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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Masters in

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Speaker 1: Business with Barry Ritholts on Bloomberg Radio.

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Speaker 2: This week on the podcast strap Yourself In for Another Banger,

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Speaker 2: Chris Davis choose up the scenery. He is the portfolio

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Speaker 2: manager of Davis Advisors. They've been kicking the smps but

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Speaker 2: for the past I don't know, since nineteen sixty nine,

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Speaker 2: twenty billion dollars in client assets. Fascinating conversation. Charlie Munger

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Speaker 2: was his mentor. He sits on the board of Coke

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Speaker 2: and On Berkshire Hathaway. I thought this conversation was spectacular.

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Speaker 2: I think you will also with no further ado, my

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Speaker 2: sit down with Chris Davis.

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Speaker 3: It's so always good to be with you. Thank you

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Speaker 3: so much.

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Speaker 2: So before we get into your career, master's degree with

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Speaker 2: honors from the University of Saint Andrews in Scotland, Like,

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Speaker 2: how did that come about?

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Speaker 3: Well, and one of the things that confuses people is

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Speaker 3: I actually don't have an undergraduate degree. I only have

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Speaker 3: the master's degree. Wait, I sort of skipped that.

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Speaker 2: Did you did you go to an undergraduate college?

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Speaker 3: Well, what happened is I went to Saint Andrews. I

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Speaker 3: had originally only intended to go for a year. I

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Speaker 3: wanted to be a veterinarian's that's a longside story. And

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Speaker 3: I had worked at the Bronx Zoo. I wait, wait, wait,

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Speaker 3: Humane Society.

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Speaker 2: So the original plan wasn't Dad's a fund manager, grand

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Speaker 2: fought pause a grant fund manager. I guess I'm going

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Speaker 2: to be a going to the family business. That was

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Speaker 2: not the plan.

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Speaker 3: Definitely not. But I give both of them credit. They

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Speaker 3: you know, they felt that all of their kids should

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Speaker 3: be financially literate. And so every kid worked for my

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Speaker 3: father or for my grandfather at some point point and

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Speaker 3: learned because they just felt like, look, you'll have money

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Speaker 3: over time. It's not taught in schools, just the basic

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Speaker 3: fundamentals of investing. And if you got help, you turn

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Speaker 3: on the TV, you're going to get a totally distorted view.

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Speaker 2: Of what invstipos of nonsense exactly.

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Speaker 3: And so we all had this grounding. But you know,

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Speaker 3: for example, my my smartest sibling without question, as my sister,

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Speaker 3: my younger sister. But she's a small town doctor, but

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Speaker 3: boy does she understands investing. She's very thoughtful in how

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Speaker 3: she's managed her financial affairs. So we owed that route,

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Speaker 3: but we all thought we were going different paths. She

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Speaker 3: was interested in medicine. I was interested in veterinary medicine,

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Speaker 3: and so I was going to go to Cornell. And

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Speaker 3: I was very young for my high school class, and

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Speaker 3: I was very late hitting puberty. I mean I was

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Speaker 3: five feet tall my senior year in high school. That's

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Speaker 3: when I broke five feet so you know that you

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Speaker 3: can imagine what this looked like. But but my scores

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Speaker 3: and grades were okay. And so Cornell took me into

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Speaker 3: their prevet program. But the woman that ran it said, look,

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Speaker 3: this is a seven year program. It's intense. Why don't

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Speaker 3: you take a year off, like a gap year. So

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Speaker 3: I propose that to my father. He said, we don't

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Speaker 3: do that in our family. Like you could go study,

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Speaker 3: but there's no like year off like to go ski year.

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Speaker 3: Find this.

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Speaker 2: Did you skip a grade or you?

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Speaker 1: Like me?

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Speaker 2: The back of like October November December, So you're young

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Speaker 2: relative to no.

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Speaker 3: I had skipped a grade sort of early because I bazarrely.

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Speaker 3: I didn't nobody in my family believes this now, but

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Speaker 3: I didn't talk until quite late. So they had sort

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Speaker 3: of and.

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Speaker 4: Then when I started talking, they jumped to me out

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Speaker 4: and it never stopped since then.

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Speaker 3: But anyway, so I had this year period and it

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Speaker 3: was the first year that the University of Saint Andrews

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Speaker 3: wast in taking direct applications from students that where they

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Speaker 3: dropped the requirement to have A levels or O levels

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Speaker 3: to sort of British entry exams, mostly because they wanted

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Speaker 3: the Yankee dollar. You've got to remember Thatcher had just

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Speaker 3: become Prime Minister. She was slashing the public support of

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Speaker 3: the Scottish universities. So I applied. There were I think

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Speaker 3: eight of US Americans that came in that first year,

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Speaker 3: and they had a program where after two years you

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Speaker 3: could apply into the honors program, which would allow you

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Speaker 3: to concentrate on just one subject, and I ended up

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Speaker 3: picking two, but needless, it was philosophy and theology and interesting,

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Speaker 3: you know. I picked them my freshman year, thinking well,

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Speaker 3: when I go back to Cornell, I'm going to be

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Speaker 3: filled up with organic chemistry and biology and anatomy and

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Speaker 3: so on, so I may as well pick things that

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Speaker 3: I would never I'll never get to study again. So

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Speaker 3: I picked things like medieval history, philosophy, theology.

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Speaker 2: I love that. That's something I always, in hindsight wish

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Speaker 2: I did. And I started out physics and math and

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Speaker 2: switched the political science and philosophy. So I got to

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Speaker 2: study some stuff that was fun. But like medieval history,

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Speaker 2: sounds like that would be a delightful semester.

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Speaker 3: You use the perfect word fun. I mean I became

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Speaker 3: a good student in high school. I wasn't a good student.

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Speaker 3: In fact, recently I found my elementary school my eighth

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Speaker 3: grade final report card. I went to a school here

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Speaker 3: in New York and it was a pretty strict, you

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Speaker 3: know where, a uniform sort of boys' school, and the

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Speaker 3: headmaster would review each report card before it went to

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Speaker 3: the parents and then make a comment on the bottom.

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Speaker 3: And the headmaster's comment on my final elementary school report

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Speaker 3: card was yet another semester of squandered potential.

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Speaker 2: Not living up to his potential. God, my children classic.

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Speaker 4: My children found that my mother David to my children,

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Speaker 4: which was a big problem you could imagine.

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Speaker 3: But anyway, so I thought I'll just be in Scotland

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Speaker 3: for a year. I picked subjects I would never study again.

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Speaker 3: They were so fun.

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Speaker 2: It was just it was especially in Scotland.

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Speaker 3: Medieval in a medieval university and where Hume had been

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Speaker 3: a professor. I mean, you know, it was just amazing,

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Speaker 3: And of course it was. It's also a Presbyterian seminary,

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Speaker 3: so so Saint Mary's, which is one of the colleges there.

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Speaker 3: So I thought, well, you know, and I'm not. It

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Speaker 3: wasn't that I was a deeply faithful sort of person.

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Speaker 3: I more thought of theology from the point of view

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Speaker 3: of you know, people organize their lives around religion, people

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Speaker 3: die for it, people, you know, I should study this.

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Speaker 3: And but I also there was a secondary reason that

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Speaker 3: I was interested, which is, if you look at communities

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Speaker 3: that have a religious institution at their center, whether they're rural,

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Speaker 3: whether the urban suburban, almost all outcomes are better, you know,

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Speaker 3: intact families, crime rates, graduation rates, you know, all of

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Speaker 3: these sorts of statistics tend to go better. So to me,

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Speaker 3: there's I was lucky that I didn't. I was never

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Speaker 3: you know, didn't have one of those childhoods where it

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Speaker 3: was beaten into me or something. So it was more

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Speaker 3: this curiosity about how it seemed to serve communities to

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Speaker 3: have a shared value system. Anyway, I picked those subjects

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Speaker 3: I applied into this honors program, so I was able

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Speaker 3: to get the Masters at the end, but there was

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Speaker 3: no undergraduate degree along the way.

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Speaker 2: And there was no going back to Cornell to become

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Speaker 2: a vet now, although the order for that faded.

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Speaker 3: Although because I deferred my admission freshman year, I still

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Speaker 3: get mailings from their alumni department because I matriculated but

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Speaker 3: then deferred, And I'd like to think the Development department

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Speaker 3: has nothing to do with them sending me these mailings.

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Speaker 3: But I lived on a sheep farm in Scotland, and

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Speaker 3: of course that was when I realized I was confusing

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Speaker 3: loving animals with wanting to be a vet, and those

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Speaker 3: are very different things.

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Speaker 2: Yeah, very much.

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Speaker 3: So.

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Speaker 2: I'm always as we used to foster dogs and get

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Speaker 2: them adopted, and anytime I meet someone who was like, oh,

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Speaker 2: I really don't care for dogs, it's like.

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Speaker 3: Oh, that's a big ex don We weren't allowed to

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Speaker 3: have dogs when I was a kid, But I grew

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Speaker 3: up right in the city of East eighty fourth Street.

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Speaker 3: But my parents from the time I was in maybe

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Speaker 3: third grade or so, so what would that be, probably

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Speaker 3: nine years old or eight years old something like that,

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Speaker 3: they said I could walk dog, I could be a

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Speaker 3: dog walker, provided I didn't cross any street, so you know,

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Speaker 3: i'd put up a notice in the elevator and their

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Speaker 3: building if anybody needed their dog walk, and then I

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Speaker 3: would just walk the dogs around the block before school

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Speaker 3: and after school. I can still remember the name of

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Speaker 3: every dog I walked, which is amazing. And I loved it.

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Speaker 3: And of course it actually became seed capital, which is unexpected.

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Speaker 3: But the reason was, you know, I could probably charge

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Speaker 3: fifty cents a walk back then, so it was nothing,

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Speaker 3: but I got to be with dogs and I enjoyed it.

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Speaker 3: It was like a.

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Speaker 2: Paper running a small business. I had a paper route

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Speaker 2: and it was just so formative so far.

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Speaker 3: And this was like a paper route for city kids

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Speaker 3: because you didn't couldn't have a paper route New York.

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Speaker 3: But then an amazing thing happened New York City around

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Speaker 3: nineteen I'd have to be around nineteen seventy seven or

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Speaker 3: seventy eight passed the Pooper Scooper line, I remember, and

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Speaker 3: everything changed because people had these dogs with nobody even

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Speaker 3: knew what to do they nobody had ever imagined cleaning

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Speaker 3: up after a dog. There are all sorts of inventions,

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Speaker 3: you know, talls, but people didn't you know people were

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Speaker 3: so gross they had to carry shovels with them.

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Speaker 2: Change the diaper on the baby. How it's just processed food.

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Speaker 2: There's no big deal.

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Speaker 3: Well for me that my rates could go from fifty

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Speaker 3: cents to five dollars and people were glad to pay it.

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Speaker 3: And instead of one or two dogs, I had four

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Speaker 3: or five. And it was real money because what it

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Speaker 3: meant was I was suddenly making you know, fifty dollars

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Speaker 3: a week.

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Speaker 2: In nine sixty.

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Speaker 3: Dollars a week.

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Speaker 2: Yeah, that's good.

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Speaker 3: Yeah, And so you start, you know, thinking about holy cow,

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Speaker 3: you know, I'm making two hundred and fifty dollars a month.

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Speaker 3: You know, I'm making thousands of dollars a year. And

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Speaker 3: it was just fantastic. So I've I've loved dogs ever since.

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Speaker 2: So let's talk a little bit about the early days

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Speaker 2: of the career. You start as an accountant at State

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Speaker 2: Street Bank and ultimately end up as a unglamorous research

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Speaker 2: analyst at Tanaka Capital Management. These are, you know, very

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Speaker 2: much bottom rung on the Oh Street ladders. What you

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Speaker 2: learn in those well, it.

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Speaker 3: Wasn't really my first job. My first job was I

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Speaker 3: became a pastoral ass at the American Cathedral in Paris,

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Speaker 3: so I lived. I moved from rural Scotland to Paris. Well,

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Speaker 3: that was like landing in oz you know, you get

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Speaker 3: honest to God, you my eyes lit up, but again

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Speaker 3: in the same way that living on the sheep farm

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Speaker 3: convinced me I was confusing loving animals with wanting to

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Speaker 3: be a vet, you know. Working for the American Cathedral

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Speaker 3: convinced me I was confusing loving people with wanting to

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Speaker 3: you know, be a priest or something. So I moved

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Speaker 3: from there to Boston, and I thought about teaching. I

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Speaker 3: actually even applied to the CIA because I was very

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Speaker 3: interested in research and international affairs. I'd lived abroad then

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Speaker 3: five years, and I thought it would be an amazing

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Speaker 3: thing to be the greatest expert on let's say Czechoslovakia's

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Speaker 3: learned the language, the history, the people, the economics, the business,

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Speaker 3: the military, the topography. And so I didn't want to

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Speaker 3: be a spy, but I wanted to be an analyst.

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Speaker 3: And CIA wisely turned me down, having briefly had a

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Speaker 3: stint in you know, sort of the Worker's Revolutionary Party,

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Speaker 3: you know, and.

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Speaker 2: Oh so they looked at your history and said, this guy's.

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Speaker 3: Yeah, they're like, this needs to ripe it a little more.

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Speaker 2: We don't know have ethical malleability that we're looking for.

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Speaker 3: But I and so, you know, I started thinking about

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Speaker 3: the summers that I had spent working with my dad

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Speaker 3: and my grandfather, both of whom loved their jobs. They

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Speaker 3: loved investing, they loved their career, and of course that

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Speaker 3: was infectious even as kids. I thought the idea of

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Speaker 3: investing was so interesting because they didn't highlight the math

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Speaker 3: to begin with. They highlighted the stories, the people, the ideas.

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Speaker 3: And but I realized that even though I've had this

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Speaker 3: study of sort of the idea of businesses being made

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Speaker 3: up of people and ideas and this sort of interest

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Speaker 3: in that, I had no grounding in the rigor of it.

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Speaker 3: And so what I like to say is, you know,

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Speaker 3: my father and grandfather, you know, let us live in

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Speaker 3: a foreign country, like live in France for some time

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Speaker 3: and hear French spoken and see this new culture. But

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Speaker 3: we did that before. We had to learn the grammar

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Speaker 3: and read the textbooks and so on. So they got

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Speaker 3: the order right for setting the hook of curiosity. But

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Speaker 3: I knew enough to know that I couldn't go into

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Speaker 3: investing without a real grounding, and of course a bank

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Speaker 3: is perfect. And I got I mean I interviewed a

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Speaker 3: lot of places. George Putnam himself turned me down for

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Speaker 3: a job at Putnam. So I had a lot of

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Speaker 3: rejects before. And State Street Bank had an program for

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Speaker 3: entry level accountants, and you know, they had a wonderful

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Speaker 3: training program. And so I had an operations center in Quincy, Massachusetts,

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Speaker 3: and I would take the red line down there and

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Speaker 3: and I could do my day job. But they would

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Speaker 3: also pay for all of any schooling you wanted. They

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Speaker 3: had something called the State Street Institute, and you could

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Speaker 3: take courses and anything to do with economics, accounting, business,

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Speaker 3: and so I took advantage of that, although I will

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Speaker 3: say I was fooled by one course. They had a

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Speaker 3: course in their catalog that was called the Rules of

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Speaker 3: Rhythmic Touch.

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Speaker 2: Now I thought that sounds like massage.

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Speaker 4: That sounds pretty good, right, I figure I circled that

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Speaker 4: one in a little course catalog.

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Speaker 3: It was only a two night's course, and I showed

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Speaker 3: up and it was how to use a ten punch

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Speaker 3: tape calculator, you know, without looking at your hands, so

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Speaker 3: you know when you're summing up the column is the

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Speaker 3: rules of rhythmic touch. And I would say, if you

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Speaker 3: put what on this table now, I would be calf

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Speaker 3: I would bet you a large sum of money. I

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Speaker 3: could run a column of numbers faster than you.

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Speaker 2: I'm going to that one.

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Speaker 3: But so that's so I got the grounding there. Graham

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Speaker 3: Tanaka was somebody I had met during my summer jobs.

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Speaker 3: He was a very talented analyst at Fiduciary Trust. He'd

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Speaker 3: been at JP Morgan before, and uh, we'd sort of

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Speaker 3: stayed in touch, and I learned that he was hanging

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Speaker 3: out his own shingle and starting his own firm. And

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Speaker 3: he's a Japanese American really a very you know, driven,

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Speaker 3: talented guy. And uh he said he wanted an apprentice,

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Speaker 3: and uh, and you know it would be everything. I

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Speaker 3: would be his first hire and we would go from there.

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Speaker 3: And that was a terrific hell did I stayed there

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Speaker 3: about two years. Uh, And we stayed because what happened

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Speaker 3: after the first stretch is my grandfather, who I was

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Speaker 3: close with when I went to work for Tanaka. My

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Speaker 3: grandfather opened up an account at Tanaka because he thought

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Speaker 3: this was you know, he had big investments in Japanese firms.

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Speaker 3: He had a lot of admiration for Japanese culture values, and.

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Speaker 2: He admired late seventies, early eighties.

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Speaker 3: This was late eighties now, so we're probably in eighty nine,

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Speaker 3: something like eighty eight eighty. Yeah. Well, but Graham was

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Speaker 3: a growth investor primarily in the US, and so he

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Speaker 3: just happened to have Japanese heritage. But so my grandfather

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Speaker 3: opened account and as the time there progressed, my grandfather

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Speaker 3: was worried about his health failing. He loved the business

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Speaker 3: and he wanted to die at his desk, and so

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Speaker 3: he started asking if I would come in on the

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Speaker 3: weekends and go through his you know, his accounts with him.

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Speaker 3: And Graham, of course, was so respectful of that, and

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Speaker 3: so it was sort of a very gradual transition out.

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Speaker 3: There wasn't an end date of my time with Graham

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Speaker 3: so much as there was a start date of my

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Speaker 3: time working with my dad and father.

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Speaker 2: So your father launched Davis Advisors in nineteen sixty nine, yea,

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Speaker 2: and your grandfather was still running his Davis investing shop. Yeah, parallel.

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Speaker 2: Did they ever end up murging what happens when they

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Speaker 2: decided all right, it's you know, it's time.

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Speaker 3: Well, my father was my grandfather's only son, and as

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00:17:30,880 --> 00:17:36,840
Speaker 3: often happens, they had a very complicated relationship, and so

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Speaker 3: they never worked together. My father grew up with his

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Speaker 3: famous name because your numbers were right. In the beginning.

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Speaker 3: It was one hundred thousand dollars that he borrowed from

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Speaker 3: his wife's family. It was eight hundred million when he died,

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Speaker 3: and it was two point two billion when his wife died,

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Speaker 3: and she was sort of the successor trustee, and then

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Speaker 3: it all went to charity after that. He didn't believe

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Speaker 3: in inheritance, but it was in trust for her and

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Speaker 3: she lived to be one hundred and six.

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Speaker 2: Wow.

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Speaker 3: Although I will tell you I managed her account, and

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Speaker 3: you know, in two thousand and eight, of course I

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Speaker 3: had to go see her and we had a lot

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Speaker 3: of financial stocks and we had a really bad mark

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Speaker 3: at the bottom, probably down forty or fifty percent. And

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Speaker 3: I went to see her in Florida and I said,

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Speaker 3: you know, grand I just I want you to know

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Speaker 3: the businesses are sound. You know, we took some body blows,

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Speaker 3: but you know, in the long run, it's going to

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Speaker 3: be fine. She said, you idiot, I'm ninety eight years old.

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Speaker 4: She said, I don't buy green bananas, and you're you're

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Speaker 4: telling me I'm down fifty percent and you go.

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Speaker 3: Get back to work. So she teached me because of

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Speaker 3: course she lived long enough to see it all come back.

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Speaker 3: But we would always she would always tease me about

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Speaker 3: not buying green bananas, and my telling her she just

335
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Speaker 3: had to have a little bit of a longer term perspective.

336
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Speaker 3: But anyway, so my my my grandfather built his firm

337
00:19:06,480 --> 00:19:09,320
Speaker 3: which was called Shelby Colin Davis and Company. My father

338
00:19:09,400 --> 00:19:11,800
Speaker 3: built his which in the beginning was called Davis, Palmer

339
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Speaker 3: and Biggs and Uh. And then the New York Venture

340
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Speaker 3: Fund was a client or a fund managed by Davis,

341
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Speaker 3: Palmer and Biggs. And And when I was working at Tanaka,

342
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Speaker 3: I went to a meeting. It was Chub Insurance, you know,

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Speaker 3: analyst day sort of thing. And there weren't that many

344
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Speaker 3: analysts then, so it was held around a big sort

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Speaker 3: of boardroom table, and the CEO is Dino Hare, and

346
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Speaker 3: he'd sit there and say, we Chubb you know this

347
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Speaker 3: he was it was and uh, And I looked around

348
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Speaker 3: the table and both my father and grandfather were at

349
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Speaker 3: the same meeting by chance, and uh and I thought

350
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Speaker 3: this seems a little nuts and uh uh. And so

351
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Speaker 3: you know, I spoke to them both because I was

352
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Speaker 3: very close with them both. And you know, one of

353
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Speaker 3: of the things my father was very clear on is

354
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Speaker 3: he wanted out at age sixty. He said, I'm not

355
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Speaker 3: yep our age. Yeah, hard stop. And here was my

356
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Speaker 3: grandfather at the time, and he was probably in his

357
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Speaker 3: late eighties and early eighties probably then, and he said,

358
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Speaker 3: you know, I want to die at my desk. I mean,

359
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Speaker 3: he was the one that called investing the best game

360
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Speaker 3: in town. He would say, this is the best game

361
00:20:25,840 --> 00:20:30,359
Speaker 3: in town. He loved his firm. He loved now his firm,

362
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Speaker 3: well most of it was his own capital, and so

363
00:20:34,119 --> 00:20:36,000
Speaker 3: in a way he was just managing his own but

364
00:20:36,080 --> 00:20:39,639
Speaker 3: he loved being in the flow. He loved in a way,

365
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Speaker 3: my grandfather loved being a great man. You know. He

366
00:20:42,640 --> 00:20:46,040
Speaker 3: had served as an ambassador, He was a co founder

367
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Speaker 3: of the Heritage Foundation chairman for a long time. He

368
00:20:49,440 --> 00:20:54,119
Speaker 3: had very conservative political views, although that was slightly different

369
00:20:54,200 --> 00:20:58,439
Speaker 3: organization twenty five years ago than it is now. But

370
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Speaker 3: he was a passionate Reagan Republican and sort of a

371
00:21:01,280 --> 00:21:07,600
Speaker 3: Hoover Institute sort of Republican, and his namesake, Shelby Cullum, was,

372
00:21:08,359 --> 00:21:12,080
Speaker 3: you know, a Republican senator and governor under Lincoln. So

373
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Speaker 3: I mean, you know, it was it was in him deep.

374
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Speaker 3: And so he loved the game, and it wouldn't have

375
00:21:19,520 --> 00:21:23,760
Speaker 3: occurred to him to stop working. My father loved investing,

376
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Speaker 3: but he did not like the responsibility of the business.

377
00:21:27,520 --> 00:21:31,760
Speaker 3: He didn't like boards and clients and you know, employees.

378
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Speaker 3: That was not his thing. Is much more a wonderful

379
00:21:37,400 --> 00:21:40,560
Speaker 3: human being, but very different than my grandfather. So he

380
00:21:40,640 --> 00:21:44,679
Speaker 3: wanted out before he turned sixty. My grandfather wanted to

381
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Speaker 3: die at his desk. And I thought, well, here I am.

382
00:21:46,600 --> 00:21:48,880
Speaker 3: I don't know what I am at the time, twenty

383
00:21:48,920 --> 00:21:52,480
Speaker 3: six or something. I was like, well, here's a great idea.

384
00:21:52,480 --> 00:21:56,640
Speaker 3: Why don't we merge the companies and then I'll come

385
00:21:56,680 --> 00:21:59,320
Speaker 3: in and you know, I'll learn from both of you.

386
00:22:00,119 --> 00:22:03,080
Speaker 3: And I was an SNL and a banking analyst then,

387
00:22:03,119 --> 00:22:05,720
Speaker 3: and of course this was going right into the teeth

388
00:22:05,760 --> 00:22:08,600
Speaker 3: of the SNL crisis, so it was an exciting time

389
00:22:08,640 --> 00:22:13,199
Speaker 3: to invest. And then you know, we'll figure out a

390
00:22:13,200 --> 00:22:14,720
Speaker 3: way for the three of us to do.

391
00:22:14,680 --> 00:22:17,000
Speaker 2: It, and how long did it take for that to

392
00:22:17,080 --> 00:22:17,920
Speaker 2: all come together?

393
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Speaker 3: I think my grandfather my father turned sixty in nineteen

394
00:22:23,640 --> 00:22:28,359
Speaker 3: ninety seven, nineteen ninety eight, somewhere like that. And my

395
00:22:28,480 --> 00:22:30,720
Speaker 3: grandfather died six.

396
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Speaker 2: Eighty six something like that, you.

397
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Speaker 3: Know, don't quiz me. And then my grandfather died in

398
00:22:41,400 --> 00:22:45,280
Speaker 3: let's see, nineteen ninety four, so I have to say

399
00:22:45,320 --> 00:22:48,439
Speaker 3: he was eighty six or eighty seven when he died,

400
00:22:48,640 --> 00:22:52,520
Speaker 3: and so in a way, the timing all sort of

401
00:22:52,640 --> 00:22:56,560
Speaker 3: overlapped beautifully. And so my grandfather worked almost to the end.

402
00:22:57,320 --> 00:23:00,520
Speaker 3: My father helped coach me through that transition, and then

403
00:23:00,720 --> 00:23:03,359
Speaker 3: he walked out the door in nineteen ninety eight, and

404
00:23:04,400 --> 00:23:08,480
Speaker 3: that was that. And wow, he's been an incredible mentor.

405
00:23:08,600 --> 00:23:11,960
Speaker 3: He's always available to talk, but as he said, I'm

406
00:23:12,000 --> 00:23:14,200
Speaker 3: here to give you advice, I'm not giving any orders.

407
00:23:14,840 --> 00:23:17,879
Speaker 3: And he didn't sit on our boards, and you know,

408
00:23:17,960 --> 00:23:23,600
Speaker 3: he just walked out, and just like my grandfather, started

409
00:23:23,600 --> 00:23:28,240
Speaker 3: giving his money away. And he's you know, he created

410
00:23:28,320 --> 00:23:32,960
Speaker 3: and oversees the largest international scholarship program on earth.

411
00:23:33,560 --> 00:23:37,760
Speaker 2: Really, yeah, I know there's a foundation. I haven't read

412
00:23:37,800 --> 00:23:42,760
Speaker 2: the book, but online there's John Rothchild, who was I

413
00:23:42,800 --> 00:23:47,200
Speaker 2: think Peter Lynch's Yeah, author lovely man, the Davis Dynasty.

414
00:23:48,119 --> 00:23:54,600
Speaker 2: How odd is it to have, like, hey, you know

415
00:23:54,680 --> 00:23:57,480
Speaker 2: this story, the game isn't over and you're you're writing

416
00:23:57,520 --> 00:24:00,600
Speaker 2: this book. How odd is it to be art of

417
00:24:00,680 --> 00:24:01,680
Speaker 2: a book like that?

418
00:24:02,320 --> 00:24:05,920
Speaker 3: Well, you know, first, it's probably a book read by

419
00:24:05,960 --> 00:24:08,840
Speaker 3: dozens of people nationwide because remember it is the riveting

420
00:24:09,040 --> 00:24:12,479
Speaker 3: biography of the dean of insurance stocks. So it's not

421
00:24:12,640 --> 00:24:14,560
Speaker 3: you know, that's a pretty narrow.

422
00:24:14,600 --> 00:24:17,560
Speaker 2: Narrow pool, not a hot seller yourself.

423
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Speaker 3: And I do think I experienced the writing of that

424
00:24:22,880 --> 00:24:27,200
Speaker 3: book as you know, sort of terrifying, you know, really, yeah,

425
00:24:27,280 --> 00:24:29,680
Speaker 3: because it was a lot to live up to. Well,

426
00:24:29,680 --> 00:24:33,600
Speaker 3: it's a lot to live up to. And I will

427
00:24:33,640 --> 00:24:37,960
Speaker 3: say it's it's something that I'm just profoundly grateful to

428
00:24:38,000 --> 00:24:40,760
Speaker 3: my dad, well really to both of them. But my

429
00:24:40,880 --> 00:24:45,199
Speaker 3: dad was is a very humble person. And you know,

430
00:24:45,280 --> 00:24:48,600
Speaker 3: when you in that book, it is, you know, ninety

431
00:24:48,640 --> 00:24:52,399
Speaker 3: percent about my grandfather. And my dad was, you know,

432
00:24:52,560 --> 00:24:55,720
Speaker 3: sort of what I call a quiet doer. He loved investing,

433
00:24:55,760 --> 00:25:00,040
Speaker 3: he loved research, but he was very low profile and

434
00:25:00,240 --> 00:25:04,000
Speaker 3: so his view was very much that despite the sort

435
00:25:04,040 --> 00:25:07,439
Speaker 3: of graphic title, this is really a book about his father,

436
00:25:07,800 --> 00:25:12,680
Speaker 3: and I think that that's true. And in fact, when

437
00:25:13,040 --> 00:25:18,040
Speaker 3: we at our firm, we made slim down versions of

438
00:25:18,080 --> 00:25:21,800
Speaker 3: that book and called it the Davis Discipline instead, which

439
00:25:21,880 --> 00:25:25,120
Speaker 3: was much more consistent with our sort of view of life,

440
00:25:26,160 --> 00:25:31,680
Speaker 3: because you know, dynasty implies sort of dynastic wealth, it

441
00:25:31,720 --> 00:25:34,359
Speaker 3: implies inherent and there's no inherent and there was that

442
00:25:34,480 --> 00:25:35,919
Speaker 3: was none of that, which, as.

443
00:25:35,880 --> 00:25:39,240
Speaker 2: I would imagine, people would be surprised to learn.

444
00:25:39,800 --> 00:25:44,520
Speaker 3: Yeah, and it's funny, it's it's not something I'm quite

445
00:25:44,520 --> 00:25:45,600
Speaker 3: as fanatic about.

446
00:25:46,400 --> 00:25:49,879
Speaker 2: Well, Warren Buffett is a big believer in, hey, if

447
00:25:49,920 --> 00:25:53,560
Speaker 2: you give your kids, you should give your kids enough.

448
00:25:53,600 --> 00:25:55,840
Speaker 2: I know, I'm going to mangle this. Give them enough

449
00:25:55,920 --> 00:25:58,360
Speaker 2: money so they could do anything, but not so much

450
00:25:58,400 --> 00:26:00,240
Speaker 2: money that they can do nothing.

451
00:26:00,280 --> 00:26:03,440
Speaker 3: You didn't mangle it. You stuck the landing. That's exactly,

452
00:26:03,480 --> 00:26:06,320
Speaker 3: and that is exactly the right floss. And I would say,

453
00:26:06,680 --> 00:26:09,080
Speaker 3: you know, my father, my grandfather sort of believed that.

454
00:26:09,160 --> 00:26:13,119
Speaker 3: I mean, I have siblings that you know where you

455
00:26:13,200 --> 00:26:16,399
Speaker 3: know they were helped out, and you know I had

456
00:26:16,440 --> 00:26:20,760
Speaker 3: an aunt. You know that that my my grandfather left

457
00:26:20,800 --> 00:26:23,560
Speaker 3: some money to to ensure that she and her kids

458
00:26:23,560 --> 00:26:27,960
Speaker 3: would be all right and so on. So it wasn't ruthless,

459
00:26:28,000 --> 00:26:30,440
Speaker 3: and I think, but I think there was. It came

460
00:26:30,480 --> 00:26:32,520
Speaker 3: from a place of sort of compassion. I mean the

461
00:26:32,680 --> 00:26:36,240
Speaker 3: sort of view that you know, there's something dignified about

462
00:26:36,280 --> 00:26:42,080
Speaker 3: burning your way in the world, and and I think

463
00:26:42,160 --> 00:26:46,480
Speaker 3: there's you know, the idea of wanting well, look, Barry,

464
00:26:46,560 --> 00:26:48,800
Speaker 3: let's I mean, if you look at the greater world,

465
00:26:49,480 --> 00:26:52,679
Speaker 3: there's a lot of fear. And fear can be a motivator,

466
00:26:53,119 --> 00:26:56,560
Speaker 3: but God, is it a weight to you know, people live,

467
00:26:57,359 --> 00:27:01,679
Speaker 3: you know, one operation away from bankruptcy or you know,

468
00:27:02,119 --> 00:27:05,880
Speaker 3: a layoff away from being foreclosed on. That is it.

469
00:27:05,920 --> 00:27:08,879
Speaker 3: I mean, if you as a parent can put a

470
00:27:08,880 --> 00:27:11,840
Speaker 3: safety net if our society doesn't, if you as a

471
00:27:11,840 --> 00:27:13,879
Speaker 3: parent can do that for your kids. And my grandfather

472
00:27:14,000 --> 00:27:16,240
Speaker 3: did that, and my father did that, there was I

473
00:27:16,280 --> 00:27:18,199
Speaker 3: don't think we ever grew up with a feeling that

474
00:27:18,240 --> 00:27:21,600
Speaker 3: there wasn't a safety net. And so the freedom from

475
00:27:21,640 --> 00:27:25,000
Speaker 3: that fear is a huge gift you give your kids.

476
00:27:25,080 --> 00:27:26,760
Speaker 3: It was a huge gift that was given to me.

477
00:27:27,400 --> 00:27:30,400
Speaker 3: And that's what gives you the confidence to be able

478
00:27:30,440 --> 00:27:33,679
Speaker 3: to try anything right because you're not worried that you know,

479
00:27:34,280 --> 00:27:37,080
Speaker 3: especially when you start having kids, and you think, my god,

480
00:27:37,119 --> 00:27:39,800
Speaker 3: if you know, I can't I can't take this risk.

481
00:27:40,080 --> 00:27:43,439
Speaker 3: I can't leave State Street. You know. It's it's like

482
00:27:43,520 --> 00:27:45,520
Speaker 3: it never occurred to me that I couldn't leave and

483
00:27:45,760 --> 00:27:51,240
Speaker 3: and and so I but I think their view was,

484
00:27:51,440 --> 00:27:55,639
Speaker 3: you know, if you raise your kids with you know.

485
00:27:55,880 --> 00:27:58,960
Speaker 3: The fortunate thing was both my dad and my grandfather

486
00:27:59,000 --> 00:28:02,680
Speaker 3: were very frugal, and so we didn't live in hardship.

487
00:28:03,000 --> 00:28:05,760
Speaker 3: But we certainly didn't go to Southampton and Palm Beach

488
00:28:05,840 --> 00:28:09,080
Speaker 3: and Aspen and you know that was all uh, you know,

489
00:28:09,119 --> 00:28:12,399
Speaker 3: they had a very sort of puritanical sense of that

490
00:28:12,400 --> 00:28:15,320
Speaker 3: that you know, that sort of view that uh, you know,

491
00:28:15,400 --> 00:28:17,240
Speaker 3: we went out to Fire Island and we had a

492
00:28:17,400 --> 00:28:20,680
Speaker 3: house on stilts that I still have a house out there,

493
00:28:21,119 --> 00:28:23,840
Speaker 3: you know, and it's in a swamp and and uh,

494
00:28:24,160 --> 00:28:27,320
Speaker 3: you know, it's one storm away from the end, and

495
00:28:27,480 --> 00:28:30,200
Speaker 3: there's no cars. You take a little aerry out there,

496
00:28:30,240 --> 00:28:33,080
Speaker 3: and and you know, I always think of it as

497
00:28:33,080 --> 00:28:36,959
Speaker 3: the anti Hampton's uh very much. Yeah, and so and

498
00:28:37,000 --> 00:28:40,440
Speaker 3: that's that's what what I love. And and uh, and

499
00:28:40,800 --> 00:28:43,480
Speaker 3: you know, my parents had a place in Maine, but

500
00:28:43,560 --> 00:28:46,320
Speaker 3: it was just you know, it was no not a

501
00:28:46,360 --> 00:28:51,600
Speaker 3: fanily deal. Yeah, they had a nice house, but it

502
00:28:51,680 --> 00:28:55,680
Speaker 3: wasn't it wasn't a Newport mansion. And they had it because,

503
00:28:55,760 --> 00:28:57,720
Speaker 3: you know, they used to call them in the twenties,

504
00:28:58,080 --> 00:29:01,080
Speaker 3: people like my grandparents were called rusty caters. Isn't that

505
00:29:01,120 --> 00:29:03,160
Speaker 3: a funny word? And it was people that were wealthy

506
00:29:03,200 --> 00:29:05,959
Speaker 3: but would go and live very simply in the summer,

507
00:29:06,080 --> 00:29:09,440
Speaker 3: you know, very and that it's very much just sort

508
00:29:09,440 --> 00:29:13,680
Speaker 3: of a Scandinavian ethic, and I think it developed especially

509
00:29:13,760 --> 00:29:16,760
Speaker 3: in the late nineteenth century. There was a movement called

510
00:29:16,800 --> 00:29:22,000
Speaker 3: the Chautauqua Movement that I'm still a supporter of, which

511
00:29:22,040 --> 00:29:25,120
Speaker 3: basically said, as the bourgeoisie and wealth was being created,

512
00:29:25,640 --> 00:29:31,120
Speaker 3: there was this one branch of wealth creators that decided

513
00:29:31,160 --> 00:29:34,840
Speaker 3: they wanted to be English aristocrats and they built mansions

514
00:29:35,240 --> 00:29:39,080
Speaker 3: in Newport and they had yachts. And then there was

515
00:29:39,120 --> 00:29:42,240
Speaker 3: another branch that sort of said that's not the American

516
00:29:42,280 --> 00:29:46,880
Speaker 3: way and they and in many ways, I mean Rockefeller

517
00:29:46,920 --> 00:29:49,320
Speaker 3: in many ways embodied a certain amount of that, that

518
00:29:49,440 --> 00:29:53,600
Speaker 3: sense of stewardship some or even more extreme in terms

519
00:29:53,680 --> 00:29:59,080
Speaker 3: of restraint. But the Chautauqua movement sprung up and said

520
00:30:00,000 --> 00:30:03,440
Speaker 3: they created these there's still one left. It's in upstate

521
00:30:03,480 --> 00:30:06,120
Speaker 3: New York. But where you would go with your family

522
00:30:06,240 --> 00:30:09,440
Speaker 3: for self improvement and you would live simply and there

523
00:30:09,440 --> 00:30:12,960
Speaker 3: would be lectures, there would be you would improve your mind,

524
00:30:13,080 --> 00:30:15,760
Speaker 3: you'd improve your soul, and you'd improve your health, and

525
00:30:15,800 --> 00:30:18,040
Speaker 3: you'd bring your kids and there would be sort of

526
00:30:18,080 --> 00:30:21,000
Speaker 3: daycamp for the kids, and there'd be church on Sunday.

527
00:30:21,240 --> 00:30:24,920
Speaker 3: But it was a non denominational church that was about service,

528
00:30:25,040 --> 00:30:27,920
Speaker 3: and then there was you know, there were lectures. It's

529
00:30:27,920 --> 00:30:31,760
Speaker 3: where Solomon Rushdie was stabbed. If you remember a couple

530
00:30:31,800 --> 00:30:34,640
Speaker 3: of years ago, he was in Chautauqua. He was lecturing

531
00:30:34,800 --> 00:30:37,680
Speaker 3: at this place that still exists. People go for a

532
00:30:37,720 --> 00:30:40,440
Speaker 3: week or two weeks every year. So that's what the

533
00:30:40,440 --> 00:30:42,760
Speaker 3: place I go on Fire Island was part of that

534
00:30:42,880 --> 00:30:45,800
Speaker 3: Chautauqua movement. But the ethos of it, I think is

535
00:30:45,840 --> 00:30:48,920
Speaker 3: something my parents and grandparents really subscribed to.

536
00:30:49,160 --> 00:30:53,400
Speaker 2: Huh, really really fascinating. Coming up, we continue our conversation

537
00:30:53,520 --> 00:30:58,320
Speaker 2: with Chris Davis, chairman and portfolio manager at Davis Advisors,

538
00:30:58,960 --> 00:31:05,040
Speaker 2: discussing how he developed his philosophy and investment process at Davis.

539
00:31:05,480 --> 00:31:09,040
Speaker 2: I'm Barry Ridults, you're listening to Masters in Business on

540
00:31:09,160 --> 00:31:28,040
Speaker 2: Bloomberg Radio. I'm Barry Ridults. You're listening to Masters in

541
00:31:28,120 --> 00:31:32,680
Speaker 2: Business on Bloomberg Radio. Chris Davis is my extra special guest.

542
00:31:32,760 --> 00:31:36,400
Speaker 2: He is the chairman of Davis Advisors. In two thousand

543
00:31:36,400 --> 00:31:40,520
Speaker 2: and five, he was named Morning Stars Portfolio Manager of

544
00:31:40,560 --> 00:31:45,040
Speaker 2: the Year. He helps to oversee twenty billion dollars in

545
00:31:45,120 --> 00:31:49,400
Speaker 2: client assets, a healthy chunk of which is he and

546
00:31:49,560 --> 00:31:57,720
Speaker 2: his colleagues. We briefly mentioned Buffett earlier when I later on,

547
00:31:57,760 --> 00:32:01,200
Speaker 2: I get to ask people who they're meant were. But

548
00:32:01,280 --> 00:32:03,960
Speaker 2: I have to bring this to this part of the conversation.

549
00:32:05,040 --> 00:32:09,360
Speaker 2: Warren Buffett and Charlie Munger were your mentors. Is this

550
00:32:09,520 --> 00:32:13,640
Speaker 2: remotely true? It just seems insane. Oh.

551
00:32:13,760 --> 00:32:17,440
Speaker 3: I mean it started and I want to say it

552
00:32:17,480 --> 00:32:23,280
Speaker 3: was nineteen might have been nineteen ninety ninety.

553
00:32:23,040 --> 00:32:27,440
Speaker 2: So he's already a well known investing rock star at

554
00:32:27,440 --> 00:32:27,800
Speaker 2: that point.

555
00:32:27,840 --> 00:32:30,440
Speaker 3: Well, the way it really started was with Charlie. I

556
00:32:30,480 --> 00:32:34,240
Speaker 3: met Charlie long before Warren. Oh really. But the reason

557
00:32:34,400 --> 00:32:38,000
Speaker 3: was I was trying to sell a business my grandfather.

558
00:32:38,160 --> 00:32:40,720
Speaker 3: As I started going through his accounts and going in

559
00:32:40,760 --> 00:32:44,800
Speaker 3: there on the weekends. He had a business called securities lending.

560
00:32:44,840 --> 00:32:49,440
Speaker 3: And I don't know how well you know that your business.

561
00:32:48,000 --> 00:32:50,400
Speaker 2: And anytime you're in a short stock, you gotta need

562
00:32:50,480 --> 00:32:53,000
Speaker 2: to borrow somebody, and it's going to cost you a little.

563
00:32:52,720 --> 00:32:54,880
Speaker 3: It's going to cost you a little margin. So my

564
00:32:55,080 --> 00:32:58,840
Speaker 3: grandfather's view was he had a portfolio of appreciated stocks

565
00:32:58,880 --> 00:33:01,400
Speaker 3: that he was never going to sell, and he said,

566
00:33:01,400 --> 00:33:04,360
Speaker 3: if somebody wants to short the stock and pay me

567
00:33:04,920 --> 00:33:08,600
Speaker 3: to borrow it, fine, And you the number one borrowed

568
00:33:08,640 --> 00:33:13,120
Speaker 3: stock in those days was Birkshaw, of course, because you

569
00:33:13,120 --> 00:33:17,120
Speaker 3: couldn't borrow it anywhere because everybody had the certificates and

570
00:33:17,160 --> 00:33:20,240
Speaker 3: you know they weren't literally, yeah, there was no There

571
00:33:20,320 --> 00:33:23,200
Speaker 3: was very little Berkshire that was in street name. It

572
00:33:23,240 --> 00:33:26,000
Speaker 3: was in individual pew and therefore you couldn't borrow it.

573
00:33:25,920 --> 00:33:27,400
Speaker 2: It was locked away in safe.

574
00:33:27,480 --> 00:33:31,080
Speaker 3: Yeah. So he had a big holding and he had

575
00:33:31,400 --> 00:33:35,840
Speaker 3: a broker dealer, Shelby cam Davis was a registered broker dealer,

576
00:33:36,240 --> 00:33:39,560
Speaker 3: and so he could lead down the shares and make

577
00:33:39,600 --> 00:33:43,040
Speaker 3: a couple hundred basis points a year extra return on

578
00:33:43,120 --> 00:33:46,120
Speaker 3: top of the Berkshire return. So that's how he started

579
00:33:46,160 --> 00:33:51,080
Speaker 3: in the securities lending business. But gradually the guy who

580
00:33:51,160 --> 00:33:54,280
Speaker 3: was doing it for him and administering it. Said well,

581
00:33:54,360 --> 00:33:57,040
Speaker 3: you know, we could also help. We've got all these

582
00:33:57,080 --> 00:33:59,680
Speaker 3: people that want to short all sorts of different securities,

583
00:34:00,080 --> 00:34:02,440
Speaker 3: and we can be act as what was called a

584
00:34:02,440 --> 00:34:05,800
Speaker 3: broker finder. We'll go out and find the securities for

585
00:34:05,880 --> 00:34:08,480
Speaker 3: these people to short, and we'll make a little a

586
00:34:08,520 --> 00:34:13,120
Speaker 3: little spread as they go through. Well, this business grew

587
00:34:13,239 --> 00:34:15,200
Speaker 3: and grew and grew, and soon there were you know,

588
00:34:15,320 --> 00:34:19,080
Speaker 3: seventeen employees in this securities lending business, and it was

589
00:34:19,120 --> 00:34:24,319
Speaker 3: a big operation. And my grandfather by then was you know,

590
00:34:24,440 --> 00:34:29,040
Speaker 3: probably in his eighties, and was nervous because, you know,

591
00:34:29,080 --> 00:34:31,760
Speaker 3: as I went through the list of counterparties with him,

592
00:34:31,920 --> 00:34:33,880
Speaker 3: there were firms we had never heard of. There was

593
00:34:33,920 --> 00:34:40,799
Speaker 3: this one called l TCM, and he and I said,

594
00:34:40,800 --> 00:34:44,000
Speaker 3: what is this LTCM. We've got like, you know, five

595
00:34:44,080 --> 00:34:47,120
Speaker 3: eight hundred million dollars lent out to them. What oh,

596
00:34:47,200 --> 00:34:52,480
Speaker 3: that's long term capital management. So we talked about it.

597
00:34:52,520 --> 00:34:54,279
Speaker 3: He said, yeah, I think we've got we got to

598
00:34:54,320 --> 00:34:55,879
Speaker 3: get it. We got to get rid of this thing.

599
00:34:56,320 --> 00:34:58,200
Speaker 3: That reminds me by the way of what Jerry side.

600
00:34:58,320 --> 00:35:00,680
Speaker 2: Wait, did he hold on to that business? So did they?

601
00:35:00,680 --> 00:35:04,040
Speaker 3: So I said to him, like you know, we got

602
00:35:04,040 --> 00:35:06,439
Speaker 3: to get rid of this thing. And he said, fine, well,

603
00:35:06,440 --> 00:35:08,520
Speaker 3: see if you can find somebody to take it over,

604
00:35:08,520 --> 00:35:11,319
Speaker 3: because we do have seventeen employees and you know, they

605
00:35:11,400 --> 00:35:13,840
Speaker 3: made their careers here. We're not going to fire everybody.

606
00:35:13,920 --> 00:35:17,399
Speaker 3: And so we started calling around and I thought, what

607
00:35:17,520 --> 00:35:20,520
Speaker 3: characteristics do we need. We need a lot of excess capital,

608
00:35:21,280 --> 00:35:26,239
Speaker 3: I help. Ideally an appreciated portfolio of securities, you know,

609
00:35:26,280 --> 00:35:29,760
Speaker 3: sort of a triple A type balance sheet, and somebody

610
00:35:29,760 --> 00:35:35,120
Speaker 3: that can understand. So I thought, well, Berkshire. So a

611
00:35:35,160 --> 00:35:40,200
Speaker 3: wonderful friend in those days named Bob Lensner, who was

612
00:35:40,239 --> 00:35:43,920
Speaker 3: a reporter at Forbes but was very I recall I had.

613
00:35:43,920 --> 00:35:47,480
Speaker 2: Lunch with him at I want to say, the Harvard Club.

614
00:35:47,920 --> 00:35:49,080
Speaker 2: I think he was an alumnus.

615
00:35:49,200 --> 00:35:52,680
Speaker 3: They could have been his kids, our kids were. Our

616
00:35:52,760 --> 00:35:56,640
Speaker 3: kids were in the same elementary school. And I got

617
00:35:56,719 --> 00:35:59,560
Speaker 3: to know him just, you know, watching basketball game but

618
00:35:59,680 --> 00:36:02,680
Speaker 3: third graders or something, and he was and I have

619
00:36:03,040 --> 00:36:05,320
Speaker 3: you know, I heard his name around and he said

620
00:36:06,360 --> 00:36:09,319
Speaker 3: he mentioned casually in the conversation that he had met

621
00:36:09,320 --> 00:36:12,680
Speaker 3: this brilliant guy, Charlie Munger. And I said, well, I

622
00:36:13,239 --> 00:36:16,040
Speaker 3: you know, I know Charlie is but I'm dying to

623
00:36:16,080 --> 00:36:19,160
Speaker 3: meet him, and so Bob arranged for us to have breakfast,

624
00:36:19,719 --> 00:36:22,560
Speaker 3: and Charlie was in New York and I went down.

625
00:36:22,600 --> 00:36:25,359
Speaker 3: It was at the Millennium Hotel down by the World

626
00:36:25,440 --> 00:36:29,800
Speaker 3: Trade Center, and I went down and I sat down

627
00:36:29,880 --> 00:36:32,760
Speaker 3: and introduced mister Munger. Pleased to meet you. I'm Chris David,

628
00:36:33,080 --> 00:36:35,360
Speaker 3: and I said, you know, I'm working with my grandfather.

629
00:36:35,440 --> 00:36:37,279
Speaker 3: Shall we call him David's a company? And have I

630
00:36:37,360 --> 00:36:42,600
Speaker 3: got a business for you? And I pitched our securities

631
00:36:42,800 --> 00:36:45,880
Speaker 3: lending business, and Charlie put up his hand after about

632
00:36:45,920 --> 00:36:48,719
Speaker 3: four minutes and he said, I have no intention of

633
00:36:48,760 --> 00:36:52,600
Speaker 3: buying a business run by seven guys named Vinnie.

634
00:36:53,920 --> 00:36:55,120
Speaker 2: And Verry.

635
00:36:55,200 --> 00:36:58,680
Speaker 3: It was the perfect description. I mean, we had Vinnie, Tony, Mikey, Nikki,

636
00:36:58,719 --> 00:37:03,200
Speaker 3: you know. And so we did end up finding finding

637
00:37:03,440 --> 00:37:07,080
Speaker 3: a buyer eventually. Yeah, And it wasn't really a buyer.

638
00:37:07,120 --> 00:37:08,920
Speaker 3: We just did sort of an earn out. We just

639
00:37:08,960 --> 00:37:11,919
Speaker 3: wanted everybody. We just wanted them to have jobs. And

640
00:37:12,000 --> 00:37:14,360
Speaker 3: so they all got a job at a broker dealer.

641
00:37:14,440 --> 00:37:17,000
Speaker 2: And so beyond the pitch to monger how to do

642
00:37:17,000 --> 00:37:17,920
Speaker 2: your relationships well?

643
00:37:18,000 --> 00:37:21,000
Speaker 3: So the pitch ended in four and a half minutes,

644
00:37:21,600 --> 00:37:23,919
Speaker 3: and so I said, well, I'm sorry I wasted your time.

645
00:37:23,960 --> 00:37:25,359
Speaker 3: And I got up to leave, and he said, where

646
00:37:25,360 --> 00:37:28,200
Speaker 3: are you going? And I said, well, I just don't leave.

647
00:37:28,360 --> 00:37:31,080
Speaker 3: I'm only just getting to know you. I'm not interested

648
00:37:31,080 --> 00:37:33,399
Speaker 3: in your business. But tell me about you and tell

649
00:37:33,440 --> 00:37:38,400
Speaker 3: me and we got talking about, you know, a few things.

650
00:37:38,800 --> 00:37:42,680
Speaker 3: But what really happened was I started listening. And so

651
00:37:42,719 --> 00:37:45,960
Speaker 3: you can tell I like to talk around Charlie. I

652
00:37:46,080 --> 00:37:49,360
Speaker 3: just listened as much as I could, and we sat

653
00:37:49,400 --> 00:37:52,799
Speaker 3: at that table till lunchtime. Charlie said, I have to

654
00:37:52,840 --> 00:37:56,000
Speaker 3: go to a lunch but if you find yourself in

655
00:37:56,040 --> 00:37:59,560
Speaker 3: Los Angeles, give me a call and I'll make time

656
00:37:59,600 --> 00:38:03,000
Speaker 3: for you. And so of course I started going to

657
00:38:03,280 --> 00:38:08,800
Speaker 3: Los Angeles pretty regularly. And so that was a huge

658
00:38:08,840 --> 00:38:13,799
Speaker 3: gift in my life. And it was a gift professionally,

659
00:38:13,840 --> 00:38:15,960
Speaker 3: but my god, it was a gift personally. I mean,

660
00:38:15,960 --> 00:38:19,720
Speaker 3: he helped me through some hard times in my personal life.

661
00:38:19,800 --> 00:38:23,080
Speaker 3: I mean he was just a wonderful mentor in every dimension.

662
00:38:23,360 --> 00:38:26,480
Speaker 2: So there is a lot of things that all of

663
00:38:26,560 --> 00:38:30,400
Speaker 2: us have learned from Warren and Charlie, through the letters,

664
00:38:30,400 --> 00:38:33,920
Speaker 2: through the annual meetings, through just all sorts of stuff.

665
00:38:34,480 --> 00:38:38,040
Speaker 2: I'm curious, what did you learn from Charlie that none

666
00:38:38,080 --> 00:38:49,440
Speaker 2: of us can find in the public materials. Well, good question.

667
00:38:49,880 --> 00:38:55,400
Speaker 3: I think most deeply, I learned about integrity in the

668
00:38:55,600 --> 00:39:01,239
Speaker 3: traditional sense, meaning wholeness. Charlie was a whole person. He

669
00:39:02,080 --> 00:39:05,439
Speaker 3: the alignment. What he thought, what he said, what he did,

670
00:39:05,960 --> 00:39:10,880
Speaker 3: they were all the same thing. And his sense of

671
00:39:12,440 --> 00:39:20,680
Speaker 3: his own code of being was so disciplined, but was

672
00:39:20,719 --> 00:39:23,839
Speaker 3: filled with this sort of you know, his reputation as

673
00:39:23,840 --> 00:39:28,279
Speaker 3: a curmudgeon may have been cultivated, I never saw it.

674
00:39:28,360 --> 00:39:31,600
Speaker 3: He was a truth speaker, but he was also, in

675
00:39:31,640 --> 00:39:36,320
Speaker 3: a very profound way, a very loving person, a very cheerful,

676
00:39:37,040 --> 00:39:43,359
Speaker 3: very committed, profoundly loyal, and so it was, you know.

677
00:39:44,200 --> 00:39:46,480
Speaker 3: I used to sort of joke that if I did

678
00:39:46,520 --> 00:39:49,120
Speaker 3: a ven diagram of the things that I admire about

679
00:39:49,160 --> 00:39:51,680
Speaker 3: my father and the things I admire about Charlie Munger,

680
00:39:51,920 --> 00:39:56,400
Speaker 3: there's surprisingly little overlap. They were both frugal, but my

681
00:39:56,960 --> 00:40:02,799
Speaker 3: Charlie didn't was an incredibly broad thinker. My father was

682
00:40:02,960 --> 00:40:07,200
Speaker 3: just single minded about investing. Charlie was curious in everything.

683
00:40:08,520 --> 00:40:15,360
Speaker 3: Charlie was very sort of committed to relationship, continuity, to breadth.

684
00:40:15,560 --> 00:40:19,000
Speaker 3: My father is very sort of specialized. Very Now, my

685
00:40:19,080 --> 00:40:24,879
Speaker 3: father is incredibly physically fit and remains to this day

686
00:40:25,400 --> 00:40:31,759
Speaker 3: very vigorous. You know, Charlie was willfully sedentary. You know,

687
00:40:31,880 --> 00:40:35,520
Speaker 3: my father is very nomadic. And Charlie went to the

688
00:40:35,560 --> 00:40:38,840
Speaker 3: same island in Minnesota and the same lived in the

689
00:40:38,880 --> 00:40:42,520
Speaker 3: same house his whole life. You know, it's very you know,

690
00:40:42,800 --> 00:40:45,400
Speaker 3: very much a creature of habit and so they were

691
00:40:45,520 --> 00:40:46,520
Speaker 3: very different that way.

692
00:40:46,760 --> 00:40:49,719
Speaker 2: Just imagine if Charlie exercised, how much longer he could

693
00:40:49,719 --> 00:40:50,040
Speaker 2: have left.

694
00:40:50,120 --> 00:40:52,439
Speaker 3: I don't know. Ninety nine and three quoters is pretty good.

695
00:40:53,560 --> 00:40:55,239
Speaker 3: That's one of the things he said. He said, I'm

696
00:40:55,280 --> 00:40:56,640
Speaker 3: not sure I see the alignment.

697
00:40:58,320 --> 00:41:01,920
Speaker 2: So let's talk a little bit about the returns and

698
00:41:02,000 --> 00:41:07,840
Speaker 2: about the philosophy. Back of the envelope. I calculated Davis

699
00:41:07,880 --> 00:41:12,839
Speaker 2: Advisors has been compounding shareholder wealth at greater than ten

700
00:41:12,880 --> 00:41:16,880
Speaker 2: percent annually since nineteen sixty nine. Does that sound remotely?

701
00:41:17,239 --> 00:41:20,799
Speaker 3: That sounds right. You're still ahead of the market from

702
00:41:20,800 --> 00:41:22,120
Speaker 3: the beginnings.

703
00:41:21,880 --> 00:41:25,239
Speaker 2: Starting out in nineteen sixty nine, so you're, you know,

704
00:41:25,400 --> 00:41:29,720
Speaker 2: early days of a horrific bear market. You have managed

705
00:41:29,760 --> 00:41:33,239
Speaker 2: money through well, you're in grad school. But your dad

706
00:41:33,320 --> 00:41:36,680
Speaker 2: during the eighty seven crash, you're involved during the dot

707
00:41:36,680 --> 00:41:41,040
Speaker 2: com implosion, during the financial crisis, during the pandemic. I mean,

708
00:41:41,480 --> 00:41:45,279
Speaker 2: you have seen lots and lots of cycles across all

709
00:41:45,320 --> 00:41:49,640
Speaker 2: of these decades and all of these different environments. What

710
00:41:49,840 --> 00:41:55,399
Speaker 2: key investment principles stand out as absolutely core, non negotiable.

711
00:41:55,960 --> 00:41:58,920
Speaker 2: This is the heart of what we do well.

712
00:41:59,040 --> 00:42:02,560
Speaker 3: The entire investment and process boils down to these two questions,

713
00:42:02,320 --> 00:42:05,040
Speaker 3: what sort of businesses do we want to own? And

714
00:42:05,160 --> 00:42:08,719
Speaker 3: how much do we pay for them? And you know

715
00:42:09,120 --> 00:42:13,880
Speaker 3: the types of business characteristics that we focus But in

716
00:42:13,920 --> 00:42:16,000
Speaker 3: the interplace, I should say before I go on that

717
00:42:16,080 --> 00:42:20,680
Speaker 3: the interplay between those two is part of the nuance

718
00:42:20,760 --> 00:42:24,759
Speaker 3: of investing. You may own a slightly lower quality business

719
00:42:25,080 --> 00:42:29,759
Speaker 3: because the price is so extreme, But the characteristics that

720
00:42:29,800 --> 00:42:31,880
Speaker 3: we look for in every business have to do with

721
00:42:31,920 --> 00:42:35,520
Speaker 3: the durability, because we buy businesses thinking we will our

722
00:42:35,560 --> 00:42:38,040
Speaker 3: goal is to own it forever. Our goal is for

723
00:42:38,080 --> 00:42:41,640
Speaker 3: the return to be driven by the year earnings yield

724
00:42:41,760 --> 00:42:44,880
Speaker 3: on the business over time, not by some change in

725
00:42:44,920 --> 00:42:49,560
Speaker 3: the valuation and finding an exit strategy. And so those

726
00:42:49,600 --> 00:42:52,560
Speaker 3: sorts of characteristics are exactly the characteristics you would look

727
00:42:52,600 --> 00:42:54,400
Speaker 3: for if I said you've got to put a business

728
00:42:54,440 --> 00:42:57,279
Speaker 3: away for your kids or your grandkids. So you know

729
00:42:57,360 --> 00:43:01,160
Speaker 3: the nature of the business, the returns on capital, the

730
00:43:01,320 --> 00:43:07,960
Speaker 3: competitive modes, the nature the balance sheet, the risk and

731
00:43:08,480 --> 00:43:10,960
Speaker 3: very importantly the character of the people running it. We

732
00:43:11,040 --> 00:43:13,960
Speaker 3: spend a lot of time on management evaluation in this

733
00:43:14,360 --> 00:43:16,719
Speaker 3: land of AI. You know, I just came back from

734
00:43:16,719 --> 00:43:20,520
Speaker 3: the Markel annual meeting. You know, character will not show

735
00:43:20,640 --> 00:43:24,000
Speaker 3: up efficiently, I don't think in the AI world. And

736
00:43:24,320 --> 00:43:28,640
Speaker 3: boy does it matter when you think about navigating in

737
00:43:28,880 --> 00:43:32,920
Speaker 3: unpredictable future. Just that ability to be resilient, to adapt,

738
00:43:33,040 --> 00:43:36,160
Speaker 3: but always to be investing the money as if it's

739
00:43:36,200 --> 00:43:39,480
Speaker 3: your own. And they're CEOs that do that. So those

740
00:43:39,520 --> 00:43:41,759
Speaker 3: are the nature of the business. And then the valuation

741
00:43:41,960 --> 00:43:45,680
Speaker 3: discipline is sort of the securities analysis part of what

742
00:43:45,719 --> 00:43:48,440
Speaker 3: we do. If the first part is business research, then

743
00:43:48,480 --> 00:43:53,279
Speaker 3: it's the securities analysis. It's adjusting the income statement, you know,

744
00:43:53,440 --> 00:43:56,839
Speaker 3: that's where the accounting training comes in, and it is

745
00:43:57,200 --> 00:44:03,520
Speaker 3: understanding the incremental returns on capital, and it's adjusting the

746
00:44:03,520 --> 00:44:06,200
Speaker 3: balance sheet, every account on the balance sheet, because of

747
00:44:06,239 --> 00:44:09,360
Speaker 3: course gap earnings is a convention, but it may or

748
00:44:09,360 --> 00:44:13,200
Speaker 3: may not reflect reality. And so you know, you put

749
00:44:13,239 --> 00:44:16,919
Speaker 3: those two things together and we build an i RR,

750
00:44:17,040 --> 00:44:20,520
Speaker 3: an internal rate of return forecast. We work on this

751
00:44:20,640 --> 00:44:24,319
Speaker 3: concept of owner earnings in each business, and then we

752
00:44:24,360 --> 00:44:26,680
Speaker 3: focus on the quality and the durability of the business.

753
00:44:26,800 --> 00:44:30,520
Speaker 2: I can help but point out that you talk about

754
00:44:31,640 --> 00:44:36,799
Speaker 2: buying or owning businesses, not buying stocks. That seems to

755
00:44:36,840 --> 00:44:42,200
Speaker 2: be like a very fundamental distinction compared to most fund manager.

756
00:44:43,040 --> 00:44:47,399
Speaker 3: It's so profoundly important, you know. It is. We view

757
00:44:47,440 --> 00:44:50,840
Speaker 3: ourselves as business owners. We view the management as our partners.

758
00:44:51,400 --> 00:44:56,000
Speaker 3: In most cases, we view the you know, the signs

759
00:44:56,080 --> 00:45:00,800
Speaker 3: of short termism as dangerous. It's one of the reasons

760
00:45:01,040 --> 00:45:05,080
Speaker 3: we feel that the activist movement has completely lost the

761
00:45:05,160 --> 00:45:08,440
Speaker 3: thread and should be greatly resisted, whereas it was very

762
00:45:08,560 --> 00:45:13,240
Speaker 3: useful when it started. And we can talk about that later.

763
00:45:13,320 --> 00:45:16,960
Speaker 3: But absolutely, we're owning businesses, and we're trying to own

764
00:45:17,000 --> 00:45:21,200
Speaker 3: businesses that are compounding machines. Right. I watched what it

765
00:45:21,280 --> 00:45:24,680
Speaker 3: meant for my grandfather to owned businesses for twenty thirty

766
00:45:24,840 --> 00:45:28,480
Speaker 3: forty years. You know, I look at our own portfolio.

767
00:45:28,520 --> 00:45:31,960
Speaker 3: I look at companies like you know, American Express or

768
00:45:32,280 --> 00:45:35,759
Speaker 3: Wells Fargo or JP Morgan. In the financial world, look

769
00:45:35,760 --> 00:45:39,440
Speaker 3: at you know more recently at companies like Amazon Texas Instruments.

770
00:45:39,600 --> 00:45:42,399
Speaker 3: You look at what a business can do compound over

771
00:45:42,440 --> 00:45:45,279
Speaker 3: twenty thirty years. I mentioned Markel. You know, when I

772
00:45:45,400 --> 00:45:48,360
Speaker 3: first met the now CEO of Markel, we met in

773
00:45:48,440 --> 00:45:51,640
Speaker 3: Omaha at the Orpheum Theater at a Berkshire Annual meeting

774
00:45:51,640 --> 00:45:54,720
Speaker 3: in like nineteen ninety. The stock was at like nineteen

775
00:45:54,840 --> 00:45:57,520
Speaker 3: or twenty and it's at two thousand now, you know.

776
00:45:57,640 --> 00:46:00,440
Speaker 3: And by the way, they have an activist idiotic saying

777
00:46:00,440 --> 00:46:03,960
Speaker 3: they split up the company. It's like company's doing fine,

778
00:46:04,080 --> 00:46:06,720
Speaker 3: and it's a company that is being built to last.

779
00:46:07,360 --> 00:46:10,160
Speaker 3: And the idea of getting a quick sugar fix because

780
00:46:10,160 --> 00:46:12,480
Speaker 3: you can sell some part to private equity at a

781
00:46:12,520 --> 00:46:15,600
Speaker 3: premium that doesn't serve capitalism and it really won't serve

782
00:46:15,640 --> 00:46:17,400
Speaker 3: the long term shareholders of that business.

783
00:46:17,960 --> 00:46:24,480
Speaker 2: You mentioned a number of financials in that list. I'm

784
00:46:24,520 --> 00:46:29,040
Speaker 2: kind of curious because financials have had some pretty good years.

785
00:46:29,080 --> 00:46:33,160
Speaker 2: They've had some pretty rough years. Obviously, the financial crisis

786
00:46:33,520 --> 00:46:40,160
Speaker 2: was devastating. Although my pet theory about JP Morgan Chase

787
00:46:40,760 --> 00:46:45,040
Speaker 2: is when they had their subprime problem, it predated everybody

788
00:46:45,040 --> 00:46:47,279
Speaker 2: by five years, and there was still a bid when

789
00:46:47,320 --> 00:46:49,640
Speaker 2: they had to get out, so they got a little lucky,

790
00:46:49,760 --> 00:46:54,960
Speaker 2: and they happen to have a particularly talented CEO. But

791
00:46:55,480 --> 00:47:00,280
Speaker 2: this concentration of financials, I'm curious what led to it,

792
00:47:00,320 --> 00:47:05,200
Speaker 2: And I'm curious of the relationship between what some people

793
00:47:05,239 --> 00:47:09,800
Speaker 2: describe as high conviction investing and concentration in a particular

794
00:47:09,880 --> 00:47:11,920
Speaker 2: sector like financials.

795
00:47:11,960 --> 00:47:16,760
Speaker 3: Well, I think high conviction investing is exactly the right description.

796
00:47:17,239 --> 00:47:19,279
Speaker 3: And if we end up with a focus on a

797
00:47:19,280 --> 00:47:22,759
Speaker 3: particular sector, it's not necessarily because of a view of

798
00:47:22,760 --> 00:47:26,480
Speaker 3: the sector. It's because the individual companies. Financials is one

799
00:47:26,480 --> 00:47:30,400
Speaker 3: of the most misleading sectors there is, because to me,

800
00:47:30,640 --> 00:47:35,320
Speaker 3: what creates a correlation risk is when businesses are tied

801
00:47:35,360 --> 00:47:40,360
Speaker 3: to the same macroeconomic variables. Financials is a massively broad category.

802
00:47:40,640 --> 00:47:44,280
Speaker 3: There are financials that have risk if the wind blows

803
00:47:44,400 --> 00:47:47,239
Speaker 3: in certain parts of the world, the financials that have

804
00:47:47,440 --> 00:47:50,680
Speaker 3: risk if interest rates change, financials that have risked that

805
00:47:50,840 --> 00:47:53,799
Speaker 3: have to do with recessions, some to capital markets. They

806
00:47:53,800 --> 00:47:57,120
Speaker 3: are all different. And I'll give you a really powerful example.

807
00:47:57,640 --> 00:48:00,400
Speaker 3: I started our financial fund, I don't know, something like

808
00:48:00,480 --> 00:48:05,279
Speaker 3: nineteen ninety. That fund, from then to today has outperformed

809
00:48:05,320 --> 00:48:08,719
Speaker 3: the S and P five hundred, and it has outperformed

810
00:48:08,719 --> 00:48:11,960
Speaker 3: the S and P five hundred quite meaningfully when you

811
00:48:12,040 --> 00:48:16,080
Speaker 3: compound it out. At the time we started it, I

812
00:48:16,120 --> 00:48:19,560
Speaker 3: didn't even know there was a financials index. But it

813
00:48:19,600 --> 00:48:22,480
Speaker 3: was founded with this belief that one of the and

814
00:48:22,560 --> 00:48:25,719
Speaker 3: my grandfather of course, specialized in financials. I started as

815
00:48:25,760 --> 00:48:29,000
Speaker 3: a financials analyst, and he had a phrase that he loved,

816
00:48:29,000 --> 00:48:32,759
Speaker 3: which is, in financials you can find growth stocks in disguise.

817
00:48:33,440 --> 00:48:36,160
Speaker 3: And he said, the reason is is that you have

818
00:48:36,840 --> 00:48:41,880
Speaker 3: very You have businesses industries that are huge where companies

819
00:48:41,920 --> 00:48:45,440
Speaker 3: can grow for a long period of time by simply growing.

820
00:48:45,960 --> 00:48:49,520
Speaker 3: Just this year, Progressive finally passed State Farm. Progressive has

821
00:48:49,520 --> 00:48:53,880
Speaker 3: probably compounded in the high teens for thirty years and

822
00:48:53,920 --> 00:48:58,080
Speaker 3: it still is. Just became maybe the largest insurance company

823
00:48:58,320 --> 00:49:02,880
Speaker 3: in personal Auto's massive industries where you can compound for

824
00:49:02,920 --> 00:49:07,160
Speaker 3: a long time without outgrowing your sector. Second advantage, the

825
00:49:07,160 --> 00:49:10,440
Speaker 3: business model doesn't really go obsolete, right making us spread

826
00:49:10,440 --> 00:49:13,080
Speaker 3: on money is about the oldest business there is, maybe

827
00:49:13,239 --> 00:49:17,839
Speaker 3: maybe the second oldest, thank you. What else, It's an

828
00:49:17,920 --> 00:49:23,920
Speaker 3: industry where you have huge dispersion of outcomes but relatively

829
00:49:23,960 --> 00:49:27,880
Speaker 3: homogeneous valuations. So you I mentioned Progressive I mean, you

830
00:49:27,920 --> 00:49:32,359
Speaker 3: have companies that have grown Capital one. You look at

831
00:49:32,360 --> 00:49:35,799
Speaker 3: Capital One's growth record from nineteen eighty seven today, and

832
00:49:35,880 --> 00:49:38,840
Speaker 3: yet it's trading at nine or ten times earnings because

833
00:49:38,840 --> 00:49:41,479
Speaker 3: it's a financial I'm like, it looks like a growth

834
00:49:41,480 --> 00:49:44,040
Speaker 3: stock to me. Right, I've got it's still run by

835
00:49:44,040 --> 00:49:47,320
Speaker 3: the founder, it's a fintech company, it's a data science company.

836
00:49:47,480 --> 00:49:49,800
Speaker 3: It's in the top ten of all holders of AI

837
00:49:49,840 --> 00:49:53,080
Speaker 3: and machine learning patents. But it trades at nine point

838
00:49:53,120 --> 00:49:56,120
Speaker 3: eight times earnings and one point two times book value

839
00:49:56,160 --> 00:50:00,600
Speaker 3: liquidating value with a mid teen's return on equity. It

840
00:50:00,680 --> 00:50:03,680
Speaker 3: seems just nuts to me, but whatever, we love it.

841
00:50:03,719 --> 00:50:06,319
Speaker 3: So that's the idea of growth stocks and discussion. And

842
00:50:06,360 --> 00:50:09,799
Speaker 3: the last advantage of financials is that culture is a

843
00:50:09,880 --> 00:50:12,520
Speaker 3: defining and sustainable difference.

844
00:50:12,680 --> 00:50:15,480
Speaker 2: This is a theme I have heard from so many

845
00:50:15,680 --> 00:50:22,600
Speaker 2: really savvy executors CEOs as well as investors. How do you,

846
00:50:22,640 --> 00:50:28,840
Speaker 2: as an investor wrap your arms around culture? It feels

847
00:50:28,840 --> 00:50:31,560
Speaker 2: like you almost have to be in it to see it, Like,

848
00:50:31,680 --> 00:50:34,879
Speaker 2: is it something that as an outside investor you get

849
00:50:34,920 --> 00:50:38,920
Speaker 2: access to? You how do you identify quality culture?

850
00:50:39,080 --> 00:50:42,080
Speaker 3: Well, it's it's a perfect question, but I'll give you

851
00:50:42,120 --> 00:50:47,160
Speaker 3: the punchline for the differentiation. Last year, our financial fund,

852
00:50:47,200 --> 00:50:53,240
Speaker 3: which is ninety five percent in large cap financials, outperformed

853
00:50:53,719 --> 00:50:57,120
Speaker 3: the S and P Financials Index and the XLF the

854
00:50:57,239 --> 00:51:01,680
Speaker 3: largest financials ETF by twelve one hundred basis points.

855
00:51:01,760 --> 00:51:05,760
Speaker 2: Not too shabby, right, So, I mean it was a great.

856
00:51:05,640 --> 00:51:08,000
Speaker 3: Year for us. But the point is that they're in

857
00:51:08,080 --> 00:51:10,839
Speaker 3: large cap financials. We're in large cap financials. How can

858
00:51:10,880 --> 00:51:12,839
Speaker 3: you get such dispersion? Right?

859
00:51:13,040 --> 00:51:15,560
Speaker 2: But the same is they own everything and you own them.

860
00:51:16,760 --> 00:51:20,720
Speaker 3: But they're very concentrated. They're concentrated in the megacap banks

861
00:51:20,719 --> 00:51:23,080
Speaker 3: by and large and Visa and MasterCard, you know. But

862
00:51:23,800 --> 00:51:26,839
Speaker 3: we're fairly concentrated to We only have twenty twenty five

863
00:51:26,960 --> 00:51:30,719
Speaker 3: names and they, you know, twenty or twenty five names

864
00:51:30,719 --> 00:51:33,560
Speaker 3: are probably eighty percent of the index.

865
00:51:33,960 --> 00:51:38,160
Speaker 2: Does the gap come from the stock selection or the

866
00:51:38,239 --> 00:51:40,160
Speaker 2: screening out of what you don't like?

867
00:51:41,080 --> 00:51:44,080
Speaker 3: Well, it really goes back to the culture question. So

868
00:51:44,280 --> 00:51:46,760
Speaker 3: to bring it full circle to your question about culture,

869
00:51:47,320 --> 00:51:51,000
Speaker 3: what it is is that within financials, we are looking

870
00:51:51,080 --> 00:51:54,000
Speaker 3: for the companies that we feel can be compounding machines,

871
00:51:54,480 --> 00:51:57,920
Speaker 3: and we're looking for the companies where their culture creates

872
00:51:58,000 --> 00:52:02,800
Speaker 3: a durable advantage. The reason culture can create an advantage

873
00:52:02,840 --> 00:52:06,440
Speaker 3: in financials is because in most cases, your cost of

874
00:52:06,480 --> 00:52:09,759
Speaker 3: goods sold is an estimate, and if you have an

875
00:52:09,760 --> 00:52:17,120
Speaker 3: aggressive management, they can use accounting to upfront earnings that

876
00:52:17,760 --> 00:52:21,560
Speaker 3: you'll pay the piper three five, excuse me, ten years

877
00:52:21,560 --> 00:52:24,360
Speaker 3: from now. So we think can look good for a

878
00:52:24,400 --> 00:52:27,440
Speaker 3: long time, whereas if you do the opposite, if you

879
00:52:27,480 --> 00:52:30,680
Speaker 3: have a good culture, you're understating the near term, but

880
00:52:30,719 --> 00:52:33,920
Speaker 3: you're building cushion for the long term. And so when

881
00:52:33,960 --> 00:52:36,560
Speaker 3: the times go rough, when the tide goes out, and

882
00:52:36,600 --> 00:52:39,879
Speaker 3: you see who's swimming without a bathing suit, that's where

883
00:52:39,920 --> 00:52:42,920
Speaker 3: the culture really matters. Now, you mentioned all of the

884
00:52:42,960 --> 00:52:45,680
Speaker 3: crises that I've seen over my career. I've seen a

885
00:52:45,680 --> 00:52:48,919
Speaker 3: lot of these management teams and these companies go through

886
00:52:48,960 --> 00:52:52,279
Speaker 3: crises and you see who's wearing a bathing suit. So

887
00:52:52,640 --> 00:52:56,320
Speaker 3: we just went through an interest rate crisis right to

888
00:52:56,600 --> 00:52:58,920
Speaker 3: five hundred base and we used to get questions from

889
00:52:58,920 --> 00:53:02,560
Speaker 3: clients all the time, don't you own first Republic? In October,

890
00:53:02,880 --> 00:53:07,440
Speaker 3: my colleague Pierce Crosby wrote a research report just internal

891
00:53:07,560 --> 00:53:11,279
Speaker 3: just for his own saying he's just startled by the

892
00:53:11,320 --> 00:53:15,000
Speaker 3: amount of risk Silicon Valley and First Republic are taking

893
00:53:15,600 --> 00:53:17,760
Speaker 3: He said, it's sort of amazing look at the duration

894
00:53:17,920 --> 00:53:21,600
Speaker 3: on their assets. They're assuming that their liabilities, their deposits

895
00:53:22,080 --> 00:53:24,320
Speaker 3: are going to be with them for eight, ten, twelve

896
00:53:24,400 --> 00:53:27,719
Speaker 3: years and that they're uncorrelated. So, you know, we used

897
00:53:27,719 --> 00:53:29,560
Speaker 3: to get questions, why don't you own them? They've been

898
00:53:29,600 --> 00:53:32,560
Speaker 3: they've had such great growth records, and our view as well,

899
00:53:32,640 --> 00:53:34,560
Speaker 3: it's been a mistake not to own them in terms

900
00:53:34,600 --> 00:53:37,399
Speaker 3: of they've outperformed. But we are not going to own

901
00:53:37,480 --> 00:53:41,279
Speaker 3: the companies that are optimized to the upcycle, right, and

902
00:53:41,320 --> 00:53:44,239
Speaker 3: that's a different culture. They had a growth culture, but

903
00:53:44,360 --> 00:53:47,239
Speaker 3: it was it blew them up, and so you know,

904
00:53:47,440 --> 00:53:51,000
Speaker 3: we instead looked at companies like well JP Morgan was

905
00:53:51,000 --> 00:53:55,520
Speaker 3: an outstanding example. Wells Fargo was capital one where they

906
00:53:55,760 --> 00:53:59,680
Speaker 3: didn't reach for the easy money of taking that extra

907
00:54:00,160 --> 00:54:02,759
Speaker 3: risk on the interest rates they could have. You know,

908
00:54:03,960 --> 00:54:06,360
Speaker 3: Jamie Diamond stood up at an analyst meeting said I

909
00:54:06,360 --> 00:54:08,520
Speaker 3: could add a billion or two billion dollars to my

910
00:54:08,640 --> 00:54:12,600
Speaker 3: profits with a phone call, and I'm not going to.

911
00:54:12,640 --> 00:54:14,200
Speaker 2: Do it because of the risk.

912
00:54:14,280 --> 00:54:16,320
Speaker 3: Because of the risk, you guys want you know, I

913
00:54:16,360 --> 00:54:19,279
Speaker 3: could put out my money for five seven years and

914
00:54:19,400 --> 00:54:22,799
Speaker 3: he didn't do it. So when that you could see that.

915
00:54:22,920 --> 00:54:25,960
Speaker 3: So some of it is quantitative. You identify culture by

916
00:54:26,000 --> 00:54:29,680
Speaker 3: accounting choices. Look at how accident your reserves develop at

917
00:54:29,719 --> 00:54:32,560
Speaker 3: insurance companies, look how credit loss developed, Look at the

918
00:54:32,640 --> 00:54:36,759
Speaker 3: duration in the asset portfolio of a bank, look at

919
00:54:36,760 --> 00:54:40,560
Speaker 3: the mark to market risks that an investment bank is taking,

920
00:54:40,640 --> 00:54:45,880
Speaker 3: so on. So you can identify culture quantitatively in financials.

921
00:54:45,920 --> 00:54:49,960
Speaker 3: That's a big advantage. But then the next part is qualitative,

922
00:54:50,000 --> 00:54:52,040
Speaker 3: and there I think Warren put it best. He said,

923
00:54:52,040 --> 00:54:55,279
Speaker 3: in a complex financial the CEO has to be the

924
00:54:55,320 --> 00:54:58,760
Speaker 3: chief risk officer, and you could have somebody with that title.

925
00:54:58,760 --> 00:55:01,480
Speaker 3: But if the CEO doesn't the nature and the complexity

926
00:55:01,520 --> 00:55:03,360
Speaker 3: of the risks, they should not be the CEO of

927
00:55:03,400 --> 00:55:04,320
Speaker 3: a financial company.

928
00:55:04,440 --> 00:55:07,000
Speaker 2: So not only am I hearing a lot of Warren's

929
00:55:07,080 --> 00:55:10,879
Speaker 2: voice in things you say, I'm also hearing a lot

930
00:55:10,880 --> 00:55:17,360
Speaker 2: of similar companies Coca Cola, MX, Wells, Fargo coincidence.

931
00:55:18,200 --> 00:55:25,520
Speaker 3: Well, I mean it would be strange if we ended

932
00:55:25,560 --> 00:55:27,920
Speaker 3: up different. Of course, I always like it when we

933
00:55:27,960 --> 00:55:30,960
Speaker 3: owned it first. So for example, we were I think

934
00:55:31,000 --> 00:55:35,839
Speaker 3: the largest shareholder of General Ree before Berkshire bought it,

935
00:55:36,440 --> 00:55:41,759
Speaker 3: and so and by the way, our research was not

936
00:55:41,920 --> 00:55:45,040
Speaker 3: so good on that one. Really no, and as you

937
00:55:45,360 --> 00:55:50,160
Speaker 3: see subsequently, Jenry did not perform very well for many years.

938
00:55:51,239 --> 00:55:54,600
Speaker 3: It was And I think Warren would say, I mean,

939
00:55:54,640 --> 00:55:56,960
Speaker 3: I think he has said publicly, I won't put words.

940
00:55:57,160 --> 00:56:00,319
Speaker 3: I think he said that that was well, I'll put

941
00:56:00,360 --> 00:56:02,839
Speaker 3: it this not his favorite pick. Yeah. Well, I'll tell

942
00:56:02,840 --> 00:56:05,239
Speaker 3: you what, Charlie. Charlie came to visit us and we

943
00:56:05,280 --> 00:56:08,360
Speaker 3: have a wall of mistakes where we frame the stock certificate.

944
00:56:09,760 --> 00:56:10,480
Speaker 2: Is that what that is?

945
00:56:10,560 --> 00:56:13,120
Speaker 3: Yeah? And Charlie was looking through it and he said,

946
00:56:13,160 --> 00:56:16,359
Speaker 3: where the hell's here, Genery, And I said, Jenry wasn't

947
00:56:16,360 --> 00:56:20,719
Speaker 3: a mistake. We got Berkshire stock for Jenry. That was fantastic.

948
00:56:21,640 --> 00:56:24,080
Speaker 2: Did you have anything to do with the transaction or

949
00:56:24,120 --> 00:56:26,040
Speaker 2: they just went out and bought him? And you happen

950
00:56:26,080 --> 00:56:26,520
Speaker 2: to be a big O.

951
00:56:26,800 --> 00:56:32,560
Speaker 3: And you know we we were big Geico shareholders, you know,

952
00:56:32,680 --> 00:56:36,400
Speaker 3: so no, it was uh and we overlapped an MX

953
00:56:36,440 --> 00:56:40,800
Speaker 3: but we but no, I mean we're much more diversified.

954
00:56:40,920 --> 00:56:44,759
Speaker 3: We never owned Apple. We you know, there's there's huge differences.

955
00:56:44,800 --> 00:56:47,360
Speaker 3: I mean, starting with the fact that you know, Warren

956
00:56:47,440 --> 00:56:51,719
Speaker 3: has outperformed all investment advisors for fifty years and and so,

957
00:56:52,840 --> 00:56:57,959
Speaker 3: but you'd be crazy not to study, you know, when

958
00:56:58,160 --> 00:57:00,520
Speaker 3: Warren owned something, or to study Berkshire itself.

959
00:57:00,920 --> 00:57:04,480
Speaker 2: And that makes a lot of sense. There's another distinction

960
00:57:05,520 --> 00:57:09,600
Speaker 2: between the two of you. You say that you are

961
00:57:09,760 --> 00:57:16,160
Speaker 2: neither deep value nor go go growth. So what does

962
00:57:16,200 --> 00:57:20,320
Speaker 2: that leave you? You growth at a reasonable price Somewhere something

963
00:57:20,400 --> 00:57:21,200
Speaker 2: is you love.

964
00:57:21,080 --> 00:57:22,880
Speaker 3: Growth at a reasonable price because what are the other

965
00:57:24,200 --> 00:57:25,840
Speaker 3: growth at unreasonable prices?

966
00:57:25,880 --> 00:57:27,400
Speaker 2: That were unreasonable?

967
00:57:28,840 --> 00:57:32,320
Speaker 3: And now, I think what we would say is it's

968
00:57:32,480 --> 00:57:35,280
Speaker 3: obvious to us that growth is a component of value.

969
00:57:35,720 --> 00:57:38,840
Speaker 2: Right, Growth is a component of value.

970
00:57:38,880 --> 00:57:43,120
Speaker 3: So a company that grows profitably is more valuable than

971
00:57:43,200 --> 00:57:47,600
Speaker 3: one that doesn't grow, right, I mean it's it's again,

972
00:57:47,880 --> 00:57:51,280
Speaker 3: think of the business. A business that grows profitably is

973
00:57:51,360 --> 00:57:55,080
Speaker 3: more valuable. A business that can redeploy its capital at

974
00:57:55,200 --> 00:57:58,680
Speaker 3: high incremental rates of return is way more valuable than

975
00:57:58,760 --> 00:58:02,040
Speaker 3: one that it can't, one that's capital intensive and shrinking

976
00:58:02,080 --> 00:58:05,320
Speaker 3: and so on. So growth is a component of value.

977
00:58:05,640 --> 00:58:09,120
Speaker 3: And the difference between us and a typical growth manager

978
00:58:09,720 --> 00:58:14,080
Speaker 3: is we tend to believe more deeply, based on experience,

979
00:58:14,560 --> 00:58:20,360
Speaker 3: that high rates of growth attract competition. Competition lowers returns,

980
00:58:20,960 --> 00:58:24,280
Speaker 3: and so we believe in capitalism, and we believe that

981
00:58:24,440 --> 00:58:28,080
Speaker 3: growth is hard and maintaining growth is hard. So we

982
00:58:28,200 --> 00:58:31,440
Speaker 3: tend to be more skeptical than the average go go

983
00:58:31,600 --> 00:58:37,440
Speaker 3: growth investor, but we tend to be more open to

984
00:58:37,640 --> 00:58:41,800
Speaker 3: paying a fair price for a company that can grow

985
00:58:41,880 --> 00:58:45,760
Speaker 3: profitably than the typical value investor. So so much of

986
00:58:45,800 --> 00:58:50,200
Speaker 3: our research is about the durability of the growth, the

987
00:58:50,240 --> 00:58:55,080
Speaker 3: competitive advantages that a business has. So our portfolio currently

988
00:58:55,160 --> 00:58:57,880
Speaker 3: trades in aggregate. If you took all of our companies

989
00:58:58,280 --> 00:59:01,960
Speaker 3: at something like fourteen times times earnings, well, the market

990
00:59:02,200 --> 00:59:04,640
Speaker 3: middle of the role is at twenty or twenty one,

991
00:59:05,880 --> 00:59:09,800
Speaker 3: the value indexes at nineteen times. And yet we have

992
00:59:09,840 --> 00:59:12,360
Speaker 3: a portfolio of companies that have grown their earnings over

993
00:59:12,360 --> 00:59:15,320
Speaker 3: the last five years. It's something like fourteen percent a year.

994
00:59:15,840 --> 00:59:18,080
Speaker 3: So we feel we have what my dad used to

995
00:59:18,080 --> 00:59:21,320
Speaker 3: call the value investors dream, right, and that's what we

996
00:59:21,520 --> 00:59:27,120
Speaker 3: low cost, fast growth, low valuation, and durable sustainable.

997
00:59:26,480 --> 00:59:31,280
Speaker 2: Growth really really fascinating. So before we jump too deep

998
00:59:31,320 --> 00:59:34,840
Speaker 2: into the current state of affairs, I have to ask

999
00:59:34,880 --> 00:59:37,280
Speaker 2: you about a quote of yours that I really like.

1000
00:59:38,440 --> 00:59:41,480
Speaker 2: As human beings, we don't welcome fear and panic, but

1001
00:59:41,560 --> 00:59:47,040
Speaker 2: as investors, we welcome the bargain prices that those emotions

1002
00:59:47,560 --> 00:59:48,480
Speaker 2: tend to produce.

1003
00:59:49,480 --> 00:59:55,200
Speaker 3: Discuss well, you know, obviously the market is of course

1004
00:59:55,240 --> 00:59:58,960
Speaker 3: a voting machine in the short term, it reflects psychology

1005
01:00:00,120 --> 01:00:01,040
Speaker 3: term a weighing machine.

1006
01:00:01,120 --> 01:00:03,760
Speaker 2: And that's that's a great quote I'm gonna write there.

1007
01:00:04,840 --> 01:00:13,520
Speaker 3: Yeah, and so psychology and helps shape prices. And what

1008
01:00:13,880 --> 01:00:17,760
Speaker 3: happens we find is that risk is you know, there's time,

1009
01:00:17,880 --> 01:00:21,520
Speaker 3: it's all, there's always risk. What varies is people's perception

1010
01:00:21,600 --> 01:00:23,960
Speaker 3: of it. And I think today we're in a time

1011
01:00:24,000 --> 01:00:30,280
Speaker 3: when people are underestimating risks and therefore prices are generally high.

1012
01:00:30,560 --> 01:00:32,800
Speaker 3: It's one of the reasons I find it so amazing

1013
01:00:32,840 --> 01:00:36,400
Speaker 3: that our portfolio is trading at fourteen times earnings. I'm like,

1014
01:00:36,560 --> 01:00:39,760
Speaker 3: you know, the market scares me at twenty one, twenty

1015
01:00:39,800 --> 01:00:44,200
Speaker 3: two times earnings, but our portfolio feels like this below

1016
01:00:44,280 --> 01:00:48,680
Speaker 3: long time averages. So I feel this disconnect where I'm

1017
01:00:48,720 --> 01:00:53,760
Speaker 3: simultaneously pessimistic about the market because of the euphoria. There's

1018
01:00:53,880 --> 01:00:58,960
Speaker 3: no skepticism, there's no fear in prices, and at the

1019
01:00:58,960 --> 01:01:02,960
Speaker 3: same time, very feel very comfortable with our portfolio.

1020
01:01:03,360 --> 01:01:06,960
Speaker 2: So let me push back a little bit, just to

1021
01:01:07,000 --> 01:01:12,320
Speaker 2: hear your reaction. We keep hearing artificial intelligence and Nvidia

1022
01:01:12,400 --> 01:01:16,120
Speaker 2: and all the semis being compared to the dot com era,

1023
01:01:16,680 --> 01:01:20,320
Speaker 2: and every time I hear that, aside from the fact

1024
01:01:20,400 --> 01:01:24,280
Speaker 2: that many of those companies forget profits, didn't even have revenues,

1025
01:01:24,680 --> 01:01:29,680
Speaker 2: and this is a giant revenue, giant profit era, markets

1026
01:01:29,720 --> 01:01:34,120
Speaker 2: today are training at twenty twenty two times. We finished

1027
01:01:34,480 --> 01:01:39,880
Speaker 2: the nineties at thirty two times. Theoretically, there's a ton

1028
01:01:39,920 --> 01:01:47,200
Speaker 2: of upside from here, especially if Earning's growth continues. Is

1029
01:01:47,200 --> 01:01:50,400
Speaker 2: is it the contrarian take that, hey, this market could

1030
01:01:50,480 --> 01:01:54,320
Speaker 2: go another five or ten years before things get really stupid.

1031
01:01:54,600 --> 01:01:57,000
Speaker 3: Well, what I'd say is, right now, as I look

1032
01:01:57,000 --> 01:02:02,040
Speaker 3: out there, I see two types of you know, end investor. Right.

1033
01:02:02,120 --> 01:02:04,480
Speaker 3: One is this sort of belief that we're on a

1034
01:02:04,480 --> 01:02:10,840
Speaker 3: plateau of permanent prosperity. This time is different permanently yes, yes,

1035
01:02:10,960 --> 01:02:16,120
Speaker 3: And and they are all in on the momentum trade,

1036
01:02:16,160 --> 01:02:20,960
Speaker 3: which has worked so well. Now I have a really

1037
01:02:21,960 --> 01:02:27,120
Speaker 3: i am believe that momentum investing, even though it's worked

1038
01:02:27,280 --> 01:02:30,560
Speaker 3: so well, to me is crazy because it's not common sense.

1039
01:02:31,000 --> 01:02:32,800
Speaker 2: It works until it stops, it works.

1040
01:02:32,680 --> 01:02:35,320
Speaker 3: Until it stops, and when it stops, you really feel

1041
01:02:35,320 --> 01:02:37,200
Speaker 3: foolish that the fact that you are paying an ever

1042
01:02:37,320 --> 01:02:39,919
Speaker 3: higher price you thought was a good thing.

1043
01:02:40,400 --> 01:02:43,480
Speaker 2: Why does price matter if it's going up by it

1044
01:02:43,520 --> 01:02:45,920
Speaker 2: if it stops going up exactly.

1045
01:02:46,200 --> 01:02:50,280
Speaker 3: And so that's one group of investors, and they're taking

1046
01:02:50,320 --> 01:02:52,640
Speaker 3: a lot of risk because they tend to be in

1047
01:02:52,680 --> 01:02:56,280
Speaker 3: the highest multiple parts of the market and the parts

1048
01:02:56,320 --> 01:03:00,760
Speaker 3: of the market where there is the most presumption that

1049
01:03:01,080 --> 01:03:05,280
Speaker 3: high margins and high growth rates are sustainable. And the

1050
01:03:05,440 --> 01:03:08,000
Speaker 3: data is over. I think fewer than three percent of

1051
01:03:08,040 --> 01:03:13,040
Speaker 3: companies can maintain a ten growth rate in revenue of

1052
01:03:13,320 --> 01:03:16,400
Speaker 3: twenty percent for more than a decade. Like fewer than

1053
01:03:16,480 --> 01:03:17,439
Speaker 3: three percent.

1054
01:03:17,240 --> 01:03:20,080
Speaker 2: I mean, and that's a huge growth rate for a

1055
01:03:20,120 --> 01:03:20,640
Speaker 2: long time.

1056
01:03:20,920 --> 01:03:23,240
Speaker 3: And there are a lot of valuations today that have

1057
01:03:23,320 --> 01:03:26,840
Speaker 3: that baked in. You get these analysts reports, and there's

1058
01:03:26,920 --> 01:03:30,240
Speaker 3: even fewer less than I think it's five tenths of

1059
01:03:30,280 --> 01:03:33,160
Speaker 3: one percent, but you could check me. It's either might

1060
01:03:33,200 --> 01:03:35,720
Speaker 3: be three tenths, but it's a low fraction of a

1061
01:03:35,760 --> 01:03:40,640
Speaker 3: percent that are able to maintain fifty percent margins for

1062
01:03:40,800 --> 01:03:43,520
Speaker 3: more than a decade. Those are very high margins. But again,

1063
01:03:43,600 --> 01:03:45,880
Speaker 3: there are in a lot of models right now, So

1064
01:03:46,600 --> 01:03:49,400
Speaker 3: I think there's risk on that. Now. The other side

1065
01:03:49,520 --> 01:03:52,000
Speaker 3: of people taking risk are the ones that are huddled

1066
01:03:52,040 --> 01:03:56,040
Speaker 3: in cash, saying it's the end of the world. Everything

1067
01:03:56,080 --> 01:03:59,600
Speaker 3: that's happening AI is going to swallow our children. The

1068
01:04:00,480 --> 01:04:03,720
Speaker 3: world is falling apart. Everything that's happening in washings, and

1069
01:04:03,800 --> 01:04:07,320
Speaker 3: they're sitting in cash, which is risky as well, really risky.

1070
01:04:07,400 --> 01:04:10,400
Speaker 3: I mean, just since two thousand, the purchasing power of

1071
01:04:10,440 --> 01:04:14,560
Speaker 3: a dollars down something like fifty five percent. Right in

1072
01:04:15,320 --> 01:04:18,400
Speaker 3: my grandmother's lifetime, I think the purchasing power of a

1073
01:04:18,440 --> 01:04:21,240
Speaker 3: dollar fell like ninety four ninety five percent, So.

1074
01:04:21,280 --> 01:04:24,560
Speaker 2: They're take sevand dollars for exactly.

1075
01:04:24,960 --> 01:04:29,280
Speaker 3: So though, I think these huge crowded sides of the market,

1076
01:04:29,360 --> 01:04:31,800
Speaker 3: the people sitting in cash and the people at the

1077
01:04:32,160 --> 01:04:34,720
Speaker 3: assuming the extreme growth, are both taking a lot of risk.

1078
01:04:35,000 --> 01:04:38,080
Speaker 2: That's a terrible barbell. You've just spake yes, Like the

1079
01:04:38,120 --> 01:04:41,600
Speaker 2: extremes are either either inflation is going to kill them

1080
01:04:41,720 --> 01:04:42,920
Speaker 2: or speculation is going to go.

1081
01:04:43,200 --> 01:04:45,880
Speaker 3: And where I would say, you know, we land in

1082
01:04:45,920 --> 01:04:49,560
Speaker 3: the middle is with this idea that there are durable,

1083
01:04:49,640 --> 01:04:53,280
Speaker 3: overlooked businesses right now and they're business as I say,

1084
01:04:53,480 --> 01:04:56,280
Speaker 3: we have a portfolio of twenty five companies trading at

1085
01:04:56,280 --> 01:04:59,240
Speaker 3: an aggregate portfolio of fourteen and a half times. By

1086
01:04:59,240 --> 01:05:02,840
Speaker 3: the way, that in includes owning some Amazon, it includes

1087
01:05:02,920 --> 01:05:06,560
Speaker 3: owning some Google, but also owning some Capital One, owning

1088
01:05:06,600 --> 01:05:10,640
Speaker 3: some Tyson Food, some MGM. You know which portfolio is this?

1089
01:05:10,640 --> 01:05:14,439
Speaker 3: This is our flagship portfolio. So there's the Davis Adventure Fund.

1090
01:05:14,600 --> 01:05:18,480
Speaker 3: But really the way people are finding us increasingly. Ten

1091
01:05:18,560 --> 01:05:22,960
Speaker 3: years ago, Barry we launched our ETFs. We were alone

1092
01:05:23,040 --> 01:05:26,520
Speaker 3: for nine years. Like no, we're the only true active

1093
01:05:26,640 --> 01:05:29,840
Speaker 3: manager running a value ETIM. I think our value ETAM

1094
01:05:29,880 --> 01:05:33,040
Speaker 3: which is called DUSA. D USA is the number one

1095
01:05:33,680 --> 01:05:37,520
Speaker 3: active or passive value ETF for three years. But nobody

1096
01:05:37,560 --> 01:05:40,480
Speaker 3: really cares. It's just you know, it's but that's all right.

1097
01:05:40,720 --> 01:05:43,560
Speaker 2: Although the past year or two we have seen a

1098
01:05:43,600 --> 01:05:46,760
Speaker 2: lot of flows. Hey, most of the money you're going

1099
01:05:46,800 --> 01:05:50,920
Speaker 2: to the passive indexes. But the things that the third

1100
01:05:51,040 --> 01:05:55,480
Speaker 2: or quarter that's not going there active exactly.

1101
01:05:55,560 --> 01:05:57,720
Speaker 3: So they're finding our way and I'm proud that we

1102
01:05:57,720 --> 01:05:59,960
Speaker 3: were so early. I don't mind being early, you know.

1103
01:06:00,120 --> 01:06:04,840
Speaker 3: And so but what I'd say is that the optimistic

1104
01:06:04,920 --> 01:06:11,240
Speaker 3: case layout, I think the three elements of change in

1105
01:06:11,280 --> 01:06:16,560
Speaker 3: the civilization that our increasing risk today is we certainly

1106
01:06:16,600 --> 01:06:20,320
Speaker 3: have a change in the monetary world order. Right, You

1107
01:06:20,440 --> 01:06:23,680
Speaker 3: and I spent our entire careers in a world of

1108
01:06:23,720 --> 01:06:28,800
Speaker 3: falling interest rates, approaching zero, falling inflation. All of the

1109
01:06:28,840 --> 01:06:35,040
Speaker 3: things that fed into that, you know, low wage pressure, deunionization, globalization,

1110
01:06:35,240 --> 01:06:39,360
Speaker 3: all of that stuff, all of that has stunningly and permanently,

1111
01:06:39,400 --> 01:06:41,320
Speaker 3: I believe come to an end. We are in a

1112
01:06:41,360 --> 01:06:44,760
Speaker 3: state where you know, we are printing so much money

1113
01:06:44,840 --> 01:06:48,280
Speaker 3: relative to what the interest rates are. I think there's

1114
01:06:48,320 --> 01:06:50,960
Speaker 3: a lot of risk, but certainly we're not going back

1115
01:06:51,000 --> 01:06:54,480
Speaker 3: to zero probably ever. Again, that was a once in

1116
01:06:54,640 --> 01:06:59,600
Speaker 3: history phenomena free money. The second big change is geopolitics.

1117
01:07:00,120 --> 01:07:03,040
Speaker 3: There's no question that for our entire career, we are

1118
01:07:03,080 --> 01:07:05,760
Speaker 3: in a world of globalization. We're in a world of

1119
01:07:05,840 --> 01:07:09,400
Speaker 3: functional peace, we are in a world of stability. We're

1120
01:07:09,400 --> 01:07:12,280
Speaker 3: in a world where the wall fell and markets doubled.

1121
01:07:12,840 --> 01:07:16,120
Speaker 3: All of these things that is also absolutely come to

1122
01:07:16,160 --> 01:07:18,919
Speaker 3: an end, and that increases risk. So those first two

1123
01:07:18,960 --> 01:07:22,880
Speaker 3: things increase risk. And what's the third ai there's this

1124
01:07:23,120 --> 01:07:27,600
Speaker 3: massive technological change that increases risk. It increases the risk

1125
01:07:27,720 --> 01:07:32,240
Speaker 3: of all different types of businesses, and it increases opportunity

1126
01:07:32,480 --> 01:07:36,600
Speaker 3: but increases risk. So when you have three fundamental shifts

1127
01:07:36,640 --> 01:07:40,880
Speaker 3: going on, all of which have unpredictable outcomes, and yet

1128
01:07:40,920 --> 01:07:46,480
Speaker 3: you have valuations not at all time highs, but elevated highs,

1129
01:07:46,480 --> 01:07:50,000
Speaker 3: certainly relative to the direction of travel of interest rates

1130
01:07:50,000 --> 01:07:53,200
Speaker 3: over time, then I'd say, you know, I like where

1131
01:07:53,240 --> 01:07:57,160
Speaker 3: we are with our fourteen fourteen yield. You know, solid

1132
01:07:57,200 --> 01:08:00,800
Speaker 3: growth rate in the businesses, durability AI as a lens,

1133
01:08:00,840 --> 01:08:04,240
Speaker 3: globalization as a lens, inflation as a lens. Put those

1134
01:08:04,280 --> 01:08:07,280
Speaker 3: things together. We sit with twenty five companies with these

1135
01:08:07,320 --> 01:08:10,680
Speaker 3: great characteristics in our etf or and our funds or

1136
01:08:11,000 --> 01:08:13,440
Speaker 3: SMA or however the advisor finds.

1137
01:08:13,240 --> 01:08:17,720
Speaker 2: Us really interesting. Coming up, we continue our conversation with

1138
01:08:17,840 --> 01:08:23,839
Speaker 2: Chris Davis, portfolio manager at Davis Advisors, discussing the current

1139
01:08:24,320 --> 01:08:28,560
Speaker 2: market environment. I'm Barry Ridults. You're listening to Masters in

1140
01:08:28,640 --> 01:08:47,360
Speaker 2: Business on Bloomberg Radio. I'm Barry Ridults. You're listening to

1141
01:08:47,479 --> 01:08:51,120
Speaker 2: Masters in Business on Bloomberg Radio. Chris Davis is my

1142
01:08:51,280 --> 01:08:54,599
Speaker 2: extra special guest. He is the chairman and portfolio manager

1143
01:08:55,200 --> 01:09:01,240
Speaker 2: of Davis Advisors. So I'm glad you mentioned add artificial

1144
01:09:01,280 --> 01:09:05,840
Speaker 2: intelligence as one of those three big shifts that are

1145
01:09:05,840 --> 01:09:09,880
Speaker 2: taking place. How do you, as an analyst and a

1146
01:09:10,000 --> 01:09:16,960
Speaker 2: fund manager separate what is a transformative technology and potentially

1147
01:09:17,439 --> 01:09:23,480
Speaker 2: a transformative source of value creation from just the rampant

1148
01:09:23,720 --> 01:09:27,960
Speaker 2: speculative excess that rears its head on a regular bag.

1149
01:09:28,040 --> 01:09:31,160
Speaker 3: Well, what we're seeing is Amara's law in full bloom,

1150
01:09:31,160 --> 01:09:35,640
Speaker 3: and Amar's law states that transformative technologies are overestimated in

1151
01:09:35,680 --> 01:09:38,320
Speaker 3: the short term, they're underestimated in the long term. We're

1152
01:09:38,320 --> 01:09:41,920
Speaker 3: in the overestimation hype phase. And what I would say

1153
01:09:41,960 --> 01:09:46,200
Speaker 3: we do is we recognize it as a transformative technology.

1154
01:09:46,400 --> 01:09:50,559
Speaker 3: That is absolutely a baseline assumption. Our other baseline assumption

1155
01:09:50,680 --> 01:09:53,559
Speaker 3: at this stage is that we don't see it as

1156
01:09:53,560 --> 01:09:56,240
Speaker 3: a winner take all. So we see it more a

1157
01:09:56,280 --> 01:09:59,840
Speaker 3: little bit like railroads or something where or the tele

1158
01:10:00,360 --> 01:10:03,920
Speaker 3: or electricity where the users maybe end up making more

1159
01:10:03,960 --> 01:10:08,320
Speaker 3: money than the builders. And so we will talk about

1160
01:10:08,320 --> 01:10:12,160
Speaker 3: hedging that bet. But we do think it increases the

1161
01:10:12,280 --> 01:10:16,920
Speaker 3: risk environment in terms of terrorism, it increases the risk

1162
01:10:16,920 --> 01:10:19,960
Speaker 3: of obsolescence in certain businesses. But we start with this

1163
01:10:20,040 --> 01:10:22,920
Speaker 3: idea that it's real. Then what we do is, as

1164
01:10:22,960 --> 01:10:26,040
Speaker 3: we do our research, we found every company we look

1165
01:10:26,080 --> 01:10:29,000
Speaker 3: at falls into one of five categories. It's the emerging winners.

1166
01:10:29,040 --> 01:10:31,840
Speaker 3: That's where all the heat is, all the speculation, and

1167
01:10:31,960 --> 01:10:35,120
Speaker 3: there there's real danger. You and I started very early

1168
01:10:35,160 --> 01:10:38,840
Speaker 3: talking about Cisco and remembering, well, the three obvious winners

1169
01:10:38,880 --> 01:10:41,840
Speaker 3: of the Internet were AOL, Yahoo, and Cisco. You know,

1170
01:10:41,960 --> 01:10:44,760
Speaker 3: the two don't exist and one's a fraction of what

1171
01:10:44,800 --> 01:10:48,320
Speaker 3: it was. And so picking the emerging winners in the

1172
01:10:48,479 --> 01:10:52,360
Speaker 3: early hype phase is risky. But we'd say, if you

1173
01:10:52,439 --> 01:10:55,360
Speaker 3: want to look in that space, focus on the businesses

1174
01:10:55,360 --> 01:10:57,880
Speaker 3: that have a real shot at being emerging winners but

1175
01:10:58,160 --> 01:11:02,120
Speaker 3: do not have to constantly raise capital, have proven business models,

1176
01:11:02,160 --> 01:11:06,920
Speaker 3: proven leaders, and businesses that are accreted by the investments

1177
01:11:06,960 --> 01:11:09,160
Speaker 3: that they're making, so that they earn more money by

1178
01:11:09,160 --> 01:11:12,120
Speaker 3: making these investments, even if it takes longer than not

1179
01:11:12,160 --> 01:11:15,680
Speaker 3: the hyperscale, not the hyperscalers, I think that that is.

1180
01:11:15,800 --> 01:11:18,600
Speaker 3: And so for us, that's where we've sat with a

1181
01:11:18,640 --> 01:11:22,400
Speaker 3: little bit of Google, we still have Meta and Amazon.

1182
01:11:22,479 --> 01:11:25,240
Speaker 3: We've trimmed the first two because they were huge holdings

1183
01:11:25,240 --> 01:11:26,760
Speaker 3: for us because we bought them when they were so

1184
01:11:26,840 --> 01:11:28,760
Speaker 3: out of favor. But if you're going to play in

1185
01:11:28,760 --> 01:11:31,880
Speaker 3: the emerging winners, that's The first second category is, Okay,

1186
01:11:32,080 --> 01:11:35,080
Speaker 3: who are the enablers of this technology? Right, that's the

1187
01:11:35,560 --> 01:11:39,160
Speaker 3: pigs and shovels mindset. They're the ones that are going

1188
01:11:39,240 --> 01:11:42,280
Speaker 3: to benefit from the spending wave but will not be

1189
01:11:42,360 --> 01:11:45,200
Speaker 3: penalized if the return on the spending is very low.

1190
01:11:45,400 --> 01:11:46,600
Speaker 2: So semiconductors.

1191
01:11:46,720 --> 01:11:48,920
Speaker 3: So yeah, I would say there for us, it's been

1192
01:11:49,000 --> 01:11:53,680
Speaker 3: analog chips, Texas instruments, it's been semiconductor capital equipment. We

1193
01:11:53,720 --> 01:11:57,960
Speaker 3: are a big shareholder of Samsung, you know, which did nothing, nothing, nothing,

1194
01:11:57,960 --> 01:12:00,240
Speaker 3: and then went up fourfold and in the.

1195
01:12:00,280 --> 01:12:04,920
Speaker 2: Year they're driving the entire toss by UH in Korea.

1196
01:12:05,640 --> 01:12:08,760
Speaker 3: It's a amazing, amazing So but you know again that

1197
01:12:08,840 --> 01:12:10,960
Speaker 3: we viewed those as enablers. But in Indian enablers, I

1198
01:12:10,960 --> 01:12:14,439
Speaker 3: would also include things like natural gas and copper. Right,

1199
01:12:14,479 --> 01:12:16,760
Speaker 3: they're going to be they are big, big beneficiary. So

1200
01:12:16,800 --> 01:12:21,240
Speaker 3: we own you know, Kotera which is now Devin, UH Conico, Phillips,

1201
01:12:21,760 --> 01:12:25,320
Speaker 3: UH Tourmaline. You know, our focus is on natural gas

1202
01:12:25,520 --> 01:12:28,599
Speaker 3: and copper. Okay, so those are the enablers, the users

1203
01:12:29,000 --> 01:12:31,559
Speaker 3: who are going to be the beneficiaries use it. Well, there,

1204
01:12:31,600 --> 01:12:35,080
Speaker 3: You've got to think UH Financials is a great extent

1205
01:12:35,160 --> 01:12:37,840
Speaker 3: anything that where you have a big amount of laptop

1206
01:12:37,920 --> 01:12:41,920
Speaker 3: class workers. Right, it's what Elon called the laptop class

1207
01:12:42,240 --> 01:12:44,840
Speaker 3: that you know, it's likely that AI will do to

1208
01:12:44,880 --> 01:12:50,480
Speaker 3: the laptop class what globalization did to to blue collar workers.

1209
01:12:49,520 --> 01:12:51,759
Speaker 2: Meaning very much hollow it out.

1210
01:12:51,640 --> 01:12:54,080
Speaker 3: Hollow it out, hollow it out. The best will still

1211
01:12:54,120 --> 01:12:56,400
Speaker 3: have work, the best will be more valuable, they'll be

1212
01:12:56,439 --> 01:12:59,120
Speaker 3: more productive. But there's going to be a you know

1213
01:12:59,160 --> 01:13:02,360
Speaker 3: a lot of unemployed second year lawyers and things like that,

1214
01:13:02,479 --> 01:13:07,720
Speaker 3: and so that that and so healthcare you know, claims processing, uh,

1215
01:13:08,200 --> 01:13:12,599
Speaker 3: compliance functions, things like that. So there we focus on

1216
01:13:12,680 --> 01:13:16,080
Speaker 3: the banks that have the scale, the tech stack and

1217
01:13:16,160 --> 01:13:19,000
Speaker 3: the management to do it. So Capital one number one.

1218
01:13:19,280 --> 01:13:21,479
Speaker 3: I keep Wells Fargo on that list. I think US

1219
01:13:21,600 --> 01:13:24,880
Speaker 3: Bank gets over that crosses that chasm. Uh so those

1220
01:13:25,000 --> 01:13:28,320
Speaker 3: but also with JP Morgan Chase has done such a

1221
01:13:28,320 --> 01:13:30,639
Speaker 3: great job. But the valuation is how do you.

1222
01:13:30,600 --> 01:13:33,799
Speaker 2: Put the MX's and master card visas of the world.

1223
01:13:33,840 --> 01:13:37,800
Speaker 3: We don't own Visa or MasterCard, and we have a

1224
01:13:37,920 --> 01:13:41,280
Speaker 3: very small position in AMEX. And essentially the reason is

1225
01:13:41,320 --> 01:13:44,080
Speaker 3: we just think that that is an area where there

1226
01:13:44,160 --> 01:13:46,679
Speaker 3: is a big spread. They may be on the other

1227
01:13:46,760 --> 01:13:50,040
Speaker 3: side but boy, there are a lot of people, especially merchants,

1228
01:13:50,280 --> 01:13:52,560
Speaker 3: that would like to figure out some way to bypass

1229
01:13:52,680 --> 01:13:56,679
Speaker 3: that big number. It's a big number.

1230
01:13:56,880 --> 01:14:00,439
Speaker 2: This first time in my lifetime, I have started noticing

1231
01:14:01,360 --> 01:14:04,840
Speaker 2: cash and credit card prices on restaurant may yeah. Absolutely,

1232
01:14:04,840 --> 01:14:05,960
Speaker 2: it's never a thing.

1233
01:14:05,880 --> 01:14:08,040
Speaker 3: Though, and you really see it when you travel. Yeah,

1234
01:14:08,120 --> 01:14:11,000
Speaker 3: and so that we and again those are they're so

1235
01:14:11,160 --> 01:14:14,840
Speaker 3: highly valued at thirty times earnings for visa, you know,

1236
01:14:15,200 --> 01:14:17,240
Speaker 3: it just seems does there's too much risk there? I'll

1237
01:14:17,280 --> 01:14:19,680
Speaker 3: own the capital one at nine times. So those are

1238
01:14:19,720 --> 01:14:23,519
Speaker 3: the users, right. Then the next category or what Jeff

1239
01:14:23,560 --> 01:14:27,400
Speaker 3: Bezos we call them the the indifferent or the protected? Right,

1240
01:14:27,439 --> 01:14:29,400
Speaker 3: So what Jeff Bezos when he said people ask me

1241
01:14:29,439 --> 01:14:31,160
Speaker 3: what's going to change? They all ask me what's not

1242
01:14:31,200 --> 01:14:34,200
Speaker 3: going to change? That's a very important question. So there,

1243
01:14:34,240 --> 01:14:36,920
Speaker 3: what do we you know, Tyson Foods, all right, Chicken's

1244
01:14:36,960 --> 01:14:38,320
Speaker 3: not going to change, right, and.

1245
01:14:38,360 --> 01:14:40,120
Speaker 2: We have Chicken's not going to lose their jobs.

1246
01:14:40,360 --> 01:14:43,880
Speaker 3: Yeah, yeah, Chicken. It's a good shape. And you know,

1247
01:14:43,960 --> 01:14:45,599
Speaker 3: but here you have to be careful because you don't

1248
01:14:45,600 --> 01:14:48,200
Speaker 3: have high growth rates, so you don't want to overpay.

1249
01:14:48,360 --> 01:14:51,280
Speaker 3: And they're cyclical businesses, so you don't want to pay

1250
01:14:51,280 --> 01:14:55,080
Speaker 3: it at the top of a cycle. So Tyson, I

1251
01:14:55,120 --> 01:14:58,840
Speaker 3: think is has a low multiple on cyclically depressed earnings.

1252
01:14:58,880 --> 01:15:01,799
Speaker 3: What else does MGM? I think owning you know, fifty

1253
01:15:01,840 --> 01:15:04,320
Speaker 3: percent of the Las Vegas strip, and you know twenty

1254
01:15:04,360 --> 01:15:06,720
Speaker 3: or thirty percent of Macau and one hundred percent of

1255
01:15:06,760 --> 01:15:09,360
Speaker 3: the only legal gambling in Japan and Osaka when it

1256
01:15:09,400 --> 01:15:12,479
Speaker 3: opens twenty twenty nine, that's very valuable. I don't think

1257
01:15:12,520 --> 01:15:16,560
Speaker 3: that gets disintermediated by AI. So call those that protected

1258
01:15:16,600 --> 01:15:19,439
Speaker 3: the what won't change. The last category is the walking dead,

1259
01:15:20,080 --> 01:15:23,720
Speaker 3: and there you know you mentioned Visa and MasterCard. I

1260
01:15:23,720 --> 01:15:26,120
Speaker 3: don't know, title insurance, I don't know. There are all

1261
01:15:26,160 --> 01:15:29,720
Speaker 3: sorts of things where it is really amazing how much

1262
01:15:29,760 --> 01:15:32,320
Speaker 3: money is made for something that you should be able

1263
01:15:32,360 --> 01:15:34,080
Speaker 3: to get around. We've seen some of the pressure in

1264
01:15:34,120 --> 01:15:36,960
Speaker 3: the SaaS companies, and so that's the lens that we

1265
01:15:37,040 --> 01:15:40,000
Speaker 3: look at for all of our companies. We put them

1266
01:15:40,040 --> 01:15:42,640
Speaker 3: through this lens of this fast changing We want to

1267
01:15:42,680 --> 01:15:44,760
Speaker 3: stay nimble and barry. One of the things I think

1268
01:15:44,840 --> 01:15:47,439
Speaker 3: is really important is I think this is a world

1269
01:15:47,520 --> 01:15:51,200
Speaker 3: where taking liquidity risk is really dangerous because there's so

1270
01:15:51,320 --> 01:15:53,759
Speaker 3: much flux. So I think that's some of the pressure

1271
01:15:53,760 --> 01:15:56,679
Speaker 3: we're seeing in private equity, private credit. I think people

1272
01:15:56,720 --> 01:16:00,639
Speaker 3: are saying, why did I lock up my money seven years?

1273
01:16:00,680 --> 01:16:02,960
Speaker 3: For seven years if you're lucky, Yeah, it's going to

1274
01:16:03,000 --> 01:16:05,320
Speaker 3: be longer, I think. So I think that wheels are

1275
01:16:05,360 --> 01:16:09,480
Speaker 3: coming off that. I think that indexes. Remember the Kodak

1276
01:16:09,840 --> 01:16:13,439
Speaker 3: you ready for a number, ten million digital cameras had

1277
01:16:13,479 --> 01:16:16,759
Speaker 3: been sold when Kodak was still in the top third

1278
01:16:16,800 --> 01:16:18,040
Speaker 3: of the S and P five hundred.

1279
01:16:18,040 --> 01:16:19,479
Speaker 2: It's amazing, isn't that amazing?

1280
01:16:20,320 --> 01:16:23,080
Speaker 3: And it's like ten million people knew they would never

1281
01:16:23,120 --> 01:16:26,439
Speaker 3: buy a roll of film again. It was dead. And

1282
01:16:26,520 --> 01:16:30,040
Speaker 3: so the advantage you know, when Japan peaked in the eighties,

1283
01:16:30,400 --> 01:16:35,840
Speaker 3: every active every active manager in international investing outperformed for

1284
01:16:35,880 --> 01:16:38,320
Speaker 3: the next ten years by just saying, oh, Japan's going down,

1285
01:16:38,320 --> 01:16:41,400
Speaker 3: I'm out. And so the index got killed because it

1286
01:16:41,479 --> 01:16:43,559
Speaker 3: had to sort of go down with the ship. So

1287
01:16:43,640 --> 01:16:49,160
Speaker 3: I think nimbleness, liquidity, flexibility, and this sort of research

1288
01:16:49,320 --> 01:16:52,360
Speaker 3: lens going to actually become more valuable. So I think

1289
01:16:52,400 --> 01:16:54,840
Speaker 3: we could see some of the time tested things that

1290
01:16:54,880 --> 01:16:59,479
Speaker 3: worked in the last decade diven end Darling's momentum private

1291
01:16:59,520 --> 01:17:02,960
Speaker 3: equity indexing. I think all of those things could be

1292
01:17:03,040 --> 01:17:05,000
Speaker 3: challenged given this fast changing world.

1293
01:17:05,080 --> 01:17:08,759
Speaker 2: So I'm glad you brought up a few things there,

1294
01:17:09,200 --> 01:17:14,000
Speaker 2: because when you look at some of the fallout from

1295
01:17:14,200 --> 01:17:18,320
Speaker 2: low cost indexing, the Vanguard effect, Blackrock, whatever you want

1296
01:17:18,320 --> 01:17:22,320
Speaker 2: to call it, they have all put the fund industry

1297
01:17:22,520 --> 01:17:27,080
Speaker 2: under a lot of pressure. There's fee compression. There's been

1298
01:17:27,120 --> 01:17:30,799
Speaker 2: a move to not just indexing, but to ETFs generally.

1299
01:17:32,400 --> 01:17:35,120
Speaker 2: So when your own business, you're looking at businesses with

1300
01:17:35,240 --> 01:17:40,839
Speaker 2: moats and businesses with defendable proceeds and a good culture.

1301
01:17:41,800 --> 01:17:44,920
Speaker 2: You're running a business with a lot of employees and

1302
01:17:44,960 --> 01:17:47,640
Speaker 2: a lot of clients. How do you respond to this

1303
01:17:47,720 --> 01:17:52,200
Speaker 2: external pressure? How do you manage not the investments, but

1304
01:17:52,280 --> 01:17:57,240
Speaker 2: the business of investing when it's just becoming more competitive

1305
01:17:57,280 --> 01:17:58,559
Speaker 2: and more challenging than ever.

1306
01:17:58,760 --> 01:18:02,599
Speaker 3: Well, we're lucky because we're one. We're a very we

1307
01:18:02,880 --> 01:18:06,280
Speaker 3: charge low fees, right, so we it's you know, if

1308
01:18:06,280 --> 01:18:08,400
Speaker 3: you charge two and twenty, you know.

1309
01:18:08,400 --> 01:18:11,840
Speaker 2: You're if only I could, I know, I'm just I mean,

1310
01:18:12,000 --> 01:18:15,960
Speaker 2: emotion intellectually, I have a problem with that, but part

1311
01:18:16,000 --> 01:18:18,320
Speaker 2: of me is like nice work, if.

1312
01:18:18,240 --> 01:18:20,360
Speaker 3: You I know, I know, I spoke to a guy

1313
01:18:20,400 --> 01:18:22,320
Speaker 3: that charged two and twenty years ago, and I said,

1314
01:18:22,320 --> 01:18:24,559
Speaker 3: why too and twenty? What's the business model? He said,

1315
01:18:24,600 --> 01:18:28,920
Speaker 3: I can't get three and thirty. So we've always we've

1316
01:18:28,960 --> 01:18:32,120
Speaker 3: always just run with this idea, you know, Charlie one

1317
01:18:32,160 --> 01:18:34,320
Speaker 3: said to me, Charlie Munger, you know what's wrong with

1318
01:18:34,400 --> 01:18:37,280
Speaker 3: giving people a bargain right, or at least a fair

1319
01:18:37,360 --> 01:18:39,680
Speaker 3: price right, And it makes it easier for you to

1320
01:18:39,720 --> 01:18:44,000
Speaker 3: outperform over time. So so I feel one, we two.

1321
01:18:44,240 --> 01:18:48,439
Speaker 3: We're a frugal place. You know, I work with seven colleagues.

1322
01:18:48,479 --> 01:18:52,519
Speaker 3: We've been together on average twenty years, twenty five years

1323
01:18:52,640 --> 01:18:56,960
Speaker 3: average experience. And we would do this with no outside money,

1324
01:18:57,120 --> 01:18:59,360
Speaker 3: right because of the inside money. So we run it

1325
01:18:59,640 --> 01:19:02,800
Speaker 3: with what I would call a real family office mindset,

1326
01:19:03,120 --> 01:19:06,839
Speaker 3: with our own money alongside in a very low cost operation.

1327
01:19:07,000 --> 01:19:10,160
Speaker 3: But we like And the last thing, Barry is we

1328
01:19:10,200 --> 01:19:12,920
Speaker 3: are in a lasting game. What I can tell you

1329
01:19:13,000 --> 01:19:15,880
Speaker 3: is if ninety percent of the market was passive, the

1330
01:19:16,280 --> 01:19:19,040
Speaker 3: remaining ten percent of active would make a fortune.

1331
01:19:19,360 --> 01:19:24,000
Speaker 2: I've said that exact thing. Hey, if indexing is taking over,

1332
01:19:24,280 --> 01:19:28,120
Speaker 2: doesn't that create all sorts of inefficiencies for a savvy

1333
01:19:28,240 --> 01:19:28,840
Speaker 2: active mass.

1334
01:19:29,000 --> 01:19:31,280
Speaker 3: Absolutely? And I you know, I don't think it's a

1335
01:19:31,320 --> 01:19:34,479
Speaker 3: coincidence that we started out performing the ESSEY. I mean,

1336
01:19:34,479 --> 01:19:37,400
Speaker 3: we've outperformed the value index for all periods, but we

1337
01:19:37,800 --> 01:19:41,000
Speaker 3: but we lagged the S and P in this momentum market.

1338
01:19:41,040 --> 01:19:45,000
Speaker 3: But that changed about four years ago, and nobody's talking.

1339
01:19:44,800 --> 01:19:46,480
Speaker 2: About it coming out of the pandemic.

1340
01:19:46,520 --> 01:19:50,519
Speaker 3: But basically, yeah, we've been grinding an advantage over the

1341
01:19:50,640 --> 01:19:52,320
Speaker 3: S and P for the last three three and a

1342
01:19:52,360 --> 01:19:55,840
Speaker 3: half years. I mean, and this is with less than

1343
01:19:56,000 --> 01:19:59,680
Speaker 3: half the weight in technology that the index has so

1344
01:20:00,600 --> 01:20:04,840
Speaker 3: underweighted the hottest sector. But yet we've been grinding out

1345
01:20:04,880 --> 01:20:08,040
Speaker 3: an advantage for three or four years. Why And I

1346
01:20:08,080 --> 01:20:10,880
Speaker 3: think it's just because there's way more money index than

1347
01:20:11,120 --> 01:20:15,120
Speaker 3: is thought of. There's way more money in momentum than

1348
01:20:15,240 --> 01:20:18,080
Speaker 3: is And when I say there's more in indexing, it's

1349
01:20:18,080 --> 01:20:21,439
Speaker 3: because there's so much closet indexing. So I think, I

1350
01:20:21,479 --> 01:20:25,280
Speaker 3: don't think it's impossible that we're already at seventy percent

1351
01:20:25,720 --> 01:20:29,920
Speaker 3: functionally indexed, so that will really help us. So we're

1352
01:20:29,960 --> 01:20:31,880
Speaker 3: in a lasting game. We got the balance sheet to

1353
01:20:31,880 --> 01:20:33,400
Speaker 3: do it. We're going to be on the other side.

1354
01:20:33,560 --> 01:20:38,720
Speaker 2: Huh, that's really fascinating. You mentioned you guys would just

1355
01:20:38,840 --> 01:20:42,759
Speaker 2: do this without outside money. But let's put some flesh

1356
01:20:42,760 --> 01:20:48,560
Speaker 2: on those bones. Davis Advisors, the company, the Family Foundation,

1357
01:20:49,080 --> 01:20:53,599
Speaker 2: you and your partners employees. You collectively have more than

1358
01:20:53,640 --> 01:20:58,800
Speaker 2: a few billion dollars in the fund, so you are

1359
01:20:58,840 --> 01:21:02,759
Speaker 2: not only a line with your clients. I almost feel

1360
01:21:02,760 --> 01:21:05,479
Speaker 2: like skin in the game has become a cliche. But

1361
01:21:05,560 --> 01:21:09,240
Speaker 2: the question I want to ask is being invested that

1362
01:21:09,320 --> 01:21:14,080
Speaker 2: way alongside the clients, how does that affect your decision

1363
01:21:14,120 --> 01:21:18,200
Speaker 2: making process? And what does that do when you're going

1364
01:21:18,200 --> 01:21:21,600
Speaker 2: through one of those periodic crises that we've seen so

1365
01:21:21,720 --> 01:21:25,360
Speaker 2: much over the past twenty five years, dot COM's GFC pandemic.

1366
01:21:25,800 --> 01:21:29,920
Speaker 2: How does having skin in the game affect your decisions?

1367
01:21:30,000 --> 01:21:32,320
Speaker 3: Well, I think it makes us much more rational and

1368
01:21:32,439 --> 01:21:36,000
Speaker 3: much more long term. It means that, you know, I

1369
01:21:36,120 --> 01:21:40,280
Speaker 3: once had a colleague that we had to part ways

1370
01:21:40,680 --> 01:21:44,720
Speaker 3: because he said that, you know, I was so unimpressed

1371
01:21:44,920 --> 01:21:48,880
Speaker 3: by things like momentum, even if they worked. And he said, look,

1372
01:21:48,920 --> 01:21:51,639
Speaker 3: if I had a blind monkey in my office pointing

1373
01:21:51,680 --> 01:21:55,000
Speaker 3: to the newspaper every day at a stock and every

1374
01:21:55,040 --> 01:21:57,200
Speaker 3: single day that stock went up, that it pointed to

1375
01:21:57,280 --> 01:22:00,320
Speaker 3: whatever stock it pointed to went up every day, he said,

1376
01:22:00,320 --> 01:22:02,639
Speaker 3: you could watch that monkey for six months. You could

1377
01:22:02,640 --> 01:22:04,000
Speaker 3: watch it for a year, you could watch it for

1378
01:22:04,040 --> 01:22:06,559
Speaker 3: two years, and you still wouldn't invest with the monkey.

1379
01:22:06,920 --> 01:22:09,960
Speaker 3: And I said, of course I wouldn't. It's a blind monkey, right,

1380
01:22:10,040 --> 01:22:12,920
Speaker 3: this is my money, this is my client's life savings.

1381
01:22:13,240 --> 01:22:14,960
Speaker 3: You think I'm going to say, oh, the blind monkey

1382
01:22:15,000 --> 01:22:18,919
Speaker 3: pointed at the paper. So when we're in an environment

1383
01:22:19,240 --> 01:22:22,320
Speaker 3: where the market is on a tear and people are saying, oh,

1384
01:22:22,360 --> 01:22:25,400
Speaker 3: you're dinosaurs, we're able to hold our discipline. In two

1385
01:22:25,439 --> 01:22:29,080
Speaker 3: thousand and seven, we had our financial fund had lagged

1386
01:22:29,120 --> 01:22:31,839
Speaker 3: all other financial funds, not all, but most other financial

1387
01:22:31,880 --> 01:22:36,559
Speaker 3: wess because we were underweighted in real estate and we

1388
01:22:36,600 --> 01:22:38,840
Speaker 3: didn't own any Fanny, we didn't own any Freddy, we

1389
01:22:38,840 --> 01:22:41,080
Speaker 3: didn't own any country Wide, we didn't own bear Stearns,

1390
01:22:41,080 --> 01:22:43,920
Speaker 3: we didn't own WAMU. And people would say, wow, you're

1391
01:22:43,960 --> 01:22:47,240
Speaker 3: like a dinosaur, you know, And it's because it's our money,

1392
01:22:47,840 --> 01:22:50,080
Speaker 3: and so we don't mind if it takes a while

1393
01:22:50,160 --> 01:22:53,880
Speaker 3: for the reality for that weighing machine to work. What

1394
01:22:54,000 --> 01:22:57,120
Speaker 3: we look at every years, did the companies get stronger,

1395
01:22:57,160 --> 01:22:59,760
Speaker 3: did they get heavier, did they get more valuable? And

1396
01:23:00,080 --> 01:23:03,800
Speaker 3: if so, we view our research as working. Sometimes the

1397
01:23:03,800 --> 01:23:07,280
Speaker 3: stocks don't go up, sometimes they do, but we're focused

1398
01:23:07,280 --> 01:23:08,839
Speaker 3: on the businesses.

1399
01:23:08,240 --> 01:23:11,360
Speaker 2: On the process, and not just what's going up that day.

1400
01:23:11,640 --> 01:23:15,840
Speaker 2: You know, the blind monkey reminds me of a fascinating

1401
01:23:15,920 --> 01:23:20,559
Speaker 2: quote from Ken French of Dartmouth. Michael Mobison has written

1402
01:23:20,560 --> 01:23:24,599
Speaker 2: a lot about the separation between skill and luck and

1403
01:23:25,560 --> 01:23:31,080
Speaker 2: French of Fama. French had said, you know, it's very

1404
01:23:31,160 --> 01:23:34,120
Speaker 2: challenging to tell the difference between skill and luck with

1405
01:23:34,240 --> 01:23:37,639
Speaker 2: fund managers, and to really have a data set where

1406
01:23:37,680 --> 01:23:41,040
Speaker 2: you can make an informed decision takes about twenty years.

1407
01:23:41,680 --> 01:23:44,200
Speaker 2: So if you're going to wait for that blind monkey,

1408
01:23:44,680 --> 01:23:47,599
Speaker 2: you got to wait twenty years. Well, and you're starting

1409
01:23:47,640 --> 01:23:49,600
Speaker 2: out with the blind monkey, I think we have to

1410
01:23:49,640 --> 01:23:51,400
Speaker 2: assume that it's luck and not skill.

1411
01:23:51,720 --> 01:23:55,760
Speaker 3: Well, and look, Berry, your clients come to you. You

1412
01:23:55,800 --> 01:24:01,880
Speaker 3: could say that it's because of your performance, and performance matters. Well, well,

1413
01:24:01,920 --> 01:24:04,000
Speaker 3: I was going to say, what really matters is trust,

1414
01:24:04,800 --> 01:24:08,320
Speaker 3: right and conviction, And so one of the things that

1415
01:24:09,080 --> 01:24:11,080
Speaker 3: you know, we have clients that say, hey, you went

1416
01:24:11,120 --> 01:24:13,240
Speaker 3: through a period of underperformance, you were at a sync

1417
01:24:13,280 --> 01:24:15,880
Speaker 3: with the market. We weren't worried. You're building wealth for

1418
01:24:16,000 --> 01:24:19,479
Speaker 3: us every year we don't care all this index one here,

1419
01:24:19,640 --> 01:24:22,320
Speaker 3: the index went there. We're with you because we have

1420
01:24:22,400 --> 01:24:25,559
Speaker 3: conviction that you'll get us to our retirement, You'll get

1421
01:24:25,640 --> 01:24:28,400
Speaker 3: us to our kids college funding. You'll help us achieve

1422
01:24:28,479 --> 01:24:31,840
Speaker 3: our goals and maintaining that's something you do with your

1423
01:24:31,840 --> 01:24:34,920
Speaker 3: own money. You don't chase the hot dot. But if

1424
01:24:35,000 --> 01:24:38,240
Speaker 3: you're an investment manager and all of your value comes

1425
01:24:38,240 --> 01:24:40,880
Speaker 3: from the assets under management, you have to chase the

1426
01:24:40,920 --> 01:24:46,320
Speaker 3: hot dot. So trust is an undervalued part of the

1427
01:24:46,479 --> 01:24:50,040
Speaker 3: promise and the value that an investment manager can give

1428
01:24:50,080 --> 01:24:52,519
Speaker 3: to their clients if they If your clients trust you,

1429
01:24:52,720 --> 01:24:56,200
Speaker 3: they will get a better return even if you underperform

1430
01:24:56,479 --> 01:25:00,240
Speaker 3: an index. If you are if their trust is able

1431
01:25:00,240 --> 01:25:02,639
Speaker 3: to keep them invested through the ups and downs.

1432
01:25:02,800 --> 01:25:06,240
Speaker 2: Huh really really fascinating. All right, last question before I

1433
01:25:06,240 --> 01:25:08,759
Speaker 2: get to my favorites that I ask on my guests.

1434
01:25:09,520 --> 01:25:14,240
Speaker 2: What do you think investors are not generally talking about

1435
01:25:14,400 --> 01:25:18,880
Speaker 2: thinking about but perhaps should be, could be a topic

1436
01:25:18,920 --> 01:25:24,920
Speaker 2: of geography and asset class What important issue is kind

1437
01:25:24,960 --> 01:25:26,559
Speaker 2: of getting overlooked these days?

1438
01:25:27,120 --> 01:25:31,160
Speaker 3: Well, I think you know, I think this, These three

1439
01:25:31,240 --> 01:25:34,960
Speaker 3: big transitions in the economy are going to turn a

1440
01:25:34,960 --> 01:25:38,880
Speaker 3: lot of what's become conventional wisdom about investing upside down

1441
01:25:38,920 --> 01:25:42,599
Speaker 3: for a while. So I think you know what hasn't worked?

1442
01:25:43,000 --> 01:25:46,920
Speaker 3: You know, active management hasn't worked. What hasn't worked? Value

1443
01:25:47,040 --> 01:25:53,160
Speaker 3: price discipline hasn't worked. I think you're seeing that. What

1444
01:25:53,160 --> 01:25:57,240
Speaker 3: what has worked? Oh, you know alternatives, you know, illiquidity

1445
01:25:57,320 --> 01:26:01,400
Speaker 3: that's been great. What you know has worked? That I

1446
01:26:01,439 --> 01:26:06,719
Speaker 3: think is dangerous. You know, dividend aristocrats absolutely, I think

1447
01:26:06,760 --> 01:26:07,679
Speaker 3: that any you.

1448
01:26:07,560 --> 01:26:11,080
Speaker 2: Think divit and aristocrats are dangerous because.

1449
01:26:10,920 --> 01:26:13,840
Speaker 3: Because they're looking in the rear view mirror and they

1450
01:26:13,840 --> 01:26:16,559
Speaker 3: are not factoring in these big three changes that we

1451
01:26:16,640 --> 01:26:17,520
Speaker 3: talked about.

1452
01:26:17,400 --> 01:26:19,679
Speaker 2: Well, there isn't that the prob with all models.

1453
01:26:19,760 --> 01:26:23,479
Speaker 3: Yeah, Kodak was a dividend aristocrat, you know, Xerox was

1454
01:26:23,520 --> 01:26:26,960
Speaker 3: a dividend aristocrat. Polaroid was a dividend And that's fine

1455
01:26:27,280 --> 01:26:31,840
Speaker 3: unless there is systemic change, right, And when you have

1456
01:26:31,880 --> 01:26:34,560
Speaker 3: a big change like you had coming out of the seventies,

1457
01:26:34,960 --> 01:26:37,800
Speaker 3: you know, and the change into the eighties nineties, you know,

1458
01:26:37,880 --> 01:26:42,559
Speaker 3: you have these big changes and then everything that worked,

1459
01:26:42,600 --> 01:26:45,400
Speaker 3: you know, everything that helped you survive the crash and

1460
01:26:45,439 --> 01:26:48,639
Speaker 3: the depression in nineteen forty eight, you could say I'm

1461
01:26:48,640 --> 01:26:50,840
Speaker 3: not greedy. I just want to own bonds. Stocks are

1462
01:26:50,840 --> 01:26:53,800
Speaker 3: too dangerous, and you were wiped out in a generation

1463
01:26:54,479 --> 01:26:58,080
Speaker 3: and bonds became certificates of confiscation. So I think people

1464
01:26:58,080 --> 01:27:04,240
Speaker 3: are underestimating how much these conventional strategies, alternatives the rear,

1465
01:27:04,560 --> 01:27:12,120
Speaker 3: the backward looking models, including even momentum indexing and versus active.

1466
01:27:12,320 --> 01:27:16,880
Speaker 3: And I would even maybe add international International had underperformed

1467
01:27:16,920 --> 01:27:18,599
Speaker 3: for so long, and you know.

1468
01:27:18,840 --> 01:27:20,759
Speaker 2: Just the past two years starting to look.

1469
01:27:20,920 --> 01:27:22,160
Speaker 3: Starting to look pretty good.

1470
01:27:22,320 --> 01:27:23,640
Speaker 2: So you like international.

1471
01:27:23,680 --> 01:27:30,280
Speaker 3: I like international. We run an international ETFDINT and it's

1472
01:27:30,360 --> 01:27:32,720
Speaker 3: just like us. It's all stock picking. It's run by

1473
01:27:32,760 --> 01:27:35,840
Speaker 3: my partner, Danton, you know, and our family probably has,

1474
01:27:36,280 --> 01:27:39,720
Speaker 3: you know, always keeps probably fifteen to twenty percent our

1475
01:27:39,760 --> 01:27:42,400
Speaker 3: assets an international And that looked really stupid until two

1476
01:27:42,439 --> 01:27:44,400
Speaker 3: years ago, and it's looking a little better. So I

1477
01:27:44,439 --> 01:27:48,040
Speaker 3: think those conventional things are being likely to turn upside down.

1478
01:27:48,080 --> 01:27:50,759
Speaker 2: What's the old joke? Being diversified means there is always

1479
01:27:50,760 --> 01:27:54,320
Speaker 2: something to apologize for, absolutely all right, So let me

1480
01:27:54,400 --> 01:27:58,479
Speaker 2: jump to my favorite questions I ask all my guests.

1481
01:27:58,600 --> 01:28:01,720
Speaker 2: Even though I would love to stay here and keep

1482
01:28:01,760 --> 01:28:04,680
Speaker 2: you chatting for another three hours, I know you have

1483
01:28:04,800 --> 01:28:09,120
Speaker 2: places to go on people to see And the first

1484
01:28:09,200 --> 01:28:11,799
Speaker 2: question I always ask, I kind of know the answer,

1485
01:28:11,800 --> 01:28:14,840
Speaker 2: but I'm going to give you another opportunity at another

1486
01:28:14,880 --> 01:28:18,639
Speaker 2: swing at it. Who were your mentors who helped shape

1487
01:28:18,680 --> 01:28:21,960
Speaker 2: your career? And I kind of see four people already.

1488
01:28:22,120 --> 01:28:24,840
Speaker 3: Well, you certainly got my dad, my grandfather, and mine

1489
01:28:24,920 --> 01:28:28,880
Speaker 3: and Charlie. I think if I was gonna add another one,

1490
01:28:29,000 --> 01:28:32,479
Speaker 3: I would add Tom Gaynor, the CEO of marc Al.

1491
01:28:32,720 --> 01:28:36,800
Speaker 3: I just think, you know, that sort of principled stewardship leadership,

1492
01:28:37,160 --> 01:28:41,240
Speaker 3: that servant leadership, a company that is built with an

1493
01:28:41,360 --> 01:28:45,720
Speaker 3: enormous durability and culture of stewardship in mind. You know,

1494
01:28:46,760 --> 01:28:50,519
Speaker 3: he's you know, we've served on boards together. He's helped

1495
01:28:50,560 --> 01:28:52,760
Speaker 3: me through difficult times. I've done my best to help

1496
01:28:52,800 --> 01:28:54,920
Speaker 3: him through difficult times. It's a great thing to go

1497
01:28:55,000 --> 01:28:58,000
Speaker 3: through life surrounded by people you admire, and of course

1498
01:28:58,080 --> 01:28:59,920
Speaker 3: I get to work with people I admire, and that's

1499
01:29:00,040 --> 01:29:00,559
Speaker 3: big plus.

1500
01:29:00,640 --> 01:29:04,400
Speaker 2: Huh, really really interesting. Let's talk about I know you're

1501
01:29:04,439 --> 01:29:07,759
Speaker 2: a fellow reader. What are some of your favorite books?

1502
01:29:07,760 --> 01:29:09,000
Speaker 2: What are you reading currently?

1503
01:29:10,240 --> 01:29:12,559
Speaker 3: Well? I have too many favorite books to list, but

1504
01:29:12,720 --> 01:29:14,400
Speaker 3: I all.

1505
01:29:14,280 --> 01:29:16,599
Speaker 2: The way people always tell me, oh that's my favorite question.

1506
01:29:16,640 --> 01:29:17,800
Speaker 2: I'm always looking for something.

1507
01:29:18,520 --> 01:29:20,960
Speaker 3: Well, I'll give you the most recent one I read

1508
01:29:20,960 --> 01:29:23,559
Speaker 3: that I think is a good antidote to the AI

1509
01:29:23,800 --> 01:29:28,479
Speaker 3: phenomena or the AI highysteria, or or the AI the

1510
01:29:28,960 --> 01:29:33,000
Speaker 3: the obsession, that's a better word. And it's a book

1511
01:29:33,040 --> 01:29:38,160
Speaker 3: called Alchemy. The author is Rory Sutherland. Yeah, I think

1512
01:29:38,200 --> 01:29:39,880
Speaker 3: that's a very useful.

1513
01:29:39,880 --> 01:29:42,400
Speaker 2: Book to read right now on marketing and advertising.

1514
01:29:43,000 --> 01:29:48,120
Speaker 3: It's really on ways in which we maybe fetishize. If

1515
01:29:48,160 --> 01:29:51,400
Speaker 3: I said that, right, rationality and that when you look

1516
01:29:51,439 --> 01:29:55,679
Speaker 3: at human behavior, it's very irrational, but it's often irrational

1517
01:29:55,760 --> 01:29:59,479
Speaker 3: and predictable ways. And the more we say what's the

1518
01:29:59,600 --> 01:30:03,960
Speaker 3: rational solution to a problem and expect people to obey that,

1519
01:30:04,600 --> 01:30:07,960
Speaker 3: the more we're going to keep getting crazy outcomes. People

1520
01:30:08,000 --> 01:30:11,520
Speaker 3: react in ways that you know, people react to placebos,

1521
01:30:12,600 --> 01:30:17,320
Speaker 3: but we don't study placebos. Right that. The example he

1522
01:30:17,360 --> 01:30:19,679
Speaker 3: gives that I love is if you wanted to create

1523
01:30:20,000 --> 01:30:24,960
Speaker 3: a really spectacular competitor to Coca Cola and you hired mckensey,

1524
01:30:25,000 --> 01:30:26,960
Speaker 3: they would say, well, you should make something that tastes good,

1525
01:30:27,520 --> 01:30:30,439
Speaker 3: sell it a little cheaper, and make it ubiquitous. What

1526
01:30:30,439 --> 01:30:32,800
Speaker 3: you wouldn't say is make it more expensive, make it

1527
01:30:32,840 --> 01:30:35,360
Speaker 3: taste bad, and put it in a smaller can. And

1528
01:30:35,439 --> 01:30:40,679
Speaker 3: that's red Bull. And so there's a lot to study

1529
01:30:40,720 --> 01:30:43,360
Speaker 3: in a case like that. How has that worked so well?

1530
01:30:43,439 --> 01:30:48,280
Speaker 3: So I think alchemy is a useful one now, you know.

1531
01:30:49,000 --> 01:30:52,439
Speaker 3: I think everybody should read themselves and then have their

1532
01:30:52,600 --> 01:30:56,479
Speaker 3: kids read Morgan Housel's two best books, which should be

1533
01:30:56,520 --> 01:30:59,479
Speaker 3: read as a single book, The Psychology of Money and

1534
01:30:59,520 --> 01:31:03,080
Speaker 3: The Artist. They go together. I said, one is like

1535
01:31:03,160 --> 01:31:06,200
Speaker 3: the sequel to The Godfather. It's the Godfather too. It's

1536
01:31:06,200 --> 01:31:10,640
Speaker 3: not a different movie. It's it's it's the culmination in

1537
01:31:10,680 --> 01:31:11,000
Speaker 3: a way.

1538
01:31:11,120 --> 01:31:15,480
Speaker 2: And you skip three. Okay, that's a three, just doesn't.

1539
01:31:16,720 --> 01:31:21,439
Speaker 3: I agree? I agree. And then for a third book,

1540
01:31:22,040 --> 01:31:24,719
Speaker 3: you know, just the one that immediately comes to mind

1541
01:31:24,920 --> 01:31:29,960
Speaker 3: at the moment is is Americana. Uh. It's a book

1542
01:31:30,000 --> 01:31:33,280
Speaker 3: by there's two books by the same name. I know

1543
01:31:33,320 --> 01:31:36,520
Speaker 3: because Charlie had told four hundred years of American Capitalism.

1544
01:31:36,760 --> 01:31:38,720
Speaker 3: I love that book that I had him on the

1545
01:31:38,760 --> 01:31:39,679
Speaker 3: podcast years ago.

1546
01:31:40,760 --> 01:31:40,920
Speaker 1: Yeah.

1547
01:31:40,960 --> 01:31:45,759
Speaker 2: Spectacular, spectacular, and and it's just really just I think

1548
01:31:45,800 --> 01:31:49,080
Speaker 2: people are just so unaware of the history of American

1549
01:31:49,160 --> 01:31:53,679
Speaker 2: capitalism and that book just does a fantastic job laying

1550
01:31:53,760 --> 01:31:55,400
Speaker 2: out the success.

1551
01:31:54,960 --> 01:31:57,360
Speaker 3: And it will help you as an investor if you

1552
01:31:57,600 --> 01:32:01,360
Speaker 3: think in chapters of that book, if you think about

1553
01:32:01,400 --> 01:32:05,559
Speaker 3: okay Ai is unfolding. You know, he talks about the

1554
01:32:05,600 --> 01:32:09,599
Speaker 3: interstate highways being built. Well, the interstate highways were built.

1555
01:32:09,920 --> 01:32:15,200
Speaker 3: You know who made money? Right McDonald's Wendy's right. The

1556
01:32:15,320 --> 01:32:18,760
Speaker 3: railroads were built. Who made money? It wasn't the railroads, right,

1557
01:32:18,840 --> 01:32:21,360
Speaker 3: it was the factory. Is the ability to distribute? And

1558
01:32:21,400 --> 01:32:23,439
Speaker 3: who too were the dead men walking? You know when

1559
01:32:23,439 --> 01:32:28,080
Speaker 3: the car was developed, But there were three thousand car companies, right,

1560
01:32:28,880 --> 01:32:32,040
Speaker 3: there were two three hundred and seventy one publicly traded

1561
01:32:32,040 --> 01:32:35,200
Speaker 3: internet companies. You know, that's why picking the emerging winners

1562
01:32:35,439 --> 01:32:38,679
Speaker 3: in the early stages is tricky. But think of the chapter,

1563
01:32:38,840 --> 01:32:41,200
Speaker 3: think of that whole arc, and that's a terrific book.

1564
01:32:42,439 --> 01:32:45,040
Speaker 2: What are you streaming these days? What's keeping you entertained?

1565
01:32:45,160 --> 01:32:47,880
Speaker 2: Either Netflix, podcast, whatever?

1566
01:32:48,560 --> 01:32:51,920
Speaker 3: Well, you know, anybody who knows me knows that I

1567
01:32:52,960 --> 01:32:56,800
Speaker 3: watch almost nothing, and I particularly don't watch sports. I

1568
01:32:56,800 --> 01:33:00,160
Speaker 3: don't know a lot about sports. With one exception. I

1569
01:33:00,160 --> 01:33:04,479
Speaker 3: love ice hockey, and I love ice hockey in part

1570
01:33:04,640 --> 01:33:07,200
Speaker 3: because we had a lot of family history. My mom's

1571
01:33:07,240 --> 01:33:11,759
Speaker 3: family helped start the NHL and founded the Boston Bruins.

1572
01:33:11,800 --> 01:33:15,680
Speaker 2: Wait what, Yes, your mom's family helped start.

1573
01:33:15,520 --> 01:33:20,280
Speaker 3: The NHL and founded the Bruins, and we owned the

1574
01:33:20,280 --> 01:33:23,200
Speaker 3: Bruins through my childhood. Can you imagine? Come on, what

1575
01:33:23,360 --> 01:33:27,040
Speaker 3: a deal that my father, who's probably been to eight

1576
01:33:27,080 --> 01:33:30,559
Speaker 3: hockey games in his life, has his name carved on

1577
01:33:30,640 --> 01:33:34,360
Speaker 3: the Stanley Cup twice because he was Shelby Davis was

1578
01:33:34,400 --> 01:33:38,599
Speaker 3: the treasurer of the Boston Bruins, and so they won

1579
01:33:38,640 --> 01:33:40,640
Speaker 3: the Cup twice. He got his day own choice. But

1580
01:33:40,880 --> 01:33:42,920
Speaker 3: I think one of the things that I love about

1581
01:33:42,960 --> 01:33:46,600
Speaker 3: it is that my grandfather, in explaining his love for

1582
01:33:46,680 --> 01:33:50,480
Speaker 3: it to me, he said, you know, every sport handicaps

1583
01:33:50,520 --> 01:33:53,760
Speaker 3: the athletes. You know, you can't use your hands, you

1584
01:33:53,800 --> 01:33:56,080
Speaker 3: can't use your feet, you have to dribble, whatever it is.

1585
01:33:56,320 --> 01:34:01,799
Speaker 3: He said, hockey accentuates every human ability. And the skates

1586
01:34:01,840 --> 01:34:04,920
Speaker 3: and the skates, the stick, the pads, the oval, rink,

1587
01:34:05,040 --> 01:34:10,040
Speaker 3: the ice. I mean, it's just an amazing accelerator of

1588
01:34:10,120 --> 01:34:13,800
Speaker 3: human ability. And I guess the reason I think of

1589
01:34:13,840 --> 01:34:16,080
Speaker 3: it right at this moment, of course, it's we're moving

1590
01:34:16,120 --> 01:34:19,559
Speaker 3: into the Stanley Cup playoffs. We were in the last

1591
01:34:19,560 --> 01:34:23,439
Speaker 3: two rounds. But it's also because I think there's a

1592
01:34:23,439 --> 01:34:26,879
Speaker 3: way to look at AI as accentuating human ability.

1593
01:34:26,960 --> 01:34:27,800
Speaker 2: It's an accelerator.

1594
01:34:27,920 --> 01:34:30,719
Speaker 3: It's an accelerator. And what that could mean for healthcare,

1595
01:34:30,760 --> 01:34:33,719
Speaker 3: what that could mean for health care, inflation going negative.

1596
01:34:33,840 --> 01:34:35,040
Speaker 3: I mean, they're all sorts.

1597
01:34:34,800 --> 01:34:39,200
Speaker 2: Of We're already finding so many new molecules. If anything's

1598
01:34:39,280 --> 01:34:42,560
Speaker 2: going to find a cure to a lot of cancers,

1599
01:34:43,040 --> 01:34:43,519
Speaker 2: it's going.

1600
01:34:43,439 --> 01:34:46,760
Speaker 3: To be yes. And you know, and again we have

1601
01:34:46,880 --> 01:34:50,639
Speaker 3: to recognize that of course, like every technology, there are

1602
01:34:50,640 --> 01:34:52,920
Speaker 3: going to be negatives. They're going to be delays, and

1603
01:34:52,960 --> 01:34:55,320
Speaker 3: as people get disillusioned, we could get a big swing

1604
01:34:55,400 --> 01:34:58,880
Speaker 3: the other way. So equanimity. But again going back to

1605
01:34:58,960 --> 01:35:02,120
Speaker 3: Americana and I get to is Hockey. Think of those

1606
01:35:02,240 --> 01:35:03,080
Speaker 3: long chapters.

1607
01:35:03,320 --> 01:35:06,839
Speaker 2: All right, our final two questions. What sort of advice

1608
01:35:06,880 --> 01:35:10,120
Speaker 2: would you give to a recent college grad interest in

1609
01:35:10,160 --> 01:35:11,520
Speaker 2: the career in investing?

1610
01:35:13,160 --> 01:35:19,400
Speaker 3: Well, I would say, learn everything you can about business,

1611
01:35:20,160 --> 01:35:23,519
Speaker 3: and ideally work in business. You know, I met a

1612
01:35:23,560 --> 01:35:26,880
Speaker 3: guy down at Markel had their reunion just yesterday. I

1613
01:35:26,920 --> 01:35:30,439
Speaker 3: just flew back from Richmond yesterday. Their reunion is a

1614
01:35:30,439 --> 01:35:34,080
Speaker 3: great event. I recommend everybody go just buy a Shara Markel.

1615
01:35:34,200 --> 01:35:37,200
Speaker 3: Go to the reunion, you'll see something a lot, you know,

1616
01:35:37,280 --> 01:35:40,160
Speaker 3: a lot again was compared to Berger. But I just

1617
01:35:41,400 --> 01:35:44,680
Speaker 3: I love the value system there. But I met a

1618
01:35:44,720 --> 01:35:48,200
Speaker 3: guy who was an engineer at Altria, which is headquartered

1619
01:35:48,200 --> 01:35:50,479
Speaker 3: in Richmond. He owned a lot of Altria. He owned

1620
01:35:50,479 --> 01:35:53,320
Speaker 3: a lot of PMI, but he started investing for himself

1621
01:35:53,360 --> 01:35:56,560
Speaker 3: about twenty twenty five years ago. He showed me his portfolio,

1622
01:35:56,720 --> 01:36:00,160
Speaker 3: including his cost basis. He's built a wonderful record as

1623
01:36:00,160 --> 01:36:04,920
Speaker 3: an investor. And so, you know, I think I don't

1624
01:36:04,960 --> 01:36:07,640
Speaker 3: love all these kids going to the Goldman Sacks and

1625
01:36:07,680 --> 01:36:10,600
Speaker 3: to private equity. I think private equity is it was

1626
01:36:10,640 --> 01:36:13,200
Speaker 3: a wonderful business to begin with, and I think it

1627
01:36:13,280 --> 01:36:16,080
Speaker 3: is absolutely lost the.

1628
01:36:16,120 --> 01:36:19,000
Speaker 2: Thread, all the size. It's just ramped up.

1629
01:36:19,160 --> 01:36:22,400
Speaker 3: And they're all selling to themselves, right, and they're trying

1630
01:36:22,400 --> 01:36:25,000
Speaker 3: to get the widows and orphans in there so that

1631
01:36:25,080 --> 01:36:30,040
Speaker 3: they can hold some final sale, just like they did

1632
01:36:30,080 --> 01:36:34,680
Speaker 3: with you know, MLPs and the oil and gas partnerships

1633
01:36:34,680 --> 01:36:38,680
Speaker 3: in the eighties. And I really hate it. There are

1634
01:36:38,720 --> 01:36:41,360
Speaker 3: people within the world of private equity that I admire,

1635
01:36:41,439 --> 01:36:44,759
Speaker 3: that have built stunning records, but most of what's happening

1636
01:36:44,800 --> 01:36:48,919
Speaker 3: at this scale is just stealing money from pension plans

1637
01:36:49,120 --> 01:36:52,800
Speaker 3: for one downments four oh one k's and it's going

1638
01:36:52,840 --> 01:36:57,160
Speaker 3: into penhouses and ferraris. You know, where are the customer's yachts.

1639
01:36:57,320 --> 01:36:59,760
Speaker 3: Look at the returns over the last ten years of

1640
01:36:59,800 --> 01:37:03,800
Speaker 3: the average state pension plan, then look at the breakdown

1641
01:37:03,800 --> 01:37:06,599
Speaker 3: of assets, and you realize that all of the drag

1642
01:37:06,680 --> 01:37:08,560
Speaker 3: on their returns is alternatives.

1643
01:37:08,720 --> 01:37:12,400
Speaker 2: Huh amazing. Final question, what do you know about the

1644
01:37:12,439 --> 01:37:16,720
Speaker 2: world of investing today might have been useful back in

1645
01:37:16,800 --> 01:37:20,839
Speaker 2: the late eighties early nineties when you were first getting started.

1646
01:37:20,960 --> 01:37:24,000
Speaker 3: Well, every investor, if they're honest, will say that their

1647
01:37:24,000 --> 01:37:28,880
Speaker 3: biggest mistakes were what they sold, and so you know,

1648
01:37:29,120 --> 01:37:33,719
Speaker 3: I would say that I've always put all my money

1649
01:37:33,920 --> 01:37:36,800
Speaker 3: in the funds, and I think that's the right alignment.

1650
01:37:37,520 --> 01:37:40,640
Speaker 3: But I realize now which I didn't realize then, that

1651
01:37:40,680 --> 01:37:44,400
Speaker 3: there's some real differences, which is that, you know, in

1652
01:37:44,479 --> 01:37:49,320
Speaker 3: the funds we have to really think about diversification. If

1653
01:37:49,439 --> 01:37:51,280
Speaker 3: each time I bought a stock in the funds, I

1654
01:37:51,400 --> 01:37:53,800
Speaker 3: bought it in my own name, instead of putting my

1655
01:37:53,840 --> 01:37:56,160
Speaker 3: money in the funds and buying I probably would have

1656
01:37:56,160 --> 01:37:58,800
Speaker 3: just left it alone for the last thirty years and

1657
01:37:58,840 --> 01:38:02,280
Speaker 3: it would have done very well. So you know all

1658
01:38:02,360 --> 01:38:04,680
Speaker 3: of the you know, I first bought Amazon in two

1659
01:38:04,760 --> 01:38:07,400
Speaker 3: thousand and two, good time, you know, Yeah, but I

1660
01:38:07,439 --> 01:38:10,240
Speaker 3: sold it in two thousand and four, so thank you.

1661
01:38:10,479 --> 01:38:13,200
Speaker 2: I could, I could tell you the same thing Apple. Yeah,

1662
01:38:13,720 --> 01:38:17,840
Speaker 2: it was fifteen dollars or thirteen cash. Yeah, triple my money.

1663
01:38:17,960 --> 01:38:21,240
Speaker 2: I was a genius. I was like ten thousand percent ago.

1664
01:38:21,400 --> 01:38:23,400
Speaker 3: I know. We did the same thing in Apple, and

1665
01:38:23,439 --> 01:38:25,280
Speaker 3: it was we viewed it as a real estate plate.

1666
01:38:25,360 --> 01:38:27,320
Speaker 3: We said, if you marked the real estate to market

1667
01:38:28,000 --> 01:38:32,640
Speaker 3: and added to the cash, it was an eighty dollars Yeah,

1668
01:38:32,720 --> 01:38:34,920
Speaker 3: and then when it went to two dollars, We're like, oh,

1669
01:38:34,960 --> 01:38:38,120
Speaker 3: too much for our blood. So I do think that

1670
01:38:38,240 --> 01:38:41,439
Speaker 3: I'm trying to really learn and think about how can

1671
01:38:41,520 --> 01:38:45,519
Speaker 3: I how can I improve results over the next twenty

1672
01:38:45,640 --> 01:38:51,280
Speaker 3: years by being more willing to hold? And what does

1673
01:38:51,280 --> 01:38:53,559
Speaker 3: that mean in terms of position size? What does it

1674
01:38:53,600 --> 01:38:55,640
Speaker 3: mean in terms of volatility? What does it mean in

1675
01:38:55,720 --> 01:38:59,040
Speaker 3: terms of client expectation? Would I feel the same if

1676
01:38:59,080 --> 01:39:02,880
Speaker 3: a client has twenty five thousand dollars with us that

1677
01:39:03,120 --> 01:39:06,280
Speaker 3: I would if it was just my own money, because

1678
01:39:06,320 --> 01:39:08,639
Speaker 3: I can absorb a bigger loss and I can absorb

1679
01:39:08,680 --> 01:39:12,759
Speaker 3: more volatility. So that's something I'm still trying to process.

1680
01:39:12,840 --> 01:39:15,720
Speaker 3: But God, I love the business. And you know, like

1681
01:39:15,800 --> 01:39:18,439
Speaker 3: my grandfather, if I could die at my desk at

1682
01:39:18,439 --> 01:39:22,519
Speaker 3: a very old age, I am. I do have the

1683
01:39:22,560 --> 01:39:25,160
Speaker 3: best job on Earth. I get to study success. I

1684
01:39:25,200 --> 01:39:27,760
Speaker 3: get to work with people I admire. I go and

1685
01:39:27,880 --> 01:39:31,439
Speaker 3: visit companies to focus on that elusive idea of culture.

1686
01:39:32,000 --> 01:39:36,240
Speaker 3: I get to meet the incredible people that have built

1687
01:39:36,400 --> 01:39:39,680
Speaker 3: our society, that have built businesses. And we have a

1688
01:39:39,720 --> 01:39:42,519
Speaker 3: country that loves to tear down the heroes, you know,

1689
01:39:42,600 --> 01:39:44,280
Speaker 3: so we admire the guy on the way up, but

1690
01:39:44,320 --> 01:39:47,080
Speaker 3: once they succeed, we somehow decide they're a villain. I

1691
01:39:47,120 --> 01:39:49,960
Speaker 3: don't think that's constructive. I think it's a strange thing

1692
01:39:50,000 --> 01:39:52,919
Speaker 3: for us to admire athletes and not admire Jeff Bezos

1693
01:39:53,479 --> 01:39:56,200
Speaker 3: for what he created and how it has served all

1694
01:39:56,240 --> 01:40:00,559
Speaker 3: of us. Every day we all use Amazon and serves us,

1695
01:40:00,800 --> 01:40:03,320
Speaker 3: you know, every day we delight in seeing our kids

1696
01:40:03,360 --> 01:40:07,439
Speaker 3: on Instagram or using Google Maps. And you know, the

1697
01:40:07,479 --> 01:40:10,920
Speaker 3: idea that we continue to vilify our heroes instead of

1698
01:40:11,240 --> 01:40:14,920
Speaker 3: judging people by their biggest accomplishment, not their weakest moment.

1699
01:40:15,560 --> 01:40:18,080
Speaker 2: Chris, thank you so much for being so generous with

1700
01:40:18,120 --> 01:40:22,120
Speaker 2: your time. This has been absolutely delightful. We have been

1701
01:40:22,240 --> 01:40:26,600
Speaker 2: speaking with Chris Davis. He is the chairman and portfolio

1702
01:40:26,680 --> 01:40:32,000
Speaker 2: manager at Davis Advisors. If you enjoy this conversation, well

1703
01:40:32,160 --> 01:40:34,439
Speaker 2: check out any of the six hundred and forty one

1704
01:40:34,920 --> 01:40:37,960
Speaker 2: we've done over the past twelve years. You can find

1705
01:40:38,000 --> 01:40:43,280
Speaker 2: those at iTunes, Spotify, YouTube, Bloomberg, wherever you get your

1706
01:40:43,320 --> 01:40:47,240
Speaker 2: favorite podcasts. I would be remiss if I didn't thank

1707
01:40:47,280 --> 01:40:51,240
Speaker 2: the correct team that helps with these conversations together each week.

1708
01:40:51,400 --> 01:40:56,320
Speaker 2: Alexis Noriega is my video producer. Joan Russo is my researcher.

1709
01:40:56,880 --> 01:41:01,639
Speaker 2: Anna Luke is my podcast producer. Barry Results. You've been

1710
01:41:01,720 --> 01:41:05,320
Speaker 2: listening to Master's in Business on Bloomberg Radio.