WEBVTT - Young Warren Buffett: How to Find Value No One Else Can See 

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<v Speaker 1>Pushkin too quick. No, it's perfect push kit stuff.

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<v Speaker 2>You got it, Jacob, I wanted you to see one

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<v Speaker 2>of my prize possessions. I hit it in a bag

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<v Speaker 2>so that you would not see it. It is a round, cuddly,

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<v Speaker 2>plushy Warren Buffet.

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<v Speaker 1>He's got like an argyle sweater and a golf club,

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<v Speaker 1>which is weird, like it should be a cherry coke

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<v Speaker 1>box of seas can even like a hand financial document

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<v Speaker 1>annual report. Yeah, why are golf club?

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<v Speaker 2>I think people who golf like Warren Buffett and it's

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<v Speaker 2>just a product that you can buy. A student got

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<v Speaker 2>it for me, who went to the most recent Berkshire

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<v Speaker 2>Hathaway shareholders meeting now the.

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<v Speaker 1>Berkshire Hathaway Sheerwolder's knitting. Always wanted to go. It's a famous.

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<v Speaker 2>Event and this was the one where he announced his retirement.

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<v Speaker 2>My student eagerly like texted me the whole time so excited.

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<v Speaker 2>He knows that I love Warren Buffett and I brought

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<v Speaker 2>it because it's such a weird, unlikely thing. It is

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<v Speaker 2>hard to buy soft plushy dolls of billionaires because who

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<v Speaker 2>would want to sleep with the little elon musk doll

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<v Speaker 2>at night.

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<v Speaker 1>Yeah, this finance seems less likely, right, Like, it's not

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<v Speaker 1>gonna be a plushy Jamie Diamond or a plushy like

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<v Speaker 1>Ken Griffin.

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<v Speaker 2>No, no, no, no, Ken Griffin will cut you in

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<v Speaker 2>the night. And I think that they made a pleasure

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<v Speaker 2>of him because Warren Buffett is sort of extraordinary in

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<v Speaker 2>the history of finance. I mean there's a raw amount

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<v Speaker 2>of money, right, one hundred and forty five billion dollars

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<v Speaker 2>net worth according to Forbes. Right, but there's also the

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<v Speaker 2>way he earned his billions. Most billionaires, if you think

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<v Speaker 2>about it these days, started a company, a tiny company

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<v Speaker 2>that became huge, owned all the stock in it, and

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<v Speaker 2>so on, paper became rich. Or are the children or

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<v Speaker 2>the children or the children of the children. Yeah, Warren

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<v Speaker 2>Buffett did it by investing in other people's companies. He

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<v Speaker 2>hasn't really like made a product himself. He buys companies

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<v Speaker 2>that have good products.

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<v Speaker 1>Which in a way makes it all the more amazing

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<v Speaker 1>that he is this like beloved I'm gonna say beloved figure. Right, Like,

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<v Speaker 1>people generally don't like finance people, and they like Warren Buffett.

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<v Speaker 2>He is a symbol of what people want finance to be. Right, Oh,

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<v Speaker 2>you buy good companies at good prices and you hold

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<v Speaker 2>them through thick and thin.

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<v Speaker 1>Like.

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<v Speaker 2>He's legendarily honest. You know, his word is his bond.

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<v Speaker 2>His handshake does not need lawyers, Jacob.

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<v Speaker 1>I mean, I'm sure he has lawyers.

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<v Speaker 2>He has a lot of lawyers, right, But you know

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<v Speaker 2>he eats at McDonald's every morning, He sweeks cherry coke

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<v Speaker 2>all day long, that he goes home to a tiny

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<v Speaker 2>house in Omaha and plays bridge. I mean, if if

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<v Speaker 2>he didn't exist, you would have to invent a Warren

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<v Speaker 2>Buffett just for those days. You know, when the stock

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<v Speaker 2>market like does something terrible, you can always just say, well,

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<v Speaker 2>there's Warren Buffett, right, Why can't you be more like

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<v Speaker 2>Warren Buffett.

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<v Speaker 1>The honest one hundred and forty five billion dollar financier.

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<v Speaker 2>Yeah, you can be a decent fellow. And today on

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<v Speaker 2>the show, as part of our investing series, I'm going

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<v Speaker 2>to show you that Warren Buffett is a complete fraud.

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<v Speaker 1>Yes, no, he's totally not. He's a great guy.

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<v Speaker 2>I'm just going to say that he is not as

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<v Speaker 2>cuddly and feel good as you might think. Is a

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<v Speaker 2>very shrewd man. He is a shark, really when it

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<v Speaker 2>comes to business deals. And today on the show, we

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<v Speaker 2>are going to show you how he got that way,

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<v Speaker 2>young Buffett.

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<v Speaker 1>I'm Robert Smith, I'm Jacob Goldstein, and this is Business History,

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<v Speaker 1>a show about the history of business.

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<v Speaker 2>This is part of our series on stock market legends.

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<v Speaker 2>We already told you the story of Jesse Livermore, a

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<v Speaker 2>very different story in a very different time, the wild

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<v Speaker 2>West of speculation and tomfoolery, you know, in the Gilded

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<v Speaker 2>Age and right before the Great stock market crash. And

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<v Speaker 2>today we're going to pick up a few years later.

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<v Speaker 2>Because Warren Buffett was born in nineteen thirty, right at

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<v Speaker 2>the start of the depression, and before he was a legend,

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<v Speaker 2>before he was a billionaire, he was just a young

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<v Speaker 2>man who didn't want to work hard and figured out

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<v Speaker 2>a giant flaw in the stock market. Yes, to understand

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<v Speaker 2>how Warren Buffett cracked the code of finance, you have

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<v Speaker 2>to put where's cuddly guy, He's way over there. You

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<v Speaker 2>have to put cuddly Warren Buffett out of your mind,

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<v Speaker 2>and you have to picture Warren Buffett, weird kid born

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<v Speaker 2>in nineteen thirty. As I said, Omaha, Nebraska. It's after

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<v Speaker 2>the Great stock market crash beginning of the depression. His

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<v Speaker 2>father is a stockbroker, not a well respected profession after

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<v Speaker 2>the Great Crash in nineteen twenty nine. Yeah yeah, yeah,

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<v Speaker 2>and he'd eventually become a congressman. His father also not

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<v Speaker 2>a respected profession ever, I know. And Warren Buffett is

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<v Speaker 2>an awkward kid and an obsessive kid.

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<v Speaker 1>Like.

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<v Speaker 2>One of the things he does is he loves collecting things,

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<v Speaker 2>a very Warren Buffett way, right. He starts to collect

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<v Speaker 2>bottle caps, but not just the bottle caps on his

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<v Speaker 2>own bottles. He goes to all the filling stations, the

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<v Speaker 2>gas stations in town to where they sell the drinks.

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<v Speaker 2>He goes into the ice chests where they have them

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<v Speaker 2>and digs around for excess bottle caps, and then he

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<v Speaker 2>puts them in piles in his basement and at night

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<v Speaker 2>he sorts the bottle caps, the rare ones, the popular ones.

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<v Speaker 2>He thinks it's information that no one else has for

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<v Speaker 2>some reason, right.

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<v Speaker 1>And he's not in this to make money, right, He's

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<v Speaker 1>just trying to sort of understand the world. Like in

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<v Speaker 1>New York. It reminds me of in New York. There's

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<v Speaker 1>a certain kind of frankly it's usually a little boy

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<v Speaker 1>who's really into like trains and buses, and there's a

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<v Speaker 1>sense of like the maps and the organization. It feels

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<v Speaker 1>like a Omaha nineteen thirty version of that.

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<v Speaker 2>At one point, Warren Buffett and his friend recorded the

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<v Speaker 2>license plate number of every car that came.

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<v Speaker 1>By their house. Yes, just in case, just in case.

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<v Speaker 1>It's just like there's some order in the world. There's some. Yeah.

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<v Speaker 2>Warren Buffett had a job early, you know, newspaper rowd.

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<v Speaker 1>He worked as a delivery boy.

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<v Speaker 2>For his grandfather's grocery business. He told Alice Schroeder in

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<v Speaker 2>her book Snowball, It's a biography of Warren Buffett, he said, quote,

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<v Speaker 2>I didn't learn anything except I don't like hard work.

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<v Speaker 1>I actually think an aversion to hard work is a

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<v Speaker 1>quality you see in people who are entrepreneurial, like successful

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<v Speaker 1>in a certain way, like Thomas Edison loved hard work.

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<v Speaker 1>But there's another version, which is like people find what

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<v Speaker 1>feels like play to them and then they do it

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<v Speaker 1>all all the time. But it turns out, right, you

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<v Speaker 1>love reading financial reports or building cars, and that doesn't.

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<v Speaker 2>Feel like work. Yeah, I think that's right. Warren Buffett,

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<v Speaker 2>you know, he didn't have good grades. He just didn't

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<v Speaker 2>want to do what other people told him to do.

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<v Speaker 2>He lived a life of petty crime.

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<v Speaker 1>That is shocking.

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<v Speaker 2>I know, I love this. So he and his friends

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<v Speaker 2>would case out the local series. This is another quote

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<v Speaker 2>from the book. It's so good. We would steal the

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<v Speaker 2>place blind, We'd steal golf bags and golf clubs. Walked

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<v Speaker 2>out of the lower level where the sporting goods were

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<v Speaker 2>up the stairway to the street carrying a golf bag

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<v Speaker 2>and golf clubs, and the clubs were stolen, and so

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<v Speaker 2>is the bag. I stole hundreds of golf balls.

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<v Speaker 1>That explains the golf club on the word buffet plusure.

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<v Speaker 1>It's about his crime. It's about his crime. He's a

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<v Speaker 1>friendly old man who stole that golf club.

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<v Speaker 2>Now, Buffett was also making money as a kid, like

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<v Speaker 2>he filed tax returns at the age of fourteen. That's

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<v Speaker 2>so much money he made from his newspaper route.

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<v Speaker 1>But I keep was he selling the stolen golf clubs

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<v Speaker 1>and filing.

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<v Speaker 2>Taxes and filing Texas Very buffet right, honest thief. But

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<v Speaker 2>I come back to this obsession thing that he clearly had, right,

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<v Speaker 2>I mean this ended up being a very important time

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<v Speaker 2>at a very particular moment in the stock market, where

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<v Speaker 2>in order to succeed you had to like do the

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<v Speaker 2>equivalent of writing down license plates, You had to do

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<v Speaker 2>the detailed work to figure out what things were worth

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<v Speaker 2>in the stock market. So Buffett drifts through college, doesn't

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<v Speaker 2>do very well with the ladies, or so he says,

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<v Speaker 2>ends up at Columbia Business School, my alma mater, and

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<v Speaker 2>this is the nineteen fifties, and by this point all

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<v Speaker 2>of his fellow students want jobs in big businesses. They

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<v Speaker 2>want to work for GM and US Steel.

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<v Speaker 1>It's that that post war era is all about that, right,

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<v Speaker 1>Like there's not like crazy new businesses starting up like

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<v Speaker 1>there were in the late eighteen hundreds or the late

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<v Speaker 1>nineteen hundreds. Right, it's this very steady, stable economy.

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<v Speaker 2>Everyone wants to be safe, and honestly, like the safe

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<v Speaker 2>economy is growing, so you can make money and you can.

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<v Speaker 1>Do what's riding up you just the organization man.

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<v Speaker 2>But not Warren Buffett, right, he's obsessed with this larger

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<v Speaker 2>than life investing professor at Columbia named Benjamin Graham legend,

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<v Speaker 2>a legend. So he'd read this book by Benjamin Graham

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<v Speaker 2>called The Intelligent Investor. You can get it to this day,

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<v Speaker 2>people still read it right. This book completely changed the

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<v Speaker 2>way Buffett and a bunch of other investors at the

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<v Speaker 2>time thought about stocks. Like when we talked about the

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<v Speaker 2>stock market before the Great Crash of nineteen twenty nine,

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<v Speaker 2>Jesse Livermore, we talked about the market like it was

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<v Speaker 2>a rigged game, really, because it was Speculators would buy

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<v Speaker 2>a stock and bid up the price of it, try

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<v Speaker 2>to sell it to each other. They called them painting

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<v Speaker 2>the tape, right, They try to get their money out

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<v Speaker 2>before it crashed. But it went up and it crashed,

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<v Speaker 2>And this is what the stock market was.

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<v Speaker 1>It was like all meme stocks.

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<v Speaker 2>Yeah, exactly all the time, right, all momentum trades, psychology

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<v Speaker 2>of the market. But Buffett's mentor, Benjamin Graham, he said

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<v Speaker 2>something that sounds very obvious, but it's missed by a

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<v Speaker 2>lot of people even today. He said, the stocks are

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<v Speaker 2>real companies. Stocks represent ownerships in companies that make things.

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<v Speaker 2>They're not just numbers that go up and down. They

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<v Speaker 2>represent this physical thing in the world. And so just

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<v Speaker 2>as if you're buying, you know, a sweater or a car,

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<v Speaker 2>you want it to be good, you want it to

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<v Speaker 2>last long time, and you want to get a deal

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<v Speaker 2>on it, you w atre on sale. Right, you said,

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<v Speaker 2>just do the same thing for stocks, look for stocks

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<v Speaker 2>and companies that are good companies that will last for

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<v Speaker 2>a long time, that you can find on sale.

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<v Speaker 1>And like, it's worth pausing here for a minute, right,

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<v Speaker 1>because still today it sounds almost naive to talk about

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<v Speaker 1>stocks in this way. But also it is what a

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<v Speaker 1>stock is. Right. You own a share a part of

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<v Speaker 1>a company, and in the sort of platonic ideal of

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<v Speaker 1>the world, that should be worth some share of all

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<v Speaker 1>of the company's future profits. Right. They call this a

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<v Speaker 1>discounted cash flow model which you have built, which you

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<v Speaker 1>have showed me, And like, in the long run, it's

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<v Speaker 1>more or less true, right, in the long run, long average, Yeah,

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<v Speaker 1>the price of a stock does represent the best guests

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<v Speaker 1>the world can make today about the value of that

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<v Speaker 1>company's profits from today until forever.

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<v Speaker 2>But a lot of investors don't think about the long run.

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<v Speaker 2>They're just like, will more people buy it tomorrow? And

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<v Speaker 2>can I sell it for more money than I bought?

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<v Speaker 1>Like it's so weird to me, frank the way it's

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<v Speaker 1>like what did it do today and what is it

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<v Speaker 1>going to do tomorrow? Nobody knows what it's going to

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<v Speaker 1>do tomorrow now.

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<v Speaker 2>To be fair, it was hard at the time that

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<v Speaker 2>we're talking about, the nineteen fifties to get the kind

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<v Speaker 2>of information you would need to figure out what a

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<v Speaker 2>company is really worth. You know, there wasn't a Yahoo Finance.

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<v Speaker 2>There were annual reports, but you had to search for them,

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<v Speaker 2>you had to get him in the mail, you had

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<v Speaker 2>to go to the library.

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<v Speaker 1>And importantly, right there wasn't this giant industry like there

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<v Speaker 1>is today of people who are pouring over those things

0:11:45.280 --> 0:11:47.560
<v Speaker 1>and getting all the information they can out of them.

0:11:48.240 --> 0:11:52.440
<v Speaker 2>Luckily, Warren Buffett is a collector of weird things and

0:11:52.559 --> 0:11:55.040
<v Speaker 2>is willing to go the extra mile to find them.

0:11:55.120 --> 0:11:57.800
<v Speaker 2>He was perfect for the situation. So he signs up

0:11:57.840 --> 0:12:02.240
<v Speaker 2>for Graham's investing class at Columbia, and this is where

0:12:02.240 --> 0:12:04.960
<v Speaker 2>it tips over into actually disturbingly crazy.

0:12:05.040 --> 0:12:05.199
<v Speaker 1>Right.

0:12:05.400 --> 0:12:10.120
<v Speaker 2>Buffett essentially starts to stock Professor Graham before he takes

0:12:10.160 --> 0:12:12.880
<v Speaker 2>the class. He finds out everything he can about Benjamin Graham,

0:12:13.080 --> 0:12:15.680
<v Speaker 2>including the fact that Graham was chairman of the board

0:12:16.040 --> 0:12:19.880
<v Speaker 2>of a company called Government Employees Insurance.

0:12:19.360 --> 0:12:22.719
<v Speaker 1>Company AH Geico, Geico.

0:12:22.440 --> 0:12:24.160
<v Speaker 2>It will eventually be known as Geico. This is way

0:12:24.200 --> 0:12:27.440
<v Speaker 2>before the Gecko, right, And Buffett is like, huh, what

0:12:27.600 --> 0:12:31.400
<v Speaker 2>is up with this Geico company? And again, he's twenty

0:12:31.480 --> 0:12:34.079
<v Speaker 2>years old, he's in school. This is his professor. He

0:12:34.120 --> 0:12:36.320
<v Speaker 2>hasn't even taken the course. He gets on a train

0:12:36.360 --> 0:12:39.200
<v Speaker 2>from New York to DC to go visit Geico to

0:12:39.280 --> 0:12:40.600
<v Speaker 2>find out more about.

0:12:40.280 --> 0:12:44.800
<v Speaker 1>It, knocks on the door on a Saturday, doors or lotday.

0:12:44.960 --> 0:12:49.559
<v Speaker 2>A janitor lets him in because Buffett says, oh, well,

0:12:49.559 --> 0:12:51.319
<v Speaker 2>my professor is the chairman of the board. And the

0:12:51.360 --> 0:12:55.000
<v Speaker 2>janitor is like whatever, kid, like, come on in. Only

0:12:55.080 --> 0:12:59.040
<v Speaker 2>one person is working on this Saturday at Geico, the

0:12:59.120 --> 0:13:03.120
<v Speaker 2>vice president of finance. And Buffett like knocks on his door, says,

0:13:03.120 --> 0:13:04.560
<v Speaker 2>can I ask you a question? And I saw an

0:13:04.600 --> 0:13:07.160
<v Speaker 2>interview with the vice per of finance later who was like, yeah,

0:13:07.200 --> 0:13:07.600
<v Speaker 2>I thought.

0:13:07.440 --> 0:13:09.320
<v Speaker 1>I'd answer this kid's question right.

0:13:09.920 --> 0:13:14.680
<v Speaker 2>Four hours go by four hours the vice president said

0:13:14.679 --> 0:13:18.160
<v Speaker 2>this was like talking to an investor in the insurance business,

0:13:18.160 --> 0:13:22.560
<v Speaker 2>an analyst who knew all of these things. And Boffett

0:13:22.600 --> 0:13:24.760
<v Speaker 2>later he talks about this moment a lot because what

0:13:24.880 --> 0:13:29.360
<v Speaker 2>he sees is he sees that certain companies have certain

0:13:29.800 --> 0:13:32.960
<v Speaker 2>strategic advantages, and Geico is one of them. It's a

0:13:33.000 --> 0:13:36.040
<v Speaker 2>stock that he would buy and end up eventually controlling

0:13:36.080 --> 0:13:39.000
<v Speaker 2>the company. Right, But here's what he learned about Geico

0:13:39.120 --> 0:13:42.640
<v Speaker 2>two things. First of all, it's an insurance company. They

0:13:42.679 --> 0:13:45.040
<v Speaker 2>take money in when things go wrong, crash your car,

0:13:45.360 --> 0:13:47.960
<v Speaker 2>they pay out the money. Yes, what they figured out

0:13:48.120 --> 0:13:50.319
<v Speaker 2>is we need good drivers. How do you know who's

0:13:50.320 --> 0:13:52.360
<v Speaker 2>going to be a good driver. Well, back in those days,

0:13:52.400 --> 0:13:55.679
<v Speaker 2>they're like, we're only going to ensure government workers who,

0:13:55.800 --> 0:13:59.400
<v Speaker 2>for some reason or maybe statistically, right, are less likely

0:13:59.440 --> 0:14:01.160
<v Speaker 2>to speed and get in a crash and drink and drives.

0:14:01.200 --> 0:14:03.240
<v Speaker 1>If you could make up a theory, right, like, if

0:14:03.280 --> 0:14:05.080
<v Speaker 1>you're a risk averse, if you want to be a

0:14:05.160 --> 0:14:08.319
<v Speaker 1>very stable, steady person, go get a government job. You're

0:14:08.360 --> 0:14:10.000
<v Speaker 1>not going to get super rich, but you're probably not

0:14:10.000 --> 0:14:13.040
<v Speaker 1>going to get fired. Sounds like a lower risk driver

0:14:13.120 --> 0:14:14.000
<v Speaker 1>than the average person.

0:14:14.280 --> 0:14:16.560
<v Speaker 2>So he sees a company that has identified a way

0:14:16.640 --> 0:14:19.880
<v Speaker 2>to lower their costs and to basically choose their customers

0:14:19.920 --> 0:14:23.880
<v Speaker 2>and have a competitive advantage because they specialize in government employees.

0:14:23.920 --> 0:14:26.400
<v Speaker 2>Where else are they going to go but your company?

0:14:26.480 --> 0:14:28.960
<v Speaker 1>Right, So this is the moat, Right, This is one

0:14:29.000 --> 0:14:31.960
<v Speaker 1>of the big buffet ideas. Is not just a company

0:14:31.960 --> 0:14:34.760
<v Speaker 1>that is, you know, beating its competitors, but a company

0:14:34.760 --> 0:14:37.040
<v Speaker 1>that has a durable competitive advantage.

0:14:37.080 --> 0:14:40.240
<v Speaker 2>That's like classic buffet, classic buffet. The other thing he

0:14:40.360 --> 0:14:44.560
<v Speaker 2>learns is the insurance company has piles and piles of

0:14:44.640 --> 0:14:49.120
<v Speaker 2>cash because people pay their premiums every month on time

0:14:49.640 --> 0:14:52.400
<v Speaker 2>the money comes in, and the company doesn't have to

0:14:52.400 --> 0:14:55.440
<v Speaker 2>pay out that money until much later when there's a crash.

0:14:55.480 --> 0:14:57.400
<v Speaker 2>Maybe they don't pay it out at all. Right, float,

0:14:57.640 --> 0:14:59.760
<v Speaker 2>this is called the float. This is called the floats.

0:15:00.240 --> 0:15:03.520
<v Speaker 2>And so he saw that this company was constantly looking

0:15:03.560 --> 0:15:06.360
<v Speaker 2>for things to invest in because I had so much money.

0:15:06.480 --> 0:15:11.200
<v Speaker 2>Uh huh, Young Warren Buffett is like, huh. And by

0:15:11.200 --> 0:15:14.000
<v Speaker 2>the way, this is all before he takes the investing cord.

0:15:14.080 --> 0:15:16.200
<v Speaker 1>Tony has got a pile of bottle caps back in

0:15:16.280 --> 0:15:17.320
<v Speaker 1>his childhood. Bet.

0:15:17.440 --> 0:15:20.040
<v Speaker 2>He starts to buy Geico right, shows up in the

0:15:20.080 --> 0:15:24.000
<v Speaker 2>class front row, raises his hand A plus, sure, I

0:15:24.000 --> 0:15:27.880
<v Speaker 2>would hope. So he wants to work for Benjamin Graham.

0:15:27.960 --> 0:15:31.120
<v Speaker 2>That's all he wants to do. Focused, focused, young man. Right,

0:15:31.600 --> 0:15:35.640
<v Speaker 2>So Warren Buffett goes to Benjamin Graham and says a plus,

0:15:35.960 --> 0:15:38.800
<v Speaker 2>can I come work for your company? And Benjamin Graham says, no,

0:15:39.520 --> 0:15:45.200
<v Speaker 2>interesting reason. Benjamin Graham was Jewish, huh, And he said

0:15:45.240 --> 0:15:48.520
<v Speaker 2>it's very hard for Jews to get jobs in Wall

0:15:48.600 --> 0:15:50.040
<v Speaker 2>Street and finance at this time.

0:15:50.080 --> 0:15:51.720
<v Speaker 1>Depends on the firm at this time.

0:15:51.840 --> 0:15:56.640
<v Speaker 2>Yes, so he said that he would only hire Jewish

0:15:56.640 --> 0:15:59.760
<v Speaker 2>investors for his firm as a sort of affirmative action.

0:15:59.880 --> 0:16:03.000
<v Speaker 1>Comfortable. I'll be honest with you that story. Yeah, as

0:16:03.000 --> 0:16:04.440
<v Speaker 1>you may know, I'm Jewish, and i feel a little

0:16:04.440 --> 0:16:06.240
<v Speaker 1>awkward about that, but I'm interested. Go on.

0:16:06.440 --> 0:16:09.680
<v Speaker 2>This is what Benjamin Graham fought. Warren Buffett famously not

0:16:09.760 --> 0:16:12.760
<v Speaker 2>a Jew. Yes, he could not get a job company, right,

0:16:13.040 --> 0:16:15.200
<v Speaker 2>So he gets a job as a stockbroker like his

0:16:15.280 --> 0:16:15.720
<v Speaker 2>dad did.

0:16:16.520 --> 0:16:18.680
<v Speaker 1>And Buffett hates it.

0:16:18.880 --> 0:16:22.520
<v Speaker 2>Huh, hates being a stockbroker. And if you think about it,

0:16:23.040 --> 0:16:25.960
<v Speaker 2>being a stockbroker means you are a salesman and you

0:16:26.000 --> 0:16:29.600
<v Speaker 2>have to sell new companies to your investors all the time.

0:16:30.720 --> 0:16:33.160
<v Speaker 2>Buffett wants to buy one company. He wants everyone to

0:16:33.240 --> 0:16:37.000
<v Speaker 2>just buy Geico and to never sell it ever. And

0:16:37.040 --> 0:16:41.080
<v Speaker 2>if you're working on commission, that's a really that's a

0:16:41.120 --> 0:16:43.600
<v Speaker 2>really bad business. I got one stock for you to buy,

0:16:44.080 --> 0:16:46.400
<v Speaker 2>never sell it. You can't make money off of it.

0:16:47.640 --> 0:16:50.600
<v Speaker 2>He eventually does go back and gets a job with

0:16:50.640 --> 0:16:53.800
<v Speaker 2>Graham convinces him, and this is where the two of

0:16:53.840 --> 0:16:56.840
<v Speaker 2>them they cook up the system that it's going to

0:16:56.960 --> 0:16:58.280
<v Speaker 2>make Warren Buffett rich.

0:16:58.760 --> 0:17:24.480
<v Speaker 3>After the break, It's the mid nineteen fifties and Warren

0:17:24.520 --> 0:17:26.919
<v Speaker 3>Buffett is living the dream.

0:17:26.960 --> 0:17:29.200
<v Speaker 2>Maybe not his dream, but a classic American dream. He's

0:17:29.240 --> 0:17:32.000
<v Speaker 2>living in Westchester, outside of New York City. He's working

0:17:32.040 --> 0:17:34.760
<v Speaker 2>for his hero, Benjamin Graham. He's got a wife, Susan,

0:17:35.160 --> 0:17:38.680
<v Speaker 2>two kids soon to be three kids, Susie, Howie, and Peter,

0:17:39.680 --> 0:17:42.800
<v Speaker 2>and Buffett spends almost no time with them. He basically

0:17:42.840 --> 0:17:47.240
<v Speaker 2>eats dinner, goes upstairs and reads one financial report after

0:17:47.280 --> 0:17:50.639
<v Speaker 2>the other. Fifties Dad, that's what he loved, right, And

0:17:50.680 --> 0:17:53.480
<v Speaker 2>the key idea that he and Benjamin Graham had was

0:17:53.520 --> 0:17:56.640
<v Speaker 2>to find something that they referred to as a cigar

0:17:56.880 --> 0:18:00.159
<v Speaker 2>butt company. And the joke, I guess it is a

0:18:00.240 --> 0:18:03.040
<v Speaker 2>joke after the depression, right. The joke is that you

0:18:03.080 --> 0:18:05.919
<v Speaker 2>could find a cigar butt thrown in the gutter and

0:18:05.960 --> 0:18:08.199
<v Speaker 2>that'd be just enough tobacco left to get like two

0:18:08.280 --> 0:18:09.240
<v Speaker 2>good puffs out of it.

0:18:09.920 --> 0:18:12.439
<v Speaker 1>And then you could throw it away. Right, So this

0:18:12.560 --> 0:18:15.679
<v Speaker 1>is different than the classic buffet. This is not the

0:18:15.680 --> 0:18:18.560
<v Speaker 1>way we think of buffet today. No, that's right.

0:18:18.680 --> 0:18:22.360
<v Speaker 2>This is how young Buffett made his money because there

0:18:22.480 --> 0:18:25.440
<v Speaker 2>was this information gap in the market. If he could

0:18:25.520 --> 0:18:29.080
<v Speaker 2>find a cigar butt company, it felt like, I can

0:18:29.160 --> 0:18:30.840
<v Speaker 2>get a little bit of money out of this and

0:18:30.960 --> 0:18:35.760
<v Speaker 2>sell it. Then I'll be able to like multiply my money.

0:18:35.800 --> 0:18:37.560
<v Speaker 2>I'd be able to, like, you know, make it happen.

0:18:37.640 --> 0:18:37.840
<v Speaker 1>Right.

0:18:38.320 --> 0:18:42.560
<v Speaker 2>So here's an example. He found the Union Street railway

0:18:42.720 --> 0:18:46.760
<v Speaker 2>in New Bedford, Massachusetts. It's nineteen fifty five. There's a

0:18:46.760 --> 0:18:49.240
<v Speaker 2>company that owned a bunch of buses. I don't know

0:18:49.280 --> 0:18:51.000
<v Speaker 2>where the rail was, but a bunch of buses.

0:18:51.000 --> 0:18:53.280
<v Speaker 1>They started out as one of those little urban street

0:18:53.280 --> 0:18:53.879
<v Speaker 1>car companies.

0:18:54.160 --> 0:18:57.199
<v Speaker 2>Yeah, so they may have run a trolley car at

0:18:57.240 --> 0:18:59.400
<v Speaker 2>some point. By this point they are buses and an

0:18:59.400 --> 0:19:00.320
<v Speaker 2>amusement park.

0:19:00.520 --> 0:19:01.000
<v Speaker 1>Amazing.

0:19:01.200 --> 0:19:03.840
<v Speaker 2>Sure, so there's nothing remarkable about this company.

0:19:03.880 --> 0:19:09.199
<v Speaker 1>But at an amusement park is fun, right, It's like

0:19:09.240 --> 0:19:14.439
<v Speaker 1>the Chinese Army. It's like they own a lot of

0:19:14.480 --> 0:19:15.119
<v Speaker 1>weird things.

0:19:15.200 --> 0:19:16.720
<v Speaker 2>We have the news of the park and the way

0:19:16.760 --> 0:19:19.840
<v Speaker 2>you get there. So he starts to research the company,

0:19:19.840 --> 0:19:23.159
<v Speaker 2>and he finds out, in addition to the tilted world,

0:19:23.800 --> 0:19:26.760
<v Speaker 2>they have about a million dollars in treasury bonds and

0:19:26.880 --> 0:19:30.000
<v Speaker 2>cash just like sitting in the company. He does the

0:19:30.040 --> 0:19:33.000
<v Speaker 2>math figures out the company is worth like sixty dollars

0:19:33.080 --> 0:19:35.679
<v Speaker 2>per share if you include all this money laying around.

0:19:35.960 --> 0:19:39.600
<v Speaker 2>Stock selling for thirty or thirty five dollars.

0:19:39.600 --> 0:19:41.520
<v Speaker 1>Amazing. So one of the reasons.

0:19:41.200 --> 0:19:43.880
<v Speaker 2>Why there's probably this huge gap is that stocks weren't

0:19:43.880 --> 0:19:46.720
<v Speaker 2>all traded on a central system back then, right, So.

0:19:46.600 --> 0:19:48.240
<v Speaker 1>Like, just to be clear, this stock is not on

0:19:48.280 --> 0:19:51.240
<v Speaker 1>the New York Stock Exchange. It's some weird little company

0:19:51.280 --> 0:19:53.879
<v Speaker 1>that trades at some random little exchange. So like, people

0:19:53.920 --> 0:19:56.520
<v Speaker 1>working on Wall Street don't even know this stock exists.

0:19:56.800 --> 0:19:59.520
<v Speaker 2>No, only a man who would spend every night pouring

0:19:59.560 --> 0:20:02.280
<v Speaker 2>over companies and company documents would know that this tiny

0:20:02.280 --> 0:20:05.679
<v Speaker 2>company exists. Right, So Buffa puts an ad in the

0:20:05.720 --> 0:20:10.240
<v Speaker 2>newspaper saying I will buy shares for a certain price.

0:20:10.480 --> 0:20:13.080
<v Speaker 2>He wants all the shares he can get his hands on,

0:20:13.359 --> 0:20:16.320
<v Speaker 2>hoping that there's like old retirees of the company who

0:20:16.359 --> 0:20:18.760
<v Speaker 2>have these stocks, who are like certificates.

0:20:18.840 --> 0:20:20.680
<v Speaker 1>Right, they probably have a drawer with the pass of

0:20:20.720 --> 0:20:24.080
<v Speaker 1>paper send them to me. It sounds like such a scam,

0:20:24.200 --> 0:20:26.320
<v Speaker 1>doesn't it. Like if you saw an ad in the

0:20:26.359 --> 0:20:29.199
<v Speaker 1>newspaper to send your stock certificate it, I would think

0:20:29.240 --> 0:20:30.440
<v Speaker 1>it was a scam.

0:20:30.440 --> 0:20:33.800
<v Speaker 2>But maybe more trust back in those days. It's Warren Buffett, right.

0:20:34.040 --> 0:20:37.639
<v Speaker 2>So he builds up his position in this company, and

0:20:37.720 --> 0:20:40.440
<v Speaker 2>he does what I guess apparently is one of his tricks.

0:20:40.440 --> 0:20:43.000
<v Speaker 2>He shows up again on the weekend, like to like

0:20:43.680 --> 0:20:48.480
<v Speaker 2>barnstorm into the company, meets with the CEO, and whether

0:20:48.560 --> 0:20:51.159
<v Speaker 2>he convinces the CEO to do something or whether the

0:20:51.160 --> 0:20:53.000
<v Speaker 2>co is going to do it anyway, we don't know.

0:20:53.560 --> 0:20:56.720
<v Speaker 2>But soon afterwards the CEO is like, okay, we will

0:20:56.720 --> 0:20:59.680
<v Speaker 2>offer dividends, payments back on the stock, and we will

0:20:59.720 --> 0:21:03.520
<v Speaker 2>pay out our cash. Oh wow, I know Buffett makes

0:21:03.520 --> 0:21:07.000
<v Speaker 2>twenty thousand dollars. Look at that buying up cheap stock. Yeah,

0:21:07.119 --> 0:21:09.600
<v Speaker 2>sell it and high, which is good, Like if you're

0:21:09.600 --> 0:21:12.680
<v Speaker 2>a twenty something back in those days, twenty thousands is awesome.

0:21:12.760 --> 0:21:12.879
<v Speaker 3>Right.

0:21:12.920 --> 0:21:17.200
<v Speaker 2>Yeah, so I take it today, but put an add

0:21:17.200 --> 0:21:20.200
<v Speaker 2>in the newspaper. Taken he starts to find more and

0:21:20.280 --> 0:21:22.840
<v Speaker 2>more of these cigar bots, and you know, if you

0:21:22.960 --> 0:21:25.800
<v Speaker 2>read his biography, there's just like he has like intricate

0:21:25.840 --> 0:21:26.720
<v Speaker 2>details of each one.

0:21:26.760 --> 0:21:29.000
<v Speaker 1>I think the man has never forgotten a stock price.

0:21:29.160 --> 0:21:33.040
<v Speaker 2>Right, But I'm struck by the bigger picture of American

0:21:33.119 --> 0:21:36.960
<v Speaker 2>finance at the time. Right in the decades after the depression,

0:21:37.240 --> 0:21:42.199
<v Speaker 2>American companies were really cautious, right. They stockpiled cash and

0:21:42.320 --> 0:21:47.040
<v Speaker 2>bonds and emergency funds because there was this feeling like

0:21:47.080 --> 0:21:50.639
<v Speaker 2>the bad times can come again very quickly. So what

0:21:50.800 --> 0:21:55.520
<v Speaker 2>you had was companies that were really being overly cautious.

0:21:55.560 --> 0:21:57.600
<v Speaker 2>And that's what Buffett saw well.

0:21:57.600 --> 0:22:01.760
<v Speaker 1>And also investors were clearly overly cautious, right, I mean

0:22:02.080 --> 0:22:04.120
<v Speaker 1>a they weren't doing the work of like finding these

0:22:04.119 --> 0:22:07.240
<v Speaker 1>obscure companies. But it's easy to forget now when we

0:22:07.400 --> 0:22:09.480
<v Speaker 1>just assume that, you know, the stock market, the S

0:22:09.520 --> 0:22:11.200
<v Speaker 1>and P is going to return whatever it is, eight

0:22:11.240 --> 0:22:14.480
<v Speaker 1>percent on average year after hear like it took decades

0:22:14.640 --> 0:22:17.080
<v Speaker 1>after the depression for the stock market to get back

0:22:17.119 --> 0:22:19.520
<v Speaker 1>to where it was. Like if you bought in twenty nine,

0:22:19.840 --> 0:22:22.800
<v Speaker 1>you were probably still underwater in like nineteen fifties, certainly

0:22:22.840 --> 0:22:26.640
<v Speaker 1>like into the forties, you know, So like not only

0:22:27.280 --> 0:22:30.199
<v Speaker 1>were companies being cautious, but so were investors.

0:22:30.359 --> 0:22:32.600
<v Speaker 2>Yeah, who would want to buy these big names, the

0:22:32.680 --> 0:22:35.200
<v Speaker 2>general motors, right, but they didn't want to look at

0:22:35.200 --> 0:22:38.320
<v Speaker 2>some tiny company in New Bedford, Massachusetts. Buffett would get

0:22:38.320 --> 0:22:40.439
<v Speaker 2>something called the pink sheets, which were the prices of

0:22:40.480 --> 0:22:43.880
<v Speaker 2>these tiny companies that would come out once a week.

0:22:44.000 --> 0:22:47.159
<v Speaker 2>I assume that they were actually pink and that was

0:22:47.280 --> 0:22:50.080
<v Speaker 2>like the most up to date knowledge about the stocks.

0:22:50.480 --> 0:22:54.520
<v Speaker 1>Once a week in the mail, running to the mailbox,

0:22:54.640 --> 0:22:56.520
<v Speaker 1>ripping over the pink sheet. Un blow.

0:22:56.840 --> 0:22:58.840
<v Speaker 2>That's when Warren Buffet would do the Warren Buffett thing.

0:22:58.880 --> 0:23:00.520
<v Speaker 2>He'd start to call him on the phone. He'd start

0:23:00.520 --> 0:23:02.439
<v Speaker 2>to research the company, ask for all their stuff, like

0:23:02.480 --> 0:23:05.119
<v Speaker 2>he is putting in the extra work. And that is

0:23:05.119 --> 0:23:07.240
<v Speaker 2>how he is finding these companies, and no one else

0:23:07.320 --> 0:23:09.680
<v Speaker 2>was doing it other than Benjamin Graham and a few

0:23:09.680 --> 0:23:12.879
<v Speaker 2>other people who followed this philosophy. And so this is

0:23:12.920 --> 0:23:15.000
<v Speaker 2>the flaw, This is the flaw he found in the market,

0:23:15.040 --> 0:23:18.120
<v Speaker 2>and this is what he started to ride. He crosses

0:23:18.160 --> 0:23:20.200
<v Speaker 2>one hundred thousand dollars in net Worth in the mid

0:23:20.240 --> 0:23:23.560
<v Speaker 2>nineteen fifties. He's in his mid twenties, still a young

0:23:23.560 --> 0:23:26.800
<v Speaker 2>man managing other people's money. At this point millionaire around

0:23:26.840 --> 0:23:30.159
<v Speaker 2>the age of thirty has ten million dollars by the

0:23:30.200 --> 0:23:31.440
<v Speaker 2>late nineteen sixties.

0:23:32.600 --> 0:23:35.200
<v Speaker 1>And the fun just these little companies one after another,

0:23:35.320 --> 0:23:37.440
<v Speaker 1>getting in, getting out. That's his move the whole time.

0:23:37.560 --> 0:23:40.000
<v Speaker 2>He does some bigger companies. There's like a play on

0:23:40.119 --> 0:23:44.000
<v Speaker 2>AMX American Express that was because of a like a

0:23:44.040 --> 0:23:47.200
<v Speaker 2>cooking oil scandal. Too hard to get into, too hard

0:23:47.200 --> 0:23:51.000
<v Speaker 2>to get into. But the weird thing about this is that,

0:23:51.800 --> 0:23:56.359
<v Speaker 2>you know, he is a very successful investor, right making

0:23:56.400 --> 0:23:58.920
<v Speaker 2>millions of dollars on this technique. He's back in Omaha

0:23:59.000 --> 0:24:03.160
<v Speaker 2>at this point, and nobody knows much about him, huh,

0:24:03.160 --> 0:24:05.120
<v Speaker 2>Like he's not on the front page of the Wall

0:24:05.160 --> 0:24:07.720
<v Speaker 2>Street Journal. People are not writing about him. Really into

0:24:07.720 --> 0:24:11.320
<v Speaker 2>the late sixties, like when he is already you know,

0:24:11.400 --> 0:24:15.000
<v Speaker 2>almost middle aged. Yeah, and he starts to like twist

0:24:15.119 --> 0:24:18.960
<v Speaker 2>these ideas. You know, Benjamin Graham retires Buffett gets his

0:24:18.960 --> 0:24:21.760
<v Speaker 2>own investors, and he starts to to kind of take

0:24:21.800 --> 0:24:25.280
<v Speaker 2>these ideas and do it slightly differently, which is Benjamin

0:24:25.320 --> 0:24:28.800
<v Speaker 2>Graham preached diversification. His idea the flip side of the

0:24:28.840 --> 0:24:31.879
<v Speaker 2>cigar butts was buy a lot of them. You never

0:24:32.040 --> 0:24:34.520
<v Speaker 2>know which one's gonna make it and which one's not.

0:24:34.960 --> 0:24:40.840
<v Speaker 2>So like diversify, right, Warren Buffett is like, no, I

0:24:40.880 --> 0:24:43.520
<v Speaker 2>have good ideas. I have this success rate so far,

0:24:43.600 --> 0:24:45.560
<v Speaker 2>so I'm going to kind of go all in on

0:24:45.600 --> 0:24:46.640
<v Speaker 2>these companies I love.

0:24:46.880 --> 0:24:50.280
<v Speaker 1>Now, that's counter not just to Benjamin Graham, right, but

0:24:50.359 --> 0:24:54.360
<v Speaker 1>to like math math right. So Markowitz right, that there's

0:24:54.400 --> 0:24:57.119
<v Speaker 1>this whole modern portfolio theory that's coming in right around

0:24:57.160 --> 0:25:00.199
<v Speaker 1>this time, right, the sixties. Yea, And like, it's a

0:25:00.200 --> 0:25:02.919
<v Speaker 1>pretty compelling case that diversification is good, that it is

0:25:02.920 --> 0:25:05.439
<v Speaker 1>a free lunch that you get basically the same return

0:25:05.480 --> 0:25:09.440
<v Speaker 1>with less kind of idiosyncratic risk. And Warren Buffett is disagreeing.

0:25:09.600 --> 0:25:14.080
<v Speaker 1>Here's what he says about that diversification is protection against ignorance.

0:25:14.560 --> 0:25:16.520
<v Speaker 1>It makes little sense if you know what you're doing.

0:25:17.200 --> 0:25:22.360
<v Speaker 2>Huh boom for chumps, Jacob like us, I mean fair tough,

0:25:22.400 --> 0:25:25.359
<v Speaker 2>I'm fair. I mean it worked for him. I do

0:25:25.440 --> 0:25:29.240
<v Speaker 2>not advise this for everyone, right, But it did give

0:25:29.320 --> 0:25:33.119
<v Speaker 2>him a certain advantage over the Benjamin Grahams of the world,

0:25:33.400 --> 0:25:37.959
<v Speaker 2>which was, if you pile into certain companies in particular,

0:25:38.680 --> 0:25:40.720
<v Speaker 2>you don't have to rely on them to do the

0:25:40.800 --> 0:25:44.359
<v Speaker 2>right thing, to release this money that they're keeping to

0:25:44.400 --> 0:25:45.119
<v Speaker 2>their investors.

0:25:45.200 --> 0:25:45.440
<v Speaker 1>Right.

0:25:46.400 --> 0:25:50.600
<v Speaker 2>If you assemble enough stock, they have to listen to you.

0:25:50.600 --> 0:25:52.680
<v Speaker 2>You can get elected to the board. You can make

0:25:52.720 --> 0:25:56.800
<v Speaker 2>them do things right. And this was the next sort

0:25:56.800 --> 0:25:59.200
<v Speaker 2>of turn of the screw that Warren Buffett was doing.

0:25:59.240 --> 0:26:02.320
<v Speaker 2>He would find these undervalued companies and then he would

0:26:02.560 --> 0:26:08.400
<v Speaker 2>make them give him back the money. Huh, Sanborn Map Map.

0:26:08.760 --> 0:26:10.040
<v Speaker 2>It's a map company.

0:26:09.920 --> 0:26:13.720
<v Speaker 1>They also own a chain of ice cream parlorts.

0:26:13.880 --> 0:26:15.919
<v Speaker 2>That would be great, right, No, but they could tell

0:26:15.920 --> 0:26:18.480
<v Speaker 2>you how to get there because they made maps.

0:26:19.000 --> 0:26:22.639
<v Speaker 1>So they specialized in selling very remember maps. You have

0:26:22.680 --> 0:26:24.680
<v Speaker 1>the Thomas Brother's Guide to the Back of the Car.

0:26:24.800 --> 0:26:27.760
<v Speaker 1>Oh yeah, yeah, it was a whole block in the

0:26:27.800 --> 0:26:31.119
<v Speaker 1>county book. Yeah, so this is even more detailed than

0:26:31.119 --> 0:26:32.280
<v Speaker 1>the Thomas brother maps. Right.

0:26:32.480 --> 0:26:37.679
<v Speaker 2>They would sell these maps that were basically diagrams of

0:26:37.760 --> 0:26:40.760
<v Speaker 2>specific buildings and every floor so you knew where the

0:26:40.800 --> 0:26:42.880
<v Speaker 2>interest is and exits were, you know, the windows were

0:26:42.920 --> 0:26:44.200
<v Speaker 2>all of this sort of thing, and they would sell

0:26:44.240 --> 0:26:47.240
<v Speaker 2>it to insurance companies who needed to know how safe

0:26:47.280 --> 0:26:49.560
<v Speaker 2>the buildings were into fire departments, so they knew like

0:26:49.680 --> 0:26:51.080
<v Speaker 2>how to get in and out of the building if

0:26:51.119 --> 0:26:51.960
<v Speaker 2>there's a fire.

0:26:52.040 --> 0:26:55.159
<v Speaker 1>Some mote by the way, yeah, right, Like who's going

0:26:55.240 --> 0:26:58.280
<v Speaker 1>to make maps of every building in America once one

0:26:58.320 --> 0:27:00.680
<v Speaker 1>company already has it exactly right, exactly right.

0:27:00.800 --> 0:27:05.040
<v Speaker 2>So Offett starts to buy some of their stock, buys

0:27:05.200 --> 0:27:07.520
<v Speaker 2>enough that he gets on the board of directors, shows

0:27:07.600 --> 0:27:11.359
<v Speaker 2>up for the board meeting, right he's ready, looks around

0:27:11.400 --> 0:27:15.399
<v Speaker 2>at the board of and he realizes they don't really

0:27:15.480 --> 0:27:18.919
<v Speaker 2>own much stock. They are the board of directors because

0:27:19.560 --> 0:27:21.359
<v Speaker 2>I assume they are old men who have been on

0:27:21.400 --> 0:27:24.320
<v Speaker 2>the company board a long time, friends of somebody way

0:27:24.359 --> 0:27:28.439
<v Speaker 2>back when. And he's the one that actually owns a

0:27:28.560 --> 0:27:29.360
<v Speaker 2>large share.

0:27:29.119 --> 0:27:29.760
<v Speaker 1>Of the company.

0:27:30.000 --> 0:27:32.320
<v Speaker 2>The rest of them, they're just there for you know,

0:27:32.920 --> 0:27:34.120
<v Speaker 2>just for fun, right, I.

0:27:34.040 --> 0:27:37.840
<v Speaker 1>Mean they're getting paid. Maybe they're friends of the CEO. Right,

0:27:37.880 --> 0:27:40.199
<v Speaker 1>classic CEO move is like pick the people who are

0:27:40.240 --> 0:27:42.040
<v Speaker 1>notionally your boss, who are actually your buddies.

0:27:42.200 --> 0:27:44.879
<v Speaker 2>Buffett says to them, hey, okay, we got to do

0:27:44.920 --> 0:27:46.840
<v Speaker 2>the thing, right. You got all this extra money, why

0:27:46.840 --> 0:27:49.359
<v Speaker 2>don't we just give it back to your shareholders, which

0:27:49.760 --> 0:27:55.360
<v Speaker 2>is kind of me? And they're like yeah, no, And.

0:27:56.960 --> 0:27:57.480
<v Speaker 1>He says.

0:27:57.960 --> 0:28:01.480
<v Speaker 2>They light up some cigars and laugh, and he's thinking,

0:28:02.080 --> 0:28:05.160
<v Speaker 2>I paid for those cigars, I paid for the room.

0:28:05.440 --> 0:28:07.040
<v Speaker 2>I paid for you guys to sit here.

0:28:07.119 --> 0:28:11.760
<v Speaker 1>Right, there's a classic problem with public companies. Right. People

0:28:11.760 --> 0:28:13.720
<v Speaker 1>have been aware of it for hundreds of years, the

0:28:13.760 --> 0:28:17.359
<v Speaker 1>principal agent problem. When one person or group of people

0:28:17.520 --> 0:28:20.280
<v Speaker 1>owns the company like the shareholders, and somebody else runs it,

0:28:21.119 --> 0:28:24.119
<v Speaker 1>the people running it are not gonna naturally act in

0:28:24.119 --> 0:28:25.800
<v Speaker 1>the best interests of the owners. They're gonna act in

0:28:25.800 --> 0:28:28.240
<v Speaker 1>their own best interests. The incentives are not aligned. Right.

0:28:28.480 --> 0:28:31.080
<v Speaker 2>So he threatens a special meeting. He's going to like

0:28:31.160 --> 0:28:34.080
<v Speaker 2>take this to all the shareholders. Eventually the rest of

0:28:34.080 --> 0:28:37.040
<v Speaker 2>the board relents. They offer to give back some of

0:28:37.040 --> 0:28:38.440
<v Speaker 2>the companies excess money.

0:28:38.520 --> 0:28:41.040
<v Speaker 1>Right, So this is his strategy, meaning pay it out

0:28:41.080 --> 0:28:43.360
<v Speaker 1>to shareholders, pay it out as defendends to the shareholders.

0:28:43.400 --> 0:28:45.960
<v Speaker 2>Still, right, So this is the strategy. You find the

0:28:46.040 --> 0:28:49.800
<v Speaker 2>undervalued company, you buy the stock. If the price goes up, great,

0:28:49.920 --> 0:28:52.440
<v Speaker 2>you can sell the stock. The stock price goes down,

0:28:52.560 --> 0:28:55.719
<v Speaker 2>you buy more and more and more, and now you

0:28:55.760 --> 0:28:58.040
<v Speaker 2>have an underpriced company that you own a big chunk

0:28:58.040 --> 0:29:00.200
<v Speaker 2>of and you can bully them into doing what.

0:29:00.120 --> 0:29:03.800
<v Speaker 1>You want, which is arguably the right thing. You can

0:29:03.840 --> 0:29:05.880
<v Speaker 1>bully them into acting in the best interests of the

0:29:05.920 --> 0:29:06.840
<v Speaker 1>owners of the company.

0:29:07.160 --> 0:29:10.320
<v Speaker 2>Now they might say another depressions around the corner. This

0:29:10.360 --> 0:29:13.560
<v Speaker 2>could happen at any time, and we can't live on

0:29:13.600 --> 0:29:17.960
<v Speaker 2>the edge, mister Buffett, And he's like, it's my company

0:29:18.120 --> 0:29:23.120
<v Speaker 2>and I want the money. Usually worked. The one time

0:29:23.120 --> 0:29:27.400
<v Speaker 2>it didn't work. Maybe Warren Buffett's most famous investment. And

0:29:27.440 --> 0:29:31.440
<v Speaker 2>we'll do that Berkshire Hathaway.

0:29:32.120 --> 0:29:34.200
<v Speaker 1>After the break, Ah, you.

0:29:34.280 --> 0:29:52.200
<v Speaker 4>Fuddy, we'll go to the bathroom.

0:29:58.960 --> 0:30:01.880
<v Speaker 1>That is the end of the ads. So Robert, when

0:30:01.920 --> 0:30:08.920
<v Speaker 1>we left, Warren Buffett was collecting cigar butts, bullying recalcitrant boards.

0:30:10.000 --> 0:30:12.000
<v Speaker 1>Now he's about to make a big moment.

0:30:12.560 --> 0:30:16.480
<v Speaker 2>Yeah, it's the sixties, swinging sixties, clearly not in Omaha, Nebraska,

0:30:16.760 --> 0:30:19.760
<v Speaker 2>never really came there. But Buffett's looking around for these

0:30:19.800 --> 0:30:22.480
<v Speaker 2>tiny companies cigar butts, and he finds what he thinks

0:30:22.600 --> 0:30:26.440
<v Speaker 2>is a great one. It is a textile manufacturer in

0:30:26.680 --> 0:30:29.440
<v Speaker 2>also in New Bedford, Massachusetts, home of a lot of

0:30:29.840 --> 0:30:30.680
<v Speaker 2>dying industries.

0:30:30.800 --> 0:30:33.920
<v Speaker 1>Yes, is it a whaling company, Yeah, exactly right.

0:30:34.560 --> 0:30:38.280
<v Speaker 2>No, it is a textile manufacturer known as Berkshire Hathaway.

0:30:38.440 --> 0:30:43.840
<v Speaker 1>Right, this great heard you heard of this textile company somehow.

0:30:43.880 --> 0:30:47.040
<v Speaker 2>So they make fabric and eventually they'll specialize in the

0:30:47.120 --> 0:30:50.440
<v Speaker 2>lining to men's suits, you know, like that kind of

0:30:50.680 --> 0:30:54.880
<v Speaker 2>Rayon Satine kind of thing. Right now, even in the

0:30:54.960 --> 0:30:59.320
<v Speaker 2>nineteen sixties, nobody thought that there was going to be

0:30:59.320 --> 0:31:04.640
<v Speaker 2>a renaissance of textile manufacturing in Northeast United States, right,

0:31:04.720 --> 0:31:08.720
<v Speaker 2>it just was not happening. Most of the textile mills

0:31:08.720 --> 0:31:10.880
<v Speaker 2>had moved to the Southern United States. They were about

0:31:10.920 --> 0:31:15.120
<v Speaker 2>to move overseas. This is an expensive, low margin business

0:31:15.120 --> 0:31:17.000
<v Speaker 2>and anyone can make the lining to assunt.

0:31:17.040 --> 0:31:19.640
<v Speaker 1>Yes, there is no mote, there is no moat.

0:31:19.880 --> 0:31:23.160
<v Speaker 2>So the owner of Berkshire Hathaway was and I love

0:31:23.200 --> 0:31:26.800
<v Speaker 2>this name, Seabury Stanton, not a two.

0:31:27.680 --> 0:31:29.120
<v Speaker 1>I'm not saying he.

0:31:29.080 --> 0:31:31.920
<v Speaker 2>Was wearing a top hat, but he definitely owned a time.

0:31:31.920 --> 0:31:35.320
<v Speaker 1>I'm thinking more yachting hat, like a like a captain's tet,

0:31:35.400 --> 0:31:38.680
<v Speaker 1>right for Sebury Stanton in New Bedford. That guy definitely.

0:31:38.760 --> 0:31:43.000
<v Speaker 2>Definitely was on a yacht. Yeah, So young Buffett starts

0:31:43.000 --> 0:31:46.520
<v Speaker 2>doing his thing. He's acquiring shares of the company right secretly,

0:31:46.720 --> 0:31:48.320
<v Speaker 2>as he often did, because he didn't want anyone to

0:31:48.400 --> 0:31:52.880
<v Speaker 2>know that he was accumulating this large position. Right, So

0:31:53.080 --> 0:31:55.480
<v Speaker 2>he looks at it, right, it's seven dollars and fifty

0:31:55.480 --> 0:31:59.640
<v Speaker 2>cents a share. He thinks company's probably worth nineteen dollars

0:31:59.720 --> 0:32:03.120
<v Speaker 2>a year. Okay, right, double right, But Seabury Stanton also

0:32:03.200 --> 0:32:06.440
<v Speaker 2>knows the company is too cheap. Seabury Stanton is also

0:32:06.600 --> 0:32:10.880
<v Speaker 2>accumulating shares in his own company. Right, So Buffett does

0:32:10.880 --> 0:32:14.360
<v Speaker 2>the thing stops buy. He just wanted to stop in

0:32:14.400 --> 0:32:16.160
<v Speaker 2>and tell you I own a large part of your company.

0:32:16.160 --> 0:32:17.320
<v Speaker 1>What are you going to do about it? Right?

0:32:18.200 --> 0:32:22.160
<v Speaker 2>And Sebbery Stanton says, I know you're buying Berkshire Hathaway

0:32:22.400 --> 0:32:24.560
<v Speaker 2>and I want to buy it back. What will you

0:32:24.640 --> 0:32:29.720
<v Speaker 2>sell it for, mister Buffett? And Buffett goes eleven dollars

0:32:29.760 --> 0:32:32.600
<v Speaker 2>and fifty cents a share. Bought it for seven to

0:32:32.640 --> 0:32:34.920
<v Speaker 2>fifty sell it for eleven fifty good profit?

0:32:35.000 --> 0:32:35.960
<v Speaker 1>Right? Yeah?

0:32:36.000 --> 0:32:39.720
<v Speaker 2>And Seabury says, if I make that offer to you,

0:32:40.160 --> 0:32:41.440
<v Speaker 2>will you promise.

0:32:41.080 --> 0:32:43.200
<v Speaker 1>To take it? Huh?

0:32:43.280 --> 0:32:45.120
<v Speaker 2>And Buffett says sure, I mean, if it's in the

0:32:45.160 --> 0:32:47.680
<v Speaker 2>near future, I will take eleven dollars and fifty cents

0:32:47.720 --> 0:32:51.160
<v Speaker 2>a share. Then eventually Buffett gets the letter from Seabury's

0:32:51.160 --> 0:32:55.000
<v Speaker 2>stanting it is not eleven dollars and fifty cents a share.

0:32:55.520 --> 0:32:59.240
<v Speaker 2>Seabury is offering eleven dollars and three eighths three.

0:32:59.160 --> 0:33:02.160
<v Speaker 1>Eighths because stocks traded in eights at that time, and

0:33:02.200 --> 0:33:06.200
<v Speaker 1>so three eighths is one eighth of a dollar less less,

0:33:06.320 --> 0:33:08.800
<v Speaker 1>yeah than he promised. What is it? It's like twelve cents,

0:33:08.840 --> 0:33:13.640
<v Speaker 1>so it's like, yeah, eleven thirty eight instead of eleven fifty. Yeah. Yeah.

0:33:13.720 --> 0:33:18.560
<v Speaker 2>Buffett goes blisting, Right, this is not a bottle cap

0:33:18.640 --> 0:33:22.000
<v Speaker 2>I was promised. So this guy's trying to chisel me

0:33:23.040 --> 0:33:24.920
<v Speaker 2>for twelve cents, and.

0:33:24.760 --> 0:33:26.920
<v Speaker 1>Buffett's in at seven to fifty a share, just to

0:33:26.920 --> 0:33:28.400
<v Speaker 1>be clear, until basically.

0:33:29.000 --> 0:33:31.840
<v Speaker 2>Says I don't want this company, but I certainly don't

0:33:31.840 --> 0:33:36.360
<v Speaker 2>want Seabury Stanton to have this company. And Buffett says,

0:33:36.400 --> 0:33:39.320
<v Speaker 2>I'm not going to sell. I'm going to keep buying

0:33:39.800 --> 0:33:44.120
<v Speaker 2>and keep buying, keep buying, and suddenly, like the theory, right,

0:33:44.160 --> 0:33:46.200
<v Speaker 2>you're going to take a few puffs off the cigar button,

0:33:46.280 --> 0:33:49.560
<v Speaker 2>throw it away. All of a sudden, he controls the company.

0:33:49.640 --> 0:33:52.880
<v Speaker 1>He's chewed up the cigar butt and swallowed it, and

0:33:52.920 --> 0:33:56.200
<v Speaker 1>he's like, I have a dying manufacturer in frankly, a

0:33:56.280 --> 0:33:58.880
<v Speaker 1>dying corner of the country. Right, shout out bed.

0:33:59.280 --> 0:34:02.640
<v Speaker 2>He would later call it his biggest investment mistake.

0:34:02.760 --> 0:34:06.320
<v Speaker 1>Huh. And just to be clear, as one knows, the

0:34:06.360 --> 0:34:09.600
<v Speaker 1>company he controls, the company that he rode to fame

0:34:09.680 --> 0:34:12.600
<v Speaker 1>and fortune, is called Berkshire Hathaway.

0:34:13.000 --> 0:34:16.519
<v Speaker 2>Yes, they shut down the mills eventually, nineteen eighty five. Right,

0:34:16.640 --> 0:34:19.880
<v Speaker 2>there is no textile manufacturing Berkshire Hathaway now. But he

0:34:20.000 --> 0:34:23.080
<v Speaker 2>kept the name. It became the company that he used

0:34:23.880 --> 0:34:27.719
<v Speaker 2>to buy other companies and to grow this empire. And

0:34:27.760 --> 0:34:31.160
<v Speaker 2>I think he keeps the name just to remind him.

0:34:31.280 --> 0:34:33.880
<v Speaker 2>I think I think there's some sort of moral in

0:34:33.960 --> 0:34:34.600
<v Speaker 2>it from him.

0:34:34.719 --> 0:34:38.120
<v Speaker 1>It was this moment when he acted irrationally, presumably.

0:34:38.320 --> 0:34:40.800
<v Speaker 2>I mean, maybe it's a you know, a kind of

0:34:40.840 --> 0:34:44.560
<v Speaker 2>screw you to seaburys Stanton to this day man's Seabury's

0:34:44.560 --> 0:34:47.200
<v Speaker 2>dead and buried. But I think it was more just

0:34:47.239 --> 0:34:52.279
<v Speaker 2>to say, like, don't let your emotions rule you, you know.

0:34:52.440 --> 0:34:54.480
<v Speaker 2>And he wakes up every morning and looks at that name,

0:34:54.560 --> 0:34:57.160
<v Speaker 2>and maybe part of him is like that was almost.

0:34:56.920 --> 0:34:59.160
<v Speaker 1>A mes sae. It's great. So it's like he's arguably

0:34:59.200 --> 0:35:02.360
<v Speaker 1>the greatest investor of the twentieth century, and he more

0:35:02.440 --> 0:35:05.759
<v Speaker 1>or less chose to name his holding company's holding company

0:35:05.760 --> 0:35:09.680
<v Speaker 1>in the right term. Yeah, after his worst investment or

0:35:09.719 --> 0:35:11.680
<v Speaker 1>one of his worst investments. It is elegance. It's kind

0:35:11.680 --> 0:35:14.480
<v Speaker 1>of like the you know, the Memento moriy coin that

0:35:14.600 --> 0:35:17.239
<v Speaker 1>like it's a little bit has that kind of vibe, yes,

0:35:17.560 --> 0:35:20.200
<v Speaker 1>like remember you are imperfect?

0:35:20.840 --> 0:35:23.800
<v Speaker 2>Yeah, oh that's very the zen of Warren Buffett. I'm surprised.

0:35:23.840 --> 0:35:24.920
<v Speaker 2>I'm sure that book exists.

0:35:25.000 --> 0:35:25.880
<v Speaker 1>Yeah. Absolutely.

0:35:26.360 --> 0:35:30.600
<v Speaker 2>So he's got this company, this textile manufacturer. He's doing

0:35:30.640 --> 0:35:33.400
<v Speaker 2>all these other investments. He needs more and more money

0:35:33.400 --> 0:35:36.319
<v Speaker 2>about to keep the textile maker going and to like

0:35:36.719 --> 0:35:41.000
<v Speaker 2>continue to expand. And this this is where he finally

0:35:41.040 --> 0:35:43.960
<v Speaker 2>puts all these pieces I've been talking about together, because

0:35:44.760 --> 0:35:46.360
<v Speaker 2>he buys an insurance company.

0:35:46.440 --> 0:35:49.240
<v Speaker 1>Yes, the float like we talked about with Float.

0:35:49.480 --> 0:35:51.920
<v Speaker 2>This one is called National Indemnity.

0:35:52.160 --> 0:35:53.160
<v Speaker 1>Okay.

0:35:53.840 --> 0:36:01.560
<v Speaker 2>They make unusual insurance policies like, for example, circus performers, No, yes,

0:36:01.760 --> 0:36:04.200
<v Speaker 2>lion Tamer's, which you know, who's going to insure a

0:36:04.239 --> 0:36:04.800
<v Speaker 2>lion tamer?

0:36:04.880 --> 0:36:08.680
<v Speaker 1>Right? The body parts of burlesque stars. It's like Lloyd's,

0:36:08.719 --> 0:36:10.560
<v Speaker 1>Like people talk about Lloyd's of London like a famous

0:36:10.560 --> 0:36:13.200
<v Speaker 1>tennis player might ensure their han Yeah, you.

0:36:13.239 --> 0:36:16.839
<v Speaker 2>Know, I mean our voices obviously insured by National Unfamily right,

0:36:17.480 --> 0:36:21.560
<v Speaker 2>radio station treasure hunts. Well, you know, they would do

0:36:21.600 --> 0:36:23.879
<v Speaker 2>all these like giveaways at the radio station, and someone

0:36:23.960 --> 0:36:26.040
<v Speaker 2>needed to ensure that, like there would be enough money

0:36:26.040 --> 0:36:27.320
<v Speaker 2>and that they would pay off.

0:36:27.239 --> 0:36:29.560
<v Speaker 1>Recently, so they're still kind of in that business. I

0:36:29.600 --> 0:36:31.920
<v Speaker 1>remember there was was it Yahoo? Somebody had a like

0:36:32.000 --> 0:36:36.440
<v Speaker 1>a a college basketball tournament, you know, the NCAA tournament

0:36:36.600 --> 0:36:39.279
<v Speaker 1>bracket where if you got every single one right, you

0:36:39.400 --> 0:36:43.520
<v Speaker 1>got I think a billion dollars. And I think Buffett

0:36:44.320 --> 0:36:46.360
<v Speaker 1>ensured that same idea.

0:36:46.640 --> 0:36:48.759
<v Speaker 2>Yeah, And I mean eventually he would move into the

0:36:48.800 --> 0:36:52.120
<v Speaker 2>reinsurance business, which is insurance for insurers. Right, but it

0:36:52.160 --> 0:36:55.560
<v Speaker 2>works exactly the same way, right that all of these

0:36:56.520 --> 0:36:59.879
<v Speaker 2>linehammers at circus performers are paying money. Yeah, I guess

0:36:59.920 --> 0:37:02.560
<v Speaker 2>the owners of the circus are paying money. There probably

0:37:02.560 --> 0:37:05.160
<v Speaker 2>won't be an accident, they won't have to pay it out,

0:37:05.200 --> 0:37:08.640
<v Speaker 2>and so this money is coming in and this even.

0:37:08.520 --> 0:37:10.759
<v Speaker 1>If they do have to pay it out, it'll be later, right,

0:37:10.840 --> 0:37:13.400
<v Speaker 1>Like that's the key thing is that you get to

0:37:13.480 --> 0:37:15.759
<v Speaker 1>hold the money. Yeah, exactly right.

0:37:16.040 --> 0:37:18.520
<v Speaker 2>So, by the way, National Indemnity, he was a good company,

0:37:18.680 --> 0:37:21.720
<v Speaker 2>was doing well, but apparently he learned that the CEO

0:37:21.880 --> 0:37:24.960
<v Speaker 2>once a year would say, like, I can't stand being

0:37:25.000 --> 0:37:27.520
<v Speaker 2>this business. I just want to like go to Florida

0:37:27.680 --> 0:37:29.640
<v Speaker 2>and retire and be on vacation. I'm going to sell

0:37:29.680 --> 0:37:32.160
<v Speaker 2>this whole place. And Warren Buffett said to someone in

0:37:32.200 --> 0:37:35.520
<v Speaker 2>the company. The next time, he says he wants to

0:37:35.560 --> 0:37:38.840
<v Speaker 2>sell the whole company, call me, yeah, call me, And

0:37:38.920 --> 0:37:41.759
<v Speaker 2>apparently he the whole thing happened. He goes, he buys

0:37:41.840 --> 0:37:44.920
<v Speaker 2>National Indemnities, and the guy goes on vacation the next day.

0:37:45.040 --> 0:37:48.319
<v Speaker 2>Just makes it happen really quickly. Right, So now calling.

0:37:47.960 --> 0:37:51.680
<v Speaker 1>Warren Buffett becomes a feature of the American capitalist landscape

0:37:51.719 --> 0:37:54.480
<v Speaker 1>after this, Right, this is a great moment phone history.

0:37:54.480 --> 0:37:56.719
<v Speaker 2>You'll have a big phone, a big red phone. That's

0:37:56.760 --> 0:37:57.440
<v Speaker 2>his Buffet on it.

0:37:57.560 --> 0:37:57.719
<v Speaker 1>Right.

0:37:58.400 --> 0:38:01.479
<v Speaker 2>So, now the pieces are in place, got money coming

0:38:01.520 --> 0:38:04.920
<v Speaker 2>in from National Indemnity, a few other insurance like companies,

0:38:05.239 --> 0:38:08.480
<v Speaker 2>You've got the mills, You've got all these different investments

0:38:08.480 --> 0:38:10.160
<v Speaker 2>he has in different small companies.

0:38:10.239 --> 0:38:10.439
<v Speaker 1>Right.

0:38:11.160 --> 0:38:15.000
<v Speaker 2>And Buffett call this the golden age of capital allocation.

0:38:15.719 --> 0:38:19.000
<v Speaker 2>And what he means is, if you have enough different

0:38:19.080 --> 0:38:22.960
<v Speaker 2>businesses putting off different amounts of money, you can direct

0:38:23.040 --> 0:38:25.600
<v Speaker 2>that money to where it's going to make the most

0:38:25.640 --> 0:38:30.600
<v Speaker 2>difference and make the most return. He's essentially this self

0:38:30.600 --> 0:38:33.520
<v Speaker 2>funding machine at this point. He doesn't need investors to

0:38:33.520 --> 0:38:35.560
<v Speaker 2>come and he doesn't have to beg or borrow money

0:38:35.560 --> 0:38:38.280
<v Speaker 2>for his companies. He just has to move the streams

0:38:38.280 --> 0:38:42.600
<v Speaker 2>of money around. And he is about to hit the

0:38:42.719 --> 0:38:46.080
<v Speaker 2>nineteen seventies, which was a terrible economic time in America,

0:38:46.480 --> 0:38:50.440
<v Speaker 2>where there's a huge recession, the prices of companies go down,

0:38:51.360 --> 0:38:54.560
<v Speaker 2>and somebody, well, Warren Buffet, because that's what we're talking about.

0:38:54.719 --> 0:39:00.000
<v Speaker 2>And Warren Buffett has the cash and the confidence to

0:39:00.080 --> 0:39:01.640
<v Speaker 2>go wild in the nineteen seventies.

0:39:02.400 --> 0:39:05.640
<v Speaker 1>So the bad stock market is just what he needs.

0:39:06.000 --> 0:39:09.120
<v Speaker 2>It's exactly what he needs, and he takes stakes in

0:39:09.239 --> 0:39:13.360
<v Speaker 2>the Washington Post. He buys more Geico, he bought National Presto.

0:39:14.360 --> 0:39:16.400
<v Speaker 2>I built the names of these companies, which makes pressure

0:39:16.440 --> 0:39:17.760
<v Speaker 2>cookers and popcorn poppers.

0:39:19.160 --> 0:39:19.719
<v Speaker 1>I love that.

0:39:19.880 --> 0:39:23.200
<v Speaker 2>I love that he puts a big stake into Pinkerton's

0:39:23.239 --> 0:39:25.960
<v Speaker 2>detective agency, A little.

0:39:25.760 --> 0:39:28.960
<v Speaker 1>Weird that I'm important in the business history in their

0:39:29.000 --> 0:39:29.359
<v Speaker 1>own way.

0:39:29.440 --> 0:39:31.360
<v Speaker 2>By the end of nineteen seventies, Buffet's worth around one

0:39:31.400 --> 0:39:34.320
<v Speaker 2>hundred million dollars, right, and it's all under this umbrella

0:39:34.360 --> 0:39:37.200
<v Speaker 2>of Berkshire Hathaway. They don't make fabric anymore. They just

0:39:37.320 --> 0:39:38.920
<v Speaker 2>make well popcorn makers.

0:39:39.000 --> 0:39:39.720
<v Speaker 1>They make money.

0:39:39.880 --> 0:39:42.360
<v Speaker 2>They make money, right. And so this is the point

0:39:42.560 --> 0:39:46.840
<v Speaker 2>that I would say, young Warren Buffett has become essentially

0:39:46.880 --> 0:39:51.200
<v Speaker 2>the investor that we see today. Not a collector of

0:39:51.200 --> 0:39:55.440
<v Speaker 2>cigar butts, not like making these tiny little plays to

0:39:56.000 --> 0:39:58.880
<v Speaker 2>get some money back from these companies, but an owner

0:39:59.320 --> 0:40:02.799
<v Speaker 2>of big American companies that he thinks are at great

0:40:02.840 --> 0:40:06.040
<v Speaker 2>prices that he likes to hold and do the capital

0:40:06.040 --> 0:40:10.000
<v Speaker 2>allocation thing. So it's around this time, late sixties, early

0:40:10.040 --> 0:40:11.840
<v Speaker 2>seventies when he starts to appear.

0:40:12.040 --> 0:40:14.319
<v Speaker 1>In the newspapers, right in the magazines.

0:40:14.640 --> 0:40:18.440
<v Speaker 2>Forbes wrote an article called how Omaha Beats Wall Street.

0:40:18.520 --> 0:40:21.880
<v Speaker 2>I'm sure everyone's like, what is this about? And it

0:40:21.920 --> 0:40:25.680
<v Speaker 2>talked about Buffett's investment firm, which had been running about

0:40:25.680 --> 0:40:28.720
<v Speaker 2>twelve years at this point after he left Benjamin Graham,

0:40:29.080 --> 0:40:31.280
<v Speaker 2>and he said they had never lost money in this time.

0:40:31.920 --> 0:40:34.080
<v Speaker 2>Ten thousand dollars had been turned into a quarter of

0:40:34.120 --> 0:40:36.359
<v Speaker 2>a million dollars and if.

0:40:36.280 --> 0:40:39.400
<v Speaker 1>You'd invested ten thousand at the beginning, yeah.

0:40:39.000 --> 0:40:41.160
<v Speaker 2>And it was the first sort of articles that started

0:40:41.160 --> 0:40:44.040
<v Speaker 2>to talk about the Buffet weirdness right that, Oh he

0:40:44.080 --> 0:40:46.920
<v Speaker 2>lives in a small house, like he drives a small car,

0:40:47.040 --> 0:40:49.719
<v Speaker 2>Like he's a big deal in Omaha, but nobody knows him.

0:40:49.880 --> 0:40:51.799
<v Speaker 1>He eats like a six year old boy.

0:40:51.880 --> 0:40:55.160
<v Speaker 2>He just likes hamburgers and French fries and that's pretty

0:40:55.239 --> 0:40:57.719
<v Speaker 2>much all he eat, Cherry coke and Cherry Coke's before

0:40:57.760 --> 0:41:00.360
<v Speaker 2>the cook. You're right, oh, young Buffett. And one of

0:41:00.400 --> 0:41:02.239
<v Speaker 2>the reasons why I wanted to tell the story is that,

0:41:02.320 --> 0:41:07.600
<v Speaker 2>like that was really this like rare moment, both in

0:41:08.400 --> 0:41:12.480
<v Speaker 2>American finance and for Buffett himself. This idea that like

0:41:12.520 --> 0:41:16.840
<v Speaker 2>there were such vast misspricings and so little information in

0:41:16.880 --> 0:41:21.759
<v Speaker 2>the stock market that someone with his particular personality could

0:41:21.880 --> 0:41:24.919
<v Speaker 2>end up making this huge amount of money. Of course,

0:41:24.920 --> 0:41:26.920
<v Speaker 2>you'd go on to make billions and billions and billions

0:41:26.960 --> 0:41:29.839
<v Speaker 2>and billions that would dwarf this, but this was the

0:41:29.880 --> 0:41:35.960
<v Speaker 2>important part that the weird kid had his moment. Now,

0:41:36.000 --> 0:41:38.440
<v Speaker 2>of course, there's no end to the amount of information

0:41:38.520 --> 0:41:40.560
<v Speaker 2>you can get about all these companies, all these stocks,

0:41:40.719 --> 0:41:43.160
<v Speaker 2>and there's a million people well first of all that

0:41:43.280 --> 0:41:45.920
<v Speaker 2>read everything Warmbuffn't writes, and that want to do what

0:41:45.960 --> 0:41:48.920
<v Speaker 2>he does. Pour over you know, returns and how much

0:41:48.960 --> 0:41:51.160
<v Speaker 2>inventory do they have, and like, you know, what's their

0:41:51.239 --> 0:41:54.200
<v Speaker 2>working capital and all these tiny little measures of how

0:41:54.200 --> 0:41:56.560
<v Speaker 2>well a company is doing. They're doing the same thing

0:41:56.880 --> 0:41:59.200
<v Speaker 2>and so it's harder to do that. Yeah, Warm Buffet

0:41:59.239 --> 0:41:59.680
<v Speaker 2>has moved on.

0:41:59.760 --> 0:42:02.160
<v Speaker 1>You have to go farther Afield, right. Actually, what I

0:42:02.200 --> 0:42:05.520
<v Speaker 1>think of here is Jane Street. You know Jane Street, Right,

0:42:05.520 --> 0:42:08.600
<v Speaker 1>It's it's this little trading firm owned by the people

0:42:08.600 --> 0:42:12.560
<v Speaker 1>who work there. They're all super smart math people, and

0:42:12.640 --> 0:42:14.399
<v Speaker 1>like the most recent time they were in the news,

0:42:14.400 --> 0:42:16.239
<v Speaker 1>it was because they had figured out that in the

0:42:16.400 --> 0:42:19.160
<v Speaker 1>Indian stock market you could make some weird move where

0:42:19.160 --> 0:42:22.279
<v Speaker 1>if you bought the options and the stock, you could

0:42:22.360 --> 0:42:24.440
<v Speaker 1>make prices move it away. That was like basically a

0:42:24.440 --> 0:42:28.520
<v Speaker 1>guaranteed profit, right. Like that actually seems kind of Buffet esque,

0:42:28.560 --> 0:42:31.640
<v Speaker 1>even though it doesn't have the like, oh, fundamental Grandpa

0:42:31.719 --> 0:42:35.240
<v Speaker 1>Buffet that's the later Buffet. It has the like, I'm

0:42:35.719 --> 0:42:38.160
<v Speaker 1>really into details and I'm going to look all over

0:42:38.200 --> 0:42:40.759
<v Speaker 1>the world for some financial detail that is going to

0:42:40.840 --> 0:42:43.560
<v Speaker 1>make me a book. I feel like that's the twenty

0:42:43.640 --> 0:42:44.640
<v Speaker 1>twenty five version of it.

0:42:44.719 --> 0:42:47.520
<v Speaker 2>Yeah, and or even high speed trading that is finds

0:42:47.560 --> 0:42:50.760
<v Speaker 2>a mispricing that occurs in a millisecond and taking advantage.

0:42:50.800 --> 0:42:53.560
<v Speaker 1>So now it happens with math. Right now, That kind

0:42:53.640 --> 0:42:56.400
<v Speaker 1>of move in the US markets, as far as I

0:42:56.440 --> 0:42:59.640
<v Speaker 1>can tell, rarely happens with reading the financial reports, and

0:42:59.680 --> 0:43:01.560
<v Speaker 1>it usually happens with math.

0:43:01.719 --> 0:43:05.000
<v Speaker 2>With quants, yes, and they do not show up on

0:43:05.040 --> 0:43:08.640
<v Speaker 2>the weekend to meet with CEOs. Their machines do it

0:43:08.680 --> 0:43:11.080
<v Speaker 2>for their machines talk to each other. I mean, that's

0:43:11.120 --> 0:43:14.920
<v Speaker 2>the big picture, you know, finance. Successful strategies don't last

0:43:14.960 --> 0:43:17.759
<v Speaker 2>for long. You can only pull the young Buffett trick

0:43:18.120 --> 0:43:20.400
<v Speaker 2>one or two times and then you got to become.

0:43:20.160 --> 0:43:23.680
<v Speaker 1>Old Buffett next time. On Business History, a show about

0:43:23.680 --> 0:43:27.200
<v Speaker 1>the history of business, how does Warren Buffett find a

0:43:27.239 --> 0:43:30.359
<v Speaker 1>new edge? How does a guy in the business of

0:43:30.719 --> 0:43:35.480
<v Speaker 1>ensuring lion tamers and buying up bus companies manage to

0:43:36.640 --> 0:43:40.200
<v Speaker 1>make a hundred billion dollars in an era dominated by technology.

0:43:40.680 --> 0:43:41.680
<v Speaker 1>It's not going to be easy.

0:43:42.080 --> 0:43:45.360
<v Speaker 2>Our producer is Gabriel Hunter Chang, our engineer is Sarah Bruguier,

0:43:45.840 --> 0:43:48.880
<v Speaker 2>and our showrunner is Ryan Dilly. I'm Jacob Goldstein, and

0:43:48.920 --> 0:43:51.000
<v Speaker 2>I'm Robert Smith. We'll be back next week with another

0:43:51.000 --> 0:43:51.680
<v Speaker 2>episode of

0:43:51.760 --> 0:43:56.200
<v Speaker 1>Business History, a show about the history wait for it,

0:43:57.800 --> 0:43:59.280
<v Speaker 1>of business