We Study Billionaires - The Investor’s Podcast Network - TIP 038 : The Great Minds of Investing - Part I (Investing Podcast)

Starting point is 00:00:00 We study billionaires, and this is episode 38 of The Investors Podcast. Broadcasting from Bel Air, Maryland. This is the Investors Podcast. They'll read the books and summarize the lessons. They'll test the waters and tell you when it's cold. They'll give you actionable investing strategies. Your host, Preston Pish, and Sting Broderson. All right, how's everybody doing out there?

Starting point is 00:00:30 This is Preston Pish, and I'm your host for The Investors Podcast. And as usual, I'm accompanied by my co-host, Stig Broderson, out in Denmark. And today, we have a really fun guest for you. His name is William Green. And Williams, he's got an education from Oxford, which Guy Speer, who we had on our show earlier, also had his education from Oxford. So I got a question for William after this introduction. But he also studied journalism at Columbia University in New York. He's a writer.

Starting point is 00:00:58 And I'll tell you, he has written for some top-tier companies like Time, 14. Forchon, Forbes, Fast Company, the New Yorker, the economist. And he specializes in investing. And he just came out with a brand new book. The name of the book is The Great Minds of Investing. And it has a profile of all the top investors in the entire world. And he sent us a copy of this book. And let me tell you, this is a beautiful book.

Starting point is 00:01:24 I think somebody actually qualified as being a sexy book. And for investing, that's a real accomplishment, William, because not too many people can make an investing book look sexy. Thank you. So my question for you is, did you know Guy from Oxford or did you meet Guy afterwards? It's a good question. Hi, first, thanks so much for having me on. I'm just thrilled to be here with you. Guy, I did know at Oxford, but very, very vaguely.

Starting point is 00:01:50 And I actually realized that many years later in a sort of flashback, that 15 years later, I remembered him as this sort of dashing-looking young bloke with a sort of red scarf. I think I resented because he was much better looking than me. And then I became friends with him when we were both in New York. We had both left London and moved to New York. And we kind of randomly met and we became friends. And what I didn't realize until many years later is that I was actually one of the first investors in his fund, which I, you know, I'm not sure I did it through tremendous due diligence or intelligence. I think I sort of intuitively thought he was really smart.

Starting point is 00:02:30 And I think sometimes in investing, we're kind of, we just get lucky. And I've been an investor with guy probably for 15 years since then. And we've become close friends and collaborators on his work. Yeah. So for people that are joining us that maybe didn't listen to one of the earlier episodes, we interviewed Guy Spear. He's the hedge fund manager for the Aquamarine Fund. He, him and Monish Pobrai, who we're actually going to talk about in this interview,

Starting point is 00:02:56 are very close friends. And Guy just gave us one of the best interviews. If you haven't listened to our interview with Guy Spear, you need to definitely go back and listen to that. But Guy told us about William and this book that he's been writing. So we've been anticipating this book since around Christmas. We've been really excited to get our hands on it. And then whenever I saw it, I was like, wow, this thing's crazy. Like, it is an awesome book.

Starting point is 00:03:18 But anyway, we had a surprise for you lined up today, William. Guy was going to dial into this call and just congratulate you and just tell you, you know, congrats on the book. but he got caught up in Houston with the storm that they have down there. He was actually traveling on his way to Boston. He got stuck in Houston and he's actually on a flight right now. So he wasn't able to dial in for the interview. But he was totally planning on making it. He's here in spirit.

Starting point is 00:03:43 Guy has been a tremendous support to me in many ways. And one of the things that's fascinating about Guy that I learned by spending a lot of time with him because, you know, I virtually lived with him and his family in Zurich for a while while we were working on his book, the education of a value. investor. And one of the things I learned from Guy is this idea that he and a friend of his Ken Schubenstein, who's a professor at Columbia Business School, had discussed, which is this idea of compounding goodwill. And Guy really lives this way, like this idea that you're constantly doing things to help people. And so I think it's a really fascinating twist on the whole

Starting point is 00:04:18 idea of compounding money. You know, it's a sort of, it's a sort of more profound version of it. So he's well worth studying, I think, like most of these investors, he's worth studying. He's worth studying as an investor, but also as a human being because you learn stuff about how to live from the best investors. That's the thing Stig and I can definitely say is that once we met Guy, he is such a giving person, like he would not stop. Like it was just like, oh, here's another person that can help you out. And this like guy, like, how can I possibly repay you at this point? And he wants nothing in return. That's the thing that's just so amazing. But anyway, let's start talking about your book here. So William, tell us a little bit about yourself.

Starting point is 00:04:58 and how you found yourself as a writer really coming into this realm of investment. How did you get attracted to the writing of investors? It's a slightly unlikely and unexpected story even for me, because I grew up in England. And as you say, I went to Oxford. I studied English literature at Oxford. And I moved to New York when I was about 21 and thought that I would be a great novelist or storyteller and would write beautiful long pieces for the New Yorker and would be a sort of artist. And I would get the business section of the Sunday, New York Times on Sunday.

Starting point is 00:05:32 And I literally would just toss it out. I would turn to the book review, which was really interesting to me. And I regarded business and investing and money as kind of crass and vulgar. And I thought, you know, these people who just devote their lives to making money are kind of superficial and they live meaningless lives. And then in my early 20s, I started to invest. I had sold a small apartment that my brother and I had owned in London. So I had a little bit of money, not a huge amount, but I started to invest. And I started to really study investing.

Starting point is 00:06:08 I would read endlessly about mutual funds and the like. And it reminded me somewhat of what had happened to me when I was a kid when I was at about 15 at boarding school. I went to Eaton, which is this sort of very posh, slightly oppressive English boarding school. and I had sort of secretly discovered horse racing and gambling on horses. And I set up a betting account at a local turf accountant, as they're called in England, in Windsor. And I used to sneak out when everyone else was rowing or playing cricket.

Starting point is 00:06:39 And I would go to this betting shop and I would bet on the horses. And initially I made money and I thought, wow, this is fantastic because I'm never going to have to work. And then I discovered that actually I lost and I immediately stopped betting. on horses because I wasn't interested in it for the thrill. I wanted to make money by playing this game. And in a way, when I was in my early 20s and I discovered investing, it had the same kind of thrill and fascination to me.

Starting point is 00:07:07 It was this game. And you thought, well, so if I can be smart and use my brain in an intelligent, thoughtful way, I can actually make money without really doing that much hard work, which I think is what people like Bill Nygrin and John Spee, who we feature in the book also discovered. They were kind of, you know, it was almost an excuse not to have to do things like mowing lawns for $6 an hour. Well, it's a function of probability.

Starting point is 00:07:32 I mean, that's what people don't realize is you go to the track. It's a probability game, like your odds of winning. And when you invest in a company, something, some catastrophic event could happen tomorrow to that business and it could go, you know, completely bankrupt. And that's a probability.

Starting point is 00:07:47 It's a real small probability. It's very small compared to like your track racing. but it's still a probability. And I think a lot of people need to respect the fact that there's definitely a, there's an odds to it no matter how you shake it. I don't care what anyone says. There's definitely an odds. Yeah.

Starting point is 00:08:05 And it's a game at some level. And I think the best investors often are people who don't have any emotion involved in the game. They truly see it as a game. And so then part of what happened to me was that I started, I started to write about investors for various public. So, for example, I profiled Bill Miller for Fortune. I went to the Palmer's and interviewed Sir John Templeton for Money Magazine. I would write about Marty Whitman and his attempt to find a kind of apprentice who could match his greatness. I wrote that for Forbes.

Starting point is 00:08:40 I interviewed Bill Rulain, who was the guy who when Buffett closed his limited partnerships in the 60s. He said to his shareholders, you know, you should invest with this friend of mine, Bill Rulain. and over the next, whatever, 30 years we were going to beat the market by something like four and a half thousand percentage points at the Sequoia Fund. So I interviewed this series of incredible investors, and I became kind of fascinated by this question of what made them special, what they had in common, why this tiny percentage of great investors was able to kind of defy gravity, if you like, and beat the market. And so that became kind of this abiding intellectual passion of my.

Starting point is 00:09:21 But then I would say in the last few years, my interest in investing has kind of deepened as I've got older. I'm in my mid-40s now and you become maybe hopefully a little bit more soulful as you reach middle age. And I started to be interested in these guys, not just as a way of thinking, you know, how do I get rich and be as lazy as possible? I start to think that these guys like Buffett and Munger or Monish Pabri or John Spears or whoever you want to talk about any of these great investors, they're repositories of

Starting point is 00:09:51 tremendous practical wisdom. You know, they figured out certain things about what works in life and what doesn't work in life. And, you know, they're not flawless. There are plenty of them who've, you know, had terrible marriages and legal problems or whatever, you know, I mean, like all of us, they're human. But I think they've figured out a great deal about how to live successful lives. And so I think part of what this book is about is, yeah, how do you get rich? How do you figure out, you know, ways to get rich? but part of it is much deeper than that. And I come back again and again in the interviews to questions about things like, you know, what's made you happiest?

Starting point is 00:10:28 What's given you a sense of fulfillment? What disappoints you? When you look back, what do you regret in the course of your life? Where do you get your strength in moments where, you know, you're going through the ringer and life is not working out for you? And so I sort of, I guess I look at investing in a slightly, different way to most people. I'm fascinated in it as a financial game, but I'm also fascinated in it as a kind of microcosm that teaches you about how to live. If you study and reverse engineer

Starting point is 00:11:00 these very brilliant, very successful people's eyes. Yeah. You also fascinate William about how to make the returns yourself. Like a lot of people would look at someone like Ron Buffett and say, I want to replicate what he's doing. I wanted to make these returns myself or as you as a person do thing, he is probably better than I will be, I will just invest in in Brooklyn Heatherway and then, you know, to sit back, relax and enjoy my family in my life. One of the things that struck me about Buffett, it's interesting that you, you immediately bring up Buffett as we talk about the greatest investors. The thing that really struck me sort of surprisingly was I had always thought Ben Graham was kind of the most important

Starting point is 00:11:41 investing mind of the last century. And actually what you start to see is Buffett is kind of the most important investing mind. But he has this extraordinary influence. And again and again, I would talk to these great investors and they would talk about discovering Graham and they would talk about Buffett. And so it was kind of fascinating to me that actually it may be that the greatest influence in the world of investing truly is Buffett at this point and not Graham, who was his master. You know, I had the same opinion. So whenever I started reading and studying Buffett, I immediately went to Graham because I knew that that was his source of or his foundation of investing. But then the thing that I really had an appreciation for Buffett was the fact that he took Graham's

Starting point is 00:12:24 basically like cigar butt approach, but he really morphed it using Charlie Munger. I know a lot of people know this story, but his ability to basically take that and really kind of change it in a different direction where he was going after great business as opposed the ones that were kind of dying, I think was what really set him strategically apart from Graham and why so many people got such an attraction to Buffett because he kind of took it from a dark, negative way of investing to this really bright and luminous way of investing that had a profound impact on society. And I think that's one of the reasons why so many people make that change in transition. Would you agree with that, William? It's a very interesting point. I think it's,

Starting point is 00:13:06 I think you're right, but I think it's probably slightly unfair to ban Graham. I think I think Graham came up with a couple of very, very profound insights that are still as, and even that is under playing it very significantly. You know, these ideas like the margin of safety that he came up with, it's an incredibly profound concept, if you think, that applies not just to investing, but to everything in your life, you know, this idea that the future is tremendously uncertain, and so you need to build in some kind of margin of safety. And, you know, I was telling someone recently that as I, as I've been teaching my son to drive, if you can call me a teacher of driving since I'm not great myself. I have a 17-year-old son.

Starting point is 00:13:49 And I keep saying to him, you know, remember Buffett, remember Buffett. You need to check in your mirror. You can't, you know, and then you need to look around. You can't just change lane. You know, you've got to have this margin of safety. And I've really internalized that idea from Graham. So I think there are many very profound ideas from Graham, you know, the idea that you don't really want to be yanked around by the market. that the market serves you, that it's not your master, it's your servant.

Starting point is 00:14:18 And so I think there are very profound things that come from Graham. But then, you know, Joe Greenblatt made a very similar point to me that you made about Buffett, about how Buffett kind of added this one twist to Graham, which is cheap companies are great, but if you can find cheap good companies, that's even better. And Joe Greenblatt said to me, you know, that one twist made Buffett the real. richest or one of the richest men in the world. And Joel was saying that, you know, when Joel went to Wharton, right, and he had these professors who kept saying to him, you know, the markets are efficient. And just viscerally, he didn't believe it. And then he discovered Graham, like many of

Starting point is 00:15:00 these investors in this book, you know, it was almost a religious epiphany. You know, he discovers Graham and it changes his mind about everything. And he suddenly has this framework of what he described as a very simple framework to see the world. And then he adds a few years later what Buffett taught him. And so he said those two principles, you know, by marrying Graham and Buffett, really that's how he ended up making, you know, 50% a year returns in his first decade as a hedge fund manager. Yeah. Yeah. And William, I'm actually curious about your own experience because you said like several times that a lot of the people that were really influenced by Warren Buffett. And it was almost like a religious experience that you were having.

Starting point is 00:15:40 have someone like David Winter in the book, who is a fantastic investment himself said that it's like religion. Either you believe in it or you don't believe in it. And you have people saying, I found the intelligence in the best and like, like, really, right? So what was your own personal experience, rebellion? Yeah, you're absolutely right. It really is almost like a, like a religious thing. And Buffett has always said either you get it or you don't, you know, and if you don't get it, you're kind of never going to get it. And so for me, when I started to invest in my early 20s, you know, I would see, I would read these things that would say, you know, you want to have half your money in growth funds and half in value funds. And for a couple of years,

Starting point is 00:16:20 I kind of did that. And in the end, I got to a point where I just had nothing that wasn't value. I mean, for the last 20 years, I've only invested in value stuff. And it just, it just makes intuitive sense to me. I think I'm, I mean, I have none of the investing greatness of the people in this book, but like them, I'm naturally contrarian. I like to go against the crowd. I don't necessarily think the hood has this tremendous wisdom. I understand that indexing is an incredibly powerful thing, and it might even be that I'd be much smarter, just index.

Starting point is 00:16:55 But intuitively, the idea of going against the crowd, being contrary, and buying stuff that's cheap, is very, very appealing to me. I think one of the things that's interesting to me is that when you look at all the people in this book and at most of the great value, investors, they're kind of iconoclasts. They're these mavericks and eccentrics who temperamentally go against the crowd. They question everything. They're kind of deeper thinkers. But I think by nature, I grew up as somebody who questioned everything. And even if you think about the fact that, you know, as a 15-year-old, I was sneaking out to gamble on the horses rather than, you know, going to play

Starting point is 00:17:35 cricket or rowing in England, you know, I was trying to figure stuff out. And it may have been kind of roguish, but it was it was me trying at a very early age to think so so how do you beat the system and you know by using your intelligence and when I look at someone like Joel Greenblatt or Monash Powerbride these are guys who who who are kind of masters of beating the system through through using their intelligence and it may be that for for almost all investors it's not a smart thing to do that you're much better off indexing but I do think there's this tiny group of investors who kind of show us the way, who show us that if you're really smart and you get your emotions under control, you can win the game. And that's what fascinates

Starting point is 00:18:23 me. And maybe, you know, maybe it's kind of a mirage, you know, that I keep chasing after this, you know, this possibility that I'm going to be that tiny percentage that beats the market. But, you know, over the years I invested with Guy, obviously, who's done very well, who's beaten the market by hundreds of percentage points over the years. This is Guy Speer. I invested it. For a long time, I invested with Marty Whitman. I had a separate account with Marty. And, you know, I did it right off to the tech bubble burst. And everyone was sort of miserable about stocks. And I set up this account with Marty because, you know, he was a great bottom feeder. He was a great, a great guy at buying busted tech stocks and other things like that. And then, and the other guy,

Starting point is 00:19:10 with, who I'm still invested with, is a very brilliant guy who I was introduced to by Bruce Greenwald, the famous professor of value investing at Columbia. And that's a hedge fund manager in Boston, a guy called Andrew Weiss, who hasn't had a losing year in 24 years with his hedge fund. And that, to me, you know, he kind of saved me during the financial crisis because Guy had a terrible time and, you know, really had a bad year, like many of the sort of fairly concentrated value investors. And why made 1%? And so, you know, this is why I sort of still cling to this idea that even though there's a hell of a lot of logic to investing in an index fund, actually, you get tremendous benefit, you know, by being a long-term contrary in value investor if you

Starting point is 00:20:01 have the temperament for it. 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 high. height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year bringing together activists, technologists, journalists, investors, and builders from all over the world, many of them operating on the front lines of history. This is where you hear firsthand stories from people using Bitcoin to survive currency collapse, using AI to expose human rights abuses,

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Starting point is 00:24:17 that you're talking about with him. These guys are very smart. They have dedicated their life to understanding like fundamental aspects, like accounting and just this hardcore. Like they are digging in this stuff for hours every day. And I think a lot of people don't necessarily have that respect for, for the people they're going against if they really are trying to beat the market.

Starting point is 00:24:37 If you're a person who's just like trying to do it like one day out of the week or whatever and you're just really kind of not into it, I mean, really into it. I would argue you really do need to stick with an index. Would you agree with that based on all the interviews you have? I think it's a very important point. I think you're absolutely right.

Starting point is 00:24:57 You know, early in my career as a finance writer, I went to the Bahamas as I was mentioning to, So John Templeton. And I, you know, I was asking him for advice myself. And he said to me, you know, you have no business buying individual stocks unless you're a professional, basically. He said, it's such hard work. You know, you need to be tremendously diligent.

Starting point is 00:25:19 And he said he didn't buy individual stocks anymore at that point. I guess he was in his 80s at that point. And, you know, I mean, a lot of people would disagree with this and would say, no, no, I do fantastically by doing individual stocks. And, you know, Jean-Marie Eviot said to me he doesn't really manage his own portfolio anymore because he doesn't have a team of analysts who he can send out to do the research since he's now in his mid-seventies, I guess. And he's more sort of emeritus figure at his fund business. Bill Nygren said to me that he said there are plenty of great investors who kind of trying to go half time later in life. And he said, it's always a disaster.

Starting point is 00:26:00 He said the investment business is so difficult that either the throttle is fully on or it's fully off. And so, you know, I think you do have to be very intensely involved to do well. But that said, I think there are certain advantages that an individual investor might have. Because if you think about it, the pressure that these guys are under, the professionals to perform every quarter, you know, there's tremendous institutional pressure from their bosses saying, you know, look, you've underperformed now for three years. and how come you don't get this new paradigm of investing in internet stocks, which is what happened to Eveyard. Don Yachtman had the same way his own board tried to fire him, and they said, you know, you're no longer investing in accordance with the principles of your own fund. And so Yachtman at the time had probably 10% of his fund in Philip Morris. This is in the late 90s.

Starting point is 00:26:51 At a time when I think it was trading at a P.E. of six and had dividend yield of about six. And, you know, he's getting fired virtually and managed to survive this war with his. directors, your shareholders bail out at the worst possible time. So if you're an individual investor and you have the right temperament, you do have an advantage in that you can stick with it, but you need an extraordinary temperament to do it. You know, so all these guys are handicapped by the short-term interest of the people that are giving them money. You know, you look at guy and you look at, he's got, he's got a community of people that trust him and our value investors and understand that it takes time and you might not have results right away. But

Starting point is 00:27:30 I think for a lot of these other hedge fund managers, especially the ones that, you know, that you have in the, that you display in the book, these guys are totally handicapped by the people that are invested with them with their short-term interest. Right. And this is part of the genius of Buffett, right? Yeah. Because of Buffett realized that by having a corporation, that he had captive capital, that you, you know, he wouldn't be subject to people panicking and bailing out. And so I guess that's my question. Why do you think more of these guys don't adopt? that model. Now, I know Monish Pabri is going to be doing that this year where he's starting his own

Starting point is 00:28:04 corporation, but why are these other guys not doing that? I don't understand it. You know, one of the things that's fascinating about Monash is that he says often in life you have, the best ideas are all out there, and yet nobody does it. And he said when he started off investing, he studied, he started Buffett obsessively. You know, Monish has this sort of obsessive brilliance to him where he just sort of, he started something. and kind of takes it apart, dissects it, and understands it perfectly, and then mimics it. And he said he looked around the mutual fund world, and he said it was just staggering that all of these guys could see how someone like Buffett had done extraordinarily well, not least

Starting point is 00:28:46 by having a very focused portfolio. And they would own hundreds of stocks, and they would own hundreds of stocks that were overvalued. And so he said, you looked at this and you just knew that they were toast. And so I think it's a really fascinating idea that you can, the fundamental ideas about how to get rich in investing are not that elusive. I mean, we kind of understand that, you know, yeah, there are a lot of different ways to skin the cat. You can get rich a lot of different ways. But there are basic tenets of investing that we kind of know work. And yet people continue to panic, to bail out at the worst time, to buy high and sell low.

Starting point is 00:29:25 And so I think what I came to realize is that the challenge is as much temperamental as it is intellectual. That you can, you know, this is one of the things that Bill Miller said to me is that during the financial crisis, he discovered that all of his analysts who claimed to be contrary and value investors were not value investors at all. There were value investors so long as it worked. And in the moment when it ceased to work and really ceased to work when you were getting killed, they suddenly just didn't have the temperament for it. And so I think it requires, you know, to do the right thing, to apply investing principles that work,

Starting point is 00:30:03 not only requires a kind of intellectual understanding, but actually a sort of wiring to be able to do it. I think the thing that Monish and Warren both share is the fact that they look at things through the lens of, I'm an investor and I'm also a business owner, and they have that business sense. And whenever I think you may, mesh those two together, you get such a better outcome. And I think that's one of the brilliance

Starting point is 00:30:28 with Buffett and Monash. But I want to explain something to the audience just so that they understand it in case they didn't understand what we were talking about there. So when we were saying that Warren Buffett, what he's done is he's basically flipped the hedge fund model on its head. So whenever a business becomes overvalued in the hedge fund realm, that's when everyone is giving you their money. And that's when you don't want it because you can't employ it properly. And then whenever the market crashes, everyone wants to take their money away from you, and that's whenever you need it because you're able to buy stocks at really cheap prices. So it's very hard for a hedge fund manager to be successful because they're getting the capital at the wrong times. And so what

Starting point is 00:31:06 Buffett did is he flipped that model on its head and he incorporated a business, which he bought Berkshire Hathaway, and that's a whole other story. But under Berkshire Hathaway is where he's making all of his stock picks. So now if you have a person that wants to sell their stock in Berkshire Hathaway, guess who can buy it back at a cheaper price? Well, Buffett can. He can actually buy back the shares from the people that are selling it at the wrong time. And then if the market takes his company extremely high, he can actually sell more shares on the open market,

Starting point is 00:31:37 raise some cash and keep it within his company. And so he's basically taking that model and flipped it on its head. And that's why we were asking, William, why do more people not do that? And it gets to a broader point, which is something that Guy Speer discussed with me, a tremendous amount when we were working on his book, the educational value investor,

Starting point is 00:31:54 which is that how your company, your investment firm is structured, is actually tremendously important. You know, people tend to focus on this issue of, you know, is the stock cheap and stuff like that? It doesn't really matter if your shareholders are going to bail out at the worst possible moment, so you're not going to have any cash to invest anyway.

Starting point is 00:32:14 And this is what's happened with a series of the greatest value investors is that in these moments, of crisis, their investors just panicked and ran. And so Bill Miller, who I'm a great admirer of, who I think really is an astonishing mind, brilliant, brilliant man. Bill Miller found that his assets went down 90% from peak to trough. You know, he initially was managed $70 billion. He said to me that that 90% figure turns out to be quite a standard figure. He said that the same thing happened to Bob Rodriguez. I know that Yachtman, at certain points had all of the money flat out of his fund.

Starting point is 00:32:55 Jean-Marie Evayette during the late 90s tech bubble when he underperformed for three years in a row drastically when everyone else was getting rich, had, I think, his assets went down from $6 billion to $2 billion. So in exactly the moment where there's tremendous opportunity, your shareholders tend to bail out. And so this is a perennial problem. And it's, you know, one of the things that Joe Greenblatt has done,

Starting point is 00:33:20 which is really fascinating because Greenblatt is a game player, is he's trying to figure out how do you create a system where you're not sabotaged by kind of the foolishness, stupidity, panic of your investors? And so originally what he did, he's done in a number of ways. Originally what he did was he set up a hedge fund that was very, very concentrated, and he and his longtime investment partner did unbelievably, well, and after five years, they returned half of their shareholders' money. And after 10 years, they returned all of their shareholders' money. So then suddenly, they didn't have to worry at all

Starting point is 00:34:00 about their shareholders panicking. So that's a, I mean, that's a very luxurious thing to be able to do. But it was so that he didn't have to deal with the emotions of his shareholders, because running a concentrated portfolio, sometimes he would find that in a matter of weeks, he lost 30, 40% of his money. And he could deal with it because he knew that the stocks were incredibly cheap, but his shareholders just couldn't. And so then he's done another thing more recently, which is a different way to solve the same problem, which is in 2012, he set up a series of mutual funds and hedge funds that own something like 300 very undervalued stocks. They have long positions in those stocks, and then they short 300 very overvalued stocks.

Starting point is 00:34:43 And so what he's trying to do is sort of remove a tremendous amount of volatility and emotion from the process by having a sort of systematic approach. And he said to me, you know, the returns are not going to be as good as the returns of my concentrated hedge fund. But it doesn't actually matter

Starting point is 00:34:59 because the shareholders are going to be able to stomach it more likely to be able to stomach it because it won't have that volatility. So I think, you know, to be a really good investor, you really need to figure out this emotional, psychological side of investing, you know, not just, yeah, I bite into this idea

Starting point is 00:35:19 that value investing and being contrarian is really smart. You actually have to figure out how am I going to respond when my portfolio is down 50 percent and simultaneously I get laid off because, you know, the business world is imploding too. You know, are you still going to be able to be rational? You're still going to be able to buy it? And that's what these great investors have is, is not just the intellectual understanding of these concepts, but the kind of visceral psychological strength to be smart and opportunistic at those moments of crisis. And William, I can't help asking,

Starting point is 00:35:53 is that also how you evaluate who should manage your money? Is that not by only looking at the track records and their philosophy, of course, but also how they manage through the last crisis, for instance? It's a really interesting question, because, you know, how do you really assess this? I mean, you know, I mean, think about it. When someone goes through a divorce, for example, there have been these studies that show that money managers

Starting point is 00:36:18 returns really are affected by a divorce. How do you know what your money manager is going to go through? Not just a financial crisis that they're going to be able to deal with, but they might have a divorce, they might have a sick kid. You know, Donald Yatman had this extraordinarily, wrenching thing where his daughter had had a terrible stroke and, you know, was in in a locked-in state where she couldn't move anything other than her eyelids. And, you know, so how do you, how do you guess whether your money manager is going to have the psychological strength to deal

Starting point is 00:36:57 with hardship? So I've had this debate for years with this very close friend of my Jason's wife, who's a brilliant columnist at the Wall Street Journal, a personal finance columnist. And Jason, who's interviewed more great managers than anyone on earth and is a brilliant mind in his own right indexes his own money and I've always said to him you know you're just smart enough to come up with a wrong solution you know you're one of the few people who actually could beat the market and and yet you end up indexing and he's always said to me you know yeah maybe you can identify the guys who can beat the market but you know then they're under so much institutional pressure so much pressure from their bosses so much you know there are so many human

Starting point is 00:37:37 things that can go wrong. And so I think it's a perennially fascinating debate, you know, that even if you pick the right guy, will he continue to be the right guy? And I haven't truly resolved this. And, you know, we can we can look back at someone like Buffett and say, after all these years, yeah, he was the right guy. But, you know, I didn't invest with him 15 years ago because I thought, well, he's already too old. You know, it's sort of like when I was a teenager and I, the Rolling Stones did a reunion tour and I thought well they're all in their fortits I'm not going to go see them I missed it and now that I'm 46 I'm like God I wish I'd gone to see the Rolling Stones and in the same way you know I wish I'd wish I'd not thought well you know Buffett is is you know it's the law of large numbers he's managing too much money now and he's kind of old I kind of missed it you know so these these questions of evaluating greatness and and writing it and sticking with it a tremendously difficult. Well, I don't mean the boast, but I did see the Rolling Stones.

Starting point is 00:38:40 Now I'm jealous. All right. Hey, I'll get in the next question. And they were not as good as what I thought they'd be. So I'm just going to throw that out there. So you don't have to feel so bad. You should have invested with Buffett instead, you know, and skip the rolling stones, put the money for the tickets in Berkshathaway B shares.

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Starting point is 00:42:15 This is a paid advertisement. All right. Back to the show. You're right. I should have. All right. So the question I got for you, I was immediately captivated by the first person that you mentioned in the book, Irving Khan, and the picture in the book, I love that

Starting point is 00:42:31 picture. And your photographer was amazing in this book. He is a very talented individual. But the picture of Irving, he is sitting down. He's very old. And unfortunately, Irving's passed away since the interview. How old was he whenever you interviewed him, William? I think it's 108.

Starting point is 00:42:47 In the photograph, he's 108. And, yeah, we really haven't focused sufficiently on my extraordinary partner, Michael O'Brien, who really is the reason why the book exists, because he started five years ago taking these incredible photographs of these great investors. And he started with Charlie Munger. and since then he's photographed all these guys like Buffett and Bill Ackman and Irving Khan and Joe Greenblatt. And he's just extraordinary. And he has this kind of ability to get very up close to these people and to get them to engage with the camera.

Starting point is 00:43:24 And one of the things that he does is he doesn't talk during the photo shoots. He just sort of motions with his fingers, you know, to raise your chin a bit or turn to the right of bit. And so I think the subjects, whether it's Buffett or Munger or any of these guys, they see his intense engagement. And they're very intense. So when you look at someone like Buffett in his photo, you know, he's looking directly at you. And there's a sort of aliveness to him. And so there was a particular challenge for Michael O'Brien, the photographer, when he was taking this picture of Irving Khan, which I talk about in the introduction to the book, which is that Irving kept nodding off in between the show. shots. And Irving, you know, he was 108 years old and he was tired and his eyes were starting

Starting point is 00:44:09 to fail and his hearing was starting to fail. And his grandson who works for Khan brothers, who's an analyst at the family firm, who's a wonderful guy, Andrew Kahn, who's an analyst there, was sort of standing outside the frame asking Irving Kahn, tell him about the stock that you bought in 1928, you know, or the stock that, you know, or the stock that, you know, or the stock that, you shorted magma copper, which you shorted during the, you know, the crash of 29. And so Irving sort of wakes up during the photo shoot because he's telling this wonderful story of the first stock that he bought in 1928 to 1929. And so it captures sort of the aliveness of this extraordinary man.

Starting point is 00:44:54 So I had a similar challenge when I was coming to interview him because Andrew Con, the grandson, just said to me, he's too sick, he can't talk to you. And I was sort of in despair because, you know, I didn't want to do a potted thing where I went to the clips and read what everyone else had said. And so we ended up coming up with a solution which worked to a degree that I almost couldn't have dreamed of, which is that I wrote out a series of questions, probably about six questions. But they were sort of deep questions. There were questions I really cared about. So things like when you look back on the 108 years of your life, what do you really? really proud of what you know what's the key to a fulfilling life and not just a not just an extraordinarily

Starting point is 00:45:38 long life and then his grandson Andrew took these questions to him and over several days interviewed his grandfather on my behalf and wrote down the answers and sent them to me and and there was something about it I got that email and and you know usually you'd be disappointed that you hadn't interviewed the guy in person and I was tremendously moved by the email and it And, you know, one of the things that he said, I mean, there was tremendous investing advice. There was tremendous life advice as well. So I'll share both if you don't mind. So the first thing I said to him, you know, what's the single most important piece of financial advice you can share with our readers?

Starting point is 00:46:18 And he said, safety. He said, considering the downside is the absolute most important thing you need to learn as an investor. And he said, you know, you need to deal with this before you think about making profits. And he had this lovely image. He said, everyone's in such a hurry. He said, you know, they can make a horse gallop. But can they see where they're going? And he said, if you slow up and you don't take crazy risks and you don't lose money

Starting point is 00:46:46 and you keep your eye on the downside, you're going to do way better than your gambler friends in the long term. And I, this to me was a very profound idea because for one thing, I had made one incredibly stupid investing mistake in the course of my investing career. I'm sure I made more, but this was a spectacularly stupid one, where I had invested in a private company that was run by a friend of mine that had incredible technology. And, you know, initially it shot up and I was thinking I was the smartest guy and I felt like I belonged to this exclusive community of very, very smart people, you know, Goldman Sachs invested at something 40 times the valuation that I invested in. And I just thought,

Starting point is 00:47:28 so smart and then it just kind of imploded and and I sort of I sort of did a lot of soul searching about it afterwards and I realized the degree to which my ego was involved and that if I'd been if I'd had my ego under control more and hadn't cared more about impressing other people or you know being in with a with a smart rich set whatever I would have had a lot more money and you know I I'm you know I'm a writer I'm not a hedge fund manager and so so So making stupid mistakes counts for me. You know, I, you know, I still have to pay for my kids to go to college and stuff. And so, you know, the things that I've done really well over the years were the things where I just quietly invested with value guys and I stuck with it for many years.

Starting point is 00:48:13 And so listening to Ovin Khan, it was like one of those things where you hear something that you know already, but when you hear it from someone who's 108 and who's lived through World War II, Vietnam, the crash of 29. and you hear how he survived and prospered. You think, man, I wish I'd been smart enough to learn that before, but I'm pretty darn glad to have learned it now. The other thing I would say, I was mentioning that he gave very important life advice. And this is a recurring theme in the book. We're trying not just to tell people, you know, here's how you invest, here's how you get super rich.

Starting point is 00:48:47 You know, I want to learn from someone like Irving Khan, what gave you pleasure in your life? What gives you pride? What gives you satisfaction? And he said, look, it's a difficult question. and it's going to be different for everyone. But he said family is very, very important. And looking back, what really gave him pleasure

Starting point is 00:49:04 was family, having healthy kids, building con brothers, this firm that's kind of great. And, you know, it's not a huge firm. It has about a billion dollars in assets run now by his son, Tommy, who's also in his 70s. But I took that very much to heart. You know, it's very easy to get carried away and think that everything is about getting rich.

Starting point is 00:49:26 And, you know, you look at someone like Irving Kahn and he never was flashy, he never was buying fancy boats and big houses. You know, his son, Tommy, would take him to a fancy French restaurant and his dad would just order a burger. You know, and the only thing he spent his money on really were books. And so I, you know, when you look at someone like Irving Kahn, is he the greatest investor? Did he build a massive fortune? Did he average 40% a year? I don't really think that's the measure of his greatness. I think there's a kind of life wisdom that you get from him that that's very, very important.

Starting point is 00:50:07 Two things that I was, I first want to talk about your idea that you were saying here about family, because I think everybody knows that deep inside with their own intuition. I'm just amazed at how often I ignore my own intuition. and I think everybody else probably does it too where you know what the right answer is. You don't have to ask anybody. You don't have to read about it in a book. You already know the answer.

Starting point is 00:50:30 And I just wonder, I ask myself this question. Like, if I started listening to my intuition more, every time that I know those answers, just imagine like how much more profitable and fruitful we had all become if we just actually listened to our own intuition. It's a very profound idea. And I, you know, look, I started all. offers a sort of know-it-all cerebral intellectual who felt like you can you can crack every nut

Starting point is 00:50:56 with your brain. And increasingly, I've become more intuitive and perhaps less rational. And I think, you know, I'd like to think you get wiser as you become more intuitive and less rational in a strange way. And I, and I, Guy Spears said to me a fascinating thing about Warren Buffett at some point. He said, he said that he's pretty convinced that Warren actually makes all of his investments intuitively. And that there's, you know, I mean, there's the, you know, Malcolm Gladwell talks about this, right, with thin slicing that you, you know, you don't really know what's going into an intuitive decision. You know, there's tremendous amount of experience and judgment and rational activity going on. But I went to Howard Marks, who's also really a genius. I mean,

Starting point is 00:51:45 Howard Marks are a wonderful, wonderful mind. And I said to him, do you think that's true about Buffett, that he makes his investment decisions intuitively. And Marx agreed, and Marx, who's utterly brilliant, agreed that he basically is intuitive too. He said in his early days he thought that everything was down to his intellect, that that was how he was doing anything. And increasingly, it's intuitive. And so I think there's this very profound balance, right, where you want to think as dispassionately and rationally as possible. But you don't want to ignore that message inside you. And I once spent a lot of time interviewing Jeff Vinnick when he was managing, I guess it was after he had managed the Magellan Fund, but it's the biggest mutual fund in the world.

Starting point is 00:52:27 And Vinnick said that when he had made an investment in a very cheap stock and it made him physically nauseous to own it, he knew that it was a good investment. And Soros, you know, listened to the fact that he got tremendous back pain as the sort of signal that something was wrong with his portfolio. And so I think for all of us, you're very wise to be connected to your sort of intuitive sense while obviously not disabling your sort of rational analysis. I mean, you don't want to be in the middle of a financial crisis and saying, I just feel good about myself. You know, you want to be sort of, you know, brutally analytical at the same time. Absolutely.

Starting point is 00:53:12 I always quote this thing to my kids. There's a wonderful line from E.M. Forster. where he says, only connect the pros and the passion, and both will be exalted. And I think that idea of connecting the pros and the passion applies to everything, right? It's the intellect and intuition. It's everything, really. Yeah, it's really funny. Stig and myself and one of the people that writes for us, her name is Netra.

Starting point is 00:53:40 We all three took a personality test. And one of the things that it does in the personality test is it weighs you are sensing versus, your intuition. And so we all took that and it was really funny to see the results. And one of the things I want to highlight is Bill Gates, Warren Buffett, Steve Jobs, those guys all on these tests, all sensed very high on the intuition piece of the test. And intuition versus sensing is one of the variables of it. So, due to the length of this interview, we had cut it into two different episodes. So make sure that you guys join us next week for the second part interview of William Green. Now we are the part of time in the show where we answer a question from the audience and

Starting point is 00:54:19 I'm really looking forward to this question that comes from our ref. Staying in Preston. Thank you so much for everything, guys. Now here's my question. Monish Paprai in his book highly recommend the little book that beats the market and he believes if he used a magic formula as you show strategy, you can get good returns. In fact, he uses magic formula to find good companies. When you dig deeper, you find great people like Tobias Carlythe, who was an important.

Starting point is 00:54:44 your show and he believes these strategies only work if you avoid judgment ignoring management and past performance is necessary here. I want to know if we can use these very simple strategies and simple ratios and numbers and get better returns than those experts who use judgment. Thank you so much. I really think that this is an insightful question and I'm really excited about it because I'm really digging into this form of investing right now. let's just call the systemized investing. So what you're talking about is that you are following the same approach or the formula,

Starting point is 00:55:22 and that's just how you invest. Now, let's just stick with that for a moment, because one of the key things about using this formula is that you need to keep calm and keep investing all the time. So even though you see that the market is dropping and you see that your portfolio is dropping even more, you should still be invested. And one thing I want to bring up is how would your portfolio do if you are following the magic formula? And Joe Greenblatt, he actually talks about that because my perception was that these companies were more risky because it was, you know, smaller companies, an odd-looking company and they're very, very cheap, and usually they have very bad prospects.

Starting point is 00:56:07 What actually turns out to be is that on individual basis, yes, it seems like they're more risky. there is a bigger chance of a default. But if you look at it as a portfolio, they're actually less risky than the market. So they actually have fewer down years. And just to give you some stats on that, what John Greenblatt found was that when the market is going up, this is really where you'll make you money.

Starting point is 00:56:32 You'll see that increased by 150% compared to 100% of the market. And then if the market drops, it will only take 95% of that drop. Now, one thing or one general criticism using this approach is, of course, that it's back testing. So when we're looking at all this and we're saying, yes, it worked in the past, do we know if it will work in the future? We don't know. But again, I don't think that that is especially valid when it comes to this formal investing, because you could say the same thing, Warren Buffett, or you can say the same thing with George Soros.

Starting point is 00:57:07 Will he still be beating the market? And we don't know the answer to that. But I think there's a lot of good arguments why this trend should really outperform the market in the future. And the first thing I want to say is that you really find very cheap companies. So basically this approach is taking the best thing from value investing, which is finding very, very cheap companies. And the other thing is that you don't use your own judgment. And John Greenblatt, he actually did some analysis on that himself. And he figured out that even though people were getting the same list of companies,

Starting point is 00:57:41 that followed the criteria of the magic formula, if people had the chance to look at it themselves and then decide which companies they want to invest in, they actually underperform the screen. And that was most likely because they were taking away what appears to be the worst companies, but, as consistently, that was the companies that they were making their best returns.

Starting point is 00:58:04 And actually, Joe Greenblatt, he's very, very smart. He tried it himself, and he also figured out that he couldn't beat his own formula. So, yes, I think there's a lot of good things to say about it. But I also want to say that just to follow up on the Jack Swagger book we had last time on Hats Fund Wizards, I think it's very important if you use this strategy, that you are very consistent and also that it suits you. I think it requires a certain quality for a person if you want to say, hey, I don't

Starting point is 00:58:38 analyze anything. I simply look at a formula. in times when things are bad, I think this is really a hard approach to stick to. So yeah, that was basically my response. But I do want to say one thing, though, R.F. If you ever decide to start using this approach, I would be extremely interested in hearing how things goes and what your experiences are. So if you ever decide to do that, please send me an email.

Starting point is 00:59:08 Again, thank you, Rif, fantastic question. we'll make sure to send you a free-signed copy of our most popular book, the Warren Buff of an Accounting book, and we're really looking forward to next week's show and the rest of the interview with William. So that concludes our episode for this week. We will be with William Green next week for the second part of our interview, and we'll see you guys next week.

Starting point is 00:59:29 Thanks for listening to The Investors Podcast. To listen to more shows or access to the tools discussed on the show, be sure to visit www. www.theinvestorspodcast.com. Submit your questions or request a guest appearance to the Investors podcast by going to www. www.com. If your question is answered during the show, you will receive a free autographed copy of the Warren Buffett Accounting Book. This podcast is for entertainment purposes only. This material is copyrighted by the TIP Network and must have written approval before a commercial application.

We Study Billionaires - The Investor’s Podcast Network - TIP 038 : The Great Minds of Investing - Part I (Investing Podcast)

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