William Green (00:03:24):
I think what astonishes me about Arnold in many ways is that he was dealt the worst possible hand in life. I think in many cases when I’m writing about great investors, they had extraordinary advantages. They were incredibly smart. They went to Harvard Business School or Wharton. They had loving families. They were born in countries where they had these demographic advantages, like Buffett saying he won the ovarian lottery by being born in the US at the right time and riding this enormous wave after World War II. Arnold Van Den Berg by contrast was born with every disadvantage. Just to give you a sense of it, he has a remarkable story. He was born on the same street in Amsterdam as Anne Frank, and this is in 1939, and he was Jewish, and the Nazis were just about to invade the Netherlands, and Arnold went into hiding basically. He spent the first couple of years in hiding with his parents, and they had these non-Jewish friends in Amsterdam who hid them behind a double wall in their apartment.

William Green (00:04:31):
But there was this terrifying risk that if the Nazis came and searched the house, he or his brother, who was called Sigmund, might cry and the Nazis would find them, and they would kill all of them. And if you were sent to Auschwitz, the first people to die were the babies and the women. And so his parents made this extraordinarily bold decision, which was to have him basically sneaked out of Amsterdam, out of the house, taken into the countryside by a total stranger, who was this teenage girl who saved his life. And I name the girl in the book, because I want to do her honor, because really she is responsible. She arrived at the train station in the countryside, and there was a group of Nazi soldiers actually talking, and didn’t notice the fact that here’s this teenage girl who’s putting her life at risk to save this little Jewish kid.

William Green (00:05:23):
And so Arnold spent the first six years of his life, well, until he was about six, was in an orphanage, being hidden in this orphanage where they basically saved his life. But at the same time they had no food, and so he was malnourished. By the time he was about six, he pretty much couldn’t walk. His parents meanwhile were sent to Auschwitz, but actually managed to survive. And when they came to pick him up when he was six, his father said basically he was skin and bones, they were scared to pick him up, and that if he’d been there for a few months longer, he simply wouldn’t have lived.

William Green (00:05:57):
So you have this guy who started with the worst possible hand. He’s abandoned by his parents. He felt like his parents had sent him away because they didn’t love him. He then moves to LA. He’s beaten up by everybody. Even his father used to beat him up. So he had this terrible childhood, and comes out with all of this rage. They thought that he was malnourished, that his brain had been affected at this very formative age, and he barely made it through high school. The fact that this guy who had nothing, who had no financial education, didn’t even go to college, was able to transform his life, teach himself to invest by studying Ben Graham’s books, somehow build an extraordinarily successful money management business despite that start in life, I think is just one of the great achievements in life that I’ve ever encountered.

William Green (00:06:50):
And what’s extraordinary about Arnold Van Den Berg is that it wasn’t just that he figured out how to win the investment game, basically by studying very simple rules that he learned from Ben Graham, and then following them with this maniacal ferocity and self-discipline, it’s that he somehow took all of his character flaws, like this tremendous rage that he had, this resentment towards his parents, towards Germans, towards the world, towards his first wife who left him for someone else, and he somehow managed to transform himself.

William Green (00:07:24):
He’s become this incredibly loving, kind, generous, warm person who spends his whole time helping other people. There’s a fullness to his life, where you look at him and you think, “He’s not just financially rich. He’s actually managed to build these incredible relationships and help so many people.” And I end the book with him basically pointing to this filing cabinet of his that’s just full of letters from people who said that he had changed their life. And he said to me, “That’s my bank account.” That’s why I regard Arnold as the ultimate role model in a way. It’s like, yeah, he’s been incredibly successful financially, yeah, he’s had great returns over 40 years, but he’s managed to take a terrible hand and turn it into a winning hand.

Stig Brodersen (00:08:10):
There is so much unpack from this story about Van Den Berg, about life, about fortune, about resilience. It’s just amazing learning about him, so thank you for introducing him to all of us, William.

William Green (00:08:25):
Thanks. When I started writing the book, and when I started being interested in investing, I guess as a younger man I really thought investing is all about how you get rich and how you become financially independent and how you achieve this total financial security. And I think that’s true at some level. It’s an incredible game that way, and the rewards if you’re good at it are incredible, but there’s also this inner game of investing where it’s about much more than that. I think one of the things that I became fascinated by as I got older was just, and I’m not that old, I’m 52 now, so in the prime of life, I became more and more interested in what I could learn from them about other things, not just how to get rich, but actually about how to think better, how to live more wiser.

William Green (00:09:09):
And so when I was working on this book, I very consciously focused on people who I actually admired and liked. If you look at, say, the difference between this and an earlier book like The Great Minds of Investing, I went big on certain people. There were people like Howard Marks or Joel Greenblatt or Arnold Van Den Berg or Bill Miller or Charlie Munger who I just thought, “These are people whose lives I want to actually penetrate in a very deep way, so I can actually figure out what have they figured out about how to think, how to live, how to stack the odds of a successful life in their favor?”

William Green (00:09:47):
That’s not an accident if you’re looking at the Arnold Van Den Berg story and thinking, “Oh, there’s something more to learn here.” It’s because I was actually looking for guidance. I’m not just trying to figure out how to get rich from studying these investors. I’m actually trying to figure out how can I live better? And then I’m trying to share those lessons with readers, because I’m in a very privileged position that I get to talk to people. If I can say to you, “Here’s what you need to learn from all of probably 20, 30 interviews that I’ve done with Arnold Van Den Berg hearing the lessons, that’s an incredible privilege for me to be able to share those lessons, so that’s what I’m trying to do. It’s very heartening and cheering to hear that it’s resonated with you, because that means I didn’t squander the last four years of my life.

Stig Brodersen (00:10:31):
I definitely don’t think you did, William. I hear this story from so many different people, like over email, over Twitter, whatnot, and especially whenever you go out to Omaha the first week of May for the annual shareholders meeting, so many people found Warren Buffett, because here’s the richest dude, or one of the richest dudes out there, and they came for the secret formula to stock investing but they stayed for advice on life. I’ve heard that story so many times, and I think it’s so true.

William Green (00:11:00):
Absolutely. I’ve been multiple times for the meeting. I would always go and sit with Guy Spier and Mohnish Pabrai, which is a fun experience in its own right. I always remember going one time and hearing Buffett just saying, “Why would I want to buy six or eight homes? At a certain point, it would actually make my life worse rather than better.” And it’s funny, I don’t remember all of the investing advice he gave that year. That’s the thing that I remember. It’s thinking, “Oh, so here’s this fantasy life, this guy who’s made billions and billions of dollars, and yet he’s giving it all away, or pretty much all of it away.”

William Green (00:11:36):
And so yeah, I think it’s those life lessons that are the things that stick. There’s this whole genre within the world of investing of studying worldly wisdom, that I think Munger and Buffett… You know, Munger took the phrase from Ben Graham. I think he talked about worldly wisdom. There’s an inner and an outer of everything, and that’s the inner of investing. The outer is, yeah, I want to get rich and I want to be financially free and independent so I’m answerable to anyone. The inner is, I also want to lead a decent life, an ethical life, and try to be a better person, and I think create more value for other people in life. I think that’s what you get from people like Buffett and Munger and Arnold Van Den Berg and Joel Greenblatt. I think we sense that. We sense that they’re not just out to line their own pockets. You sense that there’s something deeper there, and I think that’s what kept bringing 40,000 people a year to Omaha.

Stig Brodersen (00:12:34):
I think you’re absolutely right. And the thing is, it’s also a good segue to my next question. You mentioned quite a few iconic investors there, and you interviewed all of them. Perhaps one of the most prominent in your book is the late Sir John Templeton. One of the things that you wrote really stood out to me. You said that Templeton didn’t just master the markets, he mastered himself. What did you mean by that?

William Green (00:12:57):
Templeton was a very, very extraordinary person. He’s the most self-disciplined person I think I’ve ever met. I should probably back up and tell you a bit more about why he was so remarkable. Templeton, you could easily argue, was the greatest international or global stock picker of the 20th century. He had this extraordinary 40-year record as a fund manager, an incredible record, and was a total pioneer in international investing. I went to The Bahamas to spend a day with him about 20 years ago, and I thought, “Well, here’s this icon, this wise old man, this pioneer of international investing,” and I was ready to meet the sage. It was sort of my Wizard of Oz moment, going behind the curtain. And what I actually found was quite off-putting, which was that he was this very severe, self-disciplined man. There was something very tough about him, a hard edge to him. It’s hard for me to explain this.

William Green (00:13:54):
I’m not trying to be rude about him, because he was extremely courtly and charming. The first thing he said to me in this lovely southern twang that I won’t impersonate was, “My time is at your discretion. I’ll spend as much time with you as you require.” So he was very generous with me, but at the same time, there was this coldness and coolness and spewiness that I found very off-putting. It took me many years, actually, in sort of wrestling with myself for 20 years, to figure out how close that was to the secret of his success. Really, what I figured out is, he was utterly obsessed with making the most of his time, making the most of his money, making the most of his energy, making the most of his thoughts, his health, his emotions. And so he had this supreme self-discipline, where for example, one person I interviewed said to me that the first time he met Sir John Templeton, Templeton said to him, “Meet me at 4:02 PM. I have another meeting at 4:13.”

William Green (00:14:57):
Likewise, people who he used to work with at Franklin Templeton, his company, said that he used to take these scraps of paper that he would write on, and then he would staple them together. Here you have this multi-billionaire who would insist on riding coach anywhere where he flew. All of his peers were buying their own jets, and he said to me, “I never thought it was wise to waste [inaudible 00:15:19].” And he lives in this exquisite place where Sean Connery and the Aga Khan and people like that, or Prince Rainier of Monaco, had homes. I asked him if he would go yachting and swimming and all of that in this beautiful area, and he said, “No, I don’t think we were born to have pleasure. I think we’re supposed to be useful.” So there was something very severe about him that I think I found off-putting.

William Green (00:15:42):
Partly I think I found it off-putting because I’m so not self-controlled. I think when I saw his self-discipline, it exposed my own inadequacies in some terrible way. But I think if you’re going to be extraordinarily successful, you do need to master that inner game. You do need to figure out how you’re going to control your thoughts, how you’re going to control your emotions, because investing is such an emotional game. Here you have this guy who literally, he said if he had a negative thought, he would drive it and banish it to where it came from. I think in those days I found that extremely off-putting, old, stern self-discipline.

William Green (00:16:22):
But if you think about all of the things that he lived through, he lost his first wife in a motorcycling accident, he suddenly finds himself the widow with three young children to raise. He went through World War II, where he made this historic brilliant contrarian investment. He lived through so much, and to have that kind of internal resilience, that internal self-discipline, that self-mastery, I think is priceless. I’ve been in this 20-year argument with him in my head, where I’ve gradually come around to thinking, “Well, he was totally right and I was totally wrong. I should have focused much more on this inner game.”

Stig Brodersen (00:17:01):
Thank you for sharing that story. I think for us who had studied Sir John Templeton, we knew he wasn’t a tap dancer. He wasn’t tap dancing to work, as we often talk about with Warren Buffett. I think you mentioned this as cold or as serious, he always had this special character. And I don’t mean that necessarily in a negative way, but I feel it’s what made him great, but it was also what probably, for you and also the time in your life whenever you met him, you can correct me if I’m wrong, probably wasn’t as reflective about life as you have been since and what he has been at the age where whenever you met him.

William Green (00:17:40):
I have this section of the book on sources and notes, where I’m telling people, “Go look at this. Go look at this. These are things that have helped me. These are incredible resources.” And some people won’t notice these at all, but there’s something where I actually talk about reading his books in the last couple of years. He wrote these spiritual books on the spiritual laws of life. And I mention in that section on additional resources that as I read this book, I literally blushed and said out loud, “Oh no,” and groaned. The reason was that I actually realized that there was stuff that I’d failed to learn from him that he was trying to teach me 20 years ago. But I was actually just too closed-minded and too biased and too judgmental to hear.

William Green (00:18:24):
One of the great lessons for me from spending time with Templeton has actually been that he was this extraordinarily open-minded and inquisitive person. He was trying to explore things, for example, like can you scientifically prove that prayer works? He would bankroll studies at Harvard, for example, to study scientifically the power of prayer. So here’s a guy who was so open-minded that he’s annoying religious people by questioning whether prayer works, and he’s annoying the scientists by applying science to prayer. And here was I, this 30-year-old upstart who just sort of rolled my eyes at this stuff. I said to him, “Do people regard you as a kook?” Because I was so closed-minded and so judgmental, I wasn’t open to learning from him. I think about him constantly, because it’s a reminder that I need to keep my own mind as open as he kept his, so that my prejudices and biases don’t blind me to what people like him were actually trying to teach me.

Stig Brodersen (00:19:26):
He was a man of faith. He wasn’t trying to ridicule anyone whenever he was doing it. Like you mentioned, he was just so open-minded that he just wanted to test it out. As confident as you were, he’s always doubting himself. He’s famous for saying, I’m probably paraphrasing here, “Even the best investors are wrong one-third of the time.” He just wanted to test everything.

William Green (00:19:49):
He said to me he had made over half a million investing decisions in the course of his investing career. And he said in this very formal way that he spoke that about a third of his decisions were the opposite of wisdom. That’s a really interesting idea, to be as brilliant as him and yet as aware of his own ability to be wrong as he was. One of the great practical implications of that is that you have to hedge against your own fallibility and your own ignorance.

William Green (00:20:18):
I often think about one very practical thing that he said to me, which is he said, “For a regular investor, you really ought to own four or five different funds, and they ought to be in different areas of the market. You should never be arrogant enough to believe that you can pick the one advisor, you can pick the one investor, you can pick the one country.” And I can’t tell you how many times I’ve thought about that over the years. Any time I’m inclined to get carried away and think, “I’m going to bet everything on this one brilliant investor that I’ve met,” I go back and I think about Templeton and I think, “If someone as smart as Templeton, who came first in his class at Yale while also working full time and having to pay his way through college, if someone as smart as him was wrong a third of the time, when he knew so much more than me, why would I have the arrogance to believe that I could pick the one great stock, the one great fund, the one country?”

William Green (00:21:16):
In some ways, the fact that I didn’t particularly warm to him, and the fact that I had this contentious day with him where I felt at certain points that he was whacking me around the head for being wrong about things, actually has been really helpful for me, because it’s forced me to keep wrestling with what he was trying to teach me. It was an uncomfortable experience interviewing him, in some ways, but I think he challenged me to think differently and to be aware of my own blind spots, the fact that I was so judgmental. That simple awareness that he had, which is such total common sense, that you shouldn’t overestimate your own abilities has enormous implications, I think, for all of us as investors.

Stig Brodersen (00:21:59):
William, thank you for sharing your experiences with Templeton. Let’s fast forward 21 years. You spoke to the best investors throughout COVID. And of course, hindsight is always 20/20. Today we talk about how evident it was that the global markets would be supported after the first crash, but as it happened, at least to me and to many of our listeners, it wasn’t clear at all that the market would behave that way. I think if you came from outer space and you were told there was this crazy pandemic killing millions of people, you probably wouldn’t be thinking that the stock market would soar. You would probably think something very different. Knowing that you wrote a lot of your book in 2020 and through the pandemic, do you have a fun story of how it was to speak to the best investors during such a challenging time?

William Green (00:22:49):
It was a huge challenge, actually, adapting for me as an author to what happened with COVID, because I had written and reported much of the book before that. And then there was pressure just to get it to the publisher, get it to the market. I actually kind of insanely decided, no, I’m going to go back and interview all of these key people again and talk to them about how they’re adjusting to this, because this is such a seismic epochal event that I want to see how they react to it, because that really tells you an enormous amount about who they are.

William Green (00:23:22):
I went back and interviewed about 16 of the major characters in the book, particularly about how they were adapting to COVID. And what really fascinated me was that they all reacted in ways that were totally and utterly characteristic of who they were. To give you one example, Mohnish Pabrai, who I know you’ve had on your show multiple times, who’s a very brilliant, not particularly emotional stunning game player. Brilliant, calculating the odds of winning this game of investing. He didn’t get upset about COVID at all. He’s looking at this thinking, “Okay, how do I play this game?” He spent years not investing in the US. He hadn’t had a single stock in the US for a couple of years.

William Green (00:24:01):
And then in the midst of COVID, Seritage Growth Properties, which I have to disclose I actually own, because [inaudible 00:24:07], Seritage Growth Properties was a small operator. You can imagine the absolute worst thing in life you want to own in the midst of the COVID crisis, when all of the retail malls are closing, is a company that owns, whatever it is, 80 malls around the US. The stock just collapses, and Mohnish goes in and buys 13% of Seritage, which has since gone up 120%, something like that since last spring. That was quintessential Mohnish. It’s all a game. Here’s this disruption that provides this extraordinary opportunity.

William Green (00:24:44):
Then I look at someone like Tom Gayner, who hopefully we’ll talk about more later, who’s an extraordinary guy who runs the Markel Corporation, which he really wants to be this iconic corporation that’s a role model to people for how to behave. I asked Tom, “Are you hiding out at home? Are you working from home?” And he was like, “No, because we have all of these employees who are out on the front line, who are exposed. How can I ask them to expose themselves and just be hiding out at home?” So he was going in every day to work. He would wear his mask, and there were only eight or 10 people in headquarters, so they were being very careful, because he’s a very prudent guy. He was really trying to be a role model, which is what he is in life. Like [inaudible 00:25:26], he’s a fantastic human who is a role model. And so that was how he reacted to COVID.

William Green (00:25:32):
And then the third person I’ll mention, who in some ways was the most fascinating of all, was Ed Thorp, who I describe in the book as probably the greatest game player in the history of investing. Ed, who’s now in his mid-80s, is just a total genius, utterly brilliant guy. He’s the guy who figured out how to count cards. He figured out how to beat the market, first at blackjack and then at roulette. He and this partner of his at MIT created the first wearable computer, and he would activate it with the big toe inside his shoe. He could calculate the speed of the roulette wheel, so he could figure out, based on the velocity of the ball and the speed of the roulette wheel, where the ball was more likely to land. He actually even managed to win at roulette. And then he had this hedge fund that didn’t lose money in a single quarter for 20 years.

William Green (00:26:23):
I called Ed Thorp back during COVID and I said, “How have you dealt with this? How do you see this rationally and objectively?” He sort of paused and he said, “Thank you for asking.” And he then launches into this amazing explanation of how he dealt with it. Basically, you have this guy who’s the ultimate game player, the ultimate calculator of odds, and he explained to me how from the very start, when there hadn’t been a single death in the US, not one death reported, he basically calculates the true fatality rate of COVID, based on unreported deaths. He paid particular attention to unreported deaths. He’s getting all of the data from Wuhan, China, and analyzing it.

William Green (00:27:04):
He figures out, before a single death has been reported in the US, that there are going to be 200,000 to 500,000 deaths in the US over the next 12 months. He calls his family together, I think in February of 2020, and he said to them, “This is what’s going to happen. We need to get supplies now. Let’s get masks. Let’s get detergent. Let’s get all of the supplies,” that suddenly a month or so later everyone else realized were important and couldn’t get, because the stores had been cleaned out. And you know what he does? He literally places himself in isolation with his wife and decides no, I’m not going to talk to anybody. I’ll see my kids outside with masks on, but that’s it. And he calculates his own risk of dying of COVID. He’s the only person I’ve ever met who literally has calculated the percentage chances of dying if he contracts COVID.

William Green (00:27:56):
I thought what was really fascinating is, you have the ultimate game player, figuring out the odds, looking at the evidence independently, weighing the evidence, and that this is so typical of the way that he approaches life. He said to me, “When there’s something important in life, you need to check the evidence yourself. You need to think independently.” That was the case with the way that he gambled in casinos, where he said all of the experts said you can’t actually win at blackjack, you can’t beat the casino at blackjack. And he’s like, “I checked to see if that was true.” He figured out that it wasn’t true. He figured out how to count cards. He did the same thing with roulette, by giving himself the extra information, by calculating the velocity of the wheel, so he’s actually able to give himself a tiny edge.

William Green (00:28:40):
And here again with COVID, he’s giving himself an edge. He said, “Look, I’m not going to get scared. There’s no point being scared. That doesn’t help me. But I’m increasing my odds that I’m going to survive.” And I thought that was so emblematic of the way that the best investors think. They’re always trying to put the odds on their side. They’re thinking probabilistically at all times. And one of the single most important lessons I’ve learned from the greatest investors, not least from Ed Thorp, is that you just have to survive catastrophe. You have to avoid catastrophe and stay in the game. And COVID in a way is the ultimate example of that. If you can possibly maximize your chances of staying in the game and just not getting it, or just not getting it badly, or just not dying, that’s pretty important.

William Green (00:29:30):
And so over the last year where I’ve been really, really careful, I think constantly about Ed Thorp. It’s sort of a check for me to be able to think every time I want to run out and do something stupid, I’m like, “Well, how seriously should I take this? Well, here’s what Ed told me.” I think that’s one of the great ways that we can use the best investors, is to think about what’s the rational approach to this? There’s the irrational approach to dealing with COVID, which is yeah, let it rip. Let me just go out without my mask, have as much fun as possible, go to a bar. And then there’s the rational approach, which is Ed Thorp thinking, “Well, I have no comorbidities, but I am 84 and I am vulnerable, and here’s how I need to behave.”

William Green (00:30:12):
I think that ability just to look at the data, look at the numbers, analyze things independently, think for yourself, is so essential in life. And it was really wonderful for me to see that that applies whether you’re trying to win at blackjack, trying to win in the stock market, or trying to survive COVID.

Stig Brodersen (00:30:31):
For audience listening to this, they might be thinking, “I’m not Mohnish Pabrai, I’m not Ed Thorp.” I can testify to that. Speaking of Mohnish, we always bring him on on the first weekend of May whenever there’s the Berkshire Weekend. It’s always prerecorded, but we launch it that weekend, so that will be two weeks from whenever you’re listening to this episode here with William. No disrespect to our mutual good friend Mohnish when I’m saying this, or to any of our other guests, but whenever I’m asked by our audience, “Who’s the smartest guy you’ve talked to?” I often come back to Ed Thorp, which surprises a lot of people, because as much as he was so unique, so successful, for different reasons, also because he’s a very private person, he doesn’t have the need for glamor as some other investors probably have, so a lot of people just don’t even know about him.

Stig Brodersen (00:31:21):
Whenever you talk about how he went to Vegas, and that was the time when the Mob was running the city and all that, people sort of get the wrong impression of him. But he was so much ahead of his time, not just whenever it came to gambling, but like he says himself, then he turned in to options trading, coming up with Black-Scholes before Black-Scholes, and how he made a ton of money on that. He’s just such a fascinating person, and whenever you speak to him, not only does he look 20 years younger than what he is, but he’s one of those people where you sort of just feel like he’s just going on a different level than the rest of us and even some of the great investors that we had on. Some of our listeners might be thinking, “Well, William, I’m reading your book. I’m not Mohnish, I’m not Ed Thorp. They’re just wired differently than what I am.”

Stig Brodersen (00:32:09):
I would say that one of the people who probably seemed a bit more reachable, at least for me and perhaps also for the listeners, were someone like Tom Gayner, which we just had on here some weeks ago. I don’t want this to come off as Tom Gayner’s not super smart. I think everyone who’s speaking with Tom Gayner would say he’s brilliant. I think that one of the things that was really neat about hearing from him was that it sort of came down to habits to some extent. It was about what you could control. It was not necessarily being wired too differently, even though I would argue that someone as smart as Tom might be wired differently. Could you talk to us about how Tom is as a person and how his habits have helped him achieve such an outstanding long-tern track record?

William Green (00:32:56):
I think it’s a very perceptive comment on your part. Tom is highly intelligent, but I think there’s a difference between regular human beings and people like Ed Thorp, Charlie Munger, Bill Miller, Jeff Gundlach, who are all people I’ve interviewed a lot, and they’re all just operating in a different realm. Whatever I try to do, I’m just not going to be as smart as those guys. One of the first rules of investing, I think, is to be self-aware and to know what game you need to play based on your skills, your talent, your knowledge. There are so many things about Tom Gayner that I admire. One of the things I admire most is that he’s what I would call the patron saint of steady progress. He’s not setting out to hit the ball a mile out of the park by betting on one stock or working unbelievably hard for 13 years and then retiring from the business. He’s winning this game over 30, 40, 50, 60 years.

William Green (00:34:02):
So for regular investors like us, who maybe aren’t wired to be superstars, some of the people listening to this podcast are wired to be superstars, and great, go and figure out how to be Mohnish, how to be Bill Miller, and how to be Ed Thorp, I think Tom Gayner is just an extraordinary role model. One of the things that struck me as a beautiful metaphor for how he approaches life is the way that he actually approaches weight control and exercise. He mentioned to me that when he started at Markel managing their investment portfolio at the age of, I think, 28, he weighed about 190 pounds. And gradually, because he sat around just reading about stocks and companies and thinking, his weight just gradually drifted up north of 200 pounds. At a certain point, he said, “I’m going to lose one pound a year for the next 10 years,” which sounds like an absurdly unambitious goal. But it turns out that most people, most men anyway, middle aged men, as I can attest, put on one to two pounds a year.

William Green (00:35:02):
What Tom figured out is, these small incremental improvements add up over time. And if instead of putting on two pounds a year, I lose one pound a year and I do it over 10 years, that’s actually massively powerful. He did the same with running. He starts running five minutes a day. He hates running. Starts running five minutes a day for a week, then does 10 minutes a day for the next week, then 15 minutes a day for the next week and 20 minutes a day for the next week. And what he said to me is, at a certain point you’ve bedded down this habit. You’ve baby stepped your way into this habit. He said to me, “The secret of success, both in investing and life, is just to be a little better than you were the previous day.” It’s that steady dogged persistence that actually over 30 years means that he’s now lighter than he was when he started at 28 at Markel. He told me, “Yeah, today I was 189.6.” So here he was 30 years after he started there, and he’d actually managed to keep his weight down, which is kind of triumphant.

William Green (00:36:05):
What’s interesting is that if you apply the same metaphor for seeing the world to investing, you actually see exactly the same process, that steady compounding growth, in what’s happening with his portfolio at Markel. When I last checked about it probably a year ago on the performance of his investment portfolio within Markel, he’d averaged 12.5% a year for 29 years. The stock market, the S&P 500, had averaged, I think, 11.4%. At that rate, it doesn’t sound extraordinary. So you beat the market by 1.1 percentage points over 29 years. But if you calculate it, that means that $1 million turned into $34 million. That’s really worth pausing and internalizing. 12.5% a year over 29 years turned $1 million into $34 million. Whereas the S&P, I think, you would have made about $25 million. $1 million turns into $25 million. That’s a relatively small margin of outperformance, but it was worth basically $9 million in increased gains. And he’s taking much less risk than most people.

William Green (00:37:13):
And at the same time, Markel’s stock has done much the same. Markel has just gradually, gradually grown through this steady compounding, steady improvement day by day by day. Markel went public in 1986 at a $40 million market cap. Now it’s about $16 billion. The stock has gone up 137-fold since then. What Tom said to me is, “Look, it’s the same process. It’s steady compounding. It’s the avoidance of catastrophe along the way.” For me, this is an incredibly powerful lesson, both for investing and life, that I don’t actually need to be extreme. I don’t need to suddenly start starving myself to lose 20 pounds. I need to cut 300 calories a day or I need to try to use a Peloton bike every day or five times a week or whatever. I think you can basically do 150 minutes of exercise a week, you get 80% or so of all the benefits of exercising. So you don’t have to be extreme.

William Green (00:38:10):
Tom used this beautiful phrase with me, where he said, “I’m radically moderate.” And I actually think there’s a tremendous profundity to this. I talk about it with my kids a lot. I have a 19-year-old daughter and a 22-year-old son, and we often talk about this idea of being directionally correct, which is Tom’s phrase. You’re not trying to be extreme, you’re not trying to hit the ball out of the park, you’re trying to adopt habits that are directionally correct. It applies to exercise, it applies to nutrition, it applies to working hard in your career, it applies to being a continuous learner like Buffett or like Tom Gayner.

William Green (00:38:49):
And what fascinated me with Tom is that here you have this regular human being, highly intelligent, highly disciplined, just with this fanatical commitment to dogged persistent incremental progress. And when you look back 30 years later at what he’s done at Markel, when you look back at the type of person that he’s become, you see the astonishing rewards of that kind of incremental steady progress. And that’s wonderfully inspiring, because actually what it means is that if you and I set out to be just pretty disciplined at continually getting better at whatever we do, at continually learning, that’s hugely powerful over time. I think this idea of success actually being the result of small incremental gains sustained over time is a very difficult one for most people to get, because you don’t see the rewards in the short term. There’s almost a leap of faith. You have to think, “Well, this is probably true. Let me do this 40-year experiment.” I think what’s fascinating with someone like Tom Gayner is that you see, well, the experiment worked.

Stig Brodersen (00:39:57):
And that’s so true. I think for our listeners, we always revert back to wealth. Warren Buffett is famous for saying, “You just have to be slightly better than average, and then just do it for a very, very long time.” We can calculate how that would be. And I think the point that you’re really getting at here is that that’s a principle, compounding anything in life. We don’t have to talk about money. It could be wisdom. It could be health. It could be so many things.

Stig Brodersen (00:40:25):
I really like how you’re phrasing it to your kids whenever you’re talking about being radical modest. We’re not looking to be extreme in any direction. As much as 40 years experiment might sound discouraging to a lot of people, I hope that they hear it and think, “It’s actually the opposite. What should be discouraging is doing something like you have to do this program and then you will lose 80 pounds in 42 weeks.” That’s hard, but like you mentioned, one pound every single year, or every six months or whatever it is, just over a very, very long time, that might be a more encouraging goal to set for ourselves.

William Green (00:41:03):
Here’s another thing that Tom Gayner said to me, that sounds so mundane and trivial, and yet actually is really profound and applies to everything in life. He said to me, unless he’s traveling, which he does quite a lot in normal times, he weighs himself every single day. He said, “The reason I do that is because if I don’t get massively off track, then I’m kind of okay, because it’s really hard to get yourself back on track.” But he said, “If I put on a couple of pounds, then I’ll just work out a little more and I’ll be a little more careful about what I eat.” And he said, “That’s basically how I approach the whole of life, is just try not to get massively off track, because if you can basically remain centered and not have to go back to go the whole time, you’re going to win over the long term.”

William Green (00:41:48):
And if you apply that to investing as well, you just don’t want to have catastrophe. If you get knocked out of the game by losing 70% or 80% or something like that, it’s so difficult to go back to go and recoup those gains. This idea of not trying to be extreme but of trying to have consistent improvement over many years without the catastrophe of, say, as Ed Thorp was saying about COVID, if you survive… Matthew McLennan, also another brilliant investor who manages over $100 million, said to me, “You have to survive the dips.” This idea of just remaining in the game and consistently improving and allowing compounding to do its magnificent work for you is so powerful.

William Green (00:42:35):
I think what I didn’t understand earlier in my life, I felt like well, I have to gamble. I have to be extreme. I have to roll the dice. And maybe for some people when they’re young, that’s the case. If you’re starting out with nothing and you need to get a nest egg, maybe that’s smart. I don’t know. In some cases, if you’re someone like Joel Greenblatt who was brilliant at trading options early on, maybe you can do that, but I think for most of us, just get into investing in stocks and then keep adding, keep learning, keep getting better and let compounding do its work. It’s so powerful, but it sounds so mundane. We resist the simple solution. But in investing, as I joke in the book, it’s not like Olympic diving, where you get extra points for difficulty.

William Green (00:43:21):
My friend Ken Shubin Stein, who’s a very brilliant guy who’s a very successful hedge fund manager, said to me, “Part of the problem is that highly intelligent people seek really complex, sophisticated solutions.” And so you have all of these great investors who did incredibly well at school and were always applauded for solving difficult problems. When it comes to investing, they’re like, well this has to be a really difficult problem. And then you have someone like Buffett saying, “Yeah, I’m just trying to jump over two-inch hurdles or do two-inch putts.” I think there’s deep wisdom to that idea of actually trying to keep it simpler and trying to put these long-term forces like long-term compounding in your favor, without disrupting it through doing anything dramatic.

William Green (00:44:08):
So what Tom Gayner said to me is, “People get themselves in trouble with extremes, so I don’t need to be extreme.” And he said, “Over time, what you find that’s really surprising is that you end up becoming number one-ish,” as he put it to me, “because the competitor field just thins out so much.” The idea of simply trying survive and endure and put this process of long-term compounding to work is so powerful. To me, that’s had a life-changing impact, is to understand how people like Tom Gayner are doing, without disrupting that process.

Stig Brodersen (00:44:40):
I think that’s very profound, William, and something I would encourage all listeners to do, because we also have to be mindful about that there is a survivor bias here in the show, when all we are starring is successful investors. Now, I’m not one of those people, and I’m sure you’re not either, William, knowing you for a long time, you don’t believe in efficient market positives. I’m not just saying that people like Warren Buffett, Mohnish Pabrai, they’re just lucky. That’s not what I’m saying at all. What I’m saying is that if we look at people with a lot of wealth, by definition, they have to be concentrated, because if they’re concentrated, that’s just the fast path to rags and to riches.

Stig Brodersen (00:45:16):
So I think it’s very important that as we study these people that we just make sure to account for that, which is why I just found it so insightful to hear you describing talking to Tom Gayner about how he’s doing it, because like Mohnish, he likes to quote Nick Sleep. If we’re lucky, we get to talk about both Mohnish and Nick Sleep later here today, but he’s saying that Nick Sleep has this thing about the greatest investor is the entrepreneur who doesn’t sell, which I actually love that quote. But more than anything then, there is a survivor bias. Mark Zuckerberg looks like a genius, because he was the one. He was smart, but there was probably also an element of luck there. And because he didn’t sell, he made a lot of money. You don’t hear about all the people who weren’t Mark Zuckerberg, but perhaps were as smart as him. I just think that’s an important thing just to keep in mind.

William Green (00:46:07):
Guy Spier mentioned the other day, he was on the phone, he said that he knows someone, I think this is a fan of his, who is very wealthy. He’s a personal hedge fund manager. He basically bet everything on one stock, and it went to hell, and everything went against him. And he’s like, “Yeah, he runs a bar now.” He’s like, “It’s a really nice bar, but he runs a bar.” I think you want to remember when you’re reading about all these great investors, you want to remember yeah, but who are the one who overreached? Who are the ones who messed up?

William Green (00:46:36):
I think one of the things, when you talk about concentration, which is such an important concept, because as Templeton said to me, “You have to diverge from the market in order to beat the market,” so concentration is one of the great ways to do it. But then you look at someone like Tom Gayner as a radical moderate, Tom has much of his money, probably two-thirds of his money in the portfolio, in the top 20 holdings, which is relatively concentrated. But he actually owns 100 stocks or thereabouts, which is relatively diversified, and he’s unapologetic about that. It’s a sort of golden mean, as Aristotle would say. It’s somewhere between both extremes. It’s courageous and cowardly.

William Green (00:47:15):
I think there’s a really interesting dynamic tension there, between having the courage to concentrate, which maximizes your chances of winning the game, and having the awareness of your own limitations that leads you to diversify. As with most things in life, both of those things are true, even though they’re the opposite. It was F. Scott Fitzgerald, I think, said that a sign of intelligence is to be able to hold two contradictory ideas in your mind at the same time. I think what someone like Tom Gayner is able to do, because he’s a very reasonable, sensible, and measured human being, is to hold these two opposites in his mind, concentration and diversification. He invested in things like Amazon, Google, and Facebook, but he didn’t invest that much, because he wasn’t certain how he could value them. He wasn’t certain if they would cheapen up.

William Green (00:48:14):
So he was exposed to that sector of the market, but he didn’t go crazy. He dollar cost averaged his way in. I think he’s an extraordinarily good model for us, unless we happen to have the super skills of a Bill Miller or a Charlie Munger. Charlie Munger says, “Yeah, you can have a well-diversified portfolio with three or four stocks.” He can, but I can’t, because I’m not Charlie Munger.

Stig Brodersen (00:48:39):
Right. I think that’s such a good point. As you may remember, Buffett and Munger were asked about placing big bets, and Buffett said, “Any reasonable investor should invest up to 70% in one.” And then Munger tried for that and said, “Well, back in my early days, I was more than 100% in a real estate project.” That was including leverage. It was back in the old days in California, whenever he was developing properties out there. But whenever I listened to that, I was a bit taken back and was a bit discouraged. But then I came back to what you were saying before here, William, where you said that’s probably a true statement if you are Charlie Munger and if you are Warren Buffett. But for the rest of us, probably don’t put 70% in the same stock in your portfolio. It’s just very important to think about that.

Stig Brodersen (00:49:27):
Whenever you go into that aroma, whatever you’re doing and you’re checking out those quote-unquote super masters, it’s just very evident to see different approaches. And someone like Tom Gayner, as much as you were talking about that’s being diversified, and I think it is to many people, we also have a bunch of people who only invest in index funds. And for them, it might seem concentrated. And then we have the die hard value investors, and they take Mohnish Pabrai’s, a page from his book, and saying you only place 10% bets. For him, that’s a small bet, because it used to be much more, but because of Horsehead Holdings, a few other things that he admitted was just plain mistakes, he’s now, “I’m humble. I don’t want to bet too big. I’m just doing 10% per position now,” which probably sounds ludicrous.

William Green (00:50:15):
That may be at cost that it’s 10%, but if something is a big winner, he allows it to get enormous. I have huge admiration for Mohnish. He’s brilliant. And if I were Mohnish, I might take those risks. But as I point out in the book, Guy Spier owns a lot of the same stocks with Mohnish, because they talk a lot about these things. But Guy said to me, “Look, I don’t have balls of steel like Mohnish, and so I really have to invest in a way that’s comfortable for me.” I’ve invested in Guy’s fund, Aquamarine, for more than 20 years, and one of the reasons is that his temperament is closer to mine. He’s a little bit more fearful, well, a lot more fearful than Mohnish. And I’m slightly fearful as well. I want to survive, and I feel like Guy is likely to survive, because he’s very conservative.

William Green (00:51:06):
I’m not saying this as an advertisement for Guy, although he’s a close friend of mine. I think the real point is, you have to know yourself. You have to be not self-deluded about your ability to handle pain, stress, and volatility. One of the most important rules in investing is just to invest in a way that suits your own temperament, so that when things go wrong and the market is collapsing, you’re not going to do anything super irrational that’s going to knock you out of the game. And likewise when things are getting heady and everything’s surging, you need to know that you’re still going to keep your wits about you.

William Green (00:51:46):
I don’t know. I once sat in on a class, audited a class at Columbia Business School that my friend Ken Shubin Stein was teaching on advanced investment research, and he used to get these incredible investors to come in. One of them was a very well-known investor who was talking, not to be quoted publicly, so I won’t name him, but he invested in a fund. He said, “One of the reasons why I do that is that I’m hedging against myself.” I thought it was such a wonderful insight, that here you have this brilliant guy who’s got an incredible record. He was managing a family office at that point. And yet he was hedging against himself. He had this awareness of his own fallibility that made him just have this insurance policy.

William Green (00:52:25):
I think for all of us, that kind of self-awareness about our own fallibility, our ability to be wrong, our ability to overreach. Howard Marks said to me, “Look, I’m inclined to be a little bit of a chicken. I’m kind of fearful. And so during the Financial Crisis, I had to remind myself that my investors are paying for me to be prudent, but they’re not paying for me to be a chicken.” He invested, I think he said to me, over 15 weeks he and his partner, Bruce Karsh, invested $500 or $600 million a week while the market was collapsing, which doesn’t sound like a very fearful human being at work. But he was aware that his filter is to see the world through a slightly cautious, slightly nervous perspective. He has to compensate for it.

Stig Brodersen (00:53:09):
I think it’s insightful whenever you’re talking about hedging against yourself. We study a lot of different things here on the show, and we also study biases, and I can’t help but mention that there are some people who have a hard time realizing that they’re wrong. It’s typically men. It’s typically the better educated they are, the harder they have acknowledging they make a mistake. And it’s also the more money that they make. So they’re differing characteristics. You can just tell by something like Long-Term Capital Management that bankrupt in 1998, why they blew up, because if you have these characteristics, and the financial world is filled with high-educated men making a lot of money and not being able to hedge against themself, because they are quote-unquote always right. And they don’t know whenever they’re wrong.

Stig Brodersen (00:53:54):
Which again takes me back to this survivor bias that we have, studying these fantastic investors. Yes, they have been very concentrated and yes, it seems like a concentrated strategy is the right strategy for them, or perhaps there were an element of luck. It sort of takes me to the next question that I had about Jean-Marie Eveillard. This is a guy that we haven’t talked too much about here on the show. What you describe in your book is something that happened in the late 1990s. Let me just set the scene. Eveillard, like many other value investors, performed poorly in that time period. This was a time whenever the dot com bubble was building. It was a very troubling time for him, not just professionally but also personally. Perhaps many value investors feel the same way today. What happened, William?

William Green (00:54:42):
Jean-Marie Eveillard is this French-born value investor that many of our middle aged and older listeners will remember well. Jean-Marie had extraordinary returns for about 18 years, and he built this tiny fund from, I think, something like $15 million to he had about $6 billion in assets. And then he has these three terrible years in the late ’90s, so from about 1997 to 2000. Terrible years of under-performance while the dot com bubble was heating up and everyone was investing in these crazy telecom and internet stocks that were just sort of soaring. A company would go public and would go up 600% on the first day of the IPO. And here you have Jean-Marie as this guy who literally described himself when he first read Ben Graham’s book, he said, “I was illuminated by Ben Graham.” And he compared it to actually this religious conversion of a French writer, Bordeaux, who stood in Notre Dame Cathedral and found God.

William Green (00:55:43):
Here was Jean-Marie, found his financial god in Ben Graham and decided no, I’m going to invest with Graham’s principles of always wanting a margin of safety, always wanting to buy things at a 30, 40, 50% discount to their net asset value. I’m not going to get caught up in fads. And this served him brilliantly for 18 years. Suddenly in this crazy market, which I guess we’ve seen a little bit lately, he looked so hopelessly fossilized, so hopelessly wrong. He had this wonderful quote. He said to me, “After one year, your shareholders are upset. After two years of under-performance, they’re furious. And after three years, they’re gone,” which is exactly what happened to him.

William Green (00:56:23):
His $6 billion in assets suddenly goes down to something like $2 billion, and you can imagine, all of the people on the business side of his company, which in those days was owned by Société Générale, this big French bank, they were saying, “Well, what are you thinking? Why aren’t you buying any of these tech and internet stocks? How come you don’t see what everybody else can see, which is that it’s this new era and this new paradigm?” He said, “I look at myself and say, ‘Why don’t I see it? Why can’t I see what they’re seeing?'” He told me this extraordinary story where he said one of the executives of Société Générale, he heard had described Jean-Marie as half senile. Jean-Marie, I think, was 58 or 59 at the time.

William Green (00:57:03):
He went home and he said to his wife, who’s this sort of tough-minded investment banker, he said, “They said I was half senile.” And he said, “She looked up with one eye over the newspaper and said, ‘Only half?'” Tremendous pressure internally within the company. The board started to say, “Why aren’t you doing this?” The shareholders started to bail out. I think what’s really interesting to me is that there are these internal and external pressures that make you do stupid things that are the enemies of resilience.

William Green (00:57:35):
So many people at that time were saying, “Well, everybody else is seeing this. Everybody else is making so much money. Let me just do this. Let me roll the dice.” And then you had someone like Jean-Marie Eveillard. He was so stubborn, so indomitable, that he simply said, “I’m not owning any of this stuff.” It was exactly what he had done in Japan in the late ’80s, when I think by about 1989 the Japanese stock market was so overvalued, it actually had a bigger market cap than the US and UK markets combined. He, in about 1988, I think, didn’t own a single Japanese stock, which for an international investor at a time in the middle of this time where everyone owned Japan was unbelievably stubborn, unbelievably independent-minded.

William Green (00:58:20):
He almost lost control of his fund to Société Générale during the tech bubble, and they ended up basically… It’s a big French bank. They didn’t want to do anything too tactless and too mean. He said to me, “Usually when you fail, they would just sort of put you in a little office on your own so you wouldn’t make any trouble.” And so they found this tactful way to get rid of him. They sold his investment fund to another company called Arnhold S. Bleichroeder, an absolute pittance. The timing was just sort of comically awful. I think the deal went through in about January 2000, then in March 2000, the bubble burst. So you had things like Cisco, which had gone from, say, 100 billion market cap to a 500 billion market cap in less than 500 days, suddenly lose 80 or so percent of its value very, very quickly.

William Green (00:59:10):
All of those heroes who’d been recklessly investing in the tech bubble were just washed out, and then Jean-Marie wins Morningstar’s Manager of the Year Award, because suddenly he starts to outperform massively over the next three to four years, and a couple years later wins the inaugural lifetime achievement from Morningstar, for having gone against consensus, as they put it, and exercised tremendous prudence on behalf of his shareholders. The assets, which had come down from $6 billion to $2 billion in his fund, ended up actually soaring to over $100 billion.

William Green (00:59:43):
So for me, Eveillard’s story is a fantastic morality play about all of the forces that conspire to destroy resilience. And it’s very easy to look back at a great record of a great investor, and it was almost inevitable. I thought what was fascinating about going back and seeing how he dealt with this hellish period was that you could see just how easily it could have got away from him. He really thought he might be fired in 1999, might lose control. He might not stay in the game. I think one of the morals for regular investors like us is that we do have one tremendous advantage, which is that we don’t have shareholders who can yank their money at any point. I think that’s one of the tremendous advantages that Berkshire Hathaway has, is that it has permanent capital, and so Buffett and Munger are able to make really smart long-term decisions in the midst of a bubble or in the midst of a crisis, without actually worrying about their board members or their shareholders or anyone else complaining.

William Green (01:00:47):
Everyone complains. For at least the last 25 years, everyone always says Buffett has lost his touch, and he just keeps plugging away doing the right thing, being smart. I think that ability to structure your life and your investments so that you have control, so that you’re not going to get washed out or forced to do something stupid at the worst possible moment, is incredibly important. Things like just, as Buffett would say, never being dependent upon the kindness of strangers. Just having enough money in cash and not so much leverage that you will get forced out of the game at the wrong point is really key, and Eveillard talked to me about, in some ways, how jealous he was of Buffett.

Stig Brodersen (01:01:29):
I wanted to talk about Joel Greenblatt and Nick Sleep. Besides being great investors, they also have in common that they have returned their investors’ money, something that they, by the way, have in common with Warren Buffett. But it’s something that most asset managers would hardly ever consider. I always find it fascinating that asset managers make that decision, since they’re basically saying goodbye to a lot of money that they could pocket themselves. This wasn’t necessarily the case for Joel Greenblatt and Nick Sleep, but traditionally in the States, two-thirds of the revenue that they’re generating for their funds, the asset managers that is, that comes from fees. That doesn’t come from performance. It’s looking to become more and more prevalent that it comes almost entirely from fees, especially given the interest rate environment that we’re in.

Stig Brodersen (01:02:13):
But staying here on topic, one of the things I also find fascinating is that, why do these asset managers want to take on that stress in the first place? We have to consider that many successful asset managers are typically financially independent, and they don’t need to manage money to sustain their lifestyle. So could you please talk to us about the considerations that people like Joel Greenblatt and Nick Sleep are having whenever they make the decision to either opt in or opt out of the game of asset management for clients?

William Green (01:02:44):
Joel Greenblatt is a remarkable example of a hugely successful investor who kept his ego under control, and as a result was able to do things that maybe some very successful money managers weren’t able to do. Just to introduce Joel, I’ve interviewed several times, and the most memorable in a way was going out to his house in the Hamptons and seeing this exquisite view of the ocean. He’s got this beautiful lawn there, with a basketball hoop and a pool and surfboards. He’s there looking really healthy, just on the brink of his 60th birthday, suntanned, relaxed with his sleeves rolled up, and he’s wearing these beautiful leather loafers with bare feet. I just thought all of these aspiring plutocrats on Wall Street are sweating it out in skyscrapers down on Wall Street, and here’s Joel, who’s just won the game and is just quietly here sitting with his beautiful furniture outside, overlooking the ocean.

William Green (01:03:38):
I describe Joel as a giant among giants, and also he’s charming, and he’s likable, and he’s a great writer, and he has five kids and a couple of dogs. He’s an image of success for me in many ways. Joel had this spectacular record at Gotham Capital, where basically over 20 years he averaged 40% a year, I think, after expenses but before fees. The miracle of compounding is such that that actually means you’re turning $1 million into $836 million, which is quite a feat. There’s no doubt that Joel is one of the giants of the field.

William Green (01:04:14):
What’s interesting is that after about five years, he returned half of the investors’ money, and after 10 years, he and at that point his partner Robert Goldstein, who came on a little after, returned the rest of the money. From that point on, they were just answerable to nobody. Not vulnerable to the whims of shareholders, as we discussed with Jean-Marie Eveillard. They just could do whatever they thought was right. And I think that gave him tremendous freedom. So when I said to him, “Can you explain to me how you were possibly able to pull this off and have such an enormously successful run over those 20 years?” he said, “Well, the first thing is, we remained small.”

William Green (01:04:53):
I think one of the things that this enabled him to do, I think in his peak, when he returned that money, he only had about $300 million in assets. He said to me, “Look, we could have basically any amount that we wanted.” They could have had a multi-billion dollar fund, which would have given him enormous fees. But he wasn’t really drawn to maximizing his own wealth. He said to me, “You know, money is fine. I have nothing against having money. Happy to be rich.” But he said, “It’s not really what ultimately motivates me. What motivates me is solving problems.” And so I regard him as a code breaker, who is really interested in the game of investing. It was an intellectual pursuit, it wasn’t about becoming as rich as possible. He figured out, well, I’m much more likely to win this game if I remain small and nimble than if I have a big bloated fund that’s hard to maneuver.

William Green (01:05:47):
For example, in 1993, there was this investment that he made that he described as the ultimate investment, the perfect investment, where it was a spinoff where Marriott Hotels was splitting up and they’d spun off Host Marriott in about 1993. Everybody hated Host Marriott. It was full of toxic properties. It just looked awful. He analyzed it, and he realized this, that it’s just the most unbelievable mispriced gamble and that nobody’s going to look at it, because it’s so small that most institutional investors couldn’t bet on it. And it was so toxic that nobody is going to want to have it in their portfolio and have people say, “Really? You invested in that?”

William Green (01:06:30):
And because he’s independent, answerable to no one, only managing his money and his family’s money and his partner Robert Goldstein’s money, he can do whatever the hell he wants. So he actually invested 40% of his assets in this tiny little toxic spinoff that everyone hates, because basically he said to me, “Well look, it was trading at $4 a share, and I can see that it has $6 a share of assets that are totally unencumbered by debt. And then they had this subsidiary that had lots of debt and might be worth nothing, but might actually be worth an enormous amount, and I’m getting that for free.” And so he said, “Because I couldn’t lose money, that’s why I was prepared to bet so much.” He said, “I’m not betting an enormous amount because I can make enormous gains, I’m betting an enormous amount because I can’t lose.” And so he said, “If you’re not going to lose, basically all of the other options are good.”

William Green (01:07:21):
If you think about the boldness of that move, putting 40% in a single stock, which I think tripled over the next few months, that’s something that you could never do if you were investing outsiders’ money. And he said that he had much of his money usually in six to eight positions. He would usually have about 80% of his fund’s assets in six to eight positions. And so he said, “You would have times where you’d lose 20 or 30% of the value of your portfolio in a matter of days every two or three years.” So he said, “But the average investor, they simple can’t handle that level of volatility.” But he said for him, that’s just fine. He can handle that volatility, because he knows what he owns. He understands why it’s cheap, why it’s undervalued.

William Green (01:08:05):
So I think for someone like Joel Greenblatt, the fact that he returned all of that money meant that he could remain small, make these very aggressive bets, meant that he could handle volatility without anyone questioning him, and it meant that he was simply answerable to nobody, which seems to me almost the ultimate luxury for a lot of these investors. It always confuses me, in a way, why people who are already rich, or enormously rich in some of these cases, want to give up their freedom and be answerable to board members and shareholders and have them all questioning them and criticizing them.

William Green (01:08:43):
It seems to me that the ultimate luxury is to be able to say, “No, no, no. This is how I play this game, and I’m just going to do it, and I don’t need to maximize assets. I’m just going to win the game and crack the code.” I think that’s something that Joel Greenblatt, Pabrai, Sleep, they all have in common, that they’re these brilliant game players, these brilliant code breakers. They’re not managing their money to maximize fees and maximize the amount of assets under management in some way that will feed their ego. They all have ego, and they’re perfectly happy to be recognized as geniuses, perfectly happy to have people throw billions of dollars at them, and perfectly happy to make more money for themselves off fees, but it’s not the ultimate goal of the game for them. So I think having your ego under control in that way and understanding that size of assets is a huge anchor, I think that’s very important.

Stig Brodersen (01:09:39):
It’s also about how you play the game. You mentioned Mohnish. He’s very adamant about he has structured his fund. He doesn’t want to speak to masters, other than one day a year. He’s very upfront with that. He doesn’t want to answer to anyone. I also think that’s important thing to say whenever you are talking about this. Managing money can be extremely stressful. Perhaps not this time around, and perhaps we could actually transition into the story with Ben Miller and what happened during the Great Recession with him. You can destruct yourself many different ways whenever you’re managing money. Like you were saying, William, it is sort of puzzling that you would have people worth hundreds of millions of dollars, even billions of dollars, and they are sort of living through that stress, even though they could opt out of that, which always puzzled me.

Stig Brodersen (01:10:27):
And I think one of the reasons why they’re doing it might be that they’re just so competitive, and they just so much enjoy the game of compounding wealth, not because it’s wealth, because it’s a number, it’s fund growing numbers, that even though you could say, “Just stop. You’re destroying yourself with that,” they’re just committed to that. That’s just been their habit now. But William, you’ve interviewed Bill and spoke to him so many times and know him so well. What did Bill Miller go through during the Great Recession?

William Green (01:10:59):
I once worked out that I think I’ve interviewed Bill somewhere between 80 and 100 hours over the years, because maybe about 20 years ago, I did maybe a eight, nine-page profile of Bill for Fortune, when he was first investing in Amazon and everybody thought he was a moron for doing that, that it was just going to go bankrupt any day. I’ve been in a 20-year conversation with Bill. One of the benefits of that is there’s a tremendous amount of trust that you build up over a long time. When the Financial Crisis happened and he just got eviscerated, I was able to go visit him in Baltimore and ask him pretty personal questions about what it was like. Bill, to his great credit, was unbelievably candid about what it was like emotionally, intellectually, in every sense.

William Green (01:11:50):
As one of the great contrarian investors, Bill had always benefited by utterly unemotional when other people were panicking. His default position had always been to buy whatever was most hated. He just assumed that the crowd was wrong and that they would, based on behavioral finance, that we know that people overreact to bad news very often. So when I first was interviewing him back in about 2000, I remember he had invested something like $50 million in a company called AES. I was with him at his alma mater. We’d flown in on his private plane, which he had because he 110-pound wolfhound that he liked to fly, although it wasn’t on that trip.

William Green (01:12:31):
I remember standing with him at his alma mater. He calls his office in Baltimore and says, “What news?” And they said, “Well, AES has collapsed. They just missed their earnings estimates.” Maybe he’d bet $100 million and he’d lost $50 million before lunchtime, I figured out. And he just immediately said to them, “Double the bet. Double the bet.” And he said, “I’m going to figure out later what’s going on, but my default position is to double the bet, because people are overreacting to it, and this could be the thing that leads to my tremendous outperformance.” He’d had this habit again and again that could work.

William Green (01:13:04):
And then the Financial Crisis comes along, and he does kind of the same thing. All of these toxic stocks that are melting down, like Merrill Lynch, Countrywide Financial, all of the things you least wanted to own, he’s learned the lesson from his past. He’s like, “Well, these are dead. Everyone hates them. People have overreacted. The Fed is going to come in, and it’s going to save the day. And these companies that are most beaten up are actually going to rebound the most.” So he just loads up on all of these stocks, and it turns out that this isn’t a normal situation. He said to me that basically he underestimated his ability to be catastrophically wrong. He said he’d made plenty of mistakes over the years, but he’d been right so many times that he said at a certain point, it starts to seep in. Everyone’s always telling you how brilliant you are. He pulled off this unimaginable feat of beating the market for 15 years consecutively.

William Green (01:13:55):
And he is truly brilliant, and I think he had started to believe in his own brilliance, even though intellectually he knew that he was vulnerable and he could fail. I think probably there’s an element of hubris there. So then when the market tanked, when it really blew up, his smaller fund lost about 65%, I think, in a year, but his bigger fund lost about 55%. Much the same as happened with Jean-Marie Eveillard, people just pulled out at the worst possible moment. So you had all of these people panicking, these assets going down from something like $77 billion to, I think, $800 million. What Bill said to me was the worst thing was that basically about 100 got laid off from his company, Legg Mason, “because of my screw-up.” He’s like, “I screwed up, and 100 people lost their jobs.” That just tormented. He said to me, “Look, I’m the son of a taxi driver. I grew up with nothing. To go to McDonald’s on your birthday was an incredible treat.” And so he said, “I don’t really mind losing my money, but to lose shareholders’ money and have people lose their jobs because of me was just the torment.”

William Green (01:15:04):
He was very candid. He said, “Look, I’ve put on 40 pounds here.” He said, “I know I should eating salmon and broccoli and drinking Perrier.” But he’s like, “No, when I’m under stress, I’m going to eat Chinese food takeout, and I’m going to drink wine.” And he’s like, “A person can only take so much pain.” He’s like, “I’m certainly not going to eat salmon and broccoli.” So I think it had an enormous toll on him. And this thing that I admire tremendously among many things about Bill, I used to admire tremendously the fact that he just has this exquisite mind. There’s nobody more intellectually thrilling to interview than Bill, because he just has this beautiful mind. He collects ideas, and his mind, it’s just absolutely brilliant. And so I always admired him for that, really from the time I was about 30, when I first interviewed him.

William Green (01:15:54):
And what I came to admire about him more and more was actually just the tremendous indomitability and honor and candor that he showed during the Financial Crisis, where everything fell apart. He was publicly shamed. He was publicly ridiculed. People were saying what a moron he was for overreaching. He handled it with such aplomb and such good grace and such candor about it, making his mistakes and learning from his mistakes. He said to me at one point, this isn’t in the book, he read to me or remembered some message that someone had posted, where they called him an asshat. They said, “That asshat Miller screwed up again,” or something posh. So this sort of vitriol that he encountered online with people saying what an asshat he was and how stupid he was, he said, “That’s really hard, the people saying how stupid you are.”

William Green (01:16:46):
But he said he was always obsessed with stoic philosophy, and we talked about how during the Financial Crisis he read Epictetus and Seneca and he went back to Vice Admiral Stockdale’s book, Thoughts of a Philosophical Fighter Pilot. He really applied these philosophical teachings of stoicism, where he basically said, “I’m not in control of how people think about me or what they say about me or what my status is.” He said, “I’m in control of my own behavior, trying to behave virtuously, trying to be candid about my mistakes, trying to learn from them, and trying to get back my shareholders’ money as much as I can.”

William Green (01:17:20):
Part of the tragedy is that a lot of those shareholders, they bailed on him at exactly the wrong time. What’s extraordinary is that, kind of predictably, over the next decade he had this stunning recovery and ended up being in the top 1% of all fund managers, because he is brilliant. He said to me, “Look, when I was trying to figure out how to recover from that period,” he said, “I think I know the difference between expensive stocks and cheap stocks, and I think I’ve proven over the last 20 years that I can find inexpensive stocks.” And so he’s like, “If I just keep plugging away, it’s going to work out.”

William Green (01:17:55):
For me, there’s a great honor in the way that Bill handled the crisis and bounced back. It had a profound effect on me, because I think as I… We always have this fantasy that well, if we become hugely rich or hugely successful or hugely famous, we’re going to be really happy, and then everything will work out. And when you look at someone like Bill or any of these investors, you realize they’ve all [inaudible 01:18:19] at some point. They’ve all been through hell. As I write in the book, one of the great lessons from Bill is there is tremendous honor in persistence, in just the simple virtue of persistence, of saying, “Yeah, I screwed up. Yeah, I got knocked on my ass. And I’m going to get up, dust myself off, and try despite the public shaming to do what I do to make good to the people who’ve been hurt.”

William Green (01:18:43):
I said to him, “Do you feel like you vindicated yourself, you’ve shown everyone?” And he said, “No, actually, the pain and suffering from that period hasn’t faded. I still feel it in a very raw way.” But he said, “I’m really happy that most of those, almost all of those 100 people who lost their jobs found new jobs quickly and we helped them find new jobs. Most of them bounced back really well.” And he said, “I’m really happy that I didn’t hide like a turtle under my shell after I’d been so badly beaten up by the stock market in ’05.” And in fact, what he did is, he quietly was selling his yacht and putting the money into newly busted stocks, and he made this enormous turbocharged bet on Amazon, buying options at exactly the point when everyone else was bailing out.

William Green (01:19:29):
So actually, that period that seemed like a total humiliation and public shaming turned out to be the basis for his tremendous success over the last decade. Sorry this is a long-winded story. There are tremendous lessons in Bill Miller’s recovery from that period in the way that he handled adversity, learned from it. I had tremendous pleasure when I went to interview him. I went to his house and to his office, and I got the sense of oh yeah, Bill has actually got to this point where he’s living truly in alignment with who he is. He owns his own investment firm. He’s working with his son and with close friends. He has the same personal assistant that he had at Legg Mason 20-something years ago when I first interviewed him. He’s got these loyal people that he trusts working with him. He doesn’t have a board checking on him and questioning him. He said to me, he was invited to give a keynote speech somewhere, and he said, “Well, I would have to wear a tuxedo,” and he said, “I told them, no, I’ve thrown away my tuxedo and I’m never buying another one.”

William Green (01:20:31):
I found it quite moving, having seen Bill over 20 years, to see this kind of victory where he’s living in alignment with himself, unconstrained, able to invest the way he does, think the way he does, wear jeans and a black T-shirt to work every day, in total control over his time. And I said this to him, and he’s like, “Oh yeah, that’s the best.” I think this is the goal for most of us in life. It’s to live in a way that will be in alignment with who you are, however peculiar you are. You want to live in a way that’s deeply in alignment with your inner self.

William Green (01:21:04):
And I think there was something quite touching about seeing this arc in Bill’s career from the giant who was beating the market 15 years in a row, which is when I first interviewed him, to the humiliation of the Financial Crisis, and then to this incredible last act at the age of 70 to have actually realigned everything so that he’s in control of his investing life, his time, his shareholders. Now he manages about $2.5 billion, I think. It’s not $77 billion as it was at his peak. And he has no interest in building an army of analysts, gathering as many assets. He’s truly who he is, and that’s kind of wonderful and inspiring.

Stig Brodersen (01:21:44):
William, what a wonderful note to end this interview on. As everyone out there listening to this can probably tell, I love this book. I love Richer, Wiser, Happier. I can only encourage you not only to pick it up, but also to pick it up for friends and family. William, where should people go and pick up your book?

William Green (01:22:04):
Thank you so much. The book is called Richer, Wiser, Happier, and the subtitle is How the World’s Greatest Investors Win in Markets and Life. You can find it anywhere. You can find it on Amazon, at your independent bookstore. You can come to my website, which is williamgreenwrites.com, which in the spirit of Mohnish Pabrai, I cloned from Michael Lewis, because I saw that Michael Lewis’s website is called michaellewiswrites.com, and I thought, “Well, he’s great. I’ll just rip off what he’s done.” And you can follow me on LinkedIn. You can follow me on Twitter, where it’s @williamgreen72 is my name, I believe.

William Green (01:22:37):
I’m going to be teaching a course called richerhappierwiser.com, I think is the landing site. It’s based on the book, so if you pre-order the book, I think you get into this course for free. It’ll be three sessions about an hour and a quarter, hour and a half each, talking about these different aspects of how to become richer, how to become wiser, how to become happier. And write to me, tell me what you make of the book, what had an impact on you, who I should interview in future that had an impact on you, who you think are the greatest investors that I’ve missed. Some of them I will have asked that they give me interviews, and they simply didn’t give them to me, and some of whom are people I don’t know about who are extraordinary. But yeah, I hope you enjoy the book.

Stig Brodersen (01:23:17):
I’m sure everyone will, and I know I’ve been selling your book hard, and with good reason. It is truly a wonderful book that you’ve written, and I do promise our listeners, it won’t be another six years before we bring you back. I hope I can convince you to come back later this year, William.

William Green (01:23:32):
I would love to. It’s such a pleasure talking to you. You mentioned the other day that you’d read the book three times, even though it hasn’t come out. I think the depth of your understanding of these issues and your preparation, how serious you are about these deep questions of what it takes to be a successful investor, and also to build a successful life, that really shows in your questions and your discussion and the quality of the show. It’s no accident that We Study Billionaires has become such a success. I feel like I got in almost at the beginning about five or six years ago when I last spoke to you, and it’s just been a real pleasure to watch the show go from success to success. It’s not an accident. You guys put in an enormous amount of time preparing for these interviews, and you ask really thoughtful questions, spend so much time over the editing and stuff. It’s kind of like the Tom Gayner lesson. You keep plugging away, doing the right thing, being directionally correct, and it works out. You guys are living proof of this, so congratulations.

Stig Brodersen (01:24:31):
Thank you so much for saying so, William. Speaking of editing, I don’t know if my ego can handle that, because it means so much coming from you, so perhaps I will need to edit some of that, but thank you so much, William, for being so kind, so generous with your compliments, your time, and the wisdom that you are conveying to the listener and to your readers. So thank you so much for making time here today, William.

William Green (01:24:53):
Thank you so much. It’s been delightful.

Stig Brodersen (01:24:55):
All right, guys. As we’re letting William go, just two quick things. The first one is that we have a raffle where you can win William Green’s book, Richer, Wiser, Happier. You just send an email to contact@theinvestorspodcast.com. That’s contact@theinvestorspodcast.com. And you enter by telling us the best story you have for the Berkshire Hathaway annual shareholders meeting. It could be you hanging out with the TIP crew. It could also be an entirely different story that doesn’t include TIP at all, but your best story from the annual shareholders meeting in Omaha.

Stig Brodersen (01:25:25):
And the other thing is, make sure to subscribe to this podcast. You can do that in Apple Podcasts, Spotify, or wherever you’re listening to this. Just search for “We Study Billionaires,” and make sure to subscribe. All right, guys, that was all that I had for you this week. We’ll be back again next week.

Outro (01:25:41):
Thank you for listening to TIP. Make sure to subscribe to Millennial Investing by The Investor’s Podcast Network and learn how to achieve financial independence. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.