0:00

Ben,

0:00

when we teased this episode

0:02

in the email about the Jensen

0:05

episode that we just released, the guesses

0:07

that we were getting from folks were amazing.

0:10

I mean, people were like, it's Charlie, it's Warren,

0:12

or it's Taylor Swift, and a lot of people were right. Hey,

0:15

Taylor,

0:16

you know where to find us. Acquiredfm at gmail.com. If

0:18

you are looking to get more publicity, we're

0:20

open. Have Travis get in touch. -♪ All

0:23

right, let's do it. -♪

0:25

Who got the truth? ♪ ♪ Is

0:28

it you, is it you, is it you? ♪ Who got

0:30

the truth now? ♪ Is

0:33

it you, is it you, is it you? ♪ Sit

0:35

me down, say it straight ♪ Another

0:38

story on the way ♪ Who

0:40

got the truth?

0:42

Welcome to this episode of Acquired, the

0:44

podcast about great technology companies and

0:46

the stories and playbooks behind them. I'm

0:48

Ben Gilbert. I'm David Rosenthal. And

0:50

we are your hosts. This episode

0:53

is a very unique one for David and I. Good

0:56

friend of the show Andrew Marks organized a

0:58

little dinner for us with Charlie Munger

1:00

and a few other folks at Charlie's home in Los

1:02

Angeles. You can hear Andrew a few times

1:05

in the background asking Charlie questions. We

1:07

are pretty sure that this is the only podcast

1:09

that Charlie has ever done. Charlie,

1:12

aside from being one of the most prolific

1:14

investors of all time alongside his partner Warren

1:16

Buffett, is 99 years old. He

1:19

will turn 100 on January 1st.

1:21

Of course, our conversation was interesting because

1:24

he's freaking Charlie Munger, but also

1:26

because it was interesting to get the perspective

1:29

of someone who has seen the last 99 years

1:31

of human history. We talked with Charlie,

1:34

of course, about Costco, his history

1:36

investing in retailers over the last 50 years. We

1:39

also got to hear his views on what it

1:41

takes to build a great partnership, what's

1:43

gone wrong in the global securities markets

1:45

these days, the concept of investing

1:48

versus gambling, and where investment

1:50

opportunities remain in the world today.

1:53

Yeah, Ben, this was such

1:55

a special life experience for you and me

1:57

and you and me together to do this.

1:59

the fact that we got to record it and now share it with

2:02

the world for posterity. Just icing

2:04

on the cake and the whole thing was unbelievable. Yeah,

2:07

listeners, we knew we were gonna have dinner. We were not

2:09

sure whether we were gonna be able to record it. And now

2:11

we get to share it with all of you. With that,

2:13

join the Slack. There is awesome discussion of every

2:15

episode and the news of the day at acquired.fm

2:18

slash slack. If you sign

2:20

up for acquired emails, you will get

2:22

episode corrections and follow up from previous

2:25

episodes plus hints at what the next

2:27

episode will be. That's acquired.fm

2:30

slash email. And we have only one

2:32

sponsor for this interview.

2:34

Yes, a special conversation deserves a special

2:36

sponsorship. And long time listeners will

2:39

know there's only one company in the acquired universe

2:41

that is truly appropriate because everything

2:43

they do is modeled after Charlie and

2:45

Warren and that's Tiny. Yep, Tiny

2:48

is the Berkshire Hathaway of the internet. Literally,

2:51

they are such huge fans that they started a company

2:53

that makes bronze busts of Buffett and

2:55

Munger themselves, but more on that in a minute. Yeah,

2:58

so Berkshire, as we know, started as a textile

3:00

mill in Massachusetts nearly 200 years

3:03

ago and almost 20 years ago,

3:05

tiny founders Andrew Wilkinson and his partner

3:07

Chris took their version of an internet

3:10

textile mill, the premier design

3:12

agency metal lab, which designed the

3:14

UIs for Slack, Uber, Tinder, Headspace,

3:17

Coinbase and others.

3:18

And they asked themselves, what would Charlie

3:21

and Warren do if they were us? And

3:23

that led to the realization that just

3:26

like Berkshire discovered in the physical world, the

3:28

internet also has wonderful

3:30

niche businesses with great cash flows.

3:33

In fact, they tend to be even better

3:35

than the old days of seized candies and blue chip

3:37

stamps because they require zero capital

3:39

reinvestment, have software margins and

3:42

can build global brands much faster than

3:44

the what 50 some odd years it took C's

3:46

to expand around the world. Yep,

3:48

so Andrew and Chris took the extra cash flow

3:50

from metal lab and their other businesses and

3:52

created tiny the world's first and best

3:55

permanent holding company for wonderful internet

3:57

businesses and boy did it work.

3:59

Yeah. Fast forward to today, and thanks

4:01

to Tiny's success, this opportunity

4:03

is no longer a secret. Many people have caught

4:05

on to the idea that this can really work. But

4:08

just like Berkshire itself, no one else has the

4:10

combination of experience, temperament, access

4:13

to capital, and frankly, reputation that

4:15

Andrew and Chris have built over the past two decades.

4:17

We're investors in Tiny ourselves, alongside

4:20

Bill Ackman and Howard Marks. And

4:22

just like the two of them, Tiny is really the

4:24

long-term buyer of choice in their niche.

4:27

Anyone who's looking for a permanent home for their profitable

4:29

internet business, or who needs a capital

4:32

partner for a co-founder or VC cap

4:34

table buyout, would be lucky to work with

4:36

Tiny.

4:37

For instance, they just bought the premier social

4:39

network for Film Buffs, Letterboxd, which

4:41

has been the founder's baby for 12 years

4:44

and will stay so within Tiny. And this really

4:46

reflects Tiny's whole ethos. Work

4:48

with only the best internet businesses, commit to

4:50

simple diligence, 30-day deals, and

4:53

leave the business alone, either for you to operate

4:55

or bring in new long-term-oriented management

4:57

up to you.

4:58

So thanks to Tiny, this is the only

5:00

sponsor, as Ben said, that you'll hear on this episode.

5:03

And just like Berkshire, it'll be here in perpetuity.

5:06

Tiny just became a public company earlier this

5:08

year, and they can now do deals ranging anywhere

5:11

from $1 million all the way up to $250 million. So

5:14

if you want to get in touch, just shoot them a note at hi

5:16

at tiny.com and just tell them that

5:18

Ben and David sent you.

5:20

Oh, and one more thing. The bronze Charlie

5:22

busts, the perfect daily reminder

5:25

in your workspace to ask what would Charlie

5:27

do?

5:28

Just head on over to berschornirds.store

5:31

to buy your own. And they also have plenty

5:33

of some guy named Warren too.

5:35

Okay, now without further ado, this is not

5:37

investment advice. David and I may have investments

5:39

in the companies we discuss, and this show is for informational

5:42

and entertainment purposes only, and on

5:44

to Charlie Munger. Charlie,

5:47

I was watching the NFL games last weekend,

5:49

and it seems like every advertisement now is

5:51

a sports betting advertisement. Is

5:53

this good for America? No, of course not.

5:58

The dog tracks and race. of

6:01

America as a casino is good

6:03

for America, of course not. They're

6:05

just very popular. That's how Warren

6:07

got his start though, right, at the racetrack? Well,

6:10

but Warren never gambled.

6:12

Emily is a patron of it. Warren

6:14

won one of his favorites on somebody else.

6:17

It's just so simple if you're Warren. You

6:20

want the house? You want to be the house,

6:22

not the

6:23

punter. Listeners, the next topic that came up

6:25

was retail stock trading and the idea that for

6:27

many Americans, they're not as akin to gambling.

6:30

Well, that's the way it's organized. They

6:33

don't really know anything about the companies or anything. They

6:35

just gamble on going up and down the price.

6:39

If I were running the world, I would have a tax on

6:41

short-term gains with

6:43

no offset per losses on anything.

6:47

And I would just drive this whole crowd every while of business.

6:50

What do you think about the algorithms, like Renaissance

6:52

and stuff like that?

6:53

Well, of course, Renaissance was

6:55

the first algorithm. It

6:58

was so simple. They shifted all

7:00

this data for the past. And what

7:02

did they decide? Up,

7:05

up, for which there were two closing prices, and

7:08

down, down were more common than down, up,

7:10

or up, down. Once

7:12

they realized that's the way it was for various

7:15

reasons, even the psychology of madness, man

7:17

is the natural trend follower. Keep

7:20

figuring and gambling short-term. And

7:22

they just programed the computers

7:25

to automatically

7:27

buy on one thing on the first up day

7:30

and sell before the end of the

7:32

second day. And it did it day after

7:34

day after day. And every day, the

7:36

machine would, you know, the central clearing

7:39

agent would say, your check today is $8,500,000.

7:44

Your check tomorrow is $9,400,000. Well,

7:48

what happens is that the ones, the

7:51

easiest trade is to front run what, you know,

7:53

what the average, what the index

7:55

funds have to buy. And you know what

7:57

it is exactly. They all know that. The

8:00

way they get their returns year after year

8:03

is taking the leverage, the midday

8:05

leverage of higher and higher and higher and higher.

8:08

They're making smaller and smaller profits of more

8:11

and more volume, which gives them this big

8:13

peak leverage risk,

8:15

which I would not run myself.

8:18

That's the only way they make these returns, is

8:20

to have this huge leverage that

8:23

would make you crazy if you were already rich.

8:26

I had the good fortune of speaking with someone you know

8:28

well, Richard Galante at Costco and spending

8:30

a few hours. He knows a lot about it. He's been there

8:32

all his life. It's crazy. I mean, it seems like

8:34

that's everyone on the executive team. They've all been there. Yeah,

8:37

I know.

8:38

I'm curious, how did you first come

8:41

across Costco or a price club

8:43

at the time?

8:44

Rod Hills somehow knew sell

8:46

price and knew what he was

8:48

doing. He said, you have to go down and meet him. I

8:52

drove down and went through his store and

8:55

talked with Saul. Of course, Saul

8:57

was a very intelligent man. Saul was

8:59

an ordinary lawyer until he was 39 years

9:02

of age. He went out and formed government

9:04

employees discount company.

9:06

Was this in the Fedco days? He

9:08

was no longer with Fedco.

9:12

Saul Fedco to the Germans.

9:14

Fedmark to the- Yeah. Hugo

9:17

Mann. Hugo Mann. Yeah.

9:19

Did you get to invest in price

9:21

club before it merged with Costco?

9:24

Yes, I did. But I just

9:26

bought my stock in the market. I wasn't like I had any favor.

9:31

How did you eventually meet Jim Senegal?

9:34

Well, Senegal asked

9:36

Warren to become a director of Costco. He

9:39

was looking for somebody with a financial reputation.

9:42

As an independent? Yes. And

9:45

Warren wouldn't do anything about it. He would get Charlie

9:47

to do it. I wanted shorter

9:50

plane rides to directors meetings

9:52

and so on.

9:54

So that's how that happened. And did Berkshire

9:56

ever try to become a shareholder

9:58

or acquire Costco?

9:59

to get warned to buy out the French

10:02

when they left careful. And

10:05

Warren

10:05

wouldn't do it. Warren doesn't like retailing.

10:08

Was it just that he doesn't like retail or what was

10:10

the big objection? He sprayed the retail.

10:13

Gradually everything that was Montemite and retail

10:15

is gone. The shizroboge is gone.

10:17

The big barbers are gone.

10:20

It's just too damn difficult. And

10:23

he had a bad experience with diversified retail,

10:25

right? No, we made nothing but

10:27

money in diversified. We didn't

10:29

exactly make it in retailing, but

10:32

we made a lot of money.

10:34

And with diversified, most of the money

10:36

was not on the retailing operation. You

10:38

made a lot of that money through... What happened was

10:40

very simple.

10:42

We bought this little pissant,

10:46

department store chain in Baltimore. Big

10:49

mistake to the better. As

10:52

the ink dried on the closing papers,

10:55

we realized it'd be a terrible mistake. So

10:57

we decided just to reverse it and take it to

10:59

the head store. Look foolish rather

11:02

than go broke. He just told

11:04

us how to get us out of this.

11:06

By that time, we'd already financed half of it on

11:09

government-free debt and so forth. And

11:11

they had all this extra cash. And

11:14

our own stocks got down to selling in enormous...

11:18

In the middle of one of those discussions, we bought

11:21

and bought and bought and bought. All

11:24

that money went right into those stocks. And

11:26

of course, we tripled it just by sitting on our ass.

11:29

And that led to Blue Chip? Yeah,

11:32

it was part of the early success of Blue

11:34

Chip.

11:35

Wow.

11:36

And so you mentioned Warren

11:38

doesn't like retail. And if there's something else that people don't

11:40

know about, we bought a little pissant

11:43

savings in the own company. Maybe $20

11:45

million. And

11:48

when we left that thing, we had

11:50

taken out of our little $20 million investment

11:54

over $2 billion in

11:56

marketable securities, which went

11:59

into the rest of the

11:59

insurance companies as part of their bedrock capital.

12:03

So we had some wonderful early

12:05

years and that's what everybody needs

12:07

is wonderful early years.

12:09

Wow. So

12:11

in our Costco episode, we started with the

12:13

joke at one of the Berkshire meetings probably 10

12:16

years ago. Warren told the joke about

12:19

you were on a plane being hijacked and

12:21

the hijackers gave you one

12:23

final request and you said you'd like

12:26

to give your speech on the virtue. That would

12:28

be kind of reminding of it. And he said

12:30

shoot me first. We were hoping

12:33

could you give us your speech on the virtues

12:35

of Costco?

12:37

No, Warren was kidding me for being

12:39

so repetitive on the subject.

12:42

But

12:43

there aren't many times a lifetime

12:46

when you know you're right and you know you

12:48

have one that's really going to work wonderfully. Maybe

12:52

five, six times a lifetime you get a chance

12:54

to do it.

12:55

And

12:56

you go to a two or three times early. All

12:59

of them broke because it's easy. It's

13:02

very hard and rare.

13:04

What was it about Costco that made you realize

13:07

this is one of those few moments in a lifetime?

13:09

Well, they really did

13:11

sell cheaper than anybody else in America. And

13:14

they did it in big efficient stores and

13:17

all the parking spaces were 10

13:20

feet wide and 7, 8 feet 9 or whatever they

13:22

normally are.

13:26

They did a lot of rides.

13:29

And they had a lot of parking spaces. And

13:31

they kept out of their stores. At least

13:34

you didn't do big volumes you see. And

13:36

they gave special benefits to the people

13:39

who didn't come to the stores in

13:41

the way of reward

13:42

points. The executive membership.

13:44

Yeah.

13:46

It all worked.

13:48

And the capital light business

13:50

model. I mean, when we were studying it, the

13:52

difference was price. They

13:54

had no investment in them.

13:57

They make the suppliers wait until they've been

13:59

paid. They're scheduled

14:01

to pay only after they're

14:03

scheduled to sell. They've

14:05

got 900 warehouses around

14:07

the world full of high-quality

14:09

merchandise, none of which they

14:12

have sitting on their books. That's correct.

14:14

Yeah.

14:15

Our understanding is that Price Club

14:18

went public initially before the merger. They

14:21

just listed. They didn't raise any capital. They didn't need

14:23

any capital.

14:25

Who knows? It's

14:27

all kind of like this. It's kind of a fence here. You like

14:29

deals. You

14:30

like this. It's a miscellaneous real estate thing. Yeah, but it doesn't

14:33

make sense.

14:34

It's not going to

14:37

pay you very much. Right. You don't want them is the

14:39

answer. count, the way it looks? You

14:41

know, it's a lot of people. They're going to be like, I'm going to pay you. I'm

14:43

going to pay you. I'm going to pay you. I'm going

14:45

to pay you. I'm going to pay you. I'm going to pay you very

14:48

much.

14:49

Right.

14:49

You don't want them is the answer.

14:52

Have you ever seen another business

14:54

that takes advantage of the virtue of the low-skew

14:56

count, the way that Costco does?

15:00

Well, there are lots of them. That

15:02

little grocery store chain

15:05

here in Los Angeles, Gelson

15:08

Brothers, they

15:10

wanted the high turnovers and low capital costs.

15:14

They never made the least effort to

15:16

earn any money. They wanted to show they're probably

15:18

not with anybody.

15:21

As you reflect back on

15:24

one of these few great companies

15:26

in a lifetime that you should bet big on,

15:29

what advice would you have for David and I as

15:32

young partners looking for a few

15:34

of these in our lifetime, things to look out for?

15:36

Well, you may find

15:39

it five years after you bought it.

15:42

These things may work into it or

15:45

your own understanding may get better.

15:48

But when you know you have an edge, you

15:51

should bet heavily. You

15:55

know you're right. Most

15:58

of them don't teach that in business school.

16:01

It's insane. Of

16:04

course you've got to bet heavily on your best bets.

16:07

And how do you develop that level of conviction

16:10

to know? You work at it. You

16:12

redo a lot of reading and thinking

16:14

and visiting.

16:16

I'm curious, we wanted to ask you, you've

16:19

had this beautiful partnership with Warren for

16:21

half a century.

16:23

We're a decade into our partnership. Warren has

16:25

a lot of low hanging fruit in

16:27

the early days of our operation. You

16:30

don't have any low hanging fruit that

16:33

is easy to recognize.

16:35

You mean an investment opportunity. Yeah, that's

16:37

right. But your relationship with Warren, like

16:40

how have you... Well, we were all kind of similar

16:43

and we both wanted to

16:45

keep our family safe and take

16:48

a good job for our investors and so on.

16:51

We had similar attitudes.

16:52

Yeah.

16:53

Did it change over

16:56

the decades? No. Warren still cares more

16:58

about the safety of his birch or shelter than he

17:00

cares about anything else.

17:02

We used a little bit more leverage

17:04

throughout. We have three times

17:06

as much now. Anyway,

17:08

it wouldn't have been that much more risk either.

17:12

And we just never wanted to give them at

17:14

least a chance of screwing

17:17

up our basic shelter position.

17:19

If you had used more leverage, do

17:21

you think there's some chance that... We would have done a little

17:24

better, sure. Do you think there's some chance

17:26

that it wouldn't exist at all, that it would have cost

17:28

you the franchise?

17:30

No, I think it worked fine. It's

17:33

just more than... It's been very easy. The

17:35

situation landed itself. You

17:38

were intelligent. Just milking it out.

17:41

When you leverage, I'm so curious

17:43

on after we did our... It's automatically leverage.

17:46

You're over a new store with no capital.

17:49

Of course it's leverage. Who

17:51

wouldn't want a business better than

17:54

no inventories? Right.

17:55

That's a good point. By the virtue of

17:57

you owe a whole bunch of people money... on

18:00

day one for these goods that

18:02

you know. Which turnovers are rapidly? Right.

18:05

It's interesting. I mean, that's leverage. It's not

18:08

debt leverage.

18:10

I mean, how do you think about debt? Like after we did our Berkshire

18:12

series? A lot of people do it now. A lot

18:14

of people now do it. Who manufacture

18:18

something. They're just terribly strong.

18:21

And they're just forcing the suppliers

18:24

to carry all the human goods. Isn't

18:26

like we're the only ones that do it.

18:29

Back to the point on partnership, David

18:31

and I are coming up on 10 years as partners

18:33

in this podcast we do together. Different than

18:35

the investing business, but a compounding

18:37

one nonetheless. After

18:39

a 50 year partnership with Warren, what

18:42

advice would you have for us interpersonally

18:44

to make for an enduring partnership?

18:47

Well,

18:50

it helps if you like one another. Enjoy

18:53

working together. We do. Yeah.

18:56

But

18:58

I don't use any one formula. A

19:00

lot of partnerships that work well for a long time

19:02

happen because one's good at one thing and

19:04

one's good at another. They

19:06

just naturally divide it.

19:09

And each one likes what he's doing. Now

19:13

in Costco's case, they had Jeff

19:15

Brotman who's very smart, but

19:17

not a retailer. And Jim said,

19:19

well, they divided it up. And

19:22

they originally agreed that Brotman would be the

19:24

chairman and CEO because he was his

19:26

ID, he founded the whole thing. But

19:28

as soon as I know, I have to be the CEO.

19:33

So it was a big, unfortunate board

19:35

meeting or a big internal struggle. And

19:39

Brotman moved aside.

19:41

Was that after you joined the board?

19:43

No, before.

19:46

Do you think you and Warren not living in the same

19:48

city helped your partnership last

19:50

so long?

19:52

Well, it may have helped. But

19:55

Warren has very close relations with all

19:57

those people that

19:59

have.

20:00

every Saturday at

20:02

Berkshire headquarters. It's like he has

20:04

no a little quarter of people

20:07

there who are kind of pals when

20:09

he ground up.

20:11

Do you think it helps that when you do spend the time

20:13

together it's special rather

20:15

than being common?

20:19

Well of course we used to spend a lot of time together

20:21

and we were young and we didn't have that much to do. Now

20:25

we've got more to do and then it's

20:27

just the other minute of life.

20:30

So

20:31

it's different.

20:33

Yeah.

20:34

I feel like we have a

20:37

lot to do now. It's

20:40

very difficult to invest money well

20:43

and I think it's almost impossible to

20:45

do time after time or time

20:47

at Berkshire Capital. Yeah we really

20:49

wanted to ask your thoughts on venture

20:51

capital. The deals get so hot you have to

20:53

decide so quickly. You're

20:56

all just sort of gambling.

20:57

Do

21:00

you think the role of venture capital

21:02

is being properly accomplished in society?

21:05

No I think it's very poorly done.

21:07

Charlie elaborated on this point with a few things

21:10

that we can't air but the topic did turn

21:12

to Bitcoin.

21:13

I've heard many comments you've made on Bitcoin.

21:16

I'm curious if you have a thought on this particular angle.

21:19

An easy way to transfer money in between

21:22

countries especially when those countries don't

21:24

have a stable store of value within

21:27

that country. Is it good to have an independent

21:30

store of value that is not? Well of course

21:32

it's good for the world as

21:34

a whole to have a way of having

21:36

some currency. The way that was

21:39

solved for a long

21:41

time the British found was the national currency

21:43

of investment world and

21:45

that shifted to the dollar

21:48

and it's still a dollar. And

21:52

people like China have these enormous reserves

21:54

of dollars. These are the money we make

21:56

but think of the money

21:59

people give us.

21:59

us where we always just print out these

22:02

pieces of paper.

22:03

Yeah. And what about the common person

22:06

in some of these less fortunate countries who

22:08

don't have access to US dollars?

22:12

Oh, they do have

22:14

they ever get any money, dollars,

22:16

very fun joy, you can always buy one

22:19

anywhere.

22:20

I'm curious back to this point of the

22:23

role of venture capital in a society, if

22:25

you could design a perfect system to fund

22:28

legitimate business.

22:30

If you do it right, if

22:32

you might get the right people power

22:35

and nurture them help them.

22:37

You know a lot about the tricks

22:39

of the games even help them run

22:42

their business yet not interfere with them so

22:44

much they hate you. By

22:46

and large, I haven't bumped

22:48

into a lot of people in the businesses with

22:51

venture capital financing. I

22:54

would say the ordinary rule is that people

22:56

in the business doing the work. They

22:59

more than the eighth of entering Atlas. They

23:02

don't feel their partner

23:04

trying to help them to come in. They're

23:06

only taking care of themselves and so on and so on.

23:09

How could it work differently? Yeah, well,

23:12

the best not to in Berkshire.

23:15

See, our real way, they know we're not trying

23:17

to discard them to the highest bid. See

23:19

if someone has all the best of the maker offers us 20

23:22

times earnings or some lousy

23:25

business. We also hmm, if

23:28

it's a problem business, we never able to fix will

23:31

sell it but it's a halfway decent business.

23:33

We never saw anything. And

23:35

that gives us a certification of staying with

23:37

things, which helps us.

23:40

And do you think that buy and hold

23:42

not only mentality but demonstration

23:45

is the key thing that

23:47

aligns investors with managers?

23:52

Well, it's rare you see,

23:55

everybody else has a standard way of doing things.

23:57

The lawyers have their standard forms.

24:00

And every region has the same standard form

24:03

and they get the same standard results subject

24:06

to the business institutes and

24:08

investment life. You don't want to

24:10

make money by screwing your investors. And

24:13

that's what a lot of venture capitalists do. The

24:15

world is full of ex-G8 Goldman

24:17

Sachs partners that form the private fund and

24:20

they manage a billion dollars or something like

24:22

that.

24:23

And

24:24

they charge two points off

24:26

the top plus the slippage. And

24:29

that enables them to make very handsome

24:31

movies themselves. But the

24:33

endowment is not getting your return.

24:36

And do you think it's specifically the fee

24:38

aspect of fund structures? It's just the nature of

24:40

the web, it's just the way it works.

24:42

And of course,

24:45

you really shouldn't be in the business of charging

24:47

extra. But you really are

24:49

going to achieve very unusual results. And

24:53

of course, it's more easy

24:55

to

24:57

pretend that you can get better results

24:59

on this than actually get

25:02

them. And so it attracts the wrong people.

25:04

People with an investment capital

25:06

term mine. And the people who made the

25:08

most money out of capital are

25:11

a lot like investment bankers deciding which

25:13

new area they're going to get in. They're

25:15

not great investors or great

25:17

anything.

25:19

What do you think

25:21

endowments and large pools of capital should do

25:23

then?

25:24

Well, they're starting to do it. The endowments have

25:26

started to say to

25:28

all these people that judge 3

25:31

and 30 or whatever they judge, they

25:34

said, we'll pay your 3 and 30. We're

25:37

going to put in twice as much money and then the

25:39

next half you'll get nothing on it. You're

25:42

going to ride very fast. You want some of your

25:44

investments. So the fees go down

25:46

by 50%.

25:48

That'll take a lot of the fun out of it.

25:51

Fees down 50%.

25:54

And that's happening all over America.

25:56

They feel had

25:58

misled. irritated.

26:01

They've looked

26:03

foolish to their own trustees.

26:06

One of the issues I think in investing right

26:08

now, you mentioned about venture capital, but I think

26:10

it's true everywhere. It's like there's just so much capital

26:13

and so much competition. We're so

26:15

far removed from the cigar bud era.

26:18

We're in the opposite of the cigar bud era these days. Are there opportunities

26:21

out there? Somebody

26:23

will find the good thing, but

26:26

it gets harder and harder.

26:28

I would argue one of the easiest ones

26:31

was when they decided

26:33

a little group around Home Depot, they

26:36

would copy the Costco model and

26:38

home improvements. That

26:41

was basically a good idea. Think

26:43

of the money they made doing it.

26:45

Yeah.

26:46

Bernie Marcus. Yeah.

26:50

It was a direct copy of Costco.

26:53

Do you think there are more opportunities to copy

26:55

Costco? Well, there was another one in

26:57

Costco.

26:59

Floor and décor. It's

27:01

the current emitator.

27:04

It's just this in

27:06

vinyl, wood eminating vinyl flooring

27:09

that they're running a Costco model.

27:12

They keep adding miscellaneous stuff to it too.

27:15

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

27:19

Well, it

27:20

would be simpler if it was all flooring.

27:23

Yeah. Home Depot worked so well. I

27:29

don't know that it was totally obvious. Part

27:31

of the appeal of Costco was it was

27:34

horizontal. It was everything. Consumers

27:36

could come. They could make a trip, bring their big wagon,

27:39

bring their big trip. Home Depot is the same.

27:42

They copied everything.

27:44

And famously Bernie Marcus came out to visit Saul

27:47

before it started. Yeah. They came out, they copied

27:49

everything.

27:50

Saul was happy to share

27:52

the playbook with everybody. How did you

27:54

feel about that?

27:56

Saul was a crazy kid.

28:00

domineering and so on.

28:03

But he was also very intelligent.

28:08

But there aren't many opportunities like Home

28:11

Depot and Costco.

28:13

There aren't very many.

28:15

Why do you think Walmart hasn't been successful

28:18

once they saw Costco in competing?

28:22

They were too wedded by the ideas they already

28:24

had. That's everybody's trouble. You

28:26

can't accept a new idea because the place

28:29

is lucky by the way, an old idea.

28:31

They got in the habit of getting real estate credit,

28:34

even nothing, because they were any little towns where

28:36

nothing was valuable. So there

28:38

are always occupancy costs like zero.

28:40

And they knew how to make big division stores.

28:44

That was their formula. So

28:46

it offended them to go against the rich

28:48

suburbs and pay out for the good locations.

28:51

And Costco just specialized in the

28:53

good locations where the rich people live. And

28:56

Walmart just let them do it year after year. It was

28:58

a terrible mistake.

29:00

Did you know Sam?

29:02

Walton?

29:04

No,

29:05

never met him.

29:06

I knew this son, one of the sons.

29:09

And

29:10

they divided it up, you know, in about six parts

29:12

very early. Yeah, Walton Enterprises. So

29:15

they never paid much gift taxes for anything.

29:18

The topic then turned to the automakers and

29:20

the future of the car industry.

29:23

Look how hard it would be to go

29:25

into the auto business and have some big

29:27

killing.

29:29

Who's going to win? Who

29:31

knows? The whole thing has been thrown

29:33

away up in the air by all these electric cars.

29:36

Those big new capital

29:38

requirements, different ways

29:40

of selling cars.

29:42

And plus, they got these tough unions. See,

29:46

I just don't even look at the auto industry.

29:48

Do you think it's more investable today than

29:50

it was 50 years ago because of the disruptive

29:53

innovation of electric?

29:55

Well, for maybe for one or two,

29:58

electric cars are really... going

30:00

to,

30:01

maybe,

30:02

but certainly nobody else.

30:05

It's too tough.

30:07

BYD was a miracle, but

30:10

that guy worked 70 hours a week and

30:12

has a very high IQ. You

30:14

can do things you can't do.

30:16

You can look at somebody else's auto part and you can

30:18

figure out how to make the goddamn thing.

30:20

You can't do that, you see. Charlie, you invested

30:23

a Hyundai.

30:25

Yes, but they're clever too.

30:27

How was that investment for you?

30:29

I lost money. Not much

30:32

because I was stubborn. I held out and

30:34

got back to almost what I paid for it when

30:36

I was older.

30:37

There's been a lot of discussion about Berkshire's

30:39

investments in the Japanese's trading houses.

30:42

Well, but that

30:45

is a no brainer.

30:47

Something like that. If

30:50

you're as smart as Warren Buffett,

30:52

maybe two, three times a century.

30:55

You had an idea like that.

30:57

The interest rates in Japan were half a percent

30:59

per year for 10 years.

31:03

These trading companies were really entrenched

31:06

old companies. They had all

31:08

these cheap copper mines and rubber

31:10

plantations. You could borrow

31:14

for 10

31:14

years

31:16

ahead all the money

31:18

and you could buy the stock and it's actually at 5% dividend.

31:22

So there's a huge flow of cash

31:25

with no investment, no thought, no anything.

31:28

How do that? You'll

31:30

be lucky if you get one or two a century. We

31:33

could do that. Nobody else could. It

31:35

looked attractive at half or something. You

31:37

couldn't get it. But

31:41

Berkshire with this credit cut. And

31:43

the only way you could get it was be very patient

31:45

and just pick away at the little pieces of

31:48

the time. It took forever to get $10

31:50

billion invested. But

31:52

it was like, God just opening

31:55

a

31:56

chest and just pouring money into it.

32:01

It's awfully easy money. It's interesting

32:03

that it's paradoxical. You need Berkshire's

32:05

credit, but at Berkshire's scale, it's actually

32:08

hard to put enough money to work. That's

32:10

true, but why should it be hard to make money?

32:12

Why should it be easy?

32:15

Japanese trading companies reminds me. We studied another

32:18

company recently, Nike. That

32:21

is very different company. Did you ever

32:23

look at it? That's a style company.

32:25

Of course, I've looked at it, but I don't

32:27

like style company.

32:29

Too fad driven?

32:32

Well, I suppose it would be a

32:34

Hermes that's an achievement. I'm surprised I'd buy it, but

32:36

short of that, I'm going to buy this type of company.

32:39

Ooh, that's a good pick. So the style

32:41

points, another one that they covered was

32:43

LVMH. What Arno has done

32:46

has been amazing. So

32:48

what do you make of that company? Well,

32:50

as good as they've done, you have

32:52

a lifetime to do it in. In our lifetime,

32:55

really, if you have more lifetimes to do it in,

32:57

you can create another. But it's not

32:59

easy.

33:00

Hermes is on the eighth generation,

33:02

I think now, the family

33:04

running it.

33:05

It's not a bit easy. They have

33:08

meetings every day where they make policy decisions.

33:11

They choose the locations one at a time.

33:13

It's work.

33:15

It's definitely work. What do you think

33:17

the durable value is

33:20

in these, as you say, style companies, of the very

33:22

best one in the world, the Hermes or the

33:24

LVMH? What makes them enduring?

33:27

Well, I just got to brand people trust so much.

33:32

It took them centuries to do it.

33:35

Our conversation then turned to comparing

33:37

Kirkland Signature as a brand to

33:40

Hermes.

33:41

Kirkland is a brand the way Tide is a

33:43

brand.

33:45

And

33:46

Hermes is a different kind of brand.

33:50

Yeah, Ferrari doesn't make detergent.

33:53

No. We've

33:55

spent a lot of time studying these brands. How

33:58

do you look at the value of it?

33:59

brand?

34:01

Well,

34:03

it's hard for us not to love brands

34:06

since we were lucky enough to buy this candy

34:08

for 20 million dollars as our first

34:11

acquisition and we found

34:13

out fairly quickly that

34:16

we could raise the price every year like 10%

34:19

and nobody cared. We didn't

34:22

make the lives go up or anything like that, just

34:25

made the

34:26

profits go up.

34:27

So we've been raising the price by 10% a year

34:30

for all these 40 years or

34:32

so. Wow. It's

34:34

been a very satisfactory company. We

34:36

didn't have any new capital. That was

34:38

what was so good about it. Very little

34:41

new capital. We had two big

34:43

kitchens and a bunch of rental

34:45

stores when we bought it. Now

34:47

it's got two big kitchens and

34:50

a bunch of rental stores. Well,

34:54

Josh, he was a playboy and

34:56

his brother ran the company, his older

34:58

brother,

34:59

and dominated it completely.

35:02

But when he died, Charlie made his brother

35:04

his executor and now

35:06

he needs a lot of money to pay death taxes.

35:09

He doesn't have it. It's due,

35:12

you know, eight months or something later.

35:15

And so

35:16

they really wanted to sell so they could pay the death

35:18

taxes. And

35:21

it seemed it was only making for my infre tax

35:24

when we bought it.

35:25

And so that buying opportunity only came about

35:27

because the family needed liquidity to pay the death

35:29

tax. Yeah, that's right. We only found

35:31

out about it because

35:33

Charlie C was on his cruise to Hawaii

35:35

or something. This guy

35:38

was a client of my cousin council

35:40

also worked for Blue Chip Stamps,

35:43

who was the company that bought it.

35:45

And

35:48

anyway, that's how we found out about it.

35:50

We paid that guy a finder's fee. We've

35:53

never paid one cent. You know,

35:55

we think that's worth it. Of

35:57

course, but you don't

35:59

want to do it. I don't know, maybe things are very minor,

36:01

things are very in the world, I'll be bothering you all day long.

36:05

So what do you think, so there are categories like

36:08

C's or

36:10

like their miss,

36:11

where brands lead to pricing power?

36:14

I think your chances of buying one of them, so

36:18

low I wouldn't even look.

36:20

I don't even believe in looking at things that I might find.

36:23

You're not gonna get a chance to buy one of them. No curiosity

36:26

without a return. Yeah, yeah, yeah.

36:28

So why do you think there are extremely

36:30

well-known

36:31

brands in other categories, maybe packaged

36:33

food or something? Well, there

36:36

are a lot of original investors that

36:39

might not even brand new goods. And the one they usually

36:41

start with is Nestle.

36:43

And

36:44

it is filled with everything. They've

36:47

done two or three points better than average, but

36:49

it's not a good answer.

36:52

After that, our conversation turned to Kraft

36:54

Heinz and why Heinz is able to have

36:56

pricing power while Kraft is not.

36:59

Very interesting. It's

37:02

only about the flavor of ketchup

37:04

on a goddamn fried potato. You

37:08

are really willing to change brands over. They

37:10

want Heinz. And so

37:12

we can raise the price of Heinz pretty

37:14

much. Hey, but

37:17

you try to raise the Kraft cheese and

37:20

everything goes in about you. Including

37:22

the final customer of the housewife. You

37:25

don't care that much about whether the cheese is grabbed

37:27

or not.

37:28

Why do you think that is that some? Well,

37:30

I'm the sauce flavor.

37:32

It's happened elsewhere in Korea. One guy,

37:35

the Chinese guy,

37:36

throws all the sauces.

37:39

Every single major sauce, he throws at least 95%

37:41

of them.

37:43

And it's because sauces have such a particular

37:45

flavor that no one can imitate the trade secret.

37:48

Yeah. Huh, and that gives pricing.

37:50

Well, they'll get used to it and they like it. Is

37:52

that Coca-Cola as well? Yeah, sure.

37:55

Charlie, I'm curious, at age 99,

37:58

what is something?

37:59

that you believe today that

38:02

70-year-old Charlie would have disagreed

38:04

with?

38:06

I think I knew when I was 70

38:09

that was funny,

38:11

it's just so hard. I know how hard

38:13

it is now. And all

38:15

these people who

38:17

are getting this two and 20 or three

38:20

and 30 or whatever, they

38:22

all talk because it was easy and they get to believe

38:24

in their own bullshit. And of course,

38:26

it's not a bit easy. It's

38:30

very hard.

38:32

If you were back 30 or 40 years old again

38:34

today, would you decide to go into the investment

38:37

business again? Well, probably because it suits

38:39

my nature.

38:41

But I didn't really enjoy the

38:45

three and 30 business. Once I had enough money

38:47

on my own, I'd rather just offer

38:49

it with my own money. That is a much better

38:51

way of doing it than.

38:54

Because of the freedom? Yeah, we forced

38:57

the deal with investment bankers. We

38:59

forced the deal with

39:01

investment consultants. We forced the deal

39:03

with venture capital. The hell with

39:05

them. Who knew us? I need other people.

39:09

Finding any riches, you don't have to get

39:11

along with them.

39:13

Charlie, if you started with Warren today

39:16

and you're both 30 years old, do you think

39:18

you guys would build anything close to what

39:20

Berkshire is today?

39:24

Yeah, I know we would. We

39:27

had

39:28

everybody that has an unusually good result.

39:32

Almost everything has

39:34

three things. They're very

39:36

intelligent. They worked very hard. They

39:38

were very lucky.

39:40

It takes all three to get them on this list as soon

39:42

as they were successful.

39:44

How can you arrange to have just the answers and

39:46

good luck? The answer is you can start

39:48

early and keep trying a long time and

39:50

maybe you'll get one or two.

39:52

If you were starting again today, do you think insurance

39:55

would still be the vehicle? Depends on

39:57

your temperament.

39:58

Insurance would be ideal. for a certain kind

40:00

of a temperament.

40:02

And

40:03

it takes a very patient person

40:05

to get rid of insurance. It

40:08

takes forever to get anything in. It takes

40:10

forever to push anybody aside. It's

40:13

very hard to make money.

40:15

I've heard you say, as

40:17

soon as you're wealthy enough to self-insure,

40:19

you should. Is there any insurance thing? Well, that's

40:21

about right of the everyday.

40:23

Think of all the crumbums of

40:25

the world that drink too much and then

40:27

file big claims for the insurance company. It's

40:30

on fire or something. Why

40:33

would you want to pay

40:35

your share of those too busy?

40:38

Not to mention the overhead. Of course, the insurance company

40:40

needs to pay all the people that work there. Yeah, yeah.

40:42

No, no, I just, it's crazy.

40:45

Is there any insurance that you carry today?

40:48

I carry no fire insurance anywhere.

40:51

Do you carry auto insurance?

40:53

Yeah, I have to. Well, you're legally legally.

40:56

I don't know. Charlie could...

40:58

No, I have to and I do.

41:00

I'm curious, being that, since these

41:03

guys are

41:04

very tech focused, I'm curious, not being a tech

41:06

person, how did you think about the Apple investment?

41:08

What gave you the conviction to be so

41:11

big?

41:12

What everybody's learned is that

41:15

everybody needs some significant

41:18

participation in the

41:19

12 companies that do better than everybody else.

41:24

You need two or three of them at least.

41:27

And

41:29

if you have that mindset,

41:32

Apple was a logical candidate to be on

41:35

the list, therefore, once you're going to select your companies.

41:38

And it's not very hard to come up with the idea

41:40

that it may be okay.

41:44

Making the list doesn't sound too hard. In

41:46

fact, there are these acronyms, FANG

41:48

or MAMA, Microsoft, Apple,

41:50

Google, Facebook, but selecting

41:52

the one and putting

41:55

hundreds of billions of dollars into it.

41:59

to do it.

42:00

To create hundreds of billions of value, that

42:03

to me sounds hard to pick the one.

42:05

How did you guys pick the one? We couldn't

42:07

find anything else. Was

42:10

it valuation or? Yeah, it got

42:12

cheap. We got to say about 10 times or anything more

42:14

about it.

42:16

2015, I believe, was the first.

42:19

It's fascinating to me this concept

42:21

of if you look at distressed debt or you look at,

42:23

I think Warren in the last Berkshire letter pointed

42:25

out, it's been a handful of really good decisions

42:28

or you look at venture capital that's classically

42:30

power law distributed. Any of these asset

42:32

classes comes down to a few

42:35

really good decisions with high conviction over an

42:37

entire career. Yeah, that's exactly

42:39

what it works.

42:42

It's not smooth. There's no asset

42:44

class where you can repeatedly

42:46

just do. No, no, no, no. The the

42:48

the the the the the idea is

42:51

it's not gone, but it's very small.

42:55

You mentioned this idea that when

42:57

we were talking about Apple, there's a

42:59

few companies that it's just really

43:02

important to be in.

43:03

Do you think these big tech companies

43:05

being the winners where all

43:07

of the pensions and Berkshire and

43:10

University endowments and everyone's 401ks being

43:12

concentrated in these companies, do you think that

43:14

was the natural outcome?

43:16

Did we have to end up this way? Yeah, it was natural.

43:19

That's

43:19

why it happened. What causes that?

43:25

Well, it's just that's

43:28

what human nature and competition

43:30

that's what it causes. Will

43:31

we eventually have one?

43:34

Eventually, this craziness in

43:36

venture capital and they're all gone stupid. That's

43:39

a natural outcome.

43:42

Will we have 120 trillion

43:45

dollar companies and then the next biggest

43:47

company? I don't know how the world's going to know

43:49

we're going to ever as we did. They

43:52

just happened.

43:55

Would you continue investing in China?

43:58

What's your position with that? Well,

43:59

my position in China has been

44:02

that the Chinese

44:05

economy has better future prospects

44:08

for the next 20 years than almost any other

44:10

big economy.

44:12

That's number one. Number

44:14

two, the

44:15

leading companies of China are stronger

44:17

and better than

44:18

practically any other

44:21

leading companies anywhere.

44:23

And they're a little bit cheaper price. So

44:26

naturally, I'm willing to have some

44:29

China risk in the Munger portfolio. How

44:32

much China risk? Well, that's not a scientific

44:34

subject. But I don't mind whatever

44:36

it is, 18% or something, whatever, whatever's

44:39

worked out in the Munger family. So okay

44:41

with me.

44:43

What about other geopolitical considerations?

44:45

Like would you hold DSMC at this point? Well,

44:48

I don't like that as well. I like something with a real

44:50

consumer brand of its own like Apple.

44:54

I'm curious what major companies that

44:56

haven't been mentioned, do you think people would do well

44:59

to study the virtues of like studying the virtues

45:01

of Costco? Well, I only study two kinds of

45:03

companies. One, I'm an other

45:06

big Ben Graham

45:08

follower.

45:10

Something is really cheap, even though it's

45:12

a crappy company. I don't think we've

45:14

been sitting or buying it for a while anyway.

45:17

And I

45:18

do that occasionally. And

45:20

I've dealt with great success at the time or

45:22

two, but my hard marks, I've done it once or twice in my

45:24

lifetime for big

45:27

gains. And that's it. It's

45:29

not like I have almost anything to do 100

45:31

times.

45:33

So it isn't a bit easy. 100

45:35

times the easy money is

45:37

almost non-existent. One

45:39

type of company is the cigar butt. What's

45:42

the other type of company?

45:45

The companies that people would do well to study the

45:47

virtues of. Well, the great brand companies, of course,

45:49

are good. Get them at the

45:51

right price. The whole trick is to get them on the review

45:54

where occasions when they're really

45:56

cheap.

45:57

But buying Costco at its present price.

46:01

It may work out all right, but that's,

46:04

again, it's getting hard.

46:06

Yeah. For getting the prospects to stock, how do

46:08

you think about the next 10 years for the business?

46:11

I think it'll do pretty well.

46:13

One more question for you in this area.

46:17

What is your favorite advice to give

46:19

to young people? Well,

46:21

I don't

46:22

give advice to just any young people. I

46:24

give it to some. I pay my spots.

46:27

I don't want to be more of a guru with young

46:29

people. Oh, yeah. It's

46:32

getting hard out there.

46:35

And there's all this bullshit and craziness.

46:38

Of course, it's going to be hard.

46:41

Where do the attractive opportunities hang out anymore? It sounds

46:43

like everything in the whole world is overpriced. Could

46:45

that be possible? Damn near. Of course,

46:47

it could be possible. It's not only possible,

46:49

it's likely it's actually happened. How

46:51

did the world get so rich if we have all this capital

46:54

for so few opportunities? It's the nature

46:56

of things. Look, biology

46:59

produces a very advanced creature like us.

47:02

You

47:02

can sit around and talk intelligently on all

47:04

these subjects. But it does it

47:06

by killing everybody off in brutal confrontation

47:08

one with the other for hundreds

47:11

of thousands of years. In

47:13

other words, the system that nature uses to

47:15

get smart

47:16

is kind of unpleasant to the people who are losing.

47:19

So over the last 100 years, we've brutally

47:21

shifted all this value from labor

47:24

to capital. And now capital is all competing to

47:26

get into a very small set of opportunities.

47:29

Well, capital never... It

47:32

wasn't if it was all that

47:34

easy and you go back a long time.

47:36

It just was a lot easier.

47:39

And if it continues to get harder, the natural

47:42

end is that you have... Yes, an unpleasant

47:44

blow up of some kind. And

47:46

God knows what happens after an unpleasant blow

47:49

up

47:49

with our modern democracies.

47:52

You get to your level in Europe, which is quite dysfunctional.

47:55

Is it too pessimistic of a view

47:57

to say that the world seems to be out of control?

47:59

out of good ideas to match

48:02

the amount of capital out there looking for good ideas?

48:05

It was never easy.

48:07

It's thoroughly understood it was never easy. And

48:10

it's harder now. Those are the two where I'm

48:12

at. And you

48:14

pay attention that you're handling the people you deal

48:16

with. You want a good reputation when

48:18

you're all done, not a bad one.

48:20

And I don't think you're saying there are no opportunities

48:23

whatsoever. I think there's low

48:25

expectations, fewer

48:28

bonanzas. It is, you

48:31

only have to get rich once. You

48:33

don't have to climb this mountain four times. You

48:36

just have to do it once. Well, that's sort of your philosophy

48:39

on both sides is you gotta be patient for the great

48:41

opportunities, but you gotta recognize them

48:43

when they come and pounce.

48:46

We turned off the mics to have dinner and then

48:48

recorded a little bit more later in the evening about

48:50

Costco and some life advice from Charlie.

48:54

So one Costco question that I've been wanting to ask

48:56

you is all the puzzle pieces of the

48:58

low skew count and the high inventory

49:00

turnover. And there's just so many things that

49:03

fit together so beautifully. They're pretty obvious

49:05

though.

49:06

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

49:08

so obvious? Well, it takes a lot of good execution

49:11

to do it. You really

49:13

have to set out to do it and then do it with an anisysm

49:16

every day, every week, every year

49:19

for 40 years. It's not so damn

49:21

easy.

49:23

So you think the success is the magic of the business

49:25

model and culture?

49:27

Yes, yes, culture plus model,

49:30

yes, absolutely. And very

49:32

reliable,

49:33

hardworking,

49:35

determined execution for 40 years.

49:39

I mean, they talk about the story of the catch up that

49:41

you could increase the price of

49:43

catch up by 3% and nobody would notice,

49:46

but that would destroy everything if you did

49:48

that, right?

49:50

I would say that the central norm was

49:53

don't raise the market.

49:56

Get it low and keep it there forever.

49:59

Which brings us

50:01

to the hot dogs. Is it true,

50:04

the story that when Craig took

50:06

over as CEO, he did

50:09

try to raise the price of the hot dogs?

50:12

I don't know. I had no conversations

50:14

with him. And

50:17

then forbade him.

50:19

Well, I sure Jim would have forbade it.

50:22

Absolutely.

50:23

There was no board level discussion. No. Of

50:25

the hot dog. No. No.

50:27

Those two would not have thought it was a board matter

50:30

to discuss the price of hot dogs.

50:32

The one thing that fascinates me about Costco is

50:34

they seem to only be able to grow 10%

50:37

per year because they're not capital

50:39

constrained. No amount of money,

50:42

if they were to access it for free, could help them. I'll

50:44

tell you what it is. It's hard to

50:46

open too many stores a year.

50:49

New store, new manager, new this,

50:51

new politics.

50:53

It's hard.

50:55

Plus, a lot of stuff has to be learned

50:57

and taught and put in place.

50:59

And so they didn't want to do more than they

51:01

could comfortably handle.

51:04

Store openings, you mentioned China earlier. Was

51:06

it 20 years that Costco had the license

51:10

to operate in China? Well, let me see what happened there.

51:13

The first store, they

51:15

tried to open in China.

51:17

The first store, somebody wanted

51:20

a $30,000 bribe. No,

51:21

Chinese culture.

51:23

And they just wouldn't pay it. And that

51:26

made such a bad impression on Jim Sinego.

51:28

He wouldn't even talk to him going into China

51:30

for about 30 years thereafter.

51:33

So what changed? Why finally go in? Well,

51:35

finally, the board started breaking up noises.

51:39

You started agitating. Who

51:42

on the board could be excited about the Chinese market?

51:44

Yeah, who can? Who knows?

51:50

Oh, that's so great.

51:52

One thing I found fascinating about Costco

51:54

was the fact that even though they're

51:56

at the lowest possible prices,

52:00

their audience skews wealthy.

52:02

Was that an accident that they figured out over

52:05

time, or did they know that? No, so at first, they figured

52:07

out to announce. All the way

52:09

back in the Price Club days. Yes.

52:12

You always wanted the rich man trying to save money.

52:15

Well, and it's not just that they're the wealthiest

52:17

customers, they're smart, wealthy customers.

52:19

They're picky. Yeah, they're picky, wealthy customers.

52:22

On some topics that are outside of Costco,

52:25

you mentioned in the Daily Journal annual meeting

52:27

this year that a young man knows the rules,

52:30

and an old man knows the exceptions. Yeah,

52:32

that's an old saying in Peter's. Oh, is that

52:34

a Peter Kaufman? Yeah. What are

52:37

some of the exceptions that you've found

52:39

the most useful in life?

52:42

Well, take those goddamn Costco

52:44

hot dogs. That's an exception.

52:48

Anybody else would have raised the price of hot

52:50

dogs a long time ago.

52:52

They just don't do it.

52:54

They just know that it's half

52:56

famous. You know, when your kids

52:58

in the house, they know they've got something

53:00

going on. What's extra money

53:02

to them? They just don't destroy them.

53:04

A thing that I've never fully understood. I

53:06

know you're a big fan of the company BYD that

53:09

of course makes the Chinese company that

53:11

makes batteries and electric vehicles. I

53:14

may be a big fan, but I'm sort of

53:16

hanging out by my hat while he lurks

53:18

around the track. And

53:21

they make me nervous. It's so

53:23

aggressive.

53:25

Is that dangerous in a company? No,

53:28

that's what makes me nervous across the stage. So

53:32

do you think that companies should try to grow

53:36

at a lower rate than they're capable

53:38

of in order to be more durable?

53:41

Well, of course you do that if

53:43

it's safer and it's easier

53:45

and so forth. But

53:47

I would argue at Costco where they've done

53:50

some of these things that are extreme like that,

53:53

it's not pleasant, it's smart to

53:55

not to change their ways

53:57

on one item or two.

53:59

It seems like there's a spectrum where

54:02

on the one side there's Costco that

54:04

is just not a fast growing company because it's

54:06

very difficult to. And on BYD, like

54:08

you're saying, they grew like crazy. I mean,

54:10

you turn- Well, BYD,

54:14

this year, so at least two and a half million

54:16

cars,

54:17

most of them electric. That's unheard of.

54:20

I've never heard of that. That's way more

54:23

than Mercedes, for instance. More than Tesla,

54:25

right? Yeah, more than anybody. Yeah.

54:27

Lots of troubles and losses.

54:30

They ran into terrible trouble. They made lots of

54:33

mistakes. They

54:35

were lucky they'd be in

54:37

the cutting edge of this electric car

54:40

business.

54:40

It's way more acceleration than most people.

54:43

So you got a car with more oomph than most people.

54:45

So the young macho male has

54:48

a real

54:50

lively car.

54:52

There are a lot of things where the electric

54:55

car really

54:56

works in some ways. It is better.

54:58

It makes a 90 degree turn. You

55:00

go right opposite parallel part of your ways, you just

55:02

move this way. Turn the wheels 90

55:05

degrees and go in. Yeah. Well,

55:07

nobody's ever done that. If

55:09

your car goes flat, you

55:11

could run 100 miles on three other

55:13

wheels or something.

55:15

And do they have better economics because they don't have nearly

55:18

as many parts?

55:19

It's simpler.

55:21

Have you ever had an investment like that before?

55:24

I think you've invested something like 270 million

55:27

that's now worth something like 8 billion

55:29

in BYD.

55:30

Well,

55:31

very good people have an investment.

55:35

It's a venture capital type investment. It happened

55:37

to be a semi-traded public company. We

55:39

bought it instead of a venture capital type company.

55:43

It was a venture capital type play.

55:46

And they just went and put the foot right at the

55:48

floorboard and played it hard.

55:50

Had they manufactured... By the way, both

55:52

BYD

55:54

and we

55:56

tried to talk about how to go into the car business.

55:59

bank of a car business and go into the car business.

56:03

I said, that's

56:04

a great yard for you. So why would you want

56:06

to do that?

56:07

And

56:08

he paid no attention to us and right

56:10

ahead.

56:11

Had you invested already when he told you the plan?

56:13

Yes.

56:15

And it worked fabulously. Well, after

56:18

huge mistakes, they were almost went

56:20

broke with their early dealership building

56:23

system,

56:24

almost went broke.

56:27

What captivated you about the way I

56:29

was a genius.

56:31

He was a PhD in engineering

56:33

and he could make that part, you

56:36

know, look at the morning and look at

56:38

it. I've never seen anybody like that. He

56:44

could do anything. He is a natural

56:46

engineer and a

56:48

guest dumb type production

56:50

executive. And that's a big thing.

56:53

It's a big talent to have in one place.

56:56

It's very useful. It

56:58

saves up all these problems on these

57:01

electric cars and the motors and the acceleration

57:03

and the braking and so on.

57:07

How would you compare him and BYD to

57:09

Elon and Tesla?

57:11

Well, he's a fanatic that knows other

57:14

actors that make things his hands. So he has

57:16

to. He's closer

57:18

to ground zero in other words. The

57:20

guy at be ready is better at actually

57:23

making things than he thought is.

57:27

Charlie, you turn a hundred,

57:30

which is an unbelievable statement on January

57:33

1st of next year. Do you have

57:35

any plans?

57:36

I'm going to party. Where's

57:40

the party going to be?

57:41

To California.

57:43

I've totally maxed out the room. I

57:45

can't squeeze another. What captivates

57:48

you these days?

57:49

What's fun? Well, personally, everything

57:52

is. Even

57:54

politics,

57:55

bad as it is, is kind of interesting. When

57:57

you look back at your story,

57:59

you're in Warren's

58:01

time together. When did you have the most fun?

58:04

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

58:08

having fun now.

58:10

Is there a particular era that you remember

58:12

the most fondly that feels like the good old days?

58:16

Well, I remember we were sweating blood in

58:18

some of those good old days.

58:19

Oh, I mean, Salwyn Brothers. Salwyn Brothers.

58:21

Yeah, yeah. There were a lot of close

58:24

misses.

58:25

We got out of the big problem with Salwyn, but we

58:27

could have had a big loss.

58:30

We could have had

58:31

more problems than just a loss with

58:33

Salwyn, right? Well, actually, when

58:35

we examined Berkshire Hathaway on our podcast,

58:38

our takeaway was that the

58:40

whole franchise was at risk during

58:42

Salwyn Brothers, the entire Berkshire Hathaway

58:44

name and future. Would you agree with

58:46

that?

58:47

Not so much. I think you would have survived

58:49

it.

58:51

If you would let the whole investment in Salwyn

58:53

go to zero, it would have been... If it all

58:55

had gone up and went to zero, we

58:57

would have written it all and gone. Done

59:00

pretty well.

59:02

What do you consider it to be your finest hour?

59:07

Well,

59:09

we like to remember the close

59:11

misses were real

59:13

terrible problems.

59:15

Yeah, terrible problem with the Buffalo News.

59:18

The Buffalo Evening News? Yeah. Yeah.

59:21

There were two North Evers in that town. We started

59:23

a Sunday edition

59:24

and that started a holy war and the other guy went

59:26

broke. Well,

59:28

you could have a lot of bad people to deal

59:31

with that.

59:33

And you were both pretty young and

59:35

enterprising at that point. Yeah. I mean, you weren't the Warren and

59:37

Charlie of... No, but I was very

59:39

aggressive about wanting to have

59:41

a good Sunday edition.

59:43

I didn't want to own the paper for 50 years, there's

59:45

no Sunday edition and the other guy had one.

59:48

What made the newspaper business so attractive

59:50

at that point in history? Well, it was a gold mine.

59:53

Lots of trackers. That's right. Total gold mine.

59:56

Well, and the play in particular with the Buffalo

59:58

Evening News and the Sunday edition...

59:59

was playing for the local monopoly,

1:00:02

right? To be

1:00:04

the game in town. And with newspapers,

1:00:06

you could do that. I

1:00:09

mean, newspapers for decades

1:00:12

had EBITDA margins in the 50-60% range,

1:00:16

right? No, only the little ones. Only

1:00:19

the little ones. Yeah, the big ones were less, 30

1:00:21

or 40 or 25 or... I

1:00:25

said EBITDA on your presence, I apologize. Cash

1:00:27

flow margins. Actually, do you still feel as

1:00:30

that EBITDA is a criminal

1:00:32

the way that you've demonized it in the past? Yeah,

1:00:34

I do. I mean, you have

1:00:37

a big truck company and

1:00:39

take the depreciation out of the trucks out of the

1:00:41

earnings you're relying about the earnings. I

1:00:45

mean, you witnessed its rise

1:00:47

with Malone and TCI and Liberty,

1:00:50

when EBITDA was invented as a concept,

1:00:52

right? Like, what were you thinking?

1:00:55

Oh, I've never liked John Malone's extreme

1:00:58

manipulations. I don't

1:01:00

want to be known as the great manipulator

1:01:02

like John Malone is. He

1:01:06

paid less than any of the back to anybody.

1:01:08

He just pushed everything to the drive on

1:01:10

zero extreme.

1:01:11

In many ways, EBITDA was the community

1:01:13

adjusted earnings of its era.

1:01:16

Are you familiar with the community adjustment from

1:01:18

WeWork? WeWork, oh boy.

1:01:22

Maybe a final question

1:01:25

to wrap up. What are the set of

1:01:27

companies that you think are the greatest that you've ever seen?

1:01:29

Either that you've owned or that you've not

1:01:31

owned?

1:01:34

Well, there are a lot of great companies. CERNMASE

1:01:36

is a great company.

1:01:40

It's Hay Day, General Motors is a great company.

1:01:45

It just gradually went to hell one contract at a

1:01:47

time.

1:01:50

What do you think about the predictability of there

1:01:52

were a number of companies back when you started where

1:01:55

you could have said this business will be the same in 10 years?

1:01:59

same today or do you think it's much harder? Most

1:02:02

places have a lot of change and threat

1:02:05

in their future. Do

1:02:06

you think most places had a lot of change and threat in their

1:02:09

future even 50 years ago and this story

1:02:11

is overblown? There's a difference. Some of it like the only

1:02:13

specialized industrial companies and Berkshire

1:02:15

has a lot of them.

1:02:17

We have a lot of companies that are quite insulated

1:02:19

from really tough competition. Just

1:02:24

because they've been so long and it's good at what they do

1:02:26

and there's good reputation and high value

1:02:29

and so on and so on.

1:02:31

What companies can you see today where you can

1:02:33

confidently say Berkshire aside, Costco

1:02:35

aside? You can confidently say the business will be

1:02:39

as good as it is today of 10 years.

1:02:42

Well, I think a lot of companies are pretty good but

1:02:44

you can't count. At least say what's going to happen.

1:02:47

Because

1:02:49

you may get some guy like I, your him that just

1:02:51

wants to push everything and do the right color

1:02:53

relations.

1:02:55

So no matter how good the business is, it'll be kind

1:02:57

of phony.

1:03:00

Charlie, I have a personal question for

1:03:02

you. David has a two-year-old and

1:03:05

I'm going to have my first child in a month.

1:03:08

What

1:03:09

advice do you have for us about building

1:03:11

families?

1:03:14

Well,

1:03:15

of course you've got to get along with everybody.

1:03:17

You've got to help them

1:03:19

through their tough times and they help you and so forth.

1:03:23

But I think it's not as hard as it looks. I think

1:03:25

half of the marriages in America work pretty damn

1:03:27

well. And

1:03:29

it will work just as well if both of them

1:03:31

are married somebody else by the way. Well,

1:03:37

you said that the best way to have a great

1:03:39

spouse is to deserve one. As

1:03:41

long as both parties feel that way, then it's

1:03:44

a recipe for success.

1:03:46

Of course it is. And

1:03:48

you've got to have trust

1:03:50

with your spouse when it gets things like the education

1:03:52

of the children and so forth.

1:03:54

Yeah.

1:03:56

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

1:03:59

Charlie, a lot

1:04:02

of people are going to benefit a lot from hearing this

1:04:04

and your wisdom and they're going to learn so

1:04:06

much. Well, you know, if you stop and think about

1:04:09

it, it's pretty hard. It doesn't look so damn easy

1:04:11

just to go out. If you go

1:04:13

to the ordinary person trying to promote himself

1:04:16

as an investment advisor or some guy,

1:04:18

he just thinks he knows everything about everything

1:04:20

and

1:04:21

how the Federal Reserve should be run and so

1:04:24

on.

1:04:24

We don't feel that way.

1:04:26

I will say with the people we get to talk to

1:04:28

who've built great things, every single

1:04:30

one of them says it was so hard. It's

1:04:34

so hard. You can't build something great without it

1:04:36

being so hard. Charlie, thanks so much for doing this with us.

1:04:38

it's not going to be that

1:04:40

damn

1:04:41

easy.

1:04:47

David, total life experience and

1:04:49

complete boondoggle. I can't believe we

1:04:51

got to do this. I'm still pinching myself.

1:04:54

It's now a couple of weeks after it actually happened.

1:04:56

I know, with autographed copies of Poor Charlie's

1:04:58

Almanac to prove it. As

1:05:01

if the podcast wasn't enough. And

1:05:04

actually, for those of you who haven't listened

1:05:06

back what in 2021, so

1:05:08

two-ish years ago, we did a whole

1:05:11

three-part series, just us, covering

1:05:13

the whole history of Berkshire Hathaway.

1:05:16

Part one is on Warren, part two is on Charlie,

1:05:19

part three is on Berkshire and Ted and Todd all the

1:05:21

way up through to today. I assume

1:05:23

many of you have listened to that, but there probably are a bunch of

1:05:25

folks who haven't. So if you want another

1:05:28

nine or 10 hours of acquired

1:05:30

content on Berkshire, I really think it's some

1:05:32

of, if not our best work. Go check those

1:05:34

out.

1:05:35

With that listeners, our huge thank you to

1:05:37

Tiny for being the sole presenting

1:05:39

sponsor of this episode. If you

1:05:42

have or you know of a wonderful internet

1:05:44

business, you should reach out, hi at

1:05:46

tiny.com and just tell them that

1:05:48

Ben, David and Charlie sent you. You

1:05:51

can sign up for notifications of new emails

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1:05:57

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1:05:59

directions, updates,

1:06:01

things like that, and teasing the

1:06:03

next episode. Acquired.fm

1:06:05

slash email. Listen

1:06:07

to ACQ2. This is typically where we talk about

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1:06:20

After you finish this, join the Slack, Acquired.fm

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1:06:24

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1:06:27

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1:06:29

slash store. With

1:06:32

that, listeners, we'll see you next time. We'll

1:06:34

see you next time. Who got the truth? Is it you?

1:06:37

Is it you? Is it you? Who

1:06:39

got the keys? Who got the keys? Who got the keys?