– $10 Billion Lawsuit Filed Against Craig Wright Over Stolen Bitcoin
Dave Kleiman’s estate just filed a claim against Craig Wright. The lawsuit was filed by Boies Schiller Flexner lawyers Devin “Velvel” Freedman (https://www.bsfllp.com/
A monthlong Gizmodo investigation has uncovered compelling and perplexing new evidence in the search for Satoshi Nakamoto, the pseudonymous creator of Bitcoin. According to a cache of documents provided to Gizmodo which were corroborated in interviews, Craig Steven Wright, an Australian businessman based in Sydney, and Dave Kleiman, an American computer forensics expert who died in 2013, were involved in the development of the digital currency.
Michael Mauboussin: Here’s what active managers can do
Wired reported this afternoon that Wright and Kleiman were likely involved in creating Bitcoin. Gizmodo has been following a similar trail for weeks, one that in recent days has included face-to-face confrontations with Wright’s business partners in Sydney and interviews with Kleiman’s closest associates in Palm Beach County, Florida. Gizmodo also obtained confirmation from on-the-record sources that Wright claimed on at least two occasions that he and Kleiman were both involved in the creation of Bitcoin.
hello everyone welcome to another great 00:16 episode of talks at Google we have a 00:18 really special guest here today mr. Tom 00:21 Russo he needs no introduction mr. Tom 00:23 Russo of Gardiner Russo and Gardner is 00:26 an exceptional value investor he 00:28 graduated from Dartmouth College with a 00:29 degree in history and Stanford with 00:32 degrees in law and business he has 00:34 previously spoken at Google about 00:36 investing from the last time he was here 00:39 last summer he was awarded the Graham 00:41 and Dodd Murray Greenwald price for 00:43 value investing he also serves as a 00:45 charter member of the advisory board of 00:47 the Healey brain Center at the Columbia 00:50 School of Business today he will touch 00:52 upon two very important aspects of his 00:54 investing first the reduction of agency 00:56 costs the only thing that comes to mind 00:59 when people say agency cost is mr. 01:01 Warren Buffett scored lethargy bordering 01:04 on sloth remains the cornerstone of our 01:07 investment style mr. Russo is an 01:09 exemplar of the buy-and-hold strategy 01:11 and has held many of his positions for 01:13 decades secondly he will talk about the 01:16 capacity we invest in doing so he’ll 01:19 touch upon factors which form a sort of 01:21 a checklist for him as he makes his 01:23 decisions it gives me great pleasure to 01:26 introduce Tommy so thank you very much 01:29 indeed speaking here it reminds me of 01:35 what it must have been like at the 01:37 catacombs of ancient Rome where there 01:40 were people sort of who were underground 01:43 because of the Roman army marching above 01:45 and they were they were pursuing their 01:47 own novel view of the world and the 01:48 concept that within within the one 01:51 company in the world that has more 01:52 information than anywhere else there’s a 01:55 group of people here who believe that 01:56 information can help you invest wisely 01:59 as a way to add value compared to the 02:03 migration towards passive the passive 02:06 investors who are the in fact Roman army 02:09 above us here we said we’ll talk about 02:11 why it is that you can hope to make 02:14 money by investing with a substantial 02:17 point of view so it’s it’s it’s fun to 02:20 be here I’m delighted to have been asked 02:22 to join again I’m gonna really just jump 02:24 right in 02:26 and and spend a little time on what I 02:28 typically spend most of my time talking 02:31 about which is which is a three-part 02:33 process of what it is that I look for in 02:35 investing because I’ve given a bit of 02:38 the same talk earlier and and Saab 02:40 thought might be interesting to touch on 02:43 some other thoughts so in addition to 02:45 what we’ll go through at the start i’ve 02:48 supplemented the comments with things 02:51 I’m most worried about in the form of a 02:53 checklist and then mistakes that I’ve 02:55 made 02:56 hopefully we’ll run out of time and I 02:58 won’t get to the mistakes that I’ve made 03:00 but start off I I had the great fortune 03:03 of having grown up in the investment 03:07 business in after Dartmouth College I 03:09 worked on Wall Street during a period of 03:11 time when inflation was notorious it was 03:14 1977 to 1979 1980 and and interest rates 03:18 went from 6% to 18% and you know you’re 03:21 seared as an investor by what you 03:23 experience when you’re first starting 03:25 out that was an extraordinary experience 03:27 I suspect those in your generation who 03:30 fall prey to Bitcoin may end up seeing 03:34 similar painful moments in the 03:37 investment business and you’ll learn 03:38 very good lessons from that but watching 03:40 the watching the fixed income markets 03:43 really writhed during my training was 03:46 was terrific I went back to Stanford 03:47 Business a law school that had the great 03:50 good fortune both schools to have spent 03:53 time with two legends at Stanford Law 03:56 School Charles Charlie Munger was on the 03:59 Board of Visitors and I had a chance to 04:00 meet with him when I was launching my 04:02 investing career and he was very 04:04 influential then Warren Buffett came to 04:07 our value investing seminar and I think 04:10 that’s really the thing that could 04:12 confirm for me the approach to investing 04:14 would be characterized by sloth and 04:18 lethargy and all of the other sins of 04:20 inactivity because what they described 04:23 was an investment process which was very 04:26 long-term minded and you know when when 04:29 if you look at the first slide when I 04:31 arrived 04:32 Warren was really just moving from the 04:35 world of 50 cent dollar bill investing 04:38 to 04:39 franchise investments franchise 04:41 investing where there is economic 04:42 goodwill that that yields a return above 04:47 what a commodity would and and so the 50 04:51 cent dollar bill approach that typifies 04:53 early value investors doesn’t scale and 04:55 it’s taxable and the first point warren 04:59 made to our class was the government 05:01 only gives you one break as an investor 05:03 that’s the the the tax deferral on 05:08 unrealized gains and so if you can find 05:10 a business that has the ability to 05:12 reinvest its current cash flow into 05:15 creating greater wealth and you don’t 05:18 have to sell those shares you don’t pay 05:19 tax that’s very profound most people 05:22 with very high turnover portfolios don’t 05:24 get it that’s the one thing the second 05:27 point is though if you’re going to 05:28 depend on that reinvestment then the 05:31 person who runs the business for you the 05:34 actual management have to be trustworthy 05:36 they’re your agents management’s and if 05:40 they don’t represent your interests then 05:42 then the process won’t work they must be 05:46 owner minded and and then and then the 05:49 next thing you’ll need if you’re going 05:51 to buy some buy-and-hold you have to 05:54 have a business that has a competitive 05:55 mode a business that that will absorb 05:58 reinvestment and and and return you for 06:02 it and and so for example with Berkshire 06:05 he started out with with a with a 06:08 textile mill and it absorbed a lot of 06:10 capital and a destroyed value along the 06:12 way and so what you’re looking for is a 06:15 business that has the capacity for 06:17 reinvestment and you really start it has 06:20 to have a durable competitive edge and 06:22 for me for some people that edges 06:26 technology I guess the assembled masses 06:28 here would would have a technology 06:30 orientation for me it’s consumer brands 06:33 consumer brands have the great benefit 06:37 of having the consumer believe there to 06:39 be no adequate substitute once I was at 06:42 a at a conference in the spirits 06:44 industry and I described why it was I 06:47 like the spirits industry so well then I 06:48 said it’s because you know if somebody 06:51 offered you a 06:52 a drinking you and they asked what you 06:55 wanted if you said a Jack Daniels they 06:56 came back and said no we only have Jim 06:58 Beam the proper answer in the world that 07:00 I inhabit is no thank you 07:02 I would I would rather have water than 07:05 then what is not my brand that brand 07:08 loyalty is terrifically important and so 07:12 if you’re going to have capacity to 07:13 reinvest if if you have a brand and you 07:16 can invest behind expanding that brand 07:18 into different adjacent categories or 07:21 geographies it’s extremely valuable and 07:24 and for me my goal is to find global 07:28 brands because there you have the 07:31 ability to expand expand into the parts 07:33 of the world that themselves should grow 07:35 if you think about the poppy the 07:39 developing and emerging markets the of 07:41 population growth you have consumers 07:43 disposable income growth you have GDP 07:45 growth you have the growth of 07:46 infrastructure for distribution you have 07:48 all of that ahead of us and and that’s 07:51 really the area that for me welcomes are 07:55 our investments you also have a very 07:58 interesting factor that the the brands 08:00 that I typically favor our brands that 08:04 are kind of left over from the West 08:07 during a period of time when it was 08:10 colonial we own Nestle we own you and 08:13 levar we own Heineken we own Cadbury 08:16 these were products that went around the 08:19 world but in a very thin way there are 08:23 the products of of people who lived in 08:25 countries that they controlled but but 08:29 they alone could afford say oh gosh Nino 08:33 or Nescafe or or Maggi soup those were 08:39 those were products that the countries 08:42 in which we do a lot of business today 08:45 were present they were advertised but 08:49 they were very expensive 08:50 they were very inaccessible and they 08:53 were because of both they’ve become very 08:56 aspirational and so as markets around 09:01 the world now begin to prosper that the 09:05 second 09:06 begins to work they have a more modern 09:09 lifestyle where they reach is to the 09:12 products that they once aspired to have 09:15 a chance and and and we tend to then own 09:18 businesses that have massive amounts of 09:21 free cash flow from the mature Western 09:24 markets where it cannot be deployed 09:26 profitably but they have the great good 09:30 fortune of unmet unmet demand in the 09:35 developing markets and so the organic 09:37 reinvestment is so much safer than 09:40 trying to redeploy your capital into 09:42 some wholly new product some wholly new 09:44 geography our job is simply to 09:47 reactivate more deeply now that requires 09:51 to do it right you need multi 09:56 multinational and multilingual 09:59 management in in multicultural I should 10:02 say multilingual and multicultural 10:03 though for example if I ask this 10:06 audience here how many people speak more 10:09 than one language this is Google how 10:13 many speak more than two the hands keep 10:16 going up over three okay so it’s an 10:21 extraordinary capacity it at Kraft Foods 10:25 for example they speak point nine 10:28 languages in the you know in that’s 10:32 these headquarters the senior management 10:34 will speak four or five languages and 10:36 the ability for that to help them move 10:38 around the world is extremely valuable 10:40 as you all experience here given your 10:42 skills multicultural a little more 10:45 nuance for example in an audience like 10:47 this in the US I can usually safely say 10:50 without any answers coming back to me 10:52 who’s your favorite cricket player I 10:55 think in this audience I must have great 10:58 I must have a high percentage who could 11:00 answer the question well I mean that’s a 11:02 big deal then 1.7 billion people will go 11:05 to bed tonight think he found thoughts 11:06 of just one thing which is cricket and 11:08 there’s an American trying to travel the 11:10 world your your effectiveness it just 11:12 doesn’t have the same impact if you 11:15 don’t have those references and those 11:16 those talents but but 11:20 companies in the world take the 11:22 reinvestment possibilities and invest 11:25 the right amount and that’s really 11:27 because of agency costs it arises from 11:33 the inability to if that’s the right 11:36 amount arises in part from the fact that 11:39 American companies is typically American 11:41 companies that’s why 70% of my assets 11:43 are invested in non us-based companies 11:45 because I think we we are much more apt 11:48 to find the talent base the historic 11:51 brands in parts of the world through 11:55 companies that are headquartered in 11:57 Europe than in the u.s. the u.s. doesn’t 11:59 have the same the same dinah stick 12:02 history and and they certainly they 12:06 certainly suffer from one thing which is 12:07 the vast reliance on stock options as 12:11 compensation and stock options 12:15 unfortunately deliver one variable to 12:18 the investment process that shouldn’t 12:20 really necessarily be a factor and 12:23 that’s time for a stock option to reward 12:26 you it has to be worth something on a 12:28 given day and so the management’s were 12:31 whose fortunes depended heavily on stock 12:35 options become very attuned today’s this 12:39 day they’ll either be worth something or 12:41 they’ll be worthless and in the process 12:44 of making sure that they can the shares 12:47 can be worth as much as humanly possible 12:49 at any given time 12:51 management’s of us-based companies all 12:54 too often fall prey to Wall Street who 12:58 promises them a high valuation if they 13:01 only agree to make the quarterly 13:02 earnings every quarter I was talking to 13:05 somebody recently about this subject 13:07 about the need to show quarterly 13:08 earnings and he raised his hands and 13:10 said I used to work for a silicon 13:13 valley-based companies I will not name 13:16 it because I will be blackballed but it 13:18 was a Silicon Valley company and and 13:20 they said every you know every quarter 13:23 about a month left in the quarter we get 13:26 the directive which is stop spending 13:29 money because blank the head of the 13:32 company wants to make 13:33 is quarterly bonus hurdle and we need to 13:37 show we need to show profits though you 13:40 know when you’re in a company I hope it 13:42 I certainly expect that not to be the 13:43 case here I don’t suspect they take away 13:46 ping-pong balls or bananas or 13:48 cappuccinos as you near quarter and I 13:51 hope not because that we show that the 13:53 firm’s still vigorously on the right 13:54 path but when you find that companies 13:58 gauge their spending off of reported 14:02 income which which wall street’s 14:04 suggests that if you only make the 14:06 number and the number is a reported 14:08 income number which is completely 14:09 fictitious anyways if you make that 14:12 number they will recommend your shares 14:14 that shares will be worth more because 14:16 the multiple will apply to this fix it’s 14:18 not fixed a fictional number call 14:20 earnings per share and you’ll have a 14:22 higher valuation that game is 14:25 extraordinarily corrosive for businesses 14:28 trying to build long term wealth because 14:30 what you really want to do is just the 14:32 opposite 14:33 so but to to make the investments that 14:37 are proper the trouble is is that when 14:41 they start out they are extremely 14:43 burdensome unreported profits and so 14:46 what you need to have our management’s 14:49 that have the capacity to make the right 14:52 investments for the very longest term 14:54 without fear of losing the jobs or 14:57 without fear of takeovers and because of 15:00 that most public companies don’t have 15:03 control over the share registry and and 15:06 if they don’t invest if they do invest 15:10 the right amount for the very longest 15:11 term they end up at risk in the short 15:14 term the loss of their job the loss of 15:16 corporate control and so in our in our 15:19 portfolios 15:21 I was once characterized as an investor 15:23 by four numbers one of them is 70% of 15:27 our holdings are non-us companies that 15:29 are headquartered away from the US 15:31 seventy percent of the companies are in 15:35 in the top ten holdings we’re very we’re 15:39 very concentrated investors the top 15:40 three holdings on behalf of my clients 15:44 are 30% of the assets so we’re very 15:46 concentrated 15:48 and 65% of our companies are still 15:52 controlled by the founding families and 15:55 what that means is that when when when 15:58 it’s right to spend to activate let’s 16:01 say lifebuoy in India or it’s right to 16:04 spend to activate more meelo or more a 16:07 Maggi noodle soup they will spend that 16:12 money assured that if you if you build a 16:14 new factory these factories tend to be 16:16 very lumpy and that’s these case for 16:18 example it costs about three hundred and 16:19 fifty million dollars to build a Maggi 16:22 factory or a powdered milk factory or a 16:26 decaffeinated coffee factory well each 16:27 of those are core pillars to their 16:30 business and when when they build 16:33 something like that typically they end 16:36 up building it when they initially 16:38 installed capacity is running at over 16:41 capacity and you all understand if 16:44 you’re running an overcapacity you are 16:45 overstating profitability because you’ve 16:48 more than fully absorbed the fix the 16:50 fixed costs and your operating 16:52 efficiency ratios that are not 16:54 sustainable for the long term and so 16:57 ideally if you’re one of our portfolio 16:59 companies we want you to pour money into 17:01 these markets chase after this the the 17:04 initiated demand and you have to build a 17:08 second factory well the moment you start 17:12 down that path you you start to accrue 17:15 the normal amount of expenses in and 17:16 around the process of building but the 17:18 real trick is is that very soon after 17:20 it’s it switches on you’re gonna take 17:23 the factory that might have been running 17:24 at one hundred and twenty percent of 17:25 capacity at unsustainable margins and 17:28 you’re gonna bring over half the volume 17:30 in both your factories are not running 17:31 at half capacity well you’ve just blown 17:34 a hole through your margins and and it’s 17:37 not until each of those factories then 17:40 themselves become fully absorbed that 17:44 you’re gonna be back in business however 17:46 the fact that the reported profits 17:48 dropped as they did though bother some 17:51 to some for us trained under Buffett 17:54 with the idea of the capacity to suffer 17:57 through such 18:00 burdens on reported profits when 18:03 developing wealth the wealth the wealth 18:05 picks picks up as those businesses come 18:08 back into full absorption sudden you 18:10 realize that you’ve met the demand you 18:11 created and you’re ready to build a 18:14 third Factory let’s say or a fourth in 18:17 order to survive to that outcome 18:18 management has to be protected and the 18:21 best way that I found to help protect 18:24 management against those those adverse 18:26 outcomes is through family control so 18:28 whether it’s brown-forman which is 18:30 controlled by the Brown family who’s 18:32 whose discipline over the years I’ve 18:35 owned the shares to roll out Jack 18:37 Daniels their core product globally has 18:40 richly rewarded us think of 1986 when we 18:44 bought the shares they had collapsed 18:46 because of a mistake in acquisition and 18:48 they were only left with Jack Daniels 18:51 was which was about a four million case 18:54 brand per year making them 300 and some 18:57 million dollars a year and they had a 18:59 four hundred thousand case Jack Daniels 19:02 business globally the family who had 19:06 lost a considerable amount of their 19:08 fortune as a result of mismanagement 19:10 dedicated themselves to rolling Jack 19:13 Daniels out globally with all the 19:15 expense that is suggested their earnings 19:18 would go down substantially as they took 19:21 their us-based Jack Daniels profits and 19:23 directed that money and the expenses 19:27 attached to it to developing a taste for 19:29 Jack the annuals around the world that 19:32 was back in 1986 today they still do 19:36 four million cases in the US it’s gone 19:39 up in profitability because the cases 19:40 today are more valuable in the US 19:43 because consumers have returned to 19:45 bourbon and they like to have honey or 19:47 they like to have fire they have all 19:49 sorts of flavoring and they’re making 19:50 more money off their US business but the 19:53 US business did not grow the value of 19:56 the investment in brown-forman arose 20:00 from the fact that the the global 20:02 consumer could could be romance with the 20:07 brand of the product and all the rest 20:08 through heavy investments upfront but 20:11 once the consumer 20:13 accepts the product they develop a 20:16 lifetime value because they’ll drink X 20:18 bottles a year with X margin per person 20:21 and you can calculate the return on that 20:23 investment you can assure yourself that 20:26 you’ll have nothing but losses up front 20:29 but over time you absorb those losses in 20:33 your back and business in the in the 20:34 case of Jack Daniels the four hundred 20:36 thousand cases in the UN in the rest of 20:39 the world today are 13 million cases and 20:43 they make about $100 a case so they’ve 20:46 picked up value earnings of about 1.3 20:50 billion dollars and it’s really only 20:53 been permitted them because during the 20:56 period of investment they were allowed 20:58 they have management who ran the 21:00 business had the capacity to suffer 21:02 through censure by sell-side analysts 21:06 who were disappointed that they were no 21:08 longer making the numbers and he 21:10 actually had threats from from outside 21:13 activists to come in and try to dislodge 21:15 corporate control with family control 21:19 which is existing in something like 65% 21:21 of my portfolio the families can say to 21:24 those who wish to disrupt go away we we 21:28 wish to have a profitable dynastic 21:31 future and we don’t really care about 21:34 quarterly or annual earnings that’s an 21:36 extremely valuable pond in which we fish 21:40 so the capacity to suffer concept was 21:45 was sort of first delivered to me 21:46 through Berkshire and if you take a look 21:50 well I think we’ve pretty much gone over 21:53 that but take a look at Berkshire there 21:54 a couple of examples there which are so 21:55 so instructive in GEICO’s case they 21:58 bought Geico and only had a million 22:00 policyholders a policyholder at Geico is 22:05 worth $2,000 22:07 that’s the net present value of all of 22:10 their future streams of earnings and 22:11 they it’s a very high number because 22:14 there’s high persistency at Geico very 22:16 few people cancel and so if you have a 22:20 client of an insured they’re worth 22:22 $2,000 and when they bought the business 22:24 the only a million of them to the 22:26 business worth two billion 22:27 plus or minus the trouble is when you 22:30 bring on stream a new canoe insured the 22:33 first year they have a loss of two 22:35 hundred and fifty dollars per insured 22:38 they make a hundred and fifty dollars 22:40 annually off of an insured but bringing 22:43 one on board loses them two hundred and 22:45 fifty so if you’re thinking about the 22:48 math when Warren bought the business 22:49 they had a million policyholders or any 22:52 $150 that’s 150 million of profit so if 22:56 the next year they wanted to grow the 22:58 business by a million policyholders look 23:01 what happens to reported profits it goes 23:05 to minus one hundred million dollars the 23:08 the 150 that they were earning suddenly 23:11 gets overwhelmed by the 250 million that 23:14 attaches to the million new insured now 23:18 Warren bought the business they only had 23:20 a million insured now 14 years later he 23:24 said in his annual report that Geico for 23:26 all of those who are his partners and 23:29 want to understand what it is that they 23:32 own because Warren has said that he 23:35 would like to always buy shares of 23:38 Berkshire at the right price 23:39 Berkshire would love to repurchase his 23:41 shares the trouble is that Warren 23:46 doesn’t want to buy from someone who’s 23:48 uninformed about it’s worth so 23:50 periodically gives us through the annual 23:51 report gems like he did three years ago 23:55 and he said and by the way Geico is 23:58 worth 20 billion dollars more than what 24:00 we paid for it and the reason was is 24:03 that since he’s quiet at the costs of 24:07 income he started to push hard he took 24:10 his advertising from 30 million to 900 24:12 million a year you know that because 24:14 every car I have a commercial on 24:16 television as a caveman or a or a gecko 24:19 or something else he grew the insured 24:23 based out to over 11 and a half minute 24:25 I’m sorry excuse me it’s at 13 million 24:27 today and and so he’s added a 11 million 24:34 12 million policyholders times $2,000 24:37 per person that’s 24 billion dollars 24:40 today 24:40 what’s very interesting is this year 24:42 because there are lots of catastrophes 24:44 all over all over the country 24:46 weather-related berkshires competitors 24:50 their dire sort of life battle 24:54 competitors decided not to renew 24:57 business this year and not to go after 24:59 new business because they were showing 25:01 losses in other businesses and they 25:02 wanted to report numbers that satisfied 25:05 the sell side who had expectations about 25:08 what what they should do in the 25:11 environment where the losses elsewhere 25:13 were so grave they backed away warren 25:16 picked up a million and a half 25:17 policyholders this year because he has 25:19 no he has no care whatsoever about his 25:23 reported profits now he’s fortunate he 25:26 controls 40% of the company and other 25:28 people friendly to him control the rest 25:30 nobody’s gonna take over Berkshire if 25:32 they underreport profits and Geico 25:34 because they’ve taken on the business 25:36 that they’re competitors for went 25:39 because they had to show numbers 25:41 differently than Berkshire Berkshires 25:43 created the world that it occupies by by 25:47 focusing only on value and not reported 25:51 profits anyone else could do it but it 25:53 takes it takes the kind of discipline 25:56 and and Berkshire thrives on that 25:58 another example equity index put options 26:01 this is an interesting one when 2000 26:05 take a look here though yeah this is 26:09 this is it if you look here it’s very 26:11 hard to read anyways 26:13 Berkshire some-some 10-15 years back had 26:17 the opportunity to receive from an 26:20 insurance conglomerate five billion 26:23 dollars of premium with the obligation 26:27 that he would make good any decline in 26:31 the value of that portfolio from 37 26:34 billion dollars to any number below four 26:37 five billion in cash which they gave 26:39 Berkshire Berkshire pledged to make them 26:42 whole whatever the decline took now 26:46 nobody else would could make a pledge 26:50 that the insured the person seeking 26:52 insurance we actually trust 26:54 because few would keep enough liquidity 26:56 around that if the markets really didn’t 26:58 melt down to zero that they could 27:00 actually be good for the money well 27:02 Berkshire has a hundred and ten billion 27:03 dollars of cash on the balance sheet and 27:05 has kept a huge cash hoard the entire 27:08 time so the insured paid him five 27:10 billion dollars which is way too much 27:12 money in part because he alone will have 27:15 the money to make good on the commitment 27:17 if it happened that the equity markets 27:19 went to zero globally he also was paid 27:23 far too much money because no other 27:25 insurance company what would bid the 27:27 business because once they’ve 27:30 established that they that they have an 27:33 obligation to make whole anything below 27:35 thirty seven billion dollars they face 27:37 mark-to-market and what that means 27:40 mark-to-market means that if equity 27:42 markets around the world declined he 27:45 would have to he’d have to pass the 27:47 amount of his obligations increase 27:49 through the income statement and so I 27:52 bet this has a little red button here I 27:54 could probably point to it anyways if 27:56 you look at something like 2008 you’ll 28:00 see in one of the years he passed 28:02 through his income statement a six 28:04 billion dollar quote-unquote loss really 28:08 isn’t a loss he had he had ten or 28:11 fifteen years yet before the contract 28:13 matured it was just a valuation mark no 28:17 other insurance company publicly held 28:19 could withstand that type of a markdown 28:23 based on mark-to-market and so I think 28:26 Berkshires succeeded in that investment 28:28 largely because they did not have 28:32 competitors willing to take that take on 28:34 the same risk go back a second here all 28:41 right 28:44 Birk okay let’s take a look okay well 28:50 we’re gonna move on to the second the 28:52 second topic which is one of the things 28:54 I really do focus on and obviously the 28:56 number in in some ways the factors I 28:58 most fear our businesses which fail in 29:02 the areas that I most esteem in 29:04 Berkshire and so the start would be 29:05 agency costs and and I can assure you 29:08 that probably 90% of the investments I 29:12 look at I just pass on because I just 29:15 don’t trust that the people who run the 29:17 business will have our interests at 29:19 heart and make investments for the 29:20 longest term and and one of the examples 29:23 I’d say is if if if a business is focus 29:28 on the near-term they’ll they’ll either 29:30 do one of two things they’ll either fear 29:35 saying no to Wall Street when the right 29:39 answer is yes or they’ll fear saying no 29:42 to Wall Street I was saying yes to Wall 29:45 Street when the right answer is no now 29:47 give an example of this and it’s sort of 29:49 an interesting one of many levels but it 29:51 has to do with heineken I first bought 29:54 Hayek in 1986 it was a mature Western 29:58 market 25 percent of the profitability 30:01 of high anything was from the United 30:02 States and and they had no experience of 30:07 the exposure in developing emerging 30:08 markets today they have 75 percent of 30:11 their business in developing emerging 30:12 markets five percent of the profits 30:14 comes to the US and the two most 30:15 profitable markets are Mexico first and 30:18 in Vietnam second so the business is 30:21 completely transformed itself by virtue 30:23 of their willingness to suffer through 30:24 the burden on investment along the way 30:27 for the past 25 years since I’ve held 30:29 the stock well a couple of years ago 30:32 they had a chance to buy a Brazilian 30:35 Brewer which would have doubled their 30:37 size they have a twelve percent market 30:39 share this business had sixteen percent 30:40 and a B InBev Budweiser’s parent company 30:44 had the rest wall street clamored for 30:49 them to buy that business because it 30:51 would give them extra scale in that 30:53 market problem was price 30:57 it was a five billion dollar acquisition 30:59 Wall Street clamored on them to say yes 31:02 do it 31:03 Heineken ran the numbers and said no 31:06 walked away four years later the the 31:11 buyer Kieran came back to the market and 31:13 said not a good business not suitable 31:16 for us we’d like to sell it 31:17 Wall Street having watched it 31:20 underperformed for that period of time 31:21 said absolutely don’t even go close to 31:24 it no don’t even think about buying that 31:27 business 31:27 Heineken took a look at it thought look 31:30 pretty interesting they bought it for 31:32 seven hundred and twenty million dollars 31:34 now you can make a lot of money buying 31:36 something for seven twenty instead of 31:39 five billion and and Wall Street and 31:43 Heineken is 51% controlled in the share 31:47 price in shareholdings by the family so 31:50 when first pressured to buy it for five 31:53 billion the family said no said stupid 31:56 doesn’t make any sense 31:57 at seven twenty when they were when they 32:00 were threatened if they bought it they’d 32:02 be downgraded by every analyst who cares 32:04 it’s seven hundred twenty million 32:06 dollars for eighteen with sixteen 32:08 percent of the market the the real trick 32:11 was that having bought it at seven 32:14 twenty they now recognize they have a 32:16 billion dollars that will be passed 32:18 through the income statement putting it 32:20 together they have to move factories or 32:22 breweries around the effort they have to 32:24 redo the distribution of grounds they’re 32:25 gonna be spending a tremendous amount of 32:27 money and that’s going to burden the 32:28 income statement for the foreseeable 32:31 future 32:31 and that burden is what Wall Street 32:33 really hates and that’s why they 32:36 recommended around the news of this 32:39 event that that that that they’ve 32:41 they’ve gone mad they entering in the 32:43 market that cost somebody else three 32:45 billion dollars four billion dollars and 32:47 the share price weakened along came 32:50 another company called SABMiller South 32:53 African Breweries Miller Beer and and 32:55 they were being pursued by Budweiser and 32:58 of course whether they do but they love 33:00 a takeover offer to buy Heineken because 33:04 the shares had gone down the market was 33:06 disappointed they they bought the 33:07 Brazilians they sent a letter to hide 33:11 again 33:11 say we’d like to take you over for a 33:12 very high price and Hank it said no 33:14 thanks 33:15 goodbye they have fifty point one 33:17 percent of the vote and they don’t have 33:20 to worry about Wall Street’s pressure 33:21 now in this context they’ve already 33:24 become as profitable as large as they 33:26 have because of their capacity to suffer 33:28 through the upfront cost of their 33:29 investments but this episode they said 33:32 no when Wall Street clamors yes they 33:34 said yes and well she said no and then 33:36 as a result of that the bad the bad 33:38 reception meant the shares went down 33:39 they were offered to take over the which 33:41 they said no and we we will continue to 33:43 hold this year’s I’ve held them since 33:45 1986 and I think that’s a pretty good 33:48 example of how that works so let’s jump 33:53 on to the section that is what I most 33:57 worry about here we go factors I most 34:01 fear the first one is is the first and 34:04 only really is agency costs we lost yep 34:12 there it is and you know the list is 34:14 enormous the businesses that I’ve owned 34:16 that have suffered and we’ve actually 34:18 sold them because of agency costs 34:21 Citibank 34:22 at one point had a business whereby they 34:26 would underwrite 34:26 they were under I’d bonds even if the 34:29 market had no interest in them and and 34:32 they put them in something called a side 34:35 pocket SIV and and in a sense the 34:40 bankers were issuing debt on behalf of 34:43 businesses which had no buyers and and 34:47 so they created a vehicle alongside the 34:51 balance sheet of Citibank it was they 34:55 would park these unsold bonds at the end 34:58 of the year the management would get 34:59 their bonuses for having produced the 35:01 bonds and at some point off balance 35:04 sheet they sat festering and a burden 35:08 ultimately on Citibank and when I was 35:11 described that condition I sold the 35:14 shares immediately Citibank turned out 35:18 to be a complete disaster thereafter 35:20 they dropped by 98 percent since we sold 35:24 those shares 35:25 and it was a complete disaster but for 35:28 one thing for us personally is that 35:30 through what we met a man named Ajay 35:32 Banga who’s the chair who’s the CEO of a 35:36 MasterCard and and we bought MasterCard 35:40 soon thereafter for $20 a share it’s now 35:43 170 it’s been the best investment that 35:46 we’ve probably made and and the 35:49 investment really was based on the 35:50 character and caliber of this business 35:53 leader who is exceptional and unrivaled 35:56 we did not buy a MasterCard at the first 36:00 iteration but it was a it was a 36:02 tremendous dividend that came as a 36:04 result of our our activities their 36:07 international Speedway’s of business 36:09 that we owned and a family called the 36:13 France family owned the NASCAR franchise 36:15 and International Speedway was a public 36:18 vehicle which own tracks and just like 36:21 coca-cola has a conflict with its 36:24 bottlers to have the bother to spend 36:27 more money so coke the brand could 36:30 become more valuable in this case 36:32 International Speedway embarked upon a 36:34 shareholder driven mandate to build more 36:38 tracks around the country NASCAR is a 36:41 great business you know it’s basically 36:43 branding opportunity for companies that 36:47 want to reach the middle America and it 36:50 was regionally defined historically and 36:54 and they went on a hunt for new 36:57 locations and they built seven worth 36:59 places ultimately they threatened the 37:01 franchise because of oversaturation 37:03 and at the end of it all they were 37:06 trying to build for 500 million dollars 37:08 a racetrack in Staten Island over a 37:13 waste dump and of course a completely 37:17 ridiculous extension at that point 37:19 benefiting the family because they get 37:21 more revenue because of more more sites 37:23 but destroying value all along at at the 37:27 company International Speedway 37:29 that was a misalignment of interest and 37:31 you can see those second thing I fear 37:34 the most is lack of natural reinvestment 37:36 as I said the businesses that we own 37:38 have 37:38 a very natural reinvestment which is 37:40 they just go back to the markets where 37:42 they’ve long standed li existed and 37:44 invested bill distribution marketing 37:47 brand awareness and all the rest so you 37:50 know we own Wells Fargo it’s a domestic 37:52 business at some point we will sell it 37:55 because it doesn’t really have the 37:57 reinvestment opportunities we call that 37:59 opportunity white space and and to give 38:03 you an order of magnitude we owned 38:05 several Brewers in Africa the the the 38:10 there’s 400 million barrels of beer 38:13 consumed a year and the businesses that 38:14 we collectively owned only manufacture a 38:17 hundred million of those barrels there’s 38:20 300 million barrels that are available 38:22 as a National Arena tees reinvest what I 38:29 fear most is the understanding that some 38:32 companies don’t know what is enough 38:35 Berkshire is excellent at that and and 38:38 and and made us a tremendous amount of 38:41 money knowing that a certain investment 38:43 is very very valuable and not to reach 38:47 for something that’s beyond beyond the 38:51 realization potential so for example 38:53 than what I’m thinking of with Berkshire 38:55 understanding what is enough in the 38:57 midst of the the financial crisis of 38:59 2010 they issued a six billion dollar 39:02 preferred to or they bought it explained 39:06 I preferred from Bank of America the six 39:09 percent they were only making half a 39:11 percent on their cash it’s a big 39:13 improvement off the cash but really what 39:15 they got from it was in return for their 39:18 goodwill that’s conferred upon them by 39:20 virtue of their credit review of Bank of 39:24 America it was valuable and I think Bank 39:26 of America gave Berkshire 700 million 39:29 call options at seven dollars a share 39:33 which was the then market price that 39:34 lasted for ten years that that has made 39:39 Berkshire 22 billion dollars so a modest 39:43 looking preferred six percent beneficial 39:47 for them because there’s a tax shield by 39:49 the villains but still modest 39:52 with that warrant attached be turned six 39:55 billion dollars into twenty eight it’s 39:58 extraordinary now you know other people 40:00 at the same time reached and for yield 40:03 but if you reach for yield and it’s too 40:05 high chances are you know you’ll get 40:08 what what the yield suggests which is 40:09 more risk than you care for anyways so 40:13 the by far and away the next factor I 40:17 fear is is corruption and I’ll give you 40:19 a couple of fun examples enrichment most 40:22 of Richmond’s competitors luxury goods 40:25 company most of their competitors in 40:26 Russia did business with a facilitator 40:29 and the miss the facilitator was really 40:31 the Chechnyan mob and and the way that 40:35 works is you know they’ll get you into 40:36 anything upfront but then they’re your 40:38 silent partner for the rest of your time 40:40 and reach might has enough money that 40:42 they don’t need a silent partner they 40:44 were shown a building there’s a twin 40:45 building on the main boulevard for 40:48 shopping for luxury and they were shown 40:51 one that they could move into 40:52 immediately for a $500,000 a year rent 40:56 the next door was the same building kind 40:59 of in poor repair the one that they 41:02 could go into is fully repaired the one 41:05 that they the the next door one they 41:08 bought for twenty five million dollars 41:11 instead of taking a half a million 41:14 dollar a year lease for the whole 41:15 building 41:15 they paid twenty five million for the 41:17 building that they bought they wanted 41:19 independence and it had an upfront cost 41:21 they did nothing but lose money but over 41:25 time they own their future the people 41:28 who take the early bait come in to get 41:30 active quickly in that market rooo the 41:33 fact that they ever met the group 41:35 because for the rest of time they’ll 41:36 take more and more and more money it’s 41:38 the mob and and respond not caring about 41:43 near-term income because it’s controlled 41:45 by the Rupert family and they want 41:46 wealth not reported profits paid way 41:49 over the top but they bought certainty I 41:52 visit Heineken in st. Petersburg and 41:56 they had a factory that they this 42:01 corruption that they had 42:04 hire a local mob for security quote 42:08 unquote because it’s very hard under 42:10 IFRS to stash bribes in an income 42:13 statement so you think you figure out 42:15 something like security so they had they 42:17 had hired this group to deliver you know 42:20 fifty people walking around with machine 42:21 guns in this warehouse full of beer that 42:23 they just brewed and then there’s an 42:25 they’re all were brown shirts and inside 42:27 there were group of people with machine 42:28 guns who had white shirts I said why are 42:30 the white shirt people with machine guns 42:32 well those are the people we hire to 42:35 protect against the mob who we have to 42:38 pay this is a difficult way to do 42:41 business and of course it’s all too 42:43 common we still hold Heineken despite 42:44 that but gives you a sense of what we’re 42:46 what we’re attuned to at least agency 42:49 costs you know the story there excise 42:52 tax it’s very interesting our businesses 42:55 have a have a price inelastic demand 42:59 that means that governments understand 43:01 that they can raise the price on our 43:02 products and the consumers will keep us 43:04 consuming whether it’s cigarettes beer 43:06 or spirits that’s the case however 43:10 around the world there’s a new product 43:12 which is this thing here which Philip 43:14 Morris’s invented which is a it’s a heat 43:17 not burn cigarette replacement they 43:21 developed this over the past four years 43:22 they spent two and a half billion 43:23 dollars developing this destroying the 43:26 reported profits for two and a half 43:28 years but they realized that if they 43:29 didn’t transition from traditional 43:31 cigarettes to the next generation 43:33 someone else would and so they invested 43:35 to destroy their own business ultimately 43:37 came up with this thing since they’ve 43:40 launched it five million Japanese have 43:42 converted fully to this product and 43:45 they’ve given up combusted cigarettes so 43:48 it’s a very big deal and and when they 43:52 launched throughout the world they’re 43:54 given a big discount in excise taxes and 43:58 that that excise tax discount is what 44:00 helps underwrite the cost of developing 44:02 this product and sending it worldwide 44:03 but so taxes are usually confiscatory 44:08 and and and and and and drive away 44:12 pricing pop elasticity but in some 44:15 instances they’ll adopt something 44:17 this product with an idea towards 44:18 helping the society so we just go on 44:23 regulation you know you see it all over 44:26 the world in in in India you cannot 44:30 import spirits the if there’s one thing 44:34 that in India is is is a bankable 44:39 outcome it is their passion for scotch 44:44 whiskey as a broad statement and let me 44:47 ask here of any Indians here what is it 44:50 that that would be most likely to travel 44:54 home through duty-free with an Indian 44:57 it’s one thing you all have the same 44:59 idea it’s Johnnie Walker Black Label two 45:02 bottles it’s black Lee that’s that’s 45:05 just it 45:06 the Indians drink a hundred and twenty 45:09 five million cases of of scotch like 45:13 products but the tariff barriers are so 45:17 horrific that you can’t really bring in 45:19 scotch and that’s why it’s a duty-free 45:20 thing Scotland produces seventy five 45:24 million barrels a year and and we own 45:27 three we own for Scotch producers and we 45:31 believe that over time that regulation 45:33 because of WTO and all of the other 45:36 forces that open up markets that want to 45:39 themselves be open to trade elsewhere 45:42 that we will see a world where Indians 45:46 will get really what they prefer which 45:48 is a high-quality imported heritage 45:51 beverage and and the the target market 45:54 there’s a hundred and twenty five 45:55 million cases and so regulation prevents 45:59 it now in India we own we own the shares 46:02 of United brewery and fifty percent of 46:04 the United brewery through Heineken it’s 46:07 very hard to get economics right for 46:09 breweries because you have to have a 46:11 brewery in each province and obviously 46:13 breweries scale in a much different 46:15 level than the provincial demand and 46:16 there are only thirteen thousand legal 46:19 outlets for beer in India it’s 1.4 46:23 billion people the and so all of those 46:27 forces that relate to regulation will 46:31 over time open up and I think lead to 46:33 our businesses success we talked about 46:37 taxation we have it’s very finely 46:42 different cultural references Chinese 46:45 company came about maybe eight years ago 46:47 created by to two people who had 46:51 studying trade in the US I met with them 46:54 they they sold leaf and paper for the 46:58 cigarette industry they went public I 47:00 met with them they spoke perfect English 47:03 they knew everything about accounting 47:05 all the rest and I thought that’s 47:06 amazing because for 25 years I’ve met 47:09 with the management senior management of 47:11 Japan Tobacco its third largest tobacco 47:14 company in the world we still talk to 47:19 them through interpreters twenty-five 47:22 years later they still the fiction of 47:24 interpreters you know when when it and 47:28 it really makes a big difference in 47:29 terms of your ability to understand I 47:31 visited Korea and met with the 47:33 management from Lotte confectionery and 47:35 I think of an example of how cultural 47:37 differences can play against you I asked 47:39 the interpreter that’s the CFO who we’re 47:42 with what the future cash flow looked 47:45 like for the next incoming years and 47:47 they spoke Korean together for about 40 47:51 minutes and the answer came back better 47:55 the answer came back you know better 47:57 okay I can’t invest on that and the last 48:01 example and again it’s just a story but 48:03 it’s a it’s true and fun I went to see 48:06 Asahi beer and and I spoke through an 48:10 interpreter for four hours just like 48:12 that and completely you know same kind 48:13 of cool conclusionary answers came back 48:16 and we finished a miserable experience 48:18 and afterwards we swapped business cards 48:20 and and the man who received the card 48:23 said oh you’re from Haren here from 48:25 Lancaster I grew up in Redding now he’s 48:29 in Japan he’s he’s the director of 48:31 Investor Relations for the Asahi beer 48:33 Japanese beer but he spent eight years 48:36 of his life as a teenager living 20 48:39 minutes from where our offices are in 48:40 Pennsylvania and he spent four hours of 48:44 my life Torche 48:45 shirring me with a with a with a 48:47 translator only the finish up by saying 48:50 oh I grew up in Lancaster you’re in 48:52 reading and so you that’s something that 48:56 I fear the most is the inability to get 48:58 information and then a quick look at 49:01 some mistakes newspapers I lost a lot of 49:04 money on newspapers they just completely 49:08 missed you guys 49:12 you know newspapers co-opted radio when 49:16 it first came about they co-opted 49:18 television stations they understood that 49:19 they needed to buy up cable business 49:21 they did everything related to median 49:23 entertainment and advertising to keep 49:27 the power and the franchise within their 49:29 own industry and Along Came eBay and 49:33 Amazon early days then when Straits 49:36 newspapers said let’s partner you’ve got 49:38 the market we’ve got that we got the 49:39 next-gen let’s do it together I’m 49:41 perfect and the newspapers had become so 49:44 monopolistic fat and and lethargic and 49:46 slothful that they said no we want to 49:49 keep it ourselves but they had they just 49:51 they just blinked in this case and and 49:53 we sold all of our newspapers and there 49:55 was it was a disappointment these are 49:59 mistakes of commish and I actually owned 50:00 those and mistakes of omission are 50:04 interesting MasterCard at the IPO we did 50:06 not buy it they lacked a dynamic leader 50:09 Ajay Banga came along later on he went 50:12 up fivefold after the IPO we did not own 50:15 it then it dropped 80% back to something 50:17 close to the start and we bought it the 50:19 second time around but only because of 50:21 the quality of the CEO who came in who’s 50:25 one of the most masterful leaders in 50:28 business he’s Indian he started would 50:31 excelled at the finest school and his 50:33 extraordinary talented I omitted to buy 50:37 Maotai I saw someone are you from China 50:41 China so mark tied the shares collapsed 50:45 five years ago and when she went after 50:49 banqueting and luxury and and and his 50:52 attempt to get rid of corruption the 50:54 shares collapsed and have advanced 50:56 Eightfold 50:57 over the past four years and the market 51:01 value of bata might be 400 billion 51:03 dollars they make 71 of the number they 51:06 make seven billion or some number that’s 51:08 just unfathomable it’s a brand that I 51:11 didn’t buy because I assumed at some 51:13 point that as China became a more open 51:16 nation with more people traveling on the 51:18 world they would surely leave that 51:20 product which no one can drink outside 51:23 of China and and aspire to the things 51:26 that the rest of were like and it hasn’t 51:27 happened and they’ve been an 51:28 extraordinary fortune and and the other 51:31 thing is it was controlled by the 51:33 Communist Party and the army and I just 51:35 felt like that would be a fairly high 51:37 level of agency cause I pass Alibaba at 51:40 the IPO agency cost I mean what could be 51:42 more strong than to know that Ali Baba’s 51:46 Jack Ma already took six billion dollars 51:48 illicitly from Yahoo through Ali pay so 51:52 that seemed like it was probably a 51:55 strike against them but it’s done 51:56 extremely well in Google you know I 51:58 haven’t I haven’t purchased their shares 52:00 even though I’m extraordinarily 52:03 impressed with their ability to recruit 52:04 the best and the brightest you included 52:06 and and the the the the notion of 52:12 allowing allowing those here to share 52:15 and participate in developing products 52:19 without a lot of ownership amongst age 52:21 groups or or divisions so it’s 52:23 extraordinary company I take my hat off 52:25 to you I should have bought this years a 52:27 long time ago but I’ll stay open-minded 52:29 on them you know I think I think I’m 52:34 gonna call that call that oh no I have a 52:36 I have something at the end here let’s 52:39 go back quickly I’ll share with you a 52:41 couple of the things that I think about 52:43 as I reflect over investments courtesy 52:45 of these two gentlemen so you can look 52:48 at Charlie Munger’s musings invert 52:51 invert invert it’s I suspect most of you 52:54 and though all of these points because 52:55 you’re your students of investing but 52:58 that invert is very similar to what 53:00 Warren said where he said if something’s 53:02 not worth doing at all don’t do it 53:05 invert means go to where you want to end 53:07 up and then reason backwards the most 53:09 efficient way to get there and just 53:10 don’t go 53:11 of the other places along the way that 53:13 tie up most people’s bother figure it 53:16 out and then work back from the outcome 53:19 you desire a warrant 53:21 Charlie talked once about this a very 53:24 profound they owned seven percent of 53:27 Freddie Mac which was the largest 53:29 mortgage insurance company 53:31 government-sponsored entity and and I 53:34 was at the annual meeting for Charlie’s 53:36 company and someone said why did you 53:37 sell it because a guy who is actually 53:39 quite a whiner he was he was whining at 53:42 Charlie Munger’s saying the stock was at 53:44 forty seven when you sold it it’s now 53:45 seventy why did you sell that and should 53:49 we think about replacing you as the 53:51 investment officer and Charlie was bit P 53:53 and he looked out at this guy 53:55 waited for a long time and he said and 53:57 through response to the question why did 53:59 you sell it he said because we felt like 54:01 it simple as that it’s such a powerful 54:05 answer it turns out that there were 54:07 reasons they had they had put junk bonds 54:10 in their portfolio they had extent they 54:11 retained mortgages instead of just 54:13 securitizing them and and they were 54:18 going into subprime to sort of generate 54:21 unnatural reinvestment when they should 54:24 have been patient anyways all those were 54:26 going on but he basically said you know 54:29 we spent all of our lifetime trying to 54:33 figure out businesses and and when you 54:37 have a response based on your on your 54:39 judgment that were that you can’t 54:42 actually put your finger on you’re still 54:44 supposed to act on it most people overly 54:47 value knowledge thinking that it is it 54:52 is the the trump card when beliefs well 54:55 informed I really what you have to act 54:58 on and and but basically Charlie said is 55:00 they felt uncomfortable some reason but 55:04 just the general development and so they 55:06 sold seven billion dollars worth of a 55:08 stock now most people will be fired if 55:10 they operated with with what seemed so 55:13 thin as a reason but you spend your life 55:16 developing judgment and then failure to 55:19 act on it because you’re still waiting 55:20 for more information is dangerous the 55:24 world is full of 55:25 8020 rule and in many instances eighty 55:27 pronounced enough it’s certainly so 55:31 that’s one warrant in Charlie whereas 55:35 this year at the meeting why they didn’t 55:38 do something was quite dangerous to the 55:39 capital and they said basically it’s 55:41 because they want to be rational not 55:44 brilliant another firm in the insurance 55:46 business did something cost them three 55:47 billion dollars Warren didn’t and and 55:49 the reason was that the other firm was 55:52 looking for something that would be 55:53 brilliant and Warren and Charlie passed 55:57 because they just needed the very simple 55:59 test of being irrational I I think I’m 56:04 gonna stop swoop asked me to give one 56:09 last thing which is my own lessons 56:13 learned and then I say that the first 56:15 one is compound interest and that’s a 56:18 career story you’ll start your career 56:20 out now and twenty years from now it’ll 56:23 depend on those little steps that you 56:25 take well that over time add up to big 56:28 results and you’ll see people in 56:31 business early on who take big steps 56:34 early on and you should know that along 56:37 the way they’ll probably fall along the 56:38 side and and and staying the course and 56:42 building the platform that’s very 56:44 cumulative is good character you know 56:51 Buffett says it I think it’s true 56:52 reputation takes a lifetime to build and 56:55 you can destroy it in a minute so I mean 56:57 that’s that’s clear and he also says how 57:00 many people he finds in his life who 57:03 spent a lifetime sort of gaining wealth 57:05 and and do so at the risk of the 57:08 reputation which at the end when they’re 57:10 rich the only thing they care about is 57:12 reputation so just just make sure that 57:15 you recognize if you give it up you’re 57:16 not going to get it back very easily 57:18 capacity to do nothing is vastly vastly 57:23 underappreciated but slot and lethargy 57:26 as they say at Berkshire but for me just 57:28 just not not acting as often as pose I 57:32 turn over I have a slide I didn’t show 57:34 you last year our portfolio Turner was 57:36 one point eight percent 57:37 1.8% and then my business school 57:42 professor who sent me down this journey 57:44 of value investing globally said 57:48 everybody should make sure that you have 57:50 a folly something that makes no sense 57:52 that just adds enjoyment pure and and 57:56 that can’t be justified so those are 58:00 some things I leave you with those are 58:01 those are from your courtesy of what you 58:04 learn as you go along there’s a little 58:06 time left for questions I hope you have 58:08 some I’m sorry if I ran late yep yeah 58:13 thank you so I’d love to hear Tom more 58:19 about five C’s and maybe if we could 58:21 just start with the last one what is a 58:24 folly of yours 58:26 I’d say art probably my wife and I both 58:29 like art we we like art by artists who 58:32 we know we’re not we don’t participate 58:37 you know I think I think in our there’s 58:40 a there’s a component that’s that’s it’s 58:43 just inspirational and we stay within 58:45 that rather than enter the world of 58:48 commercial art which is what draws many 58:52 people to anyways it that would be one 58:53 thing that’s quite enough of interest to 58:56 us and I’d say certainly a following is 59:01 my tennis game um because the prospects 59:04 of it adding much value over time is 59:06 quite low but I’m still quite interested 59:08 so those are the two and Tom I remember 59:14 when speaking over the phone you also 59:16 said about the importance of character 59:19 yeah and how even more than let’s say 59:23 talent and intellect yeah you consider 59:26 character and culture to be key yeah was 59:30 wondering you know in terms of life 59:32 experiences that you draw from 59:33 inspirations that you draw from if you 59:35 could talk to us a little bit more 59:37 especially because not only here but a 59:40 lot of people on the video are gonna be 59:43 youngsters who are looking at your talk 59:45 for inspiration so well also I can say 59:49 is when you get cultures right they have 59:52 a they have an extraordinary benefit and 59:55 Nestle would be the place where I 59:58 learned this and you know it was it was 60:03 a business that just had a shared vision 60:05 and and had the ability to align 60:09 decisions along what what was asked of 60:14 them as a culture as well as the 60:17 economic promise of it I suspect that 60:20 that culture here is extraordinary and 60:23 as I said I was here five years ago when 60:25 I first spoke and I was with the group 60:27 after the presentation and a very young 60:30 person who found his weight as so many 60:33 do here with the enormous talent 60:36 provided an answer to a question of a 60:38 person in his mid to late 40s who just 60:41 suggested II was stumped 60:43 and this very young person said have you 60:46 considered the following and you know I 60:48 lose the room was silent there’s are 12 60:51 people who I thought oh this kid’s gonna 60:53 kill his you know legs chopped off and 60:55 the older guy said no but it’s a great 61:00 idea and so he said that in front of all 61:03 of us a recognizing that he didn’t have 61:06 that insight this guy did he was half 61:10 his age and he felt perfectly 61:12 comfortable applauding that is a 61:13 possible source of a solution it’s a 61:16 very valuable cultural thing it does not 61:18 exist in most companies most companies 61:20 are terribly territorial over over ideas 61:24 very loath to shed praise broadly and 61:28 really low to extend a hand to someone 61:32 else this is an extraordinary of 61:33 character of and one that I would hope 61:36 is preservable so that’s a plug for 61:41 yourselves but it’s the important one 61:43 and on compound interest I remember you 61:46 it said to me something along the lines 61:48 of the returns being so back ended yeah 61:51 that for the first maybe decade or two 61:53 of your career you didn’t get a lot of 61:56 recognition I mean stuff that just comes 61:59 to you maybe if you could talk to us a 62:01 little bit of 62:01 that people might find that inspiring as 62:03 well no I I must say I was at the hotel 62:06 this morning I came upon this well that 62:09 sort of interesting he was a classmate 62:10 of mine at business school and he didn’t 62:13 start out owning the Warriors but he 62:17 ended up owning the Warriors and and and 62:19 he’s interviewed in here and he said you 62:20 know he when he was 8 or 9 and he came 62:23 upon the first indoor basketball court 62:26 he ever had and he said someday may own 62:27 it but he started out in business and it 62:29 was just like this but you know with 62:33 with the right direction and and and a 62:36 couple of good breaks and character that 62:38 that protected him from overreaching too 62:42 soon he ends up with his dream and I 62:45 thought that was quite quite telling and 62:48 I was impressed to see it but I think 62:52 you know I think the remarkable notion 62:58 is that the series of small things add 63:01 up over time and can receive reward 63:06 absolutely I mean it’s I mean I was with 63:10 some investors recently who had over the 63:13 past decade extraordinarily sort of 63:18 visible and dynamic and and and you know 63:21 active businesses and they’ve all at 63:24 some level other sort of shot them down 63:26 or restricted and moved them back he 63:28 said what what’s the difference how can 63:30 you still be doing this and you don’t 63:31 even do anything you know you don’t buy 63:33 stocks you you hold companies for a long 63:36 time and I I sort of gave the same 63:38 answer it was just you know by just 63:39 staying to the same thing we’ve been 63:42 able to I think find some interesting 63:46 businesses that because of their own 63:48 culture and character have been able to 63:49 redeploy capital internally without 63:52 worrying about quarterly numbers that’s 63:54 allowed it to stretch out and deliver 63:56 value over time but you’ll see a handful 63:58 of businesses like that yes 64:02 it’s age of a business a factor into 64:05 when you decide to invest in something 64:07 because there’s all this talk about 64:08 getting into things early and then it’s 64:11 a very scary aspect to start off with 64:14 because a lot of things just be end up 64:16 being like Wall Street gimmicks or yes 64:18 and and is age a factor into when you 64:22 look at investable business so for me I 64:25 oversee about fourteen billion dollars 64:28 and so I don’t really have the luxury of 64:31 deploying that into businesses that are 64:34 really young other than you and Amazon I 64:39 mean there’s a there’s this 64:40 extraordinary phenomena right now we’re 64:43 dynamic new businesses are also enjoying 64:46 extraordinary high valuation so I have 64:48 the I have the liquidity and the right 64:50 to invest in these new businesses and 64:52 and haven’t yet I’m I’m impressed 64:57 and I and I see within them something 65:00 more than what I have been led to 65:02 believe up until recently we says oh 65:04 well these are very technology 65:06 businesses it’s it’s just much more 65:07 disruptive more deeply disruptive but 65:12 sighs usually with keeping out of new 65:14 companies but that’s no that’s no 65:17 justification here because your your 65:19 caps are so large I think the four 65:21 leading members of things have a market 65:24 capitalization so that you have a two 65:27 trillion dollars on more than two 65:29 trillion dollars so I there’s plenty for 65:31 me to find 65:32 so also new you know they don’t have the 65:37 the the newest new is the kind of 65:42 destroyer of the threatened and 65:45 destroyer of our businesses in many 65:47 instances think about Jack Daniel’s and 65:50 suddenly you have bullet and you have 65:52 Hudson whisking and the more the more 65:56 difficult the search of discovery is for 65:59 something that’s new and new the more 66:01 the more its rewarded today and so 66:04 across all of our investments we 66:06 actually are engaged in mortal warfare 66:10 against the new while at the same time 66:14 trying to 66:15 interpret that which made those 66:17 businesses which we rely upon once great 66:20 will allow them to continue to stay prey 66:22 so they have to become new in themselves 66:24 and that’s what this thing was all about 66:26 here’s a tobacco company which is the 66:28 most problematic economy in the world 66:30 coming up with a product that’s destined 66:34 to eliminate the business which they 66:37 relied upon for so long one of the 66:39 musings that Charlie Munger has which i 66:41 think is so profound about Berkshire 66:44 Hathaway as he said he said at some 66:48 point that which made us great at 66:51 Berkshire is most likely not to be that 66:54 which will keep us great or allow us to 66:56 become more great I actually don’t have 66:57 it up there but I know I see it’s that 67:00 which made Berkshire greats right in the 67:02 middle and you know he’s he’s 94 and 67:06 understands that if you don’t modify 67:11 what’s gotten you well served today you 67:14 run the risk of of missing the next turn 67:20 we’ve run over yes you have a question 67:25 you said you did not have very good 67:27 experience in the newspaper industry yes 67:29 so what are your learnings from that 67:32 experience and how do you suggest us to 67:38 evaluate media companies yeah you are a 67:42 really is just an excessive amount of 67:46 contentedness that the industry fell 67:49 into when they finally had all basically 67:53 merged into single newspaper towns and 67:56 they you know I have a funny view on 68:00 this um I sort of I sort of take it back 68:06 to almost the time of Watergate when 68:11 newspapers played such an important role 68:14 the Washington Post played such an 68:15 important role in breaking open a 68:17 political scandal that that the role of 68:21 newspapers at that at that moment sort 68:23 of changed and they they really 68:26 they really took a turn towards sort of 68:31 trying to find the next story the next 68:33 er along those big headline-grabbing 68:35 ways and the best newspapers the ones 68:39 that really make money and that a really 68:41 part of the community are those which 68:44 are focused intently on local and and so 68:49 they have seven pictures of the high 68:53 school football team engaged on they 68:56 have stories about who was arrested who 69:00 was married who died it’s the stuff of 69:03 the communities that really create but 69:06 but the the lure of Pulitzer 69:11 prize-winning kind of expose journalism 69:14 it became hyper charged after Watergate 69:19 and I think that that shriveled this 69:22 sort of feather the intimate 69:24 relationship that a paper had with its 69:25 town and and the papers that still exist 69:29 are those that in the that they still 69:31 make some money but they’re they’re a 69:32 lot thinner and they and they focus on 69:34 on the area now advertising at you as 69:38 you better than anyone else would know 69:39 is is becoming a really fascinating 69:44 story of sort of personal testimonials 69:47 and a personal search for something that 69:50 you can friend and then tell others 69:52 about and you know that is very 69:56 interesting because newspapers as they 69:58 were historically set up as advertising 70:00 vehicles you know 70:01 the advertising paid for the content and 70:06 and the content is what drew the 70:08 eyeballs that that advertisers cared 70:10 about today you know the advertising is 70:13 very specific very purposeful and so the 70:16 ancillary advertising that arose from 70:19 just the presence of having content that 70:22 you wanted to see and you accidentally 70:23 saw an advertising the next to it is is 70:26 very old-fashioned advertising these 70:28 days placed with the purpose and it’s 70:31 often itself you know it’s not it’s not 70:33 collateral and and accordingly he’s has 70:38 it’s becoming far more effective because 70:41 they you know the idea is that 70:45 information informs that that you are 70:49 about to buy a red sweater because of 70:52 all of the prior steps you’ve taken and 70:54 you know the guy who sells red sweaters 70:57 wants to know about that on time and so 71:00 that’s a very different world that’s 71:01 very powerful and with that I think 71:06 we’re out of time thank you so much mr. 71:09 Russo 71:09 thank you pleasure 71:12 [Applause]