker 03

  Charlie, this has been... A lot of people are going to benefit a lot from hearing this and your wisdom, and they're going to learn so much.

• 1:04:07Speaker 02

  Well, you know, if you start to think about it, it's pretty hard. It doesn't look so damn easy just to go out... If you go to the ordinary person trying to promote himself as an investment advisor or some guy who just thinks he knows everything about everything and how the Federal Reserve should be run and so on. We don't feel that way.

• 1:04:26David Rosenthal?

  I will say with the people we get to talk to who've built great things, every single one of them says, "It was so hard. It's so hard." And you can't build something great without it being so hard.

• 1:04:38Speaker 03

  Charlie, thanks so much for doing this with us.

• 1:04:40Speaker 02

  Glad to do it. It'll be an interesting life you're leading. You'll do pretty well out there, but it's not going to be that damn easy.

• 1:04:47Ben Gilbert?

  David, total life experience and complete boondoggle.

• 1:04:51David Rosenthal?

  I can't believe we got to do this. I'm still pinching myself. It's now a couple of weeks after it actually happened.

• 1:04:56Ben Gilbert?

  I know, with autographed copies of Poor Charlie's Almanack to prove it.

• 1:04:59David Rosenthal?

  As if the podcast wasn't enough.

• 1:05:03David Rosenthal?

  And actually, for those of you who haven't listened, back, what, in 2021? So two-ish years ago, we did a whole three-part series, just us, covering the whole history of Berkshire Hathaway. Part one is on Warren, part two is on Charlie, part three is on Berkshire and Ted and Todd, all the way up through to today. I assume many of you have listened to that, but there probably are a bunch of folks who haven't. So if you want another nine or 10 hours of acquired content on Berkshire, I really think it's some of, if not our best work. Go check those out.

• 1:05:35Ben Gilbert?

  With that, listeners, our huge thank you to Tiny for being the sole presenting sponsor of this episode. If you have or you know of a wonderful internet business, you should reach out, [email protected], and just tell them that Ben, David, and Charlie sent you. You can sign up for notifications of new emails every time an episode drops, and we'll be including little tidbits as we learn things after releasing episodes, corrections, updates, things like that, and teasing the next episode, acquired.fm/email. Listen to ACQ2. This is typically where we talk about more up-and-coming companies who are earlier in their journeys, or CEOs who are topic experts in important areas like AI. Search ACQ2 in any podcast player.

• 1:06:20Ben Gilbert?

  After you finish this, join the Slack, acquired.fm/slash-slash and discuss with the whole acquired community. And if you want to get some of that sweet acquired merch that everyone's talking about, go to acquired.fm/store. With that, listeners, we'll see you next time.

• 1:06:34David Rosenthal?

  We'll see you next time.