We Study Billionaires - The Investor’s Podcast Network - TIP360: Inside The Money Mind of Warren Buffett w/ Robert Hagstrom

Starting point is 00:00:00 You're listening to TIP. On today's episode, I sit down with Chief Investment Officer and New York Times best-selling author, Robert Hagstrom. Robert has written multiple books, especially on Warren Buffett, including The Warren Buffett Way, the Warren Buffett portfolio, investing the last liberal art, and his latest book, Warren Buffett inside the ultimate money mind. In this episode, we cover the evolution of Warren Buffett's investing style, what it means to have a quote-unquote money mind. as Buffett coined, what Robert learned from investing alongside Bill Miller and much, much more. Robert is an expert on all things Warren Buffett, so I couldn't wait to dive into this discussion.

Starting point is 00:00:40 So without further ado, please enjoy my conversation with Robert Hagstrom. 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. Welcome to The Investor's Podcast. I'm your host, Trey Lockerby, and today I'm so excited to have with me, author and investor Robert Hagstrom. Welcome to the show, Robert. Great, thank you. It's great to be with you. So the first thing that's on my mind, Robert, is that you just came out with this amazing new book that I loved reading called Warren Buffett Inside the Ultimate Money Mind. And we're going to dig into

Starting point is 00:01:33 this book. But you've written a handful of books on Warren Buffett already. I'm just curious to hear What was eating at you that was saying, hey, there's something here that hasn't been told that I need to put into a book? Well, it gets, you know, great observation. You know, a good friend of mine sent me an email actually this morning saying, you know, I saw this book about Warren Buffett and I passed it by because I think I've read everything there could be about Warren Buffett. Then I saw it was, you know, by you and I'll give it a look, see, and the feedback was very positive. So it indicates to me that there was a missing piece. And the genesis for the book, Trey actually occurred back at the 2017 annual meeting where Warren introduced the concept of a money mine.

Starting point is 00:02:15 It was a question from a shareholder on the floor who said, you know, how do we think about allocation, shareholder, I mean capital allocation of Berkshire once you and Charlie are not up on the stage answering questions. And Warren formed the answer very broadly. First, you know, he talked about capital allocation, but it was really much more. And he said, the next CEO at Berkshire Hathaway has to have a money mine. And a money mine is not only thinking about the rational allocation of capital, but how to think about investing in general in relationship to markets and things like that. And I was sitting in the audience, Trey, and at that moment, I was so humbled by saying to myself, you know, for 25 years, all you've done is focus on methods and you really haven't thought about

Starting point is 00:02:56 temperament or money mine. And that's how the quest began. So it started 2017 of trying to think about what is. a money mind and we used Warren Buffett as a template. Well, let's start there. What is a money mind? I'm curious. In his definition and your definition, what have you uncovered so far?

Starting point is 00:03:14 You can go back to Ben Graham and Ben Graham wrote about temperament. You know, he said the last line of the book and the intelligent investor and I'll paraphrase, he said, investing is easier than you think harder than it look. And the easier than it you think is that you really don't have to forecast markets, you don't have to worry about sector rotation and worrying about the economy and rates going up and down, things that Warren has preached to us over the year. And the harder than it looks part, which I got wrong initially, I thought harder than it looks meant it was no longer about low PE investing.

Starting point is 00:03:45 You had to do dividend discount models, return on capital and things like that. But the harder than it looks part actually has to do with temperament. And so if we kind of use that as a kind of meta, meta theory temperament, what is temperament? And there's so many individual parts to the temperament. So we began at the very first level when Warren was growing up with his dad, Howard Buffett, who was a remarkable human being, a Republican congressman, a big force in Warren's life. But it was actually Roger Lowenstein, who had written a book called Buffett, the American capitalist, who linked Howard Buffett to the Emersonian philosophy of self-reliance and made the argument

Starting point is 00:04:23 that Warren himself had become so influenced by his dad's philosophy of self-reliance, that that formed the initial building block of what a money mine is, which is to have confidence in your own decision making and not having to rely on others for the decision to buy or sell things. The decision resides in yourself and having that self-reliance and that self-confidence is the cornerstone of a money mine. So you mentioned Emersonian. You're talking about Ralph Waldo Emerson. Let's dig into that a little bit on the critical thinking piece. Self-reliance is somewhat self-explanatory, but when it comes to investing, are we talking about coming to different conclusions and other people based on the data available to everybody?

Starting point is 00:05:09 I think there's something to that, Tray. I think there's something to that. But, you know, we're always counseled by Warren's advice that polling does not replace thinking. You don't want to be contrarian just for the sake of being contrarian. Sometimes the market gets it right, and sometimes it gets it wrong. And so self-reliance is really about coming to a conclusion. based upon your own facts and reasoning that you believe the best course of action is whatever it is, and you're willing to make that bet, make that investment.

Starting point is 00:05:38 And the self-reliance part kicks in, obviously trade to your observation, when the market disagrees with you or other people disagree with you, prognosticators on television stations say, do this, do that, and you're doing something different. It is that self-reliance that, yes, you've got to figure out, you're self-confident in your final decision-making. that you're not swayed to do something differently just because the crowd is yelling at you to do something differently.

Starting point is 00:06:04 Yeah, I'm remembering this quote from Ben Graham where he says, you are neither right nor wrong because the crowd agrees with you. You are right because your data and reasoning are right. Very close to an Emersonian take on that. And obviously, and further along in the book, Roger Lowenstein did a brilliant job with this, is that the relationship between Warren and Ben Graham was nurtured in the beginning because Graham reminded him so much of his dad. So if you kind of think about Graham's attitude about investing, it was very Emersonian. It had that independence part to it. And he could relate to that because as

Starting point is 00:06:38 an 11-year-old or a 10-year-old as he grew up in a household with his dad, he was a GOP, remember, you know, he was a Republican congressman, remember what was called the old GOP-Rite party, which was a libertarian-type stance. You know, very Emersonian. So imagine, you know, growing up for 10, 15 years in that household being preached that or preached about the role of self-reliance and self-confidence. And then you go into Columbia University and here's a guy that's speaking to you in Emersonian language. You know, the connection there was just immediate. That was forceful. Well, I'm glad you threw out the word reasoning because I want to talk about this point that Charlie Munger made back in 2010 at the Berkshire shareholder meeting. There was a question about what their theory is on life itself. And

Starting point is 00:07:26 Charlie came out with this one word answer, which was pragmatism. What is your revelation from pragmatism and reasoning and all these rational approaches to investing? Well, there's a lot, you know, I remember it distinctly. And funny, there's so much written about Berkshire, Charlie, and Warren about rationality and how being rational in your decision-making process. And rationality is just understanding what works and what doesn't work and obviously do what works and avoid what doesn't work. You know, that's kind of the essence of rationality. But pragmatism is something that I think is very deeply woven throughout Warren and Charlie

Starting point is 00:08:04 and Berkshire Hathaway, but it hasn't gotten a lot of lip service other than that quote that you just read. But if you look at Berkshire Hathaway, you look at Warren Buffett, not only as rationality. So, you know, you start with self-reliance, you layer into the whole concept of rationality, which we know is so important. But pragmatism is what got him through what I call the essence. evolutionary stages of value investing. So I think I have a quote in the book that says something rationality helps you become successful in investing. Pregmatism is what helps you continue to be

Starting point is 00:08:37 successful in investing. And pragmatism, as you know, was the philosophy. William James was principal. You could go back to Charles Sanders Pierce before that. But, you know, James basically helped weave a philosophy of how to achieve success by understanding the cash value of ideas. And so instead of getting hung up on absolute, which is I have a correspondent theory of truth and I know exactly how the world works. If the world, in fact, changes and involves, as we know it does, which we know markets do, then you want to be pragmatic in your viewpoint to always be open-minded to new ways in which to think about how to make money. And then, as you well know, Trey, if you started with Warren, classic value investing with Ben Graham, then you go to Charlie Munger, buy a better business. The pragmatism was what moved him from classic value investing of hardbook value current earnings to stage two value investing, which was better businesses that generated cash and high returns on

Starting point is 00:09:35 capital was the second level of value investing. And you could have only done that had you been pragmatic in your viewpoint about how to make money. Well, I'm glad you brought up the evolutionary stages of value investing because I think that this is very topical, especially for me, at the moment. I was reading your book and it was just so funny because you lay out three stages to value investing and I feel like I've been rounding stage two and going to stage three and my own personal investing, but not really quite trying to put the pieces together about exactly what was

Starting point is 00:10:08 happening, how my decision making was leading me to certain conclusions and you just laid it out so clearly in your book that you're like, oh, here's how it works in three stages. And I'd love for you to kind of lay out the three stages for our audience and talk about how you kind of came to those conclusions for yourself. Very quickly, you know, it was Ben Graham was the essence of, and Ben Graham's, you know, approach to value investing, which emphasized the here and now. I mean, it was about current birth value, current earnings, current dividend yield. And he was so focused on making sure that you could value what was current and trying to buy that at a discount was the best way in which

Starting point is 00:10:45 to ensure you couldn't lose money. Because, you know, he had to be focused on making sure you could You know, he had two episodes in his life, one when it was a young boy who lost his father, and, you know, faced financial ruin then. His mother held a family together. And then later, when he invested in 1929, he dodged that bullet, but got back into the market in 1930, basically faced financial ruin for the second time. So the whole concept of security analysis and margin of safety focusing on the here and now is what's called classic value investing stage one.

Starting point is 00:11:14 And that's what drove warned for so many years. There's no doubt about it. But when he then took control of Berkshire Hathaway in 1965, using that methodology to pick businesses for Berkshire Hathaway found out, although they might have been a good stock investment for a short period of time, they weren't good long-term business investment. And we go back and look at Dempster Hill and the retail stores and things like that, even Berkshire Hathaway, the textile business, cheap businesses, cheap stocks, but not good long-term businesses that you want to buy and hold.

Starting point is 00:11:45 And so the second stage kind of moves you off the current assessment of book value, the current assessment of current earnings, and then gets into the concept of what will be the future cash flows. Because he began to understand that when he was running Berkshire Hathaway, he needed cash. It's a compounding conglomerate, which was the whole strategy of why he took it over. He needed cash from these businesses to buy more businesses. We call this the penny weighing machine concept, and he needed cash from those businesses. So it pivoted. He had to pivot, I guess, how he thought about stock investing from how he began to understand how businesses were generating cash.

Starting point is 00:12:23 He then applied those same lessons to stocks and ultimately allowed him to move to stage two. And the brilliant move of putting one third of his net worth in Coca-Cola in 1988, which at the time looked at not to be a value investment. It was a high PE stock, higher than the market, higher price to book, below average dividend and yield. Everybody thought he'd turned his back on his master Ben Graham, but the stock went up 10 times in 10 years when the S&P went up three times. So was that a value proposition? Yes, it was. So there's a line that Warren always used. I'm a better investor because I'm a business person and I'm a better business person because I'm an investor. It was linking those two models together

Starting point is 00:13:02 that allowed him to get to the stage two level of value investment. I love that example. So, and you kind of just covered it a little bit with the Coca-Cola. Obviously, seize candy with somewhat of a similar scenario that caused him to make that evolution. What about Apple? I mean, because is that stage three? Can you walk us through stage three and maybe what he's seeing there? Apple, you know, well, there's no doubt with this back up. Seas basically helped him understand the value of paying up for something that generated a lot of cash. At the time, he thought he overpaid for Seas Candy. And Charlie was nudging him along saying, look, we're okay. It's going to be fine, not a capital intensive business, a lot of cash, and Warren was kind of reluctant to make

Starting point is 00:13:43 the investment, ultimately did so, and it kind of go back and do the math, it may be one of the greatest investments that he ever made, considering how little money he had to put back into Seas over the years and how much cash came out of it. It really is a phenomenal investment return for Berkshire Hathaway. So Seas, you know, gave him that tangible experience of paying up for something that generated a lot of cash with low capital investment needs. There's no doubt, and he said it in the annual reports, and he said it publicly, that C's helped him understand and appreciate his investment in Coca-Cola. So then we get to Apple.

Starting point is 00:14:16 And Apple is more of a hybrid. It's both a stage two and a stage three, what I'll call stage three, and we'll talk about in the second. But he began to understand the consumer products business, if you will, and whether it's Coca-Cola or this thing called a cell phone. And it was clear to him that this cell phone that Apple had was extremely valuable. You know, you talked about the ubiquity. 80-year-olds use an Apple phone and 70-year-olds use an Apple phone, and nobody wants to give up their Apple phone.

Starting point is 00:14:45 And if you go back and do the math on it, it really is a phenomenal business, a handset manufacturer that, I think at the time he was buying it, they had 13, 14, 15 percent market share, but we're getting 85 percent of the profit. So people were willing to pay a premium price for their Apple phone and very rarely changed the manufacturers. So he began to recognize that this really was quite a phenomenal investment. But what happened, I think, was the stage three level of value investing begins to embrace what's called network economics, which is you become a part of a technology environment, if you will, or a technology ecosystem, whether it's through software, enterprise software, whether it is through search, whether it is through entertainment, or whether it's through this telephone, you get connected to a network economic, and in this case, the iOS system, that links your phone to your laptop, to your iPad, to Apple Pay, to Apple Health, everything

Starting point is 00:15:42 is connected together. You get used to doing something. It's called kind of a lock-in effect pathway as you get used to doing something technologically and are very hesitant to want to learn to do anything else. So it has a positive feedback loop. Networks then get bigger, the bigger they get, the more valuable they get, and you don't want to change. And that lock-in feature is as good a moat feature as you could ever see.

Starting point is 00:16:05 see. So, you know, I was fortunate to have managed money with Bill Miller for 14 years at Lake Mason, and Bill, phenomenal guy, one of the great investors of all time. And he was the very first value investor to actually apply valuation methodology to technology stock. And this goes back to Dell Computer in the 90s and AOL and eventually Amazon and Google that we made investments in over the years. So I had the benefit of understanding the value of technology companies by managing money with Bill Miller. But then you could see Warren coming around to it in 2016, and it was a combination of buying a phenomenal consumer products company that was enveloped in this network economic, which is a moat-like system with high margins, low capital intensity needs, and

Starting point is 00:16:52 it's just been a home run. I mean, imagine, you know, he's 86 years old, put $36 billion into a new investment and makes $100 billion. If that's not pragmatism, I don't know what is. That's the perfect, perfect image of someone who is pragmatic about how to think about investing. It would be worn buying Apple at 86 years old. Phenomenal. 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 00:21:16 That's Shopify.com slash WSB. All right. Back to the show. All right. So stage one, we're focusing on the here and now, what can I buy this business for for what it has today? Stage two, we're projecting out the cash flow, discounting it back to today. And then stage three, wrap this up and a bow here. How do you define stage three exactly? Well, stage three is largely, there's two things going on.

Starting point is 00:21:44 It's not so much changing economics. We're still looking at cash. We're still looking at return on capital. It's just that these new business models, network economic models. And so if you kind of think about whether it's Facebook or Google or Amazon or Apple or you go into the enterprise software businesses, Microsoft, whatever, you get this kind of lock-in feature that people adopt these services and become very, very comfortable with it with the positive feedback loop and the resistance to want to change that it really becomes a phenomenal business. But this is the misnomer. It's not only do they capture the customer. And as the network itself starts to get big, more and more people are attracted to that.

Starting point is 00:22:25 network, which gets bigger. The bigger it gets, the more attractive it becomes. And it's an idea of network effects that bigger gets more valuable. The more valuable it gets, the more cash it generates, the higher returns on its invested capital, because it doesn't meet a lot of capital to grow. So what becomes phenomenal about stage three is understanding they are significant moat businesses. You know how Warren talks about moats. I want a business that can withstand competition that continue to earn high returns on invested capital for a very, very long period of time. Well, that's what you're looking at right now. Now, the difference is this. With Coca-Cola, you could see the cash. With cash, you could, Roberta Guzzietta, who was the CEO that turned around

Starting point is 00:23:07 Coca-Cola in the late 80s, got rid of all the underperforming businesses at Coca-Cola, reallocated that capital, the syrup business, which is the best performing business at Coca-Cola, highest returns on capital. And with the excess cash, began to buy back stock. So even though you were paying a higher multiple for that cash than you would have under a Ben Graham model, cash was right there. It was readily, readily seen, readily available. With the network economic businesses, the slippery part of it is the cash is not coming down to the bottom line. It's not going through the income statement to the EPS. Now, today, you know, I would point out Google is trading at a market multiple on cash flow. And so Facebook's pretty cheaper on cash flow. The mystery stock has always

Starting point is 00:23:49 been Amazon, right? So, you know, Bill and I started buying Amazon. You know, we bought it in 98. We got it 97 in the IPO. It doubled, sold it. We re-bought it again in 99, went through the technology crash and came out on the other side. And it's become one of the most valuable companies next to Apple in the world and rarely reports any E. So it's EE is always 50 to 100 times earnings. But if you pull back the layers on the company and Jeff Bezos walks you through it perfectly. You can look at the online retailing, the cloud computing AWS, you can look at the advertising business. He'll walk you right down, that function from here are the revenues, here are the operating expenses, and so you get to what's called an operating cash flow statement.

Starting point is 00:24:34 You've got operations, you know, it's cash flow after paying for all the expenses of operating the business. And the cash flow on Amazon this past quarter before reinvestment back into the company was equal to proctor and gamble. So the cash was there. But Jeff rightly makes the decision that he has this cash. So what should I do with this cash? Should I drop it to the bottom line, pay a corporate tax on it? Or perhaps should I pay it out and they divot in? Or should I put it back into the business?

Starting point is 00:25:02 Well, Amazon is earning 100% return on invested capital. One of the highest return on invested capital in the history of capitalism. Dell Computer was the very first one to ever do it. And its top line is growing at 20%. What would a rational person expect Jeff Bezos to do? If I have a business growing at 20% per year, earns 100% return on invested capital that generates an operating free cash flow of 3%. I want you to put it right back into the business. And I want you to compound that over time.

Starting point is 00:25:31 And that's exactly what he's been doing for the last 20-some-odd years. Instead of bringing it down to the bottom line so you can actually see it, it's there. It's just that he reinvest it before he gets to the bottom line on a gap reported basis. Yeah, and it seems like there's a new phenomenon. I guess what I'm trying to wrap my head around is, is it only internet companies that have this advantage or are there others? Like Apple, as you mentioned, is consumer. And I do think, you know, humans are forced into this kind of recurring decision-making process where they don't want to make new decisions so they stick with the status quo. What you're talking about sounds a lot like instead of the law of diminishing returns over time, there's this law of incremental returns.

Starting point is 00:26:14 Yeah, it's increasing returns economics. Brian Arthur and economists kind of walks you through that. The switching cause is what prevents people from wanting to change product, whether it is software or handset. Do I want to go learn a different phone, like an Android phone or a Samsung or something like that? No. I mean, I'm very happy with my Apple phone. For me to go and do a new phone and change everything over software and learn different ways in which to do things is a real pain for me. And so I'm mentally locked in to wanting just to keep doing this technology the same way. Now, there's also financial costs, switching costs, and it's more prevalent in software. So if you had a Microsoft operating system all through your corporation and you wanted to change it for some reason, that's a very expensive proposition to do a switching cost.

Starting point is 00:27:00 In addition to you have to retrain everybody how to use it. So switching costs become part of the moat. Path dependent. I like doing it this way. I don't want to learn how to do it any other way. is a moat-type business. Now, what becomes phenomenal about this, and Warren talks about it in the annual meeting, is that he and Charlie didn't wrap their hands around how something could turn into

Starting point is 00:27:21 hundreds of billions, if not trillions of dollars with so little capital involved. And that's the essence of network economics. Different than brick and mortar, which Ben Graham started with, so if you go back to Rockefeller and Carnegie and Mellon, for them to grow the business, they had to build more brick and mortar. They had to make the physical hard book value of the business go up for it to get bigger. Then you go into stage two, which was media, newspapers, network television, cable news, and then you get into the soda business, consumer durable. It was not as capital intensive as the Rockefeller Carnegie brick and mortar world of manufacturing,

Starting point is 00:27:59 so less capital intensive. But then you get to the stage three level. It's just phenomenal how little capital is required to build. something that could be hundreds of billions of dollars in market cap generating billions of dollars in free cash flow each every year. It was just very hard to get your head around it. And so they were late. So, you know, Warren says, you know, I was foolish not to have bought Amazon. He actually owned the convertible bonds at one time. He met Jeff Bezos, said it was brilliant. I mean, think about a guy that actually built the world's largest online retailing business from scratch.

Starting point is 00:28:30 And as Warren said, just to have done one global leader in business is Herculian. Well, he's done three. He's not only the world's largest online retailer. He's the world's largest cloud computing with AWS. And now is the world's largest advertising media business through the advertising sales through Amazon Prime and others. So he's done it three times. But at the same time, Warren was just really struggled to get his hands wrapped around it. Charlie was like, you know, Amazon didn't bother me. Google bothered. We should have had Google. And they tell the story about, you know, they own GEICO and they look down on the expense line and they look at all these millions of dollars that kept sending to Google. And they go,

Starting point is 00:29:07 what are we sending all this money to Google for? And someone explained to them, you know, when you do a search for insurance on internet and someone clicks on GEICO, we have to send them a nickel every time they do it or whatever the amount of money is. And they said, well, we keep spending them a lot more money. They goes, well, because more and more people are using the internet to search for insurance. And so, you know, Charlie was really kind of like, you know, myth that he missed Google. And then at the end of the day, you know, he said, well, maybe Apple is our atonement.

Starting point is 00:29:33 Maybe, you know, we didn't get Amazon, we didn't get Google, but we got Apple, and that certainly has been a home run. I mean, think about it, $36 billion to $136 billion is that's 20% of the market value of the business. That's a pretty good investment in four years. That's pretty good. Not bad. And yeah, it's just interesting to hear you lay this out in the book because I know for myself, I've been having a hard time wrapping my head around that stage three concept. I understand it in theory, but actually applying the value methods that I've learned to something like that, like an Apple or Amazon, has been tough.

Starting point is 00:30:09 And I think it's tough for a lot of value investors. And I think it might be because a lot of value investors look at someone like Warren Buffett, and they immediately associate him with Ben Graham, rightly so. But a lot of people forget that Buffett was actually a student of Phil Fisher as well. And I don't just hear you touch on how important that was that element of Warren Buffett's success. I appreciate to bringing that up because, you know, the original Warren, by the way, in 1994, we did illuminate the influence of Phil Fisher and thought it was quite large. I think there's an ancient quote, and it was in the late 60s that I think Warren said,

Starting point is 00:30:47 I'm 85% Ben Graham and 15% Phil Fisher. If you would have fast-forwarded that to the 1980s, it might have been more 50-50, because Phil Fisher continued to play a very increasing role. And we talked about it in the book that when it became clear to Warren and managing Berkshire Hathaway that Ben Graham didn't have the roadmap for him, understanding how to add stocks or businesses to Berkshire Hathaway. It was at that time that Phil Fisher came out with common stocks and uncommon profits, and it was a book that Warren read had influence on him. Warren went to Phil Fisher, meet with him. And Phil Fisher, you know, began to talk about the attractiveness of great

Starting point is 00:31:28 businesses and how you might think about owning these great businesses as opposed to cheap what he called cigar butt stocks. There's a different way in which to do it. So when he was leaving the Graham methodology, not the Graham temperament. So remember, margin of safety is still a very big deal. I mean, those are the three right words. Temperament, how Graham taught him about temperament. So if you look at the two chapters that he thinks are the most valuable pieces of Ben Graham's work, is chapter 8 and chapter, I guess 20 in the intelligent investor, you know, that's the core essence of Ben Graham. But now he needs a new methodology about how to think about stock and businesses because they're one and the same. And Phil Fisher writes this book and I think it helped Warren

Starting point is 00:32:10 begin to think about things. Now, the timing of it was brilliant because Charlie comes on the scene about the same time. So, you know, they meet late 50s, I think of 5960. Charlie starts an investment partnership in 62. They become friends. They have similar investments. They stay in contact. And so Phil Fisher was the Ben Graham teacher he needed at the time. At the same time, Charlie shows up as a kind of a friendly co-investor in similar stocks that then led to this beautiful marriage at Berkshire Hathaway. So Phil Fisher was a very big deal for Warren that came at the right time and the right place. Now, what Phil Fisher didn't provide Warren was how to value stock. There's nothing about valuation in Phil Fisher's work. And he,

Starting point is 00:32:56 then turned to John Burr Williams, the theory of investment value, and got to the dividend discount model. That resonated with Warren because it was all about clipping coupons and discounting the coupons and how you think about that. So he now had the two pieces he needed. He had the kind of Phil Fisher, Charlie Munger architecture about how to think about great companies and management and things of that nature. Now he had John Burr Williams on valuation. So he now could leave the Ben Graham stage one world, not leave fine margin of safety, not leaving behind temperament. But now he could move from stage one to stage two. He had everything that he needed to make that leap.

Starting point is 00:33:32 And to make the leap to stage three, as you kind of highlighted, an investor needs to essentially shift their valuation methodology from GAAP accounting to the economic earnings of adjusted cash flow and return on capital. So adjusted cash flow and return on capital, that emphasis on that, as you mentioned, with Jeff Bezos. And that's why a lot of companies look expensive from a gap accounting perspective, but they might actually be cheap. If you take what you call more of a business owner mindset, so provide some color around

Starting point is 00:34:02 what you mean by a business owner mindset. Warren says gap earnings is where you start, not where you stop, because, you know, he talks about how gap earnings doesn't think smartly about capital reinvestment and how much capital reinvestment has to go on. So he introduced the concept of owner earnings and trying to get to what he said was a business person's earnings. Like you got your revenues, you got your expenses. you bring it back down to the bottom line, but you've got to put money back into the company to keep it

Starting point is 00:34:30 operating after that. And so there's not as much cash at some of these companies as GAP might lead you to believe. When you get to operating cash flow or owner earnings after capital reinvestment, you begin to understand the beauty of your investment or the lack of beauty of your investment. What you keyed on, Trey, though, is I think something that I haven't emphasized enough and maybe hasn't been emphasized enough by others is the change in the change valuation of changing returns on capital. All right. So we know if we earn above cost of capital, we create value.

Starting point is 00:35:03 If we earn below the cost of capital, we're destroying shareholder value. All right. So that's 101 about return on capital. What hasn't been, I think, discussed enough is what would you pay for something that earns 100% return on capital versus 50% return on capital versus 20% return on capital if the cost is 10? Right. So our cost of capital is 10.

Starting point is 00:35:24 Let's just leave that out as opportunity cost to be in. the market's 10%, and I'm earning 20% versus an opportunity cost of 10, that would mean that I'm adding value to my portfolio. What would you pay for something that's doing 50% return on capital? What would you pay for something that's earning 100% return on capital? Then it's about the sustainability, right? How long can I do it? Then add to that, not only the return on capital, but what's the sales growth. So if I'm earning really high returns on invested capital that through network economics or network effects looks to be long lasting, then put a sales growth number on that. If I'm growing at 10% with a high return on invested capital, what would I pay for that?

Starting point is 00:36:03 If I'm earning 20% on a high return on invested capital business that's going to last for a long period of time, what would I pay for that? If you actually start to do the math, the numbers are just mind-boggling what you would pay for something that generates 100% return on capital that's growing at 20% per year that could last for five or 10 years. And the numbers are, just mind blowing. The guy that's done the work on this, and I have such a high regard and actually worked with him for a time at Lake Mason Capital Management, it's Michael Mobison. Michael Mobison has written several books. He's extremely talented, thoughtful, professor, adjunct professor at Columbia University teaching security analysis, and he's done the work on what multiple would you pay for

Starting point is 00:36:42 different levels of return on capital and growth rate. And all I can tell you is, you think that maybe 50 times or 70 times earnings for Amazon is expensive. Without understanding the return on capital and without returning understanding the sales growth and without understanding the competitive advantage period of how long this will last, 40 and 50 times earnings, it's going to look extremely, extremely cheap five and 10 years from now, just by that compounding effect. And we haven't done enough work to illuminate what returns on capital to mean. So it's not only Amazon, you know, look at Google, look at Microsoft, look at Facebook, but then let's go even further. Start to look at these enterprise software business, which are kind of like Microsoft,

Starting point is 00:37:23 right? Not heavy capital investment needs, not heavy capital reinvestment needs, cash generation, lock-in effect, growing global markets. The other things that people forget is that this is not, you know, a domestic business. We're talking about a business that's going to be reaching around the world, 7.8 billion people on the planet Earth, and this reaches everywhere and can be done rapidly because it's not capital intensive. I don't have to build a lot of brick and mortar in Asia to make this work. And I don't think people fully appreciate how valuable this is. But if you drill down to Michael Moveson and you drill down to some others who think about return on capital, cash and sales growth, and how that comes together, these things look very cheap

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Starting point is 00:41:42 And there's a huge debate obviously around this has been going on for a long time about active versus passive. Talk to us about where you stand on the subject today. When we wrote the Warren Buff of portfolio after we wrote the Warren Buff Away, when I wrote the Warren Buff away, I didn't even talk about portfolio management. I think I said something like Warren holds stocks for a long book. period of time. He doesn't own a lot of stocks and he holds it. That was the essence of portfolio management. All I was interested in was getting the methodology down about how he thought

Starting point is 00:42:07 about stocks. And it was clearly written in the end of reports. I just organized it in such a way that would help people understand what the major tenants were and the subtenants and how it lines up with the companies that Warren purchased. But the portfolio management part was really illuminating. And when we wrote the book in 99, we began to look at focus investors, not only Warren Buffett, we looked at Charlie Munger, we looked at Lou Sensen, we looked at Sequoia Fund, we looked at John Maynard Kane and began to kind of look at these guys and going, you know, they're concentrated, low turnover, and they're generating some really strong return. Problems that we saw was variance was high, volatility was high, drawdowns were kind of high, periodic underperformance was kind of high,

Starting point is 00:42:47 relative to a broadly diversified portfolio. Well, past that then, you know, so we talked about focus investing, we thought that was the most optimal approach. And we did some very elementary things like, you know, took 3,000 stocks and you divide them up to. the different portfolio sizes of 250 stocks, 150, and 15. The 15 stock portfolios had a higher percentage win rate of beating the market than the 250 stocks. So you had a working hypothesis here, but it was really Martin Krimmers and Petajusto who began to write about high active share investing. So they didn't call it focus investing.

Starting point is 00:43:18 They call it high active share. High active share is equivalent to how different your portfolio is from the market. If you have a portfolio that has nothing in common with the benchmark, your high active shares 100% because you have nothing in common. If you're totally identical to the benchmark, your high active share is zero because you are the index. What Krimmers and Peta Jusso discovered was that portfolios that were high active share, 80% or higher, actually seemed to have a pretty damn good track record of beating the market. And companies, portfolios with low active share that were closet indexers were not doing very well. And then there was another professor, Pereke, at Rutgers,

Starting point is 00:43:56 that basically looked at turnover ratios and found out, well, if you can try and, for turnover ratios, it is even more glaring, which is high active share and low turnover really gets a big return. And broadly diversified portfolios with high turnover ratios are just abysmal. It's just horrible. So then you begin to say, okay, rationality would say, I should own a high active share, low turnover portfolio, and I should avoid broadly diversified high turnover ratio. But then you look at the industry of portfolio management, 90-some-odd percent of all portfolios are broadly diversified with high turnover ratio. And you kind of look at the math and you go, you can't get there from here.

Starting point is 00:44:30 And the number of high active share, low turnover portfolios, are very small. And actually, I've been going down since the light 1980s. Which then begs the question, what's going on here? It's somewhat complicated, but, you know, not too complicated. We write it in the chapter. It's not that active management doesn't work. It's the strategies used by most active managers that doesn't work, is that there's psychological reasons why people don't like high active share,

Starting point is 00:44:53 big bet portfolios, because of price volatility, or price variance. And we know about prospect theory and loss aversion, how people overweight losses relative to gains. But Warren divorced himself about thinking about price changes as being a gauge of whether I'm doing well or not. It was economic returns. And so if you could actually look at the economic returns of high active shareholder return of a portfolio, the economic returns are pretty stable. It's just that the prices were going all over the place. And Warren divorced himself from thinking about price change as being a reflection of progress.

Starting point is 00:45:23 And everybody else thinks about price change as their performance indicator. So if the prices are going up, I feel good. If the prices are going down, I feel bad. And so what portfolio management does at all cost is try us to reduce the possibility that things can go down in price. And that was the whole essence of modern portfolio theory. And we walked through the book about how Harry Markowitz disavowed high active share portfolios, concentrated portfolios, believed in broadly diversified portfolios.

Starting point is 00:45:50 For some unexplainable reason we go into in the book, don't know why, that he does decided, as a young kid in college looking for a master's thesis, decided, hey, you know, I think I'll call risk price variance. No evidence that it is, but he just said, let's call risk price variance, even though Ben Graham said it's not price variance, it is capital loss. And the whole essence of modern portfolio theory began as a exercise on how to reduce price volatility, price variance. And Sharp got in there and did, you know, broadly diversified and CAPM and all that having to do with price volatility, and we kind of got into this world. And if you look at it, and I don't mean to go long-witted, Trey, the first 30 years of modern portfolio theory taught by Markowitz,

Starting point is 00:46:31 Sharp, and Phama, no one cared. No one had any, didn't even move the needle. It wasn't until after the 73-74 bear market where we blew up all this money, majority of the people said, listen, I want something other than blowing up money. And these professors at universities kind of took up their hand and said, you know, I got something that will, and price volatility that will reduce drawdown. Would you like to invest in that? And everybody said, yeah, that's great. That's what I want to invest in. And we built this machine that became modern portfolio theory that became the standard approach to money management that's basically overtaken money management. So now money management is the standard approach of broadly diversified, low price

Starting point is 00:47:12 variance, high turnover ratios with high expenses that can't beat the market. But it makes you feel good, I guess, because there's not a lot of volatility to it. But then you're mad when you don't beat the market, so everybody goes to index investors. Long with an answer is, there is a way to beat the market. It is academically proven. The caveat being, if you're going to run high, active share, low turnover portfolios, you'd better be a good stock picker because you're making very big bets on very few stocks and you better understand what you're investing in.

Starting point is 00:47:40 That's the caveat. Got it. Yeah, I remember talking about this a little bit with Joel Greenblatt, who started obviously with a very concentrated portfolio at first. If I'm understanding it correctly, what you're saying is essentially that, that it's hard to run a concentrated portfolio because the volatility is there. There's a lot of swings that can happen in a very concentrated portfolio. But sometimes the volatility is the price you pay for performance over time.

Starting point is 00:48:03 And if you diversify and have high turnover, is it that these funds are just wanting to make it look like they're doing their job? Again, if we're going back to pragmatism, how has it lasted this long? I think one thing that we haven't talked about and needs to be talking about is the compensation practices of portfolio management or asset management firms. If they change their compensation practices not to reward short-term performance and changes to long-term performance, it would be interesting how people would construct their portfolio. So, for example, Todd and Ted, at Berksor Hathaway, get an annual salary-based salary, and it's a good one, but their biggest money is made

Starting point is 00:48:38 over a rolling three-year average relative to the S&P 500. So if 90% of my compensation was based upon how I could outperform the market over the next three to five years, I guarantee if people would we've been running high active share portfolios, but because people are paid largely based upon assets under management. And if you had a lot of assets this year, relative to whether you even beat the market, you didn't market, you still get a big paycheck. Your primary motive is just not to lose money, and you're more likely to lose lots of money if you underperform by a wide gap, than if you modestly underperform by a small gap, the amount of money that's going to leave will be less. And so that's a very big deal because most investors equate price with value. If the price

Starting point is 00:49:22 is going up, they think it's more valuable. If the price is going down, they think it's less valuable. So if you're concentrated low turnover portfolio has a drawdown, which is going to have from time to time, they think it's less valuable. They take money out. And if you're compensated on assets, there goes your job. If we change that, though, you begin to wonder if people would begin to behave differently. But we do have a section in the book, because Charlie Munger asked the question, he, you know, he asks you, if what we do at Berkshire Hathaway, and you talk about Lou Sampson, you talk about these other great Sequoia Fund, if what we're doing in money management is really that good and outperforming, why don't more people imitate it? What's going on here? It's not taught at

Starting point is 00:50:03 university. It's not imitated by, you know, these large money management shops. What's going on here? And I think part of it is what I've said is that they're acceding to a client's wish to have a smooth ride versus a bouncy ride, which is what ActiveShare does. They're trying to avoid big drawdowns, which we know from prospect theory makes people very nervous. But the other thing is that if you have built a investment management practice, and let's say all your schooling, your education, and your entire asset management businesses tended upon broadly diversified low various portfolios and you're not doing very well, you're not going to say, you know what, everything that I told you was wrong. Everything that I discussed with how to make money doesn't make any sense. You know, you can see where the economic incentives might continue to perpetuate bad behavior versus taking the rational. optimal approach, change your behavior. Yes, Charlie would say, show me an incentive and I'll show you the result.

Starting point is 00:51:00 But at the same time, you know, to this point, Krimmers writes about this. He says, you can change the incentives, but you still have to have people show up to do it. And so you have to match the portfolio with a client who gets it, right, who understands that if I want to outperform the market, I have to do high active share-low turnover portfolios. And yes, I have to understand that, you know, my batting average might be 50%. I mean, we looked at focus investors like Charlie and all of it. You know, their batting average was, you know, 40, 50%, 60%. The rest of the time, they're underperforming.

Starting point is 00:51:29 So how do you feel about underperforming on a short-term basis? Well, Warren said, that doesn't matter. It is my look-through earnings, the economic progress of my business that you should be focused on, not on the price, which is secondary, and you have to change the way in which people calculate their progress by economic returns versus price return. I want to shift gears a little bit. I heard a funny quote recently that said something to the effect of, if you think you learn a lot by reading a book, try writing one.

Starting point is 00:51:58 So you've written a few books now. I'm really curious to hear what you learned from writing this book for yourself that you didn't already know, maybe. It goes back to my mom. I was used to say, you know, if you write it down, you'll remember it. And I guarantee you if you write a book, you really become quite proficient at what you're writing. And so if you really want to be best in class on a topic or you want to become really quite proficient and thought well of and how you're explaining something, by writing a book, it not only gives you credibility, but you actually become much better at it because you're so immersed in it by writing, doing the research, doing the footnotes and the bibliographies and reading things that by the time you put down a book, or by the time you've written a book, you should have a very high level of being able to explain it and defend it. So I do think that there's some.

Starting point is 00:52:46 something to that. And to this point that you write books, you also teach. And to the degree that you teach, you become better at it too. And there's a lot of work that's been done about how teachers, the more they teach their subject, the better they are at it. And it's all intertwined. So everything that I've ever done has worked to getting me to be smarter about what I was curious about. Curious about how Warren thought about stocks. Well, I could have just kind of thought about it and passed on or just, you know, read a couple of articles and passed on. Or I could have actually written a book about it and I got a lot smarter about it. How does Warren think about portfolio management? Well, let's write a book. We get really smart about portfolio management.

Starting point is 00:53:21 How does Charlie think about, you know, the lattice work of mental models in achieving worldly wisdom? We wrote a book called Investing the Last Little Art, where we went through the actual disciplines of physics and biology and philosophy and psychology and social sciences and all down the road. And then you can tease out. So, you know, if you write it down, you're going to get a lot smarter. Now, I'm not saying that everybody needs to go out and write a book, but I'm telling me if you do write a book, you're going to get really quite good at what you're trying to explain. So I think your question was, Craig, what did I learn by writing this last book? Okay.

Starting point is 00:53:51 Well, I said up front, I was embarrassed and humbled that after writing about Warren Buffett for 25 years, I think I discounted what was equally the most important part of being successful in a Warren Buffett approach, which was temperament, the money mine. And I write in the book that, you know, all I did was focused on methods. All I wanted to do was learn how to swing the bat like Warren Buffett. If you want to learn how to play golf like Tiger Woods, you learn how to swing like Tiger Woods or whatever you do, you're following the mechanics and the method. And I thought that's all that was needed. But I did discover over time that people struggled with the Warren Bucket methodology.

Starting point is 00:54:24 I've never met anybody who disagreed with it. I've never met anybody who said, you know, that's not smart. That's smart. I said, well, do you want to invest like that? And those that did said, absolutely, I'm going to invest like this. And a good many of them were successful, but some of them struggled. And some of them, you know, really were stressed about the volatility and the variance and the drawdowns and the underperformance. And the more that they stressed about it, the more I sharpened my pencil to tell them, this is a really good investment. This is really smart. You should actually own this and not sell it and we're going to be okay. And I kept just pounding the method and the method and the method. What I realized was without having the temperament,

Starting point is 00:55:00 and we talked about self-reliance and rationality and pragmatism, which all leads to stoicism. When they talk about that, Ben Graham was a great stoic. And if you think about the really great investors, they have a stoic attitude towards markets. If you build that money mine architecture, that philosophical background about how to think about markets independently, that is the reinforcement that you need when you have a drawdown in the portfolio or you have price variant or you're out of step with the market, having that money mine architecture is a steel reinforcement, the backbone that you need in order to navigate through markets when they're not shining on you. So, So, you know, if you're 50-50 on a market on a monthly, quarterly annual basis of beating the market, underperforming the market, it can be psychologically kind of tough.

Starting point is 00:55:49 Because if you think prospect theory, you're going to weight losses twice as much as gains. If you're losing half the time, psychologically, you already beat up about it. But I would say this. What makes high active share of portfolios work is that it's not a frequency argument. It's not how many times you win, less how many times you lose. It's how much money you make when you win, less how much money you get back when you lose. And so it's a frequency versus magnitude.

Starting point is 00:56:14 The difference between batting average and slugging percentage. And people that get to understand that and then psychologically reinforce themselves with that self-reliance, rationality, pragmatism, and that all intertwines, then you're in a much better shape. And then I would say this. We write a section in the book about, you know,

Starting point is 00:56:33 we make reference to Rod Serling's Twilight Zone. You're probably too young, trade, to watch Twilight Zane growing up, but it's the fifth dimension, an alternate dimension. You know, Warren basically, you know, you think is all the celebrity of him being in the stock market, he really operates in an alternative universe. He really doesn't think about the stock market that much. It doesn't absorb him 24-7. Even though he says he has CNBC on, he says he turns the sound off and only looks at the headlines every once in a while, he's operating in an investment zone, if you will, of stocks, his businesses, if the stock market did not exist.

Starting point is 00:57:06 99% of the people operate in a market zone, which is all they can see are the greens and the reds that are flashing on the screen and all the people that are pontificating about what you should do and what you shouldn't do and things like that. Warren doesn't even live in that world. He lives in an alternative world and more people live in the market zone that live in the investment zone. And if you're going to be very successful at the Warren Buffett way methodology, the money mine aspects of it, you really find yourself being divorced from the market zone and you go live in the investment zone. and it's a much easier, friendlier place to live in in the investment zone than it is the market zone. But you can't get to the investment zone if you don't have a money mine in my judgment. That's a conclusion I've made for myself wherein, you know, when I discovered Warren Buffett, I came for the investing and I've stayed for the philosophy.

Starting point is 00:57:54 You know, that's what I love about investing so much is it's really philosophy at the end of the day in psychology and a number of other things is you kind of highlighted. One thing I'd love your opinion on, it sounds like when Warren Buffett talks about the money, mind, it sounds like you either have it or you don't, right? Do you believe this? Do you think it's teachable? Do you think it's, if you read enough books, if you study stoicism, is it something that you will grasp ultimately? Or is it something that you're inherently born with? I think both. I mean, clearly Warren, the DNA worked real well. Some people are really wired very well for this type of investing. Bill Miller was the kind of guy that's just perfectly wired as Warren Buffett,

Starting point is 00:58:29 as Charlie Munger, they talk about it. But at the same time, both Warren and Charlie talk about it is teachable. Rationality is something that can be learned. So I remember. I remember one of the first reviews of the Warren Bucket Way back then, and we'll tell you the name of the reviewer, you know, nice guy. He said, you know, it was a good book, but really just because you want to play piano like Mozart, if you study Mozart, you're not going to play the piano like Mozart. Well, I always thought that that was kind of a stupid argument. I never said that if you were ever read the Warren Bucket way, that you were going to achieve the same returns, play the piano the same way as Warren Buffett. I said if you basically studied the methods, you're likely to improve your way in which to invest, right?

Starting point is 00:59:06 So you may not actually be able to perfect it. You may not actually be able to achieve identical returns. But if you follow this outline, that's a good chance that you may do better than what you've done in the past. And we took the same approach with the money money. I said, look, reading this book, it's not going to give you the same money mine as Warren Buffett. But if you were to study the aspects of a money mine

Starting point is 00:59:27 and the architecture of a money mine and were able to embrace part of it and continue to use it as a learning tool over time, will you be psychologically emotionally and philosophically better at investing than had you not read the book? And the answer is yes. You know, it should be yes. So it's kind of like, yeah, I mean, there's some people that just seem to fit the mold really, really well. And Warren is one of those guys. And then there's the rest of us like me that didn't fit the mold well, but are trying,

Starting point is 00:59:56 that they're studying and trying to reach out and trying to figure this stuff out. And I do feel after having read this book, I have a much better sense of the film. philosophical, psychological, emotional aspects of investing that I did not have before I wrote the book. So it was 25 years after writing the Warren Buffa way, I'm humbled to tell you I didn't have it all figured out. Well, we've talked a lot about Warren Buffett. I want to just end by talking a little bit more about Robert Haxstrom. You mentioned earlier about Warren's quote saying he's 85% Graham, 15% Phil Fisher, maybe it's 5050 as of the 80s. After all this research, and you've run your own successful fund and invested along Bill Miller and a few others, I'm going to pose the same question to you. How do you quantify your approach these days? After, is it 90% Buffett? Is it 50%? Who else do you incorporate in your own practice? That's a great question. Guys, how do you think about that? I've never been asked that question. You know, someone said to me, Robert, you wrote your dissertation on Buffett by writing the Warren Buffett way, and you got your practicals by managing money with Bill.

Starting point is 01:01:04 Miller, if you can't outperform the market, shame on you. And that's true, right? So you can't dismiss Graham. You can't dismiss Bill Fisher. But Warren is a huge part of my life, a huge part of my investment life, which was able for me to equate stocks as businesses. And as Carol Loomis said, you know, we were back and forth with Carol Loomis, that, you know, she edited the Berkshire Hathaway and reports. And it's just a wonderful journalist who's written for seven decades, it seems like. And she says, you know, it's all reduced to stocks as businesses. And I remember when I became immersed in Warren Buffett is that I was a liberal arts major, political science major, getting into the stock brokerage business in the 1984, thought I'd made a terrible mistake,

Starting point is 01:01:44 didn't understand finance, didn't understand accounting, thought this was it, was in a training program the night before our last day and I had planned to resign the next day from my training program going, this isn't for me. I happen to read this annual report of Berkshire Hathaway, which I'd never heard of, written by a guy named Warren Buffett, which I'd never heard of, and read it in my hotel room that night. And it was, you know, know, the proverbial light goes on, contentification. You get it that stocks our businesses. So, yeah, is it Warren Buffett?

Starting point is 01:02:11 Absolutely. It's huge. Cannot underestimate how much Bill Miller has influenced me. So to be able to work alongside Bill Miller and understand not only valuation for technology, go through Dell, go through Amazon, go through Google at the feet with Bill Miller, and it's going to make you much smarter. But he did so much more for me. I mean, he took me to the Santa Fe Institute and helped me understand complex adaptive systems.

Starting point is 01:02:34 and year after year going out there and meeting all these great scientists, including Brian Arthur and Murray Gilman, and just tremendous. And then the academics that we've been able to interface with like Michael Mobison. I guess it would be a trioka of Warren and Bill, huge, and then being able to, at the same time, a continuous learning attitude of surrounding yourself with the smartest academics that you can, that's a pretty good definition. So I don't think there's a Robert Hacks from in there.

Starting point is 01:03:04 I think there's three major inputs in my life, and I'm amalgamation of all those put together. I love that. Great answer. In the spirit of continuous learning, that sounds like the key to success ultimately is just continuously learning and taking on a wide range of subjects. And that's what I've taken away from Buffett and Charlie. And from this book that you just recently read. So thank you for expanding my knowledge by writing it.

Starting point is 01:03:29 And I've really enjoyed this conversation. I'd love to just give you an opportunity before I let you go to hand off to the books you've written, where they can find them, if people can find you online, any other endeavors you're working on, feel free to share. The books are all in Amazon.com. I think Amazon's selling 80% of the books in the world today. So, you know, Warren Buckaway is now in the third edition. What I'm most proud about Warren Buffaway is the international sales. It's now in 18 foreign languages. We sell more books overseas than we do in the U.S. about Warren Buffawey.

Starting point is 01:03:59 That's the celebrity of Warren Buffett. He is just worshipped overseas. Charlie's just been a phenomenal influence. If you want to talk about waking up each day with a spirit of adventure and curiosity to want to be able to study anything anywhere, and it doesn't have to be finance and accounting, you know, to pick up a history book, to pick up a science book, to pick up anything to see if you can distill something out of there that will make you smarter. Charlie gave me that when he did the lattice work of mental models. And that is a blessing that he gave me that has enriched my life in so many ways and will enrich my life to my dying day because each day I wake up with, hey, let's go figure out something new. Let's go study something new. So, you know, as Charlie says, reading is the answer to it. I've been so blessed and so lucky to have had so many great influences. Warren says, pick your heroes. Make sure you pick your heroes and pick the right heroes. I pick, you know, Warren and Charlie and Bill Miller and some others. And my life is so much more.

Starting point is 01:04:59 enrich so much better for it. So, you know, I always wish people continued success, but read, read, and don't stop being curious about things. And remember, pragmatism is what makes you successful next year, not just this year. Well, Robert, this was such a pleasure. And I know your time is so valuable. I really appreciate you taking the time to join us today and talk to us and educate our audience. I really cannot encourage people enough to go read this book. I highly enjoyed it. And personally, having read a lot of Warren Buffett-esque books, this is one of my favorites, so really enjoyed it, and this conversation didn't disappoint. So, Robert, let's do it again sometime soon. I appreciate it. I look forward to it. Trey, you were a terrific, great, great conversation. Thanks for the invitation.

Starting point is 01:05:40 I look forward to seeing you again. All right, everybody, that's all we had for you this week. If you're loving the show, go ahead and follow us on your favorite podcast app so you get these episodes automatically every week. And if you haven't already done so, go to the Investorspodcast.com, check out all the tools we have there or just simply Google TIP finance. Go ahead and follow me on Twitter at Trey Lockerby and reach out with feedback. We'd love to hear from you. And with that, we'll see you again next time. Thank you for listening to TIP. Make sure to subscribe to Millennial Investing by the Investors Podcast Network and learn how to achieve financial independence. To access our show notes, transcripts,

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We Study Billionaires - The Investor’s Podcast Network - TIP360: Inside The Money Mind of Warren Buffett w/ Robert Hagstrom

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