We Study Billionaires - The Investor’s Podcast Network - TIP161: Warren Buffett, Charlie Munger w/ Renown Author Roger Lowenstein (Business Podcast)

Starting point is 00:00:00 You're listening to TIP. One of the most exciting parts of doing a podcast is when we have the opportunity to interview a guest that we're starstruck to have on the show. And today's guest definitely fits that description because he's the author of the national bestseller on Warren Buffett and numerous other books. The author's name, I'm sure, many of the people in our audience know, is Roger Lohenstein. And in today's interview, we talked to Roger about two different topics. The first is obviously Warren Buffett. and what Roger learned from starting the best investor of all time. And the second topic is all about the Federal Reserve.

Starting point is 00:00:35 Recently, Roger published a book called America's Bank, and it's a detail outline of how and why the Federal Reserve was founded. So, if you're ready, let's hop to it. You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. All right, how's everyone doing out there? Preston Pish with you from Bel Air, Maryland, and Stig Broderson from Seoul, South Korea. And today, like we said in the introduction, we have Roger Lonestein with us. And we are so excited to have you here, Roger. Thank you so much for taking time out of your busy day to be with us.

Starting point is 00:01:25 It's my pleasure to be here. So, Roger, you're the biggest authority that I found in writing about Buffett. And Stig and I have both read your book, Buffett, The Making of an American Capitalist. And I can personally say, This is my favorite biography on Buffett. So I'm curious, just as a fan of your writing, talk to us about Warren Buffett. What got you so interested in him to write an entire book? And I mean, you really covered him in this book. What captivated your attention to do that? You know, I had followed him since, it's hard to remember now, but late 70s, early 80s,

Starting point is 00:01:59 we owned a little bit of his stock in the family and used to get his annual reports and read them with, a whole lot of interest and frankly admiration. And of course, we weren't ignorant of the fact that the stock seemed to be rising. You know, we'd have discussions around the kitchen table. Gee, it's 200 bucks a share. Can I go higher? It's $400. Should we hang on?

Starting point is 00:02:23 And, of course, his wisdom was always that it's not the sticker price. It's the intrinsic value of the business and the per share of value and the number itself is just a number. in the late 70s that I got a job at the Wall Street Journal as a reporter, came out of school, and by the late 1980s I was actually writing the herd in the street column for the Wall Street Journal, and that's a column where they, at least in my day, you'd size up a stock, a trade of security every day, and get some analysts to tell you that it was either too expensive and advise your readers to sell it or that it was cheap and they ought to pile in and buy it. And it struck me that the interviews I was getting and the reasons from these analysts were so short-term.

Starting point is 00:03:08 And they felt so far short of the wisdom and understanding of markets that I was getting each year in the annual reports from Buffett. And I thought, you know, he really had a story to tell to the American investing public. This was in the very early 90s. Buffett was not well known then outside of Wall Street, but within Wall Street, he was certainly recognized already the greatest probably investor of his generation. And then in 1991, there was a scandal in a Wall Street firm, I guess we've heard that one or two times since, firm of Solomon Brothers. And John Goodfriend, who ran the firm was, I guess, a friend of Buffett's, and Buffett had owned a little bit of the preferred stock in Solomon.

Starting point is 00:03:54 Good friend called Buffett up. You know, I'm stepping down. A good friend hadn't handled the scandal well or wasn't implicated. So Buffett ends up running this Wall Street firm. There was a lot of headlines about, you know, Omaha boy goes to evil caverns of Wall Street. And suddenly I realized that this guy who I knew a lot about, at least, you know, something about, was very much in the news. So I thought that'd be a very good trigger to pitch a book and thank it. Wow.

Starting point is 00:04:18 So I'm curious. You found him in the 70s, which is, you know, that's kind of unheard of for people that are huge Buffett fans like myself to find. him so early in the career. Was it just serendipity? What was it that you were able to find him so early? We were neighbors. My folks and particularly my father, we were neighbors of the guy named Jerry Orans who had gone to school with Buffett at Penn. And Jerry used to tell my father, he ought to invest with him. And I think dad would ask him, what else? And Jerry would basically say, you don't need anything else. Just give it all the war. And dad also, he was a lawyer, first part of his career. career had a couple of interchanges with Buffett actually on the other side of the deal and trying to persuade his client that the business that Warren was selling was probably

Starting point is 00:05:06 not a business he wanted to buy, but Warren's a very good salesman. He got the soft sell down to a tea, and I think dad came away wishing he'd been on the other side of the table with Warren. So there were a few points of contact. Wow, that is so cool. You're exactly right. He is such a soft seller. He's so delicate in the way that he makes the person feel like they have an option.

Starting point is 00:05:30 Deep down inside, you know he's totally leading them in the exact way that he wants them to go. It's hilarious. Yeah, and by the way, I'd advise people with an idea to pitch to Warren or maybe they want him to contribute to their golf charity or something. This also doesn't work with him. These conversations where you make pleasantries for five minutes and then say, hey, Warren, I was thinking it'd be great to have you on the board. he sees these things coming. It's like he can see around a corner. And he's unique in the things he does are precise the things he wants to do,

Starting point is 00:06:02 not the things that other people recruit him to do. But no approach is going to work with him better than just a direct approach. Take 30 seconds if you get him on the phone and ask him if he'll do a favor. But trying to sweet talk him, sneak up on him, not going to work. He's been there. As he says, he's always getting these calls where people say, with my idea and your money, we can do wonders. Oh, my goodness.

Starting point is 00:06:24 Well, you know, a master at the soft sell can probably smell a soft sell really quickly. Exactly. It's really interesting that you would say this, Roger, because it's a very good transition into my first question. A few people have been studying Warren Buffett as well as you have. What do you think is the most important thing that people don't know about him?

Starting point is 00:06:45 I think the hardest thing to get about Buffett and the hardest thing to get about value investing. There's no formula. Buffett and his friend Bill Rowan. I can't remember which he said it, but they would quote it. You either get this in the first five minutes that's explained to you where you never get it.

Starting point is 00:07:01 There's no computer program that can tell you what the next six best stocks are. There's no, you know, dogs of the Dow or secret formula. It's part art, certainly part science, and that you're evaluating securities based on their reported numbers. But there's also an instinct,

Starting point is 00:07:17 but it's an educated instinct. It's the instinct based on years of appraising companies with making them with similar dynamics, but every company has its own dynamic and its own period in time. So if you're looking at Uber, you might be looking at other companies that had network effects

Starting point is 00:07:36 that we're trying to disturb a settled industry like the taxi cab industry. But you wouldn't find one exactly like Uber and has existed before, and that's where the art side of it comes in. And since you're ultimately making a decision, and this is where I really get to Buffett, you're relying on your own judgment and not on what the stock market's doing every day. It's not about whether the stock has been going up or down.

Starting point is 00:08:00 It's where you think the intrinsic value is going to be, meaning the cash flow generating power in five and even 10 years. Buffett holds investments for 10, 20 years. If you're holding for that time period, what they're saying on CNBC is irrelevant, what the Fed's going to do is irrelevant. I just had this discussion with one of your competitors, so to speak, who said, well, don't you have to know what the Euro's going to do? Seriously, I said, you've got to be kidding. If you'd bought Starbucks 20 years ago and you'd been right on the Frank, it wouldn't have mattered. If you'd been wrong on the Frank, it wouldn't have mattered. All that

Starting point is 00:08:34 mattered was that you could see that there was a company that had been able to build a brand for premium coffee drinks, you know, what the exchange rate was going to do, what the Fed was going to do, whether it was going to be war in the Middle East. There's probably been three of them since then. None of that mattered if you got the basic long-term decision about the company right. It takes a lot of, and I come back to Buffett again, a lot of self-confidence to ignore all that other stuff. And that's really his special quality.

Starting point is 00:09:04 He's more able than any investor that I know of to say, I think this is going to work in the long term, and everything else is shut to decide, you know, market forecasts, market trends. He's buying shares of businesses to hold. So let me ask you this. Since you, I mean, you identified him very early on as somebody that you wanted to invest in, somebody that was worth watching, somebody that was worth writing about. If you had to make that call again today of who the next Buffett-like business person in America or anywhere in the world for that matter, who is that person? So like I think Jeff Bezos,

Starting point is 00:09:41 Bill, I'm curious to hear your thoughts as a person who... I think Jeff Bezos is the singular businessman of our era, you mean of his generation. I wouldn't say he's the Warren Buffett of this generation because he's not a capital allocator. There's no one business that Warren does, I guess really the insurance business you'd have to say, but even there he has people underwriting the policies.

Starting point is 00:10:06 Warren's singular unmatched skill is allocating capital to companies and managers who do run business such as Jeff Bezos. I would say that Jeff is the John D. Rockefeller of his age, someone who has competed so relentlessly as to Rockefeller basically drove everyone else in his business either into merging with him or going out of business. I'm not saying that Bezos is an illegal monopolist as Rockefeller was convicted of, but he's clearly the greatest competitor and the hungriest competitor of the digital age. Can he pick stocks?

Starting point is 00:10:45 I have no idea. And Buffett talks about circular competence. And there are other things that Bezos does so well that he sticks within his circle of competences, which is electronic retailing and spin-offs now to, as we've seen, physical retailing to Whole Foods. In terms of, you know, the next Buffett, you know, there are a half dozen investors. I really, really, really respect. I think a Buffett is really a one-off. You know, he's been doing this since 1956.

Starting point is 00:11:15 That's 61 years. You know, he's had top drawer results for 61 years. If you combine a Buffett's record with his endurance, with also his skill as a manager running this conglomerate with 70 companies, with his larger role in the American business culture, has really become the teacher of business and investing for his student annual report readers and now listeners on all the shows he's interviewed on. He's created a role that never existed, and I think there's not going to be another one.

Starting point is 00:11:49 And interesting, I saw sides of this way early in his career before anyone had heard of Warren Buffett when he was in a fraternity. Actually, when he transferred to maybe this was at Penn, the first school he went to, his fraternity. brothers used to have him stand up against the wall and they'd pepper him with question just because they liked to hear his answers. And then a few years later when he was a young investor, he'd go to these dinner parties in New York and they'd have a kind of a ritual, a bunch of young brokers and investors, Bill Rwain's probably there, half dozen others. And they would all gather around his feet, all these other grown men, his peers, and listen to him talk and pepper him with questions again

Starting point is 00:12:30 because they wanted to hear him speak. It was an unconscious address rehearsal for the day, decades later when he'd be running this company, Berkettcher, halfway with his annual meetings where 40,000 people would show up to hear him talk. When has there ever been a stock picker with 40,000 people flying across the country? I think he's sort of a one-off. You're not going to see it yet.

Starting point is 00:12:49 Yeah, you might be right about that. I want to throw this out there, Roger. If you ever wrote a book called Bezos, I would absolutely buy that. You know, with the biography, at least B, they're all, all the things I just said about Buffett, his self-confidence, the way he approaches stocks, his unique role in the American investing culture and so on, that hasn't changed, although it's certainly grown. Whereas with Jeff Bezos, I don't think the story can quite be written yet. Will he go down as the guy who ended the bookstore?

Starting point is 00:13:22 Will he have his own antitrust challenge? It's certainly not unthinkable, and you wouldn't want to miss that after Bill Gates had Google's dealing with those types of threats. There's certainly a very live issue about how society will deal with and regulate digital giants that although they escape some of the traditional nets for antitrust and regulation, nonetheless are extremely powerful and getting more so economic entities. And at some point, these tremendous business titans face what I would call their role in society moment, at least, you know, are great many of them do.

Starting point is 00:14:02 And it wouldn't surprise me if there's some type of drama for Jeff Bezos ahead at some point or at very least he'll face the decisions and what to do with his wealth. So right now, when both he and Amazon are still sort of a rocket ship, pointed upward. Yeah. So let me have to get a younger biographer. Well, I hope you do write it something. 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.

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Starting point is 00:18:32 All right. Back to the show. So speaking about business, Titan, is really hard to talk about Warren Buffett without mentioning Charlie Munger. And I'd say based on my own experience, partly reading about him beforehand, but also experiencing Charlie Munger at the Berksa Halloween meeting, he is just such a brilliant person. So I'm curious about your thoughts on this. Do you think that Chalien Munger has a huge impact on where Warren Buffett is today?

Starting point is 00:19:01 Or do you think Warren Buffett would probably be where he is today in his own right, regardless of the influence of Charlie Munger? I would say more of the latter, and that's not to depreciate at Charlie at all. Charlie is, he's also a genius, a curmudgeonly genius, whereas Warren is, you know, a sunnier, you know, optimistic, you know, at times almost so optimistic about the America and so on, he's almost a cheerleadering. Charlie, I'll never forget the time I first met Charlie. I was reporting, you know, researching the Buffett biography. I was very excited. I was writing the people close to him. Most people did cooperate, but some didn't. And naturally, when I'd send a letter, I'd wait with bated breath.

Starting point is 00:19:45 And Charlie said, you know, come out. I'll see you at the California Club, which is where he hangs out in Los Angeles. So I flew out there, and we sat down, and I had a primitive personal computer laptop with me. And I started to ask questions. And Charlie just starts to talk. I probably asked two questions, you know, in four hours. and he just kept talking about work. I just kept typing.

Starting point is 00:20:07 And you'd think that there'd be no limit if you're trying to get all the dirt, not in an unclean way, but just good stuff you can get on your subject. And here you've got the guy who had a business sense, knows him best. You sit there for three days. But the human mind doesn't work that way. After some spell of time, you just can't really take in anymore. You just got to walk around the block or something. So I remember it was about four hours of going by,

Starting point is 00:20:33 And I said to the trial, this has been great. I think it's about enough for the first day. And he just stood up, turned, you know, 90 degrees towards the door and walked out. Not it. Not I enjoyed it. Not I didn't enjoy it. Nothing. I mean, we, you know, it was more later.

Starting point is 00:20:47 And I said to somebody, you know, did I say the wrong thing? No, no, that's just Charlie. He doesn't, he doesn't waste time on salutations. In terms of your question, you know, how responsible is he? I think Charlie has been, you know, a terrific founding board for Warren, A, because he's so, so, so smart. He's so unconventional or at least unafraid convention. There's no censor there, you know.

Starting point is 00:21:13 There was one time the two of them were walking down the hallway, and they had this manager who was, the company he was running, wasn't going well, and the guy came, was always asking them questions, should I do this, should I do that? He was just a big bother for them. And they see this fellow coming toward him, and Charlie just blurts out, here comes trouble. And his singular ability, Warren used to call him the abominable no man. Charlie doesn't get stars in his eyes about company CEOs they might be investing with

Starting point is 00:21:44 or he doesn't fall for, he's hurt it all. You know, he gave me a million dollars that used this to try to con Charlie Munger. I give you the money back. He just couldn't do it. And by the way, he doesn't get conned by Warren either. A lot of people find it hard to tell Warren, you know, you're really all wet on this one. not Charlie. And that's invaluable. We see with a lot of politicians that they surround themselves by Yesman. Yeah. And, you know, Warren's surrounded himself by one guy. They're the guy. He's personally

Starting point is 00:22:10 calls a no man. So I think that's been tremendously useful. It's made. It saves him from mistakes. I think it's made the work more fun for Warren to have this partner and alter ego. They see so many things alike. They have this professional and personal partnership for, for whatever those decades now. I don't think, you know, many of the ideas came from Charlie. So early in his career, Warren was still very much picking stocks

Starting point is 00:22:43 the way his teacher, Ben Graham, picked him, which was basically looking for inexpensive securities, holding him to they got up to their trading value, fair value, and then the load him. And Charlie urged Warren to go from, I'd say, okay business at cheap prices to good business,

Starting point is 00:23:01 a reasonable price. One of the first ones they did together was Seas Candy. I think the figures in the book, so don't hold me to this, but it was something like $30, $35 million, something, a lot of money back then. Charlie certainly encouraged him to do that. And I think Warren would have gotten there anyway.

Starting point is 00:23:17 In fact, he already, you know, when he was writing, Seas was the mid-70s, but in the late 60s, Warren on his own was buying American Express, a terrific business, hit a bump in the road. So Charlie encouraged and probably hastened Warren's evolution to pay more than Ben Graham would have paid.

Starting point is 00:23:36 But I think had it not been for Charlie, we'd still be having this conversation. Would the stock be 270K or 240K? That stuff's hard to say. But I think it's been a sort of a healthier, more pleasurable process for Warren. I've known, you know, maybe you've known people who've run businesses and they, by themselves who haven't had someone at their level. to bounce things off of. And that's a strain and they've suffered for it,

Starting point is 00:24:01 maybe in ways that are intangible as much as tangible. Roger, I just want to highlight to the audience why that Nugget that Charlie Munger kind of added to Buffett's approach is so important. And it really comes down to the tax implications. So when Buffett was able to buy good quality businesses at a decent price opposed to just a severely discounted price that's a marginal type business, he was able to continue to hold the pick into perpetuity or, as long as possible. And by doing that, he didn't pay any capital gains by having to sell it

Starting point is 00:24:31 a few years later. He was able to just continue to let it compound and compound. And so there's many people out there that believe that this approach has added significant value to Buffett's ability to compound at such a high rate is because the tax aspect is important. I don't think it's the largest aspect, actually. If you have a business, let's say it earns, you know, 8% a year on capital, which most people would say good, but not great. But if it's clocking away at that 8% year after year, and if, this is a big if, if it's the type of business that is growing so that each year it can reinvest the earnings at 8% a year. And you do that over decades. The relative difference is enormous because what's not happening is you're

Starting point is 00:25:19 not selling after three years. As you said, paying the tax. Then the money. is dead for 18 months or six months, so you buy one for another three years. If you keep buying a succession of businesses, one or two of them is going to be 11, so instead of having 8%, you're going to have minus 14 every so often, or you're going to find a business that gives you

Starting point is 00:25:41 one great shot 20%, and then it can't take the money, and then you're just getting cash back, and you're going to have to hunt for that money. If you can keep the money at work, 9, 10, 11%, year after year over a span of time, the compounding effect is extraordinary. And you've avoided the real pitfall of most investors, which is the dead space time, the backtracking, because the next investment's not as good. That's such a grand point and something that we really try to

Starting point is 00:26:12 talk about on the show because time is just such a massive expense for us investors. You know, it's hard to sit on the sideline and not do anything. But continue. Continuing the discussion about Warren Buffett, it's such a long time since he wrote the first book. Is there anything you wish you included that you learned since? In terms of how I would paint him Ben and Now, really very little has changed, as I said. I did update the book with a new epilogue or afterward or something about 12 years after the book came out. I reissued it because his wife had died, remarried so that it turned out to be his first wife, but required him to fill in a piece of the puzzle that people had been very interested in,

Starting point is 00:26:57 which was, of course, what he would do with his estate now that it wasn't going to Susie because Susie had passed away. And the plan had been that she would make those decisions. So now he had to make them. And of course, he chose for the bulk of his estate, the Gates Foundation, in his plan of peeling off stock year by year, his foundation, his foundation, and Gates Foundation. I thought that was a required and update, you know, more than whatever new company he's

Starting point is 00:27:24 best that has acquired since then. It's certainly been plenty of them. So for that purpose, I updated the book. And that's been the only time. Yeah, no, I think that that's such an important story to tell and such a profound story to tell about the impact that all this money is going to have for so many lives. I think it's just so profound. Let's go ahead and talk a little bit more about your newest book out there.

Starting point is 00:27:48 there, America's Bank. So I just recently finished this one, Roger. It was quite interesting. I have read The Creature from Jekyll Island about the Fed, and it really kind of has a very pessimistic point of view. And I found that your book was much more balanced. It seemed like you paid more attention to just the pure facts of how the bank was set up, and you're telling that story, which was kind of refreshing to hear. I guess I'm curious if you have the same opinion as many people have today where they think that the Fed is in a very tricky situation. You know, some would call it a dire situation. Do you see that as being as dire as everyone's saying? Well, first, I think it's remarkable that we're having virtually the same conversation about

Starting point is 00:28:30 central banking today that we had, you know, in the period 100 years ago, you know, there was the focus of the book and really the same conversation that we were having 180 years ago when Andrew Jackson was, you know, taking a hatchet to the second bank of the United States, the previous experiment, short-lived experiment in the central banking, and the same discussion that fell the first Bank of United States, the one founded by Alexander Hamilton, this enormous suspicion of large banks, central banks, any connection between governmental banking authorities in Washington and large private banks in New York. These were demons in Andrew Jackson's day. They were demons when Woodrow Wilson and Paul Warburg and Carter Glass

Starting point is 00:29:14 and tried to set up what became the Federal Reserve and they're demons for, you know, certainly the entire Tea Party section of the Republican Party and for many in the far left and the Democratic Party. And, you know, by the way, that's not the way it is in the rest of the world.

Starting point is 00:29:31 In France or in Japan, Canada, any other country you can think of the idea of having central monetary institution to regulate the banks set interest rates, unify the financial strength of the country, particularly in times of the stress. You know, this is as a basic as having a cohesive army instead of a bunch of random foot soldiers or having a centralized post office. But the federalist mistrust of centralized authority is our birthright in this country, and it's a very strong force even today, which is why

Starting point is 00:30:04 for me writing this book was a lot of fun. You know, in terms of whether the Fed is at a tricky point today, you know, tell me the time when it hasn't seemed as if it's at a tricky point. I mean, it is responsible for the monetary stability of the largest economy in the world. So what it does has great ramifications. Specifically today, gigantic balance sheet, of course, accumulated during the aftermath of the Great Recession, you know, $4 trillion. That's a lot of balance sheet. And my own guess, by the way, if it's going to be a little bumpier, I just don't think you can sell that amount of bonds and not have there be some just quiet in markets. I mean, what does it mean to be when you're buying bonds, you're lending?

Starting point is 00:30:52 And that's what they were doing in all the stimulus years. They were lending, therefore, adding liquidity to the system. Well, when you're selling bonds, you're borrowing. You're creating demand. That generally drives up interest rates. Some of this are going to do not by selling bonds, but just not by replacing the ones that they have on their balance sheet now, that will probably be less disruptive, but nonetheless, that means that markets won't be enjoying the periodic stimulus that have been getting,

Starting point is 00:31:20 because up until now the Fed has been replacing bonds or bills that have been running off, and now they're not. You know, whenever I look through today's issue and kind of compare it to spots and time in the past, the thing that I think makes today so much different is that you have this polarization with this credit expansion that occurred. When you look over at Europe, you look at Japan, you look at the U.S. Now you're talking about how they're going to start offloading it and they're going to just basically let the shorter term bonds kind of just mature and that's kind of how they're going to offload it. But I don't know that we've seen something happen on such a global level. Would you

Starting point is 00:31:57 agree with that? And I'm curious to hear your thoughts on it. You know, in the 1920s, late 20s and early 30s, the French, the British, and the Americans tried to coordinate central banking activities. They didn't do very good job of it, but it's not as if international markets that they weren't interconnected and affecting each other for many decades. To some extent, it's beneficial right now because there's still QE going on in some of the countries you mentioned are still stimulus. So as we withdraw stimulus, the fact that other countries are behind us that are worldwide sense, the mitigative, you know, sedative effect

Starting point is 00:32:39 by not having everybody rushing out the doors at the same time. But yes, I mean, they're interconnected, and that makes things, I think you're asking, you know, harder to program and to predict and so on. You know, I found really interesting when you said about us perhaps discussing something we talked about 100 years ago. And I think some of the issues that we are debating today might be dating back to the formation back in 1913. What's the most profound thing you found about the formation of the Fed? One of them was just how avidly they debated the same things we debate today

Starting point is 00:33:17 and the same styles. There were these populists who didn't trust bankers. There were bankers who were aghast at the notion of putting anyone in government in charge of anything to do with the banking sector. There were Wall Street people who were convinced that the Fed was going to basically destroy the economy by being inherently inflationary. By the way, the gold standard still existed when the Fed was created. On the other side, you know, there were people from the southwest and agricultural sectors who were afraid that the built-in dynamics of the Fed were such they would be inherently disinflationary. By the way, I think that they were much closer to the truth than the inflationistas. Do you think that the reason that you call them the inflationistas,

Starting point is 00:34:00 would you say that they were wrong because there was a gold standard in place? And I know that we came off the gold standard for a brief period of time there in the 30s during the Great Depression. But we then went back on the gold standard and were on it for decades at that point. Do you think that that's why maybe the inflationistas were wrong about their opinion of the Fed? They weren't for a couple reasons. One was that we were still in the gold standard, which had been so ultimately you couldn't mint more Fed Reserve notes, even though they were different notes and the old national bank

Starting point is 00:34:29 had been serving his money. You couldn't print more of them. Then there was gold behind them in some ratio and the amount of gold was limited. And then there was so much controversy over whether authority in the Fed would be housed in the branches

Starting point is 00:34:46 in the Federal Reserve Bank of Philadelphia and St. Louis, New York and so on, or in Washington, that to get it through Congress, but many of these decisions were left vague. And the Fed was born with a very uncertain lines of authority so that when the time came that we really needed

Starting point is 00:35:06 a dose of liquidity, that of course, during what became the Great Depression, there were cross lines and uncertain lines of authority, and there was no clear one organism or actor responsible for getting the economy going again as obviously Ben Bernanke, obviously in charge in 2008. So the goal standard was a terrible restraint, and there was just a lines of authority check, which hampered them from using the tools they did have.

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Starting point is 00:38:57 Back to the show. So this is one of our favorite questions to ask on the show because it's our chance to kind of pick your brain even further, but after the interview's over. So what's one of the best investing books or business books that you've ever read? Really like John Kenneth Goldbrace, The Great Crash, about, you know, 1929. You read it a day and a half. It's a thin little book. It's terribly witty.

Starting point is 00:39:22 Goldraith is always wonderfully witty. I'll just pick out a few that in no particular order, once in Galconda by John Brooks again, about the 20s and 30s, was a wonderful book. I'm going to stop there because I don't want to seem to be even close to exhaustive because then I'd feel bad about leaving out some very good books. But those are three that I've always really, admire and enjoy it. Those are fantastic. I can't, I can't wait to dig into the first one because I wasn't

Starting point is 00:39:51 familiar with that. So I'll be picking that up today. The great crash, oh. Yeah, no, I haven't read it. Yeah, no, you said terrific writer. Well, I want the audience to know. So the two books that we were talking about today that Roger wrote, Buffett, the making of an American capitalist, this is such an incredible books. This is one of Stiginai's favorite books out there. And then the second book is America's Bank. It's all about the formation of the Federal Reserve. Roger, if people want to learn more about you, where can they find you on the internet? Well, have a website, rogerlovencing.com, so real complicated. Perfect, perfect.

Starting point is 00:40:25 You can order any of the books there. Fantastic. Roger, thank you so much for taking time out of your busy day to talk with us and share your thoughts with our audience. It was great talking. You really enjoyed it. All right. So at this point in the show, we're going to go ahead and play a question from our audience.

Starting point is 00:40:39 And this question comes from Brandon Bradshaw. I've got a question for both of you. And I want to know if either of you, think that cryptocurrencies will ever be a legitimate thing. I know things going on in Congress, trying to decide whether it's legit or not. I looked into it early in high school. I thought about investing. Should have. And there's a bunch of other cryptocurrencies coming out like like Like Coin and Monaro. Who'd you guys think about that and how it would work out in the world of finance? Thanks, guys. Oh, Brandon, Brandon, Brandon. Talking about cryptocurrencies on the

Starting point is 00:41:16 Investors podcast. So Stig just couldn't wait to play this one because he really wants to hear my response on this. He's over there smiling as I'm listening to the audio of your question. So this is my point of view. I think blockchain technology is going to be huge, huge, huge. I think that it's a total game changer. You know, we read the book, The Age of Cryptocurrency. I've read a couple other books about Bitcoin and cryptocurrencies and stuff like that, I'm completely convinced that this is going to be a game-changing technology. The big question comes down to which one's going to emerge the winner. It's kind of like trying to predict that Microsoft was going to be the next Microsoft before it happened. And that's really hard to do. The way it looks now, Bitcoin is

Starting point is 00:42:04 definitely the winner at this point. As far as market capitalization, the number of trading, you don't really need to have a huge position in this stuff if it becomes real. And what I mean by becoming real is that it becomes, for Bitcoin, it'd become a real currency. It'd become a global currency. Do I think that could happen? Absolutely, I think it could happen. What do I think the probability of that happening is? I don't know.

Starting point is 00:42:27 I really don't know. And I think that for anybody that would say that they think it's a 70% probability or a 30% probability, I think they're just completely fooling themselves into thinking that they actually know. I understand what they're trying to do. In my opinion, this is what they're trying to do. trying to fix the issue that is prevalent around every single country around the world, which is central banks are broke, they're printing money, and they're diluting the value of currency all the time. And there's no incentive for them not to since no currency is pegged

Starting point is 00:43:01 to some type of gold standard. And even when there was a gold standard, that never meant anything because they just adjusted the ratio of how much gold they held in their reserves. With cryptocurrencies, supposedly that will change and that will be fixed and it can't be adjusted. Whether that's true or not, the future will tell us the truth on that one. But I really like cryptocurrencies. I like the promise of what they could potentially do to change and what they're really going to do is they're going to potentially create a peg to all the domestic currencies. So if I'm in America and the Federal Reserve wants to devalue the dollar, a whole bunch to pay for wars or pay for whatever, and they print, print, print, what I see happening is a cryptocurrency, whatever that might be

Starting point is 00:43:45 in the future will be the peg, the global peg. And if a country acts responsibly like that, the value of their currency will be diminished. The value of the cryptocurrency will continue to hold its peg. And that's going to be a huge advantage for countries that are very responsible with the way that they manage their domestic money supply. I don't see cryptocurrencies and domestic currencies being in a winner takes all kind of thing. I see these two existing, co-existing together. I see cryptocurrencies existing as a world money supply potentially. And I see the domestic currencies continuing to serve the role that they have. But those are some of my thoughts. I know there's a lot of people out there, especially in the value investing community that might

Starting point is 00:44:28 think that some of my comments are crazy. But I think it's something that people really, really need to pay attention to and try to understand if they know nothing about it. I think cryptocurrencies will be, I don't know if I think it will be as big as Preston, but I think it will be a lot bigger than it is today. And it must sound crazy to some, but it's also one of those, if you said before 1968, that we wouldn't be on a gold standard? Like, wouldn't that also be crazy? Yeah, I guess it would.

Starting point is 00:44:55 I mean, we can use to one kind of standard, and that's also what we kind of expect of the future. I definitely see cryptocurrencies play a vital role. Like Preston, I don't know if it's going to be Bitcoin. I don't know if it's going to be either. I guess there's a good chance that if cryptocurrency is going to be something big for the future, that cryptocurrency has not been invented yet. But I really think that cryptocurrencies has a place here. I just want to throw out some numbers out here. The transaction costs of fees of payment and processing fees, there are between $250 billion and $300 billion a year. Cryptocurrencies could do a lot about that. So I think I'm not talking about whether Bitcoin is going to X thousand dollars. That's really not my concern. But I think that it will be a lot easier if we could have a digital currency that is almost cost free to transfer and that everyone has access to and can't use.

Starting point is 00:45:54 And that's what we see now with cryptocurrencies, for instance, Bitcoin. And that's what we don't see with all currencies. I mean, even the US dollar, that's the biggest currency out there. And a lot of countries outside of the US are trading that still incur a ton of different processing fees. And you can mitigate a lot of that within the standards. So I think just like once we had only physical money and now we have digital money, you know, whenever you go to your online bank, I think it makes sense to think that we will progress to some sort of digital currency one way or another. And I think there will be some sort of coexistence with the current system would we have.

Starting point is 00:46:30 have. Whether or not cryptocurrency will be huge, it's, I guess, too soon to tell, but I think we'll see some sort of digital way of transferring money easier. And I just want to point out something here that I found really interesting, currently living in South Korea. What I realized was that Bitcoin in particular, they're huge in South Korea, but they're actually also huge in the Philippines. So they have a lot of immigrant workers from the Philippines in South Korea. They're sending money home. Actually, 20% of all the money that's sent from South Korea to the Philippines, that's in Bitcoin. So it makes a lot of sense if you're in the developing world where you might not have access

Starting point is 00:47:13 to a bank account. If you do, you might not trust the system. It makes a lot of sense for you to hold something in cryptocurrency. That's really been an eye opener for me coming from Denmark. That's a country where you don't even have cash because you're not. You just pay with your phone, you pay with your card, you don't see cash at all. I think it talks a lot about how on the continent with billions of people, how you might see something like that in the future.

Starting point is 00:47:36 Another thing would be something like China. You can only transfer $50,000 out of China a year if you're using the conventional system. What does that tell you about the market for cryptocurrencies? I know this sounds, you know, sketchy, like, oh, why would you transfer so much and why you want to go through the conventional system? Is it because you don't want the government to be involved? Well, there's actually a lot of practical reasons to this. If you live in China and your child is studying an Ivy League school in the US,

Starting point is 00:48:01 you can't transfer enough money to pay the tuition fee. So there's a lot of practical issues having the conventional system that it's just not an issue with cryptocurrencies. And I think we can't avoid that being something they're progressing too. Whether or not the nation states will just have a very loose, regulation which I don't see happening at all, or we have the rise of cryptocurrencies, I guess I believe more in the latter. I think is my final point on this is, you know, my opinions are somewhat worthless.

Starting point is 00:48:37 I think what people need to do is they need to go out there and read for themselves. I think there's a lot of people out there that know nothing about this. And they kind of hear a very short or small narrative on it and they immediately form an opinion. But I would tell you is start with no opinion on this. Go out and read a couple very good, well-researched books that are written by very qualified people, two of which I'll name that I think are very qualified people. One book is called The Age of Cryptocurrency. And then the second book that I've read is called Digital Gold. I think that both of those books are very good to give you just an appetizer of what all this is about.

Starting point is 00:49:14 Then I think you've got to go and do even more research about all the risks associated with how all of those. this could fail and kind of really understand it. But for somebody to not know what this is or what this potentially could turn out to be in the next five to 10 years, I think you're missing something that could potentially be very huge. So Brendan, awesome question. We're really glad that you ask this. We really actually enjoy talking about this. I know in Stig and I were talking over the summer and had a little bit of free time. This conversation came up quite a bit whenever we were not recording anything and just talking candidly. So for calling in and leaving this great question, we're going to give you a free subscription to our new intrinsic value course that we just created.

Starting point is 00:49:56 This teaches you how to value stocks and how to look at individual stock picks and how to come up with a value and an IRA calculation of what you think the yield will be on that stock moving forward. We also wrap some of Joel Greenblatt's recommendations on how you can use options trading in conjunction with value investing, and we think that some of that stuff's really unique and valuable to the course as well. So we hope you enjoy that free course, Brandon, and for anybody else wants to check out the course,

Starting point is 00:50:24 go to TIP Academy on our website, and you can find it there. So if anyone else wants to get a question played on our show like Brandon and potentially get a free course, go to AsktheInvesters.com, and you can record your questions there. So before we round of this show, we have a short announcement. The investorspodcast.com will now be a financial news site,

Starting point is 00:50:43 And several times a day, you will see new stories primarily about stock investing. And the best example I can give is that whenever we have guests on like Xinemann that we had on a few episodes ago, Jesse Felder, Colin Roach, we have set up syndication deals with them, which means that whenever they're posting a blog post on their side, we've been giving the permission to pop this on our side. We also have new stories for that specific day. and from time to time, we also discuss other asset classes than stock investing. We also have Jim Rickard's blog post when he discusses gold.

Starting point is 00:51:19 As a new feature that we just implemented on our site, you can also track the stock market in Europe, Asia, and of course the US directly from the front page on the investors podcast.com. All right, guys, that was all that Presta and I had for this week's episode on The Investors podcast. We'll see each other again next week. Thanks for listening to TIP. To access the show notes, courses or forums, go to theinvestorspodcast.com. To get your questions played on the show, go to asktheinvestors.com and win a free subscription to any of our courses on TIP Academy.

Starting point is 00:51:55 This show is for entertainment purposes only. Before making investment decisions, consult a professional. This show is copyrighted by the TIP network. Written permission must be granted before syndication or rebroadcasting. BID! BID!

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