Timeless Investment Wisdom From Working With Charlie Munger | Chris Davis

we have a a letter that Warren wrote that lists the reason that he believes most uh money managers tend to underperform one was number two was three was the four was and five was 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 from him he was a 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 uh very unloving sort of distant uh and even sort of pompous you know it was and uh almost sort of a caricature and so we had to cow toow and uh 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 the

grandchildren and uh uh and I think that uh my grandmother his wife was just this incredibly warm human and just so full of love and light I used to say if you average 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 uh see him outside of the context of this sort of patriarch and uh 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 and I think sort of a switch went off then when I realized sort of people people in general but him 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 I kissed your would come or cap Weinberger or uh 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 when you're able to sort of see an adult and and uh 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 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 car rides I saw a different sense of him and and uh it just just flipped a switch in our relationship that really lasted all the way until he died and uh 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 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 uh that that was a big changing point I'm I'm glad you asked about that and you were sort of going in a different direction your grandfather being um a capitalist and at the time you were sort of exploring ing vet veterinary school and theology 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 uh doing research of studying business is of and um it was a very uh so I it wasn't that I assumed that what they did was boring it just seemed narrow and uh you know I think yeah as a kid

I I wanted to be a vet I you know the the James Harriet view of all creatures great and small and uh it just captured me I I never uh we didn't have dogs or anything growing up I grew up right in New York City and uh so I was obsessed with the idea of animals I was a dog walker uh I had all every kind of rodent known to man as a pet unfortunately for my my mom and you know Geral and hamsters and mice and and one cat that grew larger and larger by

eating my rodents over time and and uh uh but yeah the idea of being a veted had this fantasy of everything that living in New York City in the 1970s wasn't 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 70s uh people try 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 uh blackout in 1977 it was like there were riots I mean it just you know I carried mug money uh 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 Pavlo 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 but I just I just remember thinking it was uh you 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 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 uh intern uh which was a crazy job to take the subway out to Treemont Avenue uh you know in time for early morning feeding and and uh you know mostly I cleaned cages is what I did but I clean cages all over the zoo so I worked at the camel barn and the Elephant house but I also worked in uh uh 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 monoral 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 uh as a friend of mine told me much later was actually a priest that I worked for said you know I was confusing loving animals with wanting to be a vet and they are very very different things and I definitely learned that was this driven by your father

saying go get a job or was this all self-driven well I I give my 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 the the the Assumption was you were going to work in the summer and and that was sort of the Assumption all the way through but to their credit uh they felt like you know if it

was an internship at the Bronx Zoo or whatever or working at Humane Society that was fine you know and they would pay you for that uh if the job didn't pay you everybody had summer jobs and and it would never have occurred not to I think I was a little bit more obsessed uh with the idea of you know I don't I don't want to make it sound like you know I came out of the womb an entrepreneur or something but but I loved the freedom of have being you know of having money and and

so you know I started a dog walking service when I was probably in third grade uh 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 I and it was a a way of getting a pet without having a pet uh and you know when the mayor passed the pooper scooper law I mean again going back to New York and 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 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 societ i' cleaned a lot of animals cages it was not something I was at all squeamish about uh but boy people would pay you anything to clean up after their dog and there were all sorts of strange inventions you know with uh you know

things that looked like uh 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 nobody had any idea and nobody had signed up for it so in fact there were some tragedies where people uh 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 70s just that's a sense of the cows are dogs coming out of the air there's dog everywhere I mean it was really uh and I think just as a you know 10-year-old kid or whatever the sense of chaos was just it was sort of overwhelming but the point is that if I had been happy to charge 50 cents a walk uh that law

came into place and I could charge $5 $10 people would pay me to come twice a day uh and you know all of a sudden you know I'm making you know hundred bucks a week uh it was just you know I I liked that feeling I liked that feeling of of uh of of having the independence of money and having so so it it it did sort of take off then did your father or mother give you an allowance growing up 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 uh 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 uh uh the country and commuted and uh and but you know we were there every other week and uh and so you know yes we we had an allowance it was sort of as I say regularly sort of un uh not uniformly enforced which I think probably reinforced idea of liking having my own funds uh uh 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 uh Savings Bank uh and you know the idea that all of a sudden I mean I remember going to 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 put in only1 or $15 and all of a sudden there was $52 in change uh it felt like the most money I had ever held uh and so yeah I think very early we you know I give my father especially enormous credit we

were a very financially numerate household he that was you know sort of a 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 uh uh for those sorts of things what were your dinner table conversations like growing up you know particularly with my father we 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 uh my father is very anti- television and and

not even in a a sort of fanatical way he's just not interested he just finds it an amazing waste of time and and uh it is one of the things that I really admire about him and um and but Wall Street week was an exception we I mean I felt like LS Riser must be a relative or something because he was in the dining room you know the little TV uh uh watching uh LS Riser speak it's funny when I was uh near the end of Lewis's life uh I went on the show and he

he made this comment that he had had all three generations my family on on his show and uh which my grandfather had been on independently of my dad and and then I had been on and so that was sort of a a nice thing and I think given the the idea of how important that show was growing up it there was some something nice about that but you know I think my uh I think there was a there was a lot of banter uh you know I was generally this sort of the the the table

provocator um but my dad's a great sort of Storyteller he his breadth of information like what he knows about and his ability to describe businesses as stories you know it's it's funny we I don't know if we'll get to this but but I I was just with um 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 uh story listening and I've always argued that like 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 just it's going to work for some that whose Minds really can see that but 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 uh uh uh you know than stem funding in high schools will it it's this idea that you know we're wired to sort of have Heroes and to admire them

you know the whole story Homer everything you know we it's it's it's how we learn we imitate we study we lionize people we vilify people and and we affect behavior that way and and uh I would wish that uh we told more stories about scientists about what it 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 it was such a disturbing implication but

going all the way back I would say my father had an amazing ability to 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 uh pick him up at the station and we'd come home and we'd have dinner he just always had stories about what's going on I mean I was just thinking of it the other day because it was the anniversary of Apple coming public it must have been the 40th I think uh but anyway I'd heard something about it and

I remember my father telling the story about these hippies in his office at fiduciary Trust Company you know in 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 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 raising money for some crazy computer company and 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 uh 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 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 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 you had 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 and that I was remembering the other day was uh about a man who as he described it one of his inventions he was a brilliant polymath businessman inventor and he invented the yellow tennis ball uh I remember him telling that and he was telling us

the 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 uh 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 domain knowledge uh or you know about the 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 uh being so different than anything that we had ever talked about it seems really interesting cuz like when you would have guest over or um 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 that is true I mean again because my parents were divorced I had the the the gift of being exposed to two very different households and both very admirable in some ways and very dysfunctional in some ways and and I would say that you know my mom was from an old Boston family and and uh her mother was a Australian and and there there 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 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 to an office where I didn't know what happened there uh 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 are listening to him at the

other end of conference calls when we were traveling as kids my 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 uh 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 and it's not that he was short-term trading he just wanted to make sure he never missed

a conference call or earnings release or you know he used to say you know you 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 one of my favorite anecdotes uh I'm going to fast for 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 you ask why bother when nobody's reading them and he had a really interesting response to that yeah which is is you write it for yourself and Shane it's so amazing that you say that on the on the walk-in uh you know I was I've been um uh uh a fabulous book on AI is called the coming wave um it's written by one of the co-founders of Deep Mind and and I was listening to it this morning and it was talking

about you know uh 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 uh because I was thinking about how strongly he said you know the writing is not about the product for the client it's about what you learn by writing for yourself um it is and so it didn't matter that we sent out this Ins Insurance letter I don't know we probably sent out couple two three hundred 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 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 uh what had been the performance of the indices which we would calculate by hand there was no um

and uh and you know were there new you know where their Dem neutralizations happening whatever uh but I was realizing in this you know coming wave of of AI you know the idea of being alienated from your work uh not realizing you know it's I was interviewing some interns uh potential interns uh and uh at our place and they were they were obsessed with this wanting to work remote you know this idea that hey uh you know I want work to to kind of be 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 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 was really powerful is everyone cheated they felt so degraded by the experience and and I 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 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 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 Cate it it is just you know it's it's it's been our superpower as a species you know stories as 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 um and so this idea that uh uh that somehow the fact that I can push a button

and AI could write my annual report uh or write a reference letter for somebody that I care about for something that they care about well I I'm I have no doubt that that can happen I just I I think that then I'm alienated from that product and the for me the process of you know creating that annual report which is probably read by six people Nationwide uh 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 uh but I also think we do it because we develop meaning out of out of that sort of thing and uh and this idea that well you know I have a you know 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 and uh so you know for me in instead of spending you know 4 minutes on the prompt and 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 uh or to his parents but I also feel like you know it I I don't think it will be more effective I mean I I think that or if it is it's only because I I still have a little lead

on AI but it ain't going to last for long uh and uh and so but 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 uh you know written at a time of sort of the mechanical Revolution so it was in the industrial revolution um and it was sort of a futurist and it was about the fact that it was based on the idea that there was a a ship that had been created that was so

big that it would uh the 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 and of course it did not work at all uh the ocean's much bigger than that but um but this guy wrote a short story sort of saying you know that this is the future this incredible Floating Palace of luxury and and the short story takes place on the deck of this boat when they see some

lunatic in a little sailboat uh and he's about to get run over because of course the great ship is on autop pilot 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 what a stupid here we are living this life of luxury and you know eating our caviar and and that lunatic is getting you know wet and the waves are washing over and he almost

died and 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 they were acknowledged by somebody who's really living and uh 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 going to look it up after we're done because I hadn't thought about it in so long and it does seem peculiarly relevant uh 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 a source of Happiness after all well something is definitely lost when you 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 you would take un unwarranted risks risks that you wouldn't be compensated for because you can't see them yeah it's you know

it's 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 going to pick it up he says no because if it was real it somebody would have already picked it up and this idea that sometimes by by taking that shortcut you you just become it well of course I'm an old newspaper lover and so I'm heartbroken at how few newspapers I can read and their traditional format and so I

have to get better at reading on a screen and I'm not very good at it that's and it's a real handicap um but what I loved about reading a newspaper is I wasn't always sure where my eye was going to go what I was going to 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 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 5 inch uh 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 uh 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 screens you know you know open up the old you know the old Wall Street Journal how Financial Times how big it was uh 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 time right uh but just how big a newspaper used to be versus what it is now 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 Co and today every crisis is different I mean that is for sure I feel like in this very vicarious way you know the the bare 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 uh the fund in 1968 so sort of at a high uh and basically the market was back to where it was in ' 66 in 1981 and so 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 you know things were upended you also had the hostage crisis you had you know this crazy inflation you had the the 734 bare Market where it was just Calamity you know and uh uh my I just I view that as this sort of epically Transcendent sort of test of of of you know a sort of it 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 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 plate or an even number plate 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 the Soviets invade Afghanistan and you know it just it felt like uh uh it was a time where everything was sort of hanging in the balance and as I say it was probably through this childhood lens and then you know you really fast forward to the late 80s 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 uh well you probably have to go back to the

30s uh you know all these look through Office Buildings and the collapse of these big fin fincial institutions Bank in New England and things like that um and uh but nothing about that felt scarring to me I I all it all felt like opportunity uh but of course it was where I was in my career I I nothing to lose I had nothing to lose I could come in and it reminds me of you know the fact that you know I described that 734 chaos and because I remember my father and just the dis my

father was 30% cash in 1975 and uh uh and so the fund dramatically lagged in one of the best Market years of of the Decades uh 75 and Market went up 30% or something like that and uh you know the fund probably went up 20 because it was a third in cash as he said he was just beaten down he' just been wrong day after day after day my grandfather had been living overseas he was Ambassador from 68 to 75 in Switz land and he comes home and he's like this looks great now his net

worth was down 80% uh mean a huge loss uh 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 75 um and so you know obviously sort of the degree to which you're scarred in the trenches during the process so you know I missed that and late ' 80s so that became very for and similarly when you got to the late 90s it you know all of that excess of lagging this

crazy roaring bull market uh 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 9% if I remember right maybe N9 n 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 that were up 20 or 25 with the market down 10

it was such a so that also didn't feel scary now you throw 911 on top of that and then all of a sudden that's very visceral right you know we had had office in the Trade Center and that that was you know that was had this sort of disorienting fear um 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 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 has got wretched so you know if you think of the six Horsemen of the Apocalypse uh in uh the financial crisis you

know bear Leeman Fanny Freddy uh WAMU Countrywide uh 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 and so I felt very well positioned going into that I felt like oh there's excess is and we're not anywhere near them and then the 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 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 IL liquid 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 an insurance company so the old saying I sort of grew up with which shows you a very strange upbringing was you know Banks go IL liquid before they go insolvent and insurance companies go insolvent before they go IL liquid and yet here was AIG going IL liquid 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% deluded in a single day and uh and of course you couldn't couldn't recover uh and by the way when it was all fully said and done it was probably more like 95% and um so I would say what happened in the financial crisis was so disorienting to me I 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 till they get punched in the face it all of a

sudden I was punched in the face and it was and um so we we muddled our way through but it was uh I don't uh I give myself low marks for just the way uh psychologically I was so disoriented in that 20089 period we 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 yeah

and uh so we drisk 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 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 uh but that was a uh uh but that you know we're only just now beginning to sort of claw away 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 it was one that sort of it was like 911 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 trans 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 uh in that way that we had been in in the financial crisis or something like that and uh and so that was one where I felt we stayed very steady and and I think of 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 drisking 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 three distrct rabbit holes I want to go down

there the first one is that you use the word position positioning multiple times talk to me about the difference between positioning and predicting and why you chose that term I think it's important one of the great gifts of age has been 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 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 uh 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 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 uh people have been willing to you know look at chicken guts and and uh look at you know M2 Supply or look at you know they'll just come up with some thing that will retrospectively have been predictive 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 versus optimization versus it's not an optimizing sort of approach there will always be people that are doing better 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 if you're not maximizing current returns but you're maximizing longevity but in the long run you actually outperform them well the the the the absolutely optimal outcome will be achieved based on luck right in other words it's it's you know somebody will buy that lottery ticket and uh and we'll get a nearly infinite return you know a bill ion 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 uh 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 Gainer and I talk a lot about is it's just staying in in the game and you know it's funny watching the you know the collapse of SPF 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 uh but of course it's an insane Theory uh because you're certain to end up at zero it's just a matter of when and so it 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 um because it does make us realize one of the really deep dark dirty secrets of money management is that you know a if 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 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 I think uh it's 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 the 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 uh 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 and so the Zero versus the -2 that you know we'll take the 10 and and we'll run the portfolio for that and as I said in in the financial crisis that meant that we deris 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 I I give I give us some I give us some scope around that you know I think in Co it was I think it's one of the reasons you know some of the people that well I I think we we had a great advantage in that of for example not having an insurance operation uh 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 liabilities side uh and so that also terrified them at a time when the assets were going down um 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 say stay very steady too and and to to look at this you know horrible terrifying thing but to be able to look at it with some dispassion around the

economic implications you sit on the board of Berkshire hathway 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 how do you think about that in terms of positioning and in terms of the risk management uh from the company well you know it there was a beautiful uh last uh interview with Charlie uh that Becky quick did

and I I give her enormous credit uh now of course she was recording that for his 100th birthday in January uh it's amazing that it was like two weeks before he died and it was I I it gave me so much pleasure to watch that I mean because he was just so lucid and engaged um I if I'm remembering right in that interview but if not in that one over the years it's something that he goes to over and over is this idea as Burkshire has run with the idea that some that that from the

very beginning that uh the people that were invested in birkshire had 100% of their net worth in birkshire 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 birkshire really really being built to last that is profoundly true and and I think that um 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 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 uh uh 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 Burkshire can withstand just about anything just about anything

and and I think you know publicly they talk about that but to see in the inside what that really means how much they and so you know it is it is a it is really been built with the idea that this is somebody's only asset and it needs to be built to last and 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 you know that's not who Warren is and that's not what

he wanted and the amazing gift and I you know who I would put in this category is um uh Seth uh uh claran bow poost you know what's so amazing is that the investors in B I haven't looked in number of years but if you were to look over the the long term you know the the cash if I remember rightly at Bow poost is sort of average between you know 15 and 40% for sort of the whole time uh I don't think there's ever been a time when it's gone maybe below 15 I I

could be wrong but I'm pretty uh uh so even in times of chaos and if you're an efficient market capm you know efficient Frontier rather efficient Frontier Quant you'd say well that was an enormously costly 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 um and yet the investors in bpost have paid nothing for that insurance policy yes there's a 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 uh I feel in many ways that sort BG sure has been like that it's it's been run in this incredibly conservative way but but you haven't paid any price for that as an investor except some weird theoretical suboptimal outcome but the the the fact is that you 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 and I I 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 when I speak to a client I think you know for them the risk for them is is ultimately it's ultimately becoming beholden on somebody right 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 uh uh 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 being forced to change your lifestyle uh 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 I'm going to Define risk in terms of the investing public 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 and 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 is about you know a lifestyle change it's one of the things we often when we we

spend so much time with financial ADV advisors and financial advisers that are thinking about how to manage client behavior and I always say you know the number one is if you can get them to spend less that that that has just a huge benefit right because it's not that they spend less which means that they have more to save uh you know more to invest for next year or the year after that that's true but what really matters is that you're annuitizing a lower rate of spending right you're sort of creating expectations and um but

I do think at a deeper level I mean the the risk the Financial Risk that people fear the most is this idea that somehow they lose their financial Independence and uh and that that there is real dignity uh in in that there's dignity in financial Independence and there's a loss of dignity in becoming beholden and becoming dependent so I often think of risk or around those things and of course at an individual investment level you know risk is about the the the permanent loss of of of capital in that investment and really over a course

of a portfolio because you can be taking a risk of a 100% loss in an investment and it can be a very rational risk to take you just you better size it right we mentioned earlier free money H how do you think about where we are today we've just gone through probably the lowest interest rate period human history in human history and we've printed more money yeah we how do you think about this the scale of what we've gone through is really unprecedented it and and I hate that word because everything is unprecedented that 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 it 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 a b borrow a couple of goats for a while right you you then you had to return to them the Lost productivity that 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 interest rates is really about you taking the prod productive asset from using 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 it would so the idea that we actually created that

environment and that we created this environment by driving down rates and then at Sim simultaneously printing so much that normally would have 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 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 uh some of the euphoria that people feel today that's nuts I mean this to me about that because it looks

you know from the outside in 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 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 in other words I don't see the solution now I'm going to put AI on a side burner because of course what has historically happened is that in some ways

technology has has often created a bailout it we will need something like that I mean certainly inflation will have to the only way we can repay uh uh uh the de that we have incurred is going to be by you know devaluing the currency so we can pay back and you could do that gradually over a long period of time with 3 four% inflation and let that roll through and that chips away at it 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 um so I think we're still in this idea that well you know there's a fabulous uh uh investor um who came out of tro price uh um who uh 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 now owners of Office Buildings are find that there is no access and so you're you're seeing

things beginning to change there we saw some of the chaos at you know 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 uh but very very narrow I think everything else is sort of rolling through as things repic so um you know private credit priv private Equity you know Venture Capital um there's a lot of stuff that is going to take some time to play out 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 three or 4 per. right 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 uh uh constructive Trends in the history of humanity I mean it just it it wins at every level it's not perfect uh but it is it is so important in and that we could be will well one of the risks of that is if you know if if

China ends up with fewer dollars uh then we have fewer buyers uh 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 it's my grandfather said you always sound smarter if you're bearish you know I just listened to uh uh you know one of the great investors of the last 50 years Stan drucken Miller and and you know I I made a note of his comments because what came to mind uh to my mind at the end was Woody Allen's talked 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 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 m i could own some bits and bites

in the form of Bitcoin I I sure as hell don't want to own any sort of fixed income instrument um and so it you real estate is scares me I mean I listen to the head of one of the largest real estate companies last week talk about uh you know they were seeing some unbelievable opportunities to buy uh uh buildings with you know 8% 9% cap rates well what's so good about that yeah I mean yeah the risk adjusted return on that is pretty small I can 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 singled digigit cap rate you know compensates them for the risk that they're taking and and uh you know as I said you buy that at a cap rate I'm not sure you could financ it at that but who knows I'm not I'm no expert in real estate so I I take real estate off the table 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 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 well 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 uh uh adjust them for leverage like Benchmark them to the S&P with the same amount of Leverage you know with all of that said well it seems to me in that world owning birkshire 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 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 stand creates a picture where I can't find any way out of it but having said that what am I going to do well I'm gonna I'm G to own businesses that are resilient that can adapt that have pricing power uh don't

have too much debt 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 2 or 3% for a couple years and then they're eight you you know four or five years from now I just don't know how to handicap that 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 going to 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 not an option there is no Safe Harbor do you think there's a timeline mismatch between policy and citizens and also investors and CEOs and companies yeah you know I think Brian Roberts is now in the top five CEOs in the in the S&P for tenure and you know in thinking about that I think that the median tenure something like three and a half or four years whenever you get a a cycle that are uh

in Conflict 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 right China has done some things magnificently well including lifting almost a billion people out of near starvation poverty in in a generation um but one of their great strengths has been this enormous long long-term focus and of course that's been part of what's created businesses like Berkshire and Mar 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 um 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 uh I remember Freddy Heineken uh saying to me very early in my career making a comment 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 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 about if you scale the numbers down a lot and you take aund you know 160 billion if 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 well that's true I I'm not a total believe I mean people have used that rationale to create and things like that and controlling stock and um 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 um so I I have mixed feelings about uh controlling stock but on the other hand I do not have mixed feelings uh about

uh the idea of how long-term investors get screwed by short-termism creeping in and if I'll give you a good example um 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 MH by and large as investors we don't love that sort of poison pill we think it it uh um 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 uh maybe 20 years ago uh Costco closed at 41 had come down from 45 it was a momentum growth stock darling they reported a bad quarter that stock opened at 27 uh and we amazingly bought 17 million shares that day

it was one of the great trades of my whole career and uh 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 uh selling it o overtime and one that Charlie was always willing to point out uh um but you know when we bought it we had high conviction that it was worth over 40 uh and so but it would have been easy if theoretically for uh 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 a Nega obligation not to produ you know have you're going to have negative surprises so what means is you're creating an incentive system of hiding those or smoothing them out and so I I do not have

an answer on whether control stock is good or not obviously before uh uh uh the creation of the B shares there was no super voting stock at Berkshire or anything like that you could argue there there still isn't the a shares have more vote but anybody can own them and um but it is a uh uh 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 uh so but I do

tend to like when control is simply because you own more shares rather than you somehow have have a separation of your economic interest from your controlling interest but I'm not I'm not certain on 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 SEC 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 I'm not sure I really welcomed it for companies like Google and meta I 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 uh 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 been

and the answer was no so why do you think that somehow your Equity is more valuable uh 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 let us be your backer because we'll ensure you're always in control and uh I it drove me crazy but that's okay they made a lot of money so hats off to them you mentioned Munger a few times how did you guys meet oh God it

it's such a great story my grandfather built this Fortune I mean it was amazing he started borrowed $100,000 when he died it was 800 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 100% of that money 100% was was marked for charity they that was uh his belief he told us all from the beginning my father's done the same thing um unfortunately and um you know and so they've really sort of followed What i' would call the Carnegie Buffett School

versus the the Munger school where I think Charlie said on that same podcast that half of his net worth had already been transferred to his kids and he has fabulous kids my I was working for my grandfather and it was clear that the capital of his firm was all going to go to to charity and so the it couldn't function as an operating business anymore and he had this business that was called a was a stock loan business I don't know how familiar you are with Securities lending or in in its simplest form it would

be if you were a short seller and want to sell shares uh shares short in you know company XYZ the person who buys compy XYZ from you is not interested in the idea that you're short you need to deliver them some shares so what you do is you go find an owner of XYZ and you say hey can I borrow your shares uh 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 uh 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 uh tied to the relative credit of the borrower versus the lender and you make a tiny little crumbs of spread so my grandfather's firm had this portfolio of appreciated stocks a best example of all is Burkshire and uh and Burkshire for many many years uh had a chair it program where if you owned a share of Berkshire each year you were given a dollar amount per

share that you could assigned to any charity of your choice and uh companies have this tax incentive and usually the CEO decides and gives it to whatever his or her favorite charity is but at Burkshire 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 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 Burkshire well there was a big thing in the 80s particularly that this argument oh birkshire is just a closed end fund selling at a premium so there was a obvious trade that all these really smart people would talk about which was basically short Berkshire buy some coke some cap cities some Freddy Mack you 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 test short sellers over the years you know just they just didn't want to look at the facts and so my grandfather loved this cuz he could make an extra one or two% a year by lending out birkshire 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 a guy who ran that operation 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 this 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 uh it was sort of out of

control and so my grandfather who was 80 s said Jesus Chris I you know I I don't know what to do I said you got to get out of this business I don't 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 longterm capital I mean I don't a miracle H so I'm like we I'm gonna get us out of this thing so I decided I'm going to 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 we the charity couldn't operate that business so I was thinking if 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 birsh sure now I'm like 26 years old and uh and a guy named Bob lensar who had uh uh uh was somebody I knew in New York who was a friend of Sandy [Music] goddessmanila he

put me in touch with Charlie and Charlie said well I'm going to 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 o00 at the Millennium Hotel downtown in New York and I I pitch this stock loan business like I I throw it right out there you know I just I have no idea and Charlie stops me after like four minutes and he goes I have no desire to own own a business run by seven guys named Vinnie and of course

it was the perfect we literally had seven guys named Vinnie I mean it might have been Vinnie 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 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 4 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 you want to I'll make time to see you anytime you you come to Los Angeles and I enjoyed our conversation and so I just started jinning up an excuse to go there all the time and uh would call on him and and I just I I I can't I can't even put into to words how much I just admired his incredible depth and breadth and and um you know it's funny the the VIN diagram of what I admired about Charlie and what I admire about my father don't have a

huge amount of overlap uh they're very very different but there's something in in my admiration of Charlie that has this real real depth and uh that that was that was how I met so I met Charlie long quite a bit before I met Warren and but just the sheer breadth of his knowledge and his his 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 talk to me about some of your favorite stories or lessons you learned from

him well it it would 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 uh uh you know in my personal life I went through an un 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 uh it it's you know they they it it tends to be uh about a fantasy and it tends to

reflect sort of a lack of you know realism uh and all of the things he said about marriage over the years are so interesting about you know trying to you know be deserving of the partner that you would like to find and so on um 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 he

was it was coming from the it was like the hardest teacher you've ever had you know the hardest teacher youve ever had as a tough critic um but you feel they're rooting for you like that's part of what makes them your favorite you know um I felt like that with Charlie but at one point Charlie said well you know it's it's it's very hard to be blamed for someone else's unhappiness and uh that just those words and in this moment that was for me you know quite a uh a t a low point in in

my life in a time when it felt quite traumatic just the grace of that phrasee you know that it's very difficult to be blamed for someone else's unhappiness and and you know there there can come a time when it it that'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 it it can get to a point where that that's that's just too much that

that was something that I I wouldn't know how to describe that in any other format wasn't an investment lesson per se but it was it was one that was very very helpful to me um you know I the story now is out uh it was something that he had said to me when I was asking him about his happiness and and uh and how he owed his his debt of happiness and he said he he owed it to his wife's first husband but I I'll give you one though that was also amazing which was around

Costco um you know we were talking we talked so much about Costco over the years and and um and uh and we 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 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 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 uh Charlie's Insight

I mean there's there's a long answer to that but the the one of the shortest answer answers is he said think about who you're keeping out think think about that the the cohort that that won't give you their license and their ID and get their picture taken uh or they they aren't organized enough to do it or they don't can't do the math to realize how they're he said that cohort will have 100% of your shoplifters mhm 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 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 ensure government employees and we'll just we don't need to know anything else just you're 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 do you keep out who do you keep out of your company who do you keep and you know as a in running our own firm we you know there's so many lessons of Charlie that are were 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 uh 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 you know we were in a wonderful

position of that because we never let him 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 going to have to keep a lot of clients out and your your life will go better if you keep mind 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 going to 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 won't will be your worst customers well that's a tough that was part of Charlie giving up the law you know and 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 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 uh doing my degree in theology that that uh you know CS Lewis was somebody I admired a lot and and uh Lewis was very old-fashioned in this in certain ways 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 uh and that's you know I I

thought that was really sort of reactionary I mean you know can pray anywhere you just sort of you know talk to to the greater being whatever it is you know uh and his 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 uh it that that gesture changes your mindset it's why I still I'm gonna be the last guy in New York wearing a tie uh 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 and sandals with his long hair and and won't even get a haircut and 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 I'm ready for work now it's 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 I'm also a believer in that was it your father or your grandfather who used to like run down this street too my grandfather because he was like what if somebody saw me I know and 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 uh borrowing money and he says you know and you borrow money uh they're 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 to paying them interest a day early uh but another thing he he said is he would load up these you know big printing blocks and typed things and he'd have a wheelbarrow and he 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 said say 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 and 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 Ecentric 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 was my grandfather would hold his jacket and Shuffle and and whereas my father is he there ways that he doesn't care what anybody else thinks and he is much more uh just dispositionally much much lower profile than his father we talked a little bit about avoiding customers which is like a form of inversion yeah what do I want to avoid one thing I've heard you talk about in the past is avoiding your weaknesses and you tell the story of Tiger Woods I'm wondering if you can tell us that story

and also Al relate that to your life and how you learned this lesson the story which I believe is true was about Tiger Wood's first British Open and 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 uh apparently uh the weakest part of Tiger's game was his sand game coming out of bunkers uh and so as the Press was following him around uh they kept badgering him about what is he doing to improve his sand game because that could

really be the Lynch pin in the British Open and and uh uh he had 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 and uh 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 uh 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 it

this very deep truth and you said it certainly was a Charlie truth about inversion and um 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 a letter that Warren wrote in 1965 I think uh that or 66 uh that lists the reason that he believes most uh money managers institutional managers tend to underperform and uh 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 uh number two was the desire to conform your portfolio and policies to what other large we well regarded firms are doing three was the asymmetry of risk and reward obviously better to fail conventionally than succeed unconventionally um 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 uh you know how to be learning machines how to and every once in a while there's a theme that will run through each one and 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 um 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 uh 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 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 FR tell very hard to keep me on topic um and that's one of the reasons I love this business everything's interesting everything's relevant no matter what article I read it has some tentacles back that have investment implications and and um and so uh uh you know for me the question was well how do I structure my life in a way that uh 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 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 uh 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 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 uh it's just I want to be with them you know and and so uh physically putting myself in a different location matter it didn't matter to my dad at all he could tune out everything work anywhere but for me being um that that's sort of an easy concrete example I you know I mentioned that I 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 and when I was at University uh this is going to sound very reactionary and oldfashioned but I was at a university where uh even as undergraduates you you were you could wear a gown you know a robe an academic robe and uh you required to wear to certain things to Chapel or to a debate or to big university functions but you could also choose to wear it uh and you know it's quite warm and it was the east coast of Scotland so you know you didn't mind wearing your red

Roe 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 um but to me you know wearing a tie is a little bit like that it just so uh uh Granny's rule work before play that's probably the strongest uh you know I joke that you know that is uh you know in our family six kids that people will say that over and over and over work before play that was my my

dad's favorite expression work before play well it Su 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 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 uh

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 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 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 uh 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 uh uh but but I've watched addiction destroy people's lives and uh people that I

love and and uh so that's an area where you know I I keep a journal of every alcoholic drink I have a week uh because I love alcohol you 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 52 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 uh I'm a Believer it can absolutely take you by surprise and uh so you know for me just keeping track of the drinks I have over the 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 um but I do you know I do weigh myself probably once or twice a week uh so that if if I end up you know a couple of pounds above where I was I'd just try to deal with that right away and uh where it 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 that's

interesting how long ago did you start the drinking thing oh a long time ago okay 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 um 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 was somewhere

in the late 30s or so where you know it it stopped being so funny and you realize they couldn't stop and uh that's when I was like wo this can I don't want to be in that position this can get away and uh you know it's a uh uh so 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 turn especially during Co right where it was so easy to 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 uh than it was I try that's a good example of something where you can do the opposite which is smaller portions you know smaller glasses uh 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 uh was in these very much much smaller glasses um even recently feel I've been trying to craft I I've not succeeded in no alcohol cocktail that's any good I I would say there is good no alcohol beer uh the Athletic Club I mean that by the way that's a company that probably's got a probably worth over a billion dollars today or2 billion dollars a couple guys in

Connecticut just how do we make really great non-alcoholic beer where it's not an afterthought where it's it's our mission yeah that stuff's amazing I mean what a great gift so but uh but I 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 uh where we landed was we developed a very good low alcohol uh where it was basically making a Manhattan using fake bourbon but real Amaro or real vermouth okay and then chili bitters uh and the 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 % of the alcohol of Manhattan but probably 80% of the satisfaction but you know you think about I love what uh Hemingway said you know it's it's not finishing the bottle that gets you in trouble it's opening another one and uh there's a lot to that too I agree with that most of my I'm always like if I wake up and

I'm like a little groggy not hung over but you know you just mental fog it's like man that second bottle of that should have kept that one close 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 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 yeah yeah and by the way there there's one other thing which I never ever got to ask him about but he never seems to go to the bathroom like you''ll be sitting with him that 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 going to get out like as long as he wants to sit at this breakfast table I'm staying here but it almost killed me and it and so just over all the years it's sort of amazing I don't know what his trick was on that 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 was 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 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 they're 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 you know I 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 together we actually uh uh 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 talked to almost all my kids almost every day uh 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 uh and there's some truth to that uh and um but I just loved raising kids and I've actually got three grandchildren now uh and uh and

it just you know covid I had all of my children came and lived with me and uh uh and my grandchildren and my mother uh and it was a glorious time I mean I just so I've always loved loved kids I've Loved little kids I I uh um so you know I would say that um 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 um I think you know the 70s everybody was an

outsider so there was probably some of that but um 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 3 months without a job uh uh uh you know how long you can live at home 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 and he took

a different approach right he he gave a lot of money to his kids he gave money to his kids but they you know they're just they're good citizens you know unbalance that's swing a cat through the Munger Clan and you're hitting above average people um in their value system in their um 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 what doesn't work 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 uh uh Aspen uh like you're creating you're creating kids that either you're going to 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 and I think you surround them with a lot of I I think unhappiness I will I you know I had both

sides of my family I was very lucky that we never I to this day I like to brag that I've never been east of Bayshore 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 Bayshore 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 uh 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 a a a strip clubs because if if I don't like it it's a waste of time and if I do it's going to be very expensive and uh you know why do you want to 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 they can't do it for their kids and they can't do it for 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 I live a fabulous life but I I just think I don't think we raised our kids in an 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 199 3 or 1994 and it is not a fancy place but it's sort of a farmhouse about an hour and 15

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 was Winnebago but it is kind of like a Winnebago I mean it's it's 50 ft and you sort of drive it to campsites and you pump out the toilet we sleep all in two little rooms and and uh but so I feel lucky that way I 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 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 um 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 uh you

know the the way we pay for that trip is it used to be that you know whoever you know what friend you is a teacher you know that he would dictate the the amount of the trip but you know as as I said how many times do we need to canoe down the honic can we do something more and so we all decided we would contribute one week's pay uh so it was uh 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 uh 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 uh one is a partner at work of you know we've been partners for 30 years he runs all of our client side um 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 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 h how do you avoid that lifestyle Creep from sort of like setting in well it's going to be whatever I mean of 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

um you know obviously I mean and you know him I mean one of the great gifts to humanity has been Morgan household and uh uh 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 lyro with all your private Equity buddies I mean can you tell I got a chip on my shoulder about that stuff um but uh you know and all

your business school buddies so I just think you know I've had a I I'll give a good example uh we grew up loving skiing and uh and my dad is a fabulous skier and so of my grandparents were good skiers um but they were so worried about spoiling us so that I grew up skiing in Upstate New York in a town called uh well by the snow M the mountain was called Snow Ridge it's in Booneville New York or near Booneville New York which is you know it's just a farm Hill uh but you know

as we were doing better my dad wanted us to ski in nicer places and so on and uh and we went to all different places but we always stayed in pretty modest way we he would you know make 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 um but we ended up in t New Mexico uh now there were some other reasons we ended up out there we had an office in Santa Fe for various reasons and and uh and

T New Mexico is a very old school kind of place it's steep it's technical but it is the opposite of Aspen and so you know for me it was this sort of idea well I could just keep going to to 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 to and you know and so it feels like a family spot whereas if we ended up with

an 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 and Aspen so they're going to instead end up going to a place like tal and feeling like failures whereas my kids feel like talson is the greatest place on Earth well they've never been to asid to try 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 can be a very

competitive person and um and so a big part of checking that weakness in me uh is not to get in that pool right 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 got to do this and you know and I got to 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 just think it probably better not to not to get started 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 want to I want to sort of like I want them to be able to be flexible no matter where we're standing and I remember like lying there trying to sleep and it's like 33° I was like the only problem with this it's like I have to suffer with them 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 uh uh airline travel because you know my grandfather famously wrote his will in the

beginning words of it say I'm writing this myself on you know tww flight 323 economy class underlined uh so you know first class was always an absolute no no it was like ordering filet Min on a menu like 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 res but you know it got to where traveling coach you know is be today is a lot worse than traveling coach 30 years ago and 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 uh it is amazing how into that they were uh they they even started with this view of what if we find a cheaper flight I was like no no no no no um but I don't I think it is okay

and again you know going with the the the like travel is a huge gift and slumming it isn't necessary 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 uh 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 the whereas the lowest end place was one where the kids ended up playing soccer with the people 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 yeah we we got upgraded once uh just cuz 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 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 FL this way before 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 and I don't think he'd mind my telling it um you know Barry grew up in relative privilege uh he would say um you know and uh he had a friend that was from one of the wealthiest oil family amilies in LA and the parents made him sleep in like the servants wing of their mansion and he just talked about how deranged it all seemed like it it was signaling to the kids that you don't love them uh or that they're not trustworthy or there so I've I've seen just as much damage done by

wealthy families trying to build character uh as I as I've seen the 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 to get out there and dig for two weekends until their hands were sort of bloody 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 uh to Switzerland and you know in Shad 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 seel because it was right at the base of a lift and he said this is a skier Hotel well it's not he was not suffering being slopeside 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 servants Wing versus hey kids we got upgraded we got upgraded because I worked my ass off and isn't this amazing you know and letting them Savor and laugh and enjoy that you know it's that's that well they

they weren't so happy on the way back but you know there's a lot of opportunities to have that conversation but 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 yes 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 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 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 I that's why I think the formulas I think the you know the the falseness is what kids Sniff and and uh when are you happiest well I you know i' I've uh i' 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 I have a my my closest friend who's also my partner at work and as I say we were raised together since infants and he's a hugely important person in my life and and uh he has a terrible time sleeping and uh it's like I've learned that my talking about how I can fall asleep like like if you told me

like 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 jat lag I can like you get anywhere you say it's time for bed it's like I'm ready for bed and um and yet I have even though I can't I can't physically I haven't experienced uh 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

that I just dispositionally um 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's 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 um and so I've I've learned enough to just simply not take

it for granted but just feel deeply grateful that I tend to wake up reasonably content you know there's a uh this is this is a little bit strange thing to say but but uh 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 uh 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 uh for your life and I feel like that is a message of Christianity historically that I really admired especially uh in protestantism you know this idea of taking uh uh being accountable for your choices and for your life and uh um anyway all all all to say that um you know this uh I do think that it is very of in the case that people do not have control over their happiness um but having said that what I was going to tell you is there's a there's a Psalm uh that begins uh

behold uh uh the day the the Lord has made rejoice and be glad in it well that's not a terrible way to start each day it's just to say that you know just this is the day the Lord has made rejoice and be glad in it and uh I feel like I get i' 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 they could say there's been an accident uh and uh and everything will change and uh

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 uh I had a very strange upbringing in some ways but uh 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 named Ellen Wigglesworth and Ellen Wigglesworth was born in 1898

and uh 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 uh she died at about 86 so she died in you know I was out of high school I was priority in college when she died and um 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

idea of the guy blowing the whistle and going up and over the top uh and in the mud and the rain and the machine guns and and uh 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 that's what suffering is an opportunity to behave well and I always feel like I hear you Charlie but please don't test me like I just I just don't want to be tested and and uh 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 uh but so I I feel like dispositionally happy so

much of the time like if you to ask me that you know what are those moments in a year it's like there's so many uh 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 we have you know a small team they're eight of us on the research side but they're in every decade have one colleague in the 60s couple of us in our 50s some in their 40s

some in their 30s and some in their 20s 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 14 years uh but there are people that I've worked with for 30 and 25 and 20 and the newest one is probably uh been less than a year and so it's a very gradual turnover process uh 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 it's a in fact we had one guy that uh it's 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 and I was like you'd be so good in the corporate finance function of a of a company because you know you're 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 up very early at Facebook and has done great you know he's like I wish you had fired me sooner so everybody in the company's like fire me next you know and uh um but so

it's you know there was a an expression in sailing that a uh uh a 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 it it's exciting and you're watching things come together so you know that whole column of life feels great and then 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 fidu 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 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 grams are going to be soell 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 and then you know I've got a family I've got two living parents that are amazing uh uh uh 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

say the most dangerous thing in the world with a 12-year-old is to try to be his friend yeah uh but you know the worst thing with a 40-year-old is to try to be their parent yeah you know you you 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 and but that they're a peer at that point you know 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 well the 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 um uh 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 um but the first board I ever came and I do think that's the way a lot of 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 a I think it's a terrible mistake to discourage money managers uh especially long-term investors uh from getting involved in the governance of the companies that they they manage 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 um 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 so you know there's Warren was on that board and Ron Olen I mean to Barry Diller at the time Melinda Gates yeah I mean and and uh

and of course the Graham family I mean how it just and so they had a tradition where the night before the board meeting there was 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 and then what happens at the board meeting becomes

much more it's perun 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 uh are the records being presented honorably transparently um and then to weigh in on the big strategic decisions um then the rest is whatever hygiene needs to happen so that tone got set there at at

Graham and of course I would expect that that was always the case at a place like Berkshire where there's so much cander certainly that's been my experience um 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 compliment um and uh 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 uh board they've gone into this you know having a small dinner of directors only uh the night before and it's just amazing how important that is and the degree to which you get trust and accountability and cander and Jamie Diamond famously said the bigger the group the better the news so you know that is oh that's interesting I've never heard that before yeah isn't that a

good expression and uh so smaller functioning boards you know people being you know you look at what happened at places like hulet 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 a great board can't make a great company but a bad board can ruin a great company and uh you know I would certainly argue that both hulet Packard and kooch the boards had a lot of accountability for decades of of of of bad decisions and it was bad decisions on what

is the Board responsibility which is who's in charge talk to me about the third generation of a family business usually the expression is like shirt sleeves Shir s in 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 you've all created your own success in a way well I don't think there was any sense of a family business um you know when I joined a the mutual fund company was called uh Venture advisors um my father had a partner he had had a

firm called Davis Palmer and bigs but that's he sold it in the' 70s uh really pretty near the bottom uh that was another opportunity for me to learn you know differently like we're 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 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 I look at you know my dad has six kids and you know two are one

one's a medical doctor one's a a psychiatric PR practitioner um you know there by and large they're good parents like good it's but they all live differently do different things um 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 and and the way that you all made money was really different like your grandfather was 50% margin ofer my dad had a lot of margin too and how do you think about that well it's

terrible I have to say do you have a lot of M 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 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 you could argue I was on margin uh and as my father said nothing focuses the mind like a little Dad huh I was like oh you know and that was in you know uh well we're all on Marg on mortgage is margin that's true that's true although believe

it or not I didn't even have a a mortgage uh because I always I always wanted this idea of just having a a very stable 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 uh you know my father would say that it's I should be 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

uh uh been willing by the way not just to be on margin but not to have my money in the funds uh because it being in the funds meant that I was running the portfol my portfolio has 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 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 uh and held it then I simply never would have sold simply because something was getting too big right 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 the you know Burkshire would be 20% you know it would be pretty much everything in there you know those four or five positions um but in 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 gain 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 a client where that's all 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 I 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 have you know as I say my father is giving away a a scale of Fortune every year that's just mind-blowing and 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 Pro you

know in all likelihood but that's okay i' I've 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 a great segue into the question we always end with which is what is success for you well I mean it 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 I'll give you an image that that was true image I

you know talked about this recently but this this idea of you know I came up to this uh house after being out for a dinner and and all my kids were there and and I you know it was glowing on the inside it was like Courier and evees you know it was so beautiful and and I saw all 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 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 uh 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 uh 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 uh you know the founder and CEO of a what is a can only be called a sex toy

company you know and I I just but she is just just she is just a crazy exuberant kid living in a totally different world than one that I can grasp but you know um 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 advisers got a little better at their jobs because of how we did things and you know it's just it's there was a I'll end really quickly by saying there there was a a man who ran one of the big accounting firms I can't remember which one and he 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 Andy maybe but uh and he wrote a book called chasing daylight

in his last year he only lived live for a year it was a bad brain cancer and he wrote this book about shutting down his life and uh 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 uh 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 uh work on these you know relationships that I left hanging

in different ways and I want to make peace peace with these things and I 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 in in the circles and that chasing daylight idea that's a beautiful way to end this Chris thank you so much for your time are you Kidd I was so glad to be here this was just a complete [Music] pleasure thanks for listening and learning with us for a complete list of episodes show notes transcripts and more go to f s. Blog podcast or just Google the knowledge project the phontum 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. blogle until next time [Music] you