Acquired - Charlie Munger

0:00Ben, when we tease 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 are like, it's Charlie, it's Warren or it's Taylor Swift, and a lot of people are right. Hey, Taylor, you know where to find us, acquired FM at gmail.com. If you are looking to get more publicity, we're open. Have Travis get in touch. All right, let's do it.

0:28Welcome 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.

0:56Good 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.

1:22Of 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.

1:49And 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.

2:13With that, join the Slack. There is awesome discussion of every episode and the news of the day at acquired.fm slash Slack. If you sign up for acquired emails, you will get episode corrections and follow up from previous episodes plus hints at what the next episode will be. That's acquired.fm slash 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,

3:06Tiny 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.

3:33In fact, they tend to be even better than the old days of seized 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 seized to expand around the world. Yep. So Andrew and Chris took the extra cash flow from Metalab and their other businesses and created Tiny, the world's first and best permanent holding company for wonderful internet businesses, and boy did it work.

3:59Yeah, fast forward to today, and thanks to Tiny's success, this opportunity is no longer a secret. Many people have caught on to the idea that this can really work. But just like Berkshire itself, no one else has the combination of experience, temperament, access to capital, and frankly, reputation that Andrew and Chris have built over the past two decades. We're investors in Tiny ourselves alongside Bill Ackman and Howard Marx, and just like the two of them, Tiny is really the long-term buyer of choice in their niche.

4:27Anyone 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. Yup.

4:38For instance, they just bought the Premier Social Network for Film Buffs, Letterboxed, which has been the Founder's Baby for 12 years and will stay so within Tiny. And this really reflects Tiny's whole ethos. Work with only the best internet businesses commit to simple diligence, 30-day deals, and leave the business alone, either for you to operate or bring in new long-term oriented management. Up to you. 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.

5:06Tiny just became a public company earlier this year, and they can now do deals ranging anywhere from one million all the way up to 250 million. So if you want to get in touch, just shoot them a note at high at tiny.com and just tell them that Ben and David sent you.

5:35Okay. Now, without further ado, this is not investment advice. Dave 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 casinos? Good for America, of course not.

6:05They're just very popular. 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. Right. It's just so simple. If you're Warren, you want the house, you want to be the house, not the punter. Listeners, 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 organized. They don't really know anything about the companies.

6:35gamble on going up and down the price. If I were running the world, I would have a tax on short-term gains with no offset for losses on anything. And I would just drive this whole crowd every wall of business. What do you think about the algorithms like Renaissance and stuff like that? Well, of course, Renaissance was first the first algorithm. It was so simple. It sifted all the data for the past. And what did they decide?

7:04Up, up for sure to a closing crisis and down, down, we're more common than down, upward, up, down. Once they realized that's the way it was for the phrase, reason is deep in the psychology of madness. It manages the natural trend follower. You take your gambling short term and then you, they just, he's programmed the computers to automatically, you know, buy in one thing the first up day and then sell before the end of the second day.

7:33And they did it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it, they have it

8:03is taking a leverage that mid-day leverage up 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.

8:33It's crazy. I mean, it seems like that's everyone on the agency. They've all been there. I'm curious, how did you first come across Costco or a price club at the time? Rod hills saw a new saw price. And nobody was doing it. He said, you have to do it on a meeting. He said, so I drove down and went through the store and talked with Saul. And of course, Saul was a very intelligent man.

8:59So I was an ordinary lawyer until it was 39 years of age. Anyway, I'll inform a government employee's discount comment. Was this in the Fed code days? He was no longer with Fedgo. He sold Fedgo to the Germans. Fedmark to the... You go man. Yeah. Yeah. And did you get to invest in Price Club before it merged with Costco? Yes, I did.

9:26But I just bought my stock 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 long as he'd even get Charlie to do it. I want shorter plane rides to directors meetings and so on. So that's how that happened.

9:55And did Berkshire ever try to become a shareholder or acquire a costume? I tried 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 injection? He's actually free to retail. Gradually everything that was months mighty in retail has gone. She's probably gone. The big ones are gone, you know. It's just too damn difficult to search. He's concerned.

10:23And you had a bad experience with diversified retail, right? No, we made 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 pissant department store chain in Baltimore. Big mistake to prepare it. As the ink dried on the closing papers.

10:55We realized it could be a terrible mistake. So we decided just to reverse it and take the hits to look foolish rather than go broke. We just told them how to get us out of this. By that time we'd already financed half of it and covenant-free debt and so forth. And we did it all as extra cash. And our own stock's got down to selling it enormous. We just, in the middle of one of those decisions, we bought and bought and bought. And all that...

11:24money went right into those stocks. And of course, we tripled it in just sitting on our ass. And that led to blue chip. Yeah, yeah, it was part of the, at least excited to lose you. Wow. And so, you know, you mentioned Warren doesn't like. We got something else that people don't know about. Yeah. We bought a little percent savings on company. Maybe $20 million. And we left that thing. We had taken out of our little $20 million investment.

11:54over two billion dollars 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 just 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 virtues of me kind of reminding him. Yeah, yeah, and he said shoot me first. We were hoping could you give us your speech on the virtues of Costco? No, it was getting me for being so repetitive on the subject, but there aren't many times that lifetime when you know you're right and you know you have one that's really going to work wonderfully. Maybe five, six times a lifetime you guys can't do it.

12:55And people do it two or three times early. I'll go broke because anything is easy. It's 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 wide and 7, 8 feet 9, or whatever they normally are.

13:25They 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. They all worked. And the capital-length business bottle, I mean, when we were studying at the difference. Oh, yeah.

13:54They have no investment in them. 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.

14:25Who knows? So I kind of would like to. You just kind of offense here. You like deals. You like this. It's like it's real estate. Like yeah, but it doesn't make sense. You don't want. You got an enterprise as big as Costco. You know, I screw around with your parking lot. Again, other people are going to clog up your parking lot permanently and stuff. It's not going to pay you very much. Right. You don't want to miss the answer.

14:52Have you ever seen another business that takes advantage of the virtue of the low-skun count the way that Costco does? Well, there are lots of them. That little grocery store chain here in Los Angeles, Gelsen brothers. They wanted a high-turned-overs and low-capital costs. And they never made the least effort to earn any money you're having. They wanted to share their breaking out with anybody. As you reflect back on...

15:24you know, one of these few great companies in a lifetime that you should bet big on, what advice would you have for David and I as young partners looking for a few of these in our lifetime, things to look out for? Well, when you find one, 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.

15:55You know, you're right. And most people don't teach that business school. It's insane. Of course, you gotta bet Emily on your best bets. And how do you develop that level of conviction to know? You work at it. 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. There was a lot of low hanging fruit.

16:27in the early days of our operation. You don't have any unalonging fruit that's 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 good care of our investors and so on. We had similar attitudes. Yeah. Didn't.

16:54change over the decades? No, it still cares more about the safety of these virtual shelters than it 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.

17:25Do 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. This would have been very easy. The situation landed itself. If you were intelligent, it's just not getting out. 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 with it and no inventories?

17:56Right, 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 is 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 a lot of people do it now a lot of people now do it Man, you're actually something there is terribly strong And they're just forcing the suppliers to carry all of you in 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 other We do

18:58I 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 said, oh, they divided it up. And they had originally, this problem would be the chairman and CEO because he was the idea he found the whole thing.

19:29So I was like, no, I have to be the CEO. So it was a big unfortunate board meeting, a big internal struggle. And brought my mood 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 launched every Saturday.

20:02It burns your headquarters. It's like he doesn't have a little quarter of people there who are kind of pals when he 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. We were young because we didn't have that much to do. Now we've got more to do in that. But then it's just the other energy of life. So it's different. Yeah.

20:34It's funny. I feel like we have a lot to do now, but it's very difficult to invest money well. And I think it's all but impossible to do time after time or time and venture capital. Yeah, we really wanted to ask your thoughts on venture capital. Some of the deals get so hot. Yeah, from this side so quickly, your old just sort of gambling.

21:00Do 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 a independent store of value that is not paid. 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 British found was the national currency investment world that shifted to the dollar and it's still a dollar and people like China have these enormous reserves that dollars either money we make way

21:59Money people give us where we always just print up these pieces of paper. Yeah, 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 any money the dollars very fun. You know, he's by 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 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, you can help them run their business yet not interfere with them so much they hate you. By and large, I have 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.

22:59They're more than not to hate the venturingapolis. 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 Berkshire. You see, I'll be away. They know we're not trying to discard them to the highest bid. See if someone has all the best of the maker offers us 20 times earnings or something lawsy business. We don't sell. Hmm.

23:28If it's growing business, we can never be able to fix. We'll sell it. But it's a halfway decent business, we never sell anything. And that gives us the reputation of staying with things, which helps us. And do you think that buy 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.

23:58The 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 capital is doing. The world is full of xg, gold ones, x partners, and form the private fund. They imagine billion dollars or something like that. And they charge two points off the top, plus the slippery. And that enables them to make very handsome looking to themselves. But the endomas and I get a good return. And do you think it's specifically the fee aspect of... It's your nature, the way it's just 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...

24:57Pretend that you get good results of this to 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 out of an individual capital are a lot like investment bankers deciding which hot new area they're gonna get in They're not great investors or 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 this All these people who judge three and 30 or whatever they judge, they say, we'll pay your three and 30. We're gonna put in twice as much money in the next half. You'll get nothing on it. You're just gonna ride a parry pass through what's on your investments. So the means go down by 30%. That'll take a lot of the fun out of it. Fees down 50%. And that's happening all over America. They feel

25:58had 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? Tell me somebody will find a good thing, but it gets harder and harder.

26:29I would argue one of the easiest ones was when they decided a little group around Home Depot, they would copy the Costco Maddle 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 at Costco, flying the car.

27:01It's the current imitator and it's just this in vinyl wood imitating vinyl flooring that 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. Yeah, it's just like the vertical Home Depot works 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. How many people was 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? How did you feel about that? No, I know. Saul was not crazy here. He was...

28:00Dominary and so on, but he was also very intelligent. But there aren't many opportunities like Omnibu 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 idea they already had. That's everybody's trouble. He can't accept a new idea because the place space is occupied by an old idea.

28:32They got in the habit of getting the real estate credit even nothing because he went in little towns or nothing was valuable So they're always their occupancy cost to the like zero and they knew how to make big division 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 live and Well, I just let them do it year after year was a terrible one steak. Did you know Sam?

29:02The 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.

29:33The whole thing has been thrown away out of the air by all these electric cars. Yeah, there's big new capital requirements, different ways of selling cars. And plus they got these tough unions. See, I just don't even look at the other industry. 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 that are really good at it. Maybe. That's certainly nobody else.

30:05So 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 need to figure out how to make the goddamn thing. You can't do that, you see. Charlie, you invested a hundred. Yes, but they're covered too. How was that investment for you? That lost money.

30:31Not 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 Berkshire's investments in the Japanese training houses. Well, but that is a no-brainer. Something like that. It is as smart as Warren Buffett. Maybe two, three times a century. You had an idea like that. The interest rates in Japan were half a percent per year, but 10 years.

31:04These trading companies were really entrenched old companies and they had all these cheap copper mines and rubber pump days and so you could bar over 10 years ahead All the money you could buy the stocks and it's like 85% dividends So a huge flow of cash with no investment, no thought, no 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 longer you could get it, it was the 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 having God just opening a chest and just pouring money into it. It was awfully easy money.

32:03It'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 trading companies reminds me. We studied another company recently, Nike. That's a very surprising company. Did you ever look at it? That's a style company. Of course, I've looked at it, but I don't like style companies. Too fad-driven?

32:33I suppose the Arby Hermes is achieving a price I'd buy, but short of that, I'm millionaire, 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, I really do. Three or more lifetimes to do it in. You can grade another, but it's not easy.

33:00Hermes is on the 8th generation, I think, now. The family running it. It's not a bit easy. They have meetings every day where they make policy decisions, and 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, they just got to brand people, trust so much.

33:32It took him century to do it. Our conversation then turned to comparing Kirkland signature as a brand to Hermes. Kirkland is a brand the way tied 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, he's candy for $20 million. That's 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 profits go up. So we've been raising the price by 10% every year for all these 40 years or so.

34:33It'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. Now it's got two big kitchens, a bunch of rental stores. Well, it was a playboy. And his brother ran the company, his older brother, and dominated it completely.

35:02But 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 him. I didn't pre-tax him, he bought it. And so that buying opportunity only came about because the family needed liquidity to pay the death taxes. Yes, that's right. We only found out about it because...

35:33Charlie C was on his cruise to Hawaii or something with this guy. It was a client of it. It doesn't counsel. It's a word for luchib stamps, which is the company that bought him. And anyway, that's how we found out about it. We paid that guy a fine to see who never paid one sense. He said that though it was worth it. Of course, but you don't want to pay for everything for paying fine to see there in the world to be bothering you all day long.

36:06So what do you think so there are categories like C's or like termists? Their brands lead to pricing power. I think your chances of buying one of them is 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 right now. No curiosity, we're right return time. Yeah, yeah. So why do you think they're extremely well known?

36:31brands and other categories maybe packaged food or something where there are a lot of original investors that I know they would brand it good. And when they usually start with it's Nestle. And it is filler everything. 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. Very interesting.

37:02There's something about the flavor ketchup. Oh my god, I'm fried potato. People are really willing to change brand so they want Heinz. And so we could raise the price of Heinz pretty much. Hey, but you try to raise the graph 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 the graph or not. Why do you think that is that some of the sauce flavor?

37:33It's happened elsewhere in Korea. One guy is a Chinese guy. It draws all the sauces. Every single major sauce you can draw is not at least 95% of them. And it's because sauces have such a particular flavor that no one can imitate the trade secret. Yeah. Huh. And that gives pricing. We'll get used to it. Is that Coca-Cola as well? Yeah, sure. Charlie, I'm curious. At age 99, what is something that you believe today?

38:02that 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 two and 20 or three and 30 or whatever, they all talk as though it was easy and they get to believe in their own bullshit. And of course, it's not a bit easy. It's very hard.

38:32If you were back 30 or 40 years old again today, would you decide to go into the investment business again? Oh, probably because it's my nature. But I didn't really enjoy the 3 and 30 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 free sale. We forced to deal with investment bankers. We forced to deal with investment consultants, we forced to deal with venture capital. Who knew us, you know, on need other people. The party ain't rich, so you don't have to need other people. 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? No, we would. We had everybody that has done usually good results. Almost everything has three things.

39:35They're very intelligent. They worked very hard. They were very lucky. It takes all three to get them on this list as it was accessible. How can you arrange to have to the end? This is a good luck. 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 for a certain kind of a temperament, and it takes a very patient.

40:05a person to get rich in insurance, 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? Let's say I'm trying to do everything. Think of all the crumbums of the world that drink too much and then file big claims of the insurance company. But get some fire or something. Why would you want to pay the...

40:36Your 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. Well, you're legally. Yeah. Yeah. I don't know Charlie could. No, I have to do what I do. I'm sure this being that since these guys are very tech-focused and curious, not being a tech person. How did you think about the Apple investment? And what gave you the conviction to be so big? What I've already learned is that everybody needs something. And we've got a professional patient in the 12 companies to do better than everybody else. And you need two or three of them at least. And if you have that mindset, Apple was the logical candidate to be on the list. Therefore, what you're going to select your companies.

41:38And it's not very hard to come up with the idea. 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're good by anything else.

42:09Was it valuation or? Yeah, we got cheap. We got to do about 10 times earnings and more on budget. 2015 I believe was the first. Yeah. It's fascinating. I mean, this concept of if you look at distressed debt or you look at I think Warren in the last Berkshire letter pointed out it's been a handful of really good decisions or you look at venture capital that's classically power law distributed. Any of these asset classes comes down to a few really good decisions with high conviction over an entire career.

42:38Yeah, 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, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no 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.

43:34Eventually, 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 is all over 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 Chinese.

44:05economy has better future prospects for the next 20 years than almost any other big economy. That's number one. Number two, the leading companies have China are stronger and better than practically any other leading companies anywhere. And they're about a little bit cheaper price. So naturally, I'm willing to have some China risk in the Munger portfolio.

44:32How much shine it gets? Well, that's not a scientific subject. But I don't mind whatever 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 this. Well, I like something with a real consumer brand of its own light, Apple. I'm curious what major companies that...

44:57Haven'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 when I'm another big bed and gram follower To play with something is really cheap even though it's a crappy company. I'm out there, but I won't consider bugging 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 hard marks that other ones are twice in my lifetime for big gains and that's it It's not like I'd have a second. I've done a hundred times. So it isn't a bit easy. Yeah, a hundred times the easy money is almost 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 very expensive companies are of course good. Get them at the right price. The whole trick is to get them on the few rare occasions when they're really cheap. The bank costs go at its present price.

46:01It may work out all right, but that's, again, it's getting hard. Yeah. For getting the prospects of the stock, how do you think about the next 10 years for the business? I get it 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. Yeah.

46:32It's getting hard out there. And there's always bullshit and craziness. Of course it's gonna 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 it could be possible. It's not only impossible. 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.

47:02You can sit around and talk intelligently in all these objects. But it doesn't by killing everybody off in brutal competition one of 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 hundred years, we've brutally shifted all this value from labor to capital. And now capital is all competing to get into a very small set of opportunities. Well, capital never, you would...

47:33It wasn't that it was all that easy. You go back a long time. It just was a lot easier. And if he continues to get harder, the natural end is that you have... Yes, an unpleasant blow-up with some kind. And God knows what's happening after an 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...

47:59The 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 where it was. And you pay attention to not your handling of people you deal with. You want a good reputation when you're all done another bad one.

48:21And I don't think you're saying there are no opportunities whatsoever. I think there's low 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 ever do it once. Well, that's sort of your philosophy on both sides. You got to be patient for the great opportunities, but when they, you got to recognize them when they come and, and pounce.

48:46We 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. They're 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.

49:13You really have to set out to do it and then do it with analysis 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 ask 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 ketchup 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 mark. Get it low and keep it there 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?

50:13I don't know. I had no conversations with him. And Jim forbade him. Well, I sure Jim would have forbade it. Absolutely. There was no board level discussion of the hot dog. No, no. Those two would not have thought it was a board matter to discuss the price of hot dog. The one thing that fascinates me about Costco is they seem to only be able to grow a 10% per year because they're not capital constrained. No amount of money.

50:42if they were to access it for free. It's hard to open too many stores a year. New store, new manager, new this, new politics. It's hard. Plus a lot of stuff has to be learned and taught and put in place. And so they want to do more than they can comfortably handle. To store openings, you mentioned China earlier, was it 12 to 20 years?

51:09that Costco had the license to operate in China. Well, they would 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 these wouldn't pay 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?

51:36Finally, the board started breaking up noises. You started agitating. Yeah. Who on the board could be excited about the Chinese market? Yeah. Who can? Who knows? That's so great. One thing I found fascinating about Costco was the fact that even though they're in the lowest possible prices, their audience skews wealthy. Was that an accident that they figured out?

52:05Over time, or did they know that? No, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no Oh, is that a Peter Kaufman? Yeah. What are some of the exceptions that you've found the most useful in life? Well, take those kind of costs, go hot dogs. That's an exception. Anybody else would have raised the price of hot dogs a long time ago. They just don't do it. They just know that it's like half famous. You know, we hear kids in the app, they know they got something going there. That's worth extra $22. They just don't destroy it.

53:04I 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 sort of hanging out by my hat while he lures you around the track. And they make me nervous. It's so aggressive. Is that dangerous in a company? No, that's what makes me nervous across the stage. 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 it's easier and so forth. But I would argue that Costco where they've done some of these things that are extreme like that. It's not pleasant that it was smart to change their ways on one item or two. And it seems like there's a spectrum where on

54:03The one side there's Costco that is just not a fast growing company because it's very difficult to and on BYD, like you're saying, they grew like crazy. I mean, YouTube... I'll be like you this year, so at least two and a half million cars. Most of them are 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 anybody. Yeah. Lots of troubles and losses. They ran into terrible trouble.

54:33They created the wrong kind of damage, lots of mistakes. They were lucky they'd be on the cutting edge of the selected car business. It swimmer acceleration and the newest people. So you got a car with more open and most feels. So the young macho male has a real lively car. There are a lot of things right about it. I like that car really works in some ways that it's better. It makes it a 90 degree turn. We were right opposite of the parallel parking place. You just move this way.

55:04Turn the wheels 90 degrees and go in. Yeah. Well, no one has ever done that. If your car goes flat, you could run a hundred miles on the three other wheels only. And do they have better economics as they don't have 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.com.

55:35That's a venture capital type investment. It happened to be a thinly traded public company and we bought it instead of a venture capital type company. There was a venture capital type play and they just went put the foot right in the floor board and played it hard. Had they manufactured it? By the way, both the way the end and we tried to tell you how they're going into the car business. They're going to buy a bank of a car business and go into the car business. I said that's...

56:04a great yard for you. So I was, you want to do that? And he paid no attention to us and read it. How'd you invest it 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 party.

56:35He could make that part, you know, look at the morning and look at it. I've never seen anybody like that. He could do anything. He has a natural engineer and a good 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.

57:04breaking and so on. How would you compare him and BWD to Elon and Tesla? Well, he's a fanatic that knows how to actually make things that he's 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 that he got. Charlie, you turn 100, which is an unbelievable statement on January 1st of next year. Do you have any plans?

57:36I'm a good party. Where's the party gonna be? To California, go. But I totally maxed out the room. I can't squeeze another breath. What captivates you these days? What's fun? Well, personally, everything is. Even politics matters. It is. It's kind of interesting. When you look back at your, your and 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.

58:10Is there a particular era that you remember the most fondly that feels like the good old days? Well, I mean, we were studying blood in some of those good old days. Oh, I mean, Solomon Brothers. Solomon Brothers. Yeah. Yeah. I don't know. There were a lot of closeness. We've got out with a big problem with this album. We couldn't have a big loss. We could have more problems than just a loss with Solomon, right? Well, actually, when we examine 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 you would have survived. If you would let the whole investment in Solomon go to zero, it would have been- If they, if it all blown 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 like to remember that-

59:11Close misses, very good. Yeah, terrible problems. Yeah, terrible problems about low news. The Buffalo evening news. Yeah, 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. We couldn't have 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, but I was very aggressive about wanting to.

59:41Have a good Sunday edition. I didn't want it on the paper for 50 years. There's no Sunday edition on the other side. What made the newspaper business so attractive at that point in history? It was a gold mine. That's attractive. Totally gold mine. Well, in the play, in particular, with the Buffalo evening news, and the Sunday edition was playing for the local monopoly, right? To be the game of the game in town. And with newspapers, you could do that. Sure.

1:00:09I 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, hey, so you got my big truck company.

1:00:39take the depreciation out of the trucks out of the earnings you're relying about the earnings. 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? Well, I've never liked Tom Malone's extreme manipulations. I don't want to be known as the great manipulator like Tom Malone's.

1:01:05He paid less and he got back to some of anybody. He just pushed everything to the drive. And many ways EBITDA was the community adjusted earnings of its era. Are you familiar with the community adjustment? No, we were. We were. We were. Oh 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.

1:01:37So our maize is a great company. And it's heyday general motors 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 in most places. I have a lot of change in threat in their future.

1:02:07Do 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. Someone would like to specialize in industrial company. And Berkshire 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 years ago, what they do and they have a good reputation and high value and so on. What companies can you see today where you can confidently say, Berkshire aside, Costco aside, you can confidently say the business will be.

1:02:39As good as it is today of 10 years Well, I think a lot of companies are pretty good, but you can't count. We say it's gonna happen because You may get some guy like I you're in that just wants to push everything and do the right policy relations So no matter how good the business is it'll be kind of funny Hmm 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 got to get along with everybody. You've got to 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 headed to America, somebody else by the way.

1:03:36Well, you've said that the best way to have a great spouse is to deserve one. As long as both parties feel that way, then it's a recipe for success. Of course it is. And you've got a trust with your spouse when I get to things like education with children and so forth. Yeah. I love that. Well, Charlie, thank you. Yeah. Thank you, Charlie. Good luck to you. Charlie, this has been...

1:04:02A lot of people are going to benefit a lot from hearing this and you're wisdom and they're going to learn so much. 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 some kind, you just think he knows everything about everything and other federal reserves should be rotten and so on. We don't feel that way. I will say with the people we get to talk to who build great things.

1:04:30Every 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. You'll do it. You'll do it. But it's not going to 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 weeks after it actually happened. I know. With autographed copies of Port Charlie's Almanac to prove it.

1:05:00As 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 9 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 high at tiny.com and just tell them that Ben, David and Charlie sent you.

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