Li Lu Charlie Munger And Warren Buffett

20 years ago as a young student coming to the United States I couldn’t have imagined having a career in investing and would have never thought that I’d be fortunate enough to meet Charlie Munger in 2004 Munger became my investment partner and has since become my lifelong mentor and friend an opportunity I would have never dared to dream about Charlie and I first met at a mutual friend’s house while I was working on investments in La after graduating from college the first impression he gave me was distant he often appeared to be absent-minded to the presence of his conversation partners and was instead very focused on his own topics but this old man spoke succinctly his words full of wisdom for you to mle over 7 years later at a Thanksgiving gathering in 2003 we had a long heart-to-heart conversation I introduced every single company I’ve invested in or researched or I’m interested in to Charlie and he commented on each of them I also asked for his advice on the problems that I was encountering he told me that the problems I’ve encountered were practically all the problems of Wall Street the problem is with the Way That Wall Street thinks even though burshire hathway has been such a success there isn’t any company on Wall Street that truly imitates it if I continue on this path my worries will never be eliminated but if I was willing to give up this path right then to take a path different from Wall Street he was willing to invest with Charlie’s help I completely reorganized the company I founded the structure was changed into that of the early investment Partnerships of Buffett and Munger investors who stayed made long-term investment guarantees and we no longer accepted new investors I then entered another golden period in my investment career in the next 12 years the capital grew more than 20 times Buffett said despite the countless people he has met in his life he has never encountered anyone else like Charlie and in the years that I’ve known Charlie and was fortunate to be able to intimately understand him I am also deeply convinced of that even from all the biographies of people from all the ages I have yet to see anyone similar to him Charlie is such a unique man his uniqueness is in his thinking and also in his personality when Charlie thinks about things he starts by inverting to understand how to be happy in life Charlie will study how to make life miserable to examine how a business becomes big and strong Charlie first studies how business is Decline and die most people care more about how to succeed in the stock market Charlie is most concerned about why most have failed in the stock market his way of thinking is I want to know where I’m going to die so I will never go there that is actually uh my favorite book out of you know probably I don’t know read 10 15 books on Warren buff and Charlie merer my favorite one is on episode 286 it’s called all I want to know is where I’m going to die so I’ll never go there Buffett and Monger a study and simplicity and uncommon common sense let’s go back to this his way of thinking is I want to know where I’m going to die so I will never go there that’s episode 286 Charlie constantly collects and researches the notable failures in each and every type of people business government and Academia and arranges the causes of failure into a decision-making checklist for making the right decisions because of this he has avoided major mistakes in his decision-making in his life and in his career the importance of this on the performance of Buffett and birkshire hathway over the past 50 cannot be emphasized enough Charlie’s mind is original and creative never subject to any restrictions shackles or dogmas he has the Curiosity of children and possesses the qualities of topnotch scientists and their scientific research methods he has a strong thirst for knowledge and now rereading this again these are all traits that leelu has imitated and adopted so let’s read that again Charlie’s mind is original and creative never subject to any restrictions shackles or dogmas he has the Curiosity of children and possesses the qualities of top-notch scientists and their scientific research methods he has a strong thirst for knowledge to him with the right approach any problem can be understood through self-study building Innovations on the foundations led by those who came earlier Charlie Advocates studying all the truly important theories in all disciplines and building on the foundations of the so-called worldly wisdom as a tool for studying the important issues in business Charlie’s way of thinking is is based on being honest about knowledge he believes that in this complex and changing World there will always be limitations to human cognition and understanding you must have the correct understanding of knowing what you know and what you don’t know the true insights a person can get in life is very limited correct decision- making must necessarily be confined to your circle of competence a beautiful lady once insisted that Charlie used one word to sum up the source of his success Charlie said it was being rational Charli can see through to the essence of things Buffett calls this characteristic of Charlie the two-minute effect he said Charlie can in the shortest time possible unravel the nature of a complex business and understand it better than anyone else can the process of bir shire’s investment in byd is an example I remember in 2003 when I first discussed byd with Charlie despite having never met the founder uh never visiting byd’s Factory and being relatively unfamiliar with the Chinese marketting culture his questions and comments about byd remains to this day the most pertinent questions a byd investor needs to ask everyone has blind spots and even the brightest people are no exceptions Buffett said Benjamin Graham taught me only to buy cheap stocks Charlie allowed me to change my thinking that’s the real impact Charlie’s had on me I needed a powerful force to walk out of the limitations imposed by Graham’s theories Charlie’s ideas were the source of that power he expanded my horizons that is the end of Buffett’s quote this is leel talking talking about this I’ve also had this profound experience Charlie pointed out the blind spots in my thinking he is not just a partner he’s a role model in my life not only did I learn from him the principles of value investing but I also learned from him how to live life he made me understand that a person’s Success is Not accidental timing and opportunities are of course important but the inherent qualities of people are even more important Charlie likes to meet people for breakfast usually starting at 7:30 a.m. I remember the first time I had breakfast with Charlie I arrived on time only to find Charlie sitting there finished with the day’s newspapers while it was only a few short minutes away from 7:30 I felt bad letting an elderly man I respected wait for me for our second date I arrived about 15 minutes early and still found Charlie sitting there reading the newspaper for our third meeting this is one of my favorite stories is hilarious for our third meeting I arrived an a half an hour earlier and Charlie was still reading the newspaper as if he had been waiting there all year round and had never left the seat for our fourth meeting I arrived an hour early and began to sit there waiting at 6:30 a.m. and at 6:45 a.m. Charlie leisurely walked in with a pile of newspapers and sat down not even looking up completely unaware of my existence afterward I came to understand that Charlie will always be early for meetings but he doesn’t waste time either he will take out the new newspaper and read one year Charlie and I were attending an out ofate meeting after the event I unexpectedly met Charlie at the airport terminal his plane had already departed but Charlie was not in a hurry he took out a book and sat down to read while he waited for the next plane as long as I have a book in my hand I don’t feel like I’m wasting time Charlie said he always carries a book on him as long as he has that book he’ll have no complaint Charlie spent his lifetime studying the causes of human failures so he has a profound understanding of the weaknesses of human nature because of this he believes people must be strict and demanding on themselves continuously improving their discipline in life in order to overcome the innate weaknesses of human nature this way of life to Charlie is a moral requirement he is such a unique person but if you think about it if monger and Buffett weren’t so unique how could they have built berkshire’s performance over 50 years into one that is unprecedented in the history of investing and one that has yet to be replicated over the years that I’ve known Charlie I often forget that he’s an American he is closer to being the traditional Literati which is the scholar officials of Imperial China Charlie is the best example of a businessman with a Literati Soul he is extremely successful in business however in the deep intimate interactions I’ve had with Charlie I found Charlie to be essentially a moral philosopher and a scholar he reads widely is knowledgeable over a broad range of topics is truly concerned about his own moral cultivation and is ultimately concerned about Society Charlie’s value system from the inside out promotes self-cultivation and self-development to become the Saints who help other people Charlie very much appreciates confucious I sometimes think that if confucious was reborn in America today Charlie would probably be the best Incarnation if confucious turned 2,000 years later to the commercialized China his teaching will probably be have your heart in the right place cultivate your moral character fortify your family acquire wealth and help the world that was an excerpt from the forward that Leu wrote for the Chinese version of poor Charlie omac the wit and wisdom of Charlie Munger and it is an excerpt from the book that I made myself as you and I covered last week there’s only one book book on Leu it was written by leelu and it only covers his early life and his Escape From China what that version of Lee Lou that was writing that book could never have predicted was what the next few Decades of his life was going to turn out the fact that he attends a lecture from Buffett that changes his life becomes partners with Charlie Monger founds a wildly successful investment company that produces billions and billions of dollars in returns so what I wanted to do for this episode was okay we we already covered his early life is his surviving one of the most horrific childhoods you could possibly imagine now I want to learn how he thinks about business building and investing and so to do so I had to make my own book so what I did is I I found all the lectures I could find and all the interviews I could find of leu in his own words most of them are on video I would take the video I they would then transcribe the video I then printed out the transcription then I organized them in chronological order by the year that he gave the talk and then I treated that giant stack of paper just like a book and so the result is I kind of have like a homemade or handmade uh almost like autobiography of leelu where he’s discussing his investment career and when I’m done I’m going to put this in a binder a three- ring binder and put it up on my bookshelf this is something when I went to Charlie mugg’s house and actually got to see his Library this is something when I realized it’s like oh I’m still a biography amateur because Charley would make his own biographies there’s this very hard to find interview that John D Rockefeller gave towards the end of his life it’s like I think 1,700 pages I think the transcript is 1,700 pages long it’s the William O English interviews that he did with Rockefeller and on Charlie’s bookshelf you see that he had printed out the transcript and then put it into multiple three- ring binders so I’m going to put my own version of leelu’s autobiography when I’m done in a three binder on my bookshelf and so the first part of this homemade book is going to be obviously the forward uh that leelu wrote for the Chinese version of PC the next thing is leelu’s Columbia business school lecture in 2006 I briefly mentioned this last week because the the lecture is like an hour and 45 minutes long or something like that there is like a 17 minute section that is just Leo completely like lighting up and being very disappointed in the lack of effort that the students in the class and the lack of you know just rigor uh that the students of in the class were exhibiting but that I’ll touch on later because he actually goes through and describes his process of how he selects and the the research that he does uh he he uses Timberlin as an example is a very successful investment of his but that comes later I want to start he he starts out like why is he doing this why is he even bothering to to come to Columbia business school and to give this lecture and his whole point was that the fact that he attended a lecture by Warren Buffett when he was a student at Columbia when leel was a student changed his entire life he says this class in many ways is really what made my career at the time I wasn’t even a student at the business school and I was accidentally brought into a lecture and in the middle of that speech listening to Warren a light bulb kind of just went on and I figured that I can do something in this business at the time I was pretty desperate I had recently escaped from China I didn’t know anybody I had no connections whatsoever and I didn’t have any money I was horribly worried about how do I ever make a living in this country and I really didn’t grow up with a capitalist culture either I think this is why last week’s episode is so important why it’s one that I’m going to relisten anytime that I feel like any like self-pity kind of creeping in we have no excuses Lee went from one of the most horrific childhoods you could possibly experience to a billionaire he moves to America no money doesn’t know the language no connections and so right away you also see the similarities in the thinking between leeu and Charlie Munger you know he says bad things if you live long enough bad things are sure to happen to you self-pity has no utility get up dust yourself off and keep going and so we go back to this young lelu sitting in this lecture from Warren Buffett trying to figure out what the hell am I going to do with my life I was horribly worried about how do I ever make a living in this country and I really didn’t grow up with a capitalist culture either what Buffett said about investing really was just so different from my perception of the stock market the more I thought about it the more I thought well gee this may be something that I can do and so one of the first things that he learned from Buffett was that you should really see yourself as more of an owner of a business and therefore tie your fortune to the outcome of that business your your fortune will rise up and down with the nature of the business and if you’re an owner of the business you don’t trade all the time and so that line if you’re owner of the business you don’t trade all the time this is something that lelu is going to repeat throughout the lectures that it’s it’s really monger’s idea of sit on your ass investing which Monger says sit on your ass investing you’re paying less to Brokers you’re listening to less nonsense and if it works the tax system gives you an extra one two or three percentage points per year this important investment philosophy assumes that one is better off buying a business with exceptional business economics working in its favor and holding it for many years then engaging in a lot of buying and selling trying to anticipate market trends constantly buying and selling means constantly being taxed so that’s something that Monger will repeat that is something that leelu will repeat as well and so lelu is telling the students hey uh turns out this Buffet guys you know let me I’m going to read this to you real quick uh I was texting a friend of mine as I was doing research uh for this podcast and I said uh I’m working on another lelu episode but this one is about his remarkable investing career it can be summarized by number one studied Buffett and Munger number two did did that so he tells the students like I’m listening to Buffett turns out this Buffett guy’s pretty smart kind of knows what he he’s doing I should just do that and so then he hits on the advice that he has which I think is the most important I think is the main one of the main themes that you and I talk about why we read biographies and not business books is because General business advice is useless it has to be tailored to who you are it has to be authentic to you and so he’s saying you’re interested in investing well guess what 95% of the stock market is made for Traders 5% is going to think maybe 5% or even less are going to think like like leelou like buff it like Monger so you have to figure out does this make sense to you cuz if you’re not if it doesn’t fit if you’re not authentic to if it doesn’t fit your temperament you’re going to fail and so he says if you’re thinking like us you are really not the majority you are actually a very very very small minority and the stock market is not created for you and that’s really where your opportunities is and that is where the challenge is and that is what I first learned when I listen to Buffett that is one of the things that stuck in my mind because I really know I really knew by then what kind of person I was your biggest challenge is really to understand whether you’re that 5% of people or you’re like the 95% of the majority and I think this is overlooked and really excellent advice because this is key to enjoying the game his whole point he’s like all the values in the long term if you’re building a business is not authentic to you if you don’t enjoy it you’re not going to last decades and that’s where all the money is and in many cases and in leelu’s case it takes an experiment you have to know what you don’t like to do so he’s like listen I always knew I was going to run my own fund that he knew but he didn’t know how he was going to run the fund and so one of his early backers was Julian Robertson who was the founder of tiger management and so he tells lelu he’s like hey come into the office uh come like work out of here with all these other trainers lelu is going to talk about this uh in more detail in another interview later but this is where he realized he like I’m not part of this 95% and so says Julian invited me to share office with him and invited a whole bunch of other fund managers that he also invested in to share ideas and that’s when I sort of got a much better understanding of how the 95% of other people operated and so most of the were trading all the time they were shorting stocks and lelu is like I don’t like this isn’t I don’t like this lelu is much more like monger and buffo where he wants to sit in a room read think he Compares his job to to an investigative journalist but he’s like this doesn’t match me and so after describing this period of time where he’s like I don’t like this this this kind this version of the business he gives excellent advice again that I think too many people Miss especially people that don’t read biographies Miss so my first point I want to leave you with is really to understand who you are because you will be tested you are going to really have to ask yourself you’re going to have to face yourself whether you’re a value investor or you’re not and he says if you want to be like you know if you want to be an value value you want to be like Lee Lou if you want to be like Charlie Munger if you want to be like Warren Buffett that means that somehow you’re probably genetically mutated you are very comfortable being in a minority which is not natural to human beings most of us survive because we stick with the group and if you’re like leelu and buff Ander you would naturally adopt the attitude that you’re right not because other people agree with you but because your your reasoning and your evidence showed you that you’re right when I got to this part I searched this because I was like I know Buffett said something about other people’s opinions over and over again and that’s what I was thinking about when I got to this paragraph So in that book that I mentioned earlier which I feel is the best book that I’ve ever read on Buffet Ander which is all I want to know is where I’m going to die so I’ll never go there written by Peter bevelin Buffett says two things about this first quote from Buffett we don’t read other people’s opinions we want to think we want to get the facts and then think and then later on the second thing he says uh Buffett says I would say that if Charlie and I have any advantages it’s not because we’re so smart it is because we’re rational and we very seldom let extraneous factors interfere with our own thoughts we don’t let other people’s opinions interfere and so we go back to leelu he says this is common sense but of course common sense is the least common commodity that is a great line common sense is the least common commodity most people don’t think that way and so he’s like you have to ask yourself how do you want to spend your time and for leelu he’s like I want to spend most of your my time or your time uh truly being an academic researcher instead of being a so-called professional investor most of the time the job really is to be a researcher to be a journalist and then he describes the traits that you have to have if you want to go down this path he’s really describing himself here uh you have to have insatiable curiosity you have to have an insatiable curiosity to really try to figure out about how everything works the more you know the better off you are and so you have to be naturally interested and curious he matches that intense curiosity with the fact that he reads everything there’s a line in a young Churchill’s um biography that I read they talked about the difference between I think he was like 26 when he was in Parliament he said the difference between Churchill at that time and his competitors or I guess his fellow lawmakers was they would contend to read like today’s newspapers where it said uh there’s a line in the book where say Churchill devoured entire shelves that’s how I think about leelu devouring entire shelves so he’s like of course you have to have this natural intense curiosity he says this will help you you’re obviously reading everything he says it will help you because then occasionally you will find a few insights all of your studies would really just give you a handful of tremendous opportunities and so when he talks about all this reading all this thinking all this research will only produce a handful of opportunities and obviously when you when you find these opportunities you want to bet really heavily in in fact I have a uh I have a a coffee mug of Warren Buffett’s wisdom and it has like quotes and I just pour espresso into this thing all day long and there’s a line uh that I was thinking of because on the on the coffee mug uh it’s a quote from Warren it says opportunities come infrequently when it rains gold put out the bucket not the thimble and the reason I thought about this is because multiple times uh people ask leelu because he takes questions in almost all these talks it’s like well well how much money do you put into this investment in what large percent of your what percentage of your portfolio and everything else and my funny his funniest answer to this was like how much money did you put into this he goes a shitload and so I was thinking about that because my first introduction to to leelu came when I heard Charlie moner described the fact that he said reading Baron’s magazine for 50 years made him like $400 million and he described why because he’s like I read Baron’s magazine for 50 years the entire 50 years in readed Baron magazine I found one actionable Insight that I could actually uh I could I could make an investment in that Insight uh gave him 80 million and then he took that 80 million gave it to leou and lelu turned that into 400 or 500 million and so I think that’s a great illustration for what lelu the point that lelu is trying to make here is like you’re going to do all this reading all this learning all this research and over your lifetime you’re going to have a handful of insights and you know if you act on those insights you’re going to be fabulously fabulously wealthy and so he’s going to start walking the students through how he found and how he thought about this investment in Timberland which I think went I think he returned like 600 700% maybe even more and so he he’s doing this research he’s like okay you have to find out the opportunity you’re given is the business a good business is there a margin of safety is the management somebody that I can trust and why is this opportunity presented to me and so the first thing that he tells the students he’s like listen I no longer talk about what we own in other words Bad Boys move in silence but I can pick a couple examples of something that I owned in the past and he’s using this as an illustration or I guess an example of how he thought about how he thinks about investing and so during this he’s holding this giant book so Val it’s the value line investment survey which is a stock analysis tracks approximately you know 1,700 something like publicly traded stocks it’s a giant book and he’s trying to walk the students through on how to analyze businesses that are in this book and so again Lee just like Churchill just like most of the people unit study they devour entire shelves so he’s like I got hooked on value line and I would read the entire thing from beginning to end he says that’s really the best kind of education if you want to have an encyclopedic knowledge base you have to go through Page after page after page doing so is just enormously helpful and if you really think about the idea behind the idea like what is he trying to tell the students he’s is like how bad do you want it that right there the amount of people are going to read cover to cover this giant book that it’s in the video it looks like you can work out with the thing how many people are willing to do that right there it’s going to eliminate like 95% probably greater 95% of people it’s going to eliminate most of the people are sitting in this Columbia these are MBA students and they’re not even doing it and this is why studying the early lives of these entrepreneurs investors that you and I studying is so important because this guy had I don’t know if I mentioned on the the podcast it’s in the book last week he had 500 books in his dorm room this guy grows up in unbelievable poverty in the communist country no uh no opportunity at all what do you think that kind of person is going to do when they get to America they go to Columbia he hears Buffett speak and then he realizes wait there’s a book that does this in-depth analysis on all the stocks okay yeah I’m going to read every single page multiple times wait till we see the analysis that he does for Timberland this guy’s going to devour entire shelves so he pulls this up he shows the the the value line sheet on Timberland and he’s like listen you don’t really care where it traded before the first thing I look it at is valuation and if the valuation doesn’t fit I don’t even really want to go beyond that so he is walking through the class on how he starts understanding a business and he makes the point if you’ve done this work if you have this encyclopedic based of knowledge if you read every single page then what happens is it speeds up your learning process later on so you can pull up a page he says listen if you’re skilled it shouldn’t really take you more than a second to find it and then the next thing you want to do is you says or next he does he says I always think of myself as a business owner and he thinks if I could buy the entire business at this price then I probably want to own it meaning buy the stock and so he senses there might be an opportunity with Timberland Timberland’s got a brand name a good brand name but the stock is just getting completely killed at the time there was the the Asian financial crisis and all the the shoe makers that were like they were depressed the prices were depressed because they thought their sales in Asia are just going to fall off a cliff and he mentions this is Al happening to Nike and Reebok at the time and so he goes and tries to find analyst report on Timberland what’s going on with Timberland he says it turned out there’s no analyst report nobody was even covering this and that didn’t make sense to him because he said the company’s doing about a billion dollars a year in sales it’s a big brand why is nobody covering this and so he walks people through this he’s like well it’s always been really profitable and therefore they didn’t have need their need for the financial Market is very limited any other reason he’s constantly okay like you’ll answer one thing and he’ll go okay more more more any other reason well the ownership structure what’s the ownership structure well it’s family-owned they own about 40% of it and they control 98% of the vote and so leelu says immediately that turns a bunch of people off and he brings up the point he’s like you really you should think of yourself as an investigative journalist and he says you’ve got to have a very active very curious mind a mind that wouldn’t be satisfied with any bogus answers otherwise you can’t be in this business so he’s like okay we have the Asian financial crisis we have the fact that there’s no analysts covering Timberland what else could be the reason why he feels There’s an opportunity here why are they keep why is our stock getting absolutely battered turns out there’s a whole bunch of lawsuits so what do you do next you already know we’re going to pause right here you already what do you think leelu is going to do next he says you’ll download every single piece of the document for every single one of the court cases every every single case and you read them from page one if you do not have a curious mind you’re not going to do this I am just so curious I want to know what’s happening this doesn’t add up and so you have to dig into every single thing and you have to read everything as I did he’s talking about effort there is so many times so obviously as you know like I underline things as I’m reading them and I jot down to myself like what comes to mind sometimes there past ideas sometimes there stuff I have to search on uh sometimes it’s like oh this is an idea related to something else he said multiple times if you were able to see this little handmade book that I made you’re going to see the word effort in cap loock cap in all capitals in a big giant ass Circle because that’s what he’s talking about he’s talking about effort just like Munger and Buffett talk a lot about human nature and human psychology so does leelou remember what he said you know Common Sense is the least common commodity you know what else is a least common commodity effort and hard work over a sustained period of time most of humanity is incapable of doing so so this continues and like I have a big smile on my face as this continues to go on because just the effort that this guy is going to do remember he’s when he pulls the trigger it’s he’s not like dabbling around you know there’s a great line where it says Walt Disney seldom dabbled everyone who knew Disney remarked on his intensity when something intrigued him he focused himself entirely on it as if it was the only thing that mattered that’s the same description for lelu too okay so at this point he’s like all right I found oh there’s all these La cool I’m going to print out every single case and read it front to back and what he realizes is like oh this is fantastic you see the owner of the business right he kind of like getting pissed off there’s like this fight between him and some like uh some other investors and leelu says you get a sense of his personality by reading those documents because you can vividly see his defense and so the owner is like I’m not going to talk to the street anymore I’m not going to give you any guidance uh I don’t need a damn dollar from anybody else this business is wonderful and so the people that didn’t do the work right how many people let’s say there’s 100 people that knew about the lawsuits that’s going to scare a bunch of people away how many of those 100 people actually read the do every single word and every single document like leelu I don’t know one two maybe and so this is beneficial for people like leelu because these lawsuits served a purpose they scared they scared The Superficial people away and so now Lee is starting to get a little bit more comfortable with them he’s like okay well that’s nice like we still have to find out are they actually good managers how do we know that they’re decent people and this is where he goes back to he like I view this job as an investigative journalist most people who have built businesses have also have a big personality yes they do and they have a history they can go and audit they’ve left a trail of evidence of what kind of person they are and what they’ve done how they deal with different situations and so this is I mentioned this last week he goes to their Community he goes to their church and he says you go visit everyone you spend a few weeks there so let’s use that example again there’s 100 people may be interested in this potential investment in Timberland how many people out of the hundred are doing what lelu did now it’s not even two or three it is one and lelu doesn’t stop there he says the fellow actually I think this is the founder of Timberland uh he says this fellow actually only graduated high school he’s a relatively simple guy but he’s a nice decent guy it turns out he has a son who actually went to bus school now I’m going to have a hard time not laughing at this it’s inspiring to me he’s just like I want to be the best in the world at what I’m doing I want to give full effort always everywhere and it’s like would I like I wouldn’t even think to do this listen what he does so turns out the Timberland founder right he has a son his son actually went to business school his son was actually my age at the time so I go and find out all the boards that the father and the sons sit on and I find one of these boards that the son is on is run by a friend of mine so I get myself invited onto the board I join the board along with the son and we become very close friends and then I really know what’s going on in that family if it turns out to be one of the most admiring families I’ve ever met they are wonderful and they also happen to be brilliant businessmen this is incredible this is also related when I got to this part like think about Charlie Munger would talk about the dangers of multitasking for for decades and this is a perfect example of this because this is why multitasking is so dangerous you don’t have time to go to the extremes and the value is found in the extremes so in addition to this he goes to all the different stores he talks to all the storage managers and he he he does the work for us he summarizes this for us think about how much effort you put in to get the damn thing right and so now he realizes he has a margin of safety he understands he has a very in-depth thorough understanding of the business from adz and he makes his investment and they ask him well how much did you put in he goes I put a shitload on them and over the next two years the damn thing went up seven times that’s Charlie muger Charlie muger said you should remember that good ideas are rare when the odds are greatly in your favor bet heavily that is the same idea that Buffett has on my coffee mug opportunities come in frequently when it rains gold put out the bucket not the thimble go back to the text message I sent my friend I’m working on another lelu episode but this one is about his remarkable investing career can be summarized number one study Buffett and Monger number two did that monger and Buffett said up good opportunities are rare when I find one go all in leelu’s version of this is I found a great opportunity I put a shitload on him and then over the next two years this damn thing went up seven times he talks about talks about the beginning makes the investment okay this is before this giant increase in value he goes the CEO goes and starts doing analyst meetings Okay so lelu is gonna you already know leelu is going to show up at the analyst meetings okay you know how many people are at the first analyst meeting it’s the CEO leelu and one other guy three people and then after the increase in value which is I think the end of uh I think this is happening in the year 2000 he says the room was just absolutely filled and then he says so that’s when I know I have to sell so I sold everything think about that the stock goes up 700% or whatever it is and then the meetings are packed and then he’s summarizing exactly his thinking and this thinking it’s coming out of leelu’s mouth but this these are you know buffing among ideas you don’t you just have to sit on your ass you don’t have to do a g a damn thing that’s the good thing about buying a really good business the business will take care of itself the opport opportunities like that don’t come very often so when it comes you have to seize it when opportunity comes you have to jump on it and that’s what I did when he continues a few paragraphs later when opportunity comes you can tell you can smell it he’s assuming you did the work necessary right you can smell it how can you really develop that smell the only way to do that is just reading page after page after page and then he’s asked again he was asked what percent of your fund did you put in Timberland he said a [ __ ] load of money so then we get to the part this is when they start analy keep in mind he just went through how he analyzed timin right so he’s like okay we’re going to pull out value line we’re going to analyze some of these businesses together this is when they start analyzing together and this is when he absolutely lights them up and so he starts think of yourself as an owner this is something he tells over and over again and he asks like very simple questions right like what is the market cap and he goes come on it’s simple come on I thought you guys did all your homework did anybody do homework not one hand raise your hand if you did homework one person in the class one hand goes up and I think that guy even gets to the next question wrong so we have to question if he even did his goddamn homework and he says how the hell are you going to make it in this business and I wrote in the column in the margin they would not be one of three at the analyst meeting so it continues I’m I’m going to just talk I’m just going to talk about his reaction to them right because this is effort how bad do you want it come on guys you’re the Columbia business school what do we pay you for come on guys you have work to do this is not good Bruce the teacher he goes I don’t know what the hell you’re teaching them come on this goes on for pages and pages so I’m going to skip over this it’s so bad this is his response this is why all my employees I had never went to business school they never worked in an established management firm and some of them never even had accounting because I find it’s easier to train them than somebody who did this is something that pops up in the biographies a lot that in many times especially if you’re running your business differently these are you know from very I hate to say this but like very much like first principles thinking it’s better no experience than bad experience better no habits than bad habits and so they’re going back through uh this stock there’s just one thing I want to pull out that I think is a really important um point that you shouldn’t be fooled by what things are called or what things how things are described but you should be asking how do they actually function and so there’s uh this business that they’re analyzing that has a bunch of other businesses and one of the businesses that they own is like this department store it’s called a department store but it’s not like you and I would think about a department store has that’s holding all its inventory therefore the book value of this department store it’s worth more than the book value uh in his opinion he says it’s not a department store that like we understand here they don’t take any inventory it’s more like a shopping mall that would take a percentage off the top line of all the merchandise and all the stuff that they sell there and so it’s clear from his description when he when he’s talking about this section he’s like oh I don’t care what you you’re calling it I don’t care what you’re describing it like what you describe it it’s like what does it actually do how does it actually function and so after like struggling through this and kind of you know CR criticizing them or just you know chastising I guess for a lack of effort is the way I would put this he he makes the point again this type of approach is not natural however if you come to the conclusion that your personality somehow will fit this mutated gene pool this is something you might really be looking to do the only thing I can add to this is that there’s a lot of money in it as has been repeatedly proved by people from Ben Graham to Buffett and everybody else I took this class and it really changed me fundamentally but one thing you have to do is you’ve got to do it that’s why I was somewhat disappointed with the amount of work that you have put into this I made hundreds of thousands of dollars just taking this class just listening to the 14 or 15 people but I did a lot of work I’m telling you you can make a lot of money if you’re really into this not only just listen but do it I benefited hugely hugely just by listening and actually doing it that is the difference there is no [ __ ] Theory all everybody’s telling you is what works it’s what works you guys have a terrific opportunity and if you don’t really use this then shame on you you’ve got to do it you’ve got to use it you’ve got to do it I mean you’re young you have energy there’s nothing to lose and he starts talking about what becomes his his Mantra that other people describe as his Mantra in in his investment company you want to provide accurate and complete information accurate and complete that is his Mantra most people will fail on both of those scores big time and you have to go that extra length in order to get it done the extra length he described in the Timberland right if you can’t succeed on that you cannot succeed in this business because most of the time you’re going to stand alone and you’re going to be against just about everybody else and if you’re not really confident about what you know you can’t possibly be putting that kind of money into something if you want to do the buffet and Monger type which is more of the kind that I want to do he’s describing this is Lee and you want to be that way your return is going to come from a handful great ideas are rare there’s going to be no more than the number on two hands your entire life he says over a course of 50 years you might get tremendous Insight you know on no more than 10 insights essentially tremendous insight and what he means by tremendous Insight is we’re just going to bet the bet the entire house how do you really build that Insight there’s no other way than other than basically continuous curiosity intense curiosity and continuous study your entire life I would also say this is why Founders that still run and control their company do so over a long period of time have such a massive massive Advantage because think about this like Sam wal talks about you know I never really had to invest in much I never really invested in much outside of Walmart and how many people understood Walmart the way Sam Walton did probably nobody on the entire planet and so therefore he can direct not only all his money but all his time and energy into this thing cuz he knows it better than anybody else and by just by getting that one Insight getting that one that one fundamental understanding of his company didn’t need anything else even if he never invested anything never bought a stock never made an investment in another company he’s still fabulously Rich that idea that fundamental truth is gets me fired up and then Lee talks about the other side of this that his mistake because he’s he hounds on the margin of safety right he’s like you know he’s lost some money but in very rare cases and he’s say his biggest mistake is actually not making a big bet when he had that tremendous opportunity uh so he says the biggest opportunity uh came or the big biggest mistake or the missed opportunity came from this company that I had an absolute Insight on uh I had the absolute Insight I knew the management I knew that they were trading below cash and subsequently that went up 50 to 100 times and I missed it I couldn’t bring myself into it that was the biggest biggest mistake I made the biggest mistake is not how much money I lost it was how much money I for gone that is the biggest mistake I cannot forgive myself for making that mistake and so then lelu is going to elaborate on why and this is going to sound a lot like Warren Buffett’s punch card idea so lelu says you go through your life you might not have more than five or 10 insights you developed that over many many many years of study some of the things I’m doing I really found myself doing first 15 years ago so what he means I studied an American company 15 years ago and now I found the Asian counterpart but I studied that this is for 15 years in between I know everything about that industry and what really makes that business tick you need to have that kind of insight in order to really swing with conviction and if you cannot do that either psychologically or because you’re ill-prepared you would just never really make any real amount of money so I got to that part and I was like oh that’s another one of you know Buffett’s ideas and munger’s ideas essentially coming out of you know leelu is just echoing what he learned from them and so Buffett goes and I think he’s speaks to University of Florida MBA students but this is from the biography snowball and so it says uh to the students Buffett explained his 20 punches approach to investing you get very rich he said if you thought of yourself as having a card with only 20 punches in a lifetime and every financial decision used up one punch you would resist the temptation to dabble you make more good decisions and you’ll make more big decisions I need to actually read something to you I watched this video of Charlie Munger it’s like 90 seconds long and uh it says it’s titled Charlie Munger on what’s different about Lee not only did I watch it 20 times this week but I sent it to a bunch of friends and I transcribed it and I this really is and now it’s like making me pause this week and really analyze how I’m spending my time and really making sure that I’m analyzing everything through opportunity cost and only taking the best opportunities of a right so Charlie M says leelu I’m I’m getting off of the the text that we have uh the leelu book that I have in my hand I’m going to this transcript of this Charlie Monger video because I I really do believe in 90 seconds he gives us like a lifetime of of lessons there’s a bunch of great ideas in here and so he says leelu is not normal he is the Chinese Warren Buffett he is very talented in 95 years I have given Monger family money to an outsider to run once once in 95 years and that is leelu and he is HIIT it out of the park and that’s pretty picky once I have leelu if I am comparing to him who else am I going to pick by the way that is a good way to make decisions and that is what we do meaning him and Warren if we’ve got one great thing to do more of we are not interested in anything that is not better than that that simplifies life a great deal and so when I hear that when I read the transcript I know Monger has talked about this over and over again talks about making all of your decisions to opportunity costs and if you would do so you’re obviously going to be your bets and what you invest in your time and energy is going to be heavily concentrated so I go and I search and I was like okay I know he’s talked about this before I go to Founder’s notes and I search opportunity cost first thing I find is a quote from Munger from that book I keep mentioning all I want to know is where I’m going to die so I never go there episode 286 he says decisions this is Monger speaking now decisions in your life are all about opportunity costs and wise people think in terms of personal opportunity costs in other words it’s your Alternatives that matter that is how we make all of our decisions the genius in Buffett’s advice to the students if you really think about it he’s just like well what’s a good way to make sure that you’re thinking through opportunity cost saying hey I’m going to limit your entire life you have 20 opportunities and no more that forces you to weigh them against the Alternatives does it not so now we go back to leelou and he’s talking about the fact that hey hey if you don’t if you didn’t do the work if you’re not psychologically you don’t you don’t have the temperament to it you’re not ill prepared you’re never going to make any real amount of money you’re not going to make the outsides returns that Buffett has been able to achieve why should it be easy opportunity that gives you 10,000 times your money and he says their biggest ideas meaning monger and buffets their biggest ideas really gave them 10,000 times their money an opportunity like that if done once in your life and you’re set why should it be easy and then he ties that back to how he started this he’s like you got to build something that is authentic to you because if you’re not deeply interested if you’re not obsessed you’re not going to do what what he did they just go back to the Timberland example it’s like he downloads everything goes to their Church gets finds out what boards they are and then gets elected to the board like he just not going to do that and he says this is what really drives me in the business it’s exciting it’s utterly exciting and he extends this to everything he treats the really the lelu treats the world like a classroom he’s like you know I was interested in physics and Mathematics and history and economics and law in politics I like everything I’m interested in everything and that’s what you need you might need models from biology some of them help my investing you have to be intensely curious about everything and occasionally you’re going to stumble into a big opportunity you want to go through every day learning something it’s a good mental discipline to have and as time goes by you have learned a great deal so when I read biology when I read physics when I read history it’s all searching for ideas he even talks about the development of his kid of his daughters like seeing them seeing how human cognition develops he found enormously important he says it’s important to understand psychology I guess it’s all work anyways essentially saying the entire world is his classroom and he goes back to the fact that people like him people like Munger people like Buffett they don’t belong to the stock market meaning they don’t want to trade all the time people describe them as investors but they really are they’re business Builders and so then he’s asked a question like what drives your decision to sell and so I need to be clear when the Timberland investment he made a lot of money on you know he like seven six seven8 X Investments he’s like you you’ll find a bunch of those maybe but what he’s really going for is like these things that you know return 5,000 10,000 like the ones that one of those can make you you know unbelievably wealthy so when you find one of those you don’t sell so he’s going to talk about his evolution of thinking on this so he’s asked question like what drives your decision sell I used to have a philosophy if I don’t want to buy at the price I’m offered then I sell and so he talks about how he evolved away from this and the fact that if you’re in a really great business like first of all there’s just not many truly phenomenal businesses out there and if it is a phenomenal business that leader is going to take a disproportionate amount of the capital even more so in the future than you could possibly guess and so there’s like an indirect way he kind of continues to answer this question and he does that why he leads the students on a way to analyze the business of Bloomberg even though Bloomberg is a private company you can invest in but he’s going to talk about the his anal he has a lot of respect in fact he mentions the business of Bloomberg multiple times throughout the years and later on when he tries to compete with them he even realizes they’re even better than he expected but he’s really trying to to to educate the students I’m like well you know how do you know you have a business that you shouldn’t sell and part of the sexercise is like some series of questions you want to ask yourself like is there an actual moat here that is defensible for many decades to come so they go through a bunch of questions why is it so sticky and a lot of students answers he doesn’t like but one of them he loved and they said well they have high switching costs and so they talk about people that use the machine have a high opportunity cost for their time and it takes a long long time to learn all the functionalities of Bloomberg anything that is hard to learn and that is highly highly highly relied upon to do your daily work once you learn that damn thing you do not want to learn that again and besides then they add another uh advantage to have and besides everybody else uses the same thing you have to be able to communicate with your partners with your colleagues anybody you collaborate is using it this business is win or take all and he talks about one of the genius marketing ideas that Bloomberg had is that they would introduce them I think free are unbelievably cheap to every business school student so then you’re in college and you’re learning how to use the machine and leelu talks about what you could expect to happen after he goes okay I have this thing available cheaply to me I’ll learn this thing but once I graduate and I go on to the world I don’t want to learn that again and besides everybody else is using it and so he makes the point that at some point Bloomberg had stacked up all these advantages and at one point he crossed a line and then once you cross that line where everybody’s using it they have High opportunity cost on time high switching costs takes forever to work to to to learn everybody else is using it too it’s just like he’s stuck in there and so Lee says suppose that was a public company and suppose you had had to develop that Insight that Insight is worth a shitload of money that’s the kind of insight I was talking about that is a virtual monopoly business he’s telling them look for this kind of insight do you even have a choice today of not Lo using Bloomberg he’s asking the question what is the cost of Bloomberg what is the cost nothing you can almost call that zero now obviously he knows it’s you know 30,000 a year or whatever the number is it’s a very expensive but his point is every trade to these kind of people that use it can mean millions of dollars gain or loss so they don’t care if you if you charge them $30,000 a year and if and they don’t really care or they don’t really have a choice if you decide that next year the price is going to be 10% or a year uh 10% a year more they don’t have have a choice that is why it’s a fabulous business a fabulous business he repeats that over and over again and I’m going to pause here I’m going to come back to what he’s saying here because I think it’s really important but like the point of his his hounding on this that you need an encyclopedic you know basis of knowledge you should study all businesses all Industries you should read all the time it’s because you realize this not it has nothing to do with financial services technology it’s a type of business that has pricing power because there is no other alternative and again this sounds a hell of a lot like Charlie muger I when when I just did uh it was episode 355 it’s on this very rare Bernard orol interview right it’s exact he has the same exact characteristics and they talk about the fact that Bernard orol bought Tiffany so it’s raising prices I think the average customer used to spend $500 per like visit to the store now it’s like four times that you know they they ra immediately start raising prices and when I got to that right I thought of that when I got to this Ino but when I got to that I thought of what Charlie Munger said so I’m going to pull this this quote from Charlie merer that I think Lee obviously understood when he’s analyzing Bloomberg says there’s actually businesses you’ll find a few times in a lifetime where any manager of the business could raise the return enormously just by raising prices and yet haven’t done it so they have huge untapped pricing power that they’re not using that is the ultimate no-brainer Disney found that it could raise prices a lot for the Disney parks and a tendance stayed right up so a lot of the great record of Eisner and Wells came just from Raising prices at Disneyland Disney World and so Monger continues at birkshire Hathaway Warren and I raised the prices of seas candy and of course we invested in Coca-Cola which had untapped pricing power and so back to leelu that is why it’s a fabulous business a fabulous business that’s what I mean by Insight you study every business when you have things like that you do not sell and then finally he ends this lecture where the vast majority of my highlights in this little handmade book is going to come from this because he’s remarkably consistent in how he looks at things and what he talks about so obviously he’ll repeat some of the stuff and in future um conversations and and future transcripts I have in front of me but I’m obviously not going to go over it over and over again so he says nothing he really just talks about business is change and you need to welcome that because change equals opportunity so business is change and change equals opportunity nothing is constant that’s the interesting thing about business nothing is constant and that’s why you have to keep relearning things and that’s a good thing that’s a good thing that’s why people who are who have an active mind and are actively prepared and have the psychological temperament to be able to act when they see an opportunity will always always have a chance to be fabulously rich and that is a good note to end on okay so the second talk is alure at Columbia again but this one happens four years later and I’m not going to repeat the ones we just went over but he does tell slightly different stories in this where uh after discovering uh watching that lecture from Warren Buffett it’s not going to surprise you he read every single thing he could about Buffett all of his shareholder letters every single book every single talk he says he embarked on a 2-year intensive study learning everything about Buffett and so he says after I graduated Columbia I worked in Investment Bank for a year and realized that was a mistake I tried to start a fund the first year I managed money I lost 19% that’s when he goes into building the business or life that’s authentic to you if you could ever find something you can do well that you really like this will be your best investment you will do better than competitors if you can do it with intrinsic passion that really over time will add enormous value to you and again I need to point out I maybe I don’t even know I’m going to name this episode maybe it should be just like leou and Charlie Munger and Warren Buffett because it’s like they all have the same ideas Le is saying hey find something you have an in intrinsic passion Charlie merer in Port Charlie ZX says another thing that I found is that an intense interest in any subject is indispensable if you’re really going to excel in it I could force myself to be fairly good at a lot of things but I couldn’t excel in anything which I didn’t have an intense interest going back to LEL the game of investment is really continuous learning I cross that out I really think the better way to say that is the game of Entrepreneurship is really continuous learning and excessively profitable because finding an edge really only comes from a right frame of mind and years of continuous study this is really difficult but on the other hand the rewards are huge Warren says that if you only come up with 10 good investments in your 40-year career you’ll be extraordinarily Rich that’s really what it is with this idea of finding an edge comes from years of continuous study okay so one of the craziest things that that kind of smack me in the face is when I read that other biography of Sam Walton so I think I’ve ran Sam Walton’s autobiography twice and then I read this biography by Vance trimo on him twice so I think my fourth reading really smack me in the face of the importance of like fast and then uh slow and then really fast so he’s talking about you know studying companies reading about them figuring out the management figuring out the opportunity you know this just like you need years of continuous study for a Founder that years of continuous study is obviously going to happen insight and outside of your business so like Sam Walton had seen more retail stores than anybody else on the planet and and The Edge came from he was relatively slow right he like think about this Sam Walton greatest retailer ever lived he had one store a single store for five years and then you look at how fast he learned so that was his you know this is pre this is prehistory of Walmart it wasn’t even called Walmart it’s like a five and dime which we would think of like a dollar store today okay and then you have you know success of Walmart and then he sees the success of uh what he wants to do like like a Costco like a Sam when he starts Sam’s Club and so his at the beginning of his career before he had this years of continuous study one store for 5 years this is fascinating cuz like the faster you learn the faster you compound your knowledge the faster you can actually move in real life so then four decades later he starts Sam’s Club he goes from zero stores to 105 in seven years and 5 billion a year in sales and the edge came from this like slow continuous study because Sam Walton said the key was that they started out under Finance under capitalized in these remote communities and it turned out by running these experience or experiments in these small remote communities that there was much much more business out in these little communities of like 6,000 you know people 10,000 people than they could have ever possibly imagined that one Insight is the foundation of the Walmart financial Empire that is Walton’s version of leelu’s idea of finding an edge only comes from the right frame of mind in years of continuous study and so Lee has some advice for us how do you understand and gain that great Insight pick one business any business and truly understand it I tell my interns to work through this exercise imagine a distant relative passes away and you find out you have inherited 100% of a business they own what are you going to do about it that is a mentality to take when looking at any business I strongly encourage you to start and understand one business inside and out just like obviously Sam Walton understood Walmart that is better than any training possible it does not have to be a great business it could be any business but you’ll need to be able to get a feel of how you would do or what you would do as a 100% owner if you can do that you’ll have a tremendous leg up against the competition most people don’t take that first concept correctly and it is quite sad if you did you would really seek out knowledge on how it should be run how it works if you start with that you will eventually know how much that business is worth and then he talks about the temperament you need to have he he’s like you know I started my first business in ‘97 that was in the middle of the Asian financial crisis then we had the internet bubble and then a few years after after that it was the great financial crash of 20072 2008 he says these are buil these Financial panics are built as once in a century disasters but they happen every few years this is really where the insight and temperament come in you have to have a certain confidence in your own judgment and not be swayed by other people’s views it is not easy but that is life that sounds just like Charlie Munger it is a given it happens to everyone Burkshire has had at least three times when the stock went down 50% it happened to Andrew Carnegie it happened to John D Rockefeller it happens to everyone this happens to even mighty companies look at the top 50 companies in America every 10 years by the time 20 or 40 years go by 2third of them are gone by the time it goes to 100 years there might be only a couple left that’s just the way it is this is why he kept saying businesses change change equals opportunity he says capitalism rewards people who are talented at Capital allocation it is a great game he loves it you he refers to it as a game as a passion as an obsession over and over again he just absolutely loves what he does and so then he continues once you understand a single business insight and out then you start examining the entire industry if you can understand a business inside it out then eventually you can extend that knowledge to understanding an industry if you can get that Insight it’s enormously beneficial if you can then concentrate that on a business with Superior economics in an industry with Superior economics with good management and you get it at the right price the chances are you can stay for a very long time and then he says something in passing that I hope I never forget and that Superior businesses produce a lot of positive surprises you know bad business are just going to throw up one headache after another and so he talks about he starts analyzing byd and the crazy thing I think byd is now like I don’t know 80 billion market cap or something like that maybe more but he started his position in byd in 2002 he’s going to mention the founder of byd and byd a lot throughout the talks but this is lelu on byd in 2010 and so he says when you get into situations like byd you see a lot of good surprises and so he says the founder and his team have this fabulous culture this is nuts I didn’t know this that the founder only raised 300,000 inv Venture Capital before the IPO uh he raised money in an IPO and then Buffett gave him $200 million and so at this point they had 160,000 employees 6 to 7 billion in revenue and 500 million in net profit is amazing he has this ability to adapt in a competitive environment he has demonstrated that ability again and again the way he does automation is far cheaper than anyone else and more reliable he continues to surprise me with his Ingenuity to figure out ways to do something better than anyone else but you cannot truly understand everything about a business in one week it took me 10 years he’s talking about bid still it took me 10 years and I’m still learning new things about by it is a continuous learning process you build this knowledge Base by continually learning and it’s during this section he’s he’s asked a lot of questions from the students in the audience and he talks about the importance of staying within your circle of competence of not being intellectually arrogant and so there’s a bunch of times where they’re giving them like hey are we in a bubble or like some kind of macroeconomic call and so I just want to pull out a couple things he’s asked a question the questions irrelevant it’s outside of his Circle contents he competence he says that’s too big of a question for me I don’t know few questions later ask another thing like this that’s just not my game I don’t know and then he ties it back to just not taking shortcuts and just realizing you have to build this base of knowledge the process and progression is like compounding money in fact you can compound knowledge faster than money if you truly love this game I would suggest that you don’t take shortcuts it might take longer but it’s more rewarding and then he ends this with saying you know the truly great businesses and many times will grow even bigger than you could possibly expect and he gives example of Microsoft with truly great companies it only looks logical in retrospect think about Bill Gates how Bill Gates started Microsoft I don’t think he knew up front that he would take the entire Market because at the time the market didn’t even exist okay so the next talk he gives in 2012 he gives it at San Francisco State University and I found this and I thought the the quality was terrible so I went looking for uh like another recording of it turns out somebody had like remastered it and made it sound better it still doesn’t sound fantastic but enough that I could transcribe it and on that the the remastered version there’s a fantastic comment that I think tells you a lot about leelu this is the comment on the YouTube video thanks for creating a higher quality version my team and I actually hosted this event in 2012 not only is leelu a fantastic investor he’s also a great and humble person we had reached out to him over a cold email asking him to speak at a student conference in San Francisco although he didn’t know who we were nor he had nor did he have any connection to the school he flew to San Francisco gave this speech and then went right back after La after his speech he’s a remarkable person and so I just want to pull out a few of the ideas he had he spoke for like 30 minutes took questions and you know it starts with really this is just about the fact that General business advice is useless it depends on who you are depends on the personality it depends on it’s like hugely important to build a business that’s authentic to you and usually that requires experimenting with things and realizing what you don’t like first which is obviously true and Leu and Charlie merer and Warren Buffett’s case and so he says why is the practice that is being publicized by tremendous successful examples such as Mr Buffett why do more people not follow what they do it turns out it has a lot to do with human psychology and he says it is human nature to love gambling even if everybody knows the odds are stacked against them that has never prevented gambling from becoming a very big business has also endured throughout the centuries but he says this goes against the track record that L and Charlie M and what both have but virtually all the successful investor practitioners do not bet often I need to pause I found another quote from him I think relates to what he’s saying here so lelu says in the short term there will be winners and losers but in the long term there are very few winners if someone can produce outstanding results over 15 years or more we can probably say that they’re they’re something exceptional so his whole point is just like you should just study the greats and then do what they do so back to this many of the very successful investor investor practitioners do not bet often most people really do not have the necessary discipline mental discipline to do that I would strongly encourage you to study successful practices in real life and in examples of History what you are looking for or what he is looking for is you’re talking about an enduring earning generating franchise a compounding machine in other words to know what to look for he says would have first studied all the great examples in the past and so he just pounds over and over again the same idea like hey only go for the best you might only have five to 10 shots in your entire life make sure you do all the work make sure you have the temperament and one of the students God bless him just God bless him but he goes I have to say that’s a pretty high Hur rate come on man he just got done explaining why there’s this flaw in human nature why so few people are able to do so and you just prove his point and I wrote in the column yeah no [ __ ] yeah no [ __ ] it’s a high hurdle rate that’s his entire point and he’s trying to explain why this is so important because if you actually have a great opportunity you only need one when you turn out to be right the upside is just enormous it could really surprise your wildest dreams he repeats it is extremely rare to find no-brainer great opportunities you certainly do not want to diversify away from the opportunity that you have been waiting PTI recently for a long time to discover for some really inferior other opportunities investing is essentially opportunity cost does that not sound like that 90 second video from Charlie Munger right so any other alternative you really have to justify Itself by comparing with the one that you already have Charlie Monger is not going and looking to to run Munger family money with other people that are inferior to leel and when you make that comparison you tend not to really diversify too much all decisions ought to be looked at through the concept of opportunity cost so I’m going to go and summarize these this is the note I left on this page right because you know I may never read this entire page again but I’ll go back and look through them and through my notes and highlights and I want a summary like a quick way to understand what did I learn from this page number one all decisions should be looked at through the concept of opportunity cost number two if you do that you will not diversify too much number three is how you should make all of your decisions okay so the next year he gives an interview with Graham and doddsville and this one’s written out and so in order not to repeat what we already covered in the other talks we going to skip to the second page of the interview part of the game is to come into your own you must find some way that perfectly fits your personality it is a competitive game so you’re going to run into a lot of very intelligent hardworking fellows the only way to gain an edge is through long and hard work do what you love to do so you naturally do it or think about it all all the time even if you are relaxing over time you can accumulate a huge Advantage if it comes naturally to you like this the ones who really figure out their own style and stick to it and let their natural temperament take over will have a big Advantage this game is a process of discovering who you are what you’re interested in what you’re good at what you love to do then magnifying that until you gain a sizable Edge Over All other people one of my favorite sentences out of every single thing that we’ve talked about so far and even though that’s one of my favorite sentences I feel he does even a great job of summarizing the idea behind that with another sentence that’s one of my favorite I let my own personal interests Define my circle of competence so then Lee talks about the influence the same influence that Monger had on Buffett Munger had on Lee when Charlie died Buffett was writing about fact that Charlie’s the architect of the of birkshire so Lee talks about he’s like listen I started out looking for cheap Securities but over time I really fell in love with strong businesses and I think that’s super important he mentioned earlier strong businesses wonderful businesses great businesses they produce positive surprises you want that then a you know a shitty business that you get for a good price and so I want to read from kind of like the eulogy that’s posted on berkshire’s website that Warren wrote after Charlie died and so he says Charlie in 1965 promptly advised me Warren forget ever buying another company like birkshire but now that you control birkshire add to it wonderful businesses purchased at fair prices and give up buying Fair businesses at wonderful prices in other words abandon everything you learned from your hero Ben Graham and Charlie said because Ben’s ideas only work when practice at a small scale with much backsliding I subsequently followed his instructions many years later Charlie became my partner in running birkshire and repeatedly jerked me back to sanity when my old habits surfaced until his death he continued in this role and together we along with those who early on invested with us ended up far better than Charlie and I ever dreamed possible in reality Charlie was the architect of the present birkshire and I acted as the general contractor to carry out the day-to-day construction of his vision Charlie should forever and they this is bold they bolded this on the website Charlie should forever be credited with being the architect so lelu continues I become more attracted to looking for great businesses that are inherently Superior and actually he mentions this because he’s going to talk about Bloomberg again which again he we already know he thinks is an inherently Superior business so he was a the first investor in this company called Capital IQ but what was fascinating is the Insight that he learned about Bloomberg through Capital IQ because they started Capital IQ to compete with Bloomberg he wanted to create something just like Bloomberg and in the process we grew to appreciate Bloomberg much more because it was so hard to compete with them we learned quickly that we couldn’t really compete with Bloomberg I think one of the best ideas for figuring out who is really great inside of an industry you identify who is really great by asking who I do not want to compete with and I think it was Markin recent somebody said one time that you could survey the industry and it’s the one bullet theory I think is what it’s called is you sell all the like the CEOs in the industry if you have a gun with one bullet who you which one of your competitors are you shooting and that’s a good indicator that you know I don’t want to compete with that guy and and if everybody’s saying they don’t want to compete with that person that’s an idea that that’s who’s truly great inside the industry so what we learned quickly is that we really couldn’t complete compete with Bloomberg and maybe that Insight is transferable to his byd investment so talks about you know how were you able to get he’s asked the question like how are you able to get Charlie Monger interested in a company like byd because burshire Hathaway shy away from technology oriented companies keep in mind this is 2013 this interv happening and Lee’s Insight on that is different he says I don’t think Warren and Charlie are ideological they are not ideological neither am I it’s really how much you know the story of by is relatively simple the guy is a really terrific engineer started the business with $300,000 takes no additional money until the IPO he creates a company that has 8 billion in Revenue thousands of Engineers he solves a whole bunch of different problems then engineering culture there consistently demonstrates its ability to tackle big difficult problems byd plays in a big Big Field with open-ended possibilities and have a and has a reasonable chance of being successful birkshire is not ideological against technology stocks they’re just against anything they don’t feel comfortable with there’s a line Buffett has on that Buffett says that they’re individually individual opportunity driven individual opportunity driven and I would say lelu is too because multiple times like he’s asked questions and they kind of like are you only investing in Asia are you only investing this you’re only investing that he’s just like I go where the greatest opportunity is I’m individual he doesn’t use the word but that’s way I would describe it he’s IND idual opportunity driven leelu continues on byd the company is a learning machine and by this point I’m so deep obviously I’m been deep into buff Ander for years but so deep into Leu I realized like this company is a learning machine okay that applies to byd byid but it applies to birkshire 2 it applies to Munger applies to Buffett and applies to Le to this guy’s a learning machine he also has a great line hidden in here that I really think speaks to the the importance of focus I don’t invest anything outside of the fund I put all of my investment Capital into my funds leelu going back to focus really concentrate on the ideas where you truly have the time and energy to fully understand the situation better than anybody and I believe the best Founders know this know this instinctively that is why Walton was Sam Walton was not doing a bunch of investing outside of Walmart why CU he’s concentrating on the ideas where he truly had the time and energy to fully understand the situation better than anybody back to The Importance of Being a learning machine and constantly adapting there is not a single business that I know of that will never change business is change that’s the fascinating thing about business successful businesses have some combination of things that enable them to adapt to changes better than anyone else I think you could switch out that’s definitely true for businesses right let’s what about successful people right let’s let’s let’s run that sentence back with people instead of businesses successful people have some combination of things that enable them to adapt to changes better than anyone else I think that statement is still true he hits this again on the next page successful companies are able to deal with change consistently and then remember several times he’s he’s repeated you know the fact that M and Buffett are rare great opportunities are rare it’s not supposed to be easy in fact he repeats over and over again that the future is excessively hard to predict and he has a bunch of examples in in trying to illustrate that point and you know it’s obviously important to him because he repeats it throughout almost every single one of these talks but this is the best way that he framed it I was like wow this is a great way to summarize that idea about you know the future is hard to predict he says if you went through the American Civil War the country killed 2% of its population and yet not only was it rebuilt but it was rebuilt at a furious Pace after that it went through two great world wars after World War II if you thought Japan and Germany were doomed boy were you wrong it is hard to predict the future okay the next talk he gave in 2021 and it is the 13th Columbia China business conference fireside chat and he mentioned earlier that the more like foundational uh like the encyclopedic based te know you have the faster you can identify things and he was using specifically like the more you read value line the the easier it is to spot the opportunities and the faster you can do so it’s also true if you’re studying this person so by the time I get to this you know I think the the transcript here runs I don’t know 30 pages or something I had an understanding of leelu and how he thinks to the where there’s only one Insight that I want to share with you from this talk that we haven’t already covered and it deals directly with Focus but I think more than that it’s like once he obviously Le has this ability to trust his own judgment and he knows his path in life a lot of what he’s telling you is like you have to learn to think for yourself and the only way you can trust your judgment is actually do the work that you should be able to trust your own judgment and so he’s asked the question like what other dimensions do you do things differently than other investors and he says I don’t spend my time studying other investors we spend our time studying Industries and studying specific companies in other words he’s keeping the main thing the main thing he is focused he knows that if he does if he studies great companies and great Industries he will develop those rare you know 5 10 15 insights in an entire lifetime that’s all and if he does that and only does that he will be successful and doing things that are not that spending time that is not that the op what does he you know this he makes his decisions do opportunity cost so studying other investors instead of the way he makes money and the main his main business which is studying great companies identifying insights for great companies and great Industries the opportunity cost to study other investors is too high so therefore he doesn’t do it okay and then the final thing is he turns when he turns 50 years old he writes this post about Reflections on turning 50 and I think this is a perfect place to end I could never imagine my life would turn out this way it takes countless Bridges roads means of transportation and years of effort to travel this far the countless people in my life kind-hearted strangers well-wishers mentors Partners friends or my bridges my roads my transportation for getting here without your help friendship and constant encouragement I simply could not travel this far if I have anything to do with that Journey it’s simply that I took it Woody Allen is Right 90% of success is to show up at various stages of my life I could have stopped or took the long rest but for some reason my heart told me otherwise I just kept going half of the time I wasn’t sure where I was heading the other half I was probably taking the wrong turns no matter but I was on high alert to correct mistakes along the way I was careful not to be influenced by emotions that I know are poisonous and counterproductive to the journey things like Envy resentment hatred jealousy greed and self-pity again that’s very much Munger and Buffet esque Monger says self-pity has no utility Buffett says that the world doesn’t run on Greed it runs on Envy they both said that you need to cure yourself of Envy my early life experiences may require me to work even harder than others to guard against these human vulnerabilities and when I did fall to their prey I was fortunate to be able to correct them quickly Socrates was right the unexamined life is not worth living certainly not living well every once in a while I would sit down alone to figure out where I might be wrong in my experience every 5 to 10 years or so I had to change so much about myself that at times it felt like almost a reinvention and when I fail in self-examination I’m even more blessed to have some strong friends who can point out my blind spots I would have been lost in life’s various mazes if I had not gotten that help so through the tumblings and the zigzags I kept going while at the time insisting on sitting in the driver’s seat it is my life and my journey after all according to confucious at 50 one should know his purpose in life what your life was meant to be I believe in confucius’s dictate having done relatively well in additions of my life I’m slowly learning the art of subtraction and focus I would have failed in a lot of professions for example I wouldn’t be good at ballet or basketball but my temperament and experiences prepared me well for for a career in investment I have to pause there I really do think one of the the main themes that reappears in the the teachings of leelu is you pick a career that you have an immense passion and that suits your personality and how you want to spend your time I was extremely lucky to be introduced into the field by the greatest investor who ever lived when I accidentally stepped into a lecture by Warren Buffett at Columbia nearly 25 years ago and it was even more magical 13 years ago when Charlie Monger became my investment partner me and lifelong friend to this day I don’t know to what I would attribute this extreme Fortune it is something even the wildest imagination or the best fiction could not conjure now that I’ve compiled a record of my own for over 20 years I still enjoy the game even better than when I started I have three lovely children they’re beautiful talented and kind-hearted I’m most proud of them reaching 50 probably makes me closer to the end than to the beginning regarding my age my favorite quote comes from Norman leer at 94 years old he’s still active in so many different things collecting fans who were in their 80s their 60s and all the way down to their 20s I once asked him how old does he think of himself without missing a beat he said I’m always the same age as the people I talk to now that is a cool answer now that I’ve officially crossed the halftime line I really need to make more young friends as my new teachers so that I can stay fresh so my friends may we all grow wiser with age and younger at heart always and that is where I’ll leave it for the full story I will leave links to all of my sources you can watch the talks read the interviews they all be linked Down Below in your podcast player and also available at Founders podcast.com that is 363 books down 1,000 too and I’ll talk to you again soon