We Study Billionaires - The Investor’s Podcast Network - TIP436: Is the Buffett Partnership Strategy Still Applicable Today? W/ Zack Oliva

Starting point is 00:00:00 You're listening to TIP. My guest today is Zach Oliva. Zach is an attorney by trade who runs a 30-person law practice out of Houston, but he's also been a lifelong investor. And he's most recently been running a partnership in the style of Buffett's early 1950s partnerships and has been beating the market by a landslide. In this episode, we discussed the structure of Buffett's early partnerships. The playbook Buffett was implementing back then and how it would look today,

Starting point is 00:00:27 how to think about cloning someone else's investment style versus development. your own, resources for finding new investment ideas, the profile of an easy bet and how to find them, what an anti-circle of competence might look like and a whole lot more. I really love getting to speak to Zach and to find someone operating within this partnership structure in modern times. It's another great example of how net nets, deep value, and equitable fee structures are alive and well. I hope you enjoy it as much as I did, so here's this week's interview with Zach Oliva. podcast, where we study the financial markets and read the books that influence self-made billionaires

Starting point is 00:01:06 the most. We keep you informed and prepared for the unexpected. Welcome to the Investors podcast. I'm your host, Trey Lockerbie, and like I said at the top, I'm here with Zach Oliva. Really excited to have you. Came highly recommended from our friend Josh Young. I know you guys have been friends for a long time, and we're going to touch on the differences between your styles a little bit on this show. And you are bringing a refreshing flavor of investing. And I mean that by saying you're a little old school, following the days of the Buffett partnerships, for example. And I haven't found many people out there living that, right, doing it that way anymore. And that's what piqued my interest the most. And I really want to dive into that. And one thing came up when we were chatting that I wanted to

Starting point is 00:01:57 touch on, which is something I'm actually very jealous of, which is that your father taught you about Warren Buffett when you were very young. So that's an education. I wish I had. earlier in life. I'm kind of just interested in what your earliest memory looks like learning about Buffett and what impact that has had on your career. The earliest memory actually is I had to Google it 1996. So I was 11 and that's when the B-Shares came out for Berkshire Hathaway. And my dad was really excited about that. I remember. I obviously didn't have a lot of context about why this was a huge thing or whatever. But, you know, in my house, we spoke about spending, saving, investing a lot. And my dad actually gave me some B shares when I graduated college as a

Starting point is 00:02:46 gift. And I, you know, I still have those. And, you know, they perform great, which is amazing. But my parents grew up relatively poor. I mean, my mom used to make her own clothes in high school. my dad's first car, he had to put in a plywood floor because there was no floor, kind of like the Flintstones. And they both worked hard. They went to college. They saved and invested well. They were both public employees. And they provided a great life for us. So it was a great kind of model for what can happen when you're smart with your money. So really for as long as I could remember, Warren Buffett says this and Warren Buffett says that has been part of my mental tape in my head. for as long as I could remember, whenever the phone would ring after dinner, my mom would say,

Starting point is 00:03:32 Paul, your uncle Roger, and then she would say, all right, boys, they're going to talk about stocks for the rest of the night. And then I would watch my dad write down these little tickers on a piece of paper, and then him and I would look them up in the newspaper, and it was kind of, you know, I didn't, again, I was so young, but it was a fun thing to do. And I remember, I was thinking about this the other day, there were three kind of big parts in my dad's investing life. I think it was when Blackberry became a multi-bagger, and I remember his reaction when that happened, which was total disbelief, when Berkshire created the B-shares, and when he found Fidelity Contra Fund. And what's interesting about that is I didn't realize the significant of this until a few months ago. I was reading an article, I think it might have been in Barron's, and they named Fidelity Contra Fund as one of the top mutual funds ever.

Starting point is 00:04:22 and contra means contrarian. So the entire mutual fund was, you know, of course, revolved around investing in out-of-favor stocks and out-of-favor industries. So I was happy when I learned that, you know, that my dad had those great successes. And I would say the biggest impact that it had on my career was it made making money fun. I could talk to people about it. There was kind of a context for it. And it was okay to make a lot of money.

Starting point is 00:04:52 You know, and it was kind of an attitude. And, you know, you're from the Midwest, tray. So there's kind of that, you know, get up and work hard work ethic. And there was a lot of that in studying, you know, Warren Buffett, the guy would work his tail off and still continues to do so. So it was a, I couldn't imagine a better kind of mental model to have, especially when you're young. You know, when you're in law school, I imagine you're just consuming so much information. And, you know, Charlie Munger comes to mind, right? You're reminding me of taking kind of his roadmap where obviously was an attorney for a long time turned investor.

Starting point is 00:05:29 What are the synergies between them? Obviously, you know, financial documents and just studying documents in general and kind of synthesizing a lot of information at once comes to mind. But are there any other benefits you found that, you know, for skill sets you've taken from one to the other? Yeah, you know, you brought up one of the big ones, which is obviously analysis and synthesis. I think probably analyzing risk is a big one because as a lawyer, you're training your brain to poke holes in a lot of things. Kind of was a difficult learning curve for me, investing in Graham style net nets because there's something wrong with a lot of these businesses, right?

Starting point is 00:06:07 But I think another big thing that it taught me was the difference between causation and correlation. I think that was a very beneficial lesson that, you know, those two things. things, you know, there may be correlations between things, but that doesn't necessarily mean that they're a direct cause or approximate cause of that event. And so that's allowed me to really almost forget about the macro side and a lot of them because there's a lot of correlations. But I don't know if there's a lot of causes. And it seems to me like, you know, the economists also can't get it right at least half the time.

Starting point is 00:06:51 So I'm really not in the business of making any of those macro predictions because I've just figured out it's a game that I don't think I can win. You brought up net net. So let's kind of go there because that's reminding me of the Buffett partnerships in the early days. On episode 431 with Ian Castle, he did lay out that Buffett started with around $105,000, which at the time, in today's dollars, that would be about a million dollars. And he increased it to around $8 million at the time, which by the time it kind of converted

Starting point is 00:07:21 to Berkshire stock. So that would be about $65 million in today's dollars. So that's a huge increase. And he was doing a lot of that by doing net nets of the Graham style investing that he learned at Columbia and under the tutelage of Graham himself. I'd like to talk a little bit about that playbook and what Buffett was using at the time and what that looks like in today's markets, you know, given your experience. So first, I thought that was a fantastic interview with Ian. And he really seems like a smart investor. I don't know him, but I was really impressed with that interview and the community that he's built. But, you know, it took me a bit to learn about Buffett's early partnerships and to really have that aha moment.

Starting point is 00:08:01 And the question that you asked previously, which was, you know, when I talked about how fortunate was growing up in a house that was, I guess, pro Buffett, there was a downside to that too. And it took me a while to unravel that. You know, when I was introduced to Buffett at that young age, he was really focused on the great businesses at fair crisis, right? And why wouldn't you be? You're one of the richest people in the world. There's your universe is X, right? Not the cigar butts, Buffett.

Starting point is 00:08:30 And so I really had to work my way backwards. So basically, I just kind of found out that I wasn't, I wasn't really getting the returns that I wanted. And so I thought, all right, what was he doing when he first got started? So if you go back and look at the partnership letters from the 50s, which are a great read, he was mostly focused on generals, which is today what we would call net nets, gram style. You know, basically he was buying assets at a discount, current assets minus all liabilities, or could he buy below liquidation value?

Starting point is 00:09:03 So at the same time, he was looking for workouts, which we would call special situations today. Now, depending on the availability of the generals, he would change up that allocation. So, for example, in 1957, he wrote that basically, hey, he wrote to his investors, if the market goes down, I'm going to buy as many of these generals as I can. I might even take out loans from the bank to do so. And so I think, you know, he loved the generals. I think the workouts probably provided him with more maybe intellectual statistics. and also probably provided him with more guaranteed returns, but they would take longer.

Starting point is 00:09:45 So, you know, with the net nets, it's kind of like you're going for those returns and there's, you know, a lot of value there and you kind of strike while the iron's hot. Whereas with the generals, I mean, I think he wrote in his letters that they could take anywhere from five to 10 years, you know, that he could see at that time to work out. So I can analogize it from a business owner's point of view. I think the generals are probably the bread and butter slash keep the lights on style. And maybe the workouts or special situations would be like new business lines or expansion, you know, if you're operating a regular business.

Starting point is 00:10:24 I don't think that you need to do both. And, you know, Benjamin Graham, he gave a few interviews right before he died. And he basically said, look, I know this seems too good to be true, that you can generate good consistent returns using this kind of net, net approach. But I haven't been able to find, you know, I've been testing it for 60 years and I haven't been able to find otherwise. So I think that either in the beginning or the partnerships when Buffett started moving away from the generals into the workout situations, everyone's different, right? Some people like a lot control in their investments. Some people want investments where they know the founder and believe in

Starting point is 00:11:06 the founder, like you're in your interview with Ian. And so everyone's different. And so I think, you know, maybe he got bored. I know Graham got bored with the net nets. He would spend a lot of his time translating plays from Latin to Greek, Latin to French, or Buffett wanted more control over his investments. But what's crazy to me is what an absolute machine is, he is, there was an interview with Alice Schroeder online after the snowball effect came out. And she wrote that even if he would see a general noun, he would pick it up for his personal account. And then I listened to a Monish Pabry video.

Starting point is 00:11:47 It might have been one of your interviews when he said that he was in Buffett's office and there was the Japanese company handbook on the desk. and like Japan and Asia is usually a pretty good place to find these net nets. And Pabri said, look, you don't even have that handbook unless you're looking for these Graham-style net-net. So I think Buffett wasn't able to kick the habit. Yeah, you brought up being bored. I almost kind of questioned too if, you know, the failed attempts, not that there were failed attempts, actually, if you think about the takeovers around Sanborn or Dempster Mills, you know, in 1960,

Starting point is 00:12:25 One, he bought 70% of that and actually turned it for a profit. But I think there was that realization of what a bad company ultimately really looks like, maybe not enough because he went on to buy Berkshire at the time. But I kind of thought of it as more of a like he felt the pain of a bad company. And a lot of these net nets, that's what they are. I mean, they're net nets for a reason, right? Yeah, it could be true. And I think the question with the net nets is, is it as bad as the market thinks it is?

Starting point is 00:12:59 So, for example, there are some companies that I found where, you know, so the law firm that I'm an owner of is a service business, right? We service oil and gas companies, essentially. There are some companies that I found that are trading below liquidation value. And I look into why, and it's, well, they lost, you know, one of their key customers. that was 20% of revenue. And I sit there and think like, man, I run a service business. If we lost one of our key customers, it would be bad, but it wouldn't be, it wouldn't shut us down.

Starting point is 00:13:37 You know what I mean? So I think really with some of these net nets, there's usually a story. There's been others that I've looked at that have had bad management, right? But they're trading for so low that they soon get acquired. which is good. So I think it really depends on, I think it's pretty situational. You definitely got to look into these things, obviously.

Starting point is 00:14:03 But yeah, he probably did feel a lot of pain from those, especially because he was probably a lot more intimately involved with those folks than I am, for example, right? I mean, I could sit on my phone on my couch at home and buy stock in a company anywhere in the world. these days. Well, that's what I want to talk about right there because we're in the information age now. Buffett was not.

Starting point is 00:14:30 And he was literally sifting through Moody's manuals, identifying stocks that, you know, the information on that stock would take sometimes a year to realize, you know, it being undervalued, et cetera. Let's just say. So there was. Or never. Or never, right. There was an arbitrage opportunity there, right?

Starting point is 00:14:49 An information arbitrage opportunity. Whereas today in the information age, everyone can. can sit on the couch on their phone and read everything about every company live, you know, within minutes of news coming out. So one thing that came up with Ian that was kind of enlightening was these can still exist in the microcap world, especially because they're just so small that no one's paying attention or enough attention to them. And so the price can just drift lower and lower. Is that where you tend to shop around or have you found these net nets and other parts of the market as well.

Starting point is 00:15:22 I think that because of the way that the market is structured and the major participants in the market, right, some funds have rules where they can't participate below certain market caps or it just doesn't make sense for them to go look into companies below, say, $100 million, right? So you have smaller funds in there that you compete with because you're always competing with someone on the other side of every transaction. And you have, I don't know, I like to think of retired dentists, maybe. being on the other side.

Starting point is 00:15:52 But I think it generally, in the small and microcap space, there's a lot, but there's always exceptions to that. I'm pretty sure, I don't remember the exact year, but in the 2000s, Apple was a net net. So, you know, I don't know if I really want to be the poster child for like, hey, everyone go out and buy net nets because they're out there because that would, you know, be competitive. But I've read in books in the last, you know, several years with, you know, famous investors who got started in Grahamstile investing and they're in print saying, yeah, I used to do these net net stocks, but they don't exist anymore. And I'm like, well, yeah, they do. You can find them. And it's great when you do. So, yeah, I don't know if that's a misconception in the market. I think it also could be the times. Like, if I look at a large group of people, say the folks that attended my wedding, right, then they're not looking for net nets.

Starting point is 00:16:55 They're looking to do options trading these days. They're looking at the fang stocks. They're trying to buy Tesla. They're trying to invest in Bitcoin. It takes a while, I think, as an investor to get to wrap your head around net nets. And it's a leap of faith, right? It's a leap of faith in the market and in an investing process. I'm satisfied with the evidence that exists on it and the performance, but other people may not be, and that's their prerogative.

Starting point is 00:17:29 Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have. is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year, bringing together activists, technologists, journalists, investors, and builders from all over the world, many of them operating on the front lines of history. This is where you hear firsthand stories

Starting point is 00:18:06 from people using Bitcoin to survive currency collapse, using AI to expose human rights abuses, and building technology under censorship and authoritarian pressures. These aren't abstract ideas. These are tools real people are using right now. You'll be in the room with about 2,000 extraordinary individuals, dissidents, founders, philanthropists, policymakers, the kind of people you don't just listen to but end up having dinner with. Over three days, you'll experience powerful mainstage talks, hands-on workshops on freedom tech, and financial sovereignty, immersive art installations, and conversations, and conversational.

Starting point is 00:18:42 conversations that continue long after the sessions end. And it's all happening in Oslo in June. If this sounds like your kind of room, well, you're in luck because you can attend in person. Standard and patron passes are available at Osloof Freedom Forum.com with patron passes offering deep access, private events, and small group time with the speakers. The Oslo Freedom Forum isn't just a conference. It's a place where ideas meet reality and where the future is being built by people living it. If you run a business, you've probably had the same thought lately. How do we make AI useful in the real world? Because the upside is huge, but guessing your way into it is a risky move. With NetSuite by Oracle, you can put AI to work today. NetSuite is the number one AI cloud ERP

Starting point is 00:19:28 trusted by over 43,000 businesses. It pulls your financials, inventory, commerce, HR, and CRM into one unified system. And that connected data is what makes your AI smarter. It can automate routine work, surface actionable insights, and help you cut costs while making fast AI-powered decisions with confidence. And now with the NetSuite AI connector, you can use the AI of your choice to connect directly to your real business data. This isn't some add-on, it's AI built into the system that runs your business. And whether your company does millions or even hundreds of millions, NetSuite helps you stay ahead. If your revenues are at least in the seven figures, get their free business guide demystifying AI at netsuite.com slash study.

Starting point is 00:20:14 The guide is free to you at net suite.com slash study. NetSuite.com slash study. When I started my own side business, it suddenly felt like I had to become 10 different people overnight wearing many different hats. Starting something from scratch can feel exciting, but also incredibly overwhelming and lonely. That's why having the right tools matters. For millions of businesses, that tool is Shopify. Shopify is the commerce platform behind millions of businesses around the world and 10% of all e-commerce in the U.S. from brands just getting started to household names. It gives you everything you need in one place, from inventory to payments to analytics.

Starting point is 00:20:56 So you're not juggling a bunch of different platforms. You can build a beautiful online store with hundreds of ready-to-use templates, and Shopify is packed with helpful AI tools that write product descriptions, and even enhance her product photography. Plus, if you ever get stuck, they've got award-winning 24-7 customer support. Start your business today with the industry's best business partner, Shopify, and start hearing sign up for your $1 per month trial today at Shopify.com slash WSB. Go to Shopify.com slash WSB.

Starting point is 00:21:32 That's Shopify.com slash WSB. All right. Back to the show. You mentioned the other side of the trade, and one exchange that has been happening as of late that I just find interesting and maybe topical for this discussion is the transfer of shares it would seem from Carl Icon to Warren Buffett with Occidental. Kind of curious what you think about that exchange, if you just have any general thoughts on that when you're thinking about Carl Icon being on the other side of the trade, but Buffett's buying.

Starting point is 00:22:06 I just find that dynamic pretty interesting. man i don't know that's kind of a battle between titans i you know carl icon is a legend and the picture also changed right from when buffett bought to when carl originally kind of got involved in oxy and some of these other oil and gas companies if you were a the market has change a lot since then. So I guess I don't have any really big insight besides that, you know, it's kind of funny. And it seems like Carl's always kind of trying to catch up to warn. This is just another. It does. All right. So sticking with the partnerships for a little bit longer, one of the more interesting points about the Buffett partnerships is the fee structure.

Starting point is 00:23:03 And so walk us through what that fee structure was and how it's actually inspired you and your own fund in its fee structure? So the fee structure in the Buffett Partnerships was basically a 25% fee to him, performance fee, above a 6% high watermark. So in some partnerships, he shared in the downside. He didn't do that very long. And for example, if he only made 5% in a year, he had to make it up in the next year to get his fee.

Starting point is 00:23:31 So it didn't just inspire me. I mean, I copied it. And there's a few reasons why. First, I don't really need the management fee. So I've run businesses before besides the law firm, besides this investment fund. It's basically a vehicle for me to manage my money, my family's money in one place and have partners participate alongside of me. So I'm not really worried about the management fee. I don't need it to pay the rent or for a Bloomberg subscription or anything like that.

Starting point is 00:24:02 Second, I really wanted an incentive on myself to keep costs low, and I really can't think of a better incentive than the fact that they come out of my profits. So I don't have nor I desire to have a bunch of analysts, Bloomberg subscription, an investor's relation person. I have a few website subscriptions like Net NetHunter, and I subscribe to Value Line. and outside of that, my, you know, my costs are pretty low. Really, I think the biggest asset that I have is not technology. It's my brain. And so I just try and really protect that. I'm also an entrepreneur at heart.

Starting point is 00:24:42 So I love getting paid for performance. It's kind of how I'm wired. And I don't, like, if I'm not doing my job and getting people returns, I don't see why I should get paid for that. And so the way I look at it, you know, when I'm doing well, my partners are rewarding me handsomely, but they're also getting, you know, they're getting great returns. So I really think that everyone wins with this structure. And fourth, you know, lazily, I just saw that Monisha Pabri was doing it and I heard him talk about it a few times. And then it just

Starting point is 00:25:13 became such an obvious, obvious no-brainer to me because of a lot of the reasons that I mentioned. And I just think that obvious decisions are the easiest ones. You know, one thing that, it's interesting about this is Guy Spear a few years ago, probably in the early 2000s, maybe. He did a blog post where he basically said, hey, if you have a Buffett Park style fee structure in your partnership, please write in, I want to hear from you. And he posted the results of that on his blog. And most of the folks who wrote in said, I have a Buffett fee structure, but it's modified and I charge a half a percent for management fee. Or I have a Buffett partnership and I have a 1% management fee,

Starting point is 00:25:59 sometimes people just can't give up the management fees. And, you know, so I found that funny, but I get it. If you're just starting out and you need to pay the rent or you need to feed yourself, like I'm not knocking it. It's just a situation or rather a structure that I find works the best for how I'm wired and for how I look at performance. It seems to align the interests of the partnership. I actually got negative feedback when I started the fund about the Buffett fee structure that

Starting point is 00:26:32 some folks said, well, in this day and age, because hedge funds are like a thing, right? And I live in Houston where it's private equity funds and investment fund funds galore. No one's going to take you seriously if you don't charge a management fee. I don't know if that's true or not. I think that if people do think that way, it means we're probably not aligned. So it probably does a good job screening folks out that I maybe wouldn't want to be partnered with anyways. But yeah, it's an interesting topic. Sometimes from those skeptics, you often hear that, well, Buffett could do that back then because, you know, interest rates were higher.

Starting point is 00:27:10 They were in the 6% range or whatever, which actually isn't true. If you go back to the 1956-57 era when he was getting started, interest rates were below 4%. They were in the 3s, right? and they kind of bounced around from there so that they're not that much higher than they were here. The S&P was kind of performing more. So 6% often seemed a little odd to me in some ways, right? It almost seems random if you look back at history. I'm kind of curious.

Starting point is 00:27:34 Is it arbitrary? Does it come from something that you found? I think it's what he decided at the time based on a very young Buffett. And it worked for him and he kept it. I don't know what the most appropriate thing is to base it on. Do you? I don't know, but if I'm speculating it, it's almost like he saw this risk-free rate and said, well, I can double that.

Starting point is 00:28:00 It almost seems like a confidence thing. I can at least double that and then I'll collect from there. But then does the rate change? Does it float with the risk-free rate? Good point. So then new investors that come in are then paying a different rate if they come in, And their high watermark is different three years from now. So I just said, you know what?

Starting point is 00:28:24 Easy decision. Let's just stick with a six and let's just let it rule. I love 6% also because based on the timeline you're looking at, you could say that that's roughly the net return of the S&P 500, for example. So it's like, hey, I'm competing with the index. You could get your 6% there, but you're going with me. So I should be rewarded on anything above that. That seems like a fair return as well.

Starting point is 00:28:47 All right, let's shift gears a little bit and talk about the art of investing because you and I have both reached a similar conclusion and that is that you really can't invest using someone else's just rigid framework blindly at least. And when I think about that, I compare it to being a musician and you can learn how to play guitar like Stevie Ray Vaughn, for example, all day long. But if you wanted to really break through, you'd really have to come up with your own sound, your own approach. And I think investing is really of different. So some of your influences are names that we really haven't touched on with this show yet. And I'd like to kind of specifically ask about the influence that Walter Schloss and Alan Meacham have had on you. And if you could provide, first of all, just a background on those two investors specifically. Walter, in my opinion, does not get the love that he deserves. I mean, this is a guy. He worked as a teenager for Ben Graham and basically as a runner. and didn't go to college, and he outperformed the market for 50 years. If you would have invested with him on day one, like $100,000,

Starting point is 00:29:59 that would have turned into something like over $100 million over those 50 years. If you would invest in an index fund of the S&P or the equivalent, that would have returned something like $10 or $11 million. So also Walter is a fantastic case study in just the nature of compound interest, right? And I think his average returns were 16 percent and the markets during that time were nine or 10. So really just beating the market by a little bit over a long period of time can really be that, you know, time is the multiplier there.

Starting point is 00:30:36 He had simple rules. He avoided debt. He bought mostly what Buffett would consider to be generals. And I mean, he worked for Ben Graham, right? So bought generals and stocks trading below book value. He tried to buy it a multi-year low. He never talked to management. A friend of mine thinks that he was a simple guy with a great temperament for investing.

Starting point is 00:30:59 And that's what I love about investing. You don't have to be Warren Buffett. You don't have to be Charlie Munger. You don't have to be, you know, Carl Icahn, as long as you have the right attitude and the right temperament. And you know, you don't have to be the smartest guy in town. You don't even have to be the smartest guy in your block. You just have to have patience, discipline, and the right temperament and not deviate from those things.

Starting point is 00:31:25 And those things will carry most of the weight. He had low overhead, which I love. I think his overhead is running like hundreds of millions of dollars was like 10,000 a year. He worked basically out of a closet at Tweedy Brown. And his expenses were value line, postage. and his phone line. He didn't have any assistance or analysts. I think eventually his son started working with him later in his life. Oh, and he worked nine to five. So, you know,

Starting point is 00:31:56 a friend of mine said that Walter wins for greatest return on time. And I think what's lost today is that isn't that what investing is all about, a return on your time? Or is it this, you know, hashtag grind, hashtag, you know, working 18 hours a day, building out these DCF spreadsheets, reading these analysts reports. If you'd like doing that stuff, that's great. But I'm terrible at Excel. I'm absolutely horrible at Excel. So I think what I love about Walter is, you know, he was really good at leveraging his time

Starting point is 00:32:40 And he used that by having the right attitude and the right temperament. And as a business owner, and I'm sure you can appreciate this, the best leverage that you can have is the right strategy, the right decisions, and using your time effectively. That's what investing should reward. He was also incredibly organized. I mean, he managed over 100 holdings at once, which I actually have to dig into because that would be a lot to manage. Alan Meacham, he's a really interesting guy to study. There was an article that came out in Forbes probably a decade ago that called him the next Warren Buffett. I think he seems like a pretty private guy.

Starting point is 00:33:21 And, you know, the article was really interesting. He started in high school investing, you know, studying Warren Buffett. And his office was above, I think, a taco shop in Utah. And he was putting out like 40% returns. and so, you know, he left some breadcrumbs here and there that you try and learn from, but he had a very, you know, you look at some of his investments and they're so obvious in hindsight, like buying Berkshire with leverage in 2008. Of course that would work.

Starting point is 00:34:00 Berkshire was built for that situation, right? Of course that would work. So he made, I think he closed down his fund two or three years ago. He is a really interesting guy who didn't do a lot of marketing, didn't do a lot of PR stuff. He just did a lot of really great returns for his investors. I love that you brought up the IQ points, for example, because Buffett has joked that, you know, if you've got 165 IQ, you should sell it off to 125 roughly because you don't need all that for investing. And they often, you know, Buffett's so good at this, right? Kind of disguising a complex style and just making it sound so simple. And I mean complex, not so much complex, I guess more like hard to execute because it really doesn't take into account, you know, the human bias and emotions that go into all of it. Both of these men, as well as Buffett, had deceptively simple investing thesis, as you pointed out. What are some of the pitfalls to watch out for? when you're trying to follow such a simple investing framework like that?

Starting point is 00:35:08 Yeah, there's definitely pitfalls. First, I mean, you know, the whole great business is at fair prices thing. Looks great on a bumper sticker, right? But what's a great business? Is it the founder? What if he dies? Is it the product? Is it the, do they have a lot of competitors?

Starting point is 00:35:29 So I think what makes a great business is based on your experience over a long period of time. From my experience, I've arrived at the conclusion that for me right now, a great business is a monopoly with fat profits because I've seen everything outside of there, you know, fail or go away that I didn't think it was going to go. I have yet to find a net net like this. But if anyone, you know, listening to this does, please call me immediately. Another pitfall, I think, is that it can be boring using a simple process. Joel Greenblatt said that the hardest part about investing is the weighting.

Starting point is 00:36:11 And, you know, I agree. Like you said, you know, it's sometimes with these net nets, it could take a year for them to work out. But is that really a long time? Or does it feel like a long time because you're checking every day? Why isn't anyone buying this? Why isn't anyone recognizing the value in this idea? So a good friend of mine told me that it doesn't matter what business strategy you pick, pick one with a lot of evidence behind it, and then just go execute on it.

Starting point is 00:36:41 And it's probably the best advice that I've gotten in the last decade. Usually when I hear of investors who were very successful and then not, it seems to be because they got away from that simple style of investing. You know, I can tell when my friends who run investment funds are bored, I usually get a phone call. I think I'm going to start investing in real estate or there's this crazy macro situation going on that I really think I can take advantage of. And I just say, you know, go walk your dog, stick with your style, it's working, the market will keep up, it's proven. And I think also having a beginner's mindset and not getting overconfident is important. You don't need to know everything about everything, nor can you.

Starting point is 00:37:27 I think with a simple investing style, it really is important to be questioning that, right? But also, at the same time, trust in it. That may be very contradictory. Yeah, you almost need a accountability partner, right? Which kind of seems like what Munger was to Buffett in a lot of ways. And I mean, he was challenging him to find new ideas. Speaking of new ideas, we touched on earlier how it's probably not not wise to simply blindly follow some rigid framework from someone else's investment style.

Starting point is 00:37:59 But on the other hand, cloning appears to work rather well. For example, Monich Poprai, who's been a frequent guest on our show, is very outspoken about not having any original ideas. And so if we were to go that route and we were to clone others, where is the best place to start, in your opinion? Sure. So on the originality, I think that it really helps to clone. people and to clone investors in the beginning because it gives you a solid framework. And within that framework, you will find your own originality. So if you took maybe the five top Grateful Dead cover bands in the world and you put them

Starting point is 00:38:42 all next to each other, there's going to be a lot of originality within there, within there too. So I would call it maybe structured originality is important. but I think it's really important to clone people in the beginning, and essentially I'm, you know, cloning Benjamin Graham's approach right now. That's how you build a circle of confidence. There's a framework there for building the circle of confidence. I don't know anything more about investing than Benjamin Graham did or Warren Buffett did when he got started. I don't want to be those guys. I want to be the best investor that I can be. So I don't want to, like I don't wish I had.

Starting point is 00:39:22 I had Warren Buffett's life. I don't wish I had anyone's life, but my own. So there's a difference between cloning, I think, and thinking that you're going to be someone. You're cloning the approach and the strategy, which has evidence that it works, but you're just trying to be the best investor that you can be using that strategy. See, I love that because there's that distinction between, it's not an either or, right? It's almost chronological. You have to kind of master the basics to create the platform to jump off of and be your own original. That makes a lot of sense and does tie back to music, quite frankly, too, because you think of the Beatles, you mentioned the Grateful Dead. All these guys were studying the greats before them, right? Like, whether it was R&B or whether

Starting point is 00:40:06 it was some of the genre. And then you split off and it's amazing and you have more confidence and you can bring those styles into it. Right. So, yeah, I think it's an interesting, I think it's an interesting concept. You brought up an interesting point just there about Monish moving to compounders because there is that element of capital and how much you're putting to work. And at some point, you might just have too much money to move into a smaller. You're managing a lot more money. Exactly. And that's what Buffett kind of had to do it as well. Also, it's less work, right? You find that compounder, you don't have to spend your days looking for these Graham style investments. I think, you know, he's doing what Nick Sleep in them did where, you know, they find two or three

Starting point is 00:40:49 amazing businesses and you just let it ride for a while, which is a great idea. But also, the Graham style stuff is fun for me right now. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up and customers now expect proof of security just to do business. That's why VANTA is a game changer. VANTA automates your compliance process and brings compliance, risk, and customer trust together on one AI powered platform. So whether you're prepping for a SOC 2 or running an enterprise GRC program, VANTA keeps you secure and keeps your deals moving. Instead of chasing spreadsheets and screenshots, VANTA gives you continuous automation across more than 35 security and privacy frameworks.

Starting point is 00:41:36 Companies like Ramp and Ryder spend 82% less time on audits with VANTA. That's not just faster compliance, it's more time for growth. If I were running a startup or scaling a team today, This is exactly the type of platform I'd want in place. Get started at vanta.com slash billionaires. That's vanta.com slash billionaires. Ever wanted to explore the world of online trading, but haven't dared try? The futures market is more active now than ever before, and plus 500 futures is the perfect place to start. Plus 500 gives you access to a wide range of instruments.

Starting point is 00:42:15 The S&P 500, NASDAQ, Bitcoin, gas, and much more. Explore equity indices, energy, metals, 4X, crypto, and beyond. With a simple and intuitive platform, you can trade from anywhere, right from your phone. Deposit with a minimum of $100 and experience the fast, accessible futures trading you've been waiting for. See a trading opportunity. You'll be able to trade it in just two clicks once your account is open. Not sure if you're ready, not a problem. 500 gives you an unlimited risk-free demo account with charts and analytic tools for you to practice on.

Starting point is 00:42:52 With over 20 years of experience, Plus 500 is your gateway to the markets. Visit Plus500.com to learn more. Trading in futures involves risk of loss and is not suitable for everyone. Not all applicants will qualify. Plus 500, it's trading with a plus. Billion dollar investors don't typically park their cash in high-yield savings account. Instead, they often use one of the premier passive income strategies for institutional investors, private credit.

Starting point is 00:43:23 Now, the same passive income strategy is available to investors of all sizes, thanks to the Fundrise Income Fund, which has more than $600 million invested in a 7.97% distribution rate. With traditional savings yields falling, it's no wonder private credit has grown to be a trillion dollar asset class in the last few years. Visit fundrise.com slash WSB to invest in the Fundrise Income Fund in just minutes. The fund's total return in 2025 was 8%, and the average annual total return since inception is 7.8%. Past performance does not guarantee future results, current distribution rate as of 1231, 2025. Carefully consider the investment material before investing, including objectives, risks, charges, and expenses.

Starting point is 00:44:10 This and other information can be found in the income fund's perspective. at Fundrise.com slash income. This is a paid advertisement. All right, back to the show. Yeah, and again, as you said earlier, some of this advice makes for a great bumper sticker, which I love. But when you dig into investing in these great investors, you start to understand that even though it looks simple, it requires nuance. You know, for example, Walter Schloss, you know, came from Graham and Dodsville, as Warren Buffett would say. But even having Warren Buffett as a colleague, I mean, Warren Warren has said that he had no influence on Walter Schloss. He very much was an independent thinker doing his own thing. And even, you have Buffett in your ear telling you it's a good or bad idea.

Starting point is 00:44:50 You think they would have some impact on you, but not for him. So you know, you can clone to a certain degree, but you have to kind of pave your own path and have your own creative. I just, I don't know if I buy into it being as simple as what Monish makes it out to be. So let's just talk about when you get to the office and what the first thing you do is when you are looking for a new investment or you're showing up to work just trying to find an opportunity? Well, I make sure I'm nice and relaxed. You know, I make sure I have a checklist to make sure that I'm not, I didn't show up to work to buy something.

Starting point is 00:45:25 And I'm looking for big, obvious opportunities. I'm trying to think of an example of a big obvious. So a big obvious opportunity to me, to me, would be a kind of. company that's been in business for 10 years or so, decent profitability, unloved industry, maybe an unloved story behind the company, and they're trading for less than the amount of cash they have in the bank. To me, you know, on a per share, you know, basis or market cap or whatever, to me, you know, as long as there's other things there, the management's not diluting shareholders, you know, they have little to no debt, obviously. They're not trading at an all-time

Starting point is 00:46:09 high, which at that point they wouldn't be at all. I just look for big obvious opportunities and I just try and keep it simple like that. I mean, I'm trying to think of like there's, I don't use screeners. I use value line, a few websites, but mostly like on the weekends, I'm looking through just microcap, small cap, all even look in Barrens and look for like PE of one companies, and I'm just looking for big, obvious opportunities. And I, you know, I still pick pennies up off the ground and I see him on the sidewalk, right? So I'm looking for free, essentially, or discounted money, basically. You mentioned not using screeners. Another frequent guest of ours is Toby Carlyle, and he's very adamant about deep value. One of my favorite books,

Starting point is 00:47:02 actually, Deep Value. Everyone should go read it. But using a purely quantitative approach basically to mitigate the human emotions, human biases that get in the way. What if any quant-style tactics or metrics do you tend to look for in an investment? That is a fantastic book and everyone should go read it. And Toby's probably right. I have a few antidotes for this. So first, in the last interview before his death, Ben Graham said, look, the best way to do this is buy low P.E. stocks.

Starting point is 00:47:32 I know I wrote this book on security analysis and the intelligent investor, etc. But really, you could do this buying low P.E. stocks. And there was a not recent, but a daily journal meeting in the past where Charlie Munger said, look, if you just buy a company that's trading at two times book and is doing 20% return on capital every year, your life is going to turn out. Your investing life is going to turn out really good. Lastly, I don't even know if this is a true story, and I cannot find the story anywhere. But in the last few years, I read a story about a guy who lived in the mountains in a cabin,

Starting point is 00:48:12 I think it was in Colorado. And once a year, he would go down to town. He would get a newspaper. He would buy a few stocks trading at their 52-week lows, call his broker, place the order, and then go back to his cabin for the next year. he did really well. So again, I don't know if that story is true, but that is how I think about investing.

Starting point is 00:48:37 The things that I look for, I guess, on a quant style would be, you know, I'm looking for low PE ratios. I'm looking for, I'm really looking at the current assets and the total liabilities and trying to get a gram style, a gram style discount. I don't like debt. I don't like stocks that are being diluted by, you know, shareholders are diluting management, so that's something that I pay attention to. But I'm not putting together these DCF models for the next 10 years trying to predict out

Starting point is 00:49:09 cash flow in these businesses. I mean, they're just so cheap and that you can drive a truck through the valuation that, you know, as long as a business doesn't go out of business, and if you're buying below liquidation value, it almost doesn't even matter. So those are the things that I look for, but I think, I think, Toby's probably right. I mean, I think that Fidelity had a study that came out years ago that looked at their top performing accounts.

Starting point is 00:49:38 And it was people that were dead and people that forgot their password. And so, like, how hard do we really want to make this? I think as humans, we like to see patterns and things that sometimes aren't there. And again, there's a big difference between correlation and causation, right? So I think, and this also goes back to cloning, how hard do you want to make this? I think it's a great point. And actually, that story reminded me of Eddie Elfinbine, who we had on the show episode of 413, because he puts out this thing called the buy list.

Starting point is 00:50:11 His fund is one purchase once a year. He rebalances once a year and then he checks it again. He had this funny quote that someone said, you know, what's your year in Target? And he said, December 31st. Well, it's true. I mean, I have friends that are analysts that investment funds too. And they're like, oh, we had to buy this because we had to get that 5% boost, you know, to close out the quarter.

Starting point is 00:50:34 And so it's really how difficult do you want to make things? Speaking of difficult, you know, Buffett has said that he's not looking for seven foot hurdles. He's looking for one foot hurdle. So meaning, you know, easy bets. I'm hoping you found one of these because I have yet to really feel like I'm putting money into something where I'm like, oh, this is a one foot hurdle. this is a slam dunk, this is a layup. Could you give us an example of something you might have found that matched this profile?

Starting point is 00:51:00 I'll give you two examples. One, large cap, a few years ago, Chipotle had a, it might have been out by you in California. There were some folks that got sick, right, from food poisoning. And the stock, the media frenzy, the stock tanked so much, it was trading near the value of the real estate that Chipotle owned. You almost got the entire business for free. That was a no-brainer. That was a one-foot hurdle.

Starting point is 00:51:32 You had to ignore everything else, though, right? This is systemic. There's problems with the supplier. If you looked at the facts, assuming that Chipotle even recovered and lost 50% of their business, you still would have done well. So I think that was like a 40 or 60% gain in like five months.

Starting point is 00:51:53 Another company called support.com, that was a non-current holding a few years ago. It was a service company, and they were like an outsource customer service company for AT&T, Comcast, things like that. It had been in business for over 20 years. And this is an example where when I found it, it had just lost its biggest customer, which actually represented half of its revenue. So it was a pretty big loss, right? it was trading for less than a dollar a share.

Starting point is 00:52:24 It had $2 a share in cash on the books, no debt. Oh, and it had $9 a share in total assets. And it was on sale for less than a dollar. So I just thought to myself that the market was really pricing this thing as if it had lost all of its customers and that they were immediately going to go out of business. And I thought, man, if they just add one new customer, right? right, or get acquired, then that's great. And they ended up getting acquired.

Starting point is 00:52:57 Then it went up 800%. And then when I sold it, it went up another thousand percent, I think. So sometimes stuff like that happens. I guess you can make the argument that one of my best investments actually turned into one of my worst investments based on that. Right. If you think about it from a business owner's mindset, if your buddy has a business, right, small business, maybe they do $10 million a year in revenue, they lost their biggest customer. But your buddy says, look, the overhead's low. I got to get this off my hands.

Starting point is 00:53:36 We're only going to do $5 million a year in revenue now. And I'll sell it to you for $5 million. but I've got $40 million in stock and cash you would be like dude yes what is the catch right

Starting point is 00:53:54 and so the market prices things like this sometimes and it's really a matter of just finding them and digging into what the story is and also you know these are you don't I don't like buying them one at a time I kind of like buying them

Starting point is 00:54:10 using a basket approach right but I'm all in what do you mean by that with the basket approach they're statistically cheap but you don't know how long they're going to be cheap for right and so like you said sometimes things take a while to work out it could take a year to work out so I usually try and buy and then I set a reminder for two years in the future and I say okay this is one unless you know my broker I get like a big blinking you know notification like something to crazy happen. I have been blessed, and it is a blessing, talking to some of my friends, I rarely check the market. And I rarely check my holdings. Whenever something really good or

Starting point is 00:54:55 really bad has happened, that information tends to find me one way or another. I've never been, like I've never had my stocks on my phone. I've never, I don't log in every day and check to see where things are at. I don't know why I don't do that, but I just, I've never, I've never, I've I've never done that. Yeah, we should go on record and say, like, I don't see a TV in your office right now. I do, however, see a really cool painting of Charlie Munger on your wall. Is there a story behind that? Yeah, it makes me work harder and not be stupid.

Starting point is 00:55:25 Grandpa Charlie's staring at you all the time. So I have to ask because I know that you are not typically investing in the oil and gas industry, even though you're an expert in it and you do your law practice is highly focused on it. Maybe talk to us about why you might steer away from that industry if you were, you know, so inclined. Well, I know how the sausage is made. You know, it's really just a preference. I think there's some amazing operators and entrepreneurs in the oil and gas industry. You know, it gets a bad rap right now.

Starting point is 00:55:59 But really, I found it to be just full of folks who are, you know, very hardworking, take a lot of pride in their work. but as a rule, I tend to stay away from natural resource production companies. Service companies, I just feel, are much more within, like, natural resource service companies are much more within my circle of competency running, you know, a service business. I can understand what levers should be pulled or if those levers are pulled, what that would look like for the business. And it's really just just a personal, you know, a personal preference.

Starting point is 00:56:34 It cuts down on the amount of stocks that I have to look at too, which is always good. I think that area is probably better left to specialists like Josh Young, right, who is just on your show, who loves investing in the industry, has great relationships with a lot of folks that are really, really bright in the industry. And he's really a specialist in this field. You know, that is so interesting to me because I would almost call that like an anti-circle of competence, meaning like you have such a knowledge around a specific industry that it actually makes you avoid it. The only other time I've encountered this is when we had Dev Contasaria

Starting point is 00:57:13 on the show, and he had decades long experience. He's a medical doctor. He had all this huge bioventure background, and yet he has basically sworn off of it, you know, investing in that. So that kind of stuff is so interesting to me, just having such a knowledge and choosing to actually shy away from a certain industry because of that knowledge. I just don't think you come across that very often. Yeah, maybe it's that I'm really, I don't know, I don't know, it's just always been a, I love working in the industry. It's fascinating. And again, there's awesome people and companies that are doing amazing things. I just have never really looked at it as something that I would be interested in investing in. And I, you know, can't tell you why. You know, I have an answer

Starting point is 00:57:57 for you, obviously, you know, that I gave, but I don't know. You mentioned that your lifestyle suits you very well, and it doesn't involve flying, jet-setting around the country, meeting with managers. And when you were talking about your quantitative approach, I didn't really hear managerial metrics in there, for example, something like the return on invested capital. How do you gauge the management of a company if you're not looking at specific metrics like that or meeting them in person? What is kind of your proxy for just establishing if they're a good management team or not?

Starting point is 00:58:30 Yeah, so it might be an unpopular answer, but I don't put a lot of faith in, not faith, that's not the right word. I don't put a lot of weight into meeting management or talking to management. I think that there's plenty of data points to look at, like, well, I mean, one of them, return on capital, whether or not a company is profitable. Are they diluting shareholders? how, you know, what is the executive compensation and the performance scheme look like, whether there's, you know, shareholder lawsuits against them. Those could tell you a lot about management. So, and, you know, my dad always told me kind of his motto was,

Starting point is 00:59:08 listen to what people say, but watch what they do because that's what they're really like. And so I look at those data points and make a judgment on management. You know, humans are very impressionable, myself. included, right? So, and CEOs got to where they are partially by being great at sales. And to me, I don't like that math. There's not a big enough margin of safety in that math. What's the first thing that you would look at in a business to see if management was doing their job, if all you had was the data? I would defer to the answer I got from Tom Gaynor at one point, which was the company's debt. He mentioned this, I think it was pirate or this comparison to folks who you can,

Starting point is 00:59:55 you can learn a lot by how much they're using debt to run the business. And I've always found that to be an interesting first indicator. Yeah, you don't hear that much. You really don't. And it's funny you mentioned that too because as much as Buffett and Munger stressed the importance of like a great management team, I've also heard them say that if it really came down to product or management, you know, who would win out, and it's product every time, in their opinion, right? I think Coca-Cola comes to mind. You could have a great enough product that, like, you know, you could have monkeys running the business. That's a great business.

Starting point is 01:00:31 All right, Zach, this has been so much fun. Thank you so much for your time here. And before I let you go, I want to definitely make sure I give you the opportunity to hand off to our audience where they can learn more about you, your fund, any other resources. You mentioned value line. I hadn't even heard of that. So you're full of these awesome resources. If there's anything else you can share, it'd be awesome.

Starting point is 01:00:51 Sure. So I appreciate you having me on. This has been a lot of fun. I've been a big fan of your show for many years. So this is a really great experience for me. The easiest place to find me is Zachsnotes.com. That's Z-A-C-K notes.com. I write there.

Starting point is 01:01:08 I have links to other stuff. It's kind of a central point to connect. And Value Line is an amazing resource. This is what it looks like. They send you this big binder. It used to be weekly updates that you would get on their universe of stocks. They're switching to monthly. The next thing I know, they're going to put everything online,

Starting point is 01:01:27 which will really be the bane of my existence. I'm very much a paper guy. But yeah, it's a great resource and everyone to check it out. Anyone interested in Graham-style investing should also check out a website called netnethunter.com. It's a really good resource. One last thing I want to mention is one of the people who, actually the only person who really got me involved in your show many years ago was a good friend of mine named Sal Ponziot, who was a fantastic entrepreneur from Youngstown, Ohio. He also had a very promising career at Ernst & Young, and we were best friends really since preschool. And he wrote a book called Fit Finance, which is available on Amazon.

Starting point is 01:02:10 And it's a book that he wrote for high school students and college kids on everything from compound interest to why you need to start your 401k now to how to get out of debt along with things like the psychology behind investing and spending. Basically, he took all the lessons that he had learned in his mid-30s and said, you know, just the kind of guy he was. I wish I would have known about this when I was in high school. Our personal finance class in high school was how to balance a checkbook taught by the football coach. So we didn't learn a whole lot about compound interest in there. So sadly, he passed away from cancer, a really heroic battle about four months ago. So all the proceeds from this book go to scholarships for high school students and everyone should go buy a copy. Absolutely. We will make sure to put that in the show notes for everyone interested. We'll have a link to that book. Thank you for sharing that. Zach, this has been such a wonderful conversation. I really enjoyed it. Let's do it again sometime. Yeah, absolutely. Thanks for having me on, Dre.

Starting point is 01:03:17 All right, everybody, that's all we had for you this week. If you're loving the show, please don't forget to follow us on your favorite podcast app. If you're looking for more resources, you can definitely find them at the Investorspodcast.com or simply Google the TIP finance tool. And if you'd like to give feedback, you can always find me on Twitter. at Trey Lockerby. 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 or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision consult a professional,

Starting point is 01:03:58 this show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - TIP436: Is the Buffett Partnership Strategy Still Applicable Today? W/ Zack Oliva

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