And there do come points where you're past the point of no return. Those words exist. That sends exists because it means something. The knowledge at the point is out there and just try to be thoughtful and aware and make a decision that you think is reasonable, rational, thoughtful. If you're judging yourself by the outcome in the short run, you're going to make more mistakes than you otherwise would.
You should have some sensation of the process and doing the right sort of process, which again is that discipline of just being thoughtful about things that I think is going to be the best you're going to get. Welcome to another episode of The Knowledge Project. To podcast about mastering the best of what other people have already figured out so you can apply their insights to your life, I'm your host
Shane Parrish. Every Sunday, I send out the Brain Food newsletter to over 600,000 people. It's considered noise-canceling headphones for the internet and it's full of timeless wisdom you can apply to life and work. It takes about five minutes to go through every week. Sign up for free at
fs.blog slash newsletter. If you're listening to this, you're missing out. If you'd like access to the podcast before public release, special episodes that don't appear anywhere else, hand-edited transcripts, or you just want to support the show you love, you can join at fs.blog slash membership. Check out the show notes for a link. Today, my guest is Tom Gainer, the CEO of Marquell Corporation. Tom is widely respected for both his investment, acumen, and his character. He joined
Marquell in 1990 and has been instrumental to its growth. It's the first time I've really gotten a chance to sit down and chat with him. We've had casual conversations before, but this was different. In this episode, we talk about the lessons he's learned from Charlie Munger,
how to get the universe to do the work for you, how he invests. The value of writing his thoughts, his thoughts on leverage, the way he thinks about risk, the value of avoiding stupidity, the specific lessons he's taken away from investing through multiple financial crisis, and how he positions himself for an uncertain world. Well, the topics are often investing in business. Tom is a master at simplifying complicated topics in a way that's accessible to everyone.
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Farnham Street. I think we should start with Munger. He passed away yesterday and I know he had a big influence on my life and a huge influence on your life. I'd love to hear your thoughts and some of the lessons you learned from him. Wow. He said we booked three hours for this and three hours would not even begin to do justice to 99 years of his life. What an amazing teacher. His statements about the best way to get what you want is to deserve what you want and working
backwards from that idea and that concept. And his recently is the most recent annual meeting. I think the story was told about what you should do is write your own obituary and then work backwards from what you wrote you wanted to be. And his life just dances a testament to that over and over and over again. Now that's at the 80,000 foot level and I think that's really where his most dramatic influence and communication skills as a teacher can really land with people.
The next level down was sort of the transition he fostered in Buffett to move from the digging around in the balance sheet, finding businesses that were cheap to find businesses that were good and sees candy. That story is told over and over again about the standing on tippy toes price that they paid but yet the spectacular economics they aren't not only from that business but so many of the things they did subsequently because they had been taught by the example of sees
what it is that a wonderful business could do for you over time. When you think about living a life to deserve what you what you want and what you should get, what does that mean to you? Well, for instance, my father was also a tremendous teacher in my life and really the first and foremost teacher that I had. And there was a situation that came up the other day where someone had sort of tricked me into doing a favor for them. Sort of some backdoor move and so on.
I ended up doing a favor for them and I was with a colleague at the time and we both sort of realized we've been hustling a little bit and I said, you know, my dad used to tell me, anytime, anytime you can do a favor for somebody, do it. Just do it because life is long and you never know how those things come back over time. So I think the idea of just always trying to be helpful, always trying to add value, always trying to do favors for people, always just trying to make
them glad they interacted with you somewhere or another. That's a pretty good central organizing principle. And if you do that consistently day after day, month after month, year after year, you find that the world is kind of rooting for you. And Peter Kaufman, for instance, who was a great friend of Mungers and was the editor of Port Charlie's Almanac. You know, he talks about the idea that the universe will do most of the work for you if you align yourself with its
general principles. So I think, you know, there's eight billion people on planet Earth. I'm only one. If I can get the other 7.999 billion to maybe not like me, but at least not hate me, that's a recipe for profound success. You mentioned your father. I want to go back to your childhood a little bit. You said earlier, you had Quaker roots. I'm curious as to how that impacted you, what lessons you take away from that today. Well, the central tenet of being a Quaker is that all
people are equal before God. And everything flows from that. So for instance, if you wanted to tie that to a specific investment decision, and this skips over a lot of intermediate steps, I remember when Carmax was starting out, which was a great investment for us for many years. And the whole principle of Carmax was selling used cars at fixed prices. Well, being a Quaker, I had seen that movie before. And the old joke about Quakers in Philadelphia, and Philadelphia was kind of the center
of where the Quakers came when they came to America. The old joke around Philadelphia is that the Quakers came to America to do good, and they did well. And they became merchants by and large. So for instance, John Wannermaker's department store, which was a great department store in the department store era in Philadelphia, John Wannermaker was a Quaker. And being merchants was just a fundamental aspect of what it meant to be, one of the trades that Quakers pursued. So for instance,
Macy's department store here in New York, Mr. R.H. Macy himself, I believe was born a Nantucket Island, and there was a Quaker community there that were merchants that specialized in outfitting the whaling expeditions. So they had the supplies and then equipped those ships. Well, Nantucket Island was a small place. And Mr. R.H. Macy, I think had some large ambitions. So he came to New York City in the 1850s or 60s or wherever that was. And because of his heritage and backman as a Quaker,
he had this dry goods business, and he was willing to sell it a fixed price. And most merchants didn't do that at the time. And because he was willing to sell anybody, a set of sheets, a set of dishes at the same price, he was able to advertise and put those prices in the newspaper. And no other merchants would do that at the time. And R.H. Macy, the chain, went for 100 plus years of a head
star that all came about because Mr. R.H. Macy as a Quaker acted in a certain way as a merchant which derived from the principle that you know, charged somebody a higher price just because you can. You charge everybody the same price because they are equal. What I like about retelling in one way, and this is a narrow faucet of the business where it large, but you cannot be successful unless you're win-win with your customer. You have to win. Your customer has to win. The whole ecosystem
sort of has to win for you to have a chance at success. Well, there's a time dimension to that. So for instance, you can win in the short run. No, that does not meet my definition of winning, but you can be involved in a transaction where you win. And for instance, the cycle time is a key factor in thinking about what sort of preconditions help you operate in a win-win world. So for instance, if you're a grocer, there is a very short cycle time. I mean, people go to the
grocery store every week. So you're incentive to treat people fairly and price the gallon of milk and the can of beans and the stock accelerate at a fair and equitable price and treat people well. It's very high because they're going to be making lifetime decisions about whether they're going
to shop at your stores or regular customer over and over and over again. Getting back to the CarMax example, one of the things that people were not completely believing that this thing would work is that the cycle time to buy a car is way, way longer than what it is to buy a gallon of milk. So you're only going to buy a car once every five, six, seven, eight years, something like
that. So the way in which you are treated, you know, the car dealers, which did not have the greatest reputation in the world, there was huge incentive for them to not let you walk out of the short run. What will it take to get you to buy this car today? And even if that wasn't a great deal for you, they figured it would be seven or eight years before you were involved in another transaction. So therefore, they didn't have the incentives that a grocer would to think about really the net
present value of a customer over a long period of time. So different businesses have different sort of natural rhythms and cadences to them that either support the notion of win-win-win architecture or diminish that to greater or lesser degrees. I was trying to teach my kids about this. We were in Vienna and we had some of their famous cake and we stopped basically at a tourist spot. And the cake was, I think like three euros,
but the bottle of water we ordered was 18. And I remember when the bill came, I was talking to them about this and I'm like, how does this happen? Like walk me through the thinking here because it's how do you see this? Like how can they charge 18 euros for a bottle of water? And we sort of like deduced all the way down to the fact that they're relying on to, they get the tourist in with the cheap cake. When you eat the cake, you want the water, you pay through the nose with water,
but they're not looking for repeat customers. So they're not worried about win-win, they're just worried about churn and getting new people in. And I thought it was an interesting lesson for them where it's like, well, there's certain businesses where you can sort of take advantage of your customers, if you will, because you know they're less likely to be repeat customers or they're they're buying a certain experience. Well, you've explained it better than I could. You want
companies that are doing things for their customers rather than to their customers. I like that and it's funny thing is so your kids, and I don't know how old your kids are, but your kid who doesn't have 99 years of mongers worldly wisdom accumulated, they can go either way with that, depending on the context of the rest of the values and how old they are and how mature they are, because one logical reaction from a 12-year-old kid might be, wow, how do I set up a business like that?
Because I can buy a bottle of water from 50 cents and sell it for 18 bucks. That's a great business. I completely want to do that. Let's talk about Markelle a little bit. Markelle started in 1930. You joined in 1990. How did you end up there and talk to me a little bit about the journey from then until now? You've gone through quite a bit. The 1990s, the internet bubble, the great financial crisis, COVID. Yeah, I was trying to forget a lot of those, but yeah,
you're correct. A lot of water has flowed over the dam. So it's a long story in many ways, and again, it ties back to Munger and Buffett. It was 1984 when Carol Lumis wrote that article about Buffett in Fortune. I read that. I was relatively fresh out of school and I got grad-graded from UVA 1983. So 1984, it wasn't out very long. I was working in a small investment firm in Richmond called Davenport in Cumbia, Virginia, and the scales fell from my eyes.
The logic and the common sense and how much sense it all made to me. I remember this is how little I knew. I went into the office of the head of the department and he's a bit of a crusty fella and I said, hey, Joe, have you ever heard of this guy Warren Buffett? I mean, I literally said that because I didn't know. He said, it's Buffett, you idiot. It threw me out of his office, but I read. By the way, our mutual friend Morgan Howell, he told me something within the last year that made
me feel much better. He said, you should never criticize someone who mispronounces a word, because that means he learned about it by reading. So I appreciate Morgan's grace in understanding word mispronunciations. So starting there, so Mark Howell went public in 1986 and luck of the draw, I was the analyst at Davenport who was assigned to cover Mark Howell. So I saw this coming. It was going public. It was a small Richmond-based company, sort of a
regional operator that started in 1930 and operated in the area. I'd never known anything about it. It really didn't have much of a consumer presence, but I saw the idea of a specialty insurance operation that was dedicated to making an underwriting profit. And Steve Mark Howell was the vice chairman and really the financial guy there. He was also interested in investing the underwriting profits long-term rather than just in cash and fixed income securities, which is predominantly
what most insurance companies did at the time. So I saw that immediately. I said, that's what Buffett did with Berkshire. So it instantly, like a light bulb going off for me, became apparent that at least there was the bones there of running the exact same play and following the same approach that Buffett had done with Berkshire. So I became insanely curious about the company. Got to know Steve, bought some stock from 86 through 1990. He became a client,
he became a friend, which is developed a relationship. In 1990, Mark Howell completed the second half of the deal, which more than doubled the size of a company. So they bought a company that was larger than what they were. Steve had been doing a lot of things. He was pretty busy and by that time he thought he could take on a wingman. So after my four years of persistent nagging and begging, that seemed like a good idea to him at the time. February 14th of 1990, that year, that was when
Drexel Burnham went bankrupt that day. And I can remember my partner at Davenport, Mike Biel, we said, if we were ever going to buy a junk bond, this is the day we should do it. And we came to the conclusion that the most credit worthy of the tradable junk bonds that were out there was a RJR. So we knew that business and we rough-pensled some things out. And we thought, if there was this RJR issue, there were pay-in-kind zero coupon bonds. And they were set by the terms
of that bond. They had to be reprised in 1994 at a yield that caused them to trade at par. They were trading for about 30 cents on the dollar at that point. Now we penciled some stuff out. And we swagged and asked them at the worst comes to worst. We thought they were worth 70 cents. So they're trading at 30. And I thought it was an interesting speculation to buy this. Well, the tax law had changed pretty recently to where I think Tafra was the name of the tax law.
If you bought a deep discount bond, personally, you had a great interest income to your taxes and pay tax on it, even though you had no cash to do it. So most individuals wouldn't buy this risky thing because they were going to have to come out of their pocket for taxes in that particular circumstance. And you really couldn't put them in iris or things like that, where you take the tax angle off the table because it was too risky for something like that.
So I happened to know that Steve had been part of a group with his cousins that in essence had done a leverage buyout of Marquell from their parents and they borrowed money to do it. So under Tafra, you could only deduct interest expense to the extent you had interest income. So I happened to know that he was building up this tax loss carry forward of interest expense that would only be useful to him if he had interest income. So I called him up.
And I said, Steve, you're like the one person in the world that this makes sense for. And the sponsor trading at 30 cents, it was intrigued by the idea. And I think by December, they had been paid off in full. And I think the next day I was working at Marquell. That's a crazy to get a shot. If anybody's listening, he's open to ideas. Let's fast forward to sort of 1999, 2001-ish. What was that like on the inside? Well, let me step into that just a little bit because there's a lot of ground.
So fortunately, when I came in 1990, and again, the playbook was, we had this insurance business that in Steve's word, specialization and diversification, where the hallmarks of what we would do, we would do, I mean, sometimes at a cocktail party, people ask me, you know, what insurance, what kind of insurance do you all do? And I respond, if you can think of a form of insurance, that you can get easily and quickly, we probably don't do that.
We do the kinds of things that people say, oh, no, or where can we get coverage for fill in the blank? And we try to be creative. We have, you know, roughly a hundred different product lines run by very thoughtful people who are always trying to figure out a way to solve
a customer's problems. So we think in addition to the financial capital that we put up to honor those promises, we have an intellectual capital at work, and we should be paid for the intellectual capital as well as the financial capital, and that's really where the underwriting profitability comes from. And with those pennies of underwriting profit, we're willing to invest that money within a journal forever mindset. So my job, day one, was basically to invest that money.
Those pennies of underwriting profit in a long-term way. And fortunately, from 90 through 96 or something like that, the results were spectacular. And I established credibility by putting up very good numbers for the first five, six, seven years I was there. Now in the late 90s, that's when I would say the internet 1.0 came along. And I struggled massively. And I really had the biggest period of underperformance that I've ever had in my career. And that went on. I mean, it seemed like forever.
Maybe it was two, two and a half years or something like that. And I'm going to count in by training as those businesses were coming along. I struggled to understand how things that did not appear to be profitable could sell for such prices in the marketplace. And I resisted it in many ways. Now, my friend Josh Teresoff helped me a great deal in helping to see the cash flows that were there, separate and distinct from the way gap accounting would present them. And I managed to
round that corner and pivot it in an appropriate way. But 98, 99, they were miserable years. And I can remember a couple of things that I think are worth noting. And this may make it to the podcast that may end up on the cutting room floor. I get it. But two things. One, a leadership story. So Steve's office was next to mine. And we would talk every day, all day, every day. And
every month we would have a formal meeting where I would print out the portfolio. And typically, the pattern was you triage among the top five or 10 holdings, which accounted for 50% of the value of the portfolio. And we would talk about those businesses, fundamentals, sales, revenues, earnings, management changes, new products, things that would seem relative to the fundamental aspects
of the profitability of the business. Well, in that period, where I was so grossly underperforming, in addition to talking about the top holdings that we owned, I would talk about the top things that were in the news that were going up the most that we didn't own. And we would talk about the same sorts of aspects, the business, the sales, the revenues, the management, the products,
things of that nature. And fortunately, for 18, 24 months, every month, at the end of that meeting, Steve would conclude by saying, I understand what you are doing and why you're doing it. And I understand what you are not doing and why you are not doing it. See you next month. There are times when, as my friend Shad Row would say, in the investment business, and I think this is true in business and life in general, that you either look way smarter than you really are,
or way dumber than you really are. So I think one of my skills as a manager is I developed deep relationships with people. And I ascertain that these are good people and they are pretty, they're very good at what they do, but they can go through periods of time where it doesn't look that way. So I try to encourage them. And I try to help them think things through,
recognize if they should change their mind about something. But if not, give them the psychological safety and the comfort and the environment to keep persisting at what is likely to work out very, very well in the fullness of time. So that was one of the aspects that I wanted to mention. The other thing I can remember, again, I was trying to figure out what my next steps were because it seemed that the investment world had changed in a fundamental way that perhaps I was a dinosaur.
And I needed to be thinking about something else. And I thought if I go into dental school, I mean, who knows? I just needed to make a living. I had a family to support. So this brochure, somehow or another, I became aware of this class at Northwestern, Northwestern, well regarded academic institution, great reputation, they deserve all of it. So there was this two-week class that I signed up to take out at Northwestern to just try to think things through. And they had a
variety of their professors come through. And one of the professors got up and he did a discounted cash flow model. And he used the gap as the example for how these discounted cash flow models work. And I don't know if you remember it at that time, but the gap was white hot. I mean, it was white hot. And they had this campaign about khakis and these models that would dance and swing dancing. It was just the it thing. So this professor was trying to teach us about how
discounted cash flow model worked. And he had laid all this stuff out and he used the gap as an example. And he had these growth rates of 15 and 20 percent going for years. And I thought to myself, I said, I understand the math. I know how to do that. But those assumptions, they're just wrong. They're they're insane. And I sort of pressed in on him about that and he wouldn't give an inch and just wouldn't wouldn't process the notion that these assumptions you're making might just be
wildly wrong. And I couldn't I couldn't get anywhere with them. So literally, I walked out of the class. And I there was a little lounge there where they had a coffee machine in the TV and there was a Cubs game going on. And I just sat there and watch the Cubs for a while to try to try to think this through of what was happening. And about five or 10 minutes later, another guy stumbles out of the class. And he looks at me like, it's that kind of nuts because he he'd come to the same conclusion
about the assumptions just being fundamentally flawed. And I said, yes, so we kind of sat down and watch the Cubs came together. And as it turns out, that guy's named John Fox. He's with Fetimore, I said management. He's been a friend of mine now for 25 years. And their long-term Markel shareholders. And where we met was two sort of accounting slash value guys trying to figure out what the world was like and finding confusion. But we also found each other. That's a great story.
You know, any businesses undervalued if you not 20% growth in definitely. You can make big numbers saying when you when you assume that I want to go back to before we continue. I want to go back to something you said about talking to Steve. And one of the things that you brought up that I think worth noting is that he didn't want to only just understand what you were doing and why you were doing it. But he wanted to understand what you weren't doing and why you weren't doing
it. And I think a lot of that gets lost today. How do you think about that? Oh, I don't think that's just lost today. I think that's a fundamental human flaw. And again, getting back to munger and buff it as well. When they talk about, they're asked what mistakes you've made. And they said, well, there's two kinds of mistakes. This is the mistakes of commission that things you did that you shouldn't have. But there's mistakes of omission. Things you didn't do
that you should have. And those tend to be way, way, way bigger than the mistakes of commission that you make. And those two have been very intellectual and honest about talking about some of their substantial mistakes of omission. And omission, you don't have a spreadsheet. You're not, you're not tracking the world is too big. We as humans don't think in terms of opportunity cost. What didn't I do? What didn't I choose? Because of what I did. I just happened to have this weird
twist that somehow or another, the idea of opportunity cost landed deeply within me. And you could make my children sort of have a gag reflex anytime you bring up the idea of opportunity cost. Because they kept hearing at the at the kitchen table when they wanted to do something. The phrase, well, if we do that, what are we not going to do? And you have to make a choice. And people just don't
like that. It's not fun. So the point about being curious about the path you are not taking so that you're thoughtful about why you're not taking it is hugely important to do because there are many times in life when in fact, you should take that path. And how are you going to know that you should change your mind or you should alter course? If you're not even going to sort of incorporate that in your daily hygiene of how you think and how you process stuff. I think that's really
powerful. I also think it helps you understand people. So you were talking about sticking with people through a period of maybe underperformance, good people. And how do you know when to draw the line there? How do you know when to be like, okay, well, I have to walk away from this situation because we can't continue this indefinitely versus it's a good person with the right process, the right judgment, just a period of underperformance, which we all go through. Have you ever heard of a singer
songwriter named Todd Snyder? Never. Well, you should look him up. There are two albums that I would encourage you to listen to start to finish. One is Todd Snyder Live. And the second one is Todd Snyder Live Return of the Storyteller. And those two albums are probably, I don't know, 10 years apart or whatever. And some of the songs are repeated. But on the first one, the first song is a song called Green Castle Blues. And every once in a while I hear it in my head and it's haunting,
it's haunting in some ways because there's a line in there that is a refrain. And how do you know when it's too late? How do you know when it's too late? How do you know when it's too late to learn? And there do come points where you're past the point of no return. Those words exist. That sentence exists because it means something. There are points of no return. And acknowledge the point is out there. And just try to be thoughtful and aware and make a decision that you think is reasonable,
rational, thoughtful, and hope for a reasonable outcome. If you're judging yourself by the outcome in the short run, you're going to make more mistakes than you otherwise would. You should have some sensation of the process. And doing the right sort of process, which again is that discipline of just being thoughtful about things. That I think it's going to be the best you're going to get.
So there is a single point of answering that question. And I think in general, in general, you should make the error of staying with people too long, giving them a longer leash and letting them play out their hand as much as humanly possible. Because when you live in a positive environment like this, and I think of my own parents and the unconditional love that I received as a child growing up under the fortunate circumstances that I grew up in, that allowed me to flourish.
Now, some people, there are going to be people in your life who you will offer that go positive go first and they will not reciprocate. But then you'll know. And the cumulative effect of just operating with that general mindset and doing it consistently over and over again,
you're going to stumble upon people who will love you forever. And if you find one or two or three or seven or a hundred people like that in the course of your life, just because you operate that way, that is so much better alive than always being suspicious and concerned and wary that somebody's going to get the better end of a deal on you and whatnot. Let it go. It doesn't matter. Somebody gets a better end of a deal with you. Okay. They did it one time.
Now, if you deal with them over and over and over again, that's your mistake not theirs. It's interesting. I'm a highly trusting person by default with people. And I like to think of it. I trust people by default at not 50%, but like 80, 85%. I'm not going to give you my bank account information. But and I find that it creates velocity over time. And I save a lot of time, but not having to worry about legal contracts and every certain clause or help people might take
advantage of me and occasionally a backfires. But I don't want to change the way that I am for those very few instances where it backfires as long as I limit my downside and it can't kill me, then it sort of works out overall. In each and for instance, I think one of the great analogies for that is marriage. I've been married 42 years now. It's a wonderful thing. I've never really looked at the marriage license. Yeah. That's a great way to look at it. You mentioned sort of
not focusing on the outcome and focusing on the process. I want to explore that a little bit because one thing that's interesting to me is that we do tend to gravitate towards wanting an outcome. And by wanting that outcome, we actually don't focus on the process. But if we focus on the process, we might end up with 10 or 15 different outcomes that would all be good, because we're not worried about the gap between where we are and where we want to go. We're just
worried about what's the next logical step that we can take. I'm wondering how you operate. Well, there's nuance to that. So for instance, there's another wonderful book called Thinking in Bats by Annie Duke. I don't know if you've written that one. I think that's a great book. And it casts things in probabilistic terms. And it's all about process. And it's within the realm of playing poker, which was her well-known skill. But it also has a lot of stuff in there about
insurance. So it gets a lot of traction with me. She uses the phrase resulting. So you can look at a hand that you won and you think, well, I won. So I must have played that well. Well, not necessarily. You may or you may not have what was your process. How did you think? What
was your calculation of the odds along the way as you played that hand? And if you're playing poker and you're playing thousands upon thousands upon thousands of ants, which are under relatively constrained conditions, if your process is sound over time, you will have good outcomes. You'll mean you'll win more than you lose. But that's driven by the fact that you've
good process. And you're able to do it a thousand times. Buffet famously talks about coin flips and the language of coin flips and a coin flip and your honor in your in your favor, where the odds are in your favor. Well, that's true. It's a great example. But it's not a great example if you only flip a coin once. It's when you flip a coin a hundred times or a thousand times or a million times that the odds of whatever it is that you set out manifest themselves and just crush everything
everything else. So you just have to play the odds game and be willing to think long-term. And operate. I mean, you talk about trusting. I think that's exactly right. I tried to operate in the same way. You can't do that with stakes that are too high. You need to have appropriately sized stakes and bets and decisions all along the way. And they can increase over time as you develop a relationship of trust with people. But it's all nuance and process and
trying not to be stupid. A hundred percent. You're not going to go all in with somebody on day one. Well, let's go back to the internet bubble sort of first. I think it was March 2001. Is that right? That is exactly right. Near is another case where sort of luck, serendipity, process, all combined to create as much as I would say, a lot of Paloza outcomes. So we were involved in
a transaction where again, we bought a company that was larger than what we were. And that was Teranava and cost us to move from being a US-based national insurance to an international company. We were negotiated to deal right in the midst of all of that in early 2001. I believe the deal closed on March 2001. Now March 9th, I think, was the day that the Nasdaq topped. I remember that because I'm on other things. March 9th is my wife's birthday. So it's a meaningful date to me.
And within 20 minutes of me getting my hands on that portfolio, I had sold 99 percent of the equity positions because in my sense, they had drunk the cool aid and had a Nasdaq laid in portfolio at a time when those prices just made no sense to me whatsoever. So on the day of closing, which was March 1st. So by a week that decision saved us, I don't know, hundreds of millions of dollars. And it put us in a good financial position to work the process of turning around Teranava,
which was a trouble-com name. We didn't do that. But fortunately, we made a very good, instantaneous decision, which had some skill and some luck about it. I had a claim pressience. I just claimed that I knew I didn't want to own those things that they owned. And normally, I tend to be incremental and take step by step by step. But every once in a while, I am capable of dramatic action as well. Once again, gets back to the monger thoughts that are drifting through
us right now. And he talks about sort of in 60, 70 years of investing, there were half a dozen times in his life that he felt very compelled about a certain thing and took a huge swing at it. And that made all the difference. So that was one of his skills and one of the things he was able to do several times during the course of his career. I don't do that very often, but that was one time when I did and it worked out. That's an incredible story. And the timing there is so
apt. And then you also had a lot of cash for the... That is correct. Which put me back in the good graces of Stephen the rest of the Mark L. Board because getting through that period of time proved itself to be the right way to go. And that actually connects to... It was so seven. So I was invited and asked to consider going to the Board of the Washington Post coming at that time.
And Don Graham, the chairman of the Post, reached out to me and we chatted and he had understood through my friend, Chris Davis, who was on the board and perhaps Buffett as well, who knew of Mark L and knew of us, that we had navigated that period in financial history relatively well. So Don and I were chatting. And so Don then asked me as part of their consideration of me potentially being a candidate to join that board. Would I share with them some of the
memos that I had written to our board real time during 98, 99, 2000, 2001, to... So five years where they could see what the logic and decision process were in real time rather than in retrospect. So I gathered some of those memos together and sent them off. And I had never been more nervous about being graded on an English exam than I had in my whole life because here I'm sending this packet of letters that I'd written over those years to Don Graham, to Warren Buffett, to Ron
Olson, to Barry Diller, to Melinda Gates. I mean the All Star nature of that board was just stunning to me. And it came back that they weren't indeed interested. So that was tied to the steps and the process and the action I had taken through a multiple year period which led to me going on that board and meeting those people and developing relationships and the ongoing sort of just consequences and waves that keep rolling on the beach from things that I did 10, 15, 20,
25 years ago. I mean they still reverberate to this day. I think that's a really good way to look at things because like if you operate with integrity and you operate in a win-win way and you go positive and you go first, you create a snowball and even though you can't see the results immediately, they do come and sometimes it takes 10 or 15 years for that reverberation to sort of come to fruition. And by the way that's the title of Alice
Shroder's book about Buffett, Snowball. And with exactly that concept and I was just wondering if you wanted to snowball with some wet snow in a long hill. How important are those memos for you to clarify your thinking process and clarify your understanding? They're extraordinarily important
and our annual letter that I've written. Steve was the one who wrote those letters from 86 through I don't know 2000 and to four or five something like that and I was his editor for a while and then I took the responsibility for writing them as a half of the last 15, 20 years. I think by writing I need to write it down and I almost feel like a pianist at a keyboard where and I can't write by hand anymore if lots of the skill of doing that on a yellow bed like I
used to but to sit at the keyboard and write it is really how I form my thoughts. I want to come back to Mark Hell and just continue on this path to the present day. Well let's fast forward to six months before what is known as the great financial crisis. What are your memories of sort of the conversations you're having inside of Mark Hell? What you're thinking? Did you anticipate this happening? You know walk me through that. Well I mentioned my partner Mike Keaton, Mike has a great
saying he says you know what it feels like when you're making a mistake. It feels great. If it didn't feel good you wouldn't be doing it. So when I think about oh six or seven or times that led up to
the great financial crisis I was making mistakes. I was absolutely doing that and I can remember for instance we were not large shareholders of city court but we did own some and maybe our cost in it was 50 bucks and it was seven times earnings and yielding five percent or something like that that number seemed rather compelling and there's always a turnaround story at city that if you if you believe this time is the time it's really going to all work. It's always selling it a
compelling valuation. So we own some city and as the crisis began to develop I think at 26 I sold the entire position and I can just remember feeling horrible about that but I also remember the feeling of we're in this storm and I just don't know the dimensions of this storm and this storm can get worse. So as painful as it is to me to take this loss which was manageable inside the context of a of a poor father but just I hate losing and that was clearly a loss. I decided
to sell it. Now that proved to be a pretty darn good decision because it went a lot lower before before it stopped going down so until like one. So 26 was a painful sale but it was the right decision. So that is an example of part of the memory of your face being ripped off in the financial crisis. Now at the same time there were some positives that I felt and these were
emotional aspect. So for instance being in the insurance business as compared to being in the banking business is a meaningfully better position to be in because you can't have a run on the bank in the insurance business in the way that you know if your depositors say I want my money you have to give it to them and you have to give it to them on pretty short notice. It doesn't matter what bank you are. It doesn't matter exactly right. In the insurance business you know we've sold an
insurance policy against an auto accident or a house fire or a life being lost. So unless you have those triggering events you generally speaking are pretty limited and say I want my money. I eat the premiums back. You can't just do that because you've lost confidence. So an insurance business is both typically much less levered. It has much more equity capital relative to the size of the balance sheet than would be the case in banking and it is not subject to the
same run on the bank risk. So I felt very good about being in the insurance business and that I felt confident in the cash flows that we had which were the way in which we could navigate through the storm. We don't tend to make good decisions when we're emotional and going through a crisis or panic we all tend to be fairly emotional. Do you have rules around selling or how do
you deal with your emotions in these moments? Well generally I'm a pretty methodical person both in the bind and the selling so it's fairly dramatic when I would make big decisions rather than a series of small incremental decisions. So in general I think I'm somewhat protected by the history and the pattern of making small incremental decisions towards a better spot than what I believe
I'm in right now. In terms of the big decisions well don't make too many of them. So yeah I can talk about a couple instances of making some big decisions some of which have worked out some of which have not worked out so well but in general being an incrementalist I think is pretty helpful. Secondly take a walk take some time don't feel like you need to do everything immediately slow down it's almost like watching those Bruce Lee movies where the action seems to slow as he's
he's making the steps and things get slow motion in your mind that that's helpful. I don't think there are good rules I think there are processes that inhabit and disciplines that you follow consistently over years and those will serve you well in times of need. What are the lessons you took away from the great financial crisis that you took away for yourself
but you think other people miss or forgotten? Well the number one piece is the dimensions of leverage and we all use some leverage of one sort or another in our lives and leverage used positively but it's the lever it's it's a was it Archimedes that had to give me a long enough lever and a
folkroom and I can move the world I'm butchering that quote but the sense of the power of a lever that's a fundamental aspect of civilization but too much leverage and being on the wrong end of a lever can wipe you out so to try to have awareness of what levels of leverage you're operating within your life and and doing the very very best you can to keep them constrained and within the bounds of where you can be wrong and still answer the bell for the next round of the fight and persisting
and being durable. Again one of the reasons we're talking about Charlie Munger today is because he lived in 99 years and many of the things that he talked about and the disciplines he followed had a long enough time to play out that we can see he was obviously right he was obviously brilliant well
there were a lot of people who encountered Charlie Munger at age 37 or 52 or 29 or 60 who didn't just write a butchek for all the money they had why because at that moment in time it was not as obvious as it is today that the stuff he was saying was right so being able to last through difficult episodes and still be in the game is apically important and that's one of
the things a long successful life will show you. It's talking about that because I think that's an interesting area to go on a little rabbit hole here and I want to talk about your thoughts on debt how to unwind it you learned a lesson from I think it was Shelby Davis around that.
Would you share that with us? Well it was in the early days of Mark L ventures so Mark L obviously started out as an insurance company and it had always been willing to invest in equity securities and be long-term but the next logical step when you're investing in equity
securities and you're doing it from the perspective of what is the underlying businesses involved instead of just buying a partial interest in that business through the purchase of publicly traded shares how about we buy a majority of it or all of it and there were people who were
rightly concerned about what it is we knew and what skills we had when we were buying controlling interest in companies that weren't in the insurance business so Shelby Davis was a wonderful and is a wonderful teacher and mentor and helped me in many ways along the way and
Hacker-umber in the early days having a conversation with about about the Mark L ventures businesses with him and he very quickly and succinctly put his finger right on it he says you know if you want to make sure you're not buying a business run by a crook buy one that doesn't use leverage
and so I said to tell me about this he says we'll think about it if you're if you're a hundred percent equity financed you are not going to steal money from that business because it's your own money crooks don't want to steal their own money they want to steal somebody else's money
so when you have a structure that has a lot of leverage to it that is not a statement that that person is a crook but it is a statement that conditions exist in which a crook would operate whereas if you have a business that's largely equity financed and it's the person's own capital
involved you have you have greatly reduced the conditions and the circumstances that it will allow would allow a person who is not of integrity to take advantage of that situation so it's not just the finances it's it's the character indication and the and the tale that you get into
somebody's internal wiring from the fact that they operate with no data very very low leverage compared to somebody who operates with a lot of leverage you you look at tens of thousands of companies over the years all their financial statements does dad become an addiction that people
don't walk away from yeah I think it does and and again there's an adrenaline rush I mean the addictions happen because there's a moment of positive reinforcement I mean you won the bet your horse won you won your football team won you hit the slot whatever so there's a dopamine
reinforcement and hit that you get from winning and it's a disproportionate size it's an outsized return relative to the equity capital that you that you laid out there so yeah that sounds like a fundamentally important component of addictive type substances and I think people get hooked
on the adrenaline of that mean the phrase deal junkies and I can think of companies that are run by CEOs that just always seem to be doing the next deal or that's what that's what gets them going and motivates them and it's important to have some of that drive but it needs to be balanced and
again in the right dosage so what differentiates somebody from like a mark Leonard from somebody else who who does a lot of deals and and how do you how do you think about that in terms of debt leverage fragility well you know mark Leonard is a great example somebody who's incredibly
thoughtful who laid out a plant and you have decades of evidence that he's executed upon it so that as a guy who has earned the confidence that the the marketplace places in him and also he's in a kind of classic enough gentleman that you get the sensation that he's really not driven
by the approval of others quite so much he is a self-motivated independent autonomous thinker and and you don't just have to suspect that's going to be the case because you're looking at a 14 year old kid you're looking at somebody who has done it for decades and and again to your point
about having looked at a lot of businesses and talked to a lot of people that in and of itself becomes a frame of reference for how you make the judgment about the next person that you meet um do you ever drink wine yes do you like the Parker wine ratings you know go to a wine shop and
you see something 89 92 whatever that there's well it's my understanding and I'm sure you you should probably fact check me on this because it's a great story and I'd like to think it's true but I do not know that people uh personally so I can't verify it but it's my understanding that
Robert Parker was an attorney and he just liked wine and his friends were impressed with the fact that he seemed to be accumulating this knowledge about wine and was thoughtful so he started the rating system basically as a means of communicating with his friends and compared this wine to that
wine and like this went a little better than that one and less and assigned the points rating and certain phrases and language that came to be uh used as the currency for how you discuss why and it's a it's a it's a frame of reference kind of exercise so that's the point about
meeting a lot of people and looking at a lot of uh businesses is you develop this this lifelong inventory of frames of reference and points of comparison to judge the next thing that you're looking at and again monger the lattice work of models and all these multidisciplinary things such
that anything you come across you should have some mental construct in your mind by which to judge the next thing you come across can you take the other side of the debt argument when does it make a lot of sense when should a company go all in when should uh debt be used well i'll tell you
story about this and this probably goes back 15 years or so ago and i can remember it's up one day coming in the office and my normal routine is drinking cup of coffee and read a set of newspapers one of which is the Wall Street Journal and there was this article in the Wall Street Journal about
the Walt Disney Company that had just issued 100 year debt and i think it was at five and five eights and i saw that and i said oh man i'll bet that they're refinancing something that was a hundred year debt at five and seven eights that had a five year call and i just
instantaneously had that thought and i dug into it that was almost exactly what they were doing so if you're Walt Disney and you can issue a hundred year debt at those kinds of rates use all the debt that they will give you because really what the label is debt that's fixed cost equity
so the labels don't always describe exactly what's going on so next step is i went into our chief financial officer at the time and i said you need to call our bankers and see if we can issue anything like this and he sort of scoffed at me and whatnot and said no no you really need to chase
this down so he did and he called our bankers and our bankers said well you know Walt Disney is a consumer name it's very well known and Marquell nobody's ever heard of Marquell half the time they pronounce it Marquell if so you guys can't issue something like that so i sort of walked away and
little powdery as i can be and at that time there was a company called Eskimo Pie which makes the chocolate covered desserts and it had been owned by Reynolds Metals which was the aluminum company that was headquartered in Richmond Reynolds had gotten a hold of that company because Eskimo pies
are packed in a foil wrapper and at one point in time they couldn't pay their bill and it ended up as part of Reynolds it was not really a natural part of Reynolds so they spun it out and it was this public company that had a market cap of maybe twenty million dollars to it so i went back
to our cfo and i said here's what we should do we should buy Eskimo pie and change the name of Marquell to Eskimo pie and then we can call people up and say hey you want to Eskimo pie bond who could say no to wanting an Eskimo pie now needless to say that was one of those ideas that i walk
around the hall with that did not get executed upon but to your to the point about debt and we've seen issuances i mean the last five or ten years where we've lived through this unbelievable episode of extraordinarily low interest rates putting 30 50 100 year debt on the books if those
kinds of of rates like my children they have 30 year mortgages in the twos that that's a good piece of debt to have so that makes a lot of sense and there's a lot of companies that didn't do that there they didn't take a long duration at what would historically be exceptionally low rates
the u.s government also didn't do the same thing they didn't issue a lot of long duration debt they issued a lot of short term duration debt now how do you think about sort of debt and time the answer to your question writ large of people who did not hit the bid of the ability to
issue long term fixed rate debt there was a tradeoff where they were looking at even lower short term costs and they just operate under the assumption that you'd always be able to refinance the loan at a lower rate when it rolled over and for a whole generation
that has been true so the idea and I've been way early on this ten years ago I thought rates were starting to get too low and would have pushed out our maturities well tactically that would have been labeled as a mistake now might well come to be seen that that was just too early and the
the the DMZ between too early and wrong is a is a gray murky area so what we'll see but I think that the environment we've just lived through of essentially zero percent rates that's just weird there's there's no fundamental justification for that and I think we'll look back on it as a
as just a very unusual episode but we'll be looking back on it we will not be living through it again for a long time I often think short term optimal is rarely long term optimal but you have to opt out and be willing to look like an idiot to play a long term game in a short term world
how do we learn or how do we teach people to think long term in a way that makes sense like how would you go about teaching somebody to think well one of the ways that you do that is you say extreme things and reductio at absurdum you reduce things to an absurd level so for instance monger I believe
one of the times he says you want you want two great weeks in your life start taking heroin and have two great weeks but you'll ruin your life but some people do and some people literally do that and some people you know in a sort of meta way do that so you you're constantly faced with
that choice of taking a short term game at the expense of the long term or trading deferred gratification it's the marshmallow test these these are not complicated topics they are a matter of disciplined thoughtfulness common sense long term perspective now that being said
you know it's easy for me just to say these kinds of things because my life is good I'm gainfully employed I'm happily married I was raised in a nuclear family I just said advantage great education advantage after advantage after advantage after advantage and I can
remember at one point my oldest daughter was is a lawyer and she was essentially practicing as a you know public defender kind of kind of practice and she had done that for a number of year seven or eight years and it was time to to make a change and do something else because she was
a very empathetic person very caring and very involved and very difficult circumstances day after day and human being can only take so much of that so it was her last day and I decided celebrate by taking her out to lunch and so we go out to lunch and we're very lovely place and
looking out over some beautiful green hills and Richmond and I asked her about her last case when she told me and she said well this guy went into the waffle house in the order of meal and he had the meal and when it came time to pay for it he paid with monopoly money and I thought
and I was the guy stupid or jerk or trying to play joke and she says daddy he was poor he was poor and he was hungry and she says my clients are zen masters of the right now there is no past there is no future he was hungry he knew if he went into a waffle house and spoke the words of a meal
they would bring it to him and the consequences of what happened when it came time to pay for that meal were irrelevant to him because he was hungry that stopped to be called and again opened up a new area of things one should have empathy for and empathy about for people or in circumstances that
are less lovely than my own but I have been given the gifts of being able to afford to think long term so be your responsible of me not to but I don't want to cast judgment on those who are in a position where they don't have that same luxury that I have it strikes me as one of the differences
between people who consistently get better results than other people is that they're almost never in a position where circumstances are thinking for them and they're able to master their circumstances they're always in a position where they have good options they're always in a
position where almost any choice they make is a net positive whereas the inverse of that when you circumstances force your decision you're forced to sell your house because you can't afford the interest rates or you're forced into doing something all your options are bad you put warm
buffet in that situation he's not going to make a great decision the differences certain people tend to avoid those situations through luck and through design I'm wondering how you think about positioning and how you design it within Mark Hell so that you always have optionality to the
upside and rarely to the downside you're making a spectacular point here so by every single daily decision I'm always trying to avoid exactly what you spoke of where you're in such a limited set of options that the circumstances make the decision for you I hate that and trying to do every
single thing I can to avoid that so what that means is low leverage and what that means is not being at a point where you're faced with a very difficult decision and you really don't have many options or whole cards to go to so everything is designed to not have to be in that circumstance
both for Mark Hell and personally I think that's a hyper underrated underappreciated and almost never talked about how it's about yes it's also because it's that opportunity class it's the thing you're not doing so so one of my friends talked about value investors always get the last laugh but they
miss a lot of laughs in the interim so when when the party's rocking and rolling and you're sort of looking at your watch and saying you know we better get out of here before the consequences start to show up you're leaving the party at a sub optimal time because the optimal time to do it would be
you know one second before the police show up my wife is an engineer and I have a lot of friends who are engineer and engineering mindset and the engineer mindset of optimization is a great thing up to a certain point there's the point of satisfaction rather than optimization and I am a
satisfier not an optimizer I'm not smart enough or disciplined enough or calculating enough to really be a good optimizer so I try to move from satisfaction to satisfaction to satisfaction to satisfaction and to last long enough where that compounding effect of always being on the field
always being in the game has created this wonderful compound effect because again as monger said any number no matter how big multiply by zero is zero but it is so tempting to be at the moment where you're you're making bigger and bigger numbers and you're minimizing the risk of zeroing out
because that's not what's happening right now what is happening right now is you're making that number super big and that's super fun who wouldn't want to do that well the person who wouldn't want to do that is that person who's at the party and instead of completely falling into the joy of
the party is looking at their watch and thinking you know we might want to make a different decision right now and again monger is disciplined of thinking backwards inverting always inverting always working with the end in mind that's that's just a fundamental component of the way I'm wired.
I think one of the hardest aspects of that is in order to do that you almost have to look like an idiot in the short term to be successful in the long term and that becomes hard and three aspects immediately come to mind financially you have to be willing or able to withstand that emotionally psychologically you have to be willing to withstand doing something that not everybody else is doing and have them maybe point at you and laugh at you and environmentally you have to be in a
situation where you have stability and it's not going to jeopardize that. It's exactly right. I find immense joy in being on the team of people that I'm with at Marquette and it really feels like a team sport to me and among the things I've read and really studied and tried to
to internalize like everything that John Wooden ever wrote the UCLA coach. I'm currently infatuated with Nebraska volleyball and I went to a Nebraska volleyball game a couple of weeks ago and when you see a game like that unfold and you see the team aspect of the play the positioning the
constant communication while the ball is in the air the libero who is five foot two among all these six footers because her job is to dive to the floor to get that ball up to her teammates to just see a team on display like that fascinates me and I love that aspect of sports and I really feel
that within the walls of Marquette with my teammates who are so skilled at the positions there in and I get to be the head coach is not exactly on point and I'm not the one hitting that ball but I do get to be the coach of that team and that's just a very joyful thing and I think one of the
reasons that matters so much to me is that as a kid I was never on a team. I grew up on a farm hundred acres rural area it just logistically was not the sort of thing where I could I could play team sports so that was a gaping hole in my youth that somehow as a full grown adult I get to have
that sensation that I that I didn't get to have as a kid and I love it and that that team aspect and the ability of a team to do things just a very joyful thing and that helps you endure the idea of you know being the kid who's picked last or not on the team the social isolation and distancing that it takes to have that long-term view and stand apart from what the crowd might be saying perhaps some of that comes from these youthful experiences they give me a frame of reference
to know I can endure this and I love that and both of them are temporary. Sometimes you're on your own sometimes you're with the team be aware of it and be able to operate in either environment. I think it's all it's easier to stand and do something different within a team because you still you're doing something different with your tribe and then you're not alone anymore it is harder when you're alone and you know if you're a reverent like monger it you know seemingly
seems easy to hand but Charlie was a very social person. Oh totally yeah and I was going to have the great gift of being able to have some dinners with them along the way and for instance in my house right now if you walk in there will be a bottle of Santa Margarita Pino Grigio wine
and there will always be a bottle that in my house because the first time I got to have dinner with them it was with my friend Chris Davis and myself and Charlie and we we ate at a restaurant and we sit down and the waiter comes over asking us if we want something to drink and of course
Charlie says yes and he says just bring us a bottle of the cheapest white wine you have it'll be fine and it was a nice enough restaurant that you do the base rate of what ever kind of wine they add it would be fine and it was a bottle that Santa Margarita Pino Grigio so I always have that as a
marker in it at testament and math so despite the legendary I kind of classic nature of monger believe me the man liked people he liked being with people he liked eating and drinking and laughing and telling stories and telling jokes so he he drew sustenance from his fellow human being just like just like the rest of us do I want to get to present day here and then go on to some other topics so fast forward from the great financial crisis to January 2020 walk me through the next six months
January 2020 was when things were just starting to unfold and you saw this news of things that were happening in China but not Richmond, Virginia and slowly the encroachment of COVID came closer and closer such that by the time March came around though I was actually scheduled to go on a trip to Vietnam which would have left the US in late February and come back in early March and kept sort of going back and forth that we would go not go and finally decided to scrub and not
go and group trip got canceled and everything but that was a game time decision and that wasn't until the end of February and things getting shut down I think it was March 13th where I think there was a Friday and that's in Virginia when things kind of kind of shut down early in the day in March
and I got a call and it was from someone who I would label appropriately as a senior government official and he wanted to have dinner with me and that was the kind of call if that person calls you and wants to have dinner you say yes so I said yes and we arranged a particular meeting place this is
March night I'll remember this for the rest of my life and I got there first it was a restaurant and he comes in and he has his hand extended to shake my hand so March night a senior government official who was in a position to know a lot of stuff that I didn't know that would receive
briefings and things you know walks into a restaurant and shakes my hand that was the last hand I shook for probably two years and a number of things one if that guy on March 9th was willing to shake my hands that means that nobody knows anything the the amount of stuff that no one really
can be capable of knowing is immense so don't take anything too seriously when it's told to you by people who are supposedly authoritative because they don't know and you need to have some degree of of filter skepticism about the level of knowledge that somebody actually has when they're asserting
something by the end of that week things were shut down you weren't supposed to go out and it was just a miserable time like Charlie I too am a social person I like being with people and the in the isolation that was enforced through that time has immense social costs and I don't
want a second guess the decisions that people made in good faith and to the best of their ability but also thinking the sense of opportunity cost and mistakes of omission we have not admitted to ourselves what mistakes we made through the period of COVID and educational gaps social development
people's mental health that that suffered because of isolation so all that stuff was going on financially we get to the end of March it's the end of our first quarter we have our normal review processes one of the biggest hits that we took in our in our insurance business at that
particular time was event cancellation insurance so the underwriter who would run our event cancellation book is doing things like Wimbledon in England the Tokyo Olympics a wine festival in Napa music festival in Tennessee a Fiddler's convention in Kentucky I mean weddings all over it was a
a well diversified book of business but the losses on it were complete and total so it didn't matter you use an underwriter thought you were doing a good job because you were diversified and how could all these risks correlate to one thing well we found out how they could all correlate
to one thing a worldwide global pandemic so we had big losses in that particular book of business that we recognized in that quarter as well as many other things and we reported a one 18 that quarter which is the worst quarter that I think has ever been reported in the history of the
Marquette organization and we were operating amidst conditions of uncertainty so it was not a fun time and as a consequence of that one 18 that we put up I did take about 20% of our equity portfolio chips off the table and and sold some positions just because again my number one job is
to make sure we are always there to answer the bell for the next round of the fight so I reduced some of our equity exposure as a consequence of what I saw taking place on our insurance business at that particular time in retrospect that was not optimally tied and there were some things
that I wish I hadn't sold as we go you know continue to go down the road but at the same time I did fortify our balance sheet and operate it from a position of safety so it wasn't fun but it was the right thing to do and confronted with the same facts and circumstances in real time again
I would do the exact same thing and if you want to see a movie that would sort of illustrate and I'm not claiming this amount of glory or or involvement but that Tom X movie Sully where the pilot lands the plane in the La Guardia and he was second guest in the hearings is why didn't you go to Tito
Brawl? Well the decisions he had to make in real time with no possibility of turning back they were outstanding they were unbelievable they can always be second guest but you really shouldn't do that so it just was a period that was no fun I hope you don't second guest yourself I mean
if we go back to what we knew at the time right like it's so important that we we don't apply today's knowledge to what we knew at that time I remember you know taking a lot of chips off the table too because I'm like I just don't know what's gonna happen I remember going to the bank
and getting access to cash I remember stocking up on food I remember doing a whole bunch of things that I actually stocked up on food in February which my kids were like what are you doing what is our dining room table full I'm like you never know what's gonna happen right this is like
you think of opportunity cost I spent a couple hundred bucks now I get a lot of rice and beans and you know if the world shuts down we can eat for a while I don't know what's gonna happen and because I don't know I want to position myself to survive multiple possible futures you want
to satisfy rather than optimize yeah totally and it was a good lesson for them because they thought I was crazy and then the world shuts down and then to your point about thinking independently I think there's a huge aspect of that and I do think people made the best intention
decisions but the one thing that bothers me from somebody who me violated the law on a regular basis during this in Canada because I had a bubble of people that was more than two households and you know we had a teacher involved and we had all these other things involved and
you know I had neighbors threatened to call the cops on me and we've never looked back and actually said hey you know our bad we had the best of intentions you know maybe it didn't work out the way we anticipated here's what we would do differently next time and I think that that has
caused a lack of trust so if this ever happened again I think there would and it might even be more serious next time and the problem will be because you don't look at your mistakes honestly and objectively that nobody's going to believe or they're going to hesitate to believe you next time
and that lack of trust is the most concerning thing for me as a citizen in the world because if people can't trust the authorities quote unquote and you still have to exercise independent judgment and independent thinking but if you can't have a baseline of trust in institutions it becomes
really hard to operate in the world well if you don't have a baseline of trust in institutions what that means is you have no institutions yeah you have no institutional authority or legitimacy and that is not a world you want to live in how do you think about risk I think Peter Bernstein
defined risk is more things can happen that do happen and I think that's a great definition of risk so the thing is you should think about that all the time so just this past week I was in Florida and I was traveling with two colleagues and it was bizarre in South Florida as
its own world and ecosystem that we were in a rental car and we were stopped at a particular spot and we were about to park the car and this and this other car comes up and literally rubs the side of our car and hits us and it's a slow sounding crunch as this guy in this big oversized
vehicle just sort of crunch this and kept on going so I'm in the back seat and one of my colleagues is at the wheel and he's about to get out and sort of confront the guy who just a slow motion crunch this well I said let it go let it go what is the upside of dealing with this is a rental car
if it costs money to fix it we have it we're going to be okay if that guy has a gun this is not going to end well and it's not worth the damage to the bumper that guy just inflicted so we had three people in the car who were processing it differently but that was my immediate reaction so
there's an example of how I think about risk in that situation I was looking at the certain cost of what it was going to cost to get that car fixed versus the uncertainty of who knows who's in that car in front of us and why he behaved in a completely bizarre manner what what other
bizarre behaviors is he capable of you can anticipate exactly so there's an example of real life risk and we've we've laughed about it it's since but that that's just kind of embedded within me I'd love for you to go deeper about risk and maybe offer a few more stories or a few more
things that have really shaped your view on it well for instance we live in a world of cyber risk and among the things that we would do at Markelle to deal with cyber risk is we're trying to be disciplined we have appropriate cyber professionals who are trying to do their very best to keep us
safe and and protect us but also you know we have 20 different businesses in addition to the Inchurch business all the businesses within the Markelle group operate autonomously and their IT systems are autonomous and by not unifying them or not linking them you've created some level of
safety some level of risk mitigation by virtue of the fact that you've you've you've had these things operate autonomously and that would be a part of my thinking as to why autonomy is a good idea is because you create some fragility when you when you centralize things so there's a lot of
things we centralize but some things we don't and one of the factors we think about is does this increase or decrease risk to centralize it or leave it independently operated if every business unit operates autonomously how do you compensate the CEOs of those units so that they're
rowing for one Markelle well the basic architecture involved in everybody's compensation to glue my own is multi-year so for instance I'm personally compensated over a five-year rolling average for any incentive compensation and while the specifics will be different for the CEOs
of the different businesses none of them are compensated heavily on any one-year's results so if you extend time horizons you get directly correct information about what's really going on and what you're really trying to do is foster the mindset of an owner an ownership mentality
and people running these businesses and again back to my own example I've been in Markelle 33 years now well any given year my paycheck is calculated on the last five years but it's sort of irrelevant to me in the sense that I've always been in Markelle I always plan to be
at Markelle so I was not I don't have Markelle blooded in Mary Markelle but I think of myself as a member of the Markelle family and a steward of the organization because it is defined my professional career and so I want incentive systems that in essence mirror and foster that sort
of mindset as much as possible some people love that and they're comfortable with it and that's that's naturally how they want to operate and some people are safe and are not happy with it and generally speaking those people tend to not be long term people at Markelle whereas those
just sort of get it and understand it and it's it's consistent with the way they would behave if if they were anywhere and they were running their own business they do fine at Markelle and they're happy with that that kind of mentality way of doing things are they compensated on their
own individual unit and how are they tied to Markelle is that compensation tied to Markelle shares or it's a bit of a hybrid so for instance myself would be Markelle as a whole just appropriate I'm gonna see of the whole thing so it all matters with different people individually
the number that year might indeed be tied almost exclusively to their business unit but to the extent they start to accumulate wealth in the form of Markelle shares then they become more and more tied to the fortunes of the whole group over time when you make decisions there's a quantitative
and qualitative aspect to them I'm wondering what qualitative aspects do you tend to find the most difficult or the mistakes that you tend to make over and over again that are hard to catch I think Buffett told a story once about a time but the person who's gonna really fool him and
be able to swing the amount of money is gonna be a guy you're driving a used car wearing khaki pads being very modest and humble and is bearing in ways but at the same time just be stealing his wallet without Buffett noticing I would be subject to the same sort of social
influence so my habits tend to be relatively frugal and modest and not flashy so somebody who's flashy and not modest and not frugal that that sets off some red flags that cause me to be a little more vigilant and hyper than otherwise would be somebody trying to fool me would engage in
the kind of behaviors that that I feel more comfortable with and maybe my guard would be down because of these markers tell me that it's fine when a point of fact it's not and that's also when the people around you can see an allergic to a blind spot that I might have to be sensitive about
that so far the records been pretty good we've we've not had much of a problem in that regard but that would be what I would worry about one lesson you learned from your dad was you can never make a good deal with a bad person I'm wondering if there's any times where that's really hit home for you
when I've made a deal with a bad person can you give me an example of that well I mean some of these are a little too painful to to talk about but it's important to be able to make mistakes that's important to be able to size the mistakes such that when you learn them they don't they're not
fatal mistakes and the mistakes that you get better and wiser and stronger and faster on account of but you can't foresee everything and and for stall it I think you should trust your judgment so for instance to the extent that you went through some dating process before you got
married that was really a process of getting to know somebody to see if their values overlap with yours and enough that you really thought you could get along together for decades that's what dating is all about and a business so much of what we do is in effect a dating process
you're doing business with somebody you're interacting with them you you go to the movies you go to a restaurant you go to a ballgame all those kinds of things it's not so much because you wanted that meal at the restaurant you wanted to see that movie or you wanted to see that ballgame
it's so that you could discern whether this was a person that you really could work together with in all kinds of circumstances over a long periods of time and and that's what our business is it's cultivating relationships with customers trying to do things for them to make their life better
and if we made their life better that didn't pay us fairly and we get to be creative we get to feel like we added value we get to learn and stuff we get to have fun and we get to build these relationships that just make life fun and to extend our work you keep doing more of it and when you get
just no occurred you stop either any other lessons that your dad tried to instill in you that sort of stick out as ones that you try to keep it in top of mind today or teach your children my father was a fundamentally kind man he was just nice he was nice to people you always treated people with
dignity and respect no matter what their circumstances or or a position in life was we lived in a small town he was a CPA he did people's tax returns you know into liquor store so we would see the people you would see in a liquor store on a day-to-day basis so he he did encounter all walks of life
and I observed him treat anybody he dealt with basically the same way and that was a laugh a smile hearty and shake trying to help somebody out if he could I really don't know how to put a finer point on it than than that and so I'm doing his whole life you're a fan of biographies I'm wondering which ones stand out to you that you've read over the years well for instance uh
I like U.S. Grant I think he's one of the most underrated presidents we've ever had his background was as a quarter master so as he came into his role his spot as a captain and a major in a kernel was not firing bullets it was in logistics and making sure that the soldiers who were on the
front front lines had food in their bellies had blankets to protect them when they got cold had uniforms to wear and had the armaments so that idea of logistics and support and supply goes beyond the tangible items of supply it's a mindset of otherness that I think Grant embodied
Grant was also fighting for the good guys for a noble cause and the idea that you were using your skills and your gifts for something that is good those those two force multiply with itself so and again he wrote his biography at the time there was not a presidential pension and unfortunately
his daughter did not marry well she married one of the great swindlers of that that era and he was bankrupt and he had no money and he knew he got sick and the cancer was developing and you can almost read that book and feel the race against time that he was personally involved with
basically because that book with the help of Mark Twain who was a friend of his in a contemporary provided the income that sustained his wife and family after his death so I was going to pick one biography to read first I would read that one but over and over and over again I mean if you come
into my office you'll see a wall of books probably half of them are biographies one that comes to mind from an earlier point of the conversation is Admiral Nimitz and if you think about Admiral Nimitz and World War II operating in Hawaii at that particular time you know he would the plans would be
made and it would be an intense planning exercise and an attempt to optimize the circumstances and situation that the Navy was in but then the ships went out and in order to remain in stealth mode there was no radio communication so basically Nimitz might be back in Hawaii for two weeks
two weeks before he had any feedback whatsoever of how these plans were working out and reading about him and reading about the fact that he just walked and walked and walked and walked and swam and just physically tried to process this period of epic life and death existential uncertainty with
walking and playing bridge and swimming and all kinds of things that's just an interesting example and again we could spend days in my office looking at book after book after book and I love having the physical copies of the book because when I walk into my office the spines of
those book catch my eye and they remind me of what it is that I read and I love reading I have a Kindle I use it all the time it's like traveling with the Library of Congress so I like that but I also respect the work that authors did and again the Munger tribute Munger talked about
you know buying a biography for 25 bucks is the best investment you can make because for 25 bucks you're getting about three manures of a person's life that went into writing that book so it was as a tip to the authors who did that normally if I like a book I'll buy the Kindle and the physical
copy to tip them a few bucks for the work that they did and if I'm sitting in home or in my office I'll read the physical copy if I'm riding on an airplane or traveling I'll read the Kindle I'll go back and forth just always have it on my fingertips when you mentioned Grant and logistics one
thing that sort of struck me is the focus on basics and we get lost with that in the world there's almost like a natural entropy to we have simplicity and then entropy takes it to complexity and we have to spend a whole bunch of money fighting that complexity to bring it back to simplicity
I'm wondering how you think about the relationship between simplicity and complexity and how you bring it back to simplicity at such a big organization with so many employees and so many systems and so many well I think there are a couple of tools and techniques so one you referenced earlier Mark
Leonard is a great business leader he talks about the concept of base rates all the time what's the base right here so to always go back to what the underlying base rate of something is and explaining or reconciling why it is you think this thing is going to be different than what the
base rate that is a very important discipline another important discipline we would have at Markel is this idea of autonomy and that the businesses are running autonomous fashion well my wife who is the CEO of one of those businesses until her retirement it was a relatively small business unit
and she said there's no place to hide so within that unit it would be unlikely that people would go on too much of a flight of fancy and get overly complex because there's daily feedback in a small enough unit with a small enough number of people sitting around one table it's Jeff Bezos is
two pizza roll and which one seems to be of a size that two pizzas are to satisfy everybody so even within the 20 some thousand employees that we would have at Markel generally speaking almost every single decision is made by a small group of people who have accountability to one another
who have the responsibility to make the decision and the authority to make the decision and are operating in such a way that they get feedback from their peers they're part of long-term relationships all of those things work together to create a system it's like Lego blocks where you
look at this great Lego structure well that huge Lego structure that you see was built one little tiny block at a time and those blocks have integrity so that's the same sort of model that I dream for for Markel and my enlarges has worked pretty well for a long period of time you talk about small
groups of people making decisions do groups make decisions at Markel or do people make decisions and they're operating within a group I think that's a very nuanced point and in fact I do use the phrase down on the sole CEO it's it's good to have one throat to choke so yes people make decisions and
there is an individual that would be accountable and I identified with the decision but any individual who would make the decision without using the resources that's available to them of their friends their peers their colleagues the data that's right that's stupid so let's try not to be stupid
we're going to make mistakes but let's not make stupid mistakes and that's not as a former chairman Alan Kirschner used to say let's not keep making the same stupid mistake so we while we have people who are responsible for any given thing the embedded network of relationships that exist and groups
that exist it's very helpful for people to make those decisions and feel comfortable and feel supported when they are wrong because the people who were also around the table who might not have had exact personal responsibility for the decision they know they were part of the process and as
such they tend to be forgiving supportive helpful and resilient in facing the consequences and what do we need to do to make it better a play on Munger's quote but I I sort of came up with this phrase to encapsulate it for me which is avoiding stupidity is easier than seeking brilliant exactly
right well we talked a little bit about opportunity cost I'm wondering are there questions you ask yourself about it how do you go about thinking about opportunity cost how would you teach somebody to think about opportunity cost you know I guess the the first example that comes to mind is just
the role of being a parent and then how I try to teach my children about that and again very simple concepts and just at the dinner table when ideas were proposed or plans were being drawn up or requests were being issued the the question is if we do that what are we not doing so that
question seems rather timeless to me so if somebody says all right we're going to hold this stock my colleagues will say well you like this thing over here doesn't that mean if we're holding this that we're not buying that and discussion I mean that's an accurate statement so we talk
about it and sometimes I say you know you're right about that and this is so much more compelling than that that we ought to indeed make that shift and make that change sometimes it's it's a lot grayer a lot more nuanced than you you don't know but that question always of what are we not
doing because we're doing this I don't care whether you're talking to a four year old or a 90 year old that's a relevant question so I think the real learning comes from asking that base level question and participating fully in the conversation with thoughtful reasonable people
about what the answers are and how do you incorporate things that you can't see so like not this or that but like if you're thinking about opportunity costs and I know you think about this much deeper so I'd love to get into the weeds here but if you're thinking about opportunity costs is like
X or Y well that that's one sort of lens into opportunity cost another is like well there might be a new letter that comes up in a year and I need to be in a position that I can take advantage of that right yeah the framing of that X or Y is too limited it's really X or not X so that's Y, Z,
M, seven, three it's like a comedian says why are all plans lettered everybody said they have a plan B how about I plan to plan three so in addition to the letters they're the numbers involved so it's not just X it's all not X and I joke I mean I love Venn diagrams as a way of illustrating
things and articulating things and if you think about Marquell Marquell group writ large well there's one Venn diagram that would include all things insurance so we have an insurance business and insurance related businesses that would fit in that bubble of the Venn diagram and then we would
have a bubble that would say non insurance and I challenge people tell me something that exists in the world that is not in one of those two bubbles in the in the Venn diagram so that's actually a helpful mental construct to have there was one CEO I encountered one time and he referred to his
company as a not yet company so they did all these things but when somebody would say do you do such and such he would not say no he would say well not yet tell me about it should I and I love that mindset so in many ways I'm copy that learn that so in the contract of an
insurance business or a non insurance business when somebody proposes something to us I go well I think you're not to be able to fit in one of those two bubbles let's talk about it let's think about it you've called the interest rates a curfew can you describe that for me well I've struggled
during the era of ultra low interest rates to try to just understanding wrap my mind or end it so for instance when Susan and I graduated from Virginia college and we started in the working world and we bought a house I think our first mortgage was it something like 14 or 15 percent
and I can promise you every discretionary penny that we add went to pain done that mortgage I mean that was that was just a crushing force in it in our life that we we oriented ourselves around getting out of that particular debt for the mortgage that we took on to buy our first house
and if you think about 14 or 15 percent interest rates like existed in the early 80s a joke that that'd be like a 6 p.m. curfew so if you're a kid you come out from school you eat dinner and there's a 6 p.m. curfew nothing bad is going to happen I mean you're you're you're you're done
and as interest rates come down you can sort of think of that as as curfew getting later and later so if the curfew goes you know from 14 down to 12 maybe that's a 7 p.m. curfew so you wolf down a bite of dinner and maybe you can go outside and play for a little bit before you need to get back
in at 7 o'clock but still not not too much and as interest rates keep coming down lower and lower the curfew is getting later and later and by the time the curfew gets to midnight or past midnight that is effectively no curfew and as one comedian once joked he thought they should turn off
ATM machines after midnight because no possible good comes from getting cash out of an ATM machine after midnight you know I think that's a that's a good point and the idea of 0% interest rates or low interest rates then there was no such thing as a bad idea and any possible idea that
you had had no pushback on it from needing to service the debt so the capital allocation decisions that we have made as a society in the last five years I think we're made in the context of no gravity no curfew no no counter example no no sense of opportunity cost what are you giving
nothing do it go so everything got funded every idea no matter what and that created circumstances as an example and I don't want to be too specific I'm not an expert on this but I was thinking about this the other day when I was shaving and I shaved with a Gillette razor and I knew a guy who
was a little more into the world of venture capital and that end of the spectrum that I was and there were several shaving companies that came along and tried to displace Gillette and I think Dollar Shave Club was one of those and I think they ended up getting bought by Unilever for
a big sum of money and I don't think Dollar Shave Club ever intrinsically made much money itself but Unilever felt so threatened by them that they spent a bunch of money to buy it in the fullness of time I don't think that probably was the best decision for Unilever but a lot of money
got allocated and sifted in sort of that way and if you think about that story of companies that never were able to intrinsically support themselves and pay the bills out of existing cash flow but were relying on the capital markets to fund them and then the behavior of somebody who ought to
have known better I mean Unilever did not act in an optimal way and again I'm a satisfy or not an optimizer but because I look at that I think if they had the chance to make that decision all over again that they probably wouldn't so that's just one tiny little story but you could tell
it a million times in a million different ways over the last five or ten years and some of that's great and going back to Elysses' grant in Mark Twain if you look at the period of the Gildon age and what happened with Railroads and the character shall we say they were involved in the funding
of Railroads so many of the stories are the same things you see happening in the financial markets of the last couple of years but that's not totally a bad thing because for instance after the Railroad you know the Railroad financiers came and went what we were left with as a society
was the Railroads which made things better so technological progress seems to have some odd marriage between engineers and technical people and innovators and entrepreneurs and wild promotional financiers and that that marriage between the two yields technological progress
but usually a great cost to a lot of people and great wealth beating for some people that may or may not be a good thing but I don't know how that happens without those wild extremes and if you think about America writ large versus many other places in the world you know we let that we
encourage it as part of our DNA part of the culture where that happens it doesn't happen so much another parts of the world and we have been the net beneficiaries as a society from the innovation that comes about from the fact that we operate with a pretty wild west mentality of that sort of
stuff so it's just interesting to observe one difference in the past 30 years is that we seem to bail everybody out now whereas we used to let people fail and there used to be a real downside in the skin in the game if you will I know people even now in Canada with mortgages
and they're just like oh the government's gonna step in and intervene because nobody can afford their houses and I feel like that's a very dangerous path to sort of think and walk and I'm wondering how you think about that in terms of our approach and I think I would think about
it in similar ways as you that that would seem to be a situation that is not durable what do you think of stock option accounting I don't think it's very good and in fact as as sometimes some people will ask me and typically students or younger people what should they
study which should they which would they learn to be a better investor or a better business person and among the things in this is my training I'm CPA and I was an accountant by training I say well I think you take the first year of accounting the 101 courses I think you should take the second year of accounting which is cost accounting managerial accounting it's where that notion of opportunity cost and fully allocating costs get get loaded in beyond that point in the world we find ourselves
today it might be somewhat counterproductive to keep going too much into accounting theory because you tend to get lost in the details rather than understand the economic substance underneath what accounting is trying to tell you there's an old saying the map is not the territory so no
matter how good your map is it is only limited in its ability to actually describe the territory that you're talking about now you need maps but don't over rely on maps and don't think that maps contain the entire truth they contain 70% through 60% I don't know a good function of it but not
all of it so just always be able to think about economically what it means so for instance one of the reasons that I did not participate in dot com 1.0 is that is when option accounting was at its worst now it has improved somewhat and the practices of options have shifted more towards restricted
stock and things like that where the accounting is better and more straightforward and more aligned with economic reality so I would always economically adjust when I saw big options to think about what the actual cost would be and you know used it in the con an option is basically an interest free
loan so I took an interest free loan and I bought that stock and you used the current market rates of interest to account for that nominal sum of money that in essence is being lent behind an option that's kind of how I would true up and try to figure out what the actual cost of it would be
but second thing going back to Shelby Davis's comment if I saw a coming that was using a lot of option stuff I would just put my pencil down and say I just I just don't like that so it's in the too hard pile and I'm not going to try to calculate that to the fourth decimal point I just don't
want to be part of it that caused some errors of omission there are some companies that I wish I had bought even though they went beyond my personal preferences and tolerances for what I would have hoped would have been the practices that they would have followed but I learned some of those
lessons and I'm sure I'll continue to make some mistakes like that because I'm sort of imposing my own moral judgment when I draw that line but I have to and I need to define what's acceptable to me and what is it and I'm sure I'll get it wrong sometimes because you're wrong a lot of times so just try to be humble and recognize where you got it wrong and something is able to power
through something a particular micro practice that I mean I love. You mentioned cost accounting one of the interesting things to me is something like oil seems to be priced based on historical cost and not present cost. How do you think of how do you think of things like that? I'm not a great natural resources investor that's not really been in my circle of competence or something that I have a lot of expertise with so I don't think about it a lot.
Now what I do think about it is in the context of so for instance and Buffa talks about this example all the time in oil wells you know you think about that as being an inflation protected kind of asset but not really because once all the oil is gone out of that particular well
in order for the company to continue to exist you're going to need to make capital allocation decisions and capital expenditures which set you up to find and pump the next well and accounting is all oriented towards historical cost of what it cost you to draw to to drill that last well
not what it's going to cost you to drill the next well. That has always been a fundamental challenge to me and I don't know the answer I know the accounting is not helpful so therefore it's just not been an area that I spent a lot of time investing in and it's counter-example and in
fact this is one of the charts I keep in my office is I have a price chart of a barrel of oil compared to the single-day admission at Disney World since it opened in 1974 and you know what the price of a single-day admission at Disney World has compounded at a faster rate than that of
a barrel of oil and I think the accounting is better I mean there are fixed costs of the hotels and the monorails and all that kind of stuff they continuously need to be refreshed for Disney World to remain irrelevant property but that accounting is pretty good it's reasonable and I can get my
head around it and it seems to me if I'm looking to protect myself from inflation I would rather own shares of Disney than than an oil company when I when I see those kinds of patterns the other one I track is the price of a pint of Guinness and that I mean that goes back to 1757 and the price
of Diagio shares which are the owner of this and you know we're owners of both of those companies and one of the reasons is I think that they have fundamentally good businesses that add value that consumers love and trust and are whatever the costs to operate Disney World to produce a plan to get us whatever they are whatever currency it's denominated in I think that something consumers will pay those costs and some margin of profit for the companies such that despite whatever happens
in the realm of inflation that's what I call an inflation protected asset. Munger calls EBITDA what did he say? Every shit earnings. Yeah every time you see the word EBITDA just substitute bullshit earnings I'm wondering if you can walk me through that when you see EBITDA how do you think about it how do you break it down what goes through your mind. It's one of those things that sort of like fiction there might be some degree of difference between what Munger the smart guy
thought and what me the less smart guy thinks. So EBITDA is a phrase and it is a term of language that a lot of people use and there was a there was a Russian ambassador to the US name Alexi Dubrinin and he was I think from from Kennedy through Nixon or maybe even forward or beyond I mean
a long time so that guy was the Russian ambassador to the US for decades and he was fully Russian he was born in Russia raised there educated there but he'd been in America so long that he was very good at American idioms and the American culture such that he was spectacular in his role as an ambassador because he was able to understand and comprehend both cultures which should
a lot of differences. So EBITDA is almost an ambassadorial world. Charlie Munger is correct in the pure accounting sense that tells you I mean that is a map of a territory that is a 60 percent map not a 90 percent map it is a map and it does tell you something about the territory. Now if you're talking about oil companies or steel mills or heavy capital intensive businesses it's not a good map because the D that you're subtracting out to sort of talk about the earnings power
not only is that D real and shouldn't be subtracted out if you're really thinking about economically it should be 2 day or 3 day or 4 day because the next well the next mill is going to cost you more than what you're depreciating against and the worst thing about that is if you're a manager of business like that and you're using EBITDA you're fooling yourself and you're under price in your product and you might be in a position where you might know that but that's what all the competitors
do so you're forced into that situation those are situations I don't want to be in. If you're using an old example of EBITDA and you're talking about something like a TV station or a radio station or a newspaper to go back into history just to make the examples easy those are businesses that
did not require much capital expenditure relative to the business they add so while the A the amortization might be a big number because it costs you a lot to buy it you can safely add that back because you're not going to have to re-acquire that radio station that you already have you've paid
for it so the accounting convention requires you to expense some amortization and by the way those accounting conventions change from time to time as to how amortization is calculated and treated but I think you get the gist of it is you need to be able to understand what it really means
and take it from a 60% map to a 90% map and the reason you need to do that is for for Marquell where we are active buyers of businesses sellers of businesses have been conditioned to use that phrase so if you come in and try to academically explain limitations or what adjustments you need to
make they're selling businesses somebody else and sometimes you should be happy about that because you don't want them but sometimes they have a really good business and so your job is not to teach them how to think differently about their thing your job is to understand what economic
reality is and make a rational decision is would this be a good decision from Marquell or not so you need to be comfortable and operate like Debrin and did in two separate and distinct cultures and distill what you're really talking about and it's neither good nor bad it's just a translation
exercise you know that's a great way to explain that well what's the worst part of your job haven't found it yet I feel like this is what I was put on earth to do it's fun I enjoy it and again like we were talking about being at the keyboard and writing and you feel the joy I mean
I feel like remember the movie chariot's a fire and Eric little the runner and he was a person of deep faith and the Olympics got scheduled such that his race was on Sunday and his sister who shared his faith and his spiritual disciplines of the idea of this abyss tried to tell him
you know don't don't run that's the violation and I can't remember the exact line but Eric little responded he says you know God but God made me fast and I feel his joy within me when I run so I have some glimpse and essence of that and that I think this is what I was put on earth to do
and I enjoy it and I've been relatively good at it so we keep doing it until I can't run anymore relatively kid I think you you have one of the best track records in history I love the chemo modest here are there you rarely cell stocks why is that getting back to that
notion of opportunity cost I think the case to sell something and buy something else should be compelling so the the run the the the tie goes to the runner that that's there already secondly there's tax efficiency in that for us in that assume that we have something that we bought
and generally speaking it is kind of worked out you you have a gain there which is unrealized and unrealized means untouched so we have the tax liability accounted for on their balance sheet but in essence that creates a loan from the government for the tax portion of that unrealized gain
so if you sell something that has a big gain to it you are not reinvesting a hundred cents on the dollar you're reinvesting 80 or 70 or 60 and so the next idea relative to what you already have a gain and must be super compelling in order to reinvest 60 cents dollars from hundreds
of dollars of staying with the position you already have that that's one of them the second algorithm at work to use one of the terms of art and language that everybody flaunts these days the the great algorithm life is do more of what's working so about the first
share of Berkshire in 1990 I can't remember what the last time I bought more of it was but within the last year or two so I've consistently bought that stock for years done the same with Mark out personally you know about my first shares on the IPO in 86 I bought more when I joined in 1990
but consistently along the way at higher and higher prices but that's doing more of what works and in general that that's proven to be a pretty effective thing to do over time why do you think it is that it's so hard to do that more of what works it's it's simple but not
simplistic it's simple but it's hard and one of the things that's hard about it is that an in as an individual you have to let go of your own ego to be willing to accept what the universe has handed to you you can't make that happen you have to let that happen and people who are gifted
and smart and intelligent and high energy and want to do things it is it is not their natural inclination to be able to embrace and accept things that are done on your behalf rather than by your act of work it's part of it other part of it doesn't it doesn't look like it works every day
there will be periods where you know people will be you're the batter and again Buffy uses the example ten Williams the hitter now he's only going to swing at those pitches that are in the precise part of the strike zone that he has determined are favorable places for him to swing
that back and the ability to just sit there with the bat on your hand and have a strike call on you from time to time and as Buffy says in the investment there are no called strikes you get to look at pitch after pitch after pitch without having to to swing that is boring for people it's
not stimulating enough it's not fun enough well for me it is just different I love the idea of patience and I do think that we get bored we know what works but what we want to do is we we know how to achieve the outcome we want but what we try to do is achieve it faster like we know for
most individual investors if you save money every month and you put it into an index fund and you wait a really really really long time you will be financially independent and incredibly wealthy later in life we that's as close to a formula as you're going to get for guaranteed investment success
and yet the number of people that follow that formula is incredibly low in part because they know it works but they they want to speed up the natural outcome and I think of this as a lack of patience often changes the outcome how do you develop patience how do you think about that
I guess it's part of that childhood back when of not being the fastest or the strongest or the swiftest or pick first for the teams and stuff so I just I just got used to just being steady and and subtle and appreciating that in the fullness of time it would work out so again and
getting back to that luxurious position of all the conditions you laid out of being willing to stand alone to be in the environment where that's that's acceptable I can't remember your third contract but those sorts of things I have been gifted with those circumstances and I've made
personal choices which have reinforced that so it all it all work and I recognize not everybody has those same gifts and environmental circumstances that I've been faced with but these are the ones that have been available to me and I've just tried to be rational and thoughtful
and take advantage of the gifts that were handed to you I want to end with a version of the question we almost started out with but different which is what is success for you continuing to be able to do the things that I did been happily married for 42 years three kids who are adults and standing on their own couple of grandkids now so the idea that this life and being part of an organization like for for Marquelle when I started in Marquelle we had 300 and some people we now have over 20,000
and that's 20,000 people multiply that by the households that are involved because of the organization we have a place where 20,000 people can find sustenance for their daily needs and take care of themselves and their family they can learn and be creative and because of what they do in serving
customers I mean it's hundreds of thousands maybe it's millions of people when you really connect the dots of what we have been able to build and construct and how all of that exists because we're doing something for somebody else and they're happy we're doing it and want to do more of it with
us that just seems like a really good system that I enjoy being one of the architects of and being part of to continue to keep that going forward and you know as I sit in business meetings and talk with the people who are running these businesses and I see the opportunities that are
flowing in front of them and I see the way in which the architecture of Marquelle has provided them with this base of both financial intellectual social emotional foundation since they're able to make the most of the circumstances they have and I don't mean that narrowly financially I mean
that they're able to help other people and it's just fun there's no better way to add this thank you for an amazing conversation thank you thanks for listening and learning with us for a complete list of episodes show notes transcripts and more go to fs.blog slash podcast or just google the knowledge project the front of street blog is also where you can learn more about my new book clear thinking turning ordinary moments into extraordinary results it's a transformative guide that
hands you the tools to master your fate sharpen your decision making and set yourself up for unparalleled success learn more at fs.blog slash clear until next time