MALE SPEAKER: So
today we're here to talk about a special book. This is a book that has lots
of pictures, lots of profiles, lots of wisdom in it. And you just wish
that when you're reading this book
that you didn't have to pay as much
as the sticker tag, because it's
prohibitively expensive. But part of the reason is
it's also a fantastic book. It's a great book. And we have the author of
that book here with us today. William Green has been
writing about investing and other topics for
over two decades now. And as you read the
words in the book. "The Great Minds
of Investing," you realize that he
has tried to talk about the wisdom
of great investors, but not restricted it
to investing alone. He's taken it beyond that. And he's put it together in
a very, very authentic voice. I'm very honored and
very happy that he has decided to
come here in person and talk to us
about his thoughts. So without any further
ado, ladies and gentlemen, please join me in
welcoming William Green. [APPLAUSE] WILLIAM GREEN:
Thank you so much. I'm delighted to be here. And I'm so grateful to you
all for taking time off during your lunch
break to come here. And I'm actually
particularly happy to be here because I'm actually a
shareholder in Google, or now Alphabet. And it's pretty much
the only investment that I've had over the last year
or so that's done really well. So keep it up. My retirement is in your hands. But I feel happy because
I've rarely been in a room where there are
so many IQ points. So thank you for all of your
ingenuity and hard work. When I was 15
years old, I became obsessed with gambling,
and specifically actually with horse racing. And at the time I was at this
very posh English school, a school called Eton College
that had been founded, I think, in 1440 by Henry the VI I think. And this is a
school where people like Prince William
and Prince Harry went and the current British prime
minister, David Cameron. And so I was supposed
to be becoming this posh English
gentleman, and instead I would go off to gamble
in this turf account in this betting shop in
Windsor, the neighboring town next to Eton College. And I actually had this illicit
account because I was only, I guess, 15. So I had an account
under a fake name, which was Mike Smith--
not a very creative name. And at first I did pretty well. And I made some money,
totally randomly. It wasn't because I
knew what I was doing, although I think at the
time I thought I did. And then after a while, I
sort of started to lose. And I realized--
basically the reason I had started in
the first place, it wasn't because
I loved horses. It wasn't because I thought
this is an incredibly beautiful sport or anything. I just liked the
idea that here was something where you could make
money just by using your mind. And I was kind of lazy. And I thought well, I don't
want to mow lawns or anything. And here if I can just sort of
invest a little bit of money on a horse race and make
some money, that's fantastic. And when I started to
lose, I just thought, I'm going to stop cold turkey. And literally I stopped
at the age of 16. And I haven't had a
bet on a horse race, I haven't been to a casino and
gambled in more than 30 years, because basically
it's a mugs game. You're just losing. You're just doomed to lose. The odds, unless you're
particularly brilliant at sort of figuring out odds, you're
just kind of doomed to lose. And so I stopped completely. And then when I got to my 20s,
I discovered the stock market. And then I thought wow, now
this is what I was really after. This is the real game. Because again, this is somewhere
where, if you're smart, you can use your brain
just to make money without really getting your
hands dirty in any way. And I just thought
this was magnificent. Now I was very fortunate,
you know, that-- thanks. That was a very good move. That was impressive. I want to see that again
if you could do it. And then I was very
fortunate in that I was writing for these
magazines back then like "Forbes" and "Money" and
later for "Fortune" and "Time." And so I got to interview all
sorts of famous investors. So I would, for
example, I would get to interview Peter
Lynch or Jeff Vinik who was managing the biggest
mutual fund in the world when he was in his early 30s, or
Seth Klarman or Marty Whitman, Bill Ruane who ran the
Sequoia Fund for many years, some of these
extraordinary investors. And I would go off to
Houston, for example, and I'd meet Fayez
Serofim, who is this Egyptian multibilllionaire
known as the Sphinx. And he has an El Greco painting,
a 430 year old El Greco painting on one wall, a de
Kooning on another wall, and he's got this 5th century
mosaic floor from Syria that he's imported
from a Syrian church. And I became really
fascinated by the fact that there was this
tiny minority of people that managed to defy gravity by
performing extraordinarily well for many years as investors. And I sort of figured,
what if you could reverse engineer these people
and figure out why it is that they win this game? How do they stack the odds so
that they win as investors? What characteristics
do they have in terms of temperament,
in terms of principles, in terms of insights? And is there any way that
I could learn to do this? Then over the last
couple of years I was working on this book,
"The Great Minds of Investing," where I had this opportunity--
in the end I interviewed I think 22 of these
guys and I wrote profiles of 22 famous investors
and edited profiles of several more. And by this time,
part of what happens I think when you hit
your 40s is that you start to suffer from all
sorts of existential angst. So instead of just
thinking, how do I get rich by reverse
engineering these people, you start to think,
well how do I live? How do I make better decisions? How do I eradicate what
Charlie Munger would call standard stupidities? How do we make good
decisions in the face of a very uncertain future? How do I handle adversity? How do I handle pain? How do I handle stress? How do I balance my family,
who are here-- so obviously not very well-- my family, my
work, all of these things? And so the question
really became how to live. And so what I'd like to do today
is to share four lessons that I think are really-- they're very
useful in terms of investing, or at least three of them are. And I think they
will help to make you richer over the long term. But I actually think
they're also very important in terms of life. And really it seems
to me that the goal is to reverse engineer
these people to figure out, how do I become richer? How do I become
smarter and wiser? And how do I become happier? And so I think these
are lessons that help you in each of these areas And we're going to talk-- I've
got these four things up here. Hopefully you can see if
the technology is working. The first idea we're
going to discuss is the willingness to be lonely. And what we're really
talking about here is this idea that
you have to take what Peter Bernstein,
the market historian once described as uncomfortably
idiosyncratic positions. That if you want
to outperform, you have to diverge from the crowd. You have to be
willing to be lonely. And this has
powerful implications both in terms of investing
and other areas of life. The second idea we're
going to discuss is the power of humility,
which as we'll see is a somewhat
contradictory idea. You have to have
the self-confidence to go your own way, but you also
have the humility to say yeah, but what if I'm wrong. And then you have to build
in safeguards in case you're wrong. The third idea-- sorry
for these gloomy titles. My son Henry said to me,
man, that's a real downer. The third title is the
ability to take pain. But what we're really
talking about here is emotional resilience, which
I have come to believe over many years of covering
investing is really one of the absolute keys to long
term success as an investor. And what we're talking about
with all of these people, we're not talking
about being great as an investor over one cycle. We're trying to achieve
success over many decades. And so you need this
ability to take pain, because there are going to
be times when you're hit. And this obviously also relates
to other aspects of life. The fourth topic, which
is slightly more elevated in areas, is the key to
happiness, which it strikes me that one of the
things you really want to learn from these
great investors is how do I not just become rich, but how do
I make the money work for me so that it's not just sort of
a short circuit in my life, but is actually something
that enriches my life? So the fourth section
is really about what you could call true prosperity. And what we're really talking
about with all of these things is the ability to stack
the odds in your favor so that you're kind of
tilting the playing field so that the odds of having
a successful life in all of these different
areas is increased. So the willingness to be
lonely-- back in, I'd say, the winter of 1998, I got
this fantastic assignment to go interview
Sir John Templeton. And as many of you
know, Templeton was one of the greatest
investors of the last century. At the time he was 85 years old. If you had invested in
the Templeton growth fund, over 38 years he compounded
a rate of about 15% a year. And as a result, your $10,000
would turn into $2 million. And in fact his returns--
that doesn't really reflect his returns because he
was an extraordinary investor really for about 60 or so years. So he defines this ability
to have great success over a long period. Now Templeton lived in
this gated community called Lyford Cay in
the Bahamas, which was a fascinating place. He had decided
early in his life he was going to save-- he
saved half of the money that he made early
in his career, and then decided
with his wife, we're going to be able to live
anywhere we want in the world. And so they took a
bunch of pieces of paper and figured out
that Lyford Cay was the place-- Lyford Cay was a
place where people like Prince Rainier of Monaco lived. The Aga Khan had a house there. Sean Connery had a house there. I think part of
"Thunderbolt", the Bond movie was filmed there. So this was a pretty sweet gig
to go in the middle of winter, to go interview Templeton,
this great guru at Lyford Cay. And I remember as I came up to
his house, there's actually, as you walked along
the porch of his house, an electronic dog
starts barking. And I had this
quandary whether I should out him in
this article as having this fake security, which
of course I did mention in the article. And so Templeton is
kind of this giant of this period,
this 85-year-old who is really the pioneer of
international investing. He was the first great
fund manager in America to venture abroad and
say, why should I just be looking for bargains in the US? So the most
memorable experience, strangely with Templeton,
was not in fact anything that he said. It was watching him one
morning when he was exercising. And he didn't actually
know that I was there. So I'm on the beach
in Lyford Cay. It's a very tough assignment. And I hide behind a
palm tree because I'm worried that he's going
to see that I'm there. And he's in the water. He would do this for 45 minutes
every day for many years. He's in the water
up to here, and he's pumping his arms and
his legs like this. And he just looks ridiculous. He's wearing this hat
with this crazy visor sticking up there and
these ear flaps down here. And his face is slathered
with sun cream, which he hasn't bothered to rub in. And as I'm watching
this, I'm just thinking, this is kind of this
extraordinary sight. I thought I was going
to see this kind of heroic sort of wise sage. And in fact he just kind
of looks like an idiot. And when I got home to New
York, I'm thinking about this. And I'm thinking actually,
this is the key to Templeton. What I realized Templeton really
embodies is this willingness to be lonely, this
willingness to say, this is how I do things. This is a way to act that
actually makes sense to me, is a really efficient exercise. I don't care what
anybody thinks of me. And it's an extraordinarily
powerful way to think. And this became
kind of a metaphor for me when I started thinking
about the great investors, that what all of these
guys have in common is they're kind of mavericks
and free thinkers. They don't go with the crowd. If you want to outperform,
you have to be different. And this is something that
all of these guys have. And you see this
very vividly with this extraordinary investment
that Templeton made in 1939. So the world is kind of
coming to an end, right? It's really this calamitous
event where Germany is about to overrun Paris. The market is still--
many companies have been just smashed
by the Great Depression. And Templeton looks at
the Wall Street Journal, and he tells me he
figures out that there are 104 stocks trading
on the New York Stock Exchange that are all trading
at less than $1 apiece. And he figures that actually
the world is not coming apart. It's not going to
end in the way-- this is one of the great
lines from Howard Marks. Howard Marks said to
me, most of the time, the world doesn't end. And this is something that
Templeton figured out. So he figures
actually the war is going to jump start all of these
tiny companies that are still recovering from the
Great Depression. And so he put in this order
for 104 of these stocks. And the broker that he calls,
calls him back and says, yeah, it's an eccentric
order, but fine. We'll do it. But there are 37 of these
companies that are bankrupt. And Templeton says
yeah, I want those too. And so he buys these 104 stocks. And he said to me that
five years later when he liquidated his
position, 100 out of 104 had been profitable bets,
and he quintupled his money. So think about this
in context, right? This guy was about 27 years old
at the time that he did this. He'd started on Wall Street
maybe two years before. He had no money. He came from nothing. I mean, his father told him, I
think his second year at Yale, I cannot pay a dollar towards
your education anymore. And here he actually
borrowed $10,000. It was the only time he ever
borrowed money to invest, he told me at least. And so he borrows what in
today's money is about $170,000 I think. This is incredible
guts to do this. So this is the first
idea is that you need to be willing to
diverge from the crowd if you're going to
succeed at this. And you have this extraordinary
default option, right? If you don't want to
diverge from the crowd, you can just buy an index fund. And we know you'll do just
great over many years. And it may be that you do
even better doing that. But if you want to
outperform, you actually have to be willing to
go against the crowd. So I think this is
one of the areas where you can apply this great line
from Charlie Munger where Munger as we know says, he
takes a line from algebra where he says, invert. Always invert. So think about
what the crowd does and all of the stupidity
of the crowd, all of the folly of the way
that most people invest, and then invert it. So we know that when
it comes to investing, the crowd is emotionally
very reactive. They make these very
short term decisions. They trade too much. They get carried away
by fads, by whatever seems to be hot at that moment. They're listening to
market predictions, for example, a great deal. And there was a wonderful
line from Marty Whitman, who said that market prediction
is the last refuge of the incompetent. We know that market prediction
really doesn't work. We know that you're not going
to be able to figure out when the market's going up, when
interest rates are going up. And yet so many people
spend their time being yanked around
emotionally and intellectually by watching the latest
news on CNBC and the like. So one of the things that my
friend Mohnish Pabrai who's one of the most brilliant
minds in this book, "The Great Minds of Investing"
said to me is that when he started
to invest in 1994, and he started basically to
reverse engineer Buffett, he said you could see
that Buffett basically lays out the laws of investing. You can see what you need to do. And he said he
would look around, and no mutual fund managers
and no hedge fund managers were doing this. And he was like, what a country. He said it's like it's like an
entire generation of physicists saying that gravity
doesn't exist. So this became his
great opportunity. It was to say, all right, if
no one else can to do it-- he's like, if no
one else will do it, the Indian guy will do it. So he figured out
that he was just going to use Buffett's
laws of investing. So things like buying
stocks at a great discount to their intrinsic value. As he put it at one point
to me, he said, rule number one, extreme patience. So if everyone else is
being very short term, exercise extreme patience. Regard the market as
your servant or something that you can use rather
than as your master. So Francis Chou, another of the
great investors in this book said to me, most of
the time you just shouldn't be buying anything. He said I could
wait 10 years now without buying a single stock. He's like, I don't
need to do anything. I can just sit around
and read until there's a great opportunity. So I think one of
the things that you see with these great
investors is this ability to detach themselves from
the stupidity of the crowd and to think for themselves. And I think the first
point to remember really is to ask yourself,
do I actually have what it takes temperamental
and intellectually to go my own direction, to
defy conventional wisdom? And if I don't, it's a
perfectly smart thing to buy an index fund. But if I do, then
these are the kind of rules that are going
to really help me. I want to diverge
from the crowd. And I think there's
no shame in saying, this is a game I shouldn't play. It may be that the
single smartest thing I did in my
youth was to decide I'm going to lose if I bet
on horses and if I gamble. And I'm just not going to
play that game anymore. So I think self-awareness
is probably an important starting point. The second idea is
the power of humility. Now this photograph, which
was taken by my friend Michael O'Brien, who took the
extraordinary photographs for this book, "The Great
Minds of Investing," is of Howard Marks. And as I mentioned in
my profile of Howard, when you're in the
presence of Howard, you feel like you're
in the presence of a very superior machine. He's one of those
people you just fell, man, this guy's so
much smarter than I am. And he really is,
at some level, one of the greatest of the
great minds of investing. This is a guy he's overseeing,
I think, $97 billion in assets at this point. He has this
extraordinary reputation where Buffett would say,
when something arrives in the mail written
by Howard Marks, it's the first thing I read. I drop everything
and I read that. He's worth a couple of
billion dollars already. He bought an apartment in
Manhattan for, I think, $52.5 million dollars. So he's a very
remarkable success story and sort of a triumph of the
intellect and rationality. One of the things Howard
said to me when I met him in his office-- he has this
beautiful corner office on sort of the 43rd floor of a
Manhattan skyscraper-- he said the screwiest
thing you can do is to think that you're
a master of the universe. And this is a very
important idea. He explained to me that A, the
future is extremely uncertain. So you don't want
to get carried away by this hubris of thinking that
you know what the future holds. So he said the only
constant is impermanence. We just don't know
what's going to happen. And so you have to
be constantly looking at where we are in the
cycle and thinking, am I getting carried away? Am I taking too much risk given
where we are in the cycle? Rather than just
thinking, I know what the future is going
to bring, just keep a careful gauge on
the weather and think, am I getting carried away. And people do. The other thing that I
would say about Howard Marks is he has this belief that
comes from Japanese philosophy, from it's this idea of
the turning of the wheel of the law, which is the
Japanese word, [JAPANESE], where he basically says,
we're all just little cogs. And the world is
going to keep on. The universe is going to
keep on going without us. And so you can't
get carried away by the sense of
your own brilliance. And he is fascinated by this
idea of randomness and luck in his own life. So he said to me
actually, even something as simple as the
fact that he became a very successful investor
was a series of total flukes. He told me this
wonderful story where he said that he got
this job out of-- or he applied for this job out
of college at Lehman Brothers. And the partner
at Lehman Brothers who's supposed to call
him and say Howard, we're super excited to hire you,
got drunk and had a hangover, and totally failed to call him. So one of the reasons why he
took this path where he ends up as an expert on junk
bonds and the like is just because he didn't
go to Lehman Brothers because a guy got drunk. And so he said, before
you start thinking you're a master of
the universe, think about how many lucky breaks
came that you thought made you incredibly
successful but actually were just this beautiful randomness
or these deep patents, however you want to see it,
that put you where you are. The other person
I would talk about in discussing this idea
of the power of humility is Bill Miller, who is
a very remarkable mind in the same sort of
way as Howard Marks. He has this wonderful
kind of Renaissance mind. I had this wonderful assignment
back in, I guess, 2001 to write a profile of Miller. And so I spent something like
45 hours interviewing Miller. And since then I've spent a
lot more time interviewing him. It was this experience
because I flew with him on his private
plane from Baltimore to his alma mater where
he was giving a speech. And Miller said to
me the only reason he had this plane really was
because he had a 90 pound dog, and he really, really wanted to
be able to travel with his dog wherever he went. Well it didn't come on
this particular trip. And also he quoted Buffett,
saying that at a certain point, the scarce resource
is time, not money. So we go on his private plane
to-- I think it was William and Mary was his college. And at the time the
market was just imploding. I mean, this is
right after 9/11. And I think the market had its
single worst week since 1929. And stocks were just crashing. And Miller is just
buying like crazy. He's just totally
happy, totally calm, totally at peace as this
brilliant contrarian investor, very unemotional. And at the time he has
like a 15% stake in Amazon, which has just crashed from
$90 a share to $5.50 a share. And I went to some
conference where Bruce Greenwald, who's a
brilliant, brilliant mind who's one of the great gurus
on value investing, basically pillories
Bill Miller for thinking that Amazon's going to survive. And Bill stands up
and he gives this sort of impassioned speech,
speaking at triple speed because he's nervous
and says if I'm wrong, I'm going to lose
100% of my money. But if I'm right, I'm going
to make 50 times my money. And when I looked last
week, actually the stock is up 100-fold from then. And so he was this consummate
contrarian value investor, very, very brilliant, able
to see what other people kind of couldn't see and able to
apply this temperament, really this willingness to be lonely
that we were talking about. And I'm standing next
to him one morning when he calls his office in
Baltimore and he says yeah, is there any news? And one of his
colleagues says yeah, this stock that we
bought the other day, AES, they've missed
their earnings massively, and the stock is halved. And so it's not even
lunchtime and Miller's just lost $50 million
on this one stock. And he was totally calm. He's like, let me see
where my cash position is. Let's double our bet on this. And he's just assuming that
basically most people overreact to bad news. The crowd is going to
overreact to bad news. It's going to be discounted
more than it should be. And his default position
is that he should he should be adding to his bet. And so I'm watching this guy and
I kind of start to hero worship this guy because he
just embodies everything that I admire in an investor. So then you wind forward a few
years to the financial crisis, to 2008, 2009, and
all of these stocks are imploding once again. Financial stocks
are getting killed. Housing stocks are
getting killed. Miller, as always, is
tremendously contrarian and he's buying things
like Countrywide Financial, Merrill Lynch, AIG. And everything he
touches turns to dust. It's unbelievable to see someone
this smart look so foolish. And he's just
absolutely crushed. And one of his funds,
his flagship fund goes down 55% in 2008. The other fund goes down
65%, his smaller fund. And this to me was an
extraordinarily powerful reminder of why you need to be
humble, that you need always to remember, what if I'm wrong? What if this hedge fund
manager that I admire, that I have my
life savings with, turns out to be a
charlatan or a fraudster? What if this brokerage account
that I have turns out actually to be a house of cards
and the bank goes under? What if this private company
that I've invested in turns out to be terrible? And in fact this is a
particularly resonant issue for me because the single
stupidest investment I ever made was in a private
company that I made about 12, 13 years ago, where everything
looked fantastic here. The technology was fantastic. It was run by a friend of
mine who I love dearly, is a very talented person. And then it just goes to hell. And Goldman Sachs
came in and invested at 40 times the valuation
that I invested in. And so I'm thinking
wow, I'm so smart. And in fact you discovered
no, you're not smart at all. You're an absolute idiot. And so I think this is
a very useful reminder. And for me part of the
reminder is that you also need to be humble about
your own flaws and foibles as an investor. And so for me I think part of
the attraction of investing in a company like that
was feeling like wow, I'm part of the smart
intellectual set who gets these inside
opportunities that aren't available
to the mere mugs out there who are just getting
fleeced by Wall Street. And any time you
let your ego get involved in investing I think
it's kind of a disaster. So I think the power of
humility is a very important characteristic. And I'll finish this topic just
by mentioning this wonderful from Damon Runyon, a superb
writer who would often write about gambling. And he wrote this great
story "Guys and Dolls" that became the musical
"Guys and Dolls." And there's this character
in it, Sky Masterson, who's a gambler. And Sky Masterson's dad
bankrolls him to be a gambler and gives him this advice
very early in his career. And he says son, he said in
the course of your travels, someone will come to you
and they'll offer you a bet. And they will say-- they'll
hold up a sealed pack of cards, a sealed deck of cards. And they'll say,
the jack of spades is going to jump out
of this deck of cards and is going to squirt
cider in your ear. And he says son, do
not take that bet. Because sure as you're standing
there, the jack of spades is going to jump out of
that sealed deck of cards, and you're going to wind up
with an ear full of cider. And I think this
is, in some ways, humility is a part of avoiding
that you earful of cider, these situations that you think
it's impossible that they'll happen, and they do. The ability to take pain--
so as I was saying before, this is about
emotional resilience. So let's go back to Bill Miller. So think about what
Bill Miller went through during the financial crisis. He had recently gone
through a divorce, which he said to me it was
an amicable divorce, but it halved his assets. He then invests half
of the assets on margin because he is always kind
of a bit of a risk taker. He loses 80% on paper of his
assets in the financial crisis. Whereas he said to me, he said
his wife put all her money in bonds and did fantastically
and outperformed him massively and now has the biggest house
in Greenwich, Connecticut. And so he's done well since
then, so he's recovered. But his two funds
get really hammered. And assets just fly
out of the window. I mean, at his
peak at Legg Mason, he was overseeing
$77 billion dollars. Assets go down to $800 million. And when this happens, he has
to lay off tons of people. And so he ends up laying
off over a hundred people. And he said to me, this
was the worst thing. He said, people
lost their money. Investors lost their money. And people lost their jobs
because of me, because of Mistakes that I made. And I said to him, did
you blame yourself? And he said sure as
hell I blamed myself. He said I looked around, I
wanted to blame someone else. There was no one else to blame. They were my mistakes. And during this period he told
me that he put on 40 pounds. And I said to him, how
come you put on 40 pounds? Dietary issues are
important to me because I'm always wondering
how I can ever lose weight. And so I was interested
in his answer. And he said, well, I ate
a lot of comfort food. I ate a lot of cheeseburgers. I ate a lot of Chinese food. I would drink red wine at night. And he said, you know,
I could have come home and just had grilled salmon
and broccoli and Perrier. But he said a man can
only take so much pain. [LAUGHTER] So Miller said to
me at one point that if you did a brain scan of
the greatest value investors, he said he's pretty
convinced that you would find that the greatest value
investors are actually wired differently
than the rest of us, that the part of the
brain that processes, say, the fear of loss
or the pain of loss is actually kind
of stunted in them. And I think you can
see this in people like Buffett, that they're
just extremely unemotional. You see it in Marks as well. And yet, Miller
during this period of very tremendous
intensity, gets hit badly enough that
he puts on 40 pounds and it becomes this
incredibly intense experience. And I think this is a powerful
reminder that you really need to pay attention. If you want to be long time
successful as an investor, you need to pay
attention to the need to build emotional resilience. And this is a really
important point that I think particularly
people forget when we're going through a good period. You tend to assume things
will always be good. And you tend to overreach
during these good periods. We get full of
overconfidence and hubris. And I think it's really key
to remember one of the things that Howard Marks says, which
is that life is basically a pendulum, that our own
lives are a pendulum. They swing one way from
one extreme to the other. The market is a pendulum. The market euphoria
is a pendulum. And so just not to get carried
away during these periods where everything is good. You don't want to overreach. You want to work on
the basis that there is going to be a time
where I'm going to get hit. And this isn't to
be gloomy about it. You want to take
various safeguards, various precautions. You don't want to overreach. Bill Ruane once
said to me, you just never want to invest in margin. Because when the
market gets hit, it's just impossible
to be rational because it's such an
emotionally grueling thing. So I think this sense
of taking great caution during the periods
where things are good is a key to setting
yourself up to be able to dealing with pain. But I think also
it's really important to look at where
different investors get their emotional strength
and to ask yourself, so where will I get my
strength when things go wrong? And so it was very
striking to me, for example, that
Miller, when I asked him what he was reading during
the financial crisis, he said basically I was
reading the stoic philosophers. So he was reading
Epictetus and Seneca. Because what they're
talking about is, as he described
it to me, he said it's their general
attitude to misfortune. It's that they're saying,
you can't necessarily control what happens to you, but
you can control your attitude towards it. This is a very,
very important idea. And when I look at all
of these great investors, it's very tempting
to assume that there was this straight
upward trajectory and their lives were always
going to be a success, and it's really not true at all. These guys, all of them
went through the wringer. And you look at people
like Eveillard-- Jean-Marie Eveillard or Don
Yacktman, they went through periods in
the late '90s where they looked like idiots
because they refused to buy expensive stocks. They underperformed for years. You know, Eveillard said to me,
when you underperform massively for three years, he
said the first year, your shareholders are upset. The second year they're furious. And the third year they're gone. And he said at a certain
point, you start to say, am I an idiot? How come I don't get it? How come everyone else gets it? So while we're talking about
the willingness to be lonely, the willingness to go
your own direction, it's important to
understand that this requires a degree of strength. It requires emotional fortitude. But I would say for
all of you, you're going to find that in
the course of a lifetime, there are periods
that are very intense. And you need to
figure out, where am I going to get my
emotional strength? And it doesn't
necessarily matter whether it's from
stoic philosophy, whether it's from
spirituality-- which it was for someone
like Don Yacktman who was a-- actually he was an
archbishop in the Mormon church at one point. And he said to me that a
period like the late '90s, he said if it hadn't been for
his faith, his family-- he's been married for
I think 50 years and has seven kids
and 25 grandkids-- if it hadn't been for his
faith, his family, and the fact that he volunteered in
things like the Scouts, he said a period like that
could have destroyed me. And this was his language. He was like, it could
have destroyed me. And so I think here's
a very important idea. Where am I going to get
my emotional strength, and not to underestimate
the importance of that. And also just not to idealize
these great, successful people and assume that everything
was just fine always. It's like no, you're going
to go through periods that are very difficult. The fourth and final idea
before we get to questions is, I think, probably
the most important, which is the key to happiness. And I've spent a lot of
time over the years studying these great investors. And some of them are
multibillionaires. And you're trying to
figure out, are they happy? What does the money buy them? What makes their
lives worthwhile? And I was in a very
privileged position because I got to
see this up close. And so I got to see
when actually they were really pretty unhappy. And you could look in the
eyes of certain investors, whether it's a Tom Gayner or
a John Spears or a Mohnish Pabrai, and you'd be like, this
guy has a kind of glow to him. And why? Where does that come from? Why is this person
more fulfilled than some of the
other investors? And so the reason we have
this photograph of Irving Kahn is that in some ways he kind
of embodies this deeper wisdom about what life is about. This photo of Kahn was taken
when he was 108 years old. He was one of four siblings, all
of whom live to over a hundred. It's an astonishing thing. And what's even
more astonishing is he smoked until
he was about 50-- I'm not necessarily advocating
this-- and ate red meat always. And so his son Tom, who worked
with him for many years, was in his 70s, said
to me, really he stayed young because
he just always studied. He just was learning constantly. So he had a youthful
mind until the very end. So a few months--
actually maybe six, eight weeks before
Irving Kahn died, I had this very strange
interview with him where I was hoping to
meet with him in person, and he was too sick to meet me. And I was initially
very disappointed. And then his grandson Andrew,
who's a analyst in his third-- he's at Kahn Brothers,
his investment firm-- is a really lovely
bloke, takes my questions that I've written out,
and asks these questions to his grandfather, whom he
adored, over several days, and writes our answers. And when I get
these answers back, there's something deeply
moving about them. This is sort of the lifelong
wisdom of a 108 year old man. And so one of the
key questions I said to him, when you
look back on your life and you think about not
just the key to a long life, an extraordinarily
long life, but actually a happy life and a meaningful
life, a fulfilling life, what is it? What can we learn from you? And he said, this is a very
hard question to answer, and it's different for everyone. But he said for me,
family is very important. And when I asked him
what made him happy, what made him look back on
his 108 years with happiness and a sense of pride
and fulfillment, he said the things
that were important were happy, healthy family
members, the fact that he built a company that
he was proud of, that he'd created something. And the third thing
he said was that he'd met people who were smarter
than him who could give him the answers, because
he said there are certain mysteries
in life that you just can't solve on your own. And sometimes you
have to stop and you have to ask for directions. And so when you
look at the things-- and I'm pretty sure that
the person he was referring to above all was Ben Graham, who
was a lifelong friend of his. And he was actually his
teaching partner in the 1920s. So here you're looking at
a guy who lives to 109. And the things that he's
emphasizing, it's not, I had a Maserati. It's learning. It's family. It's health. It's wisdom. And his son and grandson
said the only thing he ever truly craved, really,
in terms of physical objects was books. They were taken to
a French restaurant, fancy French restaurant,
and he would order chop steak or a hamburger. He just was totally not
interested in anything flashy. So I thought that
was very revealing. I had a very interesting
interview with John Spears from Tweedy Browne. He's an extraordinary
guy, again, with a real glow
in his eye, someone you feel has figured stuff out. And he was telling me about
this apartment that he had bought in Florida, which
cost him, I think, $5 million. And he doesn't like
to have a lot of risk. He doesn't like to have a
lot of stress in his life. So he paid for it in cash. And he said to me, yeah, I
felt like kind of a big shot. It was the biggest
apartment in the building. And I was the only one
who had two apartments that I put together. And he said-- he was
very funny about it. He said yeah, so I had this sort
of sense of my own importance. And then he said when he
thought about it more, what he realized was
actually the importance was that his kids and his grandkids
could come stay there with him, that it was big enough. And he said to me,
investors are always talking about return on
investment, return on assets, return on invested capital. And he said, this
is a return on life. And I thought it was
a very beautiful, kind of poetic phrase. And it's an important way, I
think, to look at your money. There's got to be
a return on life. I'm not trying to be
self-righteous about this. This isn't a moral thing. It's like, it's what works. Munger always says, he looks
at other people and figures out what works and
what doesn't work. And so you're look at these
people like Kahn and Spears and Gayner who are very
charitable, very philanthropic, who are very family oriented,
and they're actually happier. And I think that's a
very revealing thing. So finally I would
mention Mohnish Pabrai, who has spoken here before. And Mohnish kind of
embodies this attitude. He's thought very
deeply about this stuff. And Mohnish is a
very brilliant guy and a very brilliant investor. And I went with him
to India recently, and he was talking about how he
was a lousy student as a kid. And then they did
bunch of testing on him and they said oh
yeah, by the way, you have an IQ in the 180s. So this is an
incredibly smart guy. He has a really good engine. And he's figured out how to
stack the odds in his favor so he wins this particular
game of investing. But the thing that Mohnish is
going to be remembered for-- and he's very
conscious of this-- is not his hedge fund,
however good the returns are. It's actually this
charitable foundation that he's set up, which
is very extraordinary, which is called The
Dakshana Foundation. And Dakshana a
Sanskrit word for gift. And I had the opportunity
to go recently with Mohnish over Christmas
to spend several days in India with him. And so I went around to
look at the charity up close and to see what it did. And what Dakshana does
that's very extraordinary is it takes some of the
cleverest teenagers in India, but these are people from
very, very poor backgrounds. Some of them are from families
that are untouchables, from very poor rural areas. And he gives them two
years of free coaching to take the exam to the Indian
Institutes of Technology, which as many of
you will know, is the Indian equivalent of MIT. And this totally and utterly
transforms their lives. If you get into IIT,
your prospects in life and the prospects of your whole
family are just transformed. And IIT has an acceptance
rate of less than 2%. Dakshana graduates, 54% of
them have gotten so far. It's an astonishing thing. And again, it's Mohnish figuring
out, how do I win this game. What are the things that we can
do that can make our students do really well in this exam. And so the latest count, I think
888 of these graduates got in. And I had this wonderful
experience in India where I was in Pune where I
met a lot of the graduates. One of them
particularly stuck out. He was kind of the star of the
Dakshana Foundation graduates. He had come top of all of
them in the national exams. He's come 63rd out of more
than half a million people in this exam and had
gone to IIT Bombay, which is the hardest to get into. And then he gets this job
at a great tech company, goes to work in London. And recently came, a
month or so, recently came to work in California. And I said to this guy,
were your parents smart? Because I knew that he lived
in a very, very modest home, a very modest area. And he said yeah, my
father is incredibly smart. He said he was a
superb mathematician. But he never had an
opportunity to use it. And he spent his life-- he
makes a very modest salary as a tailor. And one of the first
things that this guy had done with his money after
he gets this tech job is he buys a house for his parents. And so he moves them out of
the very, very modest house into a new house. And as I'm thinking
about this story, I'm thinking what an
amazing thing, that Mohnish has taken his skill
at playing a game, and he's totally transformed
hundreds of lives in this way. And that this young
guy has figured out actually the first
thing I want to do is to transform my parent's
life, not my life when I get the money. And the thing that's
more amazing about this is that that guy is
in this room now, and it's Ashok, who's here. And so the company that
Ashok went to work for is actually Google. And so Ashok went to work,
after graduating from Dakshana, went to work for
Google in London, recently came here as
a software engineer in the search area for
Google here in Mountain View. So you're seeing here
the fact that Mohnish has been able to take
this extraordinary skill, this extraordinary
brain, this ability to stack the odds in
his favor in life, and actually use it to
have this tremendous impact on other people. And I don't think this
is because Mohnish is some sort of righteous figure. I think he's a lovely guy. He's a great guy. I love spending time with him. But I think what he's figured
out is, this is what works. He's like, if I'm to have a
really happy and fulfilled life, it's not going to
come because I have a yacht. It's actually going to
come because I figured out how to help other people and
how to make other people's lives more complete. And so the thought that
I would leave you with is just that you should
think about your Dakshana. What's your gift? And how do you take
your particular gift that you have-- you're all
incredibly smart people-- how do you take your
abilities and figure out what do I do with this to make
a difference in other people's lives? And I think you do this not
because you're necessarily Mother Teresa or Gandhi,
it's because you're tilting the playing
field in your direction. You're stacking the
odds in your favor so that you can have a happy and
successful and meaningful life. Thank you. [APPLAUSE] MALE SPEAKER: Thank you William. We'll open for
taking for questions. AUDIENCE: So you're talking
about-- you suggested to diverge from the crowds. I think the people follow
the crowds for reasons because it's safer. It's less risky. So what's your
take on this point? If you want to be
[INAUDIBLE], takes more steps to be diverse, but
probably be more risky. WILLIAM GREEN: So how to
think through this idea of how diversified you should
be to control risk. AUDIENCE: Yeah,
versus taking risk. This is a trade-off there. WILLIAM GREEN:
Yeah, I think you've focused on really one of the
most important questions. And one of the things
that was fascinating to me in terms of
interviewing an array of these different
great investors was actually to see the
difference in the way that they had solved
this question. So Mohnish for example
had most of his money in about five stocks and
had tremendous confidence, tremendous knowledge
of these stocks. But then one of them blew up. So it's risky. I think it's one reason
why Mohnish will outperform massively over the years, but
I think it can be like that. And so you for
Mohnish, because he has this extraordinary
temperament, it's feasible. So I said to Mohnish about
the financial crisis, I said, how did you deal with the
stress of the financial crisis? Because at one point
his fund, his hedge fund was massively down. And he said oh, I
don't feel stress. And I actually don't
think that's true. I think it may have
been true then, but I think there
are circumstances where even for Mohnish or even
for Bill Miller, these guys who are very unemotional, you
can get to a situation where a sufficient
number of things can go wrong that actually
it becomes very painful. And so I think even for
people like Mohnish who have an extraordinary
temperament, you have to be aware of the
dangers of overconfidence. And I talked to people like
Joel Greenblatt about this. And Joel had 80%-- Joel is
one of the greatest hedge fund managers of all time. And Joel had 80%
of his money in six to eight stocks for
much of his career. And he said, every few weeks
the portfolio might go down 30% in a couple of weeks. And he said it was fine for him. He could cope with it. But he said he actually returned
a lot of the shareholders' money. After five years he
returned half the money. And after 10 years he
returned all of the money. So the only shareholders
were him and his family and his partners. And he said if the family lost
money or friends lost money, he would just help them out. And so it was OK. So I think the point
is, you kind of have to look at your own temperament
and say how unemotional am I. And one of the things my friend
Guy Spier was saying to me recently is you can
actually get to a point where you are emotionally
flooded, where you can actually reach a point where, if a
sufficient number of things can go wrong at the
same time, that it's very hard to be rational,
to make rational decisions. And his view is that
you want to try always to be the last man standing. And he said you
look at Buffett, who has 10 times more capital
in his insurance business than anyone else. He's basically set it
up so he's antifragile. So he'll survive
whatever goes wrong. And so Guy's view is,
you want to kind of look at what everyone else is doing,
what the people you really admire, where they
are on the risk curve. And then he said, just
do less than them. And I think it's a really
interesting idea that yeah, if you're
super constrained, if you're incredibly smart, you
can get unbelievable returns. But I think for
most of us if you want to survive over not
one cycle but 20, 30, 40, 50 years as an investor, I
think diversification and just saying, what do I know. What if it goes wrong? What if I'm wrong? There's a French
investor I interviewed, a guy called Francois
[INAUDIBLE], who said to me, I have three principles--
doubt, doubt, and doubt. And I think it's kind of
helpful to doubt yourself. And I think
diversification-- it's just kind of rational to say
yeah, but if this company I own, if I'm wrong, what
are the consequences? And one of the things Irving
Kahn said to me that I thought was really interesting, he said,
the single most important piece of financial advice I can share
is to focus on the downside. And he said, you know,
the trouble these days is that people can
gallop really fast. But he said they don't really
know what direction they're galloping in. And he said if you really
focus on the downside, and he said you have
reasonable returns and you avoid
terrible losses, he said you'll outperform all
of your gambler friends. And he said it's also a
good cure for your sleeping problems. AUDIENCE: I think
you interviewed Bill Ackman for your book. Would you please tell
us something about him, and do you think
he will survive? WILLIAM GREEN: Yeah, I
do think he'll survive. I think Ackman is
remarkably smart. I think he's a very
brilliant analyst. He's got a very brilliant mind. I think as with all of
these great investors, they're flawed. They're not perfect. They make mistakes. And his mistake with
Valeant-- so far it's turned out to be
a really dire mistake. You could say that's
a kind of bull market phenomenon of over confidence. But he's always been taking
these very contrary positions that are very aggressive. And it's part of his character. And I think Bill has a very
interesting personality. He's very combative
in certain ways. And he's prepared to go into
these very difficult situations where, with something like
Herbalife where he thinks this company's a fraud
and a Ponzi scheme and I'm going to take it down. And he has spent
over $50 million on this campaign to
bring down Herbalife. And so I think he has a
very distinctive approach. And one of the things he
said to me about money, he said the reason I wanted
to get rich from very early on was so that I would
have independence. He said it was so that I
could say what I believe, so that I could act in a
way that I believe is right. And so he really embodies
this idea of the willingness to be lonely, the willingness
to take idiosyncratic positions. And that's going to mean
there are times where he's going to look really stupid. But there were
times where Buffett looked stupid in
the late '90s where he refused to buy
any tech stocks, where Eveillard looked stupid,
where Don Yacktman looked stupid. Eveillard's assets went down
from I think $6 billion to $2 billion during the tech
bubble in the late '90s. Everyone abandoned him. He said to me that one
of the senior executives at his company said,
well, Jean-Marie, he's half senile anyway. And Jean-Marie said
to me, I was 59. And so I think one of the things
that's really striking to me is that there are always periods
where these great investors look like idiots. And my money is on
Ackman, just in terms of his intellect, his
analytical brilliance, and he's got a kind of in
inner toughness to him. And I think the real
lesson for-- you know, there are multiple lessons
of the Valeant situation. But I think the hubris
and the overconfidence one is important, the
unknowability of the future. Peter Lynch was looking
through some old notes from an interview I had
Peter Lynch the other day. And well, the interview
was about 18 years ago, but I was looking at
the notes the other day. And Lynch said to me, he
bet on some company in 1969 where he said, Ned Johnson
was not yet running Fidelity but was then running
a fund there. And Lynch pitched
this stock to him that was an apparel
company that was great. He said it had the cover
of Vogue three times. And their earnings, it
was like a record year. And he said then the
movie, what was it, "Bonnie and Clyde" comes out. And he says Faye
Dunaway is wearing these incredible long
pleated 1930s skirts. And it totally and
utterly changes fashion. And he said in the
same year this company had record earnings, the
company went bankrupt. And he said he talked
to Ned Johnson about it, and he said Ned
Johnson just laughed. And he said yeah,
sometimes this stuff just comes out of left field. And so I think this sort of
healthy awareness of the fact that the jack of spades
can actually jump out of the pack of cards and
squirt cider in your ear, it's useful to retain that
sense of our own fallibility. AUDIENCE: During
the times when you said these investors
would look stupid, there seems to be two
kind of categories. One is category
where they decided they don't want to participate
in irrationality they see, like Don Yacktman or Eveillard. And then the second
one is where they seem to be confident
about something, but then it eventually
builds up on them. So say Bill Miller, Valeant
example that you gave. In those cases
where they're taking a bet where they're kind of
alone, how important is it where, on one side you want
to be kind of confident, but the humanity is confidence
doesn't go into arrogance. And in several of these cases
there was enough evidence that they could be wrong. For example, there's a famous
Steve Eisman and Bill Miller kind of face off type of
thing where Steve Eisman was this young hedge fund
analyst, running company that had done all this work. That this is really a bubble. In the Valeant case
there was enough evidence before that all these-- WILLIAM GREEN: I think it's a
really profound and important question you raise, this thin
line between the willingness to be lonely and the arrogance
where you say everybody else is wrong, I am right. And you end up
blowing yourself up. And it's a very, very
interesting question. You know, I was always a huge
admirer of Marty Whitman. And he was an absolutely
brilliant contrarian value investor. And Whitman-- once
I said to him, if you would to own just one
stock for the next 10 years, what would it be? And he said MBIA. And this is the company
that Bill Ackman shorted. And Ackman said to me that he
actually-- I think he said, I can't remember if
actually met him, but I think he told me that
he contacted Marty and said to him, I want to
go through this and explain to you
why this is crap, why it's going to fall apart. And Marty kind of dismissed
him and kind of bad mouthed him in the press. And Marty's a kind of
combustible guy in the way that he's feisty. And I talked to Marty
about this afterwards. And I said, why did you mess up? And he said-- I mean,
he's now in his 90s. And he said at a certain point
as I became richer and older, I became lazy. And he said there were
certain stocks where I should have sold. He said I knew that I should
have sold my housing stock before the financial crisis. And I kind of didn't
get around to it. And Bill Nygren said to me
that this is a full on game. He said there are
lots of people who have decided I'm going to
go into semiretirement. And it's like no. He's like, either the switch
is fully on or it's fully off. He said it is so
hard at that level. And so I think it's interesting
that all of these guys screw up. Templeton said to me,
however smart you are, you're going to screw
up a third of the time. And you know, there
was a wonderful moment with Bill Miller where
years ago in 2001 after the financial
crisis where he's making these incredibly gutsy bets. I said to him man,
you really have to have balls to do what you do. And he said yeah, you
have to have balls. But you've also got to be right. And it stuck with me forever. And he said, let me
show you this chart. And he shows me this chart
of a fund's performance. He says, look at this. You see the steady monthly
upward trajectory of this fund. And then he said, and then it
just collapses and goes down 90 something percent. He said that's Long-Term
Capital Management. And he said the thing
that's really hard to tell is am I here in my
career or am I here? And so I think this idea of
hubris, of just saying yeah, I believe this is true,
but what if I'm wrong? And this is why the idea
of the margin of safety is so powerful. And so I think when you look
at people like Irving Kahn, who did tremendously
well for decades, it's partly they survived. They didn't blow themselves. And so Irving would have a
tremendous amount of cash, often. I think at the end he had
about half his money in cash. And so yeah, maybe
you underperform. But you survive. And so I think that idea
of just being resilient, of trying to be the
last man standing rather than necessarily the
smartest guy in the room, that is very powerful. MALE SPEAKER: Thank
you for the great talk. And can we all have a big
round of applause only for [INAUDIBLE]. [APPLAUSE] WILLIAM GREEN:
Thank you so much.
