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Episode: Charlie Munger

Author: Ben Gilbert and David Rosenthal
Duration: 01:06:46

Episode Shownotes

We sit down with the legendary Charlie Munger in the only dedicated longform podcast interview that he has done in his 99 years on Earth. We’ve gotten to have some special conversations on Acquired over the years, but this one truly takes the cake. Over dinner at his Los Angeles

home, Charlie reflected with us on his own career and his nearly 50-year partnership at Berkshire Hathaway with Warren Buffett. He offered lessons and advice for investors today, and of course he shared his speech on the virtues of Costco once again (among other favorite investments). We’re so glad that we got the opportunity to record and share this with you all — break out your notebooks, tune in, and enjoy the singular wit and wisdom of Charlie Munger.A transcript is available here.Sponsor:Special thanks to Tiny for being the exclusive sponsor of this episode. You can get in touch with them here (just tell them Ben & David sent you), and order your very own bronze Charlie bust here.More Acquired!:Get email updates with hints on next episode and follow-ups from recent episodesJoin the SlackSubscribe to ACQ2ACQ Merch Store!‍Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

Full Transcript

00:00:00 Speaker_05
Ben, when we teased this episode in the email about the Jensen episode that we just released, the guesses that we were getting from folks were amazing.

00:00:10 Speaker_00
I mean, people were like, it's Charlie, it's Warren, or it's Taylor Swift. And a lot of people were right.

00:00:14 Speaker_05
Hey, Taylor, you know where to find us, acquiredfm at gmail.com.

00:00:18 Speaker_00
If you are looking to get more publicity, we're open. Have Travis get in touch. All right, let's do it.

00:00:28 Speaker_01
Is it you, is it you, is it you who got the truth now? Is it you, is it you, is it you? Sit me down, say it straight, another story on the way.

00:00:42 Speaker_00
Welcome to this episode of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts.

00:00:52 Speaker_00
This episode is a very unique one for David and I. Good friend of the show, Andrew Marks, organized a little dinner for us with Charlie Munger and a few other folks at Charlie's home in Los Angeles.

00:01:03 Speaker_00
You can hear Andrew a few times in the background asking Charlie questions. We are pretty sure that this is the only podcast that Charlie has ever done.

00:01:11 Speaker_00
Charlie, aside from being one of the most prolific investors of all time alongside his partner Warren Buffett, is 99 years old. He will turn 100 on January 1st.

00:01:21 Speaker_00
Of course, our conversation was interesting because he's freaking Charlie Munger, but also because it was interesting to get the perspective of someone who has seen the last 99 years of human history.

00:01:33 Speaker_00
We talked with Charlie, of course, about Costco, his history investing in retailers over the last 50 years.

00:01:39 Speaker_00
We also got to hear his views on what it takes to build a great partnership, what's gone wrong in the global securities markets these days, the concept of investing versus gambling, and where investment opportunities remain in the world today.

00:01:53 Speaker_05
Yeah, Ben, this was such a special life experience for you and me and you and me together to do this. And the fact that we got to record it and now share it with the world for posterity, just icing on the cake and the whole thing was unbelievable.

00:02:07 Speaker_00
Yeah, listeners, we knew we were going to have dinner. We were not sure whether we were going to be able to record it, and now we get to share it with all of you. With that, join the Slack.

00:02:14 Speaker_00
There is awesome discussion of every episode and the news of the day at acquired.fm slash slack. If you sign up for acquired emails, you will get episode corrections and follow up from previous episodes, plus hints at what the next episode will be.

00:02:28 Speaker_00
That's acquired.fm slash email. And we have only one sponsor for this interview.

00:02:34 Speaker_05
Yes, a special conversation deserves a special sponsorship, and longtime listeners will know there's only one company in the acquired universe that is truly appropriate because everything they do is modeled after Charlie and Warren, and that's Tiny.

00:02:47 Speaker_00
Yep, Tiny is the Berkshire Hathaway of the internet. Literally, they are such huge fans that they started a company that makes bronze busts of Buffett and Munger themselves, but more on that in a minute.

00:02:57 Speaker_05
Yeah, so Berkshire, as we know, started as a textile mill in Massachusetts nearly 200 years ago, and almost 20 years ago, tiny founders Andrew Wilkinson and his partner Chris took their version of an internet textile mill, the Premier Design Agency Metalab, which designed the UIs for Slack, Uber, Tinder, Headspace, Coinbase, and others, and they asked themselves, what would Charlie and Warren do if they were us?

00:03:23 Speaker_05
And that led to the realization that, just like Berkshire discovered in the physical world, the internet also has wonderful niche businesses with great cash flows.

00:03:33 Speaker_05
In fact, they tend to be even better than the old days of See's Candies and Blue Chip Stamps because they require zero capital reinvestment, have software margins, and can build global brands much faster than the, what, 50-some-odd years it took See's to expand around the world.

00:03:47 Speaker_00
Yep. So Andrew and Chris took the extra cash flow from MetaLab and their other businesses and created Tiny, the world's first and best permanent holding company for wonderful internet businesses, and boy did it work.

00:03:59 Speaker_05
Yeah, fast forward to today, and thanks to Tiny's success, this opportunity is no longer a secret. Many people have caught on to the idea that this can really work.

00:04:08 Speaker_05
But just like Berkshire itself, no one else has the combination of experience, temperament, access to capital, and frankly, reputation that Andrew and Chris have built over the past two decades.

00:04:17 Speaker_05
We're investors in Tiny ourselves alongside Bill Ackman and Howard Marks. And just like the two of them, Tiny is really the long-term buyer of choice in their niche.

00:04:27 Speaker_05
Anyone who's looking for a permanent home for their profitable internet business or who needs a capital partner for a co-founder or VC cap table buyout would be lucky to work with Tiny.

00:04:37 Speaker_00
Yep. For instance, they just bought the premier social network for film buffs, Letterboxd, which has been the founder's baby for 12 years and will stay so within Tiny. And this really reflects Tiny's whole ethos.

00:04:48 Speaker_00
Work with only the best internet businesses, commit to simple diligence, 30-day deals, and leave the business alone, either for you to operate or bring in new long-term oriented management. Up to you.

00:04:58 Speaker_05
So thanks to Tiny. This is the only sponsor, as Ben said, that you'll hear on this episode. And just like Berkshire, it'll be here in perpetuity.

00:05:06 Speaker_05
Tiny just became a public company earlier this year and they can now do deals ranging anywhere from $1 million all the way up to $250 million.

00:05:13 Speaker_05
So if you want to get in touch, just shoot them a note at hi at tiny.com and just tell them that Ben and David sent you.

00:05:20 Speaker_00
Oh, and one more thing, the bronze Charlie busts, the perfect daily reminder in your workspace to ask what would Charlie do? Just head on over to berkshirenerds.store to buy your own. And they also have plenty of some guy named Warren too.

00:05:35 Speaker_00
Okay, now without further ado, this is not investment advice. David and I may have investments in the companies we discuss, and this show is for informational and entertainment purposes only. And on to Charlie Munger.

00:05:46 Speaker_00
Charlie, I was watching the NFL games last weekend, and it seems like every advertisement now is a sports betting advertisement. Is this good for America?

00:05:55 Speaker_02
No, of course not. Are the dog tracks and racetracks of America, are the casinos good for America? Of course not. They're just very popular. That's how Warren got his start though, right? At the racetrack?

00:06:09 Speaker_02
Well, but Warren never gambled heavily as a patron. Warren wanted the odds in his favor, not somebody else. Right. It's just so simple if you're Warren. You want the house, you want to be the house, not the punter.

00:06:23 Speaker_00
Listeners, the next topic that came up was retail stock trading and the idea that for many Americans, this is akin to gambling.

00:06:31 Speaker_02
Well, that's the way it's organized. They don't really know anything about the companies or anything. They just gamble on going up and down the price.

00:06:38 Speaker_02
If I were running the world, I would have a tax on short-term gains with no offset for losses on anything. And I would just drive this whole crowd every ball of business.

00:06:50 Speaker_04
What do you think about the algorithms, like Renaissance and stuff like that?

00:06:53 Speaker_02
Well, of course, Renaissance was the first algorithm. It was so simple. They sifted all this data from the past. And what did they decide? up-up for virtue of two closing prizes, and down-down were more common than down-up or up-down.

00:07:12 Speaker_02
Once they realized that's the way it was for various reasons deep in the psychology of man, they said man is a natural trend follower. He's been gambling short-term, and he's programmed the computers to automatically

00:07:27 Speaker_02
We'll buy one thing on the first update and sell before the end of the second day. You just do it day after day after day. Every day, the machine, the central clearing agent would say, your check today is $8,500,000. It's crazy.

00:07:42 Speaker_02
Your check tomorrow is $9,400,000. Well, what happens is that the ones The easiest trade is the front run, but you know what the average is, but the index funds have to buy. And you know what it is exactly. They all know that.

00:08:00 Speaker_02
And the way they get their returns year after year is taking the leverage, the midday leverage up higher and higher and higher and higher.

00:08:08 Speaker_02
So they're making smaller and smaller profits on more and more volume, which gives them this big peak leverage risk, which I would not run myself. And that's the only way to make these big returns is to have this huge leverage.

00:08:22 Speaker_02
It would make you crazy if you were already rich.

00:08:26 Speaker_00
I had the good fortune of speaking with someone you know well, Richard Galanti, at Costco and spending a few hours.

00:08:31 Speaker_02
He knows a lot about it. He's been there all his life.

00:08:33 Speaker_00
It's crazy. I mean, it seems like that's everyone on the executive team. They've all been there. I'm curious, how did you first come across Costco or Price Club at the time?

00:08:44 Speaker_02
Rod Hills somehow knew Saul Price and knew what he was doing. He said, you have to go down and meet him, he said. So I drove down and went through his store and talked to Saul. And of course, Saul was a very intelligent man.

00:08:59 Speaker_02
Saul was an ordinary lawyer until he was 39 years of age. Then he went out and formed a government employees discount company or whatever. Was this in the FedCo days? He was no longer with FedCo. And he sold FedCo to the Germans.

00:09:14 Speaker_00
Ah, FedMart to the… Hugo Man. Hugo Man.

00:09:17 Speaker_02
Yeah.

00:09:19 Speaker_00
And did you get to invest in Price Club before it merged with Costco?

00:09:24 Speaker_02
Yes, I did. But I just bought my stock in the market.

00:09:27 Speaker_00
I wasn't getting any favor. And so how did you eventually meet Jim Senegal?

00:09:34 Speaker_02
Well, Senegal asked Warren to become a director of Costco. He was looking for somebody with a financial reputation. As an independent? Yes, and Warren wouldn't do it. He said, well, gee, get Charlie to do it.

00:09:49 Speaker_02
I want shorter plane rides to directors' meetings and so on. So that's how that happened.

00:09:55 Speaker_00
And did Berkshire ever try to become a shareholder or acquire Costco?

00:09:59 Speaker_02
They tried to get Warren to buy out the French when they left, care for them. And Warren wouldn't do it. Warren doesn't like retailing.

00:10:08 Speaker_05
Was it just that he doesn't like retail, or what was the big objection?

00:10:11 Speaker_02
He's afraid of retail. Practically everything that was once mighty in retail is gone. Cisrobic is gone, the big department stores are gone, you know. It's just too damn difficult as far as he's concerned.

00:10:23 Speaker_02
And he had a bad experience with diversified retail, right? No, we made nothing but money at diversified. We didn't exactly make it in retailing, but we made a lot of money.

00:10:34 Speaker_00
Wow. And with Diversified, most of the money was not on the retailing operation. You made a lot of that money through... What happened was very simple.

00:10:43 Speaker_02
We bought this little pissant department store chain in Baltimore. Big mistake. As the ink dried on the closing papers, we realized it would be a terrible mistake. So we decided just to reverse it and take the hits to look foolish rather than go broke.

00:11:03 Speaker_02
He just told us, honey, get us out of this. By that time, we'd already financed half of it on covenant-free debt and so forth. And they made all this extra cash. And our own stocks got down to selling an enormous bet.

00:11:18 Speaker_02
We just, in the middle of one of those recessions, we just bought and bought and bought and bought. And all that money went right into those stocks. And of course, we tripled it just by sitting on our ass. And that led to Blue Chip?

00:11:32 Speaker_02
Yeah, it was part of the early success of Blue Chip.

00:11:35 Speaker_00
Wow. And so, you know, you mentioned Warren doesn't like retailers.

00:11:39 Speaker_02
And Blue Chip did something else that people don't know about. Yeah. We bought a little pissant savings and loan company for maybe $20 million. And when we left that thing, we had taken out of our little $20 million investment

00:11:54 Speaker_02
over $2 billion in marketable securities, which went into Nebraska insurance companies as part of their bedrock capital. So we had some wonderful early years and that's what everybody needs is wonderful early years. Wow.

00:12:11 Speaker_05
So in our Costco episode, we started with the joke at one of the Berkshire meetings, probably 10 years ago, Warren told the joke about you were on a plane being hijacked. And the hijackers gave you one final request.

00:12:24 Speaker_05
And you said, you'd like to give your speech on the virtues.

00:12:29 Speaker_02
Yeah.

00:12:29 Speaker_05
And he said, shoot me first. We were hoping, could you give us your speech on the virtues of Costco?

00:12:37 Speaker_02
No one was kidding me for being so repetitive on the subject. But there aren't many times in a lifetime when you know you're right and you know you have one that's really going to work wonderfully.

00:12:51 Speaker_02
Maybe five, six times in a lifetime you get a chance to do it. And you better do it two or three times early. All go broke because they think it's easy.

00:13:02 Speaker_00
In fact, it's very hard and rare. What was it about Costco that made you realize this is one of those few moments in a lifetime?

00:13:09 Speaker_02
Well, they really did sell cheaper than anybody else in America and they did it in big efficient stores and all the parking spaces were 10 feet wide instead of 8 feet 9 or whatever they normally are. They did it all right. Yeah.

00:13:29 Speaker_02
And they had a lot of parking spaces. And they kept out of their stores. All these people didn't do big volumes, you see. And they gave special benefits to the people who did come to the stores in the way of reward points.

00:13:42 Speaker_00
The executive membership.

00:13:44 Speaker_02
Yeah.

00:13:46 Speaker_05
It all worked. In a capital light business model, I mean, when we were studying it, the difference between price and— They had no investment in them.

00:13:57 Speaker_02
They make the suppliers wait until they've been paid, and then they're scheduled to pay only after they're scheduled to sell.

00:14:05 Speaker_00
They've got 900 warehouses around the world full of high-quality merchandise, none of which they have sitting on their books.

00:14:13 Speaker_02
That's correct.

00:14:14 Speaker_00
Yeah.

00:14:15 Speaker_05
Our understanding is that Price Club went public initially before the merger. They just listed. They didn't raise any capital. They didn't need any capital.

00:14:25 Speaker_02
Who knows? Saul kind of liked it. He was kind of a financier. He liked deals. He liked this miscellaneous real estate. Like, yeah, but it doesn't make sense. You don't want, you got an enterprise as big as Costco.

00:14:39 Speaker_02
You don't want to screw around with your parking lot and get other people to clog up your parking lot permanently and stuff that's not going to pay you very much. Right. You don't want them is the answer.

00:14:52 Speaker_00
Have you ever seen another business that takes advantage of the virtue of the low skew count the way that Costco does?

00:15:00 Speaker_02
Well, there are lots of them. That little grocery store chain here in Los Angeles, Gelson Brothers, they wanted the high turnovers and low capital costs. And they never made the least effort to earn any money.

00:15:17 Speaker_02
They wanted to share their parking lot with anybody.

00:15:21 Speaker_00
As you reflect back on one of these few great companies in a lifetime that you should bet big on, what advice would you have for David and I as young partners looking for a few of these in our lifetime, things to look out for?

00:15:36 Speaker_02
Well, you may find it five years after you bought it. These things may work into it or your own understanding may get better. But when you know you have an edge, you should bet heavily. You know you're right.

00:15:57 Speaker_02
And most people, they don't teach that in business school. It's insane. Of course, you got to bet heavily on your best bets.

00:16:08 Speaker_00
And how do you develop that level of conviction to know?

00:16:11 Speaker_02
You work at it. You redo a lot of reading and thinking and visiting.

00:16:16 Speaker_05
I'm curious, we wanted to ask you, you know, you've had this beautiful partnership with Warren for half a century. We're a decade into our partnership.

00:16:25 Speaker_02
There was a lot of low-hanging fruit in the early days of our operation. You don't have any low-hanging fruit that is easy to recognize.

00:16:35 Speaker_00
You mean in investment opportunities?

00:16:37 Speaker_05
Yeah, that's right. But your relationship with Warren, like, how have you... Well, we were both kind of similar and we both wanted to

00:16:45 Speaker_02
keep our family safe and take a good job for our investors and so on. We had similar attitudes. Yeah. Did it change over the decades? No. Warren still cares more about the safety of his virtuous elders than he cares about anything else.

00:17:02 Speaker_02
If we used a little bit more leverage throughout, we'd have three times as much now. And it wouldn't have been that much more risk either. And we just knew we never wanted to give them at least a chance of screwing up our basic shelter position.

00:17:20 Speaker_00
If you had used more leverage, do you think there's some chance that... We would have done a little better, sure. Do you think there's some chance that it wouldn't exist at all? That it would have cost you the franchise?

00:17:29 Speaker_02
No, I think it would have worked fine. Does Warren think that? The situation lend itself to, if you were intelligent, just milking it out.

00:17:41 Speaker_05
When you leverage, I'm so curious on, after we did our- It's automatically leveraged.

00:17:46 Speaker_02
You open a new store with no capital, of course it's leveraged. Who wouldn't want a business with no inventories?

00:17:55 Speaker_00
Right. That's a good point. By the virtue of you owe a whole bunch of people money on day one for these goods that... Which is, which turnovers so rapidly.

00:18:04 Speaker_05
Right. It's interesting. I mean, that's leverage. It's not debt leverage. I mean, how do you think about debt? Like after we did our Berkshire series... A lot of people do it now.

00:18:14 Speaker_02
A lot of people now do it who manufacture something that is terribly strong and they're just forcing the suppliers to carry all the inventory.

00:18:26 Speaker_00
isn't like we're the only ones that do that. Back to the point on partnership, David and I are coming up on 10 years as partners in this podcast we do together, different than the investing business, but a compounding one nonetheless.

00:18:39 Speaker_00
After a 50-year partnership with Warren, what advice would you have for us interpersonally to make for an enduring partnership?

00:18:50 Speaker_02
It helps if you like one another and enjoy working together. We do. Yeah. But I don't use any one formula. A lot of partnerships that work well for a long time happen because one's good at one thing and one's good at another.

00:19:05 Speaker_02
And you just naturally divide it. And each one likes what he's doing.

00:19:12 Speaker_02
Now, in Costco's case, they had Jeff Brotman, who's very smart, but not a retailer, and Jim Senegal, and they divided it up, and they had originally agreed that Brotman would be the chairman and CEO, because he was his ID, he founded the whole thing.

00:19:28 Speaker_02
But Senegal decided, no, I have to be the CEO. So it was a big, unfortunate board meeting, a big internal struggle, and Brotman moved aside. Was that after you joined the board?

00:19:43 Speaker_05
No, before. Do you think you and Warren not living in the same city helped your partnership last so long? Well, I may have helped.

00:19:55 Speaker_02
But Warren has very close relations with all those people that have lunch every Saturday at Berkshire headquarters. It's like he doesn't have a little quarter of people there who are kind of pals from the ground up.

00:20:11 Speaker_00
Do you think it helps that when you do spend the time together it's special rather than being common?

00:20:19 Speaker_02
Well, of course, we used to spend a lot of time together when we were young because we didn't have that much to do. Now we've got more to do, but then it's just the other minutiae of life. So it's different.

00:20:33 Speaker_05
Yeah. It's funny. I feel like we have a lot to do now, but it's very difficult to invest money.

00:20:41 Speaker_02
Well, and I think it's all but impossible to do time after time or time adventure capital. Yeah. We really wanted to ask your thoughts on venture capital.

00:20:52 Speaker_02
Some of the deals get so hot and you have to decide so quickly that you're all just sort of gambling.

00:20:59 Speaker_00
Do you think the role of venture capital is being properly accomplished in society?

00:21:05 Speaker_05
No, I think it's very poorly done. Charlie elaborated on this point with a few things that we can't air, but the topic did turn to Bitcoin.

00:21:14 Speaker_00
I've heard many comments you've made on Bitcoin. I'm curious if you have a thought on this particular angle. An easy way to transfer money in between countries, especially when those countries don't have a stable store of value within that country.

00:21:28 Speaker_00
Is it good to have an independent store of value that is not pegged to a nation state?

00:21:31 Speaker_02
Well, of course it's good for the world as a whole to have a way of having some currency. The way that was solved is...

00:21:40 Speaker_02
For a long time, the British pound was the national currency of the investment world, and that shifted to the dollar, and it's still a dollar. And people like China have these enormous reserves of dollars.

00:21:55 Speaker_02
Think of the money people give us where we always just print up these pieces of paper.

00:22:04 Speaker_00
And what about the common person in some of these less fortunate countries who don't have access to U.S. dollars?

00:22:12 Speaker_02
Well, they do if they ever get any money. The dollar is very fungible. You can always buy one anywhere.

00:22:20 Speaker_00
I'm curious, back to this point of the role of venture capital in a society, if you could design a perfect system to fund innovation.

00:22:28 Speaker_02
Well, I think it's a very legitimate business if you do it right. If you want to give the right people the power and nurture them, help them.

00:22:37 Speaker_02
You know a lot about the tricks of the game, so you can help them run their business yet not interfere with them so much they hate you.

00:22:46 Speaker_02
By and large, having bumped into a lot of people in the businesses with venture capital financing, I would say the ordinary rule is that people in the business doing the work, they more often than not, they hate the venture capitalists.

00:23:01 Speaker_02
They don't feel they're their partner trying to help them become it. They're only taking care of themselves and so on and so on. And they don't like them.

00:23:09 Speaker_00
How could it work differently?

00:23:11 Speaker_02
Yeah, well, but that's not true in Berkshire. You see, our people, they know we're not trying to discard them to the highest bid. See, if some asshole investment banker offers us 20 times earnings for some lousy business, we don't sell.

00:23:28 Speaker_02
If it's a problem business we've never been able to fix, we'll sell it. But if it's a halfway decent business, we never sell anything. And that gives us this reputation of staying with things, which helps us.

00:23:40 Speaker_00
And do you think that buy and hold, not only mentality, but demonstration, is the key thing that aligns investors with managers?

00:23:52 Speaker_02
Well, it's rare, you see. Everybody else has a standard way of doing things. The lawyers have their standard forms. And everybody just has the same standard form. And they get the same standard results, subject to the vicissitudes of

00:24:08 Speaker_02
investment liability. You don't want to make money by screwing your investors. And that's what a lot of venture capitals do. The world is full of ex-G8 Goldman Sachs partners that formed a private fund.

00:24:20 Speaker_02
And they manage a billion dollars or something like that. And they charge two points off the top plus the subsidy. And that enables them to make very handsome livings themselves. But the endowments are not getting a good return.

00:24:36 Speaker_05
And do you think it's specifically the fee aspect of fund structures?

00:24:40 Speaker_02
It's just the way it works. And of course, you really shouldn't be in the business of charging extra, unless you really are going to achieve very unusual results.

00:24:52 Speaker_02
And of course, it's more easy to pretend that you can get good results than it is to actually get them. And so it attracts the wrong people. People with an investment capital turn of mind.

00:25:07 Speaker_02
And the people who make the most money out of venture capital are a lot like investment bankers deciding which hot new area they're going to get in. They're not great investors or great at anything.

00:25:19 Speaker_05
What do you think endowments and large pools of capital should do then?

00:25:24 Speaker_02
Well, they're starting to do it. The endowments have started to say to all these people that charge three and 30 or whatever they charge, they said, we'll pay your three and 30, but we're going to put in twice as much money.

00:25:39 Speaker_02
And then the next half, you'll get nothing on it. You're just going to ride prairie pasture with some of your investments. So the fees go down by 50%. That'll take a lot of the fun out of it. Fee's down 50%. And that's happening all over America.

00:25:56 Speaker_02
They feel had, misled, irritated. They've looked foolish to their own trustees.

00:26:06 Speaker_05
One of the issues I think in investing right now, you mentioned it about venture capital, but I think it's true everywhere. It's like there's just so much capital and so much competition. We're so far removed from the cigar bud era.

00:26:18 Speaker_05
We're in the opposite of the cigar bud era these days. Are there opportunities out there?

00:26:23 Speaker_02
Somebody will find a new thing, but it gets harder and harder. I would argue one of the easiest ones was when they decided a little group around Home Depot, they would copy the Costco model and home improvements. And that was basically a good idea.

00:26:42 Speaker_02
And think of the money they made doing it. Yeah.

00:26:46 Speaker_05
Bernie Marcus.

00:26:48 Speaker_02
Yeah.

00:26:50 Speaker_00
That was a direct copy of Costco. Do you think there are more opportunities to copy Costco?

00:26:55 Speaker_02
Well, there was another one at Costco. floor and decor is the current imitator. And it's just this wood imitating vinyl flooring. They're running a Costco model. And they keep adding miscellaneous stuff to it, too.

00:27:15 Speaker_00
It's the miscellaneous stuff that'll eventually kill you, though.

00:27:19 Speaker_02
Well, it would be simpler if it was all floor.

00:27:24 Speaker_05
Yeah, it's like the vertical. Home Depot works so well. But I don't know that it was totally obvious. Part of the appeal of Costco was it was horizontal. It was everything.

00:27:36 Speaker_05
Consumers could come, they could make a trip, bring their big wagon, bring their big truck.

00:27:39 Speaker_02
Home Depot was the same. They copied everything.

00:27:45 Speaker_05
Famously, Bernie Marcus came out to visit Saul before he started.

00:27:47 Speaker_02
Yeah, they came out, they copied everything.

00:27:50 Speaker_05
Saul was, like, happy to share the playbook with everybody, right?

00:27:54 Speaker_02
How do you feel about that? I know, I know. Well, Saul was not a crazy kid. He was domineering and so on. But he was also very intelligent. But there aren't many opportunities like Home Depot and Costco. There aren't very many.

00:28:15 Speaker_00
Why do you think Walmart hasn't been successful once they saw Costco in competing?

00:28:22 Speaker_02
They were too wedded by the ideas they already had. That's everybody's trouble. You just can't accept a new idea because the place space is occupied by an old idea.

00:28:31 Speaker_02
They got in the habit of getting into real estate practically with nothing because they went into little towns where nothing was valuable. So they're always, their occupancy costs are like zero and they knew how to make big division stores.

00:28:44 Speaker_02
That was their formula. So it offended them to go against the rich suburbs and have to pay up for the good locations. And Costco just specialized in the good locations where the rich people live. And Walmart just let them do it year after year.

00:28:58 Speaker_02
It was a terrible mistake.

00:29:00 Speaker_05
Did you know Sam? Malton?

00:29:04 Speaker_02
No, never met him. I knew the son, one of the sons, and they divided it up, you know, into about six parts very early. Yeah, Malton Enterprises. So they never paid much gift taxes or anything.

00:29:18 Speaker_00
The topic then turned to the automakers and the future of the car industry.

00:29:23 Speaker_02
Look how hard it would be to go into the auto business and have some big killing. Who's going to win? Who knows? The whole thing has been thrown way up in the air by all these electric cars.

00:29:36 Speaker_02
Those big new capital requirements, different ways of selling cars, and plus they got these tough unions. See, I just don't even look at the auto industry.

00:29:48 Speaker_00
Do you think it's more investable today than it was 50 years ago because of the disruptive innovation of electric?

00:29:55 Speaker_02
Well, maybe for one or two. Electric cars are really good at it, maybe, but certainly nobody else. So you think BYD is tough? It's too tough. BYD was a miracle. But that guy works 70 hours a week and has a very high IQ. He can do things you can't do.

00:30:15 Speaker_02
He can look at somebody else's auto part and he can figure out how to make the goddamn thing. You can't do that, you see.

00:30:22 Speaker_03
Charlie, you invested in Hyundai.

00:30:25 Speaker_02
Yes, but they're clever too. How was that investment for you? I lost money. Not much because I was stubborn. I held out until it got back to almost what I paid for it when I sold it.

00:30:37 Speaker_04
There's been a lot of discussion about Berkshire's investments in the Japanese trading houses.

00:30:42 Speaker_02
Well, but that is a no brainer. Something like that, if you're as smart as Warren Buffett, maybe two, three times a century, you get an idea like that. The interest rates in Japan were half a percent per year for 10 years.

00:31:02 Speaker_02
And these trading companies were really entrenched old companies. And they had all these cheap copper mines and rubber plantations. And so you could borrow for 10 years ahead all the money and you could buy the stocks and the stocks made 5% dividends.

00:31:22 Speaker_02
So there's a huge flow of cash. with no investment, no thought, no anything. How often do you do that? You'll be lucky if you get one or two a century. We could do that, nobody else could. It looked attractive at half or something, you couldn't get it.

00:31:40 Speaker_02
But Berkshire with its credit could. And the only way you could get it was to be very patient and just pick away at it little pieces at a time. It took forever to get $10 billion invested. But it was like having God just opening up.

00:31:56 Speaker_02
Chestnut just pouring money into it. It's awfully easy money.

00:32:02 Speaker_00
It's interesting that it's paradoxical. You need Berkshire's credit, but at Berkshire's scale, it's actually hard to put enough money to work.

00:32:09 Speaker_02
That's true. But why should it be hard to make money? Why should it be easy?

00:32:15 Speaker_05
Japanese trading companies reminds me. We studied another company recently, Nike, that is surprising to me.

00:32:21 Speaker_02
That's a very different company. Yeah. Did you ever look at it? That's a style company. Of course, I've looked at it, but I don't like style comedy.

00:32:30 Speaker_00
to fad-driven?

00:32:32 Speaker_02
Well, I suppose if R.B. Hermes is achieving a price, I'd buy it. But short of that, I'm going to stop the company.

00:32:38 Speaker_00
Ooh, that's a good pick.

00:32:40 Speaker_04
To the style point, another one that they covered was LVMH. What Arnold has done has been amazing. So what do you make of that company?

00:32:49 Speaker_02
Well, if you're as good as they are, what they've done, you have a lifetime to do it in, or now a lifetime, really, three or four lifetimes to do it in. You can create another, but it's not easy.

00:33:00 Speaker_05
Hermes is on the eighth generation, I think, now, the family running it.

00:33:05 Speaker_02
It's not a bit easy. They have meetings every day where they make policy decisions, and they choose the locations one at a time, and it's work.

00:33:14 Speaker_00
It's definitely work. What do you think the durable value is in these, as you say, style companies of the very best one in the world, the Hermes or the LVMH? What makes them enduring?

00:33:27 Speaker_02
Well, they just got a brand people trust so much. It took them a century to do it.

00:33:35 Speaker_00
Our conversation then turned to comparing Kirkland Signature as a brand to Hermes.

00:33:41 Speaker_02
Kirkland is a brand the way Tide is a brand. And Hermes is a different kind of a brand.

00:33:50 Speaker_00
Yeah, Ferrari doesn't make detergent.

00:33:53 Speaker_05
No. We've spent a lot of time studying these brands. How do you look at the value of a brand?

00:34:01 Speaker_02
Well, it's hard for us not to love brands, since we were lucky enough to buy the See's Candy for $20 million as our first acquisition. And we found out fairly quickly that we could raise the price every year by 10%, and nobody cared.

00:34:21 Speaker_02
We didn't make the volumes go up or anything like that. Just made the profits go up. So we've been raising the price by 10% a year for all these 40 years or so. And it's been a very satisfactory company. We didn't require any new capital.

00:34:38 Speaker_02
That was what was so good about it. Very little new capital. We had two big kitchens and a bunch of rental stores when we bought it. And now it's got two big kitchens and a bunch of rental stores. Well,

00:34:54 Speaker_02
Charlie was a playboy, and his brother ran the company, his older brother, and dominated it completely. But when he died, Charlie made his brother his executor, and now he needs a lot of money to pay death taxes.

00:35:09 Speaker_02
He doesn't have it, and it's due, you know, eight months or something later, and so they really wanted to sell so they could pay the death taxes. Steve was only making four million pre-tax when we bought it.

00:35:25 Speaker_00
So that buying opportunity only came about because the family needed liquidity to pay the death taxes? Yes, that's right.

00:35:31 Speaker_02
We only found out about it because Charlie C was on his cruise to Hawaii or something with this guy who was a client of my investment counselor who also worked for Blue Chip Stamps, which is the company that bought it.

00:35:45 Speaker_02
At any rate, that's how we found out about it. We paid that guy a finder's fee. We've never paid one cent. Of course, but you don't want a reputation for paying finder's fees. Everybody in the world will be bothering you all day long.

00:36:05 Speaker_04
So what do you think, so there are categories like C's or like Hermes, where brands lead to pricing power?

00:36:14 Speaker_02
I think your chances of buying one of them is so low I wouldn't even look. I don't even believe in looking at things that I might find. You're not going to get a chance to buy Hermes. No curiosity without a return. Wasting your time. Yeah, yeah.

00:36:28 Speaker_04
But why do you think there are extremely well-known brands in other categories, maybe packaged food or something?

00:36:34 Speaker_02
Well, there are a lot of professional investors that buy nothing but branded goods. And the one they usually start with is Nestle. And they just filter everything. They've done two or three points better than average, but it's not a bonanza.

00:36:52 Speaker_05
After that, our conversation turned to Kraft Heinz and why Heinz is able to have pricing power while Kraft is not.

00:36:59 Speaker_02
It was very interesting. It's something about the flavor of ketchup on a goddamn fried potato. People are really willing to change brands over. They want Heinz. And so we could raise the price of Heinz pretty much.

00:37:16 Speaker_02
But you try to raise the Kraft cheese and everything goes into rebellion, including the final customer, the housewife. They don't care that much about whether the cheese is Kraft or not.

00:37:28 Speaker_00
Why do you think that is?

00:37:30 Speaker_02
Well, the sauce flavor. It's happened elsewhere. In Korea, one guy, a Chinese guy, throws all the sauces. every single major sauce, he controls at least 95% of them.

00:37:43 Speaker_00
And it's because sauces have such a particular flavor that no one can imitate the trade secret?

00:37:48 Speaker_02
Yeah.

00:37:48 Speaker_00
Huh. And that gives pricing power. People get used to it. They like it.

00:37:52 Speaker_02
Is that Coca-Cola as well?

00:37:54 Speaker_00
Yeah, sure. Charlie, I'm curious, at age 99, what is something that you believe today that 70-year-old Charlie would have disagreed with?

00:38:06 Speaker_02
I think I knew when I was 70 that it was plenty hard, but it is just so hard. I know how hard it is now.

00:38:14 Speaker_02
And all these people who are getting this two and 20 or three and 30 or whatever, they all talk as though it was easy and they end up believing their own bullshit. And of course, it's not a bit easy. It's very hard.

00:38:32 Speaker_05
If you were back 30 or 40 years old again today, would you decide to go into the investment business again?

00:38:37 Speaker_02
Well, probably because it suits my nature, but I didn't really enjoy the three and 30 business. Once I had enough money on my own, I'd rather just operate with my own money. That is a much better way of doing it then.

00:38:55 Speaker_02
Because of the forced sale, we forced to deal with investment bankers, be forced to deal with investment consultants, be forced to deal with venture capital. The hell will, who knew us? You don't need other people.

00:39:08 Speaker_02
The point of getting rich is so you don't have to need other, you don't have to get along with other people.

00:39:13 Speaker_03
Charlie, if you started with Warren today and you're both 30 years old, do you think you guys would build anything close to what Berkshire is today?

00:39:24 Speaker_02
The answer is no, we wouldn't. We had everybody that has an unusually good result. Almost everything has three things. They're very intelligent, they worked very hard, and they were very lucky.

00:39:40 Speaker_02
It takes all three to get them on this list of the super successful. How can you arrange to have just the answers of good luck? The answer is you can start early and keep trying a long time, and maybe you'll get one or two.

00:39:53 Speaker_02
If you were starting again today, do you think insurance would still be the vehicle? It depends on your temperament. Insurance would be ideal for a certain kind of a temperament. And it takes a very patient person to get rich in insurance.

00:40:08 Speaker_02
It takes forever to get anything in. It takes forever to push anybody aside. It's very hard to make money.

00:40:16 Speaker_00
I've heard you say, as soon as you're wealthy enough to self-insure, you should. Is there any insurance?

00:40:21 Speaker_02
Well, that's about practically everything. Think of all the crumbums of the world that drink too much and then file big claims with the insurance company when the place gets on fire or something. Why would you want to pay your share of their stupidity?

00:40:38 Speaker_00
Not to mention the overhead. Of course, the insurance company needs to pay all the people that work there. Yeah, yeah. No, no. It's crazy. Is there any insurance that you carry today? I carry no fire insurance anywhere. Do you carry auto insurance?

00:40:53 Speaker_00
Yeah, I have to. Well, you're legally. Yeah, yeah. I don't know.

00:40:57 Speaker_04
Charlie could... No, I have to when I do. I'm curious, being that since these guys are very tech-focused, I'm curious, not being a tech person, how did you think about the Apple investment and what gave you the conviction to be so big?

00:41:12 Speaker_02
Whatever you've learned is that Everybody needs some significant participation in the 12 companies that do better than everybody else. And you need two or three of them at least.

00:41:28 Speaker_02
And if you have that mindset, Apple is a logical candidate to be on the list for which you're going to select your companies. And it's not very hard to come up with the idea that it may be okay

00:41:44 Speaker_00
Making the list doesn't sound too hard. In fact, there are these acronyms, FAANG or MAMA, Microsoft, Apple, Google, Facebook, but selecting the one and putting hundreds of billions of dollars into it.

00:41:57 Speaker_02
We didn't put hundreds of billions, we put 30 billion into it.

00:42:00 Speaker_00
To create hundreds of billions of value, that to me sounds hard to pick the one. How did you guys pick the one?

00:42:06 Speaker_02
We couldn't find anything else.

00:42:10 Speaker_05
Was it valuation or?

00:42:11 Speaker_02
Yeah, it got cheap. It got about 10 times or anything more.

00:42:14 Speaker_00
2015, I believe, was the first.

00:42:19 Speaker_00
It's fascinating to me this concept of if you look at distressed debt or you look at, I think Warren in the last Berkshire letter pointed out it's been a handful of really good decisions, or you look at venture capital that's classically power law distributed, any of these asset classes comes down to a few really good decisions with high conviction over an entire career.

00:42:38 Speaker_02
Yeah, that's exactly the way it works.

00:42:42 Speaker_00
It's not smoothed. There's no asset class where you can repeatedly just do okay.

00:42:47 Speaker_02
No, no. The low hanging fruit for the idiot is it's not gone, but it's very small.

00:42:55 Speaker_00
You mentioned this idea that when we were talking about Apple, there's a few companies that it's just really important to be in.

00:43:03 Speaker_00
Do you think these big tech companies being the winners where all of the pensions and Berkshire and university endowments and everyone's 401ks being concentrated in these companies, do you think that was the natural outcome?

00:43:16 Speaker_00
Did we have to end up this way?

00:43:18 Speaker_02
Yeah, it was natural. That's why it happened. It was so natural.

00:43:23 Speaker_00
What causes that?

00:43:25 Speaker_02
Well, it's just, that's what human nature and competition, that's what it causes. Will we eventually have one? Eventually, this craziness in venture capital when they're all gone stupid, that's a natural outcome.

00:43:42 Speaker_00
Will we have one $20 trillion companies and then the next biggest company is one?

00:43:47 Speaker_02
I don't know how the world's gonna, I didn't know we were gonna have as many as we did. They just happened. Would you continue investing in China? What's your position on that?

00:43:59 Speaker_02
Well, my position in China has been that the Chinese economy has better future prospects for the next 20 years than almost any other big economy. That's number one.

00:44:14 Speaker_02
Number two, the leading companies of China are stronger and better than practically any other. leading companies anywhere, and they're available at a much cheaper price. So naturally, I'm willing to have some China risk in the Munger portfolio.

00:44:31 Speaker_02
How much China risk? Well, that's not a scientific subject, but I don't mind whatever it is, 18% or something, whatever's worked out in the Munger family. It's okay with me.

00:44:43 Speaker_00
What about other geopolitical considerations? Like, would you hold TSMC at this point?

00:44:48 Speaker_02
Well, I don't like that as well, so I like something with a real consumer brand of its own, like Apple.

00:44:54 Speaker_04
I'm curious, what major companies that haven't been mentioned do you think people would do well to study the virtues of, like studying the virtues of Costco?

00:45:02 Speaker_02
Well, I only study two kinds of companies. One, I'm another big Ben Graham follower. If something is really cheap, even though it's a crappy company, I'm willing to consider buying it, for a while anyway.

00:45:18 Speaker_02
I do that occasionally and I've done it with great success a time or two, but my hard marks, I've done it once or twice in my lifetime for big gains and that's it. It's not like I'd have a second, I've done it a hundred times. So it isn't a bit easy.

00:45:35 Speaker_02
A hundred times easy money is almost non-existent.

00:45:39 Speaker_05
One type of company is the cigar bot. What's the other type of company?

00:45:45 Speaker_04
The companies that people would do well to study the virtues of.

00:45:48 Speaker_02
Well, the grand companies, of course, are good. Get them at the right price. The whole trick is to get them on the few rare occasions when they're really cheap. But buying Costco at its present price, it may work out all right.

00:46:02 Speaker_02
But that's, again, it's getting hard.

00:46:06 Speaker_04
Yeah. So we're getting the prospects of the stock. How do you think about the next 10 years for the business? I think it'll do pretty well.

00:46:14 Speaker_00
One more question for you in this area. What is your favorite advice to give to young people?

00:46:21 Speaker_02
Well, I don't give advice to just any young people. I give it to some. I pick my spots. I don't want to be more of a guru to the young people than I already am. It's getting hard out there. And there's all this bullshit and craziness.

00:46:38 Speaker_02
Of course, it's going to be hard.

00:46:41 Speaker_00
Where do the attractive opportunities hang out anymore? It sounds like everything in the whole world is overpriced. Could that be possible?

00:46:46 Speaker_02
Damn near. Of course it could be possible. It's only possible, it's likely, and it's actually happened.

00:46:51 Speaker_00
How did the world get so rich if we have all this capital for so few opportunities?

00:46:55 Speaker_02
It's the nature of things. Look, biology produces a very advanced creature like us. It can sit around and talk intelligently in all these subjects.

00:47:05 Speaker_02
But it does it by killing everybody off in brutal competition one with the other for hundreds of thousands of years. In other words, the system that nature uses to get smart is kind of unpleasant to the people who are losing.

00:47:19 Speaker_00
So over the last hundred years, we've brutally shifted all this value from labor to capital, and now capital is all competing to get into a very small set of opportunities.

00:47:29 Speaker_02
Well, capital never had—it wasn't that it was all that easy if you go back a long time. It just was a lot easier.

00:47:39 Speaker_00
And if it continues to get harder, the natural end is that you have... Yes, an unpleasant blow-up of some kind.

00:47:46 Speaker_02
And God knows what happens after an unpleasant blow-up with our modern democracies. You get to see a lot like Europe, which is quite dysfunctional.

00:47:56 Speaker_00
Is it too pessimistic of a view to say that the world seems to be out of good ideas to match the amount of capital out there looking for good ideas?

00:48:05 Speaker_02
It was never easy. Thoroughly understood it was never easy. And it's harder now. Those are the two. And you pay attention that you're handling the people you deal with. You want a good reputation when you're all done, not a bad one.

00:48:20 Speaker_04
And I don't think you're saying there are no opportunities whatsoever. I think you're just saying low expectations and fewer bonanzas.

00:48:29 Speaker_02
And the beauty of it is you only have to get rich once. You don't have to climb this mountain four times. You just have to do it once.

00:48:38 Speaker_04
Well, that's sort of your philosophy on both sides is you've got to be patient for the great opportunities, but you've got to recognize them when they come and pounce.

00:48:46 Speaker_05
We turned off the mics to have dinner and then recorded a little bit more later in the evening about Costco and some life advice from Charlie.

00:48:54 Speaker_00
So one Costco question that I've been wanting to ask you is all the puzzle pieces of the low skew count and the high inventory turnover. And there's just so many things that fit together so beautifully. They're pretty obvious though.

00:49:07 Speaker_00
But how come no one else can pull it off if they're so obvious?

00:49:09 Speaker_02
It takes a lot of good execution to do it. You really have to set out to do it and then do it with anatomism every day, every week, every year for 40 years. It's not so damned easy.

00:49:23 Speaker_00
So you think the success is the magic of the business model and culture?

00:49:27 Speaker_02
Yes, yes. Culture plus model, yes, absolutely. And very reliable, hardworking, determined execution for 40 years.

00:49:39 Speaker_05
They talk about the story of the catch-up, that you could increase the price of catch-up by 3% and nobody would notice, but that would destroy everything if you did that, right?

00:49:49 Speaker_02
I would say that the central norm was, don't raise the market. Get it low and keep it there forever.

00:50:00 Speaker_05
Which brings us to the hot dogs. Is it true, the story, that when Craig took over as CEO, he did try to raise the price of the hot dogs?

00:50:12 Speaker_02
I don't know. I had no conversations with him on that subject.

00:50:17 Speaker_05
And Jim forbade him?

00:50:19 Speaker_02
Well, I'm sure Jim would have forbade it. Absolutely. There was no board level discussion of the hot dog? No, no, no. Those two would not have thought it was a board matter to discuss the price of hot dogs.

00:50:32 Speaker_00
The one thing that fascinates me about Costco is they seem to only be able to grow 10% per year because they're not capital constrained. No amount of money, if they were to access it for free, could help them.

00:50:44 Speaker_02
I'll tell you what it is. It is hard to open too many stores a year. New store, new manager, new this, new politics. It's hard. Plus a lot of stuff has to be learned and taught and put in place.

00:50:59 Speaker_02
And so they didn't want to do more than they could comfortably handle.

00:51:04 Speaker_05
Store openings. You mentioned China earlier. Was it 12 to 20 years that Costco had the license to operate in China?

00:51:11 Speaker_02
And what happened there? The first store they tried to open in China, the first store, somebody wanted a $30,000 bribe. You know, Chinese culture. And they just wouldn't pay it. And that made such a bad impression on Jim Senegal.

00:51:28 Speaker_02
He wouldn't even talk to going into China for about 30 years thereafter. So what changed? Why finally go in? Well, finally the board started making enough noises.

00:51:39 Speaker_00
You started agitating. Yeah. Yeah. Who on the board could be excited about the Chinese market?

00:51:44 Speaker_02
Yeah. Who knows? Oh, that's so great.

00:51:53 Speaker_00
One thing I found fascinating about Costco was the fact that even though they're at the lowest possible prices, their audience skews wealthy. Was that an accident that they figured out over time, or did they know that?

00:52:06 Speaker_02
No, that they figured out to announce.

00:52:09 Speaker_00
All the way back in the Price Club days?

00:52:10 Speaker_02
Yes. You always wanted the rich man trying to save money.

00:52:15 Speaker_05
Well, and it's not just that they're the wealthiest customers, they're smart wealthy customers. They're picky. Yeah, they're picky wealthy customers.

00:52:22 Speaker_00
On some topics that are outside of Costco, you mentioned in the Daily Journal annual meeting this year that a young man knows the rules and an old man knows the exceptions.

00:52:32 Speaker_02
Yeah, that's an old saying of Peter's.

00:52:34 Speaker_00
Oh, is that a Peter Kaufman? Yeah. What are some of the exceptions that you've found the most useful in life?

00:52:42 Speaker_02
Well, take those goddamn Costco hot dogs. That's an exception. Anybody else would have raised the price of hot dogs a long time ago. They just don't do it. They just know that it's like half-famous.

00:52:57 Speaker_02
You bring your kids in, they know they've got something going there that's worth extra money to them. They just don't destroy it.

00:53:04 Speaker_00
A thing that I've never fully understood. I know you're a big fan of the company BYD that of course makes the Chinese company that makes batteries and electric vehicles.

00:53:13 Speaker_02
I may be a big fan, but I'm sort of... I hang out by my hat while he lurches around the track. And they make me nervous. It's so aggressive.

00:53:25 Speaker_00
Is that dangerous in a company?

00:53:27 Speaker_02
No, that's what makes me nervous. Of course it's dangerous.

00:53:31 Speaker_00
So do you think that companies should try to grow at a lower rate than they're capable of in order to be more durable?

00:53:41 Speaker_02
Well, of course you'd do that if it's safer and easier and so forth.

00:53:46 Speaker_02
But I would argue that Costco, where they've done some of these things that are extreme, like the hot dog, it's been a plus, and they've been smart to not change their ways on one item or two.

00:53:59 Speaker_00
And it seems like there's a spectrum where on the one side, there's Costco that is just not a fast-growing company, because it's very difficult to. And on BYD, like you're saying, they grew like crazy.

00:54:10 Speaker_02
I mean, you turned- Well, BYD, this year, I saw at least two and a half million cars, most of them electric. That's unheard of. Only I've ever heard of that. That's way more than Mercedes, for instance.

00:54:24 Speaker_05
More than Tesla, right?

00:54:25 Speaker_02
Yeah, more than anybody. Yeah. Lots of troubles and losses. They ran into terrible trouble. They created the wrong kind of, they made lots of mistakes. They were lucky they'd be on the cutting edge of this electric car business.

00:54:41 Speaker_02
It's way more acceleration than most people. So you had a car with more oomph than most people. So the young macho male has a real lively car. There are a lot of things about electric car really works in some ways that is better.

00:54:58 Speaker_02
and making a 90 degree turn. We were right opposite a parallel parking place and just blew this waste. Turn the wheels 90 degrees and go in. Well, nobody's ever done that.

00:55:09 Speaker_02
If your car goes flat, you could run 100 miles on three other wheels or something. And do they have better economics because they don't have nearly as many parts?

00:55:19 Speaker_04
It's simpler.

00:55:22 Speaker_00
Have you ever had an investment like that before? I think you've invested something like $270 million that's now worth something like $8 billion in BYD.

00:55:30 Speaker_02
Well, very few people have an investment like that. That's a venture capital type investment. It happened to be a thinly traded public company and we bought it instead of a venture capital type company.

00:55:41 Speaker_02
It was a venture capital type play and they just went and put the foot right on the floorboard and played it hard. By the way, both BYD and we tried to talk him out of going into the car business.

00:55:59 Speaker_02
They're going to buy a bankrupt car business and go into the car business. I said, that's a graveyard for you, so why would you want to do that? And he paid no attention to us.

00:56:11 Speaker_00
Had you invested already when he told you this plan?

00:56:15 Speaker_02
And it worked fabulously well. After huge mistakes, they almost went broke with their early dealership building system. Almost went broke. What captivated you about BYD? The guy was a genius.

00:56:31 Speaker_02
He was at a PhD in engineering, and he could look at somebody's part. He could make that part, you know, look at it in the morning and look at it in the afternoon, and he could make it. I'd never seen anybody like that. He can do anything.

00:56:45 Speaker_02
He is a natural engineer and a get-it-done type production executive. And that's a big thing. It's a big lot of talent to have in one place. And it's very useful.

00:56:58 Speaker_02
They've solved all these problems on these electric cars and the motors and the acceleration and the braking and so on.

00:57:07 Speaker_05
How would you compare him and BYD to Elon and Tesla?

00:57:11 Speaker_02
Well, he's a fanatic that knows how to actually make things with his hands, so he has to. He's closer to ground zero, in other words. The guy at B-Ready is better at actually making things than he thought he was.

00:57:27 Speaker_00
Charlie, you turn 100, which is an unbelievable statement, on January 1st of next year. Do you have any plans?

00:57:36 Speaker_02
I'm going to party. Where's the party going to be? To California. But I've totally maxed out the room. I can't squeeze another person in.

00:57:49 Speaker_00
What captivates you these days? What's fun?

00:57:52 Speaker_02
Well, practically everything is. Even politics, bad as it is, is kind of interesting.

00:57:59 Speaker_05
When you look back at your, your and Warren's time together, when did you have the most fun?

00:58:04 Speaker_02
We had about the same amount of fun all the way through. We're having fun now.

00:58:10 Speaker_00
Is there a particular era that you remember the most fondly that feels like the good old days?

00:58:16 Speaker_02
Well, I remember we were sweating blood in some of those good old days.

00:58:19 Speaker_00
Oh, I mean, Salomon Brothers. Salomon Brothers.

00:58:22 Speaker_02
Yeah. There were a lot of close misses. We got out with a big problem in Salomon. We could have had a big loss.

00:58:30 Speaker_05
could have had more problems than just a loss with Solomon, right?

00:58:33 Speaker_00
Well, actually, when we examined Berkshire Hathaway on our podcast, our takeaway was that the whole franchise was at risk during Solomon Brothers, the entire Berkshire Hathaway name and future. Would you agree with that?

00:58:47 Speaker_02
Not so much. He would have survived. If you had let the whole investment in Salomon go to zero, it would have been- If it had all blown up and went to zero, we would have written it off and gone, and done pretty well.

00:59:02 Speaker_05
What do you consider to be your finest hour?

00:59:07 Speaker_02
Well, we like to remember the close misses for getting real terrible problems. We had a terrible problem with the Buffalo News.

00:59:18 Speaker_00
The Buffalo Evening News brawl?

00:59:20 Speaker_02
Yeah, there were two newspapers in that town. And we started a Sunday edition, and that started a holy war, and the other guy went broke. Well, we could have gotten a lot of bad publicity over that.

00:59:33 Speaker_00
And you were both pretty young and enterprising at that point.

00:59:36 Speaker_02
I mean, you weren't the Warren and Charlie of— No, but I was very aggressive about wanting to have a good Sunday edition. I didn't want to own the paper for 50 years. There was no Sunday edition when the other guy had one.

00:59:48 Speaker_00
What made the newspaper business so attractive at that point in history? It was a goldmine. That's attractive.

00:59:55 Speaker_02
Total goldmine.

00:59:56 Speaker_05
Well, and the play in particular with the Buffalo Evening News and the Sunday edition was playing for the local monopoly, right? To be the game in town. And with newspapers, you could do that. Sure.

01:00:09 Speaker_05
I mean, newspapers for decades had EBITDA margins in the 50-60% range, right?

01:00:17 Speaker_02
No, only the little ones. Only the little ones, oh. Yeah, the big ones are less, 30 or 40 or 20, 500.

01:00:24 Speaker_05
I said EBITDA in your presence. I apologize. Cash flow margins.

01:00:28 Speaker_00
Actually, do you still feel that EBITDA is a criminal the way that you've demonized it in the past?

01:00:34 Speaker_02
Yeah, I do. You have a big truck company and take the depreciation out of the trucks, out of the earnings. You're lying about the earnings.

01:00:45 Speaker_05
I mean, you witnessed its rise with Malone and TCI and Liberty, like when EBITDA was invented as a concept, right?

01:00:53 Speaker_02
Like, what were you thinking? Well, I've never liked John Malone's extreme manipulations. I don't want to be known as the great manipulator like John Malone is. He paid less income taxes than anybody. He just pushed everything to the dry.

01:01:11 Speaker_00
In many ways, EBITDA was the community-adjusted earnings of its era. Are you familiar with the community adjustment from WeWork?

01:01:20 Speaker_05
WeWork, oh boy. Maybe a final question to wrap up. What are the set of companies that you think are the greatest that you've ever seen, either that you've owned or that you've not owned?

01:01:34 Speaker_02
Well, there are a lot of great companies. Sir Hermes is a great company. In its heyday, General Motors was a great company. It just gradually went to hell one contract at a time.

01:01:50 Speaker_04
What do you think about the predictability? There were a number of companies back when you started where you could have said this business will be the same in 10 years. Do you think that number is the same today or do you think it's much harder?

01:02:01 Speaker_02
I think most places have a lot of change and threat in their future.

01:02:06 Speaker_00
Do you think most places had a lot of change and threat in their future even 50 years ago, and this story is overblown?

01:02:11 Speaker_02
There's a difference. Some would like to always specialize in industrial companies, and Berkshire has a lot of them. We have a lot of companies that are quite insulated from really tough competition.

01:02:24 Speaker_02
Just because they've been so long, and they're so good at what they do, and they have a good reputation, and high value, and so on and so on.

01:02:31 Speaker_04
What companies can you see today where you can confidently say, Berkshire aside, Costco aside, you can confidently say the business will be as good as it is today in 10 years?

01:02:42 Speaker_02
Well, I think a lot of companies are pretty good, but you can't say what's going to happen because you may get some guy like Igerian that just wants to push everything and do the right public relations.

01:02:55 Speaker_02
So no matter how good the business is, it'll be kind of phony.

01:02:58 Speaker_00
Hmm. Charlie, I have a personal question for you. David has a two-year-old, and I'm going to have my first child in a month. What advice do you have for us about building families?

01:03:14 Speaker_02
Well, of course, you've got to get along with everybody. You've got to help them through their tough times, and they help you and so forth.

01:03:22 Speaker_06
Yeah.

01:03:23 Speaker_02
But I think it's not as hard as it looks. I think half of the marriages in America work pretty damn well. And would it work just as well if both of them had to marry somebody else, by the way?

01:03:36 Speaker_05
Well, you've said that the best way to have a great spouse is to deserve one.

01:03:40 Speaker_02
Yeah, sure.

01:03:41 Speaker_05
As long as both parties feel that way, then it's a recipe for success. Of course it is.

01:03:48 Speaker_02
And you've got to have trust with your spouse when it gets to things like education of the children and so forth.

01:03:55 Speaker_00
Yeah, I love that. Well, Charlie, thank you.

01:03:58 Speaker_05
Thank you, Charlie. Well, good luck to you.

01:04:00 Speaker_04
Charlie, this has been, a lot of people are going to benefit a lot from hearing this and your wisdom, and they're going to learn so much. It's very cool.

01:04:08 Speaker_02
You know, if you start to think about it, it's pretty hard. It doesn't look so damned easy just to go out.

01:04:13 Speaker_02
If you go to the ordinary person trying to promote himself as an investment advisor or some guy, he just thinks he knows everything about everything and how the Federal Reserve should be run and so on. We don't feel that way.

01:04:26 Speaker_05
I will say with the people we get to talk to who've built great things, every single one of them says, it was so hard. It's so hard. You can't build something great without it being so hard.

01:04:38 Speaker_00
Charlie, thanks so much for doing this with us. Glad to do it.

01:04:43 Speaker_02
you'll do pretty well, but it's not going to be that damn easy.

01:04:47 Speaker_00
David, total life experience and complete boondoggle.

01:04:51 Speaker_05
I can't believe we got to do this. I'm still pinching myself. It's now a couple of weeks after it actually happened.

01:04:56 Speaker_00
I know, with autographed copies of Poor Charlie's Almanac to prove it.

01:05:01 Speaker_05
As if the podcast wasn't enough. And actually, for those of you who haven't listened, back, what, in 2021, so two-ish years ago, we did a whole three-part series, just us, covering the whole history of Berkshire Hathaway.

01:05:16 Speaker_05
Part one is on Warren, part two is on Charlie, part three is on Berkshire and Ted and Todd, all the way up through to today. I assume many of you have listened to that, but there probably are a bunch of folks who haven't.

01:05:27 Speaker_05
So if you want another 9 or 10 hours of acquired content on Berkshire, I really think it's some of, if not our best work. Go check those out.

01:05:35 Speaker_00
With that, listeners, our huge thank you to Tiny for being the sole presenting sponsor of this episode. If you have or you know of a wonderful internet business, you should reach out.

01:05:46 Speaker_00
Hi at tiny.com and just tell them that Ben, David, and Charlie sent you.

01:05:51 Speaker_00
You can sign up for notifications of new emails every time an episode drops, and we'll be including little tidbits as we learn things after releasing episodes, corrections, updates, things like that, and teasing the next episode.

01:06:04 Speaker_00
Acquire.fm slash email. Listen to ACQ2. This is typically where we talk about more up-and-coming companies who are earlier in their journeys, or CEOs who are topic experts in important areas like AI. Search ACQ2 in any podcast player.

01:06:20 Speaker_00
After you finish this, join the Slack, acquired.fm slash slack, and discuss with the whole Acquired community. And if you want to get some of that sweet Acquired merch that everyone's talking about, go to acquired.fm slash store.

01:06:32 Speaker_00
With that, listeners, we'll see you next time.

01:06:34 Speaker_05
We'll see you next time.

01:06:35 Speaker_01
Who got the truth? Is it you? Is it you? Is it you? Who got the truth now?