We Study Billionaires - The Investor’s Podcast Network - RWH019: Winning the Long Game w/ John Spears

Episode Date: December 25, 2022

IN THIS EPISODE, YOU’LL LEARN: 04:04 - How John Spears became obsessed with investing when he was 12 years old. 11:34 - How skipping school to meet an investing legend set him on a path to success. 16:07 - How a catastrophic early investment humbled John & taught him to be more prudent. 24:12 - Why he focuses intensely on tracking insider buying of cheap stocks by top executives. 27:28 - What he learned by studying Ben Graham & teaching himself to buy cheap stocks. 32:42 - How Warren Buffett bought his stake in Berkshire Hathaway through Tweedy, Browne. 41:54 - What it was like sharing an office with another fabled investor, Walter Schloss. 50:12 - Why John owns high-quality compounders like Heineken & Nestle, which aren’t cheap. 52:01 - What empirical research has taught him about the strategies that work best over time. 1:01:29 - Why we should focus on achieving “satisfactory” returns, not shooting the lights out. 1:08:40 - Why it’s wise to avoid a lot of debt, live within your means, & keep ample cash reserves. 1:12:02 - Why we should diversify overseas, maximizing our odds of finding undervalued stocks.  1:13:36 - How John thinks about investing in foreign markets like China, the U.K., & Switzerland. 1:20:40 - Why he prefers to own a “dull old” stock like Tesco, instead of something sexier & riskier.  1:27:42 - What factors have contributed to him having a happy life. 1:38:01 - How the principles he learned as a Quaker have influenced the way he lives & works. 1:50:36 - Why he regards capitalism as a powerful force for good. Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences. BOOKS AND RESOURCES Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, and the other community members. Tweedy, Browne’s research papers on what’s worked in investing over the long run. The Tweedy, Browne International Value Fund. William Green’s book, “Richer, Wiser, Happier” – read the reviews of this book. William Green’s Twitter. NEW TO THE SHOW? Check out our We Study Billionaires Starter Packs. Browse through all our episodes (complete with transcripts) here. Try our tool for picking stock winners and managing our portfolios: TIP Finance Tool. Enjoy exclusive perks from our favorite Apps and Services. Stay up-to-date on financial markets and investing strategies through our daily newsletter, We Study Markets. Learn how to better start, manage, and grow your business with the best business podcasts.  SPONSORS Support our free podcast by supporting our sponsors: River Toyota Sun Life The Bitcoin Way Range Rover Sound Advisory BAM Capital Fidelity SimpleMining Briggs & Riley Public Shopify Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

You're listening to TIP. Hi there, I'm really happy to introduce today's guest, John Spears. John is a great investor who spent 48 years working at an iconic investment firm called Tweedy Brown. This is a company with an incredibly rich history. It's been at the epicenter of the value investing world for as long as anyone can remember. Ben Graham, the patron saint of value investing, used to place his stock trades through Tweedy Brown as far back as the 1930s. Graham's most famous disciple, Warren Buffett,

actually bought his stake in Berkshire Hathaway through Tweedy Brown in the 1960s, back when Tweedy was a broker and Berkshire was still a small, struggling business that owned an ailing textile mill. John's obsession with the stock market goes back a long way. He bought his first stock when he was only 12 years old. As a teenager, he taught himself accounting and finance, and he was in such a hurry to become a professional investor that he dropped out of college

and went to work full-time on Wall Street when he was only 20. These days, John is a managing director at Tweedy Brown. He's also part of the investment committee that runs the company's flagship international value fund. The fund has crushed the MSCI-EFA index by something like 600 percentage points over the last 29 years. When you see that level of long-term outperformance over three decades, I think you want to pay serious attention and ask yourself, what have these people figured out about what works over time? As a lifelong student of the stock market, John has thought very deeply about this question of which investment strategies work best in the long run. He's also done a lot of empirical research

on the subject. His studies have led him to be a staunch believer in the enduring wisdom of buying stocks for much less than their worth and hunting for bargains internationally. He's also a great believer in investing in companies where the top executives have been buying their own stock. As you'll hear in this conversation, he believes that cheap stocks with heavy insider buying may be the single best pond in which to fish. But the reason I'm particularly delighted to bring you this interview is that John isn't just a terrific investor. He's also a terrific human being. I first interviewed him in 2015. Back then, I spent several hours with him at his farmhouse in rural New Jersey,

and I was really struck both then and now by what an affable and modest and good-humored person he is. There are plenty of great investors who are brilliant at making pots of money, but maybe less successful in other areas of life. John seems different to me. As I see it, he stands out as an unusually happy and likable, and well-adjusted person who's extremely comfortable in his own skin. So in this conversation, we talk in some depth not only about what works in markets, but about what works in life, and in particular, how to construct a truly happy and fulfilling life. Thanks so much for joining us.

You're listening to The Richer, Wiser, Happier Podcast, where your host, William Green, interviews the world's greatest investors and explores how to win in markets and life. Hi, folks. I'm really delighted to be here with today's guest, John Spears, who spent almost half a century at the heart of one of the great investment firms, Tweedy Brown. John, it's lovely to see you again. Thank you so much for joining us. Good to see you, William. It's been too many years since we last met. I think it may be about seven years since I came to visit you in New Jersey and spent the day in your beautiful farmhouse there, I guess. It was a memorable experience.

I'm happy to be with you again. We sat in the barn and had nice chat, nice lunch. Exactly. Exactly. It was a great day. So I wanted to start by asking you how you came to be so fascinated by the stock market at a very young age. And if I remember correctly, you ended up buying your first stock when you were about 12 years old.

That's correct. It began with a tendency toward lassitude. I had always been a worker as a kid. I was just kind of a worker. I had a lot of energy. And one of my ways of working was to pull working gardens, pulling weeds. And the pay at that time was 50 cents an hour, which might be $3 an hour, an hour, or something like that in today's dollars.

And that was work done in the summer. It was hot work, sticky, get your hands dirty. And I had the good fortune of having my grandfather within a bike ride away in the town that we lived in, Oakland, Illinois. And my grandfather was an investor. He bought dividend paying typically large sort of blue chip type companies. And he looked at the financial pages every day. And I was fascinated with all the numbers.

What's an eighth mean? What's the quarter mean? What's the monetary equivalent of those figures? And it just struck me that it's pretty amazing. You could make money with money without doing all this work outside. And you could do it in an air-conditioned office. So it was really a tendency toward that kind of laziness or maybe just seeing a war-efficient and more delightful way to spend one's time.

Yeah, because you were very entrepreneurial, right? I mean, I remember you telling me that you delivered newspapers at 10. And I think you built and rented out a hammock in your backyard. That is correct. Yeah, I sold it as a space ride in the hammock. I sold that as a nickel a ride. There was a magazine, I don't know whether it's still around, titled Boy's Life. It might have been associated with Boy Scouts or Cub Scouts, something like that.

And they had moneymaking schemes, including selling door-to-door in-graved Christmas cards, custom-engraved Christmas cards. And I did that. And it was fairly easy to do because the houses were close together. It was not a wealthy area with large lots and that kind of thing. So, yeah, it was just kind of doing these things to make money. You told me once that you sold Coca-Cola on construction sites that you would mark up. That's right. When we moved to Gladwin, Pennsylvania, outside of Philadelphia, there was a fair amount of construction going on in the summer.

And I would keep track of it and bring cold coax and mark them up, double them up, and sell them. That was one of the schemes, yeah. But also, I'm not sure whether this is a question you were going to ask, but I had kind of an entrepreneurial breakthrough in high school, continuing with this Christmas card business. I learned about fancy, expensive Christmas cards that were sold in stationary departments of department stores, such as John Wanamaker or Strawberryge and Clothier in the field. Philadelphia area. And they were heavy, heavy sample books. And I got in touch with these Christmas card companies and got the right to sell their product in the main line of Philadelphia. And the problem with it is that all the houses were on at least two acre lot. So you had to walk around carrying these heavy books door to door to try to make some sales. But I had this

thought, I became aware of something called the reverse telephone directory, which street by street door by door gives you the telephone number of each house name, address, telephone number. So I thought, well, maybe I could come up with a little advertisement, a flyer that I could send door to door by street. And then I could call in advance house to house and arrange for appointments to see these Christmas card sample books. And then the flyer that I created had a little picture of myself so that would relay any fears of a robber. They could see this kid. And it was kind of cute. I had an old beat-up Volkswagen bug.

And a little hippie sunflowers on it. And anyway, I found out that I could call door to door. And about a fifth of the telephone calls resulted in an appointment to drop off the sample books. And if they made a decision by the next day, they got what I called the quick deciders discount. They'd get 20% off. And doing that was quite successful. I guess in today's dollars, maybe making over $40,000, just part-time work doing this while still in high school.

So, I mean, the head of the local branch, the bank branch of Provident National Bank, who took an interest in all this cash and checks I was depositing and invited me out to lunch. It was a teenager. It was great. So that was an interesting entrepreneurial thing that was kind of a little bit of doing some research to try to get around a, a hurdle, a twist. And you were always very frugal, right? So you'd been saving money from all of these jobs. And then you'd started to invest in the stock market at the age of about 12.

And if I remember rightly, your first two stocks were British Petroleum and Allside Corp, which I think was made aluminum siding. Can you give us a sense of what you learned from those early adventures in the stock market? Well, the first one was a joy. British Petroleum. I think I invested $250, $300 in that stock, and it went up about 50% in a short period of time. This was great. Now, this was a stock that was just, it was recommended to me by a broker. I said, okay, I'll do this. Sounds okay. There was no independent research, but it was just buying a piece of paper. I didn't know that much about British Petroleum. Anyway, it was easy money. So it's great.

But then he recommended this AllSides company, which sounded so interesting. Allside was a aluminum siding, but they also were going into a new business of making pre-fab manufactured homes. And they were architecturally, very contemporary. I liked how they looked. And so I bought some of the Allside. It went down 50%. I lost half my money in that stock. And it was an awakening that I really did not have a clue about what I was doing.

And you can lose money in stock. too. So I started trying to repair my lack of knowledge by going to the library frequently and sort of one at a time taking out books on investing. Why do you think it fascinated you so much? Was it really that you sort of were rapaciously capitalistic and wanted to get super rich or what was motivating you to do all of these ventures and to invest? I think it was sort of a money gene or a an Everest, Gene,

get rich gene. I just, I just thought that was, I don't know, I was just interested in it, from an early age. Yeah. And you didn't,

I mean, I mean, I've read, I've read about Warren Buffett's early age. And he, he was, he was that way with, I think,

he'd go to barbershops and he'd install a gumball machine or something, which takes coins and you, you get a, get a piece of candy, piece of gum. And you go around. and collect the coins.

And he did some of these things that struck me as interesting. He said that often has been the case that people who made money did things at an early age that were sort of independent, entrepreneurial, in a very small scale way. But, I mean, I remember reading about Joseph Kennedy. I think he, as a teenager, might have rented a bus and had like a little bus company. Yeah. And you were reading all about these people like John Paul Getty. and Charles Allen was another character who now most people wouldn't be able to identify,

but he played a really important role in your life. Can you talk about how you went from reading about him at the age of 14 or 15 when there was an article about him in time to actually having him set you on a particular path that I think really quite profoundly affected the course of your life? Indeed, indeed. I read about Charles Allen in an issue of Time magazine, a business section. that he was kind of in the Forbes 400 type thing before there was a Forbes 400. But he was worth, this would have been in the 60s, he was worth about $500 million. He had started with nothing. He was a runner on Wall Street. He started his own firm. And by the time he was 29, he was a millionaire.

And then he lost, I guess he lost all of his money in the stock market crash around 29, 2930s. And he made it back. But it was his story in Time Magazine described the diversity of businesses that he had invested in, the different kinds of stocks, including some venture capital type things. And it just sounded very, very interesting to me. And the author of the article described Charlie Allen as having a feel for stocks. I think he used exactly those words. So I was just fascinated by this man. And I wanted to see if he'd be willing to meet with me and describe his feel for stocks and maybe give me some advice on how to be an investor. I wrote him a letter. And maybe in a month later, I received a reply and he invited me to come to his office in New York

City. And I took some time off from school. And not with permission. It should be, it should be emphasized, right? You played hooky, right? I played hooky, yes, without permission. So I wanted, I had my priority sets. So I went up to New York on the Amtrak train and spent about 45 minutes with Mr. Allen and asked him to describe his feel for stocks, his feel for investing, that Time magazine had described as almost magical. How do you get that?

And he said, it's just a feeling when you know you're right. We have got sort of conviction, you're comfortable, you're right. And then he gave me advice on educational path forward. He said that, you know, accounting finance, accounting is the language of business. You should know everyone who's an investor should know accounting. And he recommended a course that was taught at the New York Institute of Finance on security analysis. And it was a correspondence course. So I immediately signed up for this.

And it happened to be based on the book Security Analysis by Benjamin Graham. Dodd and Cottle. And the book was originally, as you know, I think, published in 1934 or so first edition. And anyway, I just started going chapter by chapter. And there were accounting lessons as well with the book. And I'd send in my answers to questions, assignments, and get a grade back, and then do it again. And it was very, very useful. I really started with, what's considered to be the hard book, the Bible of investing. And he has a section, he has a part of the book on balance sheet analysis. And I came to the conclusion that you could buy bargains in the stock market. You could buy a company, even a company that has more cash net of debt per share

than the stock price. So I had also seen some research on stocks that had the biggest percentage moves and they tend to be lower price stocks. So I thought that I would try to find stocks at $5 a share or less that we're selling below their net cash. So in theory, if you and I could buy the whole company, we could, we'd get our money back from the cash in the balance sheet and the till. And then we'd have the sales space, the earnings space, the property plant equipment, goodwill for free. That seemed like a good deal. So I started doing that. And, those initial investments with that basic framework in mind worked out extremely well. And I was not a diversified investor at that time. I didn't know, know much about that. But my first few bets were good

and a thousand dollars became worth about $10,000 or I don't know what that is today. Today's dollars. Probably what, $75 grand, $100,000. Yeah, something like that. Real money for a high school kid. Yes. And then you're a lot of money. I felt rich. Yeah. And then, John, I remember you telling me when, when we met last time, you then had a disastrous investment where you sort of strayed from this new framework. Can you talk about that? What happened? Because it sounds like that had a huge impact on you. It did. It did. At that time, there were a number of companies, conglomerates, companies that would own different businesses and a number of them had been formed using sort of a shell corporation that had a tax loss carry forward benefit, i.e. that the whole

idea was if you bought a profitable tax-paying business through this corporate entity that had a large tax loss carry forward, you could shelter the pre-tax income of the business that you acquired. You pay no income tax on it. And at that time, the corporate tax rate was around 50%. So you sort of have, assuming it was a cash generative business where the cash flow was equal to the earnings, you'd have double the earnings that you could get your hands on in cash flow. So there were a number companies that built conglomerate businesses through acquisitions. And I happened to stumble across a company called Paul Hardiman Company, which had an enormous tax loss carry forward. I forget what it was per share, but it was a big number in relationship to the stock price.

The stock price might have been three bucks or something like that. And I thought I was just going to get fabulously rich buying this thing at three. It would, you know, they'd build some empire buying companies. And I went and went up to New York and met with a lawyer who had bought control of this company with the large tax laws carried forward. Anyway, I recommended that my father buy it. And I tried to borrow money from one of my father's friends who always took an interest in me and was a frugal guy who invested in stocks and owned real estate also and a farm.

or two out in Ohio. Anyway, this guy, thankfully, did not lend me any money. And he wrote me a very kind letter talking about the, you know, the disadvantages of borrowing money to buy things and, you know, being better to be prudent and careful. And anyway, I didn't follow. I mean, no one would lend me any money, which was a blessing. It's so, that stock crashed. It just was terrible. It pretty much wiped out most of the $10,000 that my investing had built. And so I mean, it was a punch in the face at an early age, better than at age 74. I don't want to go there. But your dad lost three or four thousand bucks as well. He did. And so that must have been pretty excruciating, presumably. It was excruciating. It was awful. It was humbling. And he was not a rich man. I mean,

he'd been, I mean, he became relatively successful. It was affluent, but he was not a rich man. And I was sort of surprised years later when he invested $50,000 of his pension profit sharing, his IRA with Tweedy Brown. And fortunately, it was a very successful investment. It allowed my parents to retire very, very nicely. So to go back to this company that turned to dust, What did it teach you, in a sense, about reaffirming your faith in the principles of Ben Graham and the margin of safety?

How did it affect your rediscovery of your faith in Ben Graham? Sure, sure. Well, obviously, if you had looked at the balance sheet of Paul Hardiman Company, really didn't have much. I don't know whether it had much debt, I don't recall. But it was basically the tax loss carry for it. There was not a, it's kind of a more esoteric asset than actual cash buildings, accounts receivable, profitable, profitable business, profitable sales base, those kinds of things. It just did not have that.

And I had made money in those kinds of stocks. I understood them. I understood the theory of doing it, the model. It all made sense to me. It seemed like it offered a margin of safety. I used to think that, you know, you'd find something. that didn't have much leverage and you figure out that the real value of the business, if it was sold, if you acquired it or if a competitor acquired it, the likely price that the

business would go for, you could buy into some companies at half that. And really, their financial capacity, what a leverage buyout firm could do in acquiring that, they could finance more than the stock price per share. They could borrow, go to a bank and borrow more than the stock price for sure. Those kinds of things made sense to me. It was sort of like a bond or a bond, you had bond capacity or financing capacity of the business that was more than the stock price. So in a theoretical see-through way, you were kind of like buying a bond, but you didn't have a maturity date. You didn't have regular interest payments. But you had that margin of safety based on the price that you were buying the price that you were getting into the enterprise and that was equivalent

into the margin of safety that a bond on that company would have. I don't know whether that's at all clear, but that was the idea. Our audience is much smaller than an I am with these things. So they'll understand me with the things that I don't. No, no. I'd say you're an A plus plus questioner. Oh, thank you. So you then went off and you spent a couple of years studying finance and accounting at

colleges like the Babson Institute of Business Administration and Drexel Institute of Technology. and I think you spent some time going to Wharton trying to avoid getting drafted in Vietnam, which I think is very wise indeed. And then you dropped out, and much to your parents' dismay, and I'm wondering how come, why did you decide that you didn't want to complete your college education? And did you ever regret not having a college degree? Well, I think the answer, I think, is I was really just interested. I was so focused in a way on pursuing this investing course. that I just didn't want to take the time to study all the other things. And also, I had a kind of a weird way of looking at things as a result of studying people that had become successful in

business and it'd become wealthy. Many of them were immigrants. Many of them were college dropouts. In some instances, even high school dropouts. Thank God my parents didn't allow me to do that. Would you have dropped out of high school if they had allowed you? I was kind of inclined to do that for a while. But thank God I did not do that. But anyway, so I was determined to learn these, learn accounting and finance and somehow make money and get in business. And my parents, when I first dropped out of Babson after nine months at the school, I'd been getting A's and B's. I was doing fine. But I just felt twitchy. I had this energy to get into business, do something. You were a man in a hurry. I was in a hurry. I was in a hurry. My mother, my mother,

you know, said, Johnny, do you want to pump gas the rest of your life? She was just very, very upset about it. But it turned out that they had a very, very luxurious retirement as a result of investing with Tweedy Brown. And it's interesting because you strike me as a very scholarly and bookish guy. I know how much you love your books. I remember seeing your absolutely gorgeous library in your house in New Jersey. And it just strikes me that you're a very independent learner and thinker. And so probably in a way, the characteristic that led you to leave college and just be studying on your own at a maniacal pace, it's probably pretty integral to your success, right? That kind of personality. I think that's right. Yeah, independent learner. Independent learner.

I think I learned better through reading than through, for example, going to a long lecture course. So I just found it to my liking to be an independent student. I'm still an independent student of investing. I still read investing related books. I read academic studies about different stock market approaches, such as copying insiders or buying into companies that have bought back their own stock. And I'm still doing today empirical work right now on copycatting C-suit or top executive insider trades for companies not only in the United States, but throughout the world. And it's interesting.

They tend to beat the market. I've been following some of what you've written and said on this subject. We'll come back, I hope, to this idea of empirical research later because it's very distinctive to Tweedy Brown. But tell us quickly, what does it show you when you follow? what the president or the CFO or the CEO or the treasurer or whatever, what they do in terms of their own investments in their company? On average, if you bought all of the ones that they bought over time, you tended to beat the market. And the market was defined as the S&P 500.

I mean, the study that I did or the firm did using the U.S. market as the universe and using companies with at least a $500 million, inflation-adjusted market capitalization. So they were mostly bigger companies, the kinds of companies that other academics said insiders don't tend to do that well. A big company, you know, efficient market theory and all that. Well, what we found studying the U.S. market is that insiders, C-suite insiders, top executive insiders, such as the CEO, president, treasurer, chief financial officer, chairman of the board. They tended to beat the market by a much greater amount when they were buying value stocks, when they were buying stocks that if you ranked stocks on price earnings ratios, if you rank the top executive, you have a universe of

their only top executive purchases, then you rank all those stocks on price and earnings ratio and sort them into deciles. The cheapest stocks on PE, ratio tended to have the best excess return, the best alpha, more than 10 percentage points, on average. But that doesn't mean that any librarian or that we can just assume that all of those stocks work. They don't. I mean, I think with our U.S. study, 75% of the stocks that were in the cheapest two deciles

of price earnings ratio had some gain. but 25% had absolute losses. And then of the whole universe, 65% of the stocks that were in the cheapest two decals of price earnings ratio beat the market had exceeded the S&P 500 by more than 10 percentage points. So those are fabulous results. But there's definitely statistics, there's skewness. You know, you don't have all winning.

And you have some very, very, you know, you might have in that sample something with a 400, return and then something with an 80% loss. So it's not nirvana, but it's pretty damn interesting. And it's a powerful enough signal that it's presumably very powerful for you as an idea generator. And then if you can combine this kind of tracking of C-sweep inside a buying with stocks being cheap, it's presumably a pretty good pond to be fishing in for you. Exactly. Indeed. Indeed. I think it's, I think, I think, I think, I think, I think, I think, is the best pond. That's interesting. And it's interesting. It goes back in a way to Ben Graham,

who also found these statistical, empirical ways of looking at the market, where you could say, well, on average, I'm going to do pretty well if I fish in this type of pond. Indeed. He was sort of a quant. I mean, he talked about buying a group, a basket of stocks selling below current assets, net of all liabilities senior to the comet stock, and also including the deduction of preferred stock. And if you could buy those, it's two-thirds of that net net current asset value, you tended to make money. And he did. I mean, it made a lot of sense to him. He didn't really study each company that carefully, but it tended to work. And we've done, we've done that sort of thing, too, especially in our early days when we manage less money. Can we go back to those early days?

Because to resume our story of the young John Spears in a hurry, you trained as a stockbroker in New York city, I think, back when you were about 20 and then worked for a couple of brokerages. And then when you were maybe even 22 set up your own investment partnership with about $30,000 from about four people and a few thousand of your own, and then drove a limousine at night, can you talk a bit about what that period was like for you when you were just starting out and you were figuring out the game and you were applying this Ben Graham type style of investing at a time when really almost nobody else had got that religion. It was indeed a time of the nifty 50 stocks where companies like Avon would sell it 80, 90,

100 times earnings, Polaroid, et cetera. These stocks that were at great track records, they would keep growing forever and people, major bank trust companies all own these same stocks. And anyway, none of that made sense to me. I just thought the opportunities buying bargains. I could understand it. It made sense to me. But going back, I was very fortunate to join Hornblower in Weeks, Hemphill Noise,

a New York Stock Exchange member firm with an office in Philadelphia in their stock broker training program. They looked at my kind of quirky background, my educational background, and backgrounds is developing this little business selling Christmas cards and things like that. And they, I guess, you know, obviously they decide they'd take a chance on this weirdo. And so you had to be at age 21 to legally be a registered representative, to be a stockbroker. So I took the test. I was the youngest person to ever take the New York Stock Exchange registered representative test. And I waited around for a while.

And at age 21, they gave me a desk and a phone and said, go out and cold call and meet people that had money and make a lot of commissions, and you can get part of the commission and we'll get part. So I started trying to do that. And I was just so young. Most of the people with money have accumulated money as they've aged. So I was trying to meet owners of businesses that might be 50 or 60 years old. And I was frugal. I'd tell you, I went a few times. I took people out to lunch and It was just so dumb. I've waited until hopefully they would pick up the check. Not right. Just ridiculous. Anyway, I did meet a few people. And I explained my value-oriented approach. And I found a stock that was a closed-end investment company. I think it was called the Abacus Fund that was selling it about 66% of its cash and securities. And I got a number of them, my few clients, into that stock. It eventually worked out just fine. I think it eventually was taken over by maybe Payne Weber company in a deal. All the shareholders got book value.

But anyway, I was not a very successful salesperson. And I did not like these kind of, to me, seem like a high pressure sales organization where they had a chart that was like a horse race. And they'd show the broker who was leading in the horse race with the highest commissions. and at that time, there could be secondary offerings where the insiders were selling their own shares. And the commission on placing those shares with your clients was a higher percentage commission than what you would get buying 100 shares of General Motors, et cetera. It just didn't smell right to me. I didn't feel very comfortable with that.

So after about nine months, I decided this just was not for me. And I probably would have been fired if I had not decided that it was not my cup of tea. I remember you saying that you had this image of your local doctor, Dr. Woodruff, who cared for his patients and helped them. And that you, in a way, rather than being a hustler trying to get commissions, you kind of, you wanted to be a bit more like him, but in a financials environment. Yes. Yes. I like the idea of having a community of interest of helping people with their finances, with helping people become more prosperous, wealthier. and yeah, he was a great example. He was a kind, caring man. And so I admired that.

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then introduced you to Tweedy Brown. So you started at Tweedy Brown in 1974. For people who are listening who don't really know what an extraordinary and historic firm this is, was founded, I think, in 1920. Can you talk a bit about the connection that it had with Ben Graham, the connection that it had with Warren Buffett, the connection that it had with Walter Schloss? I mean, this is kind of ground zero for the value investing community. And you were there at a time when it was a tiny firm managing, I think, about $8 million. So I'd love to get a sense of what it was like and what the history of this firm was within the value investing community.

Sure, sure. The firm was founded in 1920 by Forrest Tweedy, who was a real character, and he would go to the stockholders meeting of some very closely held companies that traded in the over-the-counter market. It traded the people who were not my age. Stocks used to trade just by phone calls between different brokers, market makers. And Forrest Tweedy developed a business of market making in a business. mail order way. He'd go to Smith's manufacturing. He'd learn he'd get a copy of the shareholders list and he'd send out postcards saying, I'm willing to buy shares of Smith manufacturing at $10 a share. If you want to buy Smith manufacturing for me, at $11 a share, I'll sell them to you. So he did

this kind of thing. And it was, I guess, a prosperous enough little business. And he added one of his his partners in the business, Howard Brown, the father of my two longstanding partners, deceased partner Chris Brown and my current partner, Will Brown. And Howard was just a great guy, and he made markets in the pink sheet stocks. He was really sort of a step above Mr. Tweedy. And it turned out that Benjamin Graham had his office in the same building. And at that time, stocks were not trade were not the ownership was not transferred through the depository trust company it was transferred through actual delivery of share certificates from one office to another and then people would put those certificates in a vault and so i think there was a convenience factor that ben graham could

place orders to buy and sell stocks uh with Howard brown at tweedy brown and that was an original connection as far as I recall the history. And of course, Warren Buffett was working as a 20-some-year-old, as an analyst for Benjamin Graham-Numann Corporation, which was sort of an early kind of a hedge fund or an incentive. Somehow the Graham Newman Fund was a percentage of the gain kind of a deal, like current hedge fund structure. So Warren was working there. Tom Napp, One of my deceased partners also worked side by side with Warren Buffett and so did Walter Schlaas. And when Warren decided that he didn't want to live in New York City, he wanted to work in Omaha. He stayed in touch with Ben Graham, certainly with Ben Graham, but with Tom Nap.

And another one of my partners, Ed Anderson, who has also passed away, Ed knew Warren through working for Charlie Munger for a few years out in California. And so that's how Ed came to Tweedy Brown. Wasn't how Howard the broker who even helped Warren? Tell us the story. It's so remarkable. Sure. Howard was well regarded by Warren Buffett as a person who could keep a secret, a person who was very, very trustworthy.

And Howard was a wonderful person, but a person of fewer words than many people. He was a bridge player, too. He could remember lots of things very, very quickly. And so he was very good at this game of this business of accumulating shares and companies and being very quiet about it. And so Warren trusted him. And so nearly all of the, maybe all of it, maybe all of the shares of Berkshire Hathaway that Warren Buffett owns were accumulated using Tweedy Brown as the broker.

And we used to keep track of the transatlantic. transactions before computers by writing down every transaction on a card. So we had our card for Warren Buffett, Berkshire, and Berkshire Hathaway bought 100 shares at this price, this price. And I think one time we joke, Warren, we'll send you back the transaction cards if you send us back to shares. And just to clarify for our listeners, this is back when Berkshire Hathaway, this is in the 1960s, when this was an old textile mill in Massachusetts. And so this was a pretty lousy investment in some ways. There was a cigar butt that he was buying incredibly cheap.

But then because he was the greatest investor all time, proceeded to turn it into one of the great success stories in investment history. Indeed. I think he might have been paying $10 a share or something for his stock in Berkshire Hathaway. Another legendary character that you had in the office, who you mentioned previously was Walter Schloss, who again, some people in our audience won't realize just what a legendary figure he was, but he was also wonderfully eccentric. Can you talk a bit about Walter Schloss? Well, Walter also was an employee of, he was an investment analyst working for

Benjamin Graham at the same time as Warren and Tom Knapp. And Walter had great energy. He'd kind of run up and down the hallways and stuff. He'd run to run. of the trading desk. And you very frugal man, very, lived very, very below his means. And he had office space in Tweedy Brown. And we didn't charge him. We didn't charge him any rent. But he had, essentially in the early days, he had an office about the size of a closet. And in fact, Chris Brown used to talk about the water cooler was in the closet beyond Walter's chair and desk. So to get to the water cooler, Walter would have to push his chair in so he could get it. But he was a very interesting investor.

He stuck to his knitting. He always bought stocks below networking capital or add or below tangible book value. He felt very comfortable with that approach. To the best of my knowledge, he never really interviewed managements. He would look in value line or maybe look in the Moody's manuals, S&P manuals for cheap stocks. and he was quirky about his diversification. He would own a lot of stocks. He might own 100 stocks,

but if he found one that would decline from its original price, he would often just keep buying and buying and averaging down his cost. And I learned at one time there was one stock he owned Hudson Pulp Company, which was a papermaking company and also owned Timberland, etc. And it was a controlled company. You couldn't buy control in the open market, couldn't tender for it or anything like that. So it was not a place,

it was not a kind of a stock that an activist might stir things up with. But I learned that he had about 25% of his investment partnership in Hudson Pulp. And I just, he had a kind of a diverse, a bunch of little things over here and then this barbell over here with Hudson Pulp. So he had, he had courage to do that. I wouldn't do that with my net worth.

So you in a way were really at the heart. of the value investing community, right? You had... I don't know about that. Well, but physically you were at the center of this ecosystem, right? You had Tom Knapp was a colleague who'd taken Ben Graham's course at Columbia with Buffett and then worked for him and then joined Tweedy Brown. You had Howard Brown trading, helping Buffett. You had Ben Graham as using the firm as a broker of him in the 30s, 40s and 50s. You were meeting people like Bill Ruyn. So you were kind of, you were all part of this church. of Ben Graham. And in a way, Graham has really defined your entire career over the last

almost 50 years now that you've been at Tweedy Brown. What was the essence of the idea that you took and obviously adapted and you evolved it over the years by studying Buffett and then adding your own twist to it? But what's the essence of what you took from Graham that has turned out over the last half century to be incredibly robust? Well, I think it has been just the whole idea of valuation of a business and that the valuations, real world valuations, can be much higher than stock market valuations. You know, a transaction, 100 shares of some stock at a price is not necessarily representative of the value of the entire company, yet companies are valued through these quotations,

through fractional ownership interests in real businesses are taken as serious. Whereas to us, the real serious value is the value, let's say an acquisition value or a liquidation value, or the highest and best value for a particular company. And for us these days, mostly it's using comparables, using acquisition comparables, doing investment banking type appraisals of businesses. This is what a cement manufacturer, look at cement manufacturing acquisition deals and look at multiples of enterprise value to earnings before interest and taxes, EV to EBIT or enterprise value to earnings before interest, taxes, depreciation, and amortization,

EBITDA. So those are, you know, that they're really two prices. There's the prices of the business. And that would be a multi-million dollar transaction price, a very serious price. And then there are these little ditsy hundred shares at a time that people take seriously. And so we having this independent figure in mind when buying a stock and deciding when to sell it has been enormously useful. And it's kept us away from some of the emotional behavioral aspects of investing. If you don't have that and your stock is going down, you could get into a tizzy.

You'd be quite nervous. But you're more at ease. You're more at peace with some knowledge that your business is likely to be worth a lot more than what you've paid for it. So in many ways, you've evolved the way of measuring value way beyond what Ben Graham might have done back in those days. But still, it's all centered on exploiting the discrepancy. between price and value?

Yes, indeed. Yes, indeed. I would say that Benjamin Graham appreciated qualitative factors that can determine the earning power and the valuation of a business. But in his book, Security Analysis or the Intelligent Investor, he didn't really go into how to assess qualitative factors. He was much more quantitative. And when he wrote the books that he wrote, it was a much more.

of an asset-based business economy. So tangible book value was a very important measure in working capital. And we've learned a lot from reading Warren Buffett, from reading what Charlie Munger has said and written about qualitative factors. So we used that. We graduated from being an investor in net current asset stocks to, I think our first more of an earnings-based stock was a cran company that Chris Brown and I discussed called Binion Smith, which was selling at book value. It had no debt. Good earnings power. We were paying a very low, maybe four times earnings.

And it was eventually taken over probably a double what we had paid. But it was a decent business. It was a good business. So we'd become much more interested in some characteristics. of better businesses, businesses that generate a lot of free cash flow, et cetera. But we still will buy things that are deep discount to book type stocks where we think that the debt asset, the net tangible asset value is real. And I remember in my own case, when Morgan Stanley around 2008, 2009, in that period,

the financial crisis was selling it 60% of tangible book value. and insiders were buying it, CEO, chief financial officer, and directors, other directors were all buying the stock. I bought some with my own account. There were great concerns about Morgan Stanley not being able to revolve its financing. And it was, you know, it was wild times for financial businesses at that period. But I thought, well, it was way below tangible book. They've got an investment management business that generates a lot of money that's not an asset intensive business. And so I bought some a less than tangible book. And 20, I think it was 20 bucks a share.

I had around a 30 tangible book. Went to 12, buy some more. Not enough. But anyway, that's the kind of thing. We bought Jeffrey's group not too long ago when the CEO bought about 10,000 shares at 17. Book was around 34. We'll buy some of these things. It's hit it up.

And Jeffrey's had kind of a volatile record as most brokers do. It feels like you're not purists. You're not just looking for amazingly high quality companies at reasonable prices. You'll buy stuff that's really cheap, that's a little ugly, you'll buy stuff that's higher quality. It's sort of different variations on the theme of value investing. Indeed. Indeed. We'll even hold on to some things. I mean, Berkshire Hathaway taught us that, that taught me that. I was, I mean, I remember, oh, it's terrible thinking about it, that I would, way, way back, decades ago, I would do updates, updated valuation to Berkshire Hathaway.

And it was really more of a book value type valuation. And I remember suggesting to one of our clients who had a lot of Berkshire Hathaway stock that maybe you should diversify a little bit. And I've always regretted that. But it just shows that business growth is important. I mean, obviously, business growth is important. You can own a business that's privately held. And if it's generating a lot of cash and if the sales are growing,

earnings are growing, it's a growing asset. So we have a number of things that we bought cheap that we thought had reasonably good growth prospects, good competitive positions. And they're not necessarily that cheap right now. Like Heineken, it doesn't punch you in the face as a bargain. it's probably over 20 times earnings. Nestle, we've owned a long time, Diageo, the liquor company. So we've got there, we're kind of, you know, riding with the business. So we've got a few of those.

High quality compounders. Yes, high quality compounders. Stable, stable earners. Yes. Very much Tom Russo type stocks in a way. Yes, yes. But he's more, obviously, he's more of a purist. Yeah, yeah, he just sticks with that.

He wouldn't, he wouldn't buy the ugly stuff. No, he's not going to buy. some stock, you know, half a net cash with a low return on equity and no growth. Yeah. One thing, John, that's very distinctive about Tweedy Brown that we mentioned before is the fact that you do this empirical research, as you were saying, studying insider buying. And one of the seminal research studies that you did as a firm and then you published a white paper on was called What Has Worked in Investing, Studies of Investment Approaches and Characteristics Associated with Exceptional Returns. And I was looking at it yesterday, and it's,

Basically, as I understood it, an overview of about 50 academic studies of different investment criteria that have produced really high rates of return. And I'm wondering when you look back now based on that research and on the performance that you guys have had since you set up the Tweedy Brown International Value Fund, your flagship fund back in 1993, which has done very well over almost three decades, what do you now believe all of this research and your own experience shows about what works? Well, I think the long run, I think it has worked, but it doesn't work all the time. And our approach has not worked all the time. And we certainly, as a value investor in the last few

years, the S&P 500 has been incredibly difficult to beat, to add excess return, to add value above what you can get for almost you can, you know, almost no fee to invest in these. index fund. So it's humbling. But I think that the value approach will continue to work. And certainly the value approach with the added aspect of C-suite top executive insider purchase has worked on average extremely well in these empirical studies. Whether it will continue to do that, who knows, but it just makes sense. And I think it's going back to, I think as an investor, it's very, very helpful to do something that makes sense to you, to stick to your netting and do that.

So, John, looking at some of those characteristics that you highlighted in this empirical study, the characteristics that are associated with high rates of return. So we're talking about things like low price to book value, low price to earnings, low price to cash flow, low price to net current assets or to the previous stock price, high dividend yield, small companies, which tend to have higher, growth rates and are more likely to be acquired. And then, as you were saying, this pattern of stock purchases by insiders. So, I mean, it's worth highlighting that these things are fairly, are fairly obvious, they're fairly logical. They do work over time. And yet, as you say,

there's this torture that there are these long periods where it doesn't seem to work. And so we've just gone through, what about nine years where this style of investing hasn't particularly worked. It's done okay, but it's lagged massively. How do you keep the faith during these very difficult periods where you're applying a strategy that's disciplined, that's prudent, that makes logical sense that you believe in, that you know works in the long term. And yet, it just sort of defies logic and just tortures you for year after year. Yeah. Now, if we did an update of these studies, I don't know, and we looked at them year by year, I don't know what the result would be. It used to be the case. Well, it was the case with a number of our own track records.

And we've had, we have some data where we've looked at, I think, one year, three year, five year, and 10 year rolling returns versus index, versus an index return versus a benchmark. And it used to be the case. It may still be the case that in about 70% of the 10-year rolling periods, Gleady Brown's stocks would beat the benchmark, would beat the particular benchmark. And 30% of the time, not. Now, you can flip it over and say and look at the benchmark. And you could say that the benchmark was only beating the Tweety return in 30% of the

rolling 10-year periods and what's lagging in 70%. And so part of it is the way you flip these things around. But I think that for me, none of us knows exactly what's going to happen in the future. And if it was as simple as saying that the S&P would just. continue to be outperforming value as much as it has. We should all just give up the value school and just do that. But I think that that's an unlikely thing. And again, going back to you're investing your own real money, your own wealth. And do you want to take that bet or do you want to stay with something that makes a lot of sense to you and has worked on average over a

long period of time. And again, it's real money. It's real money. I could go out and buy Amazon stock, or I could have, you know, could have bought it much, much higher. The growth rate is fabulous. It's a fabulous business. But is the price right? It just, I don't have that much confidence in being able to project really, really high rates of growth going far out into the future. I just have a hard time with that. I have much, much easier time understanding what we do. And again, myself, I'm investing my family wealth. And I don't want to lose it.

And I do the best I can. I think that's always been one of the striking things about Tweedy Brown is that you guys as insiders have enormous amounts of money riding on the same things as your shareholders. And I remember looking most recently, I think it was up to about $1.3 or $1.5 billion of assets from you and your colleagues. Correct. So there's a tremendous alignment of interest, which also seems to me that when we're looking for someone to manage our money, you want to know that your manager is eating

their own cooking. So if they're wrong, at least they're suffering alongside you. Exactly. Exactly. It's shared misery. Yeah, but it should be pointed out that your return since 1993 for this flagship fund, I mean, I think when I last checked, it was about 900% was the cumulative return. And it had beaten the MSCIE for index by hundreds of percentage points.

So, I mean, for me, the lesson is that in the long run, this works, but you've got to actually be able to handle the pain of multi-year periods where you look kind of foolish and out of touch and you start to wonder if it doesn't work anymore. And most retail investors can't do that. Exactly. No, they can't. It's just not how people think about it. They don't have sort of the faith or the basic idea that you own a bunch of things that are worth a lot more than their current market quotations and that you think that things will work out well, work out well for you, that you'll make money.

It makes sense. Seems low risk. But they don't have that faith. People just want those excess returns. They want to have a bigger pile of wealth over a period of time that comes from excess returns. You know, obviously over a long period of time, one, two, three percentage points of annualized excess return results in what most investors want over a period time, a bigger pile of money, a bigger chunk of wealth to do whatever they want to do with it at some future point in time. Joe Greenbott said to me that the thing that makes it possible. to outperform in the long run for him is the fact that he's prepared to handle these periods

of underperformance, that he can handle that pain. And so it just seems like you have to have this deep-seated understanding of why this works over time, buying cheap stocks, then the discipline to stick with it, and then the kind of ornery, contrary and stubborn personality to be able to go your own direction when the hood is going in the other direction and is making a fortune overnight in Solana. Right. And so it requires a certain type of weirdo. It does. And especially, I think, a weirdo to do it commercially. It's a business because you do have people abandoning you in the lousy periods. That's just part and parcel to being in the business and doing what you do with your own money for other people. It doesn't always work. It doesn't always beat the market. It doesn't always generate what everyone wants, which is excess returns. Do you find that emotionally painful when shareholders are leaving you? Because, I mean, obviously it damages your business, but you're also aware that they're hurting themselves and you've been trying to help them.

And you're ending up having them lock in the bad period returns and miss out on the rebound during the good years. Well, you get used to it. It's been a good business. I'm very, very grateful to have been in the investment management business for a long time. I'm terribly fortunate. But that's just what it is. You can't beat an index fund by being one. You have to be different. And we've done studies. We did a 20, I think it was a 27-year study where we took all equity mutual funds that were listed, I guess, by Lipper. And at the starting gate, you know, let's say for every hundred of those equity mutual funds, there were only about 50 at the end of the 27-year period of time.

And of those 50, about, I think it was about maybe 25 or 30 percent, it beat the S&P 500 over that 27-year period. And the ones that beat it tended to beat it in about half the years. It wasn't a real, real consistent type thing. They had good years and bad years, but they still developed a bigger pile of money than the index, at least pre-tax, at least pre-tax, yeah. I think it's important to kind of hammer in these points that we've been making because I hope some people out there are listening and are thinking, oh, okay, so I get what works in the long run. At least this is one path up the mountain that's really good. There are other ways to make money and do really well. But this is a tried and tested way that Trudy Brown has been doing for decades that Ben Graham was doing, Buffett was doing. We know this works, but we also know how painful it is and that there are periods where it doesn't work. And so I'm hoping there are going to be some people in our audience who are like, okay, there's clicked. I'm going to do it, but I know that it's going to be painful at times. Well, that's right. And it depends on there are certainly periods of underperformance, but you're still making money. You're just not making as much as the

other person, the other woman or man who bought the particular benchmark that's doing better. But we've also just seen people having their money just absolutely vaporized with cryptocurrencies and the implosion of FTX, Sandbankman Freed's Crypto Empire, and all the hot tech stocks that people were buying on the assumption that it would go up forever. So in a way, this is a perfect, this period we've just come through is a perfect example of the dangers of being in a hurry. Or the, I guess the ARC performance has not been the best. Yeah, Kathy Wood's yeah. Yeah, right, right, right. Indeed. You can lose a lot of money in these things that previously we're so exciting to people.

And you've lived through this a bunch of times, right? You lived through it with the nifty, 50 in the 70s, with the Japanese bubble in the 80s, with the dot-com bubble, now with this latest crypto and hot tech stop bubble. If you were to draw a moral for regular investors on how to stay out of trouble and avoid these kind of manias so that they can succeed over the long run, what would you say? What advice would you want to impart? Well, I would say that I don't think it makes a lot of sense to leverage. You know, I think you're more able to be at ease and stay in the game if you're not,

if you're not hocked up, if you're not leveraged. And if you buy stuff cheap as well, right, with a margin of safety. That certainly has been, obviously, that's what we, we like to do. But can I guarantee that over the next five years, the S&P 500 will be worse than what we're doing, I can't guarantee that based on the history of winning periods and losing periods. I think it will, but I can't, you know, you got to be realistic. You can't, you can't predict those things. You also said to me once, John, that our real goal wasn't necessarily to beat the market, although we hoped we could and we ended up doing it. You said the real goal was to make money

in a pretty low-risk way. And that seems to me a hugely important point. Can you talk a little bit more about that because we're so obsessed with this horse race aspect of whether you can beat the market and add value. But for most of us, actually staying in the game and getting decent returns and surviving, that seems to be a pretty good goal. That's my goal. Yeah. I mean, Ben Graham in security analysis had a sentence. So an investment operation is one that offers safety of principle and the prospect of a satisfactory return. He didn't say a return that beats a market cap-weighted index, such as the S&P 500. He was really looking at making money, doing things that would likely not lose money

because they possessed a margin of safety. But that's not the commercial business of managing money in a way. It's really, it's consultants looking at how did you do the last three years versus a bench. mark the last five years. Going back to inception, they don't necessarily look or pay much heed to that. It's really hard to market satisfactory, right? But actually, for most of us, a satisfactory return, I always sort of feel like if I could get something approaching 10% a year over time, whether it's after tax returns, before tax returns, or even just me adding to the pot through my savings so that I get to 10%. I'm going to be okay. I mean, it'll be

fantastic over decades. Yeah. Yeah, right. Especially if you don't pay too much taxes. Yeah. So I feel like this emphasis on satisfactoriness, avoiding disaster and staying in the game is vastly underrated. We need more clients like you. I'll send over my money tomorrow, John. Unfortunately, it's not enough of it. I'm certainly that type of client at Tweedy Brow. One thing you told me when we last met that I thought was a really interesting insight into your personality is you were talking about how safety conscious you were temperamentally. And you said to me, whenever I'm looking at a new car, the first thing I look at is it's crash test results. And you told me that you bought a Lincoln Town car because you saw that it would do pretty well in a crash. Can you talk about that?

Sure. The Lincoln Town car was one of the first cars that had airbags. So it was kind of, I wasn't really interested in having a Lincoln because a Lincoln was sort of a showy or kind of a car. But it did have that aspect. So I thought, oh, what the heck, I'll be a little showy and maybe it'll save my life because it's got airbags. But absolutely, we just happened to have had two of our cars totaled because we're right on the beach in Naples. We had a big flood surge and our cars and other neighbor's cars and our condominium association are parked underground. So we lost two cars and just had to buy two cars recently.

They were both cars that met the Insurance Institute for Highway Safety designation top safety pick plus. This is the highest designation, the best crash test results, the best rollover results, all those things. So we narrowed our list just to heavier cars, typically heavier cars, not Cooper Mini or something like that. What did you get, John? My wife got a Hyundai Santa Fe, and I got more of a luxury car in that from Hyundai. That's called the Hyundai Genesis, which for taking our daughters or for taking some friends out to dinner, they sit in the back seat, it's got more leg room. It's the South Korean equivalent.

It's sort of the South Korean limousine car. It has a 100,000 mile warranty, I think, 10-year. It's got a great warranty. And I think J.D. Powers has said good things about the reliability of it. If I were writing a profile of you, John, I would be really thinking about this as a metaphor for how you live your life, right? Like it's safety conscious, it's durable, it's frugal, you know, it's not super flashy. Well, it's relatively frugal. We used to buy only used cars, but it's frugal in terms of capacity, of spending capacity of means.

I've always lived below, fairly well below my means. You once said to me you also had never borrowed any money, that you didn't have mortgages, you never owed anyone any money. can you talk about that way of living as something that enables you to be more resilient as an investor and to deal with the stress of these periods of challenge? Absolutely. Going back to the example of the tax loss carry forward company, Paul Hardiman, when I had tried to convince a friend of my father, is a very frugal man who was an investor in stocks and farmland and a little tiny apartment buildings and stuff. Mr. Clark wrote me a nice letter about not getting it over your head, not being too greedy, not being too self-confident. And he was absolutely right. And that was, as I described before,

kind of a cold shower, a shock to the system, a wake-up call. So there was that. And there was also a letter that I wrote just after I had started my little investment partnership when I was driving in the airport limousine at night to support myself. I wrote a letter to Warren Buffett, and I'd read this great article in Forbes magazine about the Buffett Partnership and about his long-run investment returns, which were phenomenal. And I had read an academic paper by these two finance professors, Miller and Modigliani, and they had this idea that if you bought shares of a company with low leverage, let's say no debt on the balance sheet, that investors of their own accord would go out and offset that. They would borrow money that the company itself maybe should have

had on its own balance sheet, but they would borrow money to own the stock. So it was kind of they would merge their capital structures, the capital structure of the owner, call it an individual, call it a holding company with the non-leverage stock. So I thought, well, maybe Buffett was using this Miller-Modigliani idea and using a lot of leverage to buy and do very low leverage. bargain stocks. And so I wrote him a letter and he was very nice to respond to me. He said, no, I've never, never thought of it that way. And I just think that having margin is a bad idea. And you want to stay in the game. You don't want to get tapped out. And so I think that the resilience that not having debt makes one more at peace with reversals, with the down periods,

with things that don't go well. And you want to be able to stay in the game because it's a long run game. It's a game of averages. And for me, it just made things less stressful. I knew that, well, my stock portfolio is way down, but I don't have any mortgage debt on the house. I'm living below my means. I'm not living paycheck to paycheck. I've got some reserves. I've got some cash. It just was for me a less stressful way to live and a less stressful way to live in the volatile field of investing where you do have ups and downs. You do have stocks that don't work out. You do have all these kinds of things. So for me, it's been good behaviorally, but I could be a lot richer if I had put everything into stocks. I've always had, for a long time, I've had probably

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and expenses. This and other information can be found in the income fund's prospectus at fundrise.com slash income. This is a paid advertisement. All right. Back to the show. talk a little about diversification because your strategy with diversification is also pretty distinctive, right? In the international value fund, I think you have about 55% of the portfolio in about the top 20 positions, which seems relatively concentrated, but actually you own about 99 stocks when I last looked for the third quarter. And so it's actually a really interesting mix of being concentrated and diversified. Can you talk about your view of your view of

diversification and how to balance that desire to outperform by being fairly concentrated and the importance of diversifying so that you actually survive? Well, I think that the value strategy statistically is more likely to prove itself out and add value if you've got kind of a statistical diversification, a lot of large numbers, a lot of different bets. So we've normally had fairly large number of bets now. But sometimes we let the like a Heineken, we let these things roll along and they might become 4% or 5%.

But we're comfortable with the business. We're comfortable having that kind of concentration in that sort of a business. In a number of portfolios, we're fairly, we have fairly large bets in Berkshire Hathaway. Just because we've owned it for a long time and it's grown faster, it's the value It's compounded better than other stocks we own. But I think it's the statistical law of large numbers make the strategy work. And also, it just seems less risky. When I looked at your latest report to shareholders, which I think is as of the end of September,

the investment committee that your part of was writing the report said the opportunity set being presented to us today in non-U.S. equities is one of the best we have seen in well over a decade. it's obviously become pretty unfashionable to invest outside the US. People have kind of lost faith. And in some ways, international investing has been a bit of a disappointment for many years. I was looking at what the statistics are the International Value Fund, which is, you know, outperformed by a very large distance. But it's still, it's only returned something like 8.1% since 1983, which is very good when you compare it to the average fund, which is about 5.4%. So a big margin of outperformance. But when I look at that and I think, wow, so all of these people who own foreign funds, the average foreign fund were making five and a bit percent for the last 30 years, it's really hard to keep faith in diversifying overseas. And yet we know historically that it's really important. Can you talk about this issue of whether to diversify internationally and why at the moment

it seems like a particularly smart idea to you, given the opportunity set? Well, I'd say that in terms of the crack records, international investing has had periods in the past where it's performed better than the U.S. market. But you're absolutely right about the more recent past. Now, I'm not, my partner, Bob Wyckoff, would be much more up to date on these different track record periods for international versus U.S. stocks. But clearly, there are a lot of cheap nine U.S. stocks. And, you know, good prospects based on low valuations. Low valuations have historically tended to predict higher returns. You also had a very interesting statistic in that report, which you'd done a study or was citing a study that said from 1969 to 2022, the U.S. market

outperformed internationally. And I think it was like 55 percent of 10. year rolling periods. So there were these long periods where overseas stocks beat the S&P. And it seemed like the lesson was just that you didn't want to be all in on just domestic stocks. Is that fair to say? Well, I would say for us, we look at it as a different way. My deceased partner, Chris Brown, used to say, well, we like to invest outside the United States because it just gives us a bigger shopping aisle of bargains. And from the standpoint of a U.S. investor in our international fund, Tweedy Brown International Fund, because we hedge the currency risk, a large part of the currency risk, not all of it, but a large part of it. We're equating a business in terms of the

U.S. return, plus or minus the interest rate differential on the hedging instrument to a local U.S. return. So basically, it's just, it's another place to find bargains and we're finding quite a few there. I was interested to see the Tweedy Brown International has something like 16% of the portfolio in the UK and in companies like Diageo and Glaxo Smith-Kline and BAE systems and Unilever and Tesco and the like. And obviously, as an Englishman, I'm particularly invested emotionally in this question. But there's a sense when you read the newspapers these days that the UK is a basket case, that Brexit was a disaster and it's politically dysfunctional. The best years are behind us. And I just thought that was really interesting that it's more than three times the size,

I think, of your China investment. Can you talk about why these sort of fairly mature markets like the UK and Switzerland, where you also have a big stake, are actually surprisingly attractive hunting grounds for investors like you? Well, a number of them, a number of those stocks just are plain cheap on the statistics. And I mean, there's a company SKF in the ball bearings business that we've bought some shares of and insiders have been buying it with their own money. And I don't know, stocks really cheap on the numbers. So it's just, again, it's the shopping aisle idea. And bargains, the typical bargain that we're buying new, fresh today, rather than a company like Hynekin or Diageo that we've been holding, but they're not, they're undervalued if somebody

bought the company in an acquisition, but they're not super, super undervalued. And the owner earnings yield, you know, if you own a stock at 20 times earnings and the company paid out 100% of the earnings, you get a 5% return. It's not your 10% return that you're looking for, but you probably get some growth in addition, growth in the value of the business. So on a total return basis, you do okay. But again, the most recent buys would be things that are typically quantitatively cheaper. In many instances recently, it had this insider purchase signal. So they're attractive to us. And you're not really making top-down calls, big macro calls. You're just finding stuff that's cheap? Not for finding stuff that's cheap. We're not, we may, if you ask privately

different individuals on the Investment Committee, their opinions about some of these things. They're undoubtedly, we would be different ideas or different nuances, but the overriding idea is still just to buy bargains throughout the world. And it just so happens that commercially, our international fund serves a purpose by being concentrated in that. Now, I personally, I'm in the international fund. It's one of my largest mutual fund, Tweedy Mutual Fund holdings. But I also own individual U.S. securities and a fairly large position in the Tweedy Brown Value Fund, which is a global fund.

But in the international fund, it's 90% non-U.S. securities. I'm not sure whether that answers the question. China also obviously is a particularly interesting case. And it's striking that you don't have a huge investment in China. But on the other hand, you own these stocks like a. at least the last time I checked from the third quarter, you had Alibaba, Tencent, Baidu. A lot of, so a trio of these companies that have been hit by the government's very heavy-handed regulation and the slowing economy and all these fears about geopolitical conflict.

And I, you know, I have a vested interest here because after talking to Charlie Munger and Lou Simpson, who I know you were friends with about Alibaba, I bought Alibaba and I'm down 60% so far. But I'm curious how you think about these companies and how you consider all of the people who are saying, no, no, China now is uninvestable. It's a great question. Now, I don't own Alibaba. I did own one. I own a few Chinese stocks myself. But I think it would be better if you ask my partners about that. Clearly, in terms of the analysts following those companies, they see them on the numbers as being very, very cheap and still major businesses with growth prospects in China. But you do have a very good question with Mr. Z and his most recent pronouncements and

the way China seems to be tilting. In my recent interview with Tom Russo, he just said, look, this goes on the too hard pile. And he said, I was wrong about Alibaba. It may do well, but it was just too hot. And he just said, I should have listened to Buffett when he said, you don't need to jump over high hurdles. I think there's some wisdom in that. I mean, I always, for myself, when I have a choice of buying something or not, my framework is comparisons. And let's say I find something, I don't know, like Tesco.

I own Tesco personally in my own account. And there have been insider buying in it, it seemed pretty low price earnings ratio. a pretty good dividend yield. They own a lot of their own stores in fee. They're not all leased stores. So there's a value in the real estate. I felt very comfortable with that. I'm less comfortable personally with the tech companies that the dictator of China seems to be going after. I mean, comparison. Do I have to buy in my own account, Alibaba? I don't have to do that. I can buy a dull old Tesco. Now, which one will do better? I don't know. I don't know. Obviously, the firm thinks that these companies are worth holding. And I do value, low valuations are

part and parcel to behavioral aspects to people feeling negative about things. So it could, these stocks could be great. It would be arrogant and obnoxious of me to say that they won't be great that they're, you know, so I don't know. I do own a few shares of a company in China, Haitian group, which. And that's another one where that was inside of buying. Yes, we have plastic molding equipment and stuff. And that was CEO buying. And I think that's a little bit more of a business that might be off the radar as a business that the Chinese Communist Party wants to attack. Yeah. Yeah. So I. I don't know. I don't know.

But it's interesting because... Comparisons, comparisons. Always compare. Yeah, and you're also setting yourself up to do well on average over time with a portfolio of stuff that's cheap. So you don't need everything to work out. You just need on average to be right over time. Exactly. Exactly. The way I think of it, on a group basis, you know, a number of these things, you'll do okay. You'll make money. You'll have a satisfactory return. You'll sleep at night. You have a... an inherent theoretical see-through, see-through the business versus the stock price margin of safety. It's a more grown-up and realistic way of investing than, you know, rolling the dice on

Chinese tech stocks and growth companies with, you know, no profits and cryptocurrencies that aren't backed by more than air. It's like a little bit more realistic and subdued and less intoxicating. Well, William, I hope you're right. Yeah, me too. I wanted to switch direction a little. And it struck me years ago when I spent the day with you and again today that I always had the impression rightly or wrongly that you were happier than a lot of the very successful investors I've encountered over the years. And you had a kind of glow about you. And I, you know, look, this podcast and my book are called Richer, Wiser, happier. And I wanted to get a sense from you when you look back of what's

contributed to you having a pretty happy life? What's actually, what have been the most important factors for you? Well, I don't, I don't know anything about comparative happiness. Everyone's an individual. You don't, you know, you don't know their happy day to sad day ratios and stuff. But I think I'm, I am pretty happy most of the time. And I think that I'm, I count my blessings. I'm grateful for my good fortune. I'm grateful to have the luck of having great business partners. I was reluctant to do this interview because I don't. I think that most people feel that way about interviews with me, John. You're a good company. Anyway, you're a great interviewer. But I think the spotlight should be on the whole firm. The firm is a team. I'm just one wheel on

the bicycle, on the tricycle or the car and the employees. and all these things have contributed to my luck and a good fortune in life. I'm very grateful for that. I'm very grateful for being able to work in a field that is intellectually stimulating to me, enjoyable. I read the newspapers. I read the New York Times, Wall Street Journal. Occasionally I read the Financial Times, not every day, like a number of people in my firm. But there are always things that are just so interesting.

The things that are quirky and defy, you know, things that you didn't think would happen that did happen. And so there's a sense of humor about reading or irony about reading the newspaper, surprise, things that, you know, what's happened to Facebook in terms of the relationship to Apple and changes in their growth rates. and this guy going into stream world, the metaverse, yeah. Yeah, or Elon Musk going to Twitter and screwing it up so massively.

It's riveting to what? It's riveting. It's so interesting. So there's a great fun in reading the newspaper with an economic orientation, a philosophical orientation. So that's a blessing. I think that if I'd been married to a woman who was an enormous spender, you know, know, just wanted to buy the fanciest car or this or that, it would have been a very tense

relationship. It wouldn't have worked. My wife is very content with, we've always felt wealthy, always, because we've always lived below our means. And when we were young, we ate in cheaper restaurants. And now we spend more, but we have more than we can spend. So I think having a partner who's supportive of your work is a blessing. And you've been married almost 50 years, right, to cookie? Almost. Yeah, yeah, yeah, yeah, right. Next June 2nd will be the 50th. And you've had you've put up with me.

That's an amazing thing. I mean, in a way, I'm not, I'm not the best kind of a husband because I have been a fairly hard worker. I mean, you know, through enjoyment or maybe obsessiveness. I've enjoyed the work. So I will often do things on the weekend that are work-oriented and business-oriented reading and stuff. So I don't have as many diverse interests as a lot of human beings. And I think, you know, that's not necessarily a positive in marriage, you know, quality time.

You strike me as someone who's always been profoundly captivated by this game. Even though you like the money and you like watching your money grow, like there's a certain joy in watching. the money compound for you. I don't think you were ever really, at a certain point, it seems to me like you loved the game more than actually getting rich. Is that fair to say? I think that's fair to say. Yeah. What's another so many millions? You know, you reach a point where it really is, you're just acclimated and interested in the game and the process. I think where I am now, personally. I do have a real like of the people at Tweedy Brown. I'm not as large as shareholder in Tweety as I used to be, but I've still got something. It's not an enormous part of my

wealth, but I still have some skin in the game. But I really like the people and the business has not had a great last few years because of the underperformance of the value style, even though our largest pool of capital is done extremely well compared to other international investment managers. But the absolute returns of, if we both know, have not set the world on fire compared to competitive returns such as an index funds where the fees are much lower than our fees. But anyway, I'd like to see the firm continue for another many decades. Yeah, 102 years.

Yeah, like I like to, I think Brown Brothers Harriman has 200. year history. Wouldn't it be nice if Tweedy could have that and continue doing sensible things with other people's money. So I'd like the firm to be in ETS. I think the firm should be in ETS. We're exploring that. ETS have great, current tax rules have great tax advantages for tax paying investors. I think that makes sense. It's serving our clients, our tax paying clients who are like me and Will Brown and Tom Schrager and Bob Wyckoff and other people in the firm. Obviously, we're tax-paying investors. So it's, again, this kind of community of interest. So I'd like that. And we're exploring other things having to do with the insider signal is a very, very good

pond to fish in. Yeah, the insider buying. The other thing that struck me very much about you when I was thinking about various reasons why you seem happier than most great investors to me. It seems to me you structured your life in a way that really suited you, where you would telecommuting decades before it was in fashion, before the rest of us became remote workers. And so you were dividing your time between your home in Florida and New Jersey, and then you were building a home in Pennsylvania and then to be near your grandson. And then, you know, you had the office in Sanford, Connecticut.

And that strikes me as a really important part of a successful, life that you're living in a way that suits you as a little bit of an independent self-learning machine who likes a bit of space. Is that fair to say that you structured your life in a way that's worked for you? Yes. Yes, I think that is fair to say. You hit it right on the head, right on the nail. Yeah. I think that I do. I mean, I like working in a quiet room, working at things that interest me. I have other interests that have come with having some wealth. I've got some philanthropic interests that provide a little diversity. You were very involved with charter schools last time we spoke.

That's one of my favorites. I've always thought that the, well, the charter schools that I've been involved with have been in Trent, New Jersey, which is a very, very poor area. Most of the people are either African Americans or people of Hispanic percent. And New Jersey has report cards for all the public schools and charter schools. So you can see what percentage of the students are proficient in math and reading. And in Trenton, the public school results are absolutely atrocious. Five, you know, like schools where 5% of the kids were proficient in math or 10% proficient in reading. just abysmal. And the amount of spending per pupil at those schools is among the highest in the

country. And typically right now, I think it's around 24, $25,000 per student. And the results stink. But I invested in three different charter schools. The last one, most recent one, has been a great success, Foundation Academy Charter School. And, you know, it's when all schools in New Jersey all public schools and charter schools are ranked on educational results, educational outcomes for the students, academic results. It's in the top 8 percent, 92 percent, are lower academically than this school. And all the kids are selected through lottery. And I just feel I'm getting a good bang for the buck supporting this school, helping kids. Really, all the seniors in the last four or five years have been admitted to some college, some further education. I help support that. I feel very good about that.

It's a great social return on investment. It's a great social return on investment. I've been blessed with an oddball education, but a good one, an efficient one for what I wanted to do. But I think it's just a rip-off that these kids are not getting a good education in the public schools. And in a way, there's a political aspect to it also. So the Teachers Union is a huge contributor to Democratic Party of politicians that negotiate wage agreements contracts with the teachers union. And anyway, that's just what it is. That's politics in New Jersey.

Yeah. I think everywhere. My son Henry teaches in a charter school in New York City that's part of the network that Joe Greenblatt's set up. And so I think about this a lot, but it's a- Is that right now? Success Academy. Not the success.

Success Academy. Yeah, that's where Henry teaches. Eva Moskowitz. Exactly. Exactly. Yeah. Wonderful work. Yeah.

It's an amazing. I mean, I look at someone like Henry. But for your son. Well, thanks. I mean, I'm a proud father of a kid who, you know, I paid for four years of his Columbia education and then he goes to become a teacher and I couldn't be happier with the investment. I mean, I think there's. What a wonderful thing.

Yeah. Those kids are lucky to have someone like that teaching. But, but I'm. Well, thank him for me for his service to. to our society. Thank you. I'm a very, I'm a very biased father. But, uh, but, uh, they should be very proud. Thank you. I, they could behave terribly and I'd still be very proud of them. Yeah, unconditional love. Exactly. Speaking of unconditional love, Quakerism has obviously been a really important part of your life. And I, last time we met, we chatted about this. And you had

talked about how I think your wife had introduced you when you were probably in your late 20s or early 30s to the Quaker church. And I was reading last last, last year, and I was reading last, last night, a little bit of faith and practice, the book that you said had really kind of had a huge impact on you early on. And I was struck it said, recognition that God's light is in every person helps us to overcome our apparent separation and differences from others. It leads to a sympathetic awareness of their needs and a sense of responsibility towards them. And I wonder if you could talk about how some of these ideas that you drew from Quakerism have enriched your life and kind of been a really important guide to you on how to

behave towards others, how to behave as a money manager, how to behave as a husband or father, because it's obviously been a really essential part of your life and thinking about how to live. I'm really impressed with you said you read that. That's so interesting. It has had a big influence. I mean, the idea of that of God and every person were all children of God. God, that that idea is very, very appealing to me. And it sets up a way of trying to live your life, of trying to behave with other people, of trying to think of people as equal under God. And not necessarily as people who have equal outcomes in life or any of that, but just a kind of a common humanity. So I think that it has helped me in trying to do.

deal with other people, would hopefully deal being okay, a partner with my partners, sometimes disagree, but with respect and with humility that my opinion could be way wrong. You know, I don't have any perfect track record, any of that kind of thing. Trying to live in one's family with those ideas. Yeah, and also the Quakers, the religious society of friends, is both communitarian and at the same time individualistic. The founder of Quakerism, George Fox would say to his followers, what canst thou say? Meaning, what can you say as a human being, as an individual, as a unique creature, one of God's children? What can you say? Meaning,

sort of speak your truth. Be honest. Try to be honest and truthful. And try not to fake it. If you're he called it your, it's a mask. It's, you want to be, try to be honest. So that's something that has had an impact on me. I'm no perfect person, but these Quaker sayings and mottos, I think, have been very useful to me. When we were having lunch a few years ago, I was looking at my notes again over the last couple of days from our lunch and for our meeting at your house. And we were talking about this subject. And one thing that you said that really struck me at the time is you were talking about forgiveness as well. And you said, yeah, trying to forgive yourself to realize you're not perfect. And that was really striking to me because I sort of, for me,

I tend to be fairly self-flagellating. And I'm, I'm always struck by all of the many ways in which I'm failing to live up to the values that I espouse. Can you talk a bit about that idea of forgiveness and self-forgiveness? Well, I've always liked the idea of imperfection. And I just think that humility under God, that none of us are perfect creatures. I often, when my wife or somebody does some dumb little thing, I'll say, well, you'll be perfect in that next 12 months. 12 months, you'll finally be perfect. And I think that that attitude applies to oneself. I mean, you try to do the best you can, but a kind of a recognition almost of God's grace of kind of your, count your blessings.

Try to look at the glass hat full, but don't whip yourself too hard when you make a mistake or you're not perfect or you say something that was stupid or dumb and you regret saying it. Try to get over it. Move on. There's a beautiful story. I think of some old Zen monk that I'm no doubt garbling. who said something like, last year, a foolish old man, this year, no change. And I always love that, right? Because, yeah, I mean, I think.

Right. There's another one. I thought somebody said, God laughed. And you can laugh a lot at all the things that have to do with human behavior, human nature. All of all. It's a, if you approach looking at the newspaper with a sense of humor. I remember Tom Gaynor, who grew up, Quaker, actually.

Oh, did he? Yeah. Is he the guy at Markle? Yeah, exactly. Yeah, yeah, yeah, sure. And actually he, like your wife, I think, ended up becoming Episcopalian, if I remember correctly, but it's deeply influenced by Quakerism.

He once was talking to me about, you know, how deeply flawed humans are. And he said something about human foibles and flaws, and then just chuckled uproariously. And there was something kind of lovely about it, that he wasn't appalled and disgusted by how flawed we were. He was kind of amused. There was a sort of gentle,

a gentle awareness of all. Right, as sort of an ironic chuckling of the humor in life. I feel like I take things too seriously. So I think I was struck when you said that about trying to forgive yourself and to realize you're not perfect. So that helped me. So thank you. I think it's rational too.

It's rational. I mean, it's just plain true. Yeah. I also really liked when I was reading about Quakerism, night and also looking back on my notes from our earlier conversation, this idea that you're connecting to the light within in this very direct, unmediated way. So you don't need a priest, a rabbi, a monk, a bishop, or whatever. It's you trying to connect to this kind of transcendent

part of yourself. And I thought there was something kind of lovely about that. Can you say something about that? Because it seems very distinctive, this idea that there's something in us that you don't need mediated by an authority, by an institution. Indeed. I mean, I remember the first time I ever attended a Quaker meeting for worship, just struck by that, by the equality of it, that there was no, no minister. There was no, this is the way you have to do it. This is our checklist.

This is, we have all the answers. There was none of that. And it was an idea of, I call it direct dial to God without a priest or a minister. And I just, I like that idea. And I like the idea of sitting in silence. And sometimes someone will speak and have, you'll just be moved by it, a remarkable feeling. And I remember, maybe it was Warren Buffett said one time that you really don't need to get a PhD in theology. You can do pretty well with the Ten Commandments and reading the sermon on the Mount.

That people throughout time, I mean, not everyone, but a lot of people have had a spiritual sense, a sense of things. It could be a sense of awe about beauty, about natural beauty, or work or a great conversation that you had with someone or all kinds of things. You can have a connection that is remarkable and uplift. thing with someone at the cash register at the supermarket or with someone who's a server at a restaurant. I just, I don't know. It's just kind of a, but I've often had experiences in, in meeting for worship that for me have been very, very moving. And I'm, and strange, and strange, kind of like, where did that come from? What's going out of here? Yeah. I have that a lot. When I was younger, I mean, I've done a sort of grand tour of all of the spiritual positions.

So I was a relatively conservative Jew as a kid going to synagogue because I had to. Then I became kind of agnostic. Then I became atheistic. And then I became increasingly spiritual when I hit 40. And it became a much more important part of my life over the past 14 years. So you know that I've been wrong over the years because I've had every position. But I think one of the things that appeals to me is the sense of mystery, the sense that It's just stuff we can't really fathom.

Absolutely. Yeah, and that to me is kind of beautiful. But it goes in a way. It's awesome. It's awesome. Yeah. Yeah, the sense of deep mystery, that there are things you can't understand why certain things happen.

But I don't know. I wonder about this sometimes because when I started to interview great investors very seriously for my last book, Richer Weiser Happier, I had this kind of prejudice that I assumed that most of them would be so super rational that they wouldn't have very serious spiritual lives. And I was surprised to find how many of them really did. And I don't know if I'm articulating this well, but it seems there seems like a paradox here, right?

That in some ways, the investing world, it's such a rational game. It's so empirical. And yet there's this other thing where you just have to say, yeah, I just don't know. There's something so mysterious that I can't fathom it. Do you think about this at all? Yes, yes.

And I think, you know, working as an investor, you're dealing with thinking about things that could might happen in the future, obviously is not knowable. It's guessable, but it's not knowable. So you have sort of a framework of faith and anticipation of rational anticipation of surprise, of things that are, that can turn out quite unpredictably, quite unlike what you thought earlier. So there's kind of a mystery and awe in that. And I think that there is. or is not, depending on the person, this sort of leap of faith or you can say, well, why not have some faith? Why not? You could be wrong, yes. But I think that for many of us,

human beings, it's useful, it's healthy. And for many of us, and it certainly seems for you, it's natural. You've come into a place of naturally being willing to have a, a bit of a spiritual sense in your life and not just saying, well, I can't prove it. So I'm, you know, but I respect that too. Yeah. And for me, I don't know, there's a, I remember studying pragmatic philosophy a bit after Bill Miller turned me on to these people like William James and they had this idea that, well, they would talk about ideas as being like forks and knives, you know, they have

utility. And so they would say it's not like these things are empirically provable in many cases. I'm no doubt distorting what they say, but it's directionally correct, as Tom Gaynor would say. And so you can choose your own idea depending on whether it's helpful to you. And it seems to me that the idea of thinking that we live in this very mysterious world where we don't really understand that much, but there's something really beautiful that's bigger than us. That's a pretty good idea. And having trust that things are going to work out in some way and that it's a,

I would have rolled my eyes at this in the past. So when I first interviewed Sir John Templeton 20-something years ago, I found his faith really irritating. Oh, you did. Oh, yeah. I've loved his books. No, it drove me crazy back then. And then a few years ago, when I was reading one of his books, I just, I blushed. And I was like, oh, my God, that was what he was trying to teach me all those years ago.

And I was too stupid and too arrogant to listen to him. And so, I don't know. I just think it's a useful, it makes you happier and is useful to believe that you live in this, in this kind of benevolent world where there is a kind of order. And if you behave in a certain way, things are likelyer to turn out well than if you behave badly. And I don't know whether any of this is, I mean, I remember talking to Ed Thorpe about his views on religion and he said, no data.

And yeah, there's no data. But on the other hand, I think it kind of, a lot of these beliefs and principles, they work. And I like the fact that from what I've read of the Quaker movement, that it's not institutionalized. It's more your personal experience of how these things apply in your life. Indeed. Indeed, it is described as an experiential religion without a creed.

Very nice. So is there any final? I would say the current creed of a lot of people is climate change. Yeah. I think that was one of the things that Tom Gannis said to me is that it became increasingly political. And I think that was one of the things he struggled with. And I remember reading something that you would.

Oh, me too. Me too. Yeah. Interesting. Yeah. Well, you had written something about, it was a sort of autobiographical sketch that you'd given to someone within the Quaker Church that I was reading yesterday. And you talked about how part of this political movement in a way was an alienation with

the business world in this sense that the commerce was somehow bad or tawdry. Immoral, right. Yeah. Can you just talk about that? Because I think that's such an important idea, right? This hostility towards business and capitalism, which I think it's reinforced. by all of these shows like succession and billions or reading the papers and seeing the FTX scandal. There's a sense that business and capitalism have become kind of corrupted.

And my sense is that your view is very different. Extremely different. In my estate planning, I think my largest, other than my family, my largest recipient will be, if I died tomorrow, American Enterprise Institute. I believe that strongly in the good that capitalism does. I mean, obviously it employs people. It's creative, new products, new innovations, improvements on what had been before that benefit all of society. I've always had that idea of the sort of a smile on the face of capitalism, of the moral rightness in general of capitalism. Of course, there are a lot of, there are crooks in business. They're good. But I just think that that's a truth and that you can, most businesses, I think, are honestly run. If they're not, they lose their employees. They lose their customers.

There are constraints on the behavior of businesses that I think are good. So I just don't understand that, that anti-business aspect of current Quaker society, at least on the east coast of the United States, as I perceive it. Well, not just Quaker society. There's a huge everywhere. There's sense, I think that, and it's not held by things like the FTCS scandal, there's sense that if, you know, when people are talking about, if Sam Bankman Fried was talking about taking his wealth and giving away billions,

and then you're like, well, actually, it was sort of stolen money. I mean, who knows what really happened? We'll find out more in the coming months. But it doesn't, it gives you a sense that there's a lot of hypocrisy and greed. And so I don't know, I like the fact that when I look at your approach of having made money in a kind of prudent, fairly frugal way, trying to do a decent, responsible job, liking your colleagues. That seems to me a better way to do capitalism.

And it's not that capitalism is good or bad necessarily. It's like there's a better way to do it. I think that capitalism in general has, as I just said, has a very positive effect on society itself. I mean, you know, Bill Gates is going to give away most of his fortune. but I think his Microsoft products are enormously useful. I use Excel all the time and Word and some of these things. So I just think that's true.

I think that there's a perception by many in society that allocation of more and more resources to the government is morally the way to go. And there are nice, nice things about safety net welfare programs. And I support a safety net in society. But I think that, from my standpoint, if you have a shifting gradually of more and more resources from the more creative and more efficient and dynamic private sector to the government sector with aspects of inefficiency, politicization, bureaucracy, etc., and no real incentives to be more efficient, that it's kind of bad long run for society. And that's a very big philosophical view, but it's one that I happen to hold and I can be all wrong. Two of my

three daughters don't agree with me. I mean, they're not in my political camp. Yeah, I'm sort of agnostic about politics in general, but I do think this sort of knee-jerk sense that capitalism is kind of tawdry and vulgar and selfish is it underestimates the, it underestimates the degree to which we rely on companies to do incredible, innovative, dynamic things. Absolutely. Yeah. Is there any last word you'd like to leave us with before I finally let you go, John? Well, sure.

I would say that William Green is an excellent interviewer. Ha. With probing questions that make you make one think. And I've appreciated the opportunity to have this interview with you to know you, to know you. I felt that way also when we met, I guess, seven years ago. Thank you. Yeah, it was a memorably enjoyable day for me. And I came away thinking, not only, oh, he's a really good guy and a really good investor.

But it struck me that your kind of joyfulness. And there's a beautiful photo of you in the Great Minds Investing, which my friend, Michael O'Brien took. I remember showing it to my daughter. And she said, she must have been about 14, well, probably 15 at the time. And she said, he's a happy guy. And it was nice. There's a kind of, you have a kind of raised eyebrow and there's a kind of.

Well, I need a, I need an eyebrow lift after my corny. But I liked it. And I think, you know, I've had several people ask me questions in the last couple of years about whether you can be a hugely successful investor and have a good family life and, you know, have some degree of balance and the like. And, you know, you and Tom Gainer and a few other Nick Slee. few other great investors I've been for you, give me a sense. It's, no, it's possible not to leave a trail of destruction, but actually to have a

happy and somewhat balanced life. Although, I do think you've still got to be kind of maniacal to be really extraordinary. I think, yeah, I think having focus and obsessiveness probably is a long run edge. Yeah, I think it's hard to avoid that. Yeah. The disability of obsessiveness is a gift, maybe. I think the fact that you profoundly love this work and this research, it's such a strong advantage. Like, you're not, you know, you've never tired of it, right?

It just is inherently interesting. The actual game, it's a huge edge. Yes. John, I'll let you go. Thank you so much. It's been such a delight chatting with you. And I hope to do it way before seven or eight years elapses again. We have to do it more often.

God willing. Absolutely. I'll second that. All right. Thank you. Yeah, lovely to see you. Have a great day. Thanks so much.

Bye. All right, folks, thanks so much for joining me for this conversation with John Spears. I'll be back very soon with some fantastic guests, including a great investor named Fred Martin, whom I wrote about at length in my book. After that, I've got interviews lined up with an array of great investors, including Ray Dalio, Guy Spear, and Tom Gaynor. In the meantime, I really wanted to take this opportunity to thank all of you who listened to the podcast over the last year. My very first podcast episode was published back on January 1st

2022. That was a conversation that I had with Ray Dalio when I was a guest host on the We Study Billionaires podcast. A couple of months later in March 2022, I launched the richer, wiser, happier podcast, which also airs on the feed of We Study Billionaires. Initially, I thought that I'd maybe do six or possibly 12 episodes of the podcast, but it's been such an enjoyable journey that I've never stopped, and I now hope to keep going more or less indefinitely. One reason why I'm so enjoyed hosting the podcast is that I love having these in-depth conversations with fascinating guests, but what's also made this experience deeply rewarding is that I've received so much warm and enthusiastic feedback from you, the listeners, so

thank you truly for making this such a life-enriching adventure. I'd also really like to thank my partners Stig Broderson and Preston Pish, who co-founded the Investor's podcast network about eight years ago and have built it into what it is today. They're not only great entrepreneurs and excellent podcast hosts, but exceptionally kind and decent people, and I'm just very lucky to have met them and to count them as my friends and partners. Thanks also to my fellow podcast host, Kali Fink, who traveled to New York to help set up my equipment a year ago and to answer all of my foolish questions about technology. Finally, I really want to give a huge vote of thanks to the wonderful team in the Philippines

that works tremendously hard behind the scenes to edit and produce these podcasts and to make everything possible. This includes Bianca, Sirel, Camille, Anna, Chedida, Lee Rich, Noel and Christine, I'm really grateful for all of your hard work and heroic patience in dealing with me while I try to figure out the world of podcasting. In any case, thanks again to all of you for listening, and I wish you a very happy and healthy holiday season. I look forward to being with you again very soon in the new year. Until then, take care and stay well. Thank you for listening to TIP. Make sure to subscribe to We Study Billioners by the Investors Podcast Network.

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