We Study Billionaires - The Investor’s Podcast Network - RWH007: Investing Legend Bill Miller On Amazon, Bitcoin, & Buffett

Starting point is 00:00:00 You're listening to TIP. Hi there. I'm really excited to introduce today's guest, Bill Miller, who's one of the most legendary investors of our time. Bill famously beat the S&P 500 for 15 years running, which is an unprecedented feat that may never be repeated. He then got absolutely crushed during the global financial crisis back in 2008 and 2009, and then staged an equally remarkable comeback over the next decade. I've interviewed Bill for the best part of the first part of a hundred hours over the last 22 years, and I wrote about him at some length in my book, Richard, why's a happier? I've always been struck by the sheer brilliance of his mind and the

Starting point is 00:00:41 independence and originality of his thinking. This is a guy who's never afraid to go against the crowd, and he's made some incredibly bold contrarian bets that worked out well enough to make him a billionaire. As you'll hear in this conversation, Bill currently has more than 80% of his personal investment portfolio writing on just two assets, Amazon and Bitcoin. He explains in depth why he's still so bullish about Bitcoin and why he thinks Warren Buffett and Charlie Munger are dead wrong about it. He also explains how he came to be the biggest individual shareholder of Amazon, other than members of Jeff Bezos's family. He talks about some of the biggest bargains that he's seeing in the stock market right now, and he talks about what it's like emotionally to be him at a time when the financial markets

Starting point is 00:01:29 have been in freefall. This is a really rare opportunity to hear from a great investor in the heat of battle when the uncertainty is extreme and the pressure is absolutely brutal. I hope you enjoy our conversation. 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. Hi, everyone. I'm absolutely delighted to be here with Bill Miller. Thank you so much for joining us, Bill. Thanks, I'm delighted to be on. Thank you. Great. And we're talking in May 2020 at a tremendously dramatic moment when the financial markets have been getting pretty much clobbered, especially tech stocks and cryptocurrencies.

Starting point is 00:02:26 And I wondered if you could paint a picture for our listeners of the kind of carnage that we're experiencing, what the mood is among investors. and what it feels like right now? Well, for somebody who's been doing this for over 40 years, it feels familiar. There's been many, many cases I've been through when it's been much worse than this. But still, this is painful. You know, there was a line from Jesse Livermore's reminiscence to the stock operator where he talked about losing money and saying he always considers losing money,

Starting point is 00:02:57 you know, a valuable experience because you learn something from it. And he said, so he doesn't think about it as losing money. he thinks about it as tuition payments in the school of the market. And I would just say that since November of last year, the tuition has been very high for me, a very expensive lesson. I think I should ask President Biden for some, you know, from some student debt forgiveness here for the tuition payments that I've made. But I just give you two examples. So the ARC Innovation Fund, you know, the Kathy Woods Fund, which is very transparent. And I think yesterday, it's probably up today. I haven't looked at it, but yesterday it got down to where it was in March of 2020. So at the lows, it's lost all of the

Starting point is 00:03:32 gains that it's had had since then. At the same, you know, probably the two best records of people, you know, managing money professionally are Dennis Lynch at Morgan Stanley and James Anderson at Bailey Gifford. And both of their funds are down, I think more than 50% from the highs just reached in November. So that's how bad the carnage has been in, I'd say that the disruptive innovation space. And then if you go over to the crypto space, micro strategy, you know, Michael Saylor's company. So yesterday, micro strategy got down to where it was trading before he started to buy Bitcoin. And so it's given back all of the gains that it's done from there. It was like 160 or 170 yesterday. And it was, where was it at the peak? 200 or something like that? And so clearly

Starting point is 00:04:13 people are shooting at micro strategy and shorting it. And Sailor came out the other day when they asked him, like, what price would Bitcoin have to go to before you have to set before we're forced to sell it? And he said, well, you know, the loan that he got from Silvergate capital. Silvergate is a bank that Lens operates me in the crypto space. Silvergate, by the way, in the $60 range, I think, is an absolute bargain. But Silvergate loaned him the money to buy the last trunch of Bitcoin, $250 million. And he said he wouldn't have to sell any Bitcoin until it was $3,000. And it's where is it today close to $30,000? So it's got to got another 90% after that you have that. That's an example. And I would say that the reason for that is, and this is probably

Starting point is 00:04:49 the more important thing, is that we're in a regime change. The inflationary environment, the environment that basically most people who are operating in the markets have seen since certainly the 09 lows, but really going back into the 1990s and stuff. like that. I mean, if you're of working age, meaning you're under 65 years old and you're in the investment business, you have never invested in a secular rising rate and secular rising inflation environment. And I'm one of the few of Lee Cooper is probably another. Mark, Mary Gabelle is another that was of adult age back then. And I remember that period very, very well. And it's a different investment environment. When you have secular rising interest rates, the Fed tightening, you know,

Starting point is 00:05:25 we have war in Ukraine in October 6th of 1973. I was in the Army at the time. And I was the duty officer when the Arab-Israeli war broke out, October 6th for our intelligence unit. So that's what kicked off that Arab-Israeli war. That's what kicked off the inflationary environment, just like the Ukraine thing kicked off the rising and the oil environment over there. So it's a replay of that. And it took 10 years for finally for Paul Volcker from 79 to 82 to engineer, you know, a severe recession. We had a recession in 73, 74, but that was part of a come down from the nifty 50-1 decision stocks that's peaked in December of 72. Our version of those, the disruptive of innovation stocks peaked in November of last year, and they're suffering a similar decline to what

Starting point is 00:06:06 those nifty 50 stocks suffered in 73 and 74. And your traditional view has just, your posture has just been to be bullish, right? You've often said, well, the market goes up 70, 75 percent of the time. Your default position should be bullish. But at the same time, I remember you were studying earthquakes and the like and trying to think, well, are the ways of predicting when something is changing and actually things are going to collapse? And I'm wondering, is this one of the those situations where it's just the same as always and it merits your standard approach of being bullish, or is this some sort of bigger earthquake, bigger tremors that we're feeling? The other thing that I've said is that nobody can predict these things, the future. No one has

Starting point is 00:06:45 cripplers access to the future. So could this be, you know, the end of days? You know, maybe it is. I don't know. You know, Keynes made a point back in the 1937 when the market went down 50%. And he made the point will look, if you can't buy into the market when prices are falling and falling a lot, then you can't buy at all. Because if it's the end of the world, it doesn't matter. But lower prices are always more attractive than higher prices. The most attractive prices are at or just close to the lows. I don't know if we're there or not in this, but I do know that with six new highs today and 2,000 new lows, there's a fair amount of pessimism in the market. Every correction that we've had in the past regime, so 2011, 2014, 2014, 2015, I think it was 2018,

Starting point is 00:07:24 2012, those particular lows were reached when we had about 40% of the S&P 500 making 52-week lows. So yesterday, I think we had 25% of the S&P 500 on the new low list. But another 25%, actually more than that, are within about a percent or two of making new lows, which would tell me that any sell-off from here, we're down 1.3% today. So did we get a bad day tomorrow, a bad day, Monday? They will be, in my opinion, based on the previous lows, we'll probably be there or close to it, at least for intermediate term rally. Do you kind of almost perversely look forward to times like this? Because it seems like so much of your advantage over the last 40 years of being in this business has been your ability actually to step up during periods of tremendous disruption when other people are making emotional mistakes and assets are getting mispriced.

Starting point is 00:08:17 It seems like these are actually the periods that you almost wait for. I don't like these periods because of the tuition payments that I'm giving to the bigger market, and it's been extraordinarily costly and painful. On the other hand, it's a much better time to invest right now. I mean, I just give you some examples that are just front and center today. So, one main financial is a subprime lender. It has an 8% dividend yield. It's secure, in my opinion, and it's trades at five times earnings. And this is the perfect environment for them where you have rising wages and rising inflation so that the credit is getting progressively better because people are flush with cash. So it shouldn't be five times earnings. It should be 10 times earnings,

Starting point is 00:08:56 in my opinion. General Motors is five times earnings. Every car they make is already pre-sold. And even Kathy Wood, you know, the famous owner of Tesla, just started buying general owners because, you know, Mary Bear has got the right strategy. Paul Jacobson, the relatively new CFO is really, really good. And their margins will be increasing with electric vehicles. So I think that's cheap. Then to get even a little bit crazier, we talked to Taylor Morrison homes yesterday. Cheryl Palmer is a long time, an excellent CEO there. It trades at 2.9 times this year's earnings. And with basically a 20 plus percent return on equity, and they're buying back stock. And the balance sheets in good shape. They have a little bit more debt than the average home builder,

Starting point is 00:09:34 but nothing to worry about. And either home prices will have to go down 30 to 40 percent. That's going to be hard. We're short four billion homes in the country. And home price are actually rising. So that one should be, home builders should typically trade it 10 times average earnings. So it's 2.9 times average earnings. All the home builders, the really good ones, you know, Lanar, Pulte, they're all buying back stock, as they should be. We have a Ben Graham special on sale right now in the market with Bosch Health, which was the old, what was the company called went to 200 and then it collapsed and Ackman owned it, the Canadian Health Company. I forgot it. Dalliant, yeah. So that's now Bosch Health. And so they did an IP,

Starting point is 00:10:14 of their I-Care business. They sold 10% of their I-Care business last week. They reported earnings on the core business, which were a little bit below what people thought. So the stock is around 10 right now. The market cap is 3 billion. The I-Care company is going to come with relatively low debt, and they're keeping all the debt on the old kind of non-growth business. But their 90% ownership of Bosch and Loam, the I-care business, which they aren't going to spend out probably late this year, early next. Their 90% ownership of that. that is worth more, well more, than what the current stock is trading for. And they're going to spend that out to people. So you're going to get that basically an investment-grade business,

Starting point is 00:10:53 and you're still going to have a company that's trading at 2.1 times earns in your portfolio. So that just makes no sense whatsoever. But in a bare market, you see that. So in a sense, your competitive advantage, among other things, is that you can remain dispassionate in these moments of tremendous turmoil where lots of stuff is getting mispriced because is people are throwing the baby out with the bathwater. Is that fair to say? Yeah. I mean, lower prices, other things equal are always better than higher prices. If you're actually an investor and you're going to own stuff for the long term, I would say that there are periods like, I mean, this was 0809 was like this, 73, 74 is like this,

Starting point is 00:11:31 1982 was like this, 1987 after the crash was like this. You don't get these opportunities that often. I mean, I'm just looking at, you know, we own Citibank. City Bank got like about a $70 tangible book value, and today it's $45. So the tangible book at Citibank is pretty tangible, and it's pretty, I just say, predictive of most banks, if they're accounting and they're going to capitalists. So the tangible book value is a reflection of the underlying value of those assets, which are mostly liquid. I wanted to get a sense from you of how you viscerally actually feel at the moment of what

Starting point is 00:12:04 it's actually like to be in your mind and body at a time like this. I remember when I first wrote about you, we'd travel together back in 2001 in the days after 9-11 when the market had crashed. And I was writing a profile of view for fortune. And I think the market had just suffered its worst week since the Great Depression. And stocks were crashing. Geopolitical situation was pretty terrifying. And your fund was down over 40% from its peak at the time.

Starting point is 00:12:28 And you just seemed really calm and cheerful and unflustered. And you were just buying hundreds of millions of dollars worth of stocks that everyone else was scared to touch and that later soared. And so I always had this image of you as being very, very unemotional. But at the same time, I don't think you're immune to emotion, right? I mean, you clearly felt a lot of emotion when things were falling apart in 2008, 2009. And can you just give me a sense of that nuance of what it actually feels like to be in these periods? Yeah, I would say that the worst period was 08 and 09, worse than 01.

Starting point is 00:13:01 And that was because, you know, in 01 we'd come off a long run and had a runway ahead of us, beating the market. And so even though we were down a lot, we outperformed in 01. We underperformed in 07 and 08 and 09, if I remember correctly, or 06-07, 08 and 09. And we'd lost a lot of assets and we had to lay off a bunch of people. So that was a much worse period than when we were still in the midst of a long period of outperformance, even though we were down. So this, again, we don't have that level of assets and it's basically a family office with some public, some publicly available vehicles. And I'm the largest investor in the those vehicles. So they represent a pretty good proxy for the amount of money that I've lost

Starting point is 00:13:43 from the peak. But I'm not too concerned about it as I was in 08 because basically we don't have people to lay off. And we don't have clients firing right and left. That was more stressful to me than just losing money. Yeah. I remember Charlie Munga saying to me at one point when I was asking him what it felt like in 2009 to buy something like Wells Fargo in March 2009, whether it was emotional, whether he felt fear and worry. And he was like in this monosyllabic way. no, no. And I said, so you're not really fighting those emotions because you don't feel them. So is that similar with you that you don't really feel those emotions like fear and anxiety and worry during these times?

Starting point is 00:14:21 No, I would say that the anxiety for me comes when, you know, I can always tell when the market is close to a bottom when I get margin calls because I read despite what, you know, Buffett and Munger talk about with respect to borrowing money. I mean, my view is that if you can borrow money at negative real interest rates to buy productive assets that you should do that. But, you know, I've gotten margin calls here and that's painful because you have to sell stuff that you do not want to sell and just to do that. But then, you know, once the things are sold and you also have to pay tax then, so I don't like to pay tax anymore than the next person does. So I, you know, my cost basis on, you know, Amazon is effectively zero. My cost basis on Bitcoin is effectively

Starting point is 00:14:58 zero. So selling those things to meet margin calls because they're also highly liquid is going to be very painful next spring, you know, because they got to pay tax on that. So for a regular investor who feels these emotions much more intensely, do you have advice for them on what to do? Because one of the recurring problems, obviously, that you and countless other really exceptional money managers have had over the years is that people bail at exactly the dumbest point at exactly the moment when they should be buying your funds because they're getting clobbered. They lose heart, despair and bail out. And then they buy again when they're doing really well. And just looking back on the last 40 years and having seen all of these mistakes that shareholders make, what would you advise people, not just your shareholders, but regular people to do when they're

Starting point is 00:15:42 feeling kind of barraged by these emotions as they open up their portfolio in the morning and they look and they go, oh my God, really? Well, I mean, my advice to them is what J.P. Morgan said when somebody said to me, he can't, he can't sleep for all the money he's losing in the market. And what should he do? And J.P. Morgan said, sell down to the sleeping point. I mean, I think that's the answer. You know, it's funny you mention that because yesterday, I'm not going to mention the person's

Starting point is 00:16:05 name for obvious reasons, but yesterday, a well-known money manager, one of the best in the world, redeemed our fund. So millions and millions and millions of dollars. And they're like, really? So I don't think he went out to buy a, you know, a mega yacht or anything. I mean, I'm guessing he just was, you know, worried about how much money he's losing. You got in a similar situation where you had to redeem from Nomad, right? Nick Sleep and Zach's fun at the height of the crisis. I mean, you'd been really prescient in seeing

Starting point is 00:16:34 how smart they were and betting on them very early. And then, you know, you had to sell your yacht as well, right? I mean, they're brutal these situations. Yes. Yeah. Yeah, I had more money out with people at that time. Instead of selling my own stuff, you know, I love Nick and Zach and they're great guys. And I'm going to London in a few weeks, I think, to stop by and see them. But yeah, I just, I had to pull money from stuff that I had out with other people. The amazing thing that you did back then that I don't think many people realized is that you kind of really amped up your bet on Amazon, which you'd owned for about 20 years. And so at the height of that mayhem, can you explain what you did to beef up your bet on Amazon? Because I actually, I think it's kind of one of the great contrarian bets.

Starting point is 00:17:17 And at a time when people were kind of, you know, reviling you for getting hit and, you know, suffering from hubris and overconfidence, you were quietly actually making one of the great investments of your career. Can you talk about what you did back then with Amazon? Yeah, so we bought Amazon on the IPO. I think you've heard me say when people say, what's the best investment decision you ever made was buying Amazon on the IPO? What's the worst ever selling a share of Amazon? But we bought it, it doubled, we sold it, and then we came back in at $88 a share on the then-stock in 1998, and then it promptly fell to six.

Starting point is 00:17:52 And, you know, when it started falling, you know, we bought a little bit more. when it finally got cratered in 2002, I guess was the bottom in it. And that was when people thought Amazon was going to go bankrupt, that analyst Ravi Surrey, I guess at Lehman Brothers had said they were going to be bankrupt by the end of the year. Their bonds were going, you know, they had to tangible assets. Their bonds were going down. And we knew that wasn't the case because then they just sold books, music and video. There's mostly books.

Starting point is 00:18:16 And the book business, as you probably know, you can send the books back and get your money back for the books that you bought and held in your warehouse. So they didn't have any problem in that regard. They had some issues with suppliers who were wanting to be paid because they were listening to Ravi Syria, but that was not a, they had cash flow. They didn't have to worry about that. And in any case, I had told Jeff Bezos at the time that I said, look, if you need capital, we had still have money flowing into our funds. And we had a lot of, you know, a lot of firepower. And I said, if you need some money, $100 million, $200 million, we'll buy some bonds from here, again, do that long in the money.

Starting point is 00:18:48 And they didn't need it. But the reason it was is I had a lot of confidence in, in fact, I think Jeff came to Baltimore. We had dinner there and I asked him at the dinner. This was actually probably close to the bottom. I said, what are you spending your time on? And when I asked him that in 2001, he said the balance sheet. I'm making sure that the balance sheet is, you know, as bulletproof as I can make it because of the recession and the collapsing prices and stuff like that.

Starting point is 00:19:15 And in 2002, when I asked him the same question, he said the customer, experience. And so that meant that he was playing offense and not defense. And that whatever the market thought was going on there, that wasn't the reality at Amazon. And so that, I mean, we were buying the stock anyway, but that gave me a lot of confidence that it was headed the other way. And then, so you back then, I mean, when I was writing about you for Fortune, you owned 15% of the company. And I remember seeing you getting absolutely beaten up at some event that we've discussed before celebrating the release of Bruce Greenwald's book, where everyone was telling you why you were going to lose 100% of your money. What was the thing that you saw that nobody else saw back then?

Starting point is 00:19:57 Because, I mean, it really, it's hard for people to cast their minds back to just how contrarian that bet was at that point after it lost 90% of its money. And I remember you telling me, look at this guy in Barron's every single week who just is so biased against Amazon and he just looks for another reason to say why it's going bankrupt every week. what were you seeing? Well, first of all, they had positive free cash flow. And actually, I'd had dinner with Warren Buffett and Chris Davis out in Omaha about that time. And Warren had owned, he was like the largest holder of their bonds, their senior bonds, which again gave me fairly good confidence that he knew quite well what the business is worth. Again, he didn't own the stock. But I would say that the thing was that first of all, you had a business, which was clearly the leader and the winner in its space. Now, the space is very much larger now

Starting point is 00:20:42 than it was then. And it's generating positive free cash flow. And Jeff was as good a decision maker in terms of process of decision making and rationality as I've ever seen. You know, Warren knew and them that didn't know as well knows it now. But he's, as you know, he's called an authentic business genius up there with, you know, John D. Rockefeller and people like that. And I think that's now proven to be the case. But even then, he was very, very impressive. You know, as somebody, as Peter Lynch said, you know, when somebody says, oh, the stock's 100 and now it's six, you know, how much more can I lose. And as Peter Lynch, you can always lose 100%. No matter what the price is, you can always lose 100%. And that was the thing so. But I didn't think we lose 100%, but we could start to lose 50

Starting point is 00:21:19 as we'd done a couple times before. But you saw a cost advantage that I remember you're telling me was very similar to the cost advantage that you've seen at Fannie Mae that was kind of obscured by the fact that Amazon seemed to be losing a fortune. And anyone who was using GAAP accounting was just saying, look, this is a disaster. But you saw that it had a cost advantage that sooner or later would be borne out, right? Is that fair to say? Yeah, when that was the time when, as you alluded to, when I was on a panel with Bruce Greenwald when he came out with, I guess, the second edition of his book on value investing. And so I was on a panel with Gobelli and Cooperman and Seth Claremont about value investing. And, you know, Bruce proceeded to attack me as

Starting point is 00:22:02 not being a true value investor because I own Amazon and that Walmart was going to put them out of business. And then I guess who's the dean of the business school at the time later one to the President's Council of Economic Advisors. But so he said, he interrupted Bruce and said, can you let Bill at least answer your attack? And that's when I said, Amazon is Fannie Mae. And I explained exactly what, you know, what Peter Lynch had taught me about Fannie Mae. And I went through with Amazon. And I said, I don't see the difference there.

Starting point is 00:22:28 I mean, Walmart has got all these warehouses around the world and they got this long supply chains. And they, you know, they basically are getting stuff and putting them in the stores. And Amazon sells direct to the consumer. And so they miss all of that kind of stuff. And they basically have one big, at that time, one big, one big, two big warehouses. And they have an inventory that's could be put back to them when they were generating free cash. And, you know, there was no way that Barnes & Noble could compete with them, the same way that IBM couldn't compete with Dell in terms of their selling personal computers, one via stores and one, you know, via direct. And then, so you wrote the stock up massively for years.

Starting point is 00:23:02 And then when 0809 came and there was carnage, what did you do personally in terms of playing with? long-term calls and the like to turbocharge your own bet on it? I don't think it was 08 and 09. I think it was the real turbocharging came. I want to say it was maybe 2012 or 13. When the stock had come down, it was in half from where it had sold one of these big declines in the market. And that's when I bought a lot of calls on Amazon because basically buying the stock, if it went back, the way the options market was acting at the time, basically it was

Starting point is 00:23:37 If Amazon went back to its old highs, you doubled your money. But if Amazon went back to its old highs, you made five times your money in the calls, for the two or three year leaps. So I just bought a lot of those. And then also when I went back and I made five times my money, I exercised those calls. I didn't sell them. I exercised them. So that's a tax freak thing.

Starting point is 00:23:55 So I basically also deferred the taxes on all that. So when we spoke about this in 2020, I think when I was fact checking my book, you had 83% of your personal portfolio in Amazon. And you said to me that, you'd had a discussion with Bezos where you said, wait, is your proxy statement correct? Because if so, I'm the biggest individual shareholder of Amazon who's not named Bezos. This is before he divorced his wife, who has a different name and now presumably has more shares than you.

Starting point is 00:24:21 I mean, now, how big a percentage of your personal portfolio would Amazon be? It would be about 40 to 50%. I guess it's come down a lot. So it's Bitcoin. So both of them were a lot more than they currently are, because both of them are. Amazon's down 30% or so from the peak or maybe more than Bitcoin's more than half from the peak. And what percentage of your portfolio would be Bitcoin now? About the same as Amazon, about the same dollar amount.

Starting point is 00:24:50 So you told me at one point that you had something like 96% of your portfolio. I think this is last year when I interviewed you for Barron's. You said you had something like 96% of your personal portfolio was in Amazon and Bitcoin with a few other odds and ends, but not much. What would it be now overall between those two? 80, 80s, probably. And what would the other main thing be anything major? Well, I've got money in the funds, obviously, and our funds.

Starting point is 00:25:16 And then, you know, other big positions, Silvergate capital, the crypto bank is a big I'd spot more of that yesterday. Now it's down 13% today. Facebook is a big holding. I mean, there's a variety of things that I own. I mean, just can give you a quick sense here. Bidu is a big holding. Mattel's a big holding.

Starting point is 00:25:34 ADT is a big holding. Gannette is a big holding, relatively speaking, not as big as Amazon as I think is big. And what's the common denominator here? Because if I look at something like Baidu, for example, which I remember you were buying last time we spoke, everybody hates China at the moment, right?

Starting point is 00:25:49 There are all sorts of people saying China is uninvestable, just as people said that Amazon was going bankrupt when you were building a big position there. What do you see when you look at Baidu and China? And I ask you this as someone who looked at my investment in Alibaba this morning and so that I'm down 58% so far since I bought it a few months ago after it had already crashed. So, yeah, what do you see when you look at China and Baidu and Alibaba and the like? Yeah, Alibaba is down, we on Alibaba.

Starting point is 00:26:16 I was down 2.6% today, $79.60. That's a good day for me, Bill, where my Alibaba steak code goes down a couple of percent. I'm winning. Yeah. What do you think about China? I mean, Charlie Munger has said it at the Berkshire meeting. I mean, China, he's bullish on the Chinese international. internet and tech companies. He says they're great companies and they're a lot cheaper than the U.S.

Starting point is 00:26:37 versions. I think that's right. I think you have the, obviously have the regime there, which is, I mean, the problem there is it's an autocracy and, you know, with the lunatic COVID policy, which is creating a fair amount of unrest. But that's the problem with autocracies is they don't care how much unrest they create with, you know, when they want to basically make a point. And I think that that's your risk in China. I think that, you know, I mean, President Xi has said that he's now going to support the infrastructure companies in China and the Chinese national champions. I think that the regulatory regime with respect to those companies that have been in the crosshares is going to be getting better. Again, they're not going to let them do the freewheeling stuff where Jack Mock would go around and criticize the government with, I guess he thought impunity.

Starting point is 00:27:15 So I think that I mean, the stocks are just, it's like Facebook. It's just a very cheap stock now. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year, bringing together activists, technologists, journalists, investors, and builders from all over the world, many of them operating on the front lines of history.

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Starting point is 00:31:13 sign up for your $1 per month trial today at Shopify.com slash WSB. Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right, back to the show. It seems like one of the really distinctive things about your approach to investing over all the years that I've been interviewing you, which I think now is 21, 22 years, something like that, is that you're very comfortable with uncertainty. And I wonder if you could talk a little about that, about the distinction you make between uncertainty and risk. Yes, it's a distinction that was, I guess, first pointed out by Frank Knight, the autonomy.

Starting point is 00:31:56 And so risk is basically what insurance companies are managing, right? Which is there are all kinds of bad things happen. And they promise to pay you if you have a policy with them if these bad things happen. And so what they do is they look at the experience of those things happening, the probabilities of those things happening. And their exposures if those things do happen. And they manage to that. So, you know, if the probability of being struck by lightning is whatever it is and choking on a piece of meat or being in a car accident, They have a lot of data, which tells them that within two or three standard deviations,

Starting point is 00:32:29 what they'll have to pay if those things happen. And that's what insurance companies do. But when people talk about risk management in stocks, that's not what they're talking about. They're talking about what Kane's called irreducible uncertainty, because you just don't know, because you don't know the probabilities. The base rates and the probabilities are not known. And therefore, you can't manage that. You just have to deal with it.

Starting point is 00:32:47 And, you know, look at what happens if you're wrong and these things occur. So people are very, very uncomfortable with that. And that's why they freak out when the market goes down, because they don't. I don't know if the market's going down 5% or 50%. And I think that's the, because they don't know what's going to happen in the world. So I think that's the big difference. And for me, I do make a distinction about that. And, you know, look, there's Amazon.

Starting point is 00:33:07 I don't know how much Amazon can go down, but I know Amazon isn't going bankrupt, you know, and I know that they can generate cash under basically any and all circumstances. And the only reason they wouldn't generate cash is when they're spending on CAPEX because their business is so good. And then they've got to build warehouses and trucks and stuff to deliver goods. So, you know, that's, again, it's a Charlie Munger point about the, best business to own is the one that when it stops growing gushes cash, and that would be Amazon. It would be casinos, too, for that matter.

Starting point is 00:33:32 I remember you telling me not long ago that you have in some ways a different attitude to uncertainty than someone like Buffett, where Buffett, you pointed out in March 2020, when the market was getting killed by that initial COVID pandemic panic, and also in 1987 during the flash crash, that Buffett actually didn't do anything, that the uncertainty was so extreme that he kind of stepped back and was almost paralyzed. Maybe that's the wrong word for it, but suddenly just waited. Can you talk a bit about that? Because it seems to me very distinctive, that difference between you and him, your willingness to do stuff at times where there's a great deal of uncertainty that would make someone like Buffett extremely uncomfortable.

Starting point is 00:34:12 Sure. So it's got to go back to the, I think it was 1990. I remember that they do the Barron's roundtable every January, the first couple weeks to January. And so, Saddam Hussein had invaded Kuwait. And President Bush had given him an ultimatum that he needed to be out of that by January 20th or something like that around that day. Or he was going to, you know, send in the troops and the bombers. And so the market sold off when he invaded Kuwait. Oil prices shot through the roof. The market sold off significantly. And they asked the people on the roundtable, you know, what they were doing. And it was John Neff and Peter Lynch and, you know, a bunch of luminaries. Paul Tudor Jones is on there. And every one of them said that, well, we don't know what's going

Starting point is 00:34:52 to happen. There's too much uncertainty that's going to, you know, we have this deadline and, you know, we don't have any idea. And so they said they were very cautious. They'd raised cash and all. And as Paul Tudor Jones tells the story, afterwards, after the roundtable was over, he went back to his office and said, wait a minute, these are some of the smartest investors in the world. And they're all cautious and, or, you know, worried. And so if they're all worried, then the whole world's worried. And therefore, it's the right thing to go the other way. And so he bought a bunch of, you know, stuff. And of course, as soon as the bomb started dropping, the market started rising. And the market made all of its gains between whatever it was January 20th and like February 10th or

Starting point is 00:35:32 something like that, 20 days, all the gains for the year. And so that's a good example. That's one of things I try to do. I say, how much fear is in the market, how much caution is in the market? When you have, as I said yesterday, six new highs and 2,000 new lows, well, you know, that's pretty much fear in the market. Now, historically, it's taken more than that. And the technicians who have been mostly right say that we've got downside, you know, maybe another 7 to 10% best case, and then maybe down to 3,400 from wherever we are today, 4,000 or 3,900, something like that. Where are we here?

Starting point is 00:36:02 Yeah, we're 3860, 69. Yes, I think the ones that are the better technicians that I've seen that I actually pay attention to are thinking 37, 3,800, and if that holds, you're going to have a big snapback rally. It's funny. I've always kind of assumed that technical analysis was. was kind of nonsense, that it was sort of voodoo. You know, asked what Demodaran said, signed to me a few weeks ago where he said, actually, maybe it can be useful in certain circumstances. And I remember Jeff Vinick once telling me the same thing. Why is it useful and not just like studying entrails

Starting point is 00:36:32 and finding patterns that don't exist? Well, it's actually more useful than it's ever been, in my opinion. I don't know. The academics have done a lot of work on the various technical patterns. And they found that, you know, some of them actually worked for a while. But once they published about them, they stopped working because people can incorporate that into their stuff. I was on a call, the Sanof Institute call, several months ago, maybe it was in the fall. And one of the guys who was on the call was a guy who was a quant, and they asked him about, you know, quantitative methods and methodologies and stuff. And so he was going into kind of the theory of that and correlations.

Starting point is 00:37:04 And he said, you know, he said basically so-called technical analysis, he says, I've never found it to be that useful. You know, quantitative stuff. And, you know, when you can do some sophisticated math, you can maybe figure out some patterns. He said, but in crypto, technicals work great. He said, A, there's no fundamentals. And so it's all psychology. And he said, and B, it's a lot of people that don't know what they're doing. And he said, so they behave as people behave when they don't know what they're doing. And he said, so technicals, they're pretty predictive. And I think that's right. But I don't view technicals in the sense of I'm looking for particular patterns. I'm looking at them as a way to basically visualize a supply and demand. So obviously, economics is all about supply and demand. And stock prices are about the supply and demand of securities at various points in time. in different phases of the economy. So I'm just looking at what the supply of demand fundamentals are. And so when the demand is dropping and the supply of stock for sale is greater than the

Starting point is 00:37:56 demand for stock at that price, then obviously that imbalance is going to be met by lower prices. And finally, you know, there's so much that begins to equilibrate after a while. And I think that that's, you know, I think we're close now. Again, external events could make that different. So from my standpoint, I mean, I'm trying to buy if I'm buying and not getting margin calls, I'm basically buying stuff, you know, that I think is if I look out, a year or two, I think it's going to be a lot higher. I mean, this is one of the rare times in the market when, if I look at Amazon, for

Starting point is 00:38:23 example, which again is my largest holding that in Bitcoin, I look at Amazon right now, and I think Amazon easily be up, where is it now, 2,100, 2,200. If I find it on the screen somewhere, I just don't, yeah, 2100, the high was 3,500, so that's 50% up to get back to where it was. There's a lot of stuff down that's down where it'll be 100% to get back to where it was, and I'm pretty sure they'll get back there. So it's one of these rare cases where Amazon is an unequivocal. better than other stuff that I can find in the overall market if I want to look out a year or two.

Starting point is 00:38:52 Now, if I want to look out 10 years, a different matter. So would you not be buying Amazon at this point, or you would be? Oh, no, no. If I didn't own it, I absolutely buy it right here. I remember last time we talked to you were saying to me, if you were starting afresh, you would happily put 20 or 30 percent of your assets in Amazon. What would you do now if you were looking at it today? I would probably put 20.

Starting point is 00:39:15 There's a lot of other stuff to buy. Not a lot of stuff that's of that quality, but I think you could put, you know, if you put 20 in Amazon, you could put 10 in Facebook or Alibaba or Google, for example. I think Microsoft's expensive. I think Apple's expensive. Apple broke down today, actually. So that probably tells me that, you know, it's got more downside. It's way above its kind of trend line.

Starting point is 00:39:34 And most of the other stuff has broken the trend line. One of the things obviously that you did that was kind of revolutionary in terms of value investing, where you really changed the way value investing was done, I think, is that you did start investing in these great businesses like the Googles and the Facebooks and the Amazon's and the like. And when I asked you about this a few months ago, I think, you said something that had a huge impact on me where I was saying to you when I was trying to simplify the way that people invest, what I'd learned about how to invest, that it was all about basically valuing things and buying them for much less than they were worth. And you kind of corrected me

Starting point is 00:40:10 and talked about how you had amended it. What you basically were saying, if I remember rightly, you said that all of these guys like Mario Gabelli or Bill Nygrin or Buffett, Chris Davis, Mason Hawkins, these friends of yours who are kind of classic traditional value investors, you said they would buy businesses at big discounts to what they're currently worth. And I said to you, so is that the key? And you said, no, no, for me, it's about buying them at a huge discount to what you believe they will be worth. And that kind of stopped me in my tracks.

Starting point is 00:40:38 I was thinking, that's actually a really profound shift. And that seems to describe what you were doing with Amazon, Google, Facebook. Can you talk about that different way of valuing businesses and thinking about what you want to own? Yes, and that's actually the way that I do think about it. I mean, one of the things I've said is that 100% of the information that you have to use to value a business is based on the past. Even if it's an earnings forecast, it's a past earnings forecast that you or the company might have made or a growth rate forecast. But 100% of the value depends on the future. And so to the extent that the past replicates, the future replicates the past, all that past data is very valuable.

Starting point is 00:41:15 So the stability of, in essence, the returns on capital and the competitive position and that kind of stuff, if those things are forecastable into the future, then they'll be very valuable in terms of figuring out what the business is currently worth and what it might be worth. But to the extent that they're not, and the other issue is that growth investors tended to basically be what invest the way that I think value investors should invest, which is that basically the growth investors have too little patience with the inevitable pickups in companies' growth rates. So they're willing to pay a lot for something based on the current visible fundamentals. When those fundamentals change, they flee. And whereas with value investors, mostly if they're comfortable with the visible fundamentals,

Starting point is 00:41:53 then if the stock price goes down, they don't flee. Or if the earning up, they're going into recession. So you really want to own companies where basically the growth rate can be, and especially the competitive advantage period, as Michael Mowison would have it, or Bapa would say, a moat, you can project that out for many years, and therefore, you can have some confidence that if you're just patient, that even if it looks expensive, Buffett's a lot of times talked about, you know, the market looking expensive and being expensive, but it's not as expensive as it looks. And that's when, you know, when interest rates are low and valuations tend to be high.

Starting point is 00:42:23 But yes, so we've tended to look for things that ideally you wouldn't have to sell because they've hit your valuation target. If that valuation targets keeps moving forward at a pretty rapid rate, then that's great. You know, as Buffett says forever, the kind of business he likes to buy. I'd stick in Berkshire Hathaway. So when you were describing your personal portfolio a few minutes ago and you were talking about things like meta and formerly Facebook and Amazon and the like, that's sort of this approach to investing, right?

Starting point is 00:42:50 It's these companies that you're able to buy at a huge discount to what you believe they will be worth. Yes. Yeah. I mean, one of my biggest holdings is Gannett, you know, who is John Gunn, the former CEO of the big firm out in the West Coast, his name of Ska. He described the kind of companies that they own as cakes in the rain. You know, I mean, the longer you own them, the worst they're going to get because they're

Starting point is 00:43:11 secularly declining businesses. And so there's no doubt that the newspaper business is secularly declining. But, Gannett, it's the largest newspaper company in the country. And they're generating free cash. And they're converting over from, you know, the big printing press, high fixed cost stuff to digital. So they shut down a few of their regional newspapers in the last few months. And they're just going digital.

Starting point is 00:43:32 And the New York Times has had a huge turnaround just because of its digital business, which Gannett can actually probably get more subscribers than the Times can. And so we think Gannett, which is now $3.70.70. We think Gennett can be $20 in three or four years. And that's just on the current trajectory that they're on. And then with valuations being, you know, then at the time, they'll be paying down debt. They're already paying down debt. But then the debt will be largely gone. And then they'll be just a free cash generator. It won't be a $3.70 stock anymore. So that's an example. company where basically what you're doing there is you're just buying a bad balance sheet that's going to get a lot better. And then the debt is going to disappear from the, you know, from the

Starting point is 00:44:11 company. That's one of the things that I really like in this market is that you can buy things like that to where the only thing you have to be, well, basically putting differently, you can buy public LBOs. So they've got a lot it down on their balance sheet, but that debt is going to disappear over the next several years. And the best thing that happened to them is inflation because the debt's fixed cost and interest rates are rising and the value of their debt obligations are falling in real terms. I wonder if we could turn to Bitcoin and crypto. And I have a lot of questions on this front. And I think the obvious context to look at it in is this whole idea of misperception, because as we were talking about with Amazon, you had a very different perception than the rest of the market.

Starting point is 00:44:51 And here again, with Bitcoin, there are just these very, very heated ideological differences about Bitcoin. It's almost like a sort of religious or political difference about Bitcoin. And it seems to me traditionally part of your advantage has been to step back somewhat dispassionately and to say, what actually is this thing? Can you talk first about where this way of thinking about the world comes from? Because it clearly stemmed in part from your study of Wittgenstein and William James and this whole idea of seeing things more clearly, not being so biased, and trying to say, what actually is this thing? And so before we get to the detail of Bitcoin, I wonder if you could actually talk about that kind of philosophical problem of how you actually describe things and see things clearly

Starting point is 00:45:32 so that you're not just caught up in your own prejudice and bias. Yeah, I would say this came out of a lot of initially William James, Wittgenstein, and then John Dewey and then Richard Brody in the 20th century. In the sense of, you know, you go back to Kant, for example, or Schopenhauer. And so Schopenhauer is interesting because he spent countless years just studying Kant. and concluding that Khan had things mostly right, but he missed a few big things. And the thing that he really missed was when he talked about the Ding An Sik, you know, the thing in itself. And so what you have is, you don't have no ability to see things as they are themselves.

Starting point is 00:46:09 What you see is effectively your representation of them, which may or may not fit the way that things actually are. And Schopenhauer's insight was, then you don't have any need of the hypothesis of things as they are. And it doesn't do any work for you because it's inaccessible. And therefore, all you have is your representation of things as they, you know, as you perceive them. And therefore, if you then go forward to William James, you know, one of the points that he made is it's, or purse made, I guess initially was, yes, that's exactly right. And therefore, what you really care about is just how useful are these views that you have to navigate the world that you're in. And, you know, this is, I think there's this, this part comes to mind if I'll get it right. There's a story of the three baseball umpires.

Starting point is 00:46:53 And they're asking, you know, how they call balls. and strikes. And so the first baseball umpire who could be called a, you know, a Kantian or a near contian, and he says, well, I call them as they are. If there's strikes, I call them strikes. And if they're balls, I call them balls. And then so, you know, that's in philosophy, you call that realism, right? I call it the way that they are. And then there's basically the coherence theorists who believe the truth is basically things that cohere consistently together. And the coherence theorist umpire says, well, I call them as I see them. If I see them as strikes, I call them strikes.

Starting point is 00:47:23 I see them as balls. I call them balls. So obviously leaving open that he could be calling them the wrong way, but that's the way he sees them. And then you get the pragmatic umpire. He says they aren't anything until I call them. So I think that's the key. And from my standpoint, when I don't have a particular view, one way or the other about Bitcoin as it is.

Starting point is 00:47:41 Charlie Munger thinks to threat to currencies. It's evil. A lot of finance, you know, mavens were very negative one in Bitcoin in 2017. Now, some have come around. Paul Tudor Jones, Larry Fink, now. Howard Marks at Oak Tree, who were denouncing it then. And now that, well, you know, I mean, yeah, well, this can be okay. You know, we probably were wrong about that. You know, Jamie Diamond says it was wrong to call it a fraud and stuff like that. So, but Buffett and Munger

Starting point is 00:48:05 are still out there. And my view is, how useful is this thing? Whatever it is. How useful is it? Does it do a job in my portfolio that I can't have done with something else under what circumstances will it do well? Under what circumstances will it not do well? And so that's the, My key to Bitcoin is that it's the only economic entity in the world. Certainly monitored, it's just called an economic entity in the world that the supply is unaffected by the demand. So if gold, which is what's gold, $1,800 today, something like that, if gold was $18,000 instead of $1,800, there'd be a lot more gold-bind.

Starting point is 00:48:37 So gold that was uneconomic to mine today would become economic. And I mean, Charlie Munger has said, I think, at the Berkshire meeting that he expects that any fiat currency in a hundred years will be worth zero compared to what it's worth today. That's because they keep creating more of it. And with Bitcoin, you know, the supply this year will grow about 1.7% maybe. And so the only question you have to ask about Bitcoin is over the long term, will the demand exceed, in essence, 1.7, then 1.5% then all the way down to, you know, zero. And I think it's going to grow, demand's going to grow faster than that side. That's, and again.

Starting point is 00:49:10 And sorry, Bill, just to explain that for people like me who are not experts on this. This is basically because the supply is fixed at about 21 million coins. and about 19 million have been mine so far. So we know, can you just explain that for, you know, the idiot's died to Bitcoin? The supply of Bitcoin. It's a little bit like you've ever seen that. Who was the inventor who just died recently who invented that black box? You know, and you flip the switch and the lid came up and a hand came out and it turned the switch back off again and get one down to the box.

Starting point is 00:49:38 So basically that's what Bitcoin is. It's a protocol. And effectively, the number of Bitcoins has a certain feature that it basically goes in half. the new supply goes in half every four years. And so I think it's, I think it's, what is it, 12, 12 bitcoins every 10 minutes are created. And that's what, and then all the computers and the miners are solving equations just so they can get those bitcoins, which are given to them if they verify that the protocol is functioning properly.

Starting point is 00:50:06 And there's no, you know, no double counting and stuff like that. So that, but that's fixed. And it's 21 million and 2140. That's when the supply will run out. And then for Bitcoin, so who's going to maintain the, what are the miners? is going to do that? Well, they're still going to maintain the ledger, and they're going to do that, though, they get fees for that instead of getting Bitcoin. So the same process will be underway unless they go from what's called proof of work to proof of stake, which I think is a potential risk

Starting point is 00:50:28 to Bitcoin right now, but not a big one. So when you explain the essence of the bull case for Bitcoin, and you have this kind of gift for simplifying things and reducing the complexity to something kind of more graspable, is the essence of the case basically the supply demand argument that there's very limited supply. The supply is growing, you know, in this kind of poultry way that you just described. And yet there's enormous potential and growing demand. Is that the simple essence of it? It is, but let me make it maybe more concrete. I'll give two examples, one that everybody will understand. The second one, they will understand theoretically, but maybe not the details. So the one that everybody will understand is when, you know, what Buffett says is that Bitcoin is

Starting point is 00:51:10 a nonproductive asset. He said, you know, I wouldn't give you $25 for all the Bitcoin's in the world. But if I buy farmland, that I can grow stuff with it. You know, if I buy a company, it can generate dividends and earnings and cash for me. Bitcoin doesn't do any of that stuff. So he says it's like gold. You can sit there and look at it. It sits in a place in your portfolio, but it's nonproductive. And therefore, he can't value it.

Starting point is 00:51:30 And I think fair enough. I mean, if the only thing that you think you can value your productive assets, then no one's making you buy it, right? So ignore it. Now, the other maybe the more mundane thing for most people would be that, I use this. I think I might have told you, I used this with Chris, my good friend, Chris Davis. And I said to Chris, who's been in every meeting, major meeting that I've been in on Bitcoin, going back to when it was $200 and he's never bought it. And his argument is, well, you know, yes, I understand that it could be digital gold. In fact, it probably might be better than gold,

Starting point is 00:51:59 but I don't own gold either. It's a nonproductive asset. He's got a buffet view on that. So why would I have on Bitcoin? And my first answer to him is, well, the objective of investing is not to own productive assets. The objective is to make money. So the question is, can you make money with this thing? Not because it gives you dividends, but if you can make money with it. So what I said to, I said, but look, here's a better way to think of it, Chris. Like, you're an expert in insurance, right? And he's like, yes, my purported to be. My grandfather is the insurance commissioner of New York. And my father, you know, was a long time insurance analyst. And I published a newsletter when I was young called the insurance, you know, analyst observer or

Starting point is 00:52:30 something like that. And I said, so how do you evaluate an insurance policy? And he said, well, you can evaluate an insurance company really easily. You can look at the exposures. You can look at the capital. You can look at the experience they've had. You can look at the quality of their investment portfolio. on and on. I said, I didn't say an insurance company. I said an insurance policy. And he paused a second. And I said, well, here, let me tell you the way I think about that. And you tell me where I'm wrong. I said, you own insurance, right? You have health insurance, car insurance, have homeowners insurance, life insurance, stuff like that, right? Property insurance. He's like, yeah. I said, what's the intrinsic value of those policies? You write a check every year for those policies. And I said,

Starting point is 00:53:05 and what's the value of those? And I said, the way I look at that is you are paying somebody else, basically, and for a policy that you hope is worthless. You don't want to die prematurely. You don't want to get serious illness. You don't want to have your house broken into. And it's valuable to you to have something that will pay you if something really bad happens, except the company goes bad. It's yours. You own it and it's going to solve your problem with that if that happens. Well, right now, we have something called gold, which could do that. But again, its supply isn't fixed. But everything else out there is something that if you live in, Venezuela. You live in Nigeria, live in Lebanon, you lived in Ukraine when the war broke out,

Starting point is 00:53:46 all of that stuff, Afghanistan, when the U.S. pulled out. When the U.S. pulled out of Afghanistan, Western Union stopped sending remittances there or taking them from Afghanistan. But if you had Bitcoin, you were fine. Your Bitcoin is there. You can send it anybody in the world. They have a phone. And so I consider Bitcoin basically, you know, an insurance policy against financial catastrophe of one sort or another. And it doesn't have to be all or nothing. It doesn't have to be like there's some war in the United States just. some kind of thing where the banks are all shut and stuff like that. It's just the case that if there's a, you know, look what happened to the money supply with the pandemic hit.

Starting point is 00:54:18 When the Fed stepped in in that pandemic and started gunning the money supply and bailing out, in essence, the mortgage reeks and the other people that doing commercial paper and stuff like that, Bitcoin functioned fine. There was no run on Bitcoin. It went down a lot initially, but the system functioned without Fed and without any interference. And everybody got their Bitcoin and the price adjusted. And then when the bitcointers and newer Bitcoiners realized, wait, we're going to have inflation down the road, Bitcoin went through the roof. So that I think is an insurance policy. Do I look at it?

Starting point is 00:54:47 You also said something that had a profound impact on me. I think the last time or the previous time we talked about Bitcoin, where you explained to me that back in about 2014, 2015, when you first started to get fascinated by it, it was because you heard Wences Kasara's talking about it. And that he was explaining exactly what you were just saying, that if you came from the U.S. where you had a kind of functioning legal system, and pretty good financial governance and property rights and the rule of law and all of that stuff. It was actually very hard to understand why this would be so valuable and that he came from Argentina

Starting point is 00:55:21 where he had a totally different perspective, which kind of fits into what I'm trying to talk about in terms of perception. Can you talk about what he said? Because that seems to me profoundly important, this idea that he just viewed things differently because he wasn't living in Omaha, for example. Yeah, I mean, what he said was his family had been in Argentina for 150 years and have been wiped out multiple times by the government, nationalizing the banks and taking the bank accounts away, inflating them away through that. And the fact, there were three different things,

Starting point is 00:55:50 nationalizing the banks, inflation, I figure what the third one was. But in any case, the fact that he said, we've been wiped out several times. And he said, but with Bitcoin, we can't be wiped out. They seized, the government just seized your assets at certain points, right? Yeah. Yeah. And he said with Bitcoin, you know, we can't be wiped out.

Starting point is 00:56:06 You know, the government cannot take it away from us. And that's what I might have told you the story of, Bob Schiller, he went to, where was it, Estonia, I guess it was. And it met with the business people there. And he was on his way to Davos, where he was going to be on a panel about Bitcoin. And so he was curious about if anybody of the business people that he had met, he was in a room with, you know, a hundred of them. And given a talk on whatever. And he asked if any of them own Bitcoin and everybody raised their hand.

Starting point is 00:56:32 And he said he was shocked and asked him why. And he said, well, because when Russia took us over after World War II, what they did is they nationalized. the banks. And they stole all of our money, not our money, but our grandfather and grandfather's money. And if you actually, that's if you're a regular citizen. But if you actually owned a business, you were sent to Siberia. And he said, and we sit right up here against Russia. They can do that again. And he said, but they can't take our money this time because we got Bitcoin and we can send it anywhere we want. I mean, that was what happened with also with Wittgenstein's father, who was one of the wealthiest people in the world. And he had money invested outside of Austria.

Starting point is 00:57:07 He had it in the United States and England and everywhere because he said he couldn't trust the Austrian government not to steal it. And then when Hitler took over Austria, he did. He basically took all the money from everybody who was, you know, Jewish. And then set of the concentration camps. And the Wittgenstein family actually got some decree where they weren't, you know, sent to the concentration camps because they had all this money outside the country and they agreed to give it to Hitler. So, and he said, okay, well, I'll count you as not as only partially Jewish then. And you'll be spared. So that's one of the things about Bitcoin. That's not the case with gold. You can't carry gold around in sacks trying to get across the border. So that's another advantage that Bitcoin has.

Starting point is 00:57:46 Fidelity had one of the best pieces they wrote recently on Bitcoin, Fidelity Digital Assets. And one of the points they made was that it was one of the arguments against Bitcoin, one of the perceptions is that Stan Druckenmiller used to say, I don't he still says it, but well, you know, somebody's going to invent something better. There's thousands of these tokens and coins out there. Technology is always changing in crypto. And so somebody's going to invent one that's better.

Starting point is 00:58:07 Just like Ethereum was better than Bitcoin, according to many people. And Salon is better than Ethereum. And the Fidelity people said, well, that's actually wrong, in our opinion, because basically, Bitcoin is like the wheel. Nobody needed to reinvent the wheel after it was invented. Now, Ethereum is actually a specialized type of entity. You know, it's maybe like a wheel for giant tractors, you know, or it's maybe a wheel that's a run-flap wheel.

Starting point is 00:58:31 It's got these things that Bitcoin doesn't have. But it's basically a wheel. And so that Bitcoin is the wheel. It's the perfect wheel. And therefore, if somebody invented it, something that did better, let's call it, a proof of state Bitcoin. Okay. So I'm going to do Bitcoin protocols proof of stake now instead of proof of work. And therefore, it will only use less than one percent of the energy that Bitcoin uses. One of the big arguments against Bitcoin is that it's a climate catastrophe and uses as much energy as Argentina does, all this kind of stuff. And proof of stake, which Ethereum is changing to for that very reason, doesn't do that. Okay, well, if you,

Starting point is 00:59:04 then a proof of stake Bitcoin, what happens? Well, if you would own Bitcoin, if it was proof of stake, you might buy some Bitcoin then. But again, why would you buy Bitcoin when you already have Ethereum, which is proof of stake and it can do stuff Bitcoin can't do? So why would you do the Bitcoin proof of stake? The other thing is with proof of stake, one of the big problems that people talk about is a problem in the United States is inequality. Well, proof of stake basically is the most unequal thing you can imagine is the rich people make all the decisions. And if you have more stakes. If you have more Ethereum at stake, meaning you own more of it than somebody else, you get whatever the votes are. It's like if you own more shares in, if you own 50% of the

Starting point is 00:59:39 shares of Birx-R-Hathaway, you determine what's going to happen with Berks or Hathaway. If you own 50% of the Ethereum, you decide what's going to happen with it. Nobody else can say it. That's a problem that Bitcoin doesn't have. It's purely democratic. So when you think about the comments that Warren and Charlie made in the last few weeks in Omaha, these guys are, I mean, you've said to me before, right, they're bona fidey geniuses. They're incredible investors. They're incredibly thoughtful. Is there some sort of bias or prejudice or blind spot that makes it particularly difficult for them to understand Bitcoin?

Starting point is 01:00:08 Yes. There's several. I think everybody's got blind spots in one way or another and error prone. But certainly one of them is that they are old, you know, and they're just not, they're not used to new things. They're not the type of people who embrace new technologies and different ways of doing things. They look at the tried and true and tested. And they also don't want to take a lot of risk.

Starting point is 01:00:30 You know, Buffett has said many times, I've heard him say to me that, you know, he's taking enough risk in the insurance business. And he didn't even realize how much risk he was taken until like 9-11. Like, uh-oh, you know, if we got all this property casualty stuff out, I didn't think about that. So it's not just what your experience is because we didn't, we had no experience with somebody flying into buildings before. It's also your exposures.

Starting point is 01:00:48 And so he had to rethink his sense of exposure there. But I think, you know, the analogy that I've used on that one, which I think is stands up well is that, you know, it's like the Buffett and Munger and all the traditional finance people. and a lot of people who are just involved in looking at Bitcoin and hating it, they're like the Sherlock Holmes story, Silver Blaze, where Silver Blaze was a famous racehorse and he was getting ready to run in a big race, then he was stolen. And so Scotland Yard, of course, is called in and they cannot understand how somebody stole this racehorse. And so they call Sherlock Holmes and they

Starting point is 01:01:19 say, you know, can you figure this out? And so Sherlock Holmes, you know, does some investigation. And he says, yes, he says the key to solving the mystery is the guard dogs. And the, the inspector says the guard dogs, well, the guard dogs didn't bark. And he said, that's the key because the guard dogs knew who the thief was. And because it was known to them, they let him go by. And so the way that I say this is that, you know, all the people who are complaining, or all the people who are dissing crypto and Bitcoin are effectively like the, you know, the, like the detective in Silver Blaze. And as Mark Andreessen, memorably said, the first time that Buffett dumped on, this is 2017, that Buffett dumped on Bitcoin, he said, the record of

Starting point is 01:02:02 old white men who don't understand technology crapping on new technologies they don't understand is 100%. And so, which then set me, when I heard Mark say that, that Silver Blaze story jumped out of me because I said, aha, there's guard dogs here that aren't barking about Bitcoin. And they're called venture capitalists. And venture capitalist job is to assess new technologies. and to decide which ones might be worthwhile and which ones aren't. And there's a whole ecology of them out there. And there's not a single one of them that I ever heard dumping on the technology of Bitcoin. Now, they might not have invested in it early because they weren't sure about it, but they certainly didn't dump on it.

Starting point is 01:02:40 And that's the case where, and now there's certainly not a prominent venture firm in the country, if not in the world, that doesn't have exposure to Bitcoin. And in fact, many of them, the biggest ones like Andresen Borowitz, for example, all of them are doing their own. dedicated crypto funds. So last year it was $27 billion went into crypto venture investments. That's more than the previous, all the history of Bitcoin combined did. They did that just in one year. This year, in the first quarter, more five times as much money went into Bitcoin ventures as did it last year, which was the all-time record. So the money is pouring into this space, which again is a measure of what the demand is for these sorts of things. So I conclude, I mean, you just saw, you know, Goldman just did their first loan, I believe, backed by Bitcoin.

Starting point is 01:03:28 So I think that you're going to see, and Goldman was it, I've talked to Pete Brieger and I and some other people, Wences, you know, talked to the folks at Goldman, the management team there a couple of years ago. They had curiosity, but no interest. And now they have a high degree of interest. And, you know, Fidelity has been all over the stuff from the beginning. Let's take a quick break and hear from today's sponsors. No, it's not your imagination.

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Starting point is 01:06:55 This and other information can be found in the income funds prospectus at fundrise.com slash income. This is a paid advertisement. All right. Back to the show. When I asked people on Twitter to send questions that I could ask you, I was pretty amazed. I think I got over 100 questions. And as you would imagine, a lot of them were about Bitcoin. Some of them insulting and were like, what is this guy thinking? And one person, Bob Flynn, who I promised to send him a

Starting point is 01:07:22 signed copy of Richer Wiser Happier to thank him for his question, said, could you ask Bill, what disconfirming evidence would make you change your mind about Bitcoin? And remember you talking to me before about the importance of the supply demand dynamic. Can you give a sense of what would have to change for you to start thinking, maybe I made a mistake here? Maybe I shouldn't have half my net worth in this, or maybe this was a bad bet. What disconfirming evidence would change your view? You know, I was interviewed by Dan Moorhead, who's the founder of Pantera Capital, which is the biggest hedge fund and one of the biggest investors in Bitcoin and the tokens and ventures out there. And he interviewed me for their annual summit a couple months ago, a month or

Starting point is 01:08:00 a month or so ago. And he asked me after the interview was over, a similar question, as he said, So, have you read anything that you thought was thought-provoking about a case against Bitcoin? Like, anybody had written a thoughtful piece on that? It would cause you to say, oh, I didn't think of that before. And I said, no. And he said, me either. And then I read a piece about a few weeks ago, and I'm like, oh, that's the first piece I've read. And it's pertinent right now.

Starting point is 01:08:27 And it's by a woman who was interviewed, you can get it on the internet. If you look up the Atlantic magazine and Bitcoin, you'll find it. There's an interview by a guy who's right from these newsletters to the Atlantic, and he's interviewing this woman law professor named Hillary Allen about crypto. And she had written an article for a law review, which kind of explained her concerns about crypto. She's her expertise as financial crises. And basically the title of the law article was something to the effect of cryptocurrencies are shadow banking 2.0. And her point is that what set off the collapse in 2008 and nine was the collapse of first the Bear Stearns hedge funds, you know, and then the real one was, well, I disagree with this, but conventional wisdom is that that was reasonably well contained until Lehman Brothers ran into trouble. And then when the government wouldn't bail Lehman Brothers out and did bail Fannie and Freddie out, that that was what led to the whole collapse.

Starting point is 01:09:23 because right after that, then it was AIG, Maryland spending to buy countrywide. And then the next one, and this is where she drove the point home, was the reserve fund, the big money market fund that broke the buck. And because it wasn't insured by anybody, that wasn't like a bank, you know, bank account. And so when that happened, that's when the whole commercial paper market froze up and everything stopped. And the Fed had to step in. And Paulson, having no authority to do so, basically guaranteed all the money market funds. And it said the government will insure them if they break a buck.

Starting point is 01:09:52 And that stopped that thing. And when the Congress didn't pass the bailout of the banks with giving a preferred stock in them, then there were no more bank failures after that. So what Hillary Allen said is that the stable coins are like the reserve fund. There is no backing from them. And it's worse because there's no Fed to bail them out. They're all decentralized finance or on an algorithm. And that's exactly what happened.

Starting point is 01:10:15 And they're opaque. So there's tether and there's, but Terra is the one that started to collapse over the weekend, I guess. and then went to effectively, I know where it is today, which is as low as 27 cents yesterday. And I guess they halted it today I saw. So there's nobody to bail that out, right? So now if you thought that was a stable coin, well, it's not stable anymore.

Starting point is 01:10:35 You lost your money. And I think that's the risk. And her solution to that in the interview was they said, so what do you do about that? And she says, you either regulate it the same way now that we're regulating money market funds, a lot of new regulation after the financial crisis. but the main one being that they had to be totally transparent about what their assets were. And you know, and you can verify them.

Starting point is 01:10:56 And she said, either we do that or you wall it off. So it can't infect the financial system in a way it'll just, it'll collapse on its own if it collapses. And so I think both those things are right. And I think that it's one of the reasons I like Silvergate, which is a bank, that it basically services the crypto world. They're the ones that lent the money to micro strategy for their latest $250 million purchase of Bitcoin secured by Bitcoin. itself as collateral. But they're the ones that Silvergate bought the DM technology from Facebook,

Starting point is 01:11:26 not called Meta, which they were going to use for their own stable coin. And they were going to try to use it as a payments mechanism on Facebook. But it ran into a buzzsaw of regulation. And consequently, they couldn't get it done because the regulators were all over it. So they sold it to Silvergate for $182 million. And Silvergate, in my opinion, will use it to do a stable coin. But it will be a stable coin, which is subject to the banking laws, as Gary Gensler had said, that he thought exchanges that dealt in Bitcoin and all should be subject to regulation the same way banks are. Well, Silvergate is already a bank.

Starting point is 01:11:58 So that will solve that problem. And I think that'll be good for Silvergate. So I, of course, temperamentally, am now pretty intrigued by Bitcoin now that it's more than halved. So now suddenly it becomes really interesting to me after, because I couldn't bear to chase it when it was surging. But now that it's halving, I'm, you know, this suits my temperament. But there's a part of me, sorry.

Starting point is 01:12:17 It was up $700 and we started talking and now it's down $180. It's had a reversal. It knows that I'm thinking of buying it. It's already collapsing. It's doing an Alibaba on me. But last time we spoke, I think I asked you what the various ways to play it were. And you were saying, well, you could just set up a Coinbase account, which I think you said your sister had done. You could buy micro strategy.

Starting point is 01:12:39 You could buy the great scale Bitcoin trust. And now when we look at the news and we see talk of, well, there are people at least rumormonger. that Coinbase could go bankrupt and then what would happen to your assets? Would they get locked up? And, you know, nobody really knows what would happen to them. Micro Strategy is getting hit with margin loans. I'm just wondering if your advice on how actually to do it in practical terms has changed at all. What would be the sort of the idiot proof way to invest in this if you wanted to put one or two percent of your portfolio in it? And micro strategy is down seven bucks to 160.

Starting point is 01:13:13 So that price 160 now is where micro strategies traded before they started to buy Bitcoin. And so that's just the value of their business intelligence software platform, which is profitable and growing and generates cash. Now, they do have debt. They have convertible debt. They had that secured along with Silvergate. But Saylor was asked yesterday that question about margin calls on his Bitcoin. And he said, well, they're protected down to about $3,800 on Bitcoin. So about a 90% or 85% drop from here.

Starting point is 01:13:48 So I think, you know, that's one that you can be sure. If you're sure of anything, you can be sure that if Bitcoin rallies, it will rally. Because it's Bitcoin is, you know, locked away in cold storage. And Coinbase is a little bit riskier. It's basically an entire crypto business. On the other hand, it's a very profitable crypto business. So the whole system would have to collapse for Coinbase to be a problem. Silvergate serves that ecosystem as well, so that ecosystem goes bad and goes to zero.

Starting point is 01:14:14 Silvergate, but it's still a bank. And so it can shift its business. But it was $10 before it started doing this stuff. And now it's $60. So that would be a nice drop from there. And I was looking at the gray scale Bitcoin Trust, which has fallen from something like 55 to 19 since November. Is that still something that's an okay way to play Bitcoin? Well, the problem with Grayscale, which is down 7 per 6.7% today, and Bitcoin is down 0.34% today,

Starting point is 01:14:45 is that the Bitcoin is worth one Bitcoin, right? And Grayscale owns Bitcoin, but you own a security, not Bitcoin directly. And so Grayscale now trades at a whopping 34% discount to the NAV of the Bitcoin that it holds. And actually, I think that's about as wide up. premium as it's ever had. So it may not widen from here, but, you know, they've, I guess Grayscale is having a campaign right now to try and put pressure on the SEC to approve the ETF, spot Bitcoin ETF instead of just a futures based ETF. But Gary Gensler, the head of the SEC, has said that he's not going to do that until basically Bitcoin, he can be assured that they're investor protections with respect to the instrument to the ETF that apply to other

Starting point is 01:15:35 ETS. And so Grayscale said if he doesn't approve it, this time around, they reject, because Grayscale has filed to convert their current GBT into an ETF. And if he's rejected that, I think, at least two times. And if he rejects it again, they said they're going to sue the SEC because they don't think they have the legal authority to do that. In any case, Canada and Switzerland and Australia and Brazil have all approved Bitcoin ETFs. And why can't, you know, why is it good enough for their regulatory authorities, but not good enough for ours? Your risk of Grayscale is the premium widens. I want to ask you a couple of non-cryptocurrency questions, but investing questions before we change

Starting point is 01:16:10 the subject, totally. One of which is, how do you guard against your own prejudice and bias and also against this character quirk that I think you have, which is that you're so contrarian by nature that I think when really smart people like Warren and Charlie oppose something, you actually get almost more excited about it? Like, what do you do to kind of guard against your own prejudice and your own personality quirks? Oh, I don't have any way. I mean, that's not just that. I would actually dispute the first thing, which is to say that I'm a contrarian by nature. So, you know, I would say that in philosophic terms, I'm not a naive contrarian. There's a lot of enthusiasm for something.

Starting point is 01:16:47 I don't immediately say, well, then, because everybody likes it, I don't like it or everybody hates it. I like it. What I do is I try and understand what the prevailing views are and where, you know, either there's a lot of exuberance or a lot of fear and pessimism and just see what the evidence is on both sides. And we know, you know, we know from the psychological. literature and from conman and traversky that the coefficient of loss versus gain is two to one. You know, so that a dollar, losing a dollar is twice as painful as making a dollar or winning

Starting point is 01:17:16 a dollar. And so therefore, so in order to get people to bet, you've got to give them two to one odds just to basically risk a dollar on each side where the odds are 50-50. They don't take that because they're afraid of losing. So when you have a market that's got two thousand, fifty-two-week lows and six new highs like we have today, then there's basically owners of two. 2,000 of those companies really are unhappy because they lost money last year the last 12 weeks. So, as I've said before, the only thing better than a stock at a 52-week low is a stock at a three-year low or a five-year low or a 10-year low, we're an all-time low, you know, because everybody hates it because they lose the money.

Starting point is 01:17:50 So at least there's a prima facie case to take the other side and let's take a look at really what's the case here. So if you see Warren and Charlie and Jamie Diamond and all these people dumping on some financial thing as I wrote in a shorter letter of 2017, yeah. have to have pretty good evidence on the take the other side of that because they're rarely wrong about stuff like that, especially when they're all lined up some of the best financial lines in the country, then it's like, yeah, I got to have a pretty big threshold to go against them and for understand what they're saying about stuff, but mostly with Bitcoin, it's been the case,

Starting point is 01:18:21 that people basically make up their mind first and then look for the evidence, the confirming evidence. Again, with Warren, Charlie, it's easy. There is no, it's not a productive asset. Game, that's all they need to know. And therefore, they don't like it. Charlie thinks it's evil because it's anti-government and the government monetary system has all these laws in it and stuff that, you know, have been built for a long time and protect people. So it's even worse than that because it encourages people's greed and it encourages people to behave outside the bounds of the regulatory system. And he thinks that in itself is not good. For me, the whole argument of a Bitcoin, I think, that's been really interesting to me. It just seems such a perfect

Starting point is 01:18:57 example of people filtering things through a bias. And it just reminds me very much of something that you got me to read maybe 20 years ago, which was an essay by William James. I think it was on certain blindness in human beings. Maybe it was a talk he'd given in the 1890s. This really had a life-changing effect on me because he talked about going to a forest in North Carolina that had been just absolutely ravaged. And he said it was like an ulcer. He said it was just absolutely hideous with no, this mountaineer comes to him and says, no, no, this is like a triumph of human spirit. this guy has built his little cabin for his wife and babes. And then William James takes this and says, yeah, and if this guy came to my study in Cambridge

Starting point is 01:19:39 at Harvard where he was teaching psychology at the time, he would have thought, God, how strange the way this guy is living. And I just thought that was a really beautiful insight into just how blinded we are by our own prejudice and bias. I think I'm not sure it's in that essay or another one. I think it might be in that one. Does he refer to a Robert Lewis Stevenson story in that one or not? I don't think so, but I may just have...

Starting point is 01:20:01 Then it's in a different one. He refers to a story in a different essay about Robert Lewis Stevenson called the lantern bearers where it's a similar kind of thing where Stevenson's writing about that they had these what we're called bullseye lanterns that were these small little lanterns and they hide them in their coats and they go places, you know, and then they were dark and they could take the lantern out and see. And he's like, other people think it's really stupid to be doing this because, you know, you can burn yourself and set yourself on fire.

Starting point is 01:20:26 He's like, we're never happier than we're all together with our lanterns. He said going and doing stuff together. And then he did pivots and says, again, it's the same basic thought. And he says that in his study on Beacon Street in Boston, he said his dog is completely insensitive to the idea of it. Why would you sit there in a chair and stare at something all day long like a newspaper or a book when you can be out sniffing the ground and chasing squirrels and running around and doing stuff like that?

Starting point is 01:20:54 And he says, you know, of course, I'm completely unmoved by the fact of sniffing the ground and chasing other dogs around. So that's not what I want to do. The same kind of thing is you have a certain set of attitudes. One thing that I, as you in terms of protect yourself against stuff, is like, when I see a statement that can be quantified, but there's no quantification, there's just your emotional description, or I just say a normative description, then I'm like, where's the evidence for this?

Starting point is 01:21:17 And so it's like they say Bitcoin's a climate catastrophe. It uses more electricity than Argentina. How much is that exactly? Maybe we know how much it is, right? It's basically according to the Cambridge Energy Institute at Cambridge And in the UK, it's 0.62% of the electricity usage in the world. It's basically all the Bitcoin in the world is less than 1%, but a little bit more than one half of 1%.

Starting point is 01:21:40 I mean, laundries use like 7%. You know, air conditioning uses a lot more than that. And so we say, oh, let's do, why don't we just turn the air conditioning off and we don't use all this electricity or contributing to climate change? I think actually there's more natural gas flared many times that than Bitcoin usage, but we don't stop using natural gas because it's worse than Bitcoin. When I think of you after 20 or so years of interviewing you, I feel like you're this hyper-rational machine who goes through the world

Starting point is 01:22:07 looking at the gap between perception and reality over and over again, whether it's Amazon or Google or China or Bitcoin. And that seems to me a tremendous competitive advantage for you that you have that philosophical background as well that gave you this perspective very early on about misperception and the importance of same things as they are. But I'm also wondering if at a certain point you turn off that kind of analytical, rational mind and listen to your intuition and your gut, whether there are times where you're looking at these investments, whether you're looking at this market now that's been falling apart. And there's actually, there's a role that your intuition and gut are playing. And markets, I would say, so I would, again, I would dispute one thing that I'm this hyper-rational

Starting point is 01:22:49 person. I think I'm quite rational when it comes to monetary matters and things like that. But, you know, I'm actually a very emotional person with, I mean, I'm sort of like Lenin, where Lenin said he couldn't listen to classical music because it made him cry. And so he said, he wouldn't listen to it, Matt, because he didn't want his emotions to get in the way of things. And my grandfather, he could not attend a funeral because you get too upset. So I'm not that way of things like that. But not on markets, I'm not that way. But again, I'm not, 08 was, you know, pretty terrifying to me.

Starting point is 01:23:19 The crash of 87 wasn't. Maybe that's a better example because I remember that very distinctly. First, it was twice as deep as on one day basis than the 29 crash, 20% versus 10. The markets were completely unglued the financial futures markets. You know, we're within a hair breath of being shut down and, you know, stopped trading for a while. And then after the market crashed, I don't know. of a single person except for me. I'm sure there were, but everybody would say, we have to get out of stocks. I mean, look what happened after 29. I mean, the market crashed and then it rallied,

Starting point is 01:23:51 and then it went down, you know, another 80%. Was it 80%? Picked the drop, it was 80, I think, right, to the bottom of July of 1932. And when you have these crashes in markets, like in 1931 in Austria, you get a depression. So we're going to have a depression and you can't own stocks in a depression. You got our bonds. So my view, when I wrote about this, I'm like, well, that's wrong, because this is in 1929. Now 1929, industrial production was falling already in July. And it was continuing to fall into October as the market was rising. And so we were already rolling over.

Starting point is 01:24:21 Now, the market now crashed because the economy is too strong. And inflation is rising. And, you know, as you may or not remember back in 87, but interest rates got to, I think I wrote a piece of the end of the third quarter shareholder letter where I basically said, why would anybody own stocks, even though we own stocks in our fund? because the Fed's been raising interest rates because inflation is running hot and the economy is too strong and unemployment is low. And the meal curve has been, you know, shifting significantly. So where now, again, this was in September, it got to 9% on the 30-year treasury, which is then the

Starting point is 01:24:58 benchmark. And October, it got to 10%. And I said, why would you do this? Because right now the market's 22 times earnings. And that's about where it was back in 1929. And I think, that the dividend yield on the market was around three or something like that. And the long-term growth rate of stocks was around six. So, and therefore, kind of an implied return of nine. So six plus three. And I said, but you can get nine in 30-year treasuries guaranteed. So why would you own stocks? Because first of all, the yield could go up because the market went down. Second, the dividend growth rate was six, not the long-term growth rate of stock. Dividend growth rate was six long-term. And so if If the market stays at 22 times earnings, you can earn about the same as you can get guaranteed

Starting point is 01:25:44 bonds. But that's a very high P.E. ratio, if it goes back to 14, 15, you're going to lose a lot. And so we have a lot of high dividend paying stocks at the time. But when the market crashed 20 percent and the Fed cut rates immediately, then it's like, well, hold on a second. The Fed's cutting rates into a strong economy. So why will the economy collapse just because stocks are down?

Starting point is 01:26:03 What's going to likely happen is that the economy is the Fed's cutting rates will get some cushion and we're probably going to have a good stock market in 1988, which we did. And our fund was a single best performing fund in the country because from October, we had 25% cash going into the crash. And we put all that to work in the next month and a month and a half. So again, that was a cash in big rationale. Just looking at the economic circumstances were different at the time than they were in 87. And do you think intuition does come into any of this stuff for you?

Starting point is 01:26:32 I mean, is there some kind of tell where you, I don't know, maybe it's like Soros in his back pain or something like that. Is there something where you start to sense where you can almost switch off your rational analytical mind? And there's some other part of you that kicks in? You know, in epistemology, one of the questions that is addressed is, can you know something without knowing how that you know it or explaining how that you know it? And the answer is, yes, you can't. And just because you can't articulate, it doesn't mean that you don't know it, right?

Starting point is 01:26:59 You can have an emotional sense. You can have, you know, I think I strongly believe X. I don't know why I believe that except it just seems to me that X, right? And so that's been, I think, both philosophically and experimentally kind of explored. For me, it would be, I would say that if that's going to work for me, it's going to be because I think I've seen this kind of market before. It's like this and this. I'll reason by analogy and not necessarily by the strict quantitative thing or an economic

Starting point is 01:27:24 rationale. I mean, so the most common thing is just when do you think that the market has reflected, you know, is discounted whatever it's worried about? Or when is the market on the other side over-discounted what's clearly going to happen, like all these disruptive technologies? And so that's the case. I think we're close on the market right now. You know, it looks to me like it's getting a little stronger, a little bit.

Starting point is 01:27:44 So it's now 1.5% was down 1.7% 15 minutes ago. But again, six new highs and 2,000 new lows. There's at least owners of 2,000 companies that are not happy. They're losing money for the last year. So there's pattern recognition from having done this for 40 years. And there is also some sense of feel. Yeah. It's a sense of when, you know, when are people too excited?

Starting point is 01:28:06 and when are people too cautious? And as Buffett has said before, it's something like that you pay a high price for a cheery consensus. And I think that's right. And so you can see it right now because, you know, the market peaked in November. And that was when three of the best, certainly the best records in money management peaked,

Starting point is 01:28:22 which was Kathy Wood, James Anderson at Bailey Gifford and Dennis Lynch at Morgan Stanley. And so they're all down 50%, I think, from the peak. And in fact, I was on the board at Johns Hopkins on the investment committee, along with James Anderson from Bailey Gifford. who is a great investor and a very rational investor and one of the few investors that was, you know, was involved relatively early on in Santa Fe Institute. And he's been one of the funders along with me of the Lemon Mathematical Institute. So we were having a discussion about growth

Starting point is 01:28:52 investing versus value investing in the fall at our board meeting. This was in December. So right after the peak of the market. And so the question was, is value investing going to come back into favor? There's the record of the last 10 years going to be borne out in the next 10 years when the growth stocks to the venture funds and all have killed it. And, you know, so the CIA, you know, asked that question of the committee. And I said, well, I said, the question can be framed a lot more simpler than trying to figure out all the arguments for and against value versus growth. The question can be framed is when will James Anderson start to underperform? And so that's the question. And actually, he had just started underperforming then. And I'm like, so if that, no, he's underperformed before,

Starting point is 01:29:29 of course, but he's always come back stronger. And I think, I guess it was that the spring, And that was 2020 that I had that conversation. It was 2020. And he was killing it in that market too. And then in 2021 in the first quarter, he announced that he was going to retire, effective, like, I guess effective June 1 of this year. And his fund was up in the previous 12 months, 120%. And I said to it, good timing there, James.

Starting point is 01:29:54 I wish when I was up that much, you know, I've retired, done the same thing at about age 50. So, but now, again, now there are investments strategy and style. All three of them is very well documented in terms of what problem they're trying to solve for. The problem they're trying to solve for is all of the returns in the S&P come down to about 4% of the companies that are publicly traded. And therefore, 96% of the time, 96% of the companies you pick will not outperform. And in fact, most of them will underperform cash. So if you're trying to build a diversified portfolio with a lot of stocks in it, you're almost

Starting point is 01:30:28 guaranteed to underperform. So you've got to pick a very concentrated portfolio with a very particular set of companies in it. And one of the things that James has always said, which I think is right, is that's well-documented evidence. He says, so what he asks himself for his team, it's not just him, is this particular company likely to be one of the 4%. And we know what the characteristics of the 4% are. So is this one of them? So for example, I think that they were, they sold their Tesla. Tesla was one of them, that they rode huge run. And they sold it, as he said too soon, but they said, when it got to have to be more than all the other auto companies combined, I think, right? He said, this has been one of the 4%,

Starting point is 01:31:02 But it won't be one for the next 10 years. And it's always a 10 year rolling 10 year horizon because the auto industry hasn't changed. It's still a mature industry. And it's not going to be a growth industry. Electric vehicles will be, but not autos. And so it's very different from an Amazon or something where they're upending whole industries and moving to cloud computing and that kind of stuff. You mentioned your friend's retirement.

Starting point is 01:31:24 And you announced in January a succession plan for bill of value partners, your firm and the two funds with Samantha McElmore and your son, Bill, Miller the fourth, taking over management of the funds and you're becoming a minority owner of the investment firms that they run. And I'm wondering, what on earth were you thinking, Bill? Why did you announce that you would retire? What's the game plan here? Because I know that your ex-wife tried to convince you that you should retire at the peak of your fame during your 15-year bull run of beating the market every year. And you didn't listen because you were too young and too many people were dependent on you. Why this time around did you decide to declare victory and hang up your spurs?

Starting point is 01:32:00 Yeah, when they ask me about like regrets, I do regret that I did retire in that because I would come back in 08 and 09 and then look like a hero is coming right in the bottom. It's just basically that Samantha and Bill are certainly ready and eager to manage money to the same age I was when I took over the sole management from my late partner, Ernie Keeney. And they've got plenty of experience, at least as much as I had or not more on Samantha's part. And, you know, I've passed my billically a lot of three score in 10 years and, you know, want to have a little bit of time not having to basically be an owner and responsible for all of the stuff and dealing with all the regulatory issues that go with running a business. And I'm still going to be an investor. I'll be an investor in the funds.

Starting point is 01:32:41 I'll be an investor in, you know, my own account and stuff like that. So I'll still be doing similar sorts of stuff. I just want to have to feel an obligation to the, I mean, one of the things is the ethics roles, the compliance rules are in a market like this very problematic for me. because I'm always on margin. And when the market goes down like this or my portfolio, I typically run a high beta portfolio too with concentrated positions. And so, you know, when Amazon's down 30% year-to-date and Bitcoin's down 50% year-to-date

Starting point is 01:33:09 and a lot of other than Tupperware is down 70% year-to-date, which is my big holdings. So when I get margin calls, normally it's no problem. But now, because of the way the market's been, Bill and Samantha are both actively trading, not guessing trading. They're just repositioning the portfolio. So we got a big redemption the other day from that well-known money manager, as I mentioned. And so I didn't think much of it.

Starting point is 01:33:30 But what Samantha did was she had built both apps for a day-to-day trading discretion to do stuff that's strategically what we've talked about, you know, in terms of broad strategies and position sizing in them. But if they get gains, they can, if they have inflows, they can buy stuff that they want to buy without asking me if they get outflows, they can sell stuff to meet the outflows if we don't have any cash. So anyway, so Samantha sold just, you know, a little bit of almost everything in the portfolio. Well, since my portfolio overlaps a lot with the public portfolio, I was prohibited from

Starting point is 01:33:57 transacting for seven days. And I have margin calls. And I'm like, you know, the only thing that she didn't sell Amazon, because it's already down a lot, and she didn't sell Bitcoin because she didn't own it. So I had to sell some Amazon and Bitcoin to meet the margin calls, which I hated doing because I think they're among the more attractive things in the portfolio and stuff that I didn't want to own as much of. It's stuff that basically had much greater margin against it in the sense of. on stuff like if I own the Grayscale Bitcoin Trust, I couldn't borrow money at all on that. I own Gannette. I think I've got to hold 75% of the value of Gannett. I can't borrow 50% like a normal margin thing. So it was very annoying to me to have to sell stuff. I don't want to sell

Starting point is 01:34:37 because of some arbitrary internally imposed. The client comes first thing. I agree the client comes first on everything. I don't agree that it's going to be disruptive to the market. If I have to sell some stock on anything like that seven days of non-transacting will allow them. the market to settle down because I'm such a big owner at it. So it'll give you a whole lot more freedom, basically. Yeah. Which seems to always have been a kind of guiding principle and desire for you. Over the 22 years or 21 years I've been interviewing you,

Starting point is 01:35:07 it just seems like you've progressively become less and less constrained and more and more true to who you are. Is that fair to say? I would say that's probably fair. I'm not sure what you're referring to, but certainly, you know, I'm not front and center the way I was 10 or 15 years ago with the funds when I was at Legnation. So you had a whole different layer of stuff there because you were part of a large public company.

Starting point is 01:35:30 Yeah, you had oversight by the board. You had to report to people. You kind of dressed up to go to work. And it seems to me that you've become kind of freer over the years to dress the way you want, write the way you want, not write what you want. You know, like not write if you don't want to write a shareholder letter or something. You know, you just, it seems like, I don't know, I remember once interviewing your house in tour and just thinking, God, it's like it's Miller unconstrained. He's become unbound.

Starting point is 01:35:56 Well, I will say that one of the my remaining things that I will be looking forward to is, so I've always felt compelled to first thing in the morning, you know, I'll still check the markets just to see what the futures are doing. And also overnight, I was kind of that habit during the financial crisis. But nonetheless, I feel, you know, compelled to read the Wall Street Journal carefully, read the New York Times carefully, first thing in the morning, to make sure there isn't anything there at a macro level or a micro level or company announcements or things that I'm missing. And then after I read the papers, I'll typically go turn on the Bloomberg machine to see what's going on there. And when I'm finally not the majority owner anymore,

Starting point is 01:36:35 and I'm not the name PM, so what I do now is when I read stuff that I actually really want to read and not feel like I have to read. So I still haven't been through Schopenhauer. The world is willing representation. I have read Brian McGee's philosophy of Schopenhauer, which is longer than Schopenhauer's book. But nonetheless, I have read that, but I haven't dealt in the Schopenhauer, just and I haven't read all of it. Last time I spoke to you, you've been rereading William James varieties of religious experience, and you were reading crime and punishment, which I'm struggling with at the moment a little bit. And I think you'd read Middle March by George Elliott fairly recently and and I used to be brothers Karamazov almost every every other year and um but I've read

Starting point is 01:37:18 that now in a number of years I did I get through war in peace which I really struggle with for a while but it was actually really worth it I'm actually the one that's next on my list of that ill because I haven't read Ulysses oh that's amazing this is a hundredth anniversary of Ulysses being published and I do have a first edition of Ulysses in my rear book that was that was as a pretentious young English literature graduate when I had my son Henry the first thing I did when he got home to Westchester, New York, was I read him a little bit of Ulysses, because I thought he should have a little bit of the music of the greatest literature of the 20th century. And then when he went to Columbia and was studying creative writing and literature,

Starting point is 01:37:54 he became obsessed with Ulysses and James Joyce, and then got a tattoo on his arm, an enormous tattoo of James Joyce with an eye patch, a famous portrait of James Joyce. So I paid the price for getting my son obsessed with Ulysses from day one. How about that? I saw it today somebody sent me a picture of Mike Novagrats where you got a Luna tattoo on his arm months ago with a wolf hounding at the moon. And it's this big. And it's like, whoops, maybe you should have got a beaver Bitcoin on your arm. I'm a little more enduring than that one.

Starting point is 01:38:27 Yeah. I felt bad for him when I saw some story of him going from something like $10 billion to $2 billion. And I'm like, yeah, that's really tragic. Now he's only worth a couple of billion. And so part of your game plan for retirement is really actually. to read more and to do philanthropic stuff mostly? Is that, I mean, what will you do with your time now that you're even more unbound and untethered? Well, I have substantial philanthropic commitments. I just did another big one that's not public the other day. I might do it anonymously just because

Starting point is 01:38:58 because the problem is that when I did this stuff at Hopkins in San Faye, you know, immediately I get on the list that everybody in the world wants to ask me for money. Yeah, I was meaning to ask you about that, Bill. Adopt a podcaster. Yeah, I don't want to, I don't need to bring a whole new horde of people asking me for money and something. I might do it anonymously. But anyway, so that those commitments are sufficiently large that I'm going to take several years to get them fully, I think, paid down. But there's, I'm getting there, but I'm not there yet. It's not that I'm not going to do anything more philanthropic, but there, I do want to build up some cushion. And again, this market is taking away, you know, a big part of the cushion. And the fact that the market

Starting point is 01:39:37 has taken away a big part of the cushion, it sort of to some degree eroded some of your massive outperformance of the last few years, as it made you second guess yourself at all and think, God, really? Why should I retire now? Maybe I should give it another couple of years? No, actually, if I look at the funded way behind the market last year, and it is a good sign of me not paying that close attention

Starting point is 01:39:57 to the performance on an hourly basis or something. But as of a week or two ago, we were a couple hundred behind the market, which I thought was it was, it wasn't a, I would call it triumph, But given the carnage that's been in the market, it's certainly not problematic. Because we have a mix of stuff like we got a mix of the Bailey Gifford stuff and a mix of the three times earning stuff. So it's a little bit more balance in there. But actually, a large part of the other performance last year was due to me not asserting myself in the way that I should have and letting, you know, telling Samantha, you need to do this, but not telling her you got to do it a lot faster.

Starting point is 01:40:29 We got to. So we had a lot of things. So we've actually, we sold a lot of stuff last year that had gone up. I mean, Farfetched, we had a $9 cost in it. went to 75 and we sold about half the position. It was our biggest position at one point. We cut it in half, but now it's down 75% this year. So it costs us a lot.

Starting point is 01:40:45 And when it was $75, it was screamingly overpriced on any sensible near-term basis. But using a Bailey Gifford thing on a 10-year basis, it wasn't. And I'm like, we should cut it back, but we don't need to get out of it. It was going to generate short-term gains. And so a lot of our underperformance last year was due to me not stepping in front of stuff. And that was me also like owning Veroom, which went down. 90%. And now we sold it before it went down 90%. But still that cost us. So this is a long-wender way of saying that, and I don't know, I think the income fund is behind its benchmark too. Although it's

Starting point is 01:41:17 interesting thing going on there that I will tell you because it's not public now. But actually, it is public, I guess. But I can safely blame myself for the underperformance if we end up underperforming two years in a row for the Opportunity Trust. And then Samantha will probably have the wind that are back next year because it's two years underperforming in a row. We've only done three years in a row once, I think. So that would be, that was 0809. 07.08 or 9, I guess it was. So when you look back over the last 40 years, I mean, it's been an amazing run that's been very, I mean, it's kind of a historic run, right? You had the period of beating the market for 15 years running, which is kind of unprecedented. You got crushed in 2008, 2009, and everyone kind of ruled you out. Then you had this extraordinary

Starting point is 01:41:59 comeback and got kind of marvelously vindicated, which was really fun to watch. When you look back on all of this. What are you proudest of? What gives you the most satisfaction? I would say actually the comeback and not because I came back because just, I mean, anybody that actually just stayed the course after 08 and 09 and didn't puke out the stocks and get defensive and stuff like that was going to have another, a good run at some point in time. It was more the fact that that the 10-year period from 2009 to 2021, I guess it was through 2020. So that 10-year or 11 year period, whatever it was. That period was, in my opinion, a far more impressive period than the 15 years in a row.

Starting point is 01:42:43 Now, some would dispute that because that 15-year period had a couple of years where only 10% of the money managers beat the market. And so, and other periods where we're 60% beat the market. But on like 1, 3, 5 and 10-year period, I think in 2020 going back, we were in the top 1% for every period. And so not just ahead of the market, but in the top 1%. And that was a much harder thing to do that than it is just to be ahead of the market, you know, within the market. So that was, I found that satisfying, let's just put it that way. I think what's also striking for me is just the resilience that you showed. I mean, you could easily have packed it in and sort of,

Starting point is 01:43:20 you know, lay down in fetal position and kind of groaned a bit and stopped playing the game. And you kind of kept going in a really remarkable way. And I don't know. I found that kind of of very heartening to see. And I was kind of wondering just where you got the strength to do that. I'll answer a little bit facetiously and just say that it didn't take a lot of strength to keep doing the exact same thing that I've been doing for 30 or 40 years, right? I mean, it's a get up in the morning, the exact same pattern. So, you know, it's like if you've got a dog, a dog eats at a certain time of day, goes out at a certain time of day. It's not a trick to get the dog to keep doing that. So I actually, if, you know, retrospect, and I'm not sorry, I did it,

Starting point is 01:43:59 right for sure because it was I find it super intellectually interesting and challenging and I'm competitive and so that's it but I do think that probably Nick and Zach got it more right than I did or Peter Lynch did I mean Peter's been retired but not been retired he's been at fidelity for over 50 years but he's been retired for since what 1987 no 1986 something like that right I think that's when he retired so that's you know a lot time and Nick and Zach are still young and there Nick is actually you know he's some kind of road race the last time I, he sent me an email last week. Those guys have a long runway ahead of them to do exactly what they want. I have a much shorter runway. But again, I don't want to do

Starting point is 01:44:37 race from Beijing to Paris, you know, with my kids. Yeah. Or grandkids for that matter. Yeah. You must look back on it with great satisfaction. I mean, you've done something kind of almost unprecedented, right? Like it's, I mean, it's great that Peter Lynch crushed the market over 13 years, thereabouts. But I mean, to build a 40-year record, that's kind of quite something. Yeah, I mean, when I typically get asked, you know, whom do you admire in the business? And I mean, anybody who can survive in the business over, let's say, 30 years. And I think I didn't have that number in mind particularly. But I think I might have told you that I was at a dinner on London.

Starting point is 01:45:12 And it was probably about 10 years ago. And whoever the guy was sitting next to me was like the Times of London's longtime financial guru. And he said to me, who do you admire somebody who can survive? And he said, I don't think I said 30 years. I just think anybody who can survive, right? And without getting fired. And he said, well, you know, I've actually done work on that. And he said, and do you know what the answer is?

Starting point is 01:45:33 And I'm like, yeah, he says, do you know what? You know what survival means for it to be actual predictive ability? And I'm like, what? And he said 30 years. He says, not 20 years of beating the market. It's not 25 years of beating the market. It's 30 years of beating the market. And he said, the sample size isn't that great, but it's pretty clear that that's the

Starting point is 01:45:50 threshold if you can do that, you know. So that was heartening to hear. It wasn't all luck. as Bill Gross said with respect to me, when Barron's asking him, I know it was a great line. He said, because I had beaten the market 12 years in a row. And they said, what do you think of Miller's beating the market 12 years in a row? And he famously said, anybody can throw snake eyes 12 times in a row. And it's like, well, no, that's not exactly the case.

Starting point is 01:46:14 But millions of millions to one chance of that. And he was, of course, you know, he was a card counter. But he didn't, he just popped off his head. And he had to come back and say later like, oh, well, actually, that's not what I bet. When I originally wrote that profile of you for Fortune, I remember showing it to Carol Loomis, who was a grand figure at Fortune then and now. And she actually, she spotted an error, thankfully, a really stupid error that I'd missed that I managed to get out before it was published, thankfully. And I said to her at the time, this is 20 years ago. So you think he's the real deal?

Starting point is 01:46:46 This guy, you know, you'd beaten the market for 11 or 12 years at that point. And she's like, yeah, yeah, he's the real deal. I thought that was interesting. I was just thinking of it this morning. I don't think you told me that before. No. Although, you know, one of the things that she wrote a piece about Amazon, unfortunately, probably around that time, I think. And I think she was interviewed me for it, and I've made some comments about Amazon.

Starting point is 01:47:07 And we owned it, you know, and I really liked it. And she wrote it, unfortunately, even if I was right about Amazon, and it turned out to be the kind of company that I thought it might be, she said the results will not accrue to the shareholders because their option program will eat up a huge, huge amount of that because they're adding all these employees and they're giving them all stock options and stuff like that. And what was interesting about that, that was just about the time that Amazon

Starting point is 01:47:33 changed from an option program to be restricted stock program. And they did it because I complained to Jeff. It was all the time when Buff was writing about stock option programs and they should be expensed and stuff like that. And I complained to Jeff about the fact that they were repraced their option program like in 2002 or 2003 when the stock was way down. Actually, I complained to the Yeah, I complained to Jeff. And then he said to me later, a little bit later, as he said, would you be willing to talk to the board about stock options versus restricted stock? And I said, sure. And so I did a presentation to the board on that. And shortly thereafter, they switched to restricted stock. And then Jeff told me later that he was in favor of restricted

Starting point is 01:48:14 stock, but the board was against it because they said tech companies don't issue restricted stock. They have stock option programs and generous ones. And we won't be able to compete for employees if we give them restricted stock. But what was funny about that was it was right after Carol Loomis wrote this article. And the thing that was interesting about that was I think at the time, they had 460 million shares outstanding. And I think right now they have about 480 million shares outstanding. So maybe 5% dilution in like the last 15 or 20 years.

Starting point is 01:48:44 It's virtually nothing. And now they have the buying back stock. So it's, you know, they do issue restricted stock. But again, the dilution is virtually zero because it's never worth zero. You know, it's always worth something. When I wrote my profile of view for Fortune back then, which I think it came out December 2001, something like that. I said that I guess Amazon had fallen to around six at the time from 90-something.

Starting point is 01:49:05 And I said, if Miller is right, this will prove to be one of the greatest contrarian investments of all time. And so I think I was smart enough to see. Yeah, so I was smart enough to see as a journalist. I was smart enough to see this is a really interesting story. But I was dumb enough as an investor that I didn't buy the thing. And so the joke is on me. So congratulations on this amazing, amazing run. And I hope you realize that the fact that you're going to be retiring at the end of the year doesn't mean that I'm not going to keep asking you for interviews over the years to come.

Starting point is 01:49:35 There's no escape, Bill. Well, I'll have more time for interviews, although I'm going to be more selective and who have that interview me. That's great. You're always in the camp. So you're good. Thank you. Well, thank you for teaching me so much over all of these years. It's really been an amazing experience.

Starting point is 01:49:49 I've always loved interviewing you. and this has been a delight once again. So thank you so much. I'm in the William Green fan club, so because you're certainly among the most thoughtful and insightful of financial journalists. And, you know, your book sitting right behind you is one that I give to anybody who wants to know what they should read about investing and about life too, you know. Oh, thank you.

Starting point is 01:50:10 That's really kind of you to say. I really appreciate it. And you and my mother, the two members of my fan club. So thank you. I much appreciate. Bill, thank you so much. And take care. I hope to talk to you again soon.

Starting point is 01:50:20 Take care. Bye. See it. Bye. All right, folks, thanks so much for joining us today. If you'd like to learn more about Bill, you may want to check out what I wrote about him in my book, Richer, Wiser, Happier,

Starting point is 01:50:31 particularly in the epilogue, which tells the story of his trial by far during the global financial crisis, how he survived it, partly by drawing on stoic philosophers like Epic Titus and Marcus Aurelius, and then how he staged a miraculous comeback over the following decade. I'm grateful to everyone who took the time to write to me on Twitter to suggest questions for Bill.

Starting point is 01:50:54 In all, I think I got over 100 questions, so thank you. I ended up using a question from Bob Flynn, a listener who lives in Colombia, and I'm sending Bob a signed copy of my book as a way to say thanks. Please feel free to follow me on Twitter at William Green 72, and do let me know how you're enjoying the podcast. I'll be back with you soon with my next guest, who's Monish Pabri. Until then, stay well. Take care.

Starting point is 01:51:18 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 the investorspodcast.com. This show is for entertainment purposes only. Before making any decision consult a professional,

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We Study Billionaires - The Investor’s Podcast Network - RWH007: Investing Legend Bill Miller On Amazon, Bitcoin, & Buffett

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