Ben, when we teased this episode in the email about the Jensen episode that we just released, the guesses that we were getting from folks were amazing. I mean, people were like, "It's Charlie, it's Warren or it's Taylor Swift," and a lot of people were right. Hey, Taylor, you know where to find us,
[email protected]. If you are looking to get more publicity, we're open. Have Travis get in touch. [laughs] All right. Let's do it. Welcome to this episode of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert. David Rosenthal. And we are your hosts. This episode is a very unique one for David and I. Good friend of the show Andrew Marx organized a little dinner for us with Charlie Munger and a few other folks at Charlie's home in Los Angeles. You can hear Andrew a few times in the background asking Charlie questions. We are pretty sure that this is the only podcast that Charlie has ever done. Charlie, aside from being one of the most prolific investors of all time alongside his partner Warren Buffett, is 99 years old. He will turn 100 on January 1st. Of course our conversation was interesting because he's freaking Charlie Munger. But also because it was interesting to get the perspective of someone who has seen the last 99 years of human history. We talked with Charlie of course about Costco, his history investing in retailers over the last 50 years. We also got to hear his views on what it takes to build a great partnership. What's gone wrong in the global securities markets these days, the concept of investing versus gambling and where investment opportunities remain in the world today. Yeah. Ben, this was such a special life experience for you and me and you and me together to do this. And the fact that we got to record it and now share it with the world for posterity, just icing on the cake and the whole thing was unbelievable. Yeah. Listeners, we knew we were going to have dinner. We were not sure whether we were going to be able to record it. And now we get to share it with all of you. If that joined the Slack, there is awesome discussion of every episode and the news of the day at acquired.fm/slack. If you sign up for acquired emails, you will get episode corrections and follow up from previous episodes plus hints at what the next episode will be that's acquired.fm/email. And we have only one sponsor for this interview. Yes. A special conversation deserves a special sponsorship and longtime listeners will know there's only one company in the acquired universe that is truly appropriate because everything they do is modeled after Charlie and Warren and that's tiny. Yep. Tiny is the Berkshire Hathaway of the Internet. Literally, they are such huge fans that they started a company that makes bronze busts of Buffett and Munger themselves, but more on that in a minute. Yeah. So Berkshire, as we know, started as a textile mill in Massachusetts nearly 200 years ago. And almost 20 years ago, tiny founders Andrew Wilkinson and his partner Chris took their version of an Internet textile mill, the premier design agency metal lab, which designed the UIs for slack, uber, tinder, headspace, coinbase, and others. And they asked themselves, "What would Charlie and Warren do if they were us?" And that led to the realization that just like Berkshire discovered in the physical world, the Internet also has wonderful niche businesses with great cash flows. In fact, they tend to be even better than the old days of C's candies and blue chip stamps because they require zero capital reinvestment, have software margins, and can build global brands much faster than the, what, 50-some-odd years it took C's to expand around the world. Yep. So Andrew and Chris took the extra cash flow from metal lab and their other businesses and created Tiny, the world's first and best permanent holding company for wonderful Internet businesses and boy did it work. Yeah. Fast forward to today, and thanks to Tiny's success, this opportunity is no longer a secret. Tiny people have caught on to the idea that this can really work, but just like Berkshire itself, no one else has the combination of experience, temperament, access to capital, and frankly reputation that Andrew and Chris have built over the past two decades. Where investors in Tiny ourselves, alongside Bill Ackman and Howard Marx, and just like the two of them, Tiny is really the long-term buyer of choice in their niche, anyone who's looking for a permanent home for their profitable Internet business, or who needs a capital partner for a co-founder or VC-captable buyout, would be lucky to work with Tiny. Yep. For instance, they just bought the premier social network for film buffs, Letterboxed, which has been the founders' baby for 12 years and will stay so within Tiny. And this really reflects Tiny's whole ethos, work with only the best Internet businesses commit to simple diligence, 30-day deals, and leave the business alone, either for you to operate or bring in new long-term oriented management up to you. So thanks to Tiny, this is the only sponsor as Ben said that you'll hear on this episode, and just like Berkshire, it'll be here in perpetuity. Tiny just became a public company earlier this year, and they can now do deals ranging anywhere from 1 million all the way up to 250 million. So if you want to get in touch, just shoot them a note at
[email protected], and just tell them that Ben and David sent you. Oh, and one more thing. The bronze Charlie busts, the perfect daily reminder in your workspace to ask what would Charlie do. Just head on over to BerkshireNerds.store to buy your own. And they also have plenty of some guy named Warren, too. Okay, now without further ado, this is not investment advice. David and I may have investments in the companies we discuss, and this show is for informational and entertainment purposes only, and on to Charlie Munger. Charlie, I was watching the NFL games last weekend, and it seems like every advertisement now is a sports betting advertisement. Is this good for America? No, of course not. Are the dog tracks and racetracks of America and the conceners good for America, of course not. They're just very popular. Well, that's how Warren got his start though, right at the racetrack? Well, but Warren never gambled heavily as a patron of a Warren, one of the odds and his favor, not somebody else, it's just so simple if you're Warren. You want the house, you want to be the house, not the punter. The next topic that came up was retail stock trading and the idea that for many Americans, this is a kin to gambling. Well, it's the way it's organized. They don't really know anything about the companies or anything, they just gamble on going up and down the price. If I were running the world, I would have a tax on short-term gains with no offset, per losses or anything, and I would just drive this whole crowd every ball of business. What do you think about the algorithms, like Renaissance and stuff like that? Well, of course, Renaissance, it's first and first algorithm, it's so simple, it saves it all as data for the past. And what did they decide up, up for for sure to be closing prices and down, down were more common than down, upward, up, down? Once they realized that's the way it was for the price, reason is deeper than psychology of madness. It manages the natural trend follower. You take your gambling short-term and then they just, he's programmed the computers to automatically, you know, buy in one thing of the first up day and sell before the end of the second day. And then he did it day after day after day, every day of the machine with, you know, the central agent, you say, "You're checked today is $8 million and $500,000." Crazy. The check tomorrow is $9 million, $4,000,000. Well, what happens is that the ones, the easiest trade is to frontrun what, you know, what the average, what the index funds have to buy. You know what it is exactly, they all know that. And the way they get their returns year after year is taking a leverage, the mid-day leverage of higher and higher and higher, so making smaller and smaller profits up more and more volume, which gives them this big peak leverage risk, which I would not run myself. And that's the only way they make these big returns is to have this huge leverage. It would make you crazy if you were already rich. I had the good fortune of speaking with someone, you know, well, Richard Galanti at Costco and spending a few hours. You know, a lot about it. He's been there all his life. It's crazy. I mean, it seems like that's everyone on the executive side. They've all been there. Yeah, they know, I'm curious, how did you first come across Costco or a price club at the time? Rod hills, somehow new saw price, and he was doing, he said, you have to do it on the meeting he said. So I drove down and went through his store and talked to a saw, and of course, saw was a very intelligent man. Saw was an ordinary lawyer until his 39 years of age, and he went out and formed government employees. Was this in the FedCo days? He was no longer with FedCo. He sold FedCo to the Germans. Fedmark to the. You go man. You go man. Yeah. Yeah. And did you get to invest in price club before it merged with Costco? Yes. I did. But I just bought my stuff in the market. I wasn't like any favorite. And so how did you eventually meet Jim Senegal? Well, Senegal asked Warren to become a director of Costco. He was looking for somebody with a financial reputation. As an independent? Yes. And Warren wouldn't do it as soon as he'd even get Charlie to do it. I wanted shorter plane rides to directors meetings and so on, so that's all that happened. And did Berkshire ever try to become a shareholder or acquire Costco?
to get Warren to buy out the French when they left. Careful. - Ah. - And Warren wouldn't do it. Warren doesn't like retailing. - Was it just that he doesn't like retail? Or what was the big impression? - He's actually free to retail. Gradually everything was months mighty and retail's gone. She's probably gone. The big ones are gone, you know. It's just too damn difficult, sorry, excuse me, sorry. - And you had a bad experience with diversified retail, right? - No, we made nothing but money in diversified. We didn't exactly make it in retailing, but we made a lot of money. - Wow, and with diversified, most of the money was not on the retailing operation. You made a lot of that money through-- - What happened was very simple. We bought this little piss ant department store chain in Baltimore. Big mistake to prepare it. As the ant dried on the closing papers, we realized we could be a terrible mistake. So we decided just to reverse it, take the headster, look foolish rather than go broke. Just told him I'd get us out of this. By that time we'd already financed half of it on covenant-free debt and so forth. And we did it all as extra cash. And our own stocks got down to selling in enormous-- we just, in the middle of one of those decisions, we bought, bought, bought, bought. And all that money went back into those stocks. And of course we tripled it and just sitting on our ass. - And that led to Blue Chit? - Yeah, but yeah, it was part of this, at least excited to Blue Chit. - Wow. And so, you mentioned Warren doesn't like Blue Chit. - And they've been selling something else that people don't know about. - Yeah. - We bought a little piss ant savings on company. It's a little maybe $20 million. And when we left that thing, we had taken out of our little $20 million investment over $2 billion in marketable securities, which went into Nebraska insurance companies as part of their bedrock capital. So we had some wonderful early years. And that's what everybody needs, this wonderful early years. - Wow. So in our Costco episode, we started with the joke at one of the Berkshire meetings probably 10 years ago. Warren told the joke about you were on a plane being hijacked. And the hijackers gave you one final request and you said, you'd like to give your speech on the Berkshire. - Well, I'm very tired of me kind of reminding you. - Yeah, yeah. And he said, shoot me first. We were hoping, could you give us your speech on the Berkshees of Costco? - No, Warren was kidding me for being so repetitive on the subject. But there aren't many times at lifetime. When you know you're right and you know you have one that's really gonna work wonderfully. - Maybe five, six times in a lifetime, you get a chance to do it. And people do it two or three times early. All go broke because anything is easy. It's fact is very hard and rare. - What was it about Costco that made you realize this is one of those few moments in a lifetime? - Well, they really did sell cheaper than anybody else in America. And they did it in big, efficient stores. And all the parking spaces were 10 feet wise. Eight feet nine or whatever they normally are. They did a lot of right. - Yeah. - And they had a lot of parking spaces. And they kept out of their stores. All these people didn't do big volumes, you see. And they gave special benefits to the people who did come to the stores in the way of reward points. - The executive membership? - Yeah. It all worked. And the capital-lite business bottle, I mean, when we were studying at the difference between-- - Oh yeah, no. - Price club. - They have no investment in them anyway. They make the suppliers wait until they've been paid. And they're scheduled to pay only after they're scheduled to sell. - They've got 900 warehouses around the world, full of high quality merchandise, none of which they have sitting on their books. - That's correct. - Yeah. - Our understanding is that price club went public initially before the merger. They just listed. They didn't raise any capital. They didn't need any capital. - Oh no. So I kind of would like to use kind of offense here. - Hmm. - You'd like deals, you'd like this business line, it's real estate, like-- - Yeah, but it doesn't make sense. You don't want-- You got an enterprise that's biggest cost, go-- You don't have a school where you're parking out. You get other people over at the clock of your parking lot permanently and stuff. It's not going to pay you very much. - Right. - You don't want them as the answer. - Have you ever seen another business that takes advantage of the virtue of the low skew count the way that Costco does? - Well, there are lots of them that little grocery store chain here in Los Angeles. Guelts and brothers, they wanted a high turnover and low capital cost. And they never made the least effort to earn any money you're having. They wanted a share of the parking lot with anybody. - As you reflect back on one of these few great companies in a lifetime that you should bet big on, what advice would you have for David and I as young partners looking for a few of these in our lifetime, things to look out for? - Well, when you find-- well, you may find it five years after you bought it, you know. These things may work into it or you may-- you're on your own understanding, may get better. But when you know you have an edge, you should bet heavily. You know you're right. And most people don't teach that business school. It's insane. Of course, you got a bet heavily on your best bets. - And how do you develop that level of conviction to know-- - You work out. You redo a lot of reading and thinking and visiting. - I'm curious that we wanted to ask you, you know, you've had this beautiful partnership with Warren for half a century. - Yeah, we're a decade into our partnership. - It was a lot of low hanging fruit in the early days of our operation. You don't have any on low hanging fruit that is easy to recognize. - You mean an investment opportunity? - Yeah, that's right. - But your relationship with Warren, like, how have you-- - Well, we were all so kind of similar and we both wanted to give our family safe and take a good job for our investors and so on. We had similar attitudes. - Yeah. - Did it change over the decades? - No, Warren still cares more about the safety of his business shoulders than he cares about anything else. We used a little bit more leverage throughout. We'd have three times as much now. Anyway, it wouldn't have been that much more risk, either. And we just do. We never wanted to give the at least chances to have our basic shelter position. - If you had used more leverage, do you think there's some chance that-- - We would have done a little better, sure. - Do you think there's some chance that it wouldn't exist at all, that it would have cost you the franchise? - No, I think it would have worked fine. - It's more like that easy. - The situation landed itself to it. If you were intelligent, I just know you know. - When you leverage them so curious on after we did our-- - So automatically leverage. You over a new store with no capital. Of course, it's leverage. Who wouldn't want a business whether than it. And no inventory. - Right, that's a good point. By the virtue of you owe a whole bunch of people money on day one for these goods that-- - Which turnovers are rapidly. - Right. It's interesting. I mean, that's leverage. It's not debt leverage. I mean, how do you think about debt? Like, after we did our Berkshire series, I want to be able to do it now. A lot of people now do it. Man, you're actually something. They're just terribly strong. And they're just forcing the suppliers to carry all of them. It isn't like where they only want to do that. - Back to the point on partnership, David and I are coming up on 10 years as partners in this podcast we do together. Different than the investing business, but a compounding one nonetheless. After a 50-year partnership with Warren, what advice would you have for us interpersonally to make for an enduring partnership? - Well. It helps if you like one another and you're working together. We do. Yeah. But I don't think there's any one formula. A lot of partnerships that work well for a long time. Have one because one's good at one thing and one's good at another. They just naturally divide it. And each one likes what he's doing. Now in Costco's case, they had Jeff Brockman who's very smart. But not a retailer. And Jim Saigon, they divided it up. And they originally created Brockman would be the chairman and CEO because he was the idea he found the whole thing. But Saigon was like, "No, I have to be the CEO." So the big unfortunate board meeting was a big internal struggle. And Brockman moved aside. - Was that after you joined the board? - No, before. Do you think you and Warren not living in the same city helped your partnership last so long? - Well, I may have helped. But Warren has very close relations with all those people that have
launch every Saturday at Burtrehead Quarters. It's like he doesn't have a little quarter of people there who are kind of falshing ground up. - Do you think it helps that when you do spend the time together, it's special rather than being common? - Well, of course, we used to spend a lot of time together and we were young, we didn't have that much to do. (laughing) Now we've got more to do in that, but then it's just the other minute you have a life. So it's different. - Yeah. - It's funny. I feel like we have a lot to do now. But (laughing) - Of course you do it. It's very difficult to invest money well. And I think it's all but impossible to do time after time or time to invest your capital. - Yeah, we really wanted to ask. - I thought time to invest your capital. - Some of the deals get so hot, you have to decide so quickly that you're all just sort of gambling. - Do you think the role of venture capital is being properly accomplished in society? - No, I think it's very poorly done. - Charlie elaborated on this point with a few things that we can't air, but the topic did turn to Bitcoin. - I've heard many comments you've made on Bitcoin. I'm curious if you have a thought on this particular angle, an easy way to transfer money in between countries, especially when those countries don't have a stable store of value within that country. Is it good to have an independent store of value that is not a good thing? - Well, of course it's good to the world as a whole to have a way of having some currency. The way that was solved is for a long time the bridge found was the national currency of investment world. That shifted to the dollar and it's still a dollar. And people like China have these enormous reserves of dollars. Either money we make, but think of the money people give us where we always just print up these pieces of paper. - Yep. And what about the common person in some of these less fortunate countries who don't have access to US dollars? - Oh, they do have the area any money. The dollar is very fun, you can always buy one anywhere. I'm curious back to this point of the role of venture capital in a society. If you could design a perfect system to fund innovation. - Well, I think it's a very legitimate business. If you do it right. If you want to give the right people the power and nurture them, help them. You know a lot about the tricks of the games that you can help them run their business yet not interfere with them so much they hate you. By and large, I haven't bumped into a lot of people in the business with venture capital financing. I would say the ordinary rule is that people in the business doing the work. They more or not they hate the venture capitalists. They don't feel they're they're a partner trying to help them to come in. They're only taking care of themselves and so on and so on. They don't like them. - How could it work differently? - Yeah, well, but that's not true in virtue. You see, they don't want to discard them as the highest bid. See if someone has all the best of the maker offers us 20 times earnings or something. Lots of business. We don't sell. If it's growing business, we've never been able to fix. We'll sell it, but it's a halfway decent business. We never sell anything. And that gives us a certification of staying with things which helps us. - And do you think that by and hold not only mentality but demonstration is the key thing that aligns investors with managers? - Well, it's rare you see. Everybody else has a standard way of doing things. The lawyers have their standard forms. And everybody just has the same standard form. And they get the same standard results. Subject to the vicissitudes of investment life. You don't want to make money by screwing your investors. And that's what a lot of venture capitals do. The world is full of XG, Goldman Sachs partners and form the private fund. They imagine a billion dollars or something like that. And they charge two points off the top plus the speed. And that enables them to make very handsome lawyers themselves, but the endomas and I get a good return. - And do you think it's specifically the fee aspect of fund distractions? - It's just you own nature of the way it works. And of course, you really shouldn't be in the business of charging extra money that you really are going to achieve very unusual results. And of course, it's more easy to potentially get good results that it's actually get them. And so it tracks the wrong people. Be able to invest in a capital turn of mind. And if you will make the most money at a venture capital, are a lot like investment bankers, deciding which hot new area they're going to get in. They're not great investors or great at anything. - What do you think endowments and large pools of capital should do then? - Well, they're starting to do it. The endowments have started to say to the, all these people that judge three and 30 or whatever they like, they said, we'll pay your three and 30. We're going to put in twice as much money and then the next tab, you'll get nothing on it. You're just going to ride parry pass you on some of your investments. So the fees go down by 30%. That'll take a lot of the fun out of it. (laughing) Fees down 50% and that's happening all over America. They feel had misled, irritated. They've looked foolish to their own trustees. - One of the issues I think in investing right now, you mentioned about venture capital, but I think it's true everywhere. It's like there's just so much capital and so much competition. We're so far removed from the cigar buttera. We're in the opposite of the cigar buttera these days. Are there opportunities out there? - There'll be somebody all find a good thing, but it gets harder and harder. I would argue one of the easiest ones was when they decided a little group around Home Depot, they would copy the Costco battle and home improvements. And that was basically a good idea and thinking of the money they made doing. - Yeah, Bernie Marcus. - Yeah. It was a direct copy of Costco. - Do you think there are more opportunities to copy Costco? - Well, there was another one in Costco, Florida car. It's the current imitator. And it's just this in vinyl, wood emitting vinyl flooring, they're running a Costco model. - Huh. - And they keep adding miscellaneous stuff to it too. - It's the miscellaneous stuff that'll eventually kill you though. - Well, it would be simpler if it was all flooring. (laughing) - Yeah, the vertical Home Depot worked so well, but I don't know that it was totally obvious. Like part of the appeal of Costco was, it was horizontal, it was everything. Consumers could come, they could make a trip, bring their big wagon, bring their big truck. - Home Depot's the same. They copied everything. - And famously, Bernie Marcus came out to visit Saul. - Yeah, they started it. - Yeah, they came out, they copied everything. - Saul was like happy to share the playbook with everybody, right? - No, I know. - How did you feel about that? - Saul was a, not a crazy guy. He was domineering and so on. But he was also very intelligent. But there aren't many opportunities like Home Depot and Costco. There aren't very many. - Why do you think Walmart hasn't been successful once they saw Costco in competing? - They were too wetted by the ideas they already had. That's everybody's trouble. They just can't accept a new idea 'cause the place space is occupied by an old idea. They got in the habit of getting a real estate project even nothing 'cause they went into little towns or nothing was valuable. So they're always their occupancy calls to the like zero. And they knew how to make big defense stories. That was their formula. So it offended them to go against the rich suburbs and have to pay out for the good locations. And Costco just specialized in the good locations for the rich people lived. And Walmart just let them do it year after year with a terrible one stake. Did you know Sam, Martin? - No, never met him. I knew the son, one of the sons. And they divided it up in about six parts very early. - Yeah, Martin enterprises. - So they never paid much gift taxes for anything. - The topic then turned to the automakers and the future of the car industry. - Look how hard it would be to go into the auto business and have something killing. Who's going to win? Who knows? All things been thrown away out of the air by all these electric cars. Those big new capital requirements, different ways of selling cars. And plus they got these tough unions. See, I just don't even look at the auto industry. - Do you think it's more investible today than it was 50 years ago because of the disruptive innovation of electric? - Well, maybe if we're one or two electric cars, [BLANK_AUDIO]
you got a maybe, but certainly nobody else. - So you think BYD is too tough? - BYD was a miracle. But that can't work 70 hours a week. And that's a very high IQ. You can do things you can't do. You can look at somebody else's auto part and you can figure out how to make the goddamn thing. You can't do that, you see. - Charlie, you invested a hundred. - Yes, but they're clever too. - How was that investment for you? - That lost money. Not much because I was stubborn. I held out and it got back to almost what I paid for it when I was older. There's been a lot of discussion about purchase investments in the Japanese training houses. - Well, but that is a no-brainer. Something like that. It your smartest Warren Buffet. Maybe two, three times a century. You had an idea like that. The interest rates is about half a percent per year for 10 years. And these training companies were really entrenched to old companies. And they had all these cheap copper mines and rubber foundations. And so you could borrow for 10 years ahead. All the money, and you could buy the stocks and it's not great, five percent dividends. So a huge flow of cash with no investment, no thought, no way, anything. I wouldn't do that. You'll be lucky if you get one or two a century. We could do that, nobody else could. It looked attractive at half or something. You couldn't get it. But Berkshire was this credit cut. And the only way you could get it was to be very patient and just pick away as a little piece of the time. Took forever to get 10 billion dollars invested. But it was like, I mean, God just opening up. Chestnut and just pouring money into it. It's awfully easy money. It's interesting that it's paradoxical. You need Berkshire's credit, but at Berkshire's scale, it's actually hard to put enough money to work. That's true, but why shouldn't it be hard to make money? Why should it be easy? Japanese training companies reminds me. We studied another company recently, Nike. That is a surprising company. Yeah, did you ever look at it? That's a style company. Well, of course I've looked at it, but I don't like style of company. Too fad-driven? Well, I suppose the Army Hermes is a cheap and a price I'd buy. But short of that, I'm million, but I just have a company. Ooh, that's a good pick. To the style points. Another one that they covered was LVMH. What Arno has done has been amazing. So what do you make of that company? Well, if you're as good as they are, do as they've done, you have a lifetime to do it in, every now and then every three or four lifetimes to do it in. You can grade another, but it's not easy. Hermes is on the eighth generation, I think, now. The family running it. It's not a bit easy. They have meetings every day where they make policy decisions. They choose the locations one of the time and it's work. It's definitely work. What do you think the durable value is in these, as you say, style companies, of the very best one in the world, the Hermes or the LVMH? What makes them enduring? Well, I just got a brand, people trust so much. It took them century to do it. Our conversation then turned to comparing Kirkland Signature as a brand to Hermes. Kirkland is a brand the way tight is a brand. And Hermes is a different kind of brand. Yeah, Ferrari doesn't make a lot of detergent. No, we've spent a lot of time studying these brands. How do you look at the value of a brand? Well, it's hard for us not to love brands, since we were lucky enough to buy this candy for $20 million as our first acquisition. And we found out fairly quickly that we could raise the price every year, like 10% and nobody cared. We didn't make the lives go up or anything like that. Just made the promise go up. So we've been raising the price back to embers on the year for all these 40 years or so. Wow. It's been a very satisfactory coming. It didn't require any new capital. I was so good about it. Very little new capital. We had two big kitchens and a bunch of rental stores when we bought it and now it's got two big kitchens. A bunch of rental stores. Well, Charles, he was a playboy. And his brother ran the company. He was an older brother and dominated it completely. But when he died, Charlie made his brother his executor. And now he needs a lot of money to pay death taxes. He doesn't have it. And it's due, you know, eight months or something later. And so they really wanted to sell so they could pay the death taxes. And see, he was only making for my own free tax when he bought it. And so that buying opportunity only came about because the family needed liquidity to pay the death tax. That's right. We only found out about it because Charlie was on his cruise to Hawaii or something. With this guy, it was a client of-- it was a council that also worked for Lujip Stamps, who was the company that bought him. And anyway, that's how we found out about it. We paid that guy a financial year. He never paid one cents. You know, he said that though it was worth it. Of course, but you don't want to be able to-- everything's for paying financial year and the world will be bothering you all day long. So what do you think? So there are categories like C's or like terminus. There are brands leading to pricing power. I think your chance is to buy one of them. So low, I wouldn't even look. I don't even believe in looking at things that I might find. You're not going to get a chance to buy that. No curiosity would wait for your time. Yeah. So why do you think there are extremely well-known brands and other categories maybe packaged food or something where-- Oh, there are a lot of original investors that I know they would brand in goods. And then when they usually start with it's Nestle. And it is filler over there. They've done two or three points better than average. But it's not a bananza. After that, our conversation turned to craft hines and why hines is able to have pricing power while craft is not. It was very interesting. There's something about the flavor of ketchup. Oh, my god, I'm fried potato. People are really willing to change brand so they want hines. And so we could raise the price of hines pretty much. Hey, but you try to raise the craft cheese and everything goes in about you, including the final customer of the housewife. You don't care that much about whether the cheese is crafted or not. Why do you think that is that some-- Well, hey, I'm the sauce flavor. It's happened elsewhere in Korea. One guy is a Chinese guy. He controls all the sauces. Every single major sauce, he controls nothing. At least 95% of them. And it's because sauces have such a particular flavor that no one can imitate the trade secret, huh? And that gives pricing. Well, they'll get used to it, like it. Is that Coca-Cola as well? Yes, sure. Charlie, I'm curious. At age 99, what is something that you believe today that 70-year-old Charlie would have disagreed with? I think-- I knew what I was 70. That was funny, hard, but it made it just so hard. I know how hard it is now. And all these people who are getting this 20 or 30 or whatever, they all talk as though it was easy, and they get to believe they're on bullshit. And of course, it's not a bit easy. It's very hard. If you were back 30 or 40 years old again today, would you decide to go into the investment business again? Well, probably because this is my nature. But I didn't really enjoy the 3 and 3 business. Once I had enough money on my own, I'd rather just have it with my own money. That is a much better way of doing it than-- Because of the-- Before it's to help, we forced a deal with investment bankers, we forced a deal with investment consultants, we forced a deal with venture capital to help with who wants to, you know, on need other people. The party ain't rich, so you don't have to need other people. You don't have to get involved with it. Charlie, if you started with Warren today and you're both 30 or so, do you think you guys would build anything close to what the Berkshire is today? I know we would. We had everybody that has done usually a good result. Almost everything has three things. They're very intelligent. They worked very hard. They were very lucky. It takes all three to get them on this list to the silver's accessible. How can you arrange to have to at the end of the good luck? They have to-- you can start early and keep trying a long time. And maybe you'll get one or two. If you were starting again today, do you think insurance would still be the vehicle? It depends on your temperament. Insurance would be ideal.
a certain kind of a temperament and it takes a very patient person to get rich in insurance. It takes forever to get anything and it takes forever to push anybody aside. It's very hard to make money. I've heard you say as soon as you're wealthy enough to self-insure you should. Is there any insurance thing? I've said about trying to do everything think of all the crumbums of the world that drink too much and file big claims to the insurance company. But get some fire or something. Why would you want to pay the. You're a share of those stupidity. Not to mention the overhead. Of course the insurance company needs to pay all the people that work there. Yeah, yeah. No, no. It's crazy. Is there any insurance that you carry today? I carry no fire insurance anywhere. Do you carry auto insurance? Yeah, I have to. I don't know Charlie could. No, I have to what I do. I'm curious being that since these guys are very tech-focused. I'm curious not being a tech person. How did you think about the Apple investment and what gave you the conviction to be so big? Whatever he's learned is that everybody needs something and we're going to participate in it. That 12 companies do better than everybody else. And you need two or three open least. And if you have that mindset, Apple was the logical candidate to be on the list before when you're going to select your companies. And it's not very hard to come with the idea that it may be okay. Making the list doesn't sound too hard. In fact, there are these acronyms, fang or mamma, you know, Microsoft, Apple, Google, Facebook, but selecting the one and putting hundreds of billions of dollars into it. To create hundreds of billions of value, that to me sounds hard to pick the one. How did you guys pick the one? We couldn't buy anything else. Was it valuation or. Yeah, we got cheap. We got to pay about ten times. I'm sorry, he's good morning, buddy. 2015, I believe, was the first. It's fascinating, me this concept of, if you look at DistressDet or you look at, I think, Warren in the last Berkshire letter pointed out, it's been a handful of really good decisions. Or you look at venture capital that's classically power law distributed. Any of these asset classes comes down to a few really good decisions with high conviction over an entire career. Yeah, that's exactly what I was exactly the way it worked. It's not smooth. There's no asset class where you can repeatedly just do. No, no, no. The way you move for the idea is it's not gone but it's very small. You mentioned this idea that when we were talking about Apple, there's a few companies that it's just really important to be in. Do you think these big tech companies being the winners where all of the pensions and Berkshire and university endowments and everyone's 401Ks being concentrated in these companies? Do you think that was the natural outcome? Did we have to end up this way? Yeah, it was natural. That's why it happened. What causes that? Well, it's just that's what human nature and competition, that's what it causes. Well, we eventually have one. Eventually this craziness and venture capital in the world, all gone stupid. That's a natural outcome. Will we have one 20 trillion dollar companies and then the next biggest company in the world? I know we're going to have friends we did. They just happened. Would you continue investing in China? What's your position with that? Well, my position in China has been. The Chinese economy has better future prospects for the next 20 years than almost any other big economy. That's number one. Number two, the leading companies of China are stronger and better than practically any other leading companies anywhere. And they're a little cheaper price. So naturally I'm willing to have some China risk in the monkey portfolio. How much China risk? Well, that's not a scientific subject. But I don't mind whether it is 18% or something whatever. It's worked out in the motor family. It's okay with me. What about other geopolitical considerations? Like would you hold TSMC at this point? Well, I don't like that as well. So I like something with the real consumer brand of its own like Apple. I'm curious what major companies that haven't been mentioned. Do you think people would do well to study the virtues of like studying the virtues of Costco? Well, I only study two kinds of companies. Well, I'm another big Ben Graham follower to play with something that's really cheap, even though it's a crappy company. I would like to consider bugged for a while anyway. And I do that occasionally. And I've done it with great success of time or two, but I'm like Horton Mark said I wanted twice in my lifetime for big gains. And that's it. It's not like I'd have over a second. I've done a hundred times. So it isn't a bit easy. Yeah, a hundred times of easy money is almost not existing. One type of company is the cigar butt. What's the other type of company? The companies that people would do well to study the virtues of companies are of course are good. Get them on the right price. The whole trick is get them on the few rare occasions and they're really cheap. They're buying Costco at its present price. It may work out all right, but that's again, it's getting hard. Yeah. For getting the prospects to stock, how do you think about the next 10 years for the business? I can do pretty well. One more question for you in this area. What is your favorite advice to give to young people? Well, I don't give advice to just any young people. I give it to some. I pick my spots. I don't want to be more of a girl with a young people. It's getting hard out there. And there's always bullshit and craziness. Of course, it's going to be hard. Where do the attractive opportunities hang out anymore? It sounds like everything in the whole world is overpriced. Could that be possible? Damn, there. Of course, the good puzzle. It's not only possible. It's likely it'll actually happen. How did the world get so rich if we have all this capital for so few opportunities? It's the nature of things. Look at biology produces a very advanced creature like us. You can sit around and talk intelligently in all these objects. But it doesn't by killing everybody off in brutal competition one with the other for hundreds of thousands of years. In other words, the system that nature uses to get smart is kind of unpleasant to the people who are losing. So over the last 100 years, we've brutally shifted all this value from labor to capital. And now capital is all competing to get into a very small set of opportunities. Well, capital never, you would, it wasn't if it was all fat easy. You're back a long time. It just was a lot easier. And if it continues to get harder, the natural end is that you have. Yes, an unpleasant blow up with someone kind. And God knows what happens after the unpleasant blow up with our modern democracies. You can get to your lot like Europe, which is quite dysfunctional. Is it too pessimistic of a view to say that the world seems to be out of good ideas to match the amount of capital out there looking for good ideas? It was never easy. It's thoroughly understood. It was never easy. It's harder now. Those are the two world. And you pay attention not your handling of people you deal with. You want a good reputation when you're all done, not a bad one. And I don't think you're saying there are no opportunities whatsoever. I think there's no expectations. Fewer bananzas. And the beauty of it is you only have to get rich once. You don't have to climb this mountain four times. Just have to do it once. Well, that's sort of your philosophy on both sides is you got to be patient for the great opportunities. But when they you got to recognize them when they come and and pounce. We turned off the mics to have dinner and then recorded a little bit more later in the evening about Costco and some life advice from Charlie. So one Costco question that I've been wanting to ask you is all the puzzle pieces of the low skew count and the high inventory turnover. And there's just so many things that fit together so beautifully. It's pretty obvious though. But how come no one else can pull it off if they're so obvious. It takes a lot of good execution to do it. You really have to set out to do it and then do it with analysis and every day, every week, every year for 40 years. It's not so damn easy. So you think the success is the magic of the business model and culture. Yes, I asked culture plus model. Yes, absolutely. And very reliable hard working determined execution for 40 years. I mean, they talk about the story of the catch up that you could increase the price of catch up by 3% and nobody would notice, but that would destroy everything if you did that, right? I would say that the central norm was don't raise the market. Get it low and keep it down forever.
which brings us to the hot dogs. Is it true the story that when Craig took over a CEO, he did try to raise the price of the hot dogs? - I don't know. I had no conversations with my ex-husband. - And Jim forbade him. - Well, I sure Jim would have forbade it. I absolutely. - There was no board level discussion of the hot dog. - No, no. Those two would not have thought it was a word matter to discuss the price of the hot dogs. - The one thing that fascinates me about Costco is they seem to only be able to grow 10% per year because they're not capital constrained. No amount of money if they were to access it for free, could help them. - It's hard to open too many stores a year. New store, new manager, new this, new politics, new way. It's hard, plus a lot of stuff has to be learned and taught and put in place. And so they didn't want to do more than they could comfortably handle. - The store openings, you mentioned China earlier, was 12 to 20 years that Costco had the license to operate in China and didn't even have in there. The first store, they tried to open in China. The first store, somebody wanted a $30,000 bribe. - No, Chinese culture. And they just wouldn't buy it. And that made such a bad impression on Jim Senegal. He wouldn't even talk to him going into China for about 30 years thereafter. - So what changed why finally go in? - Well, finally the board started breaking up noises here. - You started agitating. - Yeah, yeah. - Yeah, who on the board could be excited about the Chinese market? - Yeah, who can, who knows. (laughing) - Oh, that's so great. - One thing I found fascinating about Costco was the fact that even though they're at the lowest possible prices, their audience skews wealthy. Was that an accident that they figured out over time or did they know that? - No, they figured out to announce. - All the way back in the price club days. - Yes. You always wanted the rich man trying to save money. - Well, and it's not just that they're the wealthiest customers, they're smart wealthiest customers. - Yeah, they're picky wealthy customers. - On some topics that are outside of Costco, you mentioned in the daily journal, annual meeting this year that a young man knows the rules and an old man knows the exceptions. - Yeah, that's an old saying of Peter's. - Oh, is that a Peter Kaufman? - Yeah. - What are some of the exceptions that you've found the most useful at life? - Well, they take those kind of Costco hot dogs. (laughing) That's an exception. Anybody else would have raised the price of hot dogs a long time ago. They just don't do it. They just know that it's a half-famous thing. You know, we hear kids in the half-heartedly, they know they've got something going there that's worth extra $22 and they just don't destroy it. - I think that I've never fully understood. I know you're a big fan of the company BYD that of course makes the Chinese company that makes batteries and electric vehicles. - I may be a big fan, but I'm sure. I hang out by my hat while he lords you around the track. (laughing) And they make me nervous. It's so aggressive. - Is that dangerous in a company? - No, that's what makes me nervous, of course it's dangerous. (laughing) - So do you think that companies should try to grow at a lower rate than they're capable of in order to be more durable? - Well, of course you'd do that if it's safer and easier and so forth, but I would argue that Costco where they've done some of these things that are streamed like that, but it's not a plus and they've been smart to not change their ways. I'm one item or two. - And it seems like there's a spectrum where on the one side there's Costco that is just not a fast growing company 'cause it's very difficult to, and on BYD like you're saying, they grew like crazy. I mean, you turned-- - I'll be like E. - In this year or so, at least two and a half million cars. Most of them electric. That's unheard of. Well, they haven't ever heard of that, so way more than Mercedes, friends. - More than Tesla, right? - Yeah, more than I believe, yeah. Lots of troubles and losses. They ran into terrible trouble, they created a wrong kind of damage, lots of mistakes. They were lucky to be on the cutting edge of this electric car business. It's way more acceleration than those people. So yeah, the car was more open than most people. So the young macho male has a real lively car. There are a lot of things about electric car really works in some ways that it's better. It made a 90 degree turn. Right opposite of the parallel part of your body is just move this way. Turn the wheels 90 degrees and go in. - Yeah. - Well, nobody's ever done that. If your car goes flat, you could run 100 miles on three other wheels only. And do they have better economics 'cause they don't have nearly as many arts? It's simpler. - Have you ever had an investment like that before? I think you invested something like 270 million that's now worth something like 8 billion in BYD. - Well, very good people have an investment job. That's adventure capital to have investment. It happened to be a suddenly traded public company and we bought instead of a venture capital that company. It was a venture capital type play. And they just went put the foot right and the floorboard and played it hard. - Had they manufactured it? - By the way, both BYD and we tried to tell how they're going into the car business. They're gonna buy a bank of a car business and go into the car business. They say, "That's a great yard for you." So I was like, "Would you want to do that?" And he paid no attention to us right away. - Had you invested already when he told you this plan? - Yes, yes. And it worked favoritously well. After a huge mistake, they almost went broke with their early dealership building system. Almost went broke. - What captivated you about being like that? - I was a genius. He was at a PhD in engineering and he could look at somebody's party. He could make that part, look at the morning and look at it. I've never seen anybody like that. He could do anything. He is a natural engineer and he gets done type production executive. And that's a big thing. It's a big lot of talent to have in one place. It's very useful. They've solved all these problems on these electric cars and the motors and the acceleration breaking and so on. - How would you compare him and BWD to Elon and Tesla? - Well, he's a fanatic. No, I don't actually make things in his hands. So he has to. He's closer to ground zero in the words. The guy at BWD is better at actually making things than the guy he's honest. - Charlie, you turn 100, which is an unbelievable statement on January 1st of next year. Do you have any plans? - I'm good at party. (laughing) - Where's the party going to be? - To California, go. But I totally maxed out the room. I can't squeeze another part out. (laughing) - What captivates you these days? What's fun? - Well, personally, everything is. Even politics matters today is just kind of interesting. - When you look back at your in Warren's time together, when did you have the most fun? - We had about the same amount of fun all the way through. We're having fun now. - Is there a particular era that you remember the most fondly that feels like the good old days? - Well, we were sweating blood in some of those good old days. - Oh, I mean, Solomon Brothers. - Solomon Brothers? - Yeah, I don't know. There were a lot of closeness as well. We've got our big problem with this all, but we couldn't have a big loss. - We could have had more problems than just a loss with Solomon, right? - Well, actually, when we examined Berkshire Hathaway on our podcast, our takeaway was that the whole franchise was at risk during Solomon Brothers, the entire Berkshire Hathaway name and future. Would you agree with that? - Not so much. I think we would have survived. - If you would let the whole investment in Solomon go to zero, it would have been-- - If it all woke up and went to zero, we would have written it all and gone and done pretty well. - What do you consider it to be your finest hour? - Well, we'd like to remember the closeness was very good, yeah, we all terrible problems. They had terrible problems about low news. - The Buffalo evening news? - Yeah, we were, yeah, there were two noise areas in that town, and we started Sunday edition, and that started the holy war, and the other guy went broke. Well, we could have had a lot of bad people to deal with that. - And you were, you were both pretty young and underprising at that point, and you weren't the warrant entirely of-- - No, well, I was very aggressive about wanting to have a good Sunday edition. I didn't want to own the paper for 50 years and no Sunday edition on the other guy at, but-- - What made the newspaper business so attractive at that point in history? - Well, it was a gold mine. - That's attractive. - That's a gold mine. - Well, in the play, in particular, with the Buffalo evening news and the Sunday edition,
was playing for the local monopoly to be a big game, be game in town. And with newspapers, you could do that. - Sure. - I mean, newspapers for decades had EBITDA margins in the 50, 60% range, right? - Not only the little ones. - Only the little ones, huh? - Yeah, the big ones are less. 30 or 40 or 25 or. - I've said EBITDA on your presence, I apologize, cash flow margins. - Actually, do you still feel as that EBITDA is a criminal the way that you've demonized it in the past? - Yeah, I do. I mean, yeah, so you have a big truck company and take the depreciation out of the trucks out of the earnings year, but lying about the earnings. (laughing) - I mean, you witnessed its rise with Malone and TCI and Liberty, like, when EBITDA was invented as a concept, right? Like, what were you thinking? - Oh, I've never liked double-owns extreme manipulations. I don't want to be known as the great manipulator like double-owns. He paid less, I think I'm back to some of anybody. He just pushed everything to the drive-on to the stream. - In many ways, EBITDA was the community-adjusted earnings of its era. Are you familiar with the community adjustment? - No, we were. - No, we were. - No, boy. - Maybe, um, final question to wrap up. What are the set of companies that you think are the greatest that you've ever seen, either that you've owned or that you've not owned? - Well, there are a lot of great companies. So, our maze is a great company. It has heyday general motives is a great company. It just gradually went to hell one contract this time. What do you think about the predictability of there were a number of companies back when you started where you could have said this business will be the same in 10 years? You think that number is the same today or you think it's much harder? - Right, most places have a lot of change and threat in their future. - Do you think most places had a lot of change in threat in their future even 50 years ago and this story is over? - There's a difference. Some of them would like to always specialize in dusting up their company. And most of them has a lot of them. We have a lot of companies that are quite insulated from a really tough competition. Just because they've been so long and it's good at what they do and it has a good reputation and high value and so on. So, what companies can you see today where you can confidently say, purchase aside, Costco aside, you can confidently say the business will be as good as it is today in 10 years. Well, I think a lot of companies are pretty good but you can't count. We'll at least say what's gonna happen because you may get some guy like I hear him that just wants to push everything and do the right post relations. So, no matter how good the business is, it'll be kind of funny. - Charlie, I have a personal question for you. David has a two year old and I'm gonna have my first child in a month. What advice do you have for us about building families? - Well, of course you've gotta get along with everybody. You gotta help them through their tough times and they help you and so forth. - Yeah. - But I think it's not as hard as it looks. I can half of the marriages in America work pretty damn well. And whatever it does as well, I'm both ahead of the marriage, somebody else by the way. (audience laughing) - Well, you've said that the best way to have a great spouse is to deserve one. - Yeah, sure. - As long as both parties feel that way, then it's a recipe for success. - Well, of course it is. And you gotta trust with your spouse when I get to things like education with the children and so forth. - Yeah, I love that. Well, Charlie, thank you. - Yeah. - Thank you, Charlie. - Oh, good luck to you. - Charlie, this has been, a lot of people are gonna benefit a lot from hearing this and you're wisdom and they're gonna learn so much. - Well, you know, if you start with a thing about it, it's pretty hard. It doesn't look so damn easy just to go out. If you go to the ordinary person trying to promote himself as an investment advisor or so kind, you just think he knows everything about everything and how the Federal Reserve should be rotten and so on. We don't feel that way. - I will say with the people we get to talk to you who built great things. Every single one of them says it was so hard. It's so hard and you can't build something great without it being so hard. - Charlie, thanks so much for doing this with us. - Glad to do it. It'll be an interesting life you're leaving, you'll do what you will. But it's not gonna be that damn easy. - David, total life experience and complete boondoggle. - I can't believe we got to do this. I'm still pinching myself. It's now a couple of weeks after it actually happened. - I know, with autographed copies of Port Charlie's Almanac to prove it. (laughing) - As if the podcast wasn't enough. And actually, for those of you who haven't listened back what in 2021, so two years ago, we did a whole three part series just us covering the whole history of Berkshire Hathaway. Part one is on Warren, part two is on Charlie, part three is on Berkshire and Ted and Todd all the way up through to today. I assume many of you have listened to that, but there probably are a bunch of folks who haven't. So if you want another nine or 10 hours of acquired content on Berkshire, I really think it's some of, if not our best work, go check those out. - With that listeners, our huge thank you to Tiny for being the sole presenting sponsor of this episode. If you have or you know of a wonderful internet business, you should reach out
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