We Study Billionaires - The Investor’s Podcast Network - RWH005: Meet the Master w/ Aswath Damodaran

Episode Date: April 26, 2022

IN THIS EPISODE, YOU’LL LEARN 00:09:21 - Why it’s so valuable to build unscheduled “day-dreaming time” into your day. 00:13:17 - Why it’s a competitive advantage to be a generalist in a world of specialists. 00:18:29 - What 42 years as a professor have taught Aswath about how to communicate. 00:31:14 - Why he’s intensely skeptical about the ESG movement. 00:39:46 - Why he owns no cryptocurrencies and views Bitcoin as a currency “for the paranoid.” 00:44:21 - Which investment principles guide him. 00:46:20 - How to identify the investment philosophy that fits best for you. 00:52:07 - Why he’s glad that he sold Amazon and Tesla, and how he hit the jackpot with Apple. 00:54:49 - How he values businesses by focusing on three key drivers above all else. 01:19:58 - Which investors he admires the most. 01:23:20 - Why he believes that macroeconomic forecasting makes soothsayers look good. 01:25:06 - How he maintains his serenity in difficult times, both in markets and life. 01:27:07 - Why it’s so important to spread your bets and not concentrate too aggressively. 01:33:30 - How “small, right” actions can have a massive impact on you and others. *Disclaimer: Slight timestamp discrepancies may occur due to podcast platform differences. BOOKS AND RESOURCES Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, and the other community members. Aswath Damodaran’s YouTube channel, featuring his free videos on valuation. Aswath Damodaran’s website, Damodaran Online, which includes his blog. Aswath Damodaran’s Google Talk, which has been viewed over 1.1 million times. Aswath Damodaran’s books, including “Narrative and Numbers”. William Green’s book, “Richer, Wiser, Happier” – read the reviews of this book. William Green interviews Jason Zweig on RWH004: Intelligent Investing. William Green interviews Joel Greenblatt on RWH003: How to Win The Investing Game. William Green interviews Howard Marks on RWH002: Investing Wisely In An Uncertain World. William Green interviews Tony Robbins on RWH001: The Life Force Revolution. William Green interviews Ray Dalio on WSB410: The Changing World Order. William Green’s Twitter. SPONSORS Support our free podcast by supporting our sponsors: Bluehost Fintool PrizePicks Vanta Onramp SimpleMining Fundrise TurboTax Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

You're listening to TIP. Hi there. My guest today is Asweth Demodran, who's a cult figure in the world of investing. When it comes to valuing businesses, Asweth is pretty much the ultimate authority. He's written numerous books with titles like Demodran on valuation and the little book of valuation. As a professor of finance at NYU since the 1980s, he's taught thousands of MBA students how to value companies and pick stocks. But Aswath is really a rebel at heart, so he also, took the very radical step of making all of his university courses available online for free. As a result, he's built an enormous following around the world.

His YouTube channel has something like 425,000 subscribers. His Google Talk last time I checked had been viewed more than 1.1 million times, and his website has had nearly 10 million unique visitors. This extraordinary level of exposure has led Asworth to joke that he's the Kim Kardashian of valuation. It's not hard to see why so many people are fascinated by him. As you'll hear in this interview, he's a fantastic speaker, wonderfully articulate, insightful, and never afraid to be provocative. In this conversation, he talks about his distinctive approach to valuing businesses. He speaks about stocks like Tesla and Amazon and Apple and Alibaba. He also explains why he regards Bitcoin

as a currency created by the paranoid for the paranoid. He talks Canada. about why he's intensely skeptical about the ESG movement. He explains what teaching for four decades or so has taught him about how to communicate well. He also shares some profound advice on work and happiness and freedom that had a powerful impact on me. I hope you enjoy this conversation as much as I did. Thanks so much for joining us. You're listening to The Richer, Wiser, Happier Podcast, where your host, William Green

interviews the world's greatest investors and explores how to win in markets and life. Aswath Damodran, it's such a pleasure to be here with you. Thank you so much for joining us. I'm glad to be with you. I wanted to start by talking a little bit about your childhood, your upbringing in India. And over the last few days, I've read several of your books and listened to a million of your interviews. And it struck me that in one of your books, investing fables, which has the subtitle, exposing the myths of can't miss investment strategies, you dedicated the book to your parents. And I was really intrigued by the dedication. You wrote, to my father who showed me the power of ideas and to my

mother who taught me the value of common sense. And so I wondered if we could start by talking a bit about your parents and how they shaped and influenced who you are today. Yeah, I grew up in an India that's very different from the India that you experienced today, in India that really hadn't changed much for hundreds of years. It was an India that was in many ways worse, because of far more people who were poor, but also in India that was connected with, it was social connections that help people together. I still remember when I was growing up. I mean, I was part of an extended family. I probably had a hundred relatives all lived within five miles of me in the same city. And every evening, because there was no TV when I was growing up for the first 16 years of my life,

TV hadn't arrived. There was nothing on the radio. And the adults would all gather together, 30 people and sit around and talk about whatever. And kids would come in and go and I remember sitting in on their conversations. You weren't allowed to interject when you're eight or nine or ten. But that was my entertainment, playing with my cousins, listening to the grown-ups talk about the issues of the day, debating, discussing, dissecting. So very early, I learned about the process of how you talk about issues. I mean, I tell people disagree without being disagreeable. And when your family debating issues, that becomes something that you have to stick to because you're a family. So you have to disagree without being disagreeable. So I learned some very important lessons about how to talk about issues without being disagreeable.

I hope I've been able to absorb those lessons because at times I am disagreeable. But I wouldn't change it for the world. I mean, there was so many technological wonders I did not have access to, but at other things that substituted and made up for them. We are all the products of how we grow up. And in a sense, there's nothing I would change in how I grew up. it gave me a very safe environment to grow up in. I had none of the issues that my kids have to go through with social media and peer pressure. I grew up.

I mean, it was a very sheltered environment. And I was lucky to be born into a family with means in India. That made a huge difference. And it made me realize how much luck plays a role in where you end up and bed there. But for the grace of God, I could have been born five miles away in a different family. And my path upwards would not have been there for me, at least the time. time that I was born, there were no chances to get out of that spot if that's where you were born. And you moved to America, I think, in 1979. So you came from a place where, if I'm right in

thinking, in Chennai, it was a city of something like 10 million people that I remember you once saying had only five restaurants back when you were a kid there. And so this place that was kind of frozen in time and then you go to America. And I'm wondering what the culture shock was and what in a sense has drawn you to America? Because it seems like in some way you love the place. It was in many ways the exact Chennai in 1979 and LA in 1979. If you were putting a spectrum of humanity, we're on opposite ends of the spectrum, not in good or bad ways, in terms of how they operated. I still remember the first day I landed in L.A. I, you know, TV was not something I'd watched very much.

I mean, the last two years before I left Chennai, TV had just arrived. I think that two-thirds of the shows were farming shows. It was like three hours every evening. And then, I love Lucy. Now, the USI has had given an I Love Lucy, and they played it over and over again. And that was the only show that people watched. It read 100% ratings. So I landed in LA, and the first evening I turned on the TV, and I saw Roller Derby.

I don't know whether you remember. Roller Dobey is these women who go around knocking each other out. And I said, this is something I never thought I would see on TV. I mean, it was culture show. But I was pretty adaptable. I was able to adapt to L.A. pretty quickly. And as you said, I love the energy, the excitement. excitement that came from being in America with all pluses and minuses, again, I wouldn't trade

that for anything in the world. It made me again who I am today. You ended up at UCLA. You have multiple degrees, if I remember rightly, and I wanted to get a sense of how you stumbled into teaching, because it seems like everything you do really is about teaching, whether it's being a professor at NYU, making videos for YouTube, writing your blogs, writing your books. And so I'm curious how you actually discovered this lifelong passion, which, what, you've been teaching now for 40-odd years? 42 years now. It was accidental. It was accidental. Like so many things in so many people's lives, it was just being at the right place for the right time. I came to UCLA to do my MBA. At that time, I'd already got a master's in business in India, but because I had only 15 years

of education in India, school runs through quicker. U.S. universities then required 16 years. So basically, I had to come back for a second master's. And my intent was to do what all MBAs do, which is to go work for some place which would pay me a lot of money. When I started in 1979, that would have been a consulting firm. But by the time I got towards 1981 and getting close to graduation, I was hitting the start of the growth of Wall Street, exploding out, you know, where you saw investment banks hiring. And I was on the verge of accepting that position at investment bank when I realized I had to run out of money. And I needed to do something just to get enough funds to make it through when my job started. So I took a job as a TA, a teaching assistant for an accounting class.

A subject, as you might know, I don't particularly care for. But I needed the money. So I remember I said, I'll get this done. It's a quarter. How much pain can it be? So I still remember that. First day I walked into the class and I was nervous. I mean, like everybody is when you're in front of a big group of people, but about 15 minutes in.

I don't know what it was, but I realized. that this was what I wanted to do with the rest of my life. I'm not a religious person, but I do believe that you get these moments of clarity when, I don't know, some supreme being is saying, hey, listen, this is what you were meant to do. I was lucky to be listening. And I said, and that moment changed my life because I said, and I remember right after that class, I marched up to the floor of the finance department, talk to professors there about, hey, how can I get into the PhD program? I want to be a teacher. And luckily, that path opened up, and I became a PhD, and the rest of my life has been all about teaching.

I remember you once describing that as a godshot, which I thought was a wonderful phrase to describe that kind of 15 minutes that change your life. I am sort of a mystic who pretends to be rational because I cover the investing world where you're supposed to be rational. So I kind of love the idea that somehow there is some sense in which we're being guided in life. I have no rational or objective basis to believe this, but it gives me pleasure to think it. And I believe we all get moments like that through our lives, but we're so busy with our lives, we don't listen.

I tell my kids, you know, they have social media. They're constantly filling their days. And I still do this. Every day, I try to give myself some time where I have nothing scheduled. I'm at open slots. It's daydreaming time. I think we think about daydreaming as a waste of time. I think daydreaming is when you open your mind up to, hey, you know, what can I do?

That's different. What can I learn? And I really value those moments because I think it makes a difference in my life. I was very struck by that. I remember hearing somewhere that every morning you would read the paper, you would kind of look at the stories. You wouldn't read the opinion pieces because you didn't want them to shape your view too much. And then you would sit by the water often near your home in California and would just look out and mull over them. And that process informs a lot of what you do. And given how noisy and distracted most of our lives are, I'm curious about how having that kind of systematic process built into your day actually has become fundamental to you. Do you find it's really a key part of your, to put it in pragmatic terms of your competitive advantage? The way I describe it is we live in a Google search word, which is when you have a question, you go to Google search and you almost always find at least what you think is the answer. It's become awfully easy to find an answer to everything. And I think in the process, we're missing an opportunity, which is when you have a question

sometimes spending a few minutes to try to reason your way to an answer, it might cost you a few minutes, but it's like your brain is like everything else. It needs exercise. This is the process by which your reasoning gets refined. I'm lucky now. I live two blocks from the ocean. I take my dog for a walk in the morning. I sit on the bench. I watch the ocean. It's amazing how waves kind of add to the process of hate. And I've looked at the stories for the day. I'll give you an example. Amazon buys Activision, big story. And I know there'll be lots of opinion about it by the end of the day. And I think about him, how can I explain this using the frameworks I have for thinking through corporate finance and valuation and investing? I might not get an answer, but at least I have a way

of thinking through it before I look at the opinions. And I might agree with the opinions, and I might have thought of something that everybody else was thinking anyway. But I don't think it's a waste of time. It's still part of the process of creating a point of view that's yours rather than taking on somebody else's point of view. It seems to me one of your defining character. having just read a lot of your work and studied you over the last week, but having not met you before, is this very free-thinking, independent spirit that you have. And it's really striking to me that this runs through everything that you do. If I think about your approach to teaching, it's pretty radical.

You're famous as a professor at NYU, but at the same time, you chose many years ago to have this website where you make everything available for free, including your MBA courses at NYU, which people pay a fortune for, and even your lecture notes and your quizzes and stuff like that. And I'm wondering what led you to take this radical approach? Why you did it? What's wrong with universities the way they're structured? And also the kind of backlash you must have received from NYU when you decided to undercut their extremely lucrative business.

Early on, I realized I was a dabbler. I was interested in many different things. We live in a world of specialization. In finance, for instance, now you don't become a professor of finance. you become a professor who specializes in options and futures or in some aspect of investing, performance evaluation of mutual funds, your entire life is built around that. I think that's perfectly okay. That is your competitive advantage.

I mean, I work in a building where there are four Nobel Prize winners in this building. Rob Engel is down the quarter from me. You know what? If I fight that fight of I'm going to become a specialist, that's not my competitive advantage. They're going to be people are far better at specialization than I am. One of the things that I bring to the table is I teach corporate finance. I teach investing. I teach portfolio management.

I teach investment philosophies. These are not topics people usually teach because they're very different topics requiring very different backgrounds. I find it advantage is to be teaching all these things because when I teach valuation, I draw on the fact that I know how to look at a project in a company and do a project analysis. It helps me on our value companies. So to me, being a dabbler has become an advantage in a world full of. specialist. It's like being a generalist in a world where everybody's a specialist. I give people the analogy of today in medicine, you go to a doctor. It's very difficult to get a full diagnostic from

that doctor because that doctor is so specialized that they have to send you to three other specialists before they can tell you what's wrong with you. And in the process, there can be something seriously wrong with you, but all four specialists put together don't see it because each of them is so focused on their part of the body. In finance, I'm afraid in business, finance, investing, I'm afraid the same thing is happening. We have a lot of specialists, people who have very, very deep interest, but they're very narrow. And I think, you know, there is an advantage to being a more general thinker, somebody who thinks about issues on a broader term. I will never be able to compete on any topic with a specialist on the topic.

I don't know enough. But I know just enough to make myself dangerous. So I know just enough about cryptos, but I don't want to spend my life researching cryptos. I'm intrigued by how it's been sold, but I have no desire to become an ESG specialist. So I actually have no interest in becoming a specialist. Even in valuation, people say, are you a specialist? No, I really am not because I'm just taking something that's very basic in teaching. On the teaching front, I've always been surprised that people don't share more because sharing.

I mean, knowledge is the one thing you can share. And you're not giving up anything. Actually, you're gaining. And there's more selfish interest. Every teacher is a repressed actor. You're basically on a stage. And if you ask you an actor, would you rather have an audience of 20 or an audience of 2000?

I mean, you're going to be acting on the stage anyway. Why would I settle for an audience of 20? So I remember very early in this process in the 1990s, I set up a camcorder in the back of my classroom and I recorded my classes and I actually made four VHS tapes, copies, and I put them up so people could watch my, that was my first attempt at online teaching. And towards the late 90s, you could, for the first time, convert these tapes into something you could watch online. The quality was awful. But I put it up there because if I'm going to teach to a class of 300, which is my traditional class, I'd much rather teach to 3,000.

I mean, no, I'm teaching the class anyway. So early on, I decided that what I was going to do was share my teaching. Of course, you could argue that NYU pays me that this is a classroom. But you know what? I don't have to teach a class of 300. I do it because I love teaching. I know exactly how much tuition NYU collects from those 300 people. And I know how much they pay me.

I'm not demanding a share of what they collect, but I'm going to demand my share of flesh. And my share of flesh for teaching really big classes, which might make NYU millions of dollars each time I share of classes. I don't want to share of the millions, but I want to be able to give away the class for free. That's my quid co-pro. You want me to pull things offline? Well, I'll go back to teaching 50 people in a classroom because that's basically what my content. contract as a professor requires me to do. And I could put a class limit. But I enjoy teaching big classes. But to teach these big classes, the quid quo is I get to share my teaching. So NYU now is

certificates based on my classes where they take the recordings and they have certificates that charge 2000. And I'm okay with that. And there are some people who choose to pay the 2000 for exactly the same content they will get on my website, but they don't get a certificate. I don't have the bandwidth to test people in office certification. But if all you're interested in is learning, We live in a world where that is easily accessible. It requires discipline on your part to stay with a class. But I'll be glad to provide the resources as long as you can provide the discipline. There's something kind of profoundly disruptive and rebellious about you that I appreciate because I sort of built that way too. There was never a rule I encountered that I didn't want a break somehow.

And I loved when I saw on your website, it said, I may not have the power to change the status quo, but I can stir the pot. And I wonder if you could explain what that phrase means to you because it seems. me so fundamental to who you are, this willingness to stir the pot, to ruffle feathers and to disrupt. I know we live in a world where inertia is the dominant force. Human beings, by their very nature, want to do things the way they've always done them. And this is true no matter, it's true in your family life, it's true in business, it's true in education. And I think it gets us into trouble. So when you look at the actual tales of disruption of businesses being disrupted, the one common theme you see in the businesses that get disrupted is inertia slowed them down

and you look at brick and mortar retail in the 1990s. Bonds and Noble could have created an online version of its bookstore and driven Amazon out of business in 95 and 96 and 97. It chose not to. Why? Because it was much more comfortable, much easier to stay with the trude and the tested. And I think I know I'm lucky to be able to do this. Most people don't have this luxury. You have a job. You can't be disruptive at your job without getting fired. Now, I have a job where I have nothing to do but think of how can I change the way we do things? Because, you know, I think that it's amazing in business schools, we lecture businesses about being on their toes and being adaptive and not falling into inertia. But guess what? Universities are the most inertia-bound institutions on the face of the earth.

A few years ago, I was in Bologna in Italy. And I think the very first university might have been, been in Bologna. It's like a thousand years old. And the buildings were there in the lecture halls. And I walked into one of the lecture halls. And I was struck by how similar that lecture hall from a thousand years ago was to the lecture hall today. Where you've got the deity, basically the professor, the learned one up on top of the podium, did all the students sitting on their desks, taking down everything you said. There's one way passing of wisdom. And I said, you know what? We haven't changed much in a thousand years because we've had a monopoly. as universities in the education system, we've had no need to change. And I think we fall into some

really bad habits. And I, you know, one of the things that's always informed my teaching is I promise myself when I was a student. I promised myself that all those things that made me angry as a student, I would not do as a teacher. Now, I'd like people to think back to when there were students in colleges, think about all the things that you encountered during your education. You said, that's terrible. I remembered those things. So one of the things that used to make me angry when I was a student is I would do an exam and the professor wouldn't get it back to me for two weeks, three weeks, three and a half weeks. And by the time you got it back, the feedback was completely useless. I promised myself very early when I first started teaching that I would never take more than 24

hours to return a quiz or an exam. And I think I've stuck with that. I mean, I have classes of 350. I give a quiz. It sometimes means I don't sleep during the night, but within 24 hours, those quizzes are returned to my students. And I'm not saying this to brag about it. I'm saying it because it bothered me and I said I would never do it. So to me, what's driven the way I think about changes in teaching is I look at what I didn't like about my classrooms when I was a student saying, I don't want that. My classrooms as a teacher. It strikes me that there's a lot for our listeners to learn from you actually about the art of communication. You're not just a great teacher in the classroom, but your talks are amazing on YouTube and the like. And I remember years ago when I had to do a Google talk, which scared the hell out of me.

I listened to lots of talks before I did it. And yours was far and away the most impressive of the ones I heard. And I remember just watching it and thinking, God, this guy is smooth. There was a kind of calmness and ease and a comfort that I think partly is your nature, but partly also a result of all of the reps that you've done in the classroom over so many years. But it also struck me that part of your skill was your willingness to provoke, to be a provocateur. And there was this wonderful beginning of the talk where you said, if I remember right, you said basically I sit at this nexus of these three really big, really badly run businesses of teaching and writing, publishing and finance. And they're all begging to be disrupted and to be taken to the cleaners.

And I wondered if you had any advice for the rest of us on how to speak, how to communicate, because it seems to me that you're really a master of this. I think that my two piece of advice is don't try to be somebody else. You've got to be comfortable with your presence. And I'll give you an example. I've never worn a suit to teach. Because when I started teaching, that was the standard. You know, business schools, people wore suits or at least dies when they walked to a classroom. Because the view was, students will not respect you if you're not dressed up as if you're an authority. And my view was, look, now if I bought a suit, I'm going to pay a few hundred dollars. My students are MBAs. they're getting going to Bonnies to get their suits for $3,000 because they need to look good for investment banks. My suit is never going to look as good as theirs, and I hate wearing suits. So I said, look, I don't feel comfortable teaching in a suit. So I'm going to teach in a t-shirt. I can teach in sweatshirts. I know, basically I can teach whatever makes me comfortable. So I had to pick something that made sense for me. You know, early on, I realized there's some great teachers who are authoritarian teachers. I don't know whether you remember the movie Paper Chase.

Now, I think where it's about the Harvard Law School, and I don't remember who it was a great actor. Maybe Gilgood was maybe they're playing the role. And he plays the role of a professor of law, and he intimidates. He says, this immense presence in front of the classroom. But when he turns to a student, just the intimidation factor is enough to keep the class going. I realized very early that I was not an intimidating person, that my presence couldn't be built on. I'm the authority figure. You're not.

And I'm going to tell you what to do. So I had to find a teaching style that fit me or a communication style that fit me. And my communication style is much more informal and much more open and much more willing to kind of accept the fact that there might be other people who push back. And over time, there are things I do better now than I did 40 years ago. One of the things I tell people is, look, there are days when you wake up and you get in front of a group and you open your mouth and magical words come out. It's like you can't do anything wrong.

you say, where did that come from? It's easy to teach when you're in the zone, right? When baseball players are in the zone, when you're in the zone, teaching is easy. Teaching or communication is difficult when you're not in the zone. You open your mouth and your tongue is getting in the way of your own words. It's not your day. And I tell people, you've got to figure out ways to get into the zone when you're not in the zone. So there's small tricks. And I would suggest these. One is be well prepared. I'm prepared for my classes to the point. I never have to look at my slides to know what's on the slides. So I think that, you know, finding your zone when you're not in the zone is something I do better now than when I started because I've learned small tricks to bring myself

back into the zone. Tricks like, you know, figuring out questions. One of the things you will notice in my slides is have these questions asked where I give multiple choice answers and I put them up. So instead of throwing an open question to a group where nobody might react, I say, look, I'm going to throw this question up. I'm going to put five answers. None of the answers are going to be obviously wrong. And I call for a minute of silence where people get to pick an answer. That minute actually helps me as much as it helps the students because again, those moments allow you to gather your thoughts and say, okay, let me get back on track. So there are things I do now that keep me in the zone when I, even when I'm not feeling like I'm at my best. And being prepared, that I think is critical to

teaching. But you're right. And I know one of the things I tell people is the biggest sin, you can commit as a teacher, is to bore people. I will provoke you. I will anger you. I'm willing to take any emotion over boredom. That doesn't mean I'm going to prod at people just to make them mad. But it means that sometimes I would throw a question out that might be provocative because it challenges people's beliefs. One of the first things I start my corporate finance class is I ask, you know, how many of you think markets are short term? Because that's the conventional wisdom, at least, is markets are short term. We need to do other things to make them long term. And about two-thirds of my class put up their hands and say, hey, I think markets are short-term.

And I say, can you give me a piece of evidence that backs up that view? And it's amazing how difficult it is to actually find actual evidence that markets are short-term. In fact, if you look at the actual evidence, you would conclude that markets are far too long-term. Otherwise, how can you explain the fact that you put $100 billion values on companies that haven't figured out a business model yet? No short-term market would do that. So by opening up these questions where people have preset views and challenging those views, not because I want to change the views. That's not my job.

But to make them examine their own views. And if at the end they say, I think markets are still short term, I'm perfectly okay with it. I'm not an evangelist when it comes to putting my views and others. But I want them to examine their own views. I think you're kind of an evangelist for free thinking, for questioning orthodox opinion. Is that fair to say? I think that we should all be evangelist for this. I mean, who wants a world full of robots?

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Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right. Back to the show. One of the things I've particularly appreciated, and I'm agnostic about this, I don't in any sense have the answer, but I really appreciate the way you've discussed. ESG, where you've been incredibly outspoken, this whole idea that companies should somehow be more environmentally and socially responsible and have better governance. And there's obviously been a

huge drive, commercially driven drive, I suspect, from business leaders like Larry Fink, the CEO of BlackRock, to sell this idea to investors and to persuade everyone that it's really beneficial for companies to do good, that it helps the bottom line and is profitable for shareholders. I think it's fair to say that you're not convinced. And when I asked for questions on Twitter to ask you. There were several people who wrote to me about this, a listener named Fabio Zugman, who I'm going to send a copy of my book, Richard Weiser, happier to thank his question, said to me, you got to ask him about ESG. And he said, do you think ESG will be a fad of the past, or is it one of those things that will refuse to die as long as it serves as a marketing gimmick? And so I wonder if you could talk

us through this idea, why you're so cynical about it, why you're so skeptical? I first wrote about ESG in 2020, and I wrote about ESG because I'd never see a lot of it. I'd never seen a concept explode that quickly out of nowhere to become the status quo. But, you know, usually concepts are the edges. Now, the status court had bought in, you know, CEOs of companies, the corporate roundtable had bought this, you know, signed the statement on stakeholders and how companies should be run for stakeholders and the big investment funds led by BlackRock or pushing ESG to the forefront. But what made me suspicious was there seemed to be no tradeoffs that the sales pitch was you can have it all. You can do good and be more valuable. You can do. You can do

good and earn higher returns. You can do good and you'll have to sacrifice nothing. And through the history of humanity, being good has always been the more difficult choice. Being good has always cost you. In fact, being good were the easier choice. We wouldn't need religion in the first place, right? If the Ten Commandments came to us as our natural choices, then why would we need religion? The nature of goodness is you got to have sacrifice. I'd have had a lot more respect for the SG movement if they'd come up and said, you know what? We need to make. the world a better place. So companies have to accept that they will make less money and be less valuable in order to make the world a better place. That investors have to accept lower returns

because they want to be good. And if they'd made it a trade-off, I'd have said, okay, let's talk. Let's talk about what the trade-off is. Who's making the trade-off? Who's paying for this goodness? And there are still issues with the ESG, but it would be an issue that you could talk about the trade-offs and say, does that make sense? But the fact that was being sold as all good, it's all cake, no calories. I said, no, somebody's got to look under the hood. So each of those is in an area where I've seen this happen in the past, seeing what happened, new concepts come up, which claim to be revolutionary, but really old wine in a new bottle claiming to be the magic way of coming up with a more valuable business. So it started with my favorite area, which is valuation. I said, you know, you guys keep telling me that ESG is good for value. Tell me where. In my valuation class, I have a proposition called the it proposition. If it does not affect the cash flows and it does not affect risk, let's stop talking about it. So through time, I've taken every buzzword in business and said, hey, whether it's strategic considerations or China or cloud and whatever that buzzword is, let's talk about how it plays out

in the cash flows and the risk, because then we're talking about something tangible. Otherwise, it just becomes this filler for whatever decision we want to make. So with ESG, that was my first reaction. Show me where. So I started looking at the evidence that ESG advocates were presenting. And I was horrified by the quality of research that passes for ESG research. Because to be quite honest, it seemed to me that the research had many problems. One was, it was written by advocates, true believers. And, you know, they might have been delude themselves saying, I'm an objective researcher. But when you start with a presumption or a prior that's too strong, it's almost impossible to do clean research. The second was, they weren't even

sure what question they were answering. They were mixing up whether it was good for companies and whether it was good for investors in the same research. And the reason is very simple. One of the stories that has some backing to it is that ESG can make companies safer by protecting them from doing something stupid that can create a crisis. And I'm willing to listen to it. But if that story is true and ESG makes companies safer, those companies should have lower discont rates, lower cost of equity, lower cost to capital. that's good, but that means investors in those companies should own lower returns as well. So what's good for companies then can't be good for investors as well. And much of this research was mixing up what was good for companies, what was good for, they weren't true of what the

question they were answering was. When I first started, very few people were pushing back. In the two years since, of course, the pushback has become much more tangible. And to be quite honest, I wrote a piece about ESG yesterday that I posted on my blog. I'm done with ESG. And I don't want to refight. I'm going to move on to something else because I'm a dabler. My interest has run out and I've pretty much said what's on my mind. I've told people where I'm coming from and why I think what I do. I have no interest in forcing my thoughts on other people.

And I will put out my views and if other people take strands of it and push back or make their views, I'm completely okay with it. But, you know, I just wanted to make sure that people understood where I was coming from. I think it's also really helpful to see things through Charlie Munger's lens of just saying, look, you always want to focus on incentives first. If there's something you want to focus on first, it's incentives. And you pointed out very eloquently that all these companies like McKinsey and Deloitte and KPMG and BlackRock, they have tremendous incentives to push this idea of investing in a socially responsible way. And so it does seem like if you understand incentives and you understand the way Wall Street works, you want to be wary. It's the old Latin saying in law schools, right? Kui Bono, you tell me who benefits and I'll work backwards from there. It's a cynical view of the world, but unfortunately, it's a very effective way of thinking, you know, why you end up seeing things push to the front.

No, it's incentives, but it's also, I think any score-based system is going to create gaming. I mean, people often in ESG complain about greenwashing. They say if only there wasn't greenwashing, where companies try to look good, ESU would work. And I tell them, look, greenwashing is a. a feature of ESG. It's not a bug in the system because the way you've structured ESG, greenwashing is exactly what you'd expect. In fact, if you told me that this was what you were going to do, I would have predicted greenwashing because every time we've created a score-based system,

there's gaming the system. And that's exactly what's happening. Now it'll only get worse. I'm slightly torn about this whole subject because I am sort of moralistic about these things, and I do wish companies behaved in a more responsible way. And so when I look at a company like Costco that I think does treat its customers very honorably, it gives me some confidence or it gives me some counter-argument to convince myself that actually there's a benefit to behaving decently and honorably in life. How do you think about that? That's the point I also made. I mean, I think we each have a moral court and we need to behave consistently with that moral code by doing what, by not just investing in companies that track the moral code, but in our consumption choices,

in the way we interact with our communities. Each of us needs to do the right thing. The problem of the ESG is it's actually saying you don't have to do that. That's so difficult. You drive your SUV the way you've always done. You buy your cappuccino at Starbucks, even though you might not like the way it's run. But when you get back home, just buy an ESG fund and the scales have leveled up. You know what? I think that we each need to do the right thing. The problem, though, is, as I said, goodness is always costly, which is you've got to give up something for that goodness. The fact is, by choosing to shop only at stores that you think treat their employees, well, you might have to pay a higher price. If your worry is that Amazon boxes are polluting the world, which is adding to the landfill,

then you might not want to buy your stuff in Amazon. That's going to be quite an inconvenience for a lot of people. But I think people don't want to be inconvenience. They want goodness to be delivered on a platter. And what ESC is promising them is, we'll deliver it in a platter. You don't have to make those choices. So don't get me wrong. We all agree. We want to make the world a better place. The question is, is ESE the way to do it?

I don't believe so. I think we need to make our choices based on our own moral codes because goodness is going to be a function of how you grew up, what your family, you know, what you imbibed from your family. Essentially, it's going to be a reflection of who you are as a person. I could go around my neighbor and ask people to define good. I'd wager there'd be 20 different definitions of goodness. And what EASC is saying is, we've come up with the consensus where in the universe that I live in, where nothing is agreed upon, how the heck are we going to consensus and what's good and what's not? I don't even see that starting point

as a point that makes sense. Another area where you've been very outspoken and kind of enjoyably provocative from my point of view is in talking about cryptocurrencies. I remember you had this wonderful phrase where I think you said that it was a currency created by the power for the paranoid, can you talk a bit about your view of why things like Bitcoin took off in terms of the social and economic environment that we were operating in when it was born? Because that seems like a really interesting and useful perspective on how it came into being and how it became so popular. In fact, when I described, I was talking about Bitcoin in specific because it still is

the centerpiece of the crypto movement. I don't know whether people are aware of that first paper that Satashi Nakamoto. that pseudonym for whoever it was that created Bitcoin put together. It was written in November of 2008. I mean, I remember November of 2008. It was two months into not just a market crisis, but a crisis that shook our faith in every single institution, in governments and central banks. And basically it said, you know what, we can't trust anyone. I still remember that feeling. The paper was born in that moment, and it reflected that feeling of you cannot trust authority figures. And Bitcoin is designed explicitly on the absence of trust. I think when I think about Bitcoin and I think about blockchain, essentially it is an extension

of what we do with the rest of our lives. You pick a restaurant based on crowd reviews on Yelp. You pick a movie based on crowd reviews on Rotten Betos. Bitcoin is a crowd chat and a crowd tested currency. So rather than a central bank, you've got, you know, these computer miners deciding whether your transaction should go through. So it reflects that complete absence of trust. So I understand that belief. And it feeds into, I mean, there's a subset of our population, you know, and I'm not saying that right or wrong, that doesn't trust anybody.

And I would wager that if you did a Venn diagram of people who don't trust anybody and people who are over-invested in crypto, it's going to be a lot of overlap. because you don't trust banks, you don't trust governments. And I think we can't talk down to them because it makes sense from their perspective and say, I'm not going to put my faith in the U.S. dollar or the Japanese, or the Swiss rank, because governments lie to us all the time and central banks are crazy. So I think both Bitcoins and NFTs, if you look at their growth, reflect the fact that there is a portion of the population. It might not be very high percentage, but in terms of numbers, it's a big number

that increasingly has given up on traditional financial financial. financial assets. They don't think of shares as ownership in businesses, the old Warren Buffett saying. They don't think bonds are going to be honored in any sensible way with at least things they can use to buy other things. They've given up on traditional financial assets. In the old days, guess what they would have bought? It would have been gold, right? And so that's the other description I've given of Bitcoin. It's a millennial gold, which is, hey, I don't trust anybody, so I'm going to go back to holding something that doesn't depend on any of these entities. So I understand why people hold on to it. In fact, you could explain the demand and supply base purely on that paranoia.

So if the world becomes less trusting, I would expect the prices of cryptos and entities to keep climbing. So from that perspective, I understand what's going on. I just think that what's going on with cryptos is actually getting in the way of them becoming functional. You know, let's take Bitcoin, right? Bitcoin is a cryptocurrency. One of the things you need in a currency is to build it. As a shopkeeper, you can't price things in a currency, it goes up 20% during the course of a day. You need to keep changing prices constantly. The problem, though, is if you ask most people what they like most about Bitcoin, the fact that their holdings went up 40% in the last week, or they sold short on Bitcoin, went down 25%. The speculators are driving the crypto game. And as long as they drive it,

what they want out of crypto is going to be at odds with what the rest of us want out of crypto. So I do truly believe that there is going to be a digital currency sooner or later. I think we're closer to it than we realize. I think that digital currency will have to get some degree of buy-in from governments and tax authorities. Because you can't have a currency that nobody can track from a legal perspective, from a tax perspective. But I think it's coming. So I just don't think when I see the existing choices out there that any of the currencies we've created so far is equipped to be that global digital currency. Have you ever bought any cryptocurrencies as a kind of speculative game or is it just it violates your principles?

Currencies can only be priced. They can't be valued. So when you buy or sell a currency, you're trading. I'm not a trader. I'm an investor. I'm not saying that to make myself superior, that's not my game. I'm not a good trader. And here's what I mean about that choice between trading and investing because it's a nice segue

into thinking about investment philosophies. In investing, you value something based on a business, based on cash flows. and you compare it to the price, and the price is less than the value, you buy at the price and you hope and pray that the price converges on value. In trading, you don't care about value. It's all about buying at a low price, selling at a high price. It's about using, so if I asked you what's the value, you're going to say, I don't care as long as I can get the direction right. It's about gauging mood and momentum. The very best traders are really good at gauging mood and momentum. That's why when people laugh at technical analysis or charting, I said,

don't be so quick to laugh. Trading is about mood and momentum. and maybe the support and resistance lines that you laugh about tell me more about shifts in mood and momentum than digging through the cash flows and doing a full-fledged valuation. I'm a terrible trader. Sometimes it's good to know what you don't do well. I avoid trading, not just in stocks, but in anything that can only be traded. I don't trade. And for that reason, I've never bought or sold Bitcoin, but I can understand other people

who do because maybe they're better at detecting mood shifts in that business. So I've never bought Bitcoin. I've never sold Bitcoin because from my perspective. perspective, I would not bank money and probably lose my shirt doing it. You've written before, I think it may have been in the little book of valuation, which I read recently, which is terrific. You wrote that it's really important not to budge on first principles when it comes to investing.

And I think you had explained at some point that that was why you've owned Amazon about four different times and then you had to keep selling it when it became too expensive for you to justify owning it, which some people would criticize because they would say, look, you found a great business, just hold it, just keep it. And I wondered if you could talk to me about some of these key tenets for you. What are the first principles that are at the heart of the Asworth de Modran way of approaching the investment world? I start with the presumption that each of us needs to find an investment philosophy that best fits us. There's no one best philosophy.

That's why when you read books on Warren Buffett and Peter Lynch and you try to do what they do, not surprisingly, almost everybody who tries doesn't do what they do. They don't earn those returns. Because it's not just copying the way they pick stocks. It's a psychological profile you need to kind of pull that investment philosophy off. So I've spent 40 years of my life trying to figure out the philosophy that fits for me. You know, you still have to keep and go back because sometimes you realize there are things you're doing that don't fit your makeup as a person. I'm a believer in value.

I have faith that every asset has value. I have a faith that I can try to estimate that value. And I have faith that at some point in time, the price will adjust to value. Key words here are faith. The essence of faith is if you ask me for proof, I have zero proof that I can offer for all three propositions. But my investment philosophy is animated by those three faith. So I believe if I can value something and I see a price and the value is much higher than the price, that if I buy it at the low price, over time, the price will adjust to that.

But if that's my faith, then that faith requires me to also act when the price goes above value. So if I buy something that's cheap and the price goes up 80% well above my value, I revalued the company. Then if my faith led me to buy because something was undervalued, the same faith should lead me to sell when it's overvalued. That's why when people say I'm a value investor, I buy when something is cheap, but I always buy and hold. I say, well, how do you reconcile that contradiction in what you just told me? Because if a value investor, you buy things that are priced less than the value. But if you buy and just hold, what happens if the price goes up 10-fold, 20-fold, 54th, because that doesn't seem to be an internally consistent philosophy. And my experience, when you have a philosophy that has

internal inconsistencies, it eats into itself. Those internal inconsistencies come back and eat away at the core of your philosophy. So I've sold Amazon four times. If you asked me, should I have held down? Absolutely. If I, with the benefit of hindsight, you could always look back and say, I should have held Amazon. The first time I bought it was 2001. Maybe hold a lot. it all the way through 2022. And so I've left money on the table. But to me, that's a small price to pay to have a philosophy that stays consistent. So if you ask me to describe the philosophy, I can tell you with a straight face that, hey, I have a philosophy. You might not agree with it. It might not be the right philosophy, but I act consistently with my philosophy.

How can a person actually go through this process of deciding what is the right approach for them. And also ask really the most fundamental question of all, which is whether they should be playing this game themselves, whether they should pick individual stocks themselves, or whether they should just acknowledge the fact that they're not really equipped to win that game, and that they should outsource it to an index fund or a manager who's better equipped than them. How do you go through that process if you're not a professional and you need to actually think about, well, what is my game? What edge might I have? Should I play this game? First, just recognize it's a working process. That's why I describe it.

my philosophy as something that I'm still working on. And what I mean by that is sometimes I will invest in something and I realize it's making me uncomfortable. I have a very simple test when I invest. It's called the sleep test, which is if I lie awake, wondering about something that's in my portfolio, there is something wrong with what I've just done because I shouldn't be thinking about what I'm invested in for the rest of my day. I think people who constantly think about their portfolios, they're getting a message from their portfolio saying there's something here that's making you uncomfortable. So I'm constantly looking for things that make me uncomfortable because then I have to go fine tune what I'm doing and say, I shouldn't be doing that again. It made me uncomfortable the last

time I did it. So I think that it's listening to your own self telling you things of, hey, this isn't right for you. Sorry to interrupt you. But as you were saying that, literally as you were talking, my right I started to twitch, because I'm thinking, well, I own these three stocks, and they make me kind of uncomfortable, and they take up too much of my energy, because most of the money I have is in funds run by other people or a couple of index funds that I've owned forever. And the disproportionate amount of time that I spend looking at and thinking about those three stocks, even though I try never to sell anything, really. I mean, I sit on stuff for a long time. It just eats away at me. And so I wonder about the sort of the brain death that it's causing, you know, the excess emotional energy.

That's the second part of your question. He said, when should you not actively invest? When it's causing ulcers, when it's causing pain. I invest not because I think I can beat the market. I'll be quite honest. I invest because I enjoy the process of investing. And the way I see it is if I beat the market, that's icing on the cake for me. So I follow a simple rule. Do the least damage you can in the process of creating your portfolio. I mean, let's say you're picking stocks at random. You think you're doing things with the systematic way of this great model. But in truth, it's just random. Now, if you have no transactions cost, then doing things randomly is going to deliver about the same returns as putting your money in an index fund. But we have transactions costs, we have monitoring expenses. So if you're doing things randomly and you're a day trader, you're creating costs and pain for yourself that is not just unnecessary. It's going to eat away at your portfolio.

So I really enjoy the process of investing. And, you know, I try to keep the two most dangerous emotions in investing out of the game. One is regret, right, where you look back and say, I wish I'd done that. I wish I hadn't done that. Partly because regret does nothing for you other than eat away at your inside saying, because there's no way you can go back in time and reverse something. And the other is it can actually have a very insidious effect in how you behave going forward. I'll give you an example. I was lucky enough to buy Tesla in June of 2019 right after the Musk, you know, remember the $410 funding secured tweet and the stock price had crashed. And I bought Tesla. and over the next six months, it went up 400%.

And I sold Tesla in January 2020. And I've never lived that down with Tesla enthusiasts because they point to me how much money I left on the table because I sold Tesla too soon. Because the stock since has gone up another 10-40. And I look back and say, look, I'm perfectly comfortable with the fact that I sold Tesla. I'm okay with leaving money on the table.

Because the price of not doing that would have been, I sold because it had become overvalued. Maybe my valuation was wrong. But with my philosophy, if something becomes significantly overvalued, it needs to leave my portfolio. So to me, that was the price I needed to pay to have a philosophy that I'm comfortable with. So sometimes you've got to do things. It costs you money to stay with the philosophy that actually stays internally consistent. The other is anger slash frustration.

I see a lot of investors who spend so much of their time being angry at the rest of the world. They get angry at other people making money. This is an incredible waste of your time and your emotions. You know, one reason I am a little leery about going to Omaha and I've gone there four or five times, not to the meetings themselves, but to talk to value investors, is especially in the last few years, the amount of anger you see there towards the rest of the world, those shallow investors who buy these low, you know, money losing companies, they make money, a lot of finger wagging going on, you know, hell and damnation coming to those investors.

And it's an emotion that's going to damage your own investing. So sometimes I get angry. And then I try to talk myself off the lead saying, that's not my role as an investor to be angry at other people because they're doing things that I wouldn't be doing. It's their money and their choices. So I've never felt the need to lecture people who buy Bitcoin at $45,000 saying you shouldn't do that. I wouldn't do it. It's not for me. But it works for you.

You're a great trader. You got mood and momentum nailed down. Who am I to step in and say you shouldn't be doing it? So I think that sensing your own emotions as you invest is actually a good feedback mechanism for, am I doing the right thing as an investor? You're known as the dean of valuation. And I wondered if you could take us through how you would value a business like Tesla, not in ridiculous levels of detail, but think of a company like a Tesla or an Amazon that you've

analyzed many times. Can you just give us a sense of your linear process and what the most important things are to focus on. Because one of the things you've written about, you once said very eloquently, the problem that you face in investing now is not that you don't have enough data, but that you have too much. And I'm curious when you tackle a big, complicated business or a fast-growing business or any business, how you simplify, how you focus on what really matters, how you clear away the noise, what are the two or three metrics or measures that really give us the most benefit? And I think this could be really helpful for our listeners because many of us are suffering from what you call

data overload, this sense that there's just too much information. We don't know what to do with it. I'll give you a compressed version of my valuation class in kind of very simplistic terms. Every valuation tells a story about a company. In the case of Tesla, for instance, is a story you're telling of a car company? Is it a story of a green energy company? Is it a story of a battery company? Is it a story of a technology company? That story is actually the starting point for this process, because the story is going to frame every choice you made. And here's what I mean by every choice you make. Now, ultimately, the value of a business, if you think about it, comes from five drivers.

Three, capture the business model. First is revenue growth, which captures low growth business or a high growth business. The second is operating margins. Are you in a profitable business? So what kind of business are you running? As an example, if you're a manufacturing company, even a very good manufacturing company, your best case scenarios, you might make 15 to 20% margins. Why?

Because you've got to make the car to sell it. You've got to make the machine to sell it. In contrast, if you're a software company, your margins can be 40, 45, 50%, because the extra piece of software costs you nothing to make. So that operating margin captures the profitability of your business model. And third, growth needs reinvestment. You know, in machines, equipment, if you're a manufacturing company, in R&D, if you're a technology company and customer acquisition.

So revenue growth, margins, and this reinvestment measure capture the quality of your business model. So when I build spreadsheets, I don't have 500 line items. I basically have those three line items. And what it does is it focuses your attention. Remember, you know, you start by saying we're faced with too much data. And the part of the reason we get lost is we start looking at data without any sense of where does that data go. So you get one piece of data.

It leads you down one rabbit hole. You take another piece of data. You go down and so it's almost like you're collecting information and putting it into folders without any organizing system. So by the time you're done, you have 15,000 items you've collected and nothing to organize them. Now, the way I think about data is I have three folders on my desktop, a growth folder, a profitability folder, and a reinvestment folder. So as I read about Tesla, for instance, every story that I read that tells me about its growth potential. And that could be a story about how many cars Tesla sold in Norway, how successful it's becoming,

those go into the growth folder. Any stories I'm hearing about, it's improving profitability. You know, the gross margin numbers that might come up. out or something they're talking about how they're cutting the costs of making a cargo. So each piece of information, as I look at it, goes into a folder. It organizes the data, which means that the data is going to end up as a number in my valuation, because if you cannot take all of this disparate data and create a focus number, it becomes, you know, on the one hand and the other hand, and ultimately, you really can't come to any conclusion. So I start with a story, I collect the data, and along the

way I finesse my story, when I'm done, I actually have a sense of, This is the kind of company Tesla is in the case of Tesla, my most recent valuation, which is about a year ago, I saw a pathway for them to become not just an electric car company, but perhaps the largest automobile company in the world in terms of cars sold. It's a very upbeat story from a Tesla investor's standpoint because the world that I'm describing, almost every car sold ultimately becomes an electric car and Tesla has a big market share. Lots of ways to push back on that story. First, you know, the costs of making an electric car might continue to build up. And you might not want to spend that much money on a car.

So you might not end up with that. The second is you might have lower cost producers like Neo that might end up up dominating the Asian market. But my end game here is to tell a story, convert to numbers, come up with the value. With this incredibly upbeat story I told for Tesla, the value that I came up with was, I think, $600 per share. The stock was trading at $1,400. I had taken every conceivable, upbeat part of my story and built it in.

And my reaction was, hey, if you want to buy Tesla, go ahead, right? But from my perspective, with my story and my numbers, I can't justify buying Tesla at 1400. So the key is not to get lost in too many details. And we talk about metrics. Look for business metrics. Investing has pricing metrics, P.E ratio. They're all great for saying, what is the market paying? But the key to values understanding what is the business worth. That's why you want to look at revenue growth and margins and reinvestment because those are business metrics. So keep the pricing metric. but you've got to bring business metrics into your investment choice. And how do you factor in things like soft factors like corporate culture or the quality of the

management or the fact that in this case, Teser is led by a cult leader who's a visionary genius and rebel and maniac? How do you factor in those questions which are so distorting of this sort of rational analysis in a sense? I think that's the craft part of valuation, where essentially learn over time which variable, each quality shows up in. I'll give you a few examples. Quality of management. What does that mean? So if you're a good quality manager in a declining business, no matter how good you are as a manager, you're not going to be able to deliver 30% margins and 25% returns

on whatever you're invested. You're going to be constrained by the business you're in. So to me, you know, one of the things that I always look at and I value of companies, I look at a company, I look at industry averages. So if your margins are 17%, industry averages are 10%, This is sheer laws of economics mean that if there's nothing stopping the process, your margins are going to come under assault and 17% is going to become 10%. So I stop and ask, what does this company have that allows it to earn 17% margins in a business that has 10% margins? It could be brand name, supposedly a soft factor, but what does brand name allow you to do? It allows you to charge a higher price for the same product. It could be that your manager is really opportunistic.

They find good markets to go into. It allows them to find markets with higher margins. Ultimately, everything we talk about in business is going to show up. In either one of those three numbers or in the risk, it's actually an incredibly useful exercise. I actually create a table for my class where I take 50 soft factors and I actually say, let's think about where in your valuation it's going to show up. You have loyal employees. Where would you expect that to show up?

Well, I'd expect your turnover ratios to be much lower. So one of the things you can do to push back sometimes against soft. factors that are not there because companies like to invent soft factors that are not there. We have a brand name, really? So why your margins lower than your competitors? So by looking at something that you can put that soft factor into, you hold people accountable when they throw a soft factor in the mix. Because I call them weapons of mass distraction. The reason I call them weapons of mass distraction is often they show up after you've done the valuation. See, value a company, you come up with the value lower than the price. Somebody who really likes the company and wants to

But what about the fact that they have great management? You know what they want you to do, right? They want you to give them the license to go out and buy this company, in spite of the fact that the value is less than the price, because it is great management. When I hear that question, I say, okay, I'm willing to listen. What does this great management do? Why do you think they're great?

I'm willing. I keep the feedback loop open. Maybe there's something I'm missing about the quality of management at this company that I should be bringing in. So I'm looking for something specific that comes out of the soft factor that I can bring into my valuation. Let's take a quick break and hear from today's sponsors. No, it's not your imagination.

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investing, including objectives, risks, charges, and expenses. This and other information can be found in the income fund fund's prospectus at fundrise.com slash income. This is a paid advertisement. All right, back to the show. This idea that you mentioned of keeping the feedback loop open seems to me ungodly important. And I've noticed that you make all of your analyses, all of your valuations of companies publicly available, and you welcome people coming in and attacking them, debating them. And I wondered if you could explain that because it's such a profoundly important philosophy of life. It seems to be not just philosophy of investing.

I started one of the books I have a narrative in number. is about stories. When I started that because I noticed that we live in a world where we tend to hang out with people who think just like we do. So if you go to work in investment bank, you're surrounded by people who got roughly the same kinds of degrees you did around the same time in your life as you are, who think the same way about the same things, who get trained by the same people. And guess what? Do you all agree with each other? No surprise is there. You go to Silicon Valley. You got these VCs and founders who tell each other's same stories and they think the world. revolves around their stories. And after a while, there's no disagreement there because you're all

thinking the same way. Now, I tell people, hang out with people who don't think like you. And one of the problems is when you do valuation, you tend to hang out with other valuation people and you show them a cost to capital and a cash flow. And they're dazzled because this is the way they've been taught to do valuation. When I valued Airbnb when it went public, the person I showed it to was somebody who lives a few blocks away from me in San Diego, who doesn't know the first thing about finance, but she owns three Airbnb's. She's a host. And I talked, I showed at the valuation, not with specifics, but I wanted to get a sense of, is this right? Am I getting the economics of this right? I'm assuming that Airbnb passes on cost to you and doesn't bear the cost. Is that what's

happening? And there are things she pointed out that I was missing on how Airbnb collects fees and why it does some things well and something's badly and why she was thinking about listing on VRBO for our next rental. And I listened because what she was saying was not specific to my valuation. I was learning things about the business I would never have learned. I tell people I've learned more about Uber from Uber drivers than I would ever have learned by talking to all of the top management and Uber put together. Because I'm learning about how Uber treats its drivers. What do they do? How did you end up driving for Uber? What do they do well? What do they do badly? How does search pricing work? Do they let you keep 20% of the search price? Because that's what we need.

in valuation is that, I mean, nobody's an expert in everything. So there's going to be some aspect of every business you're valuing where somebody out there knows more about that aspect than you do. So stay humble, listen to people. I mean, you know, walking into a retail store and talking to the salespeople might be one of the great ways you can get an understanding of how the gap is doing as a retail business. What is happening in the insides of the business? Because that should become part of your investing story. I was very struck by a wonderful line of yours that I think may have come from that numbers and stories book, which is a terrific book, actually, where you wrote humility as the single most important quality you need to be a successful investor. And you also said hubris lies at the root of so much investing pain. Can you talk a bit more about how to guard against our own hubris and overconfidence? Because this is something that particularly for highly intelligent people who are used to being right and getting good marks at school and then they become investors, it's an incredibly seduct. It's an incredibly seduct. mistake to make to assume that you're going to be right in this game where you're competing

with other people who are equally brilliant and equally well qualified. So can you talk about that challenge of just dealing with overconfidence and hubris? There's a Buddhist, the Buddhists are very fond of the word serene. And the essence of serenity is when good things happen to you, don't get over-exuberant about what happened. And when bad things happen to you, don't get down in the dumps. And investing is a lot of ups and downs. There are days you wake up and say, that was an amazing day. My portfolio was up 8%. Next day you wake up and the end of the world has come.

And recognizing that so much of what happens in markets has nothing to do with your great analysis or skill. It's got to do with luck. This is a game where luck is the dominant paradigm. And it's not like, you know, I tell people, the difference between basketball and investing is you and I can go out there and try to shoot three pointers. Once in a while, with luck, you might get one out of every. every 50, and I don't even think I could get that. And Seth Curry goes and does it 30 out of 50.

Clearly, luck is not what's explaining it. It's skill. In investing, though, you could get 30 hits in a row. And I can't reject the hypothesis that you just got lucky 30 times in a row. It's so difficult to separate one of my favorite books. And I don't know whether you've had Mike Mobison on your row, but you should definitely have him. He's great. Separating out luck from skill in investing is how difficult it is to do. That's where the humidity comes from, is recognizing when you're successful, how much of your success comes from luck. I still get asked by people, what do you make right at the market? And usually I don't go around talking about my past performance, because if I'm not asking for your money, really, it's none

of your business, whether I beat the market or not. But if I added up the returns, maybe they're just curious. I might have made 3% or 4% more than the market going back over the last 30 years. And then they asked me, well, that must be payoff for you. I say, I have no idea what it's, I just might have gotten incredibly lucky at the right times. I tell them about some of my successful investments. When I bought Apple in 1999, I bought it because I felt sorry for the company. Actually, I bought it as my charitable contribution. I've been an Apple user since 1981.

Remember, in 1999, Apple was facing a near-death experience. Their computers were not selling. You know, it was just as Steve Jobs was coming back. And they didn't seem to be any way that they could be, you could recover from this crash. I bought Apple because I said, you know what, they've been good to me. And I'm going to spend $5,000 buying Apple shares that I can write off. Best investment I ever made turned out to be an investment I made because I was feeling sorry for a company. Huber is in my part to go around strutting my return saying, look how great my investment in Apple was,

without telling you that that investment had nothing to do with doing full-fledged intrinsic valuation and somehow jumping in it exactly the right time. So it's hard work though. I mean, it's easy to let things go to your head. And, you know, the market, it's just waiting for that to happen. It's almost like markets are waiting in hiding for you to get all caught up and how good you are. So when I see these shooting stars, you know, the people who are lauded as the great investors because they've done well for two or three years, I say, you know what, let's give it some time because most of the time when you succeed, it goes to your head. I, you know, I'm old enough to remember that in the early 80s, there was a, there was a man called Joe Granville. I don't know what you remember. It was a gold bug who was, who became this legendary

invest in the 1970s because he told people to buy gold. And it turned out to be the best advice you could get for the 70s. Then you get to the 80s. Worst advice you can get is to buy gold, but he stuck with that buying gold through the 80s and he wiped out a lot of people. But he got to a point in the early 80s where he was so convinced that he was an expert. He was a guru that what he said move markets. So through time, there are these people that we celebrate as, and we live in a world of celebrity investors as great investors. And I would say, hold off. There are some investors who are truly great investors, but they tend to be a handful. and they tend not to talk about how great they are.

Are there any that you would particularly name who've really influenced you over the years where you look at someone and you think, yeah, this guy who may not be on our radar or who may be on our radar, this is someone who actually is legitimately and consistently kind of extraordinary? No, the names I'm going to quote a names that everybody's familiar with. I mean, I've said some mean things about Warren Buffett, but they're really not about Warren Buffett. People who use his name constantly as a way of stopping discussion or debate. by saying, hey, Warren Buffett said this. One of the things that I've learned from looking at Warren Buffett is the importance of a core

philosophy. I mean, you can agree or disagree with Buffett, but it's very clear where he is coming from when he invests in a company. He stayed with that same philosophy going back 60 years. You might not agree with parts of it. And so when he says, I don't buy technology because I don't understand technology, I wouldn't make that part of my philosophy, but I respect the fact that he stayed true to that philosophy. And just to show you that it's not just value investors, I mean, I love the fact that

Jim Simon, when he came in, said, you know what, there's a lot of stuff happening in markets, but people are doing things the way they always have. But we have data now. We have computers. We can really work with the numbers. I like the revolutionary rod by saying, we can look at the numbers. I mean, he was the first real quant, somebody who brought the thinking into the game. So I look for investors who basically find something that is their niche and then stay consistent. with it. And when I wrote my investment philosophy's book, part of the reason I wrote it is I've noticed people like that in almost every single philosophy. Great growth investors, great VCs, you know, great activist investors. No, I like what Bill Ackman does in the activist investing space,

even though I might not agree with every single one of his investment choices. So I have a very wide array of people that I look at that I say, I like the way they think about markets. It might not be my way. But I like the fact that they're transparent about the process by which they get to where they are. You've seen an enormous number of very predictable mistakes that investors make over the last 40 or so years that you've been teaching and studying this stuff. And I always love Munga's idea of really focusing on avoiding what he calls standard stupidities, which seems to me, actually one of the greatest and most practical lessons from Munger and Buffett is that it's really hard to be like them, but it's actually much easier to say, oh, I can see all of these dumb things

that they've identified that I ought not to do. And can you talk about some of the ways in which just see people repeatedly screwing up, whether it's believing in unbelievable stories about great companies or market timing. What are some of the really obvious inanities and stupidities that people repeat that would really help us to avoid? I think that the first one is a little controversial. I believe that concentration in your portfolio, where you have three or four stocks is a recipe, and you have nothing else. You don't have mutual funds to balance it out. Three or four stocks is a sign of hubris, because not only you're telling me, those stocks are undervalued, but you're also telling me that you've somehow figured out that the

price is going to adjust to value on all four of them. Because for you to make money, that's got to happen. I think that's an extraordinarily dangerous strategy in the world that we live in now. Forty years ago, you might have been able to get away with it because these nice, mature companies, you bought five of them, you bought a utility, you bought a nice brand name company a McDonald's and you let them ride. You can't do that in the world we're in because businesses get disrupted. There's globalization. You have crises that can wipe out companies. I think the first thing you need to do is spread your bets. And I have a follow up to them. You spread your bets. Here's what you're going to find. Your winners are going to become bigger and bigger as a

person of your portfolio. And it's really tough to let go of your winners because they've done so well for you. So you need some discipline to let things go when they get to a point where they're swaying your entire portfolio. Where one stock can cause a 10% move in your portfolio, you've reached a point of no return. And it's tough to do. Right. So if you start something with a 5% and my starting point for a position, my portfolio is it's never more than 5% of my overall portfolio. But I also have a trigger. If it gets to be 15% of my portfolio and it's still undervalued, I have to start lopping

off whatever's above 15% to keep it from going to 25 or 30%. I'm not saying it's easy to do. In fact, I have to automate it. Often I put in a limit sell so that I don't have to actually make that decision. Because if I have to make the decision, I find ways to dilute myself into waiting, into delaying it. Because I've tripled my money. Who wants to let go when you've tripled your money? So one of the things I would do is think about what your weaknesses are.

Is one of your weaknesses that you listen to CNBC and you buy things on the spur of the moment, which gives my advice is don't listen to CNBC. Is your problem that you value companies, but you're unable to pull the trigger of buying the company, then find ways to put in a limit buy at a price much lower and then walk away. automate as much of what you find or your weaknesses. So it kind of gets done for you without you having to do something explicit. We're all subject to the standard things that make behavioral finance debt. We hold on too long.

We sell too soon. We put our bets on. We listen to people that we think no more than we do. We're part of a herd. Everybody gets caught up in all of those behavioral factors. You're not special. I'm not special. And we have to find ways to kind of compensate for those things.

And, you know, the version of the Hippocratic Code applies in investing. Do as little harm as you can. Because Charlie is right, you know, the people who get into trouble and not the people who go out and aggressively do something stupid, it's because you just fail to do something you should have done. It's a small acts of negligence that get you into trouble. There's a great irony in my case, which is I'm a huge admirer of Charlie. And I spoke to him a while back and also to Lou Simpson. And I was like, wait, so I can see these brilliant guys. who I really revere have been loading up on Alibaba.

So I can see what the greatest value investors, who I sort of have a temperamental and intellectual affection for, I can see what they're doing. So I, of course, buy Alibaba, which I think so far I'm happy that it's recovered enough that I'm only down about 40%. Well, we have lots of company then because I own Alibaba too, but I recognize it's a bet on China, the government, not the country. And that can be an issue, especially as you see Russia play out. I'm thinking more about the government part of Alibaba now than I did two months ago.

It's still in my portfolio, but I'm thinking about how can I do this better when I value companies? Because historically, investing in authoritarian countries was actually viewed as safer than investing in democratic countries because you've got stability. And authoritarian government can create a regulation and say, that's going to be the regulation for the next 40 years. No democracy can do that. And we've not done a very good job in valuation of factoring in that discontinuous risk that comes from, being in a country where you can have regimes do things and you have no pushback, no legal pushback, no political pushback. And I think that's an issue. That's one of my resolutions for the rest of this year is to come up with better ways of dealing with political and country risk. That goes

beyond just adjusting the discount rate for things governments can or cannot do to your company. How are you starting to think about things like Russia's invasion of Ukraine or surging inflation or the threat of rising interest rates or the economic impact of COVID, like these big geopolitical or macroeconomic or political things that in the past we might have been tempted to ignore because you would say, well, they're just unknowable and so I should just focus on valuing the business. How are you starting to factor in these really powerful forces that we'd like to ignore? But in some ways, it seems like you can't really ignore them anymore. They should never be ignored. The advice I give people in their value companies is to keep their

macro views out is not because they don't have macro views, but if you bring your macro views into every company evaluation, you're going to be spending 80% of your time thinking about what will happen to interest rates and inflation and not enough in your company. But macro views matter for your asset allocation decision. I think about my portfolio in multiple steps. The first step is I've got to decide how much of my money to put into stocks and bonds and physical assets and even cryptos. And that choice is driven by my macro views. So when I think about inflation and interest rates, it's going to make a big difference to my portfolio in terms of where my money goes in the first place. So, I think inflation is coming back to 8%. I should be getting out of financial

assets as much as I can. Doesn't mean I will have nothing in stocks, but instead of having 80% of my money in stocks, I'm going to be at 20% in stocks. My asset allocation decisions are driven by my macro views. But once I've made those acid allocation decisions with my macro views, I set them to the side and I say, I want to value a company. And when I value companies, I am going to stay as focused as I can on the micro, which means I have only 20% in equities. I now have to pick the best equities I can with that 20%. I'll have far less money invested in stocks. But valuation is about company selection. Macros are about asset allocation. And to me, when you mix the two, you end up with this jumble where you're not sure what you're doing at any point in time. I feel like the macro stuff

is so complex and there are so many forces involved that it's really almost unknowable. Like, I mean, Putin didn't know what he unleashed. So Putin had inside knowledge of what he was planning, and he still had no idea what he would unleash. And so it strikes me that one of the great lessons of what we've seen both with COVID and with the Ukraine situation is, again, the need for humility in the faces of an unbelievably uncertain future. I tell people macro forecasting exists to make soothsayers look good, because the historical record of macroforecasters is worse than abysmal. It's actually worse than random. I mean, in fact, there are books on forecasting now that talk about how badly expert forecasters do relative to people who might not have as much experience,

but basically kind of wander all over the place. So I think that macro forecasting makes us all feel better. That's really it. It accomplishes very little in terms of actual substance, but it gives us a sense of being in control. That's why very little of my investing has been driven by a macro view that's different from the market. I've never bought an oil company because I think oil prices are too low. Let me take that back. The only time I bought oil was actually bought oil companies in March of 2020 because I said, I know there's COVID and this is an oil price. It hit 30. In fact, I think Brent crude, the U.S. crude went below zero for a brief period that month. And it's one of the few times in my lifetime that I've actually invested on a macro

variable. Most of the time in investing, I'm investing based on a micro view of a company that I think is going to succeed. So macro variables are difficult. I don't know about macro trends. I mean, Kathy Wood has made a profession for herself by finding macro trends that will drive electric cars, we'll sign our documents online, we'll listen to music in streaming. Every single investment is really a better. You know what? If you're good at predicting macro trends, which is different from macro views and interest rates and inflation, maybe there's a way to instruct an investment philosophy around macro trends. I'm too old to estimate macro trends. Maybe I should hang out with more young people. But I think that that's something that might work for somebody else, but it doesn't work for me. In personal terms, how do you deal with the fact that the future is unknowable, that you're constantly being reminded of the uncertainty, of the political situation, of the pandemic situation, of geopolitics, all of these things. I remember you using the phrase once about the path to serenity. What does the path to serenity look like for you?

Part of it is accepting the fact that the lot that's happening is not your fault. There are people, I think, in investing who are so caught up. And this is, I think, the other side of hubris is when you're convinced that every success is yours, then every failure is yours as well. I mean, I'm lucky that I don't think much of my success is because of me. And the flip side of that is when something happens, I say, you know what? I did the best I could. I didn't see COVID coming in March of 2020. I wasn't protected for those six weeks when stocks melted down by 35%.

I didn't see the 2008 crisis coming. So the reality is that bad things will happen to you and it's not your fault. And letting that feeling of responsibility for every single mistake in your investing go is, I think part of being okay with being right and wrong over the long term. So I don't beat myself up too badly when something like that happens. I try to learn from it and say, what can I do in the future? So, you know, from this point on, maybe we should all be building in a chance of something like a pandemic that's global that can bring the global economy to a whole, to value every company. I'm still working through the details, but we can learn lessons from the past without kind of getting mired and sunken whatever mud there is in trying to explain who's responsible for this mistake. I think we also need to hedge against our own stupidity and ignorance and overconfidence, knowing that the future has out to be unknowable so many times before, we should just say, all right, well, I know that I'm

going to be wrong about the future once again, because I have been so many times before. So let me at least construct a life and a portfolio that are somewhat anti-fragile in the face of my own haplessness and ignorance. Yeah. And I think that that's part of the spreading your bets suggestion I made earlier, which is I don't want to bet on a geography. I don't want to bet on a sector. I don't want to bet on a particular manager.

Not because I don't have views on them, but because I know that things can happen that can make my bets go wrong. Now, I tell people, do a pie chart of your portfolio and compare to the pie chart of market values of every asset class around the world in geographies. The further away from that global pie chart, I get the more I have to be careful about the bets I'm making. So 45% of my money is in tech stocks. I'm making a bet on tech, whether I say so or not, I'm making a bet on tech collectively as a sector. When 80% of my money is in US stocks and globally, only 37% of market cap is in the U.S. Whether I like it or not, I have a domestic bias in my portfolio.

Those biases, I'm not saying you need to act and remove them right away, should be red flag saying you're overexposed to a sector or a geography. Why? And what do you plan to do to bring that down? Maybe the next stock you buy should not be a tech stock if you're already at 47%. So it's something that's constantly gnawing at the edges of what I do because it's easy, very easy to get overinvested. or overvested in some particular sector or geography, just because of accident.

I remember Jeff Gunblack, who's often called the Bond King, who I'm sure you know, when I interviewed him a few years ago in L.A. said to me, he's always saying, okay, so I know that I'm going to be wrong a third of the time, which is interesting, because he's not the most humble guy. I mean, he's a very brilliant guy, and he knows he's pretty brilliant and that he's been successful. But he said, what I'm always asking myself is, what's the consequence if I'm wrong? And that strikes me as a really profoundly helpful question to ask. So given that I'm going to be wrong about lots of things, if I'm wrong, is it going to destroy my portfolio or my health or my marriage, God forbid, any of these things?

So focusing on consequences seems to me really wise. I think that's wise advice. I think that if you can find a way to invest with also ways to limit your downside, your worst case scenario might be too much of an reach, but in your bad scenarios, no, you want to make sure that no matter what happens in your portfolio, it's not going to change the way you eat or where you live, because if that's the consequence, you're already over-invested in risky assets. Now, that's what I meant about the sleep test. Part of the sleep test is, I mean, I can say honestly, I've never lost a night's sleep in 40 years of investing. And I, you know, I don't plan to. The worst days of 2008, I still went to sleep like a baby, I slept like a baby, I woke up like a baby, probably crying in the morning,

but no, that's different. I've heard you in the past talking about karma, and talking about lessons from Mother Teresa's life and stuff. But you also mentioned at the start of this conversation that you're not a particularly religious guy. I'm wondering if there are core spiritual or philosophical books or practices that have helped you over the years to maintain some degree of serenity or a broader perspective through the slings and arrows of fate to help you deal with all of the stuff that just happens through life.

You know, I realized early on that if I went out and tried to make a big change to the word, all I'd end up is frustrated and angry. And this is perhaps something that came more naturally to me. Because I think the best way you can make the world a better place and be comfortable is to make incremental change. Every class I teach, every person's email. I mean, there's no activity that I do that provides me more return and investment than the time I spend answering emails because they get on average 300 emails a day. Most of them are not from people in my class. They're from somebody in some part of the world who's toiling on some valuation exercise who says, can you help me?

And it takes me probably 20 seconds because all they're often asking for is direction of where to go look or how to approach things. That 20 seconds I spend answering that email can save that person three hours. In some cases, change the course of the lives. I remember about 10 years ago, I was in Canada giving a talk to a CFA group and somebody in the group came up to me and said, Now, 15 years ago, I was a student in Iran and Iran was closed off. You were shut off from the rest of the world. And I had a question in finance because I was interested. And I asked you the question and you answered. And that email answer put me on a pathway to actually come to Canada, get my PhD and become who I am today. Thank you for answering that. I mean, what do you think is something small can have a huge effect on somebody's trajectory?

It's why I'm a teacher. I mean, I think we're measured. by not how much money we make or how successful we are, but how much we alter other people's lives in good ways. We can always alter other people's lives in bad ways. I don't think that's the measure we want. But I think everything I do is, what can I do that can make a difference today? Because it's amazing how incremental stuff adds over time. My website now has about 9,000 pages. It started as a website with five pages and two datasets. And every year, I've added a few things here and a few things there and somebody says, how did you build a website? I don't even know. It just happened incrementally.

And I could say that about almost everything I do in my life. Every book I've written is incremental. It started as a blog post or a throwaway line in a class. And the next thing I know, it's become a 300-page book, The Dark South Out Evaluation, Narrative, and Numbers. It was born out of an Uber post that I wrote in 2014 where I got into this debate with Bill Gurley, a debate where I learned a great deal about user companies. And I'm glad I had that debate.

But that post that took me two hours one Friday afternoon where I thought I'm valuing Uber and then I'm probably never going to talk about it again has become almost this obsession with Uber that became a book. It's become part of my teaching, became the Google talk that you heard. So it's actually it's amazing how things that you think are small things can over time kind of balloon out to become much bigger parts, might have a much bigger impact. Yeah, it's a profound idea that kind of stopped me in my tracks when you said that about the impact of small things. Because it's, yeah, you get so many emails and so many messages. And there's a great lesson from, I think it was the Balcham Tov, who was this great Kabbalist in the 19th century,

who gave rise to the Hasidic movement in Ukraine. And he said, they believed in reincarnation. He said, you could be reincarnated for 80-something years just to do one material favor to one person. I remember someone saying, yeah, and you can miss it. It could be the thing that you were born to do, and you weren't listening at that moment, and you didn't notice that someone was crying out for you to help. I agree. I mean, I think we live in a world where everybody's looking 20 years ahead. I mean, this goes back to the ESC talk. We all want to make the better place. But that starts right now with what we do. The actions I take when I leave this talk and go out and buy my coffee and, you know, I've got to go catch a train are going to be actions that could potentially have an effect on making the world a better place

or worse place. You know, people underestimate how much of an impact, this collective effect of people doing small things, but the small right things can have on us as a society. And when you think about the advice that you've shared with your kids and the thousands of students that you've taught over the years, are there consistent important lessons that you've really tried to convey when people ask you about what career they should pursue, what constitutes are successful and happy and fulfilling life? What do you try to share with them that we could share with our audience here? I'd love to tell you that I tell them to go do whatever they love to do and everything will take care of itself because it's nice sounding advice but it's not practical. Let's face it, most of us have to do things. We don't enjoy doing at least for a portion of our lives before we get to coast and enjoy the things. So tell them, look, it's the old Thomas Edison's 90% perspiration, 10% inspirations. If you're going to job expecting all inspiration all the time, you're going to be seriously disappointed. You know, you've got to put

the perspiration to get the inspiration. But I also tell them to preserve the option to abandon, which is you need to be able to walk away from a job to be really good at it. Sounds like a very strange thing to do. But basically, I believe that if you actually have the freedom to get up and say, I'm quitting. And there is nothing that the person on the other side of the table can use to yank you back. You're actually going to be a much better employee because you will speak your mind. You will talk about things that don't make sense because you're not afraid. I do. A lot of people I teach end up in investment bank. And investment bank is notorious for bringing you in and putting golden handcuffs on you, which is they pay you this immense amount. And the next thing you know, you've got a

$5,000 apartment, you're living like a king, you never eat at home. They've got you. Because now if you don't like what's going on, if you don't like the way things are being done, what are you going to do? How are you going to speak up when you have too much to lose? So I know it's tough. for especially for a 22, 23-year-old to do, but I tell them, live like a student for a couple more years for the first two years that you're working. Because you're not locked into making $15,000 a month, or $20,000 a month to break even. You have a much lower set of expenses. To me, preserving the option to abandon has been the hallmark of what's driven my life. I've in all my life. I've always wanted the freedom to do what I want and not be worried about pushback. I've never done consulting in

my life ever. I've never done expert witness work because you're accountable laws and consulting companies pay you immense amounts for saying stupid things, but you're basically who pays the piper or she who pays the pipe or ends up calling the two. I've never appraised a company for money. And again, I'm not saying this to kind of set myself apart. I've done it because what I think people come to read when I write is that they might disagree with me, but they know I have no hidden agendas. I don't work for a hedge fund. I mean, I don't consult with any of these companies, which gives me the freedom to say exactly what I think about whoever I'm thinking about it at that moment without worrying about the consequences. And even

with my relationship with NYU, which is my only contractual relationship, I worked as hard as I can over my lifetime to make it dispensable. I'm willing to get up, walk out of this office and say, I'm done. I wouldn't have been able to do it in the first 10 years I was here, the first 15 years, but I worked over my life to have the freedom to be able to walk away from whatever I'm doing. Michael's work to get to that point because it makes you immensely powerful because it allows you to be actually a much better employee wherever you're working because you're going to be open and clear about what you think should be happening. People might not like it. But guess what we're surrounded by people in this word who tell us what we want to hear? Because they're afraid that if they tell us the truth, that we'll push them away or fire them or get rid of them. And that's not healthy.

When I look at your life, it seems to me that one of the great lessons is that you've been very true to yourself, your own talents and priorities and idiosyncrasies, that for you, things like extreme independence, not being beholden to anybody, being willing to stir the pot, being willing to provoke this slightly rebellious street that I admire in you. That was something that you fought to preserve because it was such a priority for you, more of a priority than money, I would say, or luxury. you. Yeah. And I think that's absolutely true. I've tried to be true. Because let's face, nobody stays true. Even Mother 3 is so. And the talk she gave said she tries. But that's all you can do. And I think you're right. It doesn't happen accidentally. Independence doesn't come as a gift in your lap. It's got to be something where you've got to be willing to give up something. And I was immensely lucky. I didn't have to give up much. I have everything I need. I might not have everything I want. Nobody does. I have everything I need. There's nothing. that, you know, having an extra million or an extra two million is going to change in the way that I live. But I understand I was lucky to be able to be in that position of pick the profession where I could pick this path. But now, that's what I wish on my kids, is that degree of independence, but their parts, it might be more difficult to get there. So I'm not going to judge them if they don't have that independence. I just, you know, I hope they find a way there.

But they have to make it part of their priorities if they wanted to show up at some point in their us. You've often talked about life cycles, whether it's a country having a life cycle, a mature country like the US or these Western European countries, or an economy with an aging population or companies going through a life cycle. And obviously, there's a life cycle for each of us individually. And when you think about the stage of life that you're in now and you look to the future, you're in your early 60s, are you? How do you think about the future about what you'd like to do, what you hope to achieve. You seem like someone who's had a tremendous mission and a passion for teaching, but also who's quite happy to be pursuing your own interests and curiosities. I'm wondering

how you think about the next 20, 30, 40, 50 years. I have no big plans. I don't have five books I need to write. There's nothing on my bucket list that I need to do. But you know what? It's incremental. I will continue to write posts for all, you know, these three posts on ESG might become a book on is you. I'm not sure. I'm not saying that that's what it will be. It's things build up. I just, you know, last week I took my Google blogger. I'm very old-flash. My website looks like it was constructed in the 1990s and I tell people, you know, that's because I need to be able to fix it. Now, I've been a Google blogger since 2009. And Google blogger is very powerful. I'm grateful to Google for giving me a platform where I can write and people can read me. I think there were 21 million

people have read, I have gone through the blog. So it's clearly reached a lot of people. But I I'm a little nervous about the fact that I'm completely at the mercy of Google. Because Blogger is not even in the list of top 50 things on Google's product money, right? They don't make any money on it. It's a little thing they do on the side. So tomorrow they said we've decided to remove Google Blogger entirely from our portfolio. There goes 9,000 plus pages and 636 posts of writing. So last week I got a call from Substack.

You know, you've probably read people who write on Substack and they said, you know, would you be? And I said, fine, as long as I get a free version. And I said, the one concern I have is transporting everything I have from. And they said, that's easy. It was actually very simple. Two minutes, I was able to take 13 years and 9,000 plus pages from Google blogger and duplicate it on substack. I'm going to keep both platforms open. But my point is, I never started this blog expecting it to last more than a few weeks and expecting write more than like 15 or 20 pages. 9,000 plus pages later, I look back and say, how did that happen? And it's just a collection of Thursday afternoons where I wrote a post or a weekend where I spent writing a post kind of adding up over

time. So I'll keep doing things on an incremental basis. And if it amounts to something that is substantive enough, then I'm going to say, look, you know, might as well make it a book. Might as well make it into a standalone clash. Because to me, that's something that will happen when it's time to happen. I'm not going to push it. I'm going to, you know, I've never actually signed a publishing contract to write a book before I've actually written the book. I've actually written the book onto a publisher. I've got a book. You're interested. Because to me, the notion of saying, I would write a book and then throwing out this proposal and then starting to write a book, it feels like drudgery to me because now I've got to write all these chapters that I've promised

the publisher and I promised a due date. And I hate to be beholden to somebody on a timeline. So to me, this is, you know, that's my life has always been about taking these incremental things. And if it's ready, then push it to the next level. And if it's not, I'm okay with it, not going there. So in a way for you, the ultimate luxury has been control over your own time, your ability to speak your mind, to be beholden to nobody, to express yourself, to disrupt the investing business, the academic world. It's freedom. That's kind of the goal. The fun I've had on the ride is exactly why I value that freedom.

I wake up on Monday mornings when I have to teach and I just can't wait to go. And there aren't too many people in the world who could say that about, now, I haven't worked a day in my life. And I know people say that. I have not worked a day in my life because everything I've done, I've done because I, you know, I wanted to do it. It's a powerful luxury to have. But now I'm grateful every day of my life for having been able.

to get that path. That's a lovely note to end. And Aswad, I'm really absolutely delighted that we got a chance to talk. You're a wonderful teacher and a wonderful speaker. And I'd never met you before. And it's just been a sheer pleasure for me. So thank you. Thank you. It's a pleasure. That's it, folks. Thank you so much for joining us today. If you want to learn more from Aswath, I'd encourage you to visit his website, which has an incredible array of resources, including his blog and links to the classes he teaches at NYU. Amazingly, he's made all of his university courses available online for free. It won't surprise you to discover that he's a fabulous teacher. He's won tons of accolades, including NYU's Distinguished Teaching Award. In the show notes for this

episode, I've included a bunch of links to his website, his YouTube channel, and his many books about investing. For regular investors like me, I think one of the most useful books he's written is the little book of valuation, which explains his approach to valuing businesses in a very accessible way that even a mathematically challenged investor like me can understand. Meanwhile, thanks a lot to everyone who wrote to me on Twitter to suggest questions for me to ask Aswath. I end up asking him a question that came from Fabio Zugman, a listener who lives in Brazil. As a way of saying thanks, I'm sending Fabio a signed copy of my book, Richer Wiser Happier, which is based on hundreds of hours of interviews that I've done over the last quarter of a

century or so with many of the world's greatest investors. Please feel free to follow me on Twitter at William Green 72 and do let me know how you're enjoying the podcast. I'm always really happy to hear from you. Thanks so much for listening. I'll be back with you again very soon. Take care. Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by the Investors Podcast Network. Every Wednesday, we teach you about Bitcoin and every Saturday we study billionaires and the financial markets. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only.

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