A Conversation with Charlie Munger & John Collison - [Invest Like the Best, REPLAY]

[00:00] I know firsthand how complex the tech stack is for asset managers, and seemingly every new tool and data source makes the problem even worse, adding more complexity, more headcount, and more risk. [00:09] Ridgeline offers a better way forward, one unified platform that automates away all that complexity across portfolio accounting, reconciliation, reporting, trading, compliance, and more. [00:18] all at scale. [00:20] Ridgeline is revolutionizing investment management, helping ambitious firms scale faster, operate smarter, and stay ahead of the curve. [00:26] See what Ridgeline can unlock for your firm. Schedule a demo at RidgelineApps.com. [00:56] dot com. Patrick O'Shaughnessy is the CEO of Positive Sum. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Sum. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Positive Sum may maintain positions in the securities discussed in this podcast. To learn more, visit PSUM.VC. [01:27] We've had this interview with Charlie Munger scheduled to air for a while, coinciding with Stripe Press's launch of the amazing reprint of Poor Charlie's Almanac, which is launching today.

[01:37] Tammy Winter and the team at Stripe Press created a beautiful book worth its weight in gold. You should get one immediately. [01:43] We were all stunned last week when we heard the news of Charlie's passing, but having consulted with those close to him, everyone agreed that he'd want us to release the interview as planned. [01:52] In reviewing his remarkable, uncompromising life, a few things stood out to me. [01:56] The word curious doesn't do Charlie justice. [01:59] He was a voracious truth seeker. [02:01] He was funny. He was wise. [02:03] But from my perspective, maybe the most impressive of all was that he was a great teacher. [02:08] The sheer number of people who shared a meal with him and learned from him was staggering. [02:12] He gave what he learned freely to those that were interested and in the process changed people's minds and their lives. [02:18] That everyone listening can probably recite a few pearls of Munger's wisdom without looking it up is a testament to his reach and impact. [02:26] He says in this interview, if you don't look, you won't find. [02:30] For me, and I hope for you, part of his legacy will be go seek, go learn, go look, never stop. [02:35] Before I turn it over to John Collison, who conducted this interview with Charlie, I'll leave you with one final quote from Charlie. [02:42] He said, the best thing a human being can do is to help another human being know more. Amen to that. We need more people like him. I'm thankful to be able to learn from him just one more time in this interview. Please enjoy and may Charlie rest in peace. We are here in Charlie's house in LA where you have lived for 61 years. Yeah. [03:03] And I just learned that you designed this house. Right. So we're here in your creation to discuss your creations, which I'm extremely excited about. I read Poor Charlie's Almanac pretty early in...

[03:16] starting stripe. I can't remember exactly where it was, but it was pretty early the first few years. I feel like the book is an ode to thinking for yourself, where at least for me, early on at that stage, there's all this received wisdom and how things work. And it requires a certain bit of confidence to work up to actually question some of that received wisdom or come at things in your own way. And I feel I took away, obviously, there's the multidisciplinary thinking [03:46] like part of it as well in thinking about, say, for me, the stripe business, but the quality of businesses generally is, I feel like a lot of what you get at is a sort of a map territory confusion, where the professional financial world very much discusses the map and, you know, the numbers of a business, whereas you're much more obsessed with, is this a good business? Is it one-term sustainable? The conventional financial world is pretty reliable if you want to [04:12] use electrical engineering or automobile transportation or a lot of things. But in a messy world of [04:20] running businesses and institutions and so forth. [04:23] The conventional religion is... [04:26] asinine and my theory from the very beginning was i want to eliminate [04:31] all the most conventional as an entity. [04:34] And I saw that if I could just do that, I'd have an advantage over most people. [04:39] And so I collected assinities. [04:41] as things I should avoid. [04:44] And when you get to the way the... [04:46] Wealth Advisory Business is created. You can hardly find a place in the world where so many high IQ people are doing so many dumb things.

[04:53] And so it was a hog heaven field for somebody who could develop anti-asinity because there was so much of it to be avoided. And I was lucky that my temperament and my location forced me into the business of investing my own money shrewdly. And I was shrewd even when I didn't have much money. [05:13] And that's the way I got ahead. [05:15] And when it worked, I just kept doing more and more of it and so forth. And I never paid any attention to the boundaries between disciplines. I early got the idea I would learn the big ideas in pretty much all the disciplines. And we really used those big ideas to fluency by constantly using them. [05:35] That would give me an advantage in what might be called [05:38] But other people call it common sense. Somebody says that old Joe has common sense. [05:44] They don't mean that. They mean he's got uncommon sense. The people who are sensible on practically everything they deal with, [05:51] They're uncommon, not common. Most people are a mass of crazy prejudices. [05:56] Did you learn the big ideas in the various disciplines because you were just intellectually curious about them, or because you thought they would be instrumentally useful in the work? [06:03] Both. I saw instantly, for instance, when I was introduced to the math of Pascal and elementary probability, I saw immediately how important this math was. My math teacher had no idea that he'd come to a part of math that was very important in the practical world. [06:20] to everybody. [06:21] But I saw it immediately and I just utterly mastered it. And I used it. I'm still using it. I used it routinely all my life quite intensely. And when I got to studying the Harvard Business School, in the early days of the Harvard Business School, they were proudest of something called decision tree theory. And they taught it at the Harvard Business School with a lot of pomp and ceremony and many examples. All these graduate students.

[06:45] Decision theory at the Harvard Business School in those early days, what they were teaching you was that, [06:51] Pascalian probability math works in real life. Here's the Harvard Business School. [06:57] needing to do remedial high school math. [07:00] to a bunch of graduate students, and they weren't wrong. They were right in those days to teach decisionary theory because other people hadn't mastered probability math the way it should be mastered. My teacher in high school said, if you don't pay attention to anything else, this stuff you ought to master. [07:15] And he explained how carny operators and casinos take advantage of ordinary people. It should have been taught. And it wasn't taught right in high school. And it wasn't taught right in college. [07:26] And it wasn't taught right. Finally, the Harvard Business School got so they taught high school math to graduate students. And you can say, how could that be correct? But it's because the early education was so ineffective. [07:38] In Per Charlie's Almanac, you advocate the multidisciplinary approach and knowing the [07:44] big ideas from all the different disciplines. And one of the ones that I particularly liked and stuck with me [07:51] was... [07:52] The one from biology of... [07:54] stable ecosystems and understanding how [07:57] entities prosper within ecosystems and in particular [08:00] And now they perish, too. How you don't want necessarily to be in this robber baron, monopolistic rent extraction position, but instead businesses that sustain and endure over the long term are ones where they are not rent extracting. Well, some of the robber barons last a long time. And there are a lot of real estate operators that are basically sleazy. And they don't even think their business is sound unless they're doing something sleazy. They're not doing something sleazy. They have a safe advantage.

[08:30] And of course, that's exactly opposite to my idea. My idea is so simple, is that if you make your living... [08:39] selling things to other people that are good for them. That is safer and more profitable, averaged out and selling them stuff that's bad for them, like gambling, drugs, crazy religions. [08:51] All kinds of things that are terrible for people. And so, of course, you want to sell things that are good for them. [08:57] And it's amazing the people who don't pay any attention to that rule. [09:02] I think of the sleazy products that investment banking is perfectly willing to sell and the sleazy stuff that compensation consultants are perfectly willing to sell. And I just decided I wasn't going to do any of that. [09:16] I was going to sell the kind of stuff that I would buy of her on the other side. [09:20] And I also wanted to work with the kind of people that I admired. [09:24] That's a very important thing to learn, to just search out the reliable people that you can trust and be the kind of person dealing with everybody else that they can trust. It's just a huge advantage if you start doing that young, keep doing it consistently through life. It isn't very hard. Stay awake in high school math and deal with the good people instead of the bad people. [09:47] And sell what you would buy if you were the buyer, not what you can sell by misleading people. [09:52] These are very simple ideas, but it's just absolutely amazing how well they work for people who relentlessly follow these simple ideas.

[10:02] Just because it's easy advice or simple advice does not mean it's commonly followed. It's better if it's simple. [10:08] You would presumably also add be reliable to that. That's the point that you make a few times. Who wants to be, deal with an unreliable person? [10:15] You mentioned the lesson your dad taught you about. Was your switch from the law to investing partly informed by this question of the counterparties you were dealing with, where in the law there'll be adverse selection in the people who buy a lot of legal representation? [10:30] A lot of people get into a lot of trouble or skirting along the edge of dangerous regulation because they deserve to be dangerously regulated. It's extremely dangerous. If you read a list, you can hardly figure out. [10:43] a more unethical way of making money in capitalism than the Sackler families did when they started selling illicit drugs. [10:51] under the cover of being a legitimate pain removal. If you looked at the law firms and advisory firms and accounting firms that helped the Sacklers along the way, there'd be a lot of very respectable names. [11:05] I think it's stupid to take clients like the cyclists. You don't want people to even know your address. [11:11] You don't want to have anything to do with them. And yet, [11:14] A lot of law business is caused by the people who are right on the edge. [11:18] of something very immoral. [11:19] And a lot of big law firms will take those clients if they're successful enough. [11:24] I don't agree with that particular model of law practice. I think you ought to be quite selective in the class you take on. [11:32] What do you think is the societal fix for problems like the pharma company's role in the opioid epidemic?

[11:40] Well, that's a big issue. A lot of people rationalize selling drugs to other people to make money. If you go back to Franklin Delano Roosevelt, [11:48] His money mostly came. [11:50] from his grandfather selling opium to the Chinese, and he was selling to Chinese bandits too. And he was very respectable when he got back to the United States and lived in a big house, and I'm sure behaved well. [12:01] and dealing with those tradesmen and so forth. But I don't want to make that money by selling opium to the Chinese. It's a perfectly disgusting way to make money. But a lot of the early money that came to Harvard, Yale, and Princeton and so forth, they also made money, those early tradesmen in that area, by selling opium to the Chinese. So a lot of people have rationalized a lot of terrible conduct in the history of the world. And I think it's safer and sure and better just [12:31] Just get the bad people out of your life and the bad activities out of your life. Just exclude them. [12:37] And this gets back for me to one of the big takeaways I had when I read Poor Charlie's Almanac is, again, the map is not the territory. A business is not its income statement and balance sheet. You could have a business that looks very robust by the numbers, but there's a question of, is the management honest? Is the product actually good for the people who are buying it? And you could have two businesses with very similar income statements, but one is a much more sustainable business and one is not. The trouble with investment is most businesses are going to perish. [13:07] Over a scale of 300 years, practically everything perishes.

[13:11] All the great retailers, 90% of them have perished in the last 100 years. And lots of other fields. Kodak perished. All kinds of big things that look permanent. And, of course, successful investment. You want to anticipate things that are going to destroy businesses. [13:30] For instance, as we said here, [13:32] Over the last hundred years, the people that control the big brands, [13:36] Reliably made more money more easily with less risk and downside than practically anybody else. [13:42] Brands like Wash, what's an example? [13:44] Just any toothpaste, Procter & Gamble, or you name it. But I remember when Ipana was a popular fast-selling product, [13:52] toothpaste and it went out and it's gone totally and i think that their forces in fact now they're going to make it harder for the people that control the big brands [14:01] Because these house brands like. [14:03] Costco has and the other house brands and the success of places like Aldi and so forth. I just think that there's more trouble coming to big brands than they've had in the last hundred years. And if you're an investor, you should realize that even though you haven't seen it yet. [14:18] And you wouldn't realize that modern big brands have a perish risk unless you were familiar enough to economic history to remember all the other things that perish that once looked investable and looked permanent. And, of course, they weren't. [14:33] Because it feels like they're getting squeezed on two sides, right? On the one side, you have very large retailers like Walmart or Costco or Amazon. But then on the other side, you have companies selling direct to consumer over the Internet where they don't need a retail distribution channel. And so it feels like the big brands. That, too. I regard all investment as intrinsically damn difficult because, yeah, obviously, good ideas get bid to such high prices that they get dangerous just because...

[14:59] There's no investment idea so good you can't ruin it by raising the price higher and higher. None of them are worth an infinite amount of money. [15:06] This gets to one question I was wondering about, which is you and Warren famously say that you divide investments into yes, no, and too difficult to reason about. And say much high tech might be in that too difficult to reason about. For us anyway. For sure. Yeah, yeah, yeah. But we're the biggest shareholder in Apple, so we haven't totally failed. [15:23] No, understood. And I think that 5% position in Apple, my understanding is it's done pretty well for you. But you don't get to not reason about tech because you think about the Buffalo Evening News. Newspapers are fabulous toll road businesses until the internet comes along. And then suddenly the economics of that business look very different. [15:40] Basically, the wealth of the newspaper industry, with minor exceptions, it just all went away. They were invincible monopolies, gold mines, and made their owners safely rich for 200 years even. And almost all went away. [15:55] So my question is, how do you think about the quality of the business when overarching tech changes are really going to shake it up? [16:02] You've got to recognize that tech changes do cause some new businesses to flourish and other businesses that looked impregnable to fail. And that's one of the realities you have to understand. [16:15] So you secretly are a tech investor because you're reasoning about the effects of tech on Costco or on. Yes, it's just that take, for instance, pharmaceuticals. [16:25] The American pharmaceutical industry is better than any other pharmaceutical industry in the whole world.

[16:31] And number two is not remotely even close. So we have one of the great achievements in the whole history of the world in science and technology and so forth. At the same time, there's a fair amount of sleaze in the way pharmaceuticals are distributed. Everybody rooks the government. And all the midman and the PBMs. Yes, and that's just the system. By and large, we haven't invested in pharmaceuticals because we've got no edge. I don't know enough about biology and medicine. [16:59] and chemistry to have any edge in guessing which [17:04] new pharmaceutical attempt is likely to succeed. And other people who know those things, not that they have perfect knowledge, but that's way better than mine. Why in the hell would I play against other people in a game where they're much better at it than I am when I'm playing for something desperately important to me, like my way of feeding my family? So of course we didn't go near it. I would argue that in practical life, you want to succeed. You got to do two things. You got to have a certain amount of competence and you have to know what you know and what you [17:34] know you have to know the edge of your competency and if you know the edge of your competency you [17:38] You're a much safer thinker and a much safer investor than you are if you don't know it. And I constantly meet people, better to have an IQ of 160 and think it's 150 than an IQ of 160 and think it's 200. That guy's going to kill you because he doesn't know the edge of his own competency and he thinks he knows everything. Partly, Warren and I, we pretty much know what we know and what we don't know, what we're good at and what we're not good at. And one of the things we're not good at is guessing which new pharmaceutical.

[18:08] Yeah. [18:09] After all, it's a big universe out there. And if we have to leave a certain kind of investment behind because we like the capacity to deal with it as well as some other people, that's all right. We don't need an infinite number of opportunities. Why did you never invest in Amazon? It feels very similar to Costco in the thesis of how it operates, economies of scale delivered back to the consumer in the form of lower prices compounding over a long time. [18:32] We've actually started a business or two, and we bought some little ones that we made big. So we have done some things that look like venture capital, and some of them have been quite successful. But averaged out, we bought existing businesses that had a lot of momentum as well as a lot of talent and just rode those things. [18:51] So we made way more money. [18:53] by finding something that's already working in a business and just buying it. Then we have starting new ones from scratch. NetJets was an interesting business. We lost money or broke even for 10 or 12 years. And now it's just a goldmine of a business. We look like venture capitalists. I guess we were in that case. [19:13] NetJets is now a very good business. [19:16] Good is an understatement. [19:17] It's not an adequate word. [19:19] So one thing I observe about a lot of the very successful businesses that you're obsessed with is they seem particularly well designed to be capital efficient. And so NetJets and Coke might not look like similar businesses on the surface. We think about Coca-Cola. They are the brand. They do the advertising. They manufacture the syrup. But the capital intensive bottling work happens with partners who take on that CapEx.

[19:49] but they put the ownership and depreciation onto other people. What you've said is exactly correct. Of course, it's better to have a business that earns large profits without requiring any capital than it is to have one that has a lot of capital to make the money. [20:05] Of course, that's true. Naturally, everybody's drawn to a business that will produce huge profits with no capital or a huge return on the capital pull-up. [20:13] Do you specifically look for businesses that are good at pulling in other partners who invest the capital? So, you know, Domino's Pizza. We don't have any one model of being good. The Berkshire Hathaway businesses are good in various ways. And all we care is just the way working. [20:28] And by and large, they're working pretty damn well. But sure, of course, everybody loves the business. It produces a lot of money without repairing any capital. [20:37] Costco requires no working capital. Why not? [20:40] Because the turnover is so high that they don't have to pay the supplier until they've been paid by the. They've shifted the inventory by the time they need to pay the supplier. [20:50] Somebody else is financing their inventories. [20:53] And we could if we wanted to lease all the properties. [20:56] We don't. We own all the ones. We can. But basically, you could run Costco with practically zero capital if you wanted to. Of course, we like a business like that. [21:05] a lot better than ordinary businesses. There aren't many, unfortunately. [21:08] Would you agree that this is something that's much misunderstood in business is people are obsessed with percentage margins, but the capital efficiency of a business is a function of its percentage margins and the inventory turns. And either of those can contribute to the capital efficiency. Well, I think everybody understands that who goes through a modern business school, but they learn the wrong culture.

[21:38] then you get all this somebody else's furnishing your working cap so they abuse the supplier who's a little supplier because they can get by with it i don't think those models are safe or good and i think that's a dumb way to treat little suppliers so i don't believe in that kind of brutality to little suppliers people learn the wrong religion they say we want to produce the capital we'll just pay a bunch of little people when we want to trust us and love us and serve us well we start treating them in a very improper way that's vastly stupid that's not smart [22:08] So what examples do you prefer of businesses driving capital efficiency without squeezing small suppliers? [22:13] Well, Costco is one. [22:15] By turning the inventory quickly? [22:17] Yes, and doing that because they have fewer stocking units, they're way more efficient. [22:21] You're on the board, right? [22:23] Yeah, I'm somewhat the older member. [22:25] But Costco, it's an amazing culture, the whole damn culture of the place is so-so. And it just marches from triumph to triumph. It was smart to have a small number of stocking units. [22:36] flowing through with enormous speed. It was right to have a membership system. There are three things that Costco didn't want. It didn't want people who stole merchandise. It didn't want people who had used bad checks. It didn't want people cluttering up its goddamn parking lot without spending a hell of a lot of money in its stores. So a membership system where they accept only a certain kind of a member, all of a sudden now they've got nothing but people who

[23:06] Always had the lowest shrink rate in the world. Fix inside, too. So the net theft rate at Costco was always below two-tenths of one percent. That's unheard of. [23:16] I hadn't thought of the parking lot efficiency with the membership system. [23:19] You can't go to Costco just to buy a bottle of iodine, just drop in. You've got to be a member, and you've got to pay enough so it's to an ordinary person. They're not going to pay an extra $100 to buy a bottle of iodine or something. We keep the peach pickers, the little buyers, out. [23:35] Sell price used to say a business should be careful in the business it deliberately does without. Of course, that's straight out of a monger book. You figure out what you want to avoid. And they want to avoid theft losses, embezzlement, bad checks, and climbing up the parking lot without buying much. And their system costs all those effects at once. [23:57] It's like your first speech in the book, start with the business you don't want, work backwards. I know, but it's so simple. [24:02] Any others of businesses driving capital efficiency without squeezing suppliers? [24:06] There are lots of others. Actually, all the aerospace businesses have learned to make very high returns on capital. [24:12] How do they do it? [24:13] They specialize in being good at something and handling the government well as the main customer. [24:20] Did you ever look at TransTime? [24:21] Sure. I don't like that way of making money. [24:25] because the price increases. [24:26] It's too brutal. They figure out something that has a little monopoly due to the Defense Department regulations, and they raise the price 10 times. And they're famous for it. I regard that as immoral.

[24:39] Did you ever look at Domino's Pizza? [24:41] No. [24:42] You're familiar with the returns, though, right? [24:43] I'm familiar that they have good returns. A lot of people get good returns on the investment when they get hot and get big volume through small. Listen, McDonald's earns a big return on capital. A lot of places do. [24:55] One of the things you raise in the book is this question of when you have a small number of players in an industry, say two or three players in an industry, it is not always easy to predict who will earn good profits and who will not. And so the airlines lost money since the Wright brothers versus the serial manufacturers, very durably profitable. If you're looking at a business today and you know that the industry will consist of two or three players, how can you predict will those players make money? [25:21] I don't think it's possible to be 100% accurate in making these predictions. But certainly over looking backward, the people who had branded profits like coffee and oatmeal and so forth made very high profits. And airlines basically made no profits at all for their shareholders. But airlines were branded goods. [25:42] But everybody had big capital equipment. If they didn't use it, they obviously were losing a lot of money. So everybody was almost forced into a very destructive competition by the logic of the individual situations. There are a lot of businesses that are very hard to make money in permanently. If you want to go into a business like restaurants, most people fail. A small percentage of restaurants even last long enough to make a living for the people who own them. Too competitive, that's why they fail.

[26:12] deer on an island and no predators. Pretty soon there are too many deer. So all the deer suffer because there are too many of them. [26:19] But again, to go back to this question, if I want to understand, will a business be like an airline or like a serial... [26:24] company. Is this then the ongoing capital expenditure that's required for airlines? Fundamentally, they have lots of capex on an ongoing basis. It's like the original Berkshire textile mills. The airlines are like a guy who builds a big hotel and it's just sitting there and he makes some incremental profit from filling it. And if it's up and staff, that's better than just leaving it sit there vacant. It almost forces irrational, intense competition. The same thing does not happen in cereals. [26:50] The NSF was one of the biggest acquisitions you guys did. And my sense from the outside is that it's maybe even been more successful than you would have expected. Is that accurate? Or did you expect to be this successful? [27:02] The railroads were a lousy investment. There were a few people when they were first created that basically stole a lot of money by bilking the government and bribing legislators and doing all kinds of terrible stuff. But by and large, most railroads were a lot of lousy investors. [27:19] like the airlines for a long time. And finally, it got down after years of fighting unions and consolidations. So you get on a few big systems. Now, there's just two big transcontinental systems, and we've got one of them. Of course, that's a less competitive market than was, than existed earlier when there were 100 different railroads. But early the railroads, when they were terribly competitive, they were terrible places to invest money.

[27:43] But again, airlines, bad business, not a good investment. [27:47] Early railroads, bad business. [27:49] Early railroads, yes. Railroads today still require a lot of ongoing capex. Yes, but they're so dominant. Once you have a railroad that can put shipping containers on it that stack too high, [28:01] On tracks, it's one of the most efficient ways of transferring a lot of stuff over the country. It's way more efficient than trucking so that they have a system that just accidentally happened. Nobody anticipated you'd be able to double the capacity of the railroad, just two shipping containers, one on top of the other. So they got very efficient finally. And now they're so efficient, they're more efficient than anything else. And of course, they do well. OK, so nothing can compete with railroads in terms of efficiency, cost to actually move stuff, energy required to move stuff. [28:31] you might have three airlines competing on a route, whereas the railroad may have a route to itself. Were you ever tempted to invest in other forms of transit infrastructure, ports, shipping? [28:42] We've looked at things like that, but I can't remember a single. And what we once bought a big position on a bridge. [28:49] A literal toll bridge business. [28:51] a little toll bridge and then we decided that we didn't want to look like goddamn monopolists and besides we just sold and moved on to something less monopolistic [29:01] or at least it looked less monopolistic. Has investing gotten harder than, [29:06] Of course, it's gotten harder, way harder. It's gotten so hard that most of the people who are in wealth management, [29:13] have an almost zero chance of outperforming an unmanaged index like the S&P.

[29:18] How has it gotten harder? [29:20] What's gotten? [29:22] There's so much more of this wealth and investment securities. And so we'll get a whole lot of [29:28] big sums to manage. And of course, it's a long time to buy in, a long time to sell out. Costs are higher. And so it's way harder to manage a large sum of money to make a lot of money, high return than it is to manage a small sum of money. And then way more brains came into the business. So it's gotten brutally competitive. And then we have these manias that get, when things are hot and they'll start running, the behavior gets... [29:53] almost crazy. It's almost like a delusion. Of course, it's harder. And in my lifetime, a guy who has bought the best common stocks and sat on his ass would have made about 10% per annum before inflation, maybe 8% after inflation. That is not the standard return that mankind can expect from investment. That was a very unusual period in a very unusual place. [30:18] And I do not anticipate that the average result is going to be nearly that good over the next 100 years. Why was the result so good? Why was it 10% per annum? [30:27] Let's call it 8% after inflation. [30:30] The Great Depression so demoralized everybody, they were utterly despised. And then the economic system improved a lot. And the combination of the investment climate and the economic situation together evolving just made it unusually good. If you go back to what the rich people of England did back, say, in 1900, they bought consoles, 2.5%, no inflation.

[31:00] to stay safe to be satisfied with that. No rich people thought there was any safe way of getting 8%. [31:05] If you go back to 1880, among the rich people of England. And so this is an unusual period. [31:11] And now everybody who's in investment management teaches everybody, you'll get 8% after inflation by dealing with us. [31:19] Because that's the way it worked for the last 100 years. It's going to work for the last 100 years does not mean it's going to work for the next 100 years. [31:26] So it's been a period of significant economic growth. I think there's also maybe the U.S. stock market. Yes, everything. United States, country, a lot of good stuff happened at once that caused that very good result. It's not always going to work that way. OK, so say we have a 25 year old investor who's thinking about investing over the next 50 years. If you take the lessons from poor Charlie's almanac about avoiding the relatively simple mistakes that can be avoided, thinking about investment as the underlying business and the [31:56] Taking the punch card investing approach of making a small number of investments rather than trying to play or time the market. Do you think that approach is still a recipe for success over the next 50 years? [32:06] Yes, but it requires considerable self-discipline and considerable skill. And most people will lack the discipline and skill. [32:16] What discipline will they lack? What will they screw up? [32:18] Well, I get carried along too much by what other people believe at the time. They'll respond too much to it. [32:25] improper incentives. In other words, they'll start buying stuff that's silly to buy to get the fees that they can scrape off the top, and they'll do a lot of things that are wrong. Not written in the stars that everybody has an automatic way of making 8% after taxes. That's quite an achievement, yeah. It's a huge achievement, a real return of 8%. And by the way, the ordinary customer, the ordinary stockbroker, probably earns 2% or something instead of 8%. So the ordinary stock

[32:55] Not that there aren't some honorable good stockbrokers on Earth, because there are some. But there are a lot of people who are responding to the incentives they're under in a way that their investors who trust them are not going to get a good return at all. [33:09] You've been famous for... [33:12] criticizing gold earlier on and now cryptocurrency. [33:17] I like gold a lot better. I like cryptocurrency. [33:20] You've criticized both. [33:21] Before there was cryptocurrency, I never bought gold. [33:24] So I didn't like gold. But I don't hate gold as an investment as much as I hate cryptocurrency. I think cryptocurrency ought to have been driven out as illegal. [33:34] At the risk of maybe getting ejected from the premises, if I can try to defend cryptocurrency, isn't the perspective you have where I think you would say invest in a productive business, isn't that a reasonably U.S.-centric perspective where absolutely we have a great currency here, we have a great respect for property rights here? [34:04] in Turkey, I might do something odd. I'd buy gold if I were in Turkey, but I would never buy cryptocurrency. [34:10] Even in Turkey? No. I don't think that buying a percentage of nothing is a good investment, even though it's hard to create more nothing. [34:18] But isn't gold functionally an investment in a percentage of nothing? [34:22] It is similar, except it's been established so long.

[34:26] As a an agreed upon store of wealth. [34:29] With the history we have and with the need for a currency and a currency that. [34:33] But it's backed by something. And gold is hard enough to mine and so forth. [34:37] Gold is a perfectly reasonable thing to use as a currency. And the evolution of use of gold as a currency was a very good thing for civilization. I don't have the feeling that gold is evil. Gold helps civilization develop. But I think cryptocurrency is a scumball activity. And I think by and large, the people who promote it are scumballs or delusionary. And I don't know which is worse, being a scumball or a delusionary. But I think they're both pretty bad. Some people can manage to be both. There's plenty of scams in crypto. That's absolutely not up for debate. [35:07] talking about questions of degree here between gold and cryptocurrency, where they are societally agreed upon stores of value, which trade above. Well, let's put it this way. If we didn't have gold, we might have invented something like cryptocurrency as a substitute. But once we have gold and currencies that are now long established, we don't need the goddamn cryptocurrency. But isn't cryptocurrency handier? You can work with it in just software. You don't need to [35:37] It's much harder to seize cryptocurrency than it is to seize gold in an autocratic regime. [35:42] You don't have to bother with any physical inventory or anything has any intrinsic value. You can create system for efficiently dealing in it. I don't want to officially deal in nothing and craziness. I want to make it illegal. All nations have had any counterfeiting laws. And I think the anti counterfeiting laws ought to have been used to totally bar cryptocurrency. But nothing's been counterfeit here.

[36:04] But if I'm a nation and I have a currency, I don't want a new currency established. [36:10] But it's not really a new currency. It's a new store of wealth. You can call it a store of wealth. I call it a store of delusion. I don't think it's good to participate in delusion, even when it gets quite common. A second medium of exchange, widely used. It's ideal for drug dealers, dope dealers. [36:27] Scam artists of various kinds, every kind of criminal you can imagine. [36:31] very good in extortion, kidnapping. Why would we want a wonderful crime facilitating new medium of exchange? Why wouldn't we just say this is like counterfeiting? You're coming into the government's business and you're trying to create a fiat currency and you can't do that. It's a field I don't. You don't like. All righty. Well, I will agree to disagree on crypto, but I'm not going to [36:51] You don't have to agree. I can handle it if you like, Chris. I don't like it, but I can handle it. [36:57] We're staring into a recession, potential stagflation, [37:01] What advice do you have for people thinking about how to work the way through the [37:05] I have one standard. [37:07] set of advice for all difficulties. Suck it in and cope. And that's all any human being can do, suck it in and cope. Partly, you have to be shrewd. That's one way of coping is to be as shrewd as you can possibly be. But that's my recipe. [37:23] I must say it's worked pretty well for me. It'll work pretty well for any other person who uses my methods. [37:30] Berkshire made a lot of money in 08 with opportunities that might not have existed. Some of the bank deals, say the preferred stock deals. Are there different ways investors should act at these discontinuous lows?

[37:42] We got some opportunities. [37:45] which other people wouldn't have gotten because [37:48] We were admired by a small minority of people who could be helped if we helped them. But that isn't our main way of getting ahead of Berkshire Hathaway. That amount of money we've made in those deals is pretty minor compared to the amount of money we've made elsewhere. We get occasional opportunities other people don't get. I don't think it's at all easy to get the kind of opportunities that we got, and we don't get that many ourselves. [38:10] But there may be a lesson there in being a preferred counterparty. Berkshire was known to have lots of cash, be extremely trustworthy and be quick to deal with. [38:18] Those are good refutations. Who wouldn't like an opportunity of being very trustworthy and easy to deal with, always having a lot of money available? Is there anybody who would be hurt by? Of course, people would like that. [38:30] How do you feel about American society over the coming decades? Old men have always tended to think that no generation is going to hell. The old Romans... [38:40] Oh, temporis, oh mores. That goes back to the earliest civilizations we had. The old guys were saying, my God, the world is going to hell. And it really wasn't going to hell net. [38:51] by and large. But I do not like the way politics has morphed in my lifetime in the United States. [38:58] I don't like democracy, the way it actually morphed into existence. [39:02] With these primaries and the dominance of two parties where only the most extreme members of each party have a lot of polling power and therefore they control the nominees and so forth. I think our way of getting nominees is deeply flawed now. It may have worked pretty well up till now. It worked better when we had those old crooked bosses in the cities and it's working now with the primaries. I wish those old crooked bosses would come back and replace the present primaries.

[39:32] Teddy Roosevelt and these modern primary systems the worst people [39:36] Of and when. Just because they move further left and further right? Yes. How do you feel about declining birth rates? [39:42] It creates a different kind of a world. [39:44] But I don't see that mankind would be at all smart if everybody had six children. I think that just jams up the population way too much, starting with 7 billion for the whole world. So I think it's good that the population is growing more slowly. But do I think it is good for people to be quite self-centered until they're 35 and then get married, compared to marrying at 21 or 2 and having a lot of children? No, I think the people who married at 21 or 22 and grew up fast because they had to because they got those young children, [40:14] were a luckier generation than the people who came along with all these different options and who delay marriage until a late age and have one or two children and all that. I'm not at all sure it's good for the people who are having these new options, but it is good for the population. [40:31] Why do you think the people who had kids at 21 were happier? [40:34] It's very constructive to... [40:37] help other people and everybody feels [40:40] pretty good about his own children. To have a lot of responsibility and bear it well, I think helps people. If you take the philoprogenitive people, say the Mormon church, where they still have the big families, if you measured human felicity in some objective way by measuring time spent smiling versus time spent frowning, the Mormons would average out way happier than the general population. So early marriage and big families and believing in religion is somewhat hard to believe. And it's

[41:10] of theology. [41:11] is very good for the occupants in terms of their personal happiness. I'm not interested in believing something I don't believe in. Just to be happier, I'm a peculiar person that way. I have no doubt in my mind at all that the Mormons are average out happier than the rest of us. [41:26] Does that make you worried? No, it doesn't make me worry. I just live with it. [41:30] But people are being less religious and having fewer kids. [41:33] I'm used to things not working perfectly. And so why should I expect my society is always going to be marching upwards? Because it has for a long time. I believe you just adjust to whatever society turns out to be, and you do the best you can. And that's all any human being can do, and that's all I'm going to do. [41:50] How concerned should we be about institutional sclerosis and the rise of it, where you were just talking about this waterfront property that you've been working on developing for the University of Santa Barbara, but it's property on the water that you just can't develop now in a way that you could 40 years ago. And as you look across all sorts of different domains in the United States, it feels like the institutions are becoming more sclerotic and it's harder to do things. [42:15] Of course, in our political system, the people with political power in these states and cities don't want. [42:22] a lot of new development. And they have the legal power to prohibit it, and they do. And that's causing way less opportunity to have good housing for young people coming up than was common when I was young. And in a sense, that's sad, but it probably does make the existing communities a little better off. They already have enough traffic. They don't want any more. They just make it very hard to get new building permits. You can understand what a city thinks

[42:52] serious problem. [42:53] It's not at all clear that the cities are wrong in doing it. It's in their self-interest, many of them, not to grow. And so they use their legal powers to prevent it. That makes it hard for young people coming up. I think the young people coming up now, [43:07] are going to find it a lot harder to get what more or less automatically came to my generation. At modest cost, we got a house in a good school district and a growing, pleasant civilization. And it was pretty widely available. And now in the big cities, I think it's going to be very hard to get a new house. It's sad, but it's sad to get old and die, too. Maybe. [43:28] civilizations have some sadness they have to adapt to just as human beings do. It's not automatic. Everything in your life is going to be better. [43:37] than it was for your parents or your grandparents. Perfectly possible for a world to develop where it's a little worse in some ways. [43:45] Where do you think the world is getting worse? I think we have a political gang problem. It's probably as bad as we've ever had. We have some crazy dictators on the verge of creating a nuclear war. We've got lots to worry about. [43:58] The world has never been a perfectly safe place, and it isn't now. [44:02] Kind of a societal version of your avoiding mistakes framework from poor Charlie's Almanac, where societies need to avoid the major mistakes, just like individuals do, avoiding nuclear war. We're lucky to have done it so far, but if enough crazy people have enough hydrogen bombs, there will eventually be enough hatred. We'll have an atomic war of some kind someday. You can almost count on it.

[44:25] So you can say that our generation, it was quite unlikely, but I think it's getting more likely, not less. [44:31] I'd love to ask about your architecture interest. So again, you designed this house 61 years ago, and of late, you've been designing many more projects like some of the buildings for the UC Santa Barbara, where you donated the funds, but also designed the buildings. Why do you think architects get it so wrong? [44:48] They don't get it so wrong. I think architecture is the queen of the arts. In other words, I like it better than painting or sculpture or painting. [44:57] so on. I don't know, maybe music also deserves to be queen of the arts too. [45:03] But anyway, I regard it as a very important, and so I think hardly anything in the arts is more important than architecture. [45:10] But just as I think money management makes a lot of common mistakes. [45:14] I think architects make a lot of common mistakes. Too many of them want to create something different just because they're bored with the conventional forms. And so they compete in making it artsy, craftsy, and crazy. And you get things like dorms at MIT where people actually would go into the dorm and get seasick because all the walls are slanted and massively stupid. MIT has a school of architecture. [45:44] everybody gets seasick. That really happened at MIT. So I think schools of architecture, they have a lot of folly to regret. It's not necessary for architecture to be as stupid as some of its dead denizens are.

[45:58] Okay, so architecture mistake number one is architects wanting to get creative or make their mark. [46:02] by being peculiar peculiarity by itself is not art in my opinion [46:08] What are the other architectural mistakes? You've got to understand the customer's business and the customer's real needs in a way that [46:16] is automatic with people like me. And I want to identify what the real needs of my customer is and really satisfy it intelligently. And I don't have some crazy [46:28] artistic preference of my own that I want to just see in three dimensions. [46:32] Well, somebody else pays me to create it. And of course, you can serve your people better if you understand their business better. The architects aren't multidisciplinary enough. That's what I'm telling you. Practically, no profession is multidisciplinary enough. [46:45] And what's an example of where you are more multidisciplinary than the architects in some of the buildings you've designed? If you take the building, the graduate residence at the University of Michigan, [46:56] They had a magnificent site. It was a parking lot. They had no other site. They'd used up all the land. And then Arboric, it was like on campus, but on their main campus, they'd used up all the sites. [47:06] And there's one little parking lot left. And... [47:09] I realized that if they used their power room in a domain and doubled the size of that parking lot, they could put a big square building on the side that would hold a lot of graduate students. But there was no way to do that without creating a window shortage in some of the bedrooms. And I also knew that it didn't matter that there was a window shortage in the bedrooms because I went around Ann Arbor and saw the private builders in Ann Arbor created buildings.

[47:37] Apartments with no bedrooms, apartment rooms with no windows and relying on artificial light. [47:43] And I walked side by side the exactly identical bedroom, one with a real window and one just a blank wall. [47:50] And the one with just a blank wall rented for 10% less. [47:53] So I remember it wasn't much of a problem. [47:55] I looked for the evidence. And then once I realized that, I could do all kinds of wonderful things in that building once I got over this prejudice that was absolutely required under any and all circumstances that every bedroom have a window. [48:09] So it's just an example of just the most elementary common sense. I looked at the evidence in Ann Arbor. I understood geometry well enough to know it. [48:17] And then, too, I was well aware that every ship has exactly the same problem. Every ship has a window shortage automatically, every cruise ship. [48:27] Yeah, they pay $20,000 a week to be on the ship and so forth. And if they don't want a little light, they walk out of the ship and go into one of the common rooms. And, of course, that's what I arrange they do in the dorm. So I was following correct precedents from marine architecture. But show me an architect that's learned anything from a marine architect. I think you could go into any school of architecture in the country and you won't find anybody studying marine architecture. They think it has nothing to do with it. It has a lot to do with what they're doing. If you don't look, you won't find. [48:57] of understanding the customer is giving the students in the dorms single rooms where most people design. Oh, well, I'm talking about insanity. Now, I have sent a lot of children through a lot of graduate education, and I've never had a child that liked being in a room with one or two other unrelated people sleeping in the same room.

[49:17] At the age of 20 or 25. Or 18 or 16. Of course, they'd rather have a room of their own. And I just figured out how much the incremental cost would be of giving them an extra room compared to the value. And I finally realized that what everybody was doing was dead wrong. UCLA built brand new housing in the last two or three years. They put three people in a little room to sleep, three unrelated strangers. Nobody likes it. It's crazy. And this stuff I've designed now is grinding slowly through the Coastal Commission. [49:47] student gets his own sleeping area private to himself. [49:51] Why did this shared delusion persist for so long? [49:53] What happened was that the fire codes, they worried that the firemen would need a ladder to go up and look through the window and crawl in through the window and haul out somebody who had passed out from smoke. So they required that every sleeping space have a window so the firemen could crawl up on a ladder. [50:14] There were two things wrong with that. One, it never happened. Nobody could find a case where a fireman had ever crawled up a high ladder and looked through a window and found somebody lying in bed, passed out with smoke. And two, of course, a modern building with automatic sprinklers, death was going to be zero. And that's why the fire codes change. And when the fire codes change, because the people are used to doing it a certain way, of course they keep doing it the same way they've always done it. [50:42] Listen, at the Mayo Clinic, it's one of the best places on earth in terms of an admirable culture. They kept doing hip replacements by a procedure that their doctors knew how to do, because the new one that was better for the patient was very hard for the doctor to learn. And so they just kept doing it the old way. Architects are no different. They do what they're used to. Again, for, say, someone who's 25 or 30, is the lesson that there are a lot of $20 bills lying on the sidewalks? There's a lot of inefficiency in the world to be rectified.

[51:12] that people should not assume the world works efficiently. [51:15] Well, of course, there's always a lot of things that can be improved. Always a lot of people who will be getting ahead by doing something new. And that's one of the pleasures of... [51:28] modern civilization. [51:29] And imagine a postal clerk in the United States. [51:34] You can go to Hawaii on a two-week vacation on a superjet and have a nice time. No postal worker could do that in the world I grew up in. You can learn a whole new profession just punching buttons on the Internet and so forth. So the possibilities of self-education are perfectly enormous. So all kinds of things have been greatly improved. And, of course, that causes new opportunities for some people, and it causes absolute economic destruction from certain people who get obsoleted. [52:04] Kodak Company. [52:06] which hired all the PhD chemists. [52:09] Totally dominated the chemistry of film and so forth. And had one of the most reliable trademarks in the whole world. Go through Africa when I was young. There were two things you always saw. Coca-Cola and Kodak. That was the brands all over Africa from the poorest villages. [52:26] And of course, I went totally broke because somebody invented a new way of taking polygraphs. [52:31] and developing photographs and it just obsoleted their whole damn business and kodak wiped out its common shareholders that happens all the time that kind of thing and you can't blend the management for it and say why didn't kodak invent its own destruction that's hard to do i mean for human nature you got a business as big as kodak everybody's lived over for years they're like the surgeons didn't want to learn a new technique that was a lot harder to learn when they're old

[53:01] new that's really hard to learn. Everybody would rather get ahead using what he already knows. One of the bits of advice you emphasize in the book is to avoid getting addicted to chemicals, which again, maybe sounds flippant. You give the example of some of the people you knew growing up. Oh my God, of course. In the circles in which I was raised, nobody smoked even marijuana, but everybody drank, of course. And I would say that something like 5%, all the people that I [53:31] got hooked on alcohol and became alcoholic. And I think half of them just drank themselves to death and died. And the other half licked it, got over it, became... [53:40] abstinence alcoholics but that's a lot of people five percent they were not [53:46] horrible people or weak people or something. [53:48] You spend a lot of time in the book talking about businesses that are win-win for both sides and the importance of this for their long term. How can anything be much more important? It isn't just that it works better in terms of creating plenty for all. It's better morality. Of course, if both sides want both sides to win, that's more moral than trying to take advantage of other people. Win is so obviously the right way to live and it's the right way to do business. [54:15] Who's fallen afoul of that? All kinds of people. If you're a carny operator, you're trying to cheat people on little gambling games. And they do it all day. If you're selling drugs, that's another way of cheating. And your whole life you want to be on a win-win basis. Because it builds and it's like capitalism. It has these effects that multiply.

[54:38] And there's so much of it we have. That's why civilization works as well as it does, is so much of it is win-win. But there are all kinds of people that are looking for ways to cheat people. We had a guy with us when I was in the military. Everybody called him Honest John. And, of course, they called him that because he was totally crooked. And if it wasn't dishonorable and crooked, he didn't make it sound. [54:59] He wouldn't consider any proposition that wasn't sleazy and never living crooked. He was trying to screw people out of money. But how much better if you have a voluntary transaction where both sides are happy on a win-win basis? That's perfect. And capitalism in such a system causes this flourishing civilization. Of course, it's the way to go. [55:21] Which Berkshire businesses do you think are most emblematic or... [55:25] Everything is win-win. Take Dairy Queen. [55:28] We have all these little shacks, particularly up north where they're just open in the summertime. [55:33] Because you can't sell much ice cream in the winter. All the parents come and get their cheap hot dogs and ice cream cones and so forth. And the people around the little shack make pretty good money in the summertime. And it's win-win. [55:47] The customers are getting something they want. The people who are manning the store get something they want. Of course, the Berkshire shareholders get some capital returns that they like. It's all win-win. Of course, I'd rather do business that way. Who wouldn't prefer to do that than trying to sell? Think of all these people that sold drugs, the OxyContin thing. It was just disgusting, fairly disgusting way to make money.

[56:09] And so the businesses you'd exclude are tobacco, drugs, what else? [56:14] I don't think you want mass mania either. [56:16] Very uneasy by the Grateful Dead's popularity with everybody in the audience using drugs and so forth. There the music was contributing to the decay of civilization. [56:26] So you wouldn't invest in drugs, tobacco, or the Grateful Dead? No, that's correct. I would not. When I sell you a tennis racket for $100, one side gets a tennis racket they'd rather have than $100 they're partying with. The other guy, he likes what he's getting too. It's win-win. That's the beauty of capitalism. It makes win-win transactions very easy and almost automatic. It's such a hugely important idea. [56:50] And people like Bernie Sanders and Elizabeth Warren, both of whom I regard as quite talented in some ways, but they just don't get it. I think you mean that as a backhanded compliment. [57:00] It's both a compliment and a criticism. [57:02] Is the fundamental thing they don't get that a lot of the win-win businesses are net positive and win-win for both sides? And they charge automatic and a capitalist transaction. And that's one side is making a big mistake. And most people are pretty good at not making mistakes over and over again with their own money. [57:20] It's not fully automatic, right? No, it's not. But a lot of good happens automatically. Do you worry about the rise of this faction of the political spectrum who don't really believe in capitalism? Of course. Look at the misery that has happened to the Russian people. They didn't like their old system with a bunch of serfs serving a bunch of landlords and so forth, corruption and so forth. So they went to something worse. They were rebelling against something that was awful. So they substituted something that turned out to be actually worse.

[57:50] to create a new form of government works worse than russian servitem but russia has managed to do it and not only that they're proud of having done it you should never be proud of your defects [58:01] Potter-Berkshire's defect. [58:02] We haven't eliminated it. [58:04] all mistakes of judgment or even all mistakes of morality so nobody gets anywhere near perfect ever in human affairs it's not exactly a defect a lot of what worked for us in the early days we can't do anymore because the world is more competitive the low-hanging fruit has all been picked and we can't get fruit out of barren branches where the fruit has gone away and so we have to go to something else and of course that's harder a lot of people have that problem and they go to new systems and [58:32] I've always liked the quote, capitalism is how we take care of people we don't know. [58:35] It's utterly remarkable how it works. I like a social safety net. [58:40] But I'm different from other people. If I were running the government, the modern civilization, I would be quite liberal at rewarding everything that can't be faked, like being blind or not blind or something. I just give every blind person... [58:54] a lifetime pension which went up with inflation and say life is tough enough for you we can afford to do it and you and your handlers can figure out how to use the money so i would be very liberal i would give anybody any education [59:06] right through college, courtesy of the government, but it would be meritocratic. You have to be able to do the work or you don't qualify for the benefit. So I wouldn't let people pretend to be learning things in some half-assed institution and send the bills to the government. But places like Caltech or MIT, anybody could get in and do the work. If I were the government, I'd pay for it all the way through college and graduate school, which they do in places like New Zealand and

[59:36] for that too. [59:38] But would I pay for Freudian analysis? No. Stuff that can be gamed and it was crazy, I would not pay for. And I wouldn't allow people to get rewards for low back pain, even though they have real low back pain. Anything that's easily faked, I wouldn't pay. It just causes too much cheating and the cheating gets to be eventual and so forth. I would just say we can't do that. There's no way we're not sympathetic about your low back pain, your poor life adjustment, but we can't give lifetime pay just because you say my low back [1:00:08] That's the way I would organize the government. Nobody thinks the way I do. I feel lonely. I would be quite generous, but I would be quite tough on people with low back pain or psychological problems. How did poor Charlie Zamanai come to be? I went around and made a few talks because I did it because I kind of admired Ben Graham, the way he also invested money, but he also tried to be an educator. And so I made a few talks as a matter of civic duty. I enjoyed doing it, too. That's how it happened. [1:00:38] And Peter Coffin came by and asked for permission to raffle through my files. And I said, as long as I don't have to do anything, you can just go into my office. I don't have any dirty secrets in my office. I'm not worried. And so... [1:00:50] Peter just rippled through my office and created for Charlie's Almanac. It's his creation, not mine in a very real sense. [1:00:57] What's the legacy of it been? [1:00:59] What's happened is it's spread all over the world and that I'm way more popular in India and China than I am in my own country. And I don't mind that either. I think it's peculiar that these high IQ nerds in China and India love me. And in my own country, people think we're a pompous old bastard. Why India and China in particular? I didn't set out to do it. It just happened. But why do you think it's really resonated in those countries?

[1:01:23] It is a little confusion. Elderly male of wealth, lots of experience sharing. That doesn't sound a lot like Confucius. [1:01:32] And the Indians, I don't know, but all I know is that [1:01:36] In India and China, people really like it. There are people in the United States too, but I've gone with Peter to technical places and I just see a sea of Chinese and Indian faces. When we go to Google or somewhere, that's what I see. Those two groups have been very successful in the high tech world. [1:01:54] Is there also something about the cultural import of striving and getting ahead? They like that, too. You hardly find any two groups on Earth that are more interested in getting ahead than the people in India and China. And in as much as the book is a manual for that. [1:02:10] Yes, it's a manual for going there. And it's a manual that's worked for the guy who's talking. That gets people attention, too. It's kind of a get-rich-slow manner. Yes, it's mildly ridiculous. [1:02:21] There is no other big conglomerate that succeeded as much as Berkshire did. [1:02:26] Not in the whole world, as far as I know. [1:02:29] And that is a very unusual thing to have happened. [1:02:32] If you could snap your fingers and transform Berkshire's corporate forum, would you? [1:02:38] No, I like it the way it is. It wouldn't be better as... [1:02:41] a partnership or as a private company or well it could have evolved there are private places that make a lot of money and let's stay private but i think both warren and i have actually enjoyed as much of the

[1:02:57] public life as we have in terms of the annual meetings and the poor charlie's almanac stuff and boffitt gives all these seminar talks and so forth i think we've all enjoyed as much of this what you call educational sideshow that we do we've actually enjoyed it and we actually think it's constructive [1:03:16] As far as I'm concerned, what we're doing in the educational side, that's win-win too. If people will listen to what we have to say, they'll be better for it, at least more successful. [1:03:26] Is Koch Industries maybe the closest business analog to Berkshire, where it's a very large, diversified conglomerate, probably... [1:03:33] Well, I don't know anything about Coke Industries other than they've gotten ahead mightily. But I would not want to be as active politically as they are. I just don't enjoy it that much. But Coke Industries has been quite successful, yes. You're absolutely right about that. [1:03:50] On the book, you got a note from a reader just this week. Hi, Charlie, I wouldn't expect you to remember, but I visited with you in a group of Stanford Graduate School of Business students in 2018 at your office before having dinner at your house. I read through Per Charlie's Almanac at least once each year and just finished my 2022 read. I want to thank you for all your enthusiasm and worldly wisdom. How often do you get notes like this? [1:04:10] A lot, really a huge amount. It's so much so that I can't really handle it. I don't want to spend my time answering notes from strangers. A lot of people are genuinely grateful for the book, and that's amazing. The accidental book made a lot of people grateful. And what do you charge of that book now, Peter? $60. It's selling faster now than it did when it came out. There is no book. I don't think the Bible is selling more than it did. It keeps selling and selling. This is like when John Lennon said he was bigger than Jesus. You have to be careful.

[1:04:40] been working together for decades. Patrick and I have been working together for decades, singular. We plan to work together for many decades to come. What advice do you have for us in constructing a constructive partnership? [1:04:52] You're very lucky to have a good life partner. Yeah, I'm sure you're also very skillful and talented. But it's a blessing to do it with a good partner than be all alone doing it. And of course it's better. Of course it's a blessing. Warren and I have not just succeeded in making money or something. We have had a lot of fun. Actual fun. [1:05:15] We enjoy doing what we've done mostly. We're associated with a perfectly marvelous group of human beings. It's almost unfair. The people that Warren and I associate with all day long are such high-grade people. Of course, it's a pleasure to associate with high-grade people all day long. Talented people, too. [1:05:33] When you're saying it's fun for you and Warren together, just the relationship is fun outside of the results. What does that look like? Is it staying up late, watching funny YouTube videos? No, no, no, no, no. We get fun doing. Doing and understanding. We both like learning something new, pretty much something useful that's new. And we both like accomplishing a certain amount. And the fact that it's difficult and you're still able to do it, of course it's a pleasure. [1:05:56] What do you and Warren debate? What's an ongoing topic of debate between you? We don't debate. There's some things that I'm willing to do that Warren isn't. And of course, I just adapt. [1:06:06] Lacroix. If he doesn't want to do them, we don't do them. That's very simple. Just as a matter of time budgeting. Now, he'll do some things.

[1:06:13] Because he likes doing them that aren't necessarily the best use of his time. And so will I. But we do a lot of stuff where we like doing it and where we associate with good people and are accomplishing things. And we both believe that if you're unusually successful, you ought to share to some extent. Some of your success you should share by giving away to others, in effect. And if you give away money and time and advice and so forth, almost all the world's religions, the Christian religion requires it, the Jewish religion requires it. [1:06:43] So we enjoy the mix we have of education on philanthropy and operating business. Now, we wouldn't want to make any one of it much bigger than it is. I'm not looking for a lot of new opportunity. My life is pretty full the way it is now. [1:06:59] But what do you and Warren disagree on? Or what have you disagreed on? [1:07:02] We don't disagree. [1:07:04] Oh, you must. I called him and I said something. And he said, Charlie, I don't want to think about new faces, anything small. So he's budgeting his time. Warren doesn't want to do anything that's small. He wants to do big bites. He's disciplined that way. Now, something small he enjoys doing, he damn well does it. But he doesn't want to look for new small business opportunities. He doesn't want to devote the thinking time to them. [1:07:30] Yeah, that's one example of a disagreement. What else? Well, it's not exactly a disagreement. It's just, of course, he's entitled to spend his time the way he wants to in his 92nd year of life. In 90s, he's now 92. But we've had a lot of fun. And of course, it's been a very effective way to do pretty well in a worldly sense. We've enjoyed that. To crawl up from absolutely nothing as far as Berkshire crawled, of course, that's a pleasure.

[1:07:55] Why did you guys essentially merge? You were doing your own things with Wesco and Blue Chip and Berkshire, and then at a certain point you merged the efforts. [1:08:03] We didn't really mind it being all mixed up like that. But since so many financial operators are kind of manipulated and dishonorable, if we had a lot of different entities always buying stock in one another, it looked a little like mischief or something. And so we just put them all together so we wouldn't look like we were manipulating. So no one could have any claims of conflict of interest type things? [1:08:26] And so many people who do have a lot of different hands, they do manipulate, behave improperly. [1:08:32] What do you think of the SEC? We're a lot better with an SEC. The tendency to prosper through financial chicanery in all forms of wealth management is perfectly enormous. So, of course, you need something to throttle it back and control it. So I'm glad we have an SEC. It would be crazy not to have one. By the way, that came in as part of the Roosevelt. And I would argue that its main trouble is it isn't tough enough. Tough enough on what? Miscuriency. [1:09:02] the power to do it. I wouldn't allow people to publish a record saying here's what I did over the last [1:09:09] 20 years when I started with $2 and went up to $1. [1:09:12] 200 million? [1:09:13] because it misleads people. And of course, if we will create mutual funds, create little ones to get a phony big record, I would forbid that kind of stuff. I would force everybody who is a big time money manager to report his investment record per dollar a year instead of historical. And that would take the miscreancy out of it. And it would be so simple. And it would radically change the whole industry. And how many people have you ever heard, so you have to be mandatory that

[1:09:43] easy to do mathematically. And it would totally change the way everybody is promoting their service in a way that fosters truth and excellence in a lot of things. [1:09:53] It sort of reminds me of the requirement to register clinical trials. Are you aware of this movement where people can, if they don't publish the ones that don't do anything, and they do publish the ones that generate results, you can get bias towards non-replicable results being published. And so the idea that you need to pre-register the clinical trials you're going to run in advance, it sort of reminds me of that. I am not an expert on vermicology and how it's done, but I am in favor. What I just suggested is so goddamn simple. [1:10:21] And so obviously required in terms of honorable disclosure, that ought to be automatic. And yet, who has ever suggested, why does little Charlie Munger, 98 years old, think the SEC or the government ought to require that all investment professionals report results per dollar a year instead of per historical? Nobody suggests it. But to me, it's obvious it ought to be required. [1:10:45] And when you say per dollar a year, you mean dollar weighted results, basically? How much return for every dollar a year, what was your return? And of course, that's a very different figure. I know of a case of a hedge fund where the proprietor made a lot of money, but per dollar a year, the net return was zero. Because when he got a lot of money, he really made a lot of dumb mistakes. He made a lot of money when he was young, didn't matter much. And yet it looked like a wonderful record. But in fact, it was terrible.

[1:11:15] require. Why aren't Bernie Sanders and Elizabeth Warren? That's low-hanging fruit. They don't like the miscreancies of capital capitalism. There's one that could be easily fixed. Instead, they want to change the whole system to what looks more like Russia's. It's crazy. [1:11:28] And people zero in on very odd things, like the current war on share buybacks is very odd. [1:11:33] It's just terrible. Of course, I'm against that because I don't like left wing woke and I don't like right wing nutcase either. I'm an equal opportunity, a hater, a political orthodoxy. [1:11:44] War on share buybacks seems very misguided and dangerous. Share buybacks are the way that we return money from less productive companies to more productive enterprises. And so we're kind of encouraging institutional sclerosis and ossification through large companies have to just get large and stay large and reinvest internally. That seems really bad. [1:12:05] Look at it differently. Look at it in terms of opportunity cost. If your stock is selling for half of what it's worth, and in the external world you have to pay, and the company is managed by others you don't like as well, and it's selling what it's worth or higher than it's worth, of course you want the ability to buy. But when your shareholders are better off buying their own stock than they are doing something else, of course you ought to do it. And a corporate manager should be a good fiduciary for the shareholders. [1:12:35] stock you're selling for cheaper than it's worth, of course, you should buy your own stock. It's the right way to behave. [1:12:40] And so I'm against all these crazies who think it will be made illegal. Other people do it just to pump it up so they can use it as currency or something.

[1:12:48] And that, of course... [1:12:49] is disrevealable. [1:12:51] We never do that. We buy it when it's too cheap. If Patrick and I came and pitched you on Stripe, what would you want to understand about the business? What would your concerns be? [1:13:00] That's an interesting question. Considering how much Berkshire Hathaway is made out of payment systems, including American Express, we recognize the power of having a dominant position in payments in a way that's very efficient. And of course, anything in modern payments that enables all this Internet stuff is very useful. [1:13:23] So you come into a field and made a contribution and made yourself very useful. I'm for all these payment systems that get better and better. So I think you've made your money honorably and you've made a lot of it and good for you. I admire what you people have done. Why wouldn't I? I regard everything that you're doing is a little bit threatening to American Express, but American Express actually has a position where it's like Hermes or something. And so it won't necessarily be ruined by Stripe. [1:13:53] In evaluating a business like Stripe, what questions would you want to answer for yourself? [1:13:57] Is it likely to remain forever as a money generator? And that's a more complicated subject. It's hard to know how the world is going to evolve. If Kodak could suddenly be obsoleted away, maybe it's not utterly unthinkable that Stripe could. The company that dominates software for architects, terribly prosperous company. But some other companies come up in that field a lot, and it no longer dominates as much as it did. So not everything in software always wins. So I do not have the feeling.

[1:14:27] tend to think everything in software is always going to win. I don't believe that for a minute. That does seem to be a remarkable aspect of Berkshire is just the duration of the investments, where it's very hard to pick out companies in the Berkshire portfolio that you don't feel good about 50 years from now. It's even worse than that, because the ones we were obvious mistakes, there were way too many jewelry stores, and we had low returns on capital, so on, [1:14:57] money. [1:14:58] And we've closed about 75 of the stores and more are coming. It no longer looks so bad. We have trouble losing even when we try to. It's like Warren, he bought some baseball team to help his town because somebody asked him to do it. And that goddamn thing started making money immediately. [1:15:14] That's the way I feel about some of our investments. We don't deserve a lot of credit. We just stumbled into it. Why has NetChat done so well? [1:15:21] It's better in its niche than anybody else. In net jets, the whole culture, safety is first, customer service is second, and after that we'll start worrying about the capitalists who own net jets. And, of course, with enough fanaticism of that kind of a culture, we create a hell of a product for the person who can afford anything. And ours is better than anybody else in the country, and it's now big. It's a big business. [1:15:47] And we have yet to kill our first passenger. All these many years, you've never killed a passenger. I didn't know that, Seth. Well, now you do. And we're proud of that. [1:15:56] We don't say it because we're afraid of my changes. We are too bold in telling God we're so pleased with ourselves. I can picture the magazine ads. Netchats, no one has died yet.

[1:16:10] You're very bullish on China. Bye. [1:16:12] Well, first reason... [1:16:14] is that [1:16:15] Their economy was growing faster than ours. That's not necessarily true, as we've heard this exact minute, but for a long time, that economy grew a lot faster than ours. Number two, we could get way better and stronger companies at a much lower price in China than we could get in the United States. Now, on the other side, we had to take the political risk of buying into a peculiar system of government that's not different from ours. As long as we were getting enough bargains, I was willing to run them. [1:16:45] invest all of our money in China, for God's sake. [1:16:48] But we were certainly willing to invest part of it. That's perfectly logical. And, of course, we were investing through Leeloo, who is a very exceptional money manager. And you put all those four things together at once, of course, it made sense. [1:17:01] Did you meet Lily through the book or separately? [1:17:03] That was an interesting story. Lilloo was coming to visit, because he was a hero of Tillman Square, a friend's wife who was very leftist and loved him being a Tillman Square thing. Of course, I'm not the least interested in Lilloo's revolutionary career. And so I'm interested only in his adapting to modern capitalism. And so he came up to me. My house was 100 yards away from the house he was visiting. And we talked for three hours. [1:17:33] I said, I'll give you some munger money to manage if you will stop doing what you're doing now and invest only in Asia. And he did, just on the spot. So it took us exactly three hours to find one another, from meeting to financial commitment, took three hours.

[1:17:49] How does the current geopolitical hawkishness change your view on investing in China, if at all? [1:17:55] Obviously, I'm more uncomfortable now than I was. The guy who changed the whole system and said that I don't care if the cat is black or white as long as it catches mice, he wanted the goddamn economy of China to work like Singapore's. Of course, we loved that guy. And the new guy isn't quite as much like that guy as we would consider ideal. We think the political risks in China should be run. And I think we should go out of our way to have a lot of friendly relations with big atomic powers. [1:18:25] Both China and the United States ought to get along with one another as a matter of holy duty, because they're two big atomic powers. And the way to get along best is we should carefully work out a bunch of win-win transactions between us and China and actually work to make them work even better. That is the right policy of the United States. We should not be trying to discipline China by telling them like a nattering nanny how China ought to behave and say, we know better. We're a democracy and you're not. [1:18:55] We have a lot to be ashamed of in our own form of government. We shouldn't be going around lecturing everybody else. And we should organize transactions with China. Anything else is madness. And for a long time, we had that. You can argue that China came to modernity, primarily in win-win transactions with the United States. Because we were so open to their imports, that's what enabled them to get ahead so fast. And I'm proud of that, and I'm glad we helped them. And I want to do more, but I don't want this hostility on both sides.

[1:19:25] a short story about bad noise. I'm a huge Tom Wolfe fan of his books, but it's a great short story about bad noise. And you can read the short story as it's really about Grinnell, Iowa. And [1:19:39] the effect of Midwestern culture in Silicon Valley. It was a huge success, of course. And the success is interesting. But I would argue that the failure of Intel was just as interesting a story. Intel was on the ground floor of modern chipmaking. Absolutely ground zero. They were at the absolute best place. And they just grew and grew and so forth. And they eventually lost all their leadership completely. [1:20:09] company compared to the big guys now. [1:20:11] Why did that happen? [1:20:12] First place, some of that's inevitable in competition. Some people are going to lose. Partly it demonstrates the inevitable, even if you're successful, some little guy that really scrambles, beats you, there's some accident on it. But partly, they were so interested in always reporting more earnings. They didn't go to the whip enough to stay on top. If you're surfing along the edge of a new development like that, you have to just absolutely going flat out all the time, and you have to be leading all the time. You see, at Berkshire, we don't have to invent new things particularly. [1:20:42] compared to most places. They're in the business of inventing new things. And you have to be totally fanatic. [1:20:49] The truth of the matter is that the people in China were way more fanatic than Intel. In China, he had one old guy that controlled the place, and he was a fanatic. And Intel had an army of bureaucrats, and they were interested in their executive rewards, and the way the price-earnings ratios, and the approval of Wall Street, a whole lot of other things. And they were powerful enough that they could look good for a while just by...

[1:21:11] using their power to make the earnings go up. But they should have been using the power to make sure their goddamn chef stayed way ahead of everybody else. And they had to be a totally reliable supplier, which they weren't. They disappointed a lot of customers. And you can't disappoint customers if you want to have a male system of trust. That's the interesting part of the story, not the noise story. The story of the failure of Intel is the great story there. [1:21:34] So you're talking about an obsession with reported earnings rather than the fundamental quality of the business. The book was published in 2005. Have you revised your view of Jack Welch given the last... [1:21:44] 17 years of GE performance. [1:21:46] Of course, I've revised it. Of course, I knew him personally, and he was a cocky conductor's son with a Ph.D. in engineering thermodynamics. [1:21:57] And he was terribly competitive. He wanted to win. He'd been an athlete. He was almost a scratch golfer, but he got obsessed. [1:22:04] With getting ahead and abuse the incentive system to force everybody else to get ahead, ran like an athletic team saying everybody would be more fanatic. And he wanted to be fanatic on abusing the suppliers and pushing people and manipulating it. In the end, he thought it was his duty to make the earnings go up. And he just kept compromising more and more and more in the way they showed the earnings. How long have you been to win? It was for a while. It worked short term, but it ruined the country long term. Of course, if he lived long enough, he would have ruined his own reputation. [1:22:34] There's a failure in the elevator. [1:22:36] I mean, it wasn't, say, with the suppliers over squeezing them. [1:22:40] No. I call that me-win. When is one system and me-win is another. Jack Welch had a me-win system.

[1:22:49] It's very interesting reading the book with the lens post the financial crisis. It's also interesting to see you railing against derivatives in a few years before the financial crisis. That derivative trading was so manipulative. And they marked the books. And two guys would make a big trade. They'd both record a big profit to their accounts. And the accounts would bless the profit on both sides. The same trade. One was reporting a profit. And the other was reporting a profit. It couldn't both be. [1:23:19] culture, stockbrokeries, big banking. The guys who did the ordering, they'd take them to Las Vegas. They'd buy them a stack of chips, negotiable chips, and give it to them. There was cocaine. There were prostitutes. It was not a pretty culture. And kind of tolerated what do you expect from a bunch of security traders. Everybody knew that his traders were behaving that way. [1:23:42] But it was a mistake to allow that stuff to creep in. And it got pretty extreme. And then the bankers dealt. That deal that Goldman Sachs did with Malaysia, sovereign wealth. Or the 1MDB scandal, yeah. Absolutely inexcused. That guy, the danger flags, he was absolutely, obviously should have been avoided on moral grounds. And prudential grounds, too. But they just get so intoxicated by the easy money. [1:24:06] It feels like a lot of the objections you have, say, professional money managers or Wall Street or whatever, can be summed up by people should be more cognizant of principal agent problems. Is that fair? You can hardly imagine a field more full of principal agents than money, than wealth management. Of course the wealth managers take care of themselves. That includes the foundation manager. A foundation manager is basically, he wants to get $400,000 a year when a professor gets $110,000.

[1:24:36] money managers who get 3% off the top and in various forms of private equity. That's the only way he justifies his big pay. So it's a principal agent problem. Of course, you're going to want to invest a lot of money with private equity. And of course, private equity is going to do all kinds of horrible things to try and get three points off the top. Imagine getting three percentage points off the top of somebody else's money. [1:25:00] It's a good business model. You can only do that if you have some miraculous way of making money. [1:25:06] By the way, the guys in your field, Jim Simmons, Jim Simmons is a world-class mathematician. Here's what he did. [1:25:14] He just used his damn computers to identify trading patterns that had deep human psychological background. One of them was very simple. He looked at his computer data and he found that patterns in the market as a whole, there are four different patterns. Win-win, lose-lose. [1:25:34] Win lose and lose win. If it's just random, our all go for going to be equal. [1:25:40] And Lo and Ho accepted the data and win-win. [1:25:43] was more common than win-lose or lose-win. And lose-lose was more common. [1:25:49] So all they had to do was program computers to make these modest, moderate sized trades that were big standards, but moderate compared to the market. [1:25:58] On that basis, it was just word and word and word, and the money just poured out of the clearance system. They also had the tax shenanigans. Billions poured out of the clearance system. And it was so simple and so elementary. And the social utility of making money that way is about zero.

[1:26:15] So if I'd done that, I suppose I would have been pleased that I was so clever, but I would have been a bit ashamed of not delivering anything to society in exchange for my big winnings. But luckily, I wasn't enough of a computer science to even think about such things, and I don't like short-term trading, and I don't want to be hanging over some trading desk punching keys. Why do you think Sequoia has done so well? [1:26:45] Meritocracy. [1:26:46] So they worked very hard, all of them. And they... [1:26:49] got big and successful way ahead of everybody else. And they kept riding it like some chip manufacturer, each generation of chips they get. [1:26:58] And in the end, they have a file. We have an example. [1:27:03] In our apartment houses, we use some little computer program. [1:27:06] and adjusting the rents or something or other than somebody. And there's one little guy. I had him check. Sequoia already had a file on this guy. So every little asshole with a little tiny computer program. [1:27:18] They got an army of young guys out there finding every little guy in the big files and so forth. So they see more. [1:27:25] they see better opportunities sooner and more than other people and they've got the reputation so that people who are unusually successful they want to go to sequoia not some lesser firm and the combination is just unbeatable but lately were they right to go into big robin hood no they had a huge mistake for sequoia and they shouldn't have gone morally or actually that's more morally and potentially it's a big mistake really stupid but it got so much we've got to be in every new thing

[1:27:55] bankers. But it was a huge mistake for somebody to get involved with Robin Hood and [1:28:00] Is your objection to Robinhood that it encourages short-term trading and trading options? Yeah, and they lie and so forth. Do they? Oh, my God. [1:28:08] What do they lie about? Anything that works. They try and sell the idea this is a new fraternity of freedom. It's the whole thing is a lie. You don't like the movement aspect of it? Oh, no, no. They're trying to create mass hysteria. I don't like luring people in and screwing them, basically. And Bitcoin, why would you're successful with Sequoia and you're identified with financing people like Apple and so forth? Why in the hell would you take Robin Hood and some goddamn crypto? [1:28:38] is he? [1:28:38] You don't want to do all the business that's legal for you to do. You want to exclude all kinds of things because it's beneath you. [1:28:45] This shows that if you work at these things intelligently, it gets hard, but it doesn't get impossible. But the other side of it is, if you take the moment, I've been very well located in life. [1:28:55] But with minor exceptions, what do I have with the relative investments in life? I've got Costco stock, Berkshire stock. [1:29:04] Lee Lewis China Fund and Avi's Apartments. So I got four. [1:29:09] Investments, basically. [1:29:11] After 60 years or something, by the way, I feel perfectly adequately diversified. Nobody teaches that's adequate diversity. And they're dead wrong. Simple fact is that it's easier to find four things that are above average than it is to find 40. It's not that damned easy to find. You find something that's almost sure to work because you're asking to find a gold mine in your backyard. When it works, it's that easy. How many gold mines are you going to find in your backyard?

[1:29:41] clearly identifiable. It's going to be very hard and you're lucky if you get only a few in a lifetime and then you have to be a combination of very patient and very aggressive. [1:29:52] You have to sit patiently waiting, watching, surveying, hunting, and pounce very occasionally. You get four pounces in a lifetime that really work big time. And that's a very successful lifetime. And other people think you're like a guy on TV. He's an expert in every company every time. That's crazy. He's an expert in saying something that's mildly plausible. That's not being an expert investor. [1:30:16] Doesn't it feel like the narrative on that is changing where I think people are coming to understand the merits of concentration in positions that really work? [1:30:26] I had dinner with a whole crowd of Fidelity this very week, and they've got trillions under management, and they scrape only a modest amount off the top. And they've got a wonderful business, but they have the moral problem that they have no possibility at all of exceeding what an index fund can do with their common stock investments. [1:30:50] Maybe they have an occasional analyst that's a little better than average that works into the system. Basically, what they do is they force everybody to be a closet indexer. [1:30:58] Because nobody wants to be a stream outlier on the losing side. Because that can destroy your investment management business. But I would argue that the whole damn system is corrupt in investment management. It's corrupt illustrations. They take care of the agents way better than they take care of the principals.

[1:31:18] And they lie to themselves and they lie to others. [1:31:21] And that's our system. [1:31:23] And everybody that wants a fair amount of easy money pretty fast. And that requires a plausible narrative and a big fee. That's what's admired now. I regard modern venture capital as investment banking in disguise. Just a little different form of investment banking. Same morality, same obsession with a lot of quick wealth. [1:31:43] There's nothing wrong with investment banking properly done. Bens are investing. Is the secret of Berkshire's culture just the anti-bureaucracy bent? Could you sum it up? Berkshire's pretty extreme in culture. We are deeply aware of how bureaucracies tend to create their own internal dynamics so that everybody protects everybody else and nobody changes anything, ruffles any feathers. And the net result is that a lot of bureaucracies make some very stupid decisions. [1:32:11] And we try and avoid that. But the way we've done it mostly is by not having anybody around. They can't be bureaucratic if they're not there. There is nobody in the head office. So we've avoided the bureaucracy. We just don't want the people to do it. Nobody else is as extreme as we are in that. A huge advantage to us. And another thing is we like very trustworthy people. I'd rather have a brief telephone, somebody I trust, than I would a 40-page contract prepared [1:32:41] the world with somebody I don't trust. And so we like to deal with trustworthy people and to be able to count on their oral promises. If you have to go into a Mayo operating room,

[1:32:52] is what I call a seamless web of deserved trust. The surgeon's trusting the anesthesiologist, the anesthesiologist trusting the surgeon, the nurses are trusting. Everybody trusts everybody else. There's no bureaucracy at all. They don't have time for bureaucracy. It's in the patient's interest to get over as soon as possible. And so that seamless web of deserved trust can do these very complicated procedures. We like a business system that operates as much as possible like a male operating room. [1:33:22] who are experienced enough with one another to trust one another. And that trust is internally between the Berkshire folks or between the Berkshire folks and the managers? Well, we want the internal, all the Berkshire people to trust one another internally, and we also want the customers to trust us. We're all for trust. Trust is one of the greatest economic forces on earth. [1:33:41] How frequently do you disagree with managers on how much cash to send up to the mothership versus how much to reinvest in the business? [1:33:49] Of course, some of our subsidiaries poured the cash if we'd let them and so forth. Not brutal. In the early conglomerates like Tel Aviv, they just forced all the cash to headquarters. And if you want a new cash, you had to ask for it back. We never went to that. [1:34:04] Everybody in the society knows that we'd rather have the cash sent back. If it can be sent back, we'd rather have it sent back. And is that one of Warren's skills, is keeping those managers happy? He does not. He's not brutal. But he tickles it out of them. When they don't need it, it has a way of ending up back at headquarters without any big internal friction. That sounds like some tickling is happening, yeah. You can call it what you will. You're right, a lot flows to headquarters. It's interesting how much cash Berkshire does accumulate. It's a lot of cash.

[1:34:34] Thank you. [1:34:34] Remember, I was there when it was nothing. And we have not issued many shares net since we started. So mostly what we have... [1:34:43] It was created out of almost nothing. [1:34:46] One famous example of share issuance was the general reacquisition in 2000. Was that because you guys felt it was a market top? [1:34:53] It was true that our stock was then more highly valued than it is now. [1:34:58] And, of course, we valued general revenue. We gave it more value than it really had, too. But it all worked out. Everyone was over values. But we made it work out well enough. [1:35:09] One that was awful is we gave Berkshire shares for Dempster Shoe Company, and the Chinese competition destroyed our business. As the ink dried on the purchase, two years later, we could see we had been a terrible mistake. [1:35:22] Now, it was only two percentage points of performance in one year. So in the history of Berkshire, it's not that big. You guys did okay in the end. No, but it was a big negative, but not very big. This is affected on Berkshire history. Having two percentage points go away from one year, it's not that bad. [1:35:41] Is that an example of the do as I say, not as I do, where you and Warren would say don't try to time the market, but that was a very effective bit of market timing? [1:35:49] Of course, we're more willing to buy heavily with a cash accumulation when things go down, down, down. And of course, we're less and less able to find things when things go crazy. But I like the way Berkshire has behaved. I like the way its businesses have turned out. I like the people we deal with. It's been a very satisfactory part of my life. I feel privileged to have been part of it. You stop to think about it. Per Charlie's Almanac is a lot like the guy who created modern Singapore.

[1:36:19] Figure out what works and then do it. Figure out what works and then do it. And he just did that more relentlessly than anybody else and more intelligently. And he was probably the greatest nation builder that ever existed in terms of quality of leadership. He's probably the greatest nation builder that ever existed, including Pericles and everybody in all history. And it's very much like poor Charlie's Almanac. Figure out what works and do it. Figure out what doesn't work and avoid it. [1:36:49] He just was relentless. That's all he did. And he started as a left-wing labor lawyer. And to start as a left-wing labor lawyer, end up creating modern Singapore just by figuring out what works and do it, and figure out what doesn't work and avoid it. Just keep doing that over and over again. So as far as I'm concerned, the politician who looks the most like... [1:37:12] Poor Charlie's Almanac is Lee Kwan Yew. And I'm not surprised that... [1:37:17] He got ahead better than any other nation builder that ever lived. That was all he did. It was pretty goddamn simple. [1:37:24] Maybe a good example of that that I love from Lee Kuan Yew's life of find out what works and then do it is about the deliberate choice of English as the national language. Of course. He made zillions of decisions like that that were totally correct. And not everybody is a political leader. Tell the people to change their goddamn language. But when the logic required that he just figured out it would work better for a second, more than he did it. Of course, that's admirable. And of course, it works. Everybody ought to study Lee Kuan Yew.

[1:37:54] two busts of other people. One's a Benjamin Franklin, one of them is Lee Kuan Yew. That's all I have. I could have guessed Benjamin Franklin. I wouldn't have guessed Lee Kuan Yew. [1:38:03] You can see why I like him. Just time after time, he was so smart. I think he's smart to have a death penalty for drug dealers. They do not have a big drug problem in Singapore because he's very tough. They kill drug dealers. [1:38:16] By the way, that's the way the Chinese got. When one man in six in China was addicted to opium, the way they fixed that was death penalty for users, no exception. They did not have to kill many people before the drug addiction problem went away. And I think more things ought to be dealt with in those Lee Kuan Yew-ish ways. That's a very good set of lessons maybe to end on. Find out what works and then do it. Avoid the big mistakes. Take a multidisciplinary approach. Thank you so much for this, [1:38:46] It was a very meaningful book for me, and I'm excited to have lots more people read it. I'm glad to do it. [1:39:16] Thank you.