Ben, when we tease this episode in the email about the Jensen episode that we just released, the guesses that we were getting from folks were amazing. I mean, people are like, it's Charlie, it's Warren or it's Taylor Swift, and a lot of people are right. Hey, Taylor, you know where to find us? Acquired FM at gmail.com. If you are looking to get more publicity, we're open. Have Travis get in touch. Alright, let's do it. Who got the truth?
Welcome to this episode of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert. Um, David Rosenthal. And we are your hosts. This episode is a very unique one for David and I. Good friend of the show Andrew Marx organized a little dinner for us with Charlie Munger and a few other folks at Charlie's home in Los Angeles. You can hear Andrew a few times in the background asking Charlie questions.
We are pretty sure that this is the only podcast that Charlie has ever done. Charlie aside from being one of the most prolific investors of all time alongside his partner Warren Buffett is 99 years old. He will turn 100 on January 1st. Of course, our conversation was interesting because he's freaking Charlie Munger, but also because it was interesting to get the perspective of someone who has seen the last 99 years of human history.
We talked with Charlie, of course, about Costco, his history investing in retailers over the last 50 years. We also got to hear his views on what it takes to build a great partnership. What's gone wrong in the global securities markets these days, the concept of investing versus gambling and where investment opportunities remain in the world today.
Yeah. Ben, this was such a special life experience for you and me and you and me together to do this and the fact that we got to record it and now share it with the world for posterity, just icing on the cake and the whole thing was unbelievable. Yeah, listeners, we knew we were going to have dinner. We were not sure whether we were going to be able to record it and now we get to share it with all of you. With that, join the Slack.
If there is awesome discussion of every episode and the news of the day at acquired.fm-slack. If you sign up for acquired emails, you will get episode corrections and follow up from previous episodes plus hints at what the next episode will be. That's acquired.fm-slash-email. And we have only one sponsor for this interview.
Yes, a special conversation deserves a special sponsorship and longtime listeners will know there's only one company in the acquired universe that is truly appropriate because everything they do is modeled after Charlie and Warren and that's tiny. Yep. Tiny is the Berkshire Hathaway of the Internet. Literally, they are such huge fans that they started a company that makes bronze busts of Buffett and Munger themselves, but more on that in a minute.
Yeah. So Berkshire, as we know, started as a textile mill in Massachusetts nearly 200 years ago. And almost 20 years ago, Tiny Founders Andrew Wilkinson and his partner Chris took their version of an Internet textile mill, the premier design agency metal lab, which designed the UIs for slack, Uber, Tinder, headspace, coinbase, and others. And they asked themselves, what would Charlie and Warren do if they were us?
And that led to the realization that just like Berkshire discovered in the physical world, the Internet also has wonderful niche businesses with great cash flows. In fact, they tend to be even better than the old days of C's Candies and Blue Chip Stamps, because they require zero capital reinvestment, have software margins, and can build global brands much faster than the, what, 50-some odd years it took C's to expand around the world.
Yep. So Andrew and Chris took the extra cash flow from metal lab and their other businesses and created Tiny, the world's first and best permanent holding company for wonderful Internet businesses and boy did it work. Yeah, fast forward to today, and thanks to Tiny's success, this opportunity is no longer a secret. Many people have gone on to the idea that this can really work.
But just like Berkshire itself, no one else has the combination of experience, temperament, access to capital, and frankly reputation that Andrew and Chris have built over the past two decades. We're investors in Tiny ourselves alongside Bill Ackman and Howard Marx. And just like the two of them, Tiny is really the long term buyer of choice in their niche.
Anyone who's looking for a permanent home for their profitable Internet business, or who needs a capital partner for a co-founder or VC-captable buyout, would be lucky to work with Tiny. Yep. For instance, they just bought the Premier Social Network for Film Buffs, Letterboxed, which has been the Founder's Baby for 12 years and will stay so within Tiny. And this really reflects Tiny's whole ethos.
Work with only the best Internet businesses commit to simple diligence, 30-day deals, and leave the business alone, either for you to operate or bring in new long term oriented management up to you. So thanks to Tiny, this is the only sponsor as Ben said that you'll hear on this episode. And just like Berkshire, it'll be here in perpetuity. Tiny just became a public company earlier this year, and they can now do deals ranging anywhere from 1 million all the way up to 250 million.
So if you want to get in touch, just shoot them a note at high at tiny.com and just tell them that Ben and David sent you. Oh, and one more thing. The bronze Charlie busts, the perfect daily reminder in your workspace to ask what would Charlie do. And then we'll head on over to Berkshire Nerds.store to buy your own. And they also have plenty of some guy named Warren too. Okay, now without further ado, this is not investment advice.
David and I may have investments in the companies we discuss, and this show is for informational and entertainment purposes only, and on to Charlie Munger. Charlie, I was watching the NFL games last weekend, and it seems like every advertisement now is a sports betting advertisement. Is this good for America? No, of course not. They're just very popular. That's how Warren got his start though, right at the racetrack? Well, but Warren never gambled.
Emily is a page room of a Warren one of the odds and his favorite not somebody else. Right. It's just so simple if you're Warren, you want the house, you want to be the house, not the punter. Listeners, the next topic that came up was retail stock trading and the idea that for many Americans, this is akin to gambling. Well, it's a way to organize. They don't really know anything about the companies or anything that just gamble on going up and down the price.
If I were running the world, I would have a tax on short-term gains with no offset, per losses or anything. And I would just drive this whole crowd every ball of business. What do you think about the algorithms, like Renaissance and stuff like that? Well, of course, Renaissance, it's first to algorithm. It was so simple. It sifted all this data for the past. And what did they decide? Up, up for for sure to closing prices and down, down were more common than down, up, or down.
Once they realized that's the way it was for the price, reason is deeper than psychology of madness. It manages the natural trend, but lower. And they take it into gambling short-term. And they just, he's programmed the computers to automatically, you know, buy in one thing of the first up days and sell before the end of the second day. And then you did it day after day after day.
And every day, my machine, you know, the central energy, you say, you're checked today is $8 million and $500 thousand. Crazy. Check tomorrow is $9 million and $4 million, $1,000. But what happens is that the ones, the easiest trade is to front run what, you know what the average, what the index ones have to buy. You know what it is exactly. They all know that. And the way they get their returns year after year is taking a leverage, the mid-day leverage of higher and higher and higher.
So making smaller and smaller profits up more and more volume, which gives them this big peak leverage risk, which I would not run myself. And that's the only way they make these big returns is to have this huge leverage. It would make you crazy if you were already rich. I had the good fortune of speaking with someone you know well, Richard Galanti at Costco and spending a few hours. You know what I was talking about, he's been there all his life. It's crazy.
I mean, it seems like that's everyone on the executive side. They've all been there. Yeah. I know. Jerry, how did you first come across Costco or a price club at the time? Rod hills, somehow knew saw price. And he was doing, he said, you have to go down the meeting. So I drove down and went through the store and talked with Saul. And of course, Saul was a very intelligent man. Saul was an ordinary lawyer until his 39 years of age. He went out and formed government employees discount company.
Was this in the FedCode days? He was no longer with that at all. He sold FedCode to the Germans. Fedmark to the... Yeah. Hugo Mann. Yeah. Yeah. And did you get to invest in price club before it merged with Costco? Yes, I did. But I just bought my stock on the market. I wasn't like any favorite. And so how did you eventually meet Jim Senegal? Senegal asked Warren to become a director of Costco. He was looking for somebody with a financial reputation. As an independent?
Yes. And Warren wouldn't do it as soon as he'd get Charlie to do it. I wanted shorter plane rides to directors meetings and so on. So that's all that happened. And did Berkshire ever try to become a shareholder or acquire Costco? I tried to get Warren to buy out the French when they left. Therefore. Ah. And Warren wouldn't do it. Warren doesn't like retailing. Was it just that he doesn't like retail or what was the big injection? He's right. He's right.
Yeah. Gradually everything that was months mighty in retail is gone. Since Robert is gone, the big ones are gone. It's just too damn difficult, sorry. He's concerned. And you had a bad experience with diversified retail, right? No. We made money in diversified. We didn't exactly make it in retailing. But we made a lot of money. Wow. And with diversified, most of the money was not on the retailing operation. You made a lot of that money through. What happened was very simple.
We bought this little pissant department store chain in Baltimore. Big mistake to the bad. As the ink dried on the closing papers, you realize you can be a terrible mistake. And we decided just to reverse it and take the headster and look foolish rather than go broke. You just told him, I get us out of this. By that time we'd already financed half of it and coming to free debt and so forth. And we did it all as extra cash. And our own stocks got down to selling in enormous.
We just in the middle of one of those decisions, we bought and bought and bought. And all that money went back into those stocks. And of course, we traveled and just sitting on our ass. And that led to Blue Chips? Yeah, but yeah, it was part of the early success of Blue Chips. Wow. And so, you mentioned Warren doesn't like Blue Chips. And we've got something else that Blue Blue doesn't know about. Yeah. We bought a little pissant savings along company. It was a maybe 20 million dollars.
And when we left that thing, we had taken out of our little 20 million dollar investment over two billion dollars in marketable securities, which went into Nebraska insurance companies as part of their bedrock capital. So we had some wonderful early years. And that's what everybody needs just wonderful early years. Wow. So in our Costco episode, we started with the joke at one of the Berkshire meetings, probably 10 years ago. Warren told the joke about you were on a plane being hijacked.
And the hijackers gave you one final request and you said you'd like to give your speech on the Berkshire. On the contrary to me kind of reminding you. Yeah. And he said shoot me first. We were hoping could you give us your speech on the Berkshire's of Costco? No, Warren was kidding me for being so repetitive on this subject.
But there aren't many times that lifetime when you know you're right and you know you have one that's really going to work wonderfully, maybe five, six times a lifetime you guys can't do it. And people do it 20 times early. All go broke because anything is easy. It's fact is very hard and rare. What was it about Costco that made you realize this is one of those few moments in a lifetime? Well, they really did sell cheaper than anybody else in America.
And they did it in big efficient stores and all the parking spaces were 10 feet wide and 7, 8 feet 9 or whatever they normally are. They did a lot of right. Yeah. And they had a lot of parking spaces. And they kept out of their stores. At least you didn't do big volumes just see. And they gave special benefits to the people who did come to the stores in the way of reward points. The executive membership. Yeah. They all worked. And the capital-length business follow.
I mean, when we were studying at the difference between price and no investment in them. They make the suppliers wait until they've been paid. They're scheduled to pay only after they're scheduled to sell. They've got 900 warehouses around the world full of high quality merchandise, none of which they have sitting on their books. That's correct. Yeah. Our understanding is that price club went public initially before the merger. They just listed. They didn't raise any capital.
They didn't need any capital. Oh no. It's all kind of like the discount of offense here. You like deals. You like this business like it's real estate. Yeah, but it doesn't make sense. You don't want. You got an enterprise that's biggest cost. But you know, you're probably getting other people to clog up your parking lot permanently and stuff. It's not going to pay you very much. Right. You don't want to miss the answer.
Have you ever seen another business that takes advantage of the virtue of the low-skunek count the way that Costco does? Well, there are lots of them that little grocery store chain here in Los Angeles, gelsen brothers. They wanted to hire an over and low capital cost. And they never made the least effort to earn any money. They wanted to share their parking lot with anybody.
As you reflect back on one of these few great companies in a lifetime that you should bet big on, what advice would you have for David and I as young partners looking for a few of these in our lifetime, things to look out for? Well, you may find it five years after you bought it, you know. These things may work into it or you're under all understanding, may get better. But when you know you have an edge, you should bet heavily. You know you're right.
And mostly they don't teach that business school. It's insane. Of course you got a bet heavily on your best bets. And how do you develop that level of conviction to know? You work out. You redo a lot of reading and thinking and visiting. I'm curious that we wanted to ask you, you know, you've had this beautiful partnership with Warren for half a century. Yeah, we're a decade in our partnership. There was a lot of low-skunek fruit in the early days of our operation.
You don't have any unaliencing fruit that's easy to recognize. You mean investment opportunities? Yeah, that's right. But your relationship with Warren, like how have you... Well, we were all so kind of similar and we both wanted to give our family safe and take new good job for investors and so on. We had similar attitudes. Yeah. Did it change over the decades? No, Warren still cares more about the safety of his business shoulders than he cares about anything else.
We used a little bit more leverage throughout. We'd have three times as much now. Anyway, it wouldn't have been that much more risk either. And we just didn't ever wanted to give the at least chances to have our basic shoulder position. If you had used more leverage, do you think there's some chance that... We would have done a little better, sure. Do you think there's some chance that it wouldn't exist at all, that it would have cost you the franchise? No, I think it would have worked fine.
This would have been easy. The situation landed itself. If you were intelligent, just know you know. When you leverage them so curious on after we did our... Automatically leverage. You over a new store with no capital. Of course, it's leverage. Who wouldn't want a business whether than it. No inventories. Right, that's a good point. By the virtue of you owe a whole bunch of people money on day one for these goods that... Which turnovers are rapidly? Right. It's interesting.
I mean, that's leverage. It's not debt leverage. I mean, how do you think about debt? Like after we did our Berkshire series, a lot of people do it now. A lot of people do it now. Who... Man, you're actually something. They're just terribly strong. And they're just forcing the suppliers to carry all of them. But he isn't like where they only want to do that. Back to the point on partnership. David and I are coming up on 10 years as partners in this podcast we do together.
Different than the investing business, but a compounding one nonetheless. After a 50-year partnership with Warren, what advice would you have for us, interpersonally, to make for an enduring partnership? Well... It helps if you like one another. We do. Yeah. But I don't give anyone formula a lot of partnerships that work well for a long time. Having one because one's good at one thing and one's good at another. They just naturally divide it. And each one likes what he's doing.
Now in Costco's case, they had Jeff Rotman who's very smart. But now they're retailer. And Jim Sanio, they divided it up. And they originally created a problem with me to chairman and CEO. Because he was the idea he founded the whole thing. But Sanio said, no, I have to be the CEO. So the big unfortunate board meeting, or big NREL struggle. And Broughtman moved aside. Was that after you joined the board? No, before.
Do you think you and Warren not living in the same city helped your partnership last so long? Well, I may have helped. But Warren has very close relations with all those people that have launched every Saturday at Burt's Headquarters. He doesn't have a little quarter of people there who are kind of pals when he ground up. Do you think it helps that when you do spend the time together, it's special rather than being common?
Well, of course, we used to spend a lot of time together and we were young, we didn't have that much to do. Now we've got more to do in that. But then it's just the other, it's you, boy. So it's different. Yeah. It's funny. I feel like we have a lot to do now. But of course, you do it. It's very difficult to invest money well. I think it's all but impossible to do time after time or time and venture capital. Yeah. We really wanted to ask you thought time venture capital.
Some of the deals get so hot and you have to decide so quickly. Yeah, you're all just sort of gambling. Do you think the role of venture capital is being properly accomplished in society? No, I think it's very poorly done. Charlie elaborated on this point with a few things that we can't air, but the topic did turn to Bitcoin. I've heard many comments you've made on Bitcoin. I'm curious if you have a thought on this particular angle.
An easy way to transfer money in between countries, especially when those countries don't have a stable store of value within that country. Is it good to have an independent store of value that is not a good thing? Well, of course, it's good to the world as a whole to have a way of having some currency. The way that was solved is for a long time, the British found was the national currency of investment world. That shifted to the dollar and it's still a dollar.
Yeah. And people like China have these enormous reserves of dollars. Either money we make, think of the money people give us where we always just print up these pieces of paper. Yep. And what about the common person in some of these less fortunate countries who don't have access to US dollars? Well, they do have the area of money. The dollar is very fun. You can always buy one anywhere. I'm curious back to this point of the role of venture capital in a society.
If you could design a perfect system to fund innovation. Share the gentleman business if you do it right. If you want to give the right people the power and nurture them, help them. You know a lot about the tricks of the games that you can help them run their business yet not interfere with them so much they hate you. By and large, I have bumped into a lot of people in the businesses with venture capital financing.
I would say the ordinary rule is that people in the business doing the work, they're more than not the eighth of venture capitalists. They don't feel they're their partner trying to help them to come in. They're only taking care of themselves and so on and so on. They don't like them. How could it work differently? Yeah, well, I bet that's not true in virtue. You see, they don't want to discard them to the highest bid.
See if someone has all the best of the maker offers us 20 times earnings or some lozzy business. We don't sell. If it's growing business, we never will be able to fix. We'll sell it. But if they have weighty business, we never sell anything. And that gives us a certification of staying with things, which helps us. And do you think that by and hold not only mentality, but demonstration is the key thing that aligns investors with managers? Well, it's rare you see.
Everybody else has a standard way of doing things. The lawyers have their standard forms. And everybody just has the same standard form. And they get the same standard results subject to the vicissitudes of investment life. You don't want to make money by screwing your investors. And that's what a lot of venture capitalists do. The world is full of XG, Goldman Sachs partners and form the private fund. They imagine billion dollars or something like that.
And they charge two points off the top plus the sub-biby. And that enables them to make very handsome lozzy themselves. But the endomas and I can't get a good return. And do you think it's specifically the fee aspect of fund distractions? It's just you want to make sure the Web is just the way it works. And of course, you really shouldn't be in the business of charging extra. But unless you really are going to achieve very unusual results.
And of course, it's more easy to pretend that you get good results. That's actually get them. And so it tracks the wrong people. People with investment capital turn in mind. And if you make the most money out of venture capital, or a lot like investment bankers, deciding which ought to new area they're going to get in. They're not great investors or great at anything. What do you think endowments and lozzy pools of capital should do then? Well, they're starting to do it.
The endowments have started to say to all these people that judge three and 30 or whatever they judge. They said, we'll pay your three and 30. We're going to put in twice as much money in that. And the next half, you'll get nothing on it. You're just going to ride peri-pass you on some of your investments. So the piece you go down by 30% that'll take a lot of the fun out of it. Fees down 50%. And that's happening all over America. They feel had misled, irritated.
They've looked foolish to their own trustees. One of the issues I think in investing right now, you mentioned about venture capital I think is true everywhere. There's just so much capital and so much competition. We're so far removed from the cigar buttera. We're in the opposite of the cigar buttera these days. Are there opportunities out there? Tell me somebody will find a few things. But it gets harder and harder.
I would argue one of the easiest ones was when they decided a little group around the home depot they would copy the Costco metal and home improvements. That was basically a good idea and thinking of the money they made doing. Yeah. Peri-Marcus. Yeah. It was a direct copy of Costco. Do you think there are more opportunities to copy Costco? Well, there was another one in Costco.
The Honda car is the current imitator and it's just this in vinyl, wood imitating vinyl flooring that they're running a Costco model. Huh. And they keep adding miscellaneous stuff to it too. It's the miscellaneous stuff that'll eventually kill you though. Well, it'll be similar where it's all flooring. Yeah, it's just like the vertical home depot worked so well. But I don't know that it was totally obvious. Part of the appeal of Costco was it was horizontal. It was everything.
Consumers could come, they could make a trip, bring their big wagon, bring their big truck. How many people was the same? They copied everything. And famously Peri-Marcus came out to visit Saul. Yeah, they started it. They came out, they copied everything. Saul was happy to share the playbook with everybody, right? How did you feel about that? Saul was a not-a-crazy geek. He was dominary and so on. But he was also very intelligent. But there aren't many opportunities like Home Depot and Costco.
There aren't very many. Why do you think Walmart hasn't been successful once they saw Costco in competing? They were too wetted by the idea they already had. They were in a serious trouble. They just can't accept a new idea because the play space is occupied by an old idea. They got in the habit of getting the bills they'd practically give you nothing because they went into little towns or nothing was valuable. So they're always their occupancy costs to the like zero.
And they knew how to make big defense stories. That was their formula. So it offended them to go against the rich sub-urpers and half the payout for the good locations. And Costco just specialized in the good locations where the rich people lived. And Walmart just let them do it year after year was a terrible one of the same. Did you know Sam? Martin? No, never met him. I knew the son, one of the sons. And they divided it up, you know, about six parts very early. Yeah, Martin enterprises.
So they never paid much gift taxes for anything. The topic then turned to the automakers and the future of the car industry. Look, our heart, it would be going to the auto business and have something killing. Who's going to win? Who knows? The whole thing's been thrown away out of the air by all these electric cars. There's big new capital requirements, different ways of selling cars. And plus they got these tough unions. See, I just don't even look at the auto industry.
Do you think it's more investible today than it was 50 years ago because of the disruptive innovation of electric? Well, maybe for one or two electric cars are really good at it. Maybe. That's certainly nobody else. So you think B.Y.D. Just yourself. B.Y.D. was a miracle. But that can't work 70 hours a week. And that's a very high IQ. You can do that. You can do that. You can do that. You can do that. You can do that. You can do that. Charlie, you invested a hundred. Yes, but they're clever too.
How was that investment for you? That lost money. Not much because I was stubborn. I held out and got back to almost what I paid for it. I sold it. There's been a lot of discussion about the purchase investments in the Japanese trading houses. Well, but that is a no-brainer. Something like that. It is smartest, worn, but maybe two, three times a century. You had an idea like that. The interest rates of the annual half a percent per year, for ten years.
And these trading companies were really entrenched to old companies. They had all these cheap copper mines and rubber poundation. And so you could borrow over ten years ahead. All the money you could buy this stock is like a five percent dividend. So there's a huge flow of cash with no investment, no thought, no anything. I wouldn't do that. You'll be lucky if you get one or two a century. We can do that. Nobody else could. It looked attractive at half or something. You couldn't get it.
But Berkshire was this credit cut. And the longer you get it, it was very patient. I just picked away out of the little pieces of the stock. Took forever to get ten billion dollars invested. But it was like having God just opening a chest and just pouring money into it. It was awfully easy money. It's interesting that it's paradoxical. You need Berkshire's credit. But at Berkshire's scale, it's actually hard to put enough money to work. That's true, but why shouldn't it be hard to make money?
Why should it be easy? Japanese trading companies reminds me. We studied another company recently, Nike. That's a surprising company. Did you ever look at it? That's a style company. Of course I looked at it, but I don't like style company. To Fad driven? I suppose the Army Hermes is a cheap and a price I'd buy. But short of that, I'm really out of my mind. I just thought about the company. Oh, that's a good pick. To the style points. Another one that they covered was LVMH.
Our know has been amazing. So what do you make of that company? Well, if you're as good as they are, do as they've done. You have a lifetime to do it in her. An hour lifetime. I really do. Three or more lifetimes to do it in. It's not easy. Our mes is on the eighth generation, I think, now. The family running it. It's not a bit easy. They have meetings every day with eight week policy decisions. And it shows the locations of one of the time. And it's work. It's definitely work.
What do you think the durable value is in these, as you say, style companies of the very best one in the world, the Hermes or the LVMH? What makes them enduring? Well, they just got a brand. People trust so much. It took them centuries to do it. Our conversation then turned to comparing Kirkland Signature as a brand to Hermes. Kirkland is a brand the way Thai is a brand. And Hermes is a brand. Yeah, Ferrari doesn't make a lot of detergent. No. We've spent a lot of time studying these brands.
How do you look at the value of a brand? Well, it's hard for us not to love brands, since we were lucky enough to buy this candy for $20 million. That's our first acquisition. And we found out fairly quickly that we could raise the price every year, like 10% and nobody cared. We didn't make the lives go up or anything like that. Just made the promise go up. So we've been raising the price back to Ember's any year for all these 40 years or so. Wow. It's been a very satisfactory coming.
We didn't require any new capital. I was so good about it. Very little new capital. We had two big kitchens and a bunch of rental stores when we bought it. Now it's got two big kitchens. A bunch of rental stores. Well, it was a playboy. And his brother ran the company. His older brother and dominated it completely. But when he died, Charlie made his brother as a chequeer. And now he needs a lot of money to pay death taxes. He doesn't have it.
And it's due, you know, eight months or something later. And so they really wanted to sell so they could pay the death taxes. And it seemed as only making for my in-breachingly bought it. And so that buying opportunity only came about because the family needed liquidity to pay the death tax. That's right. We only found out about it because Charlie was on his cruise to a while years, something with this guy who was a client of the council.
And council also worked for Luchib Stamps, who was the company that bought it. And anyway, that's how we found out about it. We paid that guy a fine to see you. You've never paid one since. You know, he said that though it was worth it. Of course, but you don't want to be able to pay fine to see you there. You're in the world to be bothering you all day long. So what do you think so there are categories like C's or like term is, their brands lead to pricing power.
I think your chances of buying one of them is so low I wouldn't even look. I don't even believe in looking at things that I might find. You're not going to get the right. No curiosity. You're right. But why do you think there are extremely well known brands and other categories maybe packaged food or something where there are a lot of professional investors that might know they would brand it good. And when they usually start with this Nestle and it is filler everything.
They didn't do it three points better than average, but it's not a bananza. After that, our conversation turned to craft hines and why hines is able to have pricing power while craft is not. It was very interesting. There's something about the flavor ketchup. Oh my god, I'm fried potato. You want to really want to change brands over. They want hines. And so we could raise the price of hines pretty much.
But you try to raise the craft cheese and everything goes in about you, including the final customer of the housewife. You don't care that much about whether the cheese is a scratch or not. Why do you think that is that some of them have on the sauce flavor? It's happening elsewhere in Korea. One guy is a Chinese guy. It throws all the sauces. Every single major sauce, you can throw at least 95% of them.
And it's because sauces have such a particular flavor that no one can imitate the trade secret. Yeah. Huh. And that gives pricing. Well, they'll get used to it. You like it. Is that Coca-Cola as well? Yes, sure. Charlie, I'm curious. At age 99, what is something that you believe today that 70-year-old Charlie would have disagreed with? I think I knew what I was 70. It was my hard, but it made it just so hard. I know how hard it is now.
And all these people who are getting this two and 20 or three and 30 or whatever, they all talk as always easy and they get to believe in their own bullshit. And of course, it's not a bit easy. It's very hard. If you were back 30 or 40 years old again today, would you decide to go into the investment business again? Oh, probably because it suits my nature. But I didn't really enjoy the three and 30 business. Once I had enough money on my own, I'd rather just have it with my own money.
That is a much better way of doing it than because of the three sales. Before we forced to deal with investment bankers, before we forced to deal with investment consultants, before we forced to deal with venture capital. Who knew us, you know, on need other people. Why do you have to reach this? You don't have to need other people. Charlie, if you started with Warren today and you're both 30 or so, do you think you guys would build anything close to what it broke sure is today?
That's what I know we would. We had everybody that has done usually good results. Almost everything has three things. They're very intelligent. They worked very hard. They were very lucky. It takes all three to get them on this list of the silver successful. How can you arrange to have to the answer? You can start early and keep trying a long time. Maybe you'll get one or two. If you were starting again today, do you think insurance would still be the vehicle? It depends on your temperament.
Insurance would be ideal for a certain kind of a temperament. It takes a very patient person to get rich in insurance. It takes forever to get anything. It takes forever to push anybody aside. It's very hard to make money. I've heard you say as soon as you're wealthy enough to self-insure you should. Is there any insurance thing? I've said about everything. Think of all the crumbums of the world that drink too much and foul be climpsily insurance company. But get some fire or something.
Why would you want to pay the... You're a share of those stupidity. Not to mention the overhead. Of course, the insurance company needs to pay all the people that work there. Yeah, no, no, it's crazy. Is there any insurance that you carry today? I carry no fire insurance anywhere. Do you carry auto insurance? Yeah, I have to. You're legally... Yeah, yeah. I don't know. Charlie could... No, I have to. I do. I'm curious being that since these guys are very tech focused.
I'm curious not being a tech person. How did you think about the Apple investment? Did you give you the conviction to be so big? Whatever you've learned is that everybody needs sums. They never get in professional pages. And the 12 companies do better than everybody else. And you need two or three open leads. And if you have that mindset, Apple was a logical candidate to be. I'm a listener for what you're doing. I'm a listener for the company. And it's not very hard to come with the idea.
It may be okay. Making the list doesn't sound too hard. In fact, there are these acronyms, fang, or mama, you know, Microsoft, Apple, Google, Facebook. But selecting the one and putting hundreds of billions of dollars into it. Ten to ten. To create hundreds of billions of value, that to me sounds hard to pick the one. We're good by anything else. Was it valuation? Or we got cheap. We got to do about ten times earnings with more than one. 2015, I believe, was the first.
It's fascinating, this concept of, if you look at Distressed debt, or you look at, I think, Warren in the last Berkshire letter pointed out, it's been a handful of really good decisions. Or you look at venture capital that's classically power law distributed. Any of these asset classes comes down to a few really good decisions with high conviction over an entire career. Yeah, that's exactly what it works. It's not smooth. There's no asset class where you can repeatedly just do.
No, no, no. The way you move for the idea is, it's not gone, but it's very small. You mentioned this idea that when we were talking about Apple, there's a few companies that it's just really important to be in. Do you think these big tech companies being the winners where all of the pensions and Berkshire and University endowments and everyone's 401Ks being concentrated in these companies? Do you think that was the natural outcome? Did we have to end up this way? Yeah, it was natural.
That's why it happened. It was this one. What causes that? Well, it's just, that's what human nature and competition, that's what it causes. We eventually have one. Eventually, this craziness and venture capital in the world, all gone stupid. That's a natural outcome. Will we have one 20 trillion dollar companies and then the next biggest company is one? I know the world's going to be, I know we're going to have a friend as we did. They just happened. Would you continue investing in China?
What's your position with that? My position in China has been. The Chinese economy has better future prospects for the next 20 years than almost any other big economy. That's number one. Number two, the leading companies of China are stronger and better than practically any other leading companies anywhere. And they're a little cheaper price. So naturally, I'm willing to have some China risk in the Mongrel portfolio. How much China risk? Well, that's not a scientific subject.
But I don't mind whether it is 18% or something, whatever it's worked out in the Mongrel family. It's okay with me. What about other geopolitical considerations? Like would you hold TSMC at this point? Well, I don't like that as well. So I like something with the real consumer brand of its own light. I'm curious what major companies that haven't been mentioned do you think people would do well to study the virtues of studying the virtues of Costco? Well, I only study two kinds of companies.
One, I'm another big Ben Graham follower. If something is really cheap, people know it's a crappy company. I'm on a computer center bug for a while anyway. And I do that occasionally. And I've done it with great success of time or two. But I'm like, Ordenmark said, I don't want you twice in my lifetime for big gains. And that's it. It's not like I have over a second. I've done it 100 times. So it isn't a bit easy. Yeah, 100 times the easy money is almost not existing.
One type of company is the cigar butt. What's the other type of company? The companies that people would do well to study the virtues of companies that are good. Get them at the right price. The whole trick is to get them on the few rare occasions when they're really cheap. But by Costco, it's a present price. It may work out all right, but that's... Again, it's getting hard. Yeah. For getting the prospects of the stock, how do you think about the next 10 years for the business?
I can do pretty well. One more question for you in this area. What is your favorite advice to give to young people? Well, I don't give advice to just any young people. I give it to the sum. I pick my spots. I don't want to be more of a girl with a young people or yeah. It's getting hard out there. And there's always bullshit and craziness. Of course, it's going to be hard. Where do the attractive opportunities hang out anymore? It sounds like everything in the whole world is overpriced.
Is that possible? Damn, there. Of course, it's a good puzzle. It's not only possible, it's likely it'll actually happen. How did the world get so rich if we have all this capital for so few opportunities? It's the nature of things. Look, biology produces a very advanced creature like us. You can sit around and talk and tell us all these objects. But it doesn't by killing everybody off in brutal competition, one or the other, for hundreds of thousands of years.
In other words, the system that nature uses to get smart is kind of unpleasant to the people who are losing. So over the last hundred years, we've brutally shifted all this value from labor to capital. And now capital is all competing to get into a very small set of opportunities. Well, capital never had. You would...it wasn't if it was all that easy. You go back along, that. It just was a lot easier. And if it continues to get harder, the natural end is that you have...
Yes, an unpleasant blow up was some kind. And God knows what's happening after an unpleasant blow up with our modern democracies. You can get to your lab like Europe, which is quite dysfunctional. Is it too pessimistic of a view to say that the world seems to be out of good ideas to match the amount of capital out there looking for good ideas? It was never easy. It's thoroughly understood that it was never easy. And it's harder now. Those are the two where it went.
And you pay attention to not your handling of people you deal with. You want a good reputation when you're old, not another bad man. And I don't think you're saying there are no opportunities whatsoever, I think. No, just low expectations. Fewer bananas us. And the beauty of it is you only have to get rich once. You don't have to climb this mountain four times. Just have to do it once. Well, that's sort of your philosophy on both sides. You've got to be patient for the great opportunities.
But when you've got to recognize them when they come and pounce. We turned off the mics to have dinner and then recorded a little bit more later in the evening about Costco and some life advice from Charlie. So one Costco question that I've been wanting to ask you is all the puzzle pieces of the low-scu-count and the high inventory turnover. And there's just so many things that fit together so beautifully. They're pretty obvious though.
But how come no one else can pull it off if they're so obvious? It takes a lot of good execution to do it. You really have to set out to do it and then do it with an attitude. And every day, every week, every year for 40 years. It's not so damn easy. So you think the success is the magic of the business model and culture? Yes, AS, culture plus model. AS, absolutely. And very reliable, hardworking, determined execution for 40 years.
I mean, they talk about the story of the catch-up that you could increase the price of catch-up by 3% and nobody would notice. But that would destroy everything if you did that, right? I would say that the central norm was don't raise the mark. Get it low and keep it there forever. Which brings us to the hot dogs. Is it true the story that when Craig took over a CEO, he did try to raise the price of the hot dogs? I don't know. I had no conversations really fine. And Jim forbade him.
Well, I sure Jim would have forbade it. I absolutely. There was no board level discussion of the hot dogs. No. No. No. Those two would not have thought it was a board matter to discuss the price of hot dogs. The one thing that fascinates me about Costco is they seem to only be able to grow a 10% per year because they're not capital constrained. No amount of money if they were to access it for free can help them. Okay, what is hard to open too many stores a year.
New store, new manager, new desk, new politics, new way. It's hard. Plus a lot of stuff has to be learned and taught and put in place. And so they didn't want to do more than they could comfortably handle. The store openings, you mentioned China earlier, was it 12 to 20 years that Costco had the license to operate in China? Well, I don't know. They didn't even have it there. The first store. They tried to open in China. The first store, somebody who won the $30,000 bribe.
You know, a Chinese culture. And they used wouldn't bet. And that makes it so bad impression on Jim Senegal. He wouldn't even talk to him going into China for about 30 years thereafter. So what changed why finally go in? Well, finally the board started making up noises. You started agitating. Yeah. Yeah. Who on the board could be excited about the Chinese market? Yeah, who can't, who knows? Oh, that's so great.
One thing I found fascinating about Costco was the fact that even though they're in, you know, the lowest possible prices, their audience skews wealthy. Was that an accident that they figured out over time or did they know that? No, they figured out to announce. All the way back in the price club days. Yes, you always wanted the rich man trying to save money. Well, and it's not just that they're the wealthiest customers. They're smart wealthy customers. Yeah, they're picky wealthy customers.
On some topics that are outside of Costco, you mentioned in the daily journal annual meeting this year that a young man knows the rules and an old man knows the exceptions. Yeah, that's an old saying of peers. Oh, is that a Peter Kaufman? What are some of the exceptions that you've found the most useful at life? Well, take those kind of Costco hot dogs. That's an exception. There are anybody else who would have raised the price of hot dogs a long time ago. They just don't do it.
They just know that it's like half famous. You know, we hear kids in the app, they know they got something going there. That's worth extra $22. They just don't destroy it. I think that I've never fully understood. I know you're a big fan of the company BYD that of course makes the Chinese company that makes batteries and electric vehicles. I may be a big fan, but I'm sort of hanging out by my hat while he learns from around the track. And they make me nervous. It's so aggressive.
Is that dangerous in a company? No, that's what makes me nervous. Of course, it's dangerous. So, do you think that companies should try to grow at a lower rate than they're capable of in order to be more durable? Well, of course you do that if it's safer and it's easier and so forth. But I would argue that Costco where they've done some of these things that are extreme like that. It's not pleasant. It's smart to change their ways. I'm one item or two.
And it seems like there's a spectrum where on the one side there's Costco that is just not a fast growing company because it's very difficult to. And on BYD, like you're saying, they grew like crazy. I mean, you too. I mean, you too. This year, I was at least two and a half million cars. Most of them are electric. That's unheard of. Well, they haven't heard of that. So, way more than Mercedes, friends. More than Tesla. Yeah, more than I believe. Yeah, lots of troubles and losses.
They ran into terrible trouble. They made the wrong kind of damage, lots of mistakes. They were lucky they'd be on the cutting edge of the electric car business. It's swimmer acceleration than most people. So, they had a car with more open and most feels. So, the young macho male has a real lively car. There are a lot of things about electric car really. It works in some ways that is better. It made a 90 degree turn. We were right off the parallel party, we were just moving this way.
Turned the wheels 90 degrees and go in. Yeah. Well, nobody's ever done that. If your car goes flat, you could run 100 miles on the three other wheels only. And do they have better economics? Does it really as many parts? Good sampler. Have you ever had an investment like that before? I think you've invested something like 270 million that's now worth something like 8 million in BYD. Well, very good people have an investment job. That's a venture capital type investment.
It happened to be a suddenly traded public company. And we bought it instead of a venture capital type company. There was a venture capital type play. And they just went put the foot right in the floorboard and played it hard. Had they manufactured it? By the way, both BYD and we started talking about going into the car business. They got a bank of a car business and going to the car business. I said, that's a great yard for you. I was like, what was you want to do that?
And he paid no attention to us right away. Had you invested already when he told you this plan? Yes. It worked favoritously well. After a huge mistake, they almost went broke with their early dealership building system. Almost went broke. What captivated you about the money? I was a genius. He was at a PhD in engineering and he could look at somebody party. He could make that part, you know, look at the morning and look at it. I've never seen anybody like that.
He could do anything. He is a natural engineer and he gets done type production executive. And that's a big thing. It's a big lot of talent to have in one place. It's very useful. He gave some of the all these problems on these electric cars and the motors and the acceleration and breaking and so on. How would you compare him and BYD to Elon and Tesla? Well, he's a fanatic that knows how to actually make things good. So he has to. He's closer to grow and zero in the words.
The guy at B-rated is better at actually making things and the guy that he got. Charlie, you turn a hundred, which is an unbelievable statement on January 1st of next year. Do you have any plans? I'm a good party. Where's the party going to be? To California. I totally maxed out the room. I can't squeeze another one. What captivates you these days? What's fun? Well, personally, everything is. Even politics matters. It is kind of interesting.
When you look back at your, your and Warren's time together. When did you have the most fun? We had about the same one and fun all the way through. We're having fun now. Is there a particular era that you remember the most fondly that feels like the good old days? Well, we were sweating blood in some of those good old days. Oh, I mean, Solomon Brothers. Yeah, I don't know. I know there were a lot of closeness. We've got our big problem with this all, but we couldn't have a big loss.
We could have more problems than just a loss with Solomon, right? Well, actually, when we examine Berkshire Hathaway on our podcast, our takeaway was that the whole franchise was at risk during Solomon Brothers. The entire Berkshire Hathaway name and future. Would you agree with that? Not so much. I think you would have survived. If you would let the whole investment in Solomon go to zero, it would have been...
If it all blown up and went to zero, we would have written it all and gone and done pretty well. What do you consider it to be your finest hour? Well, we'd like to remember the closeness for the very good... Yeah, we'll tell you all problems. The entire problem was about low news. The Buffalo evening news? Yeah, there were two noise airs in that town. And we started Sunday edition and that started the Holy War and the other guy went broke. We could have had a lot of bad people to deal with that.
And you were pretty young and underprising at that point. Yeah. And you were at the warrant entirely of... No, well, I was very aggressive about wanting to have a good Sunday edition. I didn't want to own the paper for 50 years. I just know some of the editions of the other guy at work. What made the newspaper business so attractive at that point in history? It was a gold mine. That's attractive. That's what I'm told was gold mine.
And the play in particular with the Buffalo evening news and the Sunday edition was playing for the local monopoly, right? Yes, sure. The game in town. And with newspapers, you could do that. Sure. I mean, newspapers for decades had EBITDA margins in the 50-60% range, right? Not only the little ones. Only the little ones, huh? Yeah, the big ones are less. 30 or 40 or 25 or... I've said EBITDA on your presence. I apologize. Cash flow margins. Actually, do you still feel as...
That EBITDA is a criminal the way that you've demonized it in the past? Yeah, I do. I mean, I... You have a big truck company and... Take the depreciation out of the trucks out of the earnings year with lying about the earnings. I mean, you witnessed its rise with Malone and TCI and Liberty. Like, when EBITDA was invented as a concept, right? Like, what were you thinking? Well, I've never liked double-owns extreme manipulations. I don't want to be known as the great manipulator like double-owns.
He paid less, I think I'm back to somebody. He just pushed everything to the drive-on to a stream. In many ways, EBITDA was the community-adjusted earnings of its era. Are you familiar with the community adjustment of... No, from we work. We work. We work. I mean, I've never seen it. Maybe, um, the final question to wrap up. What are the set of companies that you think are the greatest that you've ever seen? Either that you've owned or that you've not owned?
Well, there are a lot of great companies. It's an Hermes, it's a great company. And as heyday, General Motors is a great company. It just gradually went to hell one contract to the start. What do you think about the predictability of... There were a number of companies back when you started where you could have said this business will be the same in 10 years. Do you think that number is the same today or do you think it's much harder? Most places have a lot of change in threat and their future.
Do you think most places had a lot of change in threat in their future even 50 years ago and this story is over? There's a difference. Some of them, I go, specialize in dust, oil, filming. In many areas, a lot of them. We have a lot of companies that are quite insulated from a really tough competition. Just because they've been so long and they're so good at what they do and they have a good reputation and high value and so on.
What companies can you see today where you can confidently say, Berkshire aside, Costco aside, you can confidently say the business will be as good as it is today in 10 years. Well, I think a lot of companies are pretty good but you can't come. We'll say what's going to happen. Because you may get some guy like Igerian that just wants to push everything and do the right policy relations. So, number of other businesses, it'll be kind of funny.
Charlie, I have a personal question for you. David has a two-year-old and I'm going to have my first child in a month. What advice do you have for us about building families? Well, of course you've got to get along with everybody. You've got to help them through their tough times and they help you and so forth. But I think it's not as hard as it looks. I can have them in America where they're pretty damn well.
And whatever it does as well, I'm both out of the America and somebody else by the way. Well, you've said that the best way to have a great spouse is to deserve one. As long as both parties feel that way, then it's a recipe for success. Of course it is. And you've got to trust with your spouse and I guess things like Igerian or the children and so forth. Yeah, I love that. Well, Charlie, thank you. Thank you, Charlie.
Charlie, this has been a lot of people are going to benefit a lot from hearing this and you're wisdom and they're going to learn so much. You know, if you start with a thing about it, it's pretty hard. It doesn't look so damn easy just to go out. If you go to the ordinary person trying to promote himself as an investment advisor or some kind, you just think he knows everything about everything and other federal reserves should be rotten and so on. We don't feel that way.
I will say with the people we get to talk to you who built great things every single one of them says it was so hard. It's so hard and you can't build something great without it being so hard. Charlie, thanks so much for doing this with us. Glad to do it. You'll be an interesting life here, maybe you'll do it where you will. But it's not going to be that damn easy. David, total life experience and complete boondoggle.
I can't believe we got to do this. I'm still pinching myself. It's now a couple of weeks after it actually happened. I know. With autographed copies of Poor Charlie's Almanac to prove it. As if the podcast wasn't enough. And actually, for those of you who haven't listened back what in 2021, so two years ago, we did a whole three part series just us covering the whole history of Berkshire Hathaway.
Part one is on Warren, part two is on Charlie, part three is on Berkshire and Ted and Todd all the way up through to today. I assume many of you have listened to that, but there probably are a bunch of folks who haven't. So if you want another nine or ten hours of acquired content on Berkshire, I really think it's some of if not our best work. Go check those out. With that listeners, our huge thank you to Tiny for being the sole presenting sponsor of this episode.
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We'll see you next time. Who got the truth? Is it you? Is it you? Is it you? Who got the truth now? Who got the truth now? Who got the truth now? Who got the truth now? Don't you 45 yes? You did as locally as Jer 一袋? I do zero, no. Hold on a minute! Jer 一袋? Wait a second. Who got the truth now?! What- Who got the truth now? Sheikh Changekid Cinetan, trousers and buttons.