In their latest episode of the VALUE: After Hours Podcast, Tobias Carlisle, Jake Taylor, and Robert G Hagstrom discuss:
- Buffett’s Purposeful Detachment from the Stock Market
- How to Apply Buffett’s Snickers Bar Analogy to Investing
- How Isaac Asimov’s Theories on Creativity Can Inspire Modern Innovation
- Navigating Public Markets with a Private Equity Mindset
- Warren And Charlie Didn’t Invent Anything New
- Outperforming the Market With Business-Driven Investing
- Why Value Investing Remains Relevant in Different Economic Phases
- How to Identify and Hold Quality Companies
- Innovation in the Shadows: Finding Brilliance Beyond the Spotlight
- Bill Miller’s Billion-Dollar Bet on Bitcoin: A Strategic Analysis
- Robert Hagstrom: From Villanova Grad to Buffett Disciple on Wall Street
- From NVIDIA to Amazon: Winning Big with Selective Investing Strategies
- Why William Ruane Urged Me to Fire Problematic Clients
- How Non-Followers Drive Innovation in Ant Colonies and Beyond
- The Warren Buffett Way: Business Ownership vs. Stock Trading
- Is Your Book Idea Strong Enough? Key Questions to Consider Before Writing
You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:
Breaker
Overcast
RadioPublic
Stitcher
Transcript
Tobias: This meeting is being livestreamed, which means this is Value: After Hours. I’m Tobias Carlisle, joined, as always by, my co-host, Jake Taylor. Our very special guest today is Robert G. Hagstrom. If you don’t know the name Robert G. Hagstrom, you’re probably not listening to this podcast. So, it doesn’t matter. It’s probably one of the first books that I ever bought on investing. The Warren Buffett Way, iconic book. Robert says it’s just about to be made into a Wiley Investment Classic, which seems appropriate.
Robert’s had a glittering career. I’m just going to read a little bit of his bio here. He’s Chief Investment Officer at EquityCompass, senior portfolio manager of the Global Leaders Portfolio, which is coming up on its 10-year anniversary, which we always say, endurance and durability is the true measure of performance success here.
He used to be Chief Investment Strategist at Legg Mason with Bill Miller, but he ran the growth equity strategy there for 14 years alongside Bill. So, lots of great stories from Robert today. But he’s also written seven– Seven investment books, nine investment books, what do you up to, Robert?
Robert: I think we ought to keep it at seven, because when you get-
Tobias: Seven.
Robert: -in the second editions and people say you’re cheating if you say, that’s a new book. [Jake laughs] So, I think let’s just leave it at lucky seven. [chuckles]
Tobias: Translated into 17 foreign languages, Investing: The Last Liberal Art, Warren Buffett: Inside the Ultimate Money Mind and The Warren Buffett Way, of course. Welcome, Robert.
Robert: Well, thank you very much, Toby and Jake. Thank you so much for the invitation. Good to be with you.
Tobias: Let’s start perhaps right at the beginning, The Warren Buffett Way, what inspired you to write that?
—
Robert Hagstrom: From Villanova Grad to Buffett Disciple on Wall Street
Robert: Gosh. Boy, that takes me back three decades. I had studied Warren back in 1984. I graduated from college at Villanova University and did my undergraduate and graduate in Political Science. And actually wanted to go to Washington and be the next Woodward, Bernstein. I had it in my mind that that would be a great career, except when I got to Washington, D.C., I discovered just really how gross that place is. [laughs] It’s really disturbing.
I had done some writing in college. I wrote for the local. I wrote for the Villanova newspaper. Started a libertarian society. I was really radical back in those days. I wrote for the local newspaper called the The Suburban, Wayne Times outside of Philadelphia. I took my tail between my legs and went back outside of Philadelphia in the suburbs and asked the guy that owned the paper. I said, “Boy, I’d really like to have a job. Can I write a column?” And he said, “We can’t afford to pay you. But if you go out and sell quarter page ads on the newspaper, after you’ve sold so many ads, we’ll let you write a column.” I said, “Well, all right, that sounds pretty good.”
So, I don’t know if you know the history of Philadelphia, but the main line is the Western– It’s called Lancaster Avenue. It goes all the way out to Lancaster, Pennsylvania, where the Conestoga wagons went west. So, I just started at the county line there and went west, knocking on doors, “Do you want to buy a quarter page ad and the newspaper?” I ran into something called Legg Mason, Wood Walker, members of the New York Stock Exchange. I had no idea what that was.
[laughter]I thought, well, maybe it’s a law firm or an accounting firm. I almost walked by, but then I said, “You made a promise that you’d knock on every door.” I walked in and told them who I was, they took me back to the manager. He said, “What can I do for you?” And I said, “I’m Robert Hagstrom. Would you like to buy a quarter page ad in the newspaper?” He said, “No. Would you like to be a stockbroker?” I swear to God– [chuckles] And I said, “Well, I hadn’t really thought about that. Stockbroker, what is that all about?”
I was dating a young lady at the time who I hope would become my wife. I thought to myself, well, she might be a little more impressed with a stockbroker than a quarter page ad newspaper. So, I went into training at Legg Mason. Three weeks, had decided I’d made a terrible mistake, was going to resign.
The Thursday night before the last day, we were handed a photocopy of a Berkshire Hathaway end report, which I’d never heard of, written by a guy named Warren Buffett, which I had never heard of, and was told to go back to the hotel room, read and we’ll discuss the next morning. And so, when I got to the hotel room, Toby, I opened it up and instantly depressed. There’s no pictures, no tables, no graph.
[laughter]It’s just a long, long letter. And I said, “Well, this is going to be a long night.” It really was epithetic. It was the proverbial light bulb goes on. And in that annual report, which is– I think that was a 1983 report. He starts off by introducing Rose Blumkin at the Nebraska furniture market, and Chuck Huggins at See’s Candies, and Stan Lipsey at the Buffalo Evening News and John Byrne at GEICO. He just began talking about all these companies and these managers and all these people. It was really one of those things where I couldn’t understand balance sheets and income statements.
This made no sense to me, but I could understand people and products and services. So, finally, I said, “Okay, I got it.” I went back into production, and all I did was do exactly what Buffett said. I just wanted to buy good companies and hang on to them. In those days, if you send a $25 check to the SEC, they send you a photocopy of the Berkshire annual report, so I had all of them. I had all the companies that Warren had invested in or read the annual reports.
As a stock broker, my manager came up to me one day and he said, “You’re going to starve to death if you don’t ever sell something.” Because in those days, it was a commissioned business. I said, “Well, that’s not how this works. We’re supposed to buy and hold.” [Jake laughs] Obviously, I needed to get to the buy side. I worked to a bank trust department onto a money management organization, got my CFA.
In 1992, the CFA said they changed their performance presentation standards and said, “For you to publish your performance, it must be 100% discretionary.” And I said, “We’re in trouble, because these aren’t discretionary accounts. People would say, this is my favorite stock, and my son wants this stock or I have a tax issue. So, none of our accounts were discretionary.” I said, “We’ve got to start a track record.” My partner said, “What do you want to do?” And I said, “Let’s do this Buffett thing.” They said, “I’m up to here with you and Warren Buffett. That’s all you talk about, That’s all you driving me crazy.”
They said write a marketing paper on it. I wrote a white paper on what I thought was the methodological approach to investing, according to Warren Buffett. That turned into a book proposal that ended up with a guy named Myles Thompson at John Wiley & Sons, and that became the source of the book. So, once again, came in the back door when nobody was looking. [laughs] And 10 years later, that’s how the book got its lift.
—
Buffett’s Purposeful Detachment from the Stock Market
Tobias: What is The Warren Buffett Way in the book, The Warren Buffett Way. What’s your conception about that
Robert: Well, yeah, it is– Warren has talked about this. I say it to my clients and in investment seminars in my writing. I said, there’s a very big difference between being a stock picker and thinking about stock markets and what Warren says, being a business picker. Even though those differences may be subtle in your mind, they’re really huge when you parse out how people think about things.
So, if you go back, Warren’s favorite book, The Intelligent Investor, if you go back to the beginning of that book, Ben Graham says, “The minute that you purchase a common stock, you’ve got two choices. The first choice is you can perceive yourself as being a business owner.” You buy 100 shares, 10 shares. You now own. You’re part owner of this company. You can behave as an owner would behave if they owned this great business. Or, you can think about it as a piece of paper that you can trade, and flip around, and make speculations, and interest, rates and sectors and stuff like that, because you’re going to do one or the other.
What Warren did, basically, as he became the controlling owner of Berkshire Hathaway, really ingested the idea of being a business owner. He basically grew Berkshire Hathaway as a collection of businesses, some were private and a lot were publicly traded companies, but he treated them all the same. There’s a profound difference, Toby and Jake. Profound difference between the attitude of someone who thinks they own a business and someone who buys a stock and begins putting portfolios together and changing portfolios based upon stock theories, and interest rates, and inflation and all this stuff, it’s a totally different game.
So, The Warren Buffett Way is about how to invest in businesses. The benefit is you got this public market that’s got a huge menu of some really great companies with great economic returns, with great managers. It gives you the opportunity to become an owner of these companies. But you have to put on your blinders and your ear muffs sometimes and divorce yourself of the stock market.
Somebody asked me, “What do you think is Warren’s competitive position, his competitive advantage?” I think I finally came up to the resolution, is that he “purposely–” He purposely disengages from the stock market. He doesn’t care about the stock market. I talked to his secretary, Debbie Bosanek. I said, “Does he have a tv? Does he watch CNBC?” He goes, “Oh, yeah, he turns it on every once in a while, but he has the sound off. He never listens to it. He just looks at it as a tape. There’s new headlines.”
It’s his purposeful detachment from the stock market that I think has led to a lot of his success. And then the second layer was he both simultaneously owned companies, private companies like See’s Candies and the Buffalo Evening News and National Indemnity and all that. At the same time, he was owning public companies, Washington Post, Capital Cities on down the line, and he treated them both the same. And in doing that, I think that’s what led to his great success. Because in conclusion, I think the mistakes that people make investing is doing things that are not highly predictable. Even though we say you cannot predict the market in the short run, that’s a fact. Science? There’s no science yet that can predict the market in the short run. You do all these things that are unpredictable with low probability outcomes and people go, “Yeah, I know,” but they still do it anyway. And so, it’s a lot of unforced errors that people do by being stock owners, stock traders.
But a business owner doesn’t have unforced errors. They basically are buy and hold great companies. If you do that over time, you get some pretty good numbers. Whereas if you try to be a stock trader, you’re going to have a lot of error rates that take away from your returns. I know that was a long-winded answer, but that’s how I think about it.
—
The Warren Buffett Way: Business Ownership vs. Stock Trading
Tobias: The book brought you to the attention of Bill Miller. Is that the way that it worked? And then he invited you to run the growth equity, which is a funny leap because you say Buffett is one of the great growth investors. Bill was there running the value fund. He’s a pretty growthy value guy as well. So, how did that come about and how was that?
Robert: Well, my relationship with Bill Miller goes back to when I joined Lake Mason. Bill was director of research. This was about the time he was starting the value trust with a guy named Ernie Keeney. When I was there, I think it was a year or two old. Bill, as you know, I don’t know if you know much about Bill, but phenomenal guy. He was a baseball pitcher, Washington Lee. I think he graduated with honors in European economic history. He went into military intelligence for four years. So, he was picked there where he was going to have to set out the Vietnam War.
Then he went right into philosophy, and he did his graduate work in philosophy, Absent Dissertation at Johns Hopkins. So, a very well-read individual, very, very smart individual.
Bill would do Tuesday morning research conferences over the squawk box, which were actually squawk boxes at that time, not the name of the CNBC job. He would always talk about these books that he was reading, and I would actually go and try to track them down. This is before Barnes & Noble and Amazon. Some of those books were quite eclectic. I would call him every once in a while, and he said, “Robert, you’re about the only guy that ever went out and bought these books, much less call me about them.” And I said, “Well, I guess maybe just curiosity killed the cat.” So, anyway, we had a nice ten-year relationship.
And then when I wrote the Warren Buffett way, my argument was that I did think that Warren had become a great growth investor, because if you think about– Go back and think about Coca Cola. He put a billion dollars in it in 1988, one-third of the portfolio. It was trading at a PE, that was a price to book, premium to the market dividend yield below the market. He put a third of his portfolio in it, and the stock was growing. If you look at revenues and earnings, it was growing faster in the market. Everybody had lost their mind. They said, “Warren, what are you doing? You’re turning your back on the master. Ben Graham would have never bought this stock.”
Jake: [chuckles]
Robert: Well, in the next 10 years, a $1 billion turned into $10 billion, and a $1 billion in the S&P 500 turned into $3 billion. I said, “Well, that’s pretty good value purchase.” [laughs] If you buy something that goes up 10 times and the market goes up three times, it must have been mispriced. What he had done in 1992, and we captured it in the book, is that he finally came around to pivoting from– It’s not low PE, low price to book type accounting treatment of stocks. It is the cash returns on businesses. And he introduced John Burr Williams in 1992 and he said, “It doesn’t matter if it’s a high PE, low PE, high price to book, low price to book, dividend yield has nothing to do with it. It’s all about the discounted present value, the future free cash flows, and we try to buy those coupons at a discount.”
So, when you go from there and you get to Cap Cities, you get to American Express and you keep moving down the line. He was buying blue chip road companies, not tech companies like Bill Miller ended up doing. But he was buying companies that were growing faster than the average market, and he was buying them at a discount through the DCF model and he was making a ton of money. So, Bill called and said, he was expanding his lineup and wanted to go into the institutional business. He said, “Do you want to run a portfolio like Buffett does and do the growth trust, I’ll do the value trust.” That’s how we did it. I ended up with $7 billion, he ended up with $70 billion, which is what you get when you beat the market for 15 years in a row.
[laughter]That’s a pretty good track record. [laughs]
—
How to Identify and Hold Quality Companies
Jake: Hey, Robert, with today, now, I think it’s fair to say that the quality approach is a little bit– It’s not a secret to anybody, right?
Robert: Yeah.
Jake: Everybody wants to own quality companies. One, how do you tell when you’re overpaying for a quality company? And then two, how can you tell if someone else has actually has the ability to find the next Coke or not? Because, I think it seems like it’s really difficult to know if a business is going to better in 10 years than it is today.
Robert: Toby, it’s been a bullseye. So, if you ask Warren, what were the mistakes that you made in your career, and he says, “Well, the mistakes that I’ve made in the past are I misread management, management ended up doing something that I thought they wouldn’t do. They misallocated capital that I overpaid for the business. I rarely did that, because the mistakes that I made most of all was mis-predicting how long this business could be a great business.” And so, if you’re a buy and hold Buffett guy, your bet is that they can continue to generate cash, earn above the cost of capital, take that cash back into the company, compound it and do it over a long period of time.
So, the other tenets are things like favorable long-term prospects. You’re trying to make a judgment how long somebody can do this. And then it is Buffett saying, “I want to moat a franchise.” That’s nothing more than saying, I want a company that continues to be the leader and will continue to be the leader despite the fact people are nipping at their heels trying to take their business away. I want this to be the lead dog, and I think this will be the lead dog for 5, 10, 15 years.”
So, when I buy a company, and I think I’ve got a pretty good bet, the first thing that I’m always looking at, once I understand the economics and I understand the industry, things like, I’m just looking at the competitors. I’m like, I look to the left and to the right and I said, “Who’s going to take me out? Who’s going to take my business away from me?” And so, we probably spend more time, Jake, on thinking about who can do this better than we can. And so, I keep a sharp eye on the economic returns of my competitors. If they’re starting to creep up or my returns are starting to creep down, then that’s nerve wracking that you think, “Okay, there’s that.” But if you’ve got something that’s working really well and nobody is able to take it away from you.
And so, Bill and I bought Amazon. We were at the IPO, which was a good time to buy it until 2000, when it was down 80%. Although Bill still has $9 Amazon stock in his portfolio, it was very clear to us that Jeff had a business that was going to be very difficult for anybody to take it away from it being the low-cost provider of quality items. And so, you looked at left and right, Walmart, Barnes & Noble’s stuff, they couldn’t take the business away. Google, same type of thing. When we had that one figured out, nobody could do search better than Google. So, you’re always looking at, what do you own, and is there anybody that’s close nipping at your heels? That’s where we think, if we’ve got that part right, we can ride the bumps.
One of the studies, I don’t mean to go too long, Jake, is that we’re looking at these 10-year outperformers. But we’re looking at drawdowns. Not the drawdowns of the super events like the pandemic, or when the fed raised interest rates, five percentage points in a year, everything cracked, particularly in the growth market. But how many times these great growth companies have drawdowns of 20% or more. It actually happens a lot. The art of investing long term is really the art of not selling. That’s a term that came out of Akre Capital Management, and one of their PMs there that wrote it up.
Jake: Yeah. Chris Cerrone. He’s great.
—
How to Apply Buffett’s Snickers Bar Analogy to Investing
Robert: Yeah. It was brilliant. It’s a brilliant thing that said. And so, Lou Simpson said it in a slightly different way. He says, “It’s not hard to pick the great businesses. The difficult thing is hanging onto it.” And so, I’m not sure I hit the bullseye on your answer, Jake, but it is if you got a good company, because you’ve got the returns, return on capital, they’re putting it back to work, favorable, long-term prospects, it’s just looking left and right, thinking, can anybody take you out. That’s what we spend a lot of time on. Can I give you one great story?
Tobias: Yeah, please.
Robert: This was actually–
Jake: Oh, yes.
Robert: Who wrote that? Oh, God I’m having– Morgan Housel? He wrote the Psychology of the Money. Well, in his new book, he said something’s never changed. [crosstalk]
Jake: Same as it ever was. Yeah.
Robert: Yeah. Thank you. So, he tells his story. This is perfect. So, right after the financial crisis, Warren is in, he’s driving his Cadillac and he’s got a reporter in the company. It’s 2009, and the reporter’s down in the dumps like, “Oh, Warren, this is horrible. Banks are going out of business. The worst recession since the Great Depression, the banking systems had.” Warren said, “What was the best-selling candy bar in 1962?” [Jake laughs] And the guy said, “I don’t know.” He said, “Well, what was the best-selling candy bars?” “Well, If I had to tell you, Snickers.”
Jake: Snickers. Yeah.
Robert: So, they were driving along, and then he turned to him and said, “What’s the best-selling candy bar today?” The guy said, “I don’t know.” He goes, “Snickers.” And the conversation ended. There’s the whole essence of the Warren Buffet way. [Jake chuckles] You’re trying to buy a Snickers bar today, it’s going to be a Snickers bar 10 years from now, right? That’s how we think about it. So, once again, I don’t know if that hit bullseye, but that’s how I think. I’m looking for a Snickers bar today that I think will still be the Snickers bar 10 years from now.
—
Tobias: Let me give a shoutout. Mendocino, California. Toronto. Petah Tikva, Israel. Havertown, Pennsylvania. Vestavia Hills, Alabama. Valparaiso. India. What’s up, Mac? Sydney, Nova Scotia. Katowice, Poland. Hallstatt, Austria. Santo Domingo. Kennesaw, Georgia. Camas. Tallahassee. London. Cromwell, New Zealand. Istanbul, Turkey. Luleå, Sweden. Philly. Seattle. Jebel Ali, Dubai. Milton Keynes. York, UK. Houston, Texas. Jhapa, Nepal. I think I’ve got them all.
Jake: I’ve started studying geography a little bit more just because I always feel so dumb when you do this, and I don’t know where three quarters of the places are.
[laughter]Tobias: Got to do it in the after.
Jake: I have a question, Robert. A friend of mine asked me to ask you specifically about business-driven investing.
Robert: Yeah.
Jake: What is that?
—
Outperforming the Market With Business-Driven Investing
Robert: Yeah. I’ve run with that term over the last couple of years that I hear at the global leader’s portfolio. Basically, the sub-context is, if you’re a business owner, like we were talking earlier, Jake, everything that you see through the lens of a business owner is how you would think about the company, portfolio management. And better yet, you wouldn’t be thinking about the market, you wouldn’t think about interest rates, inflation, you just wouldn’t be making all those bets.
So, I did a lecture, actually, a TED Talk, one of those 15 minutes TED talks with Guy Spier at the Value X conference at Berkshire in 2024. It was on business-driven investing. I started by trying to answer Charlie’s question, which he raised at the 2017 annual meeting. He said, “Evidently, what we’re doing here at Berkshire Hathaway works out pretty well. It’s been pretty successful. But I’m really amazed that these prestigious institutions, whether it’s universities or other money management organizations just don’t seem to imitate us.” And he goes, “If we’re so right, why are so many other places wrong?”
I always thought that was a brilliant question. There’s some Buffett people out there. You know them, but it’s a percent of the total money under management, it’s a minuscule. And so we went through the lecture at Guy Spier’s conference, and we had to go back to First Movers. Anytime you get into one of these historical questions, you got to go to First Mover.
It’s really interesting, we talked about Markowitz, Terry Markowitz. So, he gets a Nobel prize. That’s a big deal, right? But if you go back 1942, he went to University of Chicago, graduated 1946. He was a liberal arts major, goes into the graduate program at economics, and proceeds to write a paper called Portfolio Selection. He’d never been in the stock market, never owned a company, never been a business investor, but was fascinated with the concept of risk and return. He was going to apply it to the economy, but then changed it to the stock market. He goes about saying–
It was really an unremarkable paper, 14 pages long. There was only four pages of text. The rest were graphs and mathematical formulas and things like that. He basically just took it upon himself. He said, “Thinking about risk and return, return is the yield on the investment. Okay, I’m okay with that coupon. The yield, I get that.” And risk is, in his mind, was variance of return.
I said to myself, “Okay, wait a minute. If this is 1952, when the paper came out, evidently, he didn’t read Security Analysis in 1934. He’d read the second edition of Security Analysis in 1936.” He happened to overlook The Intelligent Investor that was written in 1949. He didn’t mention the Security Analysis, third edition in 1951. He just basically took from the sky. I think risk is variance of return. So, that became the backbone of what today is modern portfolio theory. That’s the standard approach.
Well, Warren’s approach with The Warren Buffett Way is a business-driven investing, where everything that you do, from stock selection to portfolio management to monitoring the progress of your companies, is all from a business manager’s perspective. So, if there were no stock market and there were no stock prices, how would a business person end up judging the progress of their investment? Pretty much the same way any private owner would. What are my revenues year over year? What are my margins year over year? How’s my cash doing year over year? They might think about their cost of capital if they borrowed money from the bank. Am I earning a rate of return higher than my cost of capital from the bank? They would look at their economic returns.
As Warren says, when he introduced the concept of look through earnings, and we talked about this in the lecture, if you look through earnings are progressing at a 15% rate over time, very likely your stock price is going to increase at a 15% rate of return over time. It’ll be lumpy, but it’s amazing how the prices– As Ben Graham says, “It is a weighing machine.” And that’s true. So, we just basically think it’s a business-driven investing, we’re just basically looking at everything from a business person’s perspective, stock selection, portfolio management and judging the progress of the economic returns of the companies that we owned.
Oh, by the way, there’s a price over here. [chuckles] There’s your quarterly statement. Toby, I said, our 10-year number is coming up, it’s going to be a very good number. We’ve underperformed the market over the last 10 years on a quarterly basis, 50% of the time, on a month-to-month basis, 50% of the time, on a year-to-year basis– I think we’ve won six years, lost four years. You say to yourself, “Geez, Robert, you’ve got a 10-year record that crushed the market. You’ve got a 5-year record to crush the market. You’ve got a 7-year record, crushed the market, nearly outperforming 50% of the time. What’s going on?”
Well, it’s the difference between frequency and magnitude. Slugging percentage and base hit. It’s not how many times you beat the market, less how many times you lose. It’s how much money you make when you beat the market, less how much money you give back when you don’t. And so, if you look, our upside capture is really good. When we get it, we get it really good. Our downside capture, because we’re value investors, we’re just not giving back much when the market goes down.
So, if you look at the market rotates during different sectors, different stocks, and it moves on and on as there are short-term traders and speculators doing that, and I’m holding a pat hand. So, when the sun shines one of my stocks, we get a good lift. When the sun comes off of it, yeah, we come down. We just don’t come down as much. And so, what I’m trying to get my people to understand is, the market’s going to bounce around for a lot of reasons that we can’t predict.
—
Navigating Public Markets with a Private Equity Mindset
Robert: I’m not going to be the dog chasing the tail that never catches the tail. So, let’s own good businesses, and I will tell you the progress, the economic return of our companies. If that’s satisfactory to you, then you should basically hang in there. The conclusion to the talk was, this really is a private equity approach with public securities. How does a private equity manager report to his owners? They have no stock price, so, what do they report?
Jake: Whatever they want. [laughs]
Robert: Well, yeah, sales, earnings, margins, whatever. They do have this clever way which is their NAV never changes. The NAV starts as like a buck. For three, four, five years, it’s a buck 10, a buck 5, 0.97. So, they have no variance of return, which makes everybody upset. They just motor along. And then the seventh year, [laughs] it magnanimously goes up three times. But basically, during that period, from start to finish, T1 to T10, they report sales and earnings and margins. I said, “Well, why “Can’t we do the same thing? Just because we’re a public stock price, why do you force us to play by different rules? Why can’t we play by their rules?” And so, that’s what I said. Business driven investing is basically private equity with public securities.
It got a good rap. There was a lot of on social media, and we’re talking to some people and try to get to Morningstar, SEI and rest of those guys and say, “Hey, you slice and dice the world between value, core and growth, large cap, mid capacity, small cap and all this stuff. Well, why don’t you segment some of us over here that we’re concentrated, low turnover, business driven guys, and let us have a separate space that has different rules and let’s see how we do head-to-head.” We’ll get back to you.” I don’t know what the appetite is, but we– What I also said is, I don’t know if you heard of SPIVA, standard and poor indices versus active managers.
So, the 2023 numbers came out. You look at the largest sector of the market, which is large cap stocks, basically going against the S&P 500. Over five years, 79% of the portfolio managers underperform the market. Over 10 years, it’s 87%. I know of no sector, no industry, no collection of businesses that would continue to allow the perpetuation of a model or process that fails so miserably [Jake laughs] and allows these guys to stay in business.
The 20% that are outperforming in good old Adam Smith capitalism should have eaten the lunch of the 80% that underperformed the market, and they should end up with all the money. But it’s amazing to me, the money management industry continues to perpetuate a process and a portfolio strategy that basically underperforms over the long-term. But they win over a quarter– They’re heroes and they win over six months or they’re the best this year, but then they fail over five and ten years. So, anyway, I’m preaching too much, but that’s what business driven investing means to me.
Jake: Yeah. Well, this is the church of that, so you’re fine [Robert laughs] to give a sermon.
—
Tobias: Why do you think so many investors fail to follow the precepts of Buffett? Is it behavioral, and is that why you’ve written the mindset book?
Robert: 100%, it’s temperament. I’ve never met anybody who disagrees with the Warren Buffett methodology. When I say, “Look, this is how he does it. These are the companies he buys. I have the 12 tenants. This is the litmus test. If they meet these tenants, we’ll put them in the portfolio. We’re not going to do a lot of buying and selling. We’re going to compound long-term capital gains over time. We’re going to tell you about the economic returns.” They’re like, “Yep, Robert, where do I sign? I’m in. That’s great.”
About 3 out of 10 in a month will call me and go, “How come we don’t own oil stocks? Oil stocks are going up.” [Jake laughs] “Wait a minute, that gold is going up, Robert. We need to sell this and we need to buy a gold.” I think they just psychologically had this insatiable need to be correct all the time. And I said, “You are correct. Look at what you own. Look at the revenues.” “Yeah, But the price?” “Well, the prices go up and down for a lot of different reasons. Had nothing to do with the underlying long-term economics of your business.”
Jake: Have they looked at your Sharpe ratio?
Robert: Yeah. You can give them all this. You can give them our returns relative to volatility. They just can’t help themselves not wanting to be in what’s working. When it’s not working, they just have this jealous streak like, “What you own right now Robert is not performing. You underperformed for the quarter, you underperformed this year, you’ve underperformed two quarters in a row, whatever the case may be, it’s over here, Robert. You’re stupid. You’re not buying this.”
And so, William Ruane said to me one day after I wrote The Warren Buffet Way, he daid, “Robert–” I met him at the baseball game. The Berkshire meetings were on Monday and the baseball game was on Saturday, and Warren would go out and throw the first pitch. Then you go to Borsheims Jewelry on Sunday and then the meeting was on Monday. Then the meeting got so big that the Mayor of Omaha said, “Can you move it to Saturday. You are causing so many traffic jams.”
—
Why William Ruane Urged Me to Fire Problematic Clients
Robert: So, I was at a baseball game and William Ruane, the famous portfolio manager at the Sequoia Fund, and he went to school with Warren. I had never met him before. I introduced myself and congratulations on the book. I said, “Thank you, Mr. Ruane. It’s a testament to Warren.” I said, “Congratulations on everything that you’ve achieved with Sequoia Fund.” He says, “Robert, give you a piece of advice?” I said, “Mr. William, yes, sir. Whatever you know.” Got the piece of paper out, I’m taking notes and everything.
He says, “You’re not going to take this advice.” I said, “Mr. Ruane, I assure you, whatever you tell me to do, I will do this.” He goes, “No, you won’t.” I said, “Yes, I will. I promise.” “Because, you’ve got a good book, you’ve got this, you’re growing your money management practice, you’re going to find out, though, that 2, 3, 4 people out of 10 are going to be a real pain in the butt. I want you to fire them.” I said, “Okay, I’m going to fire.”
[laughter]“No, you won’t. You’re not going to fire them. They’re giving you fees. They’re paying your mortgage. They’re putting your kids through school. You’ll sit there and try to convince them until you’re hoarse and out of breath trying to preach them to come to the church of Warren Buffet. There’s some people that don’t get it. I want you to cut them loose.”
I think he was right. I’ve done this with a few people where I’ve said, “Look, I know you really want to do this, but it’s just not a good fit for you.” When you take it away, then they get real panic. “Wait a minute, whoa, no, don’t fire me. Don’t fire me.” [laughs] But it’s a psychological mismatch. Some people get it, and they understand the relationship between stock, business, economics and long-term returns. When that lines up, when the planets line up, they get it. There’s others that understand the mathematics of it, but psychologically, they just can’t get there. Can’t get there.
—
How Isaac Asimov’s Theories on Creativity Can Inspire Modern Innovation
Tobias: Should we do veggies at the top of the art, JT?
Jake: Absolutely. So, knowing that Robert was coming on, one of my favorite investment books was one that he wrote here, and it’s Investing the Last Liberal Art. And of course, the veggie segments are always– They try to be an attempt at multidisciplinary thinking. So, I’ve been saving this one for a little bit for Robert, just because I thought he might have some interesting comments with it.
Robert: [laughs]
Jake: So, this is really, it’s a little biography of Isaac Asimov and creativity. It comes from this essay, how do people get new ideas? It’s this thought-provoking piece that explores the creative process and the factors that contribute to the generation of innovative ideas. A little shoutout to Joe Koster for sharing this in one of his links on his regular Value Investing World, which is a terrific resource that you should probably all sign up for. If I was smarter, I would just delete Twitter and only read what Joe sends out. But for some reason, I can’t help but touch that third rail.
Tobias: [chuckles]
Jake: So, a little bit of background about Asimov. He lived from 1920 to 1992. He was a renowned author, professor of biochemistry at Boston University, absolutely prolific writer. He wrote or edited more than 500 books and sent out an estimated 90,000 letters, which– I try to wrap my mind around what that means per day.
But he’s best known for his science fiction works, of course, including the foundation series and the Robot series, which is something like 37 different books. However, he also wrote extensively on other topics like science and history and literary criticism. This essay that I’m referencing was written in 1959, and it’s his contribution to a project on creativity that was commissioned by the US government.
So, here are his insights. The first thing is that, oddly enough, the generation of creative ideas is never clear, even to the generators themselves. A lot of this happens just completely by accident, which makes me wonder– We spend all this money as a society on corporate R&D. Really, I’m wondering if it might a better way to explore that hidden frontier of innovation, might be, like, what if we just liberally splayed money around and sent everyone $10,000 who promised to tinker in their garage with it? What might emerge from that? But I’m digressing a little bit.
The crucial point of this innovation is that the ability to see these cross connections that aren’t obvious. Creativity thrives on uncovering these unexpected connections between disparate ideas. Matt Ridley, who’s also one of my favorite authors, said that, “Innovation is basically what happens when ideas have sex.”
Robert: [laughs]
Jake: [chuckles] Creative people tend to have this strong background in their field of interest, but they also exhibit very unconventional habits, and they’re often seen as eccentric. It takes a certain level of daring and self-assurance to defy the norms and pursue an unconventional path, like Robert has done with business-driven investing.
There’s another big part of this isolation is important for the creative process. It allows the mind to freely shuffle information around without the inhibition from others. Because oftentimes, creativity can be embarrassing. Asimov says in this essay that, “For every new good idea you have, there are 100, 10,000 foolish ones which you naturally do not care to display.” It’s hard to tell what’s what when it’s just you sitting there thinking. This shuffling happens even when one is not conscious of it.
There’s this famous example of a scientist named Kekulé, I believe his name is, who worked out the structure of benzene in his sleep. Toby, I don’t know what you dream about. Is it chemical formulations?
Tobias: Benzenes
Jake: Yeah. [laughs] So, Asimov says that it’s necessary for all the people at a session, like a creativity session, to be willing to sound foolish and listen to others sounding foolish and not judge them. A collaboration could go wrong if a single person has a greater reputation or is more articulate or has a more commanding personality, and the rest of the participants can then be reduced into these passive obedience. Innovation will be squished, even if the high repute person is really talented.
So, Asimov ventured that the optimum number of the group would not be very high, maybe no more than five people. He says that joviality, joking and kidding around are an essence of this because they encourage a willingness to be involved in the folly that is required for creativity. And then lastly, you should have like a facilitator to play a role of guiding the discussions and prompting deeper exploration and ideas. It’s important that that person then asks shrewd questions and then can steer the session back on point when it gets too far off.
So, I thought it would be interesting to put together what would– Maybe be if you’re an investment team and you wanted to take some of these insights from Asimov on creativity, what might that look like? So, this is for an incubator idea. Pick an unconventional venue like a museum or a botanical garden or maybe a remote cabin or an art studio, something, and utilize the elements of isolation and subconscious thinking to generate novel ideas.
So, here’s a possible format. Maybe you start out with meditation, and visualization and then gets everyone relaxed and a free-flowing ideas, and then go off and do individual quiet time for each person. So, maybe it’s a walk, or just– Walking around the museum or art gallery, letting your mind wander, jot down on any ideas that come to mind, encourage free association and stream of consciousness writing. And then get together and share the wildest and most unconventional ideas in a safe, non-judgmental environment. And then collaboratively build on those shared ideas and connect disparate thoughts into maybe novel strategies and ideas.
Just for fun, I have my own silly idea to share. [chuckles] It’s something I’ve had on my little list of things that if I had more time and less– Probably if I didn’t have kids, I might have already started working on this. It’s called multidisciplinary, named to be determined. Not that great. So, imagine a multi-sided dice, a set of multi-sided dice. Each side of the dice represents a mental model of some kind, and something like invert or theory of evolution or inertia or alloying, which is combining a substance to form something even better, or the prisoner’s dilemma. There’s all these mental models that you can find in Robert’s book that help–
So, what you do basically is like is roll the dice. Now you filter your problem that you’re thinking about through two different mental models. So, you’re working on two or three even, two might be the max that I could come up with, and see if anything interesting emerges from filtering a problem through these two mental models at the same time. You’ll instantly have this lattice construction of mental models. Maybe this might better done as an app or something, I don’t know. But I like the physicality of the dice in the real world to foster more creativity.
So, it may be like you feed your problem and in your two mental models into ChatGPT and see what it says. But I would say like, don’t shortchange your own creativity there. I think these robot overlords, at some point. They’re going to have probably the million-dollar ideas, but I think the human, yours is still going to be the billion-dollar idea. So, anyway, I like this idea of taking advantage of mechanical randomness of the dice to ask the universe to whisper its serendipity in your ear. So, anyway, Robert, what do you think about? You ready to go build multidisciplinary?
Tobias: Jump to conclusions.
—
Innovation in the Shadows: Finding Brilliance Beyond the Spotlight
Robert: No. First of all, well done, Jake. I think you’ve hit on something that– We talk a lot about at the Santa Fe Institute. William got me involved in the Santa Fe Institute, which is study of complex adaptive systems. There was a professor there named John H. Holland, who was a computer science professor at Michigan. He wrote a book called Emergence and Hidden Order and things like that. But he was basically saying the same thing you were saying, Jake, about how new ideas– It really is a balance between exploitation, exploiting what you already know and exploring what you don’t know. It is random, right?
So, he talked about how the Norwegian fishermen were really quite successful fishermen for so many years. They tried to figure out why and they said, “Well, they had this semen out there that basically would just randomly tell them to go into different directions, and they would ultimately find new schools of fish.” Or, the medicine man from the Indian Navajo who would say, “Well, the buffaloes–” He’d roll the bones out on the floor there and he said, “Well, the buffalo are over there.” But it is what you were saying, which is exploring for new ideas, is you’ve got to go hunting in different areas that are not comfortable to you. You don’t want to spend all your time exploiting what you know, you’ll never explore for new ideas.
So, one of the famous jokes that they tell the Santa Fe Institute was this guy coming back from the pub late one at night, and obviously had too many Guinness beers, and he was stumbling back and forth and had his keys and his key ring, and he stumbles and the keys go flying off into the dark. The constable was walking by and helped him up and said, “I’m sorry, let’s try to get you home.” And he goes, “I got to find my keys.” And he walks underneath the streetlight. The constable says, “What are you doing?” He goes, “Your keys are way over there in the dark.” He goes, “Yeah, but this is where the light is.” [chuckles]
So, he’d only looked for his keys under the light. I think we have a tendency to continue to exploit what we already know, because it’s under the light that we can see, as opposed to what you said, Jake. It’s almost random. Just go hunting for new ideas, and different disciplines and strike a balance between exploration and exploitation.
I think you can cross reference that investing The Last Liberal Art. I think we have that reference in there. So, kudos to you. That’s the way creativity works. It works by analogies and metaphors that once you go into the dark and you come up with new ideas, oftentimes you go, “It looks like this, which is similar to what’s going on in the markets,” or whatever the case may be.
—
How Non-Followers Drive Innovation in Ant Colonies and Beyond
Jake: Robert, maybe you might tie together a certain number of ants in a colony will have– They’re programmed to not follow the other ants. And so, there’s slack in systems. Maybe talk about Buffett Slack and his systems that allow for the emergence.
Robert: [chuckles] Yeah. I don’t know if I would count Warren as one of those emerging characters. He’s always been somewhat– He’s not like a Charlie Munger. Charlie would pick up books that would be random-like. Charlie would be more the emerging property.
E. O. Wilson and the conciliant observer and stuff like that, getting ideas. He was one who studied the ants. But it is amazing. The ants, just like the hunters of the Navajo Indians and the fishing fleet in Norwegian, they would take off in direction. They wouldn’t follow the pheromone trails every day. Three or four or five of them just would take turn left or turn right and head off. Inevitably, they would find some new food, and then they would come back and there’s the new pheromone trail.
So, when I talk to students and stuff like that, of course, they’re so immersed in just trying to get their grades done and finish the semester, the idea of adding one more additive of reading to that. And I said, “We’ll do it over the summer.” But I always tell them, “If you’re in the finance world, don’t go spend the summer reading economics and finance textbooks. Go read some philosophy, go read some psychology, go read biology, go read anything, sociology. Go tamping in for new ideas in different places. It will inevitably make you more insightful.”
What did Charlie Munger say? “The man with a hammer, everything looks like a nail,” right? If that’s all you have in your toolkit is a hammer and your finance and accounting, well, then you’re going to solve it by finance and accounting. Or, as Charlie more colorfully said, “It’s like being a one-legged man in an ass kicking contest.” You’re just not going to get very far. You’re just not going to get very far. [laughs]
—
Is Your Book Idea Strong Enough? Key Questions to Consider Before Writing
Tobias: Robert, what’s the writing process for you? How do you know that there’s enough meat in an idea? Have you had any proposals that you sort of got into and thought, “No, there’s not enough here”?
Robert: Well, yeah, typically, if I come up with an idea–
Jake: Self-interested question here, Toby. [laughs]
Robert: Yeah. No, no, this is God’s honest truth. There was a how to do it bookstore on Sansom Street in Philadelphia. I’ve told the story before. How to fix your refrigerator or how to fix the roof or how to fix plumbing? One day, it was a pretty skinny book, said how to write your first nonfiction book.
Now, Toby, this is nonfiction, not fiction, which I have no talent, no art. I’ve tried to write a fiction short story one time, and I destroyed it and burned it before anybody could see it.
[laughter]I don’t have that gift. I’m not of that mindset. But it said, “Have you ever written a 20-page term paper?” And I said, “Yeah, I’ve done that in college.” And then the second page was, “Have you ever gotten a B or better?” And I thought, “Well, I didn’t get that many good grades, but I think I had a couple that got a B or better on it.” And then it said, “Can you write eight term papers in a year?” I said, “Well, crap, I used to do three in the last month of the semester. So, yeah, I can do eight–” [crosstalk]
Jake: [laughs] Like, the night before, really.
Robert: And so, a book really then becomes, can you string together, six to seven to eight 20-page term papers? And so, you have a book really is something that has enough meat, and you’re telling a story, and so you have a storyboard, and you put up what are the main topics that you want to cover in your story. And is there enough meat that you can get 20-pages of insightful comments on that? And then when I sit down to write a book, Toby, I never think about writing a 300-page book. I just think about, this month, I’m going to write a term paper. And over a year’s period of time, I can get eight chapters done, whatsoever. And then you got to clean it up and you send it out for reading and stuff like that.
But you start with a storyboard, six to eight ideas that you want to translate, and then you have to figure out, like you said, is there enough meat on the bone here for a 20-page term paper? But I never think about writing a book. I just think about writing a string of term papers. There have been ideas that I thought could have snuff. You just got to let them go. If they don’t meet out, you just got to let them go.
But having said that, what I never did and I wish I had, is I wish I could have written more articles for magazines. I really got stuck up that I was only going to write books. I should have written more– Guys like Michael Lewis, really good writers and stuff like that, they’ll peel off and do something for the Atlantic, New York or something like that. But sometimes if you don’t have a book idea, you might have a really, really great magazine article idea that can get a lot of track record on you.
—
Why Value Investing Remains Relevant in Different Economic Phases
Tobias: I was wondering, if it was a good way of preventing you from meddling with the portfolio.
Jake: Yeah.
Robert: [laughs] Well, I’m not trading every day. I might as well do something, right? [laughs]
Tobias: Can we talk a little bit about investing? Value had a particularly rough run over the last decade. I don’t know, it depends on when you measure from 2010 to 2020 or 2015 to 2020. Did you experience any of that, and how did you deal with that?
Robert: No, I don’t think value ever has a rough period. I think there’s always things that are mispriced in the market. Sometimes they will show up on the traditional value ledger of low-price earnings. Remember, the world divides value and growth between these accounting metrics stocks. Sometimes they get play and sometimes they don’t.
Now, one of the things that I found interesting in my research at EquityCompass is the typical value stocks which are low price earnings, low margin, capital intensive, low price to book stocks, typically do well from the bottom of a recession to the peak of the expansion, because they need animal spirits. Typically, classic value stocks will outperform classic growth stocks when the economy is growing above trendline.
So, the average real rate of return of the economy, sustainable growth rate of the economy is, let’s say, 2.5% real, whatever the case may be. The economy is growing three or four. Typically, the low margin, capital intensive value stocks gear real well. They typically perform real well. Growth stocks though typically outperform at the peak of the economic expansion down through the recession.
When growth is decelerating and the growth stocks can continue to motor along, because they have products and services that are in high demand, so they’re not seeing a deceleration in their growth and earnings, they typically do well from the peak of the expansion down through the recession. Get down to the bottom of the recession, the economy takes off. The economy is growing 4%, 5%, 6%, 7%, growth kills value. That’s often the way that it happens.
And so, when you look back, we’ve had this muddled period where we didn’t really have hyper growth in any one of the cycles until post pandemic, when we put $4 trillion to work. And then all of a sudden, we got 7% and 8% real GDP growth. And boy, value stocks took off. So, I think there’s always–
Bill Miller was really good about this. He was never enslaved to anything other than what was mispriced. He was just looking for mispriced. Sometimes it showed up in technology stocks, and sometimes it showed up in airlines and sometimes it showed up in commodities. He’s very, very adroit at being able to sniff out where mispricing is, which is– They say, “All intelligent investing is value investing. There’s something mispriced in the market. You just got to go figure that out.”
—
Bill Miller’s Billion-Dollar Bet on Bitcoin: A Strategic Analysis
Jake: Robert, do you have a sense of what he would say about, why was bitcoin mispriced?
Robert: Well, as you know, Bill made a 1% bet of his net worth, you know what, almost 10, 15 years ago, which turned into a billion-dollar return.
Jake: Yeah.
Robert: It’s interesting. When I talked to him about that, he said it really wasn’t a hard bet for him to make. Now a 1% bet for Bill Miller’s net worth, I would have choked to death thinking I’d lost that amount of money. But for him, like you said, “If I lose 1% of my net worth, it’s not going to change my life, it’s not going to change my lifestyle.” He thought that the idea of it was sensible, and he did say he was going to write it long-term, no matter what. No matter what.
I think what happened was the evidence of bitcoin was the limited supply. When you limited the supply, as they did, then you were just looking for 21 millionaires around the world that would want to buy one bitcoin. [laughs] Find those guys, then you’re probably in a good supply demand relationship right there. So, he did the math from that angle as well.
Interestingly, as Warren and Charlie, they thought it was horse manure. I think anybody from a dollar centric perspective couldn’t wrap their hands around bitcoin, because they thought to themselves, “Never going to replace the dollar.” I don’t think the bitcoin will ever replace the dollar in my lifetime, and maybe not my kids lifetime.
But there are people that live in emerging market countries that have seen their financial system fail. Argentina, being a case in point, twice. I made the argument that I think bitcoin has a lot of value for people in unstable financial systems. Lebanon, Nicaragua, wherever your case might be, where– This woman came up to me and she goes, “That’s exactly the reason why my family owns bitcoin.” They had lost their fortune twice in Argentina when the banks went to zero. We get on our feet, we make money back and stuff like that. But after the second time, we said, “Maybe we don’t put everything in there in the bank again.” And you can’t put it in gold bars and hustle that out of the country. So, she goes, “People that have lost fortunes in unstable economic systems, bitcoin makes a lot of sense.”
And so, Bill, his analogy was, it was bit gold. It was just gold. Bitcoin was gold. I didn’t understand. Maybe you can help me with this, with Jake and Toby. I didn’t understand and this was kind of argument that classic value guys, if it doesn’t have cash flow, it can’t be valued. There has to be cash flow. Well, there’s a lot of real estate that doesn’t have cash flow, but people make a determination on value. A van Gogh painting doesn’t have cash flow, but people make a determination of value. Bitcoin doesn’t have cash flow, but there are people making a determination of value.
I think if you’ve got the supply and demand, and you got the demand and supply figured out rightly and you’ve calculated that thoughtfully, it doesn’t have to have cash flow to make the market value or the price of that thing go up. We see it happening all the time. So, I don’t know, count me as not an atheist, not a die-hard bitcoin bull, but I can see both sides of the argument.
Jake: Yeah. I think probably the argument for non-cash flow valuation would be borrowed from the Austrian School of Economics of subjective value theory. I think where that gets a little more tenuous is like, that it’s subject to humans wants and needs and the job to be done that thing is doing for you. If you look at what the next thing that it could do if it wasn’t doing, like used case number one, which was protect you from hyperinflation, it’s a pretty far drop off to basically zero. There’s no real marginal value from it. But you have to be comfortable that people are still going to want it in however long your holding period that you’re planning.
With something like bitcoin, if you use Lindy effect ideas, I don’t know, whatever it’s been around 15 years or so, maybe if you were only halfway done with the life of it– I don’t know, like these things are– It goes into the too hard pile for me. I am also very sympathetic if I didn’t have the US dollar as a good technology for transferring value for me living in the US.
—
From NVIDIA to Amazon: Winning Big with Selective Investing Strategies
Robert: You said something very important. That’s the Charlie Munger, which is, “If it’s too hard to figure out, put it in the too hard pile and move on.” I could save myself a lot of time. Now I’ve lost opportunities too, and you could have said, “Had you stuck with it, no matter how hard it was to figure out.” But I can make some pretty good money on things that are relatively within my scope to figure out. If I look at it and it, and I struggle with it, and I struggle with it and I struggle with it, I just got to move on. I didn’t say, “Bill, you’re wrong.” I just said, “I can’t get comfortable here.” It’s not in my Billy way. He looks at me and he goes, “You’re an idiot. [Jake laughs] I can’t believe you don’t own bitcoin.” I go, “I know, Bill. I didn’t get every one of them.” But we got the Amazons and we got the NVIDIAs. Who would have ever thought we bought NVIDIA in the summer, early fall before we knew that ChatGPT?
We knew stuff was going on in AI. We knew that that was coming. We had no idea it was coming November. The market puked all those growth stocks that year, because when interest rates go up, the robots basically just shorted the Russell 1000 growth and everything was flushed down the toilet. There was NVIDIA at 160, which I never thought I’d ever see at a price which I’d never to relative value. We backed it up and said, “Let’s take a full position.” And now, what, two years later, six times.
Jake: It might have been a good idea.
Robert: That’s my bitcoin. [chuckles] That’s enough bitcoin for me right now. [laughs] That’s been a good ride. [laughs]
—
Warren And Charlie Didn’t Invent Anything New
Tobias: Congrats on that one, Robert. We’re coming up on time. If folks want to follow along with what you’re doing or find your latest books, how do they go about doing that?
Robert: Well, Amazon is the default engine. They’ve got all the library up there. They can follow what we’re doing at EquityCompass. It’s www.equitycompass.com, and hit the global leaders page. You can look at all my commentaries, you can look at my past commentaries, you can look at our track record and go at it that way. So, that’s both the practitioner side as well as the writing side is clearly available.
Let me just say right off the top of the bat, I didn’t invent anything new here. There’s nothing new. Warren says, “Pick your heroes.” If you pick the right heroes, just figure out everything you can about, these smart people. And so, I picked Warren. And then, Charlie made a lot of sense. And then, hanging out with Bill Miller. So, you find these people that are really, really smart. What you do is you just read everything you possibly can about these people and you read what they’re reading. I learned more by reading what Bill was reading, and what Charlie was reading. Warren didn’t read a lot of books too much.
Jake: [laughs] [unintelligible 01:00:59]
Robert: Not like Charlie did, but you just got to find the right people. Even Charlie and Warren said, “We didn’t invent anything new. We just basically tried to figure out what worked.” A lot of smart people were doing this type of stuff. And so, I don’t think it’s as hard as people make it out to be. But once you do, write it down. Once you do, absorb it past a Wall Street Journal article, past a magazine article, past something like that. When you really absorb it over a multi-year period of time, it becomes part of your psyche, it becomes part of your DNA. And then when you look upon the markets, you don’t get disheveled as often.
So, as people say, thank you so much for the book. When I get these links and stuff like that, I said, “We were both fortunate to have great teachers and I was most fortunate to have great teachers. All I did was spend my life trying to figure out how these guys got so smart and just imitate them. Just figure out what they’re doing and keep doing the same thing.” That’s all it was. It really was.
Jake: I think you’ve lived well with the Bashō quote about, “Seek what they sought and not what they found.”
Robert: Yeah, exactly right.
Tobias: That’s a good one.
Robert: Exactly right. Well said. Well said.
—
Tobias: That’s great advice. Thanks. Thanks so much, Robert.
Jake: Thank, Robert.
Robert: Guys, it was terrific. Toby and Jake, what a fun, fun time. I love the give and take. You guys are well versed, and really just a lot of fun to have the conversation. I certainly wish you the best. And thanks so much for the invitation.
Tobias: Pleasure.
For all the latest news and podcasts, join our free newsletter here.
Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple:
