Berkshire Hathaway Part III
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I'm going with just water as my beverage this time and no peanut brittle. Oh, did you have a little heart attack last time after a lot of sugar? Yeah. I think you could hear it in my voice. I think I was a little manic.

I'm going with a vitamin water zero because we are going to need the electrolytes for this marathon. Is vitamin water owned by... Coca-Cola, baby. Coke, that's right. I was on my run this morning and I was listening to the Adam Mead book that I referenced and

I ran by Berkshire Hathaway properties, like house for sale. And I was just like, it's pretty hard to go through your day without using a Berkshire product or service. I'm so excited. I literally like woke up in the middle of the night last night, like and couldn't go back to sleep. I was so excited. Really? Yeah. I love it.

Welcome to Season 8, Episode 7 of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert, and I am the co-founder and managing director of Seattle-based Pioneer Square Labs and our venture fund, PSL Ventures. And I'm David Rosenthal, and I am an angel investor based in San Francisco. And we are your hosts.

Well, David, here we are. The final episode in our Berkshire Trilogy. I feel like we were texting about this. I feel like we're like Bungie developing the Halo franchise. You know, Halo 2 was supposed to be the end. Finish the fight. We're going to finish the fight. You know, last time was supposed to be the end.

We're back for number three. And Halo 3 was so good, man. It was so good. That was the best. See, now we have a lot to live up to. Well, listeners, we told you about Warren's literally perfect record with the Buffett Partnerships in the 60s, where he generated a positive return and beat the stock market every single year for 12 years.

We then wandered the path with Warren of consolidating his investments into Berkshire Hathaway, joining forces with Charlie, swerving through regulators and coming out unscathed. Question mark? Yeah. When we last left off, Warren and Charlie were in 1992 finishing up an absolutely monster run of returning over 27% per year for 22 years. Woo!

Woo! Spoiler alert, not going to be the case this time. No, those were no doubt Berkshire's glory days. So today we will tell quite a different story, a story of what happens when a time-tested investment philosophy gets confronted with systemic changes in the world, like the PC and the internet. And concurrently, while the world was changing, so was Berkshire by virtue of their own success. So let's get started.

So when you now need to write billion-dollar checks to move the needle, there's only so many places you can go knocking, and all those places are quite visible to other investors too. So today, on part three, we will tell the story of the large and mature Berkshire Hathaway and examine what the future may hold with the next generation.

Well, listeners, are you an Acquired Slack member? If not, come join us. The most recent thing that I want to highlight is the Digital Assets channel. It is one of the best entry points I've seen on the web for people to discuss everything going on in the crypto landscape. Yes, I just said crypto on the Berkshire episode in a very thoughtful and nuanced way. Just great discussion going on there. It's also great for beginners. So as always, come join us, acquired.fm slash slack.

And

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Interestingly, employees can not only get answers to their questions, but they're offered actions that they can take immediately. For example, smarter self-service for changing 401k contributions directly through AI-powered chat, or developers building apps faster with AI-powered code generation, or service agents that can use AI to notify you of a product that needs replacement before people even chat with you.

With ServiceNow's platform, your business can put AI to work today. It's pretty incredible that ServiceNow built AI directly into their platform. So all the integration work to prepare for it that otherwise would have taken you years is already done. So if you want to learn more about the ServiceNow platform and how it can turbocharge the time to deploy AI for your business, go over to servicenow.com slash acquired. And when you get in touch, just tell them Ben and David sent you. Thanks, ServiceNow.

And lastly, to keep it short and sweet, if you are not an Acquired LP, you should become one. Click the link in the show notes or go to acquired.fm. We can't wait to see you there. Well, David, before you take us in, listeners, as always, this show is not investment advice. David and I may, and I think have already told you some of us do, have investments in the companies we discuss, and this show is for informational and entertainment purposes only. David Rosenthal, tell us a story. David Rosenthal

All right. Well, as you said at the top of the show, last we left Warren and Charlie in 1982, they, and in particular Warren, are heroes. Times have never been better. I mean, it's great. Warren is a legend. He literally single-handedly reversed a federal government decision and saved Solomon Brothers. It's crazy. I mean, his stature...

is unparalleled, like nothing that the finance world or the corporate world or the investing world or the business world has ever seen. He's the Oracle of Omaha. People are flocking to the annual meetings, literally the annual shareholder meetings. Of course, Woodstock for Capitalism. Woodstock for Capitalists are attracting thousands of people.

And it grew. Of course, there was like a handful of people that would gather in a basement and then there was at a hotel and then it was at a larger venue. And by this point, he's entering arena territory. He's literally filling arenas like a rock star. And Berkshire Stock, the A, because they're only well, it's not the A because there is no A and B yet. Just Berkshire Stock passes $10,000 a share of

Far and away the highest priced single share of stock in history. Buffett himself is worth over $5 billion. He's rocketing up the Forbes list.

But there is one person out there in America and the world who is moving up that list faster than Warren. And fate is about to bring these two gentlemen together. Oh, man. So we left on the Solomon Brothers saga and we're riding in with Bill Gates. Is that what you're telling me, David? We're riding in with BG3, Bill Gates.

Man who has been in the news a lot lately. Yep. Well, that's another topic for another day. So back in the previous summer of 1991, before Solomon, which would start going down in the fall of 1991.

And wrap up in 1992. But before everything really kind of hits the fan, K. Graham arranges for a 4th of July weekend bash on Bainbridge Island in Seattle. No way. What a wonderful place. Bainbridge is like one of the best places in the world.

Yeah, it's a mere ferry ride from Seattle, and then you feel like you're millions of miles away from civilization. Totally. She, you know, invites Warren along, of course. Part of the festivities that are planned is that on the 5th of July of 1991, they're going to go over to the Hood Canal and spend all day with a very prominent Seattle area family, Mary and Bill Gates II, better known as Sr.,

And potentially their son, Bill Gates III, might drop by at some point during the day.

And this is where Bill Gates III, I mean, this is famously his family home growing up. He learns to swim out there. His father is a very prominent lawyer and angel investor and galvanizer of the Seattle startup community from the early days. His mom's on the board of the United Way. Yep. Yep. So this is long before Microsoft, but already a prominent family in the area. Warren is a little reluctant to go on this trip. This is not his thing, but as he puts it, quote, anything for Kaye.

So he goes out. He joins Kay and a few others this weekend. Similarly, Bill Gates III does not have a lot of interest in going out on the 5th for this all-day event. He's super busy. He's running Microsoft. It's a public company. He wants to stay in Redmond and work, work, work. But Mary, his mom, forces him to come out.

Bill would say later, as I told my mom, I don't know about meeting a guy who just invests in money and picks stocks. Of course, he's talking about meeting Warren. His parents are saying, you got to come meet Warren.

Bill continues, I don't have many good questions for him. That's not my thing. I love how Gates judges the quality of his social time by the quality of questions that he can have for somebody. Quick side note, watching these old videos of Gates, I mean, we're so used to his polished image now. But when you go and you watch sort of videos of him from this time frame, especially in the early 90s,

He's obviously so brilliant, but he's... He's mad awkward. Yeah. And he's vigorous in the way that he attacks lines of questioning and engages with challenges. And assuming you are not the subject of his ire, it is a really fascinating thing to watch and totally different than the Gates you're familiar with now. Yeah. That's a good point. Yep. So Mary, though, forces Bill to come out. She stole his mom.

But what he's going to do, he's going to come later in the day. He's going to fly in on a helicopter so that he can get a good half to three quarters of a day working. This is July 5th at Microsoft. I mean, you got to remember, we've talked about this on the show, but Microsoft in 1991, all throughout the 90s until the DOJ case, it was intense. They were killers there. Yeah. You should think about it like Uber in 2016. Totally. Totally.

So Bill's plan is he's going to fly in on the helicopter and then he's going to make the helicopter wait there. He'll eat dinner and then he's going to fly out and escape, go back to work. So he's introduced to Warren and Warren immediately asks Bill what Bill thinks of IBM and whether they're going to do well in the future.

I cannot believe we're going to get to this much later in the episode, but Warren is already obsessed with IBM. Like, my God, Warren, don't buy IBM. Previewing that. Like, don't do it. Don't do it.

Gates, of course, agrees with me here and is like, no, you should absolutely not buy IBM. You should buy two stocks and two stocks only, Microsoft and Intel, and you should buy nothing else and you should just hold them. This is 1991. So Microsoft at this point has about a $10 billion market cap and Intel has a $3 billion market cap. Oh my God. Gates is so deep in it. So obviously he's right here, but it is incredible that IBM, even though they made the computers...

The value in the value chain did not accrue to them in any way, shape, or form. They became completely dumb terminals, and all of the value was captured by the chip maker and by the operating system maker, which blindsided everyone. Just a brilliant business strategy. Totally brilliant business strategy. So Gates then, he's probably pretty annoyed by this first question, given that he doesn't care about stocks. He's like, look, there's two. You should buy these. Don't do anything else.

probably just listen to Bill Gates here. Gates turns around and asks Buffett about newspapers because Gates is probably already starting to think about coming after newspapers as part of, I think, I don't know if like Encarta existed already at this point, but Microsoft's spinning up all sorts of stuff. Encarta was the encyclopedia, but then they would launch live and with the coming of the internet and all sorts of stuff.

They were launching these things, interestingly enough, in like the 93 to 96 timeframe. And there's this unbelievable interview that Bill Gates does with Wired. I'll look it up and see if I can link it in the show notes, where he's basically combatively arguing that

content clubs could never be Microsoft's next business. That they're just not big enough. Like, you don't understand how big Windows is. These are multi-billion dollar businesses and unless we become Disney or something, content clubs are just never going to cut it. And it's fascinating looking at that aggressive reaction by Gates and how he feels versus the market cap of, say, a Netflix today or how important it is to Amazon Prime's strategy to have a content club as we talked about with Brad on the last episode. So,

Gates is at this point thinking, oh, we got a tiger by the tail with this Windows thing. There are a few other businesses as big as this one. Let's just go for the 10 plus billion dollar opportunities. Yeah.

So here's where Buffett sort of surprises Gates. You know, Buffett is like American newspaper man number one, like started as the paper boy thinks it's the canonical franchise business. He owns based on the board of the Washington Post owns the Buffalo Evening News, all this stuff.

He's like, look, today, newspapers are the best business out there. I'm thrilled to own them. But I got to be honest with you, I am starting to worry about their future. He doesn't know anything about the internet. He's actually not worried from that front. But he says, you know, I'm worried about the encouragement of TV and in particular cable television and people's news habits shifting to television, encouraging on newspapers. And Bill is like, okay, well, interesting. That's not

Quite the answer I expected from Mr. Buffett. So they start talking and they sort of fall into conversation and knowing the two of them a little bit, not personally, but through the show.

You can imagine that they just sort of spend all day talking and like other people are there. Kay's there. Bill's parents are there. A bunch of other, you know, Seattle area sort of dignitaries stop by. Two of the future founders of Madrona stop by. Bill Ruckelshaus, who was an amazing man, part of the Saturday Night Massacre and the Nixon administration, the first head of the EPA. Jerry Grinstein, who was CEO of Burlington Northern.

at the time. Oh, I had no idea. Oh, wow. He just drops by, lives in Seattle. Didn't he go on to become the CEO of Delta Airlines? He would. He would. Another erstwhile later in life Warren investment. Yep. We'll get there. But Warren and Bill just totally ignore them. They're super engrossed with one another. So at dinner, they're all there. I guess they're forced to sit down and join the group for dinner.

Bill Gates Sr. asked this august group assembled there, he asked a question to the table. He says, what factor does everybody think has been most important in achieving where you've gotten in life? And there are people at this table who've gotten very far in life.

And Bill and Warren both immediately reply with one word, which is focus. So these guys are like, they are two peas in a pod. After dinner, the sun goes down, the helicopter leaves. Bill Gates, the third, stays. Whoa. Yeah. Warren has drawn him away from his work. Amazing. So they become fast friends.

Buffett goes back to Omaha after the holiday. And on the first day, I don't know when the fourth and the fifth fell, but on Monday or whatever the first trading day is after that.

He makes another of his fateful, immediate, split-second gut stock purchases. Tell us he bought Microsoft, David. He did buy Microsoft, just like he did with Geico. Oh, I actually didn't realize he did. He bought 100 shares of Microsoft for his personal account so that he could keep up with his friend, Bill Gates. Oh, man.

Oh, isn't that ridiculous? And he buys zero Intel shares. Again, even giving his history with Intel and noise. Which is, in retrospect, that feels like such a fraught strategy. Because not only are you losing out on the benefit of all the upside of actually being a shareholder in your vehicle, Berkshire Hathaway, you now want to spend a lot of time and dive deep with this person and...

He's an insider. And now you personally own shares in his company. So you can't actually get a lot of the information that you want to talk about with him because it's too sensitive because you're a shareholder in a super meaningless way. This decision is confounding to me. Completely confounding. Yeah.

But he does invite Bill to join the Graham Group, which is by now the Buffett Group, his group of cronies. And at the next meeting, which I think is in Vancouver, one of the sessions, they're all kicking around their favorite stock ideas. And Bill Ruane from the Sequoia Fund throws out Kodak as a name he's thinking about. And barely Gates immediately responds, Kodak is toast. Yeah.

I love it. So great. So great. And of course, Tom Murphy, Murph is there and Kay's there as well. You know, both television, you know, media magnets. And they ask Bill whether he thinks television is toast too. And Bill responds, this is a quote from the snowball.

No, it's not that simple. The way networks create and expose shows is different than camera film like Kodak, and nothing is going to come in and fundamentally change that. You'll see some fall off as people move toward variety, but the networks own the content and they can repurpose it. The networks face an interesting challenge as we move from the transport of TV onto the internet, but it's not like photography where you get rid of film, so knowing how to make film becomes absolutely irrelevant. This

This is crazy. This is 1992. That's brilliantly prescient. And Gates just described the next 30 years of media and the internet right there. Wow. Isn't that unbelievable? Yeah. I think it's actually a Buffett quote, predicting rain doesn't count, building the ark does. Wow.

I love this one so much because there are so many of these. Look at Steve Jobs describing the cloud in 1995 or whatever it is, or look at Bill Gates predicting how the media landscape would evolve based on technology. And yet neither of those actually came to fruition where they became the market leader in that given thing that they clearly articulated in that captured and quoted video. Yeah.

Yeah, it's interesting. Personal life aside, I'll give Gates the benefit of the doubt here. I bet Microsoft would have made plays here if not for the antitrust case. They weren't going to extend their advantage to media. Yeah, exactly. They weren't going to embrace and extend their advantage.

Okay, so we're going to come back to Bill in a minute. And there's a very, very important reason why, A, it's just like he has such an impact on Warren's life in so many ways, as we'll see throughout this episode. But I think this is also a really great lens to view this part three of like, let's contrast Bill Gates and Warren Buffett as we go along here.

So there is one, more than one, but one in particular, other very famous Warren Buffett Berkshire classic investment that we have not yet covered in our two parts thus far. Yeah, you talked about it in the cold opener of the last episode, but we actually haven't touched it in the real story. I know, I know. Of course, we are talking about Coke and Warren's investment in it, which is just classic, classic Buffett in so many ways.

It's just unbelievable. So back when Warren was starting up his partnerships way back, we're going back to part one of the episodes in the late 50s, he got to know one of his neighbors in Omaha. I can't believe that all of his great investments come from his neighbors in Omaha. And their kids played together. This neighbor is named Don Keogh. And they both live on Farnham Street in Omaha.

Side note, which is why Farnham Street is and the Knowledge Project and Shane and everything he does over there is called. It's an amazing name. Farnham Street. So Keogh was a salesman for the Butternut Coffee Company at the time, and he had six kids. And the story goes that as Warren is starting up his partnerships, he asked Don how he's planning to save for college for all of his kids. He's thinking like, hey, I'm going to get Don, you know, get on this partnership thing, get some money out of him.

Don is pretty sharp, though. He asks his kids what they think of Mr. Buffett. And his kids are like, oh, we love Mr. Buffett. He's great. He's always at home. Whenever we're playing with little Susie and Howie and Peter, you know, he's there and he doesn't like bother us. But but he's at home. So Don is like, well, this guy clearly doesn't work very hard. He's always at home during the day. I'm not giving him my money.

Soon after that, though, in 1961, Butternut gets acquired by the Dunkin' Coffee Company. Don moves to Houston, leaves Omaha with that. And then shortly after, in 64, Dunkin' gets acquired by Coca-Cola and Don moves to Atlanta. So fast forward to the mid 80s.

By this point in time, Don is president and COO of Coke. He is the Dan Burke, one might say, to the Tom Murphy of the legendary Coke CEO at the time, Roberto Guisetta, who was an incredible CEO, Cuban immigrant, ran Coke through all of the great ascendancy of the company.

At this point now, Warren is a man about Washington, thanks to the post in Kay. And one night he gets invited to dinner at the White House. I assume either thanks to Kay or as her date there or something. And lo and behold, who shows up at the White House?

But Don... His neighbor from... That's crazy. Yeah. They reconnect at the White House. His neighbor from Farnham Street. And Don's like, oh, yeah, I'm COO of Coke now. And I take it that Warren has fully switched from Pepsi to drinking Coca-Cola at this point? No, not yet. Oh. No. Don converts it. Warren is like, hey, you know, really great to reconnect. I remember you didn't give me the money back in the day. How are you feeling about that now? I don't know that he said that. Or...

warren says no you know hey like that's great don i'm happy for you i'm kind of a pepsi guy though and uh really what i you know i like to do it i have pepsi all day every day i put cherry syrup in and it's great and don's like warren we just launched a new product we've got the product for you you don't have to put the syrup in your pepsi anymore we've got cherry coke oh that's incredible just launched this is i think they launched in like 83 i want to say maybe it's

sometime around then. Also, I didn't realize the fact that the coffee company got rolled up into Coke in, I presume, the 70s. They were conglomerating earlier than I thought. I mean, I knew, obviously, Coca-Cola is a multi-hundred-year-old brand, but they were single product for the majority of their life. I assumed it was like the 90s and 2000s when they started becoming this big portfolio of

beverage brands, but sounds like it was much earlier. It was. Yeah, no, they were buying other stuff. I don't know how big it was versus the cola business.

But anyway, with Cherry Coke, Don convinces Warren to switch. And that, of course, causes Warren to start thinking like, oh, well, maybe I should take a look at investing in Coke. And he becomes intrigued. And as he digs in, I think this was like 85 or so. And maybe and it was in 83, I think, a couple years earlier, they had launched Diet Coke. And Diet Coke was like, oh,

a monster. Coca-Cola, now classic, as we will get into in a second, is great, but Diet Coke is huge. Maybe the most successful beverage product launch of all time. It's a blockbuster. So Warren's intrigued, but he thinks, hey, stock price is kind of high. I'll just keep an eye on it.

And then new Coke happens, which I knew about and I'd read about. But do you remember this, Ben? How do you mess this up? Like if you're a company like Coca-Cola and you got all these big brains around the table and you basically have like a thing that's a trade secret, you

You don't have any IP protection around it, but you have the magic formula and you have the brand, not yet world-renowned, but sort of nation-renowned brand that is synonymous with your sense of patriotism. And it's associated with one particular, very odd, very well-balanced flavor. How on earth...

earth do you replace that what are you thinking i think we will to preview a minute here you know warren would always say that the uh let's get everybody in trouble in a minute but uh thing he liked about coke is that the business could be run by a ham sandwich like you know it's literally just like you don't do it evidently not i think they were probably just so bored at least the ham sandwich wouldn't mess with the golden goose totally

You know, to be fair, this is the story is they ran all these blind taste tests and Pepsi had been, you know, making headway with market share. That delicious lemony weird sweet thing they had going on. They try new flavors and one of them tests really well. People like it better than the old Coke recipe. So they literally pull the old Coke recipe off the shelves and introduce new Coke. And it is a unmitigated disaster.

Pepsi is like, oh my God, this is the greatest unforced error in history. They start a price war. Coke gets into a huge fight with its bottlers. The stock plunges and the rumor starts going around that Ron Perlman, same dude from Solomon, is circling. The Revlon gone activist investor guy. How could we have forgotten about this in the last episode? He was the villain in Marvel.

That's right.

Enter White Knight Warren to save the day. As always, he rides in, he buys 1.2 billion worth of stock on the open market in 1987, which equates to 6% of the company. And then just like Goodfriend and Solomon, Goizeta and Keogh ask him to join the board, which of course he does.

Side note, the Coca-Cola board is where Warren meets Herb Allen from Allen and Company and starts going to Sun Valley every year. So this is really everything is coming up roses for Warren here.

Man, to like a company and be sort of prospecting it and just to watch them go through the new Coke thing and just be sitting there grinning like an idiot, like, this is my chance. The trick is knowing how to feel those in the moment, you know, when you're not catching a knife that is falling, but rather buying the dip, as they say. Warren Buffett, the OG buy the dip investor. And to add a little more nuance to that, I mean, he does...

have this great strategy of identifying an opportunity where a company has its back against a wall because there are activist shareholders or there's a deal that was on the table that's fallen through and suddenly they need cash fast.

And he very much uses this lack of necessary approval by committees and red tape to just come in with cash, make an offer he feels good about. It's sort of that better to be approximately right than precisely wrong. Kind of that approximately right. I eyeballed it. It looked good. I came in, I bought it, and now I'm a big shareholder and it was a pretty good price. Yep.

Man, I hope at some point that Warren and Charlie send a case of wine over to Ron Perlman because like, man, they got some deals because of that guy. So in the 1988 Berkshire letter to shareholders, Buffett announces the Koch investment saying of it, we expect to hold these securities, the securities in Koch for a long time. In fact, when we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.

And by the mid nineties, a few years later, Coke of course has recovered from the new Coke disaster. They have massively expanded internationally, the late eighties, you know, and then through the nineties were when Coke went from being still associated with Americana, but like everybody in America drank it to like,

everybody in the world drank Coke. And this was part of the investment thesis too, that there was sort of this unexplored massive opportunity to bring Coca-Cola to the rest of the world, particularly through this brilliant, innovative strategy that they have of just selling the syrup, whether they're selling it to the restaurants that are putting it in the fountains or whether they're selling it to the bottlers who have to figure out water

and carbonation, everything locally. They just are shipping the concentrate around the world. So it's reasonably cost effective to have, you know, just a few places that need to know the secret formula and make this stuff. It really can be a globally addressable market. It's good work if you can get it for a ham sandwich.

So Coke is printing money. Within a decade, Berkshire is up over 10x on Coke. And since then, so that was from like mid 80s to mid 90s. Since then, Berkshire is only up less than 4x.

on Coke from that point in time over the next, yeah, what is that? 30, you know, 25 plus years. Oh, that's wild. Yeah. So 10 X returns in the first decade and three and a half X in the next 25, which would sort of presage things to come. Man, compounding large numbers, David sure is hard. It turns out it is.

Well, while we're on this Coke thing, before we sort of leave it, I do think this is a good moment to address the value of brand. We haven't, we've sort of alluded to moats, especially in the seven powers discussion in our previous episode, but we haven't actually described how Warren thinks about moats and sort of brand as a moat.

In the 95 annual meeting, he has this great quote where he just lays it out for investors. And it's one of these rare moments where he describes the investment strategy, I think, more than he necessarily intended to, but he's off the cuff. He's answering a question and he says...

What we're trying to find is a business that for one reason or another, it can be because it's the low cost producer in some area. It can be because it has a natural franchise because of surface capabilities. It could be because of its position in the consumer's mind. It could be because of a technological advantage or any kind of reason at all that it has this moat around it.

And I just always thought this is like the clearest articulation of his view of, you know, sustainable competitive advantage. What makes a business durable and able to generate outsized profits over time? And boy, did they nail it with Coke. I mean, this is just one of these classic examples of the brand moat is really real and it's a global brand moat. Yep. Totally. Like the moat exists clear how it works.

It's straight over tackle. You're taking this international, running the same playbook. Yeah. Great timing coming in in the New Coke disaster right before international expansion. Well done, Warren.

Okay, David, you did mention that Coca-Cola is only up another 3.5x after that initial 10x. When we look at that sort of late 2000s time, looking at maybe 2009, Coca-Cola did represent close to 20% of Berkshire's equity portfolio construction. So like that, what, 35x on their initial investment. Of the stuff that they own that are public markets before they wade into Apple, which we'll talk about later,

Coca-Cola is their biggest single holding of stock that they don't wholly own in a business. Yeah. It, of course, no longer is. But yeah, I mean, this is huge. I mean, this is one of the key legs of the Berkshire Stool is Coke. And also just speaks to how different the company is now. Like you can barely see the Coke equity value in there. Yep. Okay. So back to the meeting of these two businesses here. So...

In 1997, there is this amazingly perfect moment. I think this moment kind of marks a major transition point in

business and industry in the world and the rise of tech and the rise of the internet and how much the world is going to change. And it reminds me of, there's a famous quote in history. I think it's about Germany in the 1850s, where the quote is that German history reached its turning point and Germany failed to turn. This applies to Warren here. Investing in corporate history reached its turning point and Warren fails to turn.

So summer 1997, we are at, of course, the Allen and Company Sun Valley Conference. And there is a panel discussion hosted by Don Keogh with the participants, three participants being one, Warren, two, Roberto Guisetta, the CEO of Coke, and

and three, Bill Gates. And so here it is, old school, like the consumer brand Coke and Bill Gates and Microsoft and Warren on the same stage.

everybody thinks this is going to be like a back patting affair, you know, maybe sort of a, you know, genteel changing of the guard or, you know, maybe something like that. But Bill kind of goes off script here. So Bill would later say that he meant this as a compliment, but he trots out Warren's ham sandwich phrase, uh,

when talking about Roberto and Don on stage. Oh, wow. Wait, so you have the moderator of the panel is the president of Coke and you've got the CEO of Coke as one of the participants? Yeah, and then the other participant is like the largest shareholder in Coke. Right. And Gates's friend.

And so Gates says that like, oh, you guys got it easy. Ham sandwich could run your business. And he compares that to Microsoft. He contrasts that with Microsoft where he says running Microsoft is such a high wire act that he suspects he's going to have to retire before he gets too old. Like indeed, he says well before he gets to age 60 because you need a young person in charge who can adapt and navigate the constant change in the technology.

technology business. So the other panelist, Roberto, is 65 and tragically later that year would die unexpectedly and very quickly of lung cancer. Don is 71 and Warren is 67. So Gates is literally just slapping them all in the face here.

And Roberto sort of has the sort of stereotypical fiery Cuban temper here. He is hugely offended by this. And I don't think he walks off stage, but he never talks to Gates again for the rest of his life after this episode. I don't know how Don reacted to it. Warren kind of shrugs it off. He's like, hey, Bill's my friend. He's Bill. He's kind of like a wild animal. You can't bring him in public too much. But the thing is, this is a

a major social faux pas on Gates' part, but he's totally freaking right. He's right, and

It is clearly this seminal moment for Warren where he's sort of like looking left and he's seeing the past. He's seeing the things he already owns. He's seeing these cash flowing, profitable, durable businesses. And he looks right and he's seeing something he doesn't understand with Microsoft. And it's outside his circle of confidence. So it's in Charlie's too hard pile to use a Charlie-ism there. And so...

He's team Coke. He's team durable, understandable old world businesses. In this era, there's so many opportunities for him to run toward the fire in technology, and he just chooses not to. He just runs away. Alice has this great quote in The Snowball. She says,

He thought it no shame to have a business that could be run by a ham sandwich. He wanted to get Berkshire Hathaway to the point where it could be run by a ham sandwich too. Is that where we are today? Yeah.

I get it. I used to think this too, actually. I was like, oh man, I really want to find businesses that a monkey could run them. The thing is, though, those businesses don't exist anymore. They exist. Coke still exists and it's fine and plenty of these other businesses, but Gates is so right here. The future is change and the most valuable companies of the future and the most value that's going to be created are going to be created by companies and by

and entrepreneurs who are able to navigate change. Like you mentioned, we just had Brad on in our last episode, Brad Stone to talk about Amazon Unbound. Like you read that book and you're just kind of like in awe. Like Bezos is the world's richest person and he is still bringing such intensity. We cannot rest on our laurels. We have to change. We have to innovate every single day. This is not Coke. Yeah.

Yeah, well, okay, let's take this as the moment to dive a little bit deeper into why Buffett doesn't like tech stocks, because it's so meme-y in our culture today that he sort of is not a tech investor, that it's worth unpacking it a little bit. And he did have this interesting observation, I think it was in the late 90s, that we're going to talk about the dot-com bubble here, but that there aren't any internet companies that have ever hit 100 million in a year in profits.

And so I have no proof that it could possibly exist. And so Warren is investing, not speculating. And a lot of people will take offense to me saying that a lot of technology investing, especially in the early stages, is speculating. But the fact is, very early on, there's no revenue and there's certainly no profit. So you can't possibly do investing in the classic sense of valuing the business today, add a discount to its future cash flows,

It's speculating in a risk-managed way by putting your money in great people, going after markets with promising futures, the sort of secular tailwind argument. In fact, Buffett has a very particular way that he thinks about valuation that is highly sensitive to how certain the future is. He's willing to pay up for very certain futures.

which is why he values brands so much. And if you think about this as like an expected value equation where you have two components, the value of something, if it happens, and then the probability that it will happen, Buffett is happy to pay for things with a modest value, but a high probability of it happening. But it's not his style at all to make bets on low probability, very high potential value plays like would the

be an Amazon or something that you're sort of talking about, David, when you reference this incredibly nimble, rapidly adapting world where the chessboard is constantly rearranging and you sort of need to make a bunch of high beta bets. Yeah, totally. I think the problem is that now, we'll get to now later in the episode, but the world has just evolved to the point where that's the way the world works. There's so much change and it's such constant that even Amazon, even Apple, even Microsoft need to be

thinking that way and if you don't think that way right you can be coke but like

Coke's value has only 3.5x in 25 years. Those are the businesses you're going to get. So our friend, Andrew Marks, who's a great VC at TQ Ventures, he's actually known Warren and studied him for basically his whole life. He told me that I think the best way to put this about Warren that I've ever heard, which is that Warren was the world's greatest storyteller.

status quo investor like as long as the future was mostly going to look like the present warren is a savant at that type of investing like the future for coke is mostly going to look like the present for coke he knows how to value that he knows that they're going to recover from new coke he knows that there's an opportunity internationally he can invest in that he can see that huh

Right. So you're saying that, of course, the business will change and evolve and grow, but the chessboard... The world is... The world is reasonably static. Is reasonably static. Yeah. And that makes sense. Like for most of his life, that's been the case. Right. You hear comments like people are always going to love candy. People are always going to like Coke. Like it's not a bet on the world changing. It's a bet on someone operating a business really well in the world. Yeah. He used to say...

that he was absolutely certain as long as cola doesn't cause cancer, that more people are going to swallow Coke tomorrow than they did today. Well, it turns out, you know, sugar is kind of linked to cancer and like, that's kind of not a good thing. Like the world changes, you know? And I think this is the thing where now this is what this moment to me represents this panel at Sun Valley in 97 is like, this is the transition to a world where more change is happening than not.

Yeah, it's like that. There's a great weight, but why graphic where the little stick figure is standing on the inflection point of an exponential curve. And it's not that the world wasn't changing quickly between, you know, the mid 50s and the early 90s. It was that

The rate of change hadn't compounded to the point where it was suddenly like the whole world is changing all at once. You have the arrival of the internet. The cycles of innovation are getting wildly compressed. I mean, we live in this world today where there's huge changes on the sentiment of the future, like multiple news cycles per day in a super high fidelity, high frequency way. Crypto. Yeah.

I didn't want to say it. You said it. That was not at all the world that he invested in for the first 30 plus years of his career. Totally.

So Warren definitely doesn't see this yet, if ever. But for the moment, Gates gets this. Certainly some other people in tech and in Silicon Valley and in Seattle get this, that this is the world that we're moving into. But most of the world doesn't. So for Warren, he's just like, okay, back to business as usual. He is, though, concerned about...

the tech bubble that is forming that he and so many others see. And by this time, by sort of in the late 90s, the Berkshire share price has gone to from about $10,000 a share to $34,000 a share. Over how many years? From 92 to... This is probably like 98 or so. Six years, three and a half X, not bad. Yeah, not bad. $40 billion market cap for Berkshire.

but they've never split the stock. So people in this sort of part of the tech bubble craze was day trading and people are now internet trading and like e-shares. I don't know if it's e-shares. E-trade. E-trade, yeah, is happening. People are setting up publicly traded investment trusts that mirror Berkshire's equity portfolio, have a shadow Berkshire.

This is so brutal. I mean, this is like for the person that wanted to carefully control investment in the company, someone says, oh, well, if you can't buy an actual share of Berkshire, you can buy a fractional share from me and I'll own a bunch of Berkshire underneath and it'll be like you own it. And that's like Warren's absolute worst nightmare. I think both these things are happening. So I think obviously there's demand from all this new retail investing to own Berkshire shares, but most people can't afford a $34,000 share then or now.

I think two things are happening. One is what you're saying, which is people are buying Berkshire shares, putting them in a trust and then selling shares in that trust. The other thing people are doing is they're just reading every 13F that comes out and 10Q and 10K. Oh, and buying the same portfolio. Buying the same securities that Berkshire is buying and doing the same thing. What a ham-fisted way to do it too. Totally. Because then you don't have the benefit of the insurance flow and you don't have the

wholly owned businesses. And the lag, it's going to be this thing where people feel like they're buying Berkshire, Berkshire Associated, but they're actually buying well after Berkshire's already moved the price of that stock. Way less. Yeah.

So Warren finally comes around. He really, he thinks like, okay, people are getting swindled. Like we, I got to find some way to put a stop to this. I don't want to split the stock. And this was a meme at the annual meeting every single year. Someone would ask the question, are you going to split the stock so that more people can invest? And he would always respond to something like, no, I love our current investor base. Why would I do anything that would change the great set of people that we already have as shareholders in this wonderful company? Yep.

So he comes up with a brilliant idea. He decides that he is going to do a stock offering

for a new class of shares, what he's going to call the Baby B class of shares versus the newly rechristened Berkshire A shares. And these are going to be tracking shares that are going to track 1 30th, 1 divided by 3 0 of the A shares in terms of value, massively diminished voting rights,

And he's going to sell this in a new offering that is actually open-ended. So there's no fixed amount. It's not like I'm offering X number of shares. He doesn't want a supply demand thing to happen. He doesn't want basically like microeconomic forces to happen and drive up the price of the B shares. So he's like, well,

here's the price and we're going to make as many of them as we need to at that price. As people want to buy. Even if you hoard them, it won't benefit you at all. Totally. Which also means however much demand there is,

Because it's an offering, Berkshire is going to get the cash. This is like even better than float. You never have to give the cash back. They're raising their Series C. Yeah. I bet Buffett would go to the mat with you on it's even better than float. He probably would. I mean, he is diluting the value. Yes.

As a quick aside, I think this B-Shares offering is a really good place to talk about when they are buying things with cash versus shares, sort of how they think about the two currencies they have at their disposal, the balance sheet cash and the shares they could issue and dilute the company.

So Buffett notoriously likes using cash versus shares since he thinks the existing portfolio of Berkshire businesses are far better than pretty much every other business he could buy. So given that, why would he trade shares of these amazing businesses for something that

that who knows what it is. It may be good, but it's not as good as my treasure trove that I already have here. So they use cash, obviously, whatever they can, except when their shares have been richly valued by the market and thus are a phenomenal currency to use after it crosses a certain point. So in 96, when he does the B shares offering, normally Berkshire shares trade, the A shares trade somewhere between like

1 to 1.5x book value of all of Berkshire's holdings. Well, in this case, the moment they decided, okay, it's worth it for us to dilute our shareholders and do this new financing event and do the B shares thing, it was trading at almost twice book value. It was like nearly an all-time high.

And so he gets all the credit. It's almost like the Ben Thompson strategy credit thing. Like he gets all the credit for doing this, but it was a huge windfall for Berkshire to do it at the moment that they did. And they are wonderfully transparent about this as well because they know there's going to be crazy demand for the B shares kind of no matter what. So they write all these hilarious disclaimers. I'll just read my favorite one.

Mr. Buffett and Mr. Munger believe that Berkshire's Class A common stock is not undervalued at the market price stated above. Neither Mr. Buffett nor Mr. Munger would currently buy Berkshire shares at that price, nor would they recommend that their friends or families do so. Yes. So great. It's like Eric Yuan going on Bloomberg and saying, it's too high. The price is too high. The price is too high. Oh my gosh. Well, this is great. And

Of course, you know what we're going to transition to next. Let's see. Out of 96, I think we're talking about... We're down 98. 98. Are you keying off my buying something with shares? Yes, I am. Are we going insurance? We're going insurance. Tell me about Genree, David. Let's talk Genree.

So, yeah, Warren hated issuing stock, but he's like, stock is so overpriced. I said it, not him. Note that he didn't say it's overpriced. He said it's not underpriced. Exactly. Exactly. So in 1998, he makes another shocking announcement. Berkshire is going to buy January, one of the world's largest reinsurers for $22 billion. Remember, just a few years ago, it was like,

Huge news when Buffett would put $1.2 billion into Coke or, you know, I think buying the rest of Geico for $2 billion. Like that was huge. That was, I think that was the biggest deal they'd done before. Yeah. So this general reinsurance purchase by far their largest acquisition ever. Yep. It is the elephant gun hunting phase of Warren's acquisition career.

So yeah, it's literally the largest deal Berkshire's ever done by a factor of 10. And he does it with all stock. Not a dollar of cash goes out the door. He trades 20% of Berkshire's market cap for January. Wow. Spoiler alert does not go well. Famously, when Charlie is asked about the deal when it gets announced, he's like,

Charlie is like the bluntest character as we have seen and as we will see at the end of this episode.

Charlie's response on the deal when asked about it is that Warren only called him, quote, very late in the game on this one. So he's just kind of like, I'm washing my hands of this. And I think if there's one lesson in this series, among many, it is that if Charlie Munger is your business partner, you should probably always call Charlie early in the game, not late in the game. See, Solomon Brothers is.

And so what was the really alluring thing about buying Gen Re? Because it massively multiplied the amount of float at their disposal by buying it, right? Yeah, they got a bunch of float. To be honest, the alluring thing about buying Gen Re was that Warren thought that Berkshire stock was overvalued and he wanted to take advantage of this moment in time and use it to do a big acquisition. And he also, this is according to Alice in the Snowball,

Most, if not like all of Jenry's investments, because as we've talked about insurance companies with their float, they invest the float in securities and Warren and Berkshire prefer to do that in equities. Most of Jenry's investments were in debt and relatively conservative bonds and the like. And so Warren's worried about a equities crash coming along here because of the tech bubble. He wants to essentially dilute Berkshire's

Berkshire's security holdings. He doesn't want to sell security because that would be a signal to the market. Like Warren Buffett is selling stocks that might tip everything over into the crash. He's like, how can I change the mix of securities that we have at Berkshire without me doing something like that? I can do this all stock equity deal by January and essentially get a portfolio of 20 ish billion dollars of bonds and

that are going to be insulated from equity prices. Boy, that is some financial jujitsu engineering right there. He definitely overthought this one because Jen Reese sucked, to be blunt.

I will say that it's funny you said that I just pulled up the historical price to book ratio of Berkshire. I think the only two times that it was meaningfully above 2x that the stock was trading above twice book was right around 96 when they did the B shares and then right around 98. So I think he definitely felt like those were great times to be using Berkshire stock for currency. Yep. Yep.

So, yeah, Jan Re. So we didn't cover this last time because it didn't fit with the story. But back in 1985, Warren made almost undoubtedly the best hire that he ever made in his career. And he makes very few hires, as we shall see. He hired Ajit Jain to run Berkshire's insurance businesses. Ajit is like... This dude is a monster. You have no idea how...

unbelievably great Ajit is.

He's an underwriting savant. This guy can hear a crazy story that you tell him like, what if I'm going to strap this guy to this rocket and then we're going to shoot it at a hurricane. And I want insurance that bypasses the force majeure and he'll give you a price for it. He's like, I know exactly how to price this policy. He is jet jack ring roll reincarnate. So Ajit, he grew up in India. He went to IIT in India. Yeah.

And then he worked for IBM. Maybe this explains Buffett's fascination with IBM. He's like, Ajit came out of there. It's got to be good. Then he goes to Harvard Business School and then he goes to McKinsey. And then he joins Berkshire. We're talking about him like he's an insurance pricing savant. That is true. There's probably never been anybody better than Ajit at pricing insurance before.

he is also like hyper aggressive. Like if, if a G had decided to be a venture capitalist, he would have been like bill Gurley times 10, like hyper smart, hyper aggressive for basically his whole career. I doubt this is still going on probably at Warren's request, not a Jeets, but for like decades, every night, I don't know if it's every weeknight or every night of the week, they would do a call a nightly call at 10 PM to go

go over the insurance portfolio and all the deals that Ajit was doing. He was just a monster. So when he joins, he takes over all of Berkshire's other insurance businesses besides Geico to start. And

Then he starts a new reinsurance business within Berkshire, like himself. This is the great entrepreneurial story within Berkshire. And famously, he takes out an ad in Business Insurance Magazine, the full-page ad when he starts this, saying, we are looking for more, more casualty risks where the premium exceeds $1 million. Wow.

Like nobody does. This is the insurance business. Like this is crazy. Nobody does this. So he's basically saying like, I will insure things that other people won't insure because I'm more confident in my ability to price these weird, crazy, expensive policies. Yes. And the value of the premium for the policy is,

I want everything. I want the craziest, highest value premiums in the world that other insurers like a Genry and Swiss Re and the like would never do. They're just like, that's just way too much money at risk. Right. They're factories. They're looking to identify the same thing over and over and over again and insure it. These actually have a very fun name too. These are called super cats or super catastrophic insurance policies. Super cat is a really cool name for a pretty boring thing. Totally. I mean, this is stuff like, I think the story goes that

after 9-11 where Jen Rhee would take huge losses in 9-11 and Berkshire and Ajit would be fine. But after 9-11, Ajit starts going around the world and like,

writing terrorism insurance policies left and right because everybody wants them now. Everybody's scared. And he's like, oh, great. This is actually not that risky. I'm going to make a killing on these super high premium tens of millions of dollar policies. Yeah. The crazy thing is that Jenry was basically mismanaged and they had these policies written in 9-11 that

had holes in them that they shouldn't have, where they took on risk that they basically weren't being paid for and then just got destroyed. Yeah. So here's what happens. The obvious thing to do in 98 when they buy Jenry would be to just give Jenry to Ajit. Like, Ajit is the greatest of all time. Give him more.

Instead, Buffett runs the White Knight Acquirer playbook, even though he has no reason to now. You keep running your own business. Tells management, even though they're not the founders of the company, he's like, we love you. You keep running your own business. You do what you do. I'm going to be, this is a quote from Warren, strictly hands off.

Yikes. So immediately after Berkshire buys Jenry, news hits that Jenry is a counterparty on a massive insurance fraud scheme called Unicover that I believe it was residential insurance.

They immediately take a $300 million underwriting loss. This is like within the first week after Berkshire buys the company. Remember Buffett's rule number one, which is never lose money. Never lose money. Rule number two, see rule number one. Yeah. First week on the job, you lost $300 million. Great.

Then they do a bunch of bad deals insuring Hollywood box office receipts for movies. That loses them, I think, about another billion dollars. It's rough. Then 9-11 happens. They lose, all told, close to another $2 billion in 9-11. And then finally, and probably the worst offense given the Solomon history, in the early 2000s, so a couple of years after the acquisition, Jenry gets involved in a major accounting scandal with AIG, which

propping up aig's balance sheet nobody ended up going to jail on this one but like basically like massively hurt jenry's reputation and brought the regulators all over them and like this is the one thing warren wants less than anything

Eventually, Warren would oust the old management, fire them and bring in Joe Brandon and Tad Montross to fix it. They do a good job. And then eventually, Warren does hand the whole thing over to Ajit in 2016. So Ajit is now running Genry in addition to everything else. Wild saga here. What a mess. What a mess.

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All right, David, take us on from Jenry. Where else are we going? All right. We can't move on fast enough from Warren's perspective. So before the tech bubble pops, he does one more surprising to outside watchers move, which is in 1999, he buys a utility company. Very sure, buying a utility company. This is what Warren has come to. It's like the light company that provides your electricity. Yeah.

He buys mid American energy holdings and people want to know why is, why is Warren buying a utility? Alice writes in the snowball. Warren was already being ridiculed for his refusal to buy technology stocks. Now he had bought the light company. How dull the energy business, I think ends up being, you know,

fine for Berkshire. It's another fine investment. He doesn't lose money. They're fine. It does come, though, with two managers that Warren seems to greatly admire. By the way, we talked about this in the pre-show, but we haven't yet talked about it on the episodes. You know how you see Berkshire Hathaway real estate agents all over the place? Oh, yeah. That

came with MidAmerican Energy Holdings. They also had a real estate brokerage. So weird. How does that work? My understanding of the electric company is that it's like a public utility. It's market by market then where some of them must be private companies. Yeah. I don't know exactly. I mean, there are obviously lots of utilities, separate utilities in different geographies all across the country. But yeah, somehow they had a real estate brokerage in there as well.

So there is CEO of the company, one David Sokol, and the number two... Remember that name. Yeah, remember that name. His number two, a guy named Greg Abel, the just announced... Easy to remember that name. ...future CEO of Berkshire Hathaway. Yeah, that's how they come into the company. We're going to hear much more about them later. So, okay, finally...

All this tech bubble stuff comes to a head in the 2000 annual meeting where Warren and Charlie are just getting pummeled by questions from shareholders on stage in the arena asking what on earth they are doing. Why do they not own technology stocks?

Everyone else is getting these five X's in a year. What are you doing here trying to make me 15%? You're making me poor. Warren says, quote, I don't want to speculate about high tech. And then, of course, he goes on to speculate and he compares the whole thing to a Ponzi scheme. And then Charlie jumps in. This is my favorite. This might be my favorite Charlie moment of all time.

He jumps in and he says, the reason we use the phrase wretched excess is because it produces wretched consequences. It's irrational. If you mix raisins with turds, they're still turds. It's an all-time great Muggle quote. I don't know if there is a video of this. If there is, I haven't seen it, but I can just imagine the entire arena just being like,

Like, did Charlie Munger just say turds? Like, what? I think Alice actually says that line in the snowball. But if you think about what each of them is saying, it's telling and it's actually quite different. Warren is saying, I don't understand this stuff. I refuse to engage. No, no, no, no, no, no, no, no, no. It's a Ponzi scheme.

Charlie is saying something different here. He gets that there are raisins in the tech stocks, like Microsoft and the like, and there are real companies in there, but there are also turds. And Microsoft may be doing great, but if and when this whole tech bubble thing pops, and it will, the splatter from the turds is going to get all over your raisins too and drag it down. And when Warren says, I don't understand this thing, it's a Ponzi scheme, he's referring to like

the crazy multiples that people are paying on top of revenue, because of course profits don't exist much like today, but like, let's even walk it a few more levels. Often revenues don't exist for companies that are going public, which like that you only see in like space or like, you know, battery technologies or something now. But then even further, like some of these companies are selling products, but they have upside down unit economics. And so they're not even like gross profit possibilities.

So there is all sorts of... You could sort of understand why you would look over to Charlie and have him saying, there's turds in here, because...

Truly, there were. I mean, it's crazy some of the stuff going public. Then you look over to Warren, and he understands all the financial infrastructure around it, that the banks are incentivized to do it, that the earlier shareholders are incentivized to get marked up and get it public and then sell to get it off their books. There was Ponzi scheme-like things going on because there was so much rampant speculation about raisins and turds. Yep. And so actually, I was curious about this, so I did some analysis.

This is flash forwarding maybe too much, but yes, at the absolute height of the tech bubble, when this shareholder meeting is happening, if you were to put a dollar into Berkshire Hathaway stock, the A, if you could buy a fractional share of the A for a dollar, that dollar, even today in May 2021, so 21 years later, invested in Berkshire would outperform the NASDAQ. It would definitely outperform the S&P.

And it would very slightly outperform Microsoft. So if you had invested a dollar in Microsoft in, you know, call it the first half of 2000 and held it to today and you'd invested a dollar in Berkshire, you would be doing better in Berkshire than Microsoft. So like Charlie's right here, like the splatter from the turds is going to get over the raisins, all over the raisins, including Microsoft. Yeah.

But if you had invested a dollar in Microsoft versus Berkshire at almost literally any other point in time, either before, back in like 97, when the famous Sun Valley panel happened with Coke and the ham sandwich and Bill Gates, Microsoft would be crushing Berkshire if you had put dollars in at that point in time. Oh, fascinating. If you were to invest a dollar in each just a year later in 2001, you would still be doing better on Microsoft. And then of course-

the farther you go along. Obviously, anytime since. Anytime since, you're going to be doing much better at Microsoft. Does this dynamic play out earlier too? Where like, what did it IPO in like 80 to 83, somewhere in there? Yeah, somewhere. I mean, there obviously, like if you put a dollar into Microsoft early. In the early days. Right. Man, it's funny that the dynamic exists twice, where if you're super early at Microsoft, then of course it's going to

multiply an insane number of times to now. But the run-up in the last five years has also been so crazy that if you invested any time after the dot-com recovery, which only really was like a year, then yeah, it's going to outperform Berkshire. It is. It's both like...

Charlie is right here that like, yes, in that exact moment, the bubble popping is going to drag everything that is good down with it. But we're almost really at the point where like, it doesn't even matter anymore. If you had invested at the top of the market in the tech bubble, you'd still be doing better than Berkshire, except for like a very narrow window of time. Yeah. Another point that they're both making here is that like,

There's a lot of innovation going on, for sure. You look around, there's for sure all these incredible things going on with the internet, but the underlying stuff that's going on with Microsoft and the hardware makers, the whole ecosystem, there's a dramatic amount of innovation. The reason that they don't invest, and this comes out in a 1999 Fortune article that Warren writes sort of warning about the dot-com bubble. Of course, he doesn't say the bubble's going to burst. He doesn't say he's calling it top, but he sort of

beats around it a little bit and says he's not interested in buying right now, I think is sort of the way he positions it. He talks about how in the early days of making cars, there were hundreds and hundreds and hundreds of car manufacturers, lots and lots of innovation going on. And today, you know, there are only a few. And so just because... He used this analogy at the annual meeting this year too, I think, right? Yep. Just because there is innovation...

Sure, that's great for the innovator in the short term, but for the investor, for the shareholder, that doesn't mean you're going to be able to capture value. You have to be able to create a moat. You have to be able to figure out what about the business creates that durable competitive advantage so all the profits don't get arbitraged away and profit.

I think he actually finishes the article citing the most perfect example of arbitraging profits away by over a hundred year period going from pure innovation to sheer commodity, which is the airline industry. And he highlights, I don't think this is exactly true anymore, but it was true at the point in 99 when he wrote it, that the sum total, if you add up all the profits and subtract all the losses from the whole airline industry since the inception of airlines, it was a loss. Yeah. And then he says, this is sort of,

gruesome but uh i think he ends the article right with saying uh

That he'd like to think that if he could go back in time to, was it 1903 at Kitty Hawk when the Wright brothers flew, that he would do capitalists a favor and shoot them down? Yep. Which is an insane way to put it. But the point that he's making is just so stark. And I'm sure it's not something I had really thought about. And it's certainly not something that was on people's minds in 99, which is the proliferation of innovation does not...

necessarily imply that there is value to be captured in a durable way by a single firm. Yep. Not necessarily. It also doesn't necessarily imply that it won't be. And of course, Warren is hugely wrong about technology and the internet on this front. But and also everybody remember what Warren says here about the airlines and what must be going on in his mind later in life when he buys Airbus.

every airline stock in the industry. Twice. Twice. Yeah. Okay. For the moment, though, tech bubble bursts, as we all know. Warren, man, he's still top of his game. Oracle Omaha, everybody's raining praise on him. He saw it all come in. All true. The early 2000s are, you know, more greatness for Warren. But then in July 2004...

Susie passes away, and this is devastating to Warren. Even though they haven't actually lived together for 25 years at this point, he still loves her deeply.

and depends on her. And they're technically married, right? Even though they live on... They're still technically married, even though they don't live together. A thousand miles away. Yeah, she lives in San Francisco. He lives in Omaha. Like we said last time, we're not going to cover it on Acquired here, but his personal life is complicated. Let's just say he... I do not think at all that Warren is or was ever a womanizer, but it is true that he had many women in his life. And I

I think it was all above board. Anyway, it's all in the snowball. You can go read about it, but he's devastated when Susie passes away outside of his personal grief though, which is acute.

The most pressing issue is what's going to happen to the Buffett fortune and to Berkshire? Because in typical Warren fashion, until this point in his life, he never thought about it. He always assumed that Susie was going to outlive him. And the plan for the now 40 plus billion dollars of net worth that the Buffett family has, the plan was always that after Warren would die, Susie would die.

set up a foundation there. She already had the Susan Buffett foundation and give it all away. That was the plan. But well, obviously that's not going to happen. Yeah. I mean,

Warren has been thinking about the conundrum of what to do with his wealth since long before he was wealthy. I mean, in his teenage years, he was already thinking about, well, when I'm really rich, what do I do with it all? And he is immensely frustrated by any attempt that he has at philanthropy, which has to be why he basically says, that's a Susie problem. She'll figure it out and set it up when I'm done. His frustrations largely come from the fact that

He does have things that he really cares about and that he cares about promoting. I think he's very worried about an impending human societal problem of overpopulation, which interestingly enough didn't end up happening, that the world has sort of slowed and I believe maybe even stopped the global population growth. He was very worried about not only are we going to use up all the energy on Earth, but are we going to use up all the food and will famine be an issue? And so he had tried to...

give to various charities over the years, but he was so obsessed with

with performance and metrics, and that money was a scoreboard, that when he would give it, and he couldn't understand the investment return, he wasn't privy to the investment return, he couldn't choose the investment manager, that it really wasn't used to compound in the way that he was used to his investments compounding in a way that you could see a dollar return on, that it was just immensely frustrating. And he'd really thrown his hands up in the air and just

donated here and there, but had a big fortune. Yep. And I think as we chronicled in part one, like there is this element of his psychology where like he just kind of cares about the scoreboard. He just wants the money to have as big a number as possible. He doesn't want to buy stuff.

Giving it away, sure, eventually he'll do that. But he just wants to get the number as high as possible by the day he dies. That's what he cares about. Which is, of course, competing with the fact that he wants people to like him. Not only does he want to be very wealthy, he wants the world's adoration. I mean, he throws himself a festival once a year for everyone to fly in and visit. Nowhere in securities law does it say that your shareholder meeting must be like this. It is not

This is a Warren Buffett creation to bring this upon himself. He wants to be a beloved sort of figure and teacher on top of being the wealthiest person on earth. And, you know, you could see how those things could come to a head. Yep.

So you could accuse him of not being innovative in his investment philosophies, never accuse him of not being innovative in finding ways to get what he wants. So after Susie dies, the wheels start turning. He invites Bill Gates to join the Berkshire board, which up until this point,

The board was basically 100% his family and close business associates that he actually worked with, like Charlie, Tom Murphy, Ron Olson from MTO, Don Keogh's on the board, David Gottesman from New York back in the days. Even though Gates is a close friend, I think he's the first real outsider who Warren's never done actual business with, Berkshire's done business with, that joins the board.

So it's like something is afoot here. And then we all find out probably the reason why this was happening. In 2006, Warren makes what was almost certainly the biggest decision and perhaps the most impactful decision in philanthropic history. And I totally remember when this happened.

He calls a press conference and he announces that he is going to give away 85% of his Berkshire stock, which was worth $37 billion at the time. And five sixths of it is going to go to the bill and Melinda Gates foundation for them to manage. And the other one sixth is going to go to his children's foundations and the Susan Buffett foundation. Um,

So this is crazy. There's no Warren Buffett Foundation. He's not going to give the money away. He's not going to have to make any of these decisions. He offloads all of it to the Gates Foundation. Which really is remarkable. He's like, boy, it's really hard to give money away. I don't know the first thing about it. There's a lot of infrastructure required to do this. Actually, that guy's already built the infrastructure and I very much trust him. And this is what's so amazing. Everybody is like, this is like win, win, win for Warren.

Everybody is like, Warren, you are the most amazing, most generous person. This is the biggest gift in history. You have done such an amazing thing for humanity. This, of course, leads to the giving pledge that the Gateses and Warren create in 2010. And it becomes like...

The coolest thing in the world for billionaires to give their money away. Like Warren is like setting like a status symbol here. And meanwhile, Warren is getting exactly what he wants. He never has to deal with any of this. Yeah. The one drawback for him has to be the fact that the Gates Foundation legacy will long outlive anything.

Microsoft's legacy in terms of the way that people remember Bill and Melinda. Microsoft will still be a successful company 50 years from now, but I don't think people will remember it as Bill Gates' legacy. The foundation, absolutely. And so with Warren, it has to be for someone who

is very concerned with his ego. It had to be a big trade-off to not have a gigantic endowment with his name on it. Yep. I get it. Who knows how much he planned this out, but him doing this and then creating the giving pledge...

And driving all of the philanthropy that that does by making it like the ultimate status symbol to give your money away. Should have called it the Buffett giving blood. Totally. Like that's, you know, going to go down in history as like the number of billions of

tens hundreds I don't God knows how many billions are going to be given away because of this like yeah it's pretty cool it's pretty cool it is pretty cool I mean it's amazing it's wonderful it's great for society it's also like Warren must just be so pleased with himself with this so

That all happens in the mid to late 2000s. Which is an interesting turning point for Berkshire Hathaway's strategy. I mean, if you think about this period of like 1990 to 2005, maybe extended to 2010,

You know, they're going after buying these good businesses where the operators still care about the businesses after they sell it. That's sort of like the secret to success. You leave the management in place, except for January. That was a bad decision. And maybe even Mid-America Energy. Well, Sokol was a good manager. He just seems a little too good, as we'll see.

They could do this thing where they would underpay versus private equity. They were the better option for these companies that were anywhere from the hundreds of millions to low billions in value. But it does get to the point pretty quickly with just the cash on hand that the amount of money they need to deploy just got too large. And there's not enough furniture stores and family-owned jewelry chains in America to go buy. Yep. And this is real. I mean, like...

One thing that becomes clear in that is, you know, Warren keeps harping on, we're so big, it's hard to move the needle. And like, that's really true. Right. He has been forecasting this for 25 years. Yeah, that's really true at this point. Like the law of gravity tying Berkshire to the S&P 500 is like, there's a lot of gravity. Yep. So...

The Giving Pledge, of course, it's like 2006 when Warren makes his major gift to the Gates Foundation, but it's not until 2010 that they all launched The Giving Pledge. Why did it take so long? I assume it took so long because not too many people wanted to give away a lot of money in the intervening years between 2006 and 2010 because a little thing called the financial crisis happened.

Dun, dun, dun. As discussed so many times on this show, beginnings of Airbnb and Uber and cryptocurrency and on and on and on. What's that article embedded into the Genesis block of Bitcoin?

Yes, it was Chancellor on Brink of Second Bailout for Banks, which allegedly is mocking the fractional reserve banking system. But yes, it is a very deep reference in the midst of the financial crisis. Indeed, indeed. So here's Warren and Charlie too. He's freshly unencumbered by the weight of having to deal with his wealth. He's back in the saddle. He's

Not literally unretired, but like figuratively unretired again for the third time, ready to go to work. And he and Charlie have seen this movie before. They were there. They were leading players in the dress rehearsal of Solomon in the early 90s. So they're like, all right, well, I think we know what to do here. The whole thing kicks off. I remember this so well in...

March of 2008, when Bear Stearns, the storied investment bank, failed. Just like Solomon, the problem at Bear was nominally it failed because they had two in-house hedge funds that were mortgage-backed security hedge funds, and those had huge losses. That wasn't why it failed. It failed because Bear's counterparties stopped trusting their paper and stopped being willing to trade with them. And like we saw with Solomon,

a huge amount of their capital base turns over overnight because you're settling trades and you have counterparties on those trades. And if your counterparties no longer trust that you're good for the money, they're going to stop trading with you. And then it all vicious cycle comes to a screeching halt. That's what happened with bear. So during the course of one week in March from March 10th through, which was Monday through the end of the week, which would have been what I guess the 14th, the Friday. So Bear Stearns stock had skyrocketed.

started the week trading at $63 a share. And by Friday, they're toast. They're bankrupt. And over the weekend, the Fed engineers an asset sale to JP Morgan for $2 a share. So the old Bear Stearns entity is completely bankrupt. And

the good assets, the non-toxic assets get put into an LLC that the government creates and JP Morgan buys it for $2 a share backstopped by government money. So like if anything goes wrong, JP Morgan's not on the hook. It's like, it's bad. Never seen anything like that. Berkshire, of course, I don't know if they got a call, if I assume Warren probably got a call from somebody about Bear Stearns that week, decided not to save them or bail them out.

But Berkshire has $37 billion of cash sitting on its books at this point, which today seems kind of quaint compared to Apple and Microsoft and the like. But back then, nobody else had that kind of cash anywhere. The only people who had that were governments. Right. I have to assume the most valuable company in the world at that point probably was an oil company and probably was in the neighborhood of $200 to $300 billion. Yeah. But it probably didn't keep a lot of cash on their books because you're an operating company. You've got all

tied up in capital. Oh, for sure. But just making the point that things are almost an order of magnitude smaller at the largest company in the world level. Totally. Both things. The companies are smaller and nobody's piling up cash like internet companies are today, except for Berkshire. So they have all this cash. It's a great climate to invest.

But one of the lessons that I think Warren and Charlie took away from the Solomon debacle was you don't necessarily want to be like the major primary equity holder during a crisis in case things really go wrong. You don't want to be that guy that's called up in front of Congress. You know, you really don't. So instead of making a lot of equity investments at this time, they decide instead to pursue a different strategy.

They're going to make debt and preferred equity fixed income investments in companies that need capital. Can you simplify that for us? Is it like, hey, we're going to loan you money. And if we want to, then we might exercise some warrants. Exactly. And we're going to loan you money at a very high interest rate.

And yeah, maybe we won't make equity type returns, but we're going to have a whole bunch of downside protection, a whole bunch of downside protection and some more upside. And we don't have governance over the company. Yeah. And you're not going to call us in front of Congress. So the first one of these that they do,

is in April of 2008, right after the bear blow up Mars, the candy company, diversified conglomerate, one of the largest private companies in the world announces that it is acquiring Wrigley, the chewing gum and other candy manufacturer. It's like the C's candy coming back to roost here for $23 billion. And,

But it's kind of hard to get financing from banks right now. That's a lot of gum. That's a lot of gum. I don't know what else Wrigley had. I think they owned the Cubs. I was going to say, there's no way there's even $2 billion of gum a year purchased. Well, you know, hey, Warren started by selling gum, right? You know, buying in bulk and breaking up the packs. All right, keep talking. I'm looking up what else Wrigley does. So Mars is going to put up $11 billion of equity for the deal.

Goldman and JP Morgan are going to do a little over $5.5 billion debt, but they still got a $6.5 billion hole they need to fill. Well...

In steps Warren and Berkshire. So they invest $6.5 billion to fund this deal of Mars, not Berkshire, buying Wrigley. And they do it with $4.4 billion of debt that Mars buys from Berkshire with an 11.45% interest rate on the debt. That's unreal. Like Mars is a great, very stable company.

This must really be their only option. I remember seeing in the last couple months that Amazon or Apple or somebody priced a debt offering recently at like a

something absurd, like a 0.3% interest rate or something like that. Yeah. Times are very different and lots of options available for corporations. Lots of options available for capital. 11.5% interest rate. That is unreal. The other 2 billion Berkshire Invest has preferred equity with a 5% interest rate. They get some warrant coverage on it. All in, they end up realizing a 14% IRR on this deal, which is

Pretty good, because there's not a lot of risk here. No. And as Warren would say, you know, people chew a lot of gum in the past, we're going to chew a lot of gum in the future. Oh, Warren. David, it really is pretty much all gum. Like, this is crazy, or at least a majority. So in 2007, they did over $5 billion in revenue. Wow.

And they own Juicy Fruit, Spearmint, Double Mint, Big Red, Extra, Orbit. There's some other candies. So they own all the gum brands out there. They do, yeah, exactly. There's some candies too. But this may have been after the combination with Mars. But now under this subsidiary, under the Wrigley subsidiaries, there's Skittles, Starburst, Altoids,

gummy savers, lifesavers, that sort of stuff too. I'm having a heart attack just hearing all these names. But yeah, so like there's, you know, as I was saying, there's a huge arbitrage here because I think this is also what Warren and Charlie realize is

The government is bringing the bazookas out. They're slashing interest rates. They're throwing money into the system. Everything that we just saw them do during COVID, they first did during the financial crisis. Is this the start of quantitative easing? This is like the bazooka of quantitative easing. So you've got this crazy situation where government is making capital available for free, basically. Yeah.

And Berkshire can come into these situations and make capital available in fixed income, guaranteed return, with 10% to 15% yields. So why is that? Is it just that there's no way to get the fear of the Mars Corporation? There's no way to get your hands on that free money? I think in this case, yes.

I think there's also a reputational element to this too, right? Like if people are worried, especially in the financial sector, which we'll get to in a minute, people are worried about counterparty risk and trust and the effective runs on the bank and the investment bank sense. Well, bringing Berkshire and Warren in is going to do a lot to shore up trust here.

And I guess another way of saying to get your hands on the money from cheap government, cheap money from the government, that's a bailout. Yeah, that's a bailout. You don't want to be the company that got a government bailout when others didn't. And probably doesn't help with trust too much. Yeah. So that's in April. And then Berkshire's fairly quiet for the next few months. And I remember these few months in between March and September...

Like the eye of the hurricane, you know, everybody's like, oh, it's good. Everything gonna be okay here. Like, you know, it's a weird moment. But then, of course, September rolls around and 2008. It's funny because you have this memory of the spring. This was after my freshman year of college that spring or it was like the spring quarter. I was completely oblivious.

I was getting ready to go do my first internship at Cisco. And I just remember like preparing for it and going. And there was not like a concern in my mind that like maybe my internship will get canceled or maybe these companies will go under. I do, however, remember what you're about to tell. Like last few weeks, my internship, just watch it like being glued to the news and refreshing every day come September. Yeah.

That's so funny. Yeah, we had, even though like we're so close in age, we had such different experiences, just like me being out of college and in the workforce. Yep. And sector. Like I'm just not that convinced that, you know, if you were outside of finance or if you were in tech at that point that you would have seen it that early. You would have heard the news about Bear Stearns, but it wouldn't be the sort of daily obsession. You'd be like, oh, Bear Stearns, all right, whatever, you know, yeah. Yeah.

Interesting. Until the fall. Until the fall. Yeah. I mean, the fall was just like the nuclear bomb goes off. And September 2008, of course, we're talking about Lehman. So here's a fun story. This story is great. So the Lehman weekend, Warren is, of course, on vacation. I think he's in Canada with Astrid, his then wife. I think they were married at that point. Certainly partner that lived together in Omaha. Yep. So he gets a call.

And rumors have been circling that Lehman was in trouble and counterparties were starting to not trust them. And like Warren's about to go see a show, like some sort of performance in the theater. And he says, all right, well, I got to go see this show. Send me a fax to the hotel that I'm staying at with the details of exactly what's going on and exactly what you want me to do. Yeah.

So that'd be a fact. So great. He doesn't even have Blackberry. And he says this to Lehman Brothers? I don't know if it was a banker who was calling about... I assume it was probably Lehman. But it's about helping out Lehman Brothers. Yeah, he knows Dick Fold, who is the CEO of Lehman. It's about bailing out Lehman. Because Lehman's getting worried that the Fed might not bail him out of here. This might be the end. So after the show, Warren gets back to the hotel.

There's no facts. So he's like, all right, well, I guess they didn't want me that bad. Must be good. A year later, in summer 2009, he's at Sun Valley, of course, with little Susie. And he looks at his phone. He has like a flip phone. And she says, Dad, there's a text message on your phone. No way. Yes, yes, yes. And he's like, what's a text message? Ha ha ha ha ha.

And it's from Lehman. And apparently wires got crossed and it was asking for maybe the fax number for the hotel or something. Like, what hotel are you staying at? Or something. Oh my God. Isn't that amazing? How Warren Buffett could have saved Lehman Brothers if he was a little more tech savvy. Totally. It's a funny story. Of course, though, there's more to it. Warren could have gotten a hold of them if everybody really wanted him. But it turns out

The actual story is, I think that did really happen. Warren tells it in a video. I think it might be a Wall Street Journal video, kind of a retrospective about the crisis. In March, right after the bear collapse, Dick Fold had called Warren about a capital injection then, and Warren had studied it then.

It is in a Wall Street Journal video because there's this great moment. He goes in his office. He brings out the printed out Lehman Brothers 10K from 2007 that he had studied in March with all of his handwritten notes all over it. Amazing. So he was thinking about it. He was thinking about it. He went Solomon Brothers once. He could have done it again. He was thinking about it, but he decided there was too much risk.

And maybe he's probably a little gun shy from Solomon brothers. So he didn't invest in March and he like, he wasn't, I think he says he wasn't going to do it again anyway in September. So on September 15th, of course, famously, uh,

Lehman Brothers declares bankruptcy, goes under. Of course, everybody remembers Lehman and talks about Lehman. People forget that AIG also had a crisis that weekend. The Fed ultimately did bail out AIG and not Lehman. Warren got a call about AIG too. He passed on AIG. So he did not invest in those financial firms in September 2018.

However, he did get two other calls that he was slightly more receptive to, specifically Goldman Sachs and GE. You wouldn't think of GE as a financial firm, but they had GE Capital, which is a large, very active financial player, and they were in trouble. Did you know that GE's consumer-facing savings bank was sold to Goldman Sachs? This is like

maybe seven, eight years ago. And Goldman Sachs rebranded it in a sloppy rebrand, just kind of a quick one, GS Bank. And it sat as GS Bank for like two or three years. And then that became the underpinnings of Marcus. Oh, no way. I did not know that. That was originally a GE financial product. No way. And they're both Warren Buffett bailouts. 2008 swoop ups. 2008 swoop ups. Yeah.

The very next week after the Lehman bankruptcy, Goldman must have called probably during that weekend too or shortly thereafter. Berkshire invests $5 billion for preferred equity in Goldman with a 10% annual dividend. So essentially, it's like debt. It's not preferred equity like preferred equity that you would get investing in a startup. It's a more debt-like instrument.

So 10% coupon. The Solomon coupon, I think, was only 9%. So, man, this is worse. And Goldman. With a call option for Goldman to call the preferred equity back for $5.5 billion, plus Berkshire got another $5 billion of common stock warrants at a strike price of $115 a share. Those warrants end up becoming...

They got renegotiated, I think, once with Goldman, but become quite valuable. Of course they did. It's Goldman. All told on that deal, Berkshire ends up making about $3 billion. So they get about $8 billion back on the $5 billion that they invested in Goldman. Pretty good for fixed income. That happens within like two years. And how long did that last? Did they end up completely out of Goldman shortly thereafter? I think they held the...

equity that they exercised from the warrants for a while, but they don't end up making too much more than $8 billion. So still good deal.

GE went slightly less well the week after Goldman on October 1st. Berkshire invests $3 billion in GE for basically the same deal. 10% coupon warrants to buy $3 billion of common stock at $22 a share. Unfortunately, unlike Goldman, whose stock as of today is trading at $364 a share versus the 115 strike price that Berkshire got,

GE, the strike price was $22.25. GE did briefly, very, very briefly trade above that mark in 2016, but its share price today is $13. Oof, not so good. That was not the last deal that Berkshire would do with GE. Do you know about the 2015 thing? Oh, no, I don't.

They bought some rail cars from GE, which I think is now viewed as sort of a mistake in retrospect. Interesting. Like actual rail cars or a rail car manufacturing business?

I think actual rail cars. It was like a fleet, like managed by GE. So there's like a business umbrella associated with it. Huh. But it was, let's see. Yeah, the subsidiary of Berkshire was Marmon Holdings Inc. Oh, that's going to come up in a sec. And they acquired these assets. You know, it's all the GE rail car services fleet. Boom. Wow.

Yeah, I think for a billion dollars. Wow. Small world. So all told, in 2008, during the crisis, Berkshire would deploy about $18 billion of the $37 billion of cash that it had on hand. The six and a half into Wrigley, five into Goldman, three into GE, 2.7 billion into Swiss Re, Gen Re's major competitor, which was...

Odd. Interesting. But hey, Warren will make money. That was at a 12% coupon rate. Not bad. This is my personal favorite. $300 million loan to Harley Davidson at a 15% interest rate. Wow. Dang. $250 million to Tiffany's at 10% and $150 million into Sealed Air at 12%.

I don't know what that was. That was like a airline or like air manufacturer. I don't know something. Well, so this is I mean, honestly, since like 95 when they bought the second half of Geico, this is probably one of the top two moves. All the shopping spree that they do in the fallout of 2008 and buying Apple, which I'm sure we'll talk about next. Oh, we will get to that.

But I mean, truly, what else has been this sort of big win in the last 25 years? Nothing. And just in terms of capital deployment, this is the most capital that Berkshire has deployed since, if you could call...

the Gen Re deal, capital deployment, even though it was all with stock. But this is legitimately, like, this is a very impressive move. I mean, this is your classic Buffett, like, I'm going to wait until prices are rational again, and I'm going to do all my research, and then I'm going to be so prepared that when the moment presents itself, I can act in mere minutes. And that he did. Now,

Here's some interesting stuff about this. So all of these deals, the $18 billion deployed in 2008,

Actually, the net returns at the end of the day that Berkshire gets back from that capital turns out to be about $25 billion. So you are right, Ben. But from the actual 2008 investing, it's like, that's good. And he didn't lose money on any of this stuff during 2008. So rule number one, don't lose money. This is all fixed income investing.

Right. If this were a venture fund, you'd say, boy, for the vintage, he was top 1%. Right, right, right. Exactly. Exactly. So good. But this is not amazing. But there's a coda to this. And would you say 16 deployed to get 25 back? 18 deployed to get 25 back. Over what time period? Probably all told five years, maybe less. It's like, yeah, pretty good. Pretty good. Yeah. But...

Warren gets one last bite at the Apple, not that Apple, different, at the financial crisis Apple in 2011, which dwarfs all of this, which is amazingly, I thought that this happened in 2008, but no, it was in 2011.

Bank of America. Oh, yeah. How have we not talked about them yet? Yeah. It was not 2008. It was 2011. Bank of America gets caught up in that. Remember the Euro debt crisis that happened in 2011? And everybody's like, oh, no, financial crisis again. And at least in the US, it ended up not being a big thing.

I don't know how Bank of America got caught up in this, but they did. Berkshire stepped in, did the playbook, $5 billion of preferred equity with a 5% coupon on it. So not as much as the 10% that they got from Goldman, but they got warrant coverage to buy $5 billion of common stock in Bank of America at a $7.14 strike price.

Today, Bank of America is trading at a $42 stock price. That's a cool 6X. Cool 6X. Are they still B of A shareholders? Yep, still B of A shareholders. They all in to date, Berkshire has made about $26 billion in profits on the B of A deal. Way more than the $7 billion that they made from everything else during the financial crisis combined. Wow.

And I think significantly more than any other investment that Warren made in his entire career up to that point. It has to be. I mean, they're playing with so many bigger dollars at this point that... Okay, so let's call this three great moves then. You're pretty good ones from the financial crisis, you're buying of Apple, and of course, then the B of A one, which...

There's no way that he's done anything better than this on an absolute dollar magnitude to this point. I'm sure on return on invested capital, for sure. But this B of A deal is a grand slam and a very important grand slam because we mentioned Wells Fargo right around this time. Wells Fargo is literally driving into the ditch with all of their scandals. Berkshire started buying Wells Fargo in 1989. So I don't think they ultimately lost money on it, but like...

They had big gains and then those gains evaporated. Right. It's like buying, yeah, you start buying Bitcoin around like 15K and you keep buying all the way out through 60, then you're probably about break even. Yeah. It kind of feels like that. Yeah.

Interesting. Warren is now in his 80s at this point. Yeah. 15 years ago, he got the question, when are you going to retire? To which he always responds, what, like about five years after I'm dead? Five years after I die. Yep. That's his line. So to be frank, this is his last hurrah. If you include B of A, which was a grand slam, great investment, this is it. He's done after this in practice, although he doesn't know it.

Starting in 2009, right after the financial crisis, that's when they changed the format of the annual meetings where it's no longer people approaching the microphone. It's Becky Quick and Andrew Ross Sorkin asking the journalists, asking the questions and moderating.

He starts getting hammered, he and Charlie, on just like, what is the succession plan? What are you doing? You are 80 years old. How many more of these wild rides can you go on? And he gives his trademark sort of like evasive answers. He says that the most important qualification for his successor as CEO is running a large operating business, experience doing that.

Right, because Warren has so much experience running a large operating business. But the one part of the plan that does make a ton of sense is that he says he's going to split up his job into the CEO business side. That's going to be handled separately from the investing side, which will be run by one or more chief investment officers after he is no longer in charge.

And to put a finer point on that, there's someone who is going to manage the equities portfolio, the stocks that they own where they don't own the business 100%, and then the stuff that they actually do own 100%. Yep. And this is something that they'd actually been laying the groundwork for for a long time. I vaguely remembered this, but going back and studying this, this is amazing. So all the way back in 2006, in the annual report, Warren and Charlie had been talking about this. And they come up with this idea. They're like, well...

What if we just put an open call for candidates in the annual report? No way. So in the 2006 annual report, they introduced this idea. Warren writes, quote, I intend to hire a younger man or a woman with the potential to manage a very large portfolio who we hope will succeed me as Berkshire's chief investment officer when the need for someone to do that arises. So this is for the equities portfolio. This is for the equities portfolio.

As part of the selection process, we may in fact take on several candidates. So this is going on. And I think shareholders knew this, but people had forgotten by 2009. That was three years ago. The financial crisis happened. There's no progress. Nobody has been hired. Finally, then in 2010, they make a hire.

a surprising hire. 39-year-old Todd Coombs, a completely and totally unknown manager of a small hedge fund based in Connecticut called Castle Point Capital. And Todd had started his career working for the state of Florida's bank regulator and

And then gone on to work at Progressive Insurance, Geico's big competitor, before becoming a hedge fund manager. And here's the thing. Mickey's dad is great. This was a good hire. But he ran Castle Point, his hedge fund, for five years, during which time he amassed cumulative returns of 34%. Not annual, not IRR.

Whoa. 34% total. This is not like... How long had he been investing? Five years. Huh. This is not like an incredibly distinguished track record here. Buffett did almost that well every year for 12 years in the Buffett partnerships. Yes. So everybody's a little puzzled and the plot thickens a little more. So the Wall Street Journal, I think Todd's hiring was announced in like August or September, I want to say. Sometime towards the...

latter part of the year. In July, the Wall Street Journal ran a front page piece saying that the search for Warren Buffett's successor was almost done and they had the candidate. They knew who it was. David, when you sent me this article, I about lost it. This is crazy. I had never heard of this. Me neither. I can't believe I didn't see this when it happened.

Unbelievably, the chosen candidate that the Wall Street Journal reported on was Li Liu, who has an amazing story himself. Grew up in China, was part of the Tiananmen Square protests, emigrated to the US, and eventually gets into investing, had an incredible track record, has an incredible track record, founded Himalaya Capital, mostly invested in China, and then

And became close friends with Charlie Munger. He introduced Charlie to the BYD investment, which is how that happened for Berkshire. And if you're wondering, hey, this name doesn't sound super familiar. I didn't know he worked at Berkshire. That's because he never did. He never did. And this is unbelievable. Even at the beginning of the article, front page of Wall Street Journal...

They get the money, quote, from Charlie. Charlie is quoted as saying it is a, quote, foregone conclusion that Lee would join Berkshire.

And they even have a picture with him. Like there's a picture of Buffett with... It's crazy. Totally, totally crazy. So what happened? Like how did this blow up? The world may never know exactly. But the scuttlebutt is that it all came down to compensation. And the thing is, you know, Lee was and is incredibly successful on his own, running his own fund, where...

He's keeping two and 20, you know, 2% management fees and 20% of the profits. And yes, it would be like this amazing honor to go work at Berkshire, be Buffett's successor, but kind of like Warren back in the day with the Graham Newman partnership where they offered him the keys. And he was like, wait, why would I run your firm where you're keeping a piece of it? I'll just go do my own thing and I'll keep all the profits. Right.

I think that's what happened with Lee. So he didn't join. He still runs him a lie. It's been incredibly successful by all accounts, still has a warm relationship with Charlie and Warren. But yeah, that threw a wrench in the process, I think. I'll bet. And I did read about what the investment managers and we'll get to the second one here in a minute.

how they're compensated. And Warren does kind of let it slip in an interview that they basically are compensated for their performance above the S&P every year. And there's some kind of like three-year characteristic to it where they're paid on a three-year basis and there's an opportunity for

basically Berkshire to have a clawback if they underperform in the sort of latter years of the three-year rolling basis. Yep. So you can see for somebody like Lee, this is total speculation and rumors that is online. It's never been confirmed one way or the other. But supposedly the other candidate, according to rumors, was David Einhorn from Greenlight Capital, I think, the famous hedge fund manager.

But for folks like that, it's not an attractive value proposition really to go work at Berkshire. But for Todd, who's running a small $100 million hedge fund, this is...

The chance of a lifetime. When this interview came out, I don't know, a few years ago, maybe more, the capital pool for each investment manager is $13 billion. So even on its own, it's a very large hedge fund, even your little sliver that you're managing. Yep. So huge opportunity for Todd. He joins at the end of 2010.

It turns out, though, that Warren and Charlie didn't know it at the time, but they weren't actually done hiring. They were going to bring on, as they referenced in 2006, they were going to bring on several candidates.

You know how we talked about on the, we haven't talked about on this series yet, but we talked about this on the Pinduoduo episode that Warren does these annual charity lunches that he auctions off. Yeah. And the auctions actually happen on eBay, which is amazing. That's awesome. And I didn't realize the charity is the Glide Memorial Church here in San Francisco. Great, great organization. Been involved in many great things over the years. In 2010, the same year where this is all going down,

An anonymous bidder pays a record $2.6 million for lunch with Warren. And the next year in 2011,

It turns out it's announced that the same bidder paid $2.6 million again. So one person is paid $5.2 million for two lunches with Warren. Ted gets the job because he paid for lunches with him twice? Yes. Millions of dollars? Yes. $5.2 million. $5.2 million.

Oh my God.

was before Berkshire running a fairly large, a $2 billion hedge fund called Peninsula Capital Advisors that he'd been running for 12 years. He'd been immensely successful. Over those 12 years, he had over 12X'd the capital in the fund. So done very, very well, ran a concentrated portfolio. His top holdings were like DaVita and DirecTV.

And he, for two years in a row, buys the lunch with Warren and he impresses Warren so much in these lunches that they reach a deal to bring Ted on. That's crazy. Isn't that crazy?

And so the wheels have to start turning at this point for listeners out there like, okay, so Ben, you said they're each running $13 billion. Do they get to run their own hedge funds? This is something that I don't think we totally know what the decision-making process is. How much are they there to execute the sort of Buffett and Munger style versus how much are they there to say, look, we have a risk profile that we're comfortable with. Here's how we've been doing it.

go to town? Yeah, I think the answer is it's somewhere in between in terms of how much autonomy Todd and Ted have versus Warren and Charlie. So it turns out in 2011, the same year as Ted joins, there's a little bit of a scandal. Remember we told you to remember the name David Sokol.

Well, in 2011, Berkshire fully acquires a chemical company named Lubrizol for $9 billion. It turns out that the person that first got interested in acquiring said Lubrizol company was David Sokol, then running the energy business within Berkshire Hathaway.

And everybody widely assumed and Buffett had basically implied that the name on the envelope to be the CEO of the business of that side when Warren stepped down was David. Like it was his job to lose. Well, it turns out that for some literally unfathomable reason, because it's not like he needed the money, I would assume that.

David front ran the trade with the acquisition of Lubrizol. So it was a publicly traded company before? It was a publicly traded company before Berkshire acquired it. He personally bought shares in the company and then suggested to Warren that Warren look into buying the company as a whole.

Okay, that in and of itself isn't that bad. It's like, oh, hey, I'm personally invested in this company. I think it's great. The problem was that after they started negotiating to buy the company, and David, I think, was involved in the negotiations, he kept buying, knowing that this was going on. Definitely a no-no.

Yeah. He didn't end up being prosecuted or going to jail or anything, but once all this comes out, Buffett fires him or he leaves Berkshire and Buffett makes statements that he can't believe that this happened and he can't understand why David did it. So that leaves the new name in the envelope, so to speak, as...

as David's former number two, now number one in the energy business, Greg Abel. Who also came over in the Mid-America Energy Acquisition. And as we now know, Greg is indeed going to be the next CEO of Berkshire Hathaway. So we've got the chess pieces here. We now know Ajit's name for insurance. We know Greg's name.

as sort of the non-insurance businesses. He's going to be the CEO. We've got Ted and Todd each managing their pool of money, probably close to $20 billion now each on the public equity side. Warren has said, I think when they started...

it was about 1 billion each that they were managing. And then kind of as they proved themselves, he gave them more rope. But in the early days here, Warren is still managing, you know, with talking to Charlie, but really Warren is still managing most of the investing for Berkshire. And to be honest, he should have just given it to Ted and Todd right away because he does a pretty terrible job. Like we can't mince words here. In retrospect, these years between 2009

2011 and 2016, I think were probably some of the worst decisions that Buffett ever made and worst errors of his career. He has admitted publicly, I mean, not necessarily the way that you just phrased it, but he definitely has admitted publicly that Ted and Todd outperformed him.

Yeah, that they did. I think he made that comment in 2019. He said, yeah, they both beat the S&P by a little bit, but they've smoked me. They definitely spoke to him. So in November 2011, 2011 was a weird year for Warren. Lubrizol's purchase. Yeah. Yeah. You know, hiring Ted, which was great, but because of the charity launches, like it's just weird. So in November 2011, he,

For some God knows why reason, Warren finally pulls the trigger on the trade that he has been itching to make for 30 years. He puts $10.7 billion into IBM in 2011. Let's just take a quick refresher here. 2011, four years after the App Store is launched. Yeah. Seven years after Facebook is launched.

Yep. This is not like way back in time when it might have made sense. Three years after the famous Jeff Bezos talk at startup school. That's exactly what I was going to say. About AWS. AWS is already a thing. That is the default for startups. It has been for years to go and be the cloud provider. So-

What on earth? What kind of thesis does he have on IBM? Well, here's his thesis. This is what he says publicly. He says he has been, quote, hit between the eyes by how great IBM is and how strong and defensible its client relationships are. Brutal. Okay, boomer.

If this is the first technology investment that Warren Buffett is going to make, maybe it's a good thing he didn't make any technology investments. Maybe it's half a century too late. Yeah, seriously. He holds this thing until 2018 when he finally sells it. All told, he loses $2 billion in total, sells it for like around a little over $8 billion. Yeah.

But just like the opportunity cost of $10 billion of capital in 2011, you put that into IBM? My God. Think about if you bought any other big tech company. Just pick one. Don't even... Just pick one. You would have done great. Warren, go back to the monkey throwing the darts. Then in 2013, he partners with the private equity firm 3G Capital to take Kraft Private and then merge it with Heinz.

Warren, you're partnering with a private equity firm? They're your enemy? You know what they do, right? Anyway, Berkshire puts $10 billion into that deal. Their equity stake in Kraft Heinz today is worth about $11 billion. So they haven't lost money. But again, opportunity cost of capital here. That was 2013. Anyway,

2015, Berkshire acquires the aircraft parts manufacturer Precision Cast Parts for $37 billion in Berkshire's largest deal ever. Bigger even. Oh, we skipped over the railroad in 2009. They finally bought the railroad. That was a good deal. That has done well for Berkshire. Warren Buffett from 2008 to 2011, he was good. He was good in those years.

But Precision Cast Parts, man, bought it for $37 billion last year. They took a $10 billion write down on that deal. So that's a dog. And then the worst that we alluded to. Oh my God. In 2016, he starts investing in the airlines. This is the man who said that he was going to shoot down Orville and Wilbur. What was he thinking?

Well, the interesting thing is, so he sold the airlines in a panic sale right when the pandemic dip started. And we all know, of course, there was about five days where you could actually buy the dip before it came skyrocketing back. And somehow we didn't endure a real market crash in this global pandemic because monetary policy. Anyway- Thank you, Jerome Powell. Yeah. Buffett basically sells at the bottom with these airlines. And it's interesting because I don't fault him for the sale.

It is a very reasonable thing to sell the airlines then because if the government didn't bail them out, they could have all gone to zero. I mean, the government was paying some airlines payroll to sort of make it through that period. So I don't, even though he sold it, I think right around the worst, the bottom, I blame the buy. Yeah, the buy. He knew that he even had a comment years before that he had sort of like a...

Is it like a romantic fascination or like a dirty habit about owning airlines or something like that? Like he knew and he still did it. It's like he can't have newspapers anymore, so he wants the airlines. Now, okay, to be fair to Warren, again, the scuttlebutt here is, and there's some comments to this effect, that it actually was, I think, Ted who first got interested in the airlines and they talked about it.

You know, and then Warren. So, okay. It's just kind of funny to me. You can't not make fun of Warren for this one. Like...

Right. It's bad. You can chalk this up to you should have known better. IBM precision cast parts like, dude, those were bad. Those were bad. Well, and honestly, in this same time period, J&J wasn't great. The 2008 investment he did there. Yep. The rail cars that I mentioned was around 2015. Not that great. Not great. Well, and those are all the sins of commission, not to mention the sins of omission of Google, whoosh, Facebook, whoosh, Amazon, whoosh.

And on top of all this, like you own Amex, you understand Amex, you understand the brilliance behind what became the credit card interchange business. And you let a 2006 IPO by MasterCard and a 2008 IPO by Visa go.

go right by you. These are crazy old companies that have been locked up inside the bank federations or however they were owned before. They're finally available for the public to buy. These stocks have gone... These were criminally undervalued initial issuances. And Buffett just watches them go right by, knowing the Amex business. It's crazy. That's such a good point. I hadn't thought about that. But yes, you're right to be allocating all this capital to these just dog businesses. Yeah.

when Visa and MasterCard, put the tech companies aside, are just sitting there. Oh, brutal. Okay, so we're hammering on Warren here, rightly so. But there is one shining, saving, all sin-absolving addition to Berkshire's portfolio during this time.

That's right. We are talking about the very same company that was Sequoia Capital's worst mistake ever by selling before the IPO. Berkshire and Warren redeems everything by buying Apple Inc. Amazing. Amazing. This story. Okay, so here's the story.

In May of 2016, as Warren puts it in the quote, quote, one of the fellows in the office who managed money. A.K.A. Ted. Yep. It's never been said whether it was Todd or Ted, but I think it was Ted here because Todd really focuses on financial stocks and Ted does everything else.

as Warren puts it, had put some money into Apple and indeed had put about a billion dollars, let's assume it was Ted, into Apple shares in May of 2016. That goes well. And amazingly, Ted, Todd, whomever, manages to convince Warren that this is a good idea. I guess he's broken the seal with investing in IBM in technology stocks.

And he convinces Warren that they should really back up the truck here in Apple. So over the next two years, Berkshire Hathaway would ultimately put $36 billion to work buying Apple stock just under the total price that they paid for Precision Cast Parts, which was the largest acquisition in Berkshire's history. To say it goes phenomenally well, that is the understatement of the century. Yeah. This...

is unreal. And I'm sure there's lots of people out there who have been Apple shareholders from 2016 to 2021. So your brokerage accounts know what we're talking about here. And yeah, lots of people doing this. Not a lot of people doing this with $36 billion in initial principle. As of the annual report of last year, the...

market value of Berkshire's shares in Apple is worth $120 billion. That is $89 billion of gains in five years. So I think, I think, I can't figure this out exactly, but I think

That is either more or close to more absolute dollar returns than the entire rest of Warren Buffett's career investing, even including the partnerships. Let's just say that again. More or close to more dollar returns than the entire rest of Warren Buffett's career that has come in the last five years.

with one stock. I mean, there's two angles to this. One, the irony is just dripping. Dripping! Warren, no tech stocks, Buffett, and Apple is approximately 50% of the dollars ever returned. Yep. The other side of it

is interesting because it basically is just a math problem. Of course, the last five years of something that's been compounding for 70 years, 65 years, of course, the dramatic amount of the value is going to show up in the last five, whatever you're investing and assuming that you're continuing to find a reasonable rate of return because that's how compounding works.

But holy crap. My God, yeah. The position was initiated when the man was 86 years old. And from some conversations I had, when Ted brought it up and sold Warren on the idea, the angle was not that it was a technology company, but more in spite of the fact that it was a technology company. We got to talk about this.

Yeah, the biggest piece of positioning from what I've heard is that it's a consumer product with a powerful brand name, very low propensity for people to switch. There's sort of high lock-in. There's a strong moat there. And in fact, it may even be the most valuable brand in the world. Now that we've planted that seed, I would like to go and once again, read the quote from the 1995 annual meeting.

What we're trying to find is a business that for one reason or another, it can be because of the low cost producer in some area. It can be because it has a natural franchise because of surface capabilities. It could be because of its position in the consumer's mind. It can be because of a technological advantage. Oh, he says it at all. Interesting that it has this mode around it.

I don't think that there is any better description of why you would want to buy and hold Apple than that exact quote from him 21 years before. So great. Here's the thing.

This is all nitpicking because at the end of the day, investing, it doesn't matter. I played baseball growing up and my dad used to say to me, if you're listening, hi, dad, when I'm learning, who was learning mechanics of how to swing properly. I love this guy. He used to say, look, if you could hit 300 in the big leagues, nobody would care if you stood on your head when you swung. All that matters is you hit 300. But until you learn how to hit 300, you should probably do it the right way.

In investing, it's the same way. Nobody cares what your thesis is. Nobody cares if you're right or wrong. Nobody cares why you bought the stock. At the end of the day, you just want to be in a position to be right. And Warren got himself in a position to be right.

That said, I don't think he understands anything about how Apple works or what it does or like why all of this works. You know, he says he has a quote at the 2018 annual meeting. He says, I didn't go into Apple because it was a tech stock. I don't think that it required me to take apart an iPhone or something and figure out what all the components were or anything. Yeah.

I think it's much more the nature of consumer behavior. Oh, yeah. He's in it for the M1. He's really impressed by the architecture. He feels that this sort of integrated strategy is the right one. Oh, how funny is that? Yeah. At the end of the day, though, it doesn't matter. It doesn't matter that it was Ted's idea. It doesn't matter that Warren hated technology stocks.

All that matters is that he was in a position to be right. And $89 billion of gains later, here we are. Yeah, that has to be up there with the single greatest investment return in history in terms of absolute dollars. I think it is. I think the... Let's see, NASPERS 10 cent. NASPERS 10 cent and the SoftBank Alibaba investments, I think, are still better than...

But like we're splitting hairs here. Well, they bought those companies in the first five years of their life. Remarkably, Warren and Ted achieved this performance by buying Apple 35 years into its life. Yeah. Yeah.

That just says a lot about how... No, 45 years into its life. The FAANG stocks in the last few years. Wow, it does. Okay, so that is the big beat that we're going to end on, but let's bring it all home. January of 2018, Berkshire officially appoints Greg and Ajit to vice chairman roles in the company. Greg for vice chairman of non-insurance businesses, Ajit for insurance businesses, and

The pandemic, of course, happens in March of 2020. Warren preaches his faith in America, but he dumps the airlines at the bottom, which I agree with you. That's fine. Berkshire mostly misses out on the enormous bull run that happens when Jerome Powell and the Fed and Janet Yellen inject literally more money than God into the economy. Warren and Charlie continue to say that they think that crypto is rat poison squared, but

But as far as I can tell, at least I don't think they've made any attempt to actually study or understand what Bitcoin or Ethereum or any of crypto actually is. And then the kicker, the big moment that we all, if not saw, heard about the day after. Hilarious slip. Hilarious slip at the 2021 annual meeting where Charlie...

lets it slip that shocker Greg Gable is the name in the envelope. This clip is so funny for, we'll link to it in the show notes, but it's Warren and Charlie are like on stage sort of bickering about Berkshire's culture and about preserving the culture. And Charlie just goes, Greg will preserve the culture. Yep. And then the look on Warren's face is priceless. He's yeah. He stammers. He's like, um, um, uh,

Dear Charlie. You know, they have like, hopefully we've pointed out in the now like, God, what, 10 hours we've been doing this series. Nine, David, don't get ridiculous. The, shall we say, dichotomy between

how warren is perceived and wants to be perceived and how he actually is and you know he's got that line about charlie and i have never had an argument you know it's like yeah bullshit you've never had an argument i bet you had one after that uh but uh but yeah of course they still love each other and greg will be the ceo of berkshire hathaway

We should say, too, that a thing that's been happening quietly sort of in the background, well, two things. You know, Ted and Todd have been running their portfolios in a very different way than Warren has over the years. So I think Todd, and I don't know this for sure, but was really buying Amazon, Snowflake, I mean, some of these tech stocks.

other than Apple. So you sort of have a non-Warren approved strategy going on there, especially the Snowflake deal, buying those sort of pre-IPO shares and benefiting from that is very interesting.

And then also stock buybacks. It's very clear that what's happening is that they don't see a better opportunity out there in the market to deploy capital than the businesses they already own. And so they'd rather just take everybody's shares and concentrate their positions in the existing Berkshire portfolio. And I thought Christopher Blomstrom had a great quote in the Semper Augustus Investments Group letter that he writes that is,

epic. It is a full analysis of the accounting practices and valuation model for Berkshire. And he has this great quote,

As long as capital markets remain overvalued and private investors flush with cash persist in investing at low yields, share repurchases are a magnificent use of capital. And it really is such a good point that you pick your head up, you look around, everything's got a sky-high multiple on it. And Berkshire shares, at least the way that Warren sees it, don't. Yeah.

They don't. Now, it's a little bit tricky to sort of think about it this way because the quote-unquote intrinsic value of their equities holdings are marked to market. So, you know, whatever, if you say, oh gosh, Berkshire is not trading at a crazy valuation. Well...

I mean, a big portion of what they hold is publicly traded equities that are at a higher than ever multiple, however you want to mention it. So there is sort of this interesting thing where by doing stock buybacks, sure, they're not buying into any new companies that have crazy valuations, but they are buying more of the companies they already own at market prices. Yeah.

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Well, one bull case that I don't think we've really talked about is a lot of people sort of think, oh, Berkshire's toast when Buffett retires. And I don't think he's going to retire, so he passes away. And the stock's going to plummet and the performance is going to go away. I think if you've been listening to our episode...

You probably don't think that. You might think the opposite. Right. So the bull case is like, they actually could do better under Greg. Like they might be less conservative. They could run the business by keeping less cash on hand, which is of course a drag on returns. And frankly, like,

There's an argument that Warren has gotten really gun shy in buying stuff after a lot of the sort of sins of omission and commission that we mentioned above that it's not clear that he sort of trusts his instinct in this environment. The only thing that he clearly trusts is to just do the stuff that has worked in the past. And I'm not sure that's well suited for this environment. No. So. And not to mention Todd and Ted are.

Pretty good. No matter what else they've done, they did Apple. So like that, everything else surrounding error. And especially when they're only managing 40 billion between them. I mean, that, what did you say? $85 billion gain or something like that? 89. Unbelievable. So there's certainly that element.

Just like one more piece of context on that. That's a whole zoom of gains. Like they literally created a zoom market cap worth of gains. It's totally wild. Now the flip side, the sort of bear case is,

Look, Warren has been successful in a lot of environments. And the thing you kind of should cheerlead about Warren Buffett is that he's reasonably consistent. Someone will always be outperforming him, but he has created this incredible rate of compounding for over half a century. So...

Well, I think the case that David and I have been making to you here for this whole episode is that the internet changed things so fundamentally that his style doesn't really work anymore and that you do have to make bets based on the earth changing underneath you rather than just the earth staying the same and businesses being well run. The bear case on Berkshire would be it actually is the opposite. At some point, the Buffett way of investing, world changing or not,

will actually be great. And we're just in sort of a season right now that is just making him look foolish. And yeah, maybe it's been 10 or 15 years of largely foolish decisions. So I'm not sure this is where I come down, but that would be sort of the future bear case on if Berkshire changes too much from the long time-tested Buffett strategy. I would also add another part to the bear case, which is...

warranted or not right or not or whatever like there is no question that berkshire hathaway and berkshire hathaway shareholders benefit from the warren buffett halo effect absolutely and there are some real tangible benefits to that like during the financial crisis where like

my God, those deals he was getting on debt and preferred equity coupons, nobody was getting that. And the calls he was getting, that is real tangible benefits. And there's some intangible benefits. I definitely, lots of people, I think ourselves, myself at least included now, having done all this work, it's like, all right, Warren, you're kind of past the hill on investing. But lots of people give them a pass and people still show up to the shareholders meeting and people still hold Berkshire Hathaway shares.

Because they believe in Warren. And if Warren's no longer there, then what? Yeah, Berkshire Hathaway is a religion and an investment. And the bear case is that at some point, it just becomes an investment. A little bit more bear case stuff. If you think about capital allocation, if you think about maybe the way Jeff Bezos does it, ideally, there are lots of potential growth engines inside your company.

to invest in, to allocate your capital to. Otherwise you have to go and fight it out with every other investor for every publicly available investment vehicle. The only growth engine that Berkshire really has, meaningful growth engine, is Geico. And that's not a real growth engine. So it's really hard for them to consume capital internally in a way that would meet any hurdle rate that would be exciting. They kind of have to keep going shopping to deploy capital at this point.

There's an element there that's a little bit scary if you're thinking about investing in a tech company versus Berkshire, which of course you never really should be thinking about one or the other. They're completely different buckets, but they don't have an internal growth engine inside that company.

The last one is a little bit more nuanced angle on the thing that I mentioned before about if you do a sort of a sum of parts analysis on Berkshire, then you have to look at everything that's currently marked to market, which is eye-popping. You know, there's definitely a lot of people out there that think that the stock is trading to a discount of the intrinsic book value of the holdings.

And that, of course, would be the case if you fully valued the cash that's on their balance sheet. But if you think about the multiples of the stocks that they own, I mean, Apple has gone from being valued at something like 7x earnings to now like 30x earnings. And to believe the Berkshire is underpriced argument, it's fundamentally based on agreeing that Apple is worth what it's trading for.

which maybe is true with Apple, but you're also agreeing that like BNSF is sort of worth industry multiples for railroads, which if you look around are also meaningfully expanded recently. I just think asset prices are really high.

So there's definitely this element of like, if you believe Berkshire is undervalued, then I think you're being pretty generous with how you value the sum of all the parts. Yep. I think that's true. But there's the capital allocation question of like, well, all assets are overvalued right now. So if you're going to take capital out of Berkshire, where are you going to put it? Right. Everything is only worth talking about when you compare it to its next best option. Yep.

If anybody has any really good options for really solid assets that are underpriced right now, the Acquired Slack, you know, acquired.fm slash Slack, go let folks hang out in the investments channel. Love it. Yep. Hang out in the digital assets channel. That is where stuff is going on. That's where it's at. Playbook? Playbook. Let's do it.

You want to kick it off? Yeah. I mean, the biggest one that's just so clear to me is that you need different strategies at different scales. And the same playbook clearly didn't work as they gained more capital. There was that great thing that they were doing forever of...

hiring great managers that were family-owned businesses that they bought for hundreds of millions of dollars and let them run and those things compound and you get to be management light. It just doesn't work anymore. And so you need a completely, completely different playbook. And the interesting point that I want to make on that... Just like the original Cigar Bet playbook stopped working and they had to go to... Exactly. The point that I want to make on that is that

They have set themselves up well where they have a remarkably flexible structure to do that. So it's not a fund. It's an operating company. They have an infinite time horizon. The goal is to never sell. And there's no drag of fees. And there's no drag of fees. As a shareholder, you can feel pretty good about... The sticker performance is actually the performance you're going to get. You're not getting that less 20%.

And incentives are aligned. If they are not investing, they're not just sitting there collecting fees, you know, they're itching too, because they think that the best option for that capital right now is to sit in cash. So even though we were knocking Warren for like, oh, he's out of touch and his, you know, he doesn't understand the internet and he doesn't understand internet businesses and the world changed from underneath him. And we spilled a lot of words on that.

What he did get right is this operating company flexible structure and probably set it up for success. I say probably because I have an open question on culture and politics, but leaving enough flexibility inside the company then to make sure that they can react to whatever is coming, even if it's not in the Warren style. So that was a big one that I had. Say more about politics unless you're saving it for later.

No, I'm not. So this is something that concerns me. So you went from having one person making all decisions, where if capital was best used on acquisitions, that would get used there. If capital was best used plowing it into an internal growth engine when they had meaningful internal growth engines, you know, you could use it there. Like a Jeets business. Yep. Yep. If they wanted to go buy stock in companies, they could go do that. Now, each of those are independent fiefdoms.

And so I'm sure there's ways they can sort of do horse trading, but people's comp largely is tied directly to their own portfolio. And so...

Who kind of gets to say at the end of the day, no, this is what we're doing? I guess it's Greg. I guess it's the CEO. But you really have to nail the incentives to make that all work. And when you have a non-founder who doesn't quite have the same sort of influence and purview over all of those things, I think decision making...

especially when you need to be able to do it in like an hour for a really big deal, could get really thorny. Not to mention a CEO who doesn't have the investing mind that Warren does. Greg is like great. He's a great operating executive, but is he going to be able to think in the same way as Warren and Todd and Ted about investments? Yeah.

And act with the same speed and conviction. Right. I mean, would the right thing to do here have been to go try like crazy? It might be very hard, if not impossible, to go find a Warren Buffett and just give it all to them. And sure, they have these other guys as employees, but you need a one-headed monster. This is the funny thing about the...

Number one criteria for the next CEO being operating experience at a large company. Well, that's not Warren. Right.

So yeah, so I'll be very, I mean, we may never know. It may be 20 years before a book comes out, but I'll be very curious to see how contentious decisions get made between that new group of four that is sort of coming in. And if just Warren or just Charlie is left at some point with the four, what does that look like? That'll be weird for a little bit. I imagine if one of them leaves, they both leave at the same time. I would imagine too. Yeah.

The other thing I'll say on culture, and this is borrowed from some great research that some listeners sent us, their culture, they sort of talk about it like it's this virtuous thing. And if it's truly this virtuous thing, then it's something that you can sort of codify and protect. I think

the cultures are really sort of like independent inside each of these operating companies. Like, I don't think if you're an employee at Borsheim's, like, I don't really think you think about Lubrizol's culture or like they're completely, they have nailed it on the decentralization thing. So I think the only real sort of like shared culture

cultural elements inside the hundreds of thousands of people that work inside or for Berkshire Hathaway are one, don't put Berkshire's reputation at risk. Two, bend over backwards to avoid paying tax, which takes money out of the business. Just don't take money out of the business. Leave it all in. Keep compounding it. Defer it however you can. And three, funnel all cash back to Berkshire for reallocation. And

I mean, that's the culture. Those are the things that are really important to the head office for managers at their subsidiaries to follow. Yep. Well, should we go to grading? Yeah. Let's do this. I know you have a whole slate of ways that we could grade this one. So kick us off. Here we are. This is it. Man, the whole story, nine, 10 hours in. Okay. So-

I was thinking before we recorded about how to grade this. I don't usually write down any thoughts on grading before episodes, but I thought this is so momentous. You guys know David Rosenthal. He just wings it. He doesn't really prep. Well, I do in grading. Okay. So I think there are four topics to discuss in grading here. First,

We've been through this whole thing. I think we got a grade Warren's entire career. Like, hopefully there's still a little bit more time. I don't know. Maybe not. Probably. I hope not that there's not more time. I hope there's more time in his life, but not in his investment decision making career. I think we're basically at the end here. One way or another. The man is 91 years old. Either way, dude, we're shipping this episode. So like create the cutoff. Yeah.

Okay. We graded the career. I think we grade performance since we left off the last episode, which was in 1992. So I did an IRR calc of January 93 through today. Ooh, great. Love it. Then I think we should grade recent years performance. And then the final question, I am a Berkshire Hathaway shareholder, have been for a long time. I don't know if you are, but whether you are or not, you could pretend you are. If you are...

What are you doing with your stock? Are you holding? Are you selling? Or are you buying more? Interesting. David, do you have a rate of return calculation on that, the entire Buffett career? As a matter of fact, I do. I did some analysis on this. The entire Buffett career, so if you amalgamate 13 years in the partnership years at a 29.5%,

IRR during those years. And you amalgamate that with then 50 years since the partnership through 2025, zero years. Incredible. In the Berkshire timeframe, Berkshire over that time period has had a 20% IRR. You get a blended IRR of 22.3% across 63 years of active money management for Warren. Guys, consistent. Quite consistent.

The more incredible number, do you know what $100 invested in the Warren Buffett Partnerships in 1959 and held through Berkshire today would be worth today? $100. Take a guess. Millions, but the compounding math breaks my brain. I don't know. $26.2 million. Not bad for a hundy. Wow. Wow.

Take a $100 flyer in, what did you say, 65? 59. 59. I mean, that's a long time. And that was a lot more money then, but inflation hasn't moved this fast. Yeah. That's a great stat. $100 at the beginning of Warren Buffett's career, following him all the way through is over $26 million. Yeah. Remarkable.

And that's a 22 point something percent IRR. So it's not over his whole career, you know, he flagged like it's not the same as the BPL, the Buffett Partnership Limited days. But that is mighty good. Yeah, mighty, mighty good indeed. All right. So AA plus, what do you have you? Has anyone else been investing over this period of time? Like, I don't even know how to compare it to anything similar. No, I don't think. He outlasted everyone. Yeah, he outlasted everybody. I think, huh? Yeah.

So, okay, I wrote down A. Okay, here's my rationale for an A. We can debate if this holds. My rationale for an A versus an A plus was that I...

I think we will probably see better investors in our lifetime than Warren in the past. And I think that's just a natural consequence of the numbers getting bigger over time and the world moving faster and there being more change.

It depends what you mean, better investors, because I actually don't think so, depending on how you think about this. So I'm not sure that you could do what Warren did over his career with a career starting today without taking on a lot more risk than

Yeah. Yeah. Hmm.

involved. And so there's a lot more sort of luck in being the one of those million that does better than him. Okay. So here was my thinking on that. I tried to think of like, I did not run the numbers, so I may just be way off. We can debate. I tried to think of a tangible example. And the tangible example I thought of is Sequoia Capital as a whole.

So when was it? 72. They're coming up on 50 years next year. And we don't have their aggregate returns across all their funds, but I suspect they might be as good or better than Berkshire. Interesting. Now, not a single person. Right. It's a firm. But it's an institutionalized culture. And if you can do something consistently, you sort of deserve to be in the same conversation. And here was my thought process on it.

Well, Apple aside, which we can't really put Apple aside. Warren deserves credit for that 100%. But absolutely, he's lost a step in recent years, whereas I feel like Sequoia has only gotten better or stayed at the top of its game. Yeah. I mean, it feels like they adjust to the climate that they're in a year before the climate changes. And it feels like Buffett adjusts 30 to 40 years after. Yeah.

No, just on IBM. Maybe 10 to 15 years afterwards. Yep. Yep. That's a good question, though. It's interesting. But remember that thing I mentioned earlier with the expected value calculation of the probability something could happen and the outcome it happens? Sequoia is doing the exact opposite of the Buffett thing. It's a shots on goal where each shot could be absolutely huge.

So it's obviously an extremely different asset class. But it is a approach that is, I think, more suited to if you believe the hypothesis that the world today is more about change than Buffett's world when he was in his prime. The Sequoia approach is the better approach in today's world, I think. Fascinating. I mean, we're going to like rile up all the growth versus value people out there. I love it.

Yeah. All right, what do you think? I'll put the gun in your hands. A or A plus? Oh, it's an A. I mean, if he had finished strong, it would be an A plus. And you could argue Apple is finishing strong, but it's just the numbers that I ran for...

this last period, 1993 through today, is a 13.5% IRR. And that's 28 and a half years. It's not like this is a quick cycle. This is two or three cycles. And so it's not like, oh, well, you can't just say his 13.5% IRR was during a down cycle for Buffett's style. No, it's been...

We've been through some stuff. And it's just not been a remarkable last 30 years. And that number, by the way, is just based on their stock price. It's coming in at $11,800 January 1st, 93. Their stock just closed at $435,000 in A share. Oh, so great. Okay, so this is good. This is the next...

set of grading criteria. Maybe we can jump back to then an overall view at the end. And let's compare that 13.5%. Remember the Buffett Partnership Limited, that was 29.5%. And then the last episode where we talked about the heyday of Berkshire Hathaway ending in the Solomon, I mean, that was a 27% IRR in the 80s and the late 70s through the mid 90s. So

It has diminished considerably, which they told us it would because of the amount of capital they're managing, but still. Yep. So what do we think? Is this a B for this period? Yeah, it's a B. It's a B. Yep. You know, he still definitely beat the S&P, like beating the market for sure, but just not to his previous standards. Yep. Okay. So then recent years. So I did a slightly different... What does recent years mean? Let's take the last five years.

starting from the Apple investment, which is almost exactly five years ago. What's your analysis? So this thing was interesting and telling to me, like we've been saying, the Apple investment, so amazing in the running for one of the best single investments of all time. Yet Berkshire is so big and this law of gravity around the capital is so meaningful that

And Warren's other investments were so bad that in aggregate, Berkshire's stock price performance over the last five years on a multiple basis is almost exactly the same as the S&P, even including Apple. It has tracked the market and not outperformed at all for the last five years. Now, if you take out Apple...

It's underperformed by about half a turn on a multiple from the market. So Ted and Todd are making money, but Warren's not getting paid out of any of his carry. Warren is literally doing worse than the market in the last five years. Right. Oh, that's so interesting to think about. Yeah, because he's necessarily underperforming the S&P because he said Ted and Todd were overperforming it. Yep. Yep. And Berkshire as a whole is just simply tracking. Even.

That's pretty bad. I mean, that's a C to me. And it's not worse than a C because it's not like it's a hedge fund where they're taking two and 20. It's the exact same thing as being in an index fund. Yep. I think that's right. A C. Yeah. Okay. So now the money question, literally the money. What are you doing with the money? Are we keeping it in Berkshire? Are we buying? Are we selling? Are we holding?

So this is the moment I reveal for everyone 10 hours in that I actually have never held Berkshire Hathaway. No way. We've done all of this work. Yeah. This is not investment advice. Especially this part is not investment advice. And we really do urge you to talk to someone who knows about this stuff when considering making a purchase. But I've never owned... I've thought about it a lot. And especially in this research, I considered buying it many times. And the place I basically arrived is...

It's very conservatively managed. As a Berkshire expert quoted to me, it's a good widow's and orphan's stock. And frankly, I think it's a good way for someone who's rich to stay rich because of the way that they manage capital. I mean, they don't dividend out. So if you make a bunch of money every year, then you don't have the high taxes on the dividends.

You know, it will continue to compound. You can sort of sell shares when you want to sell shares to free up some cash. It's not going to have a really big down year, maybe if there's an extreme hurricane event. But, you know, it's not going to have five really big down years. So I think that question comes down to like, where are you in your investing cycle in your life? And I'm not sure that it makes sense for young people to buy Berkshire or at least people that are young in their wealth. Yeah.

I differ from you in answer, but 100% agree with you in spirit and rationale. So my answer, I am a Berkshire shareholder, as I said at the top of the series, have been for many years. So I'm going to continue to hold partially due to nostalgia for that and the Wade Award halo effect. And I get my free tickets to the shareholder meetings should they ever resume in person again.

But no, the real reason I'm going to continue to hold is actually just a portfolio management strategy. It's not a large allocation of my portfolio. Almost all of the rest of my portfolio is...

Literally, the rest of my portfolio is heavy growth, tech stocks, digital assets, etc. San Francisco real estate. So this is like in your safety. This is in my, I call it my quote unquote safety portfolio. And the way I think about it is just like, this is, should I need emergency liquidity for...

something in the near term, I don't know what that would be. That's what my Berkshire is. It's exactly what you were saying. It's my bad term, but the equivalent of a widow's and orphan's fund of like... It's a terrible term. Terrible term. But the capital that I can feel good about... I actually thought a lot about this over the past year. I used to keep an allocation in just like a fairly sizable allocation in cash for this purpose. And then I was like...

well, that's just stupid today. Like, you know, to keep cash is just dumb. Again, not investment advice. Not investment advice. But when, you know, when yields on 10-year treasuries are like basically negative. Right, just sitting there getting devalued in my bank account. Yeah, literally every day that goes by, you're getting poorer and poorer, you know, holding cash. Again, not investment advice. That's when I decided, you know what, I'm going to rework this and I'm going to have my liquidity...

allocation be to Berkshire because I can feel pretty confident it's not going to lose money and I'll at least get some return on the capital. So I don't know. That's kind of sad. I think for Berkshire that I think of it as like an alternative to cash, but

But I kind of think that's where the stock is at at this point. Fascinating. 10 hours in and this is where we arrive. Not with a bang, but a whimper. I will say the journey is the reward. And I do want to sort of sum up this grading, this series. Of course, we'll get to carve outs here in a second. But the completion of this with possibly the best take on Warren Buffett of anyone,

Ho Nam from Altos, which is an investment firm that we very much respect, recently tweeted that he is the only investor to build a company worth over half a trillion dollars. And as Ho puts it, a few amazing founders have done it, but no investor comes close. Absolutely. A great way to leave it. However, if you will indulge me, I will spoil it with a less eloquent...

parting thought that I wanted to add too after, you know, gosh, we've spent hundreds of hours of research on this. This is... We've read six books. I know. This is the most like quixotic thing that we've ever done. Hopefully you all have enjoyed this as much as we have because it has been an absolute freaking blast. It's changed the way I think too. Yeah. I mean, truly. We have learned so much from doing this.

And I was trying to really reflect on like, okay, what have I learned from this? What can I take away? What are my feelings? There's what I'm doing about my stock. You know, that's one thing, but like the real value is in the learning. And here's my take. It's related to this. Warren was the greatest status quo investor of all time idea from Andrew Marks and, and that the world we live in is different today. But I think Warren was right about another concept that,

All throughout his career, he's preached, believe in America. America is undefeated in terms of capital growth and a place to invest your money. And I think that may or may not be true to some extent today. But I think that concept is absolutely true for the internet and the

The future ahead for the internet today, to me, is like Los Angeles in 1950 or whatever it was that when Charlie was looking for a city. What was it that was large enough to have an impact, but still small and growing enough that he could become somebody there? Yeah. That's the internet. Yeah.

And if there's one thing I've taken from this, it's that that may change someday. But for the period that we're in and going forward, and despite all the ups and downs and like, oh, yeah, Bitcoin and Ethereum and DeFi all crashed like 50% this past weekend, it's all noise. The internet is still the future. Yeah.

Some listener out there, and please drop this in the Slack or tweet at us if you do this. We need a meme with Warren and his slide saying, never bet against America. We need David Rosenthal, never bet against the internet. That's right. Never bet against the internet. That's my takeaway. I love it. Carve outs. Carve outs. Let's do it.

I've got two. One very related and the other very unrelated, except to my joke at the beginning of the episode. The related episode is...

A book, Phil Fisher's Common Stocks and Uncommon Profits, a classic, really the counterpoint to the Buffett philosophy and the value investing tribe. Phil is the father of growth investing. And this book was published in 1958. Yeah.

And Phil lived in the Bay Area here in San Francisco. And I will confess, I haven't finished the book yet. I'm still in the middle of it, but I'm riveted. The only reason I haven't finished is because we had to finish this episode. It's amazing. Phil basically saw the future of what tech company-like dynamics were going to be way back in the day. And he writes about...

the value of corporate r&d and this sort of paradox that like you can't measure the value on a balance sheet of like corporate r&d and the cost of it may be high and you don't know but the cost of not doing corporate r&d is even higher really great book highly highly recommend it also i believe recommended to me originally by honam who you were just talking about oh my gosh

He's everywhere. He's everywhere. And then my second carve out is the Xbox Series S. I finally got one. Sweet. So the, and I was specifically looking for the S because like, I don't need, you know, I'm 36 years old. I don't need the X. I don't need like, I get my eyes can't even see well enough for the great graphics. But the S is awesome. This thing is like pretty cheap. I think it was $299, which is not that cheap. But the S and Game Pass are,

It works out to like, I don't know, what is it like $400 or something like that all in for a year.

And you get access to hundreds of games and all the best ones. And I've been playing Halo Master Chief Collection. And it's like Netflix for gaming. That's where your Halo reference came from. That's where the Halo reference came from. I see. It literally is like Netflix for gaming. And it's so great. I haven't touched my Switch since I got it. Highly recommend if you can find a Series X or a Series S. Game Pass just rocks. And I think it's on the Xbox One too. You can use it on the previous generation hardware. Sweet.

All right, I have two because you have two, but they're the most connected my two Carbats have ever been. The first is I somehow never saw Goodfellas until this week, and that movie is just...

so choice on so many levels. I mean, it probably came just because I listeners will know. I just finished the Sopranos and that was my previous carve out and wanted more. And the cast has like 25 overlapping people. It's the same freaking people. It's amazing, but it's, it's a frigging work of art for anyone who has, who hasn't seen it. I mean, it's like Scorsese at his best. It's amazing direction. It's amazing cinematography. The dialogue is exceptional. It's just a, just a tremendous story of this person's life and,

I've never been a gangster movie person, or I never thought I was, but this is so good. Ben, the OG. I have not seen it. I have to watch it. It's great. It's great. And it's not like... Obviously, there's The Godfather, and I've got a long rabbit hole to go down of truly OG. Just watch one and two. Don't do three. Yeah, that's what I hear. And then my second one is The Goodfellas soundtrack. It is like...

hit after hit after hit. I mean, George Harrison, Eric Clapton, and Aretha Franklin. And the film sort of finishes with Layla by Derek and the Dominoes. And that is just like the best way to wrap up any epic, epic story. I think if we had the rights... Which Layla? The electric version or the acoustic version? Yeah, the electric. Although the acoustic is also great. It's great. I'm an electric fan, though. They're both great. Yeah. The electric creates more of a... The sort of like...

epic conclusion mood that is sort of appropriate for that. We'll write Eric Clapton and see if we can get the rights to use that on the fade out of this episode. And great, great. Actually, we probably won't. I'm sure he's listening. For sure. But whether or not you're a fan of the movie or have seen it, go listen to the soundtrack on Spotify. So great. Do you know when Goodfellas came out? Early 90s. I want to say like 91, something like that. Shortly before the Solomon Brothers scandal.

Yeah. While Warren was still in his real heyday. Exactly. Exactly. All right, listeners, we are going to leave it there with that. Thank you so much to our sponsors. They've been wonderful. We have a Slack. You know this. Come hang out with us. You'll like it.

We have an LP program for people who want to be closer to the show. You get to hang out on the Zooms live with us or with people like Brad Stone when we're recording a book club episode with them. It's super fun. And frankly, I don't, you know, all that stuff is great. And if you want to engage more deeply in the show with you, you know, you should. But, you know, there's nothing like sharing an episode with a friend or social media if you want to. But just pass this along if you liked it. David and I love sharing.

getting to share these stories with new people. And thank you for joining us on this journey. We're so lucky that we get to do this and it's so much fun, but like this has been a whole new level of fun, at least for me. I don't know about you. As we sit here now at like 11 p.m., like trapped in this room for four hours. It has truly been awesome. All right, listeners, thank you so much. See you next time. We'll see you next time.