Yet Another Value Podcast - The Snowball (May 2025 Fintwit Book Club)

Episode Date: June 4, 2025

In this edition of the Yet Another Value Podcast Book Club, host Andrew Walker reunites with Byrne Hobart of The Diff to revisit The Snowball, Alice Schroeder’s biography of Warren Buffett. Triggered by Buffett’s recent retirement, the two reflect on how their views have evolved since first reading the book in their 20s. They unpack Buffett’s complex personal life, his early financial maneuvers, near-catastrophic risks, and lasting investment philosophies. Key discussions include Buffett’s detached family dynamics, calculated leverage, deep value tactics, and overlooked geopolitical caution. With a balance of admiration and critique, Andrew and Byrne present a thoughtful, analytical take on the man often mythologized as America's greatest investor.______________________________________________________________________[00:00:00] Podcast intro and book overview[00:02:05] First impressions of Snowball reread[00:04:28] Buffett’s emotional and family struggles[00:05:57] His early business brilliance questioned[00:08:41] Risks nearly tanked early ventures[00:10:17] Byrne reflects on insurance troubles[00:13:44] Buffett’s dual investing motivations[00:15:27] Shady dynamics of Buffett’s PA[00:17:45] Hustling to raise initial capital[00:21:12] Best wins: control and distress[00:23:36] Early Buffett vs modern strategies[00:26:54] Why he avoided foreign stocks[00:28:17] Could modern Buffett act similarly?[00:30:52] Gray areas in early arbitrage[00:33:57] Incentives, risk, and bad bets[00:35:22] Buffett’s paradoxical driving style[00:36:51] Solomon drama and reputational play[00:40:33] Was Solomon really near failure?[00:43:36] Role of Buffett’s presence in bailout[00:45:10] LTCM: Buffett’s ultimate near-miss[00:49:40] Snowball ends during 2008 crisis[00:50:52] Experience shapes Buffett’s crisis style[00:53:31] Is he great at market timing?[00:56:14] Tough negotiator in private deals[01:01:34] Reconciling bearish macro with buysLinksYet Another Value Blog: https://www.yetanothervalueblog.com See our legal disclaimer here: https://www.yetanothervalueblog.com/p/legal-and-disclaimer

you're about to listen to the yet another value podcast today's podcast is my monthly book club with burn hobart from the diff we talk about the snowball the warren buffett biography released by it released in 2008 it was a fascinating reread for both of us we just discuss all sorts of stuff buffets personal life financial markets today but it's impact everything i mean just everything you think about when you're going to talk about uh buffet and the snowball so it's a really interesting read especially if you've been following warren buffett for a long time uh i hope you enjoy it. We're going to get to that. But first, word from our sponsors.

Today's podcast is sponsored by Dilupa. Are you still manually updating your financial models after earnings? Ask yourself why. Every quarter, analysts lose hours copying numbers from filings, adjusting templates, and double checking for errors. It's tedious, it's time consuming, and it's a terrible use of your time.

Delupa changes that. They automate your model updates with near real-time precision, using AI that's been trained on thousands of companies' filings across every sector. The result, you get a fully updated model in your format with your logic faster than ever before. Every KPI, every footnote, every guidance figure, exactly where you need it with source links built in.

So stop wasting times on data entry and start focusing on what really matters. Analysis, insights, and alpha generation. DeLupa doesn't just save your time. It gives you time back where it matters most. Book a demo with the Dulupa team today at dilupa.com slash demo. That's Delupa, D-A-O-O-O-P-A dot com slash demo. All right. And hello, and welcome to the Yet Another Value Podcast.

I'm your host, Andrew Walker. It's our Finchwit Book Club. So today I've got my co-hors from the Diff, Byrne Hobart. Burn, how's it going? Great. Burn, I'm so excited. I've been looking forward to this conversation all month. Warren Buffett retired from Berkshire Hathaway at the beginning of this month.

We're recording May 2025. So I pinged you and I was like, we've got to reread the Snowball. I had so much fun rereading it, so many interesting thoughts and everything. Obviously, we're doing it because you're retired. But lots to talk about, I'll just turn it over to you, rereading, the snowball. I believe we'd both read it before. What kind of just overall jumped out at you and then we can go into the specific discussion points? Yeah, yeah. So this is something that I think you had talked about publicly. It was definitely something I was thinking too was, you know,

when I read it, it was 2008. I was in my early 20s, really interested in the market. And so to me, the snowball was this interest, really fascinating story of a bunch of really good, really clever trades. And then periodically there'd be some, you know, boring blah, blah, blah, blah, about, okay, he had wife, he had kids, they had some sort of relationship, but it was all kind of an interruption, you know, just like noise and fluff between reading cool stuff about 10Ks and warrants and all that. And then, you know, reading it today as a parent and, you know, as someone who's just had more life experience, it was, it's actually kind of jarring because a lot of, you know, you look at a chart of Warren Buffett's net worth, it is just this

mostly smooth upward curve and then if you think of a chart of maybe his personal happiness and life satisfaction and that of the people around him I get the impression that that bounced around a lot more yeah it was actually like one of the other things as you go through the book more a lot of people kill themselves it's there's a surprising amount of suicide there's a surprising amount of personal tragedy of many different kinds and I think that is you know you you can't get to your 90s without having witnessed a lot of unfortunate stuff but I I almost read it now as Buffett being partly just one-of-a-kind brilliant and partly a really fortunate survivor of pretty difficult upbringing and being part of a family that had, I think,

more than its share of mental health issues. And so you can kind of, you know, maybe you read it in retro, like, you read it, if you read it in your early 20s, or like I read the lone symbiography of Buffett and in my teens, and that's what really got me interested in finance, you know you read it and you kind of you want that you you want to be compounding your money at a high rate for a long time and owning full stuff and doing interesting deals and so on and it feels like what you're actually reading about is just the world you know making tens of billions of dollars was just this coping mechanism and that's like a weird weird way to look at it because you still you can respect a lot of the details of what he did but I think putting in that

context it is just it's a it's a darker sadder story than that i thought it would be look i i had a lot of people i published a note a week or so ago getting ready for this because again i was so excited i was so excited to put stuff down it exactly what you said ditto it struck me i was surprised by how much the personal stuff and i almost for some ways felt sad for you know i think in these later ages i think he got a lot better with kind of friendships and stuff but i had a lot of people people respond to that and said, look, I'm in finance. And the one thing I've always told myself is I would happily give away like legendary returns like Warren Buffett, but I've told myself, I do not want to be Warren Buffett. Like I don't want to have that family life, never be Warren

Buffett. I got that from multiple emails. I was really surprised by, but I'm sure people don't want to hear us. We're spot on on that thing. I want to go through lots of different things. One of the first things like, there's so much when he's a kid, you read and you're like, okay, This guy was a prodigy from the beginning, but I don't know if this was a product of like maybe just everyone in the 50s did this or, but you know, when he's 13, he moves to D.C. with his dad, with his family and some businessman in Omaha calls him up and is like, I've got a warehouse full of stuff in D.C. I don't know anyone else, but you who can get rid of it. I need you to go down to the warehouse and sell all this stuff. And I might be slightly misremembering the story, but I was like he was 13 and a businessman called him up and said sell everything. Was that a time of the 50? or was Warren Buffet, like, throughout the book, it's clear he's like super special from the game, but was he that special? I was just shocked by that.

You have any thoughts on that? Yeah, I can't tell how much of that. Like, I think it's got to be a combination where he definitely seems like the 13-year-old you would trust with something like that. And I think it's, you know, it's not crazy to hire a, you know, hire a high school-ish age student to run your yard sale or something. You know, if you have other things to do, then maybe you do that. I think it also, it helped that his dad was a congressman.

It helped that that's the reason that he's going to D.C. And so his dad has these connections. And I think that definitely accelerates things. But the way that I look at that is that it probably had a lot to do with the fact that he was able to raise as much money as he was in his mid-20s. I don't think it had a lot to do with what he did with that money and how fast he was able to compound it. So I think there's, you know, there's a version of the Buffett story where he is equally smart, equally driven. and, you know, dad is not, not, dad is just, it remains a stockbroker,

and it's just a really right-wing guy who works in finance in, you know, a medium big city in the Midwest. And I think in that story, Buffett probably ends up with a slightly lower net worth, but is just equally and legendary, and you just have a slightly different beginning to the story. Yeah, so that's, that's my guess.

And I think, you know, what that probably speaks to, you know, going back to the family stuff, is that it does, it does seem, like, I mean, Buffett may have felt some level of guilt about that. And he does have this view, this very insistent view, that he's doing this. He wants to be measured accurately. And I think one of the things can drive you crazy if you want to be measured accurately for the results of what you did is if there's something out of your control that's actually really good for you and that makes your life better, but you had nothing to do with. And I don't know, you know, you could really

dig into the psychology and ask, well, would Buffett be more, more of just a centrist or a Republican had he not been kind of reacting to his dad. And I don't, I don't think that's necessarily true. But it is interesting to think about that he, he to some extent had this unearned legacy early on, but he's obsessed with actually earning it. And so he, his relationship with his kids was very different where he was actively trying not to help them out with connections and things. There are these bits in some of the later chapters where it's basically you, if Buffett was going to be generous to his kids, he had to kind of laundering it through his wife or through Catherine Graham or through some other mutual connection.

It was just, he was incredibly reluctant to actually write the check directly to the family member who would benefit. But he also, I think, just didn't want to be this eccentric, rich guy, one of whose eccentricities was his children live in poverty and he's not helping them, even though he could. It does come close. Oh, God, we have so much to talk about here. Okay. One thing, well, I might come back because there was a lot of stuff from his childhood in his

early days that I want to talk about. But one thing that jumped out to me here, and I know it jumped out to you too is, you know, Buffett and Munger are both famous for saying a string of numbers times zero is zero. And they talk about never going to zero. But when I read this and Buffett's not the only person whose book I've read does this. But when you read this, it's in the early days, obviously not by the 2000s really. But in the early days, I was struck by how close they came to kind of zeroing out a few times. I mean, the one that both you and I picked up on, was the newspapers, right? If the newspaper, especially the Buffalo, Buffalo,

if that war had gone on for another year instead of ending, I mean, you could be looking at something very, very different. There's a few legal rulings that go their way instead of the other way. It's just really interesting. Look, Buffett's not the only one. I remember when I believe it was Cable Cowboy when you read John Malone's book. They're so levered at one point. I think they're about to miss an interest payment.

And then they discover like warrants. in a company that they had gotten a merger that they didn't know they had like sitting in a drawer and the company's stock at 10X and they're like, you know, the day before, they're like, oh my God, we're saved. Here's a million dollars lying around. So like, he's not the only one.

Every story, I do rereading this. I think Alice sensationalized some aspects. So I don't know how much of it is. Oh, you know, if the war had dragged on for another year, they just would have raised a little debt. But I was really surprised by how close it seemed to cut to the scale. So I'd love to hear that. Yeah.

Yeah. So he, you know, Buffett's career is just, you know, insane returns in the early 50s. He does fudge things a little bit. There's this part where he's arguing with his sister because he's arguing about borrowing money. And he says he'd never borrowed more than 25%. But there is a balance sheet that floats around online where it's 1951 or something or something. And he has 15K in stocks and I think a 5K bank loan. Now, it could be that that's an incomplete balance sheet because he might have had the gas station or the farm still or something like that. But it didn't seem like he He was using a little leverage early on. But, yeah, there are bits in the 70s where Berkshire has borrowed money. And so there's some holding company level leverage. He, so he had, yeah, some tough returns in the 70s, but I don't think that looked like a threat to the business. But, yeah, when he bought Buffalo News, so it's a newspaper in a two-paper town, they have really terrible labor relationships. It's Buffalo, so pretty union town. And, yeah, the newspaper is just bleeding money, and he's tied up in lawsuits.

And I think I don't have the full progression of P&L, but I think it's like the newspaper was close to break even when they bought it, and then it was losing a million a year, and then $2 million, and then $5. And, yeah, I forget the losses actually get to $10 or something. But, yeah, there's a while where it looks like it's just a money pit. And then, you know, you look at Berkshires, their annual letters from the late 80s, and Buffalo News is doing. like four-year 50 pre-tax. So it did work out. And then insurance was another one where I, yes, if you ask me what is the industry that Warren Buffett is most associated with? And by extension, what is the industry he's best at? It's insurance. And he did make a money on insurance in the aggregate. And certainly Berkshire's insurance holdings today are great companies. It

looks like natural indemnity was, you know, this masterful capital allocation move where it's not just a textile mill. It's a textile mill with an insurance subsidiary. And that's generating capital. And that's where he bootstraps the rest of his returns. But there's also this period where there was a big fraud, the Omni fraud or something, that was costing the insurance company, like $10 million. Right after they buy it, too, if I remember correctly. Yeah. And then they have the California workers' comp is losing money, and their combined ratio is

actually, it looks pretty bad in the mid-80s. It kind of looks like he likes insurance and he's good at picking insurance stocks. Like, GEICO did amazingly. So if you treat Berkshire's insurance holdings as it's Geico plus their owned and operated stuff, then he's doing fine in insurance, fine to rate. But the actual insurance operations, it took a while to actually get those straightened out, which would really remind me of was Soros in, I think it's in Alchemy of Finance, where he has the trading journal.

And he talks about his dollars, legendary dollar short trade. But at some point, he has some offhand remark, because he's writing this in real time. And, you know, he doesn't know what he'll be famous for later on. And he just casually mentions that his lifetime P&L in FX trading is negative. So he was making these massive, massive bets that he's now synonymous with in a place where he'd actually lost money over time. So I thought it was interesting that if you looked at Buffett in maybe the early 80s, you could say, really good stock trader, also an insurance hobbyist, and we'll see how that last one goes. No, look, they even make a joke because he buys General Rhee in the late 90s or the 2000s, and it's instantly a disaster.

And Alice says every insurance company that he's ever done, like as soon as he buys it, it falls off into the ditch. And then, you know, he buys Henry and they're like, get the tow truck ready. So he jokes with that. Yeah, it's just funny. Again, in hindsight, brilliant move, associated insurance. They talk about the float and everything. But in the moment, you know, in the 70s with the Omni fraud, he buys it.

And you're like, hey, this could, it national indemnity is the thing that ends up saving Berkshire. And maybe she's sensationalizing, but it could have brought them down at the time. Let me see a few questions here. One thing that jumps out to me is Buffett starts the partnership, I believe famously, with seven partners, like $250,000 plus $100 from him. And he keeps a PA on the side, right? And there's two interesting things about that. A, he's not eating his own cooking, right?

And with the benefit of hindsight, people say, oh, he knew he was going to be so successful. his fees were going to be growing so much. He never wants to withdraw from the partnership. So all of his P.A. is outside so he can earn. But I mean, he's trading his PA and the partnership. And the other interesting thing is, you know, at the time, there's not a hedge fund structure, right? He's setting up like hundreds, not hundreds, dozens of different partnerships. And when he rolls them all together, the book has an off-hand comment that says he rolls all

the partnerships together and he brings his PA into the partnership, right? Yeah. I just thought that was very, very interesting. like the way he started goes against the eat your own cooking rule it's a little shady to me you know i find it always a little suspicious when someone's like oh yeah i trade my own PA alongside the fund i manage like oh why don't you just have your money in the phone but it goes against the image i have lots of thoughts on but i'd love to hear what you think there yeah like i think the usual you know the the optimal path that a lot of people who are managing money like the path they're going for is i'm going to manage money

I'm going to get fees, performance fees, as well as management fees. And over time, since I can control how much capital isn't that fund, over time, more of it will be mine. And I will figure out what things, you know, what things can scale massively and those go into fund. And maybe when I have my own pool of capital, I'll find the things that don't scale but do produce higher returns. And I'll do those on my own. And then over time, you can, if you do this really well, end up with your fund, like your internal capital kind of swallowing the outside capital. So, you know, rent-tech is the classic example where they were running outside money and by the early 2000s, they were at capacity and we're just cashing everyone out continuously and that it's just their money. We'll talk long-term capital management later, but in the book, long-term capital management has the rent-tech thing.

You know, they're almost the original. I think rent-tech comes along alongside, but they're like rent-tech. Their returns are so good. And they're like, hey, outside partner, here's all your money back. And then two months later, like, ooh, that was a mistake. We wish we had. So I think the charitable read on this is that when Buffett, so the very first fund he raised, like he raises a bunch of funds at around the same time.

The very first one, it's 100K and, you know, he's put in his $100. And then he actually personally, I think at that time, has $170,000 or something. So he's actually, he has already achieved the dream of I will have more of my personal money than outside money. And he starts with that and then he's able to raise money. pretty fast. And this is another thing where, you know, rereading it and just thinking for the perspective of I, you know, talk to people who raise money, I raise money for things. He's, he has a strategy. Like, he is trying to gather assets. And he's still able to put up monster returns, but he is gathering assets. Um, it did look like so that the funds, can I just

jump? He's shy, but the book, when you, when I'm rereading it, you're, he is driven to raise money. Like it mentions he goes over to one of his neighbors so much that his neighbors pretend to like, not be home and stuff. And then he ends. up having a joke where he uh he's got somebody on stage and he mentions that that might have been the night they were born or something but he is like going to people showing to he is hustling he is burning leather to sell people and raise money yeah so i think what he could have thought was okay i'm going to raise money and i should do the the larger more liquid things in in that vehicle and then there's other stuff where it will be fun but it's definitely not going to scale like it's not

It's the kind of thing where if you're making 50% a year in your PA, which it seems like that was kind of the number that he was doing at that time, then you know that you need to increase the capacity of your strategy 50% a year in order to keep up with things. But if you have 100K and outside capital and the next year it's 500 and then the next year it's 2 million and so on, you just have to, you can't have your strategy completely change every time you get a new LP check. So I think he was putting the stuff that he knew would scale into that vehicle and then doing the non-scalable stuff. Because he talks about things like there were these uranium penny stocks. I'm actually kind of curious about what value was, like what was the residual value? Like, why was it like shooting fish in a barrel when you bought these former promotions? Was it just like these companies raised a bunch of money to do uranium mining? They traded less than net cash, but he knew that the cash would be returned somehow.

Are they liquidating? Who knows? Anyway, he's doing non-scalable weird stuff. And then the scalable or this is another thing you mentioned in your newsletter, the things that actually require scale he's doing in the partnership. So you had mentioned this. I think I thought it was interesting that a lot of his early stuff was actually pretty active as flavored.

So he finds sandborne maps, he has some cash flow as a dime business, but they have financial assets that are more valuable than their stock price. It's like the stock trades at 45. They have $65 a share in bonds and other securities. And so he gets on the board and basically forces them to liquidate. He has the Dempster Mill where he then takes over, in that case, he takes over the whole company and brings in someone to basically partially liquidate it. So he's, I think for those kinds of things, like you wouldn't want to find yourself in a position,

especially if you are somewhat risk conscious or risk averse, where you realize you put, you know, two-thirds of your personal account into some company, that's enough to get a board seat, but you realize that one board seat is not going to get you what you want. And now you have most of your net worth in a company that is just driving you insane, but also isn't going to perform. And so maybe it does make sense that he do that kind of thing in a vehicle where he knows he can just, he can raise enough capital to have the influence he wants. But yeah, he did some of some of that. I'm actually, I'm also curious, the book doesn't talk a lot about kind of bread and butter trades because I have these great case studies. We don't have just like, you know,

it mentions, okay, he had like a couple million dollars worth of pure oil or he had a steel company, but it doesn't say, you know, he bought this company and the stock went up 50% and he sold or, you know, because I've heard that the distribution of returns for a lot of the deep value stuff that he was doing, that most of the stocks just wouldn't move for years. But in any given year, one of them would go up five X because someone finally bought it and it was just absurdly cheap. So I was kind of curious about that. And there is that book, Buffett's early investments, I think,

that actually has case studies. It has full income statements and balance sheets for decade plus for the companies he invested in. It does give some details on things like that. But I wish we had more. So one takeaway I had reading this, and I mentioned in the newsletter, so you saw it, but I very much picked up on this was the investments,

they focus on the snowball tend to be and the investments and i think this is because they're also his big winners but they tend to be before like the 80s plus when he's obviously got much more capital either control sandborn that demster mills where he goes and buys a cigar butt and generally takes control or maybe suggestivism and gets them to liquidate and this has history dating back to ben graham with um what's the pipeline that he does northern pipeline yeah yeah yeah so there's history there So the big winners for Buffett are either cigar butt plus control or distress. And all of the big winners that they mentioned in the book have distressed. You know, famously Amex and the salad oil.

But when he does Geico in the 70s, Guyco is literally on death's door. When he does Wapo, I forgot about this, but Wapo's stock gets cut in like two thirds because they do Watergate and the market's in a big drawdown. But they do the Watergate papers and then their Florida state. Broadcast station license are getting threatened. So the stock gets hammered. And that's when he comes into Wapow. Yeah. And the union stuff too.

There's also union trouble, striking strikes, things like that. He's buying and Catherine Graham, I think, is seeing him. And she's like come off a 24-hour shift of publishing the paper. Even Coke in the 80s when he finally makes the investment, they are having issues with their bottlers, if I remember correctly. So they're kind of getting hit because of bottles. Obviously, there's lots of other stuff. But the two through lines, like I was taking.

way and I'm thinking about writing post being like, hey, if you're looking at early Buffett, everybody thinks of the, everyone thinks of the super deep value stuff that you mentioned. And he has great returns there, I'm sure. But where the needle really moves if you believe this book. And I think if you read his previous, his letters around that time are the control, the sandboard maps, puts big positions in and he knows he can serve as his own catalyst or the super distressed stuff. So that's one takeaway I'm really thinking about in my personal life, like, hey, why am I

following the Buffett in the 2000s like compounders, even like the big tech, stuff that's well, shouldn't it be much more cigar butts plus control corporate governance remove or wait around for super distress in a company, not the market overall, but I'll pause there and let you say anything. Yeah, no, I think that's exactly right. And it's funny you mentioned the question of should you just be doing, should you be investing today like Buffett does today or like Buffett did in the 1950s? Because I had just noticed last night. that there was a company that I actually had owned shares in because it was a classic Ben Graham net net. Like it was literally trading it less than net cash, but it's profitable.

And the reason that it was trading it less than net cash was that they have dual class stock. And the management team was obviously just not interested in returning capital shareholders. And I looked last night and the stock was actually up like 300% from where I owned it and up 200% from where I sold it. So I missed out a lot of those gains. And it turns out they did do a buyback at some point. But I think when he started doing that kind of investing, you actually had a really good case for here's why a ton of companies will be massively undervalued, which is nobody went to Wall Street from roughly 1930 to 1950. They're either the Great Depression, so they're getting a government job or working in a big corporation that's safe, or it's 1940 to 1945, they're fighting a war, or it's immediately after that. And a lot of the most ambitious people are going to college because the GI Bill means they can actually get in and afford.

afford it. So it's only in the late 1940s and early 50s where you actually have some organic reason that young people would be working in finance. And so every company is being run by and evaluated by people who got the job in 1930 or earlier and held on and survived. And so what those people know is, you know, Dow can basically never go above 380 and you never want to buy growth and you always want companies to have tons of cash on hand. You don't want them to run out of money. And, you know, bonds typically do great. I guess they've had some inflationary episodes like during the Second World War. So maybe they weren't just in love with bonds. But a lot of people are just totally shell-shocked by this long experience of not making any money.

And valuations just get really dislocated, especially if a company is growing and the stock price is not growing with them, you can get a lot of multiple compression if you've got 20 years of growth and no market movement, however overpriced it was when that period started. So, like, there were a lot of reasons that you would expect pretty normal, well-run companies to be trading at deeply discounted valuations. I think today, when you find those companies, there's always a good reason. And the reason is either some combination of management is terrible, there's some big legal off-balance sheet liability, or it's in Japan.

And Japan actually has the same dynamic where why would you go into finance? there's a long period where it just doesn't make sense for anyone who's ambitious in Japan to select into the financial industry. And, yeah, things end up getting weirdly cheap and somewhat dislocated. So I think, yeah, if you're doing classic Buffett-style stuff, you're probably, you know, classic 50s Buffett-style stuff, you're probably not doing it in U.S. markets. And I'm sure you can find some really weird stuff in emerging or frontier markets, too. and you have, you're taking some risk that I think 20-something Warren Buffett would not have

taken. On the other hand, maybe you actually do have more room for massive upside in a scenario like that. You know, just on the following, one thing that strikes me when you read this is Buffett doesn't do international, right? He buys Guinness in the 80s and 90s, doesn't do international till Petro China in the mid-2000s sells it in 2008. And by the way, go look at a chart of Petcher, China from 2008 since today. I mean, he almost top ticked the sale. It's been a disaster since then if my research. But I'm with you.

It is interesting. I've thought a lot before. Would a young Warren Buffett, would he focus only on foreign stocks? Because there's a lot of inefficiency. You obviously widen your net quite a bit. You can find a lot of weird things. And a lot of them might have quirkier exchanges where you can do some of the like the 50s and 60s, one thing you forget, he's burning down the phones.

doing like pink sheet stocks and stuff like to the extent that we don't have that anymore and things change a lot but I have wondered would Warren Buffett do that or you know one of the reasons I always worry about foreign stocks you don't have to worry about this so much with Japan but man you go start buying African stocks or Kazakhstan stocks or wherever you want to say there is a real go to zero because the policies changes and you are a American who owns a sheet of paper and someone with the gun says hey come over here and try and claim it if you want I don't know if Buffett takes that risk. You know, like he's so, he so favors rule of law.

It's just a thought that I've had. Yeah, I don't know. Like, it's interesting to think of the counterfactuals because maybe, maybe he just decides, you know, maybe, maybe Buffett born in the mid-80s decides he is going to take that risk. He's going to run with more diversification. And, you know, if the geopolitical situation gets bad in every single country all at once, then the last thing you're thinking about is your portfolio. So, you know, maybe you take that kind of. that kind of attitude towards it. But I think the other thing, the other possibility is that a more, more modern Buffett is just more of a classic Wall Street guy.

And this is something that I found funny reading the book is that Buffett is this sort of very all-American stock picker, like read the journal, talk to smart people, read the 10K kind of guy in the text of the book. And then in the footnotes, he's a little bit sharper. He's doing things like he's selling options on his, these continuously rolling covered calls on some of his positions, or he's calling up pension funds and endowment funds and trying to borrow directly from them instead of borrowing through his broker in order to get a cheaper borrow. There's this weird anecdote where there's the famous story of the cocoa futures arbitrage where there's a chocolate company, they own a bunch of cocoa and the value of the cocoa exceeds their share price. And it's controlled by J. Pritzker, and he realizes that there's this tax code loophole thing where, you know, just a future of the tax code, where if you're liquidating a company, the shareholders don't pay taxes. And so he liquidates the company by buying back shares in exchange for warehouse receipts. And so there's the famous two-sided anecdote of what Buffett was working for Graham at the time. So what he does for Graham is buy the shares, redeem for warehouse receipts, repeat.

They sell the warehouse receipts repeat. and we does for himself is just buy the stock because every time more cocoa warehouse receipts get exchanged for shares, the cocoa per share actually goes up. So you actually just want to be long, the underlying, and I don't know if he shorted cocoa futures or not. But in the footnotes, it says that he actually ended up with his position because Graham Newman had put in an order, they had gotten the stock, they had decayed it. So they had told their broker they did not actually intend to buy this.

And then Buffett bought it for himself, I think, from the firm or something, which I guess, you know, in some ways that just doesn't happen now because so much of this stuff is automated that you don't really, as far as I know, you do not actually decay equity orders and it does not, you know, has not happened in a very long time in U.S. markets, but I mean, I don't know. Robin Hood during the height of the GameStop mania, maybe there were some. Yeah, I mean, I think their risk management was partly around not, not putting themselves in a position where they had to say that this was actually an accidental, you know, an erroneous story

from them. Anyway, like at that time where things, it literally messengers on bicycles who are bringing the stock certificates to, like from one office to another office, I think it's entirely possible that in that case, you might put in the order and then someone didn't write it down somewhere and they do the order a second time and then they get both that afternoon and they realize, oops, we've, we actually bought more than we intended and then Buffett comes in and says, okay, I'll take it. So, yeah, that seems fine.

right that seems fine yeah no it seemed fine but it also just you know if you if you were talking to someone today and they they had this great story about the money that they made that started with a paperwork you know administrative mistake at the firm that they worked for where they took the other side of the trade from the firm they worked for you know you I don't think you think you think okay this person is completely unethical but I think you'd be like this person is ready to go spend six months in jail no yeah you'd be like I think you're extremely aggressive and I'm I'm not just in with the capital gain on this one. I'm impressed that you'd even consider doing that.

But there are these other anecdotes in the book where it's just, it's clearly a very different time. Like, there's that scene where he owns shares of a streetcar company and the company is trading it less than net cash. It's like a streetcar or a bus company, I think, and it's trading less than net cash. And he talks to the CEO, and the CEO basically tells him, we are going to do a special dividend and it's going to be for more than the current share price. and you, at the time, it was totally normal and accepted that you would trade on things like that.

And now, of course, the way you get, one of the reasons he keeps Berkshire is he goes and he negotiates, I think it's Chase is the CEO. And or no, it's Seabury Stanton. Yes, yes, yes. Is it okay, you've got a buyback shares in Seabry's like, yep, 1150, we'll do the tender, put in the journal tomorrow. And he does 11 and 3.8s. And Buffett is so in sense that a CEO would lie to him about material. non-public information that he holds on to his shares. No, you know, it is funny.

So I do think rereading this, I think Alice is very much in Buffett's not pocket, but she gives him a very favorable read. Like every time a regulator comes after him, it's a corrupt regulator or a bad regulator. Like he comes off looking very scot-free on some things where I think impartial observer might be, but just the Coco trade is one. She's like, oh, Graham makes his arbitrage profits. But Buffett makes 5X in the stock.

And look, good trade, good call backing Pritzter. But I will tell you, I have done a lot of tender offers. And every time a company does a, hey, we're buying back 25% of our stock. None of our directors and insiders are tender. And I'm always like, oh, they want to be greedy. Let's let's be alongside him. The history is a lot more fraught with, hey, they did the tender. And five years later, the stock is down 90%.

Yeah. All the directors are fired. Like, you're taking risk that it wasn't there in the arbitrage. There's, I think, I forget who, I think about him Peter Thiel, who had the observation that if you listed the biggest U.S. investment banks and ranked them by employee equity ownership, that Bear had the highest insider ownership, they died first. And then it was Lehman. They died next. And then, you know, I think, I forget, I forget where, what the ordering is for Goldman versus Morgan Stanley. I would assume Goldman was higher because they did, they had been a partnership until 1999. But I don't know for sure. But they both, they both survive. So you kind of. of what you were actually looking at was not just management is aligned with your interest, but also these companies promoted people who were really good at making a ton of money. And they did not promote people who are really, really good at managing risk quite as aggressively. And all it takes is a little bit more selection for risk taking versus risk management.

And you end up with companies where they do have high employee equity ownership, companies massively levered. The employees who own that stock are also massively personally levered, and you are aligned with them except that you're aligned with someone who's a little bit crazy. It's like if you are in the car with someone and they are drunk and also speeding, like your incentives and theirs perfectly aligned. You are both equally dead in the event that the car crashes, but also you're in a car that is probably going to crash.

Speaking of crazy driving, the three through lines of the book to me are A, Buffett's just like, unique genius. I mean, there's no denying that just right off the bad days coming through. B, his relationship to women, you know, there's a lot of story, his wife, but then there's, I mentioned briefly, he meets Dallie Pard and he's in love, but just beautiful women coming through and Warren going head over hails. And obviously between his wife, Ashert K, a lot of others, like he's got pretty complex. So there's those two. The third one that I was surprised, and it's surprising for such a like cautious wrist tape. Throughout the book, it's just like, But Buffett is a really crazy driver.

Like, you get in there, you kind of take your life in your own hands. And it just cracked me up consistently. Like, Buffett owns Geico. He's cautious in all aspects of life. And people are like, you get in the car. And even though he's never been a wreck, you're just like, holding on to see like, oh, my God. And Buffett even says, like, I drive so slow that even if I get into wreck, things will probably be okay.

Yeah. Yeah, it's weird. Like sometimes, sometimes you look at someone's behavior and, you know, their professional behavior and it's this perfect reflection of their personal life. but sometimes you realize people compartmentalize and they if someone is just inwardly torn between being a cautious, you know, very actuarial kind of risk underwriter,

yes, it'll take risks, but only when paid well and won't take existential risks. You know, maybe if you don't naturally have that attitude, it drives you a little bit crazy and you have no choice but to go a little bit more above the speed limit. Let me switch to, so one of the, Graham gets a big section in the book,

is that one of the biggest late sections in the book is his uh investment and then entanglement with is it solomon i i always hear solomon yeah so for those you don't know he makes an investment into prefers and a consistent theme of warren baffets career is getting off market deals and kind of getting a little bit of trouble where he thinks oh the preferred to protect you everyone falls for it but he he makes the preferred deal solomon has the uh basically we can dive into it basically they rigs some treasury auctions let's call it that that's a simplification uh they're about to get sanctioned by the treasury buffett steps in as chairman and kind of his reputation his pleading his politicizing saves the bank right that's the story now what's interesting to me is when you read the book

and the way i've always framed it is oh my god they were on the brink and he came in and his reputation saved him but when you read the story it's like hey Solomon stock goes from at the peak 38 to at the lows 22 and i thought that was interesting for two reasons number one that doesn't quite scream distress to me right like i will point you to the regional banking crisis of 2003 a lot of banks go from 80 to 8 and their stocks are back to 80 now right uh right or dregs the drexel completely blew up in that period and um and i think you know there there are good reasons that buffett would not have said yeah i'm going to buy a massive slug of drexel preferred and i stand by everything this firm does.

Like, Drexel is kind of, like, if you go back and read about Drexel, Drexel is sort of like, I don't know, if B. Riley or someone of that tier became like the third biggest investment bank in the U.S., and I'm picking on B. Riley in part because I'm more familiar with them and I've looked at a bunch of the deals they've done on the long and short side of various things in their extended portfolio. But it's like the companies where they are extremely high, like high agency, they think of themselves as principles rather than agents. They're doing pretty much any, any deal they look at.

They can find a way to be involved in that deal. And Solomon was not that. Like, Solomon was this classic bond house. And they're getting into investment banking and equities. And that's part of what, you know, actually there's that weird line where it talks about how Buffett liked the part, he liked the trading and market making business. He did not like the investment banking business. And you'd think just be like the stereotypes as well.

He likes the stuff where they're actually putting risk on the books and trading and, you know, turning, turning their client's portfolio or turning their counterparties portfolios, I guess. And he doesn't like the part that is actually infinite R-O-E, basically, because you don't have any real capital costs. You just have personnel and, you know, purely reputation-based, whereas, like, no, you know, Solomon is not, I guess they had some advantages in market making where they probably get the first call if there's a big trade to be done.

but reputation matters a lot more investment banking. I would have thought just based on stereotypes, that Buffett would be excited about the asset-light business with the very flexible cost structure where if there's not a lot of investment banking that year, a lot of managing directors don't get very good bonuses, but that means you're still probably, you can, or a profit. And with the trading business,

I would have thought this would be like the most anti-Buffet thing imaginable. Yeah, especially a bunch of nerds doing weird, like all the run off-the-run arbitrages. But then you find out that, Yeah, he's actually, you know, he's, he's aware of that trade. You know, when he does the LTCM bailout or what he thinks about doing it, he knows what a lot of those trades are and actually has a pretty good understanding of how they would work. I want to come to LTE.

I want to come to LTCM in a second, but let me finish my point in Solomon. I was surprised because it takes up such a big piece of the book of my story with him. Again, the stock goes from 38 to 22. Now, a lot of stocks in the GFC go from 38 to 22, and then they open over a weekend and they open at zero on Monday. but you know the book portrays it as Solomon is on death store they're not going to be able to roll their funding all this sort of stuff the stock price in some of the stuff like when I'm reading it it wasn't feeling like that do you think this was a case where hey the the legend has grown

like in the moment do you think they were actually was there a risk of a zero here I think it's really hard to say I think in it's possible it's entirely possible that the stock should have been it too. And people should have been pricing it as this company needs a rescue or it's going to die, but that Solomon as a trading firm run by traders, it's not like John Goodfriend is going to call up, you know, someone at Goldman and say, hey, we're actually about to die. And I'd like to do a trade with you. Can you make me a market in X? Like, of course, you're not going to get a very good quote there. So, you know, there is that anecdote. I forget if it's in the book where Charlie Munger at one point mentioned that the Solomon balance sheet did not actually balance.

There was a plug. It's not in the book. No, I did not hear that. Or maybe it's a point note I didn't read. I've seen some reference to this somewhere where, yeah, Solomon, Solomon was not actually able to balance the books. They were not actually able to get the numbers on the balance sheet to sum up correctly. And they just had some variable, like some plug for we're not sure what this is.

But, you know, we can't account for the gap. I mean, that feels like FTX style stuff. Could you imagine that at an investment bank today? I can't imagine it at an investment bank today. On the other hand, you would think, given how many people work in the back office, it's clearly not just this trivial thing. You don't just hit F9 and know exactly what Goldman's P&L for the day was. There's got to be a process. There's got to be things that roll up to whatever the final answer is.

And when a lot of your process is still paper-driven, it's still, you know, people are making taking phone calls and then jotting down on a notepad what it is that they said they bought, it is entirely possible there to be discrepancies that just get missed at some point, and then you can't rewind and you don't know what the missing number is. So I think putting all of that together, it's possible that part of the reason that Buffett needed to be there was that Solomon actually needed to admit to shareholders that things were a lot worse than they had been letting on, and that they weren't able to do that if just admitting that would mean they can't actually roll over their funding and they're going to die.

So they need Buffett to be in the room staking his reputation and implicitly staking some of his balance sheet or more of his balance sheet in order to say that, yeah, we're we have worse problems than you thought. On the other hand, we're addressing them and we think we're going to survive. I mean, the problems were worse. And I think I ultimately come to where you are where I think the market was sleeping at the wheel versus the internal panic and turmoil. And the bank probably would shut.

But it was just surprising when I looked at that and they said, oh, it was a rough night. You know, people didn't know if the bank was going to open its branches on Monday or not. The stock started at 38 at the beginning of the year. And at this time, it was written in 22. And I'm like, one of these two is not the other. If you said 220, I'd be like, okay, that makes sense. Yeah. LTCM. So I thought the LTCM story was interesting.

again it's another one obviously now LTCM was a huge crisis it paves the way for lots of bailouts later in the oh oh did I just lose your video there we go it paves the way for lots of bailouts in the future and everything I thought it was interesting Buffett's role in this and for those you don't know Buffett is about to do a private bailout of LTCM and basically he's out of phone range they draft the bailout wrong it's drafted the wrong thing and because they can't get back in touch with him his bailout can't go through in time for the markets to open, so they have to go with the Fed bailout. Buffett later says that it was the greatest missed opportunity of my career, right? Which was surprising to me, like, am I missing something?

Because in my mind, it was a bunch of depressed stocks, yes, lots of leverage and stuff. But basically, he was buying them at a little bit of a discount. I mean, versus buying, I'll throw it out, Walmart in the 70s? Like, this was the biggest missed opportunity? Was that hyperboably? Or did I just kind of miss something there? So my understanding is, and I don't know if I have all the numbers handy, but it's like LTCM, right before they fell apart, they had like $4 billion in equity supporting $100 billion plus in assets. That gets wiped out to like $200 million in equity.

I think they say something like it was $500 million and Buffett would have bought it for $250 or something was kind of where. Yeah. Yeah. So, but a lot of the trades they had on, it was, you know, on the run versus off the run treasuries. They did have some stuff that was just a straight bet on. equity vol but actually i i feel like if there's any any balance sheet on which you'd be willing to carry a just i'm going to be massively short vix because vix is at 70 and i think they didn't really have vix at the time or they had a different calculation maybe but like if you were

if you're going to ask who has the balance sheet to just go massively directionally short vol when vix is just insanely unsustainably high like markets cannot be that moral because it's i think isn't it like every 17 points on the vix implies the s and p goes up is like plus or minus 1% on the day so if you're at if you're at like a 60 70 vix you're saying the average daily volatility of u.s large cap equities 4% yeah which is just like of course you should bet against that but of course anytime you have the opportunity to do a very juicy just direct short position in the vix you've got to be asking yourself would i have shorter the vix at 45 right ahead of leaming weekend and then got blown out when it hit 80 so um but like no

buffett could have done it like he knew what the size of the trade was he knew a lot of these other trades like i'm sure he had been aware of things like the royal dutch versus shell arbitrage which also got blown way out because um a lot of relative value funds were all in that trade as well as other trades so i think i think he basically what he probably assumed was that maybe maybe like a billion uh like the way i would think about it is a billion of lTCM's market loss is they actually made some bad trades they should have run with less risk and they would have still had just decent overall returns but not quite shoot the lights out you know um but that the next the next two and a half of three billion in in losses is every counterparty knowing that lTC

CM is going under, everyone who has a relative value desk telling them, look, you know, you and I know these are good trades. They're going to be much better trades in a week. Let's take them off. And let's put them back on when LVCM actually blows up. So, like, he could have been betting on just there's this instantaneous snapback. And as far as like, like, wasn't it an incredibly profitable bailout? I think you're right.

Now that you say it, because I guess my thing was like, again, these are publicly traded securities, right? So in my mind, it was like a $200,000, but you're probably right. It was $2.5 billion that had come down to $500. He was going to buy it for $250. And then just to snap back. And yes, as LTCM kept telling people, these will work in the long run. Most of these are RELBAL arms. So he probably, that $250, as you say, the math, it was like $160 billion of assets,

probably turns into $5 billion over a year to two years. So, yeah, it does make sense. Yeah, like, as far as I know, there aren't really, there aren't LTCM trades that actually were just the wrong side to bet on. Yes. There are LTCM, at least at the time that they collapsed. There are LTCM trades where you wouldn't have wanted to do it in that size, where it makes sense that you could get margin called,

especially if you're this huge participant, and you have been kind of pushing around your counterparties for a long time. But a lot of that convergent stuff, the convergence actually happened. Like Italian rates did converge more with German rates. And of course, if you hold an on-the-run versus off-the-run arbitrage until the next auction than you have on off the run versus all on the run and that are you know as long as you're as long as you don't get just completely destroyed on slippage um in other transaction costs you're going to be fine on that trade so um i think he could have looked at that and just said okay what is the actual maximum that berkshire could lose and what is you know how fast does this bounce back if that doesn't happen and i think he he could have like there's there's a near possible world where berkshire just gets on instant roughly three billion dollar markup and then two years later they have liquided all the LTCM strategies and they've realized another couple billion because the strategies actually did

work pretty well. So the book ends, Snowball ends. It's released in late 2008, I want to say. Yeah. The book basically ends as the financial crisis is starting, right? So even in the book, they say, hey, this is much more reporting than actually story telling what we're telling you here. We're just kind of reporting facts.

Buffett's making a lot of preferred investments, you know, and the book kind of just ends. One thing I was thinking, reading LTCM and particularly the Solomon thing, you know, in Solomon, when he's there, he's literally in the room overnight where he's like, if Japan opens, we might not have funding and this bank might go under. I wonder, and he does not cover himself, he does very well in the crisis. I think he could have done much better, particularly, you know, there's some derivatives of blah, blah, blah, blah, blah. But I wonder if one of the reasons he does very well,

where a lot of his peers are imploding spectacularly is because he was in the room for both Solomon and when he's advising governments, he was in the room for LCCM, so he kind of knows how to get that done too. I wonder if those previous experiences, like were actually really formative in helping him guide through that

where plenty of people blow up in the Global Financial Crestes. Do you have any thoughts on that? Is that just too much mystifying the man or do you think that experience actually helped? Yeah, I think it absolutely does. I think that this is, I think that, you know, as a rule of thumb, you probably in a financial hierarchy, in a financial institution's hierarchy, you probably want the org chart to have some kind of seniority-based mechanism where you want to make sure that people are reporting to someone

who has seen one more crisis than they have. And so the pace at which you can promote people is partly a function of how many near-death experiences does the financial system have. But it does, you want people, like, one thing you want is you want people who remember 2008 and, you know, who, you know, most of us remember spring 2020, but that will, that will be increasingly untrue with the past and time, but like, you want people to remember the crisis, but you also want people to remember what it was like talking to a subprime CDO bull in mid-2007, where you're pointing out, you're all the bad things that are going on, fundamental singularity deteriorating, and they say, well, look at my model, these are all uncorrelated, can't really default all at once,

which I think also turned out to be largely true. So part of what you are getting from that is thinking about the dimensionality, right, thinking about how, yeah, it is actually AAA for a reason. It is actually a pretty safe asset. However, you can get margin called. And if everyone who owns this is lever 30 to 1 and it's all overnight funding, you can still lose money on that very, very correct directional trade. So I think, yeah, I think part of part of the reason that Buffett was in a really good position was he seems to get pretty nervous when markets are doing well and when volatility is low and when the macro situation is mine.

Like, he doesn't feel like that is just full of steam ahead. He feels like that is that is when problems start brewing. And so he does come to crises with a lot of cash. People love to talk about Buffett's history of market timing. I know even him, you heard a lot of Uber bears when Buffett retired. this month. You heard a lot of Uber bears being like,

the greatest market timer in the world is retiring. If that's not a sign, this is a top, I don't know what it is. And I was kind of like, okay, guys, come on.

The man is approaching his mid-90s. I think this might be more health than everything related. But it is, you know, when you read this book, you do think, oh, he is,

he's very good at the market timing thing. But I mean, it's not like he's the best initiative. I don't know. How much when you were reading this book where you thinking, man, really good at timing market cycles versus, man, this guy is great at picking stocks. And,

you know, there are some bad market cycle timing calls too. And I'll follow up with a question after that, but I'd be interesting. Yeah, like, he gets some of the timing and macro stuff really, really right. I think shutting down your equities focused investment vehicle in 1969 is just a masterpiece of market timing. But then he does have a pretty substantial net worth drawdown in the 70s because he started buying a little bit earlier. than maybe the optimal time to buy. But he also kept buying. And I think if you read some of his early 80s letters,

he's more worried about inflation than turned out to be prudent. So he's still talking about inflation and how it eats your returns and how this is why you want to own capital-light businesses that generate lots of cash flow. He talks about inflation in the context of insurance, where here's why insurance is tough because you write a policy And when you're actually paying to fix someone's car, you're paying, you know, CPI's up 15% since then. You're paying a lot more.

And you can easily go from profitable, you know, good, like profitable combined ratio to you are spending a lot of money to get this capital. So, and I think some of the market timing is that he, he, well, I think there are two pieces of it. One of which is if you are selective and you buy stuff when it's cheap, and you also sell things when they get rich, you are going to be, if you do that well, you are just naturally timing the market somewhat. There are just way more stocks you can buy at an 8x BE that are good companies when it's March of 2009 than when it is, you know, end of year 2019 or, you know, three months ago. So in that sense, you get some national market timing. But also, I do get the impression that he just, he thinks

about market dynamics more than maybe a lot of value purists would like to think. And you had alluded to this earlier in talking about exchange traded versus pink shades traded things. But I love the anecdote just because it, you know, one of the questions I always ask myself when I'm reading a biography is something really successful. It's like, what does their day actually look like? You know, and the book actually has a nice day in the life of Warren Buffett. And so you actually get that. But I had wondered just what was it like in the Buffett Partnership days. How much of his time is he spending, you know, reading, how much is he spending, talking to experts. And what I had assumed from the Lonesy biography is that every so often he calls up his broker

and says, I'd like you to start accumulating stock X. And then it turns out that, no, he's actually calling up market makers and saying, I want to buy up and I'm not paying it any more than four and a half and then they call back. I knew exactly what's right. And that, you know, that in, in one sense, that is actually, you know, he calls them and he calls up the market makers these are pink sheets so they trade very and he says i want to buy 450 dollars per share and they say we'll call you back and they call their guy and the guy says i don't know and then a week later they say we got him he's going to do

450 and buffett says nope 425 now and buffett keeps walking people down which i i read it and i was like oh that's very rare in buffett but also the the uh the honorable person me and the traitor like when i make a bit to someone like i kind of have to stand firm by that and i i always you know, I don't know if the Warren Buffett of the 2010s is going in like kind of re-trading on people like this. So I was surprised by both sides, not surprised and surprised by those sides of it. Yeah, I wonder about that. Like, I wonder, I don't think we get any blow-by-blow descriptions of the preferred deal.

And I think there's like, there is this sort of social contract where when a, when a financially threatened company does get a bailout, like it's sometimes impolite to talk about how close things were and how aggressively the rescue pack. was able to be priced. But, like, I do wonder if Buffett, you know, he's negotiated his deal with GE and they're all ready to go and, you know, they're ready for the signature and he's looking at the final version and he says, oh, by the way, I want my stock to convert at, you know, 20% cheaper price or something.

Like, I could imagine something like that happening. Or, hey, guys, you put a 6% interest there. It was a 9. You got the number outside down. Yeah. So, like, if you, if you do that kind of thing, like, you can only get away with that. Like, that was something I was thinking when, when I were reading that anecdote about how he's constantly lowering his bid, I was thinking, how did he get people to keep answering his calls? You know, were the market makers when they got the call and they hear on the other line, on the end of the line, they hear, hey, it's Warren, are they immediately rolling their eyes and saying, okay, I'm about to spend hours of work to get zero commission?

or are they saying, hey, it's my buddy Warren, I want to trade with this guy. I don't know which it was, but I felt like I don't think I could get away with just constantly chisling people on every single transaction and still get them to trade with me. And some of that is just, I think it's unrealistic, but some of that is just like temperamentally, I'm not really willing to constantly walk back things that I said. But if you do that and you actually know that you can get it, like if you were actually highly confident that holding out for three and seven eights instead of paying the four and a half that you can actually get away with it that means you actually have some sense of a really

granular psychology of how does someone who does want to sell they did answer the market maker they didn't say they want to sell like if if they want to sell and the price keeps ticking down at what point do they puke at what point do they give up and just decide to hold and so if you're good at that kind of thing and if that's how you generate something your alpha then i assume that you're also reasonably good at, you know, looking, it's probably not looking at a chart of the S&P, but it's probably like reading the front page of the Wall Street Journal and just getting the vibe of people are overpaying, they're getting sloppy, they're not thinking right, I'm going to be more in cash, and then you read the Wall Street Journal a year later, and you're like,

everyone thinks that the financial system is ending, but I can do the math and see that these companies are not going to get wiped out, or I have enough friends in Washington, and I know how Washington works, and I know that we're not going to allow our banking system to be totally insolvent or, you know, wipe every bank out and zero the shareholders. On the pink sheet stuff, I do think one interesting thing is we think about it in modern terms. I mean, in the 60s, I think Buffett might, a lot of these shares have been held by the families for 20, 30, 40 years. And they make clear with some of the, I think it was Dempster Mills. I can't remember the specific one. Like, you know, people have bought these things and held them

for 50 years with no return. And if you just offered to get them out, even the people working out, I think Buffett was also very familiar with the psychology of, hey, if I lov in a 450 bid and then after a week, they come back and say, okay, we'll hit it. These people have mentally decided to sell this position, right? So I can keep chisling them down, chiseling them down. One last thing I want to mention. You actually mentioned it in the 80s, he's bearish on the dollar. He mentions it. You know, one of the through lines of the book is his father is bearish on America, you know, leaving the gold standard.

his uncle is like literally raise you know building shelters and like hey i'm going to have everything in gold so that when the dollars worthless my family and they have to go change the will so that they can uh get get out of gold uh graham's bearish and buffett manages to overcome that he launches a partnership despite both graham and his father telling him not to but he is consistently bearish on inflation and the dollar throughout the book he's at bearish in the 80s the book ends right, like it really ends right before the financial crisis with kind of the Sun Valley stuff. And Buffett is telling people the dollars going down and the trade deficits are the issue. That's in the early 2000s. And guess what? The dollar actually, it goes down a little

bit through for the next few years. But today, we're talking to that Troy, but it's higher today than it wasn't the early 2000s. The deficit is obviously way balloon. So maybe he's 20 years early. But, you know, he's been bearish on these for 40 years. And it's just, it's interesting to see this. I just thought it was interesting that he could invest successfully, I've got plenty of friends who've been bearish since 2008. This is an economy that lives on cotton candy. Buffett manages to separate the two. I thought those were interesting.

I'd love to get your last thoughts on that. Yeah, I think in one sense, if you've got a market with however many thousand listed companies and you're usually long five to ten of them, then in one sense, you are basically bearish on almost everything. And then you've found this handful of exceptions. And a lot of the exceptions, they do make sense in light of that bearishness. So I guess Geico does have the just general exposure to inflation. But they also had a better cost structure.

And so if you assume that insurance isn't going away, but inflation could be pretty bad. You just want to own the insurance company with the structurally lowest cost you can. Coca-Cola, obviously, that is very much an inflation bet. Or it's very much a bet that makes sense for somebody who's worried about inflation. that you'll continue to get the markup on your corn syrup regardless of what the dollar does. And it's also a globally diversified business. So in some ways, he was taking, you know, this goes back to the debate we've had, I guess, throughout this call. Is he actually a riverboat gambler who will bet his last chip and actually win?

Or is he someone who's just really good at underwriting risks? And sometimes the Kelly optimal thing to do is to say, I would rather risk a 50% drawdown than risk not owning, you know, Oglevy and Mayther at these insanely low valuations and not be able to buy newspapers at low single-digit PEs. And he, you know, that clearly worked out for him. So I do feel like part of, part of that kind of natural macro bearishness does mean that you just put a really strict filter on the things that you buy. And then if you buy something,

if you're essentially saying my expected return for the S&P over the next 10 years is zero, but there's going to be a lot of volatility along the way. And you still find something you'd rather, you'd like to own under that circumstance. You're implicitly saying this is going to generate enough alpha offset it, and it's going to hedge out whatever other risks I have. And now, you know, I'm applying kind of pod shop vocabulary to what Buffett is doing. But I feel like that's actually kind of justifiable because he was doing, he was. was doing things like funding cost are, you know, funding cost related bets in the 1960s,

and he's doing option straights in the 70s. And I think the book does not mention this, but I think, I think Lowenstein's book does mention this one doesn't, the incident with ABC Cap Cities where they're negotiating the terms of the deal and the ABC team wants warrants. And they're, they're, the ABC bankers all take out their calculators and start calculating the value of warrants and warren buffett just thinks for a minute and tells his side what the value of warrants is like he's he's clearly able to do if not black shawls in his head at least like black sholes ask heuristics they get to roughly the right answer so there's smaller stuff in this book on

i mean obviously when he's young they talk about it and even when he meets bill gates if i remember correctly bill's like hey let me get your computer you can do your taxes and everything and warren says i can do my tax in my head why do i need a computer to do that for me uh quick quick thoughts i have to get your thought on this when i was reading particularly about young buck but even old buffett right he he's so good at attention reading the room and everything he's very shy but when you get him at a stage he's pretty he's very outgoing i could not help but thinking this man if if buffett at 15 if the internet had been around this man would have put mr beast to shame i think he would have been the world's greatest social media influencer because of his obsession with data and numbers he they mentioned he's

always running systems, like the reason he lashed onto Dale Carnegie is he basically runs systems and he says, this will get me the most friends. I think he would have slayed on the internet. And I would point to the pranks are over the top in the early days. You know, when he gets his friend naked with a gas mask on at the bottom of a freezing pond, the pranks are over the top. But even they mentioned, hey, he's obsessed with marble racing when he's younger. And I was like, I know some bear, there's some very popular YouTubers to basically put marbles at the front of a treadmill and watch them race. Like, I think he's he would have been awesome at it i don't know you have any disagreements agreements what do you think

no i i think so and i think one of the one of the funny footnotes is um on the on the employers side of things is that at some point in the early 1950s he was selling copies of a report that he wrote on some i think closed-end fund or holding company or something and so he that is the definitive answer when you ask why why would someone pay yeah like why would so why would you pay to read someone's thoughts if they could just trade for themselves and make more money. One of the answers is Warren did it. But yeah, he seems to, you know, I think he did a lot of media investing eventually. I don't recall any real media investments that the book talks about until the 1970s.

So, but he was, he's clearly interested in this, in media as an industry and in this question of perception and how does it get shaped and how do we, how do we come to note that. things and believe things, like talking about brands is partly a way to talk about that. It's partly a way to talk about how do ideas get in our heads? And if you are someone like Buffett where you actually have maybe a hard time really having a deep emotional connection with people one-on-one, but you can maybe not work a crowd, but at least give a good talk. And you can learn these sort of canned lines and responses and things. And you can be extrovert presenting, even if you're quite introverted. I think those questions are just really interesting to

and what like that. And being able to say, you know, I don't know that I can convince someone to do something one-on-one, but I know that the front page of the Boston Globe every day convinces hundreds of thousands of people what the important news stories of that day are. Like, what does everyone need to care about and that the ads convince them to buy things? Like, I think that's, that is probably just naturally interesting to, to someone with those traits. And yeah, if you, if you transport that person to the present and tell them they can, create an online persona and it doesn't have to be them. It can be an exaggerated version of some things that they are. It can be an inversion of other things that they are. And you can write

and you can write long form, you can write short form, you can do short form videos, you can do long form videos, you can do podcasts. Yeah, I think there's a, it's possible that whoever, whoever is the most Buffett-like person today does not actually have a very substantial portfolio. Maybe they have a, you know, science-focused YouTube channel or something like that, because that is the the present day expression of that bundle of traits i will mention one more thing he gets obsessed with ping pong and becomes a great ping pong or when he's young he gets obsessed with a bridge in his older age and the book especially when he gets older and gets a computer it mentions him playing a game helicopter a lot on the computer which i believe is like flappy bird i'm not sure

i've never played it but yeah i looked at it like it's like flappy bird i think he would have gotten really into video games and i wouldn't be surprised if he was like a huge video game streamer or something I don't know if he's quite personable for that, but I think he would have been focused enough. I think that would have been thing. I think that the trading, the Pink Sheets trading story, it just reminds me of if you've ever watched a stream of a really, really good strategy game player playing,

you know, in real time at maximum speed. And just looking at the pace at which they make decisions and how many of those decisions are not right, but if you make enough positive, expected value decisions really, really fast, you just inevitably have a really good outcome. So, yeah, I think, yeah, it is weird to imagine a Buffett trading live stream, but I think something adjacent to that is entirely plausible. Last question, and then we're running way long because, again, I'm not even through half my notes.

I was really enjoying rereading this and thinking about them prepping. But last question, when I was reading this, you know, there's two sides of Buffett. There's his all shots. I want to buy deep value. And then there's also the hobnobbing side. And he obviously understands media very well. And Bill Gates gives a masterclass of media and says, you know, people asking the newspaper. Gates says newspapers are dead.

People ask TV stations. He said, look, it's going to be tougher. But because of their distribution, because they own that, there's a place for them. And that's obviously proved right to far. Maybe, you know, now TV stations are in trouble. But I was struck by Buffett loves sports as well. he never buys a sports team and I think that's very interesting

because when he buys a plane he names at the indefensible sports teams are a very trophy property buy but they're a trophy property by that pretty much regardless of what sports team you bought 30 years ago you're up 15, 20, 30 X with a lot of cash flow along the way

and there were a lot of dynamics that suggested that's where the world was going so I was wondering are you surprised Buffett never bought a sports team now that you mentioned it yeah I don't, I guess, you know, one possibility is that every time a sports team is up for sale, he gets the call. And every time he bids a little bit less than it would actually take to get the team and that he's been doing this over and over.

But it's also, yeah, I don't know, maybe, maybe because the economics are so dependent on broadcasting rights and that's, that becomes now that's partly a technology question of, okay, what do, who do we, who do we. we think we're watching the Super Bowl 10 years from now and how much do we think that Amazon would bid more than Netflix to get this and you know stuff like that like those questions may be maybe harder but it does it does look like in the 90s he was on the cap city board and ABC board which meant he he knew ESPN and I think he could have saw where the puck was going there so yeah yeah I that's an interesting question I think if there was a team in Omaha he would have bought he would have had one for sure maybe the answer is he didn't want to buy outside Omaha but I mean I'm really surprised he loves football I could have maybe he didn't

want to get into politics as that but again you get a lot of sway when you buy a football team and Buffett loved big game on and he loved throwing in he loved hobnaving with athletes there's a lot of athletes store anecdotes towards the end of the book so yeah I I with the benefit of hindsight I probably am a little surprised he didn't um look we were way over time we went through a ton any any any last thoughts or anything here? No, I think, I think you, whenever I read a story like that, there's always the, the back that, like, I guess like the, the two questions I'm always asking are, one, what would, in a biography like this?

I'm always asking, okay, what would I have done had I been born in 1930 and had I been similarly interested in stocks? And I'm sure my track record would have worse, but, you know, what are the things I would have done the same differently, stuff like that? And then the other question is, okay, what if Warren Buffett had been born in 1986? what would he have done differently? And I think when you try to ask both of those questions at once, you are trying to get at whatever,

what are the underlying things that make this person really unique and unusual? And I think on my second reading, like a lot of it was more circumstantial and more about kind of family and relationships than I thought, not just like that part of the story makes more sense, but that part of the context of where he's coming from, how he relates to people, why it is that he chose a job where you actually have the opportunity.

Like, this is an interesting thing about investing as a career is that you can just opt out. You can choose to, especially if you're having, if you're doing a concentrated long only or long mostly strategy, you can just say there isn't anything good to buy right now. So I'm not buying. I'm going to hold cash. And maybe that is a kind of like avoidant personality trait compatible thing where you, you probably, like maybe it was very stressful for him growing up that he, he, when his mom is, you know,

furious with him for inscrutable reasons that he still has to be there and has to be responding at things. And so a job where you can just opt out and pause and wait seems kind of ideal for that. So that was part of what I got from it. It was like it is more of a psychological profile

of someone who is unusual in many and real ways and then many times in the book I would think I would not actually trade, I would not take the couple billion dollars in exchange for going through that. look very well spoken i agree with everything you say it's very interesting um yeah it's super interesting you know what i'm excited for i read it in 2008 i believe as you did we read it again let's just

round the year up and say it's 20 years later i'm excited for you and i as we're approaching 60 to re-read it and come on and be like man you know buffett in the 50s he was starting when he hits 50 and 60 he's starting to get a lot of mortality thoughts and those are really what's jumping us now. So I'm excited for that. Burn, this has been great. We're going to have to pick a book for June book club going. But thanks for making time. I mean, I was just looking forward to this all month because it was really. Oh, yeah, absolutely. It was fun. It's so fun to revisit this stuff. So many of these stories, I knew that I remember them. I remembered a lot of the details of the story. So I feel like I remember, but then you read the context and it changes.

And like, it's because you probably now that you and I have more business experience under us, too, but yeah, the context changes. Yeah. Cool. All right, buddy. We'll talk to him. A quick disclaimer. Nothing on this podcast should be considered an investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.