We Study Billionaires - The Investor’s Podcast Network - RWH027: High-Quality Investing w/ Christopher Begg

Starting point is 00:00:00 You're listening to TIP. Hi there. I'm really excited about today's episode of the podcast. This is a very rare, in-depth conversation with one of the most thoughtful people in the investing world. His name is Christopher Begg, and he's the co-founder and chief investment officer of a firm called East Coast Asset Management, which is based in the suburbs of Boston. Chris manages a hedge fund that owns a highly concentrated portfolio of about seven great businesses. He tries to buy them at attractive prices when they're out of favor because there's some kind of temporary cloud hanging over them that he believes will ultimately disperse. This is the type of ultra-selective stock picking strategy that's

Starting point is 00:00:45 also practiced by famous investors like Charlie Munger, Nick's Sleep and Monish Pabri. As I wrote in my book, Richer Wiser Happier, Munger says that an investor should be like a spear fisherman, standing with a spear beside a stream. Most of the time, the spear fisherman does nothing at all. Then, when a fat, juicy salmon swims by, he leaps into action and spears it. Then he goes back to doing nothing at all, and it might be six months or more before the next fat, juicy salmon swims by. Chris Beggers thought very deeply about how to play this game of identifying truly exceptional businesses and waiting patiently for the right moment to spear them. But the truth is, Chris is much more than a great stock picker with a discerning eye for high-quality businesses.

Starting point is 00:01:35 As you'll hear in this conversation, his whole life is built around the pursuit of quality. This passion for quality drives the way he constantly compounds his knowledge by studying many different disciplines. It also drives the way he structures his time so that he can optimize his performance. And there's a similarly powerful commitment to quality in his passion for writing, for drawing, and even for surfing, which he practices in Central America, where he lives for several months of the year. There's one other thing you ought to know about Chris. He's also an extraordinary teacher. For the last decade or so, he's taught a class on security analysis at Columbia Business School. This is actually the same class that was originally taught by Benjamin

Starting point is 00:02:23 in Graham, who, as you know, was the father of value investing and the author of a classic book titled The Intelligent Investor. Graham's most famous student back in 1951 was none other than Warren Buffett, who was 20 years old at the time and looked about 13. Apparently, Buffett was such a dazzling student that Graham gave him an A-plus, which I gather was the first time he'd awarded an A-plus to any student in something like 22 years that he'd been teaching. teaching at Columbia. In any case, I love the fact that Ben Graham's class on security analysis still exists more than 70 years after Buffett took it. And I love the fact that the class is now taught by Chris Begg, who certainly belongs in this noble tradition of great value investors

Starting point is 00:03:11 and great teachers. I hope you enjoy our conversation. Thanks so much for joining us. You're listening to The Richer, Wiser, Happier Podcast, where your heart host, William Green, interviews the world's greatest investors and explores how to win in markets and life. Hi, folks. I'm absolutely thrilled to welcome our guest, Chris Begg. I've been looking forward to this conversation literally for months. And so it's lovely to see you finally, Chris.

Starting point is 00:03:50 Thanks so much for joining us. William, thanks for having me on. It's a real delight. I wanted to start by asking you about the class you teach at Columbia Business School, which I think you've taught since 2011. It has such an extraordinary history that involves all these investing legends like Warren Buffett and his great teacher and mentor Ben Graham. Can you give us a sense of the history of the class and how you came to be involved in it

Starting point is 00:04:16 and how, in a sense, it's become this research laboratory for the deep study of what works in investing? Brilliant. Great place to start. William. Yeah, it was about 12 years ago, now about 14 years ago now that. We got involved with the Hobran School of Value Investing at Columbia Business School. And we were there because some of the best students that were really passionate about this craft of investing,

Starting point is 00:04:42 we're there. The Value Investing Program takes about 40 students each year that are kind of self-selected and then they apply in. So those were the cream of the crop students that we felt in the world. And we wanted to invite them in to have internships into our organization. So we would take two a year and got to know Bruce Greenwald. Bruce asked me to be a professor or he was the professor and I was the independent work study companion to what he didn't at the time. So we kind of worked together on a few students and at the end of I think the second one

Starting point is 00:05:20 where I did this, he said, hey, would you like to do something with the school in the form of teaching? I said, I said, me? What would I teach? He's like, I don't know, just teach what you do. He's like, don't worry, I'll put you in front of just a handful of students in the beginning and we'll see how it goes. And then there was an opening for security analysis that came up.

Starting point is 00:05:39 And this is now 11 years ago. And that was my first year. And I looked to Michael Movison's class in the spring. And I said, you know, I looked at his framework and kind of developed something that really matched how we were implementing the art of investing and value investing. And one thing led to another in the, you know, the, you know, that's a lot of it. that first year, I was pretty nervous, kind of a little bit imposter syndrome, and you're just doing your best and really wanting the students to have a great experience. And then little by little,

Starting point is 00:06:09 the class has evolved. And as you alluded to, but the class took a tact of really inviting in the best, what I thought were the best investors, not just the way I invested, but had a real deep understanding of their niche in value investing, as well as bringing in great operators, Great operators would be CEOs, great capital allocators. And the third bucket would be great philosophers or thinkers or writers that were interdisciplinary and kind of bringing all of those three types of speakers in. So the students would get this over the course of the semester, they would get not only the foundational principles that I could introduce them to in the beginning of the class, but they

Starting point is 00:06:52 would get all this perspective as if the class was a laboratory of different ways and And I think what has occurred since is these students have, each one of them takes something from the class that's very unique to their temperament, the type of investor that they might be best suited to become. So like you said, you know, I use it as a, I kind of invert the classroom, use it as a laboratory. But back to your initial question of the history, you know, Ben Graham taught the class from 1930 to 1960. And he would kind of come up from Wall Street.

Starting point is 00:07:26 He would put a white lab coat on so he didn't get chalk on his, you know, on his suit. And he would sit in front of the classroom and really talk about practical examples of what he was working on real time. And that really inspired me because it was made the classroom much more of a laboratory than me kind of communicating what I thought was truth. And so that's the way it's always been. And presumably he had the great Irving Khan as his teaching. assistant, right? Because didn't Irving Khan, who I interviewed very shortly before he died at the age of 109, he, I think, was originally Graham's teaching assistant. And so, I mean, presumably also this is the class that people like Bill Ruin went through. I mean, an amazing assortment of the

Starting point is 00:08:12 greatest investors. Absolutely. And, you know, the most famous, of course, in 1951, the spring of 51 was Warren Buffett. And Warren had recently read the intelligent investor. He had read the 1934 edition of Security Analysis, which Ben wrote. But that 1948 intelligent investor, you know, that he read in the Omaha Public Library, you know, really inspired Warren to kind of come to Columbia, to apply to Columbia, to take the course from Ben, which was now his hero. And at the end of that class, which was, I believe, to be the only A plus that Ben had ever given a student. And he had asked, Warren immediately asked, I want to work for you, Ben, when you hire me? And at the time, the way I understand the story is Ben was only taking

Starting point is 00:08:59 Jewish students because they weren't getting the same opportunities. So he said, Warren, no, and Warren said, I'll work for free. And he said, that's still too expensive. So, but one thing that did another, and Ben did offer him a position at Graham Newman. And, you know, that was the beginning of Warren's career. And maybe a couple years, three years after that, you know, Warren went back to Omaha and then shortly after that, you know, launched the Buffett Partnership, which then became Berkshire Hathaway. You know, that 1951 inflection, I think Ben taught the class for another nine years. What I was appreciated about Ben, and I learned this in a video that the school put together on the 85th anniversary is he would open the class with a Spinoza quote.

Starting point is 00:09:44 And the Spinoza, he said, if you are to be successful on Wall Street, you must see things under the aspect of eternity. And when I heard that, I was like, oh, that is so brilliant. And what he meant by seeing things under the aspect of eternity, I believe, is seeing the whole picture, not just one piece of it. How do I see the whole picture? So I've taken that as a mantra of our course. So you'll see that SSA, which is subspicuea, our attorney tautus, is that it's kind

Starting point is 00:10:11 of an overwhelming mantra of kind of what we're trying to accomplish. accomplish in this research laboratory is seeing the whole picture of investing, not just one piece of it, to try to understand business creation, value creation, and the evolution of what value investing means and how we define it. And you've had an astonishing array of guests. I was looking at your guest list for a few different years, and you've had people like Seth Clarman, who I remember Bruce Greenwald once telling me many years ago, was the best student he had ever had. Todd Combs from Buckshathaway, Nick Sleep. Then you've had these amazing

Starting point is 00:10:50 business operators like Mark Leonard, the CEO of Consolation Software, or Peter Kaufman, who is the CEO of Glenair and a sort of a profit of multidisciplinary learning and a very close friend of Charlie Mungers, Mitch Rails, the co-founder of Danneher. And then these great authors, like Ian McGilchrist, who wrote this extraordinary book, The Matter with Things, and James Carr, who's obsessed with finite and infinite games and Will Thorndyke, the author of The Outsiders. So I just wanted to mention this because it gives our listeners a sense of what you've been able to put together in a way by drawing on the fact that it's part of this incredible lineage, that you've inherited this mantle from Ben Graham.

Starting point is 00:11:36 I think it's the most wonderful calling card you could have to invite a lot of people that wouldn't naturally say yes to an invitation to at least contemplate it and hopefully say yes. You know, Todd Combs has been a guest, you know, we've done a fireside chat now for 10 of the last 11 years, which is a wonderful street given his, you know, his schedule has only gotten a more busier, but he looks forward to it every year. It's one of the few things that he, you know, he does say yes to And we have so much fun with the conversation and it's evolved so dynamically over time as he's kind of gone from investor to investor operator and a CEO of GEICO now. And it's a give back for him because he sat in the same seat. Warren sat and all the students sat when he graduated from Columbia Business School.

Starting point is 00:12:25 And he actually took Michael Moverson's class in the spring of security analysis. So he can appreciate and I think empathize where the students are and what they're, how important. it is to have this practical application of investing principles. And that's what the class has always stood for. If you think of one kind of practical take home from hearing someone like a Todd Combe speak, you know, Todd who I guess he's running Geico now, is that right? Correct. So, and obviously one of the designated successes of Buffett to run the investment portfolio, What would be a memorable take home from a decade or so of listening to Todd speak? Yeah, you know, one thing that comes to mind that I, that always resonated with me when I think of team size.

Starting point is 00:13:17 You know, Todd, when he ran his fund, he said he had about five analysts. And during his opening interview with Charlie Munger, he had shared that, you know, Charlie had asked the question, you know, how many analysts do you think you would need at Berkshire? He said, I could probably do with three. He's like, how about none? And it was just very clear. And the more that he contemplated the importance of the team size, he realized that the more that he would separate himself from the actual source material, the more he was outsourcing judgment.

Starting point is 00:13:53 And it's something that I've always come back to myself and with my team is that usually when we're coming up to speed on something that's really important, we all want to be touching the source material. We always want to be reading the important things because each of us are going to garner an insight that might be a little different. We may hear it differently from our own perspectives. And so, you know, one of the things that Todd always says, you know, you can't outsource judgment. And so that has always resonated me.

Starting point is 00:14:18 And as far as like what is effective at, you know, generating true insight into, you know, especially if you're running a concentricority portfolio that's going to lead to that. one of those 10 or 20 punch card ideas that you might hopefully find in your lifetime. You've met many of the most successful and eminent investors of our time, whether it's a Seth Klaman or a Nick Sleep or Todd Combs or countless others. And they obviously approach the game of investing in strikingly different ways, whether it's a matter of diversification versus concentration or high-quality companies or less high-quality companies. So many differences in how to slice this. You also did a 10-year apprenticeship before setting up your own investment

Starting point is 00:15:04 firm, East Coast asset management back in 2008. So you had thought for a tremendous amount of time about what works in investing before you even got into this laboratory to study it up close at Columbia. And I'm wondering, when you think of the solution to the puzzle that you came up with, how it fits your personality, why you solve the puzzle this, particular way, because you've ended up with this very concentrated portfolio of very high-quality compounders, much more like the approach of, say, a Charlie Munger who described himself as a spear fisherman waiting by the side of the stream, kind of waiting for a fat juicy salmon to swim by, and then he would spear the salmon and then go back to doing nothing for months. It seems like

Starting point is 00:15:49 there's a real parallel in your approach. How did you come up with that solution? Yeah, what a great introductory question to that. Like you said, that 10-year apprenticeship that I had prior to launching East Coast, I had this luxury of sitting in a place where I could read a lot. And I was hired as a research analyst, but I was hired by someone that really was trying to figure out what the evolution of the firm might be. And I was able to contribute a lot. And so in my reading, the probably most lucky discovery of my income,

Starting point is 00:16:26 career was discovering the letters of Warren and Charlie. And I say that because I looked at a lot of things. And when I read those letters, it just resonated that this wasn't, this wasn't something that was separate from building businesses, that this was very much about how do we find great businesses act in a business-like way and then invest alongside these businesses in a way that's intelligent by paying close attention to how much you pay, what the compound return would be or could be based on that price. And so all these things were coming together that aligned me with, wow, my temperament was

Starting point is 00:17:09 much more about finding a handful of great businesses, exceptional businesses, that I could then kind of follow along that journey with them and pay close attention to this basket of companies that I thought were exceptional in the world. And if I had an idea of what they were valued at, what the IRAs would be at a certain price, I could align a concentrated portfolio around the ones that I thought were going to be the most attractive compounders over time. And that's kind of what we've done now for the better part of 20 plus years. And that means not a lot of trading, looking for that one or two exceptional ideas that may come

Starting point is 00:17:50 along per year, that you have a, you know, you've completed enough work that you can act with some level of confidence when an opportunity presents itself. You've talked a lot about clouds, which is, I guess your image for these, almost like a storm system coming in with uncertainty that kind of obscures the beauty of a company's long-term process for a while. Can you talk about that about how clouds this sort of stormy weather seems actually an important part of helping you actually to find these great opportunities? This is actually something that's in the current letter that I'm trying to articulate right now. And internally, with my team, my partner Scott, with our analyst Chimmy, we kind of talk about

Starting point is 00:18:45 this vernacular of clouds. Where are the clouds today? And clouds are just things that are obscuring, that may obscure a short-term vision, but is obscuring the long-term, really extraordinary parts of the business. And so the focus is on this thing and it's obscuring something about the business at the time, which gives us evaluation opportunity. So when you think at any one time, you might just say, you know, where's the fear today? Where's the anxiety today for going into a mild or severe recession?

Starting point is 00:19:16 What are those things that would be uncomfortable to own? And you kind of look at that basket and you'd say, oh, okay, this area of the market's down 50 percent or down 40 percent. That makes sense. This is kind of a scary place. Is there anything in there that is really attractive long term if we live through the uncomfortableness of this period? And so I call this, there's actually this wonderful Christianistic book by an anonymous author

Starting point is 00:19:43 recall the clouds of unknowing. And this is a wonderful piece. I think it was written around 1375. And I think a lot about the clouds of knowing, right? The things that we know to be true or think we know it to be true, which is kind of based on our knowledge and our wisdom. You know, it's looking backwards at this pattern recognition of experience. And that's really valuable.

Starting point is 00:20:05 I think most of what we're doing when we model a business out is we're taking all of those things that we know. And those clouds of knowing, and maybe we're getting an investment opportunity around the clouds that exist around the business at the time. When you look forward, you kind of look forward at what might happen in the business, is kind of a cloud of unknowing. And I think those clouds of unknowing create asymmetry, you know, especially, and that's when you look at how we deconstruct, setting ourselves up for a lot of asymmetry in a business

Starting point is 00:20:38 or asymmetry in the IRA of an investment opportunity is we want to set ourselves up for a lot of inevitabilities in the unknowing that I think could present themselves. An example of that would be something like, you know, we've been long-time investors in a company called Transdime. You know, and Transdime is an aerospace parts company. They have sole source often on most of their products. And, you know, if you were to underwrite that on what you know to be true, like the current businesses that they own, you may have a certain IRA profile. And over the years, the return

Starting point is 00:21:14 profile of what has actually been about 10% better than what you might have modeled from the existing businesses. And that's come from really, really good capital allocation among the team, the things they have been able to buy, accrued value creation out of, and now you go from something that might have looked like a 15% IRA and something that ended up being a 25% IRA. So, you know, clouds of unknowing are... And for people who don't know what an IRR is, can you just explain for the non-business school students here? Absolutely.

Starting point is 00:21:46 What it is and the significant... Yeah. So, you know, when we look back at an investing holding period from the day we buy something to the day that we, you know, so I'll take the way that we actually build our IRA assumptions. So what we're looking at in any business is we're kind of... trying to assess what the 10-year free cash flow growth of the company is going to be. And if we understand, if the company is, say, going to grow 15% free cash flow

Starting point is 00:22:16 from top-line assumptions to margin improvement, to financial leverage, if they have any, and that's a 15% growth rate of free cash flow, you know, what is today's price that we're paying for that? And what is our terminal value or our future price based on what we think is a fair, multiple for those free cash flows in year 10. And then what you derive from that equation is what is your compounded annual return from that purchase price to that future price based on the free cash flow growth? And that's basically your IRA, your internal rate of return of the holding period. And what we try to do at entry is buy things that are 15% or better IRA, and if price gets bit up over time and now we're looking at a portfolio holding that

Starting point is 00:23:06 may have a single digit IRA, that's going to be something that might suggest that it could be replaced, trimmed, and just something that can be brought in that we could improve on that. And that's kind of the process with which we are always upgrading the portfolio for higher IRAs that are going to lead to, you know, great, hopefully superior compound returns over time. And one of the challenges, obviously, is to buy these very high quality companies with high rates of return, potential rates of return, is really difficult in terms of valuations because they tend to be bid up. And so part of the insight here is that you're not waiting for good weather. You're actually waiting for bad weather, where these short-term clouds are temporarily obscuring the fact that these future cash flows are likely to be very good weather. very strong. And so there's a kind of important lesson here, right? That during a lot of times when there's despair in the market or a lot of uncertainty, people tend to think, well,

Starting point is 00:24:09 let me just wait for the clouds to dissipate. And you're doing something very different, right? You said at one point in one of your investment letters, we are consistently looking to venture where short-term clouds are present in a business or industry as a source of opportunity. we then assess the probability of when, if, and to what extreme these clouds will dissipate. Correct. Yeah, and I think there's two types of clouds that we're looking at today. It's, you know, we have macro clouds and we have microclads. You know, macro clouds today are, you know, recession, you know, China, Taiwan, Russia, Ukraine,

Starting point is 00:24:45 you have, you know, potential of a stagnation, you have interest rates, how high would they rise, the persistency of inflation. And all of those things are contributing to volatility in markets as well as industries. The microclads are often business or industry specific. So if you look at the advertising businesses, they're thinking about what's the length of a recession? What does that look like for business that's associated most of their revenue from advertising, housing-related businesses? So these are all areas that are producing, you know, what we're seeing in our 10-year models

Starting point is 00:25:24 is ticking up of those IRAs that are, you know, in general, you know, we're not seeing a lot of things that are above 15. We still would think we're in a middling period of valuation given the uncertainties that still exist. And that means we're just working off. I think some of the excesses that still are here from a period of very low interest rates or zero interest rates, there wasn't a lot of, I think, focus on free cash flow over that period of easy money. And so that's still unwinding in our opinion. If you were to ask us from a

Starting point is 00:26:00 universe of businesses that we'd like to own, where do we think things are on a quality of IRA basis right now? We're kind of in that, you know, if it's zero to 10, we're kind of in a six as far as attractiveness on IRR for that universe. It doesn't mean that we can't own, you know, right now we own seven companies, and we found seven companies that we think are, you know, really attractive, but we think the overall market is somewhat fairly valued. When COVID struck in early 2020, I guess it was, you invested heavily in Transdime, I think, and another airline parts manufacturer at a time when airlines were grounding their planes

Starting point is 00:26:40 and it was the last place you wanted to invest for most people. And that's obviously been a very attractive way to exploit the clouds that were there. Then I remember you were looking at things like Meta more recently when people had turned against these big companies that were sort of ripe for regulation and there's a sense that the recession was going to hit them. Can you talk us through how something like a Meta or a Google, which I know have been kind of in your wheelhousal. I don't know whether they're in your portfolio now, whether those would be good examples of how you go through this process of looking at the clouds and

Starting point is 00:27:18 trying to tell whether this is really an opportunity or whether it doesn't really merit being in your very concentrated portfolio. Yeah. And since you brought up that, you know, March 2020, because I think that was a really good example of what we look for and how we act. So in March of 2020, when we had the shutdowns escalating, everyone was fearful of travel. And we basically went through, you know, TSA visits dropped 96% very quickly, and all the aerospace stocks were being sold up. So Tram, I think went from 650 to share at 206 intraday in March of 2020. And we're immediately on the phone with, you know, the investor relations.

Starting point is 00:28:03 We're just working through the balance sheet because we really wanted to understand the duration. of pain, if this was a three-year shutdown, what was our exposure to maturities on debt? We just really wanted to understand, and more or less in a course of a couple days, once we got more comfortable with the balance sheet, they had a small capital raise. We allocated 25% of our portfolio over a course of two weeks to aerospace parts names. The reason I bring that up is just an example of how quick a portfolio can change based on events and clouds that are, if you have, you know, kind of done some work, understand it in the case of Transign, we had, you know, owned it in size in previous years based on different

Starting point is 00:28:46 valuation profiles. And that's kind of what we try to do with this universe of companies where the, you know, we do have a pretty thorough understanding. You know, so you brought up, you know, we have had exposure to, you know, the two platform advertising businesses that we think have, you know, durable competitive advantages. Google and meta, both have different, both macro and micro and micro. or clouds associate with them. So when you look at the start of last year with meta, I think we identified seven clouds.

Starting point is 00:29:13 I mean, seven, usually there's one or two. There were seven. And we had them in order. And actually, as we looked at each seven, we dissected what does this look like? What is the real risk of impairment here? And we actually got comfortable with almost all of them. And as the year played out, almost all of them became, the clouds dissipated. But the one thought that didn't dissipate with meta was the size and cadence of the spending.

Starting point is 00:29:43 And it was the third quarter of 2022 where I think, you know, investors are thrown the towel because it made no sense. When they came out at that earnings report and they said that not only are they not lowering the spending, they were increasing it. The stock, I think, fell off another 15 or 20 percent. We were quite frustrated as well, to be honest. It didn't make sense. but you saw a quick reversal from management in how they would be communicating, what kind of cuts they were going to make.

Starting point is 00:30:10 And it felt much more aligned with the current environment. And what we've seen since, you know, since that intraday low of, you know, in the third quarter, you know, meta is now up 100% or so from that period. So they're gained a little ground back. They've gained some, I think, some credibility back among investors. And, you know, so that's been a, you know, an interesting one, plenty of macro and microclads to follow. You know, start this year, you know, we've had a sizable position in Google. And I think that's, you know, one of the more attractive businesses in our universe to start the year. You know, we have a big microcloud there with chatGBT.

Starting point is 00:30:48 You know, and chatGBT is a very real threat to search, at least perceived threat to the search monopoly. And, you know, it's something that's deserved a lot of time, understanding. what the large language models mean, what does it mean to search? How does this evolve? And I think as investors have gained more understanding of what OpenAI's solution here versus what Google has already had built and now released with Bard, it's becoming clear that the LLMs are not necessarily different. They're quite commoditized. And now there's probably five or six or seven of these, but we don't think that they're going to take material share from the monetization of core Google search. And so that's something that we continue to work

Starting point is 00:31:39 through. It's something that's topical daily with us. And we're always, you know, want to ask the questions and not believe we have answers, but just ask better and better questions. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo. at the height of the summer. You got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year bringing together activists, technologists, journalists, investors, and builders

Starting point is 00:32:22 from all over the world, many of them operating on the front lines of history. This is where you hear firsthand stories from people using Bitcoin to survive currency collapse, using AI to expose human rights abuses, and building technology under censorship and authoritarian pressures. These aren't abstract ideas. These are tools real people are using right now. You'll be in the room with about 2,000 extraordinary individuals, dissidents, founders, philanthropists, policymakers, the kind of people you don't just listen to but end up having dinner with. Over three days, you'll experience powerful main stage talks, hands-on workshops on freedom tech and financial sovereignty, immersive art installations and conversations that continue long after the sessions end. And it's all happening in

Starting point is 00:33:08 Oslo in June. If this sounds like your kind of room, well, you're in luck because you can attend in person. Standard and patron passes are available at Osloof Freedomforum.com with patron passes offering deep access, private events, and small group time with the speakers. The Oslo Freedom Forum isn't just the conference, it's a place where ideas meet reality and where the future is being built by people living it. If you run a business, you've probably had the same thought lately. How do we make AI useful in the real world? Because the upside is huge, but guessing your way into it is a risky move.

Starting point is 00:33:44 With NetSuite by Oracle, you can put AI to work today. NetSuite is the number one AI Cloud ERP, trusted by over 43,000 businesses. It pulls your financials, inventory, commerce, HR, and CRM into one unified system. And that connected data is what makes your AI smarter. It can automate routine work, surface actionable insights, and help you cut costs while making fast AI-powered decisions with confidence. And now with the NetSuite AI connector, you can use the AI of your choice to connect directly to your real business data.

Starting point is 00:34:19 This isn't some add-on, it's AI built into the system that runs your business. And whether your company does millions or even hundreds of millions, NetSuite helps you stay ahead. If your revenues are at least in the seven figures, get their free business guide, domesticifying AI at netsuite.com slash study. The guide is free to you at netsuite.com slash study. NetSuite.com slash study. When I started my own side business, it suddenly felt like I had to become 10 different people overnight wearing many different hats.

Starting point is 00:34:51 Starting something from scratch can feel exciting, but also incredibly overwhelming and lonely. That's why having the right tools matters. For millions of businesses, that tool is Shopify. Shopify is the commerce platform behind millions of businesses around the world and 10% of all e-commerce in the U.S. from brands just getting started to household names. It gives you everything you need in one place, from inventory to payments to analytics. So you're not juggling a bunch of different platforms. You can build a beautiful online store with hundreds of ready-to-use templates, and Shopify is packed with helpful AI tools that write product descriptions and even enhance your product photography. Plus, if you ever get stuck, they've got award-winning 24-7 customer

Starting point is 00:35:36 support. Start your business today with the industry's best business partner, Shopify, and start hearing... Sign up for your $1 per month trial today at Shopify.com slash w Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right. Back to the show. Part of your philosophical focus, I think, is on entropy,

Starting point is 00:36:07 the fact that things are on a path towards decay and destruction. And it seems like you're looking for a handful of companies that somehow can defy this great force of the universe. And I'm wondering, When you look at companies, when you look at the businesses in your portfolio or in what you call the grove of titans of these a couple of hundred stocks that you follow, that you think are great businesses that you would take advantage of if the price got attractive, if the clouds seemed likely to disperse. When you look at all of those companies, what are the kind of traits that they have in common that allow them to defy this overwhelming force of entropy? I love the, I just love the term entropy. So I'm God you brought it up.

Starting point is 00:36:54 The way that I thought about entropy, you know, I think about as a coin, right? If you had a coin and you had entropy on one side and information on the other, these are two sides of the same coin. So when you reduce entropy, you increase information through a system. So while entropy is often defined as being this natural course of going from, you know, something beneficial with something average and this. I think about it differently. I think all value creation is the source of reducing entropy in actually increasing information and therefore creating value. How do you reduce entropy? Well, you do something cheaper, better, or faster? And so think of

Starting point is 00:37:36 Amazon. Like when Amazon, you know, decided to sell books online, well, that was way cheaper, way better, and way faster in the vertical books. And then can we expand that? And, you, you know, you know, when they developed a 1P marketplace and then, you know, created a portal that was cheaper, better, faster, and then a bridge to third-party sellers, and then what I call a dome, which was prime, where you reduce search costs for people by giving them a place, a trusted place, to find things online that is going to be at or better price than anywhere else and have it available to your house in two days and now one day. enormous entropy reduction.

Starting point is 00:38:18 And what's on the other side of entropy direction? Enormous value creation. So when we think about the eight layers of moat that a company might have, we're looking for layers of competitive advantage. The first one we look for is entropy reduction or a better or more evolved mousetrap. And it's always the one that we're, you know, is this in the scheme of making life better for customers by creating something better. So this is something like MasterCard or Visa would be good examples.

Starting point is 00:38:51 And it's great. So the entropy reduction also lends to just kind of our second pillar beyond competitive advantage, which is secular tailwinds. So what MasterCard and Visa were doing is they were doing something cheaper, better, faster because you were taking cash and check and creating a means to transact through credit and debit, which had enormous entropy reduction, information flowed more easily through their network and therefore created enormous value, which could be attributed to the value creation of MasterCard and Visa, which is something that we've owned, you know, on and off for almost 20 years.

Starting point is 00:39:29 And D. Hawk was a speaker in the class, by the way, William, who was one of the architects of the network. One of my favorite speakers of all time, he's since passed away, but I remember and his last year, he did a Zoom call with us and one of the most special people I've ever encountered as far as his heart. And if any of your listeners want to, you know, his book won for many is one of my favorite books of all time. I haven't. And I've totally forgotten to read it. Someone told me to get it. So, yeah, I have to find it on my bookshelf, which is always a challenge. So sorry, so I interrupted you as you were going through these, these seven or eight layers of of moats, right?

Starting point is 00:40:10 So Evolved Mousetrap is the first one, which we talked about, which is really, it cuts down to entry reduction. The second one is structural competitive advantages. So what are structural competitive advantages? We have four that we look for five, actually, duopolys. So when you think of MasterCard and Visa, you have this, the competition evolves to, you have two players that are acting rationally with each other, most of the time rationally. So duopolys, it's actually one of the first assignments that we do in the class is

Starting point is 00:40:39 I asked the students to make a list of all the duopolys that exist in the world because it's a wonderful place to look for a place where value creation, where you have two parties acting rationally splitting a large market. The second is oligopolis, which is also very similar duopolis, but more than two, generally three. When you get over three gets a little competitive, you have more chance for one player to act irrationally. Monopolis, you know, we talked about trans-time.

Starting point is 00:41:07 They have sole source position in many of their markets, small monopolies. You have exclusive rights where you have an exclusive right to sell something over a period of time, which you could call it cornered resource. And then the fourth one, or fifth one now, is we call Switzerland of X. So when you think of what's when Snowflake really came into the market in the data cloud, they say it sat on top of the three public clouds, which was, you know, AWS, Azure, DCP, and it allowed for a customer say, I don't have to choose or do all of my data layer through one of the three.

Starting point is 00:41:43 I can use Snowflake. They're the Switzerland of all my data. And I can unsyel my data through that. So, you know, certain industries, we like that Switzerland of exposition. Third layer of competitive advantage that we look for is scale. Scale is pretty obvious. You gain scale. And you scale on your R&D.

Starting point is 00:42:02 You scare on advertising. You can sell on distribution logistics, information and data. So we kind of walk through those and see how a scale advantage is manifest in businesses. The next one, which is one of my favorite chapters that you wrote, I get full credit to Nick's sleep for the fourth one, which was scale economic share, businesses that have a scale advantage, but instead of taking more profit, return those scale advantages in the way of lower prices or more goods and services available to the customer, which widened the market. the moat. And it delays gratification on the free cash flow, perhaps in the short years, for

Starting point is 00:42:38 a bigger reward down the road. I think Nick did such a beautiful job explaining kind of how Amazon was patterning after Costco in his letters and articulated the scale economics shared. It was such a brilliant insight and epiphany for him. And in reading that real time, it helped me illuminate on that subject as well. So it's a layer of arc. You know, when Monish I read the book the first time I sent it him before it came out. And he sent me this very lovely note about it. And he said, yeah, it's actually going to change the way I invest. And I said, how come?

Starting point is 00:43:15 And he said, well, because of that chapter. And he said, the three most important words in your book, a scale economist shared, which is kind of funny because I think there are more important things in the book. But it was interesting that that one concept really, really shifted Monish's attitude to how he would play this. game going forward. Yeah, it's a beautiful concept. And as a little aside, you know, when I had Nick in this year, he was trying to

Starting point is 00:43:42 communicate short-term versus long-term thinking to his, to a customer, to a business that he was helping, you know, evolve their culture. And he just started making a list of short-term or long-term thinking. He's since published this to his foundation website, but it was such a beautiful example of what that delayed gratification, a long shelf life of a business looks like versus the norm. And it was one of my favorite exercises that, you know, as he articulated it to the class, shared it with the class, I since had, and I actually touched on it today because it's open in my computer here, but I've made now 12 pages of notes on short-term or long-term thinking.

Starting point is 00:44:25 And, you know, this scale economic shared is a very long-term oriented culture that can actually do it, and very few people are willing to do that. I'll include a link in the source notes for this episode to where Nick's breakdown on this is available on his website. He sent it to me shortly before it came out, and it's very striking because part of what Nick is getting at is something that's incredibly profound in business and investing, but it's also incredibly profound in life because it sort of taps into this whole idea of thinking long term in a sort of in a world that's more and more short term

Starting point is 00:45:08 and more and more susceptible to these hits of dopamine from everything. And it really struck me the other day, Chris, because I took my son to see the New York Knicks play. I've only ever been to about three basketball games. And it was just unbelievable fun. And you could see that it's dopamine nation. You can see the fact that you can't go more than 10 seconds without dancers coming out or a cannon to fire t-shirts into the audience. And so in a world where we need constant bombardments of entertainment activity,

Starting point is 00:45:42 likes on our Twitter feeds and, you know, notification reminders and stuff like that, I think part of what Nick is tapping into that's so powerful is actually a totally, a totally different approach to living our life individually and as companies and as investors. Does that make any sense? Oh, 100%. I'd love to return to that. I think we'll finish the layers of get better advantage. I'd like to touch on another topic that I think Nick really understands well, which is quality.

Starting point is 00:46:14 Yeah. Yeah, so the after, Skell Economic Shared is network effects, which are quite obvious, but a very important layer, certainly MasterCard and Visa enjoy those. The next one is customer mindshare. So, you know, the reputational trust aspect of a brand. And then finally, we have the, you know, high switching costs, which we see in software, particularly lots of, you know, software as a service businesses or software in general, you know, enormous cost to kind of ripping that software out or bringing it in.

Starting point is 00:46:46 And that's why those businesses, once they're kind of built, installed base, they could be really incredible, you know, long-term free cash flow generated businesses. And then the last one, the eighth one, which is the one that we don't start with, which it becomes really, really valuable over time as culture. And culture is, you know it when they have a good one. You know, and I think about, you know, you mentioned Mitch Rails, who's now been a perennial speaker in the class, and you think about the culture of Danahur. And Danahur and now forative, and, you know, they've built a business system around continuous improvement. And It's so deep in the culture of their business as far as how do we get better? How do we iterate?

Starting point is 00:47:34 And now, I think more recently, they've even adapted these applications of innovation as well and how to be creative and how to think about what areas are growing, which have now become more static and constantly just improving the entire culture of the business. It's wonderful to see. And you look at the compounding and it returns of, you know, Dan O'Hurts since early 80s, it's, it's extraordinary. I mean, it's first year level of returns or better depending on time frames. This idea of constant improvement is obviously central to your way of thinking about business, but also central to your way of operating yourself individually. And this is something that I think has been influenced by another speaker in your class,

Starting point is 00:48:21 Peter Kaufman, who mentioned before. who's said that, you know, dogged incremental progress over time is, is one of the great forces in the universe. And you've written, your phrase for it is the Piper mentality with the PIPER standing for persistent incremental progress eternally repeated. And you've said, this is truly the secret to anything that grows as it explains compound interest, evolution, and anything that is improving with time. And I wonder if you could talk about this, because I think it's I think it's one of those deep truths in life that once you understand and you align yourself with this force of continuous dogged improvement, it's pretty unstoppable.

Starting point is 00:49:06 And I give full credit when I came up with the Piper mindset, I was doing something I do in regular learning as I was trying to create a memorable acronym or tool to remember Peter's dogged incremental improvement. I said, that's too long and clumsy. We can do better than that. So in my goal of reducing entropy, I came up with something a little bit more memorable, at least to me, but it is everything. I mean, one of the things about compound interest that I've just found so incredible over

Starting point is 00:49:38 time, the more I work with it, the more magical I find it. And it's this thing that I don't think is just lives in the world of investing. Compent interest is something so innate to the source code of the universe. driving everything. It's driving evolution. I think if you were to, you kind of follow the thread all the way back and you probably have some interesting equation that looks like compound interest that's just been played out to the power of N. And it's, that's pretty magical. And we are all fractals, right? We're fractals of these general principles and laws. So we are just in our most aligned way and our most enlightened path, we are living the truth of compound interest. We're

Starting point is 00:50:22 living in evolution. And we're trying to remove these frictions that are getting in the way or getting in the way of our own improvement. You know, I read something today as I was revisiting one of my favorite books here by Robert Persig, where he said something like the realization that we're all enlightened. It's just the falling away of thinking that we're not. And I think that that's the secret of confident interest that's at work here. And you've talked about how if you study Stoic philosophers like Heraclitus or Taoist like Lao Tzu, they also talk about the compounding benefits of virtue. So this idea of finding things that compound or very consciously compounding, whether it's kindness or generosity of spirit or certain virtues, it's such a profound

Starting point is 00:51:11 idea, I think. And maybe because the benefits don't show up very quickly often, we kind of ignore this low-hanging fruit that's that's right there. I'd love to take you to a place. Have you ever been to Ephesus before in Turkey? I haven't. I don't think. No. I've been to Turkey, but not for a long time. And I went when Turkey was so popular. I remember our hotel costs on like $1,200 a night. And luckily, I wasn't paying for it. But it was, yeah, and then it kind of crashed. Now I think I could go for probably less. So I'm due for a revisit of Turkey. So I'll plant the seed and you'll end up there someday, I think. But there's a library there.

Starting point is 00:51:53 It was probably what it's called the library of Celsius. And all we know about Celsius, it was built shortly after, about 100 CE. And it was built. It was one of the biggest libraries of the time. And what we know of it today is this facade. And there's four Greek goddesses that sit in this facade. And if you order them, I think the order of the goddesses actually, is the way that I think about the order of your path to insight, your path to critical

Starting point is 00:52:23 thinking. And so the first goddess is Episteme. She's the Greek goddess of knowledge. And so we spend the beginning part of our careers kind of gathering knowledge. We're reading lots of books. And then the second one is Sophia. So she's the Greek goddess of wisdom. And so what is wisdom? It's applied knowledge, right? It's let's get experience. You know, I got 20 years experience, investing, studying, businesses. Now I have Sophia, my wisdom, to kind of accompany my knowledge. So this is that cloud of knowing. This is everything kind of looking backwards now. And then we get into this cloud of unknowing or this period of, you know, the next one is Anoia. She's the Greek goddess

Starting point is 00:53:05 of intelligence. And so what is intelligence? Intelligence is taking something that's complicated and making it simpler. And the opposite, or I'd say something that is unintelligence, Unintelligent is taking something that's simple and making it complicated. And you see that as pretty common in lives. But what is genius? You know, in that same framework, well, it's taking a question or a problem and it's solving it. You know, it's actually taking, if you think of like alpha fold, when Deep Mine and Demis Casabas kind of solved protein folding, that was a form of genius.

Starting point is 00:53:38 It was augmented intelligence that actually made the problem go away. So this idea of intelligence is forward-looking. It's looking at the world and how it's becoming. It's reducing entropy. It's creating intelligence. And so the fourth one, this comes around to your reference, is the Greek goddess of, her name is Arete, and she's the Greek goddess of virtue. And what I define as virtue or arete is also quality and dynamic quality specifically.

Starting point is 00:54:08 And so when we think about Arete, or we think about doing things with quality. You know, I think about Robert Persig's, you know, two books, Zen and the Arter Motorcycle Maintenance, which is a book that Nick's leave loves and we talk about every year. And then his second book, which really was much more about the metaphysics of quality or the philosophy of quality. And he felt it was his best book. And that is just, when I read that, it just changed the way. It was like, it was like reading, you know, Nick's scale like, shared, like, just the scales drop from my eyes. I'm like, this is it. And this book is Lila for people who don't know. And there's also an extraordinary book that I had a recent discussion with a bunch of great investors

Starting point is 00:54:51 about this compilation of Per SIX called On Quality, which I would really encourage people to read, because it has, yeah, it's great. I have it by my desk as well. It has excerpts from Lila, excerpts from Zen and the Automotive Cycle Maintenance, and then also excerpts from speeches and diaries and letters from his wife who survived him talking about what these concepts meant. And they're quite esoteric concepts. So when you use a phrase like dynamic quality, it's actually it's a little bit mystifying to a lot of us. But if you, if you translate this into how this concept, this obsession with quality has actually, how you've kind of weaponized what, it's the wrong word, but how you've weaponized what Persig figured out about the pursuit of quality,

Starting point is 00:55:38 How does it actually help you and how what do we need to understand about what he figured out about what he called the metaphysics of quality? Brilliant. Great lead in. So in Lila, which was the second book, is where he started to delineate quality. There's two types of quality. You have static quality and dynamic quality. And the way I think about static quality is when we name something, we categorize it, it almost ceases to be dynamic. It's not on the horizon. an edge anymore. It's not on the leading edge of the train, which is something that Robert talked about. And I think we have this notion that we know something, that we categorize, we put it in a block, we put a circle around it. When we do that, it ceases to become static. And when businesses start to create entropy in there, because they have bureaucracies, I mean, Geico is a perfect example. When Todd Tobrova Geichel is CEO, it had ceased to become dynamic. It had become static. This is the Crown Jewel of Berkshire, and it had ceased to become dynamic.

Starting point is 00:56:40 How's that possible? This is one of the best businesses in the world. Well, bureaucracy, the leadership wasn't driving, change, and you had to reduce those layers of entropy that were created there. And luckily, because they have this cost advantage and uniqueness because of the ownership profile that they can be more long-term-oriented, they can come back to being dynamic. But that delineation is everything. And the way Nick talked about it, the way I think about it too is, you know, when you live

Starting point is 00:57:11 a life of dynamic quality, everything you do, everything you touch is this opportunity to express dynamic quality in your life. It's the way you make a cup of coffee. It's the way that you, every interaction being impeccable with your word, I think all of these things are contributions to a culture of quality. quality, a culture of Arete. So that's how I think about it. And it's one of those things where it's hard to, it's hard to pinpoint it, but you know it's there. It's an experiential quality. It's an experiential observation that exists. And when it's not there, you also

Starting point is 00:57:47 know it. I was just going to say, I wrote about it in my book, both in the chapter about Nick and Zach, but also in the notes on sources, I guess it's called notes on additional sources and resources. Because it's such a beautiful and profound idea. And it's so, it's so vague and nebulous, but actually incredibly powerful and helpful. And so for Nick and Zach, they would have this very simple filter where they would say, well, what's the high quality decision here? And so they would do things like changing their fee structure so that they made it just increasingly bad for him and him and Zach. And so they would say, all right, so how do we put on a hair shut and make it tougher for ourselves? So they would say, all right, we'll take our incentive fee

Starting point is 00:58:29 and we'll put it in a holding pen so we won't get it for several years. So if we subsequently underperform, we won't get paid for years. And so they were just constantly trying to do things that were the high-quality way to do it. And I don't know, I found this an incredibly practical and helpful way to view things. So when you're thinking about something practical, like I remember having this debate where someone was going to buy a large quantity of my book to give us gifts. And I was like, well, I don't think they're getting the best deal. And I can see why my publicist is not giving them the best deal because it'll help me more,

Starting point is 00:59:07 because if they buy it through this retailer, it'll benefit me in terms of best seller and stuff. And so you'd just be like, well, what's the high quality decision here? And so you would tell the person, here's how this isn't benefiting you. And here's why they're structuring it this way. And then what was remarkable, and actually this is Monish Pabri. I did this with Monish thinking. came back and said, yeah, I'll do it in the way that helps you, not me.

Starting point is 00:59:31 And so what was really extraordinary was when you're dealing with really high quality people, if you do something that goes against your own interest, they then operate against their own interest to help you. It's an extraordinary. Does any of that resonate at all, Chris? Oh, completely, completely. And we have an internal framework that we think about with how you treat how a business interacts with its counterparties.

Starting point is 00:59:59 And so we call this the essence of win-win. And we think that anything that's not win-win is unsustainable through time. So do you interact in a relationship of quality with every counterparty? You know, that's your employees, it's your suppliers, it's your shareholders, it's your nature and community, which is becoming a bigger topic. And it's something that investors are demanding a relationship with, with community, with climate change, with nature in general. It's with the regulators.

Starting point is 01:00:31 Do you have a win-win relationship with regulators? Do you make it easy for the regulators to kind of do a hard job, which is to kind of find those actors that are not behaving, you know, make it easy for them? And certainly the customers. And actually a seventh one that we kind of include in our essence of win-win framework is competition. You know, how is, which sounds kind of strange,

Starting point is 01:00:55 but it's not really because if you are taking a short-term tact which is going to destroy the economics of your industry, well, that's when lose for you and for your competitor. And that's not long-term sustainable to, you know, to building and creating value. And, you know, so we look at the wind structure of competitive, you know, dynamics as well. It's really – That's an act of quality, I think. Yeah, and it's really easy for people to hear this and for their eyes to glaze. over and not to pay attention. I really want to stop and pause here and have people pay attention

Starting point is 01:01:29 to this because it's actually, this is one of the most important insights that I've learned from you, I think, from reading hundreds of pages of your really fabulous year-end letters, is this focus on win-win relationships with all counterparties. And it's a very profound insight. And there's something where you wrote, the only system that is sustainable through time is one that has a win-win with all counterparties. Any other system structure is unsustainable and will eventually decay. And it's such an important insight that if you ignore, for example, the environmental thing or if you ignore the fact that a company treats its employees badly or squeezes its suppliers,

Starting point is 01:02:14 there's some form of fragility that creeps in. And so I think there's such a backlash at the moment with so many people attacking the ESG movement and saying that it's in some ways deeply flawed and in some ways hypocritical and in some ways just greenwashing. And it's very vulnerable to all of these criticisms. And as with all things on Wall Street, it's very easy to manipulate and use it to sell, you know, these principles of ESG. But I think you're tapping into something really profoundly important that you can't really ignore these things like diversity and inclusion and equity and being sensitive.

Starting point is 01:02:51 about the environment, because if you do, it's going to come and bite you in the butt sooner or later, because it introduces a form of fragility. Can you talk about that a bit? Because I think this is really profoundly important, and it's a recalibration of how we think about what's sustainable. Yeah, thank you. That's a great framing of it. One of the principles of Ben Graham that has always been most important to how we orient ourselves is margin of safety. And, you know, that comes right from intelligent investor, you know, you had Mr. Market and margin of safety, chapters 8 and 20. And when you have a win-lose dynamic with any counterparties, you're introducing this idea of potential for permanent loss. And so we always thought of that. And even something like

Starting point is 01:03:36 Walmart, you know, Walmart for many years had a win-lose relationship with its suppliers. And it worked. You know, they'd squeeze their suppliers and it, it functioned okay until there was an alternative. And when there was an alternative to Amazon came along, you saw just, there was a very quick, the supplier said, ah, okay, we have another source. Here we go. So the fertility was there.

Starting point is 01:04:00 You see it with customers. You see it with how organizations, you know, treat the environment. And these are all just important. So we've always oriented ourselves from this margin of safety perspective. It felt really just inauthentic to, you know, to advertise ourselves in some way that we thought, you know, we were anything better than it. We were just, we were doing it from value investing principles and we were doing it with our own values at stake. Is, do we feel good about aligning our capital with these companies and

Starting point is 01:04:32 what they stand for? So it's always been a key part of our approach for many, many years, even before it became something that you had to articulate specifically around. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up, and customers now expect proof of security just to do business. That's why VANTA is a game changer. VANTA automates your compliance process and brings compliance, risk, and customer trust together on one AI-powered platform. So whether you're prepping for a SOC 2 or running an enterprise GRC program, VANTA keeps you secure and keeps your deals moving. Instead of chasing spreadsheets and screenshots,

Starting point is 01:05:16 Vanta gives you continuous automation across more than 35 security and privacy frameworks. Companies like Ramp and Ryder spend 82% less time on audits with Vanta. That's not just faster compliance, it's more time for growth. If I were running a startup or scaling a team today, this is exactly the type of platform I'd want in place. Get started at vanta.com slash billionaires. That's vanta.com slash billionaires. Wanted to explore the world of online trading, but haven't dared try? The futures market is more active now than ever before, and Plus 500 futures is the perfect

Starting point is 01:05:56 place to start. Plus 500 gives you access to a wide range of instruments, the S&B 500, NASDAQ, Bitcoin, gas, and much more. Explore equity indices, energy, metals, 4x, crypto, and beyond. With a simple and intuitive platform, you can trade from anywhere, right from your phone. with a minimum of $100 and experience the fast, accessible futures trading you've been waiting for. See a trading opportunity. You'll be able to trade it in just two clicks once your account is open. Not sure if you're ready, not a problem. Plus 500 gives you an unlimited, risk-free

Starting point is 01:06:33 demo account with charts and analytic tools for you to practice on. With over 20 years of experience, Plus 500 is your gateway to the markets. Visit Plus500.com to learn. learn more. Trading in futures involves risk of loss and is not suitable for everyone. Not all applicants will qualify. Plus 500, it's trading with a plus. Billion dollar investors don't typically park their cash in high-yield savings accounts. Instead, they often use one of the premier passive income strategies for institutional investors, private credit. Now, the same passive income strategy is available to investors of all sizes thanks to the Fundrise income fund, which has more than $600 million invested and a 7.97% distribution rate. With traditional savings

Starting point is 01:07:23 yields falling, it's no wonder private credit has grown to be a trillion dollar asset class in the last few years. Visit fundrise.com to invest in the Fundrise income fund in just minutes. The fund's total return in 2025 was 8%, and the average annual total return since inception is 7.8%. Past performance does not guarantee future results, current distribution rate as of 1231, 2025. Carefully consider the investment material before investing, including objectives, risks, charges, and expenses. This and other information can be found in the income funds prospectus at fundrise.com slash income.

Starting point is 01:08:02 This is a paid advertisement. All right. Back to the show. There's a guy I don't know if you know called Joe Costa, who publishes an excellent newsletter called Value Investing World, which I highly recommend. I subscribe to it because you get these sort of curated links every day. And he's quoted you a bit in the newsletter over the years. And so I knew that he was a fan and an admirer. So I wrote to him a couple of months ago and said, is there anything you'd like me to ask Chris? And he honed in on this. He said, in one of your

Starting point is 01:08:34 year-end letters, you were talking about this whole concept of win-win relationships, and you wrote, be constant, be kind. And he raised the important question where he said, how does consistent kindness factor into this whole idea of fostering win-win relationships? Yeah, I think constancy is such a brilliant ingredient for trust. And, you know, I think this, when you deserve, I think, trust with your, you know, all of those counterparties, like, it just changes. I learned this from Buffett early on.

Starting point is 01:09:11 He said, you know, if you lose a shred of reputation for us, I'll be ruthless. And it's so true. You know, I think it's a, is something that when lost, it takes a while to get it back. And so I think to be constant, to be kind is you're building kind of the seamless web of deserve trust. And I think that's something that is incredibly valuable for any person or any organization. I think it's underestimated as well. You suddenly find that someone you were kind to 20 years ago does something to you that's absolutely extraordinary.

Starting point is 01:09:48 And it's remarkable where I see friends of mine like Guy Speer who really very consciously have been talking about the compounding of Goodwill or Tom Gaynor. It's again, it's one of these things where it may not seem very serious. striking initially. Maybe it's like exercise or good nutrition where, you know, 20 years later you see the overwhelming benefits that accrue to the people who actually understood the power of compounding good habits. Yeah.

Starting point is 01:10:15 You know, we talk a lot about the joys of compounding, which is, you know, I think first articulated by, you know, Warren in his early Buffett partnership letters, but I think about the compounding of joy, too. And, you know, I think that those little bits of kindness that you can offer others, whether it's, you know, a student who's, you know, coming through uncertain about what he wants to do. And you can be, you know, spend a little extra time and then maybe lend yourself to be a reference. And I just wrote a reference for one of my former TAs who's interviewing different places

Starting point is 01:10:49 around the world. And that fills me with joy, you know, to be able to do that. So it's cool. Yeah, it's a lovely thing. I thought another interesting thing on a side note related to this whole issue of win-win situations with all the counterparties is that you had a prism on your desk that I think was this six-sided object that had been on a whale ship. And can you talk about that? Because I think it's such an interesting idea that you have physical objects that can remind you of certain principles. Can you talk about what the object is and how it reminds you of this principle of.

Starting point is 01:11:25 of all of the counterparties? Yeah, I wish I had one in this office because I'd have a prop to show you, but it's a, I love symbols. I love, you know, the way I learn, and this was an inflection of my own learning is, you know, I would be like I think most people is reading and devouring as much reading as possible. But there was one point in my life where I said, am I really memorizing this material? Am I really able to recall it? And this is something that Peter Coffin is just so brilliant at. And so I needed to create a mechanism that I could have in a memory palace a way to recall information. And once I started to develop an architecture and framework to do this, that worked for me,

Starting point is 01:12:08 my learning in recall just went exponential. And so for me, what works is, you know, you'll hear me, this is internal because I often don't share, but I create acronyms for things I'm trying to remember. And, you know, it could be something simple like Piper. If you actually were to dissect the win-win counterparties, you'd see that they spell essence. You'd see that the eight layers or the seven layers of competitive advantage actually spells essence. And so when I'm thinking it, it kind of wings at me in a way because I'm, you know, that's essentially what we're doing is trying to find the essence of a business, their competitive advantage.

Starting point is 01:12:44 So these strikes me as truth. And so the question you have about the deck prism, the debt. Dech Brism is this wonderful that you saw on whale boats, but it was a way that in those days, pre-illumination, that light from a deck of a boat would strike this clear glass object, and it would illuminate the bottom quarters of a ship. And it actually served as a pretty cool device because if there was a fire below deck, and everyone was above decks, they could see the fire as well. So it's just this wonderful thing. And the Charles W. Morgan Whaleboat, which is the only surviving whale ship that we have, it's at Mystic Seaport in Connecticut, they have one replica

Starting point is 01:13:30 that I found that's a hexagon. And it's this beautiful, clear hexagon. You can actually buy one. And it sits on my desk. It's almost like a paperweight. But it reminds me of those six-sided attributes with the center being the seventh point. And essence, just happens to be this beautiful seven-letter word. And so the essence of Win-Win or the essence of moat, these are things as I look at the deck prison around like, okay, this is illuminating something that otherwise would be dark. I think this idea of how to structure your physical environment is such a powerful and underappreciated one. And I remember talking about this a lot with Guy Speer when I was helping him with his book, The Educational Value Investor. And he at one point,

Starting point is 01:14:16 he was going to have photos of all of his partners in the fund taken so that he'd have them on the wall of his library. So it would remind him, this is who I'm investing for. And so we talked about Warren having in his office a picture of his father, for example, who obviously had tremendous integrity. And I literally, I mean, as I say this, I mean, in my hand is a rock that fell from the ceiling of a cave in the north of Israel where Shimon Bahioyah. the author of the Zohar revealed the Zohar, which is like this great sort of spiritual text that I read

Starting point is 01:14:52 kind of most days. And the rock fell on my mother's head when she was there. And so I have it and say, you know, when I'm doing an interview, I'm kind of fiddling with it. And part of the reason is it's from, you know, it's trying to get me beyond my own ego in some way. And likewise, you know, because it's a reminder of spiritual principles that, you know, to try to be less of a schmuck myself to be a little bit more righteous, which is a tough battle. And then I think of my friend Brian Lawrence, who I think Guy introduced me to originally, and Brian has about four offices in different parts of the country. And I remember him showing me one of his offices in a home of his,

Starting point is 01:15:31 and it had a little statuette of Lenin. And he told me that he has them in each of the offices. And he said, it's a reminder to beware of dogma, which I thought was such a powerful idea, right? These physical objects that remind you of certain lessons you need. Think of the two, you know, the bus that Charlie Munger talks about that he has in his office. You know, he has one of Benjamin Franklin and then the former prime minister of Singapore. Li Kuan Yew.

Starting point is 01:16:01 Yeah. Li Kuan Yew. And, you know, they're just symbols of excellence. And, you know, as I look around my office here, you know, there was one symbol that I found. when I was kind of looking at Egyptian hieroglyphs, and it's a hair over a wave. And when I saw the hair over the wave, I'm like, that is a, that is a beautiful symbol. And I started reading about it. And the hair over the wave, hieroglyph is the letter W or the Greek goddess Wen it.

Starting point is 01:16:30 And when it was the goddess that was believed that gave fertility or renewed basically the the renewal of water to the Nile, which then irrigated crops. So it was the symbol of rebirth. And so when I look at the symbol, which I've kind of taken to be my own, I think about what are those ideas or dogma that you say that I might have confirmation bias around that I'm willing to die to those ideas, meaning let them go away so I could be reborn to something that's more true, more profound, more insightful. because we all hold on to these biases that are kind of static in nature.

Starting point is 01:17:09 And so that hair over the wave is just a symbol for me to remind me of, am I being dynamic or static in my expression of, you know, maybe it's an investment portfolio that I have or ways of thinking and just constant renewal? One of the things that's very distinctive about your approach to investing in life is this, this multidisciplinary type of learning where you're studying, you know, gods and goddesses in temples in Turkey or you're studying Egyptian hieroglyphs or different areas of science like physics and biology or you're studying Eastern philosophy or history. And I remember you saying at one point that you think that this kind of interdisciplinary compounding of knowledge may be an individual's

Starting point is 01:17:56 greatest enduring advantage. Can you talk about the importance of this idea that I think is very much inspired by Charlie Munger and by Peter Kaufman and how you develop this advantage yourself of going into these different areas, doing these deep dives, and then drawing different ideas and mental models out of these areas that have a practical resonance for you as an investor. And we'll talk about Josh Whateskin more later because Josh uses this beautiful phrase where he talks about thematic interconnectedness. I think this is one of the things that you're tapping into, is that when you study an area like Egyptian hieroglyphs, you're able to see some sort of thematic interconnectedness that illuminates something in investing.

Starting point is 01:18:45 And it's unusual, but it's a very powerful advantage, I think, for you. Yeah. I remember early on in my learning process, I was frustrated with being one-dimensional in my in my thinking. And one-dimensional can manifest by having one-depth of knowledge, so you know a lot about an industry, perhaps. But you can also be one-dimensional by having a breadth of knowledge, but you just know a little about a lot of things. And that felt very inadequate. So right away, I was like, how do I build a system where I can actually have a depth of knowledge and a breadth of knowledge? And so I had to reformulate how I was learning. And so I developed a method for, you know,

Starting point is 01:19:28 taking blocks of time. So I would take three blocks, three months, and I would go as deep as I could on a subject in those three months. And I would set a deadline and I would move on. But the subject can be something like evolution. And I would approach the subject from a 360-degree view. Sometimes I'd approach it through the arts, sometimes through poetry. I would look at it through the history of it. And I just wanted to touch it from all different well to find it from its origin story on, take it to the present. And those would be, I could be in areas of human history, I could be in biology, could be in physics. And then over time, I was like, okay, I'm developing more, I'm more two-dimensional in my thinking. And I've developed a little bit more depth,

Starting point is 01:20:12 more breadth of knowledge. But then I realized that that wasn't really the final expression of learning. And, you know, Peter kind of introduced me to this idea of looking at a timeline and how there's an in your connected thread through time about how things manifest. So this third dimension is height. And so when you view things from a height, not just depth and breath, but height, you start to see the whole picture. And I talked about that Spinoza quote, to see things under the aspect of eternity is to see the timeline of evolution, how things have evolved, how they've progressed. This is very much a contextual expression of learning. You know, and when I think of left brain versus right brain, which is you had mentioned Ian McGilchrist in amazing work The Matter

Starting point is 01:20:58 with Things, I think when your left brain orientation, you can be fixated on one dimension. Right brain, which is the creative side, but it's also the contextual side, can see the whole picture. And so that to me was a real next level expression of learning. And then it gave rise to a fourth dimension, which was an expression of networks. And when you look at, say, Jeffrey West wrote a beautiful book called Scale and he works at the Santa Fe Institute. When we think about this idea of networks, you know, anything that scales is scaling through a beneficiary of how things are distributed. And so when I think about learning now, I can learn through my own mediums, those first

Starting point is 01:21:44 three dimensions, but also I can increasingly find that things are shared to me, things that are really interesting or shared to me through a network of people that know what I care about and love. And so I'm constantly being, if it's an idea, if it's, you know, 800 students that have come through the class, they know what kind of exceptional companies that we're on the lookout for. So we're getting, you know, those kind of things. We're getting readings. And that network of learning has really been enormously beneficial to kind of parsing really interesting knowledge through the system. I also love some of the weird insights that you're able to draw from different areas

Starting point is 01:22:27 that turn out to be incredibly relevant to investing. So I was struck, for example, when I was reading one of your old year-end letters, which I really love there. I wrote to you about this yesterday. I think in some ways they're my favorite investor letters I've ever read with Nick's Leaps. They're pretty close, though. That's pretty amazing too.

Starting point is 01:22:45 But they're really beautiful letters. And one of the things that's great about them is the idiosyncrasies and auditors that you include. And so there's one thing where you're talking, for example, about the lessons of lemmings and snowy owls and how there are these cycles of scarcity and abundance where, you know, this is a bit like Howard Marks talking about these pendulums where things go from greed and euphoria and ecstasy and complacency to fear and pessimism and the like. and you describe how this happens with lemmings and snowy owls that prey on lemmings. And then you said the conclusion that you drew from this in part is all sentient creatures seek abundance and fear scarcity. And so then you were talking about the importance of being prepared for these periods of scarcity so you can survive and exploit them.

Starting point is 01:23:36 And I just was really struck that you would take this lesson from nature and then you'd say, well, so look, there have been all of these panics like 18, 50s, 1873, 1884, et cetera, et cetera, going up to 2008. And so when you look at the most successful businessman, the Buffets and the mongers and the like, they're prepared for these periods of scarcity because this is built into the structure of life in this world. Am I summing that up in a kind of adequate way? Very adequate and very beautiful, William.

Starting point is 01:24:10 Thank you. And thank you for how deeply you read the letters. That was, and what you said, it's very gratifying to me. So, thank you. They're very lovely, the letters. I mean, they're so, they're so odd, and you'll go into these long, long, you know, these footnotes that explain the origins of weird words. And there was one of my favorite bits, I think, was when you were, you know, your,

Starting point is 01:24:35 your games with numbers where you would say, I'm publishing this on the second of February 2022, and this is the first time in whatever, 970 years that the date can be expressed as 0202, or whatever it is, the first time since 11, 11, 11, you know, 970 years ago or whatever, that we've seen this kind of number repetition. So there's a sort of peculiarity to what you're doing. Like, what's going on here? Like, why, how has the writing enabled you to kind of express your, your essence and kind of articulate what you believe. Yeah, I think the, whatever craft that you're seeking some level of mastery at, it becomes like an unobstructed self-expression, right?

Starting point is 01:25:23 It becomes, it probably looks as close to play as you can get, you know, this idea of what Lila was, was this idea of like eternal play. And I think that that's, you know, the letters are manifestations of the learning process, And it's a bit fun for me to write up something that I'm learning about, that I'm interested in that I think is applicable to the investing process. So that's been an enjoyable medium to share those ideas. I just was rereading Buffett's 50th anniversary annual letter. And it's a beautiful.

Starting point is 01:26:00 And some of your audience may want to revisit that because he spends a lot of time articulating the reason why financial stability and security is so important to Berkshire. And he goes into very detailed on why they hold U.S. treasuries and why they don't invest in annuities. And you start reading that, and it's very applicable to the period that we're in, you know, the bankruns and so forth on anticipating when there will be a difficult period and preparing for that because it's inevitable. And that's part of the asymmetry that we're seeking in the businesses that we seek to is

Starting point is 01:26:43 that they're patient without tiring of being patient. I think most people, it's really hard to be patient. It's uncomfortable to be patient. But if you're patient without tiring about being patient, that's kind of the quality that I think a lot of these certainly, Orner Charlie, have demonstrated. So, you know, scarcity in abundance, you know, I think that one of the, if you look at a spectrum, you know, I think about kind of a spectrum from fear to love. And in that fear to love, you know, in that realm of fear is our instincts.

Starting point is 01:27:17 And we are instinctually driven for two things to survive and to procreate. So find a meal, find a mate, is what William Durant said. And I think when we can evolve from this state of instincts, we go and do. a state of reason. And reason is now we're using knowledge and wisdom, and we're making, you know, very intellectual pattern recognition. And that's, that's great. We've evolved from these instincts, we can control the instincts, so we can make intelligent decisions. I think this next phase out of reason is, is into a state of insight. In insight is we're starting to arrive at a flow state. We're starting to arrive at intuition. Intuition instincts are two, on two

Starting point is 01:27:59 two ends of the spectrum away from each other. People confuse those things, but I think, you know, intuitions learned. It's where we're starting to act in a creative way, in an abundant way. And fears aren't factoring into our two our decisions. It's pure expression. It's pure play. It's pure, you know, anything that's not love is fear.

Starting point is 01:28:21 It's the same other way. When you can eradicate fear that you're in this kind of realm of abundance. And so that's kind of a way that I've helped to distinguish spending more time in that right category. And it kind of orientes the same way our brains are behaving too because, you know, instinctually is our left brain kind of categorization and naming. And we're kind of arriving into this right brain co-creation, contextualization, where I think has been atrophied.

Starting point is 01:28:49 You know, Ian would tell you that possibly the reason that our left brain is a little bit more active than our right and our right has atrophied is the evolution of language and the importance of language in our and so our now our left brain is a little bit overactive, which generates some of this other activity that doesn't serve us well. And so how do we nurture more right brain activity that might not be commonplace in our in our own, you know, our own beings? I feel like I have the opposite problem because the more I, the more I discover about myself of where I realized that I kind of seem to have like no functioning left brain. For me, it's all like creativity, no, no systems, no order, no logic. It's all intuitive, creative. So I have the

Starting point is 01:29:35 opposite problem. But this is very much related to the teachings of another guest in your class, James Kass, who also talked about timelessness and this idea of infinite games. And it's a, You wrote once about how these outliers, I guess, among executives and CEOs and investors and businesses operate outside of time as they perform with no finish lines. They're playing an infinite game. Can you talk about this concept of infinite games versus finite games in a world where most people are pretty short term? And then there are these outliers like the Berkshire Hathaway's or the Danahurs or the Colgates or whatever that are thinking in a much more timeless way.

Starting point is 01:30:25 Yeah, Jim Kars, maybe one of my favorite guests I've ever had in the classroom. And he was in his early 90s, I think, when he came in and we shared this time in a fireside chat that was just so, so beautiful. And, you know, he shared with me the story when he wrote that book, it was originally like 400 pages. And he was just about to take a sabbatical in France. And he had taken the manuscript with him and he lost it. He lost the original finite and infinite infinite games. And he came back from his sabbatical and, you know, he had this due date that he had to produce a book. And he just wrote it with what he remembered it to be. But it became much shorter. And if you've

Starting point is 01:31:07 read finite and infinite infinite games, it's almost like a, it's almost poetry, prose. It's so beautifully succinct and encrypted in a way, right? It's, it just leaves you thinking like, some of my favorite books of all time are this way, right? The fragments of Heraclitus or Lao Tzu Dada Ching. You sit with a passage and it just like, it just works on you, right? Like the Zohar, right? Yeah, we read a little Zohar before we started. And yeah, these things that are enigmatic, someone once said to me, as a spiritual teacher of mine said, you have to torture the vessel sometimes. And there is a sense where, you know, when you don't really understand, maybe it's like Zen Cohen's, right, where these, these kind of mystifying things, like the sound

Starting point is 01:31:52 of one hand clapping. It's like, what? Maybe it's good. It dismantles our arrogance about, about what we know and understand. And I think what's fascinating about a lot of these important written pieces is they are very paradoxical, right? It's not something that can converge to an answer, but often diverges to a paradox. So it gets you thinking with both sides of your brain, right? Your left's like, oh, I see it this way, but your right sees it something different because it sees it in the context of the whole. And that's why some of my favorite books are that way.

Starting point is 01:32:27 And certainly finite and infinite games helps to, you know, share words around this spectrum from short-term to long-term thinking. And I think one of the things that it's so fun about that is there's such a delineation between this world of instinct and, you know, that we're kind of driven this way to act in this more abundant way, which is on the other side, no finish lines. And it's a clear delineation of that delayed gratification and benefiting from compound interest versus a short-term award, this concept of no finish lines, constantly learning. And Jim and I developed a beautiful friendship afterward.

Starting point is 01:33:10 We were kind of going into the pandemic at the time we met just before. And he had asked me to read a manuscript of a book that he was working on called this The Poetry of Money. And I remember he was giving me chapters as we're going into the pandemic. And it was so beautiful. And just to be sharing this time with him. And then he stopped producing, you know, and then he passed away shortly after that. I don't think the book was ever published, but maybe someday it will be. But it was just a great friendship.

Starting point is 01:33:41 And to share that time with him, he's wrote some of my favorite books and he was such a thoughtful person. So when you try to think in your own life about how to approach investing and running a business and being a teacher as an infinite game and not a finite game, what does that actually look like in your life? Like in the same way that we were discussing quality before on how you actually take this principle of the, you know, the metaphysics of quality and persig and applied in your own life. When you think about how to how to play this game of investing in life as an infinite game,

Starting point is 01:34:14 not as a finite game, what does that look like in your life? Yeah, to me, to me, it's balance. And, you know, when I think about what the compounding of joy looks like, it is this balance of a number of different roles and responsibility. So the first is my craft of investing, which is how I employ my, myself is really a beautiful expression and that is deeply important to me, but also like thinking about family and time allocation to friends and community service and what I call total wellness, which is the mind and body and investing in that and then, you know, spiritual.

Starting point is 01:34:56 And so, you know, how does time allocation look across all of those so that it's a balanced approach to life. And we tried to orient our family around that we create spaciousness so that we can enjoy all parts of that. And the habits around each one of those categories and how I kind of orient my week and learning and so forth is all kind of to try to create that balance. In terms of habits, you've obviously learned a lot, I think, from your friendship with Josh weight skin. And I wanted to stop and talk for a bit about Josh, because he's such an important thinker in many ways. Our audience hasn't studied Josh. He's had a profound impact on me, even though I've never met him, because his book, The Art of Learning, is terrific. And he's done a handful

Starting point is 01:35:48 of interviews with Tim Ferriss. And other than that, basically the only person he talks to, the only public appearances he makes are in your class every year. Columbia, and he's also obviously one of your very closest friends, and I think you've spent the last two days with him in Latin America, which is where you're calling from. And so you're in this unusual position where you have very close contact with one of the most remarkable thinkers and learners, continuous learning machines around. So can you give us a sense of who Josh is? And then let's talk a bit about some of the habits and the ways in which he's influenced you. Absolutely. Yeah, Josh is a great friend and great human.

Starting point is 01:36:34 And I've learned a lot before I met him and now since after. You know, we met in, I was like doing the map, August of 2015. And it was in August that I had, as I usually do, was kind of thinking of books that have influenced me. And so I reached out to Josh to see if he'd be a speaker in the class in the following semester. And, you know, right away, which I think is his normal tendency is, you know, he said no. And I said, oh, okay. And we just happened to be in a very similar geography that summer. So I said, I'd love to grab lunch.

Starting point is 01:37:09 So we agreed to lunch. And after, you know, a beautiful conversation, we were walking out. And he's like, I'll actually do your class. And one of the things that I think both of us were very passionate about at the time was he was taking up the art of surfing. And, you know, it was something that I had always loved. and really had, you know, spent more time doing over the couple of years before we met. And so we had that in common. And, you know, when Josh takes on a mountain like you had with chess and martial arts

Starting point is 01:37:41 and jiu-jitsu and that, you know, he takes it very seriously. And it's a very much a learning curve. It's a training process, which is all-encompassing. It's very serious. And so we took on the art of this very stylistic, individual. which is just surfing and we did it together in the sense of traveling together and thinking about best practices and how can we get better. And I think it was one summer where I suggested we, we try out foil surfing and I brought a foil and we tested it behind the boat and we were like,

Starting point is 01:38:21 it was a wild learning curve. And that was about five years ago. But that was an art that we both took on at the same time. And this is where you sort of float a little bit above the water. I watched a video of it last night in preparation. And so there's this weird contraption that goes under a short surfboard and you kind of float above the water but at high speeds. Exactly, exactly. And it's a wonderful expression of flying. You know, it's a very similar engineering technology to like a wing of an airplane. And so a lot of the fluid dynamics are very similar.

Starting point is 01:38:54 You have no friction from the board. The board is above the water. You're riding about three feet, two and a half feet above the water. and you're riding on a wing. And there's a front wing and there's a back wing. So it's this, there's a complexity to it, which is very satisfying because now you're kind of surfing above the water. You're surfing on a wing.

Starting point is 01:39:13 There's a lot of very engineering tweaks that can change the dynamic of what is this successful flight and what isn't and what is more effortless and frictionless. So we took this art on together and we continue to do it today. And it's been this incredible journey of frustration, of learning, of elation, probably one of the most amazing sports that I've ever done. I compare it to powder skiing where you have this like this effortless flow state that kind of lasts over a long period of time. And some of our, you know, when we're toe foiling or being towed in by, say, a jet ski, release the rope, you know, our rides on this small board on wing, you know, can be over two minutes long, which is just miraculous when you think of a, say, an average wave that you may surf could be less than 15

Starting point is 01:40:06 seconds. So it's, it's been an incredible journey. And he's gotten incredibly, he's a gifted learner. So he's, he's truly taking this on. He's beautiful foil surfer, surfer in general. And we both progressed. And it's been fun, fun doing it together. So, Chris, when you think about Josh as a proponent of relentless growth, of, as he would say, it being, you know, world class and pursuing quality as a way of life and pushing your limits and relentlessly living on the other side of pain, these are the sort of phrases he's used in the past in talking about foiling, but also other things like Tai Chi Chuan pushhans, where he was a champion and jujitsu, what have you learned that's applicable for the rest?

Starting point is 01:40:54 of us about the pursuit of excellence, the pursuit of quality as a way of life? Yeah, when I think about, you know, Robert Persig's book, Zen in the Art of Motorcycle Maintenance, there was an expression in that where what Robert was trying to say was like, you know, it was getting, understanding the details and quality of, say, in the art of motorcycle maintenance. It's the same with foiling. Like, one of the things that I'm so impressed by Josh is he deconstructs this every aspect of the sport. And so down to equipment, playing with shims. I mean, there's not a time that we're not on a different piece of equipment. Like, we're constantly testing, constantly iterating and trying

Starting point is 01:41:36 new things to get little increments of improvement. And that's a beautiful gift that he has in the learning process. And it's taught me to kind of think about that in any art that I'm trying to get better at is what are those incremental little bits of improvement. And you add all those up over time, they make an enormous effect. And he also approaches, I think, anything that he does from a world-class level. I think he, when he has what success looks like in foiling, you know, he's probably thinking in realm of what does the best in the world look like in this art. And so that's the progression that he's taking. It's something that, you know, that I see as, you know, when we're in a tow partnership, we need to bring each other to the highest

Starting point is 01:42:23 level. And it's a very shared experience when we're out there and we're putting ourselves, each other in very dangerous places and critical places that we need to develop a partnership that is, that's very much in sync. So that's taken a long time to kind of get to the level that we're at. He also talks a lot about how to spend time, how to architect your day and and create habits and daily routines that allow you to use your, your energy. properly and to do your most creative thinking at the most important times where you're actually likely to do it well. You obviously think a great deal about these questions too, and you were talking before about how you think about using your time. Can you talk about some of the ways in

Starting point is 01:43:10 which you've actually structured your day that could be helpful for the rest of us? Because I feel like you're you're getting to learn from your own experience and from watching this kind of master up close. So I'm trying to hack this by getting you to do the thinking and the, you know, you're the test guinea pig so that I don't have to do all of this stuff myself. So I think Josh has a slightly nuanced approach. So I'll answer as the way that I've approached time management in the day, and I've learned things from Josh as I applied this. But, you know, so my morning usually starts quite early. It's, it's about a 4.30 wake up. And at that point, it's really my most productive time. So I'm devoting time to journaling. I'm devoting time

Starting point is 01:43:58 to reading, really important reading. That's usually the first hour and a half of the day is really, usually things that I've been developing in my subconscious overnight, things that have questions I've put to my subconscious and how to maybe something is unlocked that I'm able to kind of work through, whether it be investment related or creative thinking related. And so my first hour is kind of in that thinking space. Usually at that time, if it's a normal day, I love to, you know, if I'm in a place where I can surf,

Starting point is 01:44:30 that's a nice expression for an hour to just have an embodied workout. There's three things that I'm trying to do throughout the day is I'm going through what I call it kind of an embodied experience, which is something that's very physical. That could be surfing, could be foiling, could be yoga, could be something that you're just physically active. For me, it's eating and walking to the refrigerator and the coffee machine. Hey, that works. Not very well, it turns out.

Starting point is 01:45:00 The second is a contemplation or, you know, a contemplative exercise. And that's where the mind is active, right? The mind is engaging in creative thinking. And sometimes I have a couple different things that I'll do here. I'll do a meta-metac contemplation, which is kind of an act of loving kindness to people in my life. And that's kind of a nice way to kind of express gratitude. And that's so active mind. And then I try to have a practice of meditation daily where you're trying to quiet the mind

Starting point is 01:45:33 and the ego to almost zero and try to engage kind of in a very deep kind of mindless spaciousness to your thinking. And I usually use breathwork to start in a contemplative exercise leading to a meditative exercise, which is the breath I find to be a really incredible portal to deeper meditation. And so after our conversation, for example, I'm doing a conscious connected breathing session with someone that I really respect. And that's about an hour of very deep circular breathing that is contemplative in the beginning.

Starting point is 01:46:10 And then I lead it into a meditative exercise that's been really profound as I've kind of brought this into my, usually that's a couple weeks that I'll do something like long period like that. It's interesting because so many people are in such a rush, right? They're just going from meeting to meeting. And here you are, you've built this kind of, this very spacious life where you're able to exercise, you're able to meditate, you're able to think, you're able to journal. And I can hear some people sort of, you know, griping in their head saying, yeah, well,

Starting point is 01:46:43 it's because he's rich and successful and he runs his own firm and stuff. Like, there is an aspect of this, right? Like, how do you think about this question for regular folks, like most of us, of bringing these lessons into our lives so that we can get some of the benefits of these things while also acknowledging the fact that a lot of people don't have that opportunity for spaciousness and freedom? Yeah, I think the three really important lessons that I bring to a daily practice, embodied experience and a meditative experience and a contemplative experience and a contemplative experience. experience are all free. They can be all done in a small room with 45 minutes of time, even if embodied experiences, doing push-ups and stretching, and then leading a breath work, Wim Hof is a great, he's got an app that I use once in a while that's a beautiful portal to a meditative practice. So, you know, I think these things are quite accessible. And,

Starting point is 01:47:44 And we've really oriented our life to live quite simply and, you know, to have nature in close proximity. So a lot of what we're doing is spending time outdoors in nature where, you know, the access is just there. And it's not something that is, there's a charge for. And that's been really important to us. It's also worth noting that you've set up your investment portfolio in a way that's not hyperactive, right? I mean, it's a concentrated portfolio where, as Joel Greenblatt would say, you're not paid for activity, a hyperactivity, but for the quality of your decision making.

Starting point is 01:48:27 And that seems to be kind of an important factor in creating a life that's aligned with who you are that allows you to live the way that suits your personality. Does that make any sense? It seems like there's a really important alignment here that your investment style actually allows you to live this way. Yeah, I think it certainly aligns with my temperament. I think the amount of time that Scott and I spend on thinking about the portfolio is probably at the same number of hours as anyone else that's running an active portfolio. You know, it's never off.

Starting point is 01:49:06 The mind is never off. It's constantly thinking of how do we lose and how we're thinking through the dynamic nature of a competitive situation. And it just doesn't lead to activity. It leads to us just calibrating qualitative assumptions, making sure that we've thought through it holistically. And then just wrapping all of those other responsibilities and roles so that we can, you know, have balance.

Starting point is 01:49:34 And I think geography is really important, William, to be honest with. you, it's something that has always been a priority is that, you know, we look at East Coast is headquartered in a little suburb of Boston. And as you alluded to, I love spending time in the jungle and in the jungle has been an inflection for our family and kind of having, you know, two geographies that lend itself to a real diverse experience with nature and with a community. And yeah, so geography, I don't think it's, I think it's by design. when Warren moved to Omaha and the experience he's had in Omaha and Charlie and, you know, Santa Barbara in L.A. And what's that contributed to their, you know, productivity, I think makes a big

Starting point is 01:50:18 difference. Josh Waitzkin used a phrase that I love that you mentioned in passing before, which is this idea of unobstructed self-expression, which I think is such a powerful idea to live in a way that somehow true to ourselves and to release what he calls the crimps to unobstructed self-expression. I think about this a lot with writing, but a lot of writing is about getting out of your own way, removing your fear, removing your ego, removing your dread of the blank page, your dread of being judged. And a friend of mine once said to me before I started working on Richard Wise, I happier the book, he said, you're asking to be a clean pipe.

Starting point is 01:51:01 so that stuff flows through you and he said, you know, is the book going to be just a vehicle for the ego of William Green or are you trying to be a clear pipe for something more than that? And that was incredibly helpful to me. And obviously ego comes into this stuff always in these very sneaky ways, even when you're congratulating yourself on having overcome your ego. And I'm wondering how you think about this whole question of investing and living in a way where unobstructed self-expression is at the heart of what you do. Yeah, and it's so beautifully articulated.

Starting point is 01:51:39 The, you know, I always, I think of this thing that, I think it was Meister Eckhart said that, you know, that we want to be transparent to the transcendence of light. And I think that we all have this like, this inner light, and it's unique to, unique to us. But when we filter it with our ego and we filter it with our expectations on who we are supposed to be or who we're trying to emulate, it loses the sense of who we are. And I think if you, by knowing yourself, know thyself, you start to remove those obstructions, then you can become the essence of your full capability. So that's kind of how I think about it. And, you know, the ego is not just I. It's not just an enlarged version of I, but it can be an enlarged version

Starting point is 01:52:26 of we. Like, you think that when there's a we, there's another side of that. There's they. And I think all of these manifestations of ego get in the way of our true expression. And, you know, that's the goal for, I think for me and for anyone is just to have what Josh calls, that unobstructed self-expression that is unique to you, that that's the full expression of your art. And that's what art is. It's really on that leading edge of dynamic quality. it's an expression of you becoming and you're full of self. So yeah, it's something that I think is a progression and none of us are perfect at it, but it's a nice objective and goal to have.

Starting point is 01:53:12 It's also interesting because it's very easy for listeners to think there's something kind of mystical and otherworldly about this and maybe it's not really practical or maybe it doesn't really have anything to do with the investment business. And then you look at someone like Buffett, and he's the absolute embodiment of this, of this idea of living by an inner scorecard, being aligned with his own particular gift. And you quote this beautiful passage from Buffett in, I think it's the 2019 year end report that you wrote, where he said, I love painting my own painting. I come down to the office and I start painting. And I think I'm in the Sistine Chapel. It's my painting. Now, if somebody says, use more red paint instead of

Starting point is 01:53:55 a blue, painter seascape instead of a landscape. I would hand them the brush in five seconds, and I'd say, do your own painting. I'll go paint what I want to paint. I get to do my own painting, and then I get applause if I deserve it. So this is not some sort of mystical abstract thing. This is like Buffett has, Buffett has tapped into this very, very powerfully, more powerfully than probably any of us, right? It's such a beautiful expression. I was thinking about that exact line the other day. You know, Josh and I, I think both approach foiling very differently. And we're each painting our own canvas in how we even look at a wave, the way that the lines that he's carving on a wave are different ones that I'm looking to carve. And there's no right

Starting point is 01:54:39 way. It's just how we're expressing the art. And I think investing's the same way is, I'm not trying to do it the way Buffett did it. I'm trying to do the way that makes sense for us and we're going to tweet that over time and our expression of what value investing is going to be is evolving and hopefully getting better and iterating and the kind of businesses that we want to invest in are going to look different in the future than they did in the past. The way that Nick really was able to evolve looking at Amazon, which was reinvested, it's a good deal of free cash flows, and that was a very unique way to think about value creation. And I think that's really just an important kind of artistry, the way you expressed it.

Starting point is 01:55:22 You know, it's painting your own canvas. You've also studied Andrew Carnegie in great depth and have written about him. And he talks, again, very similarly about, I mean, I was very struck by something in your writing about this, where he said, I believe the true road to preeminent success in any line is to make yourself master in that line. I have no faith in the policy of scattering one's resources. And in my experience, I rarely have ever met a man who achieved performance in moneymaking, certainly never one in manufacturing, who was interested in many concerns. The men who have succeeded are men who chose one line and stuck to it.

Starting point is 01:56:02 And that really struck me like again, like here's a great mogul. I think Andrew Conaghery, when he died in 1919, was maybe the richest man in the world. And here's a guy again saying, you know, play your own game. game. Can you talk a little bit about that because he's obviously had a powerful impact on you, Andrew Carnegie? Yeah, Carnegie is such a great hero. For many reasons, he was not just a hero of capital creation, but of philanthropy as well. I mean, he's someone like, you know, retired almost at 50 years old and spent the rest of his life, you know, giving his fortune away in a really thoughtful way, building libraries. I think over 2,500 libraries were

Starting point is 01:56:45 You know, he was a great thinker as well. If any of your audience is ever in Terrytown or upstate New York, I highly recommend going to Sleepy Hollow Cemetery. I've been there maybe five times to his grave. You realize I live about five minutes from there and I've never been. So next time you come, you have to visit with me. I'll take you there. And it's just, I don't know why I always find myself.

Starting point is 01:57:13 It's a very peaceful place, but it's a very nondescript. gravestone for this wealthy person. And at the cemetery, Sleepy Hollow, there's these big, you know, mausoleums. And he's got this very tiny, you know, two gravestones, but he set this rock that was carved from Skibo, which was his estate in Scotland. And it always just reminds me of just just how humble he was, how much he gave back. But that comment that you have about depth of knowledge and being very good at, you know, over his career, he developed an expertise in a number of different things. He was a bridge builder.

Starting point is 01:57:49 He mastered the telegraph before anyone did. He could do it by ear. He kind of went into steel at a time where a lot of the speculation was kind of rampant in steel and he was able to cobble up the industry after a lot of the quick money was made. So he kind of reinvented himself in the course of his career as he was kind of developing and iterating and painting his own canvas. And certainly when he sold the U.S. steel,

Starting point is 01:58:15 that was the culmination of this incredible career. Actually, we're going to go to Scotland this summer and do a learning retreat. And one of the big focus of the learning retreat is going to be kind of revisiting very close to where he lived in Skibo, this life of Andrew Carnegie. So I'm looking forward to that. I also thought it was really cool in your summary of, I think it was 24 different lessons that you'd learn from him. There were a few that really struck me, one of which was just his sheer drive and intensity,

Starting point is 01:58:49 where he said, whatever I engage in, I must push inordinately, which really resonates me because I see all of the great investors I've interviewed over the years. They're pretty maniacal in certain ways. I mean, there is this tremendous intensity and competitiveness. And then another one that I really loved was when he talked about his trust in progress and evolution, where he had this motto, all is well, since all grows better. And he said that became his motto and his true source of comfort. Can you talk a little bit about that?

Starting point is 01:59:20 Because I think it's so easy for people to fall into the trap of thinking everything's going to hell. And here's this guy, one of the great creators of wealth and one of the great philanthropists of all time saying, no, no, no, things grow better. And it reminds me of something that Nick Sleep said to me, where he said, look, I don't know whether I believe in God or not, but I believe in good and I believe that good things grow. I do think actually Nick probably believes in God, but he was trying not to be polemical, you know? That is so beautiful. I got to find that passage or you've got to send it to me because that's lovely. Yeah, it's in a footnote in my chapter on Nick and Zach.

Starting point is 01:59:56 It's something that Nick said to me. Yeah, he said, I believe in good and I believe that good things grow. It's a very profound insight. It is. And Carnegie nailed it. And it's interesting because I had a long conversation yesterday about this very subject because we were debating about the. fears of artificial intelligence. And I don't have this overly optimistic view that it's good for

Starting point is 02:00:21 the world. I've a realist view of it. But I think like anything, when you look at the evolution of social media and you look at the evolution of artificial intelligence, as you have big change, you could see it in both ways, but is along a path of evolution. It's natural that we They're using, that we're augmenting intelligence using tools and technology. And, you know, artificial intelligence is a manifestation of additional tools, additional technology that's bringing to bear to do more things. And I think it needs to be oriented in a way over time to be improved. The same with social media 1.0 can be improved.

Starting point is 02:01:08 And there are side, there's second order effects that aren't positive. for humanity, and those things get tweaked. But the world, I do agree with Carnegie and I agree with Nick that the world does grow better and it becomes more abundant. And we continuously solve toward this asymmetry of good, which is kind of this tailwind that's behind us. And yeah, I feel that very strongly. Bill Miller has spent a lot of time studying pragmatic philosophy and one of the great insights from the pragmatic philosophers like William James and the like was to say, well, ideas are like tools. They're like forks and knives. And so you want to pick ideas that help you rather than ones that hurt you. And I think, you know, it's not saying everything is empirically true

Starting point is 02:01:54 and provable. It's like find a helpful idea. And to me, this idea of being kind of optimistic and assuming that things are going to get better, it's not it's not about being a polyana and being in denial. But I think it's actually an incredibly helpful tool in life to pick this idea instead of being a pessimist and assuming that everything's going to hell. And I don't know. I read the rest of Carnegie's quote before I let you go in a minute because I think it's so beautiful where he said, and you quote this in your year end letter where he said, all is well since all grows better, became my motto, my true source of comfort. Man was not created with an instinct for his own degradation, but from the law. lower he had risen to the higher forms, nor is there any conceivable end to his march to perfect. His faces turn to the light, he stands in the sun and looks upward.

Starting point is 02:02:46 And I love that, right? That idea that, yeah, so, okay, we screw up, we mess up, we trip up. But in some way, we're standing in the sun and looking upward. We're not, when, you look at the improvements we've made in healthcare, longevity, all of these different areas, standard of living. I don't know. Can you comment on any of that? What's your view? Yeah. Thank you for reminding me of that mantra. And that became his coat of arms and his seal is this beautiful thing. And I think I put it in the letter as well. The, you know, the final line of Lila that when Robert Persig said, you know, anything I name will cease to be dynamic

Starting point is 02:03:28 quality. But that's the best I can offer you is this word. And he's like, if I could offer anything, he said on what dynamic quality is, it's good, but good as a noun. And it was interesting because that's one of those enomatic things that you're saying, what does he mean by good as a noun? But good is that leading edge, that horizon edge of where we're going, where we're becoming and where we ought to be. And that ought to be somewhere, it's a more beautiful world that our hearts know as possible, which is aligned by Charles Eisenstein, that I believe that that's the direction that we're headed, that's the vector we're on. And it's an uneven path, right? It doesn't look perfect. It's kind of, you're kind of, it's a jagged path. But that's the, that's the

Starting point is 02:04:12 asymmetry of the path. And I truly believe that. I think that some of what we're seeing in our own states of augmented intelligence, both individually and collectively, I think consciousness is at a space where, you know, I'm not sure five years from now, ten years from now, know what that's going to look like, but I think we're going to have profound change in our collective intelligence as a humanity. And I was just reading a book called How to Speak Whale. And, you know, one of the cool things about that book, because one of my studies this last three-month period has been on kind of a species umwelt or their umwelt and their ability to sense the world. So what does it feel like to be a bat or a whale? And you start to think

Starting point is 02:05:02 but all their sensory apparatus or their magneto reception, how they see magnetic lines. And imagine a future where we are actually having a conversation with whales or conversation with dolphins. And this isn't far off. I mean, I have an app on my phone where just through spectrography, I can tell the exact sound of a bird in what species it is. You don't think we're going to be with machine learning, figure out what they're communicating to each other.

Starting point is 02:05:29 Like, that's not far off. And that's what this book, How to Speak Whale, was raising the question of, you know, at some point we are able to have a conversation with species that can see our system differently than maybe we can see our own, and we can solve problems that are really unique. You know, so I think about these really abundant outcomes that are potential from machine learning, data collection, augmented intelligence, and consciousness. I think also we don't have that much control necessarily over the outcome, but as the Stoics would say, we have control over our own behavior and our own attitude. And I like the fact that I see running

Starting point is 02:06:11 through your letters and in your life this effort to do things in a more high quality, upstanding way. And I love at the end of your, or I think it was at the end of your year end letter for 2021, you were writing about things like love and integrity and gratitude and humility and trust and simplicity. And you said, these words are truly at the heart of great partnership and a purpose-built life. We endeavor to embody them daily. And I sort of think that's about as much as we can do, right? We don't know really what's going to come of AI or the situation in Ukraine or any of these other things or inflation. But it seems like you're trying to structure your life around qualities like that. Yeah. And I think that when we talked about finite and infinite games,

Starting point is 02:06:59 I like those words. I chose those words very carefully because they were words that I thought had no opposite. They could exist on their own. It's like happiness. Happiness has like a counter of unhappy. But like what's the counter of joy? Like true joy is just, it's like this internal quality that kind of lives on its own. And I think love that kind of exists in that same realm and integrity, gratitude, humility, trust, simplicity. These are words that feel infinite to me. And so they have a special place. And I think that's why I chose those carefully. Also, if you think of someone like David Hawkins writing books like power versus force,

Starting point is 02:07:40 they're words that make you go strong in some sense. So I do think they probably have an opposite. Like you can think of words are opposite, but they make you go strong. They, you know, when you see someone behaving with integrity or gratitude or trust, you feel it. I mean, I think there's a reason why probably the most popular. chapter of my book is the one about Nick and Zach, because there's some sense in which you see the kindness of their relationship and the sense of honor and the lack of greed and the sense

Starting point is 02:08:10 of philanthropy. They make people go strong. I'm glad you brought that up because I was, I was recently, I did a kinesiology session with a great practitioner and where he was kind of going through the body and doing those tests. He's like, oh, what happened to your shoulder? You know, and he knew exactly, like, because I was going weak. And he's like, oh, yeah, that was an injury, you know, dating back five years ago. But what Hawkins did, which you know for me in those books, he would actually read certain books. And certain books had a strength of them, right? The Bible, Zohar, like all of these incredible texts, sacred texts. And so I started you're reading these books just to read them because they sometimes your mind doesn't even

Starting point is 02:08:55 know what you're what you're conscious of, right? And so sometimes reading these classic important books, they're working on you in a way that that is very powerful because the words and the in the mythologies and the metaphors are so profound and deeply felt. Yeah. And again, if, you know, if it sounds too abstract and impractical, then you look at Charlie Munger, and he's talking about hanging out with the eminent dead by reading about people like Ben Franklin and, you know, great figures from the past. And then the same thing, you have, you have Warren Buffett at his charity lunch with Monash Power and Guy Spears saying, hang out with people who are better than you and you can't help but improve. And so I think,

Starting point is 02:09:38 I think it gets at this idea of placing yourself in an ecosystem in terms of the books you read, the people you hang out with that's going to bring out the best in you, right? You know, that so that you're more likely to behave in an admirable way. I know, is there any final word you'd like to add before I, before I let you go do some some much-deserved breathing? Yeah, much-served breathing. That's right. And I will, I just have to say that, you know, you're such a wonderful researcher of people

Starting point is 02:10:09 and preparing for discussion like this. And I, this is probably one of the most best conversations I've ever, you know, shared with someone, all your preparation and what you're doing and providing for your listeners is profound. So I'm very grateful. Well, thank you so much. And I'm enjoying hopefully the prospect of many more conversations. Because as you know, as you know, I started the day with something like 26 pages of notes that I'd synthesized with questions from all of my readings about you.

Starting point is 02:10:39 And so I barely scratched the surface. So there's so much more to discuss over the years to come. And I'm really looking forward to learning more from you and being on this journey with you. So thank you. Yeah. Thank you so much, William. And our first lunch, your audience should know that William Mahi had our first breakfast in New York. And our connection on so many things that were, I mean, I think we went on for two and a half hours.

Starting point is 02:11:08 It was just such a fascinating conversation. And so a lot of connection points. Yeah. And so much more to discuss down the road. And I've just really tremendously enjoyed talking to you. So thank you so much. Thanks. We'll see you soon.

Starting point is 02:11:23 Take care. All right, folks, that's it for today. I hope you enjoyed this conversation with Chris Begg and found it as illuminating as I did. Chris keeps a really low profile and very rarely speaks in public except his class at Columbia Business School. So I'm hugely grateful to him for sharing so many valuable insights with us. As I'm sure you could tell, chatting with him is just an absolute delight for me. In any case, I'll be back very soon with some more terrific guests, including Chris Davis,

Starting point is 02:11:55 a prominent investor who's also a director of Berkshire Hathaway. In the meantime, please feel free to follow me on Twitter at William Green 72, and do let me know how you're enjoying the podcast. It's always a pleasure to hear from you. Until next time, take good care and stay well. Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by the Investors Podcast Network. Every Wednesday, we teach you about Bitcoin,

Starting point is 02:12:23 and every Saturday we study billionaires and the financial markets. To access our show notes, transcripts or courses, go to TheInvesterspodcast.com. This show is for entertainment purposes only. Before making any decision consult a professional, this show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - RWH027: High-Quality Investing w/ Christopher Begg

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.