We Study Billionaires - The Investor’s Podcast Network - Classic 11: Warren Buffett’s Biography

Starting point is 00:00:00 You're listening to TIP. On today's classic episode, Preston and I decided to read Roger Lermanstein's book, Buffett, The Making of an American Capitalist. Our episode was originally published as episode 64 back November 2015. Many of listeners perhaps do not know this,

Starting point is 00:00:18 but back in 2014, when President and I started the MS's podcast, the idea was just to talk about Warren Buffett. We also wanted to record an episode a week, and after three weeks, Press and I were looking at each other and we were like, we can't talk about Warren Buffett every single week. So instead we came up with the idea of we studied billionaires with the intention that we would mainly focus on Warren Buffett and then later talk about various billionaires. So after we not only ran out of Warren Buffett topics, we also ran out of billionaires to study.

Starting point is 00:00:49 And then our podcast turned more into a podcast of financial markets. Now, all of that being said, we always return to the topic of Warren Buffett. and it's no different for this episode. Warren Buffett is such a fascinating person, and Robert Lewinstein's book, Buffett, The Making of American Capitalist, is a book that everyone's serious about investing should read. So without further ado, here's President and my book review.

Starting point is 00:01:15 We study billionaires, and this is episode 64 of The Investors Podcast. Broadcasting from Bel Air Maryland, this is the Investors Podcast. They'll read the business podcast. books and summarize the lessons. They'll test the waters and tell you when it's cold. They'll give you actionable investing strategies. Your host, Preston Pish and Stig Broderson. Hey, how's everybody doing out there? This is Preston Pish and I'm your host for The Investors Podcast. And as usual, I'm accompanied by my co-host,

Starting point is 00:01:51 Stig Broderson out in Denmark. We've got a really good book, as usual, that we're going to be talking about today. And the name of that book is Buffett, the making of an American capitalist. And this is really one of two major biographies that I would recommend. I'm sure there's a bunch of biographies out there that we haven't even touched. But really the two main ones that are out there are this book here, and this one's written by Roger Lohstein. And the name of it again is Buffett, the making of an American capitalist. And then the other book is called The Snowball, which I've also read. And Stig, you've also read the Snowball as well, correct? Yeah, I love that book.

Starting point is 00:02:29 Yeah, so that's another good one. Of the two, I would say, I might be biased just because I just read this one, but I think I like this one maybe a little bit more. What's your thoughts? What's your thought, stick? Which one did you enjoy more of the two? I think they're very similar. Like, you don't necessarily need to read both of them.

Starting point is 00:02:46 So, like, it's a biography, right? And there's only so much you can say about Warren Buffett and his early ventures and where he is today. But, yeah, I might be slightly biased as well because he just read this one. Yeah. So both of them are pretty good. And both of them cover a lot of the same areas, to be quite honest with you. I think that there was a lot of rehashing of kind of the same stories. There were a few newer things in this one that I hadn't heard before, which I really enjoyed. And it's funny because people on the forum on our Warren Buffettforum.com have brought up some of these points that I had never heard. And it really kind of came out of this book because I hadn't read this book yet. Really interesting read, really fun read. And what we're going to do today is not really go chapter by chapter.

Starting point is 00:03:27 through the book, but just kind of highlight some of the things that we felt were really good stories that we could tell the audience. And also things that we felt were kind of important to highlight in order for you to capture a better idea of what the essence of Warren Buffett is. So I'm going to start off with the first story. Then I'm going to throw it over to Stig and then he can tell one of the stories or one of the highlights that he has from the book. So the first thing that I wanted to talk about was Warren Buffett as a kid. And I think anybody out there, whenever you're talking about when a person becomes something, it's often so heavily influenced. Their childhood has such a huge influence on that. And so when you look at Warren Buffett from a very,

Starting point is 00:04:06 very young age, I want to say he was like 12 or 13 or something like that whenever he started doing his paper route. That's how he started making money as a kid. He had his own paper route. And it wasn't just like a normal kid who was delivering just a couple papers. In the book, I believe it, the number, and correct me if I'm wrong stick, but I think the number was 500,000 newspapers is what Buffett had delivered as a kid. Is that correct? Or somewhere around in that ballpark? Yeah, I think you're right. I was really impressed because I delivered newspapers too when I was that age. Well, this is where I am today, Preston. Not as good as Warren Buffett for sure. So Stig probably delivered 500 total. No, so that's, I mean, that's totally crazy. I don't know.

Starting point is 00:04:50 I couldn't even imagine what a stack of 500,000 newspapers would look like. But they talk about at such a young age for a kid to be that motivated to get up to deliver that quantity of newspapers. And it said in the book, I want to say he was getting up at 4, 330, something crazy in order to deliver all these newspapers. So he was highly motivated, just a ball of energy at a very young age. And it wasn't like he just did it for a year. I think he did this for until he was maybe like 17, 16, something like that. He did it for quite a few years where he was getting up every single morning.

Starting point is 00:05:23 And what they talk about in the book is it wasn't. like he was just doing it just to do it. He was doing it with vigor and absolutely like there was nothing more important to him than his paper route. And so this was the part that I felt was really the key nugget from this story that they were talking about him as a young kid delivering these newspapers. And it was that he was like almost obsessed with the money that he was receiving from this paper route. When he would receive the cash, he wouldn't let anybody touch the cash. It sat in this drawer and in this jar. But more importantly, what he would do, is he had accounting that he was doing on this money where he was keeping track of all of it.

Starting point is 00:06:00 And he was, in effect, doing his own financial statements as a young kid in order to annotate the money that was received on certain days and basically tracking it. And he was a numbers whiz. Talks a lot about that where he was just memorizing dates and times and long numbers. And then he could just spout these numbers off. He was almost like he was obsessed with just spouting off numbers. one of my own personal experiences with this. So Stig and I were out at the shareholders meeting and what was it, 2013, Stig? I think it was 2014, but I'm losing count, Preston.

Starting point is 00:06:33 Yeah, you might be right. So that shows you how good our memory is and with numbers. So, but we were at the shareholders meeting and Buffett, he's up there talking about one of these deals. And I would say that the deal had happened months ago, six, seven, nine months ago, or something like that. And he's talking about, You know, one of the people would ask him this question about the company. And he just goes, and that's whenever we took 900, 600, or 9,600,000, and he just spouted off this number down to the share. And I was sitting there like, holy, he wasn't looking anything. And he was just, he was just spouting off these numbers down to like the dollar or the share count, the individual share.

Starting point is 00:07:17 It was totally mind blowing. I was just, I was kind of floored. Stig and I were sitting next to each other. We just looked at each other like, oh my gosh, that is crazy. And so the reason I tell that story is really to kind of give you an idea of how intelligent this person is, but also tie it back to the story of him delivering these newspapers where he was keeping track of every cent he made and he was developing these financial statements. And I think that that's really important because whenever I started my own business

Starting point is 00:07:47 and I started doing my own accounting, I truly feel like that was one of the most important. important things for me, from a business standpoint, to really start to understand how financial statements work because I was having to create an income statement. I was having to move stuff over onto my balance sheet and let it sit there. And then, you know, when I'd sell something, I'd have to move it back off my balance sheet and list it onto my income statement. I was seeing the dynamics of how that worked. And that was such an important step for me. And so Buffett's doing this as a kid. He's doing these financial statements as a kid with his paper route. And it lays the groundwork for him now is this guy who can crack open the financial statements

Starting point is 00:08:27 of any business and be like, yeah, that's worth $43 a share or whatever. And I think that's so important for people to understand because most people that invest in the stock market, A, they don't even look at the financial statements. B, if they did look at the financial statements, it would look like it came from an alien planet. And I really think that if you're not looking at that stuff and you don't understand how it works, You're way behind the power curve and really investing in individual stocks. And that's really Buffett's forte.

Starting point is 00:08:54 And it really developed as a young kid. One thing I think is really important to realize about Burr and Buffett is that it's not only his paper route. That was not only his focus whenever he was a teenager or perhaps even before then. He started to invest in stocks too. So he bought his first stock when he was only 11. I think he was 14 when he bought a farm, which he rented out to someone. Like he was all over the place.

Starting point is 00:09:16 He was also collecting golf balls. And when he saw that it just took too much time, he was hiring his friends to pick up golf balls and he was facilitating all that. So this is a funny story that I think we've got to tell. And I don't really think it has a lot of purpose as far as something that's actionable for you as an investor. But I think the story is so funny that it's worth sharing. So he's 18 years old at this point.

Starting point is 00:09:40 And he had just started getting into this business of pinball machines. And so he comes up with the idea of putting these pinball machines into barbers shops in order to collect money and basically work out an arrangement with the barbers. What's really funny is literally I was in the mall probably last week with my son and my son's really little. He's three years old and he likes to ride these, you know, like the little amusement park rides that you put the quarters into. And I'm sitting there looking at these things and I'm like, this is the best business model ever. You set these things up, you step away and man, you don't have any issues. So it was funny, as we were there with my son, lo and behold, the people who owned the machines came by and they were collecting the quarters out of them. So, you know, me, I'm there talking to this guy about their business model.

Starting point is 00:10:25 I said, this is the best business that you could possibly have. And he says, well, not necessarily. So he said, this mall in particular is really good because we don't have any people that come in here and damage the machines or putting Chucky Cheese Coins into the machines, which damages them. And then they can't collect any money. He was basically telling me all the problems. And he said, you know, we had some machines at this other mall, which was further away, and there was kids there that were always damaging the machine. So he said, we got to the point where we had to pull them out. And so then it made me think about this book on Buffett because this just shows you how smart Buffett is.

Starting point is 00:11:00 He takes his pinball machines and he drops them into these barbershops and then he gets the barbershop to have some skin in the game. He basically split the profits of the pinball machine because if the machine would break or there would be something that wasn't working, the barbershops. Barber obviously wants it to get working. So he would call Buffett. And Buffett did this with one of his friends. And they would come out and they'd fix the machine. So even at that young age, his business model was set up for success where he knew, I can't take 100% of the profit.

Starting point is 00:11:27 I have to give some of that up in order to put it in the store, also to ensure that it's working. He was just, you know, he was a business prodigy as a kid. But this is the funny part of the story. And the whole reason of me telling this. So a lot of the times, Buffett, he was so young. And I guess whenever he was a young kid, he looked even young. than being 18 or whatever where he was at. He had this baby face.

Starting point is 00:11:48 So he had roll into these barbershops and the barbers would be like, hey, what's the chances of us getting another machine in here, you know? And Buffett said, well, you know, I, we'll have to take that up with management. And so Buffett would leave. And he kept this mystique going on that he wasn't the person who owned the machines. He was just the kid who was maintaining them. And he had nothing to do with like the person who owned. the machines. And so he kept this going so that he could just expand his business. And I don't

Starting point is 00:12:18 know how many pinball machines he had stick. Do you remember how many he had around town? It was a lot. No, there was quite a few. And I think it was like the mob. That was something like was pushing him out back. It was a hilarious story. Yeah, they were acting like they were in the mob. And oh, well, we'll have to take that up with management and then they'd walk out. It's just, oh, it was such a funny story. It was really good. All right. So that's all I had from his childhood. I'm going to throw it over to stick so he can talk about one of his points. I think the thing that impressed me the most was the thorough analysis and the market research that Warren Buffett put into all of his adventures. And I think there was a ton of different

Starting point is 00:12:55 stories you can tell. One of them is when he was age five and he figured out that people like to drink soda. He was going with a friend of his over to the local vendor machine to collect soda caps. So he was counting the amount of soda caps and the brand. So at the age of five, he figured out that most people liked Coke. So that was actually his basis for going out, buying a six coax for a quarter, and then selling each of them for a nickel each. And I think the interesting story to tell is that obviously this is a very silly example, but he keeps doing the same thorough market research. So whenever, for instance, he started his overall, partnership and basically this story is known as the American Express oil salad scandal.

Starting point is 00:13:43 So this also tells you about the type of market research that he kept conducting. And I think there's a lot of parallels to what he's did in his early age. So the story is this. Back in 1963, American Express owned a subsidiary that was committing a ton of fraud. So they should be owning a lot of salad oil, but basically they owned a lot of contaminated water. was just completely fraud from A to C here. And back then, the stock price was just cut in half. I mean, all the investors were running for the hills back then.

Starting point is 00:14:17 And Warren Buffett, as a shrewd value investor and as someone that conducts a lot of market research, he's saying, I basically don't think that there's anything wrong with this business model. So what he's doing is not to collect soda cash. What he's doing is that he's sitting behind the cashier's desk at the local steakhouse. And he is collecting the receipts that these customers are just leaving. And he's seeing that, well, people might not like American Express. And he's seeing that people still pay for the American Express card.

Starting point is 00:14:47 Like they're unaffected about the scandal. They might not like the scandal, but they still pay with a credit card. So he would go in and he was pouring in 40% of the partnership's money in that single stock. Today, like Warren Buffett has kept compounding in American Express. his cost price of his stocks, he owns now close to 15% of the company, is $1.3 billion, and the worth is more than $14 billion. He's just been growing his share of American Express Company, and he started back then when he saw a golden opportunity because the people were overreacting and he was doing thorough market research. Let's take a quick break and hear from today's sponsors.

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Starting point is 00:19:18 Sign up for your $1 per month trial today at Shopify.com slash WSB. Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right. Back to the show. So I think it's important for people to understand this aspect of Buffett. When Stig's talking about how much his American Express is ballooned to as far as value, and you hear these stories about how he was making money as a kid.

Starting point is 00:19:50 And, I mean, I don't remember the exact amount of how much he had whenever he went off to college. But I want to say it was around 10,000. And you've got to realize the time frame of this, $10,000 back whenever he went off to colleges like, you know, $100,000 today with the inflation piece of it. And so he was able to accumulate all this money, not just because he was very smart and business savvy and saved like a fiend. It's because he didn't spend anything. And that's the second part of the equation here. You know, it's really a two-part variable that what's coming in versus what's going out. And he didn't have anything that was going out.

Starting point is 00:20:26 He is like one of the ultimate misers of all time. And I think a lot of people miss that piece of it and don't realize how incredibly cheap he really is. And that's one of the reasons he's been able to grow his net worth as well. So that's an important part to take with you. The other part of this that I wanted to highlight is that Buffett thinks like an owner. If you've got anything from these stories that we've started telling from the start of this episode till now, he is the ultimate business owner.

Starting point is 00:20:55 And I think that that's what sets him apart from other people on Wall Street or some of these really famous investors that you hear about, then all of a sudden 10 years later, they're not really talked about too much. I'm not saying Bill Ackman's going to go by the wayside, but he's one of those guys that I feel has really just kind of been an investor from day one and not necessarily a guy like Buffett who really got his foundation of, hey, I want to make this business work. Hey, this is a business that I've been running for years. And the stock investing thing is something that's nested inside of his leadership as a business owner. I think that really sets him apart from other investors. I think he got that foundation as a kid. And I think that's one of the

Starting point is 00:21:33 reasons he's so effective is because he thinks like an owner and he thinks like a business manager first. And I think he thinks more like an investor second. And I know some people might kind of raise an eyebrow at that. But I really think that's why he's so successful. I think one of the secrets to Warren Buffett's success is that he's always being able to surround himself with people that are better than himself or if not better than himself then at least people that are really really good at what they're doing and he's been able to delegate something to them and i think two people that comes to mind is rose blomkin and ben rossner so let's take the first one rose blomkin perhaps better known as mrs b she came to the states like

Starting point is 00:22:17 what is now present 120 years ago or something like a long time ago right yep perhaps even longer and she had $500 to her name. And so with that $500, she started a shop selling furniture. And she was under a lot of pressure that back then, she was struggling a lot. But she always mature to satisfy the need of the customer. So there's actually a story going where she is starting to sell her own furniture because she's so adamant about always meeting the demand. Like she is really a, the type of work ethic that,

Starting point is 00:22:53 you can only admire. So just to give you into context to this, so she worked 70 hours a week, 52 weeks a year. She actually sold her store, Nebraska furniture amount, I want to say. Preston and I, we actually went to visit that place whenever we have to show her own meeting. And she sold that to Warren Buffett when she was 89. And she kept working in the business after that. Then at the age 95, she had a falling out with her family. So you might be thinking, well, She's 95. She made plenty of money. She would probably just relax.

Starting point is 00:23:26 No. She started out a new furniture mart just across the street. And Warren Buffett had to buy her out of that store too for $5 million a few years later. And then she returned to Nebraska Furniture Mart and worked that every day, again, 70 hours a week, until age 103. That is an amazing story. So the best part about this is when she opened down. up the competitor's store on the other side of the street. Her kids were still working in Nebraska Furniture Mart for Buffett. Because Buffett had some, you know, in the terms and

Starting point is 00:24:00 conditions of the deal. He obviously wanted them to continue running the business because he's not going to step in and do it. She's sitting with, you know, tens of millions of dollars in her pocket. She's, you know, like Stig said, she's, what, 70, 80 years old and she moves across. Well, no, she was, she was 95, president. That's the most impressive thing. How is that possible? 95. She's hardcore. And I'll tell you, seeing the, when we went out there and visited the store, this store is so big and ridiculous in size, it'd blow your mind. It does not fit in little Omaha. Let me tell you. You would think that there'd be, you know, a mediocre size furniture store there in Omaha. This thing is massive, absolutely massive. It was really neat to see in person,

Starting point is 00:24:44 but the story on Rose Blumpkin is one that Buffett really likes to tell to a lot of people. If you've never heard this story, let me tell you. Google it or read it in this book, Buffett the Making of American Capitalists. Read it in there. Also, there's a good piece of it in the snowball. If you guys want to pick that up and read it in there, it is an awesome, awesome story. And another great story is the story of Ben Rossner. At this cocktail party, he was overhearing this conversation between Ben Rossner and one of his competitors that were also running retail in the city.

Starting point is 00:25:16 And they talk about all kinds of things and what's the cost of this and how much do you pay for that. And then one thing really surprised Ben Rossner. Apparently he paid too much for his toilet paper. And Ben Rossner, he got really, really mad because he thought that his supplier might be cheating him. So he was actually leaving this cocktail party, driving to his warehouse, and he was counting whether or not there was 500 cheats on his toilet paper roll. And I know it sounds like a ridiculous story. And the funny thing is actually, he was cheated by his supplier. There was not 500 sheets on his dollar paper rolls.

Starting point is 00:25:57 And whenever Warren Buffett heard that, or he was just saying, Ben, I need to do business with you. So as it happened, Ben was actually about to retire at this point of time. And Warren Buffett bought him out. And also because Warren Buffett knew that Ben Rossna could not just. leave his business. So actually, Rosner returned to the business. And one of the things I really liked by the book was that he was saying to Warren Buffett when he finally retired 15 years later. He said that, I forgot I sold to you and you forgot you bought from me. And you know, I think all the people that he buys the businesses from that stay in management

Starting point is 00:26:36 positions say all the same thing. They're like, hey, this was like we never even sold the business. You know, we got a big fat check for more. And he pretty much. let us keep doing our thing and never bothered us. Whatever numbers we handed him at the end of the year for the most part, he didn't ask any questions. And I think that that's why he's been, it's crazy. When you let go of the reins, sometimes the best way to exercise authority is to relinquish your authority and let people, you know, run with it and charge them with responsibility. But I think he's been successful in that because he's never bought a company from somebody that he knew he couldn't do that with. And that's where I think a lot of people make mistakes is they'll go and they'll

Starting point is 00:27:16 buy a business or, you know, you see these large companies do these acquisitions. They never even look at the management or they never even look at the culture of the employees within that business. Next thing you know, there's this rebellion going on because they don't want to be a subsidiary or whatever. And I think that's one of the really big nuggets with Buffett when he's doing these large acquisitions is he looks at that culture. And more importantly, he looks at that key leader who's running the business because one of the things he says in the shareholder level, He says, we're not going to supply the management. It's got to come already installed on the acquisition. So it speaks to the people that he's buying the companies and it also speaks to his ability to pick it. But really great story. All right. So I want to transition gears here and I want to talk about his experience at Solomon Brothers. A lot of people have heard this story or seen this piece of Buffett whenever he went out to Solomon Brothers because they had this experience with a gentleman named Moser who worked at Solomon Brothers and he was basically conducting fraud. This gentleman was one of the lead people with their treasuries department, buying treasuries

Starting point is 00:28:17 and then selling them to customers on behalf of Solomon Brothers and then also keeping some of the treasuries for Solomon Brothers. And what this gentleman was doing is he was buying treasuries on behalf of the company for these other vendors or for these other customers, but there was no agreement between the other customers in some cases. So he would go and maybe he would buy $10 billion worth of treasuries. and he would say three billion of this is for customer X, another three billion is for customer Y, and then four billion is for ourselves for Solomon Brothers.

Starting point is 00:28:51 And in all actuality, what he was doing is he was conducting fraud and that all $10 billion worth of the treasuries were just for Solomon Brothers. They weren't for those other people that he had told the treasury they were for. And so this got out and this was disastrous and everyone was concerned of how the government was going to handle it as far as, you know, what penalties would be invoked, how much, I mean, this was like, you can't get a bigger disaster from a bank's standpoint that somebody would just be straight up lying on behalf of some of their customers on acquisitions in the billions. So this shakes out. Well, Buffett's shareholder of Solomon Brothers, what was the percent that he owned Stig? Was it around 10 percent, I believe, from the book?

Starting point is 00:29:34 Yeah, yeah, something like that. It was around, he owned about 10 percent stake in Solomon Brothers. And so Buffett's the shareholder. It doesn't really have too much of involvement for the most part in this company because it's a non-operational subsidiary. But now he's going to get involved. And so the CEO of the company, and he comes to Buffett, and he says, you're pretty much the only guy that can step in and really bring calm to this situation and potentially save the company. Because there was a lot of stock prices going through the floor. A lot of people just thinking it could be the end of Solomon Brothers, to be quite honest with you. So Buffett steps in and I really like the way that this is portrayed in this book because I think it does a lot of justice to talk about how good of a manager Buffett is and how easily he's able to just take something that most people would see is just total chaos and confusion and lots of different variables that need to be solved and he basically simplified it and just added so much calm to this storm.

Starting point is 00:30:37 And I really liked how the author describes each step of this. And so effectively Buffett comes in and he sits down with all the top managers within the company. And he's really concerned about the culture. He makes this speech that if you were towing the line on whether something was ethical or not, you need to step away from the line as far as possible from now until further notice because we've got to really change the culture of this organization. But more importantly, what he did is he came in and he interviewed each one of these head leaders within the company, each one of the directors, you know, anyone who's in the position to potentially

Starting point is 00:31:10 take the CEO position from him at this point because he decided to take it. Whoever that person is, he wanted to meet with them. So I want to say it was like 20 different people all had a meeting with Buffett. And Buffett said, okay, so I'm going to make the determination on who's going to basically replace me in a few months from now. And this is how I'm going to do it. Each one of you guys are going to come in and we're going to have a one-on-one meeting. So each one of these gentlemen of the 20 that were up for the job, come in and they sit down with Buffett. And he says, okay, this is my only question. If you could pick one person to run this company, who would it be?

Starting point is 00:31:42 And so he interviewed all 20 people. They all said who they thought their first pick would be. I guess three of the gentlemen picked themselves, which I don't know if that would have gone over well or not well with Buffett, but it was highlighted in the book. And so at the end of it, he came up with the one manager that everyone kind of basically had the agreement on who the right person was, and that's how he picked them.

Starting point is 00:32:02 And it's just so simple. It's just so basic, but so elegant at the same. time of how he's doing this. And something else that I liked about the Solomon story is they talked about Buffett with the lawyers. So Buffett said, well, we're going to go to Congress. We're going to basically tell them that we've done all this wrong. We're going to highlight everything that we've messed up on. And then we're just going to tell them that we're basically trying to change the culture and turn this organization around. And the lawyer team, it was like, oh, you can't say that. He said, oh, yeah, I can. And it was basically like, whatever you're

Starting point is 00:32:33 invite and the lawyer's like, this could cost us hundreds of millions of dollars and liabilities and tarnished the name and blah, blah, blah. And Buffett's like, yeah, yeah, yeah, I got that. But we're not going to listen to you. We're going to, we're going to tell the truth here and we're going to bring everything out. And he did. And most people, I think, would attribute, now looking back at this and how everything really shaked out from this, I think most people would attribute, the only reason that Solomon Brothers was able to come out of this is because of how truthful Buffett was. The fact that Buffett was the frontman and everyone trusted him. They talk about his testimony when he went to Congress and how everyone, all the representatives were basically like, we're so happy you're in here fixing this

Starting point is 00:33:10 company and we trust you. And even though Solomon just got done doing all this bad stuff, he basically had an easy day on the Hill in Congress because he was who he was and had the reputation that he had. And because he opened up with these are all of our faults. We are in the wrong. We are going to fix this. Opposed to, you know, a lot of lawyers often recommend of not doing things like that. Buffett took the opposite approach and I think it's very noteworthy and very important for people to really hear that story. Yeah, I definitely think you're right about Warren Buffett being the savior here. I think there is a specific phone call that mentioned in the book where he's calling the Treasury Rick because at that point of time,

Starting point is 00:33:50 like everyone is ready to close Solomon Brothers down and he's just calling him saying, I need you to give me more time. And it was granted to him because he was Warren Buffett. He was really, putting his own reputation on the line. And I think this whole story about Solomon Brothers is so interesting. It was a huge company. Back then, it was, I think after Citigroup, it was the company in the States that has most liabilities. So, I mean, it was a huge, huge company. And one thing I'm actually really curious about, I'm really looking forward to is that in a few episodes from now, we're going to talk about the book Liars Poker. And the book, Liars Poker, that is actually about Solomon Brothers. And all the things.

Starting point is 00:34:31 the things that were happening with the bonds back then. And it's written by Michael Lewis, Michael Lewis that we also talked about previous in this podcast. And one thing I found really interesting in Buffett, the making of American Capitalist, is that Michael Lewis is not a fan of Warren Buffett. It was not clear to me why. I don't know if you remember that, Preston, but he was like the entire fan of Warren Buffett if you ever saw one. So I think it would be interesting to read both stories. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up, and customers now expect proof of security just to do business. That's why VANTA is a game changer. VANTA automates your

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Starting point is 00:38:28 I think that that might be where it was centered around. It didn't really get into the specifics in the book, but Stig's right. I guess Michael Lewis isn't a huge Buffett fan. So we'll see what Liar's Poker says. It's interesting. I guess whenever he was on the Hill and he was testifying somebody had brought up, hey, have you read the book Liars Poker? So somebody on the Hill was asking, Warren, hey, did you read the book? Lier's Poker and Buffett said, yeah, actually I have a few years ago. And the person then basically

Starting point is 00:38:55 said so, you know, and came at him hard after he had read the book and said, well, is that really what's happening? He said, what I'm trying to do here is I'm trying to prevent the second edition of Liar's Poker, which I thought was a good response. But that was a really great story. It's definitely worth your time to read about the Solomon Brothers stuff in the book. So in Chapter 18, it's titled Secrets of the Temple. We've talked about this. In fact, I think we did a whole podcast early on, maybe the third podcast where we talked about Buffett's Rules. A lot of those ideas are laid out in Chapter 18. I'm not really going to get into the nitty-gritty of this stuff because we've really done

Starting point is 00:39:31 a lot of discussion on this in the past. We've got the Buffett's Books website that goes through a lot of this stuff, pretty much all of this stuff. And there's 10 hours of video learning content there on Buffett's Books. If you've never checked it out, I highly recommend you go to Buffett'sbooks.com and check out all of our videos that talk about really the stuff that's contained in Chapter or 18. Real quick, it talks about really kind of four key points. It talks about him buying undervalued businesses. He doesn't talk about intrinsic value and how he calculates it or anything

Starting point is 00:40:00 like that in this book that we're reviewing right now. Then he talks about basically trends and long-term businesses that you can basically see consistent profits, consistent cash flow and picking a business like that. The other thing that he talks about is staying in your area of competence, which we also talk about a lot. And then the last thing is, making managers that treat the shareholders or investors' money as if it was their own. So those were some of the highlights. And he also talks a little bit about competitive advantage. Those are really the highlights in Chapter 18 where he talks about the Secrets of the Temple. All right, guys, so there was a lot more in this book. I want to say how many chapters were in this book?

Starting point is 00:40:35 There was 23 chapters and really some great storytelling. I think that that's the thing that you're probably going to enjoy most about the book is really the storytelling. There's many times I was laughing pretty hard at some of the stories. So I would highly recommend this book. If you've never read anything on Buffett, I would start here. I also recommend the snowball. I think this was a little bit of a less negative twist on Buffett, I would say. I think the snowball was a little bit more negative towards his personality. So depending on what your personality is, you might want to steer towards one or the other. But it was a very good book. I enjoyed it. And at this point, we're going to take a question from our audience. And this question comes from Patrick O'Regan.

Starting point is 00:41:14 Preston and Stig, this is Patrick here. Firstly, guys, thank you for putting together such an amazing show. I only came across the Value Investors podcast a couple of months ago and I think I'd listen to pretty much all the episodes in a week. Always great to hear what you guys have to say. I have a two-part question today. The first part of which relates to how you guys generate ideas for which stocks and industries to research.

Starting point is 00:41:35 So I've done a lot of reading into how to assess potential investment opportunities. But I'd be very keen to know how you guys decide on which stocks and industries you are going to spend your time. time on. It'd be great if you could give some context for investors based outside the US because I'm currently living in Asia. The second part of my question relates to how do you prevent yourself from spending too much time or searching an idea or a stock? I mean, given that you can spend weeks or months looking at an opportunity for a turnout to be not as good as you thought it would be, do you guys have any processes or red flags that prevent you from diving too deep into a stock?

Starting point is 00:42:09 Okay, thanks and keep up the great work. So Patrick, fantastic question. I really like like this one. I'll tell you, I really use stock screeners a lot just to kind of see what kind of value might be out there. One of the issues that I run into a lot whenever I get with that approach, though, is that you get a lot of companies with a low or a very small market cap. And so you are potentially assuming risk when you get into some small business and you're doing individual stock picks. I'm not telling you to not do that by any shape of the imagination. I'm just telling you really kind of see a lot of really good values with the lower market cap type businesses, especially in today's market.

Starting point is 00:42:49 That would change as the market conditions change. And then that kind of really leads into your next question, which is if you are buying a small cap business and you want to maybe mitigate some of that risk, you're going to want to put a smaller portion of your portfolio in it. So then you're really kind of spreading your breadth of now I've got 30 picks in order to distribute that risk across multiple picks. And how am I able to really do a lot of research and fully understand and know every amount of information I need to know about each one of those businesses? And so that's a really hard thing to really get at, to be quite honest with you.

Starting point is 00:43:28 And I think it really comes down to personal preference and what your personal risk strategy is. So for me, I've really stepped away, and it might be more of the market conditions, I've really stepped away from a lot of individual companies with a low market cap. I've really kind of, you know, I'd say in the last four years, focused more on large cap companies. And that's just my personal preference. I don't really know why I've done that. I think I've really just tried to minimize my risk exposure. But I also want to highlight, just because you're looking at a large cap company,

Starting point is 00:43:58 look at this Solomon Brothers thing that we were just talking about. There's a large cap company that, you know, almost went by the wayside because of one individual person. So it's really hard to say one way or the other, but I think historically you're going to find that large cap companies don't necessarily get impacted by an individual person as much as you would see with a small cap company being as risky. I don't know if I really answered your question while. I want to throw it over to stick because he's probably going to have a lot better answer than I just gave you. I don't know about that, Preston, but for the first question about generating ideas, so I would also agree with Preston. Well, I have two approaches. The first one is a stock screener. I usually use Google stock screener. It's easy to use and it's free. And if you want to learn more about the criteria that Preston I use, you can actually go

Starting point is 00:44:47 into our website, The Investors Podcast.com, and find that the checklist that we have, which is the first inputs that we have for our screening process. So usually I would play around with the numbers, come up with 10 to 20 stocks, and that would be my starting point for further analysis. Another source that I think I'm starting to use more and more, that is the mastermind group approach. So basically, this is people that really trust. I use them as my stock screener.

Starting point is 00:45:17 So I know this might sound odd, but I have some people that are really, really trust. So if Preston is telling me that he's buying something, well, then I know it's been through a really good process. That might be something I should take a close look at. Same with Hari, which I probably jump on to a Scott conversation with like once a month or something. thing and we discuss various stock picks.

Starting point is 00:45:38 And Stig, I just want to highlight on your comment there, the Warren Buffettforum.com. So we use that forum. Let me tell you, I've got a lot of fantastic ideas from the forum. The people there are talking about some of the different picks. Because you guys got to realize this culture here at the Investors' podcast and Buffett's books, it's been, I don't even know how many years at this point, but we're really starting to develop a culture where people are really using these Warren Buffett principles to talk about different stock picks on the market. So you want to talk about a great filter mechanism, and I know

Starting point is 00:46:10 I'm heavily promoting our own product here, but it's completely free. So it's not like we have anything to really gain from this, but use that forum. Go on that forum. You would be amazed at some of the conversations people have and which tickers they're highlighting. I really think it's extremely useful. I've personally used it with some of my own picks that I've conducted. It came straight out of the forum. Yeah, and I definitely agree with you. And I also been in the forum for so long now that I know which users I should pay special attention to. So if someone like Christoph is saying, hey, I'm looking at this dog, you know, that really, like, he's the best drug screener you can get.

Starting point is 00:46:45 Like, I'm all over it if he's buying something. So definitely agree with you, Preston. So I'll tell you, folks, we're going to try something new today. So if you go to hashtag TIP 64, that's hashtag TIP 64, we will try to answer any of your questions there. If you guys throw us a question on Twitter, we'll try to respond to further elaborate. Or if you have a point that you want to make in reference to this question that we just answered, you want to highlight maybe something outside of a stock screener, which you think is a great way to analyze or find companies.

Starting point is 00:47:19 Hashtag TIP 64 on Twitter, and we'll blast that out to the community. So that's all we have for you guys. We're going to send Patrick O'Regan a free signed copy of our book, the Warren Buffett Accounting book. And for anybody else out there, if you want to get your question played on a show, go to Asktheinvestors.com. You can record your questions there. And for anybody who gets their question played on the show, we'll send you a free sign copy of our book. So really appreciate everything everyone's doing out there in our community. We have the best community in the world. So really thank you guys. And we just really enjoy doing this podcast with all of the people

Starting point is 00:47:49 in our community. So have a great week. And we'll see you guys next week. Thanks for listening to The Investors podcast. To listen to more shows or access to the tools discussed on the show, be sure to visit www. theinvestorspodcast.com. Submit your questions or request a guest appearance to the investors podcast by going to www.w.com. If your question is answered during the show, you will receive a free autographed copy of the Warren Buffett Accounting Book. This podcast is for entertainment purposes only. This material is copyrighted by the TIP Network and must have written approval before a commercial application.

We Study Billionaires - The Investor’s Podcast Network - Classic 11: Warren Buffett’s Biography

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