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Speaker 2: It was really kind of hard to keep up with
Speaker 2: stories about Amazon today because they just kept coming and coming.
Speaker 2: Amazon out of course today talking about Black Friday and
Speaker 2: Cyber Monday, saying that customers around the world purchased over
Speaker 2: one billion billion items on Amazon and that shopping event,
Speaker 2: that extended event, if you will, breaking records.
Speaker 4: Tim.
Speaker 1: They also today Aws Amazon Web Services, and in Nvidia
Speaker 1: announcing an expansion of their strategic collaboration. And then Carol, there's.
Speaker 2: This Amazon dot Com joining that chep Race announcing Amazon
Speaker 2: Q their own digital assistant for corporate customers to do
Speaker 2: lots of things like search for info, RTE, code review,
Speaker 2: business metrics.
Speaker 5: So much.
Speaker 1: How smart is it?
Speaker 2: I don't know, So let's ask somebody who is super
Speaker 2: smart on all things Amazon. Bloomberg News Senior Executive editor
Speaker 2: of Global Tech Bradstone is in the house. He's written
Speaker 2: several books, including two on Amazon, The Everything's Store and
Speaker 2: also Amazon Unbound. And while he's based in San Francisca,
Speaker 2: as we said, he's here in New York. Hello, Hello, Hello.
Speaker 2: It's kind of crazy the amount of stories. Where to
Speaker 2: start when you think about this company. I don't know.
Speaker 2: We have a flurry of headlines like this, like what
Speaker 2: I'm sad at you?
Speaker 6: Well, today's a reminder of the breath and extent of
Speaker 6: Amazon's businesses and how it covers a lot of territory
Speaker 6: and it's you know, in large part succeeding in a
Speaker 6: lot of different ways. I mean, the e commerce information
Speaker 6: that they released is characteristically useless. You know, they throw
Speaker 6: out numbers that are foggy at best. But Adobe does
Speaker 6: a pretty good job of telling us what's happening in
Speaker 6: cyberscope in the US and in cybersecurity in the US overall.
Speaker 6: And cyber Monday was up like nine point six percent
Speaker 6: over last year, Cyber Week seven point eight percent. And look,
Speaker 6: that's in an environment where we thought consumers were going
Speaker 6: to be really reluctant to spend one bright spot somewhat
Speaker 6: sort of ironically. We know Americans love credit. Is this
Speaker 6: whole buy now, pay later scheme? Yeah, and that's up
Speaker 6: like forty five percent over last year. And you look
Speaker 6: at the stock of a company like a firm, which
Speaker 6: jumped i think like fifteen percent yesterday, and so.
Speaker 1: You know that's kind of scary.
Speaker 4: Yeah, maybe a little bit.
Speaker 6: But consumers are discovering it and they're taking advantage of
Speaker 6: the deals. And it's not just a day or two days,
Speaker 6: it's the whole week. Like even Thanksgiving sales were up
Speaker 6: five or six percent.
Speaker 2: That's amazing, right, We really thought, Okay, it is the
Speaker 2: consumer slowing down, No signs of it.
Speaker 1: I think we often talk about ecosystems, and we talk
Speaker 1: about Apple and Google and Microsoft and the way these
Speaker 1: companies sort of own parts of your digital life. But
Speaker 1: I was actually thinking over the weekend brat about Amazon's ecosystem.
Speaker 1: I said this earlier, but I just reupped my membership
Speaker 1: at one Medical and instead of doing it through one
Speaker 1: Medical this year, I did it through Amazon Prime. I
Speaker 1: saved one hundred bucks. We got a ring doorbell and
Speaker 1: like we're getting the ring security year they got you. Yeah,
Speaker 1: and that's owned you know, Amazon bought that company.
Speaker 2: So like, these are two companies enchanting Amazon the story.
Speaker 1: But it's also and look seriously, we have Amazon like
Speaker 1: groceries being delivered Tonight's kind of.
Speaker 2: Apple model, Like you're in the system.
Speaker 1: But it's not books and it's not like, you know,
Speaker 1: just knick knacks that we're buying on Amazon. These are
Speaker 1: totally different businesses for Amazon. Not to mention Aws here,
Speaker 1: just talk about how you think about the Amazon and
Speaker 1: ecosystem in twenty twenty.
Speaker 6: Things, because is ecosystem even the right word? I mean,
Speaker 6: when we think about iOS and Apple, all the different
Speaker 6: pieces and parts nurture each other. If you have an iPhone,
Speaker 6: you're more likely to get an Apple Watch or to
Speaker 6: use Apple software. Amazon's got a lot of these disword businesses.
Speaker 6: And you know this week they have their annual Reinvent
Speaker 6: conference in Las Vegas. Their big aws show Amazon is
Speaker 6: the leader in cloud computing. But you know, one year
Speaker 6: ago Thursday was the introduction of chat GPT, and ever since,
Speaker 6: you know, there has been a narrative that Amazon is
Speaker 6: behind in generative AI, that it doesn't.
Speaker 4: Have quite the story. And so today, as.
Speaker 6: You guys mentioned, they were released this qu workplace chatbot.
Speaker 6: If you're gonna name it Q, you have to assume
Speaker 6: that's gonna be able to espouse conspiracy theories, I guess.
Speaker 6: But it's their bid to compete with chat GPT in
Speaker 6: the enterprise, and I think it's interesting.
Speaker 4: We'll have to see how good it is. But it
Speaker 4: has nothing to do.
Speaker 6: With one medical or the ring doorbell or so this
Speaker 6: is a company I mean, I remember, I remember one
Speaker 6: of the last quotes from Bezos in my first book,
Speaker 6: The Everything Store, was as him saying, we don't have
Speaker 6: a lot of advantages, so we have to weave a
Speaker 6: rope of smaller advantages like that. In some ways, back
Speaker 6: then that book was published in twenty thirteen, it was
Speaker 6: all connected. I don't think that's true anymore.
Speaker 1: Meaning they don't have the iOS ecosystem or the Android
Speaker 1: operating systems.
Speaker 4: They tried and fair or something.
Speaker 6: Yeah, and there are a lot of these dissert businesses,
Speaker 6: and the extent that there are connections, they're very light.
Speaker 6: And maybe that's to the company's credit. It certainly would
Speaker 6: make will make it easier to break the parts, to
Speaker 6: break the pieces apart, if they have to do that
Speaker 6: one day, Hello Lena Khan.
Speaker 2: Well, and it's also interesting, so they also did the
Speaker 2: announcement about making or an update to their own ships
Speaker 2: that they are making. At the same time, they are
Speaker 2: kind of extending their collaboration with Nvidia, like it does
Speaker 2: feel like they just kind of are everywhere.
Speaker 6: Well, and that's something Google is doing as well. Keep
Speaker 6: your friends close and your enemies closer. And all these
Speaker 6: companies are totally dependent on Nvidia for these graphic processors
Speaker 6: that are so important to Center of AI, and yet
Speaker 6: the prices are extremely high and Nvidia can't supply the
Speaker 6: volume of chips that companies need to meet the demand.
Speaker 6: And so with Graviton four and the announcement Amazon made
Speaker 6: this week, it's this more long term project of competing
Speaker 6: with Nvidia and putting its own chips and its data
Speaker 6: centers to meet customer demand.
Speaker 2: How do you think about Amazon for the future, Like,
Speaker 2: I don't know what your next book is on this company,
Speaker 2: But having said that, is it going to be? Yeah,
Speaker 2: these businesses, but yeah, so much more?
Speaker 6: Still, well, look, I mean it's it's there. They're very
Speaker 6: kind of strategically positioned in businesses that seem to show.
Speaker 4: No signs of slowing down.
Speaker 6: Yeah, I mean the Great e commerce revolution. We're twenty
Speaker 6: five years into it and as we just said, it's
Speaker 6: still growing ten percent every year.
Speaker 2: Over oversight my default when I buy something.
Speaker 6: They're finding great ways to get us to I mean
Speaker 6: Friday night football and the kinds of ads that they
Speaker 6: had and the experimentation they're doing with advertising that leads
Speaker 6: to purchases.
Speaker 4: Is this is all like a green field for Amazon.
Speaker 6: And then on the cloud side, we're in the very
Speaker 6: earliest days of companies moving their operations to the cloud
Speaker 6: bringing using these AI tools. We have no idea how
Speaker 6: it's going to go. We might look back and think
Speaker 6: all this was very over hyped one day. But certainly, Amazon,
Speaker 6: like a lot of the other big tech companies, are
Speaker 6: positioning themselves for another phase of growth.
Speaker 1: But I think the fact is is increasingly people are
Speaker 1: finding increasing shares of their dollar are going to Amazon,
Speaker 1: whether it's for groceries, whether it's for medical care, security, whatever,
Speaker 1: or just you know sort of AWS stuff that they
Speaker 1: don't even know that they're using. I was joking about
Speaker 1: Lena Conn earlier, but from a regulatory perspective, and you
Speaker 1: were talking about potentially breaking this stuff up in the future.
Speaker 1: What should be on Amazon's radar when it comes to regulators.
Speaker 6: Well, I mean there, I think the FTC and this
Speaker 6: case that has been filed, and they're fighting battles on
Speaker 6: multiple fronts, state ags, the European Union. It's almost an
Speaker 6: existential battle for Amazon, right They're they're having to explain,
Speaker 6: you know, what they do, how they do things for
Speaker 6: a company that's been incredibly cryptic and secretive over the
Speaker 6: span of its life, and then also maybe proving and
Speaker 6: it's increasingly hard that they're not a monopoly.
Speaker 4: Now they can point to these.
Speaker 6: Cyber week shopping numbers and say, look, this was not
Speaker 6: just Amazon, but Shopify had a great week.
Speaker 4: Walmart dot com had a great week.
Speaker 6: We yesterday heard news of Shean, this Chinese retailer quietly
Speaker 6: filing to go public. The Shean stories this incredible story
Speaker 6: of a retailer that has come out of nowhere over
Speaker 6: the past few years to compete in fast fashion in
Speaker 6: the West. So there are a lot of competitors. So
Speaker 6: I think first and foremost for Amazon is proving that
Speaker 6: while it is a wildly successful story, that it is
Speaker 6: not the only game in town.
Speaker 2: Andy Jesse's really just taken the baton and run with it.
Speaker 2: How do you well?
Speaker 4: Ways he was, Yeah, in some way he was.
Speaker 6: He had to fix some of the problems of Bezos's
Speaker 6: final tenure where he may have taken his eye off
Speaker 6: the ball a little bit and hired too many people
Speaker 6: and created too many experiments, And I think Jesse did
Speaker 6: a good job of really narrowing it down and making
Speaker 6: the company more efficient, and then placing a couple of
Speaker 6: strategic bets healthcare is one, keeping the emphasis on the
Speaker 6: cloud and not doing all the crazy things that Jeff really,
Speaker 6: you know, initiated when he had an idea that Amazon
Speaker 6: could be everything to everyone and compete in every single industry.
Speaker 2: Just really quickly ten seconds. Is Jeff still very involved
Speaker 2: as a.
Speaker 4: Board member that as an operator? Interesting?
Speaker 2: Good stuff. Thank you. I know you're busy and you
Speaker 2: found time for us. Bradstone, we love, we love, Senior
Speaker 2: Executive editor of Global Technology here at Bloomberg.
Speaker 1: Check out his books. He wrote the best books on
Speaker 1: Amazon to go check them out and more books.
Speaker 3: Yeah, you're listening to the Bloomberg Business Week podcast. Catch
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Speaker 2: All right, everybody, Carol Master Tim Stenevik live here on
Speaker 2: Bloomberg Business Week. We're going to stay with what is
Speaker 2: certainly our top story, and as we've mentioned, we are
Speaker 2: talking about Charlie Munger, who, as many would say, new
Speaker 2: Nobo Hier writing in a Bloomberg story, the alter ego
Speaker 2: sidekick and foyle to Warren Buffett for almost sixty years
Speaker 2: as they transform Bert Berkshire Hathaway from a failing textile
Speaker 2: maker into an empire. Has died. He was ninety nine.
Speaker 2: Let's talk a little bit more about it.
Speaker 1: Yeah, an incredible life led. For more, we go to
Speaker 1: Bloomberg Intelligence Property and Casualty Insurance senior analyst Matthew Palazola,
Speaker 1: who joins us this afternoon. Matthew, good to have you
Speaker 1: with us. What was your first reaction, your first thought
Speaker 1: when you saw this news that Charlie Monker died at
Speaker 1: ninety nine.
Speaker 7: Yeah, I mean, obviously very sad day. I was at
Speaker 7: the annual meeting this year. He's still incredibly sharp, you know,
Speaker 7: very much with it. You know, I have to look
Speaker 7: at it from the operations of Berkshire Hathaway, and clearly
Speaker 7: he has taken a reduced role over time. So my
Speaker 7: thought is, you know, very sad day. But for the
Speaker 7: company that they've built, you know, they talked about it
Speaker 7: actually being quote easy, you know, which is I guess
Speaker 7: a very humble understatement. But I think they buy good companies,
Speaker 7: they let them run, and you know, this machine they've
Speaker 7: built will will go on for you know, all time.
Speaker 2: Really, and yet they've allowed it to be tweaked with
Speaker 2: bringing in the next generation of investors and also listening
Speaker 2: to what they have to say. And it says something
Speaker 2: about their relationship. Monger and Warren Buffett's together to kind
Speaker 2: of maintain their core in terms of their investment strategy,
Speaker 2: but also be open to listening to kind of what's
Speaker 2: what's out there and how the world is changing.
Speaker 7: Yeah, I think you know they've they've always been hands
Speaker 7: off with the company means they buy and you know,
Speaker 7: they've brought in investment managers. They've seeded a lot of
Speaker 7: power to Greg Abel and A G. Jane over time,
Speaker 7: which is just prudent. And you know, if if anything
Speaker 7: you could say is that they've been very prudent managers
Speaker 7: of Berkshire Hathaway's Capital over time.
Speaker 1: Talk to me about this partnership between Munger and Buffett.
Speaker 1: What were the I haditate to call them characters, but
Speaker 1: you know they were certainly larger than life and h
Speaker 1: and they have been, I should say, talk to me about,
Speaker 1: you know, their interactions at the annual meeting and and
Speaker 1: sort of their partnership and how it was on display.
Speaker 7: Yeah, I mean it's it was. It was really fun
Speaker 7: to watch. I mean they'd be sitting up there eating
Speaker 7: seas candy and drinking Coca Cola at the same time,
Speaker 7: you know, which which I find kind of crazy. But
Speaker 7: you know, they're they're doing that, and they're recalling individual
Speaker 7: meetings that they had, you know, forty fifty years ago,
Speaker 7: and Buffett is forgetting a couple of things, and Mongers
Speaker 7: were minding him of, well, this guy said that, and
Speaker 7: we said this, and we made this much money in
Speaker 7: these meetings. I mean, it was, you know, truly a
Speaker 7: partnership for all of that time, and their interactions was
Speaker 7: just amazing. They would finish each other sentences. You know,
Speaker 7: it's it's just it's really sad to see that kind
Speaker 7: of broken up. But you know, on the other hand,
Speaker 7: when we go to these meetings, you know, it was
Speaker 7: the feeling like, you know, they're very old, maybe they'll retire,
Speaker 7: or maybe this would be the last time they'd be together.
Speaker 7: So you know, it wasn't obviously something completely unexpected.
Speaker 2: Well for sixty years though they worked together side by side.
Speaker 2: I want to bring in Katcha Kolinsky. She's Bloomberg News
Speaker 2: real estate team leader now, but she covered Berkshire, Hathaway
Speaker 2: and Warren Buffett went to the meetings, would report on it.
Speaker 2: We'd have her on for a long time and.
Speaker 1: A lot of saturdays working on these earnings.
Speaker 2: Kat So, how are you, how are you thinking about
Speaker 2: this today.
Speaker 8: You know, it's really an end of an error. I mean,
Speaker 8: Munger was the foiled buffet for so many years, and
Speaker 8: it was a it was a funny partnership, you know.
Speaker 8: I think they really kind of drew out different ideas
Speaker 8: in each other and pushed each other.
Speaker 4: You know.
Speaker 2: Why do you say funny, Well, because they I mean
Speaker 2: they really had a good time.
Speaker 8: Like if you know, going to those annual meetings you
Speaker 8: were like it was it was kind of a comedy
Speaker 8: show between the two of them. Like, yes, they'd offer
Speaker 8: investment and advice, but they really bantered back and forth
Speaker 8: and it was it was it was fun to cover
Speaker 8: for a long time.
Speaker 1: Kat, Who is Warren Buffett without Charlie Monger, you know,
Speaker 1: Like I think.
Speaker 8: I think Charlie pushed him on a lot of things.
Speaker 8: Like I think, you know, for example, in our obituary
Speaker 8: we talk a lot about Charlie was really interested in
Speaker 8: investing in China, and I think some of that mental flexibility,
Speaker 8: that sort of a desire to push Buffett into maybe
Speaker 8: maybe areas he'd be a little more skeptical to get into.
Speaker 8: I think that was a large part of Charlie.
Speaker 2: Yeah, he's a little bit older, right, just a few
Speaker 2: years older.
Speaker 8: Yeah, he's just shy of his one hundredth birthday.
Speaker 2: So yeah, now, but I was thinking older than Buffett, right,
Speaker 2: just years older. Now, talk to us a little bit
Speaker 2: about in terms of your coverage. I mean, like, as
Speaker 2: you said, they were funny together, but the company did evolve,
Speaker 2: right in terms of their investments. There's some things that
Speaker 2: I feel like they've they've held on to forever, but
Speaker 2: they also then kind of moved into some of we
Speaker 2: talked about Apple as an investment, and that was you know,
Speaker 2: indicative of I guess some of the new folks that
Speaker 2: they brought in as well.
Speaker 8: Yeah, it has evolved like it was mostly for the
Speaker 8: longest time Buffetted and Charlie kind of leading it, and
Speaker 8: it still remained that way until the very last day.
Speaker 8: But you know, they did bring in new people. Ted
Speaker 8: and Todd are key on their investments, and I think,
Speaker 8: you know, there was a moment a couple of years
Speaker 8: ago when Agit Jane and Greg Abil were both promoted
Speaker 8: to vice chairman alongside Charlie, and I think that was
Speaker 8: a really big sign that they were preparing the future
Speaker 8: generation of this company. But I think Buffett and Munger
Speaker 8: had such a good time running it that they didn't
Speaker 8: want to stop until they sort of until the very end.
Speaker 2: And they've always been the face of the company, no
Speaker 2: doubt about it.
Speaker 4: Yeah.
Speaker 8: And I think they were a huge draw for investors
Speaker 8: for so many years because you're not only getting a big,
Speaker 8: you know, industrial behemoth with insurance companies and all these
Speaker 8: different businesses, but are also getting this huge stock portfolio
Speaker 8: that they can bet on Apple, they can bet on
Speaker 8: all these different companies with.
Speaker 2: So, you know, I pulled up the list of companies
Speaker 2: like these candies. We always talk about what we talk
Speaker 2: We used to talk about Brooks as sneakers. Of course,
Speaker 2: Geico looking at the Brown shoe company. There's Dime, you know,
Speaker 2: jewelry like he just they were in so many different things.
Speaker 8: Yeah, and I think I think the way Berkshire got
Speaker 8: built up was really part of that partnership is them
Speaker 8: pushing each other to try different companies, to look at
Speaker 8: different industries, to say, hey, what do you think about
Speaker 8: this business and how it works? And they would talk
Speaker 8: a lot, you know, even though Charlie was often in
Speaker 8: California and Buffett lived in Omaha. You know, I think
Speaker 8: sort of the weird mixture of Berkshire is things in
Speaker 8: part a lot to Monger.
Speaker 1: Yeah, and Matthew Palozola from Bloomberg Intelligence, come on back
Speaker 1: in here and talk a little bit about what this
Speaker 1: means for Berkshire Hathaway without a Charlie Munger there.
Speaker 7: Yeah, I mean, like I said, I mean, I do
Speaker 7: think his role was clearly it's taken a step back.
Speaker 7: They have seeded a lot of power. I don't I
Speaker 7: hate to say I don't. I don't think it's a
Speaker 7: huge deficiency on the operations going forward. I mean, many
Speaker 7: of these businesses that they have, I call it kind
Speaker 7: of an all weather portfolio. The earnings power of the
Speaker 7: company is I think, you know, going to be totally intact.
Speaker 7: You know, they've been on the hunt for a big
Speaker 7: deal for a while and Buffett's really they've been really
Speaker 7: shy on valuations, so you know, I don't think I
Speaker 7: don't think it really much changes from the operations of
Speaker 7: the company. I probably think they don't maybe pull Buffett
Speaker 7: doesn't pull that trigger on a big deal anytime soon,
Speaker 7: and if he does, it's probably gonna be something we
Speaker 7: never heard of.
Speaker 2: Honestly, Cat Saved twenty seconds for your last thoughts here.
Speaker 8: Yeah, I mean I think it's it's really a huge
Speaker 8: loss today. I think Charlie Munger was an interesting individual
Speaker 8: who made us laugh, but also you know, taught us
Speaker 8: a lot about different investments, and you know, I think
Speaker 8: it's really, yeah, the end of an era for.
Speaker 2: Berkshire, absolutely right in terms of companies, the investment world,
Speaker 2: and just kind of someone there to kind of write
Speaker 2: the ship like when there was crisis or so on,
Speaker 2: the two of them together. Keatchiklinski, thank you so much.
Speaker 2: Matthew Palizola, thank you as well. You're listening to Bloomberg Radio.
Speaker 3: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 3: live weekday afternoons from three to six Easter on Bloomberg Radio,
Speaker 3: the Bloomberg Business app and YouTube. You can also listen
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Speaker 3: Just Say Alexa playing Bloomberg eleven thirty.
Speaker 2: As you know, Charlie Munger, who has worked side by
Speaker 2: side with Warren Buffett to build out Berkshire Hathaway for
Speaker 2: the past sixty years, has passed away at the age
Speaker 2: of ninety nine. Berkshire Hathaway could not have been built
Speaker 2: to its present status without Charlie's inspiration, wisdom and participation.
Speaker 2: This is coming from Warren Buffett on that news. We
Speaker 2: want to talk a little bit about this a little
Speaker 2: bit more. Bloomberg News reporter No Bouhier is with us
Speaker 2: in Seattle, and Bill Smeed, chief investment officer of SMEE
Speaker 2: Capital Manager, back with us, was on with us prior
Speaker 2: to this news. You mentioned Warren Buffett in our discussion earlier.
Speaker 2: This is someone that you have followed very closely for
Speaker 2: a long time. First of all, I'm sorry because I
Speaker 2: know you know these individuals, Charlie, Charlie Munger and Warren
Speaker 2: Buffett just together built something so iconic in the investment world.
Speaker 5: I wrote a letter to Buffett probably five years ago,
Speaker 5: just thanking him for how incredibly generous that him and
Speaker 5: Munger have been with all of us. I mean, it
Speaker 5: literally changed our lives.
Speaker 1: What do you mean by that?
Speaker 2: Yeah?
Speaker 5: Oh, by communicating the discipline that they practiced. They shared
Speaker 5: why they were doing what they're doing all these years
Speaker 5: in the writing, in the annual meetings, sitting there and
Speaker 5: taking questions for six hours, all the way up way
Speaker 5: up into their nineties it's like a gold mine of wisdom.
Speaker 5: I used to get irritated because I kind of wish
Speaker 5: they would restrict the questions to better questions, because as
Speaker 5: the years went by, there were a lot of goofy
Speaker 5: questions that came up.
Speaker 1: Because sometimes they got some goofy answers, which were fun.
Speaker 5: Yeah, but here was this incredible resource, right Charlie Munger
Speaker 5: was the Solomon of our era. He was the wisest
Speaker 5: man in the investment business.
Speaker 4: He was the what he was.
Speaker 5: A cal Tech grad, Harvard law educated, started a law
Speaker 5: firm in Los Angeles, had a successful career in real estate,
Speaker 5: successful career in making common stock choices, and a right
Speaker 5: hand guide to the most successful investment selector and asset
Speaker 5: allocator of all time. I mean he is, he is.
Speaker 5: You know, we just admired him so much. And then,
Speaker 5: of course we admired him immensely because he'd say exactly
Speaker 5: what he was thinking and didn't really care very much
Speaker 5: bill who he might offended the process.
Speaker 1: You mentioned that you've been doing this for over forty years.
Speaker 1: What are some lessons that you've incorporated from Charlie Munger
Speaker 1: over these decades into the way that you manage portfolios
Speaker 1: and you allocate assets.
Speaker 5: Yeah, we when we're talking to people. I'm here in
Speaker 5: New York talking to some possible new customers, and we
Speaker 5: tell them when it comes to value people, we hold
Speaker 5: our winners to a fault because compounding is the eighth
Speaker 5: wonder of the world. So if you can find a business,
Speaker 5: let's just right off the top of our head, pick
Speaker 5: Occidental Petroleum, who Munger and Buffett started buying in the
Speaker 5: last year and a half or two years there entering
Speaker 5: massive free cash flow. They're paying down debt with it,
Speaker 5: but then they're also buying backstock. So, like Buffett says,
Speaker 5: over the years, if it's a company generating high returns
Speaker 5: on equity, high free cash flow buying back their stock,
Speaker 5: he ends up owning a larger and larger and larger
Speaker 5: part of the business as the years go by. That's
Speaker 5: what he did with Coke, That's what he did in
Speaker 5: the Iraq Express, That's you know what he did with
Speaker 5: a lot of different companies. And holding your winners the
Speaker 5: fault is a key component of alpha. As I explain
Speaker 5: to people, you buy a stock at thirty and pay cash,
Speaker 5: the worst thing happen is it goes to zero. You
Speaker 5: lose thirty points of alpha. If you buy a stock
Speaker 5: at thirty and it goes to ninety, and you sell
Speaker 5: it and goes to two ten, you lose one hundred
Speaker 5: and twenty points. And Buffett Monger taught that to people
Speaker 5: as a powerful thing. It's it's much better to get
Speaker 5: a less spectacular company that you can hold all the
Speaker 5: way through a ten or fifteen times your money than
Speaker 5: it is a spectacular company that you might make five
Speaker 5: times in five years. But you've got to be smart
Speaker 5: enough to sell it and go to another project.
Speaker 2: Well, and you're you're you know something. I want to
Speaker 2: ask you a little bit more too, about what what
Speaker 2: Charlie Munger was to Warren Buffett, what what he brought out?
Speaker 2: And Warren Buffett having said that, I want to bring
Speaker 2: Noah Bouhier into this because you know, Noah, it's one
Speaker 2: of those things where you think, as we're hearing from Bill,
Speaker 2: you know, these are both brilliant men, successful men, and
Speaker 2: would have been on their own, but something about them
Speaker 2: together brought out even so much more.
Speaker 9: Yeah, I think that's a that's a critical point here.
Speaker 9: Is there the combination of talents that they they they
Speaker 9: brought to bear really was was deeply important in the
Speaker 9: evolution of Berkshire. The other thing, just just speaking as
Speaker 9: a journalist. The thing that I always found so incredibly
Speaker 9: amazing about Charlie Munger was his directness and his willingness
Speaker 9: to speak his mind, even if his opinion wasn't necessarily
Speaker 9: a popular one. You know, as a as a as
Speaker 9: a business reporter and someone writing about investing, you always
Speaker 9: knew that Charlie was not just going to give you
Speaker 9: the piffy quote, but something that actually had some real
Speaker 9: substance behind it. And I think that's, you know, in
Speaker 9: large part what has resonated with a lot of investors
Speaker 9: over time. I mean, people would go One of the
Speaker 9: things that's underappreciated about Charlie Munger is is that deep
Speaker 9: into his nineties, people would go to Los Angeles to
Speaker 9: hear him speak at the annual meeting of a small
Speaker 9: publishing company called The Daily Journal. This was Buffett had
Speaker 9: nothing to do with this thing. They would just go
Speaker 9: to hear Munger alone. And I remember the first time
Speaker 9: I went to this thing, that were maybe one hundred
Speaker 9: or two hundred people, and you know, three or four
Speaker 9: years later, word had gotten out and a couple thousand
Speaker 9: were going. I mean, you have to understand Charlie Munger
Speaker 9: was respected in his own right. It wasn't you know.
Speaker 9: He's often known for his affiliation with Buffett, but he
Speaker 9: really did have his own loyal following.
Speaker 5: To back up Noah on that, one of our favorite
Speaker 5: things is when it comes to climate change, he just said,
Speaker 5: why don't we just build a sea wall?
Speaker 4: Right?
Speaker 5: That was his opinion. It's like, Okay, if it's real,
Speaker 5: let's do what they did in Amsterdam and just build
Speaker 5: a sea wall in California and New York. And that's
Speaker 5: so simple and logical and less expensive. But that's Charlie Munger.
Speaker 5: It was always common sense always won. The difference between
Speaker 5: the two men is Warren. Warren wants to die without
Speaker 5: any enemies. He has more of an urge to be liked.
Speaker 5: It's a wonderful man and he wants to be liked,
Speaker 5: whereas Charlie could care less if he's liked, right, He
Speaker 5: just he wants to share wisdom, share truth.
Speaker 2: What was it like from the different meetings you went
Speaker 2: to and just kind of seeing them up on stage,
Speaker 2: things that kind of stood out.
Speaker 5: For you, Well, there's hardly any better comedy routine that's
Speaker 5: ever been done, the back and forth. Of course, Munger
Speaker 5: had lots of the singers, but Buffett had plenty himself.
Speaker 5: And yeah, they played off fantastically. It was I had
Speaker 5: a next door neighbor that was four years ahead of
Speaker 5: me in school, and I had no brothers, three sisters,
Speaker 5: and he was one of four brothers. And here and
Speaker 5: I are extremely close friends. But he's four years older
Speaker 5: than me in the same way that Munger was six
Speaker 5: or seven years older than six years older than Warren.
Speaker 5: But yet, you know, we met and we were finishing
Speaker 5: each other sentences. And that's the way these guys were.
Speaker 5: They were finishing each other sentences. They'd say the first
Speaker 5: part of the sentence and they didn't have to continue
Speaker 5: because the other guy already knew what the rest of
Speaker 5: the sentence was going to be.
Speaker 2: It's just that kind of relationship we knew.
Speaker 1: A boohire, I'm so glad you're with us because we've
Speaker 1: been reading from your obituary NonStop for the last hour. Here,
Speaker 1: you know, to to Bill's point about this this idea
Speaker 1: of common sense and not you know, not always needing
Speaker 1: to be liked, you mentioned this some of his donations,
Speaker 1: and this one's this one's at the top of mind
Speaker 1: from him because it's it's relatively recent, forty five hundred
Speaker 1: person dorm on UCSB's campus, which actually got a lot
Speaker 1: of people interested in dormitory architecture who didn't think that
Speaker 1: they would actually be interested in dormitory architecture. But you know,
Speaker 1: here Munger is trying to solve this problem of student housing,
Speaker 1: and he got a lot of blowback to this idea,
Speaker 1: and ultimately they canceled it.
Speaker 9: What happened, Yeah, I mean, look, in his later years,
Speaker 9: Munger used these donations that he gave the universities to
Speaker 9: play architect I mean, he was deeply, deeply interested in architecture,
Speaker 9: and you know, he had some pretty unconventional ideas that
Speaker 9: I think really bothered people, and it became its own,
Speaker 9: you know, subplot, it's own right. But like you have
Speaker 9: to understand, for Munger, he was a incredibly wide, widely
Speaker 9: read person. He wasn't as narrowly interested in investing and
Speaker 9: you know, how to make money. Obviously he spent a
Speaker 9: lot of time doing that, but he had an interest
Speaker 9: outside of it. The other thing I wanted to add,
Speaker 9: and the stakes was in a slightly different action. But
Speaker 9: like you know, for all that Munger would you know,
Speaker 9: sit up on stage and sort of act as the
Speaker 9: skold and the curmudgeon next to Buffet. He he did
Speaker 9: have a you know, a generous heart and you know,
Speaker 9: when you talk to people who spent time with Charlie,
Speaker 9: you know he was he was a deeply nice and
Speaker 9: caring person and you know, on some level this sort
Speaker 9: of heurmudgeon stance he would take on stage and in
Speaker 9: public sometimes was was a bit of an act, but
Speaker 9: like you know, it to help them make his points.
Speaker 2: So, Bill, how do you think about you know, Berkshire
Speaker 2: Hathaway going forward. They've obviously thought about succession and there's
Speaker 2: aug Jane and Greg Gable, But I do think about
Speaker 2: you know, Warren without Charlie, yes, and what the impact
Speaker 2: that might be.
Speaker 5: Yeah, So Charlie and Warren have set a team together
Speaker 5: to to kind of come in. They've got two talented
Speaker 5: stock pickers in the wings. I'm guessing that this will
Speaker 5: be when when they begin to emerge at the annual meeting.
Speaker 5: Greg Abel runs the operating businesses and Todd Combs and
Speaker 5: Ted Westlers are running about thirty billion dollars other important
Speaker 5: that's who we think bought the home builders, for example,
Speaker 5: because it was smaller quantities than buff advice, and so
Speaker 5: that will cause their emergence. But Charlie's cerbic, common sense
Speaker 5: and sensibility, there's just not going to be any replacing
Speaker 5: that talent. He was a genius in that his he
Speaker 5: he he would look at the situation and hit it
Speaker 5: only with the best logic right, each situation, regardless of
Speaker 5: who might be offended by the logic of it. So
Speaker 5: he'd quote scripture and and then he'd support abortion rights right.
Speaker 5: So but logically, you know, he was trying to solve
Speaker 5: a problem with money. And the architecture thing just brings
Speaker 5: back to mind that he graduated from Harvard Law School
Speaker 5: and cal Tech and was an architect and and he
Speaker 5: was the most he was the renaissance.
Speaker 1: Man, kind of different sides.
Speaker 5: The brain. Oh, just unbelievable mixture of mental model talent,
Speaker 5: just amazing.
Speaker 8: Uh.
Speaker 5: He his family called him a book of with legs
Speaker 5: because he's always reading. Our podcast is called a book
Speaker 5: with legs because my son Cole is a gigantic Charlie
Speaker 5: Munger fan. And that's what that's what we call the
Speaker 5: podcast we interview authors of books, so we call it
Speaker 5: a book with legs.
Speaker 2: And he's quoted in Noah's story Noah, we'll obviously be
Speaker 2: talking this all week and then some another thought. You know,
Speaker 2: as you were putting together Charlie's story, you know, for
Speaker 2: for Bloomberg, what jumps out for you here?
Speaker 9: Well, I think you know, to your point of what's
Speaker 9: next for berkshirret the fundamentally bigger, different place than you
Speaker 9: know where he and Buffett started. So while you know,
Speaker 9: a mini levels manger is not replaceable, there are a
Speaker 9: lot of things that he and Buffett pioneered together that
Speaker 9: you know, there's a lot of there's a lot of
Speaker 9: that's been written, there's a lot that has been passed
Speaker 9: on based in the way that these guys did thing.
Speaker 9: And you know, again Berkshire is a huge company now
Speaker 9: with different needs. But a lot of the ways that
Speaker 9: Munger and Buffett think about the company are you know,
Speaker 9: certainly going to live.
Speaker 5: On right exactly that Munger said in late twenty twenty
Speaker 5: one that this was the largest financial euphori episode in
Speaker 5: his career, which was seventy five years and then at
Speaker 5: the annual meeting this year. He said, I really don't
Speaker 5: think stocks are going to do very well the next
Speaker 5: ten years. And then Buffett, I love this. Buffett chimes in,
Speaker 5: He goes, well, if I was running smaller amounts of money,
Speaker 5: I think I still think I could do really well,
Speaker 5: which was heartening to us because our five billion dollars
Speaker 5: is smaller amounts of money. So you're like, okay, okay,
Speaker 5: we got a chance.
Speaker 2: Priceless and thank you for coming back. Bill Smead. We've
Speaker 2: talked to you over the years. We've heard you talk
Speaker 2: about Berkshire, Warren Buffett and Charlie Munger. So great to
Speaker 2: get you Towagh and be well. Bill Smeaed of Smee
Speaker 2: Cappel Investment and of course our no Boo Hire. Read
Speaker 2: his story on Charlie Munger. It's on the terminal and
Speaker 2: at Bloomberg dot com. Noah, thank you so much at
Speaker 2: Bloomberg News. This is Bloomberg Radio.
Speaker 5: Um bromuco.
Speaker 4: A journal.
Speaker 2: How about you let me drive?
Speaker 5: Oh no, no, no, no, who's going to drive?
Speaker 1: Honey?
Speaker 3: Please?
Speaker 2: I want to drive.
Speaker 9: It's good question.
Speaker 3: This is the drive to the Globe. Think well by
Speaker 3: Around Feldn on Bloomberg Radio.
Speaker 2: All right, it's been in just about eighteen minutes left
Speaker 2: in today's trading session. Time for the drive to the
Speaker 2: closed bill. Smeed is in the house. He's founder in
Speaker 2: CIO at SMED Capital Management Speed Value Fund. They've got
Speaker 2: roughly four and a half billion in assets under management.
Speaker 2: Continues to be a top performer in the ninety fourth
Speaker 2: percentile based on Bloomberg data over the past five years,
Speaker 2: with an average annual return of nearly twelve percent. The
Speaker 2: fun just a reminder, invests in some twenty five to
Speaker 2: thirty large cap US companies.
Speaker 4: Hello.
Speaker 2: Hello, how are you terrific? Well, it's good to have
Speaker 2: you here. Tell us about you know, I don't always
Speaker 2: love to talk macro with you because I like to
Speaker 2: get to your whole life.
Speaker 1: Hold on, He's leaving warm weather in Arizona to come
Speaker 1: to this here in New York.
Speaker 2: Why are you doing that?
Speaker 1: What are you doing here?
Speaker 3: Well?
Speaker 5: New York is the center of the investment industry, okay,
Speaker 5: and we need to come about once every ninety days.
Speaker 2: Well, the people that you talk to your clients, investors,
Speaker 2: what's their tone right now? What are they interested? What
Speaker 2: do they want to know about? And are they ready
Speaker 2: to put more money to work.
Speaker 5: You know, I'm forty three years in the business, and
Speaker 5: this is one of the most bizarre chairs. We believe
Speaker 5: that we've entered the third major commodity supercycle of my
Speaker 5: time on Earth, the first one being seventy one to
Speaker 5: eighty one, the second one being the brick trade ninety
Speaker 5: nine through twenty eleven, and this is the third one.
Speaker 5: Too many people baby boomers forming households in the sixties
Speaker 5: and seventies, with too much Vietnam War and Johnson's Great Society, indebtedness,
Speaker 5: monetized chasing too few goods, one point two billion Chinese
Speaker 5: people who had never practiced capitalism chasing too few goods.
Speaker 5: It's the brick trade. And this is now ninety two
Speaker 5: million millennials and one hundred and eighty million people under
Speaker 5: forty with eleven trillion dollars in monetized debt, chasing too
Speaker 5: few goods.
Speaker 1: Or apart from houses that are too few and far between,
Speaker 1: what are we chasing as millennials.
Speaker 5: Well, they just reported that house prices up again. Car
Speaker 5: prices have on up.
Speaker 2: Our story yesterday from Reid Picker right that talked about
Speaker 2: specifically why basically Americans hate the US economy is that yep.
Speaker 2: Inflation's down over the past year, but prices are still
Speaker 2: higher than their pre pandemic levels.
Speaker 5: In my chart deck right now, I've got the chart
Speaker 5: of inflation from nineteen sixty to nineteen eighty two. There
Speaker 5: were two big pullbacks in inflation, from six percent in
Speaker 5: nineteen seventy down to three in a recession and bear market,
Speaker 5: and then it went to like twelve and then it
Speaker 5: pulled back to five. And both of those times that
Speaker 5: it pulled back, they thought they had it licked, and
Speaker 5: then it went to fourteen before they ultimately just completely
Speaker 5: clobbered the economy.
Speaker 1: So inflation, is it licked now?
Speaker 5: No, it's a temper, it's a timeout. It's a resting
Speaker 5: period in between the next thank very conjuring in view. No,
Speaker 5: it's too many people with too much money chasing too
Speaker 5: few goods. More people got married last year and this
Speaker 5: year than any single year for the prior ten. You
Speaker 5: get wedding invitations all the time, the babies will start rolling,
Speaker 5: and it's necessity spending. That's what drives inflation, is too
Speaker 5: many people with too many necessities to buy, chasing too
Speaker 5: few goods. And I've been here for a couple of
Speaker 5: days in New York, I went to Roxy's Delhi. They
Speaker 5: had one waiter waiting on twenty five people because they
Speaker 5: can't find people. The hire at twenty bucks an hour
Speaker 5: for unskilled labor. And that is a sign that we're
Speaker 5: not out of this yet. It's just it ebbs and flows.
Speaker 5: Everything ebbs and flows in the investment business. And so
Speaker 5: the oil and gas industry, which is our heaviest exposure,
Speaker 5: is ebbing right now after a nice run on the
Speaker 5: first leg. But we matched it up with the two
Speaker 5: prior supercycles and we're tracking almost exactly.
Speaker 2: So talk to U about your holdings. I mean, I
Speaker 2: feel like you know, we've talked to you for a
Speaker 2: few years now to say, and a lot of names
Speaker 2: stay in the portfolio. I mean, Occidental is in the petroleum, right.
Speaker 2: Is that you're thinking because of it in terms of
Speaker 2: the energy trade.
Speaker 5: Yeah. I'm a huge Buffet fan, and for years I
Speaker 5: was following him around and stuff like American Express divorced
Speaker 5: Costco as the branded Costco credit card and the stock plummeted.
Speaker 5: That's when we bought American Express and that was that's
Speaker 5: one of his holdings. So I've been following him around
Speaker 5: for three decades, and in the last two or three
Speaker 5: years his underlings have bought the three home builders we own, Horton, Lenar,
Speaker 5: and MVR. You've loved home building, and he's followed us
Speaker 5: into Oxy'.
Speaker 1: You're gonna get mad at me, Carroll, because I'm gonna
Speaker 1: just ask about the FED real quick. Okay, Well go ahead.
Speaker 2: Well what's your top holding first?
Speaker 5: Oxy?
Speaker 2: Okay, So tell me about the Northern Institutional Treasury portfolio?
Speaker 9: What is that?
Speaker 5: That's just our money market fund.
Speaker 2: Just your money market fund. How much is in there?
Speaker 5: About three point two?
Speaker 2: So not much? Or is that normal?
Speaker 5: Let higher than two to three is normal? It always
Speaker 5: keep enough that we can start a position.
Speaker 1: Meaning more percentage of your overall portfolios in cash right
Speaker 1: now three point two. So the question that I have
Speaker 1: is if indeed inflation is not under control, now, does
Speaker 1: that mean the FED is not cutting next year and
Speaker 1: they're gonna actually have to raise more because if you
Speaker 1: I mean, if you listen to FED speakers right now
Speaker 1: in the conversation, I mean convention wisdom right now, Hey,
Speaker 1: the FED read hikes are behind.
Speaker 5: US market's pricing in four rate No, that's that's what
Speaker 5: happened in this That's exactly what happened in the seventies.
Speaker 5: The two Fed governors before Paul Volker both thought they
Speaker 5: had it licked when they got in a recession in
Speaker 5: nineteen seventy seventy one and it dropped back to three.
Speaker 5: They thought they had it locked. And then as soon
Speaker 5: as they let their foot off the neck of it,
Speaker 5: it spiked again. And then they tightened again and it
Speaker 5: went down to five, and they couldn't get any lower
Speaker 5: than that, and then it spiked because all this time
Speaker 5: labor is going to demand more money. We're only at
Speaker 5: the beginning of labor asserting itself. See in the world
Speaker 5: tech stocks success and the economy of the last twenty
Speaker 5: twenty five years, it's been a nightmare for labor. Labor
Speaker 5: was a loser in that, and now things are going
Speaker 5: to get reversed in an inflationary environment. There's two ways
Speaker 5: the average households can defend themselves. They can own a
Speaker 5: home which locks in their rent, and they they can
Speaker 5: negotiate for better pay. And you're starting to see unions
Speaker 5: assert themselves. And that's typical what happened in the seventies.
Speaker 2: Also, So having said that, for publicly held companies. That
Speaker 2: sounds like it's going to be problematic, especially in terms
Speaker 2: of if you're paying more wages.
Speaker 5: Yes, we believe that the S and P five hundred
Speaker 5: will not make money nominally over the next ten years.
Speaker 2: Wow, So why do you want equity exposure?
Speaker 5: Then? Oh, because during the seventies, oil and gas did great,
Speaker 5: and lots of real estate did great because if you're
Speaker 5: appreciating with inflation, right, and so home builders did great
Speaker 5: because baby boomers needed a home, and now we've got
Speaker 5: millennials that need a home, and the existing home stock
Speaker 5: won't move because if you've got a three percent mortgage,
Speaker 5: you're not going anywhere. And the homes are old now,
Speaker 5: they're way over forty five years old on average. And
Speaker 5: we own home depot because you got to take care
Speaker 5: of them along the way. So it we're dealing with
Speaker 5: very simple economic positive forces in our portfolio while everybody
Speaker 5: else has to get Dreamland to continue. And when the
Speaker 5: history books are written, they will talk about this era
Speaker 5: that we've been going through the last four or five
Speaker 5: years as the combination of two financial euphori episodes basedly Tulips.
Speaker 2: And the other we got to run Bill speed Wow,
Speaker 2: Sobert Bill smeaed here in studio.
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