We Study Billionaires - The Investor’s Podcast Network - TIP639: Buffett's Favorite Business Book w/ David Fagan

Starting point is 00:00:00 You're listening to TIP. On today's episode, I'm joined by my friend David Fagan to discuss Don Keough's book, The Ten Commandments of Business Failure. David is the managing partner at MBF Chartered Professional Accountants, a firm dedicated to supporting small and medium-sized owner-managed businesses across Canada. David was one of our early members of our TIP Mastermind community, and I'm grateful to have him as a part of the group as he has a deep passion for entrepreneurship, business, self-improvement, and investing.

Starting point is 00:00:32 Given his success in managing a small business, I thought he was the perfect person to join me on the show to discuss Don Keough's book. During this episode, we discussed why the best businesses never quit taking new risks, David's personal business experience and how it ties into the lessons that Don shares, why trust is the foundation of every great company, how we can balance our own intuition with the outside consultancy of expert advice, why pessimism is paramism is paramounted. paralyzing and why optimism is key to building a successful business and a strong financial foundation and much more.

Starting point is 00:01:06 Warren Buffett is well known for investing in Coca-Cola in 1988, and he was actually good friends with Don Keo and wrote the foreword to Don's book. Under the leadership of Don Quio and Roberto Goizetta from 1981 through 1997, Coca-Cola stock compounded at 27% per annum excluding dividends. I really enjoyed covering this book with David on the show, and I hope you enjoy it. as well. Celebrating 10 years and more than 150 million downloads. You are listening to the Investors Podcast Network.

Starting point is 00:01:40 Since 2014, we studied the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. Now, for your host, Clay Fink. All right, welcome to the Investors Podcast. I'm your host, Clay Fink. And today, I'm joined by my friend David Fagan. David, welcome to the podcast.

Starting point is 00:02:10 Thanks, Clay. Glad to be here. So, David, it's been such a pleasure getting to know you through our TIP Mastermind community. I had mentioned to you that I was reading this book titled The Ten Commandments of Business Failure. And while I should say, you went through and read it after I mentioned it to you and you told your partner to go and read it too, I know that talking about business is one of your favorite. things to do. And I obviously talk about a lot of different investing books on the show. But this book's a little bit different because it's a business book. So I really wanted to bring you on the show as you're someone that's built a successful small company and you've been at it for almost two decades now. So this

Starting point is 00:02:52 book was written by Don Keo. He was previously the president and chief operating officer at Coca-Cola. and he was also great friends with Warren Buffett, who actually wrote the foreword to this book. Don also previously sat on the board of Bercher-Hathaway and is no longer with us today as he passed away in 2015. So before we dive in to talk about some of the specifics of the book, how about David, do you give the listeners a broad overview of why you liked it so much? Thanks a lot, Clay. There are so many how-to books, and in this one, Dawn flips the script and inverts a lot of the lessons. that he's learned over the years. He questioned why so many businesses failed. And according to

Starting point is 00:03:35 the bankruptcy courts, over 20,000 declared bankruptcy in the first 75 years of the 20th century. And one time Don was asked to talk about how to win in business. And his response was that he couldn't do that. But what he could do is talk about how to lose. And he offered a guarantee that if anyone followed his formula, they'd be a highly successful loser. So this essentially what frames to become known as Dawn's Ten Commandments of Business Failure. And I mean, I really like the common sense approach that Don is taking in the book. His commandments aren't breakthroughs in management thinking, but more of a cautionary tale that if you find yourself breaking one of these rules, it may just be time to kind of

Starting point is 00:04:19 pause and reflect a little bit. So, yeah, just a couple of the highlights, Clay. My top three takeaways, every time I read a book, I try to take a few top threes just to kind to cement some stuff. From this book, change is constant and always requires energy to keep the flywheel moving. That's a consistent theme in this book. And as a business leader, no matter what size your organization is, you really have to set time aside to think and make sure you build that framework into your cadence. And finally, you can imagine the size of Coca-Cola. Well, sometimes as a leader, you have to get your boots on the ground, so to speak, and get away from

Starting point is 00:04:59 your desk or as what Don would say his command center. The beauty about this book, Clay, is it was published in 2008. And in a few years from now, we can slap the 20th anniversary sticker on it. And these commandments are going to last. They're very true principles to business. The theme of the book is very Charlie Munger-like. Don was asked to give a speech on how to succeed in business. and he realized that there's no formula to guarantee success.

Starting point is 00:05:29 So what he did is outline what you should do if you want to guarantee failure. And then he would recommend avoiding those common pitfalls, which we'll be getting into. So Buffett invested in Coca-Cola back in 1988. And Roberto Goizetta was a CEO at that time. And then Don Keo was the president and chief operating officer, as I mentioned. Goizetta was the CEO until he passed away in 1997, and under Roberto and Don's leadership, Coca-Cola went from a market value of $4 billion in 1981 to $145 billion in 1997. The stock over that time period had an average annual return of 27% without including dividends.

Starting point is 00:06:15 So Don believed so strongly in these 10 commandments of business failure, He said that if you showed him a failed business, he would bet that the leaders would have violated more than one of the 10 commandments. He writes, if you find yourself a disciple of one or more of these commandments, watch out. You are well on your way to failure in taking your company with you. So I wanted to jump into the first chapter here. David and I today will be covering a number of our favorite chapters from the book. So the first one's titled Quit Taking Risks. So we've probably said 10,000 times on the show that capitalism is absolutely brutal.

Starting point is 00:06:53 And we can't rest on our laurels when we see success come our way. Because if we do, then competitors are inevitably going to come eat our lunch. And I love the quote that success is never owned. It's rented and the rent is due every day. And it reminds me of what Morgan Housel told me on the show related to NVIDIA. Jensen Huang had said that the unofficial corporate motto of Nvidia is that they're always 30 days from going out of business. And that's why even though Nvidia is worth whatever it is now, two or three trillion dollars, they're just absolutely dominating their field. Morgan had said that he thinks that the management team wakes up every single morning terrified.

Starting point is 00:07:37 And that's why they're successful. And Vidia knows that if they rest on their laurels, then it's going to sow the seeds of their own demise. Keough also shared this Oscar Wildy quote that I really liked as well, and it's worth pondering. The world belongs to the discontented. I mean, it's hard to fight complacency sometimes, especially when things are actually going well. I like in this chapter where Don makes the connection that the older you get, the harder it is sometimes to fight this complacency. He talks about the case study of Xerox and that they had a five-year head start on the personal computer market when they developed their first personal computer back in 1973, but upper management

Starting point is 00:08:20 ignored it. And Don concludes that they were just too comfortable. And when you get comfortable and quit taking risks, that's when failure is going to creep in and may be inevitable. I like how Don was quoted as saying, when he was in leadership roles, he would start to get very uncomfortable from time to time when things were going well. And I mean, that's to your point on Navidia. And like I said in the intro, a key takeaway from me is that change takes energy and it's

Starting point is 00:08:48 only this energy that moves the ball forward. And I mean, most of the listeners are going to be in business in some fashion. And so just think back 10 years ago and ask yourself, what if? What if the change that has taken place in your organization didn't happen? I mean, when I think about it for myself, I get to chuckle something. Sometimes. I mean, I'm in the accounting business here in Canada and I mean, we've done a lot of technological changes and kept up with things, but what if we still had a Xerox copy a room and filing cabinet system? And what if we didn't adopt cloud-based technology? What if we

Starting point is 00:09:23 didn't integrate our various systems? I mean, we would literally be a firm of the path. And there's just a lot of risk and not taking risks. And in the 80s alone, Clay, 230 companies disappeared from the Fortune 500. And Don has a great quote, How many tombstones would have read, Here Lies a company that died risk-free. It's just a sobering reminder that what can happen when complacency creeps in.

Starting point is 00:09:51 Clay, knowing that change takes effort and businesses evolve, what changes have you seen at TIP? And like, how do you guys stay organized with change? TIP is, of course, in an industry with so much change. Preston and Stig, they started this flagship show. We studied billionaires back in 2014.

Starting point is 00:10:12 So one could say the entire foundation of the company is in an industry that's 10 or 15 years old. Even in 6 to 12 months, so much can change within this industry and within this company. I recently read Jeff Bezos's shareholder letters and found a lot of parallels in the way he approached business and the way TIP sort of operates. This isn't me trying to compare TIP to Amazon in any way. But if you keep doing things the way you've always done them, then you aren't taking risks. And as a result, you're taking on the risks of going extinct. So if you don't change, then there's a good chance that capitalism is going to force you to change. Don explained in the book that Xerox took their early success for granted and failed to take on the risks of new opportunities.

Starting point is 00:11:03 So I love how he talked about how in order to create profits in the long term, companies need to innovate in the short term. And that's where Xerox made a really big mistake. So Amazon takes the approach of always focusing on the customer and continually launching new business units, knowing that the vast majority of them are going to fail. So after launching countless initiatives, they ultimately landed on just three that produce the majority of their revenue. That's their online marketplace, Amazon Prime and AWS. And Amazon started out selling books. And today, AWS is their cash cow of their company.

Starting point is 00:11:42 And it's totally unrelated to what they originally sought out to do. And even reading Jeff Bezos's letters 20 years into starting Amazon, it's clear that they certainly weren't resting on their laurels. So TIP has a somewhat similar approach in that, you know, we've had success with the We Study Billionaire's Feed. and it's been the company's machine that sort of fuels our new initiatives. So like Amazon, we know that most new initiatives are doomed for failure, but we cut our losses early on those and just don't pursue the ones that clearly aren't

Starting point is 00:12:16 working and then double down on the initiatives that do. And this is why we started our TIP Mastermind community. It helps us produce more recurring revenue for the company, and then it isn't tied to the very volatile advertising market. advertising revenues from month to month are pretty unpredictable. They're pretty choppy. And the community also complements the podcast pretty well because, you know, we bring our podcast guests and for Q&As and then we're able to attract really high quality people from the audience because of the trust we've built with them over the past 10 years. And then also like Bezos,

Starting point is 00:12:50 we really want to create win-win-win relationships, if possible, where all parties involved just benefit massively from what we're doing, which I really believe helps. helps create a strong and enduring enterprise over the long run. Those are the types of relationships within business, I believe, that are most sustainable. So ever since COVID, there's just been a flood of new podcasts coming onto the market. You know, there's very little, if any, barriers to entry into podcasting, and it makes our business, you know, very susceptible to disruption. And this is also why we needed to, you know, start to diversify our revenue streams of

Starting point is 00:13:29 how our business is able to grow into the future. So as far as staying organized with all these changes, I can't say I'm as organized as you, David. I personally just take the approach of, you know, just trying to do things a little bit better every day. I try to always think about how I can do things in a slightly better way, provide slightly more value to people, or how I can, you know, produce better episodes for the audience

Starting point is 00:13:54 or produce more value for the community. And Stig does a really great job in helping me do this by putting incentives in place that, you know, encourage me to do so. So align the incentives of the organization with my incentives as a podcast host for TIP. And then to the point on the world, belonging to the discontented, as I mentioned earlier, sometimes if I feel that need to sort of find that motivation or find those new ideas to try and take that step forward, usually I'll pick up some books that I've just gained a lot of inspiration from. There's a few books that I usually visit at least once a year. And one I picked up

Starting point is 00:14:31 recently was Deep Work by Cal Newport, who breaks down how we can be more focused with our work and better allocate our time. It's a great, great book. So whenever I pick up this one, any chapter I go to in it, I always get a ton of new value and new ideas on things that can try and implement to be more organized with the work that I'm doing. Yeah, that's like Warren and Charlie talk about being individually learning machines, Clay, that's kind of what you're talking about and studying and making sure you stay up to date on your standards. Businesses have to be learning machines too, and it's vital to their continued success. Probably not a bad point in the conversation to actually switch over to Chapter 2 about being inflexible. And I guess the main theme of

Starting point is 00:15:16 chapter 2, which kind of parallels a little bit to Chapter 1, is that if you stay stuck in your ways, failure is going to pursue. And I think it's in the same. important to actually paraphrase the opening paragraph here because Don makes the note that not taking risk and being inflexible or closely related, but there's an important difference between the two. He's saying basically truly inflexible people are not avoiding risks. They are so set in their ways, so confident that they have the formula for success, that they simply can't see any other way of doing business. And I really think this is a scary trait to see in a leader, the more of the my way or highway mentality.

Starting point is 00:15:58 And the key point Don's trying to make is that inflexibility is a crippling disease and one that needs to be avoided at all cost. However, being flexible isn't a virtue all unto itself. There's a little bit of a pull and push here. It's like investing in trying to beat the index. It's hard. And so is the right amount of change in an organization. You don't want to become the roadblock for your organization's success, but also not go too

Starting point is 00:16:28 extreme with change just for changes sake. And I mean, that can certainly happen sometimes, constantly creating new initiatives that maybe they don't all hit. And so the right amount of change can be hard sometimes and you need to kind of balance your effort and your systems and sometimes it takes a little bit of luck too. Yeah, there's so many great examples in this chapter of about leaders being inflexible, but I want to focus on one statement that I can guarantee that every North American has heard at least once in their lifetime. It's Henry Ford's statement

Starting point is 00:17:03 about people choosing a color for their car when the company started back in the early 1900s. Ford said that they can have it in any color they want so long as it's black. And of course, most of us have heard this before. And as successful as Henry Ford was in a true pioneer, leader and innovator, his inflexibility on color allowed Chevrolet and Dodge to take market share. And as the book reports, after closing their flagship plant for six months, it almost brought the company to the brink of disaster. I mean, this is crazy to think. I mean, obviously, we all know Ford today over a century later is fine and well, but just

Starting point is 00:17:43 how close inflexibility costs that company in the early 1900s. You know, this reminds me like as a leader, you don't want to surround you. yourself with yes men and yes women as well because the problem is that you're in flexibility that they won't even show up as you're not going to get any development or pushback on ideas in the first place. And, you know, as of course a lot of us that are in the community, we're pretty avid readers. And there's a nice connection here to Ray Dalio's book on work and life principles. And he talks about being radically open-minded. And he talks about understanding your own ego barrier and appreciate the art of thoughtful disagreement. And I think if you can use this concept,

Starting point is 00:18:29 it has the potential to solve this commandment that Don really wants us to avoid. Really amazing that something as simple as the color of a car can be something that brings a company down to its knees. You know, if something that simple can do it, just imagine the things that are much more complex that might not be near as obvious. So, TIP, change is something, you know, we're just, it's something we really have to deal with. I think about your company, David, you manage and operate an accounting practice in Canada. So for an industry like accounting, you know, it's really a fundamental part of our economy. You know, it's going to be with us for a very long time.

Starting point is 00:19:12 Have you seen that need to adapt, take risks, and be flexible in the way that Don describes it in the book? Yeah, that's a good question, Clay. I mean, I think as businesses evolve to be a truly great company, you have to build in routines in place to kind of systematize your change. And like a lot of things, good change and being flexible starts with your culture. And it's from the culture that you can build in the framework to kind of execute on change and its implementation. And so the one thing about our industry is we have to change and sometimes change quickly when new tax initiatives take place. I mean, we can get thrown into new situations created by the government with new rules. And so our organization has to be good at changing and changing really quick sometimes.

Starting point is 00:20:00 I mean, if we didn't take risks and adapt and we're inflexible, I mean, we simply wouldn't be in business or at least we'd be running like a very lethargic or clunky one. We just wouldn't be keeping up with the pace of change. And these are real macro level risks. And, you know, when we talk about change as well, I think there's micro level risk about being inflexible and not taking risk as well, because relationships could be lost. And I mean, imagine if you hired someone eager to learn and try new things and they were consistently told, no, no, you're not going to do that. We're not going to try this.

Starting point is 00:20:41 This isn't important. I mean, if you were constantly told those things, I suspect your enjoyment for work would decrease and it could be the difference between staying in the organization and leaving. 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

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Starting point is 00:25:04 So I wanted to jump here to transition to chapter four. titled Assume Infallibility. So I believe a good test of a good leader is to look at where a leader places blame when things go wrong. So obviously think of Warren Buffett's shareholder letters. He's very quick to point out the mistakes that he's making, instead of just blaming poor results or circumstances that are really outside of his control, a lot of people are quick to point blame on other factors other than themselves. So in the case of Don Quillo, Coca-Cola had a case in Belgium in 1999 where children were starting to get sick.

Starting point is 00:25:47 And people just believed that Coca-Cola was causing the sickness. And the management team just shrugged it off as they didn't believe there's anything wrong with the product. And sales started plummeting. Their reputation really got hurt. And the country really just sort of turned on Coca-Cola. Cola. So Don essentially decided that what they should have done from the very beginning when the issue of Rose was just pull their product from their shelves and then prevent that

Starting point is 00:26:16 further tarnishment of the brand. So really instead of doing that initially, they just wait until the damage was already done and then they were just forced to pull it off the shelves, realizing their big mistake. Just to follow up on that, Clay, it was interesting to read in that chapter that Don concluded that a certain point in the incident, the truth didn't even matter. Perception was everything and they just stuck their heads in the sand and assumed infallibility. And of course, it got out of control for the company a little bit. You know, another example in this chapter and one that's much more personal to Don is when he may have gone too fast.

Starting point is 00:26:56 In 1989, when the Berlin Wall came down, Klaus Hallie, who was in charge of the German operations submitted a business plan to invest half a billion dollars in the new democratic state of East Germany to grow the brand. And Don rejected the idea quickly and didn't even listen to what was being presented. And what followed was class's proposed resignation. And Don was quoted as saying, I was shocked and class told Don, and I'm going to quote here, you didn't listen clearly to what we had to say. Much of the investment would come from the German bottlers. You didn't know the potential of East Germany. You've never been there. You rejected it out of hand without considering that this could be a great opportunity. And I mean, I can only assume this was a management moment for

Starting point is 00:27:46 Don that he deeply reflected on because of course it ended up in the book. And, you know, it turns out that Don got out of his control center, got boots on the ground and visited East Germany and organized the investment and it had tremendous success. And after this experience, Don reiterates a quote that he wrote numerous times in this book, A Desk is a dangerous place from which to view the world. And, you know, of course, it was one of my big takeaways as I finish this, finish this book. So yeah, sometimes you just need to get away from your control center. And, you know, some of us are in smaller businesses and we can't really fathom, not being close to the related action, but the larger your organization gets, the truer this becomes.

Starting point is 00:28:34 I'm reminded. Monish was just on our show talking about the issues Boeing was facing and all of the financial people sort of took control of the company and just, you know, took away all that control and the decisions that the engineers were ultimately making. And it led to the sort of downfall of Boeing. And I love the point that Don made that essentially you should be listening to the people that are closest to the problem because the odds are pretty good that they know the problem pretty well. So with all the investors I've spoken with on the show, I think you can get a lot of value in understanding a business or understanding in industries dynamics by actually talking to people who are on the ground and in the industry. You know, a CEO or someone who makes a living from working at a desk can only offer so much perspective. And it could also be quite valuable, but at the end of the day, a lot of these people are

Starting point is 00:29:27 like professional salespeople to a large extent. And I recall reading Chris Mayer's blog sometime back. And he was talking about how he was talking with an industry veteran, someone who knew a copart's industry as well as anybody. And Chris asked the guy how hard it is to compete with co-parts industry. part. And he had told him that you'd essentially be crazy to try and compete with these guys because of all the competitive advantages they have. You know, you need the land to do what they do. And some of the land values are up five or ten times since they bought it back in the 90s.

Starting point is 00:30:01 And, you know, getting that firsthand experience from someone who actually works, you know, in the middle of that industry rather than just talking with executives, I think is super valuable. In a world with so much intense competition, it's nice to find someone who can give that firsthand experience to how difficult it is to compete with another company. And even with investing, as you mentioned, infallibility is super critical to recognize. Even the best investors are wrong at least one third of the time. So it'd be foolish to believe that we're going to be able to do better than that. Peter Lynch had said that if you bat 600 in investing, then you're going to go into the Investing Hall of Fame. And given how rapidly thanks can change in today's world,

Starting point is 00:30:46 Flexible thinking is a really critical skill set. I think most of us have a tendency to sort of bury our heads in the sand when we're making a critical mistake and just ignoring the problem instead of addressing it. Charlie Munger had once said, I think that one should recognize reality, even when one doesn't like it indeed, especially when one doesn't like it. Good investing can be extremely difficult because it requires a balance of having conviction in your ideas, but also having the flexibility and the willingness to recognize when you've made a mistake. So we really need to be confident enough to build that conviction, but at the same time, be humble enough to be willing to step away from our best love ideas.

Starting point is 00:31:30 And I just really ponder this idea that great investors are really just great thinkers and just actively seeking the truth all the time. Yeah, and I mean, running a business is like investing, and we could probably throw parenting in there as well. I mean, you're only going to get things right a little more than half the time, so you better be fallible. You know, I think the longer you invest, the more you appreciate humility as investing can be hard, like you said. I mean, the best investors may only get it right 60% of the time. It reminds me of Godin Bade's book, The Joy's of Compounding. He talks about updating your beliefs in light of new evidence and that good investing is a balance between

Starting point is 00:32:12 the conviction to follow your ideas and the flexibility to recognize when you may have made a mistake. And there's a real push-pull there when it comes to your investment style. You know, it's perfectly okay to be wrong, but it's not okay to remain wrong. And so you have to be open-minded and adaptive to change, including your opinion sometimes. Jumping to Chapter 5 here, it's titled Playing the Game Close to the Fow Line. And it covers the important, of trust and ethics in business? Don writes, I quote, trust was then and is now the essential foundation of any business. Despite improvements in technology and new fads and management and marketing, all business boils

Starting point is 00:32:57 down to matters of trust. Consumers trusts that the product will do what it promises to do. Investors trust that management is competent. And employees trust, management will live up to its obligations, end quote. So related to behaving ethically, I'm reminded of Buffett's newspaper test. He would say that if you feel uncertain about a decision, consider what you would do if your decision was published in your local newspaper for all your family, friends, and neighbors to read. And I personally find this to be a very valuable mental model in thinking about, you know, what is the right decision? What is the quality decision here? What's the ethical decision? But he also makes another key point that Don talks about how we want to be admired by our peers.

Starting point is 00:33:45 We should also not compromise our own standards in the process. And this ties into the concept of living by an inner scorecard that Buffett's talked about so much. Yeah, I think living by internal scorecard can solve a lot of problems that you might not even know you had in business as well. And it's really your ability to say no that can save you. You know, running a successful business is the same as what we'd refer to in the investing world is staying in the game and not getting wiped out. And, I mean, if you're going to play too close to the foul line, those small yeses or deviations when they should have been knows will end up catching up to you.

Starting point is 00:34:24 And, I mean, personally, I find there's a frequency to authenticity that just makes life easier. And if you want to compound simplicity, it's just much easier to be honest, really. I mean, at some point, you're likely going to have a business experience that wasn't your best moment. It's just bound to happen. When you reflect on it, it's likely added more complication to your life than simplicity. And, you know, the complication could have been from thinking about it too much or losing sleep over it or costing you or a relationship that you would have rather kept. So the energy spent on the poor moment was likely a greater cost than just being honest and accepting that cost of the

Starting point is 00:35:06 honesty in that moment. And, you know, for Clay, you ask for a business example, I mean, it's unfortunate, but every few years we have to let a client go because their values just don't align with ours. And without getting too specific, just know that it happens sometimes. And, you know, a client may want to be too aggressive with their filings or simply just too difficult to deal with. And we have to make a decision to let them go. And I can tell you that every time we've let a client go, it is actually lift at the office versus bringing it down no matter how large the client was. And we've coined a term in our office that says rejection is protection. And it's amazing how true that can be sometimes. I love that. It's definitely a short-term painful decision,

Starting point is 00:35:55 but a long-term, pretty big gain. And Don also talks about how in our modern life related to, you know, short-term pains and long-term gains. In our modern life, we always have the opportunity to sort of broadcast ourselves, you know, put ourselves. And so people in our circles can publish whatever they want on social media or someone with a brand can put themselves out there in ridiculous ways that tarnish their reputation, but potentially offer some sort of short-term benefit. And, you know, this is something, you know, I see all the time.

Starting point is 00:36:31 The reason TIP really exists is to empower the value investing community. And about every week, I see some other show getting hundreds of thousands of views for doing something, I would argue, crosses some sort of ethical boundary. And it can be tempting to sort of just tow a little bit closer to that line. And one of the things that we've been doing here at TIP is working to bring on investors who actually have a proven track record of being. a great investor beating the market over a long period of time. There are countless investors who might sound good or might sound like, you know, they know how Buffett invests or whatnot,

Starting point is 00:37:14 but very few can effectively put those teachings to work and actually beat the market over a sustained period of time. So for some investors we bring on the show, we actually aren't able to mention their track record that's so good. And just simply for compliance reasons, it's not like They don't want us to do it. We just simply can't share their performance. So in the short run, there might not be a lot of benefit for us to, you know, have them on the show and not be able to share their performance. But it helps build that trust with listeners over the long run. So, you know, our listeners sort of build that trust with us and recognize that we set a really high bar for who we bring on the show.

Starting point is 00:37:56 And then, you know, a byproduct of that is we attract to the right type of listener. and they tend to stick around for quite a long time. And given that our reason for existing is to empower the value investing community, that can really limit us in terms of the number of views or the number of downloads we get. Because oftentimes the guests that would get the highest number of views or the highest number of downloads don't necessarily empower the community, or at least to the degree we would want them to. So a mentor of mine once told me that the most important promises, to keep are the ones that you can keep to yourself because it's only when you keep promises

Starting point is 00:38:36 to yourself that you can keep promises for other people. And if you have integrity, you do what you say and you say what you do. I think when you follow these types of principles, I think it's a really good way to build trust with others in business at the end of the day is really all about trust. And I'm certainly not perfect when it comes to this, certainly work in progress. Yeah, no, that's wonderful, Clay. I mean, you basically, just described a little bit about your own internal scorecard and that of TIPs as well. I mean, being a member in the TIP community, you can quickly see how authentic the leadership is. And I think it's this authenticity that creates the quality.

Starting point is 00:39:16 And I mean, I know I sound probably a little bit biased in saying that, but I think now knowing that you're looking for the highest quality investors to air on your show just proves your commitment to empowering the investing community. Yeah, and I love the point you made earlier that authenticity has its own frequency. We can share that authenticity on the show. That frequency is going to attract to the right person and it's going to attract the listeners we want. It's going to end up working out for us over the long run, I think. So jumping to chapter 7 here, this one's titled, Put All Your Faith in Experts and Outside Consultants.

Starting point is 00:39:54 So I'm going to throw this one over to David for him to share his takeaways. Yeah, so the main theme in this one is over-reliance on external advice can lead to a detachment from one's own business, intuition, and knowledge. And while outside advice is valuable, it shouldn't replace your own judgment. And so, you know, in this chapter, Don writes about management is not a craft, management is a craft, sorry, not a science, and beware of those who try to mathematicize and quantify human behavior. And sometimes you just can't put a number on everything. I mean, this reminds me so much of Albert Einstein's quote, not everything can be counted counts and not everything that counts can be counted.

Starting point is 00:40:40 And I think that we've all been probably guilty a few times of relying too much on quantitative factors and maybe missing the qualitative reality of the situation. I mean, that can certainly happen. You know, as you read this book numerous times, Don talks about the launch. and failure of New Coke, but this is the chapter that sheds the light on the sin that was the root cause of the issue. And I'll just dive into it here a little bit. I find it a really fascinating story. You know, the company decided to test a new flavor of Coke and then hired consultants to do the market testing and vise on the results. And the testing was clear, people preferred the new flavor. And so the project to launch new Coke picked up steam and finally upper management

Starting point is 00:41:27 gave the go-ahead to launch the new brand. And Don mentions two times in this chapter that he didn't follow his own gut. His gut was telling them, don't mess with the iconic brand. But I don't know if you're if you've experienced this play, but I mean, the movement in one direction is strong and sometimes it's just really hard to slow down momentum. And like when the inertia gets, gets happening, it's it happens, right? And you know, with with a Coca-Cola company, after they launched it, well, within a few weeks, they had over 400,000 negative phone calls. The delivery people were getting harassed on their trucks and the company was absolutely getting torched in the media. And Don acknowledged that they just didn't understand the

Starting point is 00:42:16 connection that people had with the brand. And it was this connection that finally convinced the company just to pull the plug on it. And I can't imagine, They didn't get into the numbers on what this would have cost the company, but it's amazing. And, you know, like, the way I've always looked at using outside consultants, and I am one, that's part of my world, is that no one knows your business as well as you. It's your baby. You think about it more than anyone. And, you know, I really think you have to, you've got to take, you know, outside consultant

Starting point is 00:42:53 with a little bit of grain of salt once in a while. Yeah, I mean, the lessons in this book are amazing. But like all things we learn, everything needs to kind of be taken in stride with these commandments. I find there's a little bit of a dichotomy between this chapter and that of chapter two on assuming infallibility. I mean, in one commandment, we're talking about not listening to other people. And the other one is saying, don't think you know all the answers, right? So of course, it's the extreme ends of these two commandments that are where the problems are going to happen. And, you know, like everything, there's always a balance to most things we do. And I think Don would say concluding on this is, you know, seek outside views and counsel and trust your judgment and your gut. Yeah. I mean, like Clay, have you ever not trusted your gut in a situation and just relied on outside opinions to where maybe it was to your detriment?

Starting point is 00:43:49 Yeah. So picking back in first on a couple of your points there, not putting all your faith in numbers. I'm again reminded, since I just covered the Bezos letters, what he did, you know, in the really early days is he just would ruthlessly cut prices and offer, you know, the lowest prices for so many products that anyone could get. And if Bezos followed all of his internal models on what price leads to what sort of profits and what sort of volumes, like every single model would have said, do not cut prices. His filter isn't, you know, optimize what these models are saying or seek outside consultants, it's focus on the customer. And that's what he did. And, you know,

Starting point is 00:44:31 it built that trust with the customer. And he sort of made that leap of faith that over the long run, it's going to create the most shareholder value and create the most value for customers because of that trust that's inherently built. So I think that's a pretty profound point of not putting all your faith, you know, not only in outside consultants, but also in numbers. And you made a brilliant point there on finding a balance between seeking the opinions of others while also trusting your judgment and trusting your gut. I think we shouldn't discount, you know, tapping into that intuition that's within us. So thankfully, during my time here at TIP, I feel that trusting my gut and trusting my judgment has generally worked out pretty well. Stig has a pretty hands-off approach to

Starting point is 00:45:22 management where generally I'm making decisions on my own projects I'm working on, plus we're pretty well aligned in terms of the way we approach things. So a lot of times, luckily, my intuition aligns with what he'd like to see. But I can think of times when I was earlier in my career, younger and experienced where I relied on the judgment of others and learned some of the things the hard way and kind of went against my gut. And it reminds me of a wonderful quote that good judgment comes from experience, and experience comes from bad judgment. I think that's just so profound. And I've recently been reading Andrew Wilkinson just wrote a new book called Never Enough. He owns a number of different businesses and also takes a hands-off approach to managing

Starting point is 00:46:10 his companies. He gave the example of how one CEO sort of wanted to veer off and start an unrelated business. And, you know, Andrew just thought it was a terrible idea, but he knew that if he told the CEO no, then he would resent him. And if the CEO ended up not hitting his bonus targets, then, you know, he may resent Andrew for not letting him follow his judgment. And you talked to a little bit about this earlier. If you don't give your employees any freeway at all, then what employee wants to work for you? Not a lot of people just like being told what to do 100% at a time. So the CEO under Andrew, he went and ended up failing with the new initiative. And he sort of just self-corrected, learned from his mistake, and then just went back to his original

Starting point is 00:47:00 plan without even being told what he should do. So he didn't have to be told he was making a mistake. He just sort of realized it and self-corrected himself. And then the other beauty of this management style is that allowing others to make mistakes that won't destroy the company makes those people better because they learn from those mistakes. So in the long run, it also ends up working out well for all parties. I believe that generally many people just don't like being told what to do all the time. At least I don't. That's why I'm here with TIP is because I have some leeway with what I get to do. So when you allow people to have autonomy and take full ownership over their work, they generally take more pride in it and they take care of your business, frankly, because they feel like their work is

Starting point is 00:47:45 their own ideas and it's not somebody else's. To your point that you're talking about Andrew Wilkinson and allowing people to fail, it's hard to watch sometimes, but it is important. I mean, that we could get into the parenting segment of the episode right now because it happens with your kids all the time. You know, they know they're going to do something that they regret, but they need to have the experience. So you let them do it.

Starting point is 00:48:09 But I mean, the same things happens with our staff and our leaders that may work under you. You know that you could shift their course of action a little bit and it's likely better, but in the long run, if you shifted it and they didn't have the learning lesson, it may be to their detriment. So it's this type of deferred results in learning that I actually think create real leaders in your organization and allow people to take, you know, quote unquote ownership and in their work going forward.

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Starting point is 00:52:07 It's titled, Be Afraid of the Future. So I'm going to throw this over to you again, David. Let's start at the end of this chapter and work backwards a little bit, Clay. I mean, Dawn writes that the pessimists tell us that the world was born in chaos and has been going downhill ever since. But we have to live with hope. and we have to live with some faith in our fellow people. We have to act as if there will be a tomorrow, there is some point in starting an enterprise and starting a family and admiring the sunset.

Starting point is 00:52:40 And it's this going on that you have to pursue with. And if you want to fail, just simply be afraid of the future. And if you want to succeed, approach the future with optimism and passion. And I just love that. I mean, I'm an optimist by nature. And, you know, like, just to boil this chapter down to really the three key points that Don says, if you want to be afraid of the future, you know, enjoy the paralysis of fear, enjoy the tyranny of the past, and enjoy focusing on failure.

Starting point is 00:53:16 And it's proven that loss aversion is real and that we focus too much on failure sometimes. And, you know, it pays to have a short memory once in a while. I know it's easy to say that thinking about some of my business experiences. But in 200 years of fear mongering, the worst case rarely happens, right? I mean, I'm old enough to remember. I was in university in the year of 1999 and we all had laptops at KD University. And they thought that when the clock rolled over on December 31st, 1999, that the world was going to go in chaos. And it didn't happen. I mean, it was literally a no-show. And, you know, I can remember back in 2008 in the

Starting point is 00:54:03 great financial crisis, we won't get into like how bad the markets were, but I can remember that people were talking about food security at that time and going way beyond the housing crisis. And, you know, it just reminds me of two of Morgan Housel's writings, the seduction of pessimism, and how smart it sounds. It's great sound bite material to great. the attention of listeners and readers. And they followed up with a writing this year on the dumber side of smart people. He said there's a fine line between intellectual rigor and believing your own worries. And really, it's not a crime to be cautious.

Starting point is 00:54:45 I think it's actually important to have someone around you that may not be as optimistic as you and have a little bit of pessimism. And that creates a nice balance and interaction with your ideas. But when caution becomes the overriding operating system of your business, you're going to get into trouble. And when you quit taking risks, that's a risk all onto itself. And the beautiful thing about business, and you mentioned this about Navidia, thinking that they could be out of business in 30 days, I mean, running a business requires a paradox.

Starting point is 00:55:18 It's having full belief in your mission and your North Star and your North Star and your exceptional talents while at the same time knowing that you get swallowed up by the competition if you don't innovate, continually change, and relax too much. So, you know, included in your flywheel should be ensuring constant change and forecasting to ensure you move into the future properly. So this is one of my favorite chapters just because the fearmongering is everywhere. I'm going to repeat one of the quotes. If you want to fail, be afraid of the future. If you want to succeed, approach the future with optimism and passion. I mean, what a statement. There's a quote in the book from FDR. He had said, the only thing

Starting point is 00:56:05 we have to fear is fear itself. And in that Morgan Housel piece you mentioned, he explained how if you tell someone that everything's going to be great, they're likely either going to shrug you off or give you the skeptical eye. But if you tell someone they're in danger, you have their total undivided attention. So since the media knows that fear attracts those eyeballs, they're just going to serve that fear to you on a silver platter. So knowing their incentive can help you guard against that pessimism and against that fear mongering. This doesn't mean that bad things can't happen. you know, the great financial crisis was a very difficult time period for a lot of people. But over the long run, it's much better to be an optimist than a pessimist.

Starting point is 00:56:53 And I like the way you framed it how it's good to be cautious, but we shouldn't let caution and fear of failure and fear of the future be our overriding belief system when it comes to business. And even when it comes to investing as well, I also think it's easy to see something that's bad that we see is happening today and just extrapolate current trends into the future. But humans and I guess the human mind, we shouldn't underestimate what sort of things that can unlock. There are plenty of things where people just forecasted in the past.

Starting point is 00:57:30 And there are many times where, for example, I think it was like in the 80s, people were saying, hey, we're going to extrapolate this population growth and we're going to have like major food shortages. And it just never happened because they did. didn't consider that humans always have and always will change and they will always adapt to the problems that are thrown at them. So investors like Sir John Templeton, Frantzois or Sean, who I interviewed, have just done exceptionally well by being unwavering optimists. When you look out over the long run, it's really hard to be anything but an optimist,

Starting point is 00:58:05 but the human mind has always driven these improvements across society as a whole. And And Francois, in the interview with William Green, he had talked about how humans are hardwired to just never be satisfied and to always want to improve our current situation. That's sort of the underlying force that's at play in this long-term growth of society. Franchois Rochon had written in one of his letters how the percentage of people globally that lived in poverty in the 1850s, it's such a crazy stat. Like, I almost don't even believe it when I read it, but He said the level of extreme poverty globally was 87% in the 1850s, and today it's less than 10%. And over that same time period, the standard of living has increased by 25 times.

Starting point is 00:58:52 So I think it's so interesting to think about how progress is just something that's innate within the human spirit, so we shouldn't discount that powerful force. I also liked how Don talked about how pessimism can be paralyzing. So when you fear what the future might bring, then you oftentimes end up doing nothing. He writes that fear of the future guarantees that the future will be a failure. And Don also poses a question in the book that you might resonate with, David. So he writes, when is the best time to start a business? What preconditions does you look for?

Starting point is 00:59:27 People often ask them, you know, when's the best time to start a business? So if you believe all the fearmongers, then there's never a good time to start a business. Something's always wrong. There's always some hole in the business model. There's always a lot of competition that you have to compete with. But if you believe in the creativity of entrepreneurs, then almost any time is a good time to start a business. I can take that mental model and just apply to investing as well. I think the same thing could be said about the best time to invest. You know, I often get asked, what's the stock market going to do over the next year? When should I get in the market? And the fearmongers will always have reasons.

Starting point is 01:00:06 reasons to sit on the sidelines, wait for the next great financial crisis. But history suggests that getting invested in the market as soon as possible is almost always the right answer. Yeah, that's wonderful, Clay. Sometimes the biggest decisions in my life I've made, I just jumped in. And you just don't know what's going to happen. And, you know, I think back if I just didn't jump in, if I let fear mongering or overthinking, be my overriding operating system there, I wouldn't have accomplished some of the

Starting point is 01:00:40 wonderful things that I am very proud of in my life. Yeah, there's so many great lessons from this book, Clay. You know, we're probably not going to get a chance to cover them all. I'd highly encourage the listeners. I mean, there's a couple chapters in here, like, don't take time to think. That's a lovely one. And a really, a really laugh out loud one. And I don't know if you picked up on this, Clay's love your brieocracy. We could have had a whole episode on that one. There were some really funny lessons that Don chairs in that one. But, you know, just what an amazing common sense approach to business Don takes. When you think back to when you made the jump into entrepreneurship, like what were some of the big sort of hurdles you had to get over and you

Starting point is 01:01:30 look back as just like, man, I'm so glad I made that jump. I mean, for me, it was, I was pretty young. Like, I was actually 26 years old. So I didn't have income security as a big hurdle, which I was really fortunate of. I mean, I knew, you know, I knew that I grew up in a family that ran a clothing store. I knew what it was like to work for yourself. So I knew I was always going to do that. And, you know, I had a couple moments, defining moments at the,

Starting point is 01:02:03 my previous place of employment that I was like, you know what? I'm not sure I'm ever going to be able to focus on the work that I wanted to focus on and work with exclusively owner-managed clients. And, you know, this is back in the early 2000s. And so I just jumped at an opportunity locally to partner up with a couple people. And, you know, I tell everyone the reason why it was so successful. I mean, I was 26, 27 years old coming in. And these, the gentleman that I partnered with were significantly older than me. And they basically allowed me to do anything I wanted. And so I got the, like, they didn't say no.

Starting point is 01:02:45 And they allowed me to flourish and do the things I wanted to. And, you know, I look back at that now. You know, I'm in my mid-40s now. I mean, what a wonderful gift that they gave me to just allow me to take different things and just run with them. And, you know, I think it's a really powerful, you know, we talked about some of the lessons in this book. I mean, if you have someone with some ambition and drive, it's really important to kind of let them spread their wings a little bit. I like how you mentioned how your parents were entrepreneurs as well.

Starting point is 01:03:21 And you mentioned the income and the uncertainty around that income. Because I found that to be sort of the biggest hurdle people need to jump. I grew up in a family where, you know, I was told to go and get the nice, secure job, and, you know, you're going to be taken care of for the rest of your life. You always have that job and income to fall back on. And I think back to Monash, where he grew up in that entrepreneurial environment. And he went and got the safe job. And his dad's like, so when are you going to go and start your own business?

Starting point is 01:03:49 He's like, did you forget all of the pain we went through? But I think being exposed to that uncertainty and just sort of embracing that entrepreneurial drive is something I find really interesting. And I think it's so important to highlight for those that, you know, maybe grew up in a situation like mine, but, you know, wanted to take that leap. It's sort of a leap of faith, jumping into entrepreneurship. It is. And it's wonderful.

Starting point is 01:04:14 And the effort you put in definitely results in the effort you get out. So, David, I thoroughly enjoyed putting this episode together with you. So we got connected around a year ago because you joined our TIP Mastermind community. and you've actually ended up being one of our most active members, you know, hopping on calls, interacting on the forum. You know, we started the group in April of 2023, and we've been quite pleased with the audience's response to, you know, how much value members are getting out of it. David, I'd love it if you could share just some of the things you like about the community,

Starting point is 01:04:46 because I know a lot of people join for a lot of different reasons and some people like stock ideas, some people just like networking and whatnot. So I'd love to hear your thoughts around that. Yeah, I mean, like everyone in the community is going to internalize why it works for them individually. I mean, for me, it's super simple. It just starts with a commitment to lifelong learning and pushing yourself to be better. You know, I have been in the community for over a year now, pretty much right from the start. And it's amazing to see how my habits have changed in the last year and how similar my story is with some of the other members that I've connected with.

Starting point is 01:05:23 you know, if you're active in the community, you have the opportunity to learn a ton. And, you know, I like to, I think it's the difference between like going to the gym to work out by yourself or going to the gym to work out with a friend. I mean, when you go and you work out with someone else, sometimes you work out harder, right? And you have someone there to push you a little bit. And, you know, more specific to some of the events that we have, I mean, it's wonderful to hop on some Zoom calls and hear a stock pitch. someone has done a deep dive on and really put the work into. You know, it's great to get one-on-one access to some of the guests that you host on the show. They'll come on and, and, you know, do a little Q&A with us, maybe after the fact. Two thousand and twenty-three, a couple highlights.

Starting point is 01:06:11 I enjoyed the call that we had with Godham Bade and Chris Mayer because we were able to talk about their books, but then kind of go into a bit more on their investment styles and stuff. And just thinking of a couple of the question and answers that we had this year, we had a wonderful one with Joseph Sheposnik and John Huber just last week. And it's just so great to learn their approaches to investments. And another book review that we did was what I learned, both investing from Darwin, and we were able to get Poulac-Persard on a call earlier in the year. So, yeah, it's great. I mean, and, you know, I guess I should speak to the live events. You know, I wasn't able to go to Omaha, it just comes at a poor time a year for me where I'm finishing up tax season. Maybe one of these years I'll get there. But the New York visit we had last year was amazing. And it's really nice. As much as we connect via Zoom, I don't think you can beat in-person connections.

Starting point is 01:07:09 So, yeah, I guess just I'll leave it at that. And from everyone in the community, Clay, I just want to thank you and Kyle for your amazing leadership in the group. and I want to thank Stig for his guidance and teaching and mentorship as well. Great. Well, thank you, David. To piggyback on some of the comments you made there, we're working on planning our meetups in New York City.

Starting point is 01:07:33 Those will be October 4th through the 6th. So any members get access to those, we'll be hosting a number of different events. So we'll have some structure around it where you can get together with members and then some open time during the weekend to kind of go off. off with whoever you'd like, explore the city. And I agree. New York City is a lot of fun. Being from Nebraska, I know Omaha well. And it's great getting together with all these people, but there's only so much you can do in Omaha. And then Stig's also hosting lunch and a dinner in London in August. So to mention kind of a core part of the community is the Zoom events we host. We originally

Starting point is 01:08:13 planned on doing at least one Zoom event a week, and now we generally are doing many more. with Stig and Kyle getting more involved with the community. I just wanted to mention some of the ones we have coming up here. So Stig and Kyle are going to be doing what they call a bull and bear analysis where they're going to be talking the bull and the bear case on a stock they both own. Kyle's doing a presentation on assessing a management team. My friend Leandro from Best Anchor Stocks is going to be doing a presentation on John Deere. Kyle's doing his quarterly portfolio update at the end of Q2.

Starting point is 01:08:46 Stig is putting together a presentation on how he ends up building a position in his portfolio. So he recently started a new position that kind of has a starter position and he's potentially going to scale that up to a full position. So he set up a call on how he thinks through that, sort of the lessons he's learned and how he came to develop that sort of approach to building a position. A couple more here, Alimentation Kuchard presentation. It's a company we're going to be covering with the group. and then Kyle's also doing a stock presentation on the most recent addition to his portfolio.

Starting point is 01:09:19 So that gives you a taste of what we have going on with the community. I always tell new members or people that are interested in joining that really there's three things that a lot of people generally get a lot of value from. So it's either first is the learning opportunities, as you mentioned. Just there's always new things to learn. A lot of people in the group are readers. So people are always sharing books. Occasionally we chat about books on our calls.

Starting point is 01:09:42 So yeah, first is the learning opportunities is sort of if you love the podcast, then you're absolutely going to love the community because we're hosting all these calls and doing all these collaborations on the forum and whatnot. And then the second is the networking opportunities. We vet every single member. Every member has to apply to join. When you get on the platform, you know, the content's going to be high quality. And then, you know, obviously you have the ability to connect with members online. But you can also, we have our live events. So that really takes those online relationships and really just brings them to a whole number.

Starting point is 01:10:12 level after you've met someone in person. It's just amazing that I've gotten to meet probably close to half the members in person already, just one year in. And then the third thing is just like a lot of people love getting new stock ideas or sharing their stock ideas with others. So you have this high quality group where oftentimes other people in the group know a stock that you're interested in. And, you know, I'm someone in the group where I've, I've chat with every single member so I can kind of point you in the right direction to connecting with other members. So yeah. All right, David, Well, this is super fun to put together. I really appreciate it. Thank you for joining me on the show. And thank you everyone for tuning in. By the way, everyone, if you're interested in learning more about the TIB Mastermind community or applying today, you can simply click the link in the show notes or go to The Investorspodcast.com slash mastermind. That's theinvestorspodcast.com slash mastermind.

Starting point is 01:11:04 Thank you for listening to TIP. Make sure to follow We Study Billionaires on your favorite podcast app. never miss out on episodes. 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. This show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.

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