How to Win the Investment Game w/ Bryan Lawrence (RWH044)

(00:00) if you pick a business it turns out to be  a good business your analysis is right you buy it   at the right price it's now gone up wow you feel  great about that decision you happy every time you   look at it in your portfolio you tell clients  about it you tell your wife about it that's   dangerous because just because something's done  well for you doesn't mean it's going to continue   to do well for you I mean every day that you  don't sell a stock is another day you choose   to buy it hi folks it's such a pleasure to be (00:32) here with my friend Brian Lawrence who   runs a very successful investment firm called  oakcliff Capital Brian it's lovely to see you   especially after the Misadventures that  we had with me failing to uh plug my tape   recorder in properly thanks so much for coming  I'm delighted to be here and I've been looking   forward to this conversation thanks for having  me oh it's it's great to see you and I I feel   like I should share a little bit with the  audience about the unusual backstory uh   behind this interview which is Brian and I have (00:59) been friends really for about 10 years   I think it's 10 years since I met Brian through  guy Spear and um we've become increasingly good   friends in recent years and also with his wife  Jillian Zoe seagull who we'll talk about later   um and I sent Brian an email at the start of  2023 saying look this is an open invitation   come on the podcast anytime and Brian sent me  back this kind of polite note saying there is   another podcast in my future but not for a  bit and then he said when the time's right   let's talk and then finally a few months (01:30) ago he wrote to me and said okay   it's time and so one of the things that you'll  notice as you look into Brian's life more is that   he's really done amazingly few public interviews I  mean he did a he did a podcast with my friend and   co-host di brison in 2022 he gave a terrific  speech at Jim Grant's conference in 2021 and   otherwise there's nothing and so I wanted to  ask you Brian like why why do you keep such a   low profile and and and also why thankfully  did you relent and decide that you would  (02:01) undergo this uh this questioning from me  well um it's a it's a good question I I think I   have a a desire to only do something like this  if I feel there's stuff to say um I don't really   think the idea of doing a podcast for the sake  of hearing myself talk is is terrific so um   the question in doing something like this  is do I have something interesting to say   and what I've grown convinced of listening to the  podcasts you've been doing with others is that   some of the subjects that you've been touching on (02:36) are interesting things and uh uh you   know I've just grown more comfortable with  the idea that you and I could have a good   conversation we've been having these sorts  of conversations for 10 years so I thought   maybe we try to do it in podcast form and  see if it was interesting yeah it's great   well I'm really happy that you're here and I I  I know there is an act of trust and friendship   involved in doing these things cuz you you don't  really know where things are going like we have   you know you know that I've got about eight (03:02) pages of questions but you never know   quite where it's going so there's an element of a  leap of faith and so it's i g given especially the   fact you don't do this much I'm I'm particularly  happy to have you here so thank you I'm terrified   by The Eight Pages of questions I know I know  I reallya shouldn't have told you that well I   boiled it down for 15 or 14 yesterday so I wanted  to start by asking you about your father who's   also called Brian Lawrence because I think it's (03:28) impossible really to understand who you   are without knowing about your father who's been  an immensely successful investor in his own right   specializing in energy at a firm called Yorktown  Partners which is a private Equity Firm that I   believe he co-founded uh back around 1991 and  they've invested about 8 billion in about 122   companies or so and um you worked with your  father for many years and you speak with him   several times a day and I I I've only met him one  time briefly when I went to your wedding back in  (04:00) 2021 and but I know how much he's  influenced you and and I wanted to get a   sense of what you've learned from him that's been  formative because he's he's such an impressive   Guy and um you know there's something very  distinctive about him and the sense of Duty   and service but also the sheer intensity of the  guy and his work ethic so that's a long-winded   way of of tearing you up to tell us about your  father yeah well yeah thanks for the question   he's a he's an amazing guy and uh an (04:35) inspiration to me he started   a business uh within a company called Dylan Reed  an investment Bank um uh which spun out in 1997   uh as as Yorktown partners and it's had a lot  of success investing in oil and gas companies   and that success uh came to him as a result of  a lot of work and later in life and so he was   55 when it spun out when it became independent  and really started to make its Mark uh he was   55 I was 30 so I think an important thing for  me is that the early part of my life there was   not this um and so I was fully baked when (05:15) this started to happen and uh the   lessons uh that I absorbed from him like watching  him do this you know the the intensity of it um   you know I think I think if you watch something  like that happen when you're young I don't I don't   really know what that's like I know what it's like  watching it uh emerge later in my life I I think   you basically have two choices as the as the child  of a successful guy uh you can Coast uh because   your life is easier or you can kind of step it up  and try to live up to it and um I I'm very much in  (05:52) the lad Camp uh because I've seen  the difference that hard work makes and I've   seen what hard work uh what what what hard  work really means and I think that there's   something about his effort which I think about  a lot he's always showed me that the last 10 or   20% of effort whether it's time or intensity  results in massive outperformance and so it's   important to be intense all the time the it  may look easy from the outside when you see   great success you're like oh my gosh it it was (06:24) easy for that person there was a bunch   of luck involved and and luck certainly  is involved in in success but a lot of it   uh is is is a result of intense work the Italians  have this word called Sprat Tura which is someone   who makes hard work look easy uh you see you  see their easy success and you say gosh it   must have been easy to do that it was not you know  there's there's a lot of of effort that goes into   it I think that's been a powerful lesson I think  another very powerful lesson is um the value of  (06:56) always trying to do the  right thing for your partners   um to to to build that reputation uh over a  career and to have a reputation for doing the   right thing when no one is looking um is a very  powerful thing and it it it results in loyalty   from people it results uh trust from clients and  um sometimes it's not easy to do but uh he makes   it an imperative and that's been a real example  I remember guy many years ago telling me the   story of a company I think it was cros Tech that  guy had invested in and it went kind of horribly  (07:29) wrong and and and your your dad was  deeply involved and and I remember Guy saying   to me that um your dad could so easily have  screwed the shareholders and instead he totally   and utterly honorably turned the company around  made everyone more than whole and so my impression   for many years before I met your father even  fleetingly at your wedding was was this idea   of him as somebody who was deeply aligned with his  shareholders and I see that in you as well like a   I see this kind of obsession in you with doing the (08:04) right thing and kind of be there's there   a sort of Boy Scout quality to you Brian which  I I always enjoy when I came to stay with you   and Jillian um on Fire Island I remember being  really struck by how involved your family was   with the fire department there can you talk about  that because it seems in some way very Central to   what your family is about that that sense of  responsibility and kind of civic duty and it's   not really something um that is necessarily  that common in the investment business but  (08:38) it's very distinctively Laurentian yeah  well there's I think there's uh there's there's   people can have uh talent and they can have  Drive um and there's a lot of that around I   think there's another thing people can have  which is I I kind of think of it as almost   like a fiduciary Gene like do you want to  do the right thing um and is that part of   what you bring to the world and um you know  I I'm I'm not knocking people who are more   interested in focusing on themselves but I I I I (09:12) like to I like an environment where I'm   with other people who were trying to do the right  thing for the people around them and uh I think a   lot of that is my father's example and a lot  of it is this community on Fire Island where   I grew up and spent Summers and my children have  been and my some of my best friends are and that   Community it's about 130 houses uh in a little  area it's 135 Acres a lot of it is swamp and the   houses are very unremarkable um wide economic  range of backgrounds of the people there uh the  (09:44) unifying thing is that virtually  everything is run by volunteers so if you   have a tennis program sports program for your kids  swimming it's the it's all you might have some   professional staff but the the the ulum the hiring  of the staff is all done by volunteers and at the   center of the community is the fire department and  the reason the fire department is so important is   the houses are up on posts because every now and  then you get an overwash from the ocean and storms   and a house up on posts made of wood that's (10:16) been there for 60 years it's like a   bonfire and there are repeatedly fires and  there was a fire in 1983 that knocked four   houses down and killed three people and  uh I remember standing watching the fire   happen and our our Volunteer Fire Company was  under prepared and our fire had to be put out   by companies that came from a community from  the east from one of the gay communities on   Fire Island and from the community from the West  you know these Italian Guys and they put out our   fire and um very next day my father joined (10:49) the fire company in the neighboring   Italian Community um on Fire Island you  disaggregate into you know we're in the wasby   community there's the gay community the Italian  Community the Jewish Community my father and a   couple friends were so upset with the performance  of our volunteer company they joined in the   Italian Community and I joined there too so I was  a firefighter for 38 years first in that Community   then I came back to my community and uh now my  son is a firefighter himself 22 years old and to  (11:14) to to watch that example be paid forward  um is very cool um there's also this I don't know   if this is relevant but this is a this is a  thing that sort of an interesting point um   about firefighting 70 % of the firefighters in  the United States are volunteers because there's   not population density enough in 70% of the places  where people live in the United States to afford a   professional department so volunteer firefighting  is very much a cultural thing in a lot of the   United States and there was a there's a an (11:46) interview Bill Clinton gave in the   mid 90s Bill Clinton was a political master and  um he was asked how do you if you're going to a   town you've never been to before how do you  arrange for a political rally to happen how   do you make sure that people show up and are fed  and are there to listen to what you have to say on   your whistle tour and he said it's it's important  to call the mayor because obviously people elect   him but half the people didn't elect him so  he's only liked by half of the people and it's  (12:13) it's important to talk to the you know  the used car dealer he's probably the richest   guy in town that's you a small town that's  the richest guy the guy you really want or   the or the woman you really want to organize your  event is the chief of the local Volunteer Fire   Company because that person has been selected  by the community to get stuff done that person   can can find pizza for 250 people and can organize  an event and if he says or she says let's go do   this the people will show up I find that (12:37) really interesting uh to hang out   with the people in the community who are trying  to make that happen um so that's that's a little   bit of what that has been I also thought it was  really interesting when you and I were chatting   yesterday and you said to me that one one of  the lessons of being in the fire department   is on an island like Fire Island is if you  don't put out your own fire nobody else will   and you were also talking about this this sense  of um responsibility and and always wondering   are you doing the right thing in a way (13:08) you'd be proud of if you sort it   in a newspaper which is a very Warren Buffet like  mindset right like this sense of um responsibility   Duty cooperation quite oldfashioned um well I'm I  can be pretty self-focused self-interested I you   know I like to pick stocks in compound capital  I mean I'm not I'm I'm a capitalist but um I   think that uh uh to spend time in a place like  that and to have your children spend time in a   place like that have your children become  friends of children of your best friends  (13:43) all of whom are steeped in that kind of  value system um you know where the houses cost a   tenth of the houses in the Hampton and it's  not about the money like if if if if you're   living in a community where uh the most expensive  house is a status symbol that's a certain type of   community if you live in a community where your  ability to organize the maintenance of a $500,000   firetruck that the community has taken out the  donation over the past 10 years like if if if   if your social currency is your ability to (14:14) organize something effectively um I   kind of like that that Community better you know  that's a community of get it done uh regardless   of background as a journalist you know my role is  usually like traditionally to be the non-joiner   on the outside making factious comments and  it's just a different role in life right like   we're journalists I think we we're just not join  us we're perennial Outsiders looking at what's   going on and judging it so I think maybe that's  one reason why I'm so struck by the fact that  (14:46) you're actually in the trenches  doing it I guess I mean it's it's uh   it's just maybe maybe it's a a quirk I I  really enjoy it and and you know some of my   some of my uh oldest friendships are there and  um I think it's a really good value system one   of your oldest friends obviously from growing up  in Fire Island is is the famous investor Chris   Davis who we've had on the podcast recently and  I think it's fed is probably your best friend and   who's also now a director of Berkshire and is a a (15:21) fascinating guy and Chris I remember you   telling me gave you a copy of Charlie munga's  lecture on the psychology of human misjudging   relatively early I think this may have been  around 1998 2000 that sort of thing you told   me that changed your life that the the scales  fell from your eyes when you saw that why why   did that have such a profound impact on you  at such a formative stage in your life um yes   well uh Chris and I joke about this a bunch  like my father had started as an investment   banker and it was pretty obvious to me (16:02) that you know being an investment   banker was an interesting thing to do is  I came out of business school in 1993 um   and uh I very much admired this guy Felix rhen  who had you know developed a very interesting   professional career financially successful  but also was important in uh the Affairs of   New York City saved it from bankruptcy in the  late 70s I I I admired a career like that like   a a broad you know intellectually stimulating  financially rewarding career so that's that's   what I had chosen to do and there was there was (16:30) no real success by my father to cause me   to do something different however um my father  was giving me these these uh you know letters   of Warren Buffett you know you should read this  and you know I was dismissing it because you know   sons and father sometimes you know that they  don't necessarily speak clearly they may speak   lovingly but they don't they don't you know they  don't do exactly what the other one tells them   to do and so uh Chris Davis in 1998 I think I'd  been a banker for 5 years maybe six years 1999  (16:59) he hands me this this uh recording  of uh Charlie Munger giving a speech about   the psychology of human misjudgment and my first  reaction was this guy Munger just seems to be a   pretty you know there's a lot of hutzpah uh  challenging you know academic psychologists   you know with no academic background of  his own and I listen to it I'm like wow   this guy makes more sense about this area  of human behavior than anyone I've ever   heard talk about this and uh it just kind of  led to a a reassessment of a bunch of stuff  (17:37) and ultimately you know I left Lazard  in 2004 to set up oakcliff and I it was just   a seminal moment for me uh there's some other  reasons I left Lazard but that you know Chris   giving me that really set me on a different path  the reason Chris and I joke about this is each of   us has a list of books that we want our children  to read and our children don't necessarily   read them because of course it's their fathers  suggesting them so uh we've tried various things   we've tried bribery you know read this book and I (18:09) will pay you for a book report uh but   maybe the best thing to do is to get a friend to  suggest the book that a friend is more impactful   than a father is an interesting idea I tried  to pay both of my kids to read Undo It by um   uh dornish which I I read and I had a sense I  was working on a book that was related to um   Health and Longevity that I was helping to  ghost write and I read that book and I had   a sense of oh this guy is explaining stuff in the  way that if you were reading Securities analysis   by uh Ben Graham like the scale sort of fall (18:41) from your eyes because you could suddenly   see all of these um mechanisms by which our body  was being affected in all of these different ways   and I think I offered each of my children $150 to  read it and neither of them read it and neither   of them had any money either there you go you you  should have given the $150 to a friend had them   keep 50 and give a $100 I don't even forget the  money just suggest it to a friend and have them   suggest it it's a very interesting it's a very  interesting problem but then once in a once in a  (19:13) while I'll sort of I'll look over and  they'll be reading a book that that that I   love um but yeah I'm not sure it's ever because  I've suggested it so what else is on that list   of books that the the 20 or so books that you  want your kids to read by the time they become   real adults fully-fledged adults well I think  it's in the spirit of of what uh Chris did for   me you know this this idea that you can um very  quickly come up the curve in a discipline uh you   know it it there's hoods Spa there but I think (19:46) there's also truth I believe with a   good book and maybe some reflection maybe  some other books in the subject you can   get yourself to maybe 70 or 80% domain  knowledge in let's say biology or Psych   ology or or physics or the history of India I mean  that last 20 or 30% might take you 10 years of a   PhD to achieve but how do you how do you equip  your children with these different models um so   you know there's a book called influence by a guy  named Robert shini which I think is a masterclass   in how marketing is used by people to try (20:25) to influence people and um you need to   read that in order to understand how you are being  influenced and you need to read that in order to   understand how maybe for something that you love  and is worth making happen you can influence other   people to make it happen I think that's an amazing  book um I think or Charlie's Almanac you know as   a as a compilation of uh of mongers writings uh  and speeches is is amazing there's uh a book by   a guy named Alanda baton uh you know called  the consolations of philosophy which I think  (20:59) is a is a terrific you know philosophy can  be very inaccessible uh it's terrific introduction   to how I think it's six philosophers he goes  through and he tells you how that philosopher   is relative to your life uh and I just think  that's an amazing thing just to drill down   on that that's an amazing thing this is why  philosophy can be useful to you yeah I like   that book I he also wrote a beautiful book many  as earlier that I think may have been his first   really successful book U called how PR can (21:27) change your life which was a love   that's an amazing one too and that's that  what I remember from that book is how to   suffer successfully that's a very interesting  concept as well um so there there's there's a   bunch of there's a very beautiful book called  difficult conversations about how to have a   difficult conversation with someone um the I I  just I don't know uh there's a list I can send   it to you after the podcast yeah that would be  great and when you look back and you think about  (21:53) the impact that Charlie had on you the  things that you've actually done differently   because in a way in a way a lot of what he  was about was as I said in my book not just   the not just achieving Financial Victory but  the manner of the victory uh how you treated   people what what impact did did he have on you  in terms of the way you decided that you wanted   to do business and and operate in the world and  and also avoid stupidity which is obviously one   of the great lessons from Charlie Charlie is a  you know fascinating and an inspiration to so  (22:29) many because you we're we're a lot of us  are looking for meaning right you know it's it's   it's a world where uh some of the old meaning  that people might have found in religion is   gone or weaker uh and you know Charlie really  is a bit like a modern day philosopher um you   know how do you live a good life uh and of course  everyone focuses on it because of the commercial   success but um that he had but really what what's  at the heart of what he's saying is simple ideas   clearly stated um uh you know cutting through the (23:09) complexity of life and there are some   simple ideas about how to conduct business  like be the kind of person who is trusted   your your your trust and your reputation are  within your control right you know your your   innate Talent is not your height is not um you  know where you were born is not but whether   not you when you say you're going to do something  you get it done is within your control reliability   is entirely within control um whether or not  you save a lot of money is within your control   and uh you know it it's it actually a piece of (23:46) advice I got from Felix rhen you know   during my time at Lazard I mean this this  this feels like something Charlie should   have said like um always be saving money  um because a couple things will happen   uh first one is you'll save a lot of money  right um the second thing is if you're saving   as much of your income as you can then by  definition you're not doing what you're   doing for the money because you're not doing  it for the fancy house or the the big vacation   you're you actually intrinsically enjoy (24:17) what you do it's a test do you   enjoy what you do it's not you're not in  it for the money you're saving the money   that you're making and then the third thing is  as the money piles up you develop autonomy and   autonomy allows you to be even more of the person  you want to be and that feedback loop is quite   extraordinary and Ron himself really embodied  it I I I remember interviewing him many many   years ago because I I interviewed him about  a guy called Albert Hettinger who is a great   role model for Bill Ruan who is a legendary (24:47) investor now long gone and um and   Ron was interesting because obviously he was  this immensely successful investment banker   probably the most important person Lazard FR  in his time and and yet then had the power and   Independence and autonomy to go off and help  prevent New York going bankrupt around 1975   and so he really embodied that right like he  had um he had the power and the independence   of mine just to be able to to say no no  I'm going to do this really interesting   and really important thing so I I think the story (25:20) is kind of grown in the telling but he he   was he was probably 6% of lazard's profits is what  he was he he owned 6% of lazard's partnership but   he was probably 30% of the revenues and so Andre  Mayer Who was running the firm said to him you   can't you know take two years off from The Firm  to go fix New York City he said well I think I   can actually the math says I can and then of  course you know it was not like saving New   York City was bad for business when he came back  right so that that's a very interesting thing but  (25:54) you know Charlie it's also the best way  to be successful is to not take undue risk you   know don't do stupid things you know conduct your  business so that you know wait wait wait until the   opportunity is obvious drain the risk out of the  opportunity um so that that's really informed how   oakcliff has been run um we're going to do well  but we are we are going to you know how do you   make oakcliff into the kind of place where when  the financial crisis comes as it does all the time   you know there's whether it's a financial crisis (26:23) or a pandemic or whatever else is coming   to us uh it actually gets stronger the crisis  so that that's another thing that that's another   Monger lesson let's get to oiff in a second I  want to fill in people on the chronology here   right so you you got you got a kind of mediocre  second rate education at Yale where you got a   Bachelor's in history and economics then you  went to Cambridge to get a master's degree   in England we tried to civilize you and and  then you went to Harvard Business School and  (26:53) graduated in 1993 so it's about as uh  as polished uh a resume as you could have and   so then you went to Lazard for about 11 years and  Lazard for people who don't know was this kind of   legendary orust firm that had been founded in  1848 so I'm I'm wondering when you came out of   that and and you decided leaving Lazard in 2004  and and set up um your own firm oakcliffe were   there skills that you'd learned in Investment  Banking and also in private Equity where you'd   done work with your father um that have (27:29) helped you as a stock picker um yes   uh there were a lot of things about Investment  Banking that are not useful to being a stock   picker but there are some things about that  particular type of investment banking which   was the uh the merger and acquisition business  that were um and I think maybe a story will kind   of illustrate the difference huh um I was made  a partner in January of 2001 and um Michel DAV   the the senior partner at the time said it was  the worst day of the rest of my life because   all of my partners would now consider me to be a (28:05) competitor and I had to generate my own   business that was a fun first day uh and uh so  I was thinking about you know how I could come   up with ideas that would be relevant to people to  maybe hire me to do merg and acquisition business   and in November of 2001 um reading 10K you know  reading different financial information 10K   and 10 Qs and other things for amazon. (28:35) com um I noticed that uh you know   the stock was down I think at like $6 uh and uh  the bonds there were $2 billion do worth of bonds   that Jeff Bezos had sold to finance expansion  into Europe and they were trading at 40 cents   on the dollar um so the bonds were saying that  the company was worth $800 million but there   was 800 million in cash on the balance sheet so  what the bonds were saying was that the value of   Amazon's business no 2001 was zero and uh I think  the firm had been yeah Amazon had been around for   they had been founded in maybe 1994 1995 so you (29:08) know this Amazon's you know people know   what amazon.com is and the bonds are saying  it's worth zero that was interesting so why   are the bonds worth zero so you know trained you  I've done a bunch of financial analysis um bonds   are worth zero because uh a credit analysts led  by a guy named Robie Seria who was a uh a guy at   Leman brother's very very smart had properly  pointed out that if you're a retailer with a   negative operating Marchin and a negative working  capital facing Christmas you're going to go  (29:39) bankrupt like the never in the history of  retailing had a retailer ever survived Christmas   with negative operating profit negative working  capital the suppliers would pull their support   thing would collapse after Christmas okay why did  it have negative operating margin it had a a US   book music video business that was profitable and  it had a European business so it was unprofitable   you could shut the European business and be left  with the profitable us business it was obvious you   could just read it in the in the financial (30:06) statements why was there negative   working capital they were turning their  inventories 18 times if if if Jeet Bezos   wanted to sell a copy of Warrant piece he  needed like one copy a day and Len Reggio   running Barnes & Noble needed one in every SE  one of his 750 stores so and you got when when   you bought your book at Amazon the credit  card company paid you that day paid Amazon   that day so there was no accounts receivable  and very high accounts payable because you   didn't pay your book suppliers for a long time (30:36) negative working capital for a company   that's growing is not a sign of weakness it's  the reason Michael Bloomberg is so rich you   pay for your Bloomberg subscription in advance  negative working capital meant that Jeff Bezos   was being lent money by his suppliers and so I  took this idea uh to Barry Diller right and Barry   Diller thought this was the best idea he'd been  brought in like five years um and he hired us to   buy a controlling position in Amazon's bonds um a  third of Amazon's bonds and um it was like one of  (31:09) the most exciting moments of my  young Investment Banking career and uh it   was going to be an enormous fee you know very  high-profile transaction and then he called up   and he said I've reconsidered it um I can't  do it because it's I'm I'm I'm the on the I   operate a public company it'll be publicly  disclosed it'll be too complicated for what   I'm trying to do he was right but anyway I  tried to get Walmart to do it I tried to get   branis Pino to do it no one would do it and uh (31:36) so I went to the general Council of of   Lazard and I said could I please buy these bonds  personally because I I've done all this work I   just want to take a a big chunk of my net worth  and buy these bonds and the general Council of   Lazard said under no circumstances can you buy the  bonds that would be a conflict because if one of   the clients prospective clients you've talked to  about this comes back and says uh that they wanted   do it it'll be a conflict I said in what world is  doing what I'm advising a client to possibly do a  (32:04) conflict A and B the Lazard that that  Andre Mayer built in the 50s and 60s would be   buying a ton of the bonds because that's what we  used to do anyway they wouldn't let me buy them um   like a year later the bonds have gone to par the  stock has started its March from six to 3,000 and   uh I learned that the buyers of the bonds at 40  cents were Warren buff and Bill Miller and then uh   The Firm Lazard is taken over by a guy named Bruce  werstein very talented banker and he comes in and   he sees that I've had this interaction with Barry (32:41) Diller and he says go call on Barry Diller   once every six weeks with a new idea and get  another assignment from it and I say to Bruce   werstein I don't have an idea every six weeks  I'm just not going to have an idea like that and   there's some back and forth and and you know I I  have a lot of respect for Lazard it's an amazing   place but the frequency of an idea that good and  a client willing to do it is too infrequent and so   the idea of setting up oakcliff as a place to do  infrequent ideas it's a different application of a  (33:17) similar skill set different mentality  don't talk to clients just to talk to clients   talk to clients when you have something to say  um and in this case the clients now are people   who've trusted us with money and you know my  own money and my family's money I I want to   talk about Oak Cliff in detail and and about it  as a kind of laboratory for what I would call   the power of concentrated value investing because  really it's a it's a it's a beautiful experiment   in concentrated value investing and it it (33:49) started just to set the scene it   started I think you launched in June 2004 so  a little uh a little less than 20 years ago   sorted with $6 million in family money now I  think it's about 270 million in assets under   management and one of the great influences on  you was Chris Davis's grandfather Shelby colum   Davis who died back in 1995 was a famous investor  who a lot of our listeners won't know much about   can you talk about Shelby colum Davis and how  in some ways he inspired Oak Cliff because in   a way um in a way he he was the opposite (34:30) of the the problem that you had at   Lazard where you couldn't put your money where  your mouth was like like Shelby colum Davis was   somebody who really invested his own money in  his own ideas so tell us who he was and why he   inspired you yeah um Shelby uh very uh uh smart  man you know academically DHD he ended up somehow   uh an insurance inspector for New York State  uh in the in the 1940s and uh spending time   studying the the various reports that  insurance companies would file with New   York State and other other jurisdictions (35:12) insurance companies to this day   are regulated by the states so they they file  financial statements with the SEC but they file   regulatory reports with the uh with the states  in which they uh they provide insurance and by   looking closely at the state regulatory reports he  had an edge uh understanding insurance companies   very smart he he he found different things to  invest in uh his whole life but the early edge   and a persistent Edge was insurance companies  and with $200,000 of his wife's family's money uh  (35:43) 1947 he started investing um and he had  a brokerage firm shely colum Davidson Co which   which you know bought and sold Securities I think  he had a seat on the New York Stock Exchange so   that provided a little bit of income for him but  the $200,000 he never took other people's money   and he he just invested it in in a concentrated  set of ideas largely from his uh understanding of   the insurance business and uh that $200,000 by the  time of his death 48 years later was 800 million   uh which is a 4,000 to1 return um about 19% (36:19) compounded and that example really   spoke to me there was a related example um  my grandmother my father's mother uh and her   mother my great-grandmother they grew up in  the depression my great-grandfather died you   know mother and and her three daughters one  of whom was my grandmother were left kind of   in a uh sort of a tough financial position  so they you know they they got jobs you real   estate brokers whatever but they they also  picked stocks and uh with just their own   money um they they didn't have an edge as the (36:53) insurance inspector what they had was   common sense and the common sense was like this  um products you understand uh you know Kellogg   cereal Hershey's chocolate you know 18t the phone  company so you understand what the product is get   the annual report you don't really understand  what's in the back because you haven't trained   as a banker going a business school or anything  fancy like that but uh in the front there's a   letter from the CEO does the letter from the CEO  make sense does this guy speak in jargon or is he  (37:22) speaking clearly A and B are they paying  a dividend that always goes up because whatever   the compan is doing if it's always sending you  more money each year it can't be that bad and   then just continuously reinvests the dividends and  so when my grandmother died in 1995 I think she   had $5 million worth of stock and the cost basis  on most of the shares was less than the current   dividend payment for the shares right that's a  very powerful example and to the end of her life   you know if if there were a window that was (37:57) rotting out in her house she'd be   complaining about paying $800 for this window but  she had this amazing stock portfolio um so the   Shelby example the example of my grandmother  um the power of investing with a systematic   disciplined thoughtful way really spoke to  me um yeah there are a series of beautiful   lessons really for you I think in in Shelby Callum  Davis's story like the the the fact the fact that   a snowball if you keep the snowball rolling for 48  years as he did without catastrophe it's it's just  (38:36) overwhelming the fact that he had a  competitive Advantage as you said because he   was focusing on an area where he knew more than  other people is another critical lesson um and   then there's one lesson about Shelby that I  was not eager to emulate and you know you can   you can see it in this book Davis Dynasty which  you know it it uh it talks about Shelby and uh   and then his son who was also named Shelby  Davis and then and then Chris and his and   his siblings uh Shelby senior really liked  margin so he he was you know 50% levered  (39:10) the whole time and and so the the  normal volatility that concentrated Stock   Investing brings to you which we can talk  about later we might get to that subject was   accentuated by the margin uh and so his returns  that 4,000 to1 unlevered would have been less   but the the return the the the swings were just  unbelievable I mean I think there was one point   in 7374 he might have been down 80% um and that  for me um the psychology of that is fascinating   I I don't you I met Shelby when I was young I  was too young to ask him these questions I would  (39:46) have loved if if I had the ability I would  I would want to talk to him about what that felt   like I I like to be the guy when everything is  coming down who has you know has an unlevered   balance sheet who has cash to deploy who's bought  put options um I like I like to build resilience   like that Shelby enjoyed enjoyed enjoyed Levering  his life um in a way which I don't think I would   I would be comfortable to it I think his story  also gets at a really central conflict in the   investment business which is you can be incredibly (40:22) smart as a stock picker but if you don't   have control over uh the capital in your fund  you're really really vulnerable because people   can bail out at the worst possible time which  obviously has happened with people like Bill   Miller over the years who's brilliant and uh  Bruce burwitz who another guest both both of   them guests on the podcast um it's you know  because it's so uncomfortable for people to   have that kind of volatility and and so  this is this is a big subject that I want   to talk to you about this um which actually (40:56) is something that you talked about   in in the very good speech that you you gave  to to Grant's conference a couple of years   ago I think you were talking about the the two  great challenges for an investor so on the one   hand You' got to make great returns and on the  other hand you've got to deliver those returns   to the shareholder and so Shelby K Davis had  the advantage that he didn't have a shareholder   who could bail out on him at the worst possible  time so let let's talk about this this structural  (41:28) is you because it's hugely important right  you need to you need to find a good approach to   investing but then you actually need to be able  to stick with it and that's one of the things   that obviously Shelby senia managed to do yes  so it's very important to understand what your   Edge is like if if you don't know what your  Edge is you don't have an edge um and so you   know what are our potential sources of Edge  at at oakcliff like you know there I think   there are three uh there's analytical kind of (42:03) informational and structural right   analytical um are we better at analyzing  are we smarter at analyzing companies than   than other investors I I think we're smart I  mean I think they're smarter investors there's   lots of smart people out there trying to do  what we do um so I don't think we have very   much of an analytical Edge um informational  uh we own 15 stocks that's a lot fewer than   a mutual fund guy who owns 150 stocks so we are  uh and we know this from our conversations with   CEOs when we when we sit with a CEO having (42:34) done three months of work on his   company and really focused on it and we we ask him  questions we are better informed than most other   investors our objective is to be the most informed  and that that gives us something of an edge but   our main Edge is structural and you know we have  opened up OB Cliff to other people to clients in   order to have a pool of assets that allows us to  spread the costs of research across a greater pool   uh but what we've done is we've been very careful  as we've done that to be clear this is a long-term  (43:10) game and I am sure that that has  diminished how much money we've raised I mean   we've raised a total of $85 million and we' we've  distributed $82 million the net capital raised by   oiff is $3 million over its 20- year history and  we're sitting on 270 million so it this is not a   fun F raising operation but what we do with our  clients is we say uh this is a long-term game   you need to put this in a place that's in your own  psychology that says long term and uh this should   not be a huge amount of your net worth it's a big (43:44) amount of our net worth but it's our work   and we're comfortable with it but for yourself  it shouldn't be a big uh uh piece of your net   worth and you you have to half of the money  that has been uh rais by us is locked up for   3 years and we ask that every new client lock up  at least a quarter of their capital for 3 years   you could have 6% of it back each year sort of  a a thing that that Buffet used to do in the   mid-50s uh with his early Partnerships you could  you could give him some money and take out 6% each  (44:16) year to to live on um but put this in a  place that is long term and what we're trying to   do with that is as we go through a downturn we  want to have a client base that expects it is   not upset by it and possibly gives us more money  in response to that downturn being an opportunity   and uh it's been very intentional and I think  it's a big source of advantage for us going back   to the origins of O cliff in a way it also grew  not only out of the influence of of Shelby col   Davis but also also the influence of Buffett who (44:59) you had an important meeting with back   in 2004 what was the big Insight that came out  of that meeting that really shaped your sense   of what the opportunity was for an active  stock picker like you yeah um yeah it was   04 uh I found myself in a in a room uh with him  and I was it was a meeting I think organized by   Alice Schroeder uh for stock Pickers with Buffett  and uh there were maybe maybe 15 or 20 of us in   that room and he was telling us about what stock  picking was like and um you know the questions   we were asking him kind of all boiled down (45:46) to uh how do we become like you but   faster and um he said well uh unfortunately  that's not going to happen uh it's a long game   but uh two pieces of good news he said um as long  as you believe in American capitalism you should   expect progress you know a general up upturn uh  as long as you don't do stupid things you know you   you you should do well as the as the market grows  in general as the economy grows in general but the   real Tailwind for you is that the average share  price of a stock goes up and down by 80% in a  (46:23) year and uh I remember thinking to myself  that's just insane I I he's uh I get him on the   first point but on the second point he's he's  lost his marbles so I went back to New York   and got out a you know a electronic version of of  value line and started crunching the numbers there   were I think it might have been 4,500 public  publicly traded companies back down I think   we're down to 3,800 now uh numbers are still the  same uh if you take uh 52- we High divided by 52   we low subtract one for every one of the let's (46:56) say four ,000 publicly traded companies   in the United States and so it's it it's a  percentage by which the 52e high has exceeded   the 52- we low each year uh and you crunch these  numbers you go back 20 25 years um you find that   in a calm year which is basically every two or  three years uh I'm sorry two or three years out   of every four is a calm year average stock  in the S&P goes up and down by 40% and the   Russell 2000 the smaller companies goes up went  down by 60% um and in a crisis here like you  (47:30) have a pandemic or a financial crisis  or uh an invasion of Ukraine or something things   go up and down by 100 or 150% so Buffett by  picking 80% was picking this average number   and it's extraordinary you know big companies  like uh I think in the grant talk I was talking   about Google I mean Google should you know Google  in the last year has traded between the low 90s   and 150 Google okay uh how many people people use  Google um you know it's more than a billion users   of each one of seven of its services how (48:01) many people cover Google from an   investment point of view how many people  understand Google basically if you're a   sentient being on Earth with a smartphone you  know what Google is and yet the value of its   stock is varied you know by 70% 65 70% the last  52 weeks uh that's that's like an extraordinary   thing if you've done the work to understand  the business and the the crisis of confidence   comes in it becomes a very Rich opportunity  because what you can do during the the month   or so that it's it's having that crisis of (48:32) confidence you know Trans diim in the   middle of uh which sells you know replacement  parts for aircraft in in March and April 2020   as air travel came to an end you could quickly do  work to see that it could survive for three years   with air with no air travel and so the stock  went from I don't know 600 to 200 it you could   buy a lot of transom and now the stock is 1100 you  know that's that's what we do this is so important   and I I I kind of want to pause and have people  who are listening kind of dwell on this because  (49:07) it's such a it's such a fundamentally  different game than most people are playing and   I this is something that I wrote about in my book  when I was interviewing your friend Joe Green blad   and also in writing about Charlie manga that in a  sense you know Munger expressed it so beautifully   and so eloquently in His image of the spear  fisherman that basic basically what you should   be doing as an investor is standing by the side  of a stream with a spear and then once in a while   at fat juy salmon will swim by and you spirit (49:37) and then you might go back to doing   absolutely nothing in terms of purchasing for  the next six months or more and so the whole   game really becomes one of waiting very patiently  for these rare infrequent extraordinary mispriced   opportunities that then you sees with what Charlie  would call gumption and that that's something that   I think fundamentally most people don't understand  even most professional money managers are playing   a very different game than that can you sort of  Riff on that idea because I think it's I this is  (50:12) almost like a different philosophy  it's like a um it's like trying to explain   to people who think the world is flat that the  world is round because once you get that this   is a really beautiful approach there is a sense  in which the scales kind of fall from your eyes   yeah I think the first thing I'll say is it  it it's not really waiting by the stream it's   working like heck back to that point about  sprit Aura like there's an enormous amount   of work that's going into trying to understand (50:41) these businesses the businesses you own   and then the businesses you wish you owned um  to be prepared because you might have to make   a decision on a Tuesday and you want to have  done the work so there's a lot of work going   into it um and then the second piece is uh yeah  mothers tell daughters it's just as easy to fall   in love with a rich man like you want to study  the businesses that are good businesses so this   is a you know there are different flavors  of this but our flavor is we we don't want   to study a business and be involved with (51:11) a business unless it's just a you   there's like three things we want a natural  monopoly we want a rational duopoly we want   a lowcost operator and why do we want those  things we want those things because they have   durable cash flows hey guys it's kayf here host  of we study billionaires today I wanted to tell   you about our show sponsor Vasa the dream of  owning a vacation home can be daunting from   finding the best guests to the maintenance  to organizing the cleaners after every guest   day with vassa they make that dream into a (51:41) reality as a full service vacation   home management company with vacation homes and  key destinations across the US they know how to   make owning a vacation home easy and profitable  on top of proactive Property Maintenance visits   by professional local teams a day driven booking  platform and around the clock support homeowners   earn on average 20% more revenue from their  vacation homes vassa makes vacation home   ownership easy if you're looking to make more  from your vacation homes by doing less partner   with vassa vacasa.com that's vacasa.com (52:18) you know if if something is a   good business because of one of those three  characteristics uh you can have a lot of   confidence that when you when you forecast  its cash flows out into the future you know   you they'll turn out within some band of of of  uncertainty that's not that wide that's what   you've got and whatever disturbance is causing  it to be valued more cheaply by the market if   you can turn your research attention to whether  or not that is a temporary thing are those Amazon   bonds trading as though the business is worth (52:52) zero because negative working capital   is a bad thing or a good thing like that's really  what that was um and so are you are you looking   at a good business that's undergoing a temporary  crisis of confidence and those you know there's   also corporate actions things can get spun off  and they're misunderstood because the the new   owner doesn't understand what he's been given  a new CEO can come in and change the strategy   uh there can be some new business opportunity  that is underappreciated um temporary setback  (53:27) uh and what's interesting to me is that  uh there are not that many good ideas and so   necessarily this requires a concentrated  portfolio because I I don't have an idea   like this every six weeks uh you may see us do  nothing for a year um another thing is that this   investment practice although this is what really  if you look at the Forbes 400 and you look at who   who's done well picking stocks this is basically  what people do it's practiced by so few people I   mean the the estimate that I saw uh you know at a (54:07) Valex conference you and I have attended   those in Switzerland you know I talked about it  in the in the in in the talk for Jim Grant maybe   1% of the equity Market is managed this way um  you at the time I looked at the statistics it   was an80 trillion doll Equity Market all of the  markets in the world us China Europe and uh 800   billion was managed in a way that looked  like this you know concentrated positions   that were held for a long period of time you  know with conviction uh 800 billion out of 80   trillion and of the 800 billion 40% was (54:37) Burkshire Hathaway so yeah it's   it's it's interesting that this idea uh which  it can make you a lot of money but it's not   practiced by a lot of people why I think one  reason is that if you make mistakes it really   shows you can't just hide in the average uh  and two it it requires a um a mindset that   some people may not like studying businesses  as much as they like raising money or some   people may not like the volatility that they  deliver for themselves um some people may want   to do it faster more differently there are (55:16) lots of ways to make money this is   the one that always just made most sense  to me I really like studying businesses I   like trying to understand what's happening  in the world and I like placing infrequent   you know bets you know investing in infrequent  ideas yeah it makes tremendous sense to me   temperamentally it's uh I mean I'm I'm I'm not  capable of doing it because I'm not obsessive   enough or interested enough but I've I've  outsourced my money to people who do it this   way so temperamentally I'm totally aligned with (55:47) you on this and it's interesting that   it's um this this approach of very concentrated  value investing is what we've seen to work from   people like Buffett and manga Joel greenblat  Bill Miller and yet as you've pointed out in   in your excellent annual reports which I've been  reading over the last couple of days um going back   I think all the way to 2004 you point out that one  of the big challenges that makes this so difficult   to execute is that that investors end up Lo the  shareholders tend to lose faith in their fund  (56:20) managers during these inevitable periods  of underperformance and in in one of your letters   you pointed out the b way itself has seen these  three periods when it lost half of its value   so back in I think 73 to 75 and then 98 to 2000  and then again in 2008 to 2009 and then you also   pointed out that even Burkshire underperformed  the S&P about a third of the years over nearly   six decades and so I was looking through your  returns over the last 20 years and if I counted   correctly I think you had underperformed (56:51) the S&P 8 out of 20 years and yet   you've outperformed the S&P by a decent mod margin  more more than 100 percentage points over those   20 years can you talk about this fundamental  challenge that to take advantage of the beauty   of this approach of concentrated value investing  you need to be able to handle um what I I remember   Joe Greenback describing to me as the pain of  underperformance that there are these periods   of underperformance where you can look like  a fool and it's psychologically incredibly  (57:24) painful yeah well there 's clearly  something out there uh there's a there's a   firm called dalbar which does interesting studies  of uh mutual fund flows and um uh you know a lot   of people uh focus on this fact that active  managers tend to underperform the index and   that's an argument given for investing in index  funds and uh we can come back to that in a bit   that's that is a very logical choice for most  people just invest in the index fund and forget   it you know just let let the index do it (57:53) but um dalbar uh has done this   work which shows that uh the average mutual fund  investor who's picked an active manager that   active manager on average underperforms the market  by let's say 1% a year which is almost their fees   they underperformed by the amount of their fees  and then unfortunately because the clients add   money to the mutual fund that's done well right  after it's done well and then take money out of   the mutual fund that has done poorly the  client's Returns underperform the active  (58:32) manager's returns by 4 percentage points  and so clients on average according to dalbar and   they they're looking at statistically significant  amounts of fund flows I think it's like   dispositive you know it's very very hard to argue  with their methodology or their data the clients   are underperforming their active manag by four  percentage points is a ruinous result ruinous I   mean 4% percentage points of underperformance over  30-year investment Horizon leading to someone's   retirement is a nest egg that is 70% 70% less and (59:05) so to see something so systemic and so   empirically obvious indicates some sort of a  thing in human psychology that is a real thing   um and a conclusion from that is it really is  better for most people to be an index fund um   another conclusion and just avoid out out yeah  keep your money in you know like just have the   psychologically that's my allocation to equity  just keep it there um don't cash out at at the   bottom because you can cause real damage  to yourself don't don't add frenetically   as it's rising you just have a measured (59:49) annual approach I think that's better   that that's that's the right right approach for  most people if you want to try to beat the market   which we've done for 20 years um you know  that's that's a that that's a a labor intense   temperamentally challenging thing to do which  can be done but uh uh not everyone can do it   and there's this there's this uh study uh or it  was a it was a debate in 1984 Super investors   of Graham and dosville Warren Buffett himself  debating a guy named mik Jensen and uh Michael  (1:00:29) Jensen actually ended up being a  professor of mine at harbard Business School   uh in this small world and uh Jensen was arguing  that markets are efficient and that Buffett's   success in 1984 he'd been managing Burkshire  hathway I think full-time at that point for   15 years and he had the the Buffett partnership  track record before that he'd obviously widely   outform the market and Jensen was saying your  outperformance is statistically just an anomaly   you know you're you're you're just you can be (1:00:57) explained by this many sigmas enough   enough lucky monkeys uh flipping coins will  will result in a Warren Buffett and Buffett   Buffett's response was well actually there  are eight other investment firms all of whom   studied with Ben Graham all of them kind of knew  each other Loosely but owned different stocks   and here are their track records all of them  outperformed the market uh so there there's at   least eight other lucky monkeys and and he has  some beautiful math about how the probability   of the lucky monkeys actually being all Lucky (1:01:29) is like it it's you know you'd need   like I don't know how many alternative universes  for that to be true but a point that falls out   of that which he comments on is that every single  one of the managers underperformed about a third   of the time when when measured annually and uh  Berkshire hathway itself uh I went back and I   looked for this uh you know I I knew you would  ask this question 19 of the last 54 years he   he's been managing it 54 years with full-time  Warren Burkshire haway stock has underperformed  (1:02:02) the S&P 19 of those 54 years or 35% of  the time and you just imagine yourself it's it's   1975 over the prior two years Berkshire Hathaway  stock has fallen by half and the market is flat   do you sell your Burkshire Highway stock if you  had that would have been a very bad decision It's   1999 Berkshire haway stock is up slightly  but 40 percentage points less than the S&P   do you sell your birkshire haway stock that would  have been a very bad decision in 1999 so there   there seems to be something about this process (1:02:35) that results in these periods of   underperformance that means this is really not  for everybody I don't know if that's answering   your question but that's yeah and it it gets  such a profoundly important issue because this   can lost for years right and I I I remember  you and I were texting about it when you were   reading my book and you were reading the the  chapter where I was talking about Jean Mar   evad because evard there was a point where  he said to me look after after a few years   you start to wonder am I just not getting it (1:03:07) like the Paradigm has changed or   maybe I'm you know so so it's really easy after  a period where you've done incredibly well as a   contrarian concentrated value investor to look  back and say well this makes so much sense but   when you're in the thick of it and I I have a lot  of friends who do this right professionally and so   and and I think like childbirth they forget  how painful it was and when you're in the   thick of it when you're actually going  through that period it's kind of Agony  (1:03:36) because you have a lot of your  shareholders bailing out often if you're   if you're if you don't have a structural  Advantage I mean you have a structural   advantage that's similar to gu spar's Advantage  which is a lot of the money is your family money   so you're less vulnerable to people bailing out  um but you you start to wonder you know if other   people who are making tons of money investing  in stupid stuff uh have figured out something   that you haven't figured out so it's kind of (1:04:04) embarrassing and fear of missing   out kicks in I I mean it's just it's torture  and so I wanted to ask you about the emotional   psychological side of this because when we talked  about this yesterday you mentioned me look I'm   way less emotional than most people can can you  talk about the wiring that you actually need to   be able to handle the pain of this yeah I think  I found really what I want to do like analyzing   businesses trying to understand the world  um developing conviction you know looking   for places where the conventional wisdom (1:04:39) is wrong I I just I love living   in that world and uh I enjoy this and so when  when something starts to go against us uh you   know we bought something and it's down uh  that's I I really enjoy that that that's   really distinguishing between a mistake um and  an opportunity is is where you make a lot of the   money doing this and I I just really enjoy that  and I think a lot of people don't I think that   they don't like confronting their own mistakes I'm  really struck apparently Charles Darwin had this  (1:05:17) saying that you know the human mind  is like the human egg like once once impregnated   with an idea it's impervious to new ideas like  I I I really value disconfirming evidence like   I I welcome you know one of my favorite things  to do is to talk to a short seller like I when   when when things start to go against us like  my intensity of desire to figure it out kicks   in and you know we we we've gone back from the  beginning of oakcliff uh you know 20 years ago   uh if you measure being right as the stock that we (1:05:48) bought either we sold for more than we   paid for it or it's trading now we own it  still for more than we paid for we we've   been right 70% of the time and wrong 30%  % like we're definitively wrong 30% of the   time and identifying where we're wrong uh that's  where we work most intensely and I I just think   that's how we're wired um and then we've done  the things that we've done structurally you   know choosing clients having clients choose us for  the right reasons that mean that when we're down  (1:06:21) you know we don't get calls  saying oh my gosh you promised us something   that isn't going to happen right so that's that's  that's a huge Advantage we have that we we have   clients who understand that what we do and uh uh  you know I I I have emotions like everybody else   I mean I'm not inhuman but uh you know we we own  15 companies right now they're trading at 14 times   trailing free cash flow the S&P 500 is at 22 times  these are very high quality companies and uh just   learning more about them and you know the the the (1:06:56) dozens of companies on the watch list   that we'd like it just just the emotion drains  away and you you live in a world of uh you know   learning more about each one continuously and  uh I don't know maybe I'm just wired in a way   that that's what happens when you think of the  mistakes that you've made you you've you've   written a lot you've made a point of writing  in your annual reports in some depth about um   stocks where things things were controversial  things went wrong in the end even with things like  (1:07:31) Carana and Valiant which which you don't  which in some ways were very controversial stocks   where things went sour but you ended up kind of  making money off both of them or made a lot of   money on both of those yeah or be it less less  less than you would have done if you if you sold   all of it earlier I guess but but I in a way was  more interested in when I when I looked at your   portfolio and I thought actually it's interesting  because you own stocks very early that turned   out to be extraordinary like you you own things (1:08:02) like Mastercard or VISA back in 2011 or   back in 2009 when people thought American Express  might go bankrupt you had call options with a   strike price of about 20 and I I was looking at  yesterday I think it's 212 now and um and you you   bought CarMax very early I think back in 2004  and then sold in 2015 and I I was wondering if   maybe actually the real mistakes  in certain ways had been harder to   look at because they they were less obvious  because they were actually things that were   kind of amazing that you didn't hold and I was (1:08:40) wondering how you think about that is   you just when when you were smart enough to find  a really great business and then let it go too   soon how how do you think about that fundamental  problem yeah oh it's a great question so if you um   pick a business it's a good business it turns out  to be a good business your analysis is right you   buy it at the right price it's now gone up um I  guess there's two counterveiling things one is wow   you feel great about that decision you happy every  time you look at it in your portfolio you know  (1:09:22) you you tell clients about it you tell  your wife about it that's dangerous because uh   just because something's done well for you doesn't  mean it's going to continue to do well for you I   mean every day that you don't sell a stock is  another day you choose to buy it right so every   day you you keep something in your portfolio is a  decision um so you have to apply the discipline to   it which is I feel really good about it but am I  still learning about it like is is there something   about it that the thesis is changing you know (1:10:01) is there some new competitor is it   success attracting some new disruptive thing uh  you have to constantly be watching for that the   other thing is that back to that share  prices going up and down 80% if you've   bought something that is a good business one  of these things that we like you know the a   rational duopoly a lowcost operator uh you know  something with a lot of Runway to increase cash   flows to shareholders then its intrinsic value  is going to be going up and to the right let's   say 15 or 20% a year but it share price if it's (1:10:35) going if the share price is going up   and down by 80% a year and the intrinsic value is  going up by sort of 20ish there will be times when   the share price exceeds intrinsic value and these  things are highly you know it's imprecise but you   do your best you project cash flows forward you  say holding this for the next five years eight   years 10 years will result in a return to us if  the share price runs too much that return drops so   if you if you develop conviction in something you  makeing an 8% position you you think it's going to  (1:11:14) do 20% return for you over time and the  stock doubles uh you no longer have an 8% position   you have a 16% position and you no longer have a  20% R the math of that in one year is you probably   have a 12% irr so would you make a company with  a 12% irr into a 16% position or would you trim   it right so that's the constant process and the  other thing that happens is new ideas are coming   in all the time and you know you've got something  with a 10 or 12% ir and a brand new thing with   a 20% IR we make these decisions infrequently (1:11:52) we do not like to pay taxes if you sell   something that's highly appreciated you know you  all we ourselves and virtually all of our clients   are taxable so these decisions are made slowly but  you do make them do you make mistakes do you sell   MasterCard too early do you not own enough trans  di the entire time you've owned it you yes you   do but we're going to make mistakes but if you  don't have that kind of process in place uh I   think you'll make more mistakes when you look back  at your analysis of your mistakes over the years  (1:12:27) is there anything where over the  course of the 20-year evolution of oakcliff   you've really changed or updated your process or  the way that you invest because you see actually   I didn't really understand the importance of this  this is much more important than I realized or   I'm I'm doing this wrong yeah I think the main  thing that's changed is that uh when we started   oakcliff we had part of the capital inv Ed in  more special situation kind of opportunities   where there'd be something an event or (1:13:02) something in the capital structure   that you could say you know made something cheap  but the business quality was was less good than   we always had good businesses you know the the  MasterCards and the caraxes and the trans dimes   but some of these things um you know we had a  cruise line called ambassadors International or a   we did we did something which is basically the  only time we ever shorted anything we we owned   Porsche and shorted Volkswagen in order to isolate  the piece of pora that you know the Volkswagen  (1:13:36) didn't own those sorts of special  situations the problem with them is that if   you they can look statistically interesting on  a piece of paper and you can make a lot of money   doing it um but if you go into a financial crisis  uh the market doesn't care what you paid for it   and if if the business is brittle and breaks  your thesis breaks um and and you're not in a   good place I would much rather have you know after  20 years I think a lesson is uh if if you're in in   a bunch of good businesses and you hit a financial (1:14:09) crisis your good businesses do well they   may even get stronger uh they buy back their  own stock they uh they buy their competitors   they take market share I think special situation  investing is is something that we I mean would we   do it again if we saw something amazing maybe  we're really interested in the good businesses   that are LGH holds uh that's the evolution  when I look at your portfolio now and I I I   don't want to talk specifically about individual  stocks because I know you're wary of discussing  (1:14:42) this but as you know people who look at  your your filings can see you have big positions   in things like or at least you did at the end  of last year in interactive brokers and basic   fit and trans and stru and Gildan and Alpha  B and mag energy and guidewire and the like   um so you owned at the end of the year about 14  stocks and so I a lot of what you're doing is   this kind of mad intense research process  to find another good idea that can um can   be added to to this kind of um Elite group of  companies that that have some kind of long-term  (1:15:21) competitive advantage that have  great um uh durable businesses and the like   can you talk about what that actual process is  like because that's where you're spending much   of your time like I remember you writing once in  one of your annual reports you you said the the   greatest challenge is keeping up the pace and  the temperament to reach 750 annual reports a   year in search of very infrequent ideas so tell us  about that actual process which is where you spend   much of your your actual week yeah um I think uh (1:15:56) uh said the investor to the journalist   it looks a lot like journalism painful and  badly paid well I depends how the stock   picking goes um you never know where the next  idea is going to come from and uh it could be   you see an investor you have respect for buy  something you try to reverse engineer what   they've done it could be a disturbance in the  force you know something's happening you know   the German economy is in a recession what what  are the great businesses in Germany that you   might want to look at um or it could be you (1:16:30) read about a new CEO someplace but   uh that populates like a funnel like about  a hundred of of those types of things drop   into the funnel each year um let's say two a  week and pretty quickly uh you know is this   one of you know a high quality business is it  a natural monopoly um you know does it does it   does it have two players who dominate it who  are being rational with each other does it   have pricing power is there a is this a lowcost  operator and the the incumbents the the people   it's it's competing with you have no ability (1:17:07) to match those prices and so you   know like Geico you've got we're interactive  brokers you got Decades of uh of growth ahead   if it's not that uh it it gets thrown to  the side but we're trying to answer six   questions is is this a business we understand  is it a good business in the way that I just   described is it run by the management team that  thinks like shareholders that will treat us like   Partners um is it cheap you know demonstrably  relative to its expected cash flows is is it   trading in an attractive valuation with an (1:17:43) attractive irr internal rate of   return owning it from here why is it cheap okay  can we identify the reason why we are right and   the market is wrong what's the variant perception  that you know we spend a lot of time on that   um and the final one is question number six if  we're wrong because we can expect to be wrong at   least 30% of the time how much money will we lose  right and so those those six questions really and   let's say about 10 of these feels like about one  every four to six weeks call it 10 a year we turn  (1:18:20) on the afterburners and that process  is to try to become the best in formed investor   like talk to competitors customers suppliers ex  employees read years of transcripts and public   filings do the same thing for the competitors um  so that you put yourself in a position ultimately   you're going to talk to the CEO of the business  and you're going to be able to say to him we think   we understand your business we think the three  things most on your mind are a b and c what do you   think and that's really our happy place when we (1:18:52) get to that place when we're having   that conversation and um sometimes the answer  is oh we get to that place and the share price   needs to be 20% less so we just say okay that  that was good we Now understand that one let's   let's focus on another one wait for the share  price to drop which it might never but uh and   out of all of that out of those 10 things  where we turn on the afterburners we might   have two decisions a year to invest into a  uh into a new idea so you're an intensely   competitive and driven guy and and you're very (1:19:27) focused on this task right I mean it's   a it's a fiercely focused task looking looking for  these um Diamonds in the Rough tell tell me how   you actually structure your day like I remember  when I I I stayed with you on Fire Island you got   up early um what's actually I mean in some ways  there is there I I think in my book I described   the best investors as like mental athletes there  is a sense in which you have to be a mental   athlete and you have to you have to manage your  time well you got to think about your your energy  (1:20:01) levels your Fitness and and I I I  know you play Squash like four times a week   and like like you you think pretty carefully  about this stuff so can you talk about what   you're actually doing as a kind of mental  athlete trying to trying to equip yourself   to win an extraordinarily competitive game where  you're up against really really smallart people   well uh I am pretty competitive that's true and I  really enjoy this I don't think I could I could do   this if I didn't I mean I I I find this to be the (1:20:38) most intellectually stimulating and   interesting thing I've ever found to do and you  know solving these puzzles is just fascinating   so it does not feel like work I guess that's  the first point it really does not feel like   work like if if you told me I had a year to  live I think I would I I'd spend a little bit   more time with my family but I mean I this  is what I want to do um but I'm up at I'm up   at 5:30 in the morning I work out um I'm at the  office by 8 it's a bunch of reading it's pretty  (1:21:10) unstructured um when we're in intense  uh afterburner mode there's phone calls with   different people we want to cross check with  customers competitors suppliers uh there's   travel pretty infrequently you can do a lot of  this with this amazing Zoom technology um and   uh there are four squash games a week um in  addition to the kind of morning workout stuff   because I've got I've got three guys I've been  playing squash with between two and 10 years and   uh we're all getting older at the same rate and uh (1:21:44) our objective is to play Squash into our   80s I'm 57 now and I find uh it's just wonderful  to have uh you the the the squash Club is four   minutes walk from here so just a nice interlude  in the middle of of the day um and I'm I'm home   by 6:30 or 7 I have an amazing wife um who I  spend time with we have really good friends   uh uh we have four children between us three  of mine one of hers it's a second marriage for   both of us spend a lot of time with our kids  spend a lot of time with our friends but I'm  (1:22:17) working on the weekend too I mean  I I it does not feel like work I mean reading   another annual report or reading another book  about an industry reading reading you know   more information about you know some corporate  leader and the choices he's made uh I find to   be endlessly fascinating so uh I it may look a  little intense to other people I don't I don't   really know any other way to do it um how are you  handling distractions Brian like like obviously   there's an unbelievable number of opportunities to (1:22:48) fall down rabbit holes with information   coming at us the whole time with all of these  technological distractions from the many different   screens what are you actually doing to make sure  that you're using the information available to   you helpfully and not self-destructively uh well  there's you never know what a wormhole is I mean   maybe the at the at the bottom of the Wormhole is  an investment idea that doubles your money um so   it's it's it's I guess the it's a constant thing  every morning how do we spend our time like I  (1:23:25) I write myself a note every morning  these are the four things I want to get done   today and I try to cross them off by the end of  the day but uh there is no playbook for this it's   something new every day it's kind of exciting I  I don't know what'll happen at at the beginning   of each day I have no idea what will happen  at the end what what will be important who   will come in people visit us people call  us up we call people we learn things um   I don't know I wish I had a good answer for  you I wish everything was perfectly planned  (1:23:49) out but it's not so it's  interesting it's not that structured at all   no I wanted to ask you about your actual physical  environment because I was very interested when I   went into your office in your home on Far Island  um and and you had a a bust of Lenin uh a small   bust and you told me at the time that you you  have four offices dotted around the country   and in each of them you had a a bust of Lenin  and I've thought a lot over the years about how   we structure our our physical environment in ways (1:24:29) that can help us as investors or writers   or anything else talk about why why you have  the bust of Lenin and why your offices are   the same yeah uh well there's there's um  there's two common things in in each of   the places uh that I work um one is a bust of  lenon the other's a nap couch you can see the   nap couch behind me I mean if if a day goes  by and there's not a 20-minute nap that's   a failed day I think our bodies at least  my body wants to nap at about 2:00 after   lunch and uh to try to power through (1:25:03) that with caffeine is unwise   so that's one thing uh the bust of Lenin that  reflects uh in in December of 1988 um I was uh   studying in England and we had a chance to go on  a trip uh to the Soviet Union it before the wall   came down and we were in Moscow and Leningrad  and then on the on the trip to Moscow we we   went to the Lenin Museum the Lenin Museum had all  these things that Lenin had said and done and but   also it had these rooms where the curators of  the museum had said well lennin predicted this   Lenin predicted that so there was this whole (1:25:44) thing on how Lenin predicted the   rise of the proletariat and it had happened  in these countries and Lenin predicted this   scientific breakthrough that scientific  breakthrough there was a room it was the   room of information technology and they had a big  statue of Lenin and a whole bunch of slogans of   Lenin from writings I think in like 1920 where  he they they they cherry-picked some things   that he'd said to say that he' predicted  the personal computer and on this sort of   stand was a a Russian copy of an Apple 2 (1:26:14) computer okay and it's 1988 so   Apple 2's in in I think introduced in 1981  or something this is seven years late and um   it's an it's a Russian Apple too it got  bolts and it it's clunky and all this   stuff and there's this big that it was  translated for us lenon predicted this   and so outside on the street they were selling  these Surplus busts of Lenin you know made of   steel or something for 25 cents so I bought one  and brought it home and um I've collected them   since I have this bust of Len on my desk to (1:26:50) remind me of like the danger of   certitude like the danger of ideology like that  this guy was so confident and so compelling to   his followers that he took his country from 1917  until 1991 on a wild ride of insanity uh and you   know if you if you diverge from the ideology you  got shot in the back of the neck and you know how   many people were subjected to famine and all in  the service of an ideology right and so it's just   a reminder that no matter how confident I feel  about something and maybe especially because I  (1:27:29) feel confident about something I should  have a a sense of doubt and duty to try to figure   out whether or not there's a differing point  of view one area where I think a lot of this   um this this this this challenge of the dangers of  what Charlie manga would call heavy ideology you   see it come up a lot in the investing world  when it comes to energy uh and and this is   an area where you have a particular expertise  you you've made a lot of Investments over the   years in energy stocks um you've served on the (1:28:02) boards of various energy companies   you spent many years working at Yorktown which  specialized in private Equity investments in   energy and I think about this a lot this  question of how do you actually separate   the heavy ideology surrounding the energy sector  and the the the reality and I wonder if you could   kind kind of help guide us through with with  your experience on this to explain a couple   of things so so first we talk a lot about the  importance of Shifting towards renewable energy   right there's clearly um unless you're really (1:28:41) a heavy ideological denier there's   really there's clearly an important  environmental issue going on here but   then there are also really important pragmatic  issues involving our Reliance on fossil fuels   the importance of actually um uh using fossil  fuels uh you know to raise the standard of living   in places where they uh they also deserve to to  live well and you you used a great phrase with me   when we've talked about this in the past where you  you talked about the missing money problem and I   wonder if you could just unpack this and (1:29:15) talk about um how how you   think through this issue in a kind of  non-ideological rational pragmatic way   uh yes so you know my my father's and his partners  with Yorktown you know 120 Investments you know I   I've helped them uh you know from from 2013 till  2021 I was devoting some of my time to helping   them develop a renewable energy practice because  they were investing in oil and gas companies   you know LED helped them lead uh investments in  battery companies wind companies solar companies   um and help them recruit a new team of (1:29:56) people so they'll raise the   the next Yorktown partnership I you know energy  investing is sort of the family business and uh   as long as I can remember uh you know dinners  with people from the oil patch are trying to   make this happen so I mean I I I I I have  a really Hands-On sense as to what happens   um in order to keep the lights on and so uh you  know saying it and doing their different things   this is this is from some combination of like  talking about it but also watching people do it   and investing in it so I I guess the missing (1:30:34) money problem I think they're it's   the physics the economics and the politics  okay so let's just go through this in order   right um so I can organize this um  the physics of it and not many people   understand this we're so wealthy we've gotten  detached from where our energy comes from um   a well-fed adult human okay working 10  hours a day can create like a kilowatt   hour of electricity of energy um and you know  a kilowatt hour of of work from a well-fed   adult manual labor would keep a 40 watt light (1:31:14) bulb on for 24 hours that that's what   a human being can create with their own work and  uh if you take gasoline which has been called a   fossil fuel right which is true it comes from  old animal and uh plant uh biomass that's been   compressed in the earth um it's basically a bunch  of carbon and hydrogen atoms attached to each   other uh the energy in those carbon and hydrogen  bonds uh in a gallon of gasoline is 34 kilowatt   hours so a gallon of gasoline has within it 34 man  days of work um which is an extraordinary amount  (1:32:03) of energy and people complain about  paying $4 for a gallon of gasoline but when you   work out what you're paying per manh hour of work  you're paying one cent okay and moreover the the   kilowatt per hour per gallon like if you say well  let's take lithium which is you know at the co   of this new energy economy these you know  batteries which you know are will power are   powering these amazing Tesla machines the energy  density of a lithium battery is 150th 2% of that   of gasoline and gasoline when you you call (1:32:41) it a fossil fuel but we as a society   we're you know 4,000 years into our civilization  have not discovered as energy dense a substance as   gasoline and its cousin diesel there isn't another  one at room temperature it just sits there it's   it's good forever the only thing that is close  to that you might that that is more energy dense   is uranium and plutonium you need a containment  vessel like um you're not you're not going to see   a nuclear powerered car so um if you if you think  about the impact that this incredibly D you call  (1:33:16) it a fossil fuel you could  also call it a miracle fuel like the   the impact that gasoline and Diesel and  coal before them have had on our society if   think about uh standard of living Cicero you  know lived in the first century BC Roman Senator   right his quality of life was better than that of  George Washington who lived 1800 years later like   the they're both you know agricultural societies  Cicero had toilets that flushed right Cicero's   roads were better um you know if if you look at  GDP per capita between 100 BC and and you know  (1:33:53) 1776 ad there's there's almost  no change I mean there are Wooden Ships   and Compasses but you know the and gunpowder but  very little economic Innovation 1802 James Watt   discovers the steam engine and can start to use  coal to create mechanical energy so today you   know we've gone from Steam Engines to internal  combustion engines when you turn on a Toyota   Corolla to go get a latte at Starbucks  your 170 horsepower engine is delivering   the energy of 3,000 people it's like you're in a  chariot being pulled by 3,000 people right where  (1:34:33) wealth in Cicero's day he had 100  slaves okay George Washington we know had   100 slaves like wealth would be 100 slaves that  George Washington's one of the richest people in   the American uh colonies turning on your Corolla  to go to get a uh a Lotte you've got 3,000 people   working for you and you're paying them one  penny an hour right so that is at the core   why when you when you look at world population  going from half a billion in 1776 to eight   billion now uh when you look at GDP per  capita exploding it's it's this energy so we  (1:35:06) are we're we're a species that's deeply  dependent on the physics of these hydrocarbons the   economics of it like there have been energy  transitions so we we had Cicero and George   Washington your your economic achievement was  dependent on how many animals or humans you owned   okay flesh wind that was the first those were  the first Prime movers right then we had Cole and   Cole from 1802 onward you know all the Industrial  Revolution and the railroads and all of that and   then coal gave way to oil and gas you know in 1912 (1:35:47) the Titanic launches it's powered by   coal uh I think it's pretty much the same  year Churchill who's the first Sea Lord of   the admiralty is making a decision despite all  the coal in Newcastle in the UK he's going to   have dreadnots be powered by oil because  it's more energy dense more efficient so   he's going to make himself dependent on  the Persian Gulf but his dreadnots will   be as fast as the German dreadnots so we we  move into the age of oil after uh after World   of War I men and horses to Coal to oil that's (1:36:18) three energy transitions now we're   in another energy transition right this energy  transition is not driven by the lower cost and   higher efficiency of the new modality it's driven  by the need to reduce emissions of greenhouse gas   and so far and and there are a lot of people  working on this so far the expense of this   new energy is more than uh the old energy and so  here's an example and this you know I have a very   friend 25 Year friend who is leading  thinker at at the environmental defense   fund working on matters of climate (1:37:01) change he's actually two   weeks from now he's going to be in California  you know they're launching this satellite into   space funded by Jeff Bezos backed by Google to  monitor methane emissions all around the world   it really is doing amazing work uh his name is  Mark Brownstein um he calls it the missing money   problem if you have a solar panel you claim that  the energy produced by your solar solar panel is   cheaper than that of natural gas but you the solar  panel developer don't have to pay for the battery  (1:37:33) necessary to store the power at noon  and you don't have to pay for the natural gas   plant that is necessary for when you have like  you know let's say three days of Cloudy Skies   um Society has to pay for those um in some  way and so the missing money problem pops up   you you in in all in all societies so far  whether it's California or Germany or two   examples where your penetration of the electric  grid goes above 30% wind and solar your cost of   electricity starts to spike so the numbers in  the United States right now 21% our electric  (1:38:14) grid is powered by wind and solar we  have a 19 Cent per kilowatt hour retail electric   price okay in Germany uh Germany is up to 44 % and  they're at 44 cents 44 cents it doesn't sound like   a lot 44 cents versus 19 cents if you take if if  you had German power prices here if you if you   doubled the share of our grid provided by wind  and solar with battery backup and you also have   to pay for natural gas plants to sit there for the  times when the when the when the sun doesn't shine   for three days at a time you went to 44 cents (1:38:49) German power prices every household   in America would have a an electric bill  annually that is $3,000 more $3,000 and   that who pays that is the missing money problem  you know $3,000 is not a lot to some members of   our society but you know data from the Federal  Reserve board 40% of American households can't   come up with $400 of emergency savings for a  medical emergency right $3,000 is a ruinous   number and that doesn't even include that's  just your retail electric price that's not   the cost of of more expensive chicken in the (1:39:26) refrigerator at the grocery store so   that's the economics this this energy transition  is not being driven by lower cost and higher   efficiency this is being driven by a need to  a very understandable need to reduce emissions   so you get into the politics politicians  understand the need to reduce emissions but   they're they're operating in a system where  they need to be reelected in my experience   um very much a minority of politicians by  far below 50% don't have the numeracy or   the physics or the economics to (1:40:03) understand what I just   said about the missing money problem and so they  very much understand the desire to get reelected   and so what they do in response to popular  desire to see emissions fixed is rather than   they basically have two choices they can put a  price on carbon which would would cause Society   to to to have a a real price reflected through  um which would cause people to put a price on   carbon emissions therefore doing alternative  behaviors reducing those carbon emissions or   they can subsidize the guy with the solar panel (1:40:47) or the guy with the battery uh you know   Biden's inflation reduction act offers $60  a ton for people who put CO2 in the ground   and they offer 30% off of the capital cost  of a battery and you for a politician this   is really exciting because the guy with  the carbon sequestration project or the   guy with a battery project is also a donor so  the donors give money to the politicians these   different things get subsidized it's not the  efficient path uh the efficient path would be   a price on carbon that allows the missing money (1:41:18) problem be fixed in the most efficient   way possible for an energy investor and you know  oakcliff has a couple things that are energy   Investments uh It's tricky to navigate because  what you need to do is you need to recognize that   the politicians are operating both from a lack  of numeracy and from a need to be reelected in   a system where they're going to do these things  that are economically irrational so you need to   own things that no matter what irrationality  the politicians do will prosper but you also  (1:41:47) need to own things that eventually I  think we'll get there the cost of this subsid   Iz ation and inefficient path will grow to be so  great that eventually a price on carbon will be   imposed and you need to own something that when  there's a price on carbon let's say $100 a ton on   all CO2 emissions um you're your investment will  prosper I'm really looking forward to that day I   I think a a representative democracy is actually  pretty poorly placed to manage an economic problem   of this of this nature it's it's like the biggest (1:42:22) engineering project ever undertaken by   man and it's it's our founding fathers I think if  you if you had described to them this problem they   would have said oh the system is not going to be  very good at this um they were living in a world   where you know taxes were 1% of GDP through import  tariffs and there were like six frig you know it   was not like how can you have a representative  democracy rework the most complicated economic   machine known to man which is called the power  grid uh but that's the missing money problem and  (1:42:53) I'm I'm just hoping we get to the  answer soon I just one other thing this is it   feels a little bit like a rant um you can't have  a price on carbon until you have a legitimate   substitute because if you put a price on carbon  and you don't have a substitute the way that your   carbon emissions will go down is less economic  activity like what you need is you need the Elon   musks of the world to create cheaper solar panels  cheaper batteries cheaper electric vehicles and   then B bring the price signal to push us (1:43:23) all towards that substitute but   I think the way our politics are toxic already  like if you said to people guys you you really   can't drive as much you can't you know buy  as much you can't you have to suppress your   standard of living um I don't think uh I don't  think the American people are ready for that and   so the politics of it are very tricky with  your Investments you've clearly positioned   yourself in an intelligent way so that you'll  be okay whatever happens right so you a very  (1:43:54) very lowcost oil producer in North  America you you own a company that provides   Heating Oil and Propane to hundreds of thousands  of of households so you're thinking very seriously   about the the practicalities of how to be a um  how to be a resilient investor Even In This Very   fra um environment where there's lots of um uh  ways this could go in terms of Regulation and   the like but I'm wondering how you wrestle  also with the ethical concerns of investing   in this area because this is something I  I I I know you're very thoughtful about  (1:44:28) and I I I I had a discussion with  guys spear about this a couple of weeks ago   when we were all in Switzerland and guy wrestles  tremendously with the ethical questions about   investing in coal for example where he's like  look it's this incredibly juicy idea but also   I've been publicly stating the fact that I want  to invest in things that are really uh you know   good for society and so then I see guys s sort of  twisting himself up in Nots being like well if I   were to own options that's different or if it's (1:45:00) metallurgical cold then it's different   and I think there's a tremendous tendency to  rationalize our own behavior that's good for our   own finances and I'm I'm wondering how you wrestle  with this this question of um how we should   actually think through the the the ethics the  morality of investing in companies the probably   on balance great for the environment but that are  necessary economically yeah um I guess uh like a   an overarching point and then two things about um  investing I think the overarching point is that  (1:45:45) we're so rich that most people even  very educated people have no real idea where   our energy comes from like there there's a  there's a wonderful book that's actually on   the list that I want my kids to read it's by vli  smill it's called how the world really works and   he makes this beautiful point in the in the  in the introduction which is think it's the   last time that two educated people could meet and  reliably know half of what the other person knows   was like 1780 that the specialization of of (1:46:21) information has gotten to be the   point where the glory of you know large  language models and then you know genetic   botany that you know increases crop yields but  then you know this person is a trial lawyer and   you know if you bring these people together  at a cocktail party they they'll talk about   all sorts of interesting things they have in  common none of them will be their professional   experiences whereas you know two people meeting  in 1780 they will have read plutar and they will   have had John Lock and they will have read (1:46:50) you know there's like a a library   that you could carry around human knowledge  has exploded one consequence is oh like 1% of   the population Farms now used to be 70% you  could have a conversation with anyone about   farming in 1780 I mean what do what do you and  I really know about harvesting crops what do   you really know about drilling for natural gas  if we had no fossil fuels it's an interesting   thought experiment you and I would be dead in  10 days 14 days Deb because you know out here   in New York City there's like three days of (1:47:30) food in the supermarket like every   morning the trucks come at 7 in the morning I  mean they're powered by diesel the crops depend   on ammonia that's synthesized from natural gas  if if a guy named Fritz habber I'm sorry uh the   the the Bosch process for creating ammonia in  1912 like if if uh you know the the the way the   nitrogen used to be put onto crops was you know  animal and human manure which is 2% nitrogen by   weight if if you don't put nitrogen back in  the in the soil you're know you're you can't  (1:48:06) grow crops anymore so you would spread  animal and human waste on the land when was the   last time any of us have done that then it  was guano you know you You' put it on boats   off of the coast of Chile and ship it up here  because it was 8% nitrogen by weight that's   extraordinary and then this German comes along  and he manages to synthesize it from natural gas   which comes out of oil wells it's 78% nitrogen  by weight but no one knows that without natural   gas there would be you know 80% of the food on (1:48:36) their table wouldn't be there um so   I guess that's the overarching thing like a lack  of understanding as to what really is sustainable   what our society really depends on it's the  first point I think the second point is um as   we um wrestle with this and deal with  the missing money problem and try to   figure out a way to intelligently reduce the  emissions you need to choose your Investments   to survive this interim period of different  government policies when when a when a when   when a politician who is innumerate and maybe (1:49:15) ignorant of these of these things   stands up and proposes a policy it may damage  a market or a business and you just need to be   able to anticipate what they're going to do  and and own something that survives through   this uh this policy of I this this period of  I think muddle and then that gets to the third   point which is you need to be in things that are  sustainable like truly sustainable sustainable   informed by the real need to sustain human  civilization as well and so if you imagine   ultimately a $100 a ton carbon price I'll bet you (1:49:49) we could reduce carbon emissions I'll   bet you if people did better insulation of their  homes it might cost just $20 a ton at some point   in the future I believe we'll there'll be a  general price on carbon and uh this will no   longer be an ethical question of are you doing  the right thing or are you doing the wrong thing   it's this is a societal press on carbon that's  lowering our overall societal emissions and   some businesses are sustainable because they  are providing the goods and services that we  (1:50:18) need in order to survive as a  civilization and as a species for less than that   cost and therefore it is a sustainable business  and so the two businesses that oiff owns I believe   passed that test um so I I really don't think this  is ethical I think the ethical thing is a bit of   a false argument um I I think it's really do you  own something that ultimately is going to survive   this crazy missing money political problem and  ultimately is sustainable and in the meantime by   the way because a lot of these businesses (1:50:51) are shunned   if you own a business that's generating a lot  of free cash flow that's run by people who are   buying back the stock and it's ultimately going  to be sustainable it can be a very good investment   yeah I mean look there's there's clearly a lot of  money that can be made in this area because of the   underinvestment and the fact that it's Untouchable  for certain investors and and so it's a little bit   like Howard marks telling me many years ago  when uh when he was investing in areas like  (1:51:21) distressed debt when people tell you a  whole category is uninvestable uh it becomes an   incred an incredible investment often it becomes  interesting but you have to own things if you're   going to own them for the long term especially  you have to own things that are not that are that   are creating a pie only some of which is going to  the shareholders and you just have to Define That   Pie as being good for the environment as well  with a rational price on carbon that Society   can live with and I I I just I I I think that (1:51:50) this question is it unethical to own   a coal producer I that's sort of an interesting  question I think more relevant is is that coal   producer if we really had a rational climate  policy where where CO2 emissions cost $100 a   ton would that coal producer still be in business  and if the answer is no you shouldn't own it so   at the moment as as you've said to me in the  past we have this very inefficient hatchwork   of subsidies for things like solar to to try to  encourage people to behave in a way that that's  (1:52:23) going to be better for the environment  and I think a lot of consumers like me who are not   very knowledgeable about this stuff and don't  really know what truly has an impact and what   doesn't um what what advice would you give us  if we're responsible citizens and we actually   want to change our Behavior if we can afford to  change our Behavior because obviously there are   people in in poorer countries who don't have  that luxury of changing their behavior very   significantly so if we're if we're in a (1:52:51) position where we can   what do we do in terms of making decisions  about whether to insulate our home or buy   solar panels or buy a Tesla or whatever like  what what's what's just pushed on us because   they're really appealing subsidies or you know  lobbyists who've done a really great job of   making us believe that it's the best thing to  do if if you were me what should I actually   go out and practically do if I want to lessen  my impact on the environment yeah it's a great   question I think one uh thing that you can do (1:53:29) is it's it's a little dense but there's   a pretty good summary get a book by a guy named  David McKai called sustainable energy without   the hot air um he was a Cambridge professor of  physics who wrote This Book distributed it for   free it's been described by Greenpeace and  by Shell oil as the best book on renewable   energy ever um and it it goes through Point by  Point like what you can do what you tangibly can   do and what the real impact is on emissions as a  homeowner like one thing that stands out is heat  (1:54:00) pumps you know I mean uh one thing that  stands out is um you know ride a bicycle more I   mean but you can the these things are turned from  gestures into actual uh measurable actions by his   numbers so I'm I'm an i i i prize numeracy of of  many things that that's an amazing book to look   at I think another thing is there are now um  you know ESG is a movement is is becoming much   more defined you know the the environmental  the E and ESG there is increasing quality   of disclosure of what businesses are doing (1:54:44) in terms of carbon intensity the   European companies are leading the way they're  now efforts underway in the United States for   you know us companies to be required to close  disclose their carbon footprint you know I I   mentioned before you know my friend Mark  Brownstein environmental defense fund is   about to launch a satellite into space is going to  provide free data on the methane leaks everywhere   in the world for everyone to see and so let's  just drill down on that like if your utility   is revealed by that satellite data which (1:55:14) I think will be available in in   you know six months or something a year if  your utility is leaking methane uh which is   a terrible greenhouse gas like 30 three times as  bad as carbon dioxide you know become a member of   your community to pressure that utility to  plug the leaks right I think there's going   to be more and more information to be able to  say well this this company is responsible that   company's not responsible and uh there's  been a little bit of a lamentable Trend   where people buy credits like I hereby offset my (1:55:46) carbon emissions by buying these credits   to make sure that this forest in the Amazon  is is reforested or something like that that   you know some of that may be okay I I what  I what I really think we need is good data   so that people can see the problem and pressure  from consumers uh also ultimately pressure from   taxes that's what I think will fix this and I  think a lot of the oil and gas industry would   welcome it and what do you think in terms of cars  and the like like like as I'm weighing what to   buy like should I be buying a Tesla should I (1:56:18) be buying a hybrid car like beyond   the noise and the itics of this like what what  would you do if you could afford to to buy a   decent car and you were trying to weigh like what  what do what do I do Beyond virtue signaling that   actually will have an impact uh I think uh buying  a a an electric or hybrid car is a is a is a good   thing I think if you if you bought an electric car  in a place that uses coal make the electricity I'm   not sure what you've really done for society  um so I would do some work on that but uh  (1:56:53) I hesitate to recommend the purchase of  an electric car because it's more expensive and   and uh you know you've got range issues I I own  a Tesla it's an amazing car um but I I drive a a   little secondhand Honda HRV because it it just  gets better range and uh you know I living in   New York City it's harder to get a Tesla charged  uh so I don't know I I think I think the choice   of an electric car is a little bit of a personal  choice if they were cheer in 5 years I think it's   going to be an easier decision but saying it and (1:57:25) doing it are different things we need   to see the electric cars get cheaper yeah just to  just to switch before I let you go when we were   talking yesterday you said to me I've never been  this happy and um I was you know when I look at   a lot of the the most successful investors you  know you're friends with a lot of them they're   pretty dysfunctional bunch I mean they they  have a lot of broken marriages they're not   they are they have a lot of broken marriages  have a lot of kids who don't talk to them and  (1:57:55) what have you figured out about  how to actually combine being happy with   your work which obviously you love and you find  intellectually incredibly stimulating with this   broader question of how actually to have you  know a decent family life and can you talk a   little bit about that because I feel like some  of our listeners Wonder like if if I actually   manage to be a really successful investor am  I just going to create a trail of Destruction   in my life like how how do you do this and  be a successful happy productive functional  (1:58:26) human being who is good to your family  and friends yeah um was laughing at dinner last   night with an investor who we both know um  and um I was teasing him about this time at   a at a prior dinner last year he had said to me  o Brian I really enjoy our time together and um   you know you're you're you're fun company and  you're smart I feel like I learned things from   you and uh but we're guys and uh we might  see each other five times a year and you   that's big for you know male friends uh he pointed (1:59:04) across the table at his life companion   this wonderful woman he's with said five times  a year with you but I'm going to spend 360 the   next 365 nights with her so she's two orders of  magnitude more important to me than you are and   I said are you saying we should be more intimate  uh so I thought that was funny so mathematical um   and true I'm being so generous to you not  to out your friend I know I know who this   multibillionaire is but I'm going to do that I'm  being TCT not saying anything I'm not going to do  (1:59:44) that but I think it's a it's a really  interesting point because the choice of a life   companion um is really an important decision and  if you get that wrong uh it's it's a bad thing   and you know you you uh so I I just you know be  be very thoughtful about that and uh and really   nurture that and do a good job with that um and  the difference one person can make this is a very   interesting thing about this Human Condition  like you you have these friends and they can   they go on for decades and they're so important (2:00:20) as a source of happiness but especially   men like if you get that life companion thing  wrong or if if you choose a life companion then   and then your life changes dramatically just just  really be thoughtful about that um having a group   of friends who really treat you uh you know like  a friend is very important and it's you know you   had Chris Davis on your uh on your podcast and he  said something which he's he said to me in private   I I've been thinking about this a lot this idea of  10,000 day chunks like you know your first 10,000  (2:00:55) days you're very wide you know who  do you go to school with who are you going   to marry what are you going to be and then day  10,000 to 20,000 you're very deep um you drive   into your career you have your your spouse you  have your children and then you pop up at day   20,000 men after you know a pretty intense career  generally don't have as much uh as well-developed   friendships as maybe they should uh they' spent  so much time on being a good father being a   good provider having the career they're going (2:01:27) to have and you pop up at age at Day   2000 which is like age 56 or 57 or something and  uh it you know you you really can especially if   you're doing what you want to be doing like I  am not going to go be an architect that's not   going to happen not only do I love what I'm doing  I'm not you know I know exactly what I'm going to   do for the next 25 years professionally but I I  really having that breadth of friendships and you   know starting my th birthday I just said I really  need to spend more time at this um and I'm lucky  (2:01:57) enough to have some friends who really  feel the same way and that's been that's really   enriched My Life um I wonder if I'd done a little  bit more of that between day 10,000 day 20,000 but   I don't know that's I don't know and I think the  final thing is um if you screw up your children   uh nothing else matters and I I know I've got  a couple of examples you know some who that   are very close to me who at one I'm thinking  of in particular who at the end of her life   said to me you know she was such a mentor to me (2:02:29) like all of the glittering achievement   that you see me having achieved like at the end  all that matters is you know is my daughter and   uh just remember that it's very important back  back to this point about sustainability of an   investment like if you so devote yourself to an  investing track record and you neglect your life   companion and your friend friends and especially  your children what really do you have at the end   but also how really sustainable are you for for  the people who've entrusted you with their money  (2:03:00) like you know if you can't bring to  the office not just a you know an intense focus   on what you're doing for yourself and your  clients but like a a happiness at the end   of the week you know to go relax with people  um I I I don't think you're doing yourself a   service I don't think you're doing your clients  of service and it may may feel like that last bit   of intensity you know to the detriment to your  of your marriage or your friendships or your   children is in the interests of some professional (2:03:27) furtherance but I I don't think it is   you know you got to find a balance and that sounds  a little Airy fairy but it's it's deeply true   like a lot of things you got married to Jillian  soe seagull who's an old friend of mine as well   thankfully um in October 2021 and actually she  sent me a photo recently where it showed that   I think the first time that she spoke to you  many years ago I was in the background so I was   Bri and um unconsciously I was  making some point to to her and   she looks horrified so no she looks very dazzled (2:04:00) by your handsomeness but um Jillian for   people who don't know wrote a very interesting  book called getting there which I've gifted to   a lot of people um and she's a photographer and  she's an entrepreneur who has a a new company   called lucari which I uh I told Brian he's  not allowed to T but I'm I'm allowed to tou   and I actually www. (2:04:23) lari   and I actually have my lucari goggles uh which  she she very kindly gave me which are are very   handsome you look better than them than I  do but um uh that's not the goggles fault   but the um they are they are elegant but the  um the thing I wanted to ask you is I Julian   who's close friends with Warren Buffett among  many other people has a particular gift for   relationships like she's extraordinary at building  a nurturing relationships um she's as good at   that as these great investors are at stock (2:04:58) picking and I wondered if there's   anything you've learned from observing  her over the last few years about actually   how to build really rich relationships  Rich friendships in particular yeah um   I'm Amazed by her um she's a bunch of things  that are like on the surface they I I call it   the obvious things about her she's smart and  talented and beautiful and fun and the these   are the things that are pretty clear very quickly  when you talk to her but um there are two things   about her that are less clear um but you get (2:05:37) to know about her uh if you spend   some time with her the first one is deeply  genuine and um you see it in the way she   interacts with people like it it can be like  the people at a restaurant like at the table   next to us like we're just eating out on a  Wednesday night she starts talking to them   and you can see she just engages with people  any sort of people and their night is better   she gets them laughing about something it uh you  know people we meet when we travel like someone   giving us a tour of remember this in maresh (2:06:16) this guy suddenly his whole life   story coming out of him she as he realizes  who she is and what what she's interested in   and um you know it can be important people  who open up to her they because when when   you're talking to Jillian you're talking to  Jillian like there's no artifice uh she has   this bracing thing called a Straight Talk where  if she's upset with you she'll tell you exactly   what she thinks and it's terrifying the first  time you're you get it but it's coming from a  (2:06:46) place of such empathy and integrity you  realize it's a gift because you know exactly where   you stand and I think I think you know uh lots of  people respond to that and uh that's amazing and   then the second thing about her which is like  a double word score is that lots of people uh   across these relationship you know I've gotten to  meet her friends lots of them uh when they've gone   through tough times and tough times are inevitable  like you know the idea that there's no tough   times in a well-lived life or it's just farsal (2:07:25) like her entire book getting there is   about getting people to open up about the tough  times they've been through I mean arguably the   30 people she talks about and getting there  you know the from you know Warren Buffett to   Michael Bloomberg to you know to uh Frank G to  you know Craig Venter Craig ventner sequences   a human genome tries to kill himself before  doing that because he's so despondent about   his life like how do you go through that tough  time and then up into the right I what you   start to realize is getting up into the right (2:07:52) depends on getting through the tough   time and she's been so aware of that her whole  life friend after friend like you hear these   stories that go through a tough thing like a tough  batt with cancer a terrible relationship thing   or job loss and the person they're calling  for help is Jillian and so like if if it's   I I keep I wish there were a word for like the  opposite of a fair weather friend because in the   dictionary there would be Jillian's picture next  to that definition and that would be the caption  (2:08:21) you know like that and and so if you  what what's interesting about our life is if   if you're genuine and you're there you're  really there and you do that over a long   period of time what compounds out and uh I'm  I'm I'm Amazed by it uh and I I I I you were   at the wedding I think I said you know it's  like the people around you are a solar system   of planets are all orbiting each other and we're  all exerting a a gravitational force on each other   right and the gravitational force of Jillian's (2:08:57) character I think certainly pulling   me and I think it's pulling others towards their  better selves right and I she's quite something   yeah she's a lovely she's a lovely person I'll  tell you one very small um thing about her that   I know I know won't be a surprise to you but  that I I because I'm a writer I'm always looking   for like little tells about the way people  behave and um one thing that's striking to me   about Julian is that she very consciously when  she's when she's going out for dinner with you  (2:09:29) in a restaurant or meeting meeting you  not you one in her in your apartment or anywh she   make sure that she puts the other person in the  best seat where they'll have the nicest View and   um I think it's a it's a really interesting little  insight into good behavior you know that that she   you know she she doesn't she doesn't sit  in the restaurant with the beautiful view   of the ocean she makes sure that her guest  who might not be there again gets to enjoy   that you yes there's a there's a there's that (2:10:06) there's a kindness there's also an   intensity she's from a very entrepreneurial family  like that you know there's the lucari goggles   business is there's lots of ideas all the time  she has three brothers it's quite amazing they   all have law degrees they're all very supportive  of each other they're all starting things all   the time it's an extraordinary family I I want  to ask you one final question I remember once   we were walking on the beach I think in Fire  Island and you said to me i' I'd like to ask  (2:10:37) prospective clients in our fund what's  the money for like if I'm going to make you all of   this money what's it for and I thought that was  a really interesting question and also applies   to you in a way right because you already you  already won this game right I mean you you're   already very wealthy by anyone's standards you  have very wealthy family and I I mentioned this   to you yesterday and you were like you know yeah  but I have this Loop in my head that's like you   know I got to paddle faster I got to achieve (2:11:07) more and and you know I know it's   somewhat related to the fact that your father's  been incredibly successful and you want to prove   yourself and prove yourself and prove yourself  again and again and I wondered how you think   about this issue of like what's the money at this  stage yeah I mean the question that we ask people   who who contact us they reach out to us or we we  get to know them or something is we really want   to know who you are and what you expect you  know from from an investment with us what do  (2:11:35) you what is this is this something that  you're going to need next year for you know a   house or is this something that you're trying to  build for your family over time and what we're   looking for with that question is like you know is  this really a piece that's part of your long-term   financial plan and also do we know who you are do  you know who we are is there a relationship here   um we we really want to have that relationship  because we're on this journey together and uh   I I want to know a little bit about you and I (2:12:07) think you should know a little bit   about me uh so that that's that's where  that question is coming from and I think   you know what's the money for for me um it's  it's uh it's always been about autonomy um   back to that Felix rhen advice like you know I  want to do ex exactly what I want to do and I want   to do it in the right way I don't want to be told  to do anything that's the wrong thing to do and   I want to do the right thing at the right time so  that that autonomy to do that it is very important  (2:12:37) to me I do not want to call on a  client with the wrong idea every six weeks   it's doesn't make any sense to me I want to  have you know a well-lived life um I really you   love this business I love solving problems  and I love delivering results for people um   and that's deeply satisfying um and ultimately uh  the money uh I I think it's just as important you   know the making of it for me personally this is  a personal thing it's just as important to have   a a piece of my life that's about giving it away (2:13:19) like you maybe five or 10 Perc of time   um you know Jillian and I are you know talking  about you know what other philanthropy she and   I might get involved in like is there something  that you're involved in that's making people's   lives better where your money and your time  make a difference and uh you know I could run   a control group of me like let's say 100% of  my time was in investing that's one universe   and 90% of my time is in investing and 10% is in  that that you know attempt to network of charter  (2:13:52) schools or you know Julian's very  interested in helping some of the some of the   things that are happening in Israel like we could  we could look at the investment returns of those   two worlds I suspect the one in which 90% of  the time is is working on that nonprofit stuff   actually gets better investment results because  you run into more people you think more about the   world um and I the that's an uncertain question  those two control groups the certain thing about   it is at the end of another 20 years of this or (2:14:26) 30 40 when you look back at what   you've compounded up you know there's Financial  compounding there's friend compounding but boy   wouldn't it be cool if you'd compounded  some other stuff if you'd if you'd made   that Community a little bit better uh wouldn't  that be great Brian I think that's a very good   note to end on and I I just wanted to thank you  it's been a real Joy chatting with you and it's   always a joy chatting with you and I've really  enjoyed becoming friends over the last decade  (2:14:58) and and I'm looking forward to many  more conversations in the years to come well   William uh you get me to talk about stuff that uh  is very interesting I feel like I you know you're   almost like a therapist or something some of these  things have been done with wine this one's been   done over Zoom we'll see how it plays for an  audience but I've really enjoyed it so thank   you very much next time we'll do it with wine  too we'll see how that one goes all right thank   you so much all right be well take care Warren (2:15:26) and Charlie and many of the people you   mentioned have done well as they've structured  their lives so whatever their weaknesses are it   hasn't taken them down and so you mentioned  Charlie's bluntness I don't think that would   have served Charlie as the CEO of a Fortune 500  company so Charlie structured his life in a way   where those personality traits of his didn't set  him back Warren is an incredible communicator   and exudes this sort of warmth and people can  feel but he has a very hard time making those  (2:15:56) really hard decisions to fire somebody  or to replace them so he's structured his life to   minimize those a very powerful lesson for people  to carry out is not to necessarily obsess on your   weaknesses but to do your best to structure  your life so that you can avoid a lot of them

Channel: We Study Billionaires

Views: 26,001

Keywords: bryan lawrence, bryan lawrence oakcliff, bryan lawrence oakcliff capital, warren buffett, charlie munger, chris davis, berkshire hathaway, william green, hedge fund manager, concentrated value strategy, value investing, value investor, how to find new investments, how to analyze a stock, how to build a happy life, how to build great relationships, fossil fuel, climate change, tesla, elon musk, richer wiser happier, stock market, concentrated value investing, stocks

Id: ggSd95TRBKM

Length: 136min 13sec (8173 seconds)

Published: Sat Apr 27 2024