#189 Chris Davis: Three Generations of Wealth
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I just think you have to think about how do you position. You have no idea if you're going to be sailing through a storm. Be prepared for that and have redundancy, have resiliency. But, you know, imagining there's some tropical island where you can go and drop the anchor and just wait it out, that's not an option. There is no safe harbor.

Welcome to The Knowledge Project, a podcast about mastering the best of what other people have already figured out so you can apply their insights to your life. I'm your host, Shane Parrish.

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If you'd like access to the podcast before everyone else, special episodes just for you, hand-edited transcripts, or you just want to support the show you love, join at fs.blog.com. Check out the show notes for a link. Today, my guest is Christopher Davis.

a member of the board of directors of Berkshire Hathaway and the Coca-Cola company, and the chairman of Davis Select Advisors, an independent investment management firm founded in 1969 that oversees about 20 billion in client assets. If you recognize the name, this conversation needs no introduction. Just dive right in. And if you don't recognize the name, you will love this conversation. It's not just about investing. We talk so much about life and living. Oh, it's just fascinating.

Tom Gaynor introduced us and it was like finding this older brother you never knew you had. Our conversation was supposed to go for an hour and ended up being nearly three hours. I almost missed my flight. We discussed topics such as risk, including unique insight from his front row seat on the board of Berkshire Hathaway, why retirement has no appeal, the value of writing, resiliency, raising kids in an environment of privilege, cultivating a long-term mindset.

assessing management quality, how he sees the market, how to change your mind, and so much more. This is the most honest and raw I've ever heard Chris in a conversation or seen him before. I really hope you enjoy it. It's time to listen and learn. Ryan Reynolds here from Intmobile. With the price of just about everything going up during inflation, we thought we'd bring our prices down.

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I want to start with your grandfather. And if I understand correctly, when you were 14 and or no, 15 and 16, you were working for him up in Maine as a cook and a chauffeur. And that really cemented your relationship with him. I want to talk about some of the lessons you learned from him. He was in many ways a great man and in many ways a very difficult and very flawed person, which I guess just makes him human.

And I think it was...

Within our family system, he was sort of viewed as this very aloof, very unloving, sort of distant and even sort of pompous. You know, it was and almost sort of a caricature. And so we had to kowtow and be polite. And I just remember my father, you know, always making sure we had good manners at the table. But, you know, he was not popular among the grandchildren. And

I think that my grandmother, his wife, was just this incredibly warm human and just so full of love and light. I used to say, if you average them together, you'd get normal. That was true in a lot of dimensions. I think that that summer that I worked for them...

I was able to sort of see much more of him, see him outside of the context of this sort of patriarch. And increasingly, I became interested in just the breadth of his knowledge. I mean, it was amazing how he was just reading all the time. He was curious all the time. It's almost like he didn't have time for antics. And I think sort of a switch went off then when I realized sort of people

people in general, but him in particular, there was so much more than this very narrow view of looking at him within our family system. And

I became curious about why there were always people coming to visit at the house. Why Kissinger would come, or Cap Weinberger, or executives from companies, or heads of colleges. What was it that people wanted to see him? This man that, as kids, we thought was so boring or pompous.

And it was just at that moment in adolescence, in essence, when you're able to sort of see an adult. And it was a little bit like a switch went on. We developed a very peculiar relationship. I was sort of his chauffeur. I would drive him to the airport on Monday mornings at 5.30 or 6 in the morning so he could get back down to New York. And those car rides, I saw a different sense of him. And it just...

just flipped a switch in our relationship that really lasted all the way until he died. And and it allowed me to see a lot more nuance and a lot of complexity. I think of the you know, the old expression, no man is a hero to his valet. Well, that that's probably true with kids and grandkids, too. You know, they have a very narrow way of of judging people. And, you know, when Churchill said that that shows the limits of the valet, not the man.

Well, that was sort of the light that switched. I realized that maybe I was looking at this person with the wrong context. And that was a big changing point. I'm glad you asked about that. And you were sort of going in a different direction, your grandfather being a capitalist. And at the time, you were sort of exploring veterinary school and theology. Yeah.

You know, I threw myself into whatever vocation was sort of at the top of my mind. I threw myself into I could really imagine that that sort of life. And so in that sense, I was very curious. I never at that stage, I was young enough that I didn't think about capitalism or communism or industry. I always viewed my father and grandfather as somehow doing research of studying businesses of

And it was a very so it wasn't that I assumed that what they did was boring. It just seemed narrow.

As a kid, I wanted to be a vet. The James Herriot view of all creatures great and small just captured me. We didn't have dogs or anything growing up. I grew up right in New York City. I was obsessed with the idea of animals. I was a dog walker.

I had every kind of rodent known to man as a pet, unfortunately for my mom. Gerbils, hamsters, mice, and one cat that grew larger and larger by eating my rodents over time.

But yeah, the idea of being a vet, it had this fantasy of everything that living in New York City in the 1970s wasn't. And I have to say, I love New York now. I've loved being here since I moved back in my 20s, but I hated it as a kid. It was just such a filthy, dark, almost post-apocalyptic time. I mean, New York in the 70s.

People try to imagine some romance about it. It was just it was dirty and scary and dysfunctional. You know, there was a garbage strike. You know, the power blackout in 1977. It was like there were riots. I mean, it just you know, I carried mug money going to school in the morning because the

The crazy theory of Upper East Side parents was that if you got mugged, it might be good to have a little money to give them so that they didn't get mad. Well, you know, I'm no expert on Pavlov, but I think it's a really stupid idea to give little skinny kids a bunch of money to carry around with instructions. Just give it to anybody when you get mugged. But I just remember thinking it was...

What I wanted was this image of the British countryside and sheep and cows and farming and horses and animals. That just was a complete vision of Oz to me. Being a vet was how that

vision or that desire to live a different life manifested. And so, you know, and I was quite serious about it. I worked at the Humane Society in New York for two summers. I worked at the Bronx Zoo as a intern, uh,

which was a crazy job to take the subway out to Tremont Avenue in time for early morning feeding. Mostly, I cleaned cages, is what I did, but I cleaned cages all over the zoo. I worked in the camel barn and the elephant house, but I also worked in the world of darkness with other nocturnal animals. I worked in the reptile house, even in Wild Asia, which is an area where, theoretically, the

The visitors go by monorail around the top, and the animals are free. Well, of course, they're not free. There's a whole series of pens. But that was an amazing experience and an amazing place to work. So, I was very serious about it. As a friend of mine told me much later -- it was actually a priest that I worked for -- he said, "I was confusing loving animals with wanting to be a vet."

and they are very, very different things. I definitely learned that. Was this driven by your father saying, "Go get a job," or was this all self-driven? Well, I give my parents enormous credit. There was a rule from about the time we were 13, which was you were allowed in the house three weeks without a job. That got you through Christmas break or spring break.

the assumption was you were going to work in the summer. That was the assumption all the way through. But to their credit,

they felt like, you know, if it was an internship at the Bronx Zoo or whatever, or working at Humane Society, that was fine, you know, and they would pay you for that if the job didn't pay you. Everybody had summer jobs and it would never have occurred not to. I think I was a little bit more obsessed with the idea of, you know,

I don't want to make it sound like I came out of the womb an entrepreneur or something, but I loved the freedom of having money. I started a dog walking service when I was probably in third grade or second grade. My parents' rule was I couldn't cross streets with dogs, but I could go around the block many times. It was a way of getting a pet without having a pet.

And, you know, when the mayor passed the pooper scooper law, I mean, again, going back to New York in the 70s, you just can't imagine the amount of dog crap that was everywhere. I mean, it was just part of walking down the street. There were songs about it. It was just it was just everywhere. And so, you know, this law was passed that you had to clean up after your dog. Well, people couldn't imagine it.

Like they really couldn't imagine. Now, by then I had worked in the Humane Society. I cleaned a lot of animals cages. It was not something I was at all squeamish about. But boy, people would pay you anything to clean up after their dog. And there were all sorts of strange inventions.

with things that looked like hedge clippers, but they would have a bag on the bottom, or you'd try to get it under your dog before they went. Nobody had any idea, and nobody had signed up for it. In fact, there were some tragedies where dogs were jumping off the top of apartment buildings

Because what happened was people were so appalled at the idea of cleaning up after their dog that they would go to the roof of their building, where, of course, it couldn't be policed, and they'd let their dogs crap up there. And so there was a period of a few months where dogs were jumping off of buildings. And, you know, it was... When I say New York was chaotic in the 70s, just that's a sense of the chaos. There are dogs coming out of the air. There's dog shit everywhere. I mean, it was really... And I think just as a, you know...

10-year-old kid or whatever, the sense of chaos was just overwhelming. But the point is that if I had been happy to charge 50 cents a walk,

That law came into place, and I could charge $5, $10. People would pay me to come twice a day. All of a sudden, I'm making $100 a week. I liked that feeling. I liked that feeling of having the independence of money. So, it did take off then. Did your father or mother give you an allowance growing up?

They did. It was a little unreliable. My parents were divorced. And so, of course, that allows kids to, you know, I don't know if you ever fish, but, you know, in fishing, there's this thing about fishing the seam, you know, where you find two bodies of water moving at different rates. And in that seam between those two bodies of water, there's often a lot of marine life. And

So, I think children of divorce are very good at fishing the seam. My father would put up some policy about doing chores and collecting kindling. He had moved out to the country and commuted.

But we were there every other week. Yes, we had an allowance. It was, as I say, regularly, not uniformly enforced, which I think probably reinforced the idea of liking having my own funds.

And of course, interest rates were very high then. I remember my brother and I both being struck that we had put, for a few years, money we had gotten at Christmas or our birthdays into the local savings bank

I remember going to get the money out and being given a $50 bill plus a $2 bill and then some change. What seemed like I had put in only $10 or $15, and all of a sudden there was $52 and change, it felt like the most money I had ever held.

And so, yeah, I think very early, you know, I give my father especially enormous credit. We were a very financially numerate household. That was, you know, sort of a language that was just part of part of it. Savings, what interest rate meant, how money could compound. He was very good at object lessons, right?

for those sorts of things. What were your dinner table conversations like growing up? Particularly with my father, we would be out there on every other weekend. Of course, that would begin on a Friday, which meant that Wall Street Week was on. My father is very anti-television. Not even in a

sort of fanatical way. He's just not interested. He just finds it an amazing waste of time. And it is one of the things that I really admire about him. And

But Wall Street Week was an exception. I felt like Louis Rukeyser must be a relative or something, because he was in the dining room, a little TV, watching Louis Rukeyser speak. It's funny, when I was near the end of Louis' life,

I went on the show and he made this comment that he had had all three generations of my family on his show, which my grandfather had been on independently of my dad and then I had been on. That was a nice thing. Given the idea of how important that show was growing up, there was something nice about that.

I think there was a lot of banter. I was generally the table provocateur. But my dad's a great storyteller. His breadth of information, what he knows about, and his ability to describe businesses as stories. It's funny. I don't know if we'll get to this, but I was just with...

Who was I with that was talking about how humans think in stories? And it makes sense if you think over the course of evolution, how wired we are to learn by storytelling and story listening. And I've always argued that like if we really want kids to get excited about STEM and like learning science, you know, throwing a bunch of formulas at them and calculus, it just it's going to work for some that whose minds really can see that.

But I sure wish every freshman in high school or every sophomore in high school was taught the biography of science. Think of the movie Oppenheimer. Oppenheimer will probably draw more people into physics

than STEM funding in high schools will. It's this idea that we're wired to sort of have heroes and to admire them. The whole story of Homer, everything. It's how we learn. We imitate, we study, we lionize people, we vilify people, and we affect behavior that way. And I would wish that we told more stories about scientists

about what it was like for Heisenberg pacing around this island in the North Sea, coming to terms with the math of quantum mechanics and losing his sanity because it couldn't be right. It couldn't be right. It was such a disturbing implication.

But going all the way back, I would say my father had an amazing ability to turn businesses into stories. And so every day when, you know, he would get off the train excited, he would, you know, we'd pick him up at the station and we'd come home and we'd have dinner. He just always had stories about what's going on. I mean, I was just thinking of it the other day because it was the anniversary of Apple coming public. It must have been the 40th, I think.

But anyway, I'd heard something about it. And I remember my father telling this story about these hippies in his office at Fiduciary Trust Company, you know, in downtown New York, respectable trust bank. And he said, this guy shows up in sandals.

in sandals. He couldn't believe it. He said, how can a guy show up trying to raise capital for a business and show up in sandals? He's like, I'm not going to invest with any damn hippie. But of course, he was trying to teach us a story about respect and knowing who you're meeting with, but also the craziness of the idea that these young hippies were raising money for some crazy computer company and

He had been very close at the founding of Intel, so it was an area that he was interested in. But he just thought, Steve Jobs, these guys seem crazy. But that would be a good example of what we would talk about at the dinner table, him talking about how some guy showed up in his office in sandals trying to raise money for an IPO of a tech company. It's an enormous strength of his, it's just that passionate curiosity. His enthusiasm was infectious.

Are there any particular stories that stand out about moral lessons or businesses that still stick with you today that you try to pass along? I mean, the list of business lessons is sort of endless. I mean, in other words, that was just sort of constant. I mean, just going...

I'm not sure how much it was stream of consciousness for him versus here's my lesson plan of trying to shape my kids. And of course, it's six kids and everybody got different things out of it. You know, there were ways in which the business stories really resonated. I don't know if I've ever thought of that.

question in that way. I would say one story that really struck me and that I was remembering the other day was about a man who, as he described it, one of his inventions, he was a brilliant polymath, businessman, inventor, and he invented the yellow tennis ball. I remember him telling that

And he was telling us this story because the man had been bitten by a bat and had done nothing about it and had died of rabies. This enormously successful

And I remember it being so out of left field, you know, the idea of somebody dying. And, you know, and he said, you know, the point is this guy that was so brilliant, you know, it just but it never occurred to him that that, you know, he could die of rabies. So I don't know how much my father intended that lesson to be a lesson about hubris or about domain knowledge, you

or about the closeness of tragedy, or just about we were in the country now, and so if we got bitten by anything, to be sure to tell them. I just remember that being something so out of left field.

and being so different than anything that we had ever talked about. It seems really interesting because when you would have guests over or your parents would be talking about business, you were at the table, which I would think is different in that generation as well, where kids were supposed to be seen and not heard and go to your room and the adults are talking. Yeah.

That is true. I mean, again, because my parents were divorced, I had the gift of being exposed to two very different households.

and both very admirable in some ways and very dysfunctional in some ways. I would say that my mom was from an old Boston family, and her mother was Australian. There was a lot more formality there. My dad is structurally informal and structurally inclusive. That more

the better. And he was very comfortable with us being included in that. He felt like he didn't want that all to be a mystery. I never viewed him as some businessman that went to an office where I didn't know what happened there.

Every one of his kids understood and can do a pretty good impression of him on the phone with the trading desk. And, you know, what the hell is going on? And, you know, or listening to him at the other end of conference calls when we were traveling as kids. He was very much always comfortable being a remote worker before that was fashionable. I mean, my dad was out of New York State for six months a year from really, I think, from the late 70s on.

So, that meant he was working. I remember the first cell phone, the big thing that looked like almost a crate that he would carry around. It's not that he was short-term trading, he just wanted to make sure he never missed a conference call or earnings release. He used to say, "You call 10 companies, you learn one thing. You call 20, you learn two." So, it was sort of a numbers game.

And so, we were always hearing one side of that conversation, whatever it was. And that was from the time we were little kids on. One of my favorite anecdotes, I'm going to fast forward a little bit here to you going through exploring the veterinary option, theology. You started out in banking, you end up working for your grandfather. Yeah.

And he has you writing the insurance letters. You ask, why bother when nobody's reading them? And he had a really interesting response to that. Yeah, which is you write it for yourself. And Shane, it's so amazing that you say that. On the walk in, I've been a fabulous book on AI. It's called The Coming Wave. It's written by one of the co-founders of DeepMind. And

And I was listening to it this morning and it was talking about, you know, obviously the ability of the AI models already to do very good writing. And so that exact anecdote was on my mind as I was walking over here because I was thinking about how strongly he said, you know, the writing is not about the product for the client. It's about what you learn by

by writing for yourself. So, it didn't matter that we sent out this insurance letter. I don't know, we probably sent out a couple, two, 300 copies a week. By the time I was working for him, he was probably already in his 70s. So, a lot of his peers had long retired and I wasn't sure anybody was reading this. And I mentioned that to him and he said, well, we write it for ourselves. The discipline of every week

Going through, reporting on any company that had reported earnings. What was happening with inflation? What was happening with investment returns? Was there any specific company news? What had been the performance of the indices, which we would calculate by hand? There was no. Were there demutualizations happening? Whatever.

But I was realizing in this, you know, coming wave of AI, you know, the idea of being alienated from your work, not realizing, you know, I was interviewing some interns, potential interns at our place. And they were obsessed with this wanting to work remote, you know, this idea that, hey,

I want work to not interfere with my lifestyle. It's interesting because they all had been in college during COVID. I said, tell me about COVID and college. It sucked. It sucked. I said, why? They're like, well, one, you didn't learn anything. Two, you didn't develop any relationships.

And then three, and this was really powerful, is everyone cheated. They felt so degraded by the experience. And I said to them, so why do you think work is different? Like, what is it that makes you think that work should be different than college? So you got your degree with a lot less effort. So you got the outcome. Why are you so unhappy?

And of course, you're unhappy because you were alienated from the experience. Well, how can't it be the same at work? If you really think the goal of work is to invest as little as you can in order to get as much payment as you can, of course, it's going to suck. And of course, everybody's going to cheat and you're not going to have friendships and you're not going to learn anything. But this idea that that is how we're wired, that that's what we really want is so demonstrably false.

We crave competence. It's been our superpower as a species. Stories is part of it, but we love getting better at stuff. We're tinkerers. We want to improve. We want to learn. We work together. We turn little things into competitions. Watch the way kids play. This idea that

that somehow the fact that I can push a button and AI could write my annual report or write a reference letter for somebody that I care about for something that they care about. Well, I have no doubt that that can happen. I just I think that then I'm alienated from that product.

And for me, the process of creating that annual report, which is probably read by six people nationwide, probably five of them are probably in our compliance department. I think back to his comment that you do it for yourself. Well, he meant you do it in a very puritanical way because you're learning. And I appreciated that. I mean, he was very intense that way. But I also think we do it because we develop meaning out of that sort of

And this idea that, well, I have a favorite nephew that wants me to write a letter because he wants to go to some college or something like that or a co-op board or whatever. And I really want the person reading that letter to know about this kid because I really like this kid.

I love him. And so, you know, for me, instead of spending, you know, four minutes on the prompt and getting something in, you know, to spend two or three hours, you know, I feel like I know him a little better at the end. I feel proud to send it to him or to his parents. But I also feel like

I don't think it will be more effective. I mean, I think that or if it is, it's only because I still have a little lead on AI, but it ain't going to last for long. And so, but I do it because I derive the satisfaction from it. You know, there was ever read a short story. Who the hell wrote it called The Leviathan?

It was written at a time of sort of the mechanical revolution. So it was in the industrial revolution. And it was sort of a futurist. And it was about the fact that it was based on the idea that there was a ship that had been created that was so big.

that the bow and the stern would never simultaneously be in the trough of a wave. Therefore, it would move absolutely fluidly through the ocean from crest of wave to crest of wave. Of course, it did not work at all. The ocean's much bigger than that. But

But this guy wrote a short story sort of saying, you know, that this is the future, this incredible floating palace of luxury. And the short story takes place on the deck of this boat when they see some lunatic in a little sailboat floating.

And he's about to get run over because, of course, the great ship is on autopilot and can't possibly move. And this guy is scrambling and trying to get out of the way and, you know, bringing the sails around and just narrowly escapes being run down. And all the people on the deck are saying, what a moron, what a stupid. Here we are living this life of horror.

luxury and eating our caviar and that lunatic is getting wet and the waves are washing over and he almost died. And there's this moment where as he sort of recovers himself, he waves to them.

And they all feel enormously uplifted. They wave back, and they were acknowledged by somebody who's really living. I read it in high school. I can remember the title. I can't remember who wrote it. In fact, I'm going to look it up after we're done, because I hadn't thought about it in so long. It does seem peculiarly relevant.

But it was this idea, a little bit like Brave New World with the man beating himself, the primitive. But it's this idea that living this completely alienated life, it may not be a source of happiness after all. Something is definitely lost when you outsource that sort of thinking and writing. It's weird because I think you convince yourself you're smarter than you are. And then in investing, you would take...

unwarranted risks, risks that you wouldn't be compensated for because you can't see them. Yeah. It's a little bit like that hard form. I love that joke about the efficient market theorists, where they're walking down the street and there's a $20 bill. One says, "Are you going to pick it up?" He says, "No, because if it was real, somebody would have already picked it up."

Sometimes by taking that shortcut, you just become – well, of course, I'm an old newspaper lover. And so I'm heartbroken at how few newspapers I can read in their traditional format. And so I have to get better at reading on a screen. And I'm not very good at it. And it's a real handicap sometimes.

But what I loved about reading a newspaper is I wasn't always sure where my eye was going to go, what I was going to focus on. And it was often the case that something might have caught my eye in a way that it doesn't when I'm scrolling on this tiny little screen. It's actually one of the reasons I'm fairly optimistic that whatever replaces this

shitty little, you know, five inch rectangle that we all carry around in our pocket. That is a very, very poor way to get information, this tiny little screen. And, you know, when you think about VR and AR, of course, there'll be much more satisfying ways to take in information.

And that will be the functional equivalent of what that big newspaper page was. Which if you think about it, it's like the IMAX of computer screens. You open up the old Wall Street Journal, Financial Times, how big it was. It's actually sort of amusing. If you were to look at a paper from 20 years ago versus today, even a print paper like the journal, it's probably 40% smaller, maybe 50%.

You don't realize it's happened a bit at a time, but just how big a newspaper used to be versus what it is now. I want to come back to writing a little bit. You write memos to the board. Take me behind the scenes in terms of what you were saying and the conversations you were having and what you were thinking through the crises that you've been involved in from the 1999, 2001, great financial crisis, COVID.

COVID and today? Every crisis is different. I mean, that is for sure. I feel like in this very vicarious way, the bear market of the 70s, to me, felt like the big crisis. Now, I was a kid, right? So, I only experienced it through my father. But somehow, he had started the fund in 1968. So, sort of at a high level.

And basically, the market was back to where it was in 66 in 1981. And so, to me, what happened in the 70s felt...

like it was the big crisis. Now, you're looking through a kid's lens. So, my parents got divorced, you know, things were upended. You also had the hostage crisis. You had, you know, this crazy inflation. You had the 73-4 bear market where it was just calamity, you know. And I just...

I view that as this sort of epically transcendent sort of test of, you know, sort of the largest American crisis. Now, I don't know how much that's demonstrably true and how much was looking through that lens. But I think of that as sort of the first economic crisis that I felt aware of.

And, you know, it just being in this time when everything seemed to be going wrong. You know, the sort of the chaos in the streets and the divorces and the oil embargo and the lines for gasoline. And, you know, are you an odd number plate or an even number plate? And, you know, riots in Los Angeles and New York and cities on fire and the loss of American citizens.

sort of preeminence and the Olympic boycott and the Soviets invade Afghanistan. And, you know, it just it felt like it was a time where everything was sort of hanging in the balance. And as I say, it was probably through this childhood lens.

Then, you really fast-forward to the late '80s, and you had the S&L crisis. I think because I was coming into business then, that felt like opportunity. Now, here it was one of the greatest commercial real estate crises. Well, you probably have to go back to the '30s. All these look-through office buildings, the collapse of these big financial institutions, Bank of New England, and things like that.

But nothing about that felt scarring to me. It all felt like opportunity. But of course, it was where I was in my career. I had nothing to lose. I had nothing to lose. I could come in and it reminds me of the fact that I described that 73-4 chaos. And because I remember my father and just the... My father was 30% cash in 1975.

And so, the fund dramatically lagged in one of the best market years of the decades, '75, and the market went up 30% or something like that. And the fund probably went up 20% because it was a third in cash. As he said, he was just beaten down.

He'd just been wrong day after day after day. My grandfather had been living overseas. He was ambassador from 68 to 75 in Switzerland. And he comes home and he's like, this looks great. Now, his net worth was down 80 percent, a huge loss. But he hadn't experienced it viscerally.

So, he just came in and he went on margin and he levered up and he probably had one of the best stretches of his entire career starting in '75. Obviously, the degree to which you're scarred in the trenches during the process. I missed that in the late '80s, so that became very formal. Similarly, when you got to the late '90s,

All of that excess of lagging, this crazy, roaring bull market, it was corrected so dramatically and so quickly. And we were so well positioned for that. It wasn't like in 2000, the market went down 9%, if I remember right, maybe 9, 9.5%. And it wasn't like...

managers like us who had stuck to a discipline went down two and the market went down nine. It's like, we were up nine or 10. There were managers we admire that were up 20 or 25 with the market down 10. That also didn't feel scary.

Now, you throw 9-11 on top of that, and then all of a sudden, that's very visceral, right? We had offices in the Trade Center, and that had this sort of disorienting fear. It had sort of a shockingly mild economic impact, but it was so visceral to us

as individuals and it was so visceral to us as Americans too. The whole country was so shaken that there you had a crisis where the economic impact and the psychological impact were sort of mirror images of each other. Well, then the funny thing is you roll into the great financial crisis and that was the opposite.

What we saw in the front row of that was the whole system about to collapse. Did you see that before it happened? No.

No. I felt smug because of what we had chosen not to own as the excesses got wretched. So, if you think of the six horsemen of the apocalypse in the financial crisis, Bear, Lehman, Fannie, Freddie, Wamuu, Countrywide.

You know, we didn't own a share of any of them. And yet here I am running a financial fund, running a fund that I had 40 percent in financials as well. And so I felt very well positioned going into that. I felt like, oh, there's excesses and we're not anywhere near them. And then the storm hits.

And that was this, you know, I really felt flat footed. And I think this is one where, I mean, I think what happened at AIG was,

was so primal for me because my grandfather had been an IPO investor in AIG. Hank Greenberg sat in our family pew at my grandfather's memorial service. I mean, that's how close we felt to that organization. His offices were in 70 Pine Street, which was the AIG building. And you had a company with $100 billion of net worth, $80 billion of tangible net worth, probably had...

It probably had $17 billion or $18 billion of earnings that had nothing to do with financial markets. And it couldn't go illiquid, because to get your money out of an insurance company, you have to die or crash or have a claim. There's not really a run. You can't get a run on an insurance company.

saying I sort of grew up with, which shows you a very strange upbringing was, you know, banks go illiquid before they go insolvent and insurance companies go insolvent before they go illiquid. And yet here was AIG going illiquid. It didn't make any sense. And I couldn't. So I just kept thinking, no, it's going to be OK. It's going to be OK. And then one day we're down 90 percent diluted in a single day.

And, of course, you couldn't recover. And by the way, when it was all fully said and done, it was probably more like 95%.

So I would say what happened in the financial crisis was so disorienting to me. I felt we're well positioned, we're well positioned. And then, you know, it was, you know, the Tyson, you know, everybody has a plan until they get punched in the face. All of a sudden, I was punched in the face. And it was and so we muddled our way through. But it was I don't.

I give myself low marks for just the way psychologically I was so disoriented in that 2008-2009 period.

We lived to fight another day. In many ways, one of the things that we had done in that period was we had said, "Look, there's a possibility that even a company like Wells Fargo could be nationalized. If they can do it to AIG, they do it to anybody." So, we de-risked the portfolio. Now, I had studied my dad enough to know that going to 30% cash was not the right thing to do. But it may have been selling some wells and buying Nestle.

That ensures that if the crisis gets worse, we're going to own businesses that'll get to the other side. And if the thing stabilizes, well, Nestle's going to go up a lot too. It'll just go up a lot less. So in essence, we planted the seeds of a long stretch of underperformance relatively from that. We built wealth and we felt like that was job one. We had to get to the other side. Uh, but that was a, uh, uh,

But that, you know, we're only just now beginning to sort of claw our way out of, you know, a long stretch of relative underperformance. And it started with that. And then, of course, it culminated in some of this crazy free money stuff. But when COVID came around, that was the crisis for which I think we were the best prepared. It was one that sort of it was like 9-11 in the sense that it took over people's psyche. It was so visceral, so real. The fear was real.

And yet, even at the time, I think we felt very convinced that the economic impact would be transitory. We didn't know how bad it would get, but we had a lot of conviction that we owned companies that would get to the other side. We weren't worried in that way that we had been in the financial crisis or something like that.

That was one where I felt we stayed very steady. And I think

of all of the crises I've been through, that was the one where I felt the greatest resolve that we were on the right course, that we were cognizant of risk, but we were not, in the sense of the financial crisis, de-risking the portfolio at the wrong time. We weren't letting the emotional fear that came from having your physical safety in question undermine our focus and our discipline around the portfolio. And so that was one where I felt we sort of got back

Three distinct rabbit holes I want to go down there. The first one is that you use the word positioning multiple times. Talk to me about the difference between positioning and predicting and why you chose that term. I think it's important.

One of the great gifts of age has been, to me, I feel like there are some things in life that feel totally predictable. Like as you get older, you're like, well, I knew that marriage would never work or I knew that was a bad idea. But you also become overwhelmed by how many things were totally unpredictable. Mm-hmm.

And I think it's that focus on the second bucket makes me think a lot about positioning, about preparation versus prediction. And it is just amazing, this sort of prediction industrial complex is just, nothing seems able to stop it because people want to believe.

They want a crystal ball, and they've wanted that since ancient Greece. People have been willing to look at chicken guts and look at M2 supply. They'll just come up with something that will retrospectively have been predictive. But of course, it's a correlation, not a causation.

I think just as a firm, we think enormously about that idea of positioning and preparation versus prediction. And so we tend to think of characteristics like resilience, adaptability, durability versus optimization versus it's not an optimizing sort of approach. There will always be people that are doing better.

In the short term. It's not optimized for short term, but by definition, it's probably the most effective long-term strategy because you can't predict the future. Eventually, you get a string of whatever your return is, but you multiply by zero. Whereas somebody is always outperforming you if you're not maximizing current returns, but you're maximizing longevity.

But in the long run, you actually outperform them. Well, the absolutely optimal outcome will be achieved based on luck. In other words, somebody will buy that lottery ticket and will get a nearly infinite return, a billion-to-one payout or whatever.

And so, I do think there will remain people -- and you're right, in the very long term, it should be the case that if you avoid the blowups, you make progress when the sun is out but you don't sink, that over time, it will just be a war of attrition. And it's something that my friend Tom Gaynor and I talk a lot about, is it's just staying in the game.

And, you know, it's funny watching the, you know, the collapse of SBF and all of that. But, you know, it was such an insane theory to think that, you know, the theory would say bet it all every time that you have an advantage. And if everybody did that, you would get a better outcome net.

But of course, it's an insane theory because you're certain to end up at zero. It's just a matter of when. And so it was such a disconnect in terms of this sort of mindset of, you know, just the complete disregard for that Kelly criteria and for that idea of living to fight. And I think it's one of the, you know...

It goes back to one of the reasons I love that we manage a mutual fund. I mean, I love that what we do ultimately ties to a very specific individual that is going to retire or not, or is going to send a kid to college or not. Because it does make us realize one of the really deep, dark, dirty secrets of money management is that

If you were faced with the choice of you return 10% a year for the next decade and the market does 12, or you are zero and the market's down two, every money manager takes the zero, but every client would take the 10 because that is going to determine 10 years of zero return.

is not going to help them achieve their goals, but you will be one of the largest money managers on earth if you do that. Right. And so this asymmetry of incentives, I think it's one of the things that we never want to lose track of that, you know, ultimately, you know, achieving 10% is way, way better than achieving zero.

We want to beat the index over time. We want to beat the competition over time. If you have 5,000 competitors, you're going to have to go a very, very, very long time to eliminate luck being at the very top of that.

But it doesn't matter to us. What matters to us is that person being able to afford their retirement. And so, the zero versus the negative two, we'll take the 10 and we'll run the portfolio for that. And as I said, in the financial crisis, that meant that we de-risked.

And I can look back and say that that was wrong in terms of what happened. But in terms of what we knew at the time, I feel it was right. Or I give us some scope around that. I think in COVID, I think it's one of the reasons some of the people that

Well, I think we had a great advantage in that of, for example, not having an insurance operation. Because I think what was really scary for investors that had insurance operations during COVID is they had no idea what was going to happen to their liability side.

And so, that also terrified them at a time when the assets were going down. Whereas for us, we felt, one, we were absolutely amazed at how well investors behaved then. You didn't see big redemptions. You didn't see people running to cash. And so, that allowed us to stay very steady, too, and to look at this horrible, terrifying situation.

but to be able to look at it with some dispassion around the economic implications. You sit on the board of Berkshire Hathaway, which is probably the company that comes to mind when I think of who's well-positioned, no matter what the future holds.

What happens in the future, whether it's positive, negative, stays the same, $160 billion on balance sheet, they're going to exist. They're passively stable almost. How do you think about that in terms of positioning and in terms of the risk management from the company?

You know, there was a beautiful last interview with Charlie that Becky Quick did. I give her enormous credit. Now, of course, she was recording that for his 100th birthday in January. It's amazing that it was like two weeks before he died. And it gave me so much pleasure to watch that. I mean, because he was just so lucid and engaged and

If I'm remembering right in that interview, but if not in that one, over the years, it's something that he goes to over and over, is this idea as Berkshire is run with the idea that from the very beginning that the people that were invested in Berkshire had 100% of their net worth in Berkshire. And that really does shape the culture there.

So, it's not that it's afraid of risk, but the sort of risks it takes are risks that are manageable on the income statement. The idea of Berkshire really, really being built to last, that is profoundly true. And I think that

You know, I was saying to somebody that, you know, being on the inside versus the outside of Berkshire, I mean, you know, I'm going to Berkshire annual meetings since 1989 or something and read everything that they've ever written and all the back to the partnership letters. And so it's not like there's a big surprise on the inside versus the outside. And if somebody was to ask me, well, was there any surprise?

Anything that seemed different or any change in nuance or emphasis? The one thing I would say is how profoundly and deeply Warren thinks about risk and thinks about how important it is that Berkshire can withstand just about anything, just about anything.

And I think, you know, publicly they talk about that. But to see in the inside what that really means, how much they and so, you know, it is it is a it is really interesting.

been built with the idea that this is somebody's only asset and it needs to be built to last. And yet, amazingly, I mean, Charlie in that interview talked about how they, without taking much risk, they could have added a lot to returns by having a little more leverage. But that's not who Warren is.

And that's not what he wanted. And the amazing gift, and you know who I would put in this category is Seth Klarman of Baupost. What's so amazing is that the investors in Baupost, I haven't looked in a number of years, but if you were to look over the long term,

You know, the cash, if I remember rightly, at Baupost is sort of average between, you know, 15 and 40 percent for sort of the whole time. I don't think there's ever been a time when it's gone maybe below 15. I could be wrong, but I'm pretty sure.

So, even in times of chaos, and if you're in efficient market, CapM, efficient frontier, rather, efficient frontier, quant, you'd say, well, that was an enormously costly decision. Because you carried the cash the whole time, you never really ran it down, even when there was chaos. So, the idea that, oh, it's good to have a reserve in case bad things happen, well, and yet...

The investors in Val Post have paid nothing for that insurance policy. Yes, there's a theoretical charge because you'd say, "Well, if you didn't have that, then we impute the rest of the return." But in a way, you've gotten this incredible performance over an incredibly long period of time

and have carried that. I feel in many ways that Soderbergh sure has been like that. It's been run in this incredibly conservative way, but you haven't paid any price for that as an investor.

Except some weird theoretical suboptimal outcome. But the fact is that you got your cake and you got to eat it, too. You got to have long-term wealth creation, long-term outperformance, and this incredible durability and resiliency. And I think that's not a terrible way to live. How would you define risk? What is risk?

I mean, if I define risk as an investor, I'll always start with the client and work backwards. When I speak to a client, I think for them, the risk for them is ultimately becoming beholden on somebody. They don't want to be beholden on the government. They don't want to be beholden on their relatives or their kids.

They want that sort of financial independence. So, you think very much that you have this sort of responsibility where, I sometimes joke, risk is being forced to change your lifestyle.

There's a lot to that. I think a lot of people, particularly people that are savings and investing, you have to recognize that there's a huge amount of people living hand to mouth and paycheck to paycheck. So, I'm going to define risk in terms of the investing public. And I would say in terms of the investing public, everybody who invests is making a choice not to consume now.

in order to be able to consume in the future when they aren't producing.

And so, you know, obviously for them, risk is about that somehow that decision having been mistaken. Right. In other words, they should have consumed now because they ended up with less. And so, you know, I do think that, you know, I joke that risk is about, you know, a lifestyle change. It's one of the things we often when we spend so much time with financial advisors and financial advisors that are thinking about how to manage client behavior.

I always say, number one is, if you can get them to spend less, that has just a huge benefit. It's not that they spend less, which means that they have more to invest for next year or the year after. That's true. But what really matters is that you're annuitizing a lower rate of spending. You're creating expectations.

But I do think at a deeper level, the financial risk that people fear the most is this idea that somehow they lose their financial independence. And there is real dignity in that. There's dignity in financial independence and there's a loss of dignity in becoming beholden and becoming dependent. So, I often think of risk around those things. And of course, at an individual investment level,

So, risk is about the permanent loss of capital in that investment and really over a course of a portfolio. Because you can be taking a risk of 100% loss in an investment and it can be a very rational risk to take. You better size it right. We mentioned earlier free money. How do you think about where we are today? We've just gone through...

probably the lowest interest rate period in human history. And we've printed more money. How do you think about this? The scale of what we've gone through is really unprecedented. And I hate that word because everything is unprecedented. That's never happened before. Money has a cost.

for reasons that are totally obvious when you just think of the structure of what it is. Going all the way back to Babylon, which is, I think, some of the first recorded interest rates had to do with somebody has a herd of goats and you want to borrow a couple of goats for a while. Then you had to return to them

the lost productivity, what they gave up, the milk or they gave up the kids or whatever it was from those goats. So in order to use their goats, you had to pay them something. Otherwise, why would they give them to you?

And so, interest rates is really about you taking the productive asset from using a productive asset that belongs to somebody else and therefore needing to compensate them for their loss of that. So, of course, for all of human history, money has a cost, right? Because it wouldn't make any sense if you were providing a productive asset to somebody for free, right? So,

So the idea that we actually created that environment and that we created this environment by driving down rates and then simultaneously printing so much that normally would have caused rates to go up, would have created a lot of inflation. But we created an artificial suppression mechanism by buying all that in. Well, that was like pulling back on a slingshot.

And nobody has any idea where this is going to end up. I mean, it is the idea that we're done. Some of the euphoria that people feel today. That's nuts. I mean, talk to me about that, because it looks, you know, from the outside in and in a little way. And I mean, you do this for a living. There's been no consequence or very little consequence considering the scale, magnitude and duration of what's happened. Yeah.

Well, I think it's going to play out slowly, but it is a massive sort of turning steamroller. And I don't really see any easy way out of it.

In other words, I don't see the solution. Now, I'm going to put AI on a side burner, because of course, what has historically happened is that in some ways, technology has often created a bailout. We will need something like that. I mean, certainly, inflation will have to -- the only way we can repay

the debts that we've incurred is going to be by devaluing the currency so we can pay back. And you could do that gradually over a long period of time with three, four percent inflation and let that roll through and that chips away at it. And you can do that provided there's enough discipline to stop growing it.

I don't think either one of those things are particularly sure bets. So, I think we're still in this idea that, well, there's a fabulous investor who came out of T. Rowe Price, who talked recently, I heard him speak about 2021 versus 2023 mindset.

And the 2021 mindset is still that there's free capital, that you grow, you'll always be able to get bailed out. And there's still a lot of that if you haven't been forced to the table. Now, owners of office buildings are finding that

There is no access. And so you're seeing things beginning to change there. We saw some of the chaos at First Republic, at Silicon Valley, saw it in the UK pension plans. You've seen these real cracks in the dike that were quite dramatic in

but very, very narrow. I think everything else is rolling through as things reprice. Private credit, private equity, venture capital.

There's a lot of stuff that is going to take some time to play out. And as I say, the sort of wild card is that if you read the annual report of our own government, you would not finance them at 3% or 4%. There's just no chance. And so one of the risks of de-globalization

There's so many risks. I mean, the idea that we could be giving up on one of the most powerfully constructive trends in the history of humanity. I mean, it just it wins at every level. It's not perfect. Yeah.

But it is so important that we could be willful. Well, one of the risks of that is if China ends up with fewer dollars, then we have fewer buyers for the debt that we're issuing. And so there's a lot of ways it could go wrong. My grandfather said, you always sound smarter if you're bearish.

I just listened to one of the great investors of the last 50 years, Stan Druckenmiller. I made a note of his comments, because what came to my mind at the end was Woody Allen's talk to the graduates, when he says, on one side, we face

calamity and extinction. And on the other side, we face, you know, total ruin and, you know, and obliteration. Let us hope we have the wisdom to choose correctly, you know. And, you know, you create these scenarios where there is no it's hard to see any way out. And so going back all the way to your question about positioning, I think you say, well, if that's the future, what do I do?

Right. Well, I could own some shiny metal. I could own some bits and bytes in the form of Bitcoin. I sure as hell don't want to own any sort of fixed income instrument. And so real estate scares me. I mean, I...

Listen to the head of one of the largest real estate companies last week talk about, you know, they were seeing some unbelievable opportunities to buy buildings with, you know, 8%, 9% cap rates.

What's so good about that? I mean, yeah, the risk adjusted return on that is pretty small. I could buy Capital One at a 14% after-tax earnings yield. I mean, what's so great? I don't understand this real estate mindset that still thinks that a single-digit cap rate compensates them for the risk that they're taking. And-

As I said, you buy that at a cap rate. I'm not sure you could finance it at that, but who knows? I'm no expert in real estate. So, I take real estate off the table. Venture capital, well, of course, there can be fortunes made.

Private equity, I think there's one hell of a reckoning should be coming, but I feel that in a puritanical way and it never seems to come. They seem to get away with it. When the government tries to pass laws on carried interest, it just seems so obvious that even a friend of mine in the private equity space was like, well, it was good while it lasted. Even he couldn't believe that

That they're still getting away with it. It's just so, you know, I'm jealous of the fees. I hate the accounting. I was arguing with the head of a very major private equity firm recently, and I was like, it's just despicable that you show your returns, but you don't adjust them for leverage. Like benchmark them to the S&P with the same amount of leverage. You know, with all of that said, well, it seems to me in that world, owning Berkshire

seems like pretty fabulous. And when I look at the portfolio, the positioning of our portfolio, I think owning Google feels pretty good. Owning Amazon feels pretty good. Owning Meta feels pretty good. But sure, so does Capital One, so does Wells Fargo, Bank of New York, you know,

tech industries, the largest copper mines in the world. Whatever you believe about electrification, a lot of copper is needed and they have the longest lives, some of the lowest cost deposits in the world. So I just feel like I can't predict. Stan creates a picture where I can't find any way out of it. But having said that, what am I going to do?

"Well, I'm going to own businesses that are resilient, that can adapt, that have pricing power." Don't have too much debt. Don't have too much debt. Have global, durable -- have cash, current cash that allows them to reinvent. One of the dangerous things about the most aggressive type of growth investing is it just posits a huge amount of cash in the distant future.

And it really underestimates all of the risk adjustments you should be making because there's uncertainty that you will get that. But there's also uncertainty about what the discount rate should be when you get there. And I can perfectly easily see a world where rates go down to two or three percent for a couple of years and then they're eight, you know, four or five years from now.

I just don't know how to handicap that. And to be fair, I've never met a rich economist. So, I don't think it's really... I just think you have to think about how do you position. You have no idea if you're going to be sailing through a storm. So, just be...

Be prepared for that and have redundancy, have resiliency. But imagining there's some tropical island where you can go and drop the anchor and just wait it out, that's not an option. There is no safe harbor. Do you think there's a timeline mismatch between policy and citizens and also investors and CEOs and companies? Yeah.

I think Brian Roberts is now in the top five CEOs in the S&P for tenure. And in thinking about that, I think that the median tenure is something like three and a half or four years. Whenever you get cycles that are in conflict, obviously we have an election cycle that is totally different than the policy cycle.

It's one of the things that we should all, I mean, this jingoism and this anti-China sort of mindset is so dangerous because we stop learning. China has done some things magnificently well, including lifting almost a billion people out of near starvation poverty in a generation. But one of their great strengths has been this enormous long-term focus.

And of course, that's been part of what's created businesses like Berkshire and Markel. I mean, I always highlight Capital One because it's still run by the founder. He created that company, I think, in 1986 or 87. Still the CEO. The tenure of CEOs can really, really matter. The old saying in nepotism is that a good farmer farms for his children.

I remember Freddie Heineken saying to me very early in my career, making a comment that, you know, pointing at this little kid that was playing by a swimming pool.

And saying, you know, I make decisions for him. That's my grandson. What a huge advantage. Right. Versus the average sort of. And by the way, you know, private equity loves to tout that they are great managers. They are always looking for the exit, you know. It's interesting, right, because Berkshire Hathaway.

was able to do what it did because Buffett owned so much. He wasn't worried about somebody else coming in and usurping control. If you scale the numbers down a lot and you take $160 billion, a private equity fund would see that and be like, oh, we're going to buy it, dividend the cash out. But you can't do that because structurally...

Well, that's true. I'm not a total believer. I mean, people have used that rationale to create AB stock and things like that and controlling stock. And I have mixed feelings about that. To me, it is curious that Amazon never needed that. They didn't create super voting shares where you could own a tiny economic interest and yet

So, I have mixed feelings about controlling stock. But on the other hand, I do not have mixed feelings about...

the idea of how long-term investors get screwed by short-termism creeping in. I'll give you a good example. Costco had a classified board, which meant that only a certain number of directors could be elected each year. That operates as a fairly effective poison pill

Because what it means is, if you wanted to get control of that board, it would take you three years. By and large, as investors, we don't love that sort of poison pill. However, in the case of Costco, we really supported it. And we supported it because we said, "Costco, we want them to have an incentive to report earnings exactly as they are, or put differently. We don't want them to have a disincentive for doing that."

And so, one day in -- I forget what year it was, probably 15 or more years ago now, maybe 20 years ago -- Costco closed at $41 million, had been come down from $45 million. It was a momentum growth stock darling. They reported a bad quarter, that stock opened at $27 million. And we amazingly bought 17 million shares that day. It was one of the great trades of my whole career.

And you could talk about how much I screwed it up that we still don't own those shares, which we don't. And so, that was a terrible mistake, selling it over time. And one that Charlie was always willing to point out. But when we bought it, we had high conviction that it was worth over $40,000.

But it would have been easy, theoretically, for some sort of private equity firm to jump in and say, "Hey, we'll bid $34 for the whole thing." And people say, "Hey, well, that sounds good. The stock's at $27. $34 sounds good."

So, that idea of private equity being able to take advantage of volatility means that you create for, if you want to represent long-term shareholders, you may have an obligation not to have negative surprises. And if you have an obligation not to produce, you're going to have negative surprises. So, what it means is you're creating an incentive system of hiding those or smoothing them out. And so, I do not have...

an answer on whether control stock is good or not. Obviously, before the creation of the B shares, there was no super voting stock at Berkshire or anything like that. You could argue there still isn't. The A shares have more vote, but anybody can own them. But you could argue that it was a good thing that Meta

had that, that people, Mark did not have to worry about being forced out because he controlled the company. But I do tend to like when control is simply because you own more shares rather than you somehow have a separation of your economic interest from your controlling interest. But I'm not certain on it. There's so many good examples on both sides. There are examples of, Hershey was an example where controlling

shareholders force them to do absolutely suboptimal things for long periods of time. And there are lots of examples of family businesses that have that second or third generation really screwing it up. But there's so many success stories too. And you look at some of the Graham family and things like that. And so, I'm torn. I'm not sure I really welcomed it for companies like Google and

Meta, I didn't like it. I didn't like the way venture capital firms were convincing founders to do this. And at the same time, I mean, I actually had this argument with a very prominent venture capitalist publicly at a conference where I said, have you ever invested in any company?

where you haven't asked for a seat on the board and the answer was no. So why do you think that somehow your equity is more valuable, that you should have a seat, but no other owner should? And especially after you've sold out. So they would go and sort of create this view that, oh, well, let us be your backer because we'll ensure you're always in control. And I don't know what drove me crazy, but-

That's okay. They made a lot of money. So hats off to them. You mentioned Mongra a few times. How did you guys meet? Oh, God. It's such a great story. My grandfather built this fortune. I mean, it was amazing. He started, borrowed $100,000.

When he died, it was $800 million. It was held in a trust as long as my grandmother, his wife, was alive. And when she died, it was $2 billion. But 100% of that money, 100% was marked for charity. That was his belief. He told us all from the beginning, my father's done the same thing, unfortunately. And-

So, they've really sort of followed what I'd call the Carnegie Buffett school versus the Munger school where I think Charlie said on that same podcast that half of his net worth had already been transferred to his kids and he has fabulous kids. I was working for my grandfather and it was clear that the capital of his firm was all going to go to charity. And so, it couldn't function as an operating business anymore. Right.

And he had this business that was a stock loan business. I don't know how familiar you are with securities lending or

In its simplest form, it would be, if you were a short seller and want to sell shares short in company XYZ, the person who buys company XYZ from you is not interested in the idea that you're short. You need to deliver them some shares. What you do is, you go find an owner of XYZ and you say, "Hey, can I borrow your shares

for me to deliver in. The guy says, "What are you going to give me for collateral?" You say, "I'll give you 102% of the value of that short position. I will give you that, but you've got to pay me interest on that money." There is a very thin profit margin that is basically

tied to the relative credit of the borrower vs. the lender, and you make tiny little crumbs of spread. My grandfather's firm had this portfolio of appreciated stocks. The best example of all is Berkshire.

And Berkshire, for many, many years, had a charity program where if you owned a share of Berkshire, each year you were given a dollar amount per share that you could assign to any charity of your choice.

Companies have this tax incentive, and usually the CEO decides and gives it to whatever his or her favorite charity is. But at Berkshire, they said it's much more democratic to let each person vote. But in order to be able to do that, you had to own the shares in your own name. You had to say your name on the stock certificate. Very few shares were held in street name.

And because there were very few shares in Street Name, if you wanted to short Berkshire Hathaway, it was really hard to find any shares to borrow. And so, my grandfather, having a brokerage firm, having a big position in Berkshire, and all of these people that wanted to short Berkshire, well, there was a big thing in the 80s, particularly, that this argument, oh, Berkshire is just a closed-end fund selling at a premium.

So, there was an obvious trade that all these really smart people would talk about, which was basically, short Berkshire, buy some Coke, some Cap Cities, some Freddie Mac, buy the public companies, and you pick up a nice risk-free arbitrage. Well, of course, the shorts got killed for decades.

Of course, they still wanted to keep doing it. Short sellers are often convinced that they're right, even if you think of the Tesla short sellers over the years. They just didn't want to look at the facts. My grandfather loved this, because he could make an extra 1% or 2% a year by lending out Berkshire to these crazy short sellers. It delighted him, because he thought that they were completely wrong, and yet they were going to pay him.

He had a guy who ran that operation. The guy gradually said, "How about if you pay me 20% of the profits that I make lending out stocks?" My grandfather said, "Great." Well, next thing you know, he's got 10 or 15 employees in this securities lending operation. They're acting not just lending out his own securities, but acting as what's called a broker finder.

And it was sort of out of control. And so, my grandfather, who was 80, sort of said, "Jesus, Chris, I don't know what to do." I said, "You got to get out of this business. I mean, we're doing a couple of billion of footings a day, and I don't even know some of these counterparties. There's this one here I've never heard of in Greenwich, long-term capital. I mean, I don't know."

A miracle! So, I'm like, "I'm going to get us out of this thing." So, I decide I'm going to try to sell it. I'll try to sell this operation. Because we're going to have to close it down when he dies anyway, because the charity couldn't operate that business. So, I was thinking of who would be a good buyer. It needs to be somebody with a really strong balance sheet, a big portfolio of appreciated securities, great credit and credit rating. So, I thought Berkshire. Now, I'm 26 years old.

And a guy named Bob Lensner, who was somebody I knew in New York, who was a friend of Sandy Gottesman's, I think. And he knew Charlie. And so I said to him, hey, do you think you'd put me in touch with Berkshire? And he said, sure. So he put me in touch with Charlie. And Charlie said, well, I'm going to be in New York for, I think, either Costco or a Solomon meeting. And I'll have breakfast with you.

So, I show up at 8:00 at the Millennium Hotel downtown in New York. I pitch this stock loan business. I throw it right out there. I have no idea. Charlie stops me after four minutes and he goes, "I have no desire to own a business run by seven guys named Vinnie."

And of course, it was the perfect -- we literally had seven guys named Vinnie. It might have been Vinnie, Tony, Mikey, but it was really a back office, slightly shady operation. And he said, "But I'm very curious about how you picked Berkshire and how you got where you are and what are you doing?" And we got talking about the insurance letter and this, my grandfather. And we stayed at that table until lunchtime, which was almost four hours.

And it changed everything for me. And at the end, he said, you know, young man, I'll make time to see you anytime you come to Los Angeles. And I enjoyed our conversation. And so I just started ginning up an excuse to go there all the time and would call on him. And I can't even put into words how much I just admired his character.

incredible depth and breadth. It's funny, the Venn diagram of what I admired about Charlie and what I admire about my father don't have a huge amount of overlap.

They're very, very different. But there's something in my admiration of Charlie that has this real depth. And that was how I met. So I met Charlie quite a bit before I met Warren. But just the sheer breadth of his knowledge and the speed and the processing speed and what would come in and what would come out of left field. It was just breathtaking. A really incredible human being.

Talk to me about some of your favorite stories or lessons you learned from him. Well, it would be a book. If I was to think of like a couple of the things that mattered, there were things that mattered personally in a way that was very surprising. You know, in my personal life, I went through an unexpected divorce and I was having dinner with Charlie and he was saying, you know, I generally am not a fan of divorce because people don't tend to do better. It's...

It tends to be about a fantasy and it tends to reflect sort of a lack of realism. And all of the things he said about marriage over the years are so interesting about trying to be deserving of the partner that you would like to find and so on.

But in, you know, just in this moment where, you know, I could feel, you know, Charlie was a tough critic and there was he never held back telling me when he thought I was, you know, foolish or stupid. But I felt so deeply supportive to that, you know, that he he was it was coming from the it was like the hardest teacher you've ever had. You know, the hardest teacher you ever had is a tough critic.

But you feel they're rooting for you. That's part of what makes them your favorite. I felt like that with Charlie. But at one point, Charlie said, well, it's very hard to be blamed for someone else's unhappiness.

That just those words and in this moment that was for me, you know, quite a low point in my life in a time when it felt quite traumatic, just the grace of that phrase, you know, that it's very difficult to be blamed for someone else's unhappiness and and.

There can come a time when it's just too much. And he said, it's particularly hard if you're wired in a way that you love somebody and you want to help them. You're trying to make them happy. So he said, it can get to a point where that's just too much. That was something that I wouldn't know how to describe that in any other format. It wasn't an investment lesson per se, but it was one that was very, very helpful to me.

The story now is out. It was something that he had said to me when I was asking him about his happiness and how he owed his debt of happiness. And he said he owed it to his wife's first husband. But I'll give you one, though, that was also amazing, which was around Costco. We talked so much about Costco over the years.

And we owned it for 14 years, I think. So we had a long run with it. And just the valuation kept going up and up. And it was a mistake to have sold it, not because the valuation went up, but because the reach of the business got so far beyond what we thought was possible. And so it was...

It was a real mistake. But Charlie made an interesting comment once because I was challenging him on this idea that there's a certain number of customers that would go to a Costco if they didn't have to be a member. And so I said, let's say the membership fee is 2% of revenue. If you raised prices 2%, you would still be lower cost than anybody else. And yet you would have more customers.

And because you had more customers, you'd have higher revenue. And so it would seem to me that keeping customers out of your store that would otherwise be there is a mistake. And Charlie's insight, I mean, there's a long answer to that. But one of the shortest answers is he said, think about who you're keeping out. Think about that, the cohort that-

Won't give you their license and their ID and get their picture taken or they they aren't organized enough to do it or they don't can't do the math to realize how they're. He said that cohort will have 100 percent of your shoplifters and 100 percent of your thieves.

And now it'll also have most of your small tickets. And that cohort relative to the U.S. population will probably be shrinking as a percentage of GDP relative to the people that are able to do the math, that are responsible enough. So going all the way back to insurance, you know, somebody's credit rating is a great predictor of whether they'll crash their car.

Well, because they're responsible and they tend not to cheat. So is being an army officer, right? USAA doesn't need to know anything else about you. Just that you're an officer in the United States Army and they can offer you a lower price because they know you're not going to cheat.

And the difference in fraud -- of course, there's a lot of fraud in auto insurance. So, if you don't have to charge for that fraud, you can charge a lower price. But the question is, how do you keep the fraudsters out? Well, Army officers is a good shorthand. Government employees used to be a good shorthand, which of course was what GEICO stood for, Government Employees Insurance Company. We'll just insure government employees. We don't need to know anything else. Just your government employee, you have a lower risk.

And so, this ability to, Charlie's phrase was the intelligent loss of sales. He said, you're young and you just think more is better, more is better, more is better. But more is not necessarily better. It's who do you keep out? Who do you keep out of your company? Who do you keep? And in running our own firm, there's so many lessons of Charlie's that are captured in, including having a board of directors made up of people that I don't want to disappoint. Well,

Well, in the mutual fund industry, that's very unusual. But we have a board of people that I really admire and I don't want to disappoint. Well, Charlie said you should because they're the face of your client. And so have people on that board where you would feel a little sheepish to do lousy and then you'll work harder. That's a good lesson.

But, have things that make it hard for people to trade in and out. Now, when we had the mutual fund trading and all of those scandals, we were in a wonderful position with that because we never let them in in the first place. He's like, "Why do you want that sort of investor? Set their expectations. Keep them out. You don't want to be the biggest, you want to be the best. That means you're going to have to keep a lot of clients out."

And your life will go better if you keep on. He said it's one of the reasons he gave up being a lawyer because, you know, being a lawyer, he said it's tough because your best

Your most profitable clients are going to be people that you don't respect very much because they're always operating right on the line. They always need a lawyer. They're always trying to get around it. But your best clients will be your worst customers. Well, that's a tough part of Charlie giving up the law. And so those are...

examples that had very personal impact on me in terms of how we structured our firm, how I think about businesses and think about that loss of sales, about having setting, putting, I have Charlie's bust behind me in my desk. He just said, having physical reminders. Reminds me a little bit when I was doing my degree in theology that I

C.S. Lewis was somebody I admired a lot. And C.S. Lewis was very old-fashioned in certain ways. And one of them is he believed it's a good idea to get on your knees when you pray. And I thought that was really sort of reactionary. I mean, you can pray anywhere. You just sort of talk to the

to the greater being, whatever it is. And C.S. Lewis's point was, well, we're animals. And boy, there is nothing like being on your knees with your head down to reinforce in your brain that you are very vulnerable.

And that gesture changes your mindset. I'm going to be the last guy in New York wearing a tie. But I always felt it was respectful, going all the way back to Steve Jobs and fiduciary trust and my dad thinking, who is this hippie in sandals with his long hair and won't even get a haircut?

But we have clients who come to visit us. And if they're coming from the Midwest and I'm wearing a golf shirt, it feels disrespectful. So part of it is about communicating respect to them. But it's also...

It makes me feel like I'm ready for work now. It's why I'm a believer in school uniforms. I think kids behave a little better when they're in a school uniform. I'm also a believer in that. Was it your father or your grandfather who used to run down the street, too? My grandfather. Because he was like, "What if somebody saw me?" I know. It is an area where my dad and grandfather were so different. Again, both admirable, but in very, very different ways.

But yeah, my grandfather always sort of had this sense of, you know, he was a great man and it was important that he... And, you know, Ben Franklin did the same with a wheelbarrow in the streets of Philadelphia. In his autobiography, which is, you know, 80 pages, there's a section about borrowing money. And he says, you know, when you borrow money...

It's very important that you do certain things. And one is that you need to reassure your creditors that you're trustworthy. And so, he always advised to paying them interest a day early.

But another thing he said is, he would load up these big printing blocks and type things, and he'd have a wheelbarrow. He would be seen pushing this wheelbarrow. He said, "It's important that they know I'm industrious." In the book, he says there were times he didn't need to do it. He was managing his brand.

But in a way that he felt it was important. Well, my grandfather had that. Interestingly, Charlie always talked about dressing conventionally. He said he's so eccentric in other ways that by wearing a suit and tie, people assume that he's more conventional than he is and that serves him. But yeah, it was my grandfather that would hold his jacket and shuffle. Whereas my father...

There are ways that he doesn't care what anybody else thinks. He is dispositionally much, much lower profile than his father. We talked a little bit about avoiding customers, which is a form of inversion. What do I want to avoid?

One thing I've heard you talk about in the past is avoiding your weaknesses. You tell the story of Tiger Woods. I'm wondering if you can tell us that story and also relate that to your life and how you learned this lesson. The story, which I believe is true, was about Tiger Woods' first British Open. I forget which course it was going to be held at, but whatever the course was, it was notorious for those deep pot bunkers and

Apparently, the weakest part of Tiger's game was his sand game coming out of bunkers. As the press was following him around, they kept badgering him about what is he doing to improve his sand game, because that could really be the linchpin in the British Open. He had said that he was working on his drives and his irons. They said, "Why?" He said, "Because I want to avoid the sand."

And then, I believe, played the entire British Open without going into a bunker once in the whole Open, which was at the time unprecedented and people talked about. Now, if you were to tell me that that's not true or it's apocryphal, I'd believe you. But it's such a good story. And it does get at this very deep truth. And you said it certainly was a Charlie truth about inversion.

And so much of Charlie's mind was about, think about the causes of failure and try to avoid them. And in fact, in our research department, we have a letter that Warren wrote in 1965, I think, or 66, that lists the reason that he believes most money managers, institutional managers, tend to underperform.

And we framed that letter and put it on the wall in the research department because we said what we should do is just try to avoid these five things. And to the extent that we avoid these five things, we will over time be above average. You know, one was group decisions. That was number one.

Number two was the desire to conform your portfolio and policies to what other large, well-regarded firms are doing. Three was the asymmetry of risk and reward. Obviously, better to fail conventionally than succeed unconventionally. Four was over-diversification. And five was inertia. Yeah.

And it's funny, we just did the reviews of our whole research team, which is one of my favorite times of year, just to really sit and go in depth with each person about how to help them get better and how to be learning machines. And every once in a while, there's a theme that will run through each one. And inertia was the theme that really ran through it. We just said as a firm,

We really still struggle with being held captive by our past decisions. We're held captive if we've chosen not to own something and it's gone up a lot. It makes it so hard for us to revisit that. If we own something and it's gone down, it makes it very hard for us to let go. What are the ways in which inertia? But anyway.

All a digression back to this idea of framing that letter was, of course, from Charlie saying, you know, trying to avoid things that will lead you to fail. And I think at a personal level, really doing your best to try to figure out where those blind spots are. And so for me,

I have the motherlode of all ADD. You can probably tell. It's very hard to keep me on topic. That's one of the reasons I love this business. Everything's interesting, everything's relevant. No matter what article I read, it has some tentacles back that have investment implications.

And, you know, for me, the question was, well, how do I structure my life in a way that allows me to make sure I get things done that I don't really want to do or that are easy to put out of my mind?

And so for me, for example, physically being in the office matters hugely. I do not work well remotely. I don't do Zoom well. It just doesn't work for me. And knowing that, I really try to structure my life to avoid that and

I show up in person. If I'm working on a weekend, I just come to the office for half a day. It's a very relaxing time to be there and I can get more done in a few hours. But if I'm at home trying to work and the kids are there... It's not that...

It's just I want to be with them. Physically, putting myself in a different location didn't matter to my dad at all. He could tune out everything, work anywhere. But for me, that's sort of an easy, concrete example. I mentioned that I dress differently when I go to work.

Again, even if it's a Saturday, I just feel like I'm in a different mindset. When I was at university -- this is going to sound very reactionary and old-fashioned -- but I was at a university where even as undergraduates, you could wear a gown, an academic robe.

And you were required to wear it to certain things, to chapel or to a debate or to big university functions. But you could also choose to wear it. And it was quite warm, and it was the east coast of Scotland, so you didn't mind wearing your red robe. Originally, I'm sure it was to make sure that undergrads weren't getting drunk in the streets or something like that. So, it was a little like a school uniform, like we were saying. But to me, wearing a tie is a little bit like that. It's just so...

Granny's rule, work before play. That's probably the strongest. I joke that in our family, six kids, people will say that over and over and over, work before play. That was my dad's favorite expression, work before play.

Well, it suits me. I just if I and it suits me whether it's, you know, going to work or whether it's going to exercise. You know, it's there's one thing on earth I love. I love a sauna. And so, you know, I only give myself a sauna after I work out like there's no no other way I can get a sauna.

And so it's amazing how effective that is in manipulating myself into doing something I don't really feel like doing, which is going and exercising. So there's all sorts of those sorts of influences of trying to look at ways to

things that would normally bring me down. A big part of it is also the choice of friends. I don't mean you should choose opposites. I don't think that really works. Charlie once said, "You know the saying, opposites attract? They don't."

I do think having, you know, colleagues especially that, you know, fill in the areas where you're weak and, you know, by understanding the areas you're weak, you don't keep sort of, you don't end up in a Peter principle sort of effect. And it's a big part of how we try to manage the team is, you know, to keep people away from the areas they're weak in or at least protect.

take those away from being completely destructive. What did St. Augustine said, for many abstinence is easier than perfect moderation.

And for some people, that is the case. I'm very lucky that way. I'm very good at moderation in most things. But I've watched addiction destroy people's lives and people that I love. And so, that's an area where I keep a journal of every alcoholic drink I have a week.

because I love alcohol, I should be clear. I just think it's such a wonderful gift. I don't think it's a coincidence that Jesus' first miracle was turning water into wine. It is every culture on earth.

52 countries or whatever it is, invented alcohol independently of each other in many cases. It's just amazing. I love alcohol. I would hate to have to give it up. I'm such a believer that it will destroy your life if it gets out of control. I'm a believer in what Charlie said about the bonds are too light to be felt until they're too strong to be broken. I'm a believer it can absolutely take you by surprise.

And so, you know, for me, just keeping track of the drinks I have over a course of a week is a way of it, you know, ensuring it never gets out of hand. You know, I'm not weight obsessed as my children like to say. I'm sort of threatened by the shower drain. Looks like a manhole cover. I've always been very skinny. But I do, you know, I do weigh myself probably once or twice a week so that if I end up

a couple of pounds above where I was, I just try to deal with that right away. And where I can all be in sort of moderation, where I don't have to go to an extreme. So those are examples of some sort of self manipulation as well. That's interesting. How long ago did you start the drinking thing? Oh, a long time ago. I mean, probably 20, let's see, probably in my, I was probably 40.

I would say somewhere in there. It was around that age where I started seeing it begin to take some people down. The kids that have been college buddies and always a lot of fun and life of the party. And every time you're with them, you drink too much. But it's always a great time. And there was somewhere in the late 30s or so where it stopped being so funny and you realize they couldn't stop.

That's when I was like, "Ooh, this can get away." That's interesting because that's been something I've been thinking a lot about recently too in terms of watching people and then also loving wine. At the same time, how do I prevent myself from being in that position which I don't want to be in?

not having feedback, especially during COVID, where it was so easy. So easy. And wine's the most dangerous of all, because the portion sizes grow and the alcohol content has grown. You end up with wine now that is being drunk out of much bigger glasses, and the wine itself is 20% or 30% more potent.

than it was. That's a good example of something where you can do the opposite, which is smaller portions, smaller glasses.

I love cocktails, so I will craft some beautiful, spectacular work of art, but I serve them in very small glasses, which in the 50s was often how things like martinis were served, was in these very much, much smaller glasses. Even recently, I feel I've been trying to craft...

I've not succeeded in a no-alcohol cocktail that's any good. I would say there is good no-alcohol beer, the Athletic Club. By the way, that's a company that's probably worth over a billion dollars today or $2 billion. A couple of guys in Connecticut.

Just how do we make really great non-alcoholic beer where it's not an afterthought, where it's our mission? That stuff's amazing. I mean, what a great gift. But I spent a whole weekend with a friend of mine. We bought every one of the fake spirits. We tried all different combinations. And where we landed was we developed a very good low alcohol where it was basically making a Manhattan beer.

using fake bourbon, but real Amaro or real vermouth. And then chili bitters. And the chili gives it that bite that gives you the little burn. And there's some psychic connection with that. The Amaro has alcohol, so it gives you this. But the total cocktail probably has 20% of the alcohol of a Manhattan, but probably 80% of the satisfaction. But you think about, I love what...

Hemingway said, it's not finishing the bottle that gets you in trouble. It's opening another one.

There's a lot to that, too. I agree with that. I'm always like, if I wake up and I'm a little groggy, not hungover, but you're just mental fog, it's like, man, that second bottle of... I know. Should have kept that one closed. Oh, that after dinner. Yeah. But those are good. I always had a glass of wine with Charlie, and I enjoyed that. That was one thing that surprised me. I was fortunate enough to...

be in his presence a few times and have dinner with him. I was surprised the first time I saw him with a glass of wine. Yeah. And by the way, there's one other thing which I never ever got to ask him about, but he never seems to go to the bathroom. You'll be sitting with him that breakfast when he got up at noon because he said he had to go to a lunch.

I ran to the bathroom, but I kept thinking at the time he must have been, you know, he was probably only 60 now that I think about it, which is sort of hard to believe. Maybe he was a little older. Maybe he was, he was probably 65. But, but I remember thinking, I'm not going to get out. Like as long as he wants to sit at this breakfast table, I'm staying here. But it almost killed me. And I,

And so just over all the years, it's sort of amazing. I don't know what his trick was on that. No idea. Talk to me about raising privileged kids. How do you raise kids in a world where, I mean, you're the third generation of this in a way. Your grandfather was very successful. Your father was very successful. You're very successful. Yeah.

But you live in a different era where I know a lot of my friends are sort of struggling with like, how do we raise kids in an environment where we have affluence? Well, I like what...

Charlie said that money doesn't ruin kids. Parents do. And I would add genetics can too. You can look at siblings from the same family that make totally different choices. They've had roughly the same home life, roughly the same genetics, and something is different. Maybe it's peers. Maybe it's just some nuance in the one or the other. But I feel like

For me, that was an area that I could get pretty emotional about it. There are a lot of people that I know who are very successful investors.

And their basic view was, thank God I married somebody that could raise my kids right. That was not me. I actually married a woman that had a four and five year old when I was only 28. And then we had a child together.

We actually functionally adopted a boy in there as well. That, to me, was maybe the greatest source of joy in my life. I talked to almost all my kids almost every day. I don't think I was ever a helicopter parent. In fact, their line was, I somehow managed to turn every activity into a helmet sport. There's some truth to that.

But I just loved raising kids. I've actually got three grandchildren now. COVID, all of my children came and lived with me, my grandchildren and my mother.

And it was a glorious time. I mean, I just so I've always loved, loved kids. I've loved little kids. So, you know, I would say that I think I think having grown up in New York and really not been a part of that, that I think I think we felt a little bit like outsiders growing up.

I think in the '70s, everybody was an outsider, so there was probably some of that. But I look at my kids, and I'm so proud of them. We did have the same rule, three weeks without a job as long as you're in school, and then three months without a job.

you know, how long you can live at home. And, you know, my parents were very straightforward about that. And so...

And I look at Charlie Munger's got great kids. He took a different approach, right? He gave a lot of money to his kids. He gave money to his kids, but they're good citizens. On balance, that's swing a cat through the Munger clan and you're hitting above average people in their value system, in their...

in their intelligence and IQ. I would say, I don't know the secret. I know what doesn't work. What doesn't work? What doesn't work is giving your kids a lifestyle where they will feel like a loser if they are unable to maintain that lifestyle on their own merit.

I just think that if you do the Southampton, Palm Beach, Aspen, you're creating kids that either you're going to have to leave them a hell of a lot of money to maintain that lifestyle. But even then, even if they maintain the lifestyle...

They do so purely because they can brute afford it, not because they are interesting or substantial people. And I think you surround them with a lot of

I think unhappiness. I had both sides of my family. I was very lucky that we never -- to this day, I like to brag that I've never been east of Bayshore on Long Island. Somebody would have to be a New Yorker to know what a humble brag that is. But basically, east of Bayshore is where the Hamptons are. I've been a lifelong New Yorker. I've never been to the Hamptons.

My father once made a very off-color comment, but I'll share it. He said, "I don't go to strip clubs because if I don't like it, it's a waste of time. If I do, it's going to be very expensive." Why do you want to create an environment where you would have to endow? Think of what that lifestyle would cost.

And maybe you endow it for the next generation. But then they can't do it for their kids, and they can't do it for their kids. Sooner or later, you're creating people that feel like failures. For me, we have a falling apart farm in upstate New York, and I live a fabulous life. But I don't think we raised our kids in an... Charlie talked a lot about not having sold his house.

That was very much true with me. What my kids would describe as our family home, I bought in 1993 or 1994. It is not a fancy place, but it's a farmhouse about an hour and 15 minutes north of New York. You can roll a marble through the house. It's a very gracious, beautiful place, but it's a farmhouse.

And that feels very realistic. I mentioned I have this old wooden sailboat that we jokingly call the Wasp Winnebago, but it is kind of like a Winnebago. I mean, it's 50 feet and you sort of drive it to campsites and you pump out the toilet. We sleep all in two little rooms. So I feel lucky that way. I definitely...

And I had a good group of kids that I grew up with, and we all raised our kids together. So, I think we also had a peer group of friends that achieved different things in different ways. So, for example, we do a trip every 18 months. The same group of friends does a trip together, and we've done it since we were teenagers. Because we would spend some time together in the summers, but then everybody lived. So, we would always have a weekend where we all got together. And, you know, the...

The way we pay for that trip is it used to be that what friend do as a teacher, that he would dictate the amount of the trip. But as I said, how many times do we need to canoe down the Housatonic? Can we do something more? And so we all decided we would contribute one week's pay. So it was sort of from each according to his ability.

So, everybody made an equal sacrifice. And then that was the trip kitty. But I just think having a group of friends that has persisted from childhood to... In fact, three of us were baptized together as infants. One is a partner at work. We've been partners for 30 years. He runs all of our client side.

But there are people that I admire and they're truth tellers. And so we raised our kids all together. I think that helps a lot. I just think this idea that you make a lot and then you begin to separate yourself, separate yourself more and more. I think that that's the message that you're sending your kids is that there's no continuity or they're more special than their cousins who didn't do so well. I think it's a...

How do you avoid that lifestyle creep from sort of like setting in? Well, it's going to be whatever. I mean, of course, one of the great things about making money is you can sort of have what you want. And I think the question is, how do you try to do a good job deciding what you want? You know, obviously, I mean, and you know, I mean, one of the great gifts to humanity has been Morgan Housel. And

And the psychology of money is the perfect reminder that what we really want, what kids crave is time with their parents. And you end up in the Hamptons on the cocktail circuit and biking in your Lycra with all your private equity buddies. I mean, can you tell I got a chip on my shoulder about that? Yeah.

But, you know, and all your business school buddies. So I just think, you know, I've had a, I'll give a good example.

We grew up loving skiing. My dad is a fabulous skier, and so are my grandparents were good skiers. But they were so worried about spoiling us, so they grew up skiing in upstate New York in a town called Snow Ridge. It's in Boonville, New York, or near Boonville, New York, which is just a farm hill.

But as we were doing better, my dad wanted us to ski in nicer places and so on. And we went to all different places, but we always stayed in a pretty modest way. He would make a big deal out of buying our ski equipment secondhand at the end of the season. But we ended up in Taos, New Mexico.

Now, there were some other reasons we ended up out there. We had an office in Santa Fe for various reasons. And Taos, New Mexico is a very old school kind of place. It's steep, it's technical, but it is the opposite of Aspen.

So, for me, it was this idea, "Well, I could just keep going to Taos. My kids are going to be great skiers, but it's going to be a place that they could likely afford for generations." We've got a condo with orange shag carpet, and my daughter met her husband is from Taos. So, it feels like a family spot.

Whereas, if we ended up in Aspen, I just think the total cohort would change. And then what? How the hell are my kids or my grandkids going to all afford to have homes in Aspen?

So they're going to instead end up going to a place like Taos and feeling like failures. Whereas my kids feel like Taos is the greatest place on earth. Well, they've never been to Aspen. That's right, just as well. And so going back, I'm very prone to envy in myself. I'm not proud of that. I can be a very competitive person. And so a big part of checking that weakness in me

is not to get in that pool. And so, you know, I don't go to Southampton, not because I don't think it would be lovely and not because there aren't some amazing, interesting people that I admire hugely that live there and they live beautifully there. It's because if I got there, I would feel like...

I want to be I got to do this. And, you know, and I got to get a big house here. And then, you know, now what? Now my kids are all trying to figure out, well, can we get so, you know, instead we have we literally have a campground in Maine, you know, little cabins. And and it's it's a place that we're very happy because it feels sustainable. So but my going not going to Aspen is is not because I don't think I would love it. I know I would love it.

And Southampton, Aspen, Palm Beach.

I'm sure I would love it. Look, people are not crazy. If people go to Palm Beach, it's because it's pretty great, and they pay a lot of money to go there. It's probably pretty great. I just feel like, why do I want to get on that trolley? I feel like crystal meth is probably pretty great, too. I just think it's probably better not to get started. I've been thinking about it a lot. I went with my kids, who are 13 and 14. They were 12 and 13 at the time, to Europe last summer. Yeah.

And we rented this dingy Airbnb without air conditioning. And I was like, you know, I want to, I want to sort of like, I want them to be able to be flexible no matter where we're staying. And I remember like lying there trying to sleep and it's like 33 degrees. I was like, the only problem with this is like, I have to suffer with them. Well, you know, this is a, this is a trick. I don't know how well this would work for your kids, but we had that with, uh, uh,

airline travel. My grandfather famously wrote his will, and the beginning words of it say, "I'm writing this myself on TWA flight 323 economy class," underlined.

So, first class was always an absolute no-no. It was like ordering filet mignon on a menu. I could still feel my dad's blood pressure going up if any one of us tried to order a steak at a restaurant. But it got to where traveling coach today is a lot worse than traveling coach 30 years ago. And

But I hated the idea of having my kids in business class. It just felt like it didn't feel right either. So I hit on this idea about when they were your kids age of, I'll split the difference with you. Like, I literally will write you a check.

You can choose. We'll get you a seat in business class or you get $700. And it is amazing how into that they were. They even started with this view of, what if we find a cheaper flight? I was like, no, no, no, no. But I think it is OK. And again, going with the travel is a huge gift.

And slumming it isn't necessary. It's trying to find that line of what you feel is reasonable. What we all want to be is at the high end of value. David Brooks wrote a beautiful article about traveling in Africa, eight or nine different places.

And he asked his kids at the end what their favorites were. And it ended up not just to be not correlated to the amount that the place cost, but to be inversely correlated. And he said, the reason is the nicer the place, the more they tried to isolate you.

Like, oh, you're in our private villa bungalow out here with the private. Whereas the lowest end place was one where the kids ended up playing soccer with the people that worked in the kitchen and running around in the scrub and the dirt and sort of having a great time. And he talked about there was a Yiddish word. And of course, I don't remember what it was, but he talked about that's what people really crave. They crave connection.

And so it's not really about the luxury, it's about the connectedness. And so, you know, staying in a very luxurious place that feels very simple and connected,

Fabulous use of funds. Staying in the Four Seasons where your children are given a butler and a ski valet, probably not as good. We got upgraded once just because I fly a lot. So I have crazy status on the airline. And they're like, hey, you guys got your seat changed. And my mistake was I went up with the kids. And she's like, oh, you're all going to be in business class. And the kids were so excited. And I was like, what?

"Oh, God." One of my sons is lying back there, he's like, "More ice cream?" He's like, "Why haven't we flown this way before?" But of course, being able to love and cheer that up. It's not going to be perfect. That's one, again, where Charlie says, if you want your kids to be as ambitious and as hardworking, it's unlikely.

Barry Diller tells a great story. I don't think he'd mind my telling it. You know, Barry grew up in relative privilege, he would say. You know, and he had a friend that was from one of the wealthiest oil families in L.A. And the parents made him sleep in like the servant's wing of their mansion. And he just talked about how deranged it all seemed like it was signaling to the kids that you don't love them.

Or that they're not trustworthy. So I've seen just as much damage done by wealthy families trying to build character as I've seen the opposite. I would say my father had a very difficult relationship with his own father. And I think a big part of that was his own father was so puritanical that

and would make him carry his skis and walk up the hill for the first in order to get a lift ticket or they're going to build a pool. And so, they had to get out there and dig for two weekends until their hands were sort of bloody. And the grandfather was always trying to teach them a lesson.

And it had felt false. It felt false to my dad. And so they ended up really not close. Whereas my dad, my dad just loved life. And so he embraced. And it's true. We didn't stay. You know, I remember going to Switzerland and, you know, in Stade, there's a very famous hotel, the Palace. It's up on this hill. And my grandfather, even when he was the ambassador of Switzerland, used to brag that he would never stay there because it's a terrible hotel for skiers.

he stayed at a little place called the Arc en Ciel because it was right at the base of a lift. And he said, "This is a skier's hotel."

Well, he was not suffering being slope-side, but it made sense. I think that's the idea. It's putting your kid in the servant's wing versus, "Hey, kids, we got upgraded because I worked my ass off. Isn't this amazing?" And letting them savor and laugh and enjoy that.

Well, they weren't so happy on the way back. But, you know, there's a lot of opportunities to have that conversation. It was Charlie who told me, and I had never thought of it this way. He said, you get into a lot of trouble when you want your kids to live a different lifestyle than you're living. Yes. When you're getting a chauffeur to drive you to work and you're telling your 15 or 16 year old to go get a job at McDonald's.

He said that's going to create a lot of resentment. Yeah, I think that's the real truth of it is that your kids are going to imitate you.

And it's maybe the most important thing you can do as a parent is model happiness, not desperation, not greed, not need for other people's approval, not, you know, just try to model happiness and whatever that means in how you live. And, you know, if there are people that develop money and it really,

really makes them happy to have that big house. Well, chances are that they may have a view with their kids that I want my kids to have everything. I can't think of anything better than my children living in a mansion that I produced for them. And if it's sincere and happy, I don't think you've created a miserable child if you're a happy individual.

engaged human being. And so that's why I think the formulas, I think the falseness is what kids sniff. When are you happiest? Well, I've had a lot of experience with depression and others.

Some growing up and some through marriage. And it's a little bit like insomnia. I have almost a sleeping superpower. I'm not even supposed to say that out loud because I have my closest friend who's also my partner at work. And as I say, we were raised together as infants. And he's a hugely important person in my life. And he has a terrible time sleeping. Yeah.

I've learned that my talking about how I can fall asleep -- if you told me I can lie down here and have a nap for 15 minutes, I would have a nap for 15 minutes. I'm really good at sleeping. It helps me with jet lag. You get anywhere, you say it's time for bed, it's like, "I'm ready for bed." And yet, even though physically I haven't experienced insomnia,

I have a deep visceral sense of what hell that must be.

And similarly with happiness and depression, like I see people that are depressed and I feel so lucky that I just dispositionally have a tendency towards happiness and contentment. And it certainly came from my dad had it. My grandfather had it. My grandmother. I mean, I just feel I grew up very, very lucky that way. My sister, my closest friend has that. We talk about it a lot. It's like it's.

And so I know enough about unhappiness and depression to know that it's saying, well, why don't you just change your attitude is not going to work.

And so I've learned enough to just simply not take it for granted, but just feel deeply grateful that I tend to wake up reasonably content. This is a little bit strange thing to say, but there's a Psalm. And by the way, I should say, I'm actually quite agnostic. I'm not a deeply religious person. I always admired the church.

as an instrument of social improvement. I think that the fundamental message and its danger in our society of victimhood, I think is a dangerous message versus the empowering message of the degree to which you have agency for your life. And I feel like that is a message of Christianity historically that I really admired, especially in Protestantism, this idea of

being accountable for your choices and for your life. Anyway, all to say that this

I do think that it is very often the case that people do not have control over their happiness. But having said that, what I was going to tell you is there's a there's a psalm that begins, Behold, the day the Lord has made, rejoice and be glad in it. Well, that's not a terrible way to start each day is just to say that, you know, just

This is the day the Lord has made. Rejoice and be glad in it. And I feel like I get, I've had such a super abundance in my life like it is. And that tomorrow, you know, the phone could ring and somebody could say it's malignant or they could say there's been an accident. And everything will change. And

And I don't want in that moment to regret that I didn't appreciate just how lucky I had it today, the day before all that changed. And so that is sort of a driving part of my mindset. You know, I had, believe it or not, I had an English nanny growing up.

I had a very strange upbringing in some ways. My dad had us out trying to gather kindling. My mom had this English nanny named Ellen Wigglesworth. Ellen Wigglesworth was born in 1898. She lost her fiance in World War I.

And that's what, when she came to the States and she ended up being my mom's nanny in the thirties. And, you know, she was in my life, uh, she died at about 86. So she died in, you know, I was out of high school. I was probably already in college when she died. And, um,

But she would tell stories about World War I. And to this day, I can even feel my heart rate going up as I'm saying it, how terrified I was of that idea of the guy blowing the whistle and going up and over the top.

and in the mud and the rain and the machine guns. And I used to say as a little kid, I would sort of, you know, when you say your prayers at night, I would sort of say, you know, I hope I would be brave, but

but please don't ever test me. I never want to be tested." And I feel like that about health, about depression, about contentment, about sleep. I'd like to think Charlie was so powerful about handling suffering and his stoicism, this opportunity to behave well. That's what suffering is, an opportunity to behave well.

And I always feel like, I hear you, Charlie, but please don't test me. I just don't want to be tested. But of course, life doesn't give you that option. Sooner or later, we're all going to be tested. It's a matter of whether it's sooner or later. So I feel dispositionally happy now.

So much of the time, like you asked me, what are those moments in a year? It's like there's so many. I love the people I work with. I can't tell you what a privilege it is to really love your colleagues, just to be curious about what they're up to in their lives. We have a small team. There are eight of us.

on the research side, but they're in every decade. One colleague in 60s, a couple of us in our 50s, some in their 40s, some in their 30s, and some in their 20s. And it's like the island of misfit toys. I have no idea how we could have found each other otherwise. I think our average tenure together is something like 14 years.

but there are people that I've worked with for 30 and 25 and 20, and the newest one is probably been less than a year. And so it's a very gradual turnover process

But there is turnover and there has to be because we have a responsibility to have the best team on the field. And that is the worst part of my job. But it's almost never the case that it's not because that person doesn't deserve success. It's just that they're doing the wrong thing. I mean, if they have that credential and that work ethic and that level of IQ and processing speed and communication skill and value system and they aren't succeeding,

they're just in the wrong job. Like, you know, in fact, we had one guy that it's actually become a little bit of a sore spot in the company because it was that sort of situation. And we worked like hell. And I was like, you'd be so good in the corporate finance function of a company because, you know, you're not good at predicting how things could change, but you have a deep understanding of investing and capital allocation and, you know,

Anyway, he ended up very early at Facebook and has done great. He's like, I wish you had fired me sooner. So, the company's like, fire me next. There's an expression in sailing that a bad day at sea beats a good day at the office. That's not true.

One, a bad day at sea is really scary. And two, a good day at the office kicks ass. I mean, it's just fabulous. It's exciting and you're watching things come together. So, you know, that whole column of life feels great. And then I've got this group of friends from baptism to today that I love. I've got this experience of being on corporate boards of some of the greatest businesses on earth. And I

And I never thought I would love that as much as I do. I mean, it's just I've loved watching how the Washington Post evolved. I mean, it was one of the great, great examples in all of corporate history of fiduciary leadership.

and servant leadership of the Graham family to make the decision to sell the newspaper that it needed to be in safer and better hands. And it was just incredible thing to be able to sit at a table with people of that caliber and then watch a process.

Imagine the gossip of the Washington Post is going to be sold. The Grams are going to be sold. Imagine that taking six or seven months and imagine it never leaking. I mean, just that unbelievable character, the people involved in that. So, you know, and then, of course, Coke and Berkshire. I mean, so that part's amazing. And then, you know, I've got a family. I've got two living parents that are amazing people.

You know, they do totally different things. But and then I've got this group of kids where we've been able to transition. I would say the most dangerous thing in the world with a 12 year old is to try to be his friend. But, you know, the worst thing with a 40 year old is to try to be their parent. Yeah.

You know, you've got to figure out how to transition that relationship to being, you know, a person that you care about and admire and want to help. And and but that there appear at that point, you know. Take me behind the scenes of no particular company in general, but a board meeting. And what makes for a really good board meeting versus a really bad board meeting? Well, the board meetings, I mean, I've been I think that a lot of average people.

companies board meetings are basically the lights go down, the PowerPoint comes on. There is a focus on pageantry process, um, and, you know, sort of checking the boxes and I'd rather shoot myself in the face. I just, I mean, going back to the ADD, you know, and, um,

But the first board I ever came on -- and I do think that's the way a lot of corporate boards work. I think it's gotten even more so because investors are discouraged from going on boards by the regulations. I think the SEC makes a terrible mistake

to discourage money managers, especially long-term investors, from getting involved in the governance of the companies that they manage. The compliance issues are real, because you've got to be very careful about disadvantaging your clients or if you're burdened with inside information. But I think the importance

of having owners of the businesses represented on the boards versus academics and lawyers and politicians. You want people that have real skin in the game and are advocating and representing their investors, their clients. But it ain't easy. We're in a world where often regulation is for its own sake.

I was very lucky that the Gateway drug, it was starting at the absolute top, which was the Washington Post. So there's Warren, who was on that board, and Ron Olson, Barry Diller, at the time, Melinda Gates, and of course, the Graham family. And so they had a tradition where...

The night before the board meeting, there's a dinner. The dinner was held at the CEO's house and nobody else is invited, just the directors.

And you sit and you have cocktails and you talk and you sit at the table and you talk about business and you talk about the world and you develop a deep culture of trust. You also develop an environment where you talk about the real issues. And then what happens at the board meeting is.

becomes much more, perfunctory is not the right word, but to me it was a way of orienting a board that your focus is really on the long term. Do we have the right people running the business?

Are we able to stop them from overreaching? Are the shareholders getting the information they should have to make an informed decision? Are the records being presented honorably, transparently? And then to weigh in on the big strategic decisions. Then the rest is whatever hygiene needs to happen. So, that tone got set there at Graham. And of course,

I would expect that that was always the case at a place like Berkshire, where there's so much candor. Certainly, that's been my experience. And then at a place like Coke, I would say that there have been different phases in Coke's histories. And you can read some of the things Warren has said about sitting on those boards in the past, and they're not always super complimentary. But I think that

One of the ways that I try to contribute or be part is to try to bring that Graham culture to these big company, to a big company like Coke. And it's been fabulous. It's a great group of people. It's a great board. They've gone into this, having a small dinner of directors only the night before. And it's just amazing how important that is. And

the degree to which you get trust and accountability and candor. And Jamie Dimon famously said, the bigger the group, the better the news. So, you know, that is... Oh, that's interesting. I've never heard that before. Yeah. Isn't that a good expression? And so, smaller functioning boards, you know, people being... You know, you look at what happened at places like Hewlett Packard and, you know, Intel for that matter. I mean, these companies, you know...

It's quite a well-known expression that a great board can't make a great company, but a bad board can ruin a great company. I would certainly argue that both Hewlett-Packard and Koch, the board's

had a lot of accountability for decades of bad decisions. And it was bad decisions on what is the board responsibility, which is who's in charge. Talk to me about the third generation of a family business. Usually the expression is like- Shirt sleeves to shirt sleeves. Three generations. And yet you're an exception to that in part. What are the lessons that you've learned of having that success-

You've all created your own success in a way. Well, I don't think there was any sense of a family business. When I joined, the mutual fund company was called Venture Advisors. My father had a partner. He had had a firm called Davis Palmer and Biggs, but he sold it in the 70s. Really pretty near the bottom.

That was another opportunity for me to learn differently. We want to get through. We want to build something and stand for something. And my grandfather, it was so clear that everything was being given away anyway. So I don't think we ever grew up with a sense. If I look at... My dad has six kids and...

One's a medical doctor, one's a psychiatric practitioner.

By and large, they're good parents. But they all live differently, do different things. And I think you'd be glad to have any one of them as your neighbor. I give him a lot of credit for that. And the way that you all made money was really different. Your grandfather was 50% margin for most of his career.

Dad had a lot of margin, too. How do you think about that? Well, it's terrible. I have to say. Do you have a lot of? No. And my my father to this day thinks I'm the biggest sucker on Earth. He just and that is often the way, you know, the the generation goes.

What happens is if you started with nothing, you had to be such a risk taker. And then I think what happens is that propensity to risk falls over the generations, but often so does the corresponding ability to build wealth. And that did not happen with my father. I think partly because of the rivalry with his father. So they both went through life with a lot of margin calls and a lot of

I took on quite a lot of debt to buy out the partners of the management company. In that sense, you could argue I was on margin. As my father said, "Nothing focuses the mind like a little debt." We're all on margin. Mortgage is a margin. Yeah, that's true. Although, believe it or not, I didn't even have a mortgage.

I always wanted this idea of just having a very stable and never wanting to go back to go. Going all the way back to the dog walking and how important it was to me to have money. My father would say that I should be embarrassed at how conservatively I've run my financial affairs.

And that I would have a dramatically different net worth if I had been willing. By the way, not just to be on margin, but not to have my money in the funds. Because it being in the funds meant that I was running my portfolio as theoretically quite a high net worth individual that would be willing to have 40% in a single stock easily. Wouldn't it make me nervous at all?

I can't run a fund that way, or I felt I couldn't. And so what that meant is that if I had simply bought each stock that I ever bought for the funds in a personal account and held it, then I simply never would have sold simply because something was getting too big. Whereas in the funds, I do that all the time. And it's been a terrible mistake. So if I had never done that, Costco would be

whatever, 40% of my worth, Amazon would be 40%, Google would probably be 20%, and Berkshire would be 20%. There'd be pretty much everything in there, those four or five positions.

But I felt it was the right thing to put the money in the funds. And so, the result is I have this enormous tax inefficiency. I'm selling things and realizing gains that I wouldn't do in my own life, but I'm doing it going back to the idea that we have a client where that's all they have. And by the way, they might have gotten in the day before.

So, you know, if I say I bought something at a 4% position and now it's 40 and it goes back to 20, I'm still fine. But the person that got in that day before isn't fine. So but I feel intellectually at peace that that was the right way to do it. But of course, I still have my father's voice in my head saying, what a sucker. You know, you should have, you know, as I say, my father is crazy.

giving away a scale of fortune every year that's just mind-blowing. And it is incredible the impact that he's had on a lot of kids' lives doing that. I will have less ability to do that, relatively, in all likelihood.

But that's okay. I've liked doing it this way. And I think I've ended up with great colleagues and great clients and a great board as a result of all of those things being aligned. That's a great segue into the question we always end with, which is what is success for you?

Well, I mean, for me, that is one where Charlie shaped that from the beginning. It's just living your funeral backwards and thinking about, you know, well, I'll give you an image that was true image. I talked about this recently, but this idea of, you know, I came up to this.

house after being out for a dinner and all my kids were there. And it was glowing on the inside. It was like Courier and Eve's. It was so beautiful. And I saw all my kids at the dining room table with their significant others and laughing. And it was this moment where I felt like I didn't even need to go in. And so-

That, you know, in that dimension of life, just this just intense love and admiration I have for them and my curiosity at how it's going to play out. And the fact I mean, one of the things I love is that my my daughters are friends, even though they're 13 years apart. And it's a very, very unlikely friendship. You know, one is that Princeton kid running a big residential real estate operation. And like, you know, and the other one is invented a car.

the founder and CEO of what can only be called a sex toy company. But she's just a crazy, exuberant kid living in a totally different world than one that I can grasp.

So there's a lot there. And then of course I love having, you know, building a place where the people that have invested their careers there have felt like they've made a difference and that they've lived meaningful and substantial lives because I'm with them every day, I feel. And then finally where, you know, the clients that come along there feel like they were treated well and that, that they, you know, the advisors got a little better at their jobs because of how we did things. And, you know, it's just, it's,

There was a man who ran one of the big accounting firms. I can't remember which one. And he died very young. In fact, he died within a year or two of becoming the managing partner of the firm. I can't remember if it was E&Y maybe. And he wrote a book called Chasing Daylight in his last year. He only lived for a year. It was a bad brain cancer. And he wrote this book about shutting down his life.

And it was very unusually positive. It's not a great book, but it was very emotional. I knew him a little bit. And he talked about these concentric circles. So he's like, you know, when he first found out, he's like, OK, I've got to get the firm secure. And then, you know, I've got to

work on these relationships that I left hanging in different ways and I want to make peace with these things. And it sort of got smaller and smaller and smaller down to his immediate family and then just to his spouse. And I think that's sort of the right mindset to think about is these sort of concentric circles. And

you know, in some ways, the outer circle, you think it's the biggest, it matters the most. I have a feeling the end, it may matter the least, but you still want to get it right. So I think about him and the circles and that chasing daylight idea. That's a beautiful way to end this, Chris. Thank you so much for your time. Are you kidding? I was so glad to be here. This was just a complete pleasure.

Thanks for listening and learning with us. For a complete list of episodes, show notes, transcripts, and more, go to fs.blog slash podcast, or just Google The Knowledge Project.

The Farnham Street blog is also where you can learn more about my new book, Clear Thinking, turning ordinary moments into extraordinary results. It's a transformative guide that hands you the tools to master your fate, sharpen your decision-making, and set yourself up for unparalleled success. Learn more at fs.blog.com. Until next time.